<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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] 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,
Graham G. Pattison
President, Chief Executive Officer
and Director
San Jose, California
May 28, 1999
<PAGE> 3
MAILED TO STOCKHOLDERS ON OR ABOUT MAY 28, 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 14,076,931 shares of
Common Stock outstanding and entitled to vote at the Special Meeting. The
presence at the Special Meeting of a majority, or 7,038,466 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.
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.
<PAGE> 4
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
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 127,286 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 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 350 persons. As of May 10, 1999, options to purchase 1,900,675
shares had been exercised, 563 shares were repurchased pursuant to the Option
Plan and options to purchase 3,022,602 shares were outstanding.
2
<PAGE> 5
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.
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 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.
3
<PAGE> 6
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 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).
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.
4
<PAGE> 7
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)......................................... 3,084,752 21.9%
Steven C. Taylor (4)........................................ 2,096,789 14.9
Beltech, Inc. (5)........................................... 1,000,000 7.1
Wellington Management Co. LLP (6)........................... 991,200 7.0
Dimensional Fund Advisors I (7)............................. 811,200 5.8
Oliver Corporation (8)...................................... 800,000 5.7
Howard Oringer (9).......................................... 197,666 1.4
Henry L. Tinker (10)........................................ 191,570 1.4
Robert F. Griffith (11)..................................... 114,222 *
John C. Batty (12).......................................... 73,815 *
David L. Lyon (13).......................................... 62,916 *
Graham G. Pattison (14)..................................... 12,500 *
John E. Major(15)........................................... 21,562 *
John A. McGuire............................................. 0 *
All executive officers and directors as a group (15
persons)(16).............................................. 6,074,765 41.8%
</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 14,076,931 shares of Common Stock
outstanding as of May 10, 1999.
(3) Includes (a) 1,321,869 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) 1,050 shares owned by Baytech 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 15,625 shares exercisable
within 60 days of May 10, 1999.
(4) Includes (a) 1,280,114 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,
5
<PAGE> 8
1988; (b) 1,050 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. Also includes options to purchase 15,625 shares exercisable
within 60 days of May 10, 1999.
(5) Beltech, Inc., 940 Southwood Blvd., Suite 201, Incline Village, NV 89452.
(6) As reported in a Schedule 13G filed by Wellington Management Co., as of
December 31, 1998, includes 991,200 shares as to which Wellington
Management Co. has shared voting and sole investment power. Wellington
Management Co., 75 State Street, Boston, MA 02109
(7) As reported in a Schedule 13G filed by Dimensional Fund Advisors I, as of
December 31, 1998, includes 811,200 shares as to which Dimensional Fund
Advisors I has sole voting and investment power. Dimensional Fund Advisors
I, 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(8) Oliver Corporation, 940 Southwood Blvd., Suite 201, Incline Village, NV
89452.
(9) Includes options to purchase 31,666 shares exercisable within 60 days of
May 10, 1999.
(10) Includes options to purchase 101,666 shares exercisable within 60 days of
May 10, 1999.
(11) Includes options to purchase 113,645 shares exercisable within 60 days of
May 10, 1999.
(12) Includes options to purchase 64,166 shares exercisable within 60 days of
May 10, 1999.
(13) Includes options to purchase 57,916 shares exercisable within 60 days of
May 10, 1999.
(14) Includes options to purchase 12,500 shares exercisable within 60 days of
May 10, 1999.
(15) Includes options to purchase 11,562 shares exercisable within 60 days of
May 10, 1999.
(16) Includes options to purchase 579,496 shares exercisable within 60 days of
May 10, 1999.
6
<PAGE> 9
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 the 1998
fiscal year and thus received no compensation during this period.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
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 this column represent amounts paid by the Company
as reimbursement for the payment of income taxes.
(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.
7
<PAGE> 10
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
NUMBER VALUE AT ASSUMED
OF % OF TOTAL ANNUAL RATE OF
SECURITIES OPTIONS STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR 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 $107,580
Henry L. Tinker.......... 10,000 1.64% 6.750 12/02/97 42,500 107,580
50,000 8.21% 6.375 01/07/08 200,460 508,005
John C. Batty............ 10,000 1.64% 6.750 12/02/07 42,500 107,580
</TABLE>
- ---------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in fiscal year 1998, and
unexercised options held as of June 28, 1998, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END (#) FISCAL YEAR END($)(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 fiscal 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.
8
<PAGE> 11
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 then fiscal year 1998, Mr. Oringer, Chairman of the Company's Board
of Directors and then a consultant to the Company, and Dr. Lyon, then a
consultant to the Company, served as members of the Compensation Committee.
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENTS
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; Henry L. Tinker, Vice President Operations; and
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. Mr. Turner is also a party
to an agreement with the former TxPort, Inc. providing for salary continuation
and other benefits in the event of a Change of Control of TxPort, Inc.
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 in fiscal
1998 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 during fiscal year 1998 was 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 general compensation
9
<PAGE> 12
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
10
<PAGE> 13
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.
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET HAMBRECHT & QUIST
VERILINK CORPORATION (U.S.) TECHNOLOGY
-------------------- ------------------- -----------------
<S> <C> <C> <C>
'10-Jun-96' 100 100 100
'Jun-96' 159 97 95
'Sep-96' 153 100 101
'Dec-96' 208 105 108
'Mar-97' 38 99 103
'Jun-97' 67 117 124
'Sep-97' 58 137 150
'Dec-97' 38 129 127
'Mar-98' 69 151 153
'Jun-98' 52 155 157
</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.
11
<PAGE> 14
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.
Stockholders are urged to fill in, sign and promptly return the
accompanying form in the enclosed envelope.
By Order of the Board of Directors
Graham G. Pattison
President, Chief Executive Officer
and Director
May 28, 1999
San Jose, California
12
<PAGE> 15
SKU-1526-PS-995
<PAGE> 16
VERILINK CORPORATION
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
1. Establishment, Purpose and Definitions.
(a) There is hereby established the Amended and
Restated 1993 Stock Option Plan (the "Plan") of Verilink Corporation (the
"Adopting Company"). The Adopting Company along with any successor corporation
to the Adopting Company and any present or future parent or subsidiary
corporations of the Adopting Company or such successor corporation shall be
collectively referred to as the "Company." For the purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as defined in sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) The purpose of the Plan is to create additional
incentive for eligible individuals (as defined in Section 4 below) to promote
the financial success and progress of the Company. The Plan provides employees,
including officers and directors who are employees, of the Company, and holders
of certain outstanding options issued under the Verilink Corporation 1983 Stock
Option Plan or 1989 Officers and Directors Stock Option Plan (the "Prior Plans")
an opportunity to purchase shares of Stock pursuant to options which may qualify
as incentive stock options under Section 422 of the Code (referred to as
"incentive stock options"). The Plan also provides employees, officers,
directors, independent contractors and consultants of the Company and holders of
certain outstanding options issued under the Prior Plans an opportunity to
purchase shares of Stock pursuant to options which are not described in Section
422 of the Code (referred to as "nonqualified options").
2. Administration.
(a) The Plan shall be administered by the Board of
Directors of the Company (the "Board"). The Board may delegate the
responsibility for administering the Plan to a committee (the "Committee") under
such terms and conditions as the Board shall determine. If the Company becomes
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Act") and the rules promulgated thereunder, the Committee shall consist of two
or more members of the Board or such lesser number of members of the Board as
permitted by Rule 16b-3 promulgated under the Act ("Rule 16b-3"). Except as
permitted by Rule 16b-3, none of the members of the Committee shall receive,
while serving on the Committee, a grant or award of equity securities under (i)
the Plan or (ii) any other plan of the Company under which the participants are
entitled to acquire Stock (including restricted stock), stock options, stock
bonuses, related rights or stock appreciation rights of the Company, other than
pursuant to the grant of automatic options provided in Section 7, below, and
pursuant to transactions in any such other plan which do not disqualify a
director from being a disinterested person under Rule 16b-3. The limitations set
forth in this Section 2(a) shall automatically incorporate any additional
1
<PAGE> 17
requirements that may in the future be necessary for the Plan to comply with
Rule 16b-3. Members of the Committee shall serve at the pleasure of the Board.
The Committee shall select one of its members as chairman, and shall hold
meetings at such times and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of the Committee at which a quorum
is present, or acts reduced to or approved in writing by all the members of the
Committee, shall be the valid acts of the Committee. If the Board does not
delegate administration of the Plan to the Committee, then each reference in
this Plan to "the Committee" shall be construed to refer to the Board.
(b) Except for options granted to Non-Employee
Directors pursuant to Section 7, the Committee shall determine which eligible
individuals (as defined in Section 4, below) shall be granted options under the
Plan, the timing of such grants, the terms thereof (including any restrictions
on the Stock), and the number of shares subject to such options.
(c) Except for options granted to Non-Employee
Directors pursuant to Section 7, the Committee may amend the terms of any
outstanding option granted under this Plan, but any amendment which would
adversely affect the Optionee's rights under an outstanding option shall not be
made without the Optionee's written consent. The Committee may, with the
Optionee's written consent, cancel any outstanding stock option or accept any
outstanding stock option in exchange for a new option.
(d) The Committee shall have the sole authority, in its
absolute discretion to adopt, amend, and rescind such rules and regulations as,
in its opinion, may be advisable for the administration of the Plan, to construe
and interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations and interpretations of the Committee shall be
binding on all participants. Notwithstanding the foregoing, the Committee shall
not exercise any discretionary functions with respect to options granted to
Non-Employee Directors pursuant to Section 7.
3. Stock Subject to the Plan.
(a) An aggregate of not more than 6,050,000 shares of
Stock shall be available for the grant of stock options under the Plan. If an
option is surrendered (except surrender for shares of Stock) or for any other
reason ceases to be exercisable in whole or in part, the shares which were
subject to such option but as to which the option had not been exercised shall
continue to be available under the Plan. Any Stock which is retained by the
Company upon exercise of an option in order to satisfy the exercise price for
such option or any withholding taxes due with respect to such option exercise
shall be treated as issued to the Optionee and will thereafter not be available
under the Plan.
(b) If there is any change in the Stock through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock dividend (in excess of two percent) or other change in the corporate
structure of the Company, appropriate adjustments shall be made by the Committee
in order to preserve but not to increase the benefits to the individual,
2
<PAGE> 18
the number and kind of shares and the price per share subject to outstanding
options and to adjust the number of shares which have been authorized for the
grant of stock options under the Plan but as to which no options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an option.
4. Eligible Individuals.
(a) Individuals who shall be eligible to have granted
to them the options provided for by the Plan (other than pursuant to Section 7)
shall be such employees, officers, directors, independent contractors and
consultants of the Company as the Committee, in its discretion, shall designate
from time to time. Notwithstanding the foregoing, only employees of the Company
(including officers and directors who are bona fide employees) shall be eligible
to receive incentive stock options. Except for grants pursuant to Section 7,
eligible individuals shall not include Non-Employee Directors.
(b) Individuals who hold unexercised incentive stock
options under the Prior Plans and are employees of the Company shall be eligible
to receive incentive stock options to purchase the same number of shares of
Stock as the number of shares subject to their unexercised incentive stock
options issued under the Prior Plans in substitution for such Prior Plan
Options. Individuals who hold unexercised nonqualified stock options and are
eligible individuals under Section 4(a) above shall be eligible to receive
nonqualified stock options to purchase the same number of shares of Stock as the
number of shares subject to their unexercised nonqualified options issued under
the Prior Plans in substitution for such Prior Plan Options.
5. The Option Price. The exercise price of the Stock covered
by each incentive Stock option shall be not less than the per share fair market
value of such Stock on the date the option is granted. Except as provided in
Section 7, the exercise price of the Stock covered by each nonqualified stock
option shall be as determined by the Committee, but shall not be less than 85%
of the fair market value of such stock on the date the option is granted.
Notwithstanding the foregoing, in the case of an incentive stock option granted
to a person possessing more than ten percent of the combined voting power of the
Company, the exercise price shall be not less than 110 percent of the fair
market value of the Stock on the date the option is granted. The exercise price
of an option shall be subject to adjustment to the extent provided in Section
3(b), above.
6. Terms and Conditions of Options.
(a) Each option granted pursuant to the Plan will be
evidenced by a written Stock Option Agreement executed by the Company and the
person to whom such option is granted. Options received under the Plan in
substitution for unexercised options received under the Prior Plans will be
evidenced by a written substitution agreement executed by the Company and the
person to whom that option is granted.
(b) The Committee shall determine the term of each
option granted under the Plan; provided, however, that (i) the term of an
incentive stock option shall not be for
3
<PAGE> 19
more than 10 years, (ii) in the case of an incentive stock option granted to a
person possessing more than ten percent of the combined voting power of the
Company, the term shall be for no more than five years, and (iii) the term of an
option granted pursuant to Section 7 shall be for ten years. Options received
under the Plan in substitution for options received under the Prior Plans will
have a new term as determined by the Committee subject to the limitations
described in this Section 6(b) rather than continuing the term remaining on the
options granted under the Prior Plans. Provided, however, that for incentive
stock options granted in substitution for options under Prior Plans, the term
under the original option plus the term under the substituted option cannot
exceed 10 years, and, in the case of a person possessing more than ten percent
of the combined voting power of the Company, the term under the original
incentive stock option plus the term under the substituted incentive stock
option cannot exceed five years.
(c) In the case of incentive stock options, the
aggregate fair market value (determined as of the time such option is granted)
of the Stock with respect to which incentive stock options are exercisable for
the first time by an eligible employee in any calendar year (under this Plan and
any other plans of the Company) shall not exceed $100,000. In the event an
Optionee receives an option intended to be an incentive stock option which
exceeds the fair market value limitation, the option shall be treated as a
nonqualified option with respect to so much of the Stock subject thereto as
exceeds that limitation.
(d) Except for grants to Non-Employee Directors
pursuant to Section 7, which shall be granted on the form of Stock Option
Agreement attached hereto as Exhibit A, the Stock Option Agreement may contain
such other terms, provisions, and conditions as may be determined by the
Committee. If an option, or any part thereof, is intended to qualify as an
incentive stock option, the Stock Option Agreement shall contain those terms and
conditions which are necessary to so qualify it.
7. Stock Options for Non-Employee Directors.
(a) All grants of options pursuant to this Section 7
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the provisions of this Section 7. No person shall have any discretion to
select which Non-Employee Directors shall be granted options or to determine the
number of shares of Stock to be covered by options granted to Non-Employee
Directors, the timing of such option grants or the exercise price thereof.
(b) An option to purchase thirty thousand (30,000)
shares of Stock shall be granted immediately following each annual meeting of
the Company's stockholders to each director who is not an officer of the Company
("Non-Employee Director") who was re-elected as a Non-Employee Director at such
annual meeting and who has not otherwise received any prior automatic option
grants under this Section 7 during the two immediately preceding calendar years;
provided, however, that a grant to a Non-Employee Director who then holds an
option that is not fully vested shall be adjusted so that options to acquire no
more than ten thousand (10,000) shares of Stock shall vest in any year pursuant
to Section 7(d). Each such grant shall be made as of the date of the annual
stockholders' meeting in question. In the event a Non-Employee Director shall be
appointed or elected to the Board other than at the annual
4
<PAGE> 20
stockholders' meeting, such Non-Employee Director shall be entitled to a ratable
grant as of the date of his or her election or appointment to the Board. If any
option ceases to be exercisable in whole or in part, the shares which were
subject to such option but as to which the option had not been exercised shall
continue to be available under the Plan. All options granted to Non-Employee
Directors shall be nonqualified stock options.
(c) The exercise price per share of Stock covered by
each option shall be the per-share fair market value of the Stock on the date
the option is granted. The exercise price of an option granted under the Plan
shall be subject to adjustment to the extent provided in Section 3(b) hereof.
(d) Each option shall vest and become exercisable as to
ten thousand (10,000) of the shares covered thereby on the anniversary of the
date of grant such that the option will be fully exercisable three (3) years
after its date of grant.
8. Use of Proceeds. Cash proceeds realized from the issuance
of Stock under the Plan shall constitute general funds of the Company.
9. Amendment, Suspension, or Termination of the Plan.
(a) The Board may at any time amend, suspend or
terminate the Plan as it deems advisable; provided that such amendment,
suspension or termination complies with all applicable requirements of state and
federal law, including any applicable requirement that the Plan or an amendment
to the Plan be approved by the Company's stockholders, and provided further
that, except as provided in Section 3(b) above, the Board shall in no event
amend the Plan in the following respects without the consent of the stockholders
then sufficient to approve the Plan in the first instance:
(i) To increase the maximum number of shares
subject to incentive stock options issued under the Plan; or
(ii) To change the designation or class of persons
eligible to receive incentive stock options under the Plan.
(b) No option may be granted under the Plan during any
suspension or after the termination of the Plan, and no amendment, suspension or
termination of the Plan shall, without the affected individual's consent, alter
or impair any rights or obligations under any option previously granted under
the Plan. The Plan shall terminate with respect to the grant of incentive stock
options on March 1, 2003, unless previously terminated by the Board pursuant to
this Section 9.
(c) Notwithstanding the provisions of Sections 9(a) and
9(b), above, the provisions set forth in Section 7 of the Plan (and any other
sections of the Plan that affect the formula award terms of option grants to
Non-Employee Directors required to be specified in the Plan by Rule 16b-3) shall
not be amended periodically and in no event more than once every six
5
<PAGE> 21
months, other than to comport with changes to the Code, the Employee Retirement
Income Security Act of 1974, as amended or any applicable rules and regulations
thereunder.
10. Assignability. To the extent required by Rule 16b-3, no
option granted pursuant to this Plan shall be transferable by the holder except
by operation of law or by will or the laws of descent and distribution;
provided, that, if Rule 16b-3 is amended after the date of the Board's adoption
of this amendment to the Plan to permit broader transferability of options under
that Rule, (i) options granted under Section 7 to Non-Employee Directors shall
be transferable to the fullest extent permitted by Rule 16b-3 as so amended,
(ii) any other option shall be transferable to the extent provided in the option
agreement covering the option, and the Committee shall have discretion to amend
any such outstanding option to provide for broader transferability of the option
as the Committee may authorize within the limitations of Rule 16b-3.
Notwithstanding the foregoing, if required by the Code, each incentive stock
option under the Plan shall be transferable by the optionee only by will or the
laws of descent and distribution, and, during the optionee's lifetime, shall be
exercisable only by the optionee. In the event of any Rule 16b-3 permitted
transfer of an option hereunder, the transferee shall be entitled to exercise
the option in the same manner and only to the same extent as the optionee (or
his personal representative or the person who would have acquired the right to
exercise the option by bequest or intestate succession) would have been entitled
to exercise the option under Sections 6, 7 and 13 had the option not been
transferred.
11. Provision of Information. The Company shall provide to
each Optionee, during any period for which said Optionee has one or more options
granted pursuant to the Plan outstanding, copies of annual financial statements
of the Company.
12. Transfer of Company's Rights. In the event the Company
assigns to a third person, other than by operation of law, any of the Company's
rights to repurchase any stock acquired on the exercise of an option, the
assignee shall pay to the Company the value of such right as determined by the
Committee in the Committee's sole discretion. Such consideration shall be in
such form, including, without limitation, the performance of future services, as
the Committee shall determine in the Committee's sole discretion.
13. Payment Upon Exercise of Options.
(a) Payment of the purchase price upon exercise of any
option granted under this Plan shall be made in cash or check; provided,
however, that the Committee, in its sole discretion, may permit an optionee to
pay the option price in whole or in part (i) with shares of Stock owned by the
Optionee; (ii) by delivery on a form prescribed by the Committee of an
irrevocable direction to a securities broker approved by the Committee to sell
shares and deliver all or a portion of the proceeds to the Company in payment
for the Stock; (iii) by delivery of the optionee's promissory note with such
recourse, interest, security, and redemption provisions as the Committee in its
discretion determines appropriate; or (iv) in any combination of the foregoing.
Any Stock used to exercise options shall be valued at its fair market value on
the date of the exercise of the option. In addition, the Committee, in its sole
discretion, may authorize the surrender by an optionee of all or part of an
unexercised option (excluding options granted under
6
<PAGE> 22
Section 7, above) and authorize a payment in consideration thereof of an amount
equal to the difference between the aggregate fair market value of the Stock
subject to such option and the aggregate option price of such Stock. In the
Committee's discretion, such payment may be made in cash, shares of Stock with a
fair market value on the date of surrender equal to the payment amount, or some
combination thereof.
(b) In the event that the exercise price is satisfied
by the Committee retaining from the shares of Stock otherwise to be issued to
optionee shares of Stock having a value equal to the exercise price, the
Committee may issue optionee an additional option, with terms identical to this
option agreement, entitling optionee to purchase additional Stock in an amount
equal to the number of shares so retained; provided, however, that no such
additional options may be granted with respect to options granted pursuant to
Section 7, above.
14. Withholding Taxes.
(a) No Stock shall be delivered under the Plan to any
optionee until the optionee has made arrangements acceptable to the Committee
(or in the case of exercise of options granted to Named Executives, the
Subcommittee) for the satisfaction of federal, state, and local income and
social security tax withholding obligations, including, without limitation,
obligations incident to the receipt of Stock under the Plan or to the failure to
satisfy the conditions for treatment as incentive stock options under applicable
tax law. Upon exercise of an option the Company shall withhold from the optionee
an amount sufficient to satisfy federal, state and local income and social
security tax withholding obligations.
(b) In the event that such tax withholding is satisfied
by the Company or the optionee's employer withholding shares of Stock otherwise
deliverable to the optionee, the Committee may issue the optionee an additional
option, with terms identical to the option agreement under which the option was
exercised, entitling the optionee to purchase additional shares of Stock equal
to the number of shares so withheld but at an exercise price equal to the fair
market value of the Stock on the grant date of the new option; provided,
however, that no such additional options may be granted with respect to options
granted pursuant to Section 7, above.
15. Restrictions on Transfer of Shares. The Stock acquired
pursuant to the exercise of options granted under the Plan shall be subject to
such restrictions and agreements regarding sale, assignment, encumbrances or
other transfer as are in effect among the stockholders of the Company at the
time such Stock is acquired.
16. Transfer of Control. A "Transfer of Control" shall be
deemed to have occurred in the event of any of the following:
(a) the sale or exchange by the stockholders of the
Company of all or substantially all of the stock of the Adopting Company where
the stockholders before such sale or exchange do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Adoption Company;
7
<PAGE> 23
(b) a merger in which the stockholders of the Company
before such merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Adopting Company; or
(c) the sale or exchange of all or substantially all of
the Adopting Company's assets (other than a sale or transfer to a subsidiary of
the Company as defined in section 424(f) of the Code).
Any options which are neither exercised as of the date of
the Transfer of Control nor assumed by the surviving, continuing, successor or
purchasing corporation, as the case may be, shall terminate effective as of the
date of the Transfer of Control.
17. Stockholders Approval. This Plan shall only become
effective with regard to incentive stock options upon its approval by a majority
of the stockholders voting (in person or by proxy) at a stockholders' meeting
held within 12 months of the Board's adoption of the Plan. The Committee may
grant incentive stock options under the Plan prior to the stockholders' meeting,
but until stockholder approval of the Plan is obtained, no incentive stock
option shall be exercisable.
18. Rule 16b-3 Compliance. Transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Board or the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Board or
the Committee. Moreover, in the event the Plan does not include a provision
required by Rule 16b-3 to be stated therein in order to qualify the grants under
Section 7 hereof as grants under a non-discretionary formula under Rule 16b-3
such provision (other than one relating to eligibility requirements, or the
price and amount of awards) shall be deemed automatically to be incorporated by
reference into the Plan with respect to grants of options to Non-Employee
Directors.
8
<PAGE> 24
[FORM OF FRONT OF PROXY CARD]
PROXY
VERILINK CORPORATION
145 Baytech Drive
San Jose, CA 95134
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING ON JUNE 22, 1999.
Graham G. Pattison and John C. Batty, or either of them, each with the power of
substitution, are hereby authorized to represent and vote the shares of Verilink
Common Stock which the undersigned may be entitled to vote, with all the powers
which the undersigned would possess if personally present, at the Special
Meeting of Stockholders of Verilink Corporation (the "Company"), to be held on
Tuesday, June 22, 1999 at the Company's corporate offices at 145 Baytech Drive,
San Jose, California, at 10:00 am Pacific Standard Time, and any adjournment or
postponement thereof.
<PAGE> 25
[FORM OF BACK OF PROXY CARD]
Please mark your choice like this [X] in blue or black ink.
Shares represented by this proxy will be voted as directed by the
stockholder. IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE
AUTHORITY TO VOTE FOR PROPOSAL 1.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
- --------------------------------------------------------------------------------
1. To ratify and approve an amendment to the Company's each sign. When signing
as attorney, executor, Amended and Restated 1993 Stock Option Plan to increase
administrator, trustee or guardian, please give the number of shares reserved
for issuance thereunder full title as such. from 5,050,000 shares to 6,050,000
shares
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to Signature vote upon such
other business as may properly come Date before the Special Meeting.
MARK HERE FOR [ ]
ADDRESS CHANGE
AND NOTE AT RIGHT
Please sign exactly as your name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Signature _______________________________________ Date ________________
Signature _______________________________________ Date ________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE.
