<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
VERILINK CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
VERILINK CORPORATION
145 Baytech Drive
San Jose, California 95134
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 22, 1999
The Special Meeting of Stockholders (the "Special Meeting") of Verilink
Corporation (the "Company"), will be held at the Company's corporate offices
located at 145 Baytech Drive in San Jose, California on Tuesday, June 22, 1999,
at 10:00 a.m. Pacific Daylight Time, for the following purposes:
1. To ratify and approve an amendment to the Company's Amended
and Restated 1993 Stock Option Plan to increase the number of shares
reserved for issuance thereunder from 5,050,000 shares to 6,050,000
shares;
2. To transact such other business as may properly come before
the Special Meeting and any adjournment or postponement thereof.
The foregoing matters are described in more detail in the enclosed Proxy
Statement, which is attached and made a part hereof.
The Board of Directors has fixed the close of business on May 10, 1999
as the record date for determining the stockholders entitled to notice of and to
vote at the Special Meeting and any postponement or adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING. IF YOU SEND IN YOUR
PROXY AND THEN DECIDE TO ATTEND THE SPECIAL MEETING TO VOTE YOUR SHARES IN
PERSON, YOU MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors,
/s/ Graham G. Pattison
------------------------------------
Graham G. Pattison
President, Chief Executive Officer
and Director
San Jose, California
May ___, 1999
<PAGE> 3
MAILED TO STOCKHOLDERS ON OR ABOUT MAY ___, 1999
VERILINK CORPORATION
145 Baytech Drive
San Jose, California 95134
----------------------
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Verilink Corporation, a Delaware corporation (the
"Company"), of proxies in the accompanying form for use in voting at a Special
Meeting of Stockholders to be held on Tuesday, June 22, 1999, at 10:00 a.m.
Pacific Daylight Time, at the Company's corporate offices located at 145 Baytech
Drive, San Jose, California and any adjournment or postponement thereof (the
"Special Meeting"). The shares represented by the proxies received, properly
dated and executed, and not revoked will be voted at the Special Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by delivering to the Company
a written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Special Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy materials for the Special Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Special Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.
The close of business on May 10, 1999 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Special Meeting. As of the
close of business on the Record Date, the Company had ________________ shares of
Common Stock outstanding and entitled to vote at the Special Meeting. The
presence at the Special Meeting of a majority, or _________ of these shares of
Common Stock of the Company, either in person or by proxy, will constitute a
quorum for the transaction of business at the Special Meeting. Each outstanding
share of Common Stock on the Record Date is entitled to one (1) vote on all
matters.
1
<PAGE> 4
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy at the Special Meeting, and an employee of the
Company will tabulate votes cast in person at the Special Meeting. Abstentions
and broker non-votes are each included in the determination of the number of
shares present and voting, and each is tabulated separately. However, broker
non-votes are not counted for purposes of determining the number of votes cast
with respect to a particular proposal. In determining whether a proposal has
been approved, abstentions are counted as votes against the proposal and broker
non-votes are not counted as votes for or against the proposal.
PROPOSAL NO. 1
APPROVAL AND RATIFICATION OF AMENDMENT
TO THE COMPANY'S AMENDED AND RESTATED 1993 OPTION PLAN
The Company's stockholders are being asked to act upon a proposal to
approve the action taken by the Board of Directors on April 13, 1999 amending
the Company's Amended and Restated 1993 Stock Option Plan (the "Option Plan") to
increase the number of shares authorized for issuance under the Option Plan by
1,000,000 shares, from 5,050,000 to an aggregate of 6,050,000 shares.
Ratification of the proposal requires the affirmative vote of a majority of the
shares of Common Stock voting on the proposal in person or by proxy.
PROPOSED AMENDMENT
Increase in Available Shares. The Board of Directors believes that the
attraction and retention of high quality personnel are essential to the
Company's continued growth and success and that an incentive plan such as the
Option Plan is necessary for the Company to remain competitive in its
compensation practices. A significant number of shares available for issuance
under the Option Plan were used for option grants in connection with the
Company's acquisition of TXPort, Inc. in November 1998, and in connection with
the employment of the Company's new President and Chief Executive Officer in
April 1999. As of the Record Date, there were remaining approximately
_________________ shares authorized and available for issuance under the Option
Plan. In the absence of an increase in the available shares, after the issuance
of the remaining authorized shares, no additional shares will be available for
future option grants under the Option Plan, except to the extent that shares
become available upon terminations or cancellation of outstanding options. For
these reasons, the Board of Directors has approved an amendment to the Option
Plan to increase the number of shares of Common Stock of the Company available
for issuance thereunder by 1,000,000 shares, from 5,050,000 to an aggregate of
6,050,000 shares.
AMENDED PLAN BENEFITS
As of the date of this Proxy Statement, no non-employee directors
("Outside Directors") and no associates of any director, executive officer or
nominee for director has been granted any options subject to shareholder
approval of the proposed amendment. The benefits to be
2
<PAGE> 5
received pursuant to the Option Plan amendment by the Company's directors,
executive officers and employees are not determinable at this time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPROVAL OF THE AMENDMENT TO THE COMPANY'S OPTION PLAN.
A general description of the principal terms of the Option Plan is set
forth below. Although the Company believes that the following description
provides a fair summary of the material terms of the Option Plan, the
description is qualified in its entirety by the text of the Option Plan,
including the amendment proposed to be approved by the stockholders. Unless
marked otherwise, proxies received will be voted FOR the approval and
ratification of the proposed amendment to the Option Plan.
GENERAL DESCRIPTION OF OPTION PLAN.
The following summary of the Option Plan, including the proposed
amendment, is qualified in its entirety by the specific language of the Option
Plan, a copy of which is available to any stockholder upon request.
The Company's Option Plan was initially approved by the Board of
Directors in March 1993 and initially approved by the stockholders in November
1993. In September 1996 the Board of Directors approved, and in November 1996
the stockholders ratified an amendment to the Option Plan to increase the number
of shares reserved for issuance thereunder by 750,000 shares from 3,300,000 to
4,050,000 shares. In July 1998 the Board of Directors approved, and in November
1998 the stockholders ratified an amendment to the Option Plan to increase the
number of shares reserved for issuance thereunder by 1,000,000 shares from
4,050,000 to 5,050,000 shares. As of May 10, 1999, the number of executive
officers, employees, consultants and directors of the Company and its
subsidiaries that were eligible to receive grants under the Option Plan was
approximately ____ persons. Options to purchase ______________ shares had been
granted under the Option Plan of which options to purchase ___________________
shares were outstanding
The purpose of the Option Plan is to create additional incentives for
the Company's employees (including employees of any subsidiaries of the Company)
and others who perform substantial services to the Company and to promote the
financial success and progress of the Company by providing an opportunity to
purchase shares of the Company's Common Stock pursuant to the exercise of
options granted under the Option Plan. The Company may grant options that
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options.
ISOs may be granted to employees (including officers and directors who are
employees) of the Company, and employees who hold certain outstanding options
issued under the Company's 1983 Stock Option Plan and 1989 Directors Stock
Option Plan (the "Prior Plans"), both of which Prior Plans have been terminated.
Nonqualified stock options may be granted to employees, officers, directors,
independent contractors and consultants of the Company and holders of certain
outstanding options issued under the Prior Plans.
3
<PAGE> 6
In April 1996, the Option Plan was amended to provide for automatic
nonqualified option grants of 30,000 shares ("Automatic Grants") to Directors
who are not officers of the Company ("Non-Employee Directors") upon each
Non-Employee Director's election and re-election to the Board of Directors.
Automatic grants will vest in equal annual amounts over a three-year period
following the date of grant. Non-Employee Directors who are elected between
Special Meetings will receive a ratable Automatic Grant. The exercise price of
options granted to Non-Employee Directors will be the fair market value on the
date of grant. Non-Employee Directors may not receive grants under the Option
Plan other than Automatic Grants.
The Board of Directors or a committee designated by the Board of
Directors is authorized to administer the Option Plan in a manner that complies
with Rule 16b-3 under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Currently, the Option Plan is being administered by the Board
of Directors, which determines which eligible individuals are granted options
and the terms of such options, including the exercise price, number of shares
subject to the option and the vesting and exercisability thereof; provided, the
maximum term of an ISO granted under the Option Plan may not exceed 10 years.
The exercise price of an ISO granted under the Option Plan must equal at
least 100% of the fair market value of the subject stock on the grant date and
the exercise price of all nonqualified stock options must equal at least 85% of
the fair market value of the subject stock on the grant date. With respect to
any participant who owns more than 10% of the combined voting power of all
classes of stock of the Company, the exercise price of any option granted must
equal at least 110% of the fair market value on the grant date and, if the
option granted is an ISO, the maximum term of such ISO may not exceed 5 years.
The aggregate fair market value on the date of grant of the stock for which ISOs
are exercisable for the first time by an employee of the Company or an affiliate
during any calendar year may not exceed $100,000.
Nonqualified stock options and ISOs granted under the Option Plan are
immediately exercisable; however, the shares of Common Stock issued upon
exercise of such options typically vest over four years at the annual rate of
25% of the total shares granted on the anniversary of the grant date, provided
the optionee remains continuously employed by the Company. Upon cessation of
employment for any reason, the Company has the option to repurchase all, but not
some, of any unvested shares of Common Stock issued upon exercise of an option
under the Option Plan, within 60 days following the date of cessation of
employment at a repurchase price equal to the exercise price of such shares.
Nonqualified and incentive stock options granted under the Option Plan
are not transferable other than by will or the laws of descent or distribution,
and each option that has not yet expired is exercisable only by the recipient
during such person's lifetime, or for 12 months thereafter by the person or
persons to whom the option passes by will or the laws of descent or
distribution. The Option Plan may be amended at any time by the Board of
4
<PAGE> 7
Directors, although certain amendments require stockholder approval. The Option
Plan will terminate on March 1, 2003 unless earlier terminated by the Board of
Directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following summarizes only the federal income tax consequences of
stock options granted under the Option Plan. State and local tax consequences
may differ.
The grant of a nonqualified stock option under the Option Plan will not
result in any federal income tax consequences to the optionee or to the Company.
Upon exercise of a nonqualified stock option, the optionee is subject to income
taxes at the rate applicable to ordinary compensation income on the difference
between the option price and the fair market value of the shares on the date of
exercise. This income is subject to withholding for federal income and
employment tax purposes. Subject to the requirements of reasonableness and
satisfaction of any withholding obligation, the Company is entitled to an income
tax deduction in the amount of the income recognized by the optionee. Any gain
or loss on the optionee's subsequent disposition of the shares will receive long
or short-term capital gain or loss treatment depending on whether the shares are
held for more or not more than one year, respectively, following exercise. The
Company does not receive a tax deduction for any such gain. The maximum marginal
rate at which ordinary income is taxed to individuals is currently 39.6% and the
maximum rate at which long-term capital gains are taxed for most types of
property is 20%.
The grant of an incentive stock option ("ISO") under the Option Plan
will not result in any federal income tax consequences to the optionee or to the
Company. An optionee recognizes no federal taxable income upon exercising an ISO
(subject to the alternative minimum tax rules discussed below), and the Company
receives no deduction at the time of exercise. In the event of a disposition of
stock acquired upon exercise of an ISO, the tax consequences depend upon how
long the optionee has held the shares. If the optionee does not dispose of the
shares within two years after the ISO was granted, nor within one year after the
ISO was exercised and shares were purchased, the optionee will recognize a
long-term capital gain (or loss) equal to the difference between the sale price
of the shares and the exercise price. The Company is not entitled to any
deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding
periods, he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price, or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a long-
or short-term capital gain, depending on the holding period. The Company, in the
year of the disqualifying disposition, is entitled to a deduction equal to the
amount of ordinary income recognized by the optionee (subject to the
requirements of reasonableness and perhaps, in the future, the satisfaction of a
withholding obligation).
5
<PAGE> 8
The "spread" under an ISO -- i.e., the difference between the fair
market value of the shares at exercise and the exercise price -- is classified
as an item of adjustment in the year of exercise for purposes of the alternative
minimum tax.
Section 162(m) of the Code contains special rules regarding the federal
income tax deductibility of compensation paid to the Company's Chief Executive
Officer and to each of the other four most highly compensated executive
officers. The general rule is that annual compensation paid to any of these
specified executives will be deductible to the Company only to the extent that
it does not exceed $1 million. However, the Company can preserve the
deductibility of certain compensation in excess of $1 million if it complies
with conditions imposed by Section 162(m) of the Code, including the
establishment of a maximum number of shares which may be granted to any one
employee during a specified time period. The Company has established the maximum
number of shares with respect to which options can be granted. Those limits are
200,000 shares per fiscal year, with a 400,000 share limitation for grants to
new hires.
The Company may withhold, or require a participant to remit to the
Company, an amount sufficient to satisfy any federal, state or local withholding
tax requirements associated with awards under the Option Plan.
6
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of May 10,
1999 by (a) each stockholder known by the Company to be the beneficial owner of
more than five percent of the Company's Common Stock, (b) each director and
nominee for director of the Company, (c) each Named Executive Officer in the
Summary Compensation Table below (see "Executive Compensation") and (d) all
current executive officers, directors and nominees for director who beneficially
own shares, as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) OWNED(2)
------------------------ ------------ ------------
<S> <C> <C>
Leigh S. Belden (3).............................................
Steven C. Taylor (4)............................................
Beltech, Inc.(5)................................................
Oliver Corporation (6)..........................................
Wellington Management Co. (7)...................................
Howard Oringer (8)..............................................
Henry L. Tinker (9).............................................
John C. Batty (10)..............................................
Robert F. Griffith (11).........................................
David L. Lyon (12)..............................................
Graham G. Pattison (13).........................................
John A. McGuire (14)............................................
John E. Major...................................................
All executive officers and directors as a group (15 persons)(15)
</TABLE>
- --------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of May 10, 1999
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of each other
person. To the Company's knowledge, except as set forth in the footnotes
to this table and subject to applicable community property laws, each
person named in the table has sole voting and investment power with
respect to the shares set forth opposite such person's name. Except as
otherwise indicated, the address of each of the persons in this table is
as follows: c/o Verilink Corporation, 145 Baytech Drive, San Jose,
California 95134.
(2) Percentage beneficially owned is based on ____________ shares of Common
Stock outstanding as of May 10, 1999.
(3) Includes (a) 1,322,369 shares owned by Leigh S. Belden, individually, and
by Leigh S. Belden & Deborah Tinker Belden, or their successors, Trustees
U/A Dated 12/09/88; (b) 1,550 shares owned by Baytech
7
<PAGE> 10
Associates, a California general partnership in which Mr. Belden has a 50%
general partner interest; (c) 746,208 shares owned by trusts for minor
children of Mr. Belden; and (d) 1,000,000 shares owned by Beltech
Corporation, a Nevada corporation of which Mr. Belden is a Director and
President and the Leigh S. Belden and Deborah Tinker Belden Trust U/A
Dated 12/09/88 is the sole shareholder. Mr. Belden disclaims beneficial
ownership as to 746,208 of these shares. Also includes options to purchase
____________ shares exercisable within 60 days of May 10, 1999.
(4) Includes (a) 1,290,514 shares owned by Steven C. Taylor, individually, and
by Steven C. Taylor and Suzanne E. Taylor, Trustees of Steven and Suzanne
Taylor Living Trust Agreement Dated June 2, 1988; (b) 1,550 shares owned
by Baytech Associates, a California general partnership interest in which
Mr. Taylor has a 50% general partner interest; (c) 800,000 shares owned by
the Oliver Corporation, a Nevada corporation of which Mr. Taylor is a
Director and President and the Steven and Suzanne Taylor Living Trust
Agreement Dated June 2, 1988 is the sole shareholder.
(5) Beltech, Inc., 940 Southwood Blvd., Suite 201, Incline Village, NV 89452.
(6) Oliver Corporation, 940 Southwood Blvd., Suite 201, Incline Village, NV
89452.
(7) As reported in a Schedule 13G filed by Wellington Management Co., as of
December 31, 1997, includes 777,500 shares as to which Wellington
Management Co. shared voting and sole investment power. Wellington
Management Co., 75 State Street, Boston, MA 02109
(8) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(9) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(10) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(11) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(12) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(13) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(14) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
(15) Includes options to purchase _____________ shares exercisable within 60
days of May 10, 1999.
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<PAGE> 11
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following tables set forth certain information concerning compensation of
and stock options held by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal 1998 of (i) the Chief Executive Officer, and (ii)
the four other most highly compensated executive officers of the Company who
were serving as such at 1998 fiscal year end (collectively, the "Named
Officers"), as well as the total compensation paid to each Named Officer for the
Company's two previous fiscal years, if applicable. Mr. Pattison the Company's
current Chief Executive Officer was not employed by the Company during and
received no compensation during the 1998 fiscal year.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) (1) ($) (2) ($) (3) (#) (4) ($)
-------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden ............. 1998 $245,000 $ -- $ -- -- 92,820(5)
President, Chief Executive 1997 245,000 -- -- -- 21,923(5)
Officer and Director 1996 245,000 -- 50,000 -- 86,300(5)
Steven C. Taylor ............ 1998 245,000 -- -- -- 67,764(5)
Chief Technical Officer, 1997 245,000 -- -- -- 36,666(5)
Vice Chairman of the 1996 245,000 -- 45,400 -- 83,800(5)
Board of Directors
Robert F. Griffith .......... 1998 180,000 80,000 -- 10,000 65,816(6)(7)
Vice President, Sales 1997 180,000 80,000 -- 30,000 33,757(6)(7)
1996 6,923 -- -- 115,000 --
Henry L. Tinker ............. 1998 179,000 25,000 -- 60,000 83,764(6)(8)
Vice President, Operations. 1997 179,000 -- -- 150,000 41,922(6)
1996 179,000 27,000 -- -- 28,700(6)
John C. Batty ............... 1998 180,000 30,000 -- 10,000 32,823(6)
Vice President, Finance and 1997 20,077 -- -- 100,000 1,540(6)
Chief Financial Officer 1996 -- -- -- -- --
</TABLE>
(1) The amounts disclosed in this column include amounts deferred by the Named
Executive Officers pursuant to the Company's 401 (k) Investment/Retirement
Plan (the "401 (k) Plan").
(2) The amounts disclosed in this column represent bonus amounts in the year
earned.
(3) The amounts disclosed in in this column represent amounts paid by the
Company as reimbursement for the payment of income taxes.
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<PAGE> 12
(4) The stock options listed in the table include the options to purchase
Common Stock of the Company.
(5) This amount primarily represents life insurance premiums, retirement
benefits, reimbursement of medical expenses, auto lease or auto allowances
and operating expenses paid by the Company.
(6) This amount primarily represents auto lease or auto allowances and
operating expenses, 401(k) Plan matching contributions, life insurance
premiums and reimbursement of medical expenses paid by the Company.
(7) Additionally, includes payment by Company of relocation expenses in the
amounts of $43,064 for fiscal year 1998 and $10,000 for fiscal year 1997.
(8) Additionally, includes payment by Company of housing expenses in the
amount of $36,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to the grant of
stock options under the Company's Amended and Restated 1993 Stock Option Plan
(the "Plan") to each of the Named Executive Officers during the fiscal year
ended June 28, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATE OF
SECURITIES OPTIONS STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ------------------------- --------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden ......... -- -- -- -- -- --
Steven C. Taylor ........ -- -- -- -- -- --
Robert F. Griffith ...... 10,000 1.64% $ 6.750 12/02/07 $ 42,500 $107,580
Henry L. Tinker ......... 10,000 1.64% 6.750 12/02/97 42,500 107,580
50,000 8.21% 6.375 01/07/08 200,460 508,005
John C. Batty ........... 10,000 1.64% 6.750 12/02/07 42,500 107,580
</TABLE>
- ----------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their terms, assuming the specified compounded
rates of appreciation on the Company's Common Stock over the term of the
options. Actual gains, if any, on stock option exercise are dependent upon
a number of factors, including the future performance of the Common Stock,
overall stock market conditions, and the timing of option exercises, if
any. There can be no assurance that amounts reflected in this table will
be achieved.
10
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in fiscal year 1998, and
unexercised options held as of June 28, 1998, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END (#) FISCAL YEAR END($)(2)
ACQUIRED ON VALUE ------------------------------ -------------------------------
NAME EXERCISE (#) REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leigh S. Belden ......... -- -- -- -- -- --
Steven C. Taylor ........ -- -- -- -- -- --
Robert F. Griffith ...... -- -- 64,999 90,001 $ 43,124 $ 58,126
Henry L. Tinker ......... -- -- 95,833 114,167 -- 108,750
John C. Batty ........... -- -- 29,166 80,834 72,915 192,085
-------- -------- -------- -------- -------- --------
</TABLE>
(1) The value realized upon the exercise of stock options represents the
positive spread between the exercise price of stock options and the fair
market value on the exercise date.
(2) The value of "in-the-money" stock options represents the positive spread
between the exercise price of options and $8.25, the price per share of
the underlying shares of Common Stock, as reported on the Nasdaq National
Market on June 26, 1998 (the last trading day of fiscal year 1998).
DIRECTOR COMPENSATION
Howard Oringer and David Lyon each received a fee of $10,000 per month
pursuant to oral consulting agreements with the Company during 1998. All
Non-employee Directors receive quarterly retainer fees ranging from $4,000 to
$11,000 depending upon their duties, fees of $2,000 for each Board and Strategy
Committee meeting and fees of $500 for each Audit Committee and Compensation
Committee meeting. Non-employee Directors also receive automatic grants under
the Verilink Corporation Amended and Restated 1993 Stock Option Plan (the "1993
Option Plan") of options to purchase 30,000 shares upon election and re-election
to the Board which options vest in equal annual amounts over a three-year period
following the grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1998, Mr. Oringer, Chairman of the Company's Board of
Directors and a consultant to the Company, and Dr. Lyon, a consultant to the
Company, served as members of the Compensation Committee.
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENTS
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The Company has entered into a Change of Control Severance Benefits
Agreement (the "Agreement") with the following executive officers: Graham G.
Pattison, President and Chief Executive Officer; John C. Batty, Vice President
Finance and Chief Financial Officer; Thomas A. Flak, Vice President Marketing;
Robert F. Griffith, Vice President Sales; Stephen G. Heinen, Vice President,
Engineering; Andrea C. Potts, Vice President Human Resources; Stephen M. Tennis,
Vice President, General Counsel; and Henry L. Tinker, Vice President Operations,
Steven E. Turner, Vice President, Strategic Business Unit, Huntsville. All
capitalized terms in the description below have the same meaning as in the
Agreement. Under the terms of the Agreement if the executive's employment
terminates due to an Involuntary Termination or a Voluntary Termination for Good
Reason within 24 months following a Change of Control, the termination will be a
Covered Termination and the Company shall (i) pay the Executive a lump sum
payment equal to 100% of the sum of Annual Base Pay and Annual Bonus, subject to
any applicable withholding of federal, state or local taxes, (ii) fully vest all
stock options held by the executive and the period of time to exercise such
stock options following a Covered Termination may be extended, and (iii)
continue Welfare Benefit coverage for the executive and his covered dependents
under any Welfare Benefit plan or program maintained by the Company on the same
terms and conditions (including cost to the executive) as in effect immediately
prior to the Covered Termination, for one (1) year following the Covered
termination. Upon the occurrence of a Covered Termination, and prior to the
receipt of any benefits under the Agreement, the executive shall execute an
Employee Agreement and Release (the "Release"). Such Release shall specifically
relate to all of the executive's rights and claims in existence at the time of
such execution and shall confirm the executive's obligations under the Company's
standard form of proprietary information agreement.
REPORT OF THE COMPENSATION COMMITTEE
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph which follows shall not be deemed to be
incorporated by reference into any such filings.
In determining the officers' compensation levels, the Compensation
Committee generally considers factors such as competitive compensation levels
for officers of other high technology companies of similar revenues,
profitability and growth rates among other factors. The Compensation Committee
adopted a Key Employee Incentive Plan designed to reward the Company's executive
officers if certain corporate financial goals and individual performance goals
were achieved in fiscal 1998. No payments were made under the plan as the
Company failed to meet the minimum threshold for such payments. Nonetheless, the
Compensation Committee believed that certain executive officers had made
significant contributions to the Company during fiscal 1998 and awarded non-plan
bonuses to such officers.
The Compensation Committee is currently composed of Mr. Oringer and Dr.
Lyon. In addition to administering the 1993 Option Plan and the 1996 Purchase
Plan, the Compensation Committee is authorized by the Board, among other things,
to establish and review annually the
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general compensation policies applicable to the Company's executive officers,
including the relationship of Company financial performance to executive
compensation and the basis for the Chief Executive Officer's compensation during
each fiscal year.
No member of the Compensation Committee is a former or current officer
or employee of the Company.
Compensation Policy Regarding Deductibility. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Code which provides that, for purposes
of the regular income tax and the alternative minimum tax, the otherwise
allowable deduction for compensation paid or accrued with respect to a covered
employee of a publicly-held corporation is limited to no more than $1 million
per year. For the fiscal year ended June 28, 1998, no executive officer of the
Company received $1 million in total compensation, nor does the Company
anticipate that compensation payable to any executive officer will exceed $1
million for fiscal 1999.
Compensation Committee
Howard Oringer
David L. Lyon, Ph.D.
October 20, 1998
PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
the Company's Common Stock since the date of the Company's initial public
offering on June 10, 1996 (the "IPO") through the end of the Company's last
fiscal year (June 28, 1998), with the cumulative total return on The Nasdaq
Stock Market U.S. Index and the Hambrecht & Quist Technology Index during the
same period. The comparison assumes $100 was invested on June 10, 1996 in the
Company's Common Stock and in each of the foregoing indices, and assumes
reinvestment of dividends, if any. The stock price performance shown on the
graph below is not necessarily indicative of future price performance.
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[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
10-Jun-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Verilink Corporation 100 159 153 208 38 67 58 38 69 52
Nasdaq Stock Market (U.S.) 100 97 100 105 99 117 137 129 151 155
Hambrecht & Quist Technology 100 95 101 108 103 124 150 127 153 157
</TABLE>
This Section is not "soliciting material," is not deemed filed with the
SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act whether made before or after
the date hereof and irrespective of any general incorporation language
in any such filing.
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented to the Special Meeting. If any other business is properly brought
before the Special Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgments of the persons
voting the proxies.
It is important that the proxies be returned promptly and that your
shares be represented.
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<PAGE> 17
Stockholders are urged to fill in, sign and promptly return the
accompanying form in the enclosed envelope.
By Order of the Board of Directors
/s/ Graham G. Pattison
------------------------------------
Graham G. Pattison
President, Chief Executive Officer
and Director
May ___, 1999
San Jose, California
15
