<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
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 Rule 14a-11(c) or Rule 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 LOGO]
127 JETPLEX CIRCLE
MADISON, ALABAMA 35758
October 13, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of Verilink Corporation (the "Company") to be held at the Company's
new facility located at 950 Explorer Boulevard in Huntsville, Alabama on
Wednesday, November 15, 2000, at 9:00 a.m. local time. I sincerely hope that you
will be able to attend the meeting and I look forward to seeing you.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. We also will report on the
operations of the Company during the past year as well as on our plans for the
future.
We are including with this Proxy Statement a copy of the Company's
Annual Report on Form 10-K. It contains information on the Company's operations,
markets, products and services as well as the Company's audited financial
statements. Also attached is a copy of the Company's Annual Report.
Please take this opportunity to become involved in the affairs of the
Company. Each of the issues covered by the Proxy Statement is important to
position the Company for growth. We hope that you will take time to carefully
consider each matter.
Whether or not you expect to be present at the meeting, please
complete, date, sign and mail the enclosed proxy in the envelope provided.
Returning the proxy does NOT deprive you of your right to attend the meeting and
vote your shares in person. If you attend the meeting, you may withdraw your
proxy and vote your own shares.
Sincerely,
/s/ Howard Oringer
Howard Oringer
Chairman of the Board
<PAGE> 3
VERILINK CORPORATION
127 JETPLEX CIRCLE
MADISON, ALABAMA 35758
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 15, 2000
------------------------
The Annual Meeting of Stockholders (the "Annual Meeting") of Verilink
Corporation (the "Company"), will be held at the Company's new facility located
at 950 Explorer Boulevard in Huntsville, Alabama on Wednesday, November 15,
2000, at 9:00 a.m. local time, for the following purposes:
1. To elect two (2) Class I directors to hold office until the
2003 Annual Meeting of Stockholders and until their successors
have been duly elected or appointed;
2. To ratify amendments to the Company 1993 Amended and Restated
Stock Option Plan increasing the number of shares available
for issuance thereunder from 6,050,000 to 8,800,000 shares of
common stock;
3. To ratify amendments to the Company 1996 Employee Stock
Purchase Plan to increase the number of shares available for
issuance thereunder from 500,000 to 750,000 shares of common
stock;
4. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending
June 29, 2001; and
5. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement
thereof. The Board of Directors is not aware of any other
business to be presented to a vote of the stockholders at the
Annual Meeting.
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 October 2,
2000 as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting and any postponement or adjournment thereof.
By Order of the Board of Directors,
/s/ Graham G. Pattison
Graham G. Pattison
President, Chief Executive Officer
and Director
Madison, Alabama
October 13, 2000
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 ANNUAL MEETING. IF YOU
SEND IN YOUR PROXY AND THEN DECIDE TO ATTEND THE ANNUAL 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.
<PAGE> 4
MAILED TO STOCKHOLDERS ON OR ABOUT OCTOBER 13, 2000
VERILINK CORPORATION
127 JETPLEX CIRCLE
MADISON, ALABAMA 35758
------------------------
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 the Annual
Meeting of Stockholders to be held on Wednesday, November 15, 2000, at 9:00 a.m.
local time, at the Company's new facility located at 950 Explorer Boulevard,
Huntsville, Alabama and any adjournment or postponement thereof (the "Annual
Meeting"). The shares represented by the proxies received, properly dated and
executed, and not revoked will be voted at the Annual 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 Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company
will bear all associated costs. These costs will include the expense of
preparing and mailing proxy materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual 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 October 2, 2000 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 Annual Meeting. As of
the close of business on the Record Date, the Company had 14,717,591 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. The
presence at the Annual Meeting of a majority, or 7,358,796, 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 Annual Meeting. Each outstanding
share of Common Stock on the Record Date is entitled to one (1) vote on all
matters, except that stockholders have cumulative voting rights with respect to
the election of directors.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy at the Annual Meeting, and an employee of the
Company will tabulate votes cast in person at the Annual 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.
1
<PAGE> 5
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 October
2, 2000 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 PERCENTAGES OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED (1) OWNED (2)
------------------------ ------------ ----------------
<S> <C> <C>
Leigh S. Belden (3)......................................................... 2,751,340 18.64%
Steven C. Taylor (4)........................................................ 2,037,929 13.81%
Wellington Management Company, LLP (5)...................................... 1,371,000 9.32%
Beltech, Inc. (6)........................................................... 1,000,000 6.79%
Dimensional Fund Advisors Inc. (7).......................................... 936,700 6.36%
Oliver Corporation (8)...................................................... 800,000 5.44%
Howard Oringer (9).......................................................... 348,500 2.35%
Graham G. Pattison (10)..................................................... 299,692 2.00%
Henry L. Tinker (11)........................................................ 264,258 1.76%
John A. McGuire (12)........................................................ 77,223 *
Michael L. Reiff (13)....................................................... 67,500 *
Steven E. Turner (14)....................................................... 59,569 *
John E. Major (15).......................................................... 57,667 *
C. W. Smith (16)............................................................ 17,659 *
John C. Batty............................................................... 13,142 *
James B. Garner (17)........................................................ 8,886 *
All executive officers and directors as a group (14 persons) (18)........... 5,752,954 37.27%
</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 October
2, 2000 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of
any 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, 127
Jetplex Circle, Madison, Alabama 35758.
(2) Percentage beneficially owned is based on 14,717,591 shares of Common
Stock outstanding as of October 2, 2000.
(3) Includes (a) 1,146,369 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) 1,050 shares owned by Baytech
Associates, a California general partnership in which Mr. Belden has a
50% general partner interest; (c) 559,656 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 559,656 of these
2
<PAGE> 6
shares. Also includes options to purchase 44,265 shares exercisable
within 60 days of October 2, 2000.
(4) Includes (a) 1,192,614 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) 1,050
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 44,265 shares
exercisable within 60 days of October 2, 2000.
(5) As reported in a Schedule 13G/A filed by Wellington Management Company,
LLP as of December 31, 1999, includes 1,371,000 shares as to which
Wellington Management Company, LLP shared voting and investment power.
Wellington Management Company, LLP, 75 State Street, Boston, MA 02109.
(6) Beltech, Inc., 940 Southwood Blvd., Suite 201, Incline Village, NV
89452.
(7) As reported in a Schedule 13G filed by Dimensional Fund Advisors Inc.
as of December 31, 1999, includes 936,700 shares as to which
Dimensional Fund Advisors Inc. sole voting and investment power.
Dimensional Fund Advisors Inc., 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 100,000 shares exercisable within 60 days
of October 2, 2000.
(10) Includes options to purchase 270,492 shares exercisable within 60 days
of October 2, 2000.
(11) Includes options to purchase 260,000 shares exercisable within 60 days
of October 2, 2000.
(12) Includes options to purchase 47,223 shares exercisable within 60 days
of October 2, 2000.
(13) Includes options to purchase 67,500 shares exercisable within 60 days
of October 2, 2000.
(14) Includes options to purchase 50,000 shares exercisable within 60 days
of October 2, 2000.
(15) Includes options to purchase 47,667 shares exercisable within 60 days
of October 2, 2000.
(16) Includes options to purchase 14,900 shares exercisable within 60 days
of October 2, 2000.
(17) Includes options to purchase 7,500 shares exercisable within 60 days of
October 2, 2000.
(18) Includes options to purchase 719,645 shares exercisable within 60 days
of October 2, 2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who own more than ten
percent of the Company's Common Stock (collectively, "Reporting Persons") to
file reports of ownership and changes in ownership with the SEC and the Nasdaq
National Market. Reporting Persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such reports received or
written representations from certain Reporting Persons the Company believes
that, during fiscal 2000, all reporting persons complied with all applicable
filing requirements.
3
<PAGE> 7
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The number of directors on the Board is fixed at seven (7). The
Company's Certificate of Incorporation divides the Company's Board of Directors
into three classes designated Class I, Class II and Class III. The members of
each class of directors serve staggered three-year terms. The Board is currently
composed of two (2) Class I directors (Graham G. Pattison and John E. Major),
two (2) Class II directors (Howard Oringer and John A. McGuire), and two (2)
Class III directors (Leigh S. Belden and Steven C. Taylor), whose terms will
expire upon the election and qualification of directors at the Annual Meeting of
Stockholders to be held in 2000, 2001 and 2002, respectively. There is currently
one vacancy on the Board.
At the Annual Meeting, the stockholders will elect two (2) Class I
directors to serve a three (3) year term until the 2003 Annual Meeting of
Stockholders or until their respective successors are elected or appointed and
qualified or until the directors' earlier resignation or removal. In the event
either of the nominees is unable or unwilling to serve as a nominee, the proxies
may be voted for any substitute nominee designated by the present Board of
Directors or the proxy holders to fill such vacancy. The Board of Directors has
no reason to believe that the persons named will be unable or unwilling to serve
as a nominee or as a director if elected.
In voting for directors for each class, each stockholder is entitled to
cast that number of votes equal to the number of shares of Common Stock held by
such stockholder multiplied by the number of directors to be elected to that
certain class of directors, and each stockholder may cumulate and cast all such
votes for a single director nominated to such class, or may distribute such
votes among the number of directors to be elected to such class as such
stockholder sees fit. Votes may be cumulated only for directors to be elected
within each class. The candidates for each class of directors receiving the
highest number of affirmative votes will be elected to such class, up to the
number of directors to be elected to that class. The persons authorized to vote
shares represented by executed proxies in the enclosed form (if authority to
vote for the election of directors is not withheld) will have full discretion
and authority to vote for any or all of the nominees for that certain class of
directors as they may determine or, if authority to vote for a specified
candidate or candidates has been withheld, among those candidates for such class
for whom authority to vote has not been withheld.
Unless marked otherwise, proxies received will be voted FOR the
election of each of the nominees named below. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner as will ensure the election
of as many of the nominees listed below as possible, and, in such event, the
specific nominees to be voted for will be determined by the proxy holders.
Certain information about Graham G. Pattison and John E. Major, the
Class I director nominees, is furnished below.
Mr. Pattison joined the Company as its President, Chief Executive
Officer and Director in April 1999. Prior to joining the Company, Mr. Pattison
held various executive positions at Motorola Corporation from 1991 through April
1999 including, Corporate Vice President and General Manager of new business
ventures at Motorola's new Internet and Networking Group and Vice President and
General Manager of Motorola's Network System Division. Mr. Pattison received a
B.S. in Electrical Engineering and a M.S. in Engineering Technology from Royal
Melbourne Institute of Technology, Australia.
Mr. Major is CEO of Novatel Wireless, Inc. Prior to joining Novatel
Wireless in July 2000, Mr. Major served as president and CEO of Wireless
Knowledge, Inc., a joint venture between Microsoft Corporation and QUALCOMM Inc.
Mr. Major also served as Corporate Executive Vice president of QUALCOMM Inc. and
President of its Wireless Infrastructure Division. Prior to that, Mr. Major held
several executive leadership positions at Motorola from 1977 until joining
QUALCOMM in 1997. Major received a B.S. in Mechanical and Aerospace Engineering
from the University of Rochester, and a M.S. in Mechanical Engineering from the
University of Illinois. He also holds a M.B.A. with distinction from
4
<PAGE> 8
Northwestern University and a J.D. from Loyola University. Mr. Major received an
honorary doctorate from Westminster College in 1995. Mr. Major currently serves
on the board of directors of Littlefuse Inc., Indentix, Inc., Advanced Remote
Communications Solutions and Lennox International Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED
ABOVE.
THE BOARD OF DIRECTORS AND COMMITTEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
Graham G. Pattison(3) 50 President, Chief Executive Officer and Director 1999
Howard Oringer(1)(2)(3) 58 Managing Director of Communications Capital Group 1987
Leigh S. Belden(3) 51 Director 1982
Steven C. Taylor(2)(4) 54 Vice Chairman of the Board 1982
John A. McGuire(1)(2) 65 President, Ellipsys Technology, Inc. 1998
John E. Major(1) 54 President, Novatel Wireless, Inc. 1999
</TABLE>
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of the Strategy Committee.
(4) Mr. Taylor was a member of the Audit Committee until November 11, 1999.
Mr. Belden co-founded the Company and served as its President, Chief
Executive Officer and Director since its inception in December 1982. In April
1999, Mr. Belden resigned as the Company's President, Chief Executive Officer.
From 1980 to 1982, Mr. Belden was Vice President of Marketing for Cushman
Electronics, a manufacturer of telephone central office and two-way radio test
equipment. Previously, he held various international and domestic sales and
marketing management positions for California Microwave. Mr. Belden received a
B.S. in Electrical Engineering from the University of California at Berkeley and
an M.B.A. from Santa Clara University.
Mr. McGuire became a Director of the Company in July 1998. Mr. McGuire
is currently the Chairman and Chief Executive Officer of Ellipsys Technology,
Inc., a telecommunications company. From 1994 to 1996, Mr. McGuire was the
Managing Partner of J. McGuire and Associates, a management consulting firm.
From 1991 to 1994, Mr. McGuire was the President of Telescience International, a
telecommunications manufacturing company. Mr. McGuire received a B.S. in
Mathematics from the California State University.
Mr. Oringer has been a Director of the Company since August 1987 and
Chairman of the Board of Directors since January 1996. In addition, he has been
the Managing Director of Communications Capital Group, a management consulting
firm, since November 1993. From February 1986 to November 1993, Mr. Oringer was
the President, Chief Executive Officer and Chairman of the Board of Directors of
Telesciences, a manufacturer of telecommunications equipment. Mr. Oringer
received a B.E. in Engineering from the Stevens Institute of Technology, an M.S.
in Electrical Engineering from the California Institute of Technology and an
M.B.A. from Santa Clara University. Mr. Oringer is a member of the Board of
Directors of Tekelec, Inc. Digital Microwave Corporation, Ixia, Inc. and Vertel
Corporation.
Mr. Taylor co-founded the Company and has served as its Chief Technical
Officer since its inception in December 1982 until his retirement in April 1999.
In addition, Mr. Taylor served as Chairman of the Board of Directors from the
Company's inception until January 1996, at which time he became the Vice
Chairman of the Board of Directors. Previously, Mr. Taylor served as Chief
Engineer of Digital
5
<PAGE> 9
Products for Culbertson Industries and California Microwave. In 1980, Mr. Taylor
formed Telecommunications Consultants, Inc., a consulting firm engaged in the
design and support of digital and analog communications equipment.
There are no family relationships among any of the directors or
executive officers of the Company.
BOARD MEETING AND COMMITTEES
The Company's Board of Directors met seven (7) times during fiscal
2000. None of the directors attended fewer than 75% of all the meetings of the
Board and those committees of the Board on which he served. The Chairman of the
Board receives a retainer of $6,500 per quarter. The Vice Chairman of the Board
receives a retainer of $6,000 per quarter. All other Non-employee Directors
receive a retainer fee of $4,000 per quarter. In addition, all Non-employee
Directors receive a fee of $2,000 for each Board meeting attended.
The Audit Committee, which held three (3) meetings during fiscal 2000,
currently consists of Messrs. Oringer, Major and McGuire. Mr. Taylor was a
member of the Audit Committee until November 11, 1999. The Audit Committee
Chairman, Mr. Major, receives a retainer fee of $1,750 per quarter. All other
Non-employee Audit Committee Members receive a retainer fee of $1,000 per
quarter. In addition, each Non-employee Audit Committee Member receives a fee of
$2,000 for each meeting attended. The Audit Committee recommends to the Board
the engagement of the firm of certified public accountants to audit the
financial statements of the Company for the fiscal year for which they are
appointed, and monitors the effectiveness of the audit effort and the Company's
financial and accounting organization and financial reporting.
The Compensation Committee, which held four (4) meetings during fiscal
2000, currently consists of Messrs. Oringer, Taylor and McGuire. The
Compensation Committee Chairman, Mr. McGuire, receives a retainer fee of $1,750
per quarter. All other Non-employee Compensation Committee Members receive a
retainer fee of $1,000 per quarter. In addition, each Non-employee Compensation
Committee Member receives a fee of $2,000 for each meeting attended. The
Compensation Committee establishes and reviews the compensation policies
applicable to the Company's executive officers and administers the 1993 Amended
and Restated Stock Option Plan (the "Option Plan") and the Verilink Corporation
1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"). Stock Option
grants intended to qualify as performance based compensation exempt from the
deduction limit under Section 162(m) of the Internal Revenue Code will be
granted by a sub-committee consisting solely of Messrs. Oringer and McGuire.
The Strategy Committee, which held eleven (11) meetings during fiscal
2000, currently consists of Messrs. Oringer, Pattison and Belden. The Strategy
Committee Chairman, Mr. Belden, receives a retainer fee of $4,000 per quarter.
All other Non-employee Strategy Committee Members receive a retainer fee of
$2,500 per quarter. In addition, each Non-employee Strategy Committee Member
receives a fee of $2,000 for each meeting attended. The Strategy Committee
establishes and reviews the strategic direction of the Company.
In August 1999, the Board of Directors approved the payment to any
Non-employee Director who consults with the Company in the amount of $1,000 for
each half-day, or $2,000 for each full day. This fee is paid only for days in
which the Non-employee Director is not receiving fees for attendance at Board
Meetings or Committee Meetings. During fiscal 2000, the Company paid Mr. Belden
$26,000, Mr. Major $2,000, Mr. Oringer $4,000 and Mr. Taylor $4,000 for
consulting services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Taylor joined the Compensation Committee after his retirement from
Verilink in April 1999.
6
<PAGE> 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2000, the Company advanced $427,620, $409,080, and
$190,965 for housing assistance loans and other loans to Graham G. Pattison,
Michael L. Reiff and Edward A. Etzel, respectively, in connection with the
offers of employment to these executive officers of the Company. These advances
bear no interest and are required to be repaid based upon the occurrence of
certain events in the future. If the employment of Mr. Pattison or Mr. Reiff
terminates after certain dates and the value of each of their vested stock
options have not exceeded a minimum amount, $300,000 of the advances to Mr.
Pattison or to Mr. Reiff, as the case may be, may be forgiven. The Company
expects to advance $272,380 to Mr. Pattison, $290,920 to Mr. Reiff, and $109,035
to Mr. Etzel in fiscal 2001 as part of the housing assistance loans.
In September 1993, the Company and Leigh S. Belden, currently a
Director of the Company, entered into a Common Stock Purchase Agreement
providing for the purchase by Mr. Belden of 1,600,000 shares of the Company's
Common Stock in exchange for a promissory note issued by Mr. Belden in favor of
the Company in the amount of $800,000 due and payable in September 1998. In
February 1998 the Company's Board of Directors extended the repayment of
principal and interest under this note to September 16, 1999. The note was
originally secured by 2,900,000 pledged shares (the "Original Pledged Shares")
held by Leigh S. Belden and Deborah Tinker Belden, Trustees U/A Dated December
9, 1988, and Mr. Belden is not personally liable under the promissory note. In
December 1995, the Company approved the transfer, free of any security interest
of 1,000,000 shares of the Original Pledged Shares to Beltech, Inc., a Nevada
corporation of which the Leigh S. Belden and Deborah Tinker Belden Trust U/A
Dated 12/09/88 is the sole shareholder. Subsequent to the Company's initial
public offering in June 1996, the number of shares subject to the security
interest was further reduced to 130,398.
In August 1999, the number of shares subject to the security interest
was increased by an additional 150,000 shares. In September 1999, the repayment
schedule of the Promissory Note was modified to commence in September 2000, and
continue quarterly until March 2002. The security for the Promissory Note,
together with a $3,000,000 loan facility provided to Mr. Belden as described
below, was increased to 1,800,000 shares of Verilink common stock. In April
2000, the number of shares held by the Company as security for this note was
decreased to 600,000 shares. As of June 30, 2000, $1,123,000 of principal and
interest was outstanding under this promissory note.
In September 1998, the Company provided Mr. Belden with a loan facility
not to exceed $1,000,000 at an interest rate of 6% per annum. All loans made
pursuant to the facility were originally due on or before December 31, 1998. The
loan was originally unsecured. In January 1999, the maturity date was extended
to December 1999. In September 1999, the repayment date of the facility was
extended to June 30, 2000. The facility was secured by a pledge of Mr. Belden's
interest in Baytech Associates, a California general partnership of which Mr.
Belden is a fifty percent (50%) owner, and certain prepayments were required in
the event Baytech sold either or both of the properties in which it has an
interest. On March 30, 2000, the note and accrued interest were paid in full.
In February 1999, the Company approved an additional loan facility of
up to $3.0 million to Mr. Belden in return for a note that bears interest at 6%
per annum and that had an original maturity date of March 1, 2000. Additionally,
all or a portion of the aforementioned facility may be made available through
guarantees by the Company of third party loans. The September 1999 note
modification agreement requires repayment on this note to commence in September
2000 and to continue through maturity in March 2002. As of June 30, 2000,
$2,698,000 of principal and interest was outstanding. This facility (together
with the stock purchase promissory note described above) is secured by a pledge
of 600,000 shares of Verilink Common Stock.
The Company leased its former headquarters facility and its
manufacturing facility in San Jose, California from Baytech under operating
leases expiring in April 2001 and November 2001, respectively. In January 2000
following the relocation of the Company's principal headquarters to Huntsville,
Alabama, the Company paid Baytech $1,189,000 to terminate these leases effective
as of January 1, 2000. In fiscal 2000 and 1999, the Company loaned Baytech funds
totaling $153,000 and $417,000, respectively, for
7
<PAGE> 11
leasehold improvements and rent obligations in consideration of certain lease
concessions made by Baytech to the Company. These advances were repaid during
fiscal 2000, and as of June 30, 2000, no amounts are outstanding. During fiscal
2000, rent expense under these leases totaled $585,000.
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following tables set forth certain information concerning compensation
of and stock options held by the Company's Chief Executive Officer and each of
the four other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal 2000 of (i) the Company's Chief Executive Officer,
(ii) the four other most highly compensated executive officers of the Company
who were serving as such at 2000 fiscal year end, and (iii) two additional
persons who would have been included in the table if they had been serving as
executive officers of the Company at 2000 fiscal year end (collectively, the
"Named Executive Officers"), as well as the total compensation paid to each
Named Executive Officer for the Company's two previous fiscal years, if
applicable.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------ ALL OTHER
------------------------- SECURITIES COMPENSATION
FISCAL SALARY BONUS UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) (#)(3) ($)
--------------------------- ------ ------- ------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Graham G. Pattison....................... 2000 305,769 489,876 500,000 39,020(4)
President, Chief Executive 1999 51,923 -- 300,000 11,376(5)
Officer and Director 1998 -- -- -- --
Michael L. Reiff......................... 2000 147,115 158,230 350,000 124,873(6)(7)
Executive Vice President and 1999 -- -- -- --
Chief Operating Officer 1998 -- -- -- --
Steven E. Turner......................... 2000 200,461 86,859 100,000 14,576(8)
Vice President and 1999 76,270 39,655 100,000 8,891(8)
Chief Technical Officer 1998 -- -- -- --
James B. Garner.......................... 2000 131,538 70,607 75,000 5,862(8)
Vice President, Marketing 1999 -- -- -- --
1998 -- -- -- --
C. W. Smith.............................. 2000 125,173 60,000 35,000 18,027(8)
Vice President and Corporate 1999 -- -- -- --
Controller 1998 -- -- -- --
Henry L. Tinker (9)...................... 2000 359,369(10) 252,531 100,000 58,593(8)(11)
former Vice President, Operations 1999 185,300 -- 50,000 45,510(8)
1998 179,000 20,000 60,000 83,764(8)(11)
John C. Batty (12)....................... 2000 287,862(13) -- -- 26,761(8)
former Vice President, Finance 1999 186,300 -- 65,000 24,996(8)
and Chief Financial Officer 1998 180,000 30,000 10,000 32,823(8)
</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"). Additionally, the
fiscal 2000 salary for each Named Executive Officer employed during the
entire year is shown for 53 weeks to match the number of weeks included
in the Company's fiscal year ended June 30, 2000 as compared to 52
weeks for the prior fiscal years.
8
<PAGE> 12
(2) The amounts disclosed in this column represent bonus amounts in the
year earned.
(3) The stock options listed in the table include the options to purchase
Common Stock of the Company.
(4) This amount represents temporary housing and relocation expenses, auto
allowances and operating expenses, 401(k) Plan matching contributions,
membership fees and life insurance premiums paid by the Company.
(5) This amount represents temporary housing expenses, auto allowances and
operating expenses, and life insurance premiums paid by the Company.
(6) This amount primarily represents auto allowances and operating
expenses, 401(k) Plan matching contributions, membership fees,
reimbursement of medical expenses and life insurance premiums paid by
the Company.
(7) Additionally, includes payments by the Company for relocation and
temporary housing expenses in the amount of $116,248 for fiscal year
2000.
(8) This amount primarily represents auto allowances and operating
expenses, 401(k) Plan matching contributions, reimbursement of medical
expenses and life insurance premiums paid by the Company.
(9) Mr. Tinker retired as the Company's Vice President, Operations in March
2000.
(10) This amount represents $171,369 in salary earned during fiscal year
2000 and $188,000 in severance compensation paid during fiscal 2000.
(11) Additionally, includes payments by the Company of housing expense in
the amounts of $27,400 and $43,064 for fiscal years 2000 and 1998,
respectively.
(12) Mr. Batty resigned as the Company's Vice President, Finance and Chief
Financial Officer in November 1999.
(13) This amount represents $98,862 in salary earned during fiscal year 2000
and $189,000 in severance compensation paid during fiscal 2000.
9
<PAGE> 13
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 to each of the Named Executive Officers during the fiscal year ended
June 30, 2000.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL PATE 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>
Graham G. Pattison............. 100,000 3.99 $3.063 07/01/09 $ 192,630 $ 488,163
400,000 15.95 $2.000 11/01/09 503,116 1,274,994
Michael L. Reiff............... 350,000 13.96 $2.688 11/24/09 591,664 1,499,393
Steven E. Turner............... 100,000 3.99 $2.250 08/19/09 141,501 358,592
James B. Garner................ 25,000 1.00 $2.375 10/01/09 37,341 94,628
50,000 1.99 $11.938 02/16/10 375,387 951,305
C. W. Smith.................... 35,000 1.40 $2.250 08/19/09 49,525 125,507
Henry L. Tinker................ 100,000 3.99 $11.938 03/31/03 196,139 413,090
</TABLE>
(1) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their terms, assuming the
specified compounded rates of appreciation on the Company's Common
Stock over the term of the options. Actual gains, if any, on stock
option exercise are dependent upon a number of factors, including the
future performance of the Common Stock, overall stock market
conditions, and the timing of option exercises, if any. There can be no
assurance that amounts reflected in this table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in fiscal year 2000, and
unexercised options held as of June 30, 2000, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END (#) FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE --------------------------------- ---------------------------------
NAME EXERCISE (#) REALIZED (1)($) EXERCISABLE UNEXERCISABLE (3) EXERCISABLE UNEXERCISABLE (3)
---- ------------ ---------------- ------------- ----------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Graham G. Pattison...... -- $ -- 112,797 687,203 $ 731,195 $ 4,937,505
Michael L. Reiff........ 20,000 203,740 31,041 298,959 217,271 2,092,564
Steven E. Turner........ -- -- 25,000 175,000 153,125 1,203,125
James B. Garner......... 5,000 30,531 1,250 93,750 7,656 297,656
C. W. Smith............. 2,600 26,488 6,150 61,250 37,669 421,094
Henry L. Tinker......... -- -- 260,000 -- 485,625 --
John C. Batty(4)........ 175,000 1,411,920 -- -- -- --
</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 $9.6875, the price per
share of the underlying shares of Common Stock, as reported on the
Nasdaq National Market on June 30, 2000 (the last trading day of fiscal
year 2000).
10
<PAGE> 14
(3) The options 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, within 60 days following the date of cessation of employment at
a repurchase price equal to the exercise price of such shares.
Accordingly, options are identified below as unvested to the extent
that the underlying Common Stock is unvested as of fiscal year end.
(4) Includes shares acquired on exercise after employment was terminated.
AUDIT COMMITTEE REPORT
The Audit Committee reports as follows with respect to the audit of the
Company's 2000 audited consolidated financial statements.
- The Committee has reviewed and discussed the Company's 2000
audited consolidated financial statements with the Company's
management;
- The Committee has discussed with the independent auditors
(PricewaterhouseCoopers LLP) the matters required to be
discussed by SAS 61, which include, among other items, matters
related to the conduct of the audit of the Company's
consolidated financial statements;
- The Committee has received written disclosures and the letter
from the independent auditors required by ISB Standard No. 1
(which relates to the auditor's independence from the
corporation and its related entities) and has discussed with
the auditors the auditors' independence from the Company; and
- Based on review and discussions of the Company's 2000 audited
consolidated financial statements with management and
discussions with the independent auditors, the Audit Committee
recommended to the Board of Directors that the Company's 2000
audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K.
AUDIT COMMITTEE CHARTER
The Board of Directors has adopted a written charter for the Audit
Committee, a copy of which is attached to this Proxy Statement as Exhibit A. The
Board of Directors reviews and approves changes to the Audit Committee charter
annually.
INDEPENDENCE OF AUDIT COMMITTEE MEMBERS
The Company's Audit Committee is comprised of Messrs. Oringer, Major
and McGuire. Each of these members meets the requirements for independence as
recently defined by the applicable Nasdaq standards.
Audit Committee
Howard Oringer
John E. Major
John A. McGuire
October 13, 2000
11
<PAGE> 15
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENTS AND EMPLOYMENT CONTRACTS
The Company has entered into a Change of Control Severance Benefits
Agreement (the "Agreement") with each of its executive officers. 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. Steven E. Turner, Vice President and Chief Technical Officer, is a
party to a Retention Agreement entered into between him and TxPort, Inc. on
October 7, 1998. The Company assumed TxPort's obligations under that agreement
when it acquired TxPort in November, 1998. The acquisition triggered the
severance provisions of the Agreement, pursuant to which Mr. Turner will receive
up to twelve (12) months salary if the Company terminates him without cause or
he resigns for good reason with 24 months of the acquisition. Mr. Turner
received a retention payment of three months' salary pursuant to the Retention
Agreement.
Mr. C.W. Smith and Mr. James B. Garner are also parties to a Retention
Agreement entered into between them and TxPort, Inc. on October 7, 1998. The
Company assumed TxPort's obligations under that agreement when it acquired
TxPort in November 1998. The acquisition triggered the severance provisions of
the Agreement, pursuant to which Messrs. Smith and Garner will respectively
receive up to nine (9) months salary if the Company terminates either without
cause or either resigns for good reason with 24 months of the acquisition.
Mr. Michael L. Reiff, Executive Vice President and Chief Operating
Officer is a party to an Employment Agreement with the Company. Pursuant to that
Agreement, Mr. Reiff is entitled to an annual base salary of $250,000, subject
to annual increases; is eligible for annual bonuses, subject to meeting
performance goals, with a target payout of fifty percent (50%) of annual base
salary; and is eligible for benefits generally available to other executive
officers of the Company. He also received temporary housing and relocation
assistance and was granted a loan facility, as amended, of $400,000 to acquire a
residence in Alabama and another loan facility of $300,000. Under the Agreement,
Mr. Reiff is also entitled to receive an option to purchase 89,500 shares of
Company common stock on each anniversary of his employment with the Company. In
addition, if Mr. Reiff's employment with the Company terminates under specified
circumstances, such as an involuntary termination by the Company without cause,
he will be entitled to severance benefits equal to one (1) year's annual base
salary and to the continuation of other employee benefits for a period of one
(1) year following any such termination.
Mr. Graham G. Pattison, the Company's President and Chief Executive
Officer is a party to an Employment Agreement with the Company. Pursuant to that
Agreement, Mr. Pattison is entitled to an annual base salary of $300,000,
subject to annual increases; is eligible for annual bonuses, subject to meeting
performance goals, with a target payout of fifty percent (50%) of annual base
salary; and is eligible for benefits generally available to other executive
officers of the Company. He also received temporary housing and relocation
assistance and was granted a loan facility of $700,000, as amended, to acquire a
residence in Alabama. In addition, if Mr. Pattison's employment is terminated by
the Company without cause prior to the second anniversary of his employment, he
will be entitled to severance benefits equal to one (1) year's annual base
salary and to the continuation of other employee benefits for a period of one
(1)
12
<PAGE> 16
year following any such termination. In September 1999, the Company agreed to
pay Mr. Pattison a bonus of $300,000 if he successfully managed the transition,
prior to December 31, 1999, of the Company's San Jose, California operations to
its Huntsville, Alabama facility. Mr. Pattison received this bonus in fiscal
2000.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
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 and 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 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
is currently composed of Messrs. Oringer, McGuire and Taylor. Mr. Taylor is a
former officer and employee of the Company. In addition to administering the
1993 Amended and Restated Stock Option Plan and the 1996 Employee Stock Purchase
Plan, the Compensation Committee is authorized by the Board, among other things,
to establish and review annually the 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.
The Chief Executive Officer's compensation for fiscal year 2000 was
based on the terms of the employment agreement between Graham Pattison and the
Company dated March 22, 1999. Based on the Company's performance for fiscal
2000, Mr. Pattison earned a bonus of $189,876 for exceeding revenue growth and
profitability targets that were set at the beginning of the year. Mr. Pattison
was also paid a $300,000 bonus in fiscal 2000 for successfully managing the
transition of the Company's operations from San Jose, California to it
Huntsville, Alabama facility by December 31, 1999.
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 30, 2000, 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 2001.
Compensation Committee
Howard Oringer
Steven C. Taylor
John A. McGuire
October 13, 2000
13
<PAGE> 17
STOCK 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 30, 2000), with the cumulative total return on The Nasdaq
Stock Market U.S. Index and the Chase H&Q 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.
COMPARISON OF 48 MONTH CUMULATIVE TOTAL RETURN
AMONG VERILINK CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE CHASE H & Q TECHNOLOGY INDEX
[CHART]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------------
6/10/96 6/96 6/97 6/98 6/99 6/00
------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
VERILINK CORPORATION.......................... 100.00 159.38 65.63 51.56 18.36 60.55
NASDAQ STOCK MARKET (U.S.).................... 100.00 96.51 117.37 154.52 222.51 328.68
CHASE H & Q TECHNOLOGY........................ 100.00 94.80 123.81 156.83 253.83 445.31
</TABLE>
14
<PAGE> 18
PROPOSAL NO. 2
AMENDMENTS OF THE COMPANY'S 1993 AMENDED AND RESTATED STOCK OPTION
PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER
BACKGROUND
On August 10, 2000, the Board of Directors of the Company approved an
amendment to the Company's 1993 Amended and Restated Stock Option Plan (the
"Option Plan") increasing the total number of shares of common stock issuable
pursuant to the Option Plan from 6,800,000 to 8,800,000. Previously, on May 17,
2000, the Board of Directors of the Company approved an amendment to the Option
Plan which increased the total number of shares of common stock issuable
pursuant to the Option Plan from 6,050,000 to 6,800,000. 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 amendments proposed to be approved
by the stockholders. Unless marked otherwise, proxies received will be voted FOR
the approval and ratification of the amendments to the Option Plan.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS UNDER THE AMENDED OPTION PLAN
Through October 2, 2000, a total of 450,000 stock options under the
amendments to the Option Plan have been granted to the Company's executive
officers. The Board of Directors has not yet made any further determination as
to which eligible participants will be granted options under the amendments to
the Option Plan in the future. Consequently, the aggregate benefits and or
amounts that will be received in the future by any groups or persons pursuant to
the amendments to the Option Plan is not presently determinable.
GENERAL DESCRIPTION OF OPTION PLAN
The following summary of the Option Plan, including the amendments, 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. In April 1999 the Board of Directors
approved, and in June 1999 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 5,050,000 to 6,050,000 shares. In May 2000 and August
2000, the Board of Directors approved an amendment to the Option plan to
increase the number of shares reserved for issuance thereunder by 2,750,000
shares from 6,050,000 to 8,800,000, subject to adjustment in the event of future
changes in the corporate structure. As of October 2, 2000, the number of
executive officers, employees, consultants, independent contractors and
directors of the Company and its subsidiaries that were eligible to receive
grants under the Option Plan was approximately 229 persons. As of October 2,
2000, total options granted under the Plan were 11,290,082, of which 4,681,837
had been cancelled, and 2,605,839 had been exercised. Total options outstanding
were 4,002,406.
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
15
<PAGE> 19
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.
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 Exchange Act of 1934, as amended.
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 exercise price must be paid in cash or by check unless the term s of the
option agreement allow the exercise price to be paid in whole or in part, with
previously-owned share, through a "cashless" exercise with a broker; with a
promissory note or through a "net" exercise payable in cash or shares of stock.
If the exercise price is paid through a net exercise, the Board of Directors may
issue the optionee an additional option entitling the optionee to purchase
shares of stock equal in number to the number of shares retained by the Company
as part of the net exercise of the original option.
Nonqualified stock options and ISOs granted to date 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.
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. Stock options
granted under the Option Plan are transferable in accordance with the terms of
option agreement covering the option except incentive stock options. Incentive
stock options, to the extent required by law, are not transferable other than by
will or the laws of descent or distribution, and each incentive 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
incentive 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 CONSIDERATION
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
16
<PAGE> 20
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 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 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 amended the Option Plan
to set the maximum number of shares with respect to which options can be granted
at 1,000,000 shares in any fiscal year, subject to adjustment in the event of
future changes in corporate structure.
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.
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO OPTIONEES UNDER THE INTERNAL REVENUE CODE AND SHOULD NOT BE
CONSTRUED AS LEGAL, TAX OR INVESTMENT ADVICE. ALL OPTION PLAN PARTICIPANTS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
APPLICABLE TO THEM, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
17
<PAGE> 21
STOCKHOLDER APPROVAL
The Board of Directors seeks stockholder approval for the ratification
of the amendments because such approval is required under the Internal Revenue
Code as a condition to incentive stock option treatment and will maximize the
potential for deductions associated with any non-qualified options granted under
the Option Plan.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock of the Company present, or represented and
entitled to vote, at the Annual Meeting is required to ratify the amendments to
the Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE AMENDMENTS TO
THE OPTION PLAN.
18
<PAGE> 22
PROPOSAL NO. 3
AMENDMENTS OF THE COMPANY'S 1996 EMPLOYEE STOCK
PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER
BACKGROUND
On August 10, 2000, the Board of Directors of the Company approved an
amendment to the Company's 1996 Employee Stock Purchase Plan (the "Stock
Purchase Plan") which increases the total number of shares of common stock
issuable pursuant to the Stock Purchase Plan from 600,000 to 750,000, subject to
adjustment in the event of certain changes in corporate structure. Previously,
on February 16, 2000, the Board of the Directors of the Company had approved an
amendment to the Stock Purchase Plan which increased the total number of shares
of common stock issuable pursuant to the Stock Purchase Plan from 500,000 to
600,000. A general description of the principal terms of the Stock Purchase Plan
is set forth below. Although the Company believes that the following description
provides a fair summary of the material terms of the Stock Purchase Plan, the
description is qualified in its entirety by the text of the Stock Purchase Plan,
including the amendments to be ratified by the stockholders. Unless marked
otherwise, proxies received will be voted FOR the approval and ratification of
the amendments to the Stock Purchase Plan.
GENERAL DESCRIPTION OF STOCK PURCHASE PLAN
The following summary of the Stock Purchase Plan, including the
proposed amendments, is qualified in its entirety by the specific language of
the Stock Purchase Plan, a copy of which is available to any stockholder upon
request.
The Company's Stock Purchase Plan was initially approved by the Board
of Directors in April 1996 and initially approved by the stockholders in 1996.
As of October 2, 2000, the number of employees of the Company and its
subsidiaries that were eligible to participate in the Stock Purchase Plan was
approximately 224 persons. As of October 2, 2000, the total shares Common Stock
purchased under the Stock Purchase Plan were 569,005.
The purpose of the Stock Purchase Plan is to create additional
incentives for the Company's employees (including employees of any subsidiaries
of the Company) 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 through accumulated payroll
deductions.
The Stock Purchase Plan is administered by the Compensation Committee
of the Board of Directors. The Board or its committee has full and exclusive
discretionary authority to construe, interpret and apply the terms of the Stock
Purchase Plan. The Board may also terminate or amend the Stock Purchase Plan,
subject to stockholder approval in certain circumstances. The Stock Purchase
Plan will continue in effect for ten years unless sooner terminated.
Any full-time employee of the Company employed on the first day of a
purchase period may elect to purchase Common Stock through participation in the
Stock Purchase Plan. Each eligible employee may elect to participate in the
Stock Purchase Plan through payroll deductions by tendering a written election
authorizing the deduction of up to 10% of pay received for each pay day during
the purchase period to be applied to the purchase of Common Stock. Payroll
deductions will commence with paychecks issued during each purchase period,
provided the election is delivered to the Company at least 15 days prior to the
enrollment date. A participant's election will remain in effect until modified
or until the participant withdraws from the Stock Purchase Plan. A participant
may decrease payroll deduction amounts during a purchase period by filing a new
subscription agreement. If a participant withdraws from the Stock Purchase Plan,
he or she may resume participation as of the first day of a future purchase
period if a new subscription agreement is delivered to the Company.
19
<PAGE> 23
Owners of 5 percent or more of the stock of the Company or its
subsidiaries are not permitted to participate in the Stock Purchase Plan. In
addition, no participant may receive more than 5,000 shares of Common Stock in a
single purchase period or any Common Stock if it would permit his or her rights
to purchase common stock to accrue at a rate which exceeds $25,000 of the fair
market value of Common Stock in any calendar year.
As soon as practicable after the close of each purchase period, the
Company will apply the total payroll deductions received during the purchase
period to the purchase of Common Stock at a purchase price equal to the lower of
85% of the Common Stock's fair market value as of the first day of the purchase
period or 85% of the fair market value of the Common Stock as of the last day of
the purchase period. Any payroll deductions remaining after the purchase of the
maximum number of full shares and which exceed the purchase price of a full
share will be returned to the participant. No interest is payable by the Company
on accumulated payroll deductions.
A stock certificate representing the number of shares purchased on
behalf of a participant will be delivered to the participant as soon as
practicable after the end of each purchase period. No dividend or voting rights
will exist with respect to shares of Common Stock purchased under the Stock
Purchase Plan until the date the stock certificate is issued. The purchase
rights under the Stock Purchase Plan are not transferable by a participant. A
participant may choose to withdraw from the Stock Purchase Plan and receive a
refund of payroll deductions if a timely written election to withdraw is
delivered to the Company. Purchase periods generally extend for a period of six
months.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company intends that the Stock Purchase Plan qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code.
The federal income tax consequences to the participants and the Company are as
follows.
Contributions withheld from a participant's regular compensation
through payroll deductions are taxable income to the participant, and the
participant's cash contributions to the Stock Purchase Plan are deductible to
the Company.
The required holding period for favorable tax treatment upon
disposition of Common Stock acquired under the Stock Purchase Plan (the "Holding
Period") is 18 months after the shares are purchased. If a participant holds
Common Stock for the required Holding Period and then sell the shares, he or she
will realize ordinary income to the extent of the lesser of (1) the excess of
the fair market value of the Common Stock on the first day of the offering
period over the "purchase price" or (2) the excess of the fair market value of
the Common Stock at the time of the disposition over the amount paid for the
shares. For this purpose the "purchase price" is equal to 85% of the fair market
value of the Common Stock as of the first day of an offering period. Any further
gain realized upon the sale will be considered a long-term capital gain. If the
sale price is less than the purchase price, there will be no ordinary income and
the participant will have a long-term capital loss for the difference.
When a participant sells Common Stock purchased under the Stock
Purchase Plan before the expiration of the required Holding Period, he or she
will recognize ordinary income in an amount equal to the excess of the fair
market value of the Common Stock on the last day of the offering period over the
price actually paid for the Common Stock. Any gain realized in excess of that
amount will be taxed as a capital gain. If the sale price is less than the
amount paid, increased by the ordinary income which must be recognized, then any
such loss will be a capital loss.
If a participant dies while owning Common Stock acquired under the
Stock Purchase Plan, ordinary income must be reported on the deceased
participant's final income tax return. This amount will be the lesser of (1) the
excess of the fair market value of the Common Stock as of the first day of the
offering period over the purchase price or (2) the excess of the fair market
value of the Common Stock at the time of the participant's death over the price
paid for the shares.
20
<PAGE> 24
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO PURCHASERS UNDER THE INTERNAL REVENUE CODE AND SHOULD NOT BE
CONSTRUED AS LEGAL, TAX OR INVESTMENT ADVICE. ALL STOCK PURCHASE PLAN
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES APPLICABLE TO THEM, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
STOCKHOLDER APPROVAL
The Board of Directors seeks stockholder approval for the ratification
of the amendments because such approval is required under the Internal Revenue
Code as a condition to favorable tax treatment for participants under the Stock
Purchase Plan.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock of the Company present, or represented and
entitled to vote, at the Annual Meeting is required to ratify the amendments to
the Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE AMENDMENTS TO
THE STOCK PURCHASE PLAN.
21
<PAGE> 25
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP has served as the Company's independent
accountants since the Company's inception and has been recommended to the Board
of Directors as the Company's independent accountants for fiscal year 2001. In
the event that ratification of this selection of accountants is not approved by
a majority of the shares of Common Stock voting at the Annual Meeting in person
or by proxy, management will review its future selection of accountants. Unless
marked to the contrary, proxies received will be voted FOR ratification of the
appointment of PricewaterhouseCoopers LLP as the independent accountants for the
2001 fiscal year.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting with the opportunity to make a statement, if they
desire to do so, and they are expected to be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL
YEAR 2001.
STOCKHOLDER PROPOSALS/STOCKHOLDER NOMINATIONS FOR DIRECTOR
Stockholder proposals submitted pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, as amended, and intended to be presented at the
Company's 2001 Annual Meeting of Stockholders must be received by the Company
not later than June 16, 2001 in order to be considered for inclusion in the
Company's proxy materials for that meeting.
The Board of Directors does not have a nominating committee or a
committee performing the functions of a nominating committee. Stockholders
wishing to directly nominate candidates for election to the Board of Directors
("Director Nominations") and for the conduct of other business to be brought
before an annual meeting ("Other Business"), must do so in accordance with the
Company's Certificate of Incorporation and Bylaws.
To be timely, notice of Director Nominations to be brought before an
annual meeting or special meeting must be received by the Secretary of the
Company, at the address set forth below, not earlier than ninety nor later than
sixty days prior to the first anniversary of the preceding year's annual meeting
or, if the date of the annual meeting is advanced by more than thirty days or
delayed by more than sixty days from such anniversary, such notice must be
received not earlier than ninety days prior to such annual meeting and not later
than the later of (1) the sixtieth day prior to the annual meeting or (2) the
tenth day following the date on which notice of the date of the annual meeting
was mailed or public disclosure thereof was made, whichever occurs first. The
Certificate of Incorporation also provides that notice of Director Nomination of
a candidate for director shall include certain information with respect to a
proposed nominee, including (without limitation) information as to such
nominee's business background, relationships with stockholders and certain other
parties, and share ownership in the Company.
To be timely, notice of Other Business to be brought before an annual
meeting or special meeting must be received by the Secretary of the Company, at
the address set forth below, not later than ninety days prior to the meeting
date or, if less than one hundred days notice or prior public disclosure of the
date of the meeting is given to or made to stockholders, notice of Other
Business must be received no later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting or
special meeting was mailed or made public. The Company has not yet publicly
announced the date of the 2001 Annual Meeting of Stockholders.
22
<PAGE> 26
Stockholder proposals for Other Business or Director Nominations should
be mailed to C.W. Smith, Vice President and Corporate Controller, Verilink
Corporation, 127 Jetplex Circle, Madison, Alabama, 35758.
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented to the Annual Meeting. If any other business is properly brought
before the Annual 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
October 13, 2000
Madison, Alabama
23
<PAGE> 27
EXHIBIT A
VERILINK CORPORATION
AUDIT COMMITTEE CHARTER
I. Organization
The audit committee shall be comprised of at least three
directors, all of whom are independent of the management of the
corporation and are free of any relationship that, in the opinion of
the board of directors, would interfere with their exercise of
independent judgement as a committee member. All members of the audit
committee shall have a working familiarity with basic finance and
accounting practices, and at least one member of the audit committee
shall have accounting or related financial management expertise.
The members of the audit committee shall be elected by the board
of directors annually or until their successors shall be duly elected
and qualified. Unless a Chairman of the audit committee is elected by
the full board of directors, the members of the audit committee may
designate a Chairman by majority vote of the full audit committee.
II. Statement of Policy
The audit committee shall provide assistance to the corporate
directors in fulfilling their responsibility to the shareholders and
the investment community relating to corporate accounting, reporting
practices of the corporation and the quality and integrity of the
financial reports of the corporation. In so doing, it is the
responsibility of the audit committee to:
- serve as an independent and objective party to monitor the
corporation's financial reporting process and internal control
system;
- review as appropriate the audit efforts of the corporation's
independent accountants; and
- maintain free and open means of the communication between the
directors, the independent auditors and the financial
management of the corporation.
The independent auditors are accountable to the board of
directors and the audit committee. The board of directors and the audit
committee shall have ultimate authority to select, evaluate and replace
the independent auditors. The audit committee is also responsible for
monitoring the independence of the independent auditors.
III. Meetings
The audit committee shall hold four regular meetings each fiscal
year, which shall be held shortly before the quarterly meetings of the
board of directors. In addition, the audit committee shall hold such
special meetings as may be called by the Chairman of the audit
committee or at the request of the corporation's independent
accountants.
IV. Responsibilities
In carrying out its responsibilities, the audit committee
believes its policies and procedures should remain flexible, in order
to react to changing conditions and to ensure to the directors and
<PAGE> 28
shareholders that the corporate accounting and reporting practices of
the corporation are in accordance with all requirements and are of the
highest quality.
In carrying out these responsibilities, the audit committee
will:
Independent Auditors
1. Review and recommend to the directors on an annual basis the
independent auditors to be selected to audit the financial
statements of the corporation and its subsidiaries and approve
the fees and other compensation to be paid to the independent
auditors.
2. On an annual basis, review and discuss with the independent
auditors all significant relationships the independent
auditors have with the corporation to determine the
independence of such auditors and receive a letter from the
independent auditors regarding their independence.
3. Meet with the independent auditors and financial management of
the corporation to review the scope of the proposed audit for
the current year and the audit procedures to be utilized.
4. Review each opinion or report of the independent auditors and
review any comments or recommendations of the independent
auditors with respect to the audited or interim financial
statements.
5. Provide sufficient opportunity for the independent auditors to
meet with the members of the audit committee without members
of management present. Among the items to be discussed in
these meetings are the independent auditors' evaluation of the
corporation's financial and accounting personnel and the
cooperation that the independent auditors received during the
course of the audit.
6. Review the range and cost of audit and non-audit services
performed by the independent auditors.
7. Discuss with the independent auditors, at least annually, the
matters required by SAS 61, as amended from time to time.
Financial Reporting Process
8. Review with the independent auditors and financial accounting
personnel the adequacy and effectiveness of the accounting and
financial controls of the corporation.
9. Elicit recommendations from the independent auditors for the
improvement of the corporation's internal control procedures
or particular areas where new or more detailed controls or
procedures are desirable.
10. Review the corporation's audited financial statements with
management and the independent auditors, including the nature
and extent of any significant change in accounting principles
or the application of such principles, and recommend to the
board of directors whether the audited financial statements
should be included in the corporation's Annual Report on Form
10-K.
11. Review with financial management and the independent auditors
the interim financial results prior to their public release or
prior to the filing of the Quarterly Report on Form 10-Q.
<PAGE> 29
Review of Other Documents and Reports
12. Review the activities, organizational structure, and
qualifications of accounting and financial human resources
within the corporation.
13. Review the programs and policies of the corporation designed
to ensure compliance with applicable laws and regulations and
monitoring the results of those compliance efforts.
14. Review the procedures established by the corporation that
monitor the compliance by the corporation with its loan and
indenture covenants and restrictions.
15. Review with the corporation's counsel any legal matter that
could have a significant impact on the corporation's financial
statements.
Accountability to Board of Directors
16. Report through its Chairman to the board of directors
following the meetings of the audit committee.
17. Maintain minutes or other records of meetings and activities
of the audit committee, all of which shall be submitted to the
corporate secretary to be filed with the minutes of meetings
of the corporation's board of directors.
18. Review this Charter annually and report and make
recommendations to the board of directors regarding revisions
to this Charter.
Other
19. Investigate any matter brought to its attention, within the
scope of its duties, with the power to retain outside counsel
for this purpose if, in its judgement, that is appropriate.
20. Consider such other matters in relation to the financial
affairs of the corporation and its accounts, and in relation
to the internal and external audit of the corporation as the
audit committee may, in its discretion, determine to be
advisable.
21. Perform any other activities consistent with this Charter, the
corporation's by-laws and charter documents and governing law,
as the audit committee or the board of directors deems
necessary or appropriate.
22. Prepare a letter for inclusion in the annual proxy statement
that describes the committee's composition and
responsibilities, and how they were discharged.
<PAGE> 30
[VERILINK LOGO]
VLK-PS-00
<PAGE> 31
PROXY
VERILINK CORPORATION
127 JETPLEX CIRCLE
MADISON, ALABAMA 35758
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING ON NOVEMBER 15, 2000.
THE UNDERSIGNED HEREBY APPOINTS GRAHAM G. PATTISON AS PROXY, WITH FULL POWER OF
SUBSTITUTION, AND HEREBY AUTHORIZES HIM TO VOTE, AS DESIGNATED BELOW, ALL
SHARES (UNLESS A LESSER NUMBER IS SPECIFIED ON THE OTHER SIDE) OF COMMON STOCK
OF VERILINK CORPORATION (THE "COMPANY") THAT THE UNDERSIGNED WOULD BE ENTITLED
TO VOTE AT THE ANNUAL MEETING OF STOCKHOLDERS OF THE COMPANY TO BE HELD ON
NOVEMBER 15, 2000 AT THE COMPANY'S NEW FACILITY AT 950 EXPLORER BOULEVARD,
HUNTSVILLE, ALABAMA, AT 9:00 A.M. LOCAL TIME, AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED
FOR EACH OF PROPOSALS 1 THROUGH 4 AND IN THE DISCRETION OF THE PROXY HOLDERS(S)
WITH RESPECT TO OTHER MATTERS PROPERLY BROUGHT BEFORE THE MEETING, INCLUDING ANY
ADJOURNMENTS THEREOF.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
DETACH HERE
------ PLEASE MARK
X VOTES AS IN
------ THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF PROPOSALS 1 THROUGH 4.
1. PROPOSAL TO ELECT (01) GRAHAM G. PATTISON AND
(02) JOHN E. MAJOR DIRECTORS OF THE COMPANY.
FOR WITHHELD
------ ------
------ ------
-----
----- _______________________________________
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
FOR AGAINST ABSTAIN
2. PROPOSAL TO RATIFY AMENDMENTS TO THE COMPANY'S ---- ---- ----
1993 STOCK OPTION PLAN INCREASING THE NUMBER
OF SHARES OF COMMON STOCK SUBJECT TO AWARDS ---- ---- ----
UNDER THE PLAN FROM 6,050,000 SHARES TO
9,600,000 SHARES.
FOR AGAINST ABSTAIN
3. PROPOSAL TO RATIFY AMENDMENTS TO THE COMPANY'S ---- ---- ----
1995 EMPLOYEE STOCK PURCHASE PLAN INCREASING
THE NUMBER OF SHARES OF COMMON STOCK RESERVED ---- ---- ----
FOR ISSUANCE UNDER THE PLAN FROM 500,000 SHARES
TO 750,000 SHARES.
FOR AGAINST ABSTAIN
4. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT ---- ---- ----
OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ---- ---- ----
ENDING JUNE 29, 2001.
PLEASE MARK AND DATE THE PROXY AND SIGN YOUR NAME AS IT APPEARS HEREON.
IF EXECUTED BY A CORPORATION, A DULY AUTHORIZED OFFICER MUST SIGN BY NAME
AND TITLE. EXECUTORS, ADMINISTRATORS, AND TRUSTEES MUST SO INDICATE WHEN
SIGNING. IF SHARES ARE HELD JOINTLY, EACH HOLDER MUST SIGN.
SIGNATURE: ____________ DATE: __________ SIGNATURE: ____________ DATE: _________
DETACH HERE
