As filed with the Securities and Exchange
Commission on June 24, 2004
Registration No. 333-116472
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Verilink Corporation
(Exact name of Registrant as specified in its
charter)
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Delaware
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3661
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94-2857548
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(State or other jurisdiction of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(I.R.S. Employer
Identification No.)
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Verilink Corporation
127 Jetplex Circle
Madison, Alabama 35758
(256) 327-2001
(Address, including zip code, and telephone
number, including area code, of
Registrants principal executive
offices)
C.W. Smith
Vice President and Chief Financial
Officer
Verilink Corporation
127 Jetplex Circle
Madison, Alabama 35758
(256) 327-2001
(Name, address, including zip code, and
telephone number, including area code, of agent for
service)
With copies to:
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Eliot W. Robinson, Esq.
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Sixteenth Floor
Atlanta, GA 30303
(404) 572-6600
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Jamie E. Chung, Esq.
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
(415) 693-2000
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Approximate date of commencement of proposed
sale to the public:
Upon consummation
of the merger described herein.
If the securities being registered on this form
are to be offered in connection with the formation of a holding
company and there is compliance with General Instruction G,
check the following
box.
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If this form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
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If this form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Title of Each Class of
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Amount to be
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Offering Price Per
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Aggregate Offering
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Amount of
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Securities to be Registered(1)
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Registered(2)
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Share
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Price(3)
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Registration Fee(4)
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Common stock, par value $.01 per share
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6,949,972
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N/A
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$28,014,468
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$3,549
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(1)
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This registration statement relates to shares of
Verilink Corporation common stock, par value $0.01 per
share, issuable to holders of Larscom Incorporated common stock,
par value $0.01 per share, pursuant to the proposed merger
of a wholly-owned subsidiary of the registrant, with and into
Larscom.
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(2)
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Based on the maximum number of shares of
registrant common stock to be issued in connection with the
merger, calculated as the product of (A) the sum of
(i) 5,100,255, the aggregate number of shares of Larscom
common stock outstanding as of June 1, 2004 and
(ii) 860,270, the aggregate number of shares of Larscom
common stock issuable on exercise of all outstanding options and
warrants to purchase Larscom common stock as of June 1,
2004 (such sum, the Larscom Fully Diluted Shares),
and (B) 1.166, the maximum number of shares of registrant common
stock issuable in respect of each share of Larscom common stock.
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(3)
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Estimated solely for the purpose of calculating
the registration fee required by Section 6(b) of the
Securities Act of 1933, as amended (the Securities
Act), and calculated pursuant to Rule 457(f) under
the Securities Act. Pursuant to Rules 457(c) and 457(f)(1),
respectively, under the Securities Act, the proposed maximum
aggregate offering price of registrant common stock was
calculated based on the market value of the shares of Larscom
common stock (the securities to be received by the registrant in
the merger) in accordance with Rule 457(c) under the
Securities Act, determined as the product of (A) $4.70, the
average of the high and low prices per share of Larscom common
stock on June 4, 2004, as reported on the Nasdaq SmallCap
Market, and (B) 5,960,525, the Larscom Fully Diluted Shares
on June 1, 2004.
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(4)
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Previously paid.
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The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
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Dear Stockholder:
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June 24, 2004
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You are cordially invited to attend on Tuesday,
July 27, 2004 a special meeting of stockholders of Verilink
Corporation and a special meeting of stockholders of Larscom
Incorporated. The special meeting of Larscom stockholders will
occur at 9:00 a.m. Pacific Daylight Time and the special meeting
of Verilink stockholders will occur at 10:00 a.m. Pacific
Daylight Time. Each special meeting will be held at
Larscoms headquarters, 39745 Eureka Drive, Newark,
California 94560.
One of the items to be discussed and approved at
the special meetings is the merger agreement Verilink and
Larscom entered into on April 28, 2004, which provides for
the issuance of Verilink common stock to the Larscom
stockholders and the combination of the two companies. If the
merger is completed, Larscom will survive as a wholly-owned
subsidiary of Verilink. Each share of Larscom common stock will
be converted into the right to receive 1.166 shares of
Verilink common stock, subject to reduction by an adjustment
factor based on the amount of Larscoms net adjusted
working capital prior to the merger. Based on the number of
shares of Verilink common stock and Larscom common stock
outstanding on June 1, 2004 and assuming no reduction based
on the amount of Larscoms net adjusted working capital,
Verilink expects to issue approximately 5,947,000 shares of
its common stock in the merger and, after the merger, the
current stockholders of Larscom will own approximately 26% of
Verilinks outstanding common stock.
Verilink common stock is traded on The Nasdaq
National Market under the trading symbol VRLK, and
Larscom common stock is traded on The Nasdaq SmallCap Market
under the trading symbol LARS.
We encourage you to read the accompanying joint
proxy statement/prospectus and its annexes carefully.
In
particular, you should carefully read and consider the risks
discussed under the caption Risk Factors beginning
on page 16 before completing your proxy card.
The board of directors of Verilink unanimously
recommends that its stockholders approve the issuance of
Verilink common stock to Larscom stockholders, Verilinks
2004 Stock Incentive Plan and any adjournments to the special
meeting. Therefore, we are asking the Verilink stockholders to
vote FOR the issuance of Verilink common stock to
Larscom stockholders in connection with the merger,
FOR Verilinks 2004 Stock Incentive Plan and
FOR any adjournments to the special meeting.
Larscoms board of directors recommends, by unanimous vote
of directors present, that its stockholders approve and adopt
the merger agreement and approve the merger. Therefore, we are
asking the Larscom stockholders to vote FOR the
approval and adoption of the merger agreement and the approval
of the merger.
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Howard Oringer
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Daniel L. Scharre
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Chairman of the Board
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Chief Executive Officer
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Verilink Corporation
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Larscom Incorporated
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Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of the merger or the shares of Verilinks common stock to
be issued in the merger or determined if this joint proxy
statement/prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
The accompanying joint proxy
statement/prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the shares of
Verilinks common stock offered hereby, or the solicitation
of a proxy, in any jurisdiction to or from any person to whom or
from whom it is unlawful to make such offer, solicitation of an
offer or proxy solicitation in such jurisdiction.
The accompanying joint proxy statement/prospectus
is dated June 24, 2004 and is first being mailed to
stockholders of Verilink and Larscom on or about June 28,
2004.
VERILINK CORPORATION
127 Jetplex Circle
Madison, Alabama 35758
NOTICE OF SPECIAL MEETING OF VERILINK STOCKHOLDERS
To Be Held on Tuesday, July 27, 2004
To All Stockholders of Verilink Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of
stockholders of Verilink Corporation will be held on Tuesday,
July 27, 2004, at 10:00 a.m. Pacific Daylight Time at
the offices of Larscom Incorporated, located at
39745 Eureka Drive, Newark, California 94560 for the
following purposes:
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1. To approve the issuance of shares of
Verilinks common stock to Larscoms stockholders
pursuant to the Agreement and Plan of Merger, dated
April 28, 2004, among Verilink, Larscom Incorporated and a
wholly-owned subsidiary of Verilink.
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2. To approve Verilinks 2004 Stock
Incentive Plan.
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3. To approve any adjournments of the
meeting to another time or place, if necessary in the judgment
of the proxy holders, for the purpose of soliciting additional
proxies in favor of the foregoing proposals.
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Each of the proposals above is independent of
each other and will be voted on separately. The effectiveness of
any one of these proposals is not conditioned upon the approval
by Verilinks stockholders of any of the other proposals to
be voted on at the special meeting (except that the merger is
conditioned on the adoption and approval of the merger agreement
by the holders of a majority of the outstanding shares of
Larscoms common stock).
These proposals, as well as information about the
proposed merger, about Verilink and about Larscom, are described
in detail in the accompanying joint proxy statement/prospectus.
We urge you to read these materials very carefully and in their
entirety before deciding how to vote. Only Verilinks
stockholders of record on June 1, 2004 are entitled to
notice of and to vote at the special meeting or any
postponements or adjournments of the special meeting.
Your vote is very important, regardless of the
number of shares of Verilink common stock you own. Please vote
as soon as possible to ensure that your shares are represented
at the special meeting. To vote your shares, you must complete
and return the enclosed proxy card. If you are a record holder,
you may also cast your vote in person at the special meeting. If
your shares are held in an account at a brokerage firm or bank,
you must instruct them on how to vote your shares.
Even if you plan to attend the special meeting in
person, please sign, date and return the accompanying proxy in
the enclosed addressed envelope, which requires no postage if
mailed in the United States. If you choose to approve a
proposal, you will need to check the box indicating a vote
FOR the proposal by following the instructions
contained in the enclosed proxy card. If you properly sign and
return your proxy card with no voting instructions, you will be
deemed to have voted FOR the approval of each of the
proposals to be voted on at the special meeting. Your proxy may
be revoked at any time before votes at the special meeting are
tabulated by delivering to Verilinks corporate secretary a
written revocation or a proxy bearing a later date or by oral
revocation in person to Verilinks corporate secretary at
the special meeting.
After careful consideration, Verilinks
board of directors unanimously determined that the merger is
fair to and in the best interests of Verilink and its
stockholders and adopted the merger agreement. Verilinks
board of directors unanimously recommends that you vote
FOR the issuance of shares of Verilinks common
stock to Larscoms stockholders in connection with the
merger, FOR Verilinks 2004 Stock Incentive
Plan and FOR any adjournments to the special
meeting.
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By Order of the Board of Directors,
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LEIGH S. BELDEN
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President, Chief Executive Officer and
Director
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Madison, Alabama
June 24, 2004
LARSCOM INCORPORATED
39745 Eureka Drive
Newark, California 94560
NOTICE OF SPECIAL MEETING OF LARSCOM STOCKHOLDERS
To Be Held on Tuesday, July 27, 2004
To All Stockholders of Larscom Incorporated:
NOTICE IS HEREBY GIVEN that a special meeting of
stockholders of Larscom Incorporated will be held on Tuesday,
July 27, 2004, at 9:00 a.m. Pacific Daylight Time, at
Larscoms headquarters, 39745 Eureka Drive, Newark,
California 94560, for the following purpose:
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To adopt and approve the Agreement and Plan of
Merger, dated as of April 28, 2004, by and among Larscom,
Verilink Corporation and a wholly-owned subsidiary of Verilink
(the Merger Sub), and to approve the proposed merger
of the Merger Sub with and into Larscom pursuant to the merger
agreement.
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This proposal, as well as information about the
proposed merger, about Larscom and about Verilink, are described
in detail in the accompanying joint proxy statement/prospectus.
We urge you to read these materials very carefully and in their
entirety before deciding how to vote. Only stockholders of
record at the close of business on June 1, 2004, are
entitled to notice of and to vote at the special meeting or any
postponements or adjournments of the special meeting.
Your vote is very important, regardless of the
number of shares of Larscom common stock you own. Please vote as
soon as possible to ensure that your shares are represented at
the special meeting. To vote your shares, you must complete and
return the enclosed proxy card. If you are a record holder, you
may also cast your vote in person at the special meeting. If
your shares are held in an account at a brokerage firm or bank,
you must instruct them on how to vote your shares.
Even if you plan to attend the special meeting in
person, please sign, date and return the accompanying proxy in
the enclosed addressed envelope, which requires no postage if
mailed in the United States. If you choose to approve the
proposal, you will need to check the box indicating a vote
FOR the proposal by following the instructions
contained in the enclosed proxy card. If you properly sign and
return your proxy card with no voting instructions, you will be
deemed to have voted FOR the approval of the
proposal to be voted on at the special meeting. Your proxy may
be revoked at any time before votes at the special meeting are
tabulated by delivering to Larscoms corporate secretary a
written revocation or a proxy bearing a later date or by oral
revocation in person to Larscoms corporate secretary at
the special meeting.
After careful consideration, Larscoms
board of directors determined, by unanimous vote of directors
present, that the merger is fair, advisable and in the best
interests of Larscom and its stockholders and adopted and
approved the merger agreement and the proposed merger.
Larscoms board of directors recommends, by unanimous vote
of directors present, that you vote FOR adoption and
approval of the merger agreement and approval of the
merger.
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By Order of the Board of Directors,
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Donald W. Morgan
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Secretary
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Newark, California
June 24, 2004
TABLE OF CONTENTS
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Q-1
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1
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8
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9
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13
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14
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16
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16
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19
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26
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34
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35
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39
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41
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41
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44
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46
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46
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48
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48
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54
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59
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59
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60
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60
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61
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61
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62
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64
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64
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64
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65
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65
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66
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69
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69
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70
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70
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70
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72
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74
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74
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76
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77
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78
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Other Materials Furnished with and
Incorporated by Reference in this Joint Proxy
Statement/Prospectus:
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Verilinks Annual Report on Form 10-K
for the year ended June 27, 2003, as amended by
Form 10-K/A
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Verilinks Quarterly Report on
Form 10-Q for the quarter ended April 2, 2004
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Larscoms Annual Report on Form 10-K
for the year ended December 31, 2003, as amended by
Form 10-K/A
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Larscoms Quarterly Report on Form 10-Q
for the quarter ended March 31, 2004
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ii
QUESTIONS AND ANSWERS ABOUT THE
MERGER
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Q:
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What is the merger?
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A:
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The merger will combine the businesses of
Verilink and Larscom. Upon completion of the merger, Larscom
will become a wholly-owned subsidiary of Verilink. The combined
company will be known as Verilink Corporation and its ticker
symbol will be VRLK. After the merger, the current
stockholders of Verilink will own approximately 74% of the
combined company and the current stockholders of Larscom will
own approximately 26% of the combined company.
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Q:
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Why are Verilink and Larscom proposing the
merger?
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A:
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Verilink and Larscom believe this merger is an
important step toward further consolidation in the broadband
access and telecommunications industry. The combined company
will have world-class products and a more comprehensive
portfolio of broadband access solutions for both
telecommunication carriers and enterprises. The combination will
allow both companies to accelerate product development and
deployment and provides the potential for stronger combined
operating and financial results than either company could
achieve on its own.
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Q:
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What will Larscom stockholders receive in the
merger?
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A:
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If Verilink and Larscom complete the merger, in
exchange for each share of Larscom common stock held by them on
the date of the merger, Larscom stockholders will receive
1.166 shares of Verilink common stock, subject to reduction
by an adjustment factor based on the amount of Larscoms
net adjusted working capital prior to the merger. Larscom
stockholders will also receive one preferred stock purchase
right under Verilinks stockholder rights plan for each
share of Verilink common stock received by them in the merger.
See Description of Verilinks Capital
Stock Stockholder Rights Plan for a
description of the purchase rights.
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Verilink will not issue any fractional shares.
Verilink will make a cash payment to Larscom stockholders for
any fractional shares of Verilink common stock they would
otherwise be entitled to receive instead of issuing fractional
shares in the merger. The number of shares of Verilink common
stock to be issued for each share of Larscom common stock will
not be adjusted based upon changes in the values of Verilink or
Larscom common stock. As a result, before completion of the
merger, the value of the Verilink common stock that Larscom
stockholders will receive in the merger will vary as the market
price of Verilink common stock changes. We encourage Verilink
and Larscom stockholders to obtain current market quotations for
Verilink and Larscom common stock.
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Q:
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How does the possible reduction of the merger
consideration based on the amount of Larscoms net adjusted
working capital work?
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A:
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The adjustment factor equals the quotient
obtained by dividing (1) Larscoms closing net
adjusted working capital amount plus $24,365,600 by
(2) the targeted net adjusted working capital
amount plus $24,365,600. If the difference between the
targeted net adjusted working capital and the closing net
adjusted working capital amount is less than $100,000, or
exceeds the targeted net adjusted working capital, then, in
either case, the adjustment factor will be one.
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Larscoms closing net adjusted working
capital will equal the difference between Larscoms current
assets and current liabilities, excluding the amount of certain
expenses related to the transaction and certain other items. The
targeted net adjusted working capital amount will be $5,000,000
if the merger occurs prior to August 15, 2004 and
$4,500,000 if the merger occurs on or after August 15,
2004. See Merger Consideration Net Working
Capital Adjustment on page 59 for further information.
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Q:
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What will happen to outstanding options and
warrants to purchase Larscom common stock?
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A:
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At the effective time of the merger, Verilink
will assume each outstanding stock option and warrant to
purchase Larscom common stock and each such option and warrant
will be converted into an option or warrant to purchase the
number of shares of Verilink common stock equal to the product
obtained by multiplying 1.166, subject to reduction by an
adjustment factor based on the amount of Larscoms
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Q-1
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net adjusted working capital prior to the merger,
by the number of shares of Larscom common stock that were
issuable on exercise of such Larscom stock option or warrant.
The per share exercise price for the assumed stock options and
warrants will be equal to the per share exercise price of such
stock option or warrant divided by 1.166, subject to reduction
by an adjustment factor based on the amount of Larscoms
net adjusted working capital prior to the merger. All Larscom
stock options will become fully vested upon completion of the
merger.
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Q:
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Will Verilink stockholders receive any shares
as a result of the merger?
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A:
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No. Verilink stockholders will continue to hold
the Verilink shares they currently own.
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Q:
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Will Larscom stockholders recognize a taxable
gain or loss for U.S. federal income tax purposes in the
merger?
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A:
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We expect that, if the merger is completed, you
should not recognize gain or loss for United States federal
income tax purposes, except with respect to the cash, if any,
received instead of fractional shares of Verilink common stock.
However, we strongly encourage you to consult your own tax
advisor to determine your particular tax consequences.
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For a more complete description of the tax
consequences of the merger, see The Merger
Material United States Federal Income Tax Consequences of the
Merger on page 62.
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Q:
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Are there risks I should consider in deciding
whether to vote for the merger agreement and the merger or the
issuance of Verilink common stock?
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A:
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Yes. In evaluating the merger agreement and the
merger or the issuance of Verilink common stock, you should
carefully read this joint proxy statement/prospectus and
especially consider the factors discussed in Risk
Factors beginning on page 16.
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Q:
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What vote is required by Verilink stockholders
to approve the issuance of Verilink common stock,
Verilinks 2004 Stock Incentive Plan and any adjournments
to the special meeting?
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A:
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The affirmative vote of the holders of Verilink
common stock representing a majority of the Verilink shares
represented at the Verilink special meeting at which a quorum is
present is required to approve the issuance of Verilink common
stock in the merger, to approve Verilinks 2004 Stock
Incentive Plan and to approve any adjournments to the special
meeting. Certain Verilink stockholders have agreed to vote
approximately 11.4% of the outstanding common stock of Verilink
as of June 1, 2004 in favor of the issuance of Verilink
common stock in the merger. As of June 1, 2004, Verilink
executive officers and directors owned 2,215,510 outstanding
shares of Verilink common stock, representing approximately
13.2% of the outstanding shares of Verilink common stock.
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Q:
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What vote is required by Larscom stockholders
to approve and adopt the merger agreement and approve the
merger?
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A:
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The affirmative vote of the holders of Larscom
common stock representing a majority of the outstanding shares
of Larscom common stock is required to approve and adopt the
merger agreement and approve the merger. Certain Larscom
stockholders have agreed to vote approximately 55.9% of the
outstanding common stock of Larscom as of June 1, 2004 in
favor of approval and adoption of the merger agreement and
approval of the merger. As of June 1, 2004, Larscom
executive officers and directors owned
3,321,473 outstanding shares of Larscom common stock,
representing approximately 65.1% of the outstanding shares of
Larscom common stock.
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Q:
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Does Verilinks board of directors
recommend voting in favor of the issuance of Verilink common
stock, Verilinks 2004 Stock Incentive Plan and any
adjournments to the special meeting?
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A:
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Yes. After careful consideration, Verilinks
board of directors unanimously determined that the merger is
fair to, and in the best interests of, Verilink and its
stockholders. Verilinks board of directors unanimously
recommends that Verilink stockholders vote FOR the
issuance of Verilink common stock in connection with the merger.
Verilinks board of directors also recommends that Verilink
stockholders vote FOR Verilinks 2004 Stock
Incentive Plan and FOR any adjournments to the
special meeting. For a description of the factors considered by
the Verilink board of directors in
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Q-2
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making its recommendation regarding the merger,
see The Merger Verilinks Reasons for the
Merger on page 46.
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Q:
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Does Larscoms board of directors
recommend voting in favor of the merger?
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A:
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Yes. After careful consideration, Larscoms
board of directors determined, by unanimous vote of directors
present, that the merger is fair, advisable and in the best
interests of, Larscom and its stockholders. Larscoms board
of directors recommends, by unanimous vote of directors present,
that Larscom stockholders vote FOR approval and
adoption of the merger agreement and approval of the merger.
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For a description of the factors considered by
the Larscom board of directors in making its determination, see
The Merger Larscoms Reasons for the
Merger on page 44.
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Q:
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When do you expect to complete the
merger?
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A:
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Verilink and Larscom are working to complete the
merger as quickly as possible. Subject to the satisfaction of
the closing conditions in the merger agreement, Verilink and
Larscom hope to complete the merger promptly after the special
meetings.
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|
Q:
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Are Larscom stockholders entitled to appraisal
rights?
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A:
|
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Yes. Holders of Larscoms common stock are
entitled to appraisal rights under Delaware law. See The
Merger Dissenters Appraisal Rights on
page 66 of this joint proxy statement/prospectus for a
discussion of appraisal rights.
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|
Q:
|
|
Are Verilink stockholders entitled to
appraisal rights?
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A:
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No. Under Delaware law, holders of Verilink stock
do not have the right to an appraisal of the value of their
shares of Verilink common stock in connection with the merger.
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Q:
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What do I need to do now?
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A:
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|
After carefully reading and considering the
information contained in this joint proxy statement/ prospectus,
including the annexes, and considering how the merger will
affect you as a stockholder, please complete and sign your proxy
card and return it in the enclosed return envelope as soon as
possible so that your shares may be represented at your
stockholder meeting.
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Q:
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Should Larscom stockholders send in their
stock certificates now?
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A:
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No. Larscom stockholders should not send in their
stock certificates now. If the merger is completed, Verilink
will send Larscom stockholders written instructions for
exchanging their Larscom stock certificates.
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Q:
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How do I vote?
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A:
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Please complete and sign your proxy card and
return it in the enclosed return envelope as soon as possible so
that your shares may be represented at your stockholder meeting.
If you return your proxy card but do not include instructions on
how to vote your proxy, Verilink or Larscom will vote your
shares FOR the proposals being made at your
stockholder meeting unless your shares are held in street
name in a brokerage account. You may also attend your
stockholder meeting and vote in person instead of submitting a
proxy.
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|
Q:
|
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If my shares are held in street
name by my broker, will my broker vote my shares for
me?
|
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A:
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|
No. Your broker will vote your shares only if you
provide instructions on how to vote in accordance with the
information and procedures provided to you by your broker. If
your shares are held in street name and you do not
instruct your broker to vote your shares, your shares will not
be voted.
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For a more complete description of voting shares
held in street name, see The Verilink Special
Meeting on page 35 and The Larscom Special
Meeting on page 39.
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Q-3
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|
Q:
|
|
Can I change my vote after I have mailed my
signed proxy?
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A:
|
|
Yes. If you want to change your vote, send the
corporate secretary of Verilink or Larscom, as applicable, a
later-dated, signed proxy card before your stockholder meeting
or attend your stockholder meeting and vote in person. You may
also revoke your proxy by sending written notice to the relevant
corporate secretary before your stockholder meeting. If you have
instructed your broker to vote your shares, you must follow your
brokers directions in order to change those instructions.
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|
Q:
|
|
Whom should I call with questions?
|
|
A:
|
|
If you have any questions about the merger of if
you need additional copies of this joint proxy
statement/prospectus or the enclosed proxy, you should contact:
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For Verilink Stockholders:
|
|
For Larscom Stockholders:
|
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Verilink Corporation
|
|
Larscom Incorporated
|
127 Jetplex Circle
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|
39745 Eureka Drive
|
Madison, Alabama 35758
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|
Newark, California 94560
|
(256) 327-2001
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(510) 492-0800
|
Attention: Investor Relations
|
|
Attention: Investor Relations
|
Verilink has also engaged InvestorCom, Inc. to
assist in the solicitation of proxies for the special meeting.
If you are a Verilink stockholder and have any questions about
the transaction or how to submit your proxy, you should contact
InvestorCom, Inc.:
InvestorCom, Inc.
110 Wall Street
New York, New York 10005
Banks and Brokers call (212) 668-0800
Stockholders call toll free (800) 503-3375
You may also obtain additional information
about Verilink and Larscom from documents filed with the
Securities and Exchange Commission by following the instructions
in Where You Can Find More Information on
page 116.
Q-4
SUMMARY OF THE JOINT PROXY
STATEMENT/PROSPECTUS
We are sending this joint proxy
statement/prospectus to Verilink and Larscom stockholders. This
summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information
that is important to you. To better understand the merger, you
should read this entire document carefully, including the
Agreement and Plan of Merger attached as Annex A, the
opinion of Raymond James & Associates, Inc. attached as
Annex B, and the opinion of Standard & Poors
Corporate Value Consulting attached as Annex C, which are
incorporated herein by reference, and the other documents to
which we refer.
In addition, we incorporate by reference into
this joint proxy statement/prospectus important business and
financial information about Verilink and Larscom. We have
included herewith Verilinks quarterly report on
Form 10-Q for the quarter ended April 2, 2004 and
annual report on Form 10-K for the fiscal year ended
June 27, 2003, as amended. We have also included herewith
Larscoms quarterly report on Form 10-Q for the
quarter ended March 31, 2004 and annual report on
Form 10-K for the year ended December 31, 2003, as
amended. In addition, you may obtain more information regarding
Verilink and Larscom without charge by following the
instructions in Where You Can Find More Information
on page 116. We have included page references
parenthetically to direct you to a more complete description of
the topics presented in this summary.
The Companies
Verilink Corporation
127 Jetplex Circle
Madison, Alabama 35758
(256) 327-2001
Verilink provides customer premises voice and
data access solutions to service providers, strategic partners
and enterprise customers on a worldwide basis. Verilink is a
market leader in voice over packet and voice over TDM IAD
solutions including VoIP, VoDSL and VoATM. Data only offerings
include access routers, probes, CSU/DSUs, DACS and network
monitoring solutions. Verilink turnkey service solutions empower
carriers with the flexibility to provide integrated services
regardless of network technology.
Larscom Incorporated
39745 Eureka Drive
Newark, California 94560
(510) 492-0800
Larscom manufactures and markets high-speed
network-access products for telecommunication service providers
and corporate enterprise users. Larscoms product offerings
support bandwidth requirements ranging from full and fractional
T1/E1 to OC-3 (1.5 Mbps to 155 Mbps). Additionally,
Larscoms solutions support a number of networking
protocols such as frame relay, asynchronous transfer mode
(ATM), universe multiplexing over Ethernet and
Internet protocol.
1
Summary of the Merger (see
page 41)
If the merger is completed, a wholly-owned
subsidiary of Verilink will merge with and into Larscom. Larscom
will become a wholly-owned subsidiary of Verilink, and Larscom
stockholders will become stockholders of Verilink.
As a result of the merger, each share of Larscom
common stock will be converted into the right to receive
1.166 shares of Verilink common stock, subject to reduction
by an adjustment factor based on the amount of Larscoms
net adjusted working capital prior to the merger, and cash for
any fractional shares that would otherwise be issued in
connection with the merger. Each share of Verilink common stock
outstanding prior to the merger will be unaffected by the merger.
If the merger is completed, pursuant to the
merger agreement, Verilink will assume all outstanding options
and warrants to purchase Larscom common stock. Each option and
warrant to purchase Larscom common stock outstanding immediately
prior to the effective time of the merger will become an option
or warrant, as the case may be, to purchase, on the same terms,
1.166 shares of Verilink common stock, subject to reduction
by an adjustment factor based on the amount of Larscoms
net adjusted working capital prior to the merger, for each share
of Larscom common stock for which the option or warrant, as the
case may be, was exercisable, with the option or warrant
exercise price to be adjusted accordingly. All Larscom stock
options will become fully vested upon completion of the merger.
Based on the number of shares of Larscom common
stock and Verilink common stock outstanding on May 26,
2004, Larscom stockholders will be entitled to receive shares of
Verilink common stock representing approximately 26% of the
total number of shares of Verilink common stock outstanding
following the merger. On June 23, 2004, the last trading
day before the date of this joint proxy statement/prospectus,
Verilink common stock closed at $3.98 per share on The
Nasdaq National Market.
We have attached the merger agreement, which is
the legal document that governs the merger, as Annex A to
this joint proxy statement/prospectus. We incorporate the merger
agreement by reference into this joint proxy
statement/prospectus. We encourage you to read it carefully.
Opinion of Verilinks Financial Advisor
(see Annex B)
In connection with the proposed merger,
Verilinks financial advisor, Raymond James &
Associates, Inc. (Raymond James), delivered a
written opinion to the Verilink board of directors to the effect
that, as of the date of the opinion, the consideration to be
paid by Verilink in connection with the merger was fair to
Verilink from a financial point of view. The full text of
Raymond James written opinion, dated April 28, 2004,
is attached to this joint proxy statement/prospectus as
Annex B. We encourage you to read this opinion carefully in
its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the
review undertaken.
Raymond James opinion is addressed
to the Verilink board of directors and does not constitute a
recommendation to any stockholder as to any matters relating to
the merger.
Opinion of Larscoms Financial Advisor
(see Annex C)
In connection with the proposed merger,
Larscoms financial advisor, Standard &
Poors Corporate Value Consulting
(Standard & Poors CVC), delivered a
written opinion to the Larscom board of directors to the effect
that, as of the date of the opinion, the exchange ratio pursuant
to the merger agreement was fair, from a financial point of
view, to the holders of Larscom common stock. The full text of
Standard & Poors CVC written opinion, dated
April 28, 2004, is attached to this joint proxy
statement/prospectus as Annex C. We encourage you to read
this opinion carefully in its entirety for a description of the
procedures followed, assumptions made, matters considered and
limitations on the review undertaken.
Standard &
Poors CVCs opinion is addressed to the Larscom board
of directors and does not constitute a recommendation to any
stockholder as to any matters relating to the merger.
2
Overview of the Merger Agreement
|
|
|
Conditions to Completion of the Merger (see
page 70)
|
Verilinks and Larscoms obligations to
complete the merger are subject to satisfaction or waiver of
several closing conditions, including the following:
|
|
|
|
|
Verilink stockholders must approve the issuance
of Verilink common stock, and Larscom stockholders must approve
and adopt the merger agreement and approve the merger;
|
|
|
|
all authorizations, consents, orders or approvals
of, or declarations or filings with, any governmental entity in
connection with the merger and related transactions, other than
those that are not material to either Verilink or Larscom, will
have been filed, obtained or occurred on terms and conditions
reasonably not likely to have a material adverse effect on
either Verilink or Larscom;
|
|
|
|
no order, execute order, stay, decree, judgment,
injunction, statute, rule or regulation shall be in effect which
has the effect of making the merger illegal or otherwise
prohibiting the consummation of the merger;
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|
|
|
there must not be any pending action asserted by
a governmental entity seeking to make the merger illegal or to
prohibit the completion of the merger;
|
|
|
|
the registration statement on Form S-4, of
which this joint proxy statement/prospectus is a part, having
been declared effective by the Securities and Exchange
Commission (SEC) under the Securities Act of 1933,
as amended (the Securities Act);
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|
|
|
a final statement of closing net adjusted working
capital amount must be agreed to by Verilink and Larscom or
delivered by an accounting firm selected by Verilink and agreed
to by Larscom;
|
|
|
|
Verilink must have executed the registration
rights agreement and delivered it to the stockholders that are a
party thereto;
|
|
|
|
each party must have received an opinion from its
tax counsel to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended;
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|
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|
the representations and warranties of the other
party set forth in the merger agreement being true and correct
on the date on which the merger is to be completed as though
made on and as of such date except: (i) to the extent such
representations and warranties are specifically made as of a
particular date, in which case such representations and
warranties shall be true and correct in all material respects as
of such date; (ii) for changes contemplated by the merger
agreement, including the disclosure schedules of each party
delivered in connection with the merger agreement; and
(iii) except with respect to SEC filings, financial
statements and undisclosed liabilities, where the failure to be
true and correct (without regard to any materiality, material
adverse effect or knowledge qualifications contained therein),
individually or in the aggregate, have not had, and are not
reasonably likely to have, a material adverse effect as to such
party; and
|
|
|
|
the other party must have complied in all
material respects with all agreements and covenants in the
merger agreement.
|
In addition, the obligations of Verilink to
effect the merger are further subject to the satisfaction or
waiver of the following additional conditions:
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|
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|
|
at least 75% of certain specified employees of
Larscom must not have ceased to be employed; provided that
Verilink has offered employment to all such persons, provided
for retention bonuses consistent with past practices and offered
compensation comparable to previous compensation; and
|
|
|
|
certain third-party consents to the merger being
obtained.
|
3
|
|
|
Termination of the Merger Agreement (see
page 77)
|
Verilink and Larscom have the right to terminate
the merger agreement before the merger is completed under
certain circumstances, including the following:
|
|
|
|
|
by mutual written consent of Verilink and Larscom;
|
|
|
|
by Verilink or Larscom if the merger has not been
completed by September 30, 2004;
|
|
|
|
by Verilink or Larscom if a government entity
permanently restrains, enjoins or otherwise prohibits completion
of the merger;
|
|
|
|
by Verilink or Larscom if the stockholders of
Verilink have not approved the issuance of Verilink common stock
in the merger or if the stockholders of Larscom have not
approved and adopted the merger agreement and approved the
merger;
|
|
|
|
by Verilink or Larscom if the board of directors
of the other party has failed to give its recommendation to
approve the respective voting proposals;
|
|
|
|
by Verilink or Larscom if that partys board
of directors has failed to give its recommendation to approve
the respective voting proposals as a result of the receipt of a
superior offer; and
|
|
|
|
by Verilink or Larscom if the other party is in
breach of any representation, warranty, covenant or other
agreement in the merger agreement (subject to certain
conditions).
|
|
|
|
Termination Fee (see
page 78)
|
If the merger agreement is terminated in
specified circumstances, either Verilink or Larscom may be
required to pay to the other party a termination fee of
$1 million plus fees and expenses, not to exceed an
aggregate of $1.2 million.
|
|
|
No Solicitation Provisions (see
page 72)
|
The merger agreement contains detailed provisions
prohibiting Verilink and Larscom from seeking a competing
transaction. These no solicitation provisions
prohibit Verilink and Larscom, as well as their officers,
directors, employees, subsidiaries and representatives, from
taking any action to solicit a competing acquisition proposal,
other than, in the case of Verilink, acquisition proposals that
do not require or would not be reasonably expected to result in,
the termination of the merger.
|
|
|
Voting Agreements (see
page 81)
|
Certain stockholders of both Verilink and Larscom
have each entered into voting agreements in connection with the
merger. Certain stockholders of Verilink representing
approximately 11.4% of the outstanding Verilink common stock are
required by the voting agreement to vote all of their shares in
favor of the issuance of Verilink common stock. Certain
stockholders of Larscom representing approximately 55.9% of the
outstanding Larscom common stock are required by a voting
agreement to vote in favor of the approval and adoption of the
merger agreement and approval of the merger. In addition, the
voting agreements require the stockholders to vote against any
acquisition proposal other than the merger and any other
proposal or transaction which could impede the merger, and the
stockholders are restricted from transferring their stock of
Verilink and Larscom until the merger closes or the merger
agreement is terminated.
Directors of Verilink Following the Merger
(see page 65)
Verilink has agreed to cause Desmond P.
Wilson III, currently a director of Larscom and president
and chief executive officer of Axel Johnson, Inc. (Axel
Johnson), to be appointed to the Verilink board of
directors upon the completion of the merger.
4
Interests of Certain Directors, Officers and
Affiliates of Larscom (see page 65)
When considering the recommendation of
Larscoms board of directors, you should be aware that some
of Larscoms directors and executive officers have
interests in the merger that are different from, or are in
addition to, yours. These interests include:
|
|
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|
|
Desmond P. Wilson III will become a director
of Verilink upon the completion of the merger;
|
|
|
|
as a result of the merger, officers and directors
of Larscom will be entitled to acceleration in full of vesting
of outstanding stock options;
|
|
|
|
the combined company will indemnify each present
and former Larscom officer and director against liabilities
arising out of such persons services as an officer or
director and the transactions contemplated by the merger
agreement, and will provide officers and directors
liability insurance to cover any such liabilities for the next
six years (subject to certain limitations);
|
|
|
|
it is anticipated that the trading volume of the
combined company will increase, which may facilitate the sale of
an increased number of shares under Rule 144 of the
Securities Act for certain affiliates of both Verilink and
Larscom; and
|
|
|
|
Verilink intends to enter into a registration
rights agreement with certain stockholders of Larscom providing
for the registration under the Securities Act of the resale of
the shares of Verilink common stock to be received by these
stockholders upon completion of the merger.
|
The board of directors of Larscom took into
account these interests in considering the fairness of the
merger to the Larscom stockholders.
Material United States Federal Income Tax
Consequences of the Merger (see page 62)
The merger has been structured as a
reorganization for U.S. federal income tax purposes. In
general, Larscom stockholders will not recognize gain or loss
for U.S. federal income tax purposes by exchanging their
Larscom common stock for shares of Verilink common stock in the
merger. However, Larscom stockholders will recognize gain or
loss with respect to cash received in lieu of a fractional share
of Verilink common stock. You should carefully review the
detailed summary of the material U.S. federal income tax
consequences set forth in this joint proxy statement/prospectus
and consult with your own tax advisor to determine your
particular tax consequences resulting from the merger.
Accounting Treatment (see
page 64)
The acquisition will be accounted for as a
purchase transaction for accounting and financial
reporting purposes, in accordance with accounting principles
generally accepted in the United States of America. After the
merger, the results of operations of Larscom will be included in
the consolidated financial statements of Verilink. Under the
purchase method of accounting, the estimated purchase price will
be recorded based on the average closing price of Verilink
common stock exchanged for Larscom shares for a range of trading
days from two days before until two days after the announcement
date of the merger, the fair value of Verilink stock options and
warrants to be issued based on the Black-Scholes option pricing
model and the direct transaction costs of the merger. The
purchase price will be allocated to the fair value of tangible
and intangible assets acquired and liabilities assumed. In
accordance with Statement of Financial Accounting Standards
number 141 Business Combinations, if there is
excess of the purchase price over the fair value of the net
tangible and intangible assets, the excess value will be
recorded as goodwill. If the fair value of the amounts assigned
to the net tangible and intangible assets exceeds the purchase
price, then the excess value will be assigned on a pro rata
basis to reduce the value of certain assets until their value is
equal to zero. If excess value remains after certain assets are
reduced to zero, then the difference will be reported as an
extraordinary gain.
5
Risks (see page 16)
In evaluating the merger agreement and the merger
or the issuance of Verilink common stock in connection with the
merger, you should carefully read this joint proxy
statement/prospectus and especially consider the factors
discussed in the section entitled Risk Factors on
page 16.
Ability to Sell Verilink Stock (see
page 65)
All shares of Verilink common stock received by
Larscom stockholders in connection with the merger will be
freely transferable unless you are considered an affiliate of
Larscom or Verilink under the Securities Act. Shares of Verilink
common stock received by affiliates of Larscom or Verilink may
only be sold pursuant to Rule 144 or Rule 145 of the
Securities Act or pursuant to a registration statement or
exemption from the requirements of the Securities Act. As a
condition to completion of the merger, Verilink will execute a
registration rights agreement providing for the registration of
the resale of the shares of Verilink common stock to be received
by certain affiliates of Larscom in the merger.
Comparative Market Price Information (see
page 14)
Verilinks common stock is listed on The
Nasdaq National Market under the trading symbol
VRLK. On April 28, 2004, the last full trading
day prior to the public announcement of the proposed merger,
Verilinks common stock closed at $4.42 per share. On
June 23, 2004, the last full trading day prior to the date
of this joint proxy statement/prospectus, Verilinks common
stock closed at $3.98 per share.
Larscoms common stock is listed on The
Nasdaq SmallCap Market under the trading symbol
LARS. On April 28, 2004, the last full trading
day prior to the public announcement of the proposed merger,
Larscoms common stock closed at $4.709 per share. On
June 23, 2004, the last full trading day prior to the date
of this joint proxy statement/prospectus, Larscoms common
stock closed at $4.45 per share.
Regulatory Approval (see
page 64)
Although all business combination transactions
are subject to U.S. antitrust laws and also may be subject
to international antitrust laws, filings with the Department of
Justice and the Federal Trade Commission prior to closing of the
merger are not required. However, the Department of Justice or
the Federal Trade Commission, as well as a state or private
person, may challenge the merger at any time before or after its
completion.
Dissenters Appraisal Rights (see
page 66)
Holders of Larscoms common stock are
entitled to appraisal rights under Delaware law in connection
with the merger.
Under applicable law, Verilink stockholders do
not have the right to an appraisal of the value of their shares
in connection with the merger.
Comparison of Stockholder Rights (see
page 98)
The rights of Larscom stockholders as
stockholders of Verilink after the merger will be governed by
Verilinks certificate of incorporation and bylaws. Those
rights differ from the rights of Larscom stockholders under
Larscoms certificate of incorporation and bylaws.
Where You Can Find More Information (see
page 116)
Each of Verilink and Larscom files reports, proxy
statements and other information with the SEC. Verilink and
Larscom stockholders may read and copy any reports, proxy
statements or other information filed by the companies at the
SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C.
6
20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
(800) SEC-0330.
Copies of these materials can also be obtained by
mail at prescribed rates from the Public Reference Section of
the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 or by calling the SEC at (800) SEC-0330. The SEC
maintains a website that contains reports, proxy statements and
other information regarding Verilink and Larscom. The address of
the SEC website is
www.sec.gov.
Verilink has supplied all information contained
or incorporated by reference in this joint proxy
statement/prospectus relating to Verilink and Larscom has
supplied all information contained or incorporated by reference
in this joint proxy statement/prospectus relating to Larscom.
You should rely only on the information
contained or expressly incorporated by reference in this joint
proxy statement/prospectus to vote on the approval and adoption
of the merger agreement and approval of the merger or the
issuance of Verilink common stock, Verilinks 2004 Stock
Incentive Plan and any adjournments to the special meeting, as
applicable. Neither Verilink nor Larscom has authorized anyone
to provide you with information that is different from what is
contained in this joint proxy statement/prospectus. This joint
proxy statement/prospectus is dated June 24, 2004. You
should not assume that the information contained in the joint
proxy statement/prospectus is accurate as of any date other than
that date, and neither the mailing of this joint proxy
statement/prospectus to stockholders nor the issuance of
Verilink common stock in the merger shall create any implication
to the contrary.
Information on Verilinks and
Larscoms Websites
Verilink maintains an Internet website at
www.verilink.com
and Larscom maintains an Internet
website at
www.larscom.com.
Information on any Verilink
or Larscom Internet website is not part of this document, and
you should not rely on that information in deciding whether to
approve the merger unless that information is also in this
document or in a document accompanying this document.
7
Recent Developments
Verilink
On February 5, 2004, Verilink acquired all
of the outstanding stock of XEL Communications, Inc.
(XEL) for up to $17,650,000 in consideration,
consisting of $7,650,000 paid in cash at closing and $10,000,000
in the form of a convertible promissory note that may be
converted into Verilink common stock at a conversion price of
$5.324 per share. This note earns interest at a rate of 7%
per annum and matures February 5, 2006. The holder may
convert the note in whole or in increments of at least
$1,000,000 into Verilink common stock. The results of operations
of XEL are included in Verilinks condensed consolidated
financial statements since February 5, 2004. XEL provides a
total telecommunications business solution including equipment,
project management, engineering and installation services to
large domestic carriers for the delivery of integrated voice,
data and Internet services for small and medium businesses.
On May 12, 2004, The Kennedy Company
converted $7,250,000 principal amount of a convertible
promissory note into 1,361,758 shares of Verilink common
stock in accordance with the terms of the note. The convertible
promissory note was issued by Verilink in connection with the
acquisition of XEL Communications, Inc. The conversion reduces
Verilinks liabilities by $7,250,000 and increases the
number of outstanding shares of Verilink by 1,361,758.
Larscom
In May 2004, Larscom received an arbitration
award for $2 million plus attorneys fees and costs.
There can be no assurance as to the timing of the receipt of
payment of such award and further proceedings to resolve the
amount of the fees and costs and to enforce the award may be
necessary.
On April 19, 2004, Larscom dismissed
PricewaterhouseCoopers LLP as its independent accountants. The
audit committee of the Larscom board of directors participated
in and approved the decision to change independent accountants.
The audit reports of PricewaterhouseCoopers LLP
on the consolidated financial statements of Larscom for the
fiscal years ended December 31, 2003 and 2002, did not
contain an adverse opinion or disclaimer of opinion and were not
qualified as to uncertainty, audit scope or accounting
principle, except that the report for the fiscal year ended
December 31, 2003 contained an explanatory paragraph
expressing substantial doubt regarding Larscoms ability to
continue as a going concern.
In connection with its audits for the two most
recent fiscal years, and through April 19, 2004, there were
no disagreements with PricewaterhouseCoopers LLP on any matter
of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements,
if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused them to make reference thereto in their
report on the consolidated financial statements for such years.
During the fiscal years ended December 31,
2003 and 2002, and through April 19, 2004, there were no
reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K) with respect to Larscom.
Larscom provided a copy of the disclosure in
Larscoms current report on Form 8-K filed
April 22, 2004 to PricewaterhouseCoopers LLP and requested
PricewaterhouseCoopers LLP to furnish a letter addressed to the
SEC stating whether or not PricewaterhouseCoopers LLP agrees
with the statements made Larscoms Form 8-K. A copy of
the letter from PricewaterhouseCoopers LLP, dated April 22,
2004, is filed as Exhibit 16.1 to Larscoms
April 22, 2004 Form 8-K.
Larscoms audit committee approved the
selection of BDO Seidman LLP as Larscoms independent
accountants for the year ended December 31, 2004. During
the two most recent fiscal years and through April 19,
2004, Larscom did not consult with BDO Seidman, LLP prior to its
engagement regarding either (i) the application of
accounting principles to a specified transaction, completed or
proposed or the type of audit opinion that might be rendered on
Larscoms financial statements and neither a written report
was provided to Larscom or oral advice was provided that BDO
Seidman LLP concluded was an important factor considered by
Larscom in reaching a decision as to the accounting, auditing or
financial reporting issue or (ii) any matter that was
either the subject of a disagreement or a reportable event
within the meaning of Item 304(a)(1) of Regulation S-K.
On May 21, 2004, Larscom entered into a Loan
and Security Agreement with Silicon Valley Bank for a
$5 million asset-based line of credit.
8
Selected Historical and Pro Forma Combined
Financial Data
The following tables present selected historical
consolidated financial data, selected unaudited pro forma
combined financial data, comparative per share data and market
price and dividend data for Verilink and Larscom.
Verilinks Selected Historical
Consolidated Financial Data
The following selected consolidated financial
data of Verilink should be read together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the related notes contained in
Verilinks Annual Report on Form 10-K for the fiscal
year ended June 27, 2003 and Quarterly Report on
Form 10-Q for the fiscal quarter ended April 2, 2004
filed with the SEC, which are incorporated by reference in this
joint proxy statement/prospectus, and copies of which have been
delivered herewith. The consolidated results of operations data
for the quarters ended April 2, 2004 and March 28,
2003 and the consolidated balance sheet and other data as of
April 2, 2004 and March 28, 2003 are derived from the
unaudited consolidated financial statements and related notes
contained in Verilinks Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 2004, a copy of which
is being delivered herewith. The consolidated results of
operations data for the years ended and the consolidated balance
sheet and other data as of June 27, 2003, June 28,
2002, and June 29, 2001 are derived from the audited
consolidated financial statements and related notes contained in
Verilinks Annual Report on Form 10-K for the fiscal
year ended June 27, 2003, a copy of which is being
delivered herewith. The consolidated statement of operations
data for the years ended and the consolidated balance sheet data
as of June 30, 2000, and June 27, 1999 are derived
from audited consolidated financial statements and the related
notes not appearing elsewhere in or delivered with this joint
proxy statement/prospectus. Historical results are not
necessarily indicative of results that may be expected for any
future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
|
April 2,
|
|
March 28,
|
|
June 27,
|
|
June 28,
|
|
June 29,
|
|
June 30,
|
|
June 27,
|
|
|
2004(1)
|
|
2003(2)
|
|
2003(2)
|
|
2002
|
|
2001(3)
|
|
2000(4)
|
|
1999(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
32,330
|
|
|
$
|
20,305
|
|
|
$
|
28,104
|
|
|
$
|
23,413
|
|
|
$
|
44,956
|
|
|
$
|
67,661
|
|
|
$
|
59,553
|
|
|
Gross profit
|
|
$
|
14,532
|
|
|
$
|
10,045
|
|
|
$
|
14,165
|
|
|
$
|
8,016
|
|
|
$
|
20,541
|
|
|
$
|
33,698
|
|
|
$
|
27,729
|
|
|
Income (loss) from operations
|
|
$
|
98
|
|
|
$
|
1,497
|
|
|
$
|
2,278
|
|
|
$
|
(17,449
|
)
|
|
$
|
(17,183
|
)
|
|
$
|
(5,759
|
)
|
|
$
|
(14,901
|
)
|
|
Net income (loss) from continuing operations
|
|
$
|
512
|
|
|
$
|
1,836
|
|
|
$
|
2,753
|
|
|
$
|
(17,240
|
)
|
|
$
|
(22,755
|
)
|
|
$
|
25
|
|
|
$
|
(13,666
|
)
|
|
Net income (loss)
|
|
$
|
512
|
|
|
$
|
603
|
|
|
$
|
1,520
|
|
|
$
|
(17,240
|
)
|
|
$
|
(22,755
|
)
|
|
$
|
25
|
|
|
$
|
(13,666
|
)
|
|
Per share amounts basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
0.18
|
|
|
$
|
(1.09
|
)
|
|
$
|
(1.51
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.98
|
)
|
|
|
Net income (loss)
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.10
|
|
|
$
|
(1.09
|
)
|
|
$
|
(1.51
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.98
|
)
|
|
Number of weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,850
|
|
|
|
14,940
|
|
|
|
14,871
|
|
|
|
15,816
|
|
|
|
15,095
|
|
|
|
14,238
|
|
|
|
13,929
|
|
|
|
|
Diluted
|
|
|
16,297
|
|
|
|
15,340
|
|
|
|
15,294
|
|
|
|
15,816
|
|
|
|
15,095
|
|
|
|
15,192
|
|
|
|
13,929
|
|
|
|
Cash dividends per share(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development as a percentage of sales
|
|
|
15.4
|
%
|
|
|
12.7
|
%
|
|
|
14.2
|
%
|
|
|
23.5
|
%
|
|
|
43.8
|
%
|
|
|
13.2
|
%
|
|
|
22.5
|
%
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Fiscal Years Ended
|
|
|
|
|
|
|
|
April 2,
|
|
March 28,
|
|
June 27,
|
|
June 28,
|
|
June 29,
|
|
June 30,
|
|
June 27,
|
|
|
2004(1)
|
|
2003(2)
|
|
2003(2)
|
|
2002
|
|
2001(3)
|
|
2000(4)
|
|
1999(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Balance Sheet and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
2,999
|
|
|
$
|
7,365
|
|
|
$
|
8,604
|
|
|
$
|
6,228
|
|
|
$
|
15,735
|
|
|
$
|
10,696
|
|
|
$
|
17,961
|
|
|
Working capital
|
|
$
|
2,041
|
|
|
$
|
5,413
|
|
|
$
|
6,379
|
|
|
$
|
6,290
|
|
|
$
|
16,251
|
|
|
$
|
26,352
|
|
|
$
|
25,960
|
|
|
Capital expenditures
|
|
$
|
540
|
|
|
$
|
538
|
|
|
$
|
602
|
|
|
$
|
340
|
|
|
$
|
5,304
|
|
|
$
|
7,333
|
|
|
$
|
2,586
|
|
|
Total assets
|
|
$
|
46,827
|
|
|
$
|
25,373
|
|
|
$
|
26,309
|
|
|
$
|
22,180
|
|
|
$
|
42,941
|
|
|
$
|
58,720
|
|
|
$
|
54,281
|
|
|
Long-term debt
|
|
$
|
13,618
|
|
|
$
|
3,931
|
|
|
$
|
3,749
|
|
|
$
|
4,480
|
|
|
$
|
5,210
|
|
|
$
|
3,521
|
|
|
$
|
|
|
|
Total stockholders equity
|
|
$
|
17,187
|
|
|
$
|
13,216
|
|
|
$
|
14,099
|
|
|
$
|
12,117
|
|
|
$
|
29,600
|
|
|
$
|
45,114
|
|
|
$
|
40,139
|
|
|
Employees
|
|
|
169
|
|
|
|
89
|
|
|
|
91
|
|
|
|
85
|
|
|
|
201
|
|
|
|
219
|
|
|
|
310
|
|
|
|
(1)
|
Includes restructuring charge of $400.
|
|
(2)
|
Includes in-process research and development
charge of $316 related to the acquisition of the NetEngine
product line, and cumulative effect of change in accounting
principle, related to goodwill of $1,233.
|
|
(3)
|
Includes establishment of an income tax valuation
allowance of $(13,381).
|
|
(4)
|
Includes restructuring charges of $7,891 and
reversal of the $3,424 income tax valuation allowance
established in 1999.
|
|
(5)
|
Includes in-process research and development
charge of $3,330 related to acquisition, restructuring charges
of $3,200, and establishment of an income tax valuation
allowance of $(3,424).
|
|
(6)
|
Verilink has never declared or paid dividends on
its capital stock and does not intend to pay dividends in the
foreseeable future.
|
Larscoms Selected Historical
Consolidated Financial Data
The following selected consolidated financial
data of Larscom should be read together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the related notes contained in
Larscoms Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 and Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2004
filed with the SEC, which are incorporated by reference in this
joint proxy statement/prospectus, and copies of which have been
delivered herewith. The consolidated statement of operations
data for the quarters ended March 31, 2004 and 2003 and the
consolidated balance sheet data as of March 31, 2004 are
derived from the unaudited consolidated financial statements and
related notes contained in Larscoms Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2004,
a copy of which is being delivered herewith. The consolidated
statement of operations data for the years ended
December 31, 2003, 2002 and 2001 and the consolidated
balance sheet data as of December 31, 2003 and 2002 are
derived from the audited consolidated financial statements and
related notes contained in Larscoms Annual Report on
Form 10-K for the fiscal year ended December 31, 2003,
a copy of which is being delivered herewith. The consolidated
statement of operations data for the years ended
December 31, 2000 and 1999 and the consolidated balance
sheet data as of December 31, 2001, 2000 and 1999 are
derived from audited consolidated financial statements and the
related notes not appearing elsewhere in or delivered with this
joint proxy statement/prospectus. Historical results are not
necessarily indicative of results that may be expected for any
future periods. On June 6, 2003, Larscom effected a
10
1-for-7 reverse stock split. All share and per
share data has been retroactively restated for the reverse stock
split.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Consolidated Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
3,960
|
|
|
$
|
2,971
|
|
|
$
|
16,904
|
|
|
$
|
17,977
|
|
|
$
|
36,150
|
|
|
$
|
49,136
|
|
|
$
|
48,274
|
|
Service revenues
|
|
|
1,006
|
|
|
|
1,254
|
|
|
|
5,022
|
|
|
|
5,510
|
|
|
|
5,721
|
|
|
|
5,528
|
|
|
|
4,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,966
|
|
|
|
4,225
|
|
|
|
21,926
|
|
|
|
23,487
|
|
|
|
41,871
|
|
|
|
54,664
|
|
|
|
52,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of revenues
|
|
|
3,090
|
|
|
|
1,669
|
|
|
|
11,995
|
|
|
|
9,276
|
|
|
|
23,419
|
|
|
|
23,519
|
|
|
|
24,298
|
|
Service cost of revenues
|
|
|
88
|
|
|
|
305
|
|
|
|
912
|
|
|
|
1,071
|
|
|
|
1,432
|
|
|
|
2,423
|
|
|
|
2,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
3,178
|
|
|
|
1,974
|
|
|
|
12,907
|
|
|
|
10,347
|
|
|
|
24,851
|
|
|
|
25,942
|
|
|
|
26,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,788
|
|
|
|
2,251
|
|
|
|
9,019
|
|
|
|
13,140
|
|
|
|
17,020
|
|
|
|
28,722
|
|
|
|
26,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,055
|
|
|
|
1,107
|
|
|
|
4,845
|
|
|
|
4,199
|
|
|
|
6,779
|
|
|
|
9,900
|
|
|
|
8,049
|
|
|
Selling, general and administrative
|
|
|
2,566
|
|
|
|
3,418
|
|
|
|
14,418
|
|
|
|
16,051
|
|
|
|
20,680
|
|
|
|
24,116
|
|
|
|
21,570
|
|
|
Restructuring (recovery)
|
|
|
(7
|
)
|
|
|
(61
|
)
|
|
|
2,458
|
|
|
|
254
|
|
|
|
5,772
|
|
|
|
|
|
|
|
|
|
|
Other nonrecurring charges
|
|
|
152
|
|
|
|
|
|
|
|
904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,766
|
|
|
|
4,464
|
|
|
|
22,625
|
|
|
|
20,504
|
|
|
|
33,231
|
|
|
|
34,016
|
|
|
|
29,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,978
|
)
|
|
|
(2,213
|
)
|
|
|
(13,606
|
)
|
|
|
(7,364
|
)
|
|
|
(16,211
|
)
|
|
|
(5,294
|
)
|
|
|
(3,203
|
)
|
|
Other income, net
|
|
|
137
|
|
|
|
47
|
|
|
|
381
|
|
|
|
356
|
|
|
|
1,198
|
|
|
|
1,760
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,841
|
)
|
|
|
(2,166
|
)
|
|
|
(13,225
|
)
|
|
|
(7,008
|
)
|
|
|
(15,013
|
)
|
|
|
(3,534
|
)
|
|
|
(1,956
|
)
|
|
Income tax (benefit provision)
|
|
|
5
|
|
|
|
17
|
|
|
|
37
|
|
|
|
(2,113
|
)
|
|
|
15,866
|
|
|
|
(1,035
|
)
|
|
|
(684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,846
|
)
|
|
$
|
(2,183
|
)
|
|
$
|
(13,262
|
)
|
|
$
|
(4,895
|
)
|
|
$
|
(30,879
|
)
|
|
$
|
(2,499
|
)
|
|
$
|
(1,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.36
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(3.26
|
)
|
|
$
|
(1.82
|
)
|
|
$
|
(11.49
|
)
|
|
$
|
(0.94
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares
|
|
|
5,100
|
|
|
|
2,695
|
|
|
|
4,073
|
|
|
|
2,693
|
|
|
|
2,687
|
|
|
|
2,656
|
|
|
|
2,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
March 31,
|
|
|
|
|
2004
|
|
2003
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
6,827
|
|
|
$
|
15,430
|
|
|
$
|
8,371
|
|
|
$
|
17,399
|
|
|
$
|
21,803
|
|
|
$
|
37,395
|
|
|
$
|
38,647
|
|
Total assets
|
|
|
18,993
|
|
|
|
26,126
|
|
|
|
23,700
|
|
|
|
28,060
|
|
|
|
34,173
|
|
|
|
66,320
|
|
|
|
66,862
|
|
Total stockholders equity
|
|
|
8,994
|
|
|
|
15,721
|
|
|
|
10,806
|
|
|
|
17,907
|
|
|
|
22,776
|
|
|
|
53,042
|
|
|
|
54,795
|
|
Other non-current liabilities
|
|
|
1,527
|
|
|
|
1,496
|
|
|
|
1,640
|
|
|
|
1,618
|
|
|
|
2,162
|
|
|
|
448
|
|
|
|
534
|
|
11
Selected Unaudited Pro Forma Combined
Condensed Financial Data
The following selected unaudited pro forma
combined condensed financial information should be read in
conjunction with the section entitled Unaudited Pro Forma
Combined Condensed Financial Statements contained in this
joint proxy statement/prospectus beginning on page 84.
Verilink acquired XEL on February 5, 2004. Larscom acquired
VINA Technologies, Inc. (VINA) in a stock-for-stock
acquisition on June 5, 2003, resulting in the issuance of
2,393,894 shares of Larscom common stock for all
outstanding shares of VINA common stock (after giving effect to
Larscoms 1-for-7 reverse stock split implemented
immediately prior to Larscoms acquisition of VINA).
The following selected unaudited pro forma
combined condensed financial data have been prepared to give
effect to the proposed merger of Verilink and Larscom, as well
as Verilinks acquisition of XEL and Larscoms
acquisition of VINA as if each transaction had been completed as
of June 29, 2002 for statements of operations purposes. The
pro forma balance sheet data was prepared as if the merger had
been completed as of April 2, 2004. Verilink reports its
results of operations on a fiscal year ending in June while
Larscom reports its results on a calendar year basis. Since the
year ends of Verilink and Larscom are not within 93 days per the
SEC guidance, the results of operations for Larscom in the four
calendar quarters ended June 30, 2003 have been totaled and
presented for the year ended June 27, 2003, and the results
of operations for the three calendar quarters ended
March 31, 2004 have been totaled and presented for the nine
months ended April 2, 2004.
The selected unaudited pro forma combined
condensed financial data are presented for illustrative purposes
only and are not necessarily indicative of the financial
position or results of operations that would have actually been
reported had the transactions been completed as of the dates
indicated, nor of the future financial position or results of
operations of the combined companies.
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
Year Ended
|
|
|
Ended
|
|
June 27,
|
|
|
April 2, 2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per
|
|
|
share data)
|
Pro Forma Combined Results of Operations
Data:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
63,669
|
|
|
$
|
82,531
|
|
|
Gross profit
|
|
$
|
23,840
|
|
|
$
|
35,901
|
|
|
Loss from operations
|
|
$
|
(11,450
|
)
|
|
$
|
(23,211
|
)
|
|
Net loss from continuing operations
|
|
$
|
(11,065
|
)
|
|
$
|
(23,028
|
)
|
|
Net loss
|
|
$
|
(11,065
|
)
|
|
$
|
(24,261
|
)
|
Per share amounts basic and diluted
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(0.53
|
)
|
|
$
|
(1.10
|
)
|
|
Net loss
|
|
$
|
(0.53
|
)
|
|
$
|
(1.16
|
)
|
Number of weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,862
|
|
|
|
20,883
|
|
|
Diluted
|
|
|
20,862
|
|
|
|
20,883
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
Research and development as a percentage of sales
|
|
|
14.9
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
April 2,
|
|
|
2004
|
|
|
|
Pro Forma Combined Balance Sheet
Data:
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
9,415
|
|
|
Total assets
|
|
$
|
86,811
|
|
|
Long-term debt and other non-current liabilities
|
|
$
|
15,145
|
|
|
Total stockholders equity
|
|
$
|
44,388
|
|
See accompanying notes to unaudited pro forma
combined condensed financial information.
12
Comparative Historical and Pro Forma Per Share
Data
The following table presents certain unaudited
historical per share and combined pro forma per share data of
Verilink and Larscom, after giving effect to the proposed merger
and the completed acquisitions of XEL and VINA using the
purchase method of accounting. The pro forma data does not
purport to be indicative of the results of future operations or
the results that would have occurred had these transactions been
completed at the beginning of the periods presented. The
information set forth below should be read in conjunction with
the historical consolidated financial statements and notes
thereto of Verilink and Larscom included in, or accompanying,
this joint proxy statement/ prospectus, and the unaudited pro
forma combined condensed financial data included elsewhere in
this joint proxy statement/ prospectus. The unaudited pro forma
combined and unaudited pro forma equivalent per common share
data combine the results of operations of Verilink and Larscom
for the fiscal year ended June 27, 2003 and the nine months
ended April 2, 2004, and Verilink and Larscoms
financial position at April 2, 2004.
Verilink reports its results of operations on a
fiscal year ending in June while Larscom reports its results on
a calendar year basis. Since the year ends of Verilink and
Larscom are not within 93 days per the SEC guidance, the
results of operations for Larscom in the four calendar quarters
ended June 30, 2003 have been totaled and presented for the
year ended June 27, 2003, and the results of operations for
the three calendar quarters ended March 31, 2004 have been
totaled and presented for the nine months ended April 2,
2004.
No cash dividends have ever been declared or paid
on Verilinks or Larscoms common stock. Each company
currently intends to retain earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable
future.
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
Ended
|
|
Year Ended
|
|
|
April 2,
|
|
June 27,
|
|
|
2004
|
|
2003
|
|
|
|
|
|
Historical per share data
Verilink:
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
|
Book value per common share(1)
|
|
$
|
1.12
|
|
|
$
|
0.96
|
|
Historical per share data
Larscom:
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.90
|
)
|
|
$
|
(3.19
|
)
|
|
Book value per common share(1)
|
|
$
|
1.76
|
|
|
$
|
3.66
|
|
Pro forma per share data
Combined:
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per Verilink combined
common share
|
|
$
|
(0.53
|
)
|
|
$
|
(1.10
|
)
|
|
Basic and diluted net loss per equivalent Larscom
common share(2)
|
|
$
|
(0.62
|
)
|
|
$
|
(1.28
|
)
|
|
Book value per Verilink combined common share
|
|
$
|
2.07
|
|
|
$
|
2.00
|
|
|
Book value per equivalent Larscom common share(2)
|
|
$
|
2.41
|
|
|
$
|
2.33
|
|
|
|
(1)
|
The historical book value per share is computed
by dividing total stockholders equity at the end of each
respective period by the number of common shares outstanding at
the end of each respective period.
|
|
(2)
|
The combined pro forma net loss and book value
per equivalent Larscom common share is calculated by multiplying
the combined pro forma Verilink common share amount by the
exchange ratio of 1.166 shares of Verilink common stock for
each share of Larscom common stock.
|
13
Comparative Per Share Market Price
Data
Shares of Verilinks common stock are
currently listed on The Nasdaq National Market and shares of
Larscoms common stock are currently listed on The Nasdaq
SmallCap Market. Public trading of Verilinks common stock
under the symbol VRLK commenced on June 10,
1996. Public trading of Larscoms common stock under the
symbol LARS commenced on The Nasdaq National Market
on December 18, 1996, and beginning on October 23,
2003, public trading of Larscoms common stock transferred
to The Nasdaq SmallCap Market.
The following table sets forth, for the fiscal
quarters indicated, the high and low sales prices for a share of
Verilink and Larscom common stock on the applicable market.
|
|
|
|
|
|
|
|
|
|
Verilink Common Stock
|
|
High
|
|
Low
|
|
|
|
|
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
Quarter ending July 2, 2004 (through
June 23, 2004)
|
|
$
|
5.28
|
|
|
$
|
3.70
|
|
|
Quarter ended April 2, 2004
|
|
$
|
7.89
|
|
|
$
|
4.12
|
|
|
Quarter ended January 2, 2004
|
|
$
|
8.15
|
|
|
$
|
3.45
|
|
|
Quarter ended October 3, 2003
|
|
$
|
4.45
|
|
|
$
|
1.61
|
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
Quarter ended June 27, 2003
|
|
$
|
2.00
|
|
|
$
|
0.50
|
|
|
Quarter ended March 28, 2003
|
|
$
|
2.66
|
|
|
$
|
0.81
|
|
|
Quarter ended December 27, 2002
|
|
$
|
1.49
|
|
|
$
|
0.24
|
|
|
Quarter ended September 27, 2002
|
|
$
|
0.79
|
|
|
$
|
0.20
|
|
Fiscal 2002
|
|
|
|
|
|
|
|
|
|
Quarter ended June 28, 2002
|
|
$
|
0.55
|
|
|
$
|
0.18
|
|
|
Quarter ended March 29, 2002
|
|
$
|
0.99
|
|
|
$
|
0.41
|
|
|
Quarter ended December 28, 2001
|
|
$
|
2.00
|
|
|
$
|
0.77
|
|
|
Quarter ended September 28, 2001
|
|
$
|
4.06
|
|
|
$
|
1.45
|
|
|
|
|
|
|
|
|
|
|
|
Larscom Common Stock
|
|
High
|
|
Low
|
|
|
|
|
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
Quarter ending June 30, 2004 (through
June 23, 2004)
|
|
$
|
5.21
|
|
|
$
|
4.00
|
|
|
Quarter ended March 31, 2004
|
|
$
|
6.64
|
|
|
$
|
3.95
|
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31, 2003
|
|
$
|
5.75
|
|
|
$
|
3.35
|
|
|
Quarter ended September 30, 2003
|
|
$
|
5.36
|
|
|
$
|
2.40
|
|
|
Quarter ending June 30, 2003
|
|
$
|
7.25
|
|
|
$
|
1.75
|
|
|
Quarter ended March 31, 2003
|
|
$
|
3.15
|
|
|
$
|
1.75
|
|
Fiscal 2002
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31, 2002
|
|
$
|
3.50
|
|
|
$
|
1.61
|
|
|
Quarter ended September 30, 2002
|
|
$
|
4.90
|
|
|
$
|
2.03
|
|
|
Quarter ended June 30, 2002
|
|
$
|
9.52
|
|
|
$
|
4.64
|
|
|
Quarter ended March 31, 2002
|
|
$
|
12.53
|
|
|
$
|
7.00
|
|
The following table shows the high and low sales
prices per share of Verilink common stock as reported on The
Nasdaq National Market and of Larscom common stock as reported
on The Nasdaq SmallCap Market, on (1) April 28, 2004,
the last full trading day preceding the public announcement that
Verilink and Larscom had entered into the merger agreement, and
(2) June 23, 2004, the last full trading
14
day for which high and low sales prices were
available as of the date of this joint proxy
statement/prospectus.
The table also includes the equivalent high and
low sales prices per share of Verilink common stock on those
dates. These equivalent high and low sales prices per share
reflect the fluctuating value of the Verilink common stock that
Larscom stockholders would receive in exchange for each share of
Larscom common stock if the merger was completed on either of
these dates, applying the exchange ratio of 1.166 of a share of
Verilink common stock for each share of Larscom common stock,
assuming no adjustment based on the amount of Larscoms net
adjusted working capital.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verilink
|
|
Larscom
|
|
Larscom Equivalent
|
|
|
Common Stock
|
|
Common Stock
|
|
Price Per Share
|
|
|
|
|
|
|
|
Date
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2004
|
|
$
|
5.125
|
|
|
$
|
4.38
|
|
|
$
|
4.82
|
|
|
$
|
4.40
|
|
|
$
|
5.976
|
|
|
$
|
5.107
|
|
June 23, 2004
|
|
$
|
4.00
|
|
|
$
|
3.76
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$
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4.56
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$
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4.34
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$
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4.664
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$
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4.384
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The above table shows only historical
comparisons. These comparisons may not provide meaningful
information to Verilink stockholders in determining whether to
approve the issuance of shares of Verilink common stock in
connection with the merger and to Larscom stockholders in
determining whether to approve and adopt the merger agreement
and approve the merger. Verilink and Larscom stockholders are
urged to obtain current market quotations for common stock and
to review carefully the other information contained in this
joint proxy statement/prospectus or incorporated by reference
into this joint proxy statement/prospectus in considering
whether to approve the issuance of Verilink common stock in
connection with the merger or approve and adopt the merger
agreement and approve the merger. See Where You Can Find
More Information on page 116.
Following the merger, Verilink common stock will
continue to be listed on the Nasdaq National Market and there
will be no further market for Larscom common stock.
15
RISK FACTORS
Following the merger, Verilink and Larscom
will operate as a combined company in a market environment that
cannot be predicted and that involves significant risks, many of
which will be beyond their control. In addition to the other
information contained in, or incorporated by reference into,
this joint proxy statement/prospectus, you should carefully
consider the material risks described below before deciding how
to vote your shares.
Risks Related to the Merger
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Verilink and Larscom may not realize the
benefits they expect from the merger.
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The integration of Verilink and Larscom will be
complex, time consuming and expensive and may disrupt
Verilinks and Larscoms businesses. The combined
company will need to overcome significant challenges in order to
realize any benefits or synergies from the merger. These
challenges include the timely, efficient and successful
execution of a number of post-merger events, including:
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integrating the operations and technologies of
the two companies;
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retaining and assimilating the key personnel of
each company;
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retaining existing customers of both companies
and attracting additional customers;
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retaining strategic partners of each company and
attracting new strategic partners; and
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creating uniform standards, controls, procedures,
policies and information systems.
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The execution of these post-merger events will
involve considerable risks and may not be successful. These
risks include:
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the potential disruption of the combined
companys ongoing business and distraction of its
management;
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the potential strain on the combined
companys financial and managerial controls and reporting
systems and procedures;
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unanticipated expenses and potential delays
related to integration of the operations, technology and other
resources of the two companies;
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the impairment of relationships with employees,
suppliers and customers as a result of the integration of
personnel and any reductions in force;
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greater than anticipated costs and expenses
related to restructuring, including employee severance or
relocation costs and costs related to vacating leased
facilities; and
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potential unknown liabilities associated with the
merger and the combined operations.
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The combined company may not succeed in
addressing these risks or any other problems encountered in
connection with the merger. The inability to successfully
integrate the operations, technology and personnel of Verilink
and Larscom, or any significant delay in achieving integration,
could have a material adverse effect on the combined company
after the merger and, as a result, on the market price of
Verilinks common stock.
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While Verilinks and Larscoms
share prices have been volatile in recent periods, no adjustment
to the exchange ratio will be made as a result of fluctuations
in the market prices of Verilink or Larscom common
stock.
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Verilinks stock price has been volatile in
the past and may continue to be volatile in the future. On
completion of the merger, each share of Larscom common stock
will be exchanged for 1.166 shares of Verilink common
stock, subject to reduction by an adjustment factor based on the
amount of Larscoms net adjusted working capital prior to
the merger. In addition, neither party may withdraw from the
merger
16
or resolicit the vote of its stockholders solely
because of changes in the market price of Larscom common stock
or Verilink common stock. Any reduction in Verilinks stock
price will result in Larscom stockholders receiving less value
in the merger at closing. Conversely, any increase in
Verilinks stock price will result in Larscom stockholders
receiving greater value in the merger at closing. The specific
dollar value of Verilink common stock that Larscom stockholders
will receive on completion of the merger will depend on the
market value of Verilink common stock at that time. Stockholders
will not know the exact value of Verilink common stock to be
issued to Larscom stockholders in the merger at the time of the
special meetings of stockholders. Larscom stockholders are urged
to obtain recent market quotations for Verilink and Larscom
common stock.
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Larscom stockholders will receive shares of
Verilink common stock based on an exchange ratio that is subject
to reduction based upon the amount of Larscoms net
adjusted working capital at closing.
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The number of shares of Verilink common stock
that Larscom stockholders will receive in the merger for each
Larscom share may be reduced depending on the amount of
Larscoms net adjusted working capital at closing. The
targeted net adjusted working capital amounts were determined
based on assumptions about Larscoms operations and cash
flow prior to completion of the merger. These assumptions may
have been incorrect, and Larscoms expenses could be
significantly more than expected. The exchange ratio of 1.166
will be multiplied by an adjustment factor based on
Larscoms net adjusted working capital at closing as
compared to the targeted, net adjusted working capital. If the
closing net adjusted working capital amount is significantly
less than the targeted net adjusted working capital amount, the
exchange ratio would be significantly less than 1.166. For
example, assuming a closing date prior to August 15, 2004,
the targeted net adjusted working capital amount would be
$5,000,000. If Larscoms closing net adjusted working
capital amount were $4,000,000 and a closing date prior to
August 15, 2004, the exchange ratio would equal 1.1263. See
The Merger Merger Consideration
Net Working Capital Adjustment.
Because the adjustments to the exchange ratio
based on Larscoms net adjusted working capital will not be
finalized until the closing, you will have to decide whether or
not to vote for the issuance of the Verilink shares or the
approval and adoption of the merger agreement and approval of
the merger before knowing the actual exchange ratio.
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The cost of the merger could harm the
financial results of the combined company.
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Verilink and Larscom expect to incur transaction
costs of approximately $2 million in connection with the
merger. If the benefits of the merger do not exceed the
associated costs, including costs associated with integrating
the two companies and dilution to Verilinks stockholders
resulting from the issuance of shares in connection with the
merger, the combined companys financial results, including
earnings per share, could be materially harmed.
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The merger could cause Verilink or Larscom
to lose key personnel, which could materially affect the
combined companys business and require it to incur
substantial costs to recruit replacements for lost
personnel.
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As a result of the merger, current and
prospective Verilink and Larscom employees could experience
uncertainty about their future roles within Verilink. This
uncertainty may adversely affect the ability of Verilink and
Larscom to attract and retain key management, sales, marketing
and technical personnel. In addition, in connection with the
merger, current employees of Larscom will be entitled to
acceleration of vesting of stock options, which may adversely
affect the ability of the combined company to retain such
employees following the merger. For a more detailed discussion
see The Merger Interests of Certain Officers,
Directors and Affiliates. Any failure to attract and
retain key personnel could have a material adverse effect on the
business of Verilink and Larscom.
17
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General uncertainty related to the merger
could harm Verilink and Larscom.
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Verilinks or Larscoms customers may,
in response to the announcement of the proposed merger, delay or
defer purchasing decisions. If Verilinks or Larscoms
customers delay or defer purchasing decisions, the revenues of
Verilink and Larscom, respectively, could materially decline or
any anticipated increases in revenue could be lower than
expected. Also, speculation regarding the likelihood of the
closing of the merger could increase the volatility of
Verilinks and Larscoms share prices.
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Third parties may terminate or alter
existing contracts with Larscom or Verilink.
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Each of Verilink and Larscom has contracts with
some of its suppliers, distributors, customers, licensors and
other business partners. Certain of these contracts may require
Larscom or Verilink to obtain consent from these other parties
in connection with the merger. If their consent cannot be
obtained on favorable terms, the combined company may suffer a
loss of potential future revenue and may lose rights to
facilities or intellectual property that are material to the
business of the combined company.
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Some of Larscoms officers and
directors have conflicts of interest that may influence them to
support or approve the merger.
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Certain officers and directors of Larscom
participate in arrangements that provide them with interests in
the merger that are different from yours, including, membership
on the combined companys board of directors,
indemnification, the acceleration of stock option vesting and
the potential ability to sell an increased number of shares of
the combined company. These interests, among others, may
influence the officers and directors of Larscom to support or
approve the merger. For a more detailed discussion see The
Merger Interests of Certain Officers, Directors and
Affiliates.
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During the pendency of the merger, Verilink
and Larscom may not be able to enter into a merger or business
combination with another party at a favorable price because of
restrictions in the merger agreement.
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Covenants in the merger agreement may impede the
ability of Verilink or Larscom to make acquisitions or complete
other transactions that are not in the ordinary course of
business pending completion of the merger. As a result, if the
merger is not completed, the parties may be at a disadvantage to
their competitors. In addition, while the merger agreement is in
effect and subject to certain defined exceptions, each party is
prohibited from soliciting, initiating, encouraging or entering
into certain extraordinary transactions, such as a merger, sale
of assets or other business combination outside the ordinary
course of business, with any third party. Any such transactions
could be favorable to such partys stockholders.
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Failure to complete the merger may result
in Verilink or Larscom paying a termination fee to the other and
could harm Verilinks or Larscoms common stock price
and future business and operations.
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If the merger is not completed, Verilink or
Larscom may be subject to the following risks:
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if the merger agreement is terminated under
certain circumstances, Verilink or Larscom will be required to
pay the other party a termination fee of $1,000,000 plus fees
and expenses;
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the price of Verilink or Larscom common stock may
decline to the extent that the current market price of Verilink
or Larscom common stock reflects a market assumption that the
merger will be completed; and
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costs related to the merger, such as legal,
accounting and certain financial advisory fees, must be paid
even if the merger is not completed.
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In addition, if the merger agreement is
terminated and Verilinks or Larscoms board of
directors determines to seek another merger or business
combination, there can be no assurance that it will be able
18
to find a partner willing to pay or receive an
equivalent or more attractive price than the price to be paid in
the merger.
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The merger may be completed even though
material adverse changes may result from the announcement of the
merger, industry-wide changes and other causes.
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In general, either party can refuse to complete
the merger if there is a material adverse change affecting the
other party between the date of signing, April 28, 2004,
and the closing. However, certain types of changes in and of
themselves will not prevent the merger from going forward, even
if they would have a material adverse effect on Verilink or
Larscom, including:
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changes resulting from any failure by a party to
meet or exceed analysts published revenues or earnings
predictions or any change in a partys stock price or
trading volume, in and of itself;
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with some limited exceptions, any changes
resulting from the announcement or pendency of the merger
agreement or the merger; or
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with some limited exceptions, changes affecting
generally the industry or industries in which a party
participates, the U.S. economy as a whole or foreign
economies in any locations where a party has material operations
or sales, unless such condition disproportionately adversely
affects a party.
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If adverse changes occur but Verilink and Larscom
must still complete the merger, Verilinks stock price may
suffer. This in turn may reduce the value of the merger to
Larscom stockholders.
Risks Related to Verilink
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Verilink is dependent on continued market
acceptance of legacy products, acquired products, recently
introduced products and new product development.
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Verilinks future results of operations are
dependent on market acceptance of existing and future
applications for its existing products, products that Verilink
has acquired and new products in development. Historically, the
majority of sales were provided by Verilinks legacy
products, primarily the AS2000 product line which represented
approximately 62% of net sales in fiscal 2003, 53% of net sales
in fiscal 2002 and 61% of net sales in fiscal 2001. The Miniplex
product line acquired from Terayon Communication Systems, Inc.
can also be classified as a legacy product. While Verilink
anticipates that, over the long-term, net sales from legacy
products will decline, significant quarterly fluctuations are
possible.
Market acceptance of Verilinks products is
dependent on a number of factors, not all of which are in its
control, including the continued growth in the use of bandwidth
intensive applications, continued deployment of new
telecommunications services such as voice over IP (VoIP), market
acceptance of integrated access devices and packetized voice
systems in general, the availability and price of competing
products and technologies, and the success of Verilinks
sales and marketing efforts. Failure of Verilinks products
to achieve market acceptance would have a material adverse
effect on its business, financial condition and results of
operations. Failure to introduce new products in a timely manner
could cause companies to purchase products from competitors and
have a material adverse effect on Verilinks business,
financial condition and results of operations.
New products may require additional development
work, enhancement and testing or further refinement before
Verilink can make them commercially available. Verilink has, in
the past, experienced delays in the introduction of new
products, product applications and enhancements due to a variety
of internal factors, such as reallocation of priorities,
difficulty in hiring sufficient qualified personnel and
unforeseen technical obstacles, as well as changes in customer
requirements. Such delays have deferred the receipt of revenue
from the products involved. If Verilinks products have
performance, reliability or quality shortcomings, it may
experience reduced orders, higher manufacturing costs, delays in
collecting accounts receivable and additional warranty and
service expenses.
19
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There are risks associated with
Verilinks acquisitions, potential acquisitions and joint
ventures.
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An important element of Verilinks strategy
is to seek acquisition prospects and joint venture opportunities
that complement its existing product offerings, augment its
market coverage and customer base, enhance its technological
capabilities or offer revenue and profit growth opportunities.
Verilink acquired all of the outstanding stock of XEL on
February 5, 2004, for approximately $17.65 million,
consisting of $7.65 million in cash and a $10 million
convertible promissory note. In July 2003, Verilink acquired the
Miniplex product line from Terayon for up to $982,000, plus the
assumption of service and warranty obligations for the Miniplex
product line, and agreed to purchase Terayons Miniplex
related inventories totaling approximately $2,100,000 on the
earlier of the date used by the Company or December 31,
2004. In January 2003, Verilink acquired the net assets used in
and directly relating to Polycom, Inc.s line of NetEngine
integrated access devices for up to $3 million, plus the
assumption of service and warranty obligations for existing
NetEngine customers as of the closing of the acquisition.
Further transactions of this nature could result in potentially
dilutive issuance of equity securities, use of cash and/or the
incurring of debt and the assumption of contingent liabilities,
any of which could have a material adverse effect on its
business and operating results and/or the price of its common
stock.
Acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations,
technologies and products, diversion of managements
attention from other business concerns, risks of entering
markets in which Verilink has limited or no prior experience and
potential loss of key employees of acquired organizations. Joint
ventures entail risks such as potential conflicts of interest
and disputes among the participants, difficulties in integrating
technologies and personnel, and risks of entering new markets.
No assurance can be given as to Verilinks ability to
successfully integrate the businesses, products, technologies or
personnel acquired in past acquisitions or those of other
entities that may be acquired in the future or to successfully
develop any products or technologies that might be contemplated
by any future joint venture or similar arrangement. A failure to
integrate the XEL business or the Miniplex and NetEngine product
lines or to integrate future potential acquisitions could have a
material adverse effect on Verilinks business, financial
condition and results of operations.
Verilinks
results and performance have been dependent on a limited
customer base.
A small number of customers have historically
accounted for a majority of Verilinks sales, with Nortel
Networks Corporation accounting for a majority of sales in
fiscal 2003. On a quarterly basis in fiscal 2003, net sales to
Nortel Networks of legacy products has accounted for as much as
64%, and as little as 16%, of its net sales in a particular
quarter. One customer of XEL accounted for 94% and 80%,
respectively, of net sales for its fiscal years ended
December 27, 2003 and December 28, 2002. Verilink
expects a majority of future sales to continue to be from a
small number of customers. While Verilink is trying to diversify
its customer base through the acquisitions of product lines and
companies that have relationships with other customers, there
can be no assurance that its strategy will be successful, and
Verilink may continue to experience quarter to quarter
fluctuations based on the unpredictable ordering patterns of a
limited customer base.
There can be no assurance that Verilinks
current customers will continue to place orders with it, that
orders by existing customers will continue at the levels of
previous periods, or that it will be able to obtain orders from
new customers. The economic climate and conditions in the
telecommunication equipment industry are expected to remain
unpredictable in fiscal 2004, and possibly beyond. Nortel
Networks has announced that it will be restating its financial
results for each quarter in 2003 and for earlier periods, and
disclosed material weaknesses in its internal controls over
financial reporting. Nortel Networks has indicated that as a
result of the delay in filing its periodic reports with the SEC,
it is not in compliance with various obligations under the terms
of some of its debt securities, which may give the holders of
such debt securities the right to accelerate the maturity of the
relevant debt securities upon notice and after a 90-day cure
period. Nortel Networks also announced that its principal
operating subsidiary has obtained a temporary waiver of certain
defaults under a performance-related support facility related to
the delay in filing periodic reports with the SEC. If this
waiver expires or is terminated and Nortel Networks and its
principal operating subsidiary were not yet current in their SEC
reporting obligations, the issuer of the
20
support facility would have the right to exercise
its rights against the collateral under the related security
agreements, among other remedies. WorldCom, Inc. filed a
bankruptcy petition under Chapter 11 of the Bankruptcy Code
in July 2002. A bankruptcy filing by one or more of
Verilinks other major customers could materially adversely
affect Verilinks business, financial condition and results
of operations.
Verilinks
credit facility is secured by substantially all of
Verilinks assets.
The lender under Verilinks credit facility
received a security interest in and a lien on substantially all
of Verilinks assets, including Verilinks existing
and future accounts receivable, cash, general intangibles
(including intellectual property) and equipment. As a result of
this security interest and lien, if Verilink fails to meet its
payment or other obligations under the credit facility, the
lender under the credit facility would be entitled to foreclose
on substantially all of Verilinks assets and liquidate
these assets. Under those circumstances, Verilink may not have
sufficient funds to service its day-to-day operational needs.
Any foreclosure by the lender under the credit facility would
have a material adverse effect on Verilinks financial
condition. The credit facility requires Verilink, among other
things, to meet certain financial covenant tests and limits
Verilinks ability to incur additional indebtedness, incur
liens, make investments, pay dividends or engage in
acquisitions, assets sales, mergers or consolidations without
the consent of the lender. The lender has consented to the
merger with Larscom.
There are
risks associated with the convertible notes issued in the XEL
acquisition
Verilink issued a total of $10.48 million in
convertible promissory notes in connection with its acquisition
of XEL. Through May 12, 2004, $7,250,000 of these notes had
been converted into common stock and $3,230,000 of the principal
amount remains outstanding. The principal on the notes bears
interest at 7% per annum, interest payable quarterly, and
the entire outstanding principal becomes due and payable on
February 5, 2006. The conversion price of the notes is
$5.324 per share of Verilinks common stock. If a
holder would receive net proceeds upon a sale of the underlying
common stock in excess of what such holder would receive from
Verilink to liquidate the principal, Verilink would expect that
such holder would convert all or a portion of their note. If
Verilinks common stock trades below the conversion price
and continues to trade below that level, it would be more likely
that Verilink would have to pay the principal and accrued
interest in cash on the maturity date of the notes. If Verilink
approaches the maturity date without the holders converting
their notes and if cash resources are insufficient to liquidate
the notes, Verilink may be forced to sell assets or seek
additional equity or debt capital to satisfy its obligation.
While Verilink anticipates that cash on hand and cash from
operations will be sufficient to make the quarterly interest
payments, Verilink cannot assure you that its cash flow and
capital resources will be sufficient for payment of principal on
the notes in the future or that any such alternative methods to
raise the necessary capital would be successful or would permit
Verilink to meet its obligations. Furthermore, this outstanding
obligation may limit Verilinks ability to borrow
additional funds until the obligation is satisfied.
Verilink is
dependent on key personnel.
Verilinks future success will depend to a
large extent on the continued contributions of its executive
officers and key management, sales, and technical personnel.
Verilink is a party to agreements with its executive officers to
help ensure the officers continual service in the event of
a change-in-control. Each of Verilinks executive officers,
and key management, sales and technical personnel would be
difficult to replace. Verilink implemented significant cost and
staff reductions during fiscal 2003, 2002 and 2001, which may
make it more difficult to attract and retain key personnel. The
loss of the services of one or more of its executive officers or
key personnel, or the inability to attract qualified personnel,
could delay product development cycles or otherwise could have a
material adverse effect on Verilinks business, financial
condition and results of operations.
21
Verilink is
dependent on key suppliers and the availability of
components.
Verilink generally relies upon contract
manufacturers to buy finished goods for certain product families
and component parts that are incorporated into board assemblies
used in Verilinks products. Additionally, XEL relies on an
original equipment manufacturer to produce one of its product
lines. On-time delivery of Verilinks products depends upon
the availability of components and subsystems used in its
products. Currently, Verilink and its third party
sub-contractors depend upon suppliers to manufacture, assemble
and deliver components in a timely and satisfactory manner.
Verilink has historically obtained several components and
licenses for certain embedded software from single or limited
sources. There can be no assurance that these suppliers will
continue to be able and willing to meet Verilinks and its
third party sub-contractors requirements for any such
components. Verilink and its third party sub-contractors
generally do not have any long-term contracts with such
suppliers, other than software vendors. Any significant
interruption in the supply of, or degradation in the quality of,
any such item could have a material adverse effect on
Verilinks results of operations. Any loss in a key
supplier, increase in required lead times, increase in prices of
component parts, interruption in the supply of any of these
components, or the inability of Verilink or its third party
sub-contractor to procure these components from alternative
sources at acceptable prices and within a reasonable time, could
have a material adverse effect upon Verilinks business,
financial condition and results of operations.
The loss of any of Verilinks outside
contractors could cause a delay in its ability to fulfill orders
while Verilink identifies a replacement contractor. Because the
establishment of new manufacturing relationships involves
numerous uncertainties, including those relating to payment
terms, cost of manufacturing, adequacy of manufacturing
capacity, quality control, and timeliness of delivery, Verilink
is unable to predict whether such relationships would be on
terms that it would regard as satisfactory. Any significant
disruption in Verilinks relationships with its
manufacturing sources would have a material adverse effect on
its business, financial condition, and results of operations.
Purchase orders from Verilinks customers
frequently require delivery quickly after placement of the
order. As Verilink does not maintain significant component
inventories, delay in shipment by a supplier could lead to lost
sales. Verilink uses internal forecasts to manage its general
materials and components requirements. Lead times for materials
and components may vary significantly, and depend on factors
such as specific supplier performance, contract terms, and
general market demand for components. If orders vary from
forecasts, Verilink may experience excess or inadequate
inventory of certain materials and components, and suppliers may
demand longer lead times, higher prices or termination of
contracts. From time to time, Verilink has experienced shortages
and allocations of certain components, resulting in delays in
fulfillment of customer orders. Such shortages and allocations
may occur in the future, and could have a material adverse
effect on Verilinks business, financial condition and
results of operations.
Verilinks
operating results are subject to significant quarter to quarter
fluctuations.
Historically, Verilinks sales are subject
to quarterly and annual fluctuations due to a number of factors
resulting in variability in its quarter-to-quarter sales and
operating results. For example, sales to Nortel Networks during
fiscal 2003 varied between quarters by as much as
$3.8 million. Verilinks ability to affect and judge
the timing of individual customer orders is limited. The large
fluctuations in sales from quarter-to-quarter could be due to a
wide variety of factors, such as delay, cancellation or
acceleration of customer projects, and other factors discussed
below. Verilinks sales for a given quarter may depend to a
significant degree upon planned product shipments to a single
customer, often related to specific equipment or service
deployment projects. Verilink has experienced both acceleration
and slowdown in orders related to such projects, causing changes
in the sales level of a given quarter relative to both the
preceding and subsequent quarters.
Delays or lost sales can be caused by other
factors beyond Verilinks control, including late
deliveries by the third party subcontractors it is using to
outsource its manufacturing operations (as well as by other
vendors of components used in a customers system), changes
in implementation priorities, slower than anticipated growth in
demand for the services that Verilinks products support
and delays in obtaining
22
regulatory approvals for new services and
products. Delays and lost sales have occurred in the past and
may occur in the future. Verilink believes that sales in the
past have been adversely impacted by merger activities by some
of Verilinks top customers. In addition, Verilink has
experienced delays as a result of the need to modify its
products to comply with unique customer specifications. These
and similar delays or lost sales could materially adversely
affect Verilinks business, financial condition and results
of operations.
Verilinks backlog at the beginning of each
quarter typically is not sufficient to achieve expected sales
for that quarter. To achieve its sales objectives, Verilink is
dependent upon obtaining orders in a quarter for shipment in
that quarter. Furthermore, Verilinks agreements with
certain of its customers typically provide that they may change
delivery schedules and cancel orders within specified
timeframes, typically up to 30 days prior to the scheduled
shipment date, without significant penalty. Verilinks
customers have in the past built, and may in the future build,
significant inventory in order to facilitate more rapid
deployment of anticipated major projects or for other reasons.
Decisions by such customers to reduce their inventory levels
could lead to reductions in purchases in certain periods. These
reductions, in turn, could cause fluctuations in Verilinks
operating results and could have an adverse effect on its
business, financial condition and results of operations in the
periods in which the inventory is reduced.
Operating results may also fluctuate due to a
variety of factors, particularly:
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delays in new product introductions;
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market acceptance of new or enhanced versions of
its products;
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changes in the product or customer mix of sales;
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changes in the level of operating expenses;
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competitive offerings and pricing actions;
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the gain or loss of significant customers;
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increased research and development and sales and
marketing expenses associated with new product
introductions; and
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general economic conditions.
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All of the above factors are difficult for
Verilink to forecast, and these or other factors can materially
and adversely affect its business, financial condition and
results of operations for one quarter or a series of quarters.
Verilinks expense levels are based in part on its
expectations regarding future sales and are fixed in the short
term to a certain extent. Therefore, Verilink may be unable to
adjust spending in a timely manner to compensate for any
unexpected shortfall in sales. Any significant decline in demand
relative to its expectations or any material delay of customer
orders could have a material adverse effect on Verilinks
business, financial condition, and results of operations. There
can be no assurance that Verilink will be able to sustain
profitability on a quarterly or annual basis. In addition,
Verilink has had in the past, and may have in the future,
quarterly operating results below the expectations of public
market analysts and investors. In such event, the price of
Verilinks common stock would likely be materially and
adversely affected.
Verilinks
stock price has and may continue to be subject to large
fluctuations.
The trading price of Verilinks common stock
has been and may continue to be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results,
announcements of technological innovations or new products by
Verilink or its competitors, developments with respect to
patents or proprietary rights, general conditions in the
telecommunication network access and equipment industries,
changes in earnings estimates by analysts, or other events or
factors. In addition, the stock market has experienced extreme
price and volume fluctuations, which have particularly affected
the market prices of many technology companies and which have
often been unrelated to the operating performance of such
companies. Specific factors applicable to Verilink or broad
market fluctuations may materially adversely
23
affect the market price of Verilinks common
stock. Verilink has experienced significant fluctuations in its
stock price and share trading volume in the past and may
continue to do so.
The
telecommunications equipment market is highly competitive with
intense price pressure.
The market for telecommunications network access
equipment addressed by Verilinks NetEngine, AS2000,
WANsuite and XEL product families can be characterized as highly
competitive, with intensive equipment price pressure. This
market is subject to rapid technological change, wide-ranging
regulatory requirements, and the entrance of low cost
manufacturers. The market for Verilinks PRISM and Miniplex
product lines can be characterized as declining over the long
term. The technology is not considered new and the market has
experienced decline in recent years.
Industry consolidation could lead to competition
with fewer, but stronger competitors. In addition, advanced
termination products are emerging, which represent both new
market opportunities, as well as a threat to Verilinks
current products. Furthermore, basic line termination functions
are increasingly being integrated by competitors, such as Cisco,
Lucent Technologies, Inc. and Nortel Networks, into other
equipment such as routers and switches. To the extent that
current or potential competitors can expand their current
offerings to include products that have functionality similar to
its products and planned products, Verilinks business,
financial condition and results of operations could be
materially adversely affected.
Many of Verilinks current and potential
competitors have substantially greater technical, financial,
manufacturing and marketing resources than it. In addition, many
of Verilinks competitors have long-established
relationships with network service providers. There can be no
assurance that Verilink will have the financial resources,
technical expertise, manufacturing, marketing, distribution and
support capabilities to compete successfully in the future.
The
telecommunications equipment market is subject to rapid
technological change.
The network access and telecommunications
equipment markets are characterized by rapidly changing
technologies and frequent new product introductions. The rapid
development of new technologies increases the risk that current
or new competitors could develop products that would reduce the
competitiveness of Verilinks products. Verilinks
success will depend to a substantial degree upon its ability to
respond to changes in technology and customer requirements. This
will require the timely selection, development and marketing of
new products and enhancements on a cost-effective basis. The
development of new, technologically advanced products is a
complex and uncertain process, requiring high levels of
innovation. Verilink may need to supplement its internal
expertise and resources with specialized expertise or
intellectual property from third parties to develop new
products. The development of new products for the WAN access
market requires competence in the general areas of telephony,
data networking, network management and wireless telephony as
well as specific technologies such as DSL, ISDN, Frame Relay,
ATM and IP.
Furthermore, the communications industry is
characterized by the need to design products that meet industry
standards for safety, emissions and network interconnection.
With new and emerging technologies and service offerings from
network service providers, such standards are often changing or
unavailable. As a result, there is a potential for product
development delays due to the need for compliance with new or
modified standards. The introduction of new and enhanced
products also requires that Verilink manage transitions from
older products in order to minimize disruptions in customer
orders, avoid excess inventory of old products and ensure that
adequate supplies of new products can be delivered to meet
customer orders. There can be no assurance that Verilink will be
successful in developing, introducing or managing the transition
to new or enhanced products, or that any such products will be
responsive to technological changes or will gain market
acceptance. Verilinks business, financial condition and
results of operations would be materially adversely affected if
it were to be unsuccessful, or to incur significant delays in
developing and introducing such new products or enhancements.
24
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The telecommunications equipment market
requires regulatory compliance and compliance with evolving
standards.
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The market for Verilinks products is
characterized by the need to meet a significant number of
communications regulations and standards, some of which are
evolving as new technologies are deployed. In the U.S.,
Verilinks products must comply with various regulations
defined by the Federal Communications Commission and standards
established by Underwriters Laboratories and Bell Communications
Research. For some public carrier services, installed equipment
does not fully comply with current industry standards, and this
noncompliance must be addressed in the design of Verilinks
products. Standards for new services such as Voice over IP,
Frame Relay, performance monitoring services and DSL have
evolved, such as the G.SHDSL standard. As standards continue to
evolve, Verilink will be required to modify its products or
develop and support new versions of its products. The failure of
its products to comply, or delays in compliance, with the
various existing and evolving industry standards could delay
introduction of its products, which could have a material
adverse effect on Verilinks business, financial condition
and results of operations.
There are
risks associated with Verilinks continuing entry into
international markets.
Verilink has limited experience in the
international markets, but with the acquisition of the NetEngine
products in January 2003, Verilink began expanding sales of its
products outside of North America and are entering certain
international markets, which will require significant management
attention and financial resources. Conducting business outside
of North America is subject to certain risks, including longer
payment cycles, unexpected changes in regulatory requirements
and tariffs, difficulties in staffing and managing foreign
operations, greater difficulty in accounts receivable collection
and potentially adverse tax consequences. To the extent any of
Verilinks sales are denominated in foreign currency, its
sales and results of operations may also be directly affected by
fluctuations in foreign currency exchange rates. In order to
sell its products internationally, Verilink must meet standards
established by telecommunications authorities in various
countries, as well as recommendations of the Consultative
Committee on International Telegraph and Telephony. A delay in
obtaining, or the failure to obtain, certification of
Verilinks products in countries outside the United States
could delay or preclude its marketing and sales efforts in such
countries, which could have a material adverse effect on
Verilinks business, financial condition and results of
operations.
The
telecommunications equipment market is subject to third party
claims of infringement.
The network access and telecommunications
equipment industries are characterized by the existence of a
large number of patents and frequent litigation based on
allegations of patent infringement. From time to time, third
parties may assert exclusive patent, copyright, trademark and
other intellectual property rights to technologies that are
important to Verilink. Verilink has not conducted a formal
patent search relating to the technology used in its products,
due in part to the high cost and limited benefits of a formal
search. In addition, since patent applications in the United
States are not publicly disclosed until the related patent is
issued and foreign patent applications generally are not
publicly disclosed for at least a portion of the time that they
are pending, applications may have been filed which, if issued
as patents, could relate to its products. Software comprises a
substantial portion of the technology in Verilinks
products. The scope of protection accorded to patents covering
software-related inventions is evolving and is subject to a
degree of uncertainty which may increase the risk and cost to
Verilink if it discovers third party patents related to its
software products or if such patents are asserted against
Verilink in the future. Patents have been granted recently on
fundamental technologies in software, and patents may be issued
which relate to fundamental technologies incorporated into its
products.
Verilink may receive communications from third
parties asserting that its products infringe or may infringe the
proprietary rights of third parties. In its distribution
agreements, Verilink typically agrees to indemnify its customers
for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third
parties. In the event of litigation to determine the validity of
any third-party claims, such litigation, whether or not
determined in Verilinks favor, could result in significant
25
expense to Verilink and divert the efforts of its
technical and management personnel from productive tasks. In the
event of an adverse ruling in such litigation, Verilink might be
required to discontinue the use and sale of infringing products,
expend significant resources to develop non-infringing
technology or obtain licenses from third parties. There can be
no assurance that licenses from third parties would be available
on acceptable terms, if at all. In the event of a successful
claim against Verilink and the failure of it to develop or
license a substitute technology, Verilinks business,
financial condition, and results of operations could be
materially adversely affected.
There are
limitations on Verilinks ability to protect its
intellectual property.
Verilink relies upon a combination of patent,
trade secret, copyright, and trademark laws and contractual
restrictions to establish and protect proprietary rights in its
products and technologies. Verilink has been issued certain U.S.
and Canadian patents with respect to limited aspects of its
single purpose network access technology. Verilink has not
obtained significant patent protection for its Access System or
WANsuite technologies. There can be no assurance that third
parties have not or will not develop equivalent technologies or
products without infringing Verilinks patents or that a
court having jurisdiction over a dispute involving such patents
would hold its patents valid, enforceable and infringed.
Verilink also typically enters into confidentiality and
invention assignment agreements with its employees and
independent contractors, and non-disclosure agreements with its
suppliers, distributors and appropriate customers so as to limit
access to and disclosure of its proprietary information. There
can be no assurance that these statutory and contractual
arrangements will deter misappropriation of its technologies or
discourage independent third-party development of similar
technologies. In the event such arrangements are insufficient,
Verilinks business, financial condition and results of
operations could be materially adversely affected. The laws of
certain foreign countries in which Verilinks products are
or may be developed, manufactured or sold may not protect its
products or intellectual property rights to the same extent as
do the laws of the United States and thus, make the possibility
of misappropriation of Verilinks technology and products
more likely.
Risks Related to Larscom
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Larscoms independent
accountants going concern explanatory
paragraph and the resulting perception in the financial
marketplace may adversely affect Larscom.
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PricewaterhouseCoopers LLP has included in its
report on Larscoms consolidated financial statements for
the fiscal year ended December 31, 2003, a going concern
explanatory paragraph, which states that Larscom has
suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to
continue as a going concern.
Larscom has suffered recurring losses from
operations and negative cash flow from operations, investing and
financing. For the year ended December 31, 2003, Larscom
used approximately $6.7 million of cash to fund its
operating, investing and financing activities and for the
quarter ended March 31, 2004, Larscom used an additional
$2.5 million of cash to fund its operating, investing and
financing activities. This factor, in combination with reduced
levels of working capital, raise substantial doubt about
Larscoms ability to continue as a going concern beyond
this calendar year. Larscoms ability to continue as a
going concern is dependent upon its ability to obtain adequate
financing and achieve a level of revenues adequate to support
its capital and operating requirements.
Larscom is exploring opportunities to raise
additional capital through various financing vehicles, but
sufficient funds may not be available to it on terms that it
deems acceptable, if they are available at all. In the event
Larscom is unable to continue as a going concern, it may elect
or be required to seek protection from its creditors by filing a
voluntary petition in bankruptcy or may be subject to an
involuntary petition in bankruptcy. The inclusion of the going
concern explanatory paragraph in PricewaterhouseCoopers
LLPs audit report and the resulting perception in the
financial marketplace may cause Larscoms stock price to
fall and impair its ability to raise additional capital. In
addition, the receipt of a going concern explanatory paragraph
may create a concern among Larscoms current and future
customers and vendors as to whether
26
Larscom will be able to fulfill its contractual
obligations. As a result, current and future customers may
determine not to do business with Larscom, which would cause its
revenues to decline. Employee concern about the future of the
business and their continued prospects for employment may cause
them to seek employment elsewhere, depriving Larscom of the
human capital it needs to be successful.
Larscoms
entire industry was in an extended downturn and recovery may be
delayed.
The downturn in the United States economy and the
rapid and severe downturn for the domestic telecommunications
industry, beginning in late 2000, negatively affected demand for
Larscoms products. In addition to the deteriorating
domestic economic environment, the worldwide telecommunications
market also experienced reduced demand. This decreased demand
led to fluctuating order forecasts from some of Larscoms
customers. While recent events have indicated that a general
economic recovery is underway, the difficult financial position
of many of Larscoms customers resulting from the prolonged
downturn may delay the timing of order increases for
Larscoms products, if at all. For 2003, order demand from
many of Larscoms customers continued to decline as they
experienced the impact of the downturn in the telecommunications
market.
Larscom
expects to continue to incur operating losses and may not be
profitable in the future.
Larscom has experienced substantial net losses,
including a net loss of $1,846,000 for the quarter ended
March 31, 2004 and net losses of $13,262,000 and $4,895,000
for the years ended December 31, 2003 and 2002,
respectively. Larscom has an accumulated deficit of $80,623,000
as of March 31, 2004. A continued decrease in revenues
could have an adverse impact on Larscoms finances. There
can be no assurance as to when or if Larscom will achieve
profitability.
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Larscoms prospects for growth depend
on recently-introduced products and products under
development.
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Larscom expects revenues from sales of its
established products to decline over time both as a result of
decreased demand and pricing pressure. Therefore, Larscoms
future operating results are highly dependent on market
acceptance of its recently-introduced products and products that
may be introduced in the future. These include, for example, the
Orion 7400 and the Orion 5000, 5001 and 5003, all of which have
only recently been introduced. There can be no assurance that
such products will achieve widespread market acceptance, and, in
fact, some other products Larscom introduced in recent years
have failed to meet its sales expectations. The industry-wide
downturn caused sales of new products, such as Larscoms,
to be well below expectations. Larscom has, in the past,
experienced delays and changes in course in the development of
new products and the enhancement of existing products, and such
delays and changes in course may occur in the future.
Larscoms inability to develop and introduce new products
or product versions in a timely manner, due to resource
constraints or technological or other reasons, or to achieve
timely and widespread market awareness and acceptance of its new
products or releases, would have a material adverse effect on
its business and operating results.
Rapid
technological change could hurt Larscoms ability to
compete.
The telecommunications equipment industry is
characterized by rapidly-changing technologies and frequent new
product introductions. The rapid development of new technologies
increases the risk that current or new competitors could develop
products that would reduce the competitiveness of Larscoms
products. Larscoms success will depend to a substantial
degree upon its ability to respond to changes in technology and
customer requirements. This will require the timely development
and marketing of new products and enhancements on a
cost-effective basis. There can be no assurance that Larscom
will be successful in developing, introducing or managing the
transition to new or enhanced products such as the Orion 7400 or
that any such products will be responsive to technological
changes or will gain market acceptance. In the past, some of the
products Larscom has planned and introduced have not met its
sales expectations.
27
Larscoms business could be materially and
adversely affected by shifts in the use of technology common
throughout the industry today. Three shifts affecting
Larscoms products and industry are: the integration of
CSU/ DSU technology into routers and switches, a move from T1/
E1 services to more Ethernet-based services and the increase in
demand for more managed, customer-premise-based services. The
failure to accommodate these shifts in technology could impact
sales of Larscoms products and have a material adverse
affect on its business and operating results.
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To develop new products and product
enhancements, Larscom will need to continue to invest in
research and development, which could adversely affect its
business and operating results.
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As Larscoms revenue growth is dependent
upon the success and development of its recently introduced
products and products under development and as it must continue
to modify its products to incorporate new technologies and meet
new standards, Larscom will be required to continue to devote
time and resources to its research and development efforts.
While Larscoms research and development expenses were
$4.2 million in 2002 and $4.8 million in 2003, it may
not have sufficient resources allocated to the development of
new and enhanced products to remain competitive.
Larscoms
merger with VINA may not lead to the synergies
expected.
While Larscom has largely completed the plan for
the integration of VINA and Larscom from the June 5, 2003
merger of the two companies, there can be no assurance that the
merged company can retain or attract sufficient new customers or
reduce expenses enough to achieve profitability in the near term
or at all.
Larscom
conducted eight rounds of restructuring/layoffs since
mid-2001.
Since mid-2001, Larscom has conducted eight
rounds of layoffs for an aggregate reduction in workforce of 170
people. Although the restructuring actions taken have lowered
Larscoms expense base, Larscom expects operating losses to
continue into 2004. Therefore, there can be no assurance that
another material restructuring and/or workforce reduction will
not be required. In addition, Larscoms workforce
reductions may deprive it of the human capital it would need to
take full advantage of the recent upturn in the business cycle
in Larscoms industry. There can be no assurance that
Larscom will not lose employees in the future as a result of the
restructuring/layoffs, or that it will be able to recruit
suitable replacements.
The absence
of long-term backlog makes Larscom vulnerable in periods of weak
demand.
None of Larscoms customers are
contractually obligated to purchase any quantity of products in
any particular period, and product sales to major customers have
varied widely from quarter-to-quarter and from year-to-year.
Larscoms current customers might not continue to place
orders with it, orders from existing customers might not
continue at the levels of previous periods and Larscom might not
be able to obtain orders from new customers. Over the last
several years, there has been a reduction of equipment demand
throughout the telecommunications industry. Because of
Larscoms limited backlog, this tends to have an immediate
negative effect on its operations, which it cannot fully offset
on a timely basis by implementing reductions in expenses.
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Larscom depends upon a small number of
customers some of whom have been experiencing financial
difficulties.
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A small number of customers have accounted for a
significant percentage of Larscoms sales. Therefore, sales
for a given quarter generally depend on orders received from,
and product shipments to, a limited number of customers. Sales
to individual large customers are often related to the
customers specific equipment deployment projects, the
timing of which is subject to change on limited notice, in
addition to the ebbs and flows in Larscoms customers
business conditions and the effect of competitors product
offerings. Larscom has in the past experienced both
accelerations and slowdowns in orders related to such projects,
causing changes in the sales level of a given quarter relative
to both the preceding and
28
subsequent quarters. Since most of Larscoms
sales are in the form of large orders with short delivery times
to a limited number of customers, Larscoms backlog and
consequently its ability to predict revenues will continue to be
limited. In addition, announcements by Larscom or its
competitors of new products and technologies could cause
customers to defer, limit or end purchases of Larscoms
existing products. In the event that Larscom loses one or more
large customers, anticipated orders from major customers fail to
materialize, or delivery schedules are deferred or canceled as a
result of the above, or other unanticipated factors,
Larscoms business and operating results would be
materially adversely affected. As a result of the downturn in
the telecommunications industry, many of Larscoms
customers have experienced financial difficulties and have
reduced their expenditures on capital equipment. The continued
financial difficulties or failure of any of Larscoms major
customers would have a material adverse effect on its business
and operating results. One of Larscoms largest customers,
MCI, filed for bankruptcy in 2002 and has only recently emerged
from court protection, which could lead to a substantial loss in
their customer base or further reorganizations, all of which
could influence their order levels to Larscom. In 2003 revenue
from sales to MCI decreased 19% from sales to MCI in 2002.
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Larscoms operating results have
fluctuated significantly in the past and may fluctuate in the
future on a quarterly and annual basis as a result of a number
of factors, many of which are beyond its control.
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Consequently, Larscom believes that
period-to-period comparisons of its operating results are not
necessarily meaningful and should not be relied upon as
indicative of future performance.
Results in any period could also be affected by
changes in:
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market demand;
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competitive market conditions;
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market acceptance of new or existing products;
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sales channel development costs;
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the cost and availability of components;
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the mix of Larscoms customer base and sales
channels;
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the mix of products sold;
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Larscoms sales promotion activities;
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Larscoms ability to expand or contract its
sales and marketing organizations effectively;
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Larscoms ability to attract and retain key
technical and managerial employees;
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conditions affecting the telecommunications
industry; and
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general economic conditions.
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Larscom established its expense levels for
product development and other operating expenses based on
projected sales levels and margins, but expenses are relatively
fixed in the short term. Accordingly, when sales are below
expectations in any given period, Larscoms inability to
adjust spending proportionally in the short term may exacerbate
the adverse impact of a revenue shortfall on its operating
results.
Because of all of the foregoing factors,
Larscoms operating results in one or more future periods
may be subject to significant fluctuations. In the event these
factors result in financial performance below the expectations
of public market analysts and investors, the price of
Larscoms common stock could be materially adversely
affected.
29
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Since the sales cycles for Larscoms
products are typically long and unpredictable, it has difficulty
predicting future revenue and its operating results may
fluctuate significantly.
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A customers decision to purchase
Larscoms products often involves a significant commitment
of its resources and a lengthy evaluation and product
qualification process. Larscoms sales cycles vary from a
few months to over a year. As a result, Larscom may incur
substantial sales and marketing expenses and expend significant
management effort without any assurance of a sale. A long sales
cycle also subjects Larscom to other risks, including
customers budgetary constraints, internal acceptance
review and order reductions and cancellations. Even after
deciding to purchase Larscoms products, Larscoms
customers often deploy Larscoms products slowly.
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Larscom depends heavily on component
availability and key suppliers.
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On-time delivery of Larscoms products
depends upon the availability of components and subsystems used
in its products. Larscom depends upon its suppliers to
manufacture, assemble and deliver components in a timely and
satisfactory manner. Larscom obtains components and licenses
certain embedded software from several single sources. Larscom
does not believe it would be able to develop alternative sources
for certain essential components used in its products without
incurring significant costs. In addition, while Larscom believes
it would be able to develop alternative sources for most of the
other components and software used in its products there can be
no assurance that it would be able to do so, in a timely manner
without incurring substantial additional costs, if required. Any
inability by Larscoms suppliers to meet its demand or any
prolonged interruption in supply, or a significant increase in
the price of one or more components or in the price of software,
would likely have an adverse impact on Larscoms business
and operating results. Larscom generally does not have any
long-term contracts with its suppliers and, in fact, as a result
of its merger with VINA, Larscom has made a recent decision to
place a majority of its business with a single contract
manufacturer. It is possible that Larscoms major contract
manufacturer and other suppliers will not continue to be able
and willing to meet Larscoms future requirements.
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The market for Larscoms products is
intensely competitive, and Larscoms failure to compete
effectively could reduce its revenues and margins.
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Competition in the market place for high-speed
network-access products is intense. Larscoms products
compete primarily with Quick Eagle Networks, Verilink, Kentrox,
Cisco Systems, Alcatel, ADTRAN, RAD, Telco Systems, Carrier
Access and Paradyne. Larscom competes to a lesser extent with
other telecommunications equipment companies. Many of
Larscoms competitors have more broadly developed
distribution channels and have made greater advances than
Larscom has in emerging technologies. Cisco Systems and Alcatel
are two of the largest communications equipment companies in the
world. There can be no assurance that Larscom will be able to
continue to compete successfully with existing or new
competitors.
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Larscom is controlled by Sierra Ventures
and Axel Johnson.
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Sierra Ventures V, L.P. and its affiliates
(collectively Sierra Ventures) and Axel Johnson each
control approximately 28% of Larscom common stock. As a result,
Axel Johnson and Sierra Ventures have sufficient combined voting
power to control the direction and policies of Larscom,
including mergers, the payment of dividends, consolidations, the
sale of all or substantially all of the assets of Larscom and
the election of the Larscom board of directors, and to prevent
or cause a change in control of Larscom. There can be no
assurance that Axel Johnson and Sierra Ventures will not act in
concert and affect Larscoms corporate actions in a manner
that conflicts with the interest of Larscoms other
stockholders.
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Larscom has recently reorganized its sales
force.
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Until January of 2004, Larscoms sales force
was organized by type of account: major accounts, carrier
accounts, US indirect channels (distributors and resellers) and
enterprise customers and overseas accounts. As part of its VINA
post-merger plans Larscom has reorganized its sales people along
30
geographic areas. Certain of Larscoms sales
people have been assigned new customers and others will call on
different types of customers. There is a risk that the new
relationships with customers resulting from the reorganization
might not be as productive as the prior organization in the near
term or at all. Failure of the new organization to achieve sales
productivity goals could have an adverse impact on
Larscoms business and operating results.
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Larscom relies on an indirect distribution
channel for sales to many of its domestic and international
customers.
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This channel consists primarily of a small group
of master distributors, such as Tech Data, and a number of
authorized resellers. There are a number of risks associated
with an indirect distribution channel. The risks include a
reduction in Larscoms ability to forecast sales, reduced
average selling prices, potential reductions in customer
satisfaction, loss of contact with users of Larscoms
products, a potential build-up of inventories at resellers and
methods of advertising and promoting products that result in
additional expenses. All of these risk factors could have an
adverse impact on Larscoms business and operating results.
In addition, most of Larscoms existing
distributors also distribute products of Larscoms
competitors. As a result, Larscoms distributors may not
recommend or continue to use and offer Larscoms products,
or Larscoms distributors may not devote sufficient
resources to market and provide the necessary customer support
for Larscoms products. Larscoms distributors may
terminate their agreements with Larscom or significantly reduce
or delay the amount of products that they order from Larscom at
any time. Any such termination, reduction or delay in orders
could have an adverse impact on Larscoms business and
operating results.
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Larscom must comply with regulations and
evolving industry standards.
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The market for Larscoms products is
characterized by the need to comply with a significant number of
communications regulations and standards, some of which are
evolving as new technologies are deployed. In the U.S.,
Larscoms products must comply with various regulations
defined by the Federal Communications Commission and standards
established by Underwriters Laboratories, as well as industry
standards established by various organizations. As standards for
services such as Asynchronous Transfer Mode, Frame Relay,
Internet Protocol, Ethernet and Synchronous Optical
Network/Synchronous Digital Hierarchy evolve, Larscom may be
required to modify its existing products or develop and support
new versions of its products. The failure of Larscoms
products to comply, or delays in compliance, with the various
existing and evolving industry standards could delay
introduction of or affect the marketability of Larscoms
products, which in turn could have an adverse impact on
Larscoms business and operating results.
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Larscom may not be able to protect its
intellectual property and proprietary information.
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Larscom relies upon a combination of trade
secrets, contractual restrictions, copyrights, trademark laws
and patents to establish and protect proprietary rights in its
products and technologies. Larscom believes that the success of
its business depends primarily on its proprietary technology,
information, processes and expertise, rather than patents. Much
of Larscoms proprietary information and technology is not
patented and may not be patentable. Larscom has been issued only
two U.S. patents to date and has four patents pending.
There can be no assurance that Larscom will be able to protect
its technology or that competitors will not be able to develop
similar technology independently. Larscom has entered into
confidentiality and invention assignment agreements with
employees, and into non-disclosure agreements with suppliers,
distributors and appropriate customers so as to limit access to
and disclosure of Larscoms proprietary information. There
can be no assurance that these statutory and contractual
arrangements will deter misappropriation of Larscoms
technologies or discourage independent third-party development
of similar technologies. In the event such arrangements are
insufficient, Larscoms business and operating results
could be adversely impacted.
31
|
|
|
Larscom has not conducted a formal patent
search relating to the technology used in its
products.
|
From time to time, third parties may assert
exclusive patent, copyright, trademark and other intellectual
property rights to technologies that are important to Larscom.
Since patent applications in the U.S. are not publicly
disclosed immediately, applications that Larscom does not know
about may have been filed by its competitors, which could relate
to Larscoms products. The scope of protection accorded to
patents covering software-related inventions is evolving and is
subject to uncertainty, which may increase the risk and cost to
Larscom if Larscom discovers third-party patents related to its
software products or if such patents are asserted against it in
the future. In the event of litigation to determine the validity
of any third-party claims, such litigation, whether or not
determined in favor of Larscom, could result in significant
expense to Larscom and divert the efforts of Larscoms
technical and management personnel. In the event of an adverse
ruling in such litigation, Larscom might be required to pay
damages, discontinue the use and sale of infringing products,
and expend significant resources to develop non-infringing
technology or obtain licenses from third parties. There can be
no assurance that licenses from third parties would be available
on acceptable terms, if at all. A successful claim against
Larscom and its failure to develop or license a substitute
technology could have an adverse impact on Larscoms
business and operating results.
|
|
|
Larscoms products may suffer from
defects or errors that may subject Larscom to product warranty
and product liability claims, which could adversely affect its
business and results of operations.
|
Complex products such as Larscoms might
contain undetected errors or failures when first introduced or
as new versions are released. If such errors or failures occur,
Larscom may be subject to delays in or losses of market
acceptance and sales, product returns, diversion of development
resources resulting in new product development delay, injury to
Larscoms reputation or increased service and warranty
costs. Although Larscom believes that its reserves for estimated
future warranty costs are adequate, its estimates, particularly
those related to products that have been recently introduced,
might not be correct. Warranty claims in excess of those
expected could have an adverse impact on Larscoms business
and operating results. Larscoms agreements with its
distributors and customers typically contain provisions designed
to limit Larscoms exposure to potential product liability
claims. However, it is possible that the limitation of liability
provisions contained in Larscoms agreements may not be
effective or adequate under the laws of certain jurisdictions.
In addition, Larscoms errors and omissions insurance may
be inadequate to cover any potential product liability claim.
Although Larscom has not experienced any product liability
claims to date, it is possible that it will be subject to such
claims in the future. Such claims could have an adverse impact
on Larscoms business and results or operations.
|
|
|
Larscoms key personnel are critical
to Larscoms business, and any failure to retain these
employees could adversely affect its ability to manage its
operations.
|
Larscoms success depends upon the continued
contributions of its key management, sales and engineering
personnel, many of whom would be difficult to replace. Larscom
believes that its future success will depend in large part upon
its ability to attract and retain qualified management, sales
and technical personnel. Larscoms failure to attract or
retain any such key employees could have a material adverse
effect on its business and operating results.
|
|
|
As part of the strategy for growth and
expansion of Larscoms business, Larscom may make
acquisitions that could disrupt its business or harm its
financial condition.
|
As part of Larscoms business strategy,
Larscom may invest in or acquire other businesses, technologies
or assets, or enter into strategic relationships with third
parties. For such acquisitions, Larscom may issue additional
stock, incur debt, assume liabilities, incur impairment charges
related to
32
goodwill and other intangible assets or incur
other large and immediate write-offs. Larscoms operation
of any acquired business would involve numerous risks including:
|
|
|
|
|
problems integrating any acquired operations with
Larscoms own;
|
|
|
|
unanticipated costs;
|
|
|
|
diversion of managements attention from
Larscoms core business;
|
|
|
|
adverse effects on existing business
relationships with customers;
|
|
|
|
risks associated with entering markets in which
Larscom has no or limited experience;
|
|
|
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the potential loss of key employees, particularly
those of the purchased organization; and
|
|
|
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a decrease in Larscoms cash position.
|
33
FORWARD LOOKING STATEMENTS IN THIS JOINT PROXY
STATEMENT/PROSPECTUS
This joint proxy statement/prospectus and the
documents incorporated by reference into this joint proxy
statement/prospectus contain forward-looking
statements within the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 with
respect to Verilinks and Larscoms financial
conditions, results of operations and businesses and the
expected impact of the proposed merger with Larscom on
Verilinks financial performance. Words such as
anticipates, expects,
intends, plans, believes,
seeks, estimates, could,
would, will, may,
can and similar expressions identify forward-looking
statements. These forward-looking statements, including
statements as to the expected benefits of the combination of the
two companies, future product offerings, expected synergies, and
timing of closing, are not guarantees of future performance.
These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially including, but not limited to, the satisfaction of
certain conditions to closing of the proposed merger, including
the risk that stockholder approval might not be obtained in a
timely manner or at all, the ability to successfully integrate
the two companies and achieve expected synergies following the
merger, the ability of the combined company to develop and
market successfully and in a timely manner new products, the
impact of competitive products and pricing and of alternative
technological advances. Many of the important factors that will
determine these results and values are beyond Verilinks
and Larscoms ability to control or predict. Verilink and
Larscoms stockholders are cautioned not to put undue
reliance on any forward-looking statements. Except as otherwise
required by law, Verilink and Larscom do not assume any
obligation to update any forward-looking statements. In
evaluating the merger, you should carefully consider the
discussion of risks and uncertainties in the section entitled
Risk Factors and other risks detailed from time to
time in the SEC reports of Verilink, including its annual report
on Form 10-K for the fiscal year ended June 27, 2003,
as amended, and its quarterly reports on Form 10-Q and the
SEC reports of Larscom, including its annual report on
Form 10-K for the fiscal year ended December 31, 2003,
as amended and its quarterly reports on Form 10-Q.
34
THE VERILINK SPECIAL MEETING
General
The enclosed proxy is solicited on behalf of the
board of directors of Verilink Corporation, a Delaware
corporation, for use at the special meeting of its stockholders
to be held on Tuesday, July 27, 2004, at 10:00 a.m.
Pacific Daylight Time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the
accompanying Notice of Special Meeting. The special meeting will
be held at Larscoms headquarters, 39745 Eureka Drive,
Newark, California 94560. Verilink intends to mail this proxy
statement and accompanying proxy card on or about June 28,
2004 to all stockholders entitled to vote at the special meeting.
On the matters coming before the special meeting
for which a choice has been specified by a stockholder by means
of the ballot on the proxy, the shares will be voted
accordingly. If no choice is specified, the shares will be voted
FOR the issuance of shares in proposal one,
FOR Verilinks 2004 Stock Incentive Plan in
proposal two and FOR adjournments to the special
meeting in proposal three.
Solicitation
Verilink will bear the entire cost of
solicitation of proxies, including the preparation, assembly,
printing and mailing of this proxy statement, the proxy card and
any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares
of common stock beneficially owned by others to forward to these
beneficial owners. Verilink may reimburse persons representing
beneficial owners of common stock for their costs of forwarding
solicitation materials to these beneficial owners. Verilink 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. In addition, Verilink has engaged
InvestorCom, Inc. to assist in the solicitation of proxies for
the special meeting for a fee of $5,000, plus out-of-pocket
expenses.
Voting Rights and Outstanding Shares
The close of business on June 1, 2004 has
been fixed as the record date for determining the holders of
shares of common stock of Verilink entitled to notice of and to
vote at the special meeting. At the close of business on the
record date, Verilink had 16,771,355 shares of common stock
outstanding and entitled to vote at the special meeting.
Each holder of record of common stock on the
record date will be entitled to one vote for each share held on
all matters to be voted upon at the special meeting.
Stockholders do not have the right to cumulative voting at the
meeting.
A quorum of stockholders is necessary to hold a
valid meeting. A quorum will be present if at least a majority,
or 8,385,678, of the outstanding shares are represented by votes
at the meeting or by proxy.
An outside firm will tabulate votes cast by proxy
at the special meeting, and an employee of Verilink will
tabulate votes cast in person at the special meeting.
FOR and AGAINST votes, abstentions and
broker non-votes will be separately counted. Broker
non-votes occur when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because
the nominee does not have discretionary voting power with
respect to that proposal and has not received instructions with
respect to that proposal from the beneficial owner (despite
voting on at least one other proposal for which is does have
discretionary authority or for which it has received
instructions). Broker non-votes and abstentions are counted
towards a quorum but will have no effect on the outcome of the
vote on any proposal at the Verilink special meeting.
35
For Shares Registered in the Name of a Broker
or Bank
Most beneficial owners whose stock is held in
street name receive instruction for granting proxies from their
banks, brokers or other agents, rather than Verilinks
proxy card.
A number of brokers and banks are participating
in a program provided through ADP Investor Communication
Services that offers the means to grant proxies to vote shares
by means of the telephone and Internet. If your Verilink shares
are held in an account with a broker or bank participating in
the ADP Investor Communications Services program, you may grant
a proxy to vote those shares telephonically by calling the
telephone number shown on the instruction form received from
your broker or bank, or via the Internet at ADP Investor
Communication Services web site at
www.proxyvote.com
.
Revocability of Proxies
Any person giving a proxy pursuant to this
solicitation has the power to revoke it at any time before it is
voted. It may be revoked by filing with Verilinks
corporate secretary at Verilinks principal executive
office, 127 Jetplex Circle, Madison, Alabama 35758, a written
notice of revocation or a duly executed proxy bearing a later
date, or it may be revoked by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke
a proxy.
Stockholder Proposals
Stockholder proposals submitted pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the Exchange Act), and intended to be
presented at Verilinks 2004 annual meeting of stockholders
were required to be received by Verilink not later than
June 11, 2004 in order to be considered for inclusion in
Verilinks proxy materials for that meeting.
To be timely, a submission for a director
nomination to be brought before an annual or special meeting
must be received by Verilink, at the address below, not earlier
than 90 nor later than 60 days prior to the first
anniversary of the preceding years annual meeting or, if
the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such
anniversary, notice must be received not earlier than
90 days prior to the annual meeting and not later than the
later of (1) the 60th day prior to the annual meeting, or
(2) the 10th day following the date on which notice of the
date of the annual meeting was mailed or made public, whichever
occurs first. Verilinks certificate of incorporation also
provides that a notice of a director nomination for any
candidate must include certain information with respect to the
nominee, including information as to his or her business
background, relationships with stockholders and certain other
parties, and share ownership in Verilink.
To be timely, notice of any other business to be
brought before an annual or special meeting must be received by
Verilink, at the address below, not later than 90 days
prior to the meeting date or, if less than 100 days notice
or prior public disclosure of the date of the meeting is given
or made to stockholders, notice of any other business must be
received no later than the close of business on the 10th day
following the day on which notice of the date of the annual or
special meeting was mailed or made public, whichever occurs
first.
All stockholder proposals should be mailed to
C.W. Smith, Vice President and Chief Financial Officer, Verilink
Corporation, 127 Jetplex Circle, Madison, Alabama 35758-8989.
Stock Certificates
You should not send in any stock certificates
with your proxy card. Verilink stockholders will not receive any
new shares in the merger.
36
IMPORTANT
Please mark, sign and date the enclosed proxy
and return it at your earliest convenience in the enclosed
postage-prepaid return envelope so that, whether you intend to
be present at the special meeting or not, your shares can be
voted. This will not limit your rights to attend or vote at the
special meeting.
Verilink Proposal 1: Approval of the
Issuance of Shares of Verilink Common Stock to Larscoms
Stockholders in the Merger
At Verilinks special meeting, stockholders
will be asked to consider and vote to approve the issuance of
shares of Verilink common stock to Larscoms stockholders
in the merger.
On April 28, 2004, Verilinks board of
directors adopted resolutions approving the issuance of shares
of Verilink common stock to Larscom stockholders in connection
with the consummation of the merger. These shares will not be
issued unless the merger is approved and completed. This share
issuance is being submitted for approval by the Verilink
stockholders pursuant to the requirements applicable to
companies with securities quoted on The Nasdaq Stock Market,
Inc. Approval of such issuance requires the affirmative vote of
a majority of votes cast on the proposal by holders of Verilink
common stock present in person or represented by proxy at the
special meeting.
Certain Verilink stockholders, including
executive officers and members of the board of directors of
Verilink, representing approximately 11.4% of the voting power
of the outstanding Verilink common stock, entered into a voting
agreement with Larscom in which, among other things, they
agreed, until the earlier of the consummation of the merger or
termination of the merger agreement, to vote their shares of
Verilink common stock in favor of the issuance of Verilink
common stock.
See The Merger for a detailed
discussion of the merger and merger agreement.
After careful consideration, Verilinks
board of directors unanimously determined that the merger is
fair to and in the best interests of Verilink and its
stockholders and approved the merger agreement and the issuance
of Verilink common stock in the merger. Verilinks board of
directors unanimously recommends that the Verilink stockholders
vote FOR approval of the issuance of shares of
Verilink common stock to Larscoms stockholders in the
merger.
Verilink Proposal 2: Approval of
Verilinks 2004 Stock Incentive Plan
At Verilinks special meeting, stockholders
will be asked to consider and vote to approve the Verilink
Corporation 2004 Stock Incentive Plan (the 2004
Plan).
The Verilink board of directors has adopted the
2004 Plan, subject to stockholder approval. In connection with
the adoption of the 2004 Plan, the Verilink board of directors
reserved an initial allotment of 1,300,000 shares of
Verilink common stock for issuance under the 2004 Plan. In
addition, the number of shares of Verilink common stock for
issuance under the 2004 Plan will automatically increase by the
lesser of (a) 1,000,000 or (b) the result of 1,800,000
minus the maximum number of shares available for issuance under
the 2004 Plan immediately prior to the calculation of the annual
adjustment. These automatic annual increases will occur
effective as of the last day of each fiscal year of Verilink
following the adoption of the 2004 Plan until the expiration of
its term.
Stockholder approval of the 2004 Plan requires
the affirmative vote of the holders of a majority of the shares
of Verilink common stock present and entitled to vote in person
or by proxy at the Verilink special meeting.
See Proposal 2 for Verilink
Stockholders: Approval of Verilink Corporation 2004 Stock
Incentive Plan for a detailed discussion of the 2004 Plan.
37
Verilinks board of directors unanimously
recommends that the Verilink stockholders vote FOR
approval of Verilinks 2004 Stock Incentive Plan.
Verilink Proposal 3: Approval of Any
Adjournments to Special Meeting
If at the Verilink special meeting the number of
shares of Verilink common stock represented in person or by
proxy and voting in favor of the issuance of shares of Verilink
common stock to Larscom stockholders pursuant to the merger
agreement and the approval of Verilinks 2004 Stock
Incentive Plan is insufficient to approve either such proposal,
Verilinks management intends to move to adjourn or
postpone the special meeting in order to enable the Verilink
board of directors to solicit additional proxies. In that event,
Verilink will ask its stockholders to vote only upon the
adjournment proposal, and not the proposals regarding the
issuance of shares of Verilink common stock to Larscom
stockholders pursuant to the merger agreement and the approval
of Verilinks 2004 Stock Incentive Plan.
Under Verilinks bylaws, the adjournment
proposal requires the approval of a majority of the votes cast
on the proposal assuming a quorum is present to conduct business
at the Verilink special meeting. Broker non-votes and
abstentions will have no effect on the outcome of the vote on
this proposal. No proxy that is specifically marked
AGAINST the issuance of shares of Verilink common
stock to Larscom stockholders pursuant to the merger agreement
or the approval of Verilinks 2004 Stock Incentive Plan
will be voted in favor of the adjournment proposal, unless it is
specifically marked FOR granting the discretionary
authority to adjourn or postpone the special meeting to a later
date.
See Approval of Any Adjournments to the
Special Meeting for a detailed discussion of the proposal
to approve adjournments to the special meeting.
Verilinks board of directors unanimously
recommends that the Verilink stockholders vote FOR
the proposal to grant discretionary authority to adjourn or
postpone the Verilink special meeting to a date not later than
August 31, 2004, for the purpose of soliciting additional
proxies.
Other Matters
Verilink knows of no other matters to be brought
before the special meeting, and pursuant to Verilinks
bylaws, no other matters may be brought before the special
meeting by Verilink stockholders. If any other matters properly
come before the special meeting, it is the intention of the
persons named in the accompanying proxy for Verilink to vote the
shares as the Verilink board of directors may recommend.
38
THE LARSCOM SPECIAL MEETING
General
The enclosed proxy is solicited on behalf of the
board of directors of Larscom Incorporated, a Delaware
corporation, for use at the special meeting of stockholders to
be held on Tuesday, July 27, 2004, at 9:00 a.m.
Pacific Daylight Time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the
accompanying Notice of Special Meeting. The special meeting will
be held at Larscoms headquarters, 39745 Eureka Drive,
Newark, California 94560. Larscom intends to mail this proxy
statement and accompanying proxy card on or about June 28,
2004 to all stockholders entitled to vote at the special meeting.
On the matter coming before the special meeting
for which a choice has been specified by a stockholder by means
of the ballot on the proxy, the shares will be voted
accordingly. If no choice is specified, the shares will be voted
FOR the adoption and approval of the merger
agreement and approval of the merger.
Solicitation
Larscom will bear the entire cost of solicitation
of proxies, including preparation, assembly, printing and
mailing of this proxy statement, the proxy card and any
additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares
of common stock beneficially owned by others to forward to these
beneficial owners. Larscom may reimburse persons representing
beneficial owners of common stock for their costs of forwarding
solicitation materials to these beneficial owners. Original
solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by directors,
officers or other regular employees of Larscom. No additional
compensation will be paid to directors, officers or other
regular employees for such services.
Voting Rights and Outstanding Shares
Only holders of record of common stock at the
close of business on June 1, 2004 will be entitled to
notice of and to vote at the special meeting. At the close of
business on June 1, 2004 Larscom had outstanding and
entitled to vote 5,100,255 shares of common stock.
A quorum of stockholders is necessary to hold a
valid meeting. A quorum will be present if at least a majority
of the outstanding shares are represented by votes at the
meeting or by proxy. Votes will be counted by the inspector of
election appointed for the meeting, who will separately count
For and Against votes, abstentions and
broker non-votes. Broker non-vote occurs when a
nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have
discretionary voting power with respect to that proposal and has
not received instructions with respect to that proposal from the
beneficial owner. Abstentions and broker non-votes are counted
towards a quorum, and will have the same effect as
Against votes.
For Shares Registered in the Name of a Broker
or Bank
Most beneficial owners whose stock is held in
street name receive instruction for granting proxies from their
banks, brokers or other agents, rather than Larscoms proxy
card.
A number of brokers and banks are participating
in a program provided through ADP Investor Communication
Services that offers the means to grant proxies to vote shares
by means of the telephone and Internet. If your Larscom shares
are held in an account with a broker or bank participating in
the ADP Investor Communications Services program, you may grant
a proxy to vote those shares telephonically by calling the
telephone number shown on the instruction form received from
your broker or bank, or via the Internet at ADP Investor
Communication Services web site at
www.proxyvote.com.
39
Revocability of Proxies
Any person giving a proxy pursuant to this
solicitation has the power to revoke it at any time before it is
voted. It may be revoked by filing with Larscoms corporate
secretary at Larscoms principal executive office, 39745
Eureka Drive, Newark, California 94560, a written notice of
revocation or a duly executed proxy bearing a later date, or it
may be revoked by attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.
Stockholder Proposals
Larscoms 2004 annual meeting of
stockholders will be held only if the merger is not completed.
If the merger is not completed and Larscom does hold a 2004
annual meeting of stockholders, it will notify its stockholders
of the date of such meeting and the date by which any
stockholder proposal must be received by publishing a press
release and/or filing such information with the SEC.
Stock Certificates
You should not send in any stock
certificates with your proxy card.
If the stockholders adopt and
approve the merger agreement and approve the merger, you will
receive a transmittal form as soon as practicable after the
effective date of the merger. The transmittal letter will
include instructions for the surrender and exchange of shares of
Larscom common stock for shares of Verilink common stock.
IMPORTANT
Please mark, sign and date the enclosed proxy
and return it at your earliest convenience in the enclosed
postage-prepaid return envelope so that, whether you intend to
be present at the special meeting or not, your shares can be
voted. This will not limit your rights to attend or vote at the
special meeting.
Larscom Proposal: Adoption and Approval of the
Merger Agreement and Approval of the Merger
At Larscoms special meeting, holders of
record at June 1, 2004 of Larscom common stock will be
asked to consider and vote to adopt and approve the Agreement
and Plan of Merger dated as of April 28, 2004, by and among
Larscom, Verilink and SRI Acquisition Corp., a wholly-owned
subsidiary of Verilink, and to approve the proposed merger of
SRI Acquisition Corp. with and into Larscom. See The
Merger for a detailed discussion of the merger and merger
agreement.
This vote is a condition to completion of the
merger and is required by Delaware law. To adopt and approve the
merger agreement and approve the merger, the affirmative vote of
a majority of the outstanding shares of Larscoms common
stock will be required.
Certain Larscom stockholders, representing an
aggregate of approximately 55.9% of the voting power of the
outstanding Larscom common stock, entered into a voting
agreement with Verilink in which, among other things, each
stockholder agreed, until the earlier of the consummation of the
merger or the termination of the merger agreement, to vote its
shares of Larscom common stock in favor of the adoption and
approval of the merger agreement and the merger.
After careful consideration, Larscoms
board of directors determined, by unanimous vote of directors
present, that the merger agreement and the merger are fair,
advisable and in the best interests of Larscom and its
stockholders and adopted and approved the merger agreement and
approved the proposed merger. Larscoms board of directors
recommends, by unanimous vote of directors present, that you
vote FOR adoption and approval of the merger
agreement and approval of the merger.
40
THE MERGER
This section of the joint proxy statement/
prospectus describes the material aspects of the proposed
merger, including the merger agreement. While each of Verilink
and Larscom believes that the description covers the material
terms of the merger and the merger agreement, this summary may
not contain all of the information that is important to you. You
should read carefully this entire document and the other
documents to which Verilink or Larscom refers for a more
complete understanding of the merger and the merger
agreement.
Background of the Merger
Larscom and Verilink each regularly assesses the
competitive positions of their respective products,
technologies, workforce, manufacturing and distribution
capabilities and markets. In addition, each company understands
that there are economies of scale that accrue as companies
increase in size. As a result, Larscom and Verilink each
continuously explore strategic opportunities to strengthen their
businesses or to consolidate to gain economies of scale.
The management and board of directors of Larscom
and Verilink have various relationships that go back several
years and from time to time have had discussions about business,
the telecommunications marketplace and their respective
strategies.
In December 2002, Lawrence D. Milligan, chairman
of the board of directors of Larscom, was contacted by Howard
Oringer, chairman of the board of directors of Verilink, with a
request to meet for strategic discussions.
In December 2002, the board of directors of
Larscom held two special meetings in which it discussed various
potential strategic transactions, including a potential
transaction with Verilink.
On January 17, 2003, Mr. Milligan and
Desmond P. Wilson III, a member of the board of directors
of Larscom, met with Mr. Oringer and Leigh Belden,
president and chief executive officer and member of the board of
directors of Verilink. The parties discussed the benefits of a
consolidation. The Verilink participants outlined their view of
the structure of the combined company, including the fact that
Verilink would maintain control of the company.
On January 22, 2003, the Larscom board of
directors held a special meeting to discuss strategic options
for the company, including the Verilink opportunity. The board
of directors concluded that the company should continue a
strategy based on continued development of a strategic optical
product while continuing to explore opportunities for
combination where Larscom would be the surviving entity.
On February 4, 2003, Mr. Milligan told
Mr. Oringer that the Larscom board of directors wanted
management to focus on executing on their strategy and were not
interested in being acquired at the current time.
During the next several months, Larscom focused
on a merger with VINA Technologies, Inc., which closed on
June 6, 2003.
During the following months, there were
occasional contacts between Mr. Oringer and
Mr. Milligan or Jeffrey Drazan, a member of the board of
directors of Larscom.
On December 2, 2003, Mr. Drazan met
with Mr. Oringer and Mr. Belden and discussed possible
mutual interest in a combination.
On December 4, 2003, Daniel L. Scharre,
president and chief executive officer and board member of
Larscom, met with Mr. Belden to discuss a possible
combination. They also discussed the potential product portfolio
and customer synergies, structure of the proposed transaction
and structure of the resulting combined company.
On December 9, 2003, the Larscom board of
directors held a special meeting to discuss the opportunity for
a combination with Verilink. The board agreed that, given
specific initiatives that Larscom
41
was in the process of executing on, the timing
for a combination was not right, but that the board should
continue to reevaluate the proposed transaction.
On December 12, 2003, Mr. Milligan
communicated the decision of the Larscom board to
Mr. Oringer.
Both Mr. Milligan and Mr. Drazan kept
in occasional contact with Mr. Oringer through February
2004. In this same period, inquiries came to Larscom from other
potential strategic partners.
On February 27, 2004, the Larscom board of
directors held a special meeting to discuss the current status
of the company and of various strategic opportunities. Based on
the business prospects of Larscom, the board of directors
decided to explore a combination with Verilink in more detail to
ascertain whether it might not be in the best long-term
interests of the company and its stockholders. In addition, the
board of directors decided to also explore another potential
strategic opportunity for a combination that had been presented
to the company.
Over the next two weeks, Larscom management had
conversations with the management of Verilink and the other
potential strategic partner and began due diligence with both.
On March 15, 2004, Dr. Scharre and
Mr. Wilson had meetings with Mr. Belden and other
members of Verilink management in the facilities of
Verilinks recently acquired XEL subsidiary in Aurora, CO.
At the meeting both companies presented company overviews and
discussed strategy, product portfolio, customers, market
outlook, revenue and financial past performance and outlook and
engineering. In addition, XEL background and strategy was
discussed.
On March 18, 2004, Dr. Scharre and
Mr. Wilson had meetings with Mr. Belden and other
members of Verilink management in their Madison, Alabama
facilities. At the meeting, operations, manufacturing, quality
and systems were discussed. In addition, the parties discussed
plans for transition and integration of the companies if the two
were to combine.
On March 22, 2004, the Larscom board of
directors held a special meeting to discuss the findings of the
due diligence that had been conducted on Verilink and the other
potential strategic partner. The Larscom board directed
management to proceed with discussions with Verilink.
On March 24, 2004, the Verilink board of
directors held a special meeting to discuss the preliminary
diligence that had been conducted on Larscom and preliminary
terms that might be proposed to Larscom. Representatives of
Raymond James and Powell, Goldstein, Frazer & Murphy
LLP, Verilinks outside counsel, also participated in the
meeting. By letter dated March 25, 2004, Verilink engaged
Raymond James to serve as Verilinks external investment
banker and to render a fairness opinion in connection with the
proposed transaction with Larscom.
Over the next week, Larscom and Verilink
continued with their due diligence and negotiations over
principal terms, including a proposed exchange ratio and
composition of the board of directors of the surviving company.
On March 26, 2004, Larscom executed the
engagement letter with Standard & Poors CVC for
Standard & Poors CVC to provide certain valuation
services in connection with the proposed transaction with
Verilink.
On March 29, 2004, the Verilink board of
directors held a special meeting. Representatives of Raymond
James and Powell Goldstein also participated in the meeting.
During this meeting, the status of the negotiations with Larscom
and potential terms to be offered were discussed, including
minimum financial conditions. On March 30, 2004 the
Verilink board of directors held a special meeting with
representatives of Raymond James and Powell Goldstein to discuss
proposed terms to be offered to Larscom. In that meeting, the
Verilink board authorized proposing a merger in which an
aggregate of 5,750,000 Verilink shares would be issued for all
outstanding stock and stock equivalents of Larscom, assuming
Larscom had at least $6.1 million of net working capital at
closing.
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On March 31, 2004, the Larscom board of
directors held a regular meeting. A representative of Cooley
Godward LLP, Larscoms outside counsel, was also present.
During this meeting, the status of ongoing negotiations with
both parties was discussed. The representative from Cooley
Godward LLP reviewed with the directors their duties in
evaluating the proposed transactions. Management from the other
potential strategic partner presented their view of the combined
company to the Larscom board. The Larscom board decided to
continue discussions with both parties.
Over the next week, Larscom continued
negotiations with both parties.
On April 6, 2004, the Larscom board of
directors held a special meeting to review the status of the
negotiations with the two parties. Representatives from Cooley
Godward LLP and Standard & Poors CVC were also
present. Mr. Oringer, Mr. Belden and Stefan Jansen,
managing director at Raymond James, Verilinks financial
advisor, presented their view of the strategy for the combined
company and the benefits of a combination. The board of
directors discussed the terms of a proposed counter proposal to
Verilink. Dr. Scharre was asked to follow up with the other
potential strategic partner and Mr. Milligan,
Mr. Wilson, Mr. Drazan and Dr. Scharre were given
the authority to finalize the counter proposal to be given to
Verilink.
Later that afternoon, Dr. Scharre had a
discussion with the other potential strategic partner. The other
party said they would not be able to provide a firm offer for
several weeks and Larscom and such party agreed to terminate
discussions at that point.
Over the next few days, Mr. Milligan,
Mr. Wilson, Mr. Drazan and Dr. Scharre had
several discussions regarding the status of the negotiations
with the two potential strategic partners and agreed to provide
the boards counter proposal to Verilink.
On April 9, 2004, Larscom and Verilink
executed an agreement to negotiate exclusively with each other
for a limited period of time.
Over the following two weeks, both sides
conducted additional detailed due diligence at the other parties
facilities and with customers. Mr. Belden and
Dr. Scharre continued negotiations of the principal terms
of the proposed transaction through this period.
On April 15, 2004, Larscom executed the
engagement letter with Standard & Poors CVC for
Standard & Poors CVC to conduct an analysis as to
the fairness of the proposed transaction with Verilink to
Larscoms stockholders.
On April 18, 2004, the Verilink board of
directors held a special meeting with representatives of Raymond
James and Powell Goldstein to discuss the proposed terms of a
merger agreement with Larscom, the potential exchange ratio and
timing of next steps to complete a definitive agreement.
On April 19, 2004, Powell Goldstein
distributed a draft merger agreement to the working group.
Following such distribution, Verilink and Larscom management and
their respective legal and financial advisors had numerous
conference calls amongst themselves to discuss the status of
negotiations and respective due diligence investigations.
On April 21, 2004, the Verilink board held a
special meeting to review the status of negotiations with
Larscom, due diligence findings, the status of Larscoms
finances and operations and the potential exchange ratio.
Representatives of Raymond James and Powell Goldstein also
participated in the call. The Verilink board provided guidance
to Mr. Belden and directed him to continue negotiations
with Dr. Scharre.
Over the following week, both sides discussed
their diligence findings and continued negotiations of the
definitive merger agreement. Based on these discussions,
Mr. Belden indicated to Dr. Scharre that he would be
prepared to recommend to the Verilink board of directors a
merger with Larscom providing for the issuance of a total of
6 million shares of Verilink common stock on a fully
diluted basis, subject to reduction if Larscoms adjusted
net working capital at closing did not meet agreed upon levels.
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On April 26 and 27, 2004, the Larscom
board of directors held special meetings to discuss the status
of due diligence and negotiations. The board provided guidance
to Dr. Scharre and directed him to continue negotiations
with Mr. Belden.
On April 28, 2004, the Larscom board of
directors held a special meeting to review the terms of the
merger agreement and related documents and to further consider
the potential merger with Verilink. Representatives from Cooley
Godward LLP and Standard & Poors CVC were also
present. Larscoms management reviewed with its board the
strategic benefits of the transaction, and Standard &
Poors CVC reviewed with the board of directors financial
analyses prepared in connection with its fairness opinion. A
representative of Cooley Godward LLP described the provisions of
the merger agreement and reviewed the board of directors
responsibilities in connection with the proposed transaction.
Standard & Poors CVC presented its oral opinion,
subsequently confirmed in writing that, as of April 28,
2004, and based on and subject to the various considerations set
forth in the opinion, the exchange ratio was fair, from a
financial point of view, to the stockholders of Larscom. The
members of the Larscom board of directors present at the
meeting, after full discussion and considering the terms of the
merger agreement and other related documents and the various
presentations, approved the merger and the merger agreement and
the related documentation. Larscoms board authorized
Larscoms management to execute the merger agreement and
related agreements.
After the close of business on April 28,
2004, the Verilink board of directors held a special meeting to
review the terms of the merger agreement and related documents
and to further consider the potential merger with Larscom.
Representatives from Raymond James and Powell Goldstein were
also present. Verilinks management reviewed with its board
the strategic benefits of the transaction, and Raymond James
reviewed with the board of directors financial analyses prepared
in connection with its fairness opinion. A representative of
Powell Goldstein described the provisions of the merger
agreement and related documents, and reviewed the board of
directors responsibilities in connection with the proposed
transaction. Raymond James presented its oral opinion,
subsequently confirmed in writing that, as of April 28,
2004, and based on and subject to the various considerations set
forth in the opinion, the exchange ratio was fair, from a
financial point of view, to Verilink. The members of the
Verilink board of directors present at the meeting, after full
discussion and considering the terms of the merger agreement and
other related documents and the various presentations,
unanimously approved the merger and the merger agreement and the
related documentation. Verilinks board authorized
Verilinks management to execute the merger agreement and
related agreements. Verilinks board also approved an
amendment to Verilinks stockholder rights plan designed to
ensure that the agreements contemplated in connection with the
merger with Larscom did not result in any triggering event under
the rights plan.
Preparation of the final versions of the merger
agreement and related documents continued through the evening of
April 28, 2004. On the evening of April 28, 2004, the
merger agreement and ancillary agreements were executed and
delivered.
On the morning of April 29, 2004, Larscom
and Verilink issued a joint public announcement of the merger.
On May 3, 2004, Mr. Belden, C.W. Smith,
chief financial officer of Verilink, and Dr. Scharre hosted
a joint conference call regarding the merger.
Larscoms Reasons for the
Merger
Larscoms board of directors has determined
that the terms of the merger and the merger agreement are fair
to, and in the best interests of, Larscom and its stockholders.
Larscoms board of directors consulted with senior
management, as well as its legal counsel, independent
accountants and financial advisors in reaching its decision to
approve the merger. Larscoms board of directors considered
a number of factors in its deliberations, including the
following:
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the competitive advantage of offering a more
comprehensive portfolio of broadband access solutions for both
telecommunication carriers and enterprises;
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the benefits of becoming part of a larger
organization with access to greater financial resources,
enhanced research and development capabilities and expanded
sales and distribution channels;
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the potential to reduce costs through
consolidating purchasing;
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the opportunity to realize other cost savings by
consolidating certain research and development programs and
eliminating redundant expenses;
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the opportunity to increase sales through
Larscoms ability to sell its products to a larger customer
base and through expanded sales channels;
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the balance sheet of the combined company and
having greater financial flexibility to develop and market the
next generation of broadband access products;
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information regarding historical market prices
and other information with respect to the Larscom common stock
and the Verilink common stock;
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information concerning the historical financial
performance, business operations, financial condition and
prospects of Verilink including Verilinks periodic reports
filed with the SEC;
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the financial condition, results of operations
and business of Larscom, including the prospects of Larscom, as
well as current industry, economic and market conditions;
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the prices paid in comparable transactions
involving other communications technology companies, as well as
the trading performance for comparable companies in the industry;
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beliefs of management that significant
consolidation would occur in the industry and that additional
products and greater critical mass would be required in order to
maintain a position as a leading source for broadband access
solutions;
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beliefs shared by senior management of both
companies that the prospects of the combined entity were more
favorable than the prospects of the companies as separate
entities;
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the financial terms of the merger, including the
proposed structure as a tax-free reorganization and the exchange
ratio;
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the fact that certain Larscom stockholders had
agreed to vote their shares in favor of the merger and the
termination provisions of the merger agreement that permit
Larscom under specified circumstances to terminate the merger
agreement and the size and impact of the termination fee
associated with certain terminations;
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the evaluation of Larscoms management,
financial advisors and legal advisors relating to the due
diligence review that was conducted regarding Verilinks
business;
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the opinion and the accompanying presentation of
Standard & Poors CVC to the effect that, as of
April 28, 2004, and based upon and subject to the
considerations described in its opinion, the exchange ratio
provided for in the merger was fair from a financial point of
view to Larscom; and
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the interests of the officers and directors of
Larscom in the merger, including the matters described under
The Merger Interests of Certain Directors,
Officers and Affiliates and the impact of the merger on
Larscoms stockholders, customers and employees.
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The Larscom board of directors also considered
potential negative factors relating to the merger, including:
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the potential dilutive effect on Verilinks
common stock price if revenue and earnings expectations for
Verilink are not met;
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Verilinks current amount of available
unrestricted cash;
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the significant costs that will be incurred in
seeking to consummate the merger;
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the risk that the benefits sought to be achieved
by the merger will not be realized;
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the risk that the merger may not be completed in
a timely manner, if at all;
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the potential loss of key Larscom and Verilink
employees critical to the ongoing success of Larscoms and
Verilinks businesses and to the successful integration of
the two companies;
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the possibility of cultural conflicts;
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difficulties associated with integration of each
companys products, networks and technologies;
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the risk that Verilink will be unable to recruit
employees critical to the ongoing success of the combined
companys operations; and
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the other risks and uncertainties discussed above
under Risk Factors.
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The foregoing discussion of the items that the
Larscom board of directors considered is not intended to be
exhaustive, but includes all material items that the Larscom
board of directors considered. In view of the complexity and
wide variety of factors, both positive and negative, that the
Larscom board of directors considered, the Larscom board of
directors did not find it practical to quantify, rank or
otherwise weight the factors considered. In considering the
various factors, individual members of the Larscom board of
directors considered all of these factors as a whole and
concluded that, on balance, the benefits of the merger to
Larscom and its stockholders outweighed the risks.
Recommendation of Larscoms Board of
Directors
After careful consideration, the Larscom board of
directors determined, by unanimous vote of directors present,
that the proposed merger is fair to, and in the best interests
of, Larscom and its stockholders.
The Larscom board of
directors recommends, by unanimous vote of directors present,
that Larscom stockholders vote FOR the merger.
In considering the recommendation of
Larscoms board of directors with respect to the merger,
Larscom stockholders should be aware that certain directors and
officers of Larscom have interests in the merger that are
different from, or are in addition to, the interests of Larscom
stockholders generally. See The Merger
Interests of Certain Directors, Officers and Affiliates.
Verilinks Reasons for the
Merger
Verilinks board of directors has determined
that the terms of the merger and the merger agreement are fair
to, and in the best interests of, Verilink and its stockholders.
Verilinks board of directors consulted with senior
management, as well as its legal counsel and financial advisors
in reaching its decision to approve the merger. Verilinks
board of directors considered a number of factors in its
deliberations, including the following:
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the competitive advantage of offering a more
comprehensive portfolio of broadband access solutions for both
telecommunication carriers and enterprises;
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the benefits of becoming a larger organization
with access to greater financial resources, enhanced research
and development capabilities and expanded sales and distribution
channels;
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beliefs of management that significant
consolidation would occur in the industry and that Verilink must
gain critical mass in order to maintain its position as a
leading source for broadband access solutions;
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beliefs shared by senior management of both
companies that the prospects of the combined entity were more
favorable than the prospects of the companies as separate
entities;
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the potential to reduce costs through
consolidating operations and administration;
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the opportunity to realize other cost savings by
consolidating certain manufacturing and certain general and
administrative functions and eliminating redundant expenses;
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the opportunity to increase sales through
Verilinks ability to sell its products to a larger
customer base and through expanded sales channels;
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the balance sheet of the combined company and
having greater financial flexibility to develop and market the
next generation of broadband access products;
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information regarding historical market prices
and other information with respect to the Verilink common stock
and the Larscom common stock;
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information concerning the historical financial
performance, business operations, financial condition and
prospects of Larscom including Larscoms periodic reports
filed with the SEC;
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the financial condition, results of operations
and business of Larscom, including the prospects of Larscom, as
well as current industry, economic and market conditions;
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the evaluation of Verilinks management,
financial advisors and legal advisors relating to the due
diligence review that was conducted regarding Larscoms
business;
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the prices paid in comparable transactions
involving other communications technology companies, as well as
the trading performance for comparable companies in the industry;
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the terms of the merger agreement, including the
exchange ratio, and conditions of each partys obligations
to complete the merger;
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the provision of the merger agreement providing
for a net working capital adjustment that would reduce the
exchange ratio in the event of a material decrease in
Larscoms working capital position prior to closing;
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the fact that certain stockholders of Larscom
have agreed to vote their shares in favor of the issuance of
shares of Verilink common stock in connection with the merger;
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the provisions of the registrations rights
agreement to be executed with Axel Johnson and Sierra Ventures
at the consummation of the merger, which provide that Verilink
will register the shares held by such stockholders for resale
and such stockholders will agree to customary
lock-up provisions restricting sales of their
Verilink stock in connection with underwritten public offerings
of Verilink securities similar to the lock-up agreements
executed by Verilinks executive officers, directors and 5%
stockholders in connection with such underwritten public
offering;
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the termination provisions of the merger
agreement that permit Verilink under specified circumstances to
terminate the merger agreement and the size and impact of the
termination fee associated with certain terminations; and
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the opinion and the accompanying presentation of
Raymond James to the effect that, as of April 28, 2004, and
based upon and subject to the considerations described in its
opinion, the exchange ratio provided for in the merger was fair
from a financial point of view to Verilink.
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The Verilink board of directors also considered
potential negative factors relating to the merger, including:
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the potential dilutive effect on Verilinks
common stock price if revenue and earnings expectations for
Larscom are not met;
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Larscoms recurring net losses from
operations and net capital deficiency;
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the significant costs that will be incurred in
seeking to consummate the merger;
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the significant costs that will be incurred for
severance and retention to complete the integration and
consolidation plans subsequent to the merger;
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the risk that the benefits sought to be achieved
by the merger will not be realized;
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the risk that the merger may not be completed in
a timely manner, if at all;
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the potential loss of key Verilink and Larscom
employees critical to the ongoing success of Verilinks and
Larscoms businesses and to the successful integration of
the two companies;
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the possibility of cultural conflicts;
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difficulties associated with integration of each
companys products, networks and technologies;
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the risk that Verilink will be unable to recruit
employees critical to the ongoing success of the combined
companys operations;
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the risk that large concentrated open market
sales of Verilink stock by Axel Johnson and Sierra Ventures may
adversely affect the market price of Verilink stock;
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the auditors report on Larscoms
financial statements as of December 31, 2003, which notes
that Larscoms recurring operating losses and net capital
deficiency raise substantial doubt about Larscoms ability
to continue as a going concern;
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the interests of the officers and directors of
Verilink and Larscom in the merger, including the matters
described under The Merger Interests of
Certain Directors, Officers and Affiliates and the impact
of the merger on Verilinks stockholders, customers and
employees; and
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the other risks and uncertainties discussed above
under Risk Factors.
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The foregoing discussion of the items that the
Verilink board of directors considered is not intended to be
exhaustive, but includes all material items that the Verilink
board of directors considered. In view of the complexity and
wide variety of factors, both positive and negative, that the
Verilink board of directors considered, the Verilink board of
directors did not find it practical to quantify, rank or
otherwise weight the factors considered. In considering the
various factors, individual members of the Verilink board of
directors considered all of these factors as a whole and
concluded that, on balance, the benefits of the merger to
Verilink and its stockholders outweighed the risks.
Recommendation of Verilinks Board of
Directors
After careful consideration, the Verilink board
of directors unanimously determined that the proposed merger is
fair to, and in the best interests of, Verilink and its
stockholders.
The Verilink board of directors unanimously
recommends that the Verilink stockholders vote FOR
the issuance of Verilink common stock in connection with the
merger.
Opinion of Verilinks Financial
Advisor
Pursuant to an engagement letter dated
March 25, 2004, Verilink retained Raymond James to act as
its sole, external investment banking advisor in helping
Verilink acquire Larscom. On April 28, 2004, at a meeting
of Verilinks board of directors, Raymond James delivered
its oral opinion, which was subsequently delivered in writing,
to the Verilink board of directors that, as of that date, the
consideration to be paid by Verilink as contemplated by the
draft merger agreement with Larscom was fair, from a financial
point of view, to Verilink.
The full text of Raymond Jamess written
opinion, dated April 28, 2004, which sets forth, among
other things, the assumptions made, matters considered and
limits on the review undertaken by Raymond James in connection
with the opinion, is attached as Annex B to this proxy
statement/prospectus and is incorporated into this joint proxy
statement/prospectus by reference. You are urged to read Raymond
Jamess opinion in its entirety. The summary of Raymond
Jamess opinion set forth in this proxy
statement/prospectus is qualified in its entirety by reference
to the full text of the opinion.
Raymond Jamess opinion was made to
Verilinks board of directors for its consideration of the
proposed merger and is not a recommendation to any Verilink
stockholder as to whether the merger is in that
stockholders best interest or as to whether any
stockholder should vote for or against the merger. Raymond James
neither determined nor recommended to the Verilink board the
amount of consideration to be paid by Verilink in connection
with the merger. Additionally, the Raymond James opinion does not
48
express any opinion as to the likely trading
range of Verilink stock following the merger, which may vary
depending on numerous factors that generally impact the price of
securities or on the financial condition of Verilink at that
time.
In connection with Raymond Jamess review of
the proposed merger and the preparation of Raymond Jamess
opinion, Raymond James, among other things:
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reviewed the financial terms and conditions as
stated in the merger agreement;
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reviewed the audited financial statements of
Larscom as of and for the fiscal years ended December 31,
2001, 2002, 2003 and the preliminary unaudited financial
statements of Larscom for the quarter ended March 31, 2004;
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reviewed the audited financial statements of
Verilink as of and for the fiscal years ended June 29,
2001, June 28, 2002 and June 27, 2003 and the
preliminary unaudited financial statements of Verilink for the
quarters ended October 3, 2003, January 2, 2004 and
April 2, 2004;
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reviewed Verilinks and Larscoms
annual reports filed on Form 10-K for the fiscal years
ended June 29, 2001, June 28, 2002 and June 27,
2003, and December 31, 2001, 2002 and 2003, respectively;
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reviewed other Verilink and Larscom financial and
operating information, including financial projections through
2004, requested from and/or provided by Verilink or
Larscom; and
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discussed with members of the senior management
of Verilink and Larscom certain information relating to the
aforementioned and any other matters which Raymond James deemed
relevant to its inquiry.
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Raymond James assumed and relied upon the
accuracy and completeness of all information supplied or
otherwise made available to Raymond James by Verilink, Larscom
or any other party, and Raymond James has undertaken no duty or
responsibility to verify independently any of such information.
Raymond James did not make or obtain an independent appraisal of
the assets or liabilities (contingent or otherwise) of Larscom.
With respect to financial forecasts and other information and
data provided to or otherwise reviewed by or discussed with
Raymond James, Raymond James assumed that such forecasts and
other information and data have been reasonably prepared in good
faith on bases reflecting the best currently available estimates
and judgments of management, and Raymond James relied upon each
party to advise Raymond James promptly if any information
previously provided became inaccurate or was required to be
updated during the period of Raymond Jamess review.
Raymond James also assumed that the final terms of the merger
will be substantially the same as the terms set forth in the
merger agreement.
Raymond Jamess opinion is based upon
market, economic, financial and other circumstances and
conditions existing and disclosed to Raymond James as of
April 28, 2004, and any material change in such
circumstances and conditions would require a reevaluation of its
opinion, which Raymond James is under no obligation to
undertake. Raymond Jamess opinion did not address the
relative merits of the merger or any other business strategy
considered by Verilinks board of directors in
contemplation of this merger.
The following is a summary of the financial
analyses Raymond James presented to the Verilink board of
directors on April 28, 2004 in connection with the delivery
of its opinion. No company or transaction used in the analyses
described below is directly comparable to Verilink, Larscom or
the contemplated merger. The information summarized in the
tables that follow should be read in conjunction with the
accompanying text.
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Fairness Opinion Analyses
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The following is a summary of the analyses
performed by Raymond James in connection with the preparation of
its fairness opinion. This summary is provided for your
convenience but is not a complete description of the analyses
underlying the fairness opinion. The complete text of the
fairness opinion is attached to this proxy statement/prospectus
as Annex B, and Raymond James urges you to read it in its
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entirety. Raymond Jamess opinion regarding
the fairness of the transaction was not based on any one
analysis or any particular subset of these analyses but rather
gave consideration to all of the analyses taken as a whole.
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Analysis of Publicly-traded Comparable
Companies
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Raymond James analyzed selected historical
financial, operating, and stock market data of Larscom and other
publicly-traded companies that Raymond James deemed to be
comparable to Larscom. The 15 companies deemed by Raymond
James to be reasonably comparable to Larscom in terms of
products offered, markets served, and business prospects were:
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|
|
|
ADC Telecom
|
|
|
|
ADTRAN
|
|
|
|
Advanced Fibre Communications
|
|
|
|
Alcatel
|
|
|
|
Applied Innovation
|
|
|
|
Carrier Access
|
|
|
|
Lucent Technologies
|
|
|
|
Netopia
|
|
|
|
Netgear
|
|
|
|
Paradyne Networks
|
|
|
|
Tellabs
|
|
|
|
UTStarcom
|
|
|
|
Verilink
|
|
|
|
Westell Technologies
|
|
|
|
Zhone Technologies
|
Raymond James examined certain publicly available
financial data of the 15 publicly-traded comparable companies,
including the ratio of enterprise value (equity value plus total
debt, including preferred stock, less cash and cash equivalents)
to trailing-twelve-month (TTM) revenue, most recent
quarter (MRQ) annualized run rate of revenue, and
projected revenue for the year ended December 31, 2004
(based on analysts published research reports). The
following table summarizes the results of this analysis.
Market Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Mean
|
|
Median
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Enterprise Value/TTM Revenue
|
|
|
1.1x
|
|
|
|
2.2x
|
|
|
|
2.2x
|
|
|
|
4.6x
|
|
Total Enterprise Value/MRQ Run Rate Revenue
|
|
|
0.9x
|
|
|
|
2.1x
|
|
|
|
2.0x
|
|
|
|
4.3x
|
|
Total Enterprise Value/Projected 2004 Revenue
|
|
|
0.9x
|
|
|
|
1.9x
|
|
|
|
1.8x
|
|
|
|
3.9x
|
|
Raymond James then applied the ratios derived
from its comparable company analysis to Larscoms
preliminary unaudited revenue statistics for the TTM and MRQ
period ended March 31, 2004, and to Larscom
managements projected revenue for the year ended
December 31, 2004 in order to determine an
50
implied equity value per Larscom share for each
of the above financial measures. The following table summarizes
the results of the comparable company analysis:
Implied Price Per Larscom Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Mean
|
|
Median
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Enterprise Value/TTM Revenue
|
|
$
|
4.71
|
|
|
$
|
9.68
|
|
|
$
|
9.91
|
|
|
$
|
20.37
|
|
Total Enterprise Value/MRQ Run Rate Revenue
|
|
|
3.56
|
|
|
|
8.22
|
|
|
|
7.63
|
|
|
|
16.61
|
|
Total Enterprise Value/Projected 2004 Revenue
|
|
|
4.12
|
|
|
|
9.17
|
|
|
|
8.66
|
|
|
|
18.71
|
|
In its presentation to the Verilink board of
directors, Raymond James noted that the proposed transaction
value of $5.80 per Larscom share falls within the low/high
range of implied values derived from TTM, MRQ annualized run
rate and projected 2004 revenue comparisons.
|
|
|
Analysis of Selected Merger and Acquisition
Transactions
|
Raymond James compared the proposed merger with
selected comparable merger and acquisition transactions. No
transaction analyzed in Raymond Jamess comparable
transaction analysis was identical to the merger. Accordingly,
this analysis necessarily involves complex considerations and
judgments concerning differences in financial and operating
characteristics, and in other factors that distinguish the
Verilink/Larscom merger transaction from the other transactions
considered, because all of these factors, both individually and
cumulatively, could affect the acquisition value of the target
companies to which Larscom is being compared.
Raymond James performed an analysis of TTM and
forward (projected for the 12 months after closing of the
transaction) revenue. Raymond James assessed twenty-two
comparable merger and acquisition transactions that closed
between June 2002 and April 2004. The merger and acquisition
transactions considered were the:
|
|
|
|
|
Taqua acquisition by Tekelec
|
|
|
|
Marconi (North American Access Business)
acquisition by Advanced Fibre Communications
|
|
|
|
XEL Communications acquisition by Verilink
|
|
|
|
Mapletree Networks acquisition by Performance
Technologies
|
|
|
|
MAXRAD acquisition by PC-Tel
|
|
|
|
Nortel Networks (Fixed Wireless Access)
acquisition by Airspan Networks
|
|
|
|
Paragon Networks acquisition by Carrier Access
|
|
|
|
Paradigm Wireless Systems acquisition by Remec
|
|
|
|
Zhone Technologies acquisition by Tellium
(reverse merger)
|
|
|
|
MCK Communications acquisition by Verso
Technologies
|
|
|
|
Netro Corporation acquisition by SR Telecom
|
|
|
|
Vivace Networks acquisition by Tellabs
|
|
|
|
Vina Technologies acquisition by Larscom
|
|
|
|
Commworks (division of 3Com) acquisition by
UTStarcom
|
|
|
|
INRANGE Technologies acquisition by Computer
Network Technologies
|
|
|
|
Clarent Corporation acquisition by Verso
Technologies
|
|
|
|
Spectrian Corporation acquisition by Remec
|
51
|
|
|
|
|
Syntellect acquisition by Enghouse Systems
|
|
|
|
VideoTele.com acquisition by Tut Systems
|
|
|
|
Phillips Broadband Networks acquisition by
C-COR.net
|
|
|
|
Unisphere Networks acquisition by Juniper Networks
|
|
|
|
ONI Systems acquisition by Ciena
|
The following table summarizes the results of
this analysis.
Market Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Mean
|
|
Median
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Enterprise Value/MRQ Run Rate Revenue
|
|
|
0.3
|
x
|
|
|
1.7
|
x
|
|
|
0.9
|
x
|
|
|
5.9
|
x
|
Total Enterprise Value/Forward Revenue
|
|
|
0.3
|
x
|
|
|
1.5
|
x
|
|
|
0.9
|
x
|
|
|
3.7
|
x
|
Raymond James then applied the ratios derived
from the comparable transaction analysis to Larscoms
preliminary unaudited revenue statistics for the TTM and MRQ
periods ended March 31, 2004, to determine implied equity
values per Larscom share. The following table summarizes the
results of this analysis.
Implied Price Per Larscom Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Mean
|
|
Median
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Enterprise Value/TTM Revenue
|
|
$
|
1.15
|
|
|
$
|
6.51
|
|
|
$
|
3.69
|
|
|
$
|
22.97
|
|
Total Enterprise Value/Forward Revenue
|
|
|
1.21
|
|
|
|
7.24
|
|
|
|
4.04
|
|
|
|
17.61
|
|
The comparable company and comparable transaction
analyses described above, as is typical, were based on market
data for publicly traded companies deemed to be similar to
Larscom and on previous public transactions involving companies
deemed similar to Larscom. Since no company or transaction is
precisely comparable to Larscom or the proposed merger, the
analyses rely on data from a group of companies and
transactions. If single company or transaction comparisons were
to be used, the implied value for Larscom would vary
significantly depending on which company or transaction is
chosen. For this reason, the analyses present the results for
not only the highest and lowest implied values for each
analysis, but also for the median and mean values for the entire
group of companies or transactions analyzed.
An evaluation of the results of the foregoing
analysis necessarily involves complex considerations and
judgments concerning the differences in financial and operating
characteristics of Larscom as well as other factors that could
affect the public trading value of the comparable companies or
the transaction value of the companies to which Larscom is being
compared.
Acquisition
Premiums Analysis
Raymond James analyzed the premiums paid for 122
mergers and acquisitions of publicly-traded companies announced
since January 1, 2001, with transaction values between
$10.0 million and $40.0 million. The high and low as
well as the mean and the median premiums paid over the
targets stock prices ninety, thirty and one trading day(s)
before the announcement date were derived from the available
data and are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Mean
|
|
Median
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
1-day prior
|
|
|
(28.7
|
)%
|
|
|
40.3
|
%
|
|
|
32.6
|
%
|
|
|
166.6
|
%
|
30-day prior
|
|
|
(46.9
|
)%
|
|
|
52.7
|
%
|
|
|
47.6
|
%
|
|
|
240.0
|
%
|
90-day prior
|
|
|
(60.5
|
)%
|
|
|
40.7
|
%
|
|
|
32.9
|
%
|
|
|
194.6
|
%
|
52
Raymond James then applied the premiums derived
from the analysis to Larscoms common stock price prior to
the announcement on April 29, 2004 of the merger, to
determine implied equity values per share for Larscom. The
following table summarizes the results of this analysis.
Implied Price Per Larscom Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Mean
|
|
Median
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
1-day prior
|
|
$
|
3.36
|
|
|
$
|
6.61
|
|
|
$
|
6.24
|
|
|
$
|
12.55
|
|
30-day prior
|
|
|
2.59
|
|
|
|
7.43
|
|
|
|
7.19
|
|
|
|
16.56
|
|
90-day prior
|
|
|
1.68
|
|
|
|
5.98
|
|
|
|
5.65
|
|
|
|
12.52
|
|
|
|
|
Revenue Contribution Analysis
|
Raymond James analyzed the implied revenue
contribution of Larscom to Verilink on a pro forma basis for the
TTM period and MRQ ending March 31, 2004 and projected
contribution for the year ended December 31, 2004. Raymond
James then calculated the implied value per share of Larscom
stock based on Larscoms implied contribution for each
period. The implied values are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Value per
|
|
|
Contribution
|
|
Larscom, Inc. Share
|
|
|
|
|
|
TTM Revenue
|
|
|
36.1
|
%
|
|
$
|
10.22
|
|
MRQ Run Rate Revenue
|
|
|
26.7
|
%
|
|
|
6.58
|
|
Projected 2004 Revenue
|
|
|
27.5
|
%
|
|
|
6.85
|
|
Opinion of
Raymond James
The summary set forth above does not purport to
be a complete description of the analyses of data underlying
Raymond Jamess fairness opinion or its presentation to
Verilinks board of directors. The preparation of a
fairness opinion is a complex process and is not necessarily
susceptible to a partial analysis or summary description.
Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without
considering the analyses taken as a whole, would create an
incomplete view of the process underlying the analyses set forth
in its opinion. In addition, Raymond James considered the
results of all such analyses and did not assign relative weights
to any of the analyses, so the ranges of valuations resulting
from any particular analysis described above should not be taken
to be Raymond Jamess view of the actual value of Larscom.
In performing its analyses, Raymond James made
numerous assumptions with respect to industry performance,
general business, economic and regulatory conditions and other
matters, many of which are beyond Raymond Jamess control.
The analyses performed by Raymond James are not necessarily
indicative of actual values, trading values, or actual future
results which might be achieved, all of which may be
significantly more or less favorable than those suggested by
such analyses. Such analyses were prepared solely as part of
Raymond Jamess analysis of the fairness of the financial
terms and conditions of the transaction to Verilink from a
financial point of view, and said analyses were provided to
Verilinks board of directors. The analyses do not purport
to be appraisals or to reflect the prices at which businesses or
securities might be sold. In addition, as described above, the
opinion of Raymond James was one of many factors taken into
consideration by Verilinks board of directors in making
its determination to approve the transaction. Consequently, the
analyses described above should not be viewed as determinative
of Verilinks board of directors opinion with respect
to the value of Larscom, nor should the analyses be viewed in
any way as a recommendation to stockholders to decide on a
course of action.
Pursuant to the engagement letter dated
March 25, 2004, Verilink has paid Raymond James a $50,000
retainer fee. Verilink has also paid Raymond James a fee of
$250,000 for delivery of its fairness opinion. Verilink will pay
Raymond James a fee of $150,000 upon closing of the merger.
Verilink has also agreed to reimburse Raymond James for its
reasonable out-of-pocket expenses and to provide customary
indemnification protection to Raymond James. If the merger
agreement is terminated and Larscom is
53
required to pay Verilink a termination fee,
Verilink will pay Raymond James an amount equal to 25% of the
termination fee received from Larscom. In the ordinary course of
business, Raymond James may trade in the securities of Verilink
and Larscom for its own account and for the accounts of its
customers. Accordingly, it may at any time hold a long or short
position in such securities.
Raymond James has consented to the descriptions
of its fairness opinion in this proxy statement/prospectus and
to the inclusion of the full text of its fairness opinion as
Annex B to this joint proxy statement/prospectus. Raymond
James is a nationally recognized investment banking firm.
Raymond James and its affiliates, as part of their investment
banking activities, are regularly engaged in the valuation of
businesses and their securities in connection with merger
transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for corporate and
other purposes. Verilink selected Raymond James as its financial
advisor on the basis of Raymond Jamess experience and
expertise in mergers and acquisitions transactions.
Opinion of Larscoms Financial
Advisor
Under a letter agreement dated April 15,
2004, Larscom engaged Standard & Poors CVC to
render an opinion as to the fairness, from a financial point of
view, of the exchange ratio to the holders of Larscom common
stock in the proposed merger with Verilink. See Annex C for
the full text of the opinion.
On April 28, 2004, Standard &
Poors CVC delivered to Larscoms board of directors
its opinion that as of that date, subject to the assumptions,
qualifications and limitations set forth in the full text of the
opinion, the exchange ratio in the proposed merger with Verilink
was fair from a financial point of view to the stockholders of
Larscom. The exchange ratio was determined through negotiations
between Larscom and Verilink management. Standard &
Poors CVCs opinion was provided for the information
and assistance of Larscoms board of directors in
connection with its consideration of the merger.
The following should be considered in regard to
the opinion rendered by Standard & Poors CVC:
|
|
|
|
|
The following description of the
Standard & Poors CVC opinion is qualified by
reference to the full opinion located in Annex C. The full
opinion sets forth, among other things, the assumptions made,
qualifications and the limitations on the review undertaken by
Standard & Poor s CVC.
|
|
|
|
Standard & Poors CVCs
opinion was prepared for the information of Larscoms board
of directors in connection with its evaluation of the merger. It
is not intended to be and does not constitute a recommendation
to any stockholder of Larscom as to how that stockholder should
vote, or take any other action, with respect to the merger.
|
|
|
|
Standard & Poors CVCs
opinion did not address the relative merits of the merger and
the business strategies that Larscoms board of directors
has considered or may have been considering, nor did it address
the decision of Larscoms board of directors to proceed
with the merger.
|
|
|
|
Standard & Poors CVCs
opinion was necessarily based upon market, economic and other
conditions that were in effect on, and information made
available to Standard & Poors CVC as of, the date
of the opinion. Subsequent developments may affect the
conclusion expressed in Standard & Poors
CVCs opinion, and Standard & Poors CVC
disclaims any undertaking or obligation to advise any person of
any change in any matter affecting its opinion which may come or
be brought to Standard & Poors CVCs
attention after the date of its opinion.
|
|
|
|
Standard & Poors CVCs
opinion was limited to the fairness, from a financial point of
view and as of April 28, 2004, of the exchange ratio in
Larscoms merger with Verilink.
|
54
|
|
|
Opinion and Analysis of Standard &
Poors CVC
|
In connection with the preparation of
Standard & Poors CVCs opinion,
Standard & Poors CVC:
|
|
|
|
|
considered the draft Agreement and Plan of Merger
dated April 28, 2004;
|
|
|
|
considered certain financial and other
information relating to Larscom and Verilink that was publicly
available or furnished to us by Larscom and Verilink, including
financial forecasts and details regarding the
$10.48 million convertible note issued by Verilink in
connection with its acquisition of XEL Communications, Inc.;
|
|
|
|
interviewed Larscoms and Verilinks
management to discuss the business, operations, historical
financial results and future prospects of the respective
companies on a stand-alone and combined basis;
|
|
|
|
considered certain financial and operational data
of Larscom and Verilink and compared that data with similar data
for other publicly-held companies in similar businesses;
|
|
|
|
considered the financial terms of certain recent
acquisitions of companies in similar businesses;
|
|
|
|
performed discounted cash flow analyses of
Larscom and Verilink as stand-alone entities, and subjected such
analyses to sensitivity adjustments around key value drivers
including, but not limited to, revenue and margins; and
|
|
|
|
considered such other information, financial
studies, analyses and investigations and financial, economic and
market criteria as it deemed relevant and appropriate for
purposes of this opinion.
|
In its review and analysis, and in arriving at
its opinion, Standard & Poors CVC assumed and
relied upon the accuracy and completeness of all of the
financial and other information provided to it, including
information furnished to it orally or otherwise discussed with
it by the managements of Larscom and Verilink, or publicly
available, and neither attempted to verify, nor assumed
responsibility for verifying, any of such information.
Standard & Poors CVC relied upon the assurances
of the managements of Larscom and Verilink that they were not
aware of any facts that would make such information inaccurate
or misleading. Furthermore, Standard & Poors CVC
did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of
the properties, assets or liabilities, contingent or otherwise,
of Larscom or Verilink, nor was it furnished with any such
evaluation or appraisal.
With respect to the financial forecasts and
projections and the assumptions and bases thereof for Larscom
and Verilink, that Standard & Poors CVC reviewed,
Standard & Poors CVC has assumed that:
|
|
|
|
|
these forecasts and projections were reasonably
prepared in good faith on the basis of reasonable assumptions;
|
|
|
|
these forecasts and projections reflect the best
currently available estimates and judgments of the managements
of Larscom and Verilink as to the future financial condition and
performance of Larscom and Verilink, respectively; and
|
|
|
|
these forecasts and projections will be realized
in the amounts and in the time periods currently estimated.
|
In addition, Standard & Poors CVC
has assumed that:
|
|
|
|
|
the merger will be consummated upon the terms set
forth in the draft, dated April 28, 2004, of the merger
agreement without material alteration thereof, including, among
other things, that the merger will be treated as a tax-free
reorganization pursuant to the Code;
|
|
|
|
the historical financial statements of each of
Larscom and Verilink reviewed by Standard & Poors
CVC were prepared and fairly presented in accordance with
U.S. generally accepted accounting principles consistently
applied; and
|
55
|
|
|
|
|
the exchange ratio will not be reduced as a
result of a purchase price adjustment, transaction expense
limitations or other provisions of the draft of the merger
agreement reviewed by Standard & Poors CVC.
|
Standard & Poors CVC has expressed
no opinion as to:
|
|
|
|
|
any tax or other consequences that might result
from the merger;
|
|
|
|
what the value of Verilink common stock will be
when issued to Larscoms common stockholders pursuant to
the merger; and
|
|
|
|
any legal or accounting matters, as to which
Standard & Poors CVC understands that Larscom
obtained such advice as it deemed necessary from qualified
professionals.
|
Standard & Poors CVC relied as to
all legal matters relevant to rendering its opinion on the
advice of counsel.
The following is a summary of the material
financial analyses performed by Standard & Poors
CVC in connection with rendering its opinion. This summary is
not a complete description of all of the analyses performed by
Standard & Poors CVC. Some of the information in
this section is presented in tabular form. In order to better
understand the financial analyses performed by
Standard & Poors CVC, you must read the tables
together with the text accompanying each table. The opinion is
based upon the totality of the various analyses performed by
Standard & Poors CVC and no particular portion of
the analyses has any merit standing alone.
Standard & Poors CVC calculated
the market capitalization of Larscom and Verilink, utilizing the
negotiated number of diluted shares of 5.142 million and
17.385 million, respectively, and the share prices of
Larscom and Verilink as of April 23, 2004, and a 7-day and
30-day trading average share price. Based upon this analysis,
the implied exchange ratio ranged from 1.084 to 1.173, versus
the merger exchange ratio of 1.166.
|
|
|
Comparable Company Analysis
|
Using publicly available information, including
Wall Street research consensus estimates, and information
provided by Bloomberg Financial and other independent financial
database providers, Standard & Poors CVC
analyzed, among other things, the aggregate value as a multiple
of revenue of the following selected publicly traded companies
that Standard & Poors CVC believed to be
reasonably comparable to Larscom and Verilink:
|
|
|
|
|
Adtran, Inc.
|
|
|
|
Advanced Fibre Communications, Inc.
|
|
|
|
Carrier Access Corporation
|
|
|
|
Copper Mountain Networks, Inc.
|
|
|
|
Paradyne Networks, Inc.
|
|
|
|
Netopia, Inc.
|
|
|
|
Westell Technologies, Inc.
|
|
|
|
Zhone Technologies, Inc.
|
All multiples were based on closing stock prices
as of April 23, 2004. As set forth in the following table,
applying a range of multiples for the selected publicly traded
companies for the latest twelve months
56
(LTM) ended March 31, 2004 for
Larscom and Verilink resulted in the following ranges of implied
equity values and exchange ratios for Larscom and Verilink:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma(1)
|
|
|
|
|
|
|
|
|
March 31,
|
|
Market
|
|
|
|
|
|
|
2004 LTM
|
|
Capitalization as
|
|
|
|
|
|
|
Revenue
|
|
of April 23, 2004
|
|
Trailing Multiple
|
|
Forward Multiple
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
(Millions)
|
|
|
|
|
Larscom
|
|
$
|
25.984
|
|
|
$
|
24.787
|
|
|
|
0.95x 1.30x
|
|
|
|
1.02x 1.20x
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Verilink
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$
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56.851
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$
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74.857
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1.44x
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|
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1.28x
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Implied exchange ratio based on multiples
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1.120 1.526
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|
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1.120 1.313
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Exchange ratio in merger
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1.166
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(1)
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Larscom and Verilinks pro forma revenue
includes the respective acquisitions of VINA Technologies and
XEL Communications, Inc. for the nine months ended
December 31, 2003 and for the three months ended
March 31, 2004.
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Standard & Poors CVC obtained
revenue and earnings data for Larscom and Verilink from
management. The implied exchange ratios were based on the equity
values of Larscom and Verilink as determined by the range of
trailing and forward revenue multiples of Larscom and Verilink
and the comparable company universe.
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Discounted Cash Flow Analysis
|
Using Larscom and Verilink management estimates,
including assumptions regarding long-term revenue growth rates
and operating margins, and based on discussions with the
managements of Larscom and Verilink, Standard &
Poors CVC performed a discounted cash flow analysis on the
net cash flows of Larscom and Verilink for calendar years 2004
through 2009 and calendar years 2004 through 2008, respectively
(Projection Period). Standard & Poors
CVC first discounted the net cash flows of Larscom and Verilink
through the Projection Period, using discount rates ranging from
17% to 19% for both companies. Standard & Poors
CVC then added the present value of these net cash flows to the
terminal value of Larscom and Verilink in the calendar year
ending 2009 and 2008, respectively, discounted back to the
present at the same discount rates. Standard &
Poors CVC computed the terminal value of Larscom and
Verilink using the Gordon Growth model assuming a long-term
growth rate between 3% and 6.5% and a discount rate ranging from
17% to 19%. Applying the above ranges of discount rates and
long-term growth rates to net cash flows of Larscom and Verilink
yielded the following ranges:
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Implied DCF
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Valuation Range
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(Millions)
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Larscom
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$13 $23
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Verilink
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$36 $73
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Implied exchange ratio
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0.621 2.155
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Exchange ratio in merger
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1.166
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As used above net cash flows equals
operating income plus depreciation and amortization, minus
taxes, minus capital expenditures and plus or minus changes in
working capital.
In rendering its opinion, Standard &
Poors CVC considered other factors and conducted other
analyses, including an analysis of control premiums in similar
transactions, net operating losses and other tax benefits, and
the impact of potential revenue and cost synergies on the
combined company based on information provided by Larscom and
Verilink management.
57
No company, business or transaction compared in
any of the above analyses is identical to Larscom, Verilink or
the proposed merger. Accordingly, an analysis of the results of
the foregoing is not entirely mathematical. Rather, an analysis
of the results of the foregoing involves complex considerations
and judgments concerning differences in financial and operating
characteristics and other factors that could affect the public
trading, acquisition and other values of comparable companies,
precedent transactions or the business segment, company or
transaction to which they are being compared. In addition,
various analyses performed by Standard & Poors
CVC incorporate projections prepared by Wall Street analysts
using only publicly available information. These projections may
or may not be accurate.
While this summary describes the analyses and
factors that Standard & Poors CVC deemed material
in its presentation to the Larscom board, it is not a
comprehensive description of all analysis and factors considered
by Standard & Poors CVC. The preparation of a
fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to
the particular circumstances. Therefore, a fairness opinion is
not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Standard &
Poors CVC did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis
and factor. Accordingly, Standard & Poors CVC
believes that its analysis must be considered as a whole and
that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the evaluation
process underlying its opinion. Several analytical methodologies
were employed and no one method of analysis should be regarded
as critical to the overall conclusion reached by
Standard & Poors CVC. Each analytical technique
has inherent strengths and weaknesses, and the nature of the
available information may further affect the value of particular
techniques. The conclusion reached by Standard &
Poors CVC is based on all analyses and factors taken as a
whole and also on the application of Standard &
Poors CVCs own experience and judgment. This
conclusion may involve significant elements of subjective
judgment and qualitative analysis. Standard &
Poors CVC expresses no opinion as to the value or merit
standing alone of any one or more parts of the analyses it
performed. In performing its analyses, Standard &
Poors CVC made numerous assumptions with respect to
industry performance, general business and other conditions and
matters, many of which are beyond the control of Larscom,
Verilink or Standard & Poors CVC. Any estimates
contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested
by these analyses. Accordingly, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the
prices at which these businesses actually may be sold in the
future, and these estimates are inherently subject to
uncertainty.
Larscom paid Standard & Poors CVC
a professional fee in connection with its preparation for and
issuance of the fairness opinion, which is attached to this
joint proxy statement/prospectus as Annex C.
Standard & Poors CVC invoiced Larscom based upon
the progression of work performed and no portion of the
aggregate professional fee of $155,000 paid to
Standard & Poors CVC was contingent upon
consummation of the merger or the tenor of the conclusions
reached in the opinion issued by Standard & Poors
CVC. Larscom has also agreed to reimburse Standard &
Poors CVC for its reasonable out-of-pocket expenses and to
indemnify Standard & Poors CVC against
liabilities incurred. These include liabilities under the
federal securities laws in connection with the engagement of
Standard & Poors CVC by Larscoms board of
directors.
Standard & Poors, from time to
time, has performed professional services for both Larscom and
Verilink unrelated to this fairness opinion. As such, the
performance of these professional services does not impair
Standard & Poors CVCs ability to render
this opinion.
Larscom selected Standard & Poors
CVC to render its opinion based on Standard &
Poors CVCs experience in securities valuations
generally. As part of its financial advisory business,
Standard & Poors CVC had been frequently engaged
in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate
restructurings, private placements and valuations for corporate
and other purposes.
58
Completion and Effectiveness of the
Merger
Verilink and Larscom expect to complete the
merger no later than the second business day after all of the
conditions to completion of the merger are satisfied or waived,
including approval by Verilink stockholders of the issuance of
shares of Verilink common stock in connection with the merger
and the approval and adoption of the merger agreement and
approval of the merger by the Larscom stockholders. The parties
will cause the merger to become effective by filing of a
certificate of merger with the Secretary of State of the State
of Delaware. Verilink and Larscom expect the merger to occur
promptly after the special meetings; however, because the merger
is subject to customary conditions, Verilink and Larscom cannot
predict the exact timing.
Merger Consideration
If Verilink and Larscom complete the merger, in
exchange for each share of Larscom common stock held by them on
the date of the merger, Larscom stockholders will receive
1.166 shares of Verilink common stock, subject to reduction
by an adjustment factor based on the amount of Larscoms
net adjusted working capital prior to the merger. Larscom
stockholders will also receive one preferred stock purchase
right under Verilinks stockholder rights plan for each
share of Verilink common stock received by them in the merger.
See Description of Verilinks Capital
Stock Stockholder Rights Plan for a
description of the purchase rights.
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Net Working Capital
Adjustment
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The adjustment factor equals the quotient
obtained by dividing (1) Larscoms closing net
adjusted working capital amount plus $24,365,600 by (2)
the targeted net adjusted working capital amount
plus $24,365,600. If the difference between the targeted net
adjusted working capital and the closing net adjusted working
capital amount is less than $100,000, or exceeds the targeted
net adjusted working capital, then, in either case, the
adjustment factor will be one.
Larscoms closing net adjusted working
capital is calculated as the difference between Larscoms
current assets and its current liabilities, in each case as
defined under, and calculated in accordance with, accounting
principles generally accepted in the United States, or GAAP, as
of the adjustment date (as described below). However, the
following costs and expenses will not be taken into account for
any purpose to decrease net adjusted working capital, whether
paid or payable on or after completion of the merger:
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up to $690,000 of Larscoms expenses
associated with the transactions contemplated by the merger
agreement;
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employee severance expenses relating to employees
whose employment is terminated immediately prior to or after the
merger; and
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expenses relating to retention bonuses payable to
Larscom employees.
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The targeted net adjusted working capital amount
is:
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|
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$5,000,000, if the closing date occurs before
August 15, 2004; and
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$4,500,000, if the closing date occurs on or
after August 15, 2004.
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Larscom will prepare and deliver to Verilink a
statement of closing net adjusted working capital
amount, which shall include Larscoms calculation of
the closing net adjusted working capital amount, as of the
anticipated closing date.
Verilink will have an opportunity to participate
in Larscoms preparation of the statement of closing net
adjusted working capital amount and to review all related
records and workpapers. If Larscom and Verilink are unable to
agree on the statement of closing net adjusted working capital
amount, Verilink and Larscom have agreed to retain an accounting
firm selected by Verilink and reasonably acceptable to Larscom
to read and analyze the statement of closing net adjusted
working capital amount delivered by
59
Larscom for correctness and compliance. In such
an instance, the accounting firm will have the right, in its
sole discretion, to modify the statement of closing net adjusted
working capital amount to ensure that it complies with the
calculation above. The accounting firms procedures and
modifications, if any, of the statement of closing net adjusted
working capital amount, if any, will be binding and both Larscom
and Verilink will have the opportunity to participate in such
analysis prior to the delivery of the final statement of closing
net adjusted working capital amount by the accounting firm.
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Illustrative Examples of Net Working
Capital Adjustment
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1. Net Adjusted Working Capital Prior to
Completion Is Less than Targeted Amount by $1.0 Million
Assumptions:
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Assumed completion date for merger: Prior to
August 15, 2004
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Actual Net Adjusted Working Capital Amount Prior
to Completion: $4,000,000
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Targeted Net Adjusted Working Capital Amount:
$5,000,000
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Step 1
Calculate the adjustment factor: (4,000,000 +
24,365,000)/(5,000,000 + 24,365,000) = .965946
Step 2
Calculate the exchange ratio: 1.166 X .965946 = 1.1263
2. Net Adjusted Working Capital Prior to
Completion Is Within $100,000 or In Excess of Targeted Amount
Assumptions:
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Assumed completion date for merger: Prior to
August 15
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Actual Net Adjusted Working Capital Amount Prior
to Completion: $4,900,000 (or any amount above $4,900,000)
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Targeted Net Adjusted Working Capital Amount:
$5,000,000
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Step 1
Adjustment Factor = 1.0
Step 2
Calculate the exchange ratio: 1.166 X 1.0 = 1.166
No Fractional Shares
Verilink will not issue any fractional shares of
common stock in the merger. Rather, Verilink will pay cash for
any fractional share any Larscom stockholder otherwise would
have received in the merger. The cash paid in lieu of fractional
shares will be in an amount equal to the fraction multiplied by
the last reported sale price of Verilink common stock on the
Nasdaq National Market on the last trading day prior to
completion of the merger.
If Verilink effects a stock split, stock dividend
or similar recapitalization with respect to Verilink common
stock and the record date, in the case of a stock dividend, or
the effective date, in the case of a stock split or similar
recapitalization for which a record date is not established, is
prior to the completion of the merger, the exchange ratio will
be adjusted proportionately.
Treatment of Larscom Stock Options and
Warrants
At the effective time of the merger, each
outstanding Larscom stock option and warrant to purchase Larscom
common stock will cease to represent a right to acquire shares
of Larscom common stock and will be assumed by Verilink and
converted into an option or warrant to purchase a number of
shares of Verilink common stock equal to the product obtained by
multiplying 1.166, subject to reduction by an adjustment factor
based on the amount of Larscoms net adjusted working
capital prior to the merger, by the number of shares of Larscom
common stock that were issuable upon the exercise of such Larscom
60
stock option or warrant immediately prior to the
effective time, rounded down, in the case of a Larscom stock
option, or up, in the case of a warrant, to the nearest whole
number of shares of Verilink common stock. The per share
exercise price for the assumed stock options and warrants will
be equal to the per share exercise price of such stock option or
warrant divided by 1.166, subject to reduction as described
above, rounded up to the nearest whole cent. Each assumed
Larscom stock option and warrant will be subject to all other
terms and conditions set forth in the applicable documents
evidencing each Larscom stock option and warrant immediately
prior to the effective time of the merger, except that all
Larscom stock options will become fully vested upon completion
of the merger. Larscom and Verilink intend that the Larscom
stock options assumed by Verilink will qualify as incentive
stock options to the extent that such stock options qualified as
incentive stock options prior to the effective time of the
merger. As of June 1, 2004, options to purchase an
aggregate of 590,950 shares of Larscom common stock were
outstanding under Larscoms stock option plans and warrants
to purchase 269,320 shares of Larscom common stock were
outstanding, representing a total of 860,270 shares of
Larscom common stock subject to outstanding stock options and
warrants.
Exchange of Larscom Stock Certificates for
Verilink Stock Certificates
When the merger is completed, the exchange agent
will mail to Larscom stockholders a letter of transmittal and
instructions for use in surrendering their Larscom stock
certificates in exchange for Verilink stock certificates. When a
Larscom stockholder delivers Larscom stock certificates to the
exchange agent along with a properly executed letter of
transmittal and any other required documents, the
stockholders Larscom stock certificates will be canceled
and the stockholder will receive a Verilink stock certificate
representing the number of full shares of Verilink common stock
to which the stockholder is entitled under the merger agreement.
Larscom stockholders will receive payment in cash, without
interest, in lieu of any fraction of a share of Verilink common
stock which would have been otherwise issuable to them as a
result of the merger, calculated as provided above.
Larscom stockholders should not submit their
Larscom stock certificates for exchange unless and until they
receive the transmittal instructions and a form of letter of
transmittal from the exchange agent.
Verilink will only issue a Verilink stock
certificate or a check in lieu of a fractional share in a name
other than the name in which a surrendered Larscom stock
certificate is registered if a Larscom stockholder presents the
exchange agent with all documents required to show and effect
the unrecorded transfer of ownership and show that such
stockholder paid any applicable stock transfer taxes.
No Dividends
Larscom stockholders are not entitled to receive
any dividends or other distributions on Verilink common stock
until the merger is completed and they have surrendered their
Larscom stock certificates in exchange for Verilink stock
certificates.
Neither Verilink nor Larscom has made any
dividend payments to its stockholders in the past and each has
no current intention to do so.
If there is any dividend or other distribution on
Verilink common stock with a record date after the completion of
the merger and a payment date prior to the date that a Larscom
stockholder surrenders Larscom stock certificates in exchange
for Verilink stock certificates, the Larscom stockholder will
receive any such dividend or other distribution with respect to
the number of whole shares of Verilink common stock issued to
the stockholder promptly after the Verilink shares are issued.
If there is any dividend or other distribution on
Verilink common stock with a record date after the completion of
the merger and a payment date after the date on which a Larscom
stockholder surrenders Larscom stock certificates in exchange
for Verilink stock certificates, the Larscom stockholder will
receive any such dividend or other distribution with respect to
the number of whole shares of Verilink common stock issued to
the stockholder promptly after the payment date.
61
Material United States Federal Income Tax
Consequences of the Merger
The following general discussion summarizes the
material U.S. federal income tax consequences of the merger
to holders of Larscom common stock.
The discussion assumes that holders of Larscom
common stock hold their stock as a capital asset within the
meaning of Section 1221 of the Code and that holders of not
more than 20% of Larscoms common stock perfect their
dissenters rights to appraisal under Delaware law. This
discussion does not address all federal income tax consequences
of the merger that may be relevant to particular holders,
including holders that are subject to special tax rules, such as:
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financial institutions, dealers in securities,
insurance companies and tax-exempt organizations;
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holders who are classified as partnerships,
S corporations, trusts or estates, holders who own their
stock indirectly through partnerships, S corporations or
trusts;
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holders who hold their stock as part of a hedge,
straddle, conversion or other risk reduction transaction;
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holders who are foreign persons or who have a
functional currency other than the U.S. dollar;
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holders whose Larscom common stock is qualified
small business stock for purposes of Section 1202 of the
Code; or
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holders who acquired their Larscom common stock
through stock option or stock purchase programs or other
compensation arrangements (including, for example, stock subject
to a substantial risk of forfeiture, and stock
received on exercise of an incentive stock option,
both as defined in the Code).
|
In addition, this discussion does not address
(1) the tax consequences of transactions effectuated
before, after or at the same time as the merger, whether or not
they are in connection with the merger, including, without
limitation, transactions in which Larscom common stock is
acquired or Verilink common stock is disposed of, (2) the
tax consequences to holders of Larscom stock options that are
assumed, exercised or converted, as the case may be, in
connection with the merger, or (3) the tax consequences of
the receipt of Verilink common stock other than in exchange for
Larscom common stock.
No ruling has been or will be sought from the
Internal Revenue Service as to the United States federal income
tax consequences of the merger, and the following summary is not
binding on the Internal Revenue Service or the courts. The
Internal Revenue Service could adopt a contrary position, and a
contrary position could be sustained by a court. This discussion
is based upon the Code, laws, regulations, rulings and decisions
in effect as of the date of this joint proxy
statement/prospectus, all of which are subject to change,
possibly with retroactive effect. Any such change could affect
the accuracy of the statements and the conclusions discussed
below and the tax consequences of the merger. This summary does
not address tax consequences under state, local and foreign laws.
Accordingly, holders of Larscom common stock
are strongly encouraged to consult their tax advisors as to
specific tax consequences to them of the merger, including the
applicability and effect of any state, local or foreign tax laws
and of changes in applicable tax laws.
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Exchange of Larscom Common Stock for
Verilink Common Stock
|
Subject to the assumptions and limitations
referred to in this discussion, it is the opinion of Powell,
Goldstein, Frazer & Murphy LLP, counsel to Verilink,
and Cooley Godward LLP, counsel to Larscom, that the merger will
be treated as a reorganization within the meaning of
Section 368(a) of the Code.
62
Accordingly, subject to the limitations and
qualifications referred to herein, the following federal income
tax consequences will result:
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no gain or loss will be recognized by holders of
Larscom common stock on the exchange of such stock for Verilink
common stock (except as discussed below with respect to cash
received in lieu of a fractional interest in Verilink common
stock);
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the aggregate adjusted tax basis of the Verilink
common stock received in the merger (including any fractional
interest) by a Larscom stockholder will be the same as the
aggregate adjusted tax basis of such holders Larscom
common stock exchanged therefor;
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the holding period for Verilink common stock
received in the merger by a Larscom stockholder will include the
holding period of such holders Larscom common stock
exchanged therefor; and
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a holder of Larscom common stock who receives
cash instead of a fractional Verilink common share will
generally recognize capital gain or loss for U.S. Federal
income tax purposes based on the difference between the amount
of the cash received instead of a fractional share and the
holders adjusted tax basis in such fractional share.
Capital gain or loss will constitute long-term capital gain or
loss if the U.S. holders holding period is greater
than one year as of the date of the consummation of the merger.
The deductibility of capital losses is subject to limitations.
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Tax Consequences to Verilink and
Larscom
|
Neither Verilink or Larscom will recognize any
income, gain or loss as a result of the reorganization other
than income or gain recognized by Larscom to the extent required
by the consolidated return regulations under the Internal
Revenue Code.
Each Larscom stockholder that receives Verilink
common stock in the merger will be required to file a statement
with his, her or its federal income tax return setting forth
his, her or its basis in the Larscom common stock surrendered
and the fair market value of the Verilink common stock and cash,
if any, received in the merger, and to retain permanent records
of these facts relating to the merger.
A dissenting holder of Larscom common stock who
perfects appraisal or dissenters rights will generally be
treated as having received a distribution in redemption of his,
her or its stock subject to the provisions and limitations of
Sections 302 and 356(a)(2) of the Code. While the tax
consequences of such a redemption depend on a stockholders
particular circumstances, a dissenting stockholder who, after
the merger, does not own (actually or constructively) any common
stock of either Larscom or Verilink will generally recognize
gain or loss with respect to such Larscom common stock equal to
the difference between the amount of cash received and his, her
or its basis in such stock. This gain or loss should be capital
gain or loss, provided such stock is held as a capital asset.
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Consequences of an IRS
Challenge
|
A successful challenge by the Internal Revenue
Service to the reorganization status of the merger or the
combination would result in the Larscom stockholders recognizing
taxable gain or loss with respect to the Larscom common stock
surrendered equal to the difference between each
stockholders basis in such stock and the fair market
value, as of the effective time of the merger, of the Verilink
common stock received in exchange therefor. In such event, a
Larscom stockholders aggregate basis in the Verilink
common stock so received would equal its fair market value, and
the holding period of such stock would begin the day after the
date the merger becomes effective. However, there would be no
tax consequences to Verilink or Larscom as a result of a
successful challenge to the reorganization status of the merger.
63
Certain non-corporate holders of Larscom common
stock may be subject to backup withholding, currently at a 28%
rate, on cash payments received in the merger. Backup
withholding generally will not apply, however, to a holder of
Larscom common stock who:
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furnishes a correct taxpayer identification
number and certifies that he, she or it is not subject to backup
withholding on the substitute Internal Revenue Service
Form W-9 (or successor form) included in the letter of
transmittal to be delivered to the holders of Larscom common
stock following the consummation of the merger;
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provides a certification of foreign status on
Internal Revenue Service Form W-8BEN or a successor
form; or
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is otherwise exempt from backup withholding.
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Any amounts withheld under the backup withholding
rules will be allowed as a refund or credit against a
holders U.S. federal income tax liability, provided
the holder furnishes the required information to the Internal
Revenue Service.
Tax matters are very complicated, and the tax
consequences of the merger to a Larscom stockholder will depend
on such holders particular tax situation. The summary of
material U.S. federal income tax consequences set forth
above is intended to provide only a general summary and is not
intended to be a complete analysis or description of all
potential federal income tax consequences of the merger. Larscom
stockholders are encouraged to consult their tax advisors
regarding the specific tax consequences of the merger, including
tax return reporting requirements, the applicability of federal,
state, local and foreign tax laws and the effect of any proposed
change in the tax laws.
Regulatory Matters
Although all business combination transactions
are subject to U.S. antitrust laws and may also be subject
to international antitrust laws, filings with the Department of
Justice and the Federal Trade Commission prior to the closing of
this merger are not required. However, the Department of Justice
or the Federal Trade Commission, as well as a state or private
person, may challenge the merger at any time before or after its
completion.
Other Approvals
If any additional governmental approvals or
actions are required, Verilink and Larscom intend to try to
obtain them. Verilink and Larscom cannot assure you, however,
that Verilink and Larscom will be able to obtain any approvals
or actions.
Accounting Treatment
The acquisition will be accounted for as a
purchase transaction for accounting and financial
reporting purposes, in accordance with accounting principles
generally accepted in the United States of America. After the
merger, the results of operations of Larscom will be included in
the consolidated financial statements of Verilink. The purchase
price will be allocated based on the fair values of the assets
acquired and the liabilities assumed. Under the purchase method
of accounting, the estimated purchase price will be recorded
based on the average closing price of Verilink common stock
exchanged for Larscom shares for a range of trading days from
two days before until two days after the announcement date of
the merger, the fair value of Verilink stock options and
warrants to be issued based on the Black-Scholes option pricing
model and the direct transaction costs of the merger. The
purchase price will be allocated to the fair value of tangible
and intangible assets acquired and liabilities assumed. In
accordance with Statement of Financial Accounting Standards
number 141 Business Combinations, if there is
excess of the purchase price over the fair value of the net
tangible and intangible assets, the excess value will be
recorded as goodwill. If the fair value of the amounts assigned
to the net tangible and intangible assets exceeds the purchase
price, then the excess value will be assigned on a pro rata
basis to reduce the
64
value of certain assets until their value is
equal to zero. If excess value remains after certain assets are
reduced to zero, then the difference will be reported as an
extraordinary gain.
Restrictions on Sales of Shares by Affiliates
of Larscom
The shares of Verilink common stock to be issued
in connection with the merger will be registered under the
Securities Act. These shares will be freely transferable under
the Securities Act, except for shares of Verilink common stock
issued to any person who is an affiliate of Larscom at the time
the merger is submitted to the stockholders for vote or consent.
Persons who may be deemed to be affiliates include individuals
or entities that control, are controlled by, or are under common
control of Larscom, and may include some of the officers and
directors, as well as their respective principal stockholders.
Affiliates at the time the merger is submitted to the
stockholders for vote or consent may not sell their shares of
Verilink common stock acquired in connection with the merger
except pursuant to (1) an effective registration statement
under the Securities Act covering the resale of those shares,
(2) an exemption under paragraph (d) of
Rule 145 under the Securities Act or (3) any other
applicable exemption under the Securities Act.
Larscom has notified Verilink of the persons who
are, in Larscoms reasonable judgment, affiliates of
Larscom. Larscom has agreed that Verilink is entitled to place
appropriate legends on the certificates evidencing any Verilink
common stock to be received by these persons or entities, if
these persons or entities are affiliates of Larscom at the time
the merger is submitted to stockholders for vote or consent, and
to issue stop transfer instructions to the transfer agent for
the Verilink common stock received by the affiliates.
Interests of Certain Directors, Officers and
Affiliates of Larscom
When considering the recommendation of the boards
of directors of both companies, you should be aware that some of
Larscoms directors and executive officers have interests
in the merger that are different from, or are in addition to,
Verilink and Larscom stockholders. These interests include
post-merger membership on the Verilink board of directors, the
indemnification of directors and officers of Larscom against
certain liabilities both before and after the merger, options
held by various executive officers and directors and the
acceleration of certain of those options immediately prior to
the completion of the merger.
Following the merger, Verilink has agreed to
cause Desmond P. Wilson III, currently a director of
Larscom and president and chief executive officer of Axel
Johnson, to become a member of the Verilink board of directors.
In the merger, each outstanding option to
purchase shares of Larscom stock will be converted into an
option to acquire, on substantially the same terms and
conditions as applied to the Larscom option, a number of shares
of Verilink common stock to be determined by multiplying the
number of shares of Larscom common stock subject to such option
immediately prior to the merger by the exchange ratio of 1.166
Verilink shares, subject to reduction by an adjustment factor
based on the amount of Larscoms net adjusted working
capital prior to the merger (rounded down to the nearest whole
share), at a price per share (rounded up to the nearest
one-hundredth of a cent) equal to the aggregate exercise price
of such option divided by the exchange ratio of 1.166, subject
to reduction as described above. As a result of the merger, all
outstanding Larscom stock options, including all stock options
held by Larscoms directors and executive officers, will
accelerate and become fully exercisable.
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Indemnification of Certain
Persons
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The merger agreement generally provides that to
the fullest extent permitted by law, for a period of six years
following the merger, Verilink shall indemnify, defend and hold
harmless each present and former
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director and officer of Larscom against damages
(including reasonable attorneys fees) incurred in
connection with any claim arising out of or pertaining to
matters existing or occurring at or prior to the merger
(including for acts or omissions occurring in connection with
the approval of the merger agreement and the consummation of the
transactions contemplated thereby). Verilink has also agreed not
to amend, appeal or otherwise modify the indemnification or
exculpation from liability or other similar provisions set forth
in the certificate of incorporation or the current bylaws of
Verilink for a period of six years after the merger in any
manner that would adversely affect the rights thereunder of any
person who, immediately prior to the merger, was an indemnified
party under the indemnification or exculpation from liability
provisions of the Larscoms certificate of incorporation
and bylaws. Prior to the effective time of the merger, Larscom
will purchase directors and officers liability
insurance tail coverage in the amount of $10 million for
claims arising from facts or events which occurred on or before
the effective time of the merger. Verilink has agreed to pay one
half of the cost of such insurance tail coverage to Larscom at
the time Larscom purchases such coverage and to the extent such
payment does not exceed a certain agreed-upon limit.
The issuance of Verilink common stock in
connection with the merger will increase the number of shares of
outstanding Verilink common stock and is expected to result in
greater share trading volume, which will affect the
Rule 144 volume limitations that apply to affiliates of the
combined company and former affiliates of Larscom. This increase
in the number of shares of outstanding Verilink common stock may
help facilitate broader transfers of shares by affiliates.
In connection with and as a condition to the
consummation of the merger, Verilink will enter into a
registration rights agreement with Axel Johnson and Sierra
Ventures, the majority stockholders of Larscom. For a
description of the terms of the registration rights agreement,
please see Agreements Related to the Merger
Registration Rights Agreement.
Dissenters Appraisal Rights
Any Larscom stockholder on the record date who
does not wish to accept the consideration provided in the merger
agreement has the right to demand, pursuant to Delaware law, the
appraisal of, and to be paid the fair market value for, the
stockholders shares of Larscom common stock. The value of
the Larscom common stock for this purpose will exclude any
element of value arising from the completion of the merger.
Verilink stockholders are not entitled to
dissenters or appraisal rights in connection with the
merger.
Under Delaware law, Larscom stockholders have the
right to dissent from the merger and to receive payment in cash
for the fair value of their shares of Larscom common stock
instead of the merger consideration. Larscom stockholders
electing to do so must comply with the provisions of
Section 262 of the Delaware General Corporation Law in
order to perfect their rights of appraisal. A copy of the
applicable Delaware statute is attached as Annex D of this
document.
Ensuring perfection of appraisal rights can be
complicated. The procedural rules are specific and must be
followed precisely. A Larscom stockholders failure to
comply with these procedural rules may result in such
stockholder becoming ineligible to pursue appraisal
rights.
The following is intended as a brief summary of
the material provisions of the Delaware statutory procedures
that a Larscom stockholder must follow in order to dissent from
the merger and obtain payment of the fair value of his or her
shares of Larscom common stock instead of the merger
consideration. This summary, however, is not a complete
statement of all applicable requirements and is qualified in its
entirety by reference to Section 262 of the Delaware
General Corporation Law, the full text of which appears in
Annex D of this Joint Proxy Statement/Prospectus. Under
Section 262 of the
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Delaware General Corporation Law, not less than
20 days before Larscoms special meeting of
stockholders, Larscom must notify each of the holders of record
of its capital stock that appraisal rights are available and
include in the notice a copy of Section 262 of the Delaware
General Corporation Law. Larscom intends that this joint proxy
statement/ prospectus constitutes this notice.
If you are a Larscom stockholder and you wish to
exercise your appraisal rights, you must satisfy the provisions
of Section 262 of the Delaware General Corporation Law.
Section 262 requires the following:
You must make a written demand for
appraisal:
You must deliver a written
demand for appraisal to Larscom before the vote on the merger
agreement is taken at the Larscom special meeting of
stockholders. This written demand for appraisal must be separate
from your proxy card. A vote against the merger agreement alone
will not constitute a demand for appraisal.
You must refrain from voting for adoption of
the merger agreement:
You must not
vote for adoption of the merger agreement. If you vote, by proxy
or in person, in favor of the merger agreement, this will
terminate your right to appraisal. You can also terminate your
right to appraisal if you return a signed proxy card and:
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fail to vote against adoption of the merger
agreement; or
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fail to note that you are abstaining from voting.
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If you do either of these two things, your
appraisal rights will terminate even if you previously filed a
written demand for appraisal.
You must continuously hold your Larscom common
stock:
You must continuously hold your
shares of Larscom common stock from the date you make the demand
for appraisal through the effective date of the merger. If you
are the record holder of Larscom common stock on the date the
written demand for appraisal is made but thereafter transfer the
shares prior to the effective date of the merger, you will lose
any right to appraisal for those shares.
A written demand for appraisal of Larscom common
stock is only effective if it is signed by, or for, the
stockholder of record who owns such shares at the time the
demand is made. The demand must also be signed precisely as the
stockholders name appears on his or her stock certificate.
If you are the beneficial owner of Larscom common stock, but not
the stockholder of record, you must have the stockholder of
record sign any demand for appraisal.
If you own Larscom common stock in a fiduciary
capacity, such as a trustee, guardian or custodian, you must
disclose the fact that you are signing the demand for appraisal
in that capacity.
If you own Larscom common stock with more than
one person, such as in a joint tenancy or tenancy in common, all
the owners must sign, or have signed for them, the demand for
appraisal. An authorized agent, including an agent for one or
more of the joint owners, may sign the demand for appraisal for
a stockholder of record; however, the agent must expressly
disclose who the stockholder of record is and that the agent is
signing the demand as that stockholders agent.
If you are a record owner, such as a broker, who
holds Larscom common stock as a nominee for others, you may
exercise a right of appraisal with respect to the shares of
Larscom common stock held for one or more beneficial owners,
while not exercising such right for other beneficial owners. In
such a case, you should specify in the written demand the number
of shares of Larscom common stock as to which you wish to demand
appraisal. If you do not expressly specify the number of shares,
the demand will be presumed to cover all the shares of Larscom
common stock that are in your name.
If you are a Larscom stockholder who elects to
exercise appraisal rights, you should mail or deliver a written
demand to: Larscom Incorporated, 39745 Eureka Drive,
Newark, California 94560, Attention: Corporate Secretary.
It is important that Larscom receive all written
demands for appraisal before the vote concerning the merger
agreement is taken at the Larscom special meeting of
stockholders. As explained above, this
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written demand would be signed by, or on behalf
of, the stockholder of record. The written demand for appraisal
should specify the stockholders name and mailing address,
the number of shares of common stock owned, and that the
stockholder is demanding appraisal of such stockholders
shares.
If the merger is completed, each holder of
Larscom common stock who has perfected appraisal rights in
accordance with Section 262 of the Delaware General
Corporation Law will be entitled to be paid by Verilink for such
stockholders shares of Larscom common stock the fair value
in cash of those shares. The Delaware Court of Chancery will
determine the fair value of the shares, exclusive of any element
of value arising from the completion or expectation of the
merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In
determining such fair value, the court may take into account all
relevant factors and upon such determination will then direct
the payment of the fair value of the shares, together with any
interest, to the holders of Larscom common stock who have
perfected their appraisal rights. The shares of Larscom common
stock with respect to which holders have perfected their
appraisal rights in accordance with Section 262 and have
not effectively withdrawn or lost their appraisal rights are
referred to in this document as the dissenting shares.
Stockholders considering seeking appraisal for
their shares should note that the fair value of their shares
determined under Section 262 of Delaware law could be more,
the same, or less than the consideration they would receive
pursuant to the merger agreement if they did not seek appraisal
of their shares.
The Delaware Court of
Chancery may determine the costs of the appraisal proceeding and
allocate them among the parties as the court deems equitable
under the circumstances. Upon application of a stockholder, the
court may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including reasonable attorneys fees and the fees and
expenses of experts, to be charged pro rata against the value of
all shares entitled to appraisal. In the absence of such
determination or assessment, each stockholder bears its own
expenses.
If you fail to comply with any of these
conditions and the merger becomes effective, you will only be
entitled to receive the consideration provided in the merger
agreement for your shares.
Within ten days after the effective date of the
merger, Verilink must give written notice that the merger has
become effective to each stockholder who has fully complied with
the conditions of Section 262 of the Delaware General
Corporation Law.
Within 120 days after the effective date of
the merger, either Verilink or any stockholder who has complied
with the conditions of Section 262 may file a petition in
the Delaware Court of Chancery. This petition should request
that the Delaware Court of Chancery determine the value of the
shares of Larscom common stock held by all the stockholders who
are entitled to appraisal rights. If you intend to exercise your
appraisal rights, you should file this petition in the Delaware
Court of Chancery. Verilink has no obligation to file this
petition, and if you do not file this petition within
120 days after the effective date of the merger, you will
lose your rights of appraisal. A dissenting stockholder must
also serve a copy of the petition on Verilink.
If you change your mind and decide you no longer
wish to exercise your appraisal rights, you may withdraw your
demand for appraisal rights at any time within 60 days
after the effective date of the merger. A withdrawal request
received more than 60 days after the effective date of the
merger is effective only with the written consent of Verilink.
If you effectively withdraw your demand for appraisal rights,
you will receive the merger consideration provided in the merger
agreement.
If you have complied with the conditions of
Section 262, you are entitled to receive a statement from
Verilink. This statement will set forth the number of shares not
voted in favor of the merger agreement and that have demanded
appraisal rights and the number of stockholders who own those
shares. In order to receive this statement you must send a
written request to Verilink within 120 days after the
effective date of the merger. Verilink must mail this statement
within ten days after it receives the written request or within
ten days after the expiration of the period for the delivery of
demands, whichever is later.
If you properly file a petition for appraisal in
the Chancery Court and deliver a copy to Verilink, Verilink will
then have 20 days to provide the Chancery Court with a list
of the names and addresses of
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all stockholders who have demanded appraisal
rights and have not reached an agreement with Verilink as to the
value of their shares. The Registry in the Court of Chancery, if
so ordered by the Court of Chancery, will give notice of the
time and place fixed for the hearing of such petition to the
stockholders on the list. At the hearing, the Chancery Court
will determine the stockholders who have complied with
Section 262 and are entitled to appraisal rights. The
Chancery Court may also require you to submit your stock
certificates to the Registry in the Court of Chancery so that it
can note on the certificates that an appraisal proceeding is
pending. If you do not follow the Chancery Courts
directions, you may be dismissed from the proceeding.
After the Chancery Court determines which
stockholders are entitled to appraisal rights, the Chancery
Court will appraise the shares of stock that are the subject of
the demand for appraisal. To determine the fair value of the
shares, the Chancery Court will consider all relevant factors
except for any appreciation or depreciation due to the
anticipation or accomplishment of the merger. After the Chancery
Court determines the fair value of the shares, it will direct
Verilink to pay that value to the stockholders who have
successfully sought appraisal rights. The Chancery Court can
also direct Verilink to pay interest, simple or compound, on
that value if the Chancery Court determines that interest is
appropriate. In order to receive payment for your shares under
an appraisal procedure, you must surrender your stock
certificates to Verilink.
If you demand appraisal rights, after the
effective date of the merger you will not be entitled:
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to vote the shares of common stock for which you
have demanded appraisal rights for any purpose;
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to receive payment of dividends or any other
distribution with respect to the shares of common stock for
which you have demanded appraisal, except for dividends or
distributions, if any, that are payable to holders of record as
of a record date prior to the effective date of the
merger; or
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to receive the payment of the consideration
provided for in the merger agreement (unless you properly
withdraw your demand for appraisal).
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If you do not file a petition for an appraisal
within 120 days after the effective date of the merger,
your right to an appraisal will terminate. You may withdraw your
demand for appraisal and accept the merger consideration by
delivering to Verilink a written withdrawal of your demand,
except that:
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any attempt to withdraw made more than
60 days after the effective date of the merger will require
the written approval of Verilink; and
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an appraisal proceeding in the Chancery Court
cannot be dismissed unless the Chancery Court approves.
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IF YOU FAIL TO COMPLY STRICTLY WITH THE
PROCEDURES DESCRIBED ABOVE YOU WILL LOSE YOUR APPRAISAL RIGHTS.
CONSEQUENTLY, IF YOU WISH TO EXERCISE YOUR APPRAISAL RIGHTS, WE
STRONGLY URGE YOU TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING
TO DO SO.
Listing on The Nasdaq National Market of
Verilink Common Stock to Be Issued in the Merger
It is a condition to the completion of the merger
that the shares of Verilink common stock to be issued in the
merger be approved for listing on The Nasdaq National Market,
subject to official notice of issuance.
Delisting and Deregistration of Larscom Common
Stock after the Merger
If the merger is completed, Larscom common stock
will be delisted from The Nasdaq SmallCap Market and will be
deregistered under the Exchange Act.
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THE MERGER AGREEMENT
This section of the joint proxy
statement/prospectus is a summary of the material terms of the
merger agreement, a copy of which is attached as Annex A to
this document and is incorporated herein by reference. The
following description does not purport to be complete and is
qualified in its entirety by reference to the merger agreement.
You should refer to the full text of the merger agreement for
details of the merger and the terms and conditions of the merger
agreement.
General
The merger agreement provides that SRI
Acquisition Corp., a wholly-owned subsidiary of Verilink, will
merge with and into Larscom. Larscom will survive the merger as
a wholly-owned subsidiary of Verilink. At some following date to
be determined by Verilink, Larscom will merge with and into
Verilink. Verilink will survive the merger.
The closing of the merger will occur no later
than the second business day after the last of the conditions to
the merger have been satisfied or waived, or at another time as
Verilink and Larscom agree. On the date of the closing, Verilink
and Larscom will file a certificate of merger with the Secretary
of State of the State of Delaware. Verilink and Larscom
currently expect the merger to occur shortly after the special
meetings; however, because the merger is subject to customary
conditions, Verilink and Larscom cannot predict the exact timing
of when the closing will occur.
Conditions to the Completion of the
Merger
Each partys obligation to effect the merger
is subject to the satisfaction or waiver of various conditions,
which include the following:
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holders of shares of Verilink common stock
representing a majority of the votes present and entitled to
vote at the Verilink special meeting at which a quorum is
present having approved the issuance of Verilink common stock;
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holders of shares of Larscom common stock
representing a majority of the shares of common stock
outstanding having voted to approve and adopt the merger
agreement and approve the merger at the Larscom special meeting
at which a quorum is present;
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authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations of waiting
periods imposed by any governmental entity in connection with
the merger shall have been obtained or shall have occurred;
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the registration statement on Form S-4, of
which this joint proxy statement/prospectus is a part, having
been declared effective by the SEC under the Securities Act with
no stop order suspending the effectiveness of the registration
statement having been issued and no proceedings seeking a stop
order having been initiated or threatened by the SEC;
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no governmental entity shall have enacted,
issued, promulgated, enforced or entered any order, executive
order, stay, decree, judgment or injunction or statute, rule or
regulation which is in effect and which has the effect of making
the merger illegal or otherwise prohibiting consummation of the
merger or the other transactions contemplated by the merger
agreement and no governmental entity shall have commenced any
action or proceeding seeking any of the foregoing; and
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the final statement of closing net adjusted
working capital amount shall have been agreed to by Verilink and
Larscom, or an accounting firm chosen by Verilink and approved
by Larscom shall have delivered such statement of closing.
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In addition, Verilinks and Larscoms
obligation to effect the merger is further subject to the
satisfaction or waiver of the following additional conditions:
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certain representations and warranties of the
parties set forth in the merger agreement with respect to SEC
filings, financial statements and undisclosed liabilities being
true and correct in all material
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respects on the date on which the merger is to be
completed as though made on and as of such date; except
(x) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties shall be true and correct in all
material respects as of such date, and (y) for changes
contemplated by the merger agreement, including the disclosure
schedules of such party delivered in connection with the merger
agreement;
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the representations and warranties of the parties
set forth in the merger agreement or any related certificate or
other writing being true and correct in all material respects on
the date on which the merger is to be completed as though made
on and as of such date; except (x) to the extent such
representations and warranties are specifically made as of a
particular date, in which case such representations and
warranties shall be true and correct in all material respects as
of such date, (y) for changes contemplated by the merger
agreement, including the disclosure schedules of such party
delivered in connection with the merger agreement, and (z) where
the failure to be true and correct (without regard to any
materiality, material adverse effect or knowledge qualifications
contained therein), individually or in the aggregate, have not
had, and are not reasonably likely to have, a material adverse
effect as to such party; provided; however, that the exception
in the definition of material adverse effect related to negative
changes in the industry or general economy do not apply with
respect to the representations and warranties related to
undisclosed liabilities;
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the other party to the merger agreement having
performed or complied in all material respects with all
agreements and covenants required to be performed or complied
with by it on or before the date on which the merger is to be
completed, and that party having provided to the other party a
certificate of the chief executive officer and the chief
financial officer to that effect;
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with respect only to Larscoms obligation to
effect the merger, Larscom having received from Cooley Godward
LLP, counsel to Larscom, on or prior to the date on which the
merger is to be completed, a written opinion to the effect that,
for federal income tax purposes, the merger will qualify as a
reorganization within the meaning of Section 368(a) of the
Code;
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with respect only to Larscoms obligation to
effect the merger, Verilink having submitted to The Nasdaq Stock
Market, Inc. a notification of the listing of additional shares
with respect to the Verilink common stock to be issued pursuant
to the terms of the merger;
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with respect only to Larscoms obligation to
effect the merger, Verilink having executed the registration
rights agreement and delivered it to the stockholders that are
parties thereto;
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with respect only to Verilinks obligation
to effect the merger, that the gross revenue of Larscom in the
second quarter of calendar year 2004 will not be below minimum
anticipated levels, and Larscoms condensed consolidated
statement of operations for the quarter ended March 31,
2004 and condensed consolidated balance sheet as of
March 31, 2004, included in Larscoms disclosure
schedule, is consistent in all material respects with the
unaudited financial statements included in Larscoms
quarterly report on Form 10-Q for the quarter ended
March 31, 2004;
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with respect only to Verilinks obligation
to effect the merger, Verilink having received from Powell,
Goldstein, Frazer & Murphy LLP, counsel to Verilink, on
or prior to the date on which the merger is to be completed, a
written opinion to the effect that, for federal income tax
purposes, the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code;
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with respect only to Verilinks obligation
to effect the merger, Larscom shall have obtained the required
third-party consents as listed in the Larscom disclosure
schedule;
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with respect only to Verilinks obligation
to effect the merger, certain Larscom stockholders having
executed the registration rights agreement and delivered it to
Verilink;
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with respect to Verilinks obligation to
effect the merger, Larscom shall have obtained from each of its
Rule 144 affiliates a letter in a form pursuant to the
merger agreement acknowledging the requirements of Rule 145
under the Securities Act; and
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with respect only to Verilinks obligation
to effect the merger, at least 75% of certain specified
employees of Larscom shall not have ceased to be employed by
Larscom; provided that Verilink shall have offered employment to
all such persons, provided for retention bonuses for each such
employee consistent with past practices and offered compensation
that is comparable to such persons compensation as of the
date of the merger agreement.
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Each of the conditions listed above is waivable
by the party or parties whose obligations to complete the merger
are so conditioned.
The merger agreement provides that a
material adverse effect means, when used in
connection with Verilink or Larscom, any material adverse
change, event, circumstance or development with respect to, or
material adverse effect on, the business, assets, liabilities,
capitalization, condition (financial or other), or results of
operations of a party and its subsidiaries, taken as a whole;
provided, however, that none of the following shall, in and of
itself, be taken into account when determining whether there has
been, or will be, a material adverse effect with respect to any
party:
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any failure by the party to meet or exceed
analysts published revenues or earnings predictions or any
change in such partys stock price or trading volume;
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with respect to the use of the term material
adverse effect with respect to a party in the representations
and warranties relating to an absence of certain changes or
events since the last balance sheet date, any effect resulting
from the announcement or pendency of the merger agreement or the
merger; or
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other than with respect to the use of the term
material adverse effect in the representations and warranties
relating to undisclosed liabilities for Verilink, any effect
that results from changes affecting generally the industry or
industries in which such party or any of its subsidiaries
participates, the U.S. economy as a whole or foreign
economies in any locations where such party or any of its
subsidiaries has material operations, or sales or customers
unless such condition shall disproportionately adversely affect
a party or any of its subsidiaries.
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No Solicitation
In the merger agreement, each of Verilink and
Larscom has agreed that, except in certain circumstances
described below, Verilink and Larscom and their respective
subsidiaries will not, nor will either company authorize or
permit any of its directors, officers, investment bankers,
attorneys, accountants or other advisors or representatives to,
directly or indirectly:
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solicit, initiate, knowingly encourage or take
any other action to facilitate any inquiries or the making,
submission or announcement of any proposal or offer that
constitutes, or could reasonably be expected to lead to, any
acquisition proposal (as defined below), including:
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enter into, continue or otherwise participate in
any discussions or negotiations regarding, furnish to any person
any information with respect to, knowingly assist or participate
in any effort or attempt by any person with respect to, or
otherwise knowingly cooperate in any way with any proposal or
offer that constitutes, or could reasonably be expected to lead
to, any acquisition proposal, except discussions as to the
existence of the provisions prohibiting solicitation;
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approve, endorse or recommend any acquisition
proposal with respect to itself; or
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enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating
or otherwise relating to any acquisition proposal or transaction
contemplated thereby with respect to itself.
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An acquisition proposal includes,
with respect to any party:
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any inquiry, proposal or offer for a merger,
consolidation, dissolution, sale of substantial assets, tender
offer, recapitalization, share exchange or other business
combination involving such party or any of its subsidiaries;
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any proposal for the issuance by such party or
any of its subsidiaries of over 20% of its equity securities or
the voting power of its equity securities; or
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any proposal or offer to acquire in any manner,
directly or indirectly, over 20% of the equity securities or the
voting power of its equity securities or consolidated total
assets of such party;
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provided, however, in each case acquisition
proposal does not include the merger contemplated by the
merger agreement, and in the case of Verilink, acquisition
proposal does not include any inquiry, proposal or offer
that does not require, propose, contemplate or would not be
reasonably expected to result in the termination of abandonment
of the merger contemplated by the merger agreement.
Further, each of Verilink and Larscom or their
respective boards of directors will be permitted to
(1) furnish its nonpublic information, to a person making
an acquisition proposal, and (2) participate in discussions
or negotiations with such person regarding any such acquisition
proposal if:
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such partys stockholders meeting to approve
the merger agreement has not occurred;
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such acquisition proposal (1) constitutes a
superior proposal (as defined below) or (2) is determined
by the partys board of directors in good faith to be more
favorable to its stockholders than the transactions contemplated
by the merger agreement and could reasonably be expected to
result in a superior proposal in all other respects;
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such acquisition proposal was not the result of a
breach by such party of the no solicitation provisions in the
merger agreement;
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such partys board of directors determines
in good faith that such action is required to comply with its
fiduciary obligations; and
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such party obtains a customary confidentiality
agreement not less restrictive of the other party than the
confidentiality agreement currently in place between Verilink
and Larscom.
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In addition, in response to the receipt of a
superior proposal, the board of directors of Verilink or Larscom
may withdraw, modify, or propose to withdraw or modify its
recommendation in favor of the merger if all of the following
conditions are met:
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such partys stockholders meeting shall not
have previously occurred;
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such party shall have provided the other party
two business days prior written notice that (1) it has
received a superior proposal, (2) the material terms and
conditions of such superior proposal and the identity of the
person making the superior proposal; and
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such partys board of directors believes in
good faith, after consultation with outside counsel, that, in
light of such superior offer, its fiduciary obligations require
it to change its recommendation.
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A superior proposal means any
unsolicited, bona fide, written proposal made by a third party:
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to acquire, directly or indirectly, pursuant to a
tender or exchange offer, merger, consolidation or other
business combination or asset purchase, all or substantially all
of the assets of a party, or securities representing a majority
of the voting power of the total outstanding securities in the
case of Verilink or a majority of the total outstanding voting
securities in the case of Larscom;
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as a result of which the stockholders of a party
immediately preceding such transaction would hold less than 50%
of the voting power of the total outstanding equity interests in
the surviving or resulting entity of such transaction or any
direct or indirect parent or subsidiary thereof; and
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on terms that such partys board of
directors has in good faith concluded to be more favorable, from
a financial point of view, to its stockholders (following
consultation with outside and independent legal and financial
advisors, and after taking into account all the terms and
conditions of such proposal and the merger agreement (including
any proposal by either party to amend the terms of the merger
agreement), and on the terms proposed, taking into account all
financial, regulatory, legal and other aspects of such proposal;
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provided, however, no acquisition proposal shall
be deemed to be a superior proposal if any financing
required to consummate such acquisition proposal is not
committed, and in the case of Verilink, is an allowed
proposal.
The merger agreement also provides that each
party will promptly advise the other of the status and terms of
any competing proposal or any inquiry or request for information
relating to that competing proposal and the status and terms of
any such discussions or negotiations. Each party shall also
notify the other of any meeting of the board of directors of
such party at which any acquisition proposal is considered or at
which a superior proposal is to be recommended to the
stockholders of such party.
Meetings of Stockholders
Unless the merger agreement is terminated
pursuant to its terms, Verilink is obligated under the merger
agreement to hold and convene a meeting of its stockholders for
purposes of considering the issuance of shares of Verilink
common stock in connection with the merger.
Unless the merger agreement is terminated
pursuant to its terms, Larscom is obligated under the merger
agreement to hold and convene a meeting of its stockholders for
purposes of considering the approval and adoption of the merger
agreement and approval of the merger.
Covenants; Conduct of Business Pending the
Merger
Both Verilink and Larscom agreed that they will
conduct their businesses in the ordinary course, in
substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations and to take
certain other agreed-upon actions.
Unless approved by Verilink, Larscom also agreed
that it would conduct its business in compliance with specific
restrictions relating to:
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declaring any dividends or other distributions;
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any split, combination or reclassification of any
of its capital stock;
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repurchasing, redeeming or otherwise acquiring
any shares of its capital stock, except for the acquisition of
shares from former employees, directors and consultants in
accordance with agreements providing for such repurchase at
their original issuance price in connection with any termination
of services;
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issuing securities, other than in connection with
the exercise of outstanding warrants and previously-granted
options or the grant of new options;
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modifying its charter documents and bylaws;
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forming any subsidiary or acquiring any equity
interest or ownership interest in another person;
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the acquisition of any business or entity or
division thereof by merger, consolidation or any similar
transaction or the acquisition of material assets;
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selling, leasing or disposing of material assets,
whether or not in the ordinary course of business;
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entering into any agreement with respect to a
merger, consolidation, liquidation or business combination or
any acquisition or disposition of all or substantially all of
the partys assets or securities, except for a
confidentiality agreement as permitted under the terms of the
merger agreement;
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authorizing, recommending, proposing or
announcing an intention to authorize, recommend or propose, or
enter into any agreement in principle or an agreement with
respect to, any plan of liquidation or dissolution;
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incurring or guaranteeing indebtedness;
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making any capital expenditures in excess of
$25,000 in the aggregate;
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changing accounting methods, principles or
practices;
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except in the ordinary course of business,
modifying, amending or terminating any material contract or
agreement to which Larscom, or any of its subsidiaries, is a
party, or waiving, releasing or assigning any material rights or
claims;
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entering into any material contract, agreement or
transaction or take any other material action;
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licensing any rights to intellectual property to
or from any third party;
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adopting any employment, severance or similar
agreement or benefit plan;
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increasing in any material respect the
compensation or fringe benefits of, or paying any bonus to, any
director, officer, employee or consultant;
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waiving any stock repurchase rights,
accelerating, amending or changing the period of exercisability
of options or restricted stock, repricing any options, or
authorizing cash payments in exchange for any options granted;
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paying any material benefit not provided for as
of the date of the merger agreement;
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taking any action other than in the ordinary
course of business to fund or secure the payment of compensation
or benefits;
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hiring any employee at or promoting any employee
to the level of director or above with an annual base salary in
excess of $100,000;
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making or changing any tax election, changing any
tax accounting period, adopting any method of tax accounting,
filing any material amended tax return or settling any tax claim;
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initiating, paying, discharging or satisfying any
material claim, liability or obligation;
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failing to maintain insurance at levels
substantially comparable to levels existing as of the date of
the merger agreement;
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entering into any agreement to purchase or sell
any interest in real property or entering into any lease or
other occupancy agreement with respect to any real property;
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authorizing any action which would make any
representation or warranty untrue or incorrect in any material
respect or which would materially impair or prevent the
satisfaction of any condition; or
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agreeing to new or modify any existing material
commitments with its customers, suppliers and distributors
without the prior consent of Verilink, which will not be
unreasonably withheld or delayed.
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Unless approved by Larscom, Verilink agreed that
it would conduct its business in compliance with specific
restrictions relating to:
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declaring any dividends or other distributions;
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any split, combination or reclassification of any
of its capital stock;
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modifying its charter documents and bylaws;
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authorizing, recommending, proposing or
announcing an intention to enter into an agreement in principal
or with respect to any plan of liquidation or dissolution of
Verilink; or
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authorizing any action which would make any
representation or warranty untrue or incorrect in any material
respect or which would materially impair or prevent the
satisfaction of any condition.
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Other Agreements
Each of Verilink and Larscom has agreed to:
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provide the other party with access to its
properties, books, work papers, tax returns, contracts,
commitments, personnel, customers, suppliers and vendors and
records;
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promptly and duly call, give notice of, convene
and hold as promptly as practicable the stockholder meetings;
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use commercially reasonable efforts to take all
actions and do all things necessary, proper or advisable under
applicable laws and regulations to complete the merger;
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obtain from any governmental entity or any other
third party any consents, licenses, permits, waivers, approvals,
authorizations, or orders required to be obtained or made in
connection with the authorization, execution and delivery of the
merger agreement and the consummation of the merger;
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make all necessary filings, and thereafter make
any other required submissions, with respect to this merger
agreement and the merger required under the Securities Act and
the Exchange Act and any other applicable federal or state
securities laws, the Hart Scott-Rodino Act, if applicable, and
any related governmental request thereunder, and any other
applicable law;
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execute or deliver any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, the merger agreement;
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coordinate and cooperate with the other in
preparing and exchanging information and promptly provide the
other with copies of all filings, presentations or submissions
made in connection with the merger;
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use commercially reasonable efforts to obtain any
government clearances or approvals under the Hart-Scott-Rodino
Act, if applicable, and any other federal, state or foreign law
or other antitrust law;
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give notices to third parties and use
commercially reasonable efforts to obtain third-party consents;
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issue no press release or make any other public
written disclosure relating to the merger unless the other party
approved such press release or written material or the issuing
party has been advised by outside legal counsel that such
release or dissemination is required by law or the rules and
regulations of The Nasdaq Stock Market, Inc.;
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take no action that would reasonably be expected
to jeopardize the tax-free status of the merger;
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give the other party the opportunity to
participate in the defense or settlement of any stockholder
litigation related to the merger agreement or any of the
transactions contemplated by the merger agreement and not to
settle any such litigation without the other partys
consent; and
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give prompt notice of any event which caused or
would be reasonably likely to cause any representation or
warranty to be untrue or to cause any material failure in the
satisfaction of any covenant.
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Termination
The merger agreement may be terminated at any
time before the completion of the merger, whether before or
after the stockholder approvals have been obtained at the
stockholder meetings by either Verilink or Larscom:
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by mutual written consent of the boards of
directors of Verilink and Larscom;
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by Verilink or Larscom, if the merger has not
been completed by September 30, 2004, but this right to
terminate the merger agreement will not be available to any
party whose action or failure to act has been a principal cause
of the failure of the merger to be completed by such date and
such action or failure to act constitutes a breach of the merger
agreement;
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by Verilink or Larscom, if a governmental entity
has issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action which has the effect
of permanently restraining, enjoining or otherwise prohibiting
the merger;
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by Verilink or Larscom, if the stockholders of
Verilink have not approved the issuance of Verilink common stock
in the merger or if the stockholders of Larscom have not
approved and adopted the merger agreement and approved the
merger, in each case at the applicable stockholders
meeting or at any adjournment or postponement of the applicable
meeting, provided that: (1) a party whose failure to
fulfill any obligation under the merger agreement has been a
principal cause of or resulted in the failure to obtain such
requisite vote may not terminate; (2) Verilink may not
terminate if the failure to obtain such requisite vote has been
caused by a breach other than by Larscom of the voting agreement
governing the voting of Verilinks common stock; and
(3) Larscom may not terminate if the failure to obtain such
requisite vote has been caused by a breach other than by
Verilink of the voting agreement governing the voting of
Larscoms common stock;
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by Verilink or Larscom if:
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as to Larscom, the Verilink board of directors
shall have failed to give its recommendation to approve the
issuance of the Verilink common stock in the joint proxy
statement/ prospectus or shall have withdrawn or modified in a
manner adverse to Larscom such recommendation, or, as to
Verilink, the Larscom board of directors shall have failed to
give its recommendation to the approval and adoption of the
merger agreement and approval of the merger in the joint proxy
statement/ prospectus or shall have withdrawn or modified in a
manner adverse to Verilink such recommendation;
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the other partys board of directors (or any
committee thereof) shall have approved or recommended to the
stockholders of such party an acquisition proposal (other than
in the case of Verilink, a proposal that does not require,
propose, contemplate, or would not reasonably be expected to
result in, the termination of the merger agreement);
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a tender offer or exchange offer for outstanding
shares of the other partys common stock is commenced, and
such partys board of directors (or any committee thereof)
fails to reconfirm its recommendation of the merger agreement or
the merger within 10 business days after its receipt of a
request to do so following the public announcement of a
transaction providing for the acquisition of such party; and in
the case of Larscom, Larscoms board of directors (or any
committee thereof) (1) recommends that the stockholders of
such party tender their shares in such tender or exchange offer
or (2) within 10 business days after the commencement of
such tender or exchange offer, Larscoms board of directors
fails to recommend rejection of such offer; or
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the other party shall have materially breached
its obligations under the no solicitation provisions of the
merger agreement;
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by Larscom, if at any time prior to the Larscom
special meeting, (1) the Larscom board of directors shall
have failed to give its recommendation to the approval and
adoption of the merger
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agreement and approval of the merger in the joint
proxy statement/ prospectus or shall have withdrawn or modified
in a manner adverse to Verilink its recommendation or
(2) the Larscom board of directors (or any committee
thereof) shall have approved or recommended to the stockholders
of Larscom an acquisition proposal, so long as (A) the
Larscom board of directors has determined in good faith, after
consultation with outside and independent legal and financial
advisors, that an acquisition proposal is a superior proposal
(and the acquisition proposal did not result from a breach of
the no solicitation provisions of the merger agreement) and,
after consultation with independent legal counsel, determines in
good faith that such action is required for the Larscom board of
directors to comply with its fiduciary obligations to
stockholders under applicable law and (B) Larscom pays to
Verilink the termination fee;
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by Verilink, if at any time prior to the Verilink
special meeting, (1) the Verilink board of directors shall
have failed to give its recommendation to the approval and
adoption of the merger agreement and approval of the merger in
the joint proxy statement/ prospectus or shall have withdrawn or
modified in a manner adverse to Larscom its recommendation or
(2) the Verilink board of directors (or any committee
thereof) shall have approved or recommended to the stockholders
of Verilink an acquisition proposal, so long as (A) the
Verilink board of directors has determined in good faith, after
consultation with outside and independent legal and financial
advisors, that an acquisition proposal is a superior proposal
(and the acquisition proposal did not result from a breach of
the no solicitation provisions of the merger agreement) and,
after consultation with independent legal counsel, determines in
good faith that such action is required for the Verilink board
of directors to comply with its fiduciary obligations to
stockholders under applicable law and (B) Verilink pays to
Larscom the termination fee; or
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by Verilink or Larscom, if the other party has
breached any of its representations, warranties, covenants or
other agreements contained in the merger agreement in any case
such that the conditions to the closing of the merger would not
be satisfied, and such breach has not been or cannot be cured
within 20 days after delivery of written notice of such
breach or inaccuracy.
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Termination Fee
Verilink must pay Larscom a termination fee of
$1 million plus fees and expenses not to exceed, in the
aggregate, $1.2 million in the event of the termination of
the merger agreement by:
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Larscom as a result of the Verilink board of
directors either failing to give its recommendation for the
issuance of the Verilink common stock, approving a different
acquisition proposal, recommending or failing to reject a tender
offer or breaching the no solicitation provisions of the merger
agreement; or
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Verilink as a result of the Verilink board of
directors failing to give its recommendation for the issuance of
the Verilink common stock in the merger, or approving or
recommending a different acquisition proposal.
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In addition, if the merger agreement is
terminated as a result of the failure of the merger to be
completed by September 30, 2004, and at or prior to
termination an acquisition proposal (other than an acquisition
proposal that does not require, propose, contemplate, or would
not be reasonably expected to result in, the termination of the
merger agreement), and within 12 months of termination
Verilink completes an acquisition transaction, then Verilink
shall pay Larscom a termination fee of $1 million plus fees
and expenses, but not more than a total of $1.2 million.
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Larscom must pay Verilink a termination fee of
$1 million plus fees and expenses not to exceed, in the
aggregate, $1.2 million in the event of the termination of
the merger agreement by:
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Verilink or Larscom as a result of the failure of
the Larscom stockholders to adopt and approve the merger
agreement and to approve the merger;
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Verilink as a result of the Larscom board of
directors either failing to give its recommendation to adopt and
approve the merger agreement and to approve the merger,
approving a different acquisition proposal, recommending or
failing to reject a tender offer or breaching the no
solicitation provisions of the merger agreement; or
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Larscom as a result of the Larscom board of
directors failing to give its recommendation to adopt and
approve the merger agreement and to approve the merger, or
approving or recommending a different acquisition proposal.
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In addition, if the merger agreement is
terminated as a result of the failure of the merger to be
completed by September 30, 2004 or a material breach by
Larscom, and at or prior to termination an acquisition proposal
for Larscom has been disclosed, announced, commenced, submitted
or made for Larscom, then Larscom must pay all of
Verilinks fees and expenses in connection with the merger.
If within 12 months of termination of the merger agreement,
due to the failure of the merger to be completed by
September 30, 2004 or material breach by Larscom, Larscom
completes an acquisition transaction that was first disclosed,
announced, commenced, submitted or made prior to or within
60 days after such termination, then Larscom must pay
Verilink a termination fee of $1 million plus fees and
expenses, but not more than a total of $1.2 million.
Representations and Warranties
The merger agreement contains customary
representations and warranties of Verilink and Larscom relating
to, among other things:
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corporate organization and power and similar
corporate matters;
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capital structure;
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subsidiaries;
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authorization, due execution and delivery of the
merger agreement, and the absence of any conflicts or violations
of each partys agreements as a result of the merger or the
merger agreement;
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documents filed with the SEC and the accuracy of
information contained in those documents;
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the absence of undisclosed liabilities;
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absence of material changes or events;
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filing of tax returns and payment of taxes;
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the ownership and lease of real properties;
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intellectual property;
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validity of material contracts to which the
parties or their subsidiaries are a party, the absence of any
violation, default or breach to such contracts, and the types of
such contracts in force;
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litigation;
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environmental matters;
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employee relations;
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employee benefit plans;
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compliance with laws;
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permits;
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insurance;
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ownership of assets and absence of liens and
encumbrances;
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condition of equipment and leaseholds;
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collectibility of receivables, the relationship
with customers and the condition of inventory;
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unlawful business practices;
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the receipt of fairness opinions from financial
advisors;
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inapplicability of the provisions of
Section 203 of the Delaware General Corporation Law to the
merger;
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payment of brokerage or finders fees or
agents commissions;
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the status of any loans to executive
officers; and
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the adequacy of financial controls.
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Amendment; Extension and Waiver
Subject to applicable law:
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the merger agreement may be amended by the
parties at any time, except that after approval by the
stockholders of the matters presented in connection with the
merger, no amendment which by law requires further approval by
Verilink or Larscom stockholders shall be made without such
further approval, and any amendment without such further
approval shall not alter or change the amount or kind of
consideration to be received on closing, alter or change any
term of the certificate of incorporation of the surviving
corporation to be effected by the merger, or alter or change any
of the terms and conditions of the merger agreement if such
alteration or change would adversely affect the stockholders of
Verilink or Larscom; and
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at any time prior to the completion of the
merger, a party may, by written instrument signed on behalf of
such party, to the extent legally allowed, extend the time for
the performance of any of the obligations or other acts of the
other parties hereto, waive any inaccuracies in the
representations and warranties in the merger agreement or in any
related document made to such party and waive compliance with
any of the agreements or conditions for the benefit of such
party contained in the merger agreement.
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Expenses; Reimbursement
Whether or not the merger is completed, all fees
and expenses incurred in connection with the merger, the merger
agreement and the transactions contemplated by the merger
agreement will be paid by the party incurring such fees or
expenses, except:
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Verilink and Larscom will share equally the
aggregate filing fees of both parties pre-merger
notification report under the Hart Scott Rodino Act, if
applicable;
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Verilink and Larscom will share equally all fees
and expenses, other than accountants and attorneys
fees, incurred with respect to the printing and filing of the
joint proxy statement/prospectus (including any related
preliminary materials) and the registration statement and any
amendments or supplements thereto; and
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as set forth under Termination Fee
above.
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AGREEMENTS RELATING TO THE MERGER
This section of the joint proxy
statement/prospectus is a summary of the material terms of the
voting agreements, copies of which are attached as Annexes A1
and A2 to this joint proxy statement/prospectus, and of the
registration rights agreement, which is filed as an exhibit to
the registration statement of which this joint proxy
statement/prospectus is a part. The following descriptions do
not purport to be complete and each is qualified in its entirety
by reference to the voting agreements and the registration
rights agreement.
Voting Agreements
As a condition to Verilinks entering into
the merger agreement, Axel Johnson and Sierra Ventures entered
into a voting agreement with Verilink pursuant to which, among
other things, these Larscom stockholders each agreed, solely in
its capacity as a stockholder, to vote all of its shares of
Larscom common stock:
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in favor of the adoption and approval of the
merger agreement and approval of the merger;
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against any action or agreement that could
reasonably be expected to result in a breach in any material
respect of any covenant, representation or warranty or any other
obligation of Larscom under the merger agreement or could
reasonably be expected to result in any of the merger agreement
closing conditions not being fulfilled;
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against any acquisition proposal other than the
merger, the merger agreement and the transactions contemplated
thereby; and
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against any other proposal or transaction which
could impede the merger, the merger agreement and the
transactions contemplated thereby.
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These Larscom stockholders may vote their Larscom
common stock on all other matters without restriction. These
Larscom stockholders were not paid additional consideration in
connection with the voting agreement. Pursuant to the voting
agreement, these Larscom stockholders also irrevocably granted
and appointed executive officers of Verilink as sole and
exclusive attorneys, agents and proxies, with full power of
substitution in each of them, to exercise all voting and related
rights or, if applicable, to give consent to all matters
described above. The proxy so granted will terminate upon any
termination of the voting agreement in accordance with its terms.
As of May 10, 2004, Axel Johnson and Sierra
Ventures collectively owned 2,848,564 shares of Larscom
common stock, representing approximately 55.9% of the issued and
outstanding shares of Larscom common stock. Desmond P.
Wilson III, president and chief executive officer of Axel
Johnson, Lawrence P. Milligan, chairman of the executive
committee of the board of directors of Axel Johnson, and Jeffrey
M. Drazan, a general partner of Sierra Ventures V, L.P., are
members of the Larscom board of directors.
In addition, as a condition to Larscoms
entering into the merger agreement, the following Verilink
stockholders entered into a voting agreement with Larscom: Leigh
S. Belden, Verilinks president and chief executive officer
and a member of the Verilink board of directors; Beltech, Inc.
(Beltech), which holds investments on behalf of
Mr. Belden; Leigh S. Belden and Deborah Tinker Belden,
or their Successors, Trustees u/a Dated 12/09/88 (Belden
Trust), Mr. Beldens family trust; and
Steven C. Taylor, a founder and a member of the Verilink
board of directors. Pursuant to this voting agreement, among
other things, each of these stockholders agreed, solely in his,
her or its capacity as a stockholder, to vote all of his, her or
its shares of Verilink common stock:
|
|
|
|
|
in favor of the approval of the issuance of
Verilink common stock in connection with the merger;
|
|
|
|
against any action or agreement that could
reasonably be expected to result in a breach in any material
respect of any covenant, representation or warranty or any other
obligation of Verilink
|
81
|
|
|
|
|
under the merger agreement or could reasonably be
expected to result in any of the merger agreement closing
conditions not being fulfilled;
|
|
|
|
against any acquisition proposal other than the
merger, the merger agreement and the transactions contemplated
thereby; and
|
|
|
|
against any other proposal or transaction which
could impede the merger, the merger agreement and the
transactions contemplated thereby.
|
These Verilink stockholders may vote their
Verilink common stock on all other matters without restriction.
These Verilink stockholders were not paid additional
consideration in connection with the voting agreement. Pursuant
to the voting agreement, these Verilink stockholders also
irrevocably granted and appointed executive officers of Larscom
as sole and exclusive attorneys, agents and proxies, with full
power of substitution in each of them, to exercise all voting
and related rights or, if applicable, to give consent to all
matters described above. The proxy so granted will terminate
upon any termination of the voting agreement in accordance with
its terms.
As of May 10, 2004, Messrs. Belden and
Taylor, Beltech and the Belden Trust owned 2,771,037 shares of
Verilink common stock, which includes 861,419 shares of
Verilink common stock that may be acquired upon the exercise of
vested options to purchase Verilink common stock exercisable
within 60 days of May 10, 2004. The shares subject to
the Verilink voting agreement represent approximately 16.5% of
the outstanding common stock of Verilink. Mr. Belden and
Mr. Taylor are members of the Verilink board of directors.
Under these voting agreements, subject to certain
exceptions, the stockholders also have agreed not to transfer
the Verilink common stock and options or Larscom common stock or
options owned, controlled or acquired, either directly or
indirectly, by them or their voting rights with respect to such
shares until the earlier of the termination of the merger
agreement or the completion of the merger, unless each person to
which any shares or any interest in any shares is transferred
agrees in writing to be bound by the terms and provisions of the
voting agreement.
Further, each of the stockholders has agreed not
to participate in any acquisition of any securities (or
beneficial ownership thereof) of Verilink or Larscom or any
direct or indirect rights or options to acquire any capital
stock of Verilink or Larscom, or participate in any merger,
consolidation, tender or exchange offer or other business
combination involving Verilink or Larscom.
Under these voting agreements, each stockholder
has agreed not to (1) solicit any acquisition proposal,
(2) enter into, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person
any information with respect to, any acquisition proposal,
(3) approve, endorse or recommend any acquisition proposal
or (4) enter into any letter of intent or any agreement
relating to any acquisition proposal. Each stockholder has
agreed to immediately advise Verilink or Larscom, as applicable,
of any acquisition proposal with respect to Verilink or Larscom,
as applicable, or any request for nonpublic information in
connection with any such acquisition proposal.
These voting agreements will terminate upon the
earlier to occur of the termination of the merger agreement or
the completion of the merger.
Registration Rights Agreement
As a condition to the completion of the merger,
Verilink will enter into a registration rights agreement with
Axel Johnson and Sierra Ventures, and persons and entities
affiliated with Axel Johnson and Sierra Ventures. Pursuant to
the registration rights agreement, Axel Johnson and Sierra
Ventures will be entitled to certain rights with respect to the
registration under the Securities Act of the shares of Verilink
common stock they will receive in exchange for the shares of
Larscom common stock they currently hold.
82
Subject to certain limitations, Verilink is
required to register with the SEC all of the shares of Verilink
common stock to be received by Axel Johnson and Sierra Ventures
in the merger. Verilink is required to file with the SEC a
Form S-3 Registration Statement:
|
|
|
|
|
within 30 days after the completion of the
merger if the merger is completed by July 30, 2004;
|
|
|
|
within 10 days after Verilink files its
annual report on Form 10-K if the merger is completed after
July 30, 2004 but before September 20, 2004; and
|
|
|
|
within 10 days after the completion of the
merger if the merger is completed on or after September 10,
2004.
|
Axel Johnson and Sierra Ventures also have the
right to include their shares of Verilink common stock in a
registered underwritten offering of securities by Verilink for
its own account. While Axel Johnson and Sierra Ventures may
request that some or all of their Verilink common stock be
included as a part of the offering, Verilink may, on the advice
of the underwriter, reduce on a pro rata basis the amount of
securities to be registered on behalf of Axel Johnson and Sierra
Ventures. In exercising this right, Verilink may not, however,
reduce the amount of securities to be sold by Axel Johnson and
Sierra Ventures below 25% of the total amount of securities
included in the registration.
Verilink will pay all expenses associated with a
registration of shares of Verilink common stock owned by Axel
Johnson and Sierra Ventures pursuant to the registration rights
agreement, other than underwriting discounts and commissions,
out-of-pocket expenses for the stockholder party or
underwriters counsel fees and disbursements, if any,
relating to such shares. In addition, the registration rights
agreement contains certain indemnification provisions
(1) by Verilink for the benefit of the Axel Johnson and
Sierra Ventures as well as any potential underwriter and
(2) by Axel Johnson and Sierra Ventures for the benefit of
Verilink and related persons. Axel Johnson and Sierra Ventures
may, subject to certain limitations and after having provided
Verilink with the proper notice, transfer their registration
rights under the agreement.
No prediction can be made as to the effect, if
any, that market sales of shares or the availability of shares
for sale will have on the market price prevailing from time to
time. Sales of substantial additional amounts of Verilink common
stock in the public market, or the perception that such sales
occur, could materially adversely affect the prevailing market
price of the Verilink common stock.
As of May 10, 2004, Axel Johnson and Sierra
Ventures collectively owned 2,848,564 shares of Larscom
common stock, representing approximately 55.9% of the issued and
outstanding shares of Larscom common stock. Desmond P.
Wilson III, president and chief executive officer of Axel
Johnson, Lawrence P. Milligan, chairman of the executive
committee of the board of directors of Axel Johnson, and Jeffrey
M. Drazan, a general partner of Sierra Ventures V, L.P.,
are members of the Larscom board of directors.
83
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma combined
condensed financial statements have been prepared to give effect
to Verilinks acquisition of XEL on February 5, 2004,
and the proposed merger of Verilink and Larscom using the
purchase method of accounting and the assumptions and
adjustments described in the accompanying notes to unaudited pro
forma combined condensed financial statements. The pro forma
statements of operations were prepared as if the acquisition of
XEL and the merger had been completed as of June 29, 2002.
The pro forma balance sheet was prepared as if the merger had
been completed as of April 2, 2004, which includes the
impact of the XEL acquisition.
The unaudited pro forma combined condensed
financial statements are presented for illustrative purposes
only and are not necessarily indicative of the financial
position or results of operations that would have actually been
reported had the merger occurred June 29, 2002 for
statements of operation purposes and as of April 2, 2004
for balance sheet purposes, nor is it necessarily indicative of
the future financial position or results of operations. The
unaudited pro forma combined condensed financial statements
include adjustments, which are based upon preliminary estimates,
to reflect the allocation of purchase price to the acquired
assets, assumed liabilities and purchase adjustments for
Larscom. The final allocation of the purchase price will be
determined after the completion of the merger and will be based
upon actual net tangible and intangible assets acquired as well
as liabilities assumed. Because the unaudited pro forma combined
condensed financial statements are based upon preliminary
estimates, the pro forma adjustments for the Larscom merger may
differ materially, based upon the final allocation.
These unaudited pro forma combined condensed
financial statements are based upon the historical consolidated
financial statements of Verilink, XEL and Larscom (including the
impact of Larscoms acquisition of VINA effective as of
June 5, 2003) and should be read in conjunction with the
historical consolidated financial statements of Verilink and
Larscom and related notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained in the Annual Reports on
Form 10-K and Quarterly Reports on Form 10-Q of
Verilink and Larscom included herewith, other information
Verilink has on file with the SEC and the historical financial
statements and related notes thereto of XEL and VINA contained
in this joint proxy statement/prospectus.
On June 5, 2003, Larscom acquired VINA in a
stock-for-stock acquisition. An unaudited pro forma combined
condensed statement of operations giving effect to the
combination of Larscom and VINA as if it had been completed as
of January 1, 2003 is presented beginning on page 92.
84
VERILINK CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2004
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Verilink
|
|
Larscom
|
|
Pro Forma
|
|
Pro Forma
|
|
|
Corporation
|
|
Incorporated
|
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,872
|
|
|
$
|
6,416
|
|
|
$
|
|
|
|
$
|
9,288
|
|
|
Restricted cash
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
333
|
|
|
Short-term investments
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
Accounts receivable, net
|
|
|
8,892
|
|
|
|
2,253
|
|
|
|
|
|
|
|
11,145
|
|
|
Inventories, net
|
|
|
5,809
|
|
|
|
5,468
|
|
|
|
|
|
|
|
11,277
|
|
|
Income tax receivable
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
68
|
|
|
Other current assets
|
|
|
363
|
|
|
|
761
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,063
|
|
|
|
15,299
|
|
|
|
|
|
|
|
33,362
|
|
Property held for lease, net
|
|
|
6,317
|
|
|
|
|
|
|
|
|
|
|
|
6,317
|
|
Property, plant and equipment, net
|
|
|
1,533
|
|
|
|
1,174
|
|
|
|
|
|
|
|
2,707
|
|
Restricted cash
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
Goodwill
|
|
|
9,887
|
|
|
|
|
|
|
|
9,530
|
(b)
|
|
|
19,417
|
|
Other intangible assets, net
|
|
|
9,495
|
|
|
|
2,079
|
|
|
|
(2,079
|
)(a)
|
|
|
23,035
|
|
|
|
|
|
|
|
|
|
|
|
|
13,540
|
(b)
|
|
|
|
|
Other assets
|
|
|
532
|
|
|
|
441
|
|
|
|
|
|
|
|
973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
46,827
|
|
|
$
|
18,993
|
|
|
$
|
20,991
|
|
|
$
|
86,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and capital
lease obligation
|
|
$
|
735
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
735
|
|
|
Accounts payable
|
|
|
8,182
|
|
|
|
2,760
|
|
|
|
|
|
|
|
10,942
|
|
|
Accrued expenses
|
|
|
5,743
|
|
|
|
4,384
|
|
|
|
1,045
|
(d)
|
|
|
13,008
|
|
|
|
|
|
|
|
|
|
|
|
|
294
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,542
|
(g)
|
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
1,328
|
|
|
|
(97
|
)(h)
|
|
|
1,231
|
|
|
Accrued purchase consideration
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
16,022
|
|
|
|
8,472
|
|
|
|
2,784
|
|
|
|
27,278
|
|
Long-term debt and capital lease obligation
|
|
|
3,196
|
|
|
|
|
|
|
|
|
|
|
|
3,196
|
|
Convertible notes, net
|
|
|
10,422
|
|
|
|
|
|
|
|
|
|
|
|
10,422
|
|
Other non-current liabilities
|
|
|
|
|
|
|
1,527
|
|
|
|
|
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
29,640
|
|
|
|
9,999
|
|
|
|
2,784
|
|
|
|
42,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
154
|
|
|
|
51
|
|
|
|
(51
|
)(c)
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
(e)
|
|
|
|
|
|
Additional paid in capital
|
|
|
52,275
|
|
|
|
89,560
|
|
|
|
(89,560
|
)(c)
|
|
|
79,416
|
|
|
|
|
|
|
|
|
|
|
|
|
27,141
|
(e)
|
|
|
|
|
|
Deferred compensation
|
|
|
(975
|
)
|
|
|
(21
|
)
|
|
|
21
|
(c)
|
|
|
(975
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
(38
|
)
|
|
|
27
|
|
|
|
(27
|
)(c)
|
|
|
(38
|
)
|
|
Accumulated deficit
|
|
|
(34,229
|
)
|
|
|
(80,623
|
)
|
|
|
80,623
|
(c)
|
|
|
(34,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
17,187
|
|
|
|
8,994
|
|
|
|
18,207
|
|
|
|
44,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
46,827
|
|
|
$
|
18,993
|
|
|
$
|
20,991
|
|
|
$
|
86,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma
combined condensed financial information.
85
VERILINK CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS
(Unaudited, in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 27, 2003
|
|
|
|
|
|
|
|
|
Verilink Combined Pro Forma
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
XEL
|
|
XEL
|
|
Verilink
|
|
|
Verilink
|
|
Communications
|
|
Pro Forma
|
|
Combined
|
|
|
Corporation
|
|
Inc.
|
|
Adjustments
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
28,104
|
|
|
$
|
19,592
|
|
|
$
|
|
|
|
$
|
47,696
|
|
Cost of sales
|
|
|
13,939
|
|
|
|
13,557
|
|
|
|
|
|
|
|
27,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,165
|
|
|
|
6,035
|
|
|
|
|
|
|
|
20,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,985
|
|
|
|
1,378
|
|
|
|
|
|
|
|
5,363
|
|
|
Selling, general and administrative
|
|
|
7,586
|
|
|
|
4,043
|
|
|
|
|
|
|
|
11,629
|
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
580
|
(k)
|
|
|
580
|
|
|
In-process research and development
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
316
|
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11,887
|
|
|
|
5,421
|
|
|
|
580
|
|
|
|
17,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
2,278
|
|
|
|
614
|
|
|
|
(580
|
)
|
|
|
2,312
|
|
Interest and other income, net
|
|
|
656
|
|
|
|
45
|
|
|
|
(96
|
)(k)
|
|
|
605
|
|
Interest expense
|
|
|
(181
|
)
|
|
|
|
|
|
|
(734
|
)(k)
|
|
|
(915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
2,753
|
|
|
|
659
|
|
|
|
(1,410
|
)
|
|
|
2,002
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
2,753
|
|
|
$
|
659
|
|
|
$
|
(1,410
|
)
|
|
$
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing
operations Basic and diluted
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 27, 2003
|
|
|
|
|
|
|
|
|
|
|
Larscom Combined Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VINA
|
|
VINA
|
|
Larscom
|
|
Larscom
|
|
|
|
|
Larscom
|
|
Technologies
|
|
Pro Forma
|
|
Combined
|
|
Pro Forma
|
|
Pro Forma
|
|
|
Incorporated
|
|
Inc.
|
|
Adjustments
|
|
Pro Forma
|
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
19,438
|
|
|
$
|
15,397
|
|
|
$
|
|
|
|
$
|
34,835
|
|
|
$
|
|
|
|
$
|
82,531
|
|
Cost of sales
|
|
|
9,098
|
|
|
|
9,541
|
|
|
|
495
|
|
|
|
19,134
|
|
|
|
|
|
|
|
46,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
10,340
|
|
|
|
5,856
|
|
|
|
(495
|
)
|
|
|
15,701
|
|
|
|
|
|
|
|
35,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,500
|
|
|
|
7,819
|
|
|
|
(12
|
)(l)
|
|
|
12,307
|
|
|
|
|
|
|
|
17,670
|
|
|
Selling, general and administrative
|
|
|
15,101
|
|
|
|
9,771
|
|
|
|
(45
|
)(l)
|
|
|
24,827
|
|
|
|
|
|
|
|
36,456
|
|
|
Stock based compensation
|
|
|
|
|
|
|
1,126
|
|
|
|
(1,126
|
)(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
93
|
|
|
|
485
|
|
|
|
(43
|
)(l)
|
|
|
535
|
|
|
|
(535
|
)(i)
|
|
|
2,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,699
|
(j)
|
|
|
|
|
|
In-process research and development
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
(155
|
)(i)
|
|
|
316
|
|
|
Impairment charges
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
507
|
|
|
Restructuring charges
|
|
|
91
|
|
|
|
1,457
|
|
|
|
336
|
(l)
|
|
|
1,884
|
|
|
|
|
|
|
|
1,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,940
|
|
|
|
21,165
|
|
|
|
(890
|
)
|
|
|
40,215
|
|
|
|
1,009
|
|
|
|
59,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(9,600
|
)
|
|
|
(15,309
|
)
|
|
|
395
|
|
|
|
(24,514
|
)
|
|
|
(1,009
|
)
|
|
|
(23,211
|
)
|
Interest and other income, net
|
|
|
218
|
|
|
|
43
|
|
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
866
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(9,382
|
)
|
|
|
(15,266
|
)
|
|
|
395
|
|
|
|
(24,253
|
)
|
|
|
(1,009
|
)
|
|
|
(23,260
|
)
|
Provision for (benefit from) income taxes
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(9,150
|
)
|
|
$
|
(15,266
|
)
|
|
$
|
395
|
|
|
$
|
(24,021
|
)
|
|
$
|
(1,009
|
)
|
|
$
|
(23,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing
operations Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,012
|
|
|
|
20,883
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,012
|
|
|
|
20,833
|
|
See accompanying notes to unaudited pro forma
combined condensed financial information.
86
VERILINK CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS
(Unaudited, in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended April 2, 2004
|
|
|
|
|
|
|
|
|
|
|
Verilink Combined Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XEL
|
|
XEL
|
|
Verilink
|
|
|
|
Larscom
|
|
|
|
|
Verilink
|
|
Communications
|
|
Pro Forma
|
|
Combined
|
|
Larscom
|
|
Pro Forma
|
|
Pro Forma
|
|
|
Corporation
|
|
Inc.
|
|
Adjustments
|
|
Pro Forma
|
|
Incorporated
|
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
32,330
|
|
|
$
|
13,943
|
|
|
$
|
|
|
|
$
|
46,273
|
|
|
$
|
17,396
|
|
|
$
|
|
|
|
$
|
63,669
|
|
Cost of sales
|
|
|
17,798
|
|
|
|
10,616
|
|
|
|
|
|
|
|
28,414
|
|
|
|
11,415
|
|
|
|
|
|
|
|
39,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,532
|
|
|
|
3,327
|
|
|
|
|
|
|
|
17,859
|
|
|
|
5,981
|
|
|
|
|
|
|
|
23,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,981
|
|
|
|
921
|
|
|
|
|
|
|
|
5,902
|
|
|
|
3,562
|
|
|
|
|
|
|
|
9,464
|
|
|
Selling, general and administrative
|
|
|
9,053
|
|
|
|
2,588
|
|
|
|
|
|
|
|
11,641
|
|
|
|
9,405
|
|
|
|
|
|
|
|
21,046
|
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
337
|
(k)
|
|
|
337
|
|
|
|
333
|
|
|
|
(333
|
)(i)
|
|
|
1,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,274
|
(j)
|
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
408
|
|
|
Restructuring charges
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
2,361
|
|
|
|
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14,434
|
|
|
|
3,509
|
|
|
|
337
|
|
|
|
18,280
|
|
|
|
16,069
|
|
|
|
941
|
|
|
|
35,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
98
|
|
|
|
(182
|
)
|
|
|
(337
|
)
|
|
|
(421
|
)
|
|
|
(10,088
|
)
|
|
|
(941
|
)
|
|
|
(11,450
|
)
|
Interest and other income, net
|
|
|
635
|
|
|
|
46
|
|
|
|
(57
|
)(k)
|
|
|
624
|
|
|
|
437
|
|
|
|
|
|
|
|
1,061
|
|
Interest expense
|
|
|
(221
|
)
|
|
|
|
|
|
|
(437
|
)(k)
|
|
|
(658
|
)
|
|
|
|
|
|
|
|
|
|
|
(658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
512
|
|
|
|
(136
|
)
|
|
|
(831
|
)
|
|
|
(455
|
)
|
|
|
(9,651
|
)
|
|
|
(941
|
)
|
|
|
(11,047
|
)
|
Provision for (benefit from) income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
512
|
|
|
$
|
(136
|
)
|
|
$
|
(831
|
)
|
|
$
|
(455
|
)
|
|
$
|
(9,669
|
)
|
|
$
|
(941
|
)
|
|
$
|
(11,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,012
|
|
|
|
20,862
|
|
|
Diluted
|
|
|
16,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,012
|
|
|
|
20,862
|
|
See accompanying notes to unaudited pro forma
combined condensed financial information.
87
NOTES TO VERILINK UNAUDITED PRO FORMA COMBINED
CONDENSED
FINANCIAL STATEMENTS
|
|
1.
|
Basis of Pro Forma Presentation
|
On April 28, 2004, Verilink and Larscom
entered into a merger agreement whereby each outstanding share
of Larscom common stock will be converted into the right to
receive 1.166 newly issued shares of Verilink common stock,
subject to reduction based on the amount of Larscoms net
adjusted working capital prior to the merger. The unaudited pro
forma combined condensed financial statements provide for the
issuance of approximately 5,947,000 shares of Verilink
common stock, based upon an exchange ratio of 1.166 of a share
of Verilink common stock for each outstanding share of Larscom
common stock as of April 28, 2004 assuming no reduction
based on net adjusted working capital. The actual number of
shares of Verilink common stock to be issued will be determined
on the effective date of the merger using the 1.166 exchange
ratio as adjusted in accordance with the merger agreement and
based on the number of shares of Larscom common stock actually
outstanding as of the effective date of the merger.
Estimated acquisition costs include a
brokers fee in the amount of $284,000, which will be paid
in Verilink common stock based on the total consideration paid
by Verilink in this merger. Approximately 65,000 shares of
Verilink common stock will be issued in satisfaction of this fee.
Based on the total number of Larscom options and
warrants outstanding as of April 28, 2004, Verilink would
assume options and warrants to purchase approximately
989,000 shares of Verilink common stock. The actual number
of options and warrants to be assumed will be determined on the
effective date of the merger using the 1.166 exchange ratio as
adjusted in accordance with the merger agreement and based on
the number of Larscom options and warrants actually outstanding
as of the effective date of the merger.
The unaudited pro forma combined condensed
balance sheet at April 2, 2004 combines the Verilink and
Larscom consolidated balance sheets at April 2, 2004 and
March 31, 2004, respectively, as if the merger had been
consummated on April 2, 2004.
The unaudited pro forma combined condensed
statement of operations for the fiscal year ended June 27,
2003 gives effect to the proposed merger as if it had occurred
on June 29, 2002. Verilink reports its results of
operations on a fiscal year ending in June while Larscom reports
its results on a calendar year basis. Since the year ends of
Verilink and Larscom are not within 93 days per the
Securities and Exchange Commission guidance, the results of
operations for Larscom in the four calendar quarters ended
June 30, 2003 have been totaled and presented for the year
ended June 27, 2003, and the results of operations for the
three calendar quarters ended March 31, 2004 have been
totaled and presented for the nine months ended April 2,
2004.
|
|
2.
|
Preliminary Purchase Price
|
The unaudited pro forma combined condensed
financial statements reflect an estimated purchase price of
approximately $28,246,000. The preliminary fair market value of
Verilinks common stock to be issued was determined using
the five-trading-day average price surrounding the date the
acquisition was announced (April 29, 2004) of
$4.378 per share. The preliminary fair market value of
Verilinks stock options and warrants to be issued was
determined using the Black-Scholes option-pricing model. The
following assumptions were used to perform the calculations for
the options to be assumed that are expected to terminate within
one year following the effective date of closing: fair value of
Verilinks common stock of $4.378, expected life of
0.57 years, risk-free interest rate of 1.20%, expected
volatility of 85.37% and no expected dividend yield. The
following assumptions were used to perform the calculations for
the options to be assumed for all other options: fair value of
Verilinks common stock of $4.378, expected life of
3.06 years, risk-free interest rate of 2.99%, expected
volatility of 143.10% and no expected dividend yield. The
following assumptions were used to perform the calculations for
the warrants to be assumed: fair value of Verilinks common
stock of $4.378, expected life of 0.60 years, risk-free
interest rate of 1.20% and expected volatility of 85.37%. The
final purchase price is dependent on the actual number of shares
of common stock exchanged, the actual number of options and
warrants assumed and actual direct
88
NOTES TO VERILINK UNAUDITED PRO FORMA COMBINED
CONDENSED
FINANCIAL STATEMENTS (Continued)
merger costs. The final purchase price will be
determined upon completion of the merger. The estimated total
purchase price of the proposed Larscom merger is as follows (in
thousands):
|
|
|
|
|
|
Value of Verilink common stock to be issued
|
|
$
|
26,036
|
|
Value of Verilink options and warrants to be
assumed
|
|
|
881
|
|
Estimated direct merger costs:
|
|
|
|
|
|
Direct merger costs payable in cash
|
|
|
1,045
|
|
|
Value of Verilink common stock payable as
brokers fee
|
|
|
284
|
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
28,246
|
|
|
|
|
|
|
|
|
3.
|
Preliminary Purchase Price
Allocation
|
Under the purchase method of accounting, the
total estimated purchase price is allocated to Larscoms
net tangible and intangible assets based upon their estimated
fair value as of the date of completion of the merger. Based
upon the estimated purchase price and managements estimate
of fair value from the preliminary independent valuation, the
preliminary purchase price allocation, which is subject to
change based on Verilinks final analysis, is as follows
(in thousands):
|
|
|
|
|
|
|
Tangible assets acquired
|
|
$
|
16,914
|
|
Goodwill
|
|
|
9,530
|
|
Amortizable intangible assets:
|
|
|
|
|
|
Developed technology
|
|
|
5,384
|
|
|
Trade names/trademarks
|
|
|
1,156
|
|
|
Customer contracts/relationships
|
|
|
7,000
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
39,984
|
|
Liabilities assumed
|
|
|
(9,902
|
)
|
Liability for Larscom director and officers
insurance
|
|
|
(294
|
)
|
Liability for estimated restructuring
|
|
|
(1,542
|
)
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
28,246
|
|
|
|
|
|
|
A preliminary estimate of $13,540,000 has been
allocated to amortizable intangible assets with useful lives
ranging from four years to twelve years as follows: Developed
technology four to eight years; Trade
name/trademarks four years; and Customer
contracts/relationships twelve years.
A preliminary estimate indicates goodwill of
$9,530,000. Goodwill represents the excess of the purchase price
over the fair value of the net tangible and intangible assets
acquired. In accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets, goodwill will not be amortized and will be tested
for impairment at least annually.
There were no intercompany balances or
transactions between Verilink and Larscom. Certain
reclassifications have been made to conform Larscoms
historical amounts to Verilinks financial statement
presentation.
89
NOTES TO VERILINK UNAUDITED PRO FORMA COMBINED
CONDENSED
FINANCIAL STATEMENTS (Continued)
The accompanying unaudited pro forma combined
condensed financial statements have been prepared as if the
merger was completed on April 2, 2004 for balance sheet
purposes and as of June 27, 2002 for statement of
operations purposes and reflect the following pro forma
adjustments:
|
|
|
a. To eliminate Larscoms existing
capitalized other intangible assets.
|
|
|
b. To record the fair value of amortizable
other intangible assets and goodwill resulting from the proposed
merger.
|
|
|
c. To eliminate the historical
stockholders equity of Larscom.
|
|
|
d. To record estimated direct merger costs
to be paid in cash of approximately $1,045,000 related to
investment banking, legal and accounting fees and printing costs
to be incurred by Verilink.
|
|
|
e. To record the estimated value of Verilink
common stock, options and warrants to be issued in the proposed
merger $(27,201,000), including the brokers fee to be paid
in Verilink common stock.
|
|
|
f. To record the estimated portion of the
liability to be paid by Verilink for Larscom director and
officer liability insurance coverage for events prior to the
merger.
|
|
|
g. To record estimated restructuring costs
in accordance with EITF 95-3. Amounts recorded represent
employee severance and benefit costs of $1,542,000 due to the
planned consolidation of certain manufacturing and
administrative functions. This will result in a reduction in
workforce of approximately 48 employees.
|
|
|
h. To adjust Larscoms deferred revenue
to estimated fair value.
|
|
|
i. To eliminate Larscoms amortization
of intangibles and in-process research and development charge
that would have been eliminated had the acquisition occurred on
June 27, 2002.
|
|
|
j. To record amortization expenses related
to the intangible assets to be acquired as part of the proposed
merger.
|
|
|
k. To record pro forma adjustments related
to Verilinks acquisition of XEL as of February 5,
2004 as if the acquisition occurred on June 27, 2002.
Adjustments include amortization of intangibles acquired in that
acquisition, reflects the adjustment to reduce interest income
as a result of lower cash and cash equivalents balance, and
reflects the adjustment for interest expense at 7% on the notes
issued in connection with that acquisition.
|
|
|
l. To record pro forma adjustments related
to Larscoms acquisition of Vina Technologies, Inc. as of
June 5, 2003 as if the acquisition occurred on
June 27, 2002. Adjustments include the impact to
amortization of deferred compensation, elimination of
Vinas amortization of intangibles, adjustment to
depreciation for VINA property and equipment to fair value, and
the amortization of intangibles acquired in connection with that
acquisition.
|
|
|
5.
|
Unaudited Pro Forma Combined Earnings Per
Common Share Data
|
Shares used to calculate unaudited pro forma
combined loss per basic and diluted share for the year ended
June 27, 2003 and the nine months ended April 2, 2004,
were computed by adding approximately 6,012,000 shares
assumed to be issued in exchange for the outstanding Larscom
shares and in payment of the brokers fee to
Verilinks weighted average shares outstanding. As the
unaudited pro forma condensed
90
NOTES TO VERILINK UNAUDITED PRO FORMA COMBINED
CONDENSED
FINANCIAL STATEMENTS (Continued)
combined statement of operations for the periods
presented show a net loss, weighted average basic and diluted
shares are the same.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verilink
|
|
Adjusted New
|
|
|
|
|
Weighted
|
|
Equivalent
|
|
Pro Forma
|
|
|
Average
|
|
Larscom
|
|
Combined
|
|
|
Shares
|
|
Shares
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Fiscal year ended June 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,871
|
|
|
|
6,012
|
(a)
|
|
|
20,883
|
|
|
Diluted
|
|
|
14,871
|
|
|
|
6,012
|
(a)
|
|
|
20,883
|
|
Nine months ended April 2, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,850
|
|
|
|
6,012
|
(a)
|
|
|
20,862
|
|
|
Diluted
|
|
|
14,850
|
|
|
|
6,012
|
(a)
|
|
|
20,862
|
|
|
|
(a)
|
Assuming that all Larscom stockholders were to
receive 1.166 shares of Verilink common stock for each
outstanding share of Larscom common stock as of June 10,
2003, the following shares of Verilink would have been issued
(in thousands):
|
|
|
|
|
|
Number of Larscom outstanding shares
|
|
|
5,100
|
|
Exchange rate
|
|
|
1.166
|
|
|
|
|
|
|
Verilink shares to be issued for Larscom
outstanding shares
|
|
|
5,947
|
|
Verilink shares to be issued for brokers fee
|
|
|
65
|
|
|
|
|
|
|
Total Verilink shares to be issued
|
|
|
6,012
|
|
|
|
|
|
|
91
Updated Larscom Unaudited Pro Forma Combined
Condensed Information for 2003 Related to
Merger With VINA
The following unaudited pro forma combined
condensed statement of operations has been prepared to give
effect to the combination of Larscom and VINA using the
assumptions and adjustments described in the accompanying notes
to the unaudited pro forma combined condensed statement of
operations. This pro forma statement of operations was prepared
as if Larscoms merger with VINA had been completed as of
January 1, 2003.
Larscoms audited balance sheet at
December 31, 2003 reflects the acquisition of VINA on
June 5, 2003, and accordingly no pro forma balance sheet is
presented.
The unaudited pro forma combined condensed
statement of operations is presented for illustrative purposes
only and is not necessarily indicative of the results of
operations that would have actually been reported had the VINA
merger occurred on January 1, 2003, nor is it necessarily
indicative of the future results of operations. The unaudited
pro forma combined condensed statement of operations includes
adjustments to reflect the allocation of purchase price to the
acquired assets and assumed liabilities of VINA.
This unaudited pro forma combined condensed
statement of operations is based upon the respective historical
consolidated statement of operations of Larscom and VINA and
should be read in conjunction with the historical consolidated
financial statements of Larscom and VINA and related notes
thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in
the reports delivered with this document and other information
Larscom and VINA have on file with the SEC.
92
LARSCOM INCORPORATED AND VINA TECHNOLOGIES,
INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
VINA
|
|
|
|
|
Larscom
|
|
Technologies,
|
|
Pro Forma
|
|
Pro Forma
|
|
|
Incorporated
|
|
Inc.
|
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in thousands, except per share amounts)
|
Net sales
|
|
$
|
21,926
|
|
|
$
|
3,317
|
|
|
$
|
|
|
|
$
|
25,243
|
|
Cost of sales
|
|
|
12,907
|
|
|
|
2,293
|
|
|
|
244
|
(a)
|
|
|
15,449
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,019
|
|
|
|
1,024
|
|
|
|
(249
|
)
|
|
|
9,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,845
|
|
|
|
3,073
|
|
|
|
(16
|
)(b)
|
|
|
7,902
|
|
|
Selling, general and administrative
|
|
|
14,418
|
|
|
|
4,074
|
|
|
|
(86
|
)(c)
|
|
|
18,435
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
(b)
|
|
|
|
|
|
Amortization of intangibles
|
|
|
385
|
|
|
|
200
|
|
|
|
(200
|
)(a)
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
146
|
(a)
|
|
|
|
|
|
In-process research and development
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
Impairment charges
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
Restructuring charges
|
|
|
2,458
|
|
|
|
91
|
|
|
|
336
|
(b)
|
|
|
2,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,625
|
|
|
|
7,438
|
|
|
|
209
|
|
|
|
30,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(13,606
|
)
|
|
|
(6,414
|
)
|
|
|
(458
|
)
|
|
|
(20,478
|
)
|
Interest and other income
|
|
|
381
|
|
|
|
3
|
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(13,225
|
)
|
|
|
(6,411
|
)
|
|
|
(458
|
)
|
|
|
(20,094
|
)
|
Provision for income taxes
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,262
|
)
|
|
$
|
(6,411
|
)
|
|
$
|
(458
|
)
|
|
$
|
(20,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(3.26
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(3.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(3.26
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(3.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,073
|
|
|
|
|
|
|
|
1,021
|
|
|
|
5,094
|
|
|
Diluted
|
|
|
4,073
|
|
|
|
|
|
|
|
1,021
|
|
|
|
5,094
|
|
See accompanying notes to unaudited pro forma
combined condensed financial information related to the Larscom
and VINA merger.
93
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION RELATED TO THE LARSCOM AND VINA
MERGER
1. Basis of Pro
Forma Presentation
On March 17, 2003, Larscom and VINA entered
into a merger agreement whereby each outstanding share of VINA
common stock would be converted into 0.03799 newly issued shares
of Larscom common stock. On June 5, 2003 this acquisition
was completed. The unaudited pro forma combined consolidated
condensed financial statements provide for the issuance of
approximately 2,393,894 shares of Larscom common stock in
exchange for all of VINAs outstanding common stock.
Additionally, based on the total number of VINA
options and warrants outstanding as of June 5, 2003,
Larscom assumed options and warrants to purchase approximately
454,752 shares of Larscom common stock.
The unaudited pro forma combined condensed
statement of operations for the year ended December 31,
2003 gives effect to the proposed merger as if it had occurred
on January 1, 2003.
2. Pro Forma
Adjustments
There were no intercompany balances or
transactions between Larscom and VINA. Certain reclassifications
have been made to conform VINAs historical amounts to
Larscoms financial statement presentation.
The accompanying unaudited pro forma combined
condensed statement of operations has been prepared as if the
VINA merger was completed as of January 1, 2003 and
reflects the following pro forma adjustments:
|
|
|
a. To record the amortization of intangible
assets resulting from the merger and eliminate the amortization
of intangibles related to VINA:
|
|
|
|
|
|
|
Eliminate VINA intangible asset amortization
|
|
$
|
(200
|
)
|
Record intangible asset amortization resulting
from merger:
|
|
|
|
|
|
Cost of sales
|
|
|
244
|
|
|
Amortization of intangibles
|
|
|
146
|
|
|
|
|
|
|
|
Net change in amortization expense
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
b. To record amortization of deferred
compensation for unvested options settled in Larscom options
over their vesting period and to eliminate VINA deferred
compensation.
|
|
|
c. To adjust depreciation on VINA property
and equipment to fair value as a result of the merger.
|
94
DESCRIPTION OF VERILINKS CAPITAL
STOCK
Verilink authorized capital stock consists of
40,000,000 shares of common stock, $.01 par value per
share, and 1,000,000 shares of preferred stock,
$.01 par value per share.
The following description of Verilinks
capital stock and certain provisions of Verilinks amended
and restated certificate of incorporation and bylaws is a
summary and is qualified in its entirety by the provisions of
the amended and restated certificate of incorporation and
amended bylaws, which have been filed as exhibits to
Verilinks registration statement. Please see Where
You Can Find More Information if you would like copies of
any of these documents. Verilinks common stock is listed
on The Nasdaq National Market under the trading symbol
VRLK.
Common Stock
The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of the stockholders and are entitled to cumulate their
votes for elections of directors. Subject to preferences that
may be granted to any then outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends
as may be declared by the board of directors out of funds
legally available therefor as well as any distributions to the
stockholders. In the event of a liquidation, dissolution or
winding up of Verilink, holders of common stock are entitled to
share ratably in all assets of Verilink remaining after payment
of liabilities and the liquidation preference of any then
outstanding preferred stock. Holders of common stock have no
preemptive or other subscription or conversion rights. There are
no redemption or sinking fund provisions applicable to the
common stock.
Preferred Stock
Verilinks amended and restated certificate
of incorporation authorizes Verilinks board of directors
to issue up to 1,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, any
or all of which may be greater than the rights of common stock,
without any further vote or action by stockholders. The number
of authorized shares of preferred stock may be increased or
decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the
common stock.
Verilink has designated 40,000 shares of its
preferred stock as Series A Junior Participating Preferred
Stock in connection with Verilinks stockholders rights
plan. Currently, there are no outstanding shares of preferred
stock.
The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the
likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying,
deferring or preventing a change in control of Verilink.
Verilink has no present plan to issue any shares of preferred
stock.
Stockholder Rights Plan
On November 29, 2001, the Verilink board of
directors declared a dividend distribution of one right for each
outstanding share of Verilink common stock to stockholders of
record on December 12, 2001. Each right entitles the
registered holder to purchase from Verilink one one-thousandth
of a share of Verilink Series A Junior Participating
Preferred Stock at a price of $22.00 per one one-thousandth
of a preferred share, subject to adjustment. The description and
terms of the rights are set forth in a Rights Agreement, dated
as of November 29, 2001, as amended, between Verilink and
the rights agent.
Until the earliest to occur of (1) the close
of business on the tenth business day (or such later date as
specified by the Verilink board) following a public announcement
that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership
of 20% or more of the Verilinks outstanding common stock,
(2) the close of business on the tenth business day (or such
95
later date as specified by the Verilink board)
following the commencement of a tender offer or exchange offer
by a person or group of persons, the consummation of which would
result in beneficial ownership by such person or group of 20% or
more of the outstanding Verilink common stock, or (3) the
close of business on the tenth business day following the first
date of public announcement of the first occurrence of a
flip-in event or a flip-over event (as
defined below), the rights will be evidenced by the common stock
certificates of the record holders. The earliest of these dates
to occur is called the distribution date.
Until the distribution date, the rights will be
transferred with and only with shares of Verilink common stock.
No right is exercisable at any time prior to the distribution
date. The rights will expire on December 12, 2011, unless
earlier redeemed or exchanged by Verilink as described below.
Until a right is exercised, the holder thereof, as such, will
have no rights as a Verilink stockholder, including without
limitation the right to vote or to receive dividends.
The purchase price payable, and the number of
preferred shares or other securities issuable, upon exercise of
the rights are subject to adjustment from time to time to
prevent dilution: (1) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the
preferred shares, (2) upon the grant to holders of the
preferred shares of certain rights or warrants to subscribe for
or purchase preferred shares at a price, or securities
convertible into preferred shares with a conversion price, less
than the then current market price of the preferred shares, or
(3) upon the distribution to holders of the preferred
shares of evidences of indebtedness or cash (excluding regular
periodic cash dividends), assets, stock (excluding dividends
payable in Preferred Shares) or of subscription rights or
warrants (other than those referred to above).
In the event (referred to as a flip-in
event) that any person or group of affiliated or
associated persons becomes the beneficial owner of 20% or more
of outstanding Verilink common stock, each holder of a right,
other than rights that are or were owned beneficially by the
acquiring person (which, from and after the later of the
distribution date and the date of the earliest of any such
events, will be null and void), will thereafter have the right
to receive, upon exercise thereof at the then current exercise
price of the right, that number of shares of Verilink common
stock having a market value of two times the exercise price of
the right.
In the event (referred to as a flip-over
event) that, following the first date of public
announcement that a person has become an acquiring person,
(1) Verilink merges with or into any person and Verilink is
not the surviving corporation, (2) any person merges with
or into Verilink and Verilink is the surviving corporation, but
Verilinks shares of common stock are changed or exchanged,
or (3) 50% or more of Verilinks assets or earning
power are sold, each holder of a right will thereafter have the
right to receive, upon the exercise thereof at the then current
exercise price of the right, that number of shares of common
stock of such other person which at the time of such transaction
would have a market value of two times the exercise price of the
right.
At any time after the later of the distribution
date and the first occurrence of a flip-in event or a flip-over
event and prior to the acquisition by any person or group of
affiliated or associated persons of 50% or more of the
outstanding Verilink common stock, the Verilink board may
exchange the rights, in whole or in part, at an exchange ratio
of one share of Verilink common stock per right (subject to
adjustment).
With certain exceptions, no adjustment in the
purchase price will be required until cumulative adjustments
require an adjustment in the purchase price of at least 1%.
Verilink may redeem the rights in whole, but not in part, at a
price of $0.001 per right, at any time prior to the close
of business on the later of (1) the distribution date and
(2) the first date of public announcement that a person has
become an acquiring person. Immediately upon any redemption of
the rights, the right to exercise the rights will terminate and
the only right of the holders of rights will be to receive the
redemption price.
The rights agreement may be amended by Verilink
without the approval of any holders a right, including
amendments which add other events requiring adjustment to the
purchase price payable and the number of preferred shares or
other securities issuable upon the exercise of the rights or
which modify
96
procedures relating to the redemption of the
rights, provided that no amendment may be made which decreases
the stated redemption price or the period of time remaining
until the rights may be redeemed at such time as the rights are
not then redeemable.
The rights have certain anti-takeover effects.
The rights will cause substantial dilution to a person or group
that attempts to acquire Verilink on terms not approved by the
Verilink board, except pursuant to an offer conditioned on a
substantial number of rights being acquired. The rights should
not interfere with any merger or other business combination
approved by the Verilink board since (subject to the limitations
described above) the rights may be redeemed by Verilink prior to
the time that the rights would otherwise become exercisable, or
if later, the time that a person or group has become potential
acquiring person.
Transfer Agent and Registrar
The transfer agent and registrar for the common
stock of Verilink is American Stock Transfer and Trust Company.
Its address is 59 Maiden Lane, Plaza Level, New York,
NY 10038 and its telephone number is 1-800-937-5449.
97
COMPARISON OF RIGHTS OF HOLDERS OF
VERILINK COMMON STOCK AND LARSCOM COMMON
STOCK
The rights of Verilink stockholders are currently
governed by the Delaware General Corporation Law, or DGCL, and
by Verilinks amended and restated certificate of
incorporation and bylaws. Larscoms amended and restated
certificate of incorporation and bylaws and the DGCL currently
govern the rights of stockholders of Larscom. After the
completion of the merger, Larscom stockholders will become
stockholders of Verilink. As a result, former Larscom
stockholders rights will be governed by Verilinks
certificate of incorporation and bylaws.
This section summarizes the material differences
between the rights of holders of Verilink common stock and the
rights of holders of Larscom common stock. This summary may not
contain all of the information that is important to both
Verilink and Larscom stockholders, and is not a complete
comparison of the certificate of incorporation and bylaws of
Verilink and the certificate of incorporation and bylaws of
Larscom. Verilink and Larscom stockholders should read carefully
this entire document, the certificate of incorporation of
Verilink and the certificate of incorporation of Larscom and the
bylaws of Verilink and Larscom, and the relevant provisions of
the DGCL for a more complete understanding of the differences
between Verilink common stock and Larscom common stock.
Comparison of Authorized Capital
Stock
Verilink.
The
authorized capital stock of Verilink consists of
41,000,000 shares of Verilink capital stock consisting of
1,000,000 shares of preferred stock, $0.01 par value
per share and 40,000,00 shares of common stock,
$0.01 par value per share.
Larscom.
The
authorized capital stock of Larscom consists of
116,900,000 shares of Larscom capital stock consisting of
5,000,000 shares of preferred stock, $0.01 par value
per share and 111,900,000 shares of common stock,
$0.01 par value per share.
Number and Election of Directors
Verilink.
Verilinks certificate of incorporation provides that the
Verilink board of directors shall consist of not less than five
nor more than nine directors, with the number of directors fixed
by the board of directors. Verilink has agreed to increase the
number of authorized directors comprising the full board of
directors to six upon completion of the merger. Verilinks
certificate of incorporation provides for the division of the
board of directors into three classes of directors with each
class serving a staggered three-year term. Verilinks
stockholders are entitled to cumulate their votes for directors.
Verilinks staggered board of directors may tend to
discourage a third party from making a tender offer or otherwise
attempting to obtain control of Verilink and may maintain the
incumbency of its board of directors, as it generally makes it
more difficult for stockholders to replace a majority of the
directors.
Larscom.
Larscoms bylaws provide that the board of directors shall
be composed of at least three and not more than
10 directors, each to hold office until the next succeeding
annual meeting. Larscoms certificate of incorporation and
bylaws do not provide for cumulative voting.
Because Larscoms stockholders are not
entitled to cumulate their votes for directors, minority
stockholders of Larscom have less influence on the election of
directors than the stockholders of Verilink.
Removal of Directors
Verilink.
Verilinks directors may be removed with the affirmative
vote of the holders of at least a majority of the
then-outstanding shares of voting stock. Any vacancy created by
the removal of a director may be filled by either an affirmative
vote of a majority of the then-outstanding shares of voting
stock, or by an affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the
board of directors.
98
Larscom.
Larscoms bylaws do not provide for the removal of
directors by the stockholders. Larscoms bylaws provide
that any vacancy created by the removal of a director may be
filled by either an affirmative vote of a majority of the
then-outstanding shares of voting stock, or by an affirmative
vote of a majority of the remaining directors then in office,
even though less than a quorum of the board of directors.
Although Larscoms bylaws do not provide for
the removal of directors by the stockholders, Larscoms
directors may be removed by the stockholders pursuant to the
DGCL with or without cause. Because Verilinks board of
directors is elected on a staggered basis, Verilinks
directors may only be removed with cause under the DGCL.
Special Meetings of Stockholders
Verilink.
The
Verilink certificate of incorporation provides that a special
meeting of stockholders may be convened at any time by the
chairman of the board, the president, or the board of directors
of Verilink. In addition, a special meeting of stockholders may
be called by holders of at least 20% of all of the shares
entitled to cast votes at the meeting.
Larscom.
The Larscom
bylaws provide that a special meeting of stockholders may be
convened at any time by the chairman of the board, the vice
chairman of the board, the president, any vice president, or the
board of directors of Larscom. In addition, a special meeting of
stockholders shall be called by the president or the secretary
upon the written request of the holders of a majority of the
outstanding stock.
Action By Written Consent of
Stockholders
Verilink.
Verilinks certificate of incorporation provides that
stockholders only take action at a duly called meeting of
stockholders, and may not take any action by written consent
action.
Larscom.
Any action
which may otherwise be taken at any meeting of Larscom
stockholders may be taken without a meeting if one or more
written consents describing such action is signed by the holders
of outstanding shares having not less than the minimum number of
votes necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon are present and voting.
Advance Notice Provisions for Board
Nominations and Other Stockholder Business
Verilink.
The
Verilink certificate of incorporation provides that stockholders
must deliver proper notice of any nomination for the election of
a director or other business to be brought before an annual
meeting of stockholders to the secretary of Verilink not less
than 60 days nor more than 90 days prior to the first
anniversary of the preceding years annual meeting.
However, in the event that the date of the annual meeting is
advanced by more than thirty days or delayed by more than
60 days from such anniversary, for notice by the
stockholder to be timely it must be received no earlier than the
90th day prior to such annual meeting and not later than the
close of business on the later of (1) the 60th day prior to
such annual meeting or (2) the 10th day following the day
on which notice of the date of the annual meeting was mailed or
public disclosure thereof was made by Verilink, whichever occurs
first.
Larscom.
The Larscom
bylaws provide that stockholders must deliver proper notice of
any nomination for the election of a director or other business
to be brought before an annual meeting of stockholders to the
secretary of Larscom not less than 60 days nor more than
90 days prior to the first anniversary of the preceding
years annual meeting. However, in the event that the date
of the annual meeting is advanced by more than thirty days or
delayed by more than 60 days from such anniversary, for
notice by the stockholder to be timely it must be received no
earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of (1) the
60th day prior to such annual meeting or (2) the 10th day
following the day on which notice of the date of the annual
meeting was mailed or public disclosure thereof was made by
Larscom, whichever occurs first.
99
Stockholder Rights Plans
Verilink.
The
Verilink board of directors has approved a stockholders rights
plan. See Description of Verilinks Capital
Stock Stockholder Rights Plan.
Larscom.
The Larscom
board of directors has not adopted a stockholders rights plan.
Amendment of Bylaws
Verilink.
Verilinks certificate of incorporation and bylaws
expressly authorize Verilinks board of directors or the
stockholders to adopt, amend or repeal the bylaws. For the
stockholders to make, alter, amend or repeal bylaws, the
affirmative vote of 66 2/3% of the then-outstanding shares
of voting stock.
Larscom.
The Larscom
certificate of incorporation expressly authorizes the Larscom
board of directors to make, alter, amend or repeal the bylaws.
For the stockholders to make, alter, amend or repeal the bylaws,
the Larscom certificate of incorporation requires the
affirmative vote of the holders of a majority of the outstanding
common stock.
Indemnification of Officers and
Directors
Verilink.
The bylaws
of Verilink provide that Verilink shall indemnify its directors,
officers, employees and agents, to the fullest extent permitted
by the law, for any action authorized by the board of directors.
The Verilink bylaws also provide that Verilink shall pay any
expenses incurred in defending any indemnified action, in
advance, provided that the indemnified party shall repay such
amount in the event that it is ultimately determined that such
person was not entitled to indemnification.
Larscom.
The
certificate of incorporation and the bylaws of Larscom provide
that Larscom shall indemnify its directors, officers and, at the
discretion of the company, its employees and agents, to the
fullest extent permitted by the law. The Larscom bylaws also
provide that Larscom shall pay any expenses incurred in
defending any indemnified action, in advance, provided that the
indemnified party shall repay such amount in the event that it
is ultimately determined that such person was not entitled to
indemnification. No advance payment shall be made by Larscom if
a determination is made by the board of directors by a majority
vote of disinterested directors, or, when necessary, by
independent legal counsel in a written opinion, that such person
requesting indemnification did not act in good faith, or, with
respect to criminal proceedings, that such person believed or
had reason to believe that his or her conduct was unlawful.
The certificates of incorporation and bylaws of
Larscom and Verilink both provide for the mandatory
indemnification of officers and directors, however, the Verilink
bylaws mandate that such indemnification cover Verilinks
employees and agents while Larscoms bylaws leave such
coverage to the discretion of its board of directors.
Larscoms and Verilinks certificates of incorporation
and bylaws also provide for the advance payment of expenses of
the indemnified party; however, Larscoms certificate of
incorporation and bylaws give Larscom the power to determine if
a party is eligible for indemnification, and allow the
indemnification of a party who was found initially ineligible
for indemnification but who subsequently succeeded in defending
any such action, suit or proceeding brought against him or her
on the merits.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers or persons controlling Larscom and Verilink pursuant to
the foregoing provisions, Larscom and Verilink have been
informed that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
100
INFORMATION ABOUT VERILINK
Business
Verilink provides telecommunications products
that address the wireless infrastructure, voice and data
integrated access, and wireline service delivery markets.
Verilink develops, manufactures, and markets integrated access
devices, centralized access systems and infrastructure service
enabling equipment for network service providers, enterprise
customers, and original equipment manufacturer partners. These
products are deployed worldwide as targeted solutions for
applications involving voice over IP, voice over ATM, wireless
backhaul aggregation, Frame Relay, point-to-point services,
Internet protocol (IP) access routing, and the
transition of services from time-division multiplexing to IP.
Verilinks recent acquisition of XEL further broadens
Verilinks range of voice and data access product
offerings, with OSMINE-compliant devices tailored to the
operational requirements of Regional Bell Operating Companies
(RBOCs). Operating as a part of the network
infrastructure, XEL products enable the end-to-end flow-through
provisioning of bundled voice and data services for rapid and
efficient roll-out of fully managed services. Additionally,
XELs comprehensive operations and program management
services further enhances Verilinks ability to address the
service needs of larger carriers. Verilinks customers
include RBOCs, interexchange carriers, incumbent local exchange
carriers, competitive local exchange carriers, international
post, telephone, and telegraph administrations, wireless service
providers, equipment vendors, enterprise customers, and various
local, state and federal government agencies. Verilink was
founded in California in 1982 and is a Delaware corporation
currently headquartered in Madison, Alabama.
Additional Information
Addition information concerning Verilinks
business as well as Verilinks audited consolidated
financial statements and interim financial statement, and
managements discussion and analysis of financial
conditions and results of operations and financial information
are included in the Verilinks periodic reports delivered
with and incorporated by reference in this joints proxy
statement/ prospectus. For further information, see Where
You Can Find More Information.
Directors and Executive Officers
The following table provides certain information
regarding Verilinks directors and executive officers and
Desmond P. Wilson III, who will be appointed to the
Verilink board of directors upon completion of the merger. Each
director and officer will hold office at the combined company
until a successor is elected or qualified or until his earlier
death, resignation or removal.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position and Current Offices with Verilink
|
|
|
|
|
|
Leigh S. Belden
|
|
|
54
|
|
|
President, Chief Executive Officer and Director
|
John E. Major
|
|
|
57
|
|
|
Director
|
John A. McGuire
|
|
|
69
|
|
|
Director
|
Howard Oringer
|
|
|
61
|
|
|
Chairman of the Board
|
Sarabjit Gosal
|
|
|
36
|
|
|
Vice President of Marketing
|
Betsy D. Mosgrove
|
|
|
42
|
|
|
Vice President of Human Resources
|
Larry J. Richards
|
|
|
38
|
|
|
Vice President of Engineering
|
David W. Shackelford
|
|
|
51
|
|
|
Vice President of Worldwide Sales
|
C.W. Smith
|
|
|
50
|
|
|
Vice President and Chief Financial Officer
|
Steven C. Taylor
|
|
|
55
|
|
|
Director, Vice Chairman of the Board
|
S. Todd Westbrook
|
|
|
42
|
|
|
Vice President of Operations
|
Desmond P. Wilson III
|
|
|
40
|
|
|
To be appointed to the Verilink board of
directors upon completion of the merger.
|
Leigh S. Belden
co-founded Verilink and served as its
President and Chief Executive Officer since he re-joined
Verilink in January 2002, and from its inception in December
1982 until his prior retirement from this position in March
1999. Mr. Belden has served as a Director since its
inception in December
101
1982. From 1980 to 1982, Mr. Belden was Vice
President of Marketing for Cushman Electronics, Inc., 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, Inc. 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.
John E. Major
is
President of MTSG, an investments and strategic consulting
business in the telecom space. Prior to that Mr. Major was
the CEO of Novatel Wireless, Inc. from July 2002 through January
2003. Prior to joining Novatel Wireless, 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, including serving as corporate
Chief Technology Officer, from 1977 until joining QUALCOMM in
1997. Mr. 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 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 for
three other publicly traded companies: Broadcom, Littlefuse Inc.
and Lennox International Inc. He has nine U.S. patents.
John A. McGuire
became a Director of Verilink in July
1998. Mr. McGuire retired in 2000 as 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.
Howard Oringer
has
been a Director of Verilink 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.
Sarabjit Gosal
has
served as Verilinks Vice President of Marketing since
April 2004. From October 2000 until joining Verilink,
Mr. Gosal served as the Senior Director of Product
Marketing at Polaris Networks, a Metro optical transport switch
company. From November 1996 to October 2000, Mr. Gosal
served as the Senior Director of Product Marketing of VINA, a
broadband access company. Prior to October 2000, Mr. Gosal
was the Senior Product Line Manager at Cisco Systems
(StrataCom), responsible for their WAN switching platforms, as
well as being responsible for marketing optical
(SDH) transport systems for Fujitsu Europe. Mr. Gosal
has received an MBA from the University of Westminster, London
and a Bachelors degree in Electronic Engineering from the
University of North Wales, Bangor, UK.
Betsy D. Mosgrove
served as Verilinks Director of
Human Resources and Vice President, Human Resources from October
1999 to April 2002, re-joined Verilink in March 2004, and was
formally re-appointed to the executive office of Vice President
of Human Resources in June 2004. From August 2002 to March 2004,
Ms. Mosgrove was employed by Intergraph Mapping and
Geospatial Solutions as their Executive Manager of Human
Resources. From February 1996 to October 1999, Ms. Mosgrove
served as Director of Human Resources for Avex Electronics, Inc.
Ms. Mosgrove received a B.S. in Business Administration
from the University of Alabama in Huntsville.
Larry J. Richards
has served as Verilinks Vice
President of Engineering since March 2004. Prior to joining
Verilink, Mr. Richards held the position of Vice President
of Engineering and Chief Technology Officer at XEL, which was
acquired by Verilink in February 2004. Mr. Richards joined
XEL in April
102
2000 directing the software development and was
promoted to Vice President of Engineering in March 2001. Prior
to that, Mr. Richards held several management positions at
Raytheon Systems responsible for development of sophisticated
communications equipment from November 1997 to April 2000.
Mr. Richards holds a BS in Electrical Engineering from
California State Polytechnic University, Pomona and a MS in
Electrical Engineering from the University of Colorado.
David W. Shackelford
has served as Verilinks Vice
President of Worldwide Sales since October 2003 and is
responsible for all domestic and international sales to
partners, carriers and service providers. Prior to joining
Verilink, Mr. Shackelford was self employed as a private
rancher from April 2001 until October 2003. Prior to that,
Mr. Shackelford held the position of Vice President of
Worldwide Sales for Woodwind Communications, Inc. from January
2000 to April 2001. Prior to that, he was Vice President Sales
at Newbridge Networks Inc. from August 1996 till December 1999.
From May 1972 through August 1996, Mr. Shackelford worked
in various sales and business development positions at other
organizations including Micom (a division of Nortel Networks),
Gandalf Systems Corporation, Infotron Systems and Texaco Inc.
Mr. Shackelford studied Business and Computer Science at
Louisiana State University and is a member of the American
Management Association.
C. W. Smith
has served as Verilinks Vice
President and Chief Financial Officer since November 2001.
Mr. Smith joined Verilink in November 1998 as Controller of
the Companys Huntsville operations. In September 1999,
Mr. Smith was promoted to the position of Vice President
and Corporate Controller. From February 1995 until joining
Verilink, Mr. Smith served as Vice President, Finance for
TxPort, Inc. Mr. Smith received a B.S. in Accounting from
the University of Alabama and holds a CPA certificate in the
state of Alabama.
Steven C. Taylor
co-founded Verilink and served as its
Chief Technical Officer from April 2002 through December 2003.
He had previously served as Chief Technical Officer since
Verilinks inception in December 1982 until his retirement
from that position in April 1999. In addition, Mr. Taylor
served as Chairman of the Board of Directors from
Verilinks 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 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.
S. Todd Westbrook
has served as Verilinks Vice
President, Operations since February 2000. From July 1998 until
joining our company, Mr. Westbrook served as the president
of ZAE Research, Inc., a firm engaged in electronics design.
From April 1987 to July 1998, Mr. Westbrook held several
positions at AVEX Electronics, Inc. including Vice President of
North America Operations from March 1996 to July 1998.
Mr. Westbrook received a B.S. in Industrial Engineering
from Auburn University.
Desmond P. Wilson III
has served as a director of Larscom
since September 2001. Effective January 1, 2002,
Mr. Wilson assumed the position of President and Chief
Executive Officer of Axel Johnson Inc., after serving as
Executive Vice President for New Business Development since
September 2001. Prior to that, Mr. Wilson was President of
the Services Assurance and Solutions Division of Spirent plc, a
provider of telecommunication testing equipment, from January
2001 to June 2001 and President/CEO of Hekimian Laboratories,
Inc, a supplier of automated test systems for telecommunication
networks, from December 1997 to December 2000. Mr. Wilson
graduated with a BS degree in industrial engineering and
operations research from Virginia Polytechnic Institute and
State University. Verilink has agreed to appoint Mr. Wilson
to Verilinks board of directors upon the completion of the
merger.
Meetings, Committees and Compensation of the
Board
Verilinks board of directors met fourteen
times during Verilinks fiscal year ended June 27,
2003, which is referred to as fiscal 2003. 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. All other non-employee directors receive a retainer fee
of $4,000 per
103
quarter. In addition, all non-employee directors
receive a fee of $2,000 for each board meeting attended, or
$1,000 for telephonic participation.
The audit committee, which held ten meetings
during fiscal 2003, currently consists of Messrs., McGuire and
Oringer. Mr. McGuire is currently chairman of the audit
committee. Mr. Major served as chairman of the audit
committee until March 2004. In March 2004, Mr. Major
resigned from Verilinks audit committee because he serves
on the audit committee of another public company which limits
the total number of public company audit committees on which its
audit committee members may serve.
The Nasdaq Stock Market rules require companies
listed on Nasdaq to have an audit committee of at least three
members, each of whom meets the independence, financial literacy
and other requirements of The Nasdaq Stock Market.
Verilinks audit committee currently consists of two
members and one vacancy. Nasdaq has provided Verilink with a
cure period through the 2004 annual meeting of Verilink
stockholders (scheduled for November 2004) to fill the vacancy
on the audit committee. Verilink expects to fill the vacancy on
the audit committee and thereby comply with the Nasdaq audit
committee rules on or before the date of the 2004 annual meeting
of stockholders.
The audit committee chairman 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 $500 for each meeting attended. The audit
committee selects the independent accountants to audit the
financial statements of Verilink; approves any services to be
provided by the independent auditors and the related
compensation for such services; reviews the effectiveness of the
audit effort and Verilinks financial and accounting
organization and financial reporting; and maintains free and
open means of communication between the directors, independent
auditors, financial management and employees of Verilink. The
audit committees responsibilities are more fully described
in its charter, which is included as Exhibit C to the proxy
statement for Verilinks 2002 annual meeting of
stockholders.
The compensation committee, which held nine
meetings during fiscal 2003, currently consists of
Messrs. Major, McGuire and Oringer. Mr. Major was
appointed to the compensation committee and chairman of
compensation committee upon his resignation from the audit
committee. Prior thereto, Mr. McGuire was chairman of the
compensation committee. The compensation committee chairman
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 $500 for each
meeting attended. The compensation committee establishes and
reviews the compensation policies applicable to Verilinks
executive officers and administers Verilinks equity
compensation plans.
The strategy committee, which held four meetings
during fiscal 2003, currently consists of Messrs. Belden,
McGuire and Oringer. The strategy committee chairman,
Mr. Belden, does not receive a retainer fee. 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, or $1,000 for telephonic participation. The
strategy committee establishes and reviews the strategic
direction of Verilink.
Executive Compensation
The following table, together with the footnotes
thereto, summarizes the total compensation for fiscal 2003 of
(i) Verilinks Chief Executive Officer, (ii) the
two other compensated executive officers of Verilink who were
serving as such at 2003 fiscal year end, and (iii) two
additional persons who would have been included in the table if
they had been serving as executive officers of Verilink at 2003
fiscal year end
104
(collectively, the named executive
officers), as well as the total compensation paid to each
named executive officer for Verilinks two previous fiscal
years, if applicable.
Summary Compensation Table
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Long-Term
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Annual Compensation
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Compensation
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Salary
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Securities
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All Other
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Fiscal
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Annual
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Bonus
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Other
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Underlying Options
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Compensation
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Name and Principal Position
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Year
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($)(1)
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($)(2)
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($)(3)
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(#)(4)
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($)(5)
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Leigh S. Belden
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2003
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273,047
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278,523
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(6)
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267,762
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(7)
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400,000
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383,923
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(8)
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President, Chief Executive
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2002
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136,186
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12,692
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34,762
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800,000
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99,835
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Officer, and Director
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2001
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S. Todd Westbrook
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2003
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145,034
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77,233
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(9)
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16,138
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(10)
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288
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Vice President, Operations
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2002
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159,600
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5,067
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18,376
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50,000
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306
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2001
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160,000
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17,685
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100,000
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292
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C. W. Smith
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2003
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140,923
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75,085
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(11)
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17,759
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(12)
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3,462
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(13)
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Vice President, Chief
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2002
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138,825
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4,923
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16,205
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80,000
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5,565
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Financial Officer
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2001
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125,000
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14,732
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5,098
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Ronald W. Caines(14)
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2003
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28,658
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108,331
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2,995
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(15)
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2,499
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(16)
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former Vice President,
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2002
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136,923
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91,914
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31,034
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80,000
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41,903
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Worldwide Sales
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2001
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James B. Garner(17)
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2003
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37,179
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68,202
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2,615
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(18)
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2,326
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(19)
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former Vice President,
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2002
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153,388
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4,828
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14,854
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70,000
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2,834
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Marketing
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2001
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150,000
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16,443
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30,000
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3,370
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(1)
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Includes amounts deferred by the named executive
officers pursuant to Verilinks 401(k) Investment/
Retirement Plan (the 401(k) Plan).
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(2)
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Includes bonuses awarded for the fiscal year,
commissions earned on sales, and for fiscal year 2003 amounts
earned pursuant to Verilinks program providing for the
recovery of salary reductions based on the achievement of
quarterly results described in the Report of the Compensation
Committee on Executive Compensation. Discretionary bonuses based
on fiscal 2003 performance were awarded and paid in September
2003.
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(3)
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The amounts shown in this column include fringe
benefits offered to executive officers that consist of auto
allowances and auto operating expenses, certain membership fees,
and reimbursement of medical, tax, and legal expenses.
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(4)
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The stock options listed in the table include
options granted to purchase Verilink common stock of Verilink.
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(5)
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The amounts shown in this column include matching
contributions to employee 401(k) Plan deferrals and life
insurance premiums paid by Verilink.
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(6)
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Includes $44,423 of salary reduction recovery
earned and a $234,100 bonus, paid in 22,631 shares of
common stock and $140,811 credited against an outstanding note
to Verilink.
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(7)
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Includes $232,099 for amounts reimbursed in
fiscal 2003 for the payment of taxes on reimbursed relocation
expenses.
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(8)
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Consists of $379,958 for relocation
reimbursements, $2,590 in matching contributions to employee
401(k) Plan deferrals and $1,375 in life insurance premiums.
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(9)
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Includes $15,834 of salary reduction recovery
earned and a $61,400 bonus, paid in 14,896 shares of common
stock.
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(10)
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Includes $13,032 in auto allowance and auto
operating expenses.
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(11)
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Includes $15,385 of salary reduction recovery
earned and a $59,700 bonus, paid in 14,483 shares of common
stock.
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(12)
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Includes $14,125 in auto allowance and auto
operating expenses.
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105
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(13)
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Consists of $3,045 in matching contributions to
employee 401(k) Plan deferrals and $417 in life insurance
premiums.
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(14)
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Mr. Caines resigned as Verilinks Vice
President, Worldwide Sales in August 2002.
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(15)
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Includes $2,405 in auto allowance and auto
operating expenses.
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(16)
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Consists of $2,433 in matching contributions to
employee 401(k) Plan deferrals and $66 in life insurance
premiums.
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(17)
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Mr. Garner resigned as Verilinks Vice
President, Marketing in August 2002.
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(18)
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Includes $2,182 in auto allowance and auto
operating expenses.
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(19)
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Consists of $2,284 in matching contributions to
employee 401(k) Plan deferrals and $42 in life insurance
premiums.
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The following table provides certain information
with respect to the grant of stock options under Verilinks
2002 Stock Incentive Plan (the 2002 Plan) and the
Amended and Restated 1993 Stock Option Plan (the 1993
Plan), to each of the named executive officers during the
2003 fiscal year.
Option Grants in Last Fiscal Year
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% of Total
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Potential Realizable Value
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Number of
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Options
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at Assumed Annual Rate of
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Securities
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Granted to
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Stock Appreciation for
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Underlying
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Employees
|
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Exercise
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|
|
Option Term(1)
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Options
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in Fiscal
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Price per
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|
Expiration
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Name
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Granted
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Year
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Share
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Date
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5%
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10%
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|
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|
|
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|
|
Leigh S. Belden
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400,000
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72.66
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$
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1.191
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|
|
02/05/13
|
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$
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299,605
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$
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759,259
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(1)
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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 Verilink 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 Verilink 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.
|
The following table provides the specified
information concerning exercises of options to purchase Verilink
common stock in the 2003 fiscal year, and unexercised options
held as of June 27, 2003, by the named executive officers.
Aggregated Option Exercises in Last Fiscal
Year
and Fiscal Year-End Option Values
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|
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|
|
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|
|
|
Number of
|
|
|
|
|
|
|
|
|
Securities Underlying
|
|
Value of Unexercised
|
|
|
|
|
|
|
Unexercised Options at
|
|
In-the-Money Options at
|
|
|
Shares
|
|
Value
|
|
Fiscal Year End (#)
|
|
Fiscal Year End ($)
|
|
|
Acquired on
|
|
Realized
|
|
|
|
|
Name
|
|
Exercise (#)
|
|
($)
|
|
Exercisable
|
|
Unexercisable(1)
|
|
Exercisable
|
|
Unexercisable(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leigh S. Belden
|
|
|
|
|
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$
|
|
|
|
|
384,876
|
|
|
|
916,667
|
|
|
$
|
289,000
|
|
|
$
|
734,600
|
|
S. Todd Westbrook
|
|
|
|
|
|
|
|
|
|
|
162,500
|
|
|
|
87,500
|
|
|
|
18,500
|
|
|
|
55,500
|
|
C. W. Smith
|
|
|
|
|
|
|
|
|
|
|
78,650
|
|
|
|
68,750
|
|
|
|
19,975
|
|
|
|
59,925
|
|
Ronald W. Caines(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James B. Garner(3)
|
|
|
1,458
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The options issued pursuant to the 1993 Plan are
immediately exercisable; however, the shares of Verilink common
stock issued upon exercise of such options typically vest over
four years at the rate of 25% of the total shares granted per
year, provided the optionee remains continuously employed by
Verilink. Upon cessation of employment for any reason, Verilink
has the option to repurchase all, but not some, of any unvested
shares of Verilink common stock issued upon exercise of an
option, within
|
106
|
|
|
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 above as
unvested to the extent that the underlying Verilink common stock
is unvested as of fiscal year end.
|
|
(2)
|
Mr. Caines resigned as Verilinks Vice
President, Worldwide Sales in August 2002.
|
|
(3)
|
Mr. Garner resigned as Verilinks Vice
President, Marketing in August 2002.
|
|
|
|
Change of Control Severance Benefits
Agreements and Employment Agreements
|
Verilink has entered into change of control
severance benefits agreements (the change of control
agreements) with Leigh S. Belden, Verilinks
president and chief executive officer, S. Todd Westbrook,
Verilinks vice president of operations, and C. W.
Smith, Verilinks vice president and chief financial
officer. Under the terms of Verilinks existing form of
change of control agreement for Messrs. Smith and Westbrook, if
the executives employment terminates due to an involuntary
termination (other than for cause) or a voluntary termination
for good reason within 24 months following a change of
control (in either case, a covered termination),
Verilink 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 and (ii) continue certain welfare benefit coverage
for the executive and his covered dependents under welfare
benefit plans and programs maintained by Verilink on the same
terms and conditions (including cost to the executive) as in
effect immediately prior to the termination, for one year
following the termination. The existing change of control
agreement also provides that, upon a change of control, any
restriction on the exercise of the executives options will
lapse and, if the executive subsequently experiences a covered
termination, the period of time to exercise the options may be
extended. Upon the occurrence of a covered termination, and
prior to the receipt of any benefits under the change of control
agreement, the executive shall execute a release relating to all
of the executives employment-related rights and claims in
existence at the time of such execution and shall confirm the
executives obligations under Verilinks standard form
of proprietary information agreement. The change of control
agreement for Mr. Belden provides for a lump sum payment of
(i) 2.99 multiplied by annual base pay, plus (ii) 100%
of annual bonus if he experiences a covered termination within
12 months following a change of control, and is otherwise
similar to the existing agreements for Messrs. Smith and
Westbrook.
Verilinks compensation committee is in the
process of implementing a new form of change of control
agreement for all executive officers other than the chief
executive officer that would replace the existing agreements for
Messrs. Smith and Westbrook. Under the new form of change of
control agreement, if the executives employment terminates
due to an involuntary termination (other than for cause) or a
voluntary termination for good reason within 12 months
following a change of control, Verilink 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) reimburse the
executive for the cost of health benefit coverage for the
executive and his covered dependents for up to 12 months,
and (iii) provide a supplement severance payment of $3,500,
subject to any applicable withholding of federal, state or local
taxes. The new form of change of control agreement also provides
that upon a change of control, any restriction on the exercise
of the executives options will lapse, and if the executive
experiences a covered termination, the period of time to
exercise the options may be extended. Upon the occurrence of a
covered termination, and prior to the receipt of any benefits
under the change of control agreement, the executive shall
execute a release relating to all of the executives
employment-related rights and claims in existence at the time of
such execution. No change is proposed to Mr. Beldens
existing agreement.
Mr. Belden is also a party to an employment
agreement with Verilink. Pursuant to that employment agreement,
Mr. Belden is entitled to an annual base salary of
$330,000, subject to annual increases at the discretion of the
Verilink board of directors, is eligible for annual incentive
payments at the discretion of Verilink board of directors, and
is eligible for benefits generally available to other executive
officers of Verilink. Mr. Beldens current base salary
is $280,500 per year as a result of a salary reduction
instituted by Verilink in 2002. Additionally, if
Mr. Beldens employment with Verilink terminates under
specified circumstances, such as an involuntary termination by
Verilink without cause, he will be entitled to
107
severance benefits of up to one
(1) years annual base salary and to the continuation
of other employee benefits for a period of one (1) year
following any such termination, unless he is otherwise entitled
to benefits under his change of control agreement as a result of
such termination. In addition, Mr. Belden remains entitled
to receive post-retirement health benefits granted in connection
with his previous retirement from Verilink in 1999, which
provide that, following Mr. Beldens retirement,
Verilink will maintain health coverage for Mr. Belden and
his family until age 65 and Mr. Belden will only be
responsible for the portion of the premium for such coverage
that is equal to the average premium for Verilinks
executive officers. Verilink currently provides health care
coverage for retirees meeting certain age and service
requirements that would cover Mr. Belden upon his
retirement.
Larry J. Richards, Verilinks vice president
of engineering, is a party to a retention agreement with XEL as
a former executive officer of XEL. Under his retention
agreement, Mr. Richards received the following compensation
upon Verilinks acquisition of XEL in February 2004:
payment of a $50,000 cash bonus, 28,174 shares of Verilink
common stock and a restricted stock award for an additional
18,782 shares of Verilink common stock. While the retention
agreement provides for an at-will employment relationship, the
agreement includes the following additional incentives if
Mr. Richards remains employed by Verilink or its
affiliates: vesting of the restricted stock award in equal
annual installments over a three-year period commencing on
February 5, 2004, payment of a $50,000 retention bonus on
February 5, 2005 and an option to purchase
40,000 shares of Verilink common stock, vesting over a
four-year period commencing on February 5, 2004. If prior
to February 5, 2005, Mr. Richards terminates his
employment for good cause, or Verilink terminates
Mr. Richards for reasons other than for cause,
Mr. Richards will be entitled to receive his salary for the
remainder of the period, to the retention bonus and to the
vesting of the restricted stock award. Mr. Richards is also
subject to non-compete and non-solicitation covenants.
Mr. Richards retention agreement is similar to the
retention agreements entered into by several other former key
employees of XEL.
While the foregoing description provides a fair
summary of the material terms of the change of control
agreements, the descriptions are qualified in their entirety by
reference to the actual text of the agreements.
Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth as of June 1,
2004 (except as set forth in the footnotes) certain information
known to Verilink with respect to the beneficial ownership of
Verilinks common stock by (1) each beneficial owner
of more than 5% of the outstanding shares of Verilinks
common stock, (2) each of Verilinks directors,
(3) each of Verilinks named executive officers in the
Summary Compensation Table above and (4) all of
Verilinks directors and current executive officers as a
group.
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|
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Vested
|
|
|
|
|
|
|
|
|
Options
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|
|
|
Percentages
|
|
|
Number of
|
|
Exercisable
|
|
Total
|
|
of Shares
|
|
|
Shares
|
|
Within 60
|
|
Beneficial
|
|
Beneficially
|
Name of Beneficial Owner
|
|
Owned
|
|
Days(1)
|
|
Ownership
|
|
Owned(2)
|
|
|
|
|
|
|
|
|
|
The Kennedy Company(3)
|
|
|
1,361,758
|
|
|
|
516,529
|
|
|
|
1,878,287
|
|
|
|
10.86
|
%
|
Leigh S. Belden(4)
|
|
|
1,099,061
|
|
|
|
743,209
|
|
|
|
1,842,270
|
|
|
|
10.52
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%
|
Beltech, Inc.(5)
|
|
|
1,000,000
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
5.96
|
%
|
Steven C. Taylor(6)
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|
|
811,607
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|
|
|
118,210
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|
|
|
929,817
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|
|
|
5.51
|
%
|
Howard Oringer
|
|
|
175,834
|
|
|
|
45,833
|
|
|
|
221,667
|
|
|
|
1.32
|
%
|
John A. McGuire
|
|
|
51,668
|
|
|
|
124,166
|
|
|
|
175,834
|
|
|
|
1.04
|
%
|
John E. Major
|
|
|
18,334
|
|
|
|
121,333
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|
|
|
139,667
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|
|
|
*
|
|
S. Todd Westbrook(7)
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|
|
|
|
|
|
130,208
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|
|
|
130,208
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|
|
|
*
|
|
C. W. Smith(8)
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|
|
12,050
|
|
|
|
7,400
|
|
|
|
19,450
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|
|
|
*
|
|
Ronald W. Caines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
James B. Garner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Directors and current executive officers as a
group (10 persons)(9)
|
|
|
2,215,510
|
|
|
|
1,290,359
|
|
|
|
3,505,869
|
|
|
|
19.41
|
%
|
108
|
|
|
(1)
|
In computing the number of shares beneficially
owned by a person and the percentage ownership of that person,
shares of Verilink common stock issuable upon conversion of
convertible securities or exercise of options held by that
person that are convertible, or vested and exercisable within
60 days of June 1, 2004 are deemed outstanding.
Employee stock options granted under the Verilink 1993 Amended
and Restated Stock Option Plan are generally exercisable;
however the shares of Verilink common stock issuable upon
exercise typically vest over time provided the optionee remains
continuously employed by Verilink. Upon cessation of employment,
Verilink has the option to repurchase all of any unvested shares
issued upon exercise of employee options. Such shares, however,
are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. To Verilinks
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 persons
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 35758-8989.
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|
|
|
(2)
|
Percentage beneficially owned is based on
16,771,355 shares of Verilink common stock outstanding as
of June 1, 2004.
|
|
|
(3)
|
Includes (a) 1,361,758 shares owned by
The Kennedy Company and (b) 516,529 shares that are
issuable upon conversion of the remaining principal amount of
the convertible promissory note issued by Verilink in connection
with its acquisition of XEL on February 5, 2004. The
address for The Kennedy Company is 5545 DTC Parkway P-4,
Greenwood Village, CO 80111. Based on the most recent
information provided to Verilink.
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|
|
(4)
|
Includes (a) 498,011 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; and
(c) 600,000 shares owned by Beltech, Inc., 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 stockholder. Excludes
559,656 shares held in trust with an independent trustee
for the benefit of Mr. Beldens children.
Mr. Belden does not have voting or dispositive power with
respect to such shares. Also excludes options to
purchase 300,000 shares that are not vested, but
exercisable within 60 days of June 1, 2004.
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|
|
(5)
|
Beltech, Inc., 940 Southwood Blvd.,
Suite 201, Incline Village, NV 89452.
|
|
(6)
|
Includes (a) 810,557 shares owned by
Steven C. Taylor, individually and (b) 1,050 shares
owned by Baytech Associates, a California general partnership
interest in which Mr. Taylor has a 50% general partner
interest.
|
|
|
(7)
|
Excludes options to
purchase 23,959 shares that are not vested, but
exercisable within 60 days of June 1, 2004.
|
|
|
|
(8)
|
Excludes options to
purchase 39,375 shares that are not vested, but
exercisable within 60 days of June 1, 2004.
|
|
|
|
(9)
|
Excludes options to
purchase 363,334 shares that are not vested, but
exercisable within 60 days of June 1, 2004.
|
|
Certain Relationships and Related
Transactions
From time to time prior to 2002, Verilink had
extended loans to certain of its executive officers. As of
November 17, 2003, there were no remaining loans
outstanding to Verilinks directors or executive officers.
During fiscal 2003, Verilink approved providing
Mr. Belden, its President and Chief Executive Officer with
additional relocation benefits of approximately $300,000 in
connection with the sale of his California residence. In
November 2002, Mr. Belden made a cash payment of
$675,000 against his outstanding note to Verilink due in
March 2003. The remaining balance of this note, which
totaled $341,000, was paid prior
109
to its due date by the surrender of
289,824 shares of Verilinks common stock in
accordance with the terms of the note.
Verilink issued 1,600,000 shares of common
stock in September 1993 to Mr. Belden in exchange for
a non-recourse note totaling $800,000 with the issued shares of
common stock initially collateralizing the note. From time to
time thereafter, Verilink released excess collateral based upon
then current market prices. Through note modifications in
February 1998, September 1999 and February 2002,
repayment of this note, which bears interest at 5% per
annum, was extended to March 2003. This note was paid in
full during fiscal 2003 with total payments of $1,016,000.
Payments of $230,000 were made against this note during fiscal
2001.
In February 1999, Verilink approved a loan
facility of up to $3 million to Mr. Belden in return
for a note that bears interest at 6% per annum with an
original maturity date of March 1, 2000. Note modification
agreements in September 1999, February 2002 and
July 2002 provided for the repayment of this note in
March 2006, although the note was repaid in full in
November 2003. Under the terms of the July 2002
amendment, Verilink may accelerate the due date of this loan on
90 days notice if Verilinks aggregate amount of
unrestricted cash, cash equivalents or short-term investments is
less than $2 million or if Mr. Beldens
employment is terminated. Shares of common stock of Verilink
collateralized this note and the non-recourse note discussed
above per the note modification agreements. The
February 2002 note modification agreement also includes a
negative pledge that requires the net proceeds from the sale of
any shares of Verilinks common stock owned by the
President to be applied against the outstanding balance of this
note. In fiscal 2003, the number of shares held by Verilink as
collateral for this note and the non-recourse note described
above was decreased to 601,456 shares as a result of the
289,824 shares surrendered in payment of the non-recourse
note. During fiscal 2002 and 2001, payments of $9,000 and
$720,000, respectively, were made against this note.
In September 2003, the net after tax portion
of the fiscal 2003 discretionary bonus provided to
Mr. Belden, totaling approximately $141,000, was applied
against his outstanding note to Verilink. In November 2003,
Mr. Belden paid the remaining principal balance of this
note plus accrued interest, totaling $2,287,000, by delivering
343,034 shares of common stock to Verilink as contemplated
by the loan documentation. As a result of these repayments, all
of the promissory notes of Verilinks President and Chief
Executive Officer to Verilink have been repaid.
On February 5, 2004, Verilink acquired all
of the outstanding stock of XEL from The Kennedy Company for up
to $17,650,000 in consideration consisting of $7,650,000 paid in
cash at closing and $10 million in the form of a note which
may be converted into common stock of Verilink at a conversion
price of $5.324 per share. The convertible promissory note
earns interest at a rate of 7% per annum and matures
February 5, 2006. The holder may convert the note in whole
or in increments of at least $1 million into common stock
of Verilink. The terms of the promissory note provide that the
amount of the note will be reduced by up to $350,000 if
retention bonuses are paid in February 2005 to certain XEL
employees, pursuant to the retention agreements between Verilink
and such employees. As of May 12, 2004, The Kennedy Company
converted $7,250,000 principal amount of the note into
1,361,758 shares of Verilink common stock.
PROPOSAL 2 FOR VERILINK STOCKHOLDERS:
APPROVAL OF
VERILINK CORPORATION 2004 STOCK INCENTIVE
PLAN
Background
The Verilink board of directors has adopted the
Verilink Corporation 2004 Stock Incentive Plan (the 2004
Plan), subject to stockholder approval. In connection with
the adoption of the 2004 Plan, the Board of Directors reserved
an initial allotment of 1,300,000 shares of Verilink common
stock for issuance under the 2004 Plan, subject to adjustment
for any future recapitalizations or similar events. In addition,
the number of shares of Verilink common stock for issuance under
the 2004 Plan will automatically increase by the lesser of
(a) 1,000,000 or (b) the result of 1,800,000 minus the
maximum number of shares available for issuance under the 2004
Plan immediately prior to the calculation of the annual
110
adjustment. These automatic annual increases will
occur effective as of the last day of each fiscal year of
Verilink following the adoption of the 2004 Plan until the
expiration of its term. The number of shares of Verilink common
stock reserved will be reduced only by the number of shares
actually issued to participants in the 2004 Plan. The purpose of
the 2004 Plan is to enable Verilink and its affiliates to retain
and attract highly qualified persons to serve as directors,
officers, employees and other service providers who contribute
to Verilinks success, and to enable such individuals to
participate in the long-term success and growth of Verilink by
giving them a proprietary interest in Verilink and to align
their interests with the interests of stockholders generally.
Although Verilink believes that the following
description provides a fair summary of the material terms of the
2004 Plan, the description is qualified in its entirety by the
text of the 2004 Plan. Unless marked otherwise, proxies received
will be voted FOR the approval and ratification of the 2004 Plan.
General Description of the 2004 Plan
The following summary is qualified in its
entirety by reference to the 2004 Plan, a copy of which is
available to any stockholder upon request.
Administration.
The
2004 Plan is administered by a committee (the
Committee) appointed by the Board of Directors
consisting of at least two (2) members of the Board of
Directors, all of whom may be required at any applicable point
in the future to satisfy disinterested standards
under federal tax and securities law. The Committee has the
power to determine which eligible persons receive awards and the
specific terms of each award, subject to the general parameters
set forth in the plan. The Compensation Committee of the Board
of Directors is initially serving as the Committee under the
2004 Plan.
Types of Awards.
The
2004 Plan permits the Committee to make awards of both incentive
stock options, as defined in Section 422 of the Internal
Revenue Code, and nonqualified stock options. In addition, the
2004 Plan allows the Committee to grant other less common types
of equity-based awards, specifically, stock awards, stock
appreciation rights, phantom stock awards, performance unit
awards and dividend equivalent rights.
Eligibility.
The
2004 Plan allows grants to directors, officers, employees, and
other service providers of Verilink and its affiliates;
provided, however, in conformity with applicable law, an
incentive stock option would only be granted to employees.
Structure of Individual
Awards.
The 2004 Plan provides the
Committee with wide latitude in determining the specific terms
of any particular award; however, there are certain specific
limits described in the plan attributable to federal tax laws.
The number of shares of Verilink common stock as
to which any award is granted and to whom any award is granted
is determined by the Committee in its sole discretion, subject
to the provisions of the 2004 Plan. For tax reasons, the maximum
number of shares that may be awarded to any employee under an
option or subject to stock appreciation rights during a single
fiscal year is 1 million. Awards issued are exercisable or
settled at such prices and are terminable under such terms as
are established by the Committee, to the extent not otherwise
inconsistent with the terms of the 2004 Plan.
Each option granted pursuant to the 2004 Plan
must be authorized by the Committee and evidenced by an
agreement containing the terms and the conditions of the option.
At the time the option is granted, the Committee determines
whether the option is an incentive stock option or a
nonqualified stock option.
The Committee generally permits an option
exercise price to be paid in one or more of the following ways:
by payment of cash, by the delivery of previously-owned shares
of, through a cashless exercise executed through a broker, or in
whole or in part in installments with Verilink financing for any
unpaid portion. The Committee also has the discretion to
facilitate a recipients satisfaction of any tax
withholding obligations arising in connection with the exercise
of an award, including the award of a cash bonus.
Apart from options, the other equity incentives
that may be granted under the 2004 Plan generally may contain
such terms and conditions as the Committee may establish. Stock
appreciation rights, performance units, phantom shares and
dividend equivalent rights may be settled in cash or shares of
common stock, as determined by the Committee.
111
The terms of particular awards provide that they
terminate, among other reasons, upon the holders
termination of employment or other status with respect to
Verilink and any affiliate, upon a specified date, upon the
holders death or disability or upon the occurrence of a
change in control of Verilink. The Committee has the discretion
to extend exercise or settlement rights to a holders
estate or personal representative in the event of the
holders death or disability. At the Committees
discretion, awards held by an employee who suffers a termination
of employment may be cancelled, accelerated, paid or continued,
subject to the terms of the applicable agreement and to the
provisions of the 2004 Plan.
The 2004 Plan generally provides that all rights
granted pursuant to awards shall not be transferable or
assignable, except by the laws of descent and distribution.
Term.
The 2004 Plan
will expire no later than ten (10) years from the date the
plan is adopted by Verilink.
Recapitalizations and
Reorganizations.
The number of shares
of Verilink common stock reserved for issuance in connection
with the grant or settlement of awards or to which an award is
subject, as the case may be, and the exercise price of any
option are subject to adjustment in the event of any stock
split, reverse stock split, reclassification or recapitalization
of Verilink common stock or similar event, effected without the
receipt of consideration.
In the event of certain reorganizations, the
Committee has the discretion to provide in the agreement whether
an award would be substituted, cancelled, accelerated,
cashed-out or otherwise adjusted by the Committee, provided such
adjustment is not inconsistent with the express terms of the
2004 Plan. In such events, the Committee also has the discretion
to assume awards that were not originally granted under the plan.
Amendment or
Termination.
Although the 2004 Plan
may be amended subsequently by the Board of Directors, any
material amendment shall be subject to stockholder approval.
Benefits to Named Executive Officers and
Others Under the 2004 Plan
The Committee has not yet made any determination
as to which eligible participants will be granted incentives
under the 2004 Plan in the future. Consequently, the aggregate
benefits and or amounts that will be received in the future by
directors, executive officers or any other persons pursuant to
the 2004 Plan are not presently determinable.
Equity Compensation Plan Information
The following table sets forth certain
information about shares of Verilink common stock outstanding
and available for issuance under Verilinks equity
compensation plans as of June 27, 2003, the end of
Verilinks last completed fiscal year, and as of
May 13, 2004. The table does not include the
1,300,000 shares to be reserved for issuance under the 2004
Plan, or Verilink common stock that would be reserved for
issuance with respect to options to purchase Larscom common
stock to be assumed by Verilink upon completion of the merger.
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
remaining available under
|
|
|
Number of Securities to
|
|
Weighted-average
|
|
equity compensation plans
|
|
|
be issued upon exercise of
|
|
exercise price of
|
|
(excluding securities reflected
|
|
|
outstanding options
|
|
outstanding options
|
|
in the first column)
|
|
|
|
|
|
|
|
Plan Category
|
|
June 27, 2003
|
|
May 13, 2004
|
|
June 27, 2003
|
|
May 13, 2004
|
|
June 27, 2003
|
|
May 13, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by stockholders
|
|
|
3,216,579
|
|
|
|
4,055,587
|
|
|
$
|
1.82
|
|
|
$
|
2.75
|
|
|
|
2,020,500
|
|
|
|
336,596
|
|
Equity compensation plans not approved by
stockholders
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,216,579
|
|
|
|
4,055,587
|
|
|
$
|
1.82
|
|
|
$
|
2.75
|
|
|
|
2,020,500
|
|
|
|
336,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon the completion of the merger with Larscom,
each outstanding option to purchase Larscom common stock will be
converted into an option to purchase Verilink common stock and
adjusted to reflect the exchange ratio in the merger. See
The Merger Treatment of Larscom Stock Options and
Warrants
112
above. Verilink estimates approximately 591,000
shares of Verilink common stock will be reserved for issuance
upon the exercise of assumed Larscom stock options. Following
the closing of the merger, no additional equity awards will be
granted under the existing equity compensation plans of Larscom.
In connection with Verilinks acquisition of
XEL in February 2004, Verilink issued 187,826 shares of common
stock and 150,260 shares of restricted common stock, and an
aggregate of $350,000 in cash bonuses immediately following
closing to certain key employees of XEL. These awards were
approved by Verilinks compensation committee. The
restricted common stock vests one-third a year beginning on the
first anniversary of the employees employment with
Verilink and will be fully vested if the employee is terminated
without cause. These equity awards were not made under a plan
approved by Verilinks stockholders.
Certain Federal Income Tax
Considerations
The following discussion outlines generally the
federal income tax consequences of the equity incentives granted
under the 2004 Plan.
Nonqualified
Options.
A participant would not
recognize income upon the grant of an option or at any time
prior to the exercise of the option or a portion thereof. At the
time the participant exercised a nonqualified option or portion
thereof, he or she would recognize compensation taxable as
ordinary income in an amount equal to the excess of the fair
market value of the Verilink common stock on the date the option
is exercised over the price paid for the Verilink common stock,
and Verilink would then be entitled to a corresponding deduction.
Depending upon the period shares of Verilink
common stock are held after exercise, the sale or other taxable
disposition of shares acquired through the exercise of a
nonqualified option generally would result in a short- or
long-term capital gain or loss equal to the difference between
the amount realized on such disposition and the fair market
value of such shares when the nonqualified option was exercised.
Special rules would apply to a participant who
exercises a nonqualified option by paying the exercise price, in
whole or in part, by the transfer of shares of Verilink common
stock to Verilink.
Incentive Stock
Options.
A participant who exercised
an incentive stock option would not be taxed at the time he or
she exercised the option or a portion thereof. Instead, he or
she would be taxed at the time he or she sold the Verilink
common stock purchased pursuant to the option. The participant
would be taxed on the difference between the price he or she
paid for the Verilink common stock and the amount for which he
or she sold the stock. If the participant did not sell the stock
prior to two years from the date of grant of the option and one
year from the date the stock were transferred to him or her, the
participant would be entitled to capital gain or loss treatment
based upon the difference between the amount realized on the
disposition and the aggregate exercise price and Verilink would
not get a corresponding deduction. If the participant were to
sell the stock at a gain prior to that time, the difference
between the amount the participant paid for the stock and the
lesser of the fair market value on the date of exercise or the
amount for which the stock is sold, would be taxed as ordinary
income and Verilink would be entitled to a corresponding
deduction; if the stock were sold for an amount in excess of the
fair market value on the date of exercise, the excess amount
would be taxed as capital gain. If the participant were to sell
the stock for less than the amount he or she paid for the stock
prior to the one or two year periods indicated, no amount would
be taxed as ordinary income and the loss would be taxed as a
capital loss.
Exercise of an incentive option might subject a
participant to, or increase a participants liability for,
the alternative minimum tax.
Restricted Stock
Awards.
A participant will not be
taxed upon the grant of a stock award if such award is subject
to a substantial risk of forfeiture. However, when
the shares of Verilink common stock that are subject to the
stock award are no longer subject to a substantial risk of
forfeiture, the participant will recognize compensation taxable
as ordinary income in an amount equal to the fair market value
of the stock subject to the stock award, less any amounts paid
for such stock, and Verilink will then be entitled to a
corresponding deduction. A participant may elect at the time of
receipt of a stock award to include
113
the fair market value of the stock subject to the
stock award, less any amount paid for such stock, in his or her
ordinary income at that time and Verilink will be entitled to a
corresponding deduction at that time.
Other Incentive
Awards.
A participant generally will
not recognize income upon the grant of the other types of equity
incentives contemplated by the 2004 Plan (collectively,
Equity Incentives). As a general rule, at the time a
participant receives payment under any Equity Incentive, he or
she will recognize compensation taxable as ordinary income in an
amount equal to the cash or fair market value of Verilink common
stock received, and Verilink will then be entitled to a
corresponding deduction.
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 2004 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
of the 2004 Plan 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 and stock appreciation
rights granted under the 2004 Plan. Stockholder approval of the
2004 Plan requires the affirmative vote of the holders of a
majority of the shares of Verilink common stock present and
entitled to vote in person or by proxy at the Verilink special
meeting.
THE VERILINK BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE APPROVAL OF THE VERILINK CORPORATION
2004 STOCK INCENTIVE PLAN.
PROPOSAL 3 FOR VERILINK STOCKHOLDERS:
APPROVAL OF ANY
ADJOURNMENTS TO THE SPECIAL MEETING
If at the Verilink special meeting the number of
shares of Verilink common stock represented in person or by
proxy and voting in favor of the issuance of shares of Verilink
common stock to Larscom stockholders pursuant to the merger
agreement and the approval of Verilinks 2004 Stock
Incentive Plan is insufficient to approve either such proposal,
Verilinks management intends to move to adjourn or
postpone the special meeting in order to enable the Verilink
board of directors to solicit additional proxies. In that event,
Verilink will ask its stockholders to vote only upon the
adjournment proposal, and not the proposals regarding the
issuance of shares of Verilink common stock to Larscom
stockholders pursuant to the merger agreement and the approval
of Verilinks 2004 Stock Incentive Plan.
In this proposal, Verilink is asking you to
authorize the holder of any proxy solicited by the Verilink
board of directors to vote in favor of granting discretionary
authority to the proxy holder to adjourn or postpone the
Verilink special meeting to a date not later than
August 31, 2004, for the purpose of soliciting additional
proxies. If the stockholders approve the adjournment proposal,
Verilink could adjourn the special meeting, and any adjourned
session of the special meeting, and use the additional time to
solicit additional proxies, including the solicitation of
proxies from stockholders that have previously voted. Among
other things, approval of the adjournment proposal could mean
that, even if Verilink had received proxies representing a
sufficient number of votes against issuance of shares of
Verilink common stock to Larscom stockholders pursuant to the
merger agreement or the approval of Verilinks 2004 Stock
Incentive Plan to defeat either such proposal, Verilink could
adjourn or postpone the special meeting without a vote on either
such proposal and seek to convince the holders of those shares
to change their votes to votes in favor of the issuance of
shares of Verilink common stock to Larscom stockholders pursuant
to the merger agreement or the approval of Verilinks 2004
Stock Incentive Plan.
Vote Required; Recommendation of the Board of
Directors
Under Verilinks bylaws, the adjournment
proposal requires the approval of a majority of the votes cast
on the proposal assuming a quorum is present to conduct business
at the Verilink special meeting.
114
Broker non-votes and abstentions will have no
effect on the outcome of the vote on the adjournment proposal.
No proxy that is specifically marked AGAINST the
issuance of shares of Verilink common stock to Larscom
stockholders pursuant to the merger agreement or the approval of
Verilinks 2004 Stock Incentive Plan will be voted in favor
of the adjournment proposal, unless it is specifically marked
FOR granting the discretionary authority to adjourn
or postpone the special meeting to a later date.
Verilinks board of directors believes that
if the number of shares of Verilink common stock represented in
person or by proxy at the special meeting and voting in favor of
the issuance of shares of Verilink common stock to Larscom
stockholders pursuant to the merger agreement and the approval
of Verilinks 2004 Stock Incentive Plan is insufficient to
approve either such proposal, it is in the best interests of the
stockholders of Verilink to enable the board to continue to seek
to obtain a sufficient number of additional votes in favor of
either such proposal to bring about its approval.
VERILINKS BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE VERILINK STOCKHOLDERS VOTE FOR
THE PROPOSAL TO GRANT DISCRETIONARY AUTHORITY TO ADJOURN OR
POSTPONE THE VERILINK SPECIAL MEETING TO A DATE NOT LATER THAN
AUGUST 31, 2004, FOR THE PURPOSE OF SOLICITING ADDITIONAL
PROXIES.
EXPERTS
The consolidated financial statements of Verilink
as of June 27, 2003 and June 28, 2002, and for each of
the three years in the period ended June 27, 2003
incorporated in this joint proxy statement/prospectus by
reference to Verilinks Annual Report on Form 10-K
have been audited by PricewaterhouseCoopers LLP, independent
registered public accounting firm, as stated in their report
appearing therein, and have been so incorporated in reliance
upon the report of such firm given upon their authority as
experts in accounting and auditing,
The consolidated financial statements of XEL as
of December 27, 2003 and December 28, 2002, and for
each of the two years in the period ended December 27, 2003
included in this joint proxy statement/prospectus have been
audited by Ehrhardt Keefe Steiner & Hottman PC,
independent registered public accounting firm, as stated in
their report appearing elsewhere herein, and have been so
included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Larscom as of
December 31, 2003 and 2002, and for each of the three years
in the period ended December 31, 2003 incorporated by
reference to Larscoms Annual Report on Form 10-K have
been so incorporated in reliance on the report (which contains
an explanatory paragraph relating to Larscoms ability to
continue as a going concern as described in Note 1 to the
financial statements) of PricewaterhouseCoopers LLP, independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of VINA
Technologies, Inc. as of December 31, 2002 and 2001, and
for each of the three years in the period ended
December 31, 2002, included in this registration statement
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their report appearing herein and elsewhere in the registration
statement (which report expresses an unqualified opinion and
include explanatory paragraphs referring to the substantial
doubt as to VINA Technologies, Inc.s ability to continue
as a going concern and a change in the method of accounting for
goodwill and other intangible assets to conform to Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets), and have been so included in
reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Verilink common
stock offered by this document and certain legal matters with
respect to the material federal income tax consequences of the
merger will be passed upon for Verilink by Powell, Goldstein,
Frazer & Murphy LLP, Atlanta, Georgia. Certain legal
matters with
115
respect to the material federal income tax
consequences of the merger will be passed upon for Larscom by
Cooley Godward LLP, San Francisco, California.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies
and intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by
delivering a single proxy statement addressed to those
stockholders. This process, which is commonly referred to as
householding, potentially means extra convenience
for stockholders and cost savings for companies.
This year, a number of brokers with account
holders who are stockholders of Verilink or Larscom will be
householding our proxy materials. A single proxy
statement will be delivered to multiple stockholders sharing an
address unless contrary instructions have been received from the
affected stockholders. Once you have received notice from your
broker that they will be householding communications
to your address, householding will continue until
you are notified otherwise or until you revoke your consent. If,
at any time, you no longer wish to participate in
householding and would prefer to receive a separate
proxy statement and annual report, please notify your broker,
direct your request to Verilink or Larscom at the address and
telephone numbers set forth under Where You Can Find More
Information below. Stockholders who currently receive
multiple copies of the proxy statement at their address and
would like to request householding of their
communications should contact their broker.
WHERE YOU CAN FIND MORE INFORMATION
This document incorporates other reports by
reference.
Each of Verilink and Larscom files reports, proxy
statements and other information with the SEC. Verilink and
Larscom stockholders may read and copy any reports, proxy
statements or other information filed by the companies at the
SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
(800) SEC-0330.
Copies of these materials can also be obtained by
mail at prescribed rates from the Public Reference Section of
the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 or by calling the SEC at (800)
SEC-0330. The SEC maintains a website that contains reports,
proxy statements and other information regarding Verilink and
Larscom. The address of the SEC website is
www.sec.gov.
As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you
can find in the registration statement or the exhibits to the
registration statement.
The SEC allows us to incorporate by
reference information into this joint proxy
statement/prospectus, which means that we can disclose important
information to their stockholders by referring them to another
document filed separately with the SEC. The documents
incorporated by reference into this joint proxy
statement/prospectus contain important information about
Verilink and Larscom that you should read.
The following documents, which have been filed by
Verilink with the SEC, are incorporated by reference into this
document:
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|
|
|
|
Annual Report on Form 10-K for the fiscal
year ended June 27, 2003 filed on September 24, 2003,
as amended by Form 10-K/A filed April 22, 2004, copies
of which are delivered with this joint proxy
statement/prospectus;
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|
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|
Quarterly Report on Form 10-Q for the
quarter ended April 2, 2004 filed on May 17, 2004, a
copy of which is delivered with this joint proxy
statement/prospectus;
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|
|
Quarterly Report on Form 10-Q for the
quarter ended January 2, 2004 filed on February 17,
2004, as amended by Form 10-Q/A filed April 22, 2004;
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116
|
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|
Quarterly Report on Form 10-Q for the
quarter ended October 3, 2003 filed on November 17,
2003, as amended by Form 10-Q/A filed April 22, 2004;
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Current Report on Form 8-K filed on
April 30, 2004;
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|
Current Report on Form 8-K filed on
April 28, 2004 (other than the information furnished in
Item 12 and Exhibit 99.1 thereto, which are not
incorporated by reference); and
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Current Report on Form 8-K filed on
February 20, 2004, as amended by Form 8-K/A filed on
April 20, 2004 and June 9, 2004.
|
The following documents, which have been filed by
Larscom with the SEC, are incorporated by reference in this
document:
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|
|
|
|
Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 filed on March 30, 2004,
as amended by Form 10-K/A filed April 29, 2004, copies
of which are delivered with this joint proxy
statement/prospectus;
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Quarterly Report on Form 10-Q for the
quarter ended April 2, 2004 filed on May 13, 2004, a
copy of which is delivered with this joint proxy
statement/prospectus;
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|
Current Report on Form 8-K filed on
April 30, 2004; and
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Current Report on Form 8-K filed on
April 22, 2004.
|
Verilink and Larscom also incorporate by
reference into this joint proxy statement/prospectus all
documents filed with the SEC by Larscom pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act from
the date of this joint proxy statement/prospectus to the date of
their respective special meetings of stockholders. These
documents include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
Verilink has supplied all information contained
or incorporated by reference in this joint proxy
statement/prospectus relating to Verilink. Larscom has supplied
all information contained or incorporated by reference in this
joint proxy statement/prospectus relating to Larscom.
You may have previously received some of the
documents incorporated by reference in this joint proxy
statement/prospectus, but you can obtain any of them through
Verilinks, Larscoms Internet world wide web site as
listed below, or the SEC or the SECs Internet world wide
web site,
www.sec.gov.
Documents incorporated by
reference are available from Verilink and Larscom without
charge, excluding all exhibits, unless we have specifically
incorporated by reference an exhibit in this joint proxy
statement/prospectus. You may obtain documents incorporated by
reference in this joint proxy statement/prospectus by requesting
them in writing or by telephone from Verilink and Larscom at the
following addresses:
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|
|
Verilink Corporation
127 Jetplex Circle
Madison, Alabama 35758
(256) 327-2001
|
|
Larscom Incorporated
39745 Eureka Drive
Newark, California 94560
(510) 492-0800
|
If you would like to request documents from
Larscom or Verilink, please do so by July 19, 2004, in
order to receive them before the special meeting.
You should rely only on the information contained
or incorporated by reference in this joint proxy
statement/prospectus to vote on adoption and approval of the
merger agreement and approval of the merger or the issuance of
Verilink common stock in connection with the merger. Neither
Verilink nor has authorized anyone to provide you with
information that is different from what is contained in this
joint proxy statement/prospectus. This joint proxy
statement/prospectus is dated June 24, 2004. You should not
assume that the information contained in the joint proxy
statement/prospectus is accurate as of any date other than that
date, and neither the mailing of this joint proxy
statement/prospectus to stockholders nor the issuance of
Verilink common stock in the merger shall create any implication
to the contrary.
117
INDEX TO FINANCIAL STATEMENTS
Financial statements of Verilink and Larscom are
included in their respective annual reports on Form 10-K
and quarterly reports on Form 10-Q, copies of which are
furnished with and incorporated by reference in this document.
The consolidated financial statements of XEL
Communications, Inc., which Verilink acquired as of
February 5, 2004, and VINA Technologies, Inc., which
Larscom acquired on June 5, 2003, are set forth below.
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Page
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XEL Communications, Inc.
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Independent Auditors Report
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F-2
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|
Financial Statements
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Balance Sheets
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F-3
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Statements of Income
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F-4
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|
Statement of Changes in Stockholders Equity
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F-5
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Statements of Cash Flows
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F-6
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|
Notes to Financial Statements
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F-7
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|
|
VINA Technologies, Inc.
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Report of Independent Registered Public
Accounting Firm
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F-11
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|
Consolidated Balance Sheets as of
December 31, 2001 and 2002
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F-12
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|
Consolidated Statements of Operations for the
years ended December 31, 2000, 2001 and 2002
|
|
|
F-13
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|
Consolidated Statements of Stockholders
Equity and Comprehensive Loss for the years ended
December 31, 2000, 2001 and 2002
|
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F-14
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|
Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 2001 and 2002
|
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F-15
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|
Notes to Consolidated Financial Statements
|
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F-17
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|
|
Unaudited Condensed Consolidated Balance Sheets
as of December 31, 2002 and March 31, 2003
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|
F-36
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|
Unaudited Condensed Consolidated Statements of
Operations for the three months ended March 31, 2002 and
2003
|
|
|
F-37
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|
Unaudited Condensed Consolidated Statements of
Cash Flows for the three months ended March 31, 2002 and
2003
|
|
|
F-38
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|
Notes to Unaudited Condensed Consolidated
Financial Statements
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F-39
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F-1
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholder
XEL Communications, Inc.
Aurora, Colorado
We have audited the accompanying balance sheets
of XEL Communications, Inc. as of December 27, 2003 and
December 28, 2002 and the related statements of income,
stockholders equity and cash flows for the years then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
[United States]. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of XEL Communications, Inc. as of December 27,
2003 and December 28, 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
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/s/ Ehrhardt Keefe Steiner & Hottman PC
|
January 26, 2004, except for Note 9,
for which the date
is May 29, 2004
Denver, Colorado
F-2
XEL COMMUNICATIONS, INC.
BALANCE SHEETS
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December 27,
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December 28,
|
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2003
|
|
2002
|
|
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|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
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|
Cash
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|
$
|
899,841
|
|
|
$
|
1,184,809
|
|
|
Accounts receivable net
|
|
|
2,650,734
|
|
|
|
3,841,039
|
|
|
Inventories, net
|
|
|
2,628,292
|
|
|
|
3,315,374
|
|
|
Prepaid expenses and other
|
|
|
63,769
|
|
|
|
66,570
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,242,636
|
|
|
|
8,407,792
|
|
Property, plant and equipment, net
|
|
|
175,134
|
|
|
|
241,163
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,417,770
|
|
|
$
|
8,648,955
|
|
|
|
|
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|
|
|
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|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
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|
Accounts payable trade
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|
$
|
2,854,380
|
|
|
$
|
2,991,107
|
|
|
Accrued expenses
|
|
|
1,087,913
|
|
|
|
989,946
|
|
|
Accrued payroll costs and benefits
|
|
|
335,475
|
|
|
|
260,838
|
|
|
Accrued other taxes
|
|
|
75,406
|
|
|
|
45,833
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|
|
Accrued product warranty
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,413,174
|
|
|
|
4,347,724
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value,
4,579 shares authorized, issued and outstanding
|
|
|
4,579
|
|
|
|
4,579
|
|
|
Additional paid-in capital
|
|
|
51,501,090
|
|
|
|
51,501,090
|
|
|
Accumulated deficit
|
|
|
(45,492,104
|
)
|
|
|
(45,969,721
|
)
|
|
Notes receivable-related party
|
|
|
(4,008,969
|
)
|
|
|
(1,234,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,004,596
|
|
|
|
4,301,231
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,417,770
|
|
|
$
|
8,648,955
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-3
XEL COMMUNICATIONS, INC.
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ending
|
|
|
|
|
|
December 27,
|
|
December 28,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Net sales
|
|
$
|
20,864,243
|
|
|
$
|
17,451,951
|
|
Cost of goods sold
|
|
|
15,040,953
|
|
|
|
11,972,960
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,823,290
|
|
|
|
5,478,991
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
942,188
|
|
|
|
825,410
|
|
|
Osmine certification expense
|
|
|
82,200
|
|
|
|
465,800
|
|
|
Product licensing
|
|
|
200,000
|
|
|
|
|
|
|
Sales and marketing
|
|
|
2,561,111
|
|
|
|
2,311,801
|
|
|
General and administrative
|
|
|
1,611,885
|
|
|
|
1,440,010
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,397,384
|
|
|
|
5,043,021
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
425,906
|
|
|
|
435,970
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
50,995
|
|
|
|
45,800
|
|
|
Interest expense
|
|
|
(1,571
|
)
|
|
|
|
|
|
Gain on disposal of assets
|
|
|
132
|
|
|
|
|
|
|
Other
|
|
|
2,155
|
|
|
|
3,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
51,711
|
|
|
|
49,432
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
477,617
|
|
|
$
|
485,402
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-4
XEL COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY
For the Years Ended December 27, 2003 and
December 28, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
Receivable
|
|
Total
|
|
|
|
|
Paid-In
|
|
Accumulated
|
|
Related
|
|
Stockholders
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Party
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 29, 2001
|
|
|
4,579
|
|
|
$
|
4,579
|
|
|
$
|
51,501,090
|
|
|
$
|
(46,455,123
|
)
|
|
$
|
(391,999
|
)
|
|
$
|
4,658,547
|
|
Notes receivable related party
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(842,718
|
)
|
|
|
(842,718
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485,402
|
|
|
|
|
|
|
|
485,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 28, 2002
|
|
|
4,579
|
|
|
|
4,579
|
|
|
|
51,501,090
|
|
|
|
(45,969,721
|
)
|
|
|
(1,234,717
|
)
|
|
|
4,301,231
|
|
Notes receivable related party
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,774,252
|
)
|
|
|
(2,774,252
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477,617
|
|
|
|
|
|
|
|
477,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 27, 2003
|
|
|
4,579
|
|
|
$
|
4,579
|
|
|
$
|
51,501,090
|
|
|
$
|
(45,492,104
|
)
|
|
$
|
(4,008,969
|
)
|
|
$
|
2,004,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-5
XEL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
December 27,
|
|
December 28,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
477,617
|
|
|
$
|
485,402
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
131,018
|
|
|
|
267,135
|
|
|
|
Reserve for obsolete inventory
|
|
|
(113,499
|
)
|
|
|
(446,244
|
)
|
|
|
Reserve for doubtful accounts
|
|
|
20,000
|
|
|
|
(52,271
|
)
|
|
|
Gain on disposal of assets
|
|
|
(132
|
)
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable trade
|
|
|
1,170,305
|
|
|
|
(1,754,142
|
)
|
|
|
|
Inventories
|
|
|
800,581
|
|
|
|
723,547
|
|
|
|
|
Prepaid expenses and other
|
|
|
2,801
|
|
|
|
(21,235
|
)
|
|
|
|
Accounts payable trade
|
|
|
(136,727
|
)
|
|
|
636,033
|
|
|
|
|
Accruals
|
|
|
202,177
|
|
|
|
806,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,076,524
|
|
|
|
159,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,554,141
|
|
|
|
644,465
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Notes receivable related party
|
|
|
(2,774,252
|
)
|
|
|
(842,718
|
)
|
|
Purchase of fixed assets
|
|
|
(64,857
|
)
|
|
|
(30,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,839,109
|
)
|
|
|
(873,688
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Advances on line of credit
|
|
|
300,000
|
|
|
|
|
|
|
Repayments on line of credit
|
|
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(284,968
|
)
|
|
|
(229,223
|
)
|
Cash beginning of year
|
|
|
1,184,809
|
|
|
|
1,414,032
|
|
|
|
|
|
|
|
|
|
|
Cash end of year
|
|
$
|
899,841
|
|
|
$
|
1,184,809
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-6
XEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
|
|
Note 1
|
Description of Business and Summary of
Significant Accounting Policies
|
XEL Communications, Inc. (the Company) is a
provider of high-bandwidth connectivity equipment and services
to telecommunications companies.
The Company ends its fiscal year on the final
Saturday in December.
|
|
|
Cash and Cash Equivalents
|
The Company considers all highly liquid
instruments purchased with an original maturity of three months
or less to be cash equivalents. The Company continually monitors
its positions with, and the credit quality of, the financial
institutions it invests with. As of the balance sheet date, and
periodically throughout the year, the Company has maintained
balances in various operating accounts in excess of federally
insured limits.
The Company extends unsecured credit to its
customers in the ordinary course of business but mitigates the
associated credit risk by performing credit checks and actively
pursuing past due accounts. Management of the Company has
established an allowance for doubtful accounts of $23,946 and
$3,946 for the years ended December 27, 2003 and
December 28, 2002, respectively based on their estimate of
uncollectible accounts. Amounts determined to be uncollectible
are expensed in the period such determination is made.
|
|
|
Concentrations of Credit Risk
|
During the year ended December 27, 2003, one
customer accounted for 94% of total revenues and 78% of total
accounts receivable at December 27, 2003. During the year
ended December 28, 2002, the same customer accounted for
approximately 80% of total revenues and 86% of total accounts
receivable at December 28, 2002. This customer operates
distinct and separate operating regions and has different
purchasing centers which purchase a variety of differing
products from the Company.
Inventory consists of merchandise inventories and
finished goods and is stated at the lower of cost or market,
determined using the first-in, first-out method (FIFO).
Property and equipment is stated at cost.
Depreciation is provided utilizing the straight-line method over
the estimated useful lives for owned assets, ranging from 5 to
7 years.
The Company has elected to be treated as an
S-corporation for income tax purposes. Accordingly, taxable
income and losses of the Company are reported on the income tax
returns of the Companys stockholder and no provisions for
federal income taxes have been recorded on the accompanying
financial statements.
F-7
XEL COMMUNICATIONS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The Company recognizes revenue as product is
shipped and as service is provided. Services include
installation of products at customer locations.
The Company expenses advertising costs as
incurred. Advertising costs were $33,828 and $15,807 for the
years ended December 27, 2003 and December 28, 2002,
respectively.
|
|
|
Research and Development
Costs
|
Expenditures made for research and development
are charged to expense as incurred.
|
|
|
Software Development Costs
|
The Company applies the provisions of Statement
of Position 98-1, Accounting for Costs of Computer
Software Developed for Internal Use. The Company accounts
for costs incurred in the development of computer software as
software research and development costs until the preliminary
project stage is completed. Direct costs incurred in the
development of software are capitalized once the preliminary
project stage is completed, management has committed to funding
the project and completion and use of the software for its
intended purpose are probable. The Company ceases capitalization
of development costs once the software has been substantially
completed and is ready for its intended use. Software
development costs are amortized over their estimated useful
lives of five years. Due to the nature of the Companys
software development expenditures, historically minimal amounts
have been capitalized.
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Certain amounts in the 2002 financial statements
have been reclassified to conform to the 2003 presentation.
|
|
Note 2
|
Balance Sheet Disclosures
|
Accounts receivable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
December 28,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Accounts receivable trade
|
|
$
|
2,674,680
|
|
|
$
|
3,844,985
|
|
Less allowance for doubtful accounts
|
|
|
(23,946
|
)
|
|
|
(3,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,650,734
|
|
|
$
|
3,841,039
|
|
|
|
|
|
|
|
|
|
|
F-8
XEL COMMUNICATIONS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
December 28,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Merchandise inventories
|
|
$
|
954,979
|
|
|
$
|
1,441,241
|
|
Finished goods
|
|
|
1,747,383
|
|
|
|
2,061,702
|
|
Less reserve for obsolete inventory
|
|
|
(74,070
|
)
|
|
|
(187,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,628,292
|
|
|
$
|
3,315,374
|
|
|
|
|
|
|
|
|
|
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
December 28,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Equipment
|
|
$
|
3,817,347
|
|
|
$
|
3,797,120
|
|
Computer equipment
|
|
|
1,071,440
|
|
|
|
1,034,386
|
|
Furniture
|
|
|
660,165
|
|
|
|
661,187
|
|
Software
|
|
|
565,858
|
|
|
|
565,858
|
|
Vehicles
|
|
|
16,552
|
|
|
|
16,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,131,362
|
|
|
|
6,075,103
|
|
Less accumulated depreciation
|
|
|
(5,956,228
|
)
|
|
|
(5,833,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175,134
|
|
|
$
|
241,163
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the periods ended:
|
|
|
|
|
|
|
|
|
2003
|
|
$
|
131,018
|
|
|
|
|
|
2002
|
|
$
|
267,135
|
|
|
|
|
|
Note 3 Line-of-Credit
During 2003, the Company had available a $500,000
line-of-credit payable to a bank. The line-of-credit matured in
November 2003 and was not renewed.
Note 4 Commitments
The Company leases facilities and equipment under
operating leases.
Rent expense for these leases was:
|
|
|
|
|
Fiscal Years Ending
|
|
|
|
|
|
2003
|
|
$
|
106,155
|
|
2002
|
|
$
|
29,887
|
|
Future minimum lease payments under these leases
are approximately as follows:
|
|
|
|
|
Fiscal Years Ending
|
|
|
|
|
|
2004
|
|
$
|
82,329
|
|
2005
|
|
|
8,782
|
|
|
|
|
|
|
|
|
$
|
91,111
|
|
|
|
|
|
|
F-9
XEL COMMUNICATIONS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
Note 5
|
Related Party Transactions
|
The current stockholder of the Company purchased
the stock of the Company for $4,900,000 from Salient 3
Communications in December 2000. The current stockholder issued
a note payable to Salient 3 Communications for $4,900,000.
During 2002, the current stockholder and Salient 3
Communications amended the original agreement and negotiated a
reduction in the purchase price of the stock in the Company by
canceling the original note payable and issuing three notes
payable of $141,000, $359,000 and $1,400,000. The largest note
requires principal and interest payments until maturity, which
was July 31, 2003. The remaining two notes require interest
only payments until maturity, which was July 31, 2003. The
Company has made the principal and interest payments on behalf
of the stockholder and has created the above related party
receivable. $490,000 had been paid to Salient 3
Communications prior to the renegotiation of the original note.
|
|
Note 6
|
Notes Receivable Related
Party
|
Related party notes receivable consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
December 28,
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Note receivable from stockholder, variable
interest rate of 1.67% at December 27, 2003, due on demand
as maturity has passed and no extension has been made
|
|
$
|
391,999
|
|
|
$
|
391,999
|
|
Note receivable from stockholder, variable
interest rate of 1.67% at December 27, 2003, due on demand
as maturity has passed and no extension has been made
|
|
|
842,718
|
|
|
|
842,718
|
|
Note receivable from stockholder, variable
interest rate of 1.67% at December 27, 2003, due on
December 24, 2004
|
|
|
1,974,252
|
|
|
|
|
|
Note receivable from stockholder, variable
interest rate of 1.67% at December 27, 2003, due on
December 24, 2004
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,008,969
|
|
|
$
|
1,234,717
|
|
|
|
|
|
|
|
|
|
|
In spite of the fact that the notes receivable
have either matured or will mature in the next year, management
has indicated that there is no intent to repay the notes
receivable in the foreseeable future. Interest income for the
years ended December 27, 2003 and December 28, 2002
was and $33,812 and $19,910, respectively.
|
|
Note 7
|
Employee Benefit Plan
|
The Company has a 401(k) plan. All eligible
employees over age 18 are able to participate the first day
of employment. The plan provides for employer matching
contributions of amounts equal to 100% of each
participants eligible contributions up to 4% of
participants plan year compensation. The Company made
contributions of approximately $143,094 and $130,296 during
fiscal years ended 2003 and 2002, respectively.
|
|
Note 8
|
Subsequent Events
|
Subsequent to the year ended December 27,
2003, the Company entered into a letter of intent to sell the
capital stock of the Company to an unrelated third party.
Note 9 Reclassification of
Notes Receivable-Related Party
Subsequent to December 31, 2003, management
determined that Notes Receivable-Related Party amounts should be
reflected as a deduction from stockholders equity in the
accompanying balance sheets.
F-10
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
VINA Technologies, Inc.
Newark, California
We have audited the accompanying consolidated
balance sheets of VINA Technologies and subsidiaries (the
Company) as of December 31, 2001 and 2002, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with
auditing standards of the Public Company Accounting Oversight
Board (United States) United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of VINA Technologies and subsidiaries as of
December 31, 2001 and 2002 and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 2 to consolidated the
financial statements, in 2002 the Company changed its method of
accounting for goodwill and other intangible assets to conform
to Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets.
The accompanying consolidated financial
statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the
financial statements, the Companys recurring losses from
operations raise substantial doubt about its ability to continue
as a going concern. Managements plans concerning these
matters are also described in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
San Jose, California
January 22, 2003
(February 28, 2003 as to Note 15)
F-11
VINA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share
|
|
|
and per share amounts)
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,805
|
|
|
$
|
4,567
|
|
|
Restricted cash
|
|
|
|
|
|
|
3,500
|
|
|
Short-term investments
|
|
|
500
|
|
|
|
50
|
|
|
Common stock subscription receivable
|
|
|
9,589
|
|
|
|
|
|
|
Accounts receivable, less of allowance for
doubtful accounts of $457 in 2001 and $245 in 2002
|
|
|
8,059
|
|
|
|
3,348
|
|
|
Inventories
|
|
|
5,733
|
|
|
|
3,367
|
|
|
Deposits
|
|
|
69
|
|
|
|
1,042
|
|
|
Prepaid expenses and other
|
|
|
1,493
|
|
|
|
1,312
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
41,248
|
|
|
|
17,186
|
|
Property and equipment, net
|
|
|
5,271
|
|
|
|
1,968
|
|
Other assets
|
|
|
356
|
|
|
|
32
|
|
Acquired intangibles, net
|
|
|
5,663
|
|
|
|
1,394
|
|
Goodwill, net
|
|
|
26,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
78,964
|
|
|
$
|
20,580
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,798
|
|
|
$
|
2,979
|
|
|
Accrued compensation and related benefits
|
|
|
2,234
|
|
|
|
900
|
|
|
Accrued warranty
|
|
|
696
|
|
|
|
414
|
|
|
Other current liabilities
|
|
|
2,708
|
|
|
|
1,915
|
|
|
Short-term debt
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,436
|
|
|
|
9,208
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock; $0.0001 par value;
5,000,000 shares authorized; none outstanding
|
|
|
|
|
|
|
|
|
|
Common stock; $0.0001 par value;
125,000,000 shares authorized: 2001 and 2002, shares
outstanding: 2001, 62,013,759; 2002, 62,080,636
|
|
|
6
|
|
|
|
6
|
|
|
Additional paid-in capital
|
|
|
194,814
|
|
|
|
189,297
|
|
|
Deferred stock compensation
|
|
|
(7,106
|
)
|
|
|
(315
|
)
|
|
Accumulated deficit
|
|
|
(122,186
|
)
|
|
|
(177,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
65,528
|
|
|
|
11,372
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
78,964
|
|
|
$
|
20,580
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-12
VINA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
Net revenue
|
|
$
|
32,078
|
|
|
$
|
45,112
|
|
|
$
|
25,143
|
|
Cost of revenue (excluding stock-based
compensation)
|
|
|
19,240
|
|
|
|
28,714
|
|
|
|
17,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (excluding stock-based compensation)
|
|
|
12,838
|
|
|
|
16,398
|
|
|
|
7,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (excluding stock-based
compensation)
|
|
|
12,609
|
|
|
|
18,841
|
|
|
|
13,931
|
|
|
Selling, general and administrative (excluding
stock-based compensation)
|
|
|
21,124
|
|
|
|
22,697
|
|
|
|
14,515
|
|
|
Stock-based compensation, net*
|
|
|
24,169
|
|
|
|
10,570
|
|
|
|
1,276
|
|
|
In-process research and development
|
|
|
|
|
|
|
5,081
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
8,243
|
|
|
|
789
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
29,783
|
|
|
Restructuring expenses (excluding stock-based
compensation)
|
|
|
|
|
|
|
991
|
|
|
|
2,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
57,902
|
|
|
|
66,423
|
|
|
|
63,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(45,064
|
)
|
|
|
(50,025
|
)
|
|
|
(55,626
|
)
|
Interest income
|
|
|
1,757
|
|
|
|
1,486
|
|
|
|
207
|
|
Interest expense
|
|
|
(25
|
)
|
|
|
|
|
|
|
(11
|
)
|
Other (expense)
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(43,332
|
)
|
|
$
|
(48,642
|
)
|
|
$
|
(55,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(2.63
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation, basic and diluted
|
|
|
16,467
|
|
|
|
37,121
|
|
|
|
61,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Stock-based compensation, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
1,855
|
|
|
$
|
1,016
|
|
|
$
|
520
|
|
|
|
Research and development
|
|
|
7,985
|
|
|
|
4,446
|
|
|
|
1,135
|
|
|
|
Selling, general and administrative
|
|
|
14,329
|
|
|
|
7,677
|
|
|
|
1,930
|
|
|
|
Restructuring benefit
|
|
|
|
|
|
|
(2,569
|
)
|
|
|
(2,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,169
|
|
|
$
|
10,570
|
|
|
$
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-13
VINA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
|
|
Deferred
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
Paid-In
|
|
Stock
|
|
Accumulated
|
|
Comprehensive
|
|
Stockholders
|
|
Comprehensive
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Deficit
|
|
Income
|
|
Equity
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share amounts)
|
Balances, December 31, 1999
|
|
|
14,290,517
|
|
|
|
1
|
|
|
|
8,746,081
|
|
|
|
1
|
|
|
|
44,081
|
|
|
|
(13,523
|
)
|
|
|
(30,212
|
)
|
|
|
|
|
|
|
348
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,332
|
)
|
|
|
|
|
|
|
(43,332
|
)
|
|
$
|
(43,332
|
)
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(43,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
3,081,973
|
|
|
|
|
|
|
|
3,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,573
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(425,866
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
Sale of Series E convertible preferred stock
(net of issuance of costs of $8)
|
|
|
3,404,140
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
23,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,821
|
|
|
|
|
|
Issuance of common stock (net of issuance costs
of $4,967)
|
|
|
|
|
|
|
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
36,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,433
|
|
|
|
|
|
Issuance of non- employee stock option for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
|
|
|
Conversion of convertible preferred stock
|
|
|
(17,694,657
|
)
|
|
|
(2
|
)
|
|
|
17,694,657
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,397
|
|
|
|
(36,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,534
|
|
|
|
|
|
|
|
|
|
|
|
23,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2000
|
|
|
|
|
|
|
|
|
|
|
32,546,845
|
|
|
|
3
|
|
|
|
144,708
|
|
|
|
(26,386
|
)
|
|
|
(73,544
|
)
|
|
|
48
|
|
|
|
44,829
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,642
|
)
|
|
|
|
|
|
|
(48,642
|
)
|
|
$
|
(48,642
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gains included in
net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
(48
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(48,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
1,018,448
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
Sale of common stock under employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
287,749
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(355,924
|
)
|
|
|
|
|
|
|
(706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(706
|
)
|
|
|
|
|
Issuance of common stock in acquisition
|
|
|
|
|
|
|
|
|
|
|
4,148,745
|
|
|
|
1
|
|
|
|
42,643
|
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
|
42,056
|
|
|
|
|
|
Issuance of common stock for asset purchase
|
|
|
|
|
|
|
|
|
|
|
2,217,527
|
|
|
|
|
|
|
|
2,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,549
|
|
|
|
|
|
Private placement of common stock (net of
issuance costs of $505)
|
|
|
|
|
|
|
|
|
|
|
22,150,369
|
|
|
|
2
|
|
|
|
11,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,723
|
|
|
|
|
|
Sale of warrants attached to common stock in
private placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,952
|
|
|
|
|
|
Stock-based compensation associated with private
placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
Issuance of non- employee stock option for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Net reversal of deferred stock compensation from
forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,591
|
)
|
|
|
9,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,277
|
|
|
|
|
|
|
|
|
|
|
|
10,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2001
|
|
|
|
|
|
|
|
|
|
|
62,013,759
|
|
|
|
6
|
|
|
|
194,814
|
|
|
|
(7,106
|
)
|
|
|
(122,186
|
)
|
|
|
|
|
|
|
65,528
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,430
|
)
|
|
|
|
|
|
|
(55,430
|
)
|
|
$
|
(55,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
213,948
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(78,982
|
)
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
Sale of common stock under employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
194,707
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
Close of Woodwind purchase escrow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of held shares
|
|
|
|
|
|
|
|
|
|
|
(262,796
|
)
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
Net reversal of deferred stock compensation from
forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,515
|
)
|
|
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2002
|
|
|
|
|
|
$
|
|
|
|
|
62,080,636
|
|
|
$
|
6
|
|
|
$
|
189,297
|
|
|
$
|
(315
|
)
|
|
$
|
(177,616
|
)
|
|
$
|
|
|
|
$
|
11,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-14
VINA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(43,332
|
)
|
|
$
|
(48,642
|
)
|
|
$
|
(55,430
|
)
|
|
Reconciliation of net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,042
|
|
|
|
10,080
|
|
|
|
2,792
|
|
|
|
Disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
1,947
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
29,783
|
|
|
|
Stock-based compensation, net
|
|
|
24,169
|
|
|
|
10,570
|
|
|
|
1,276
|
|
|
|
In-process research and development
|
|
|
|
|
|
|
5,081
|
|
|
|
|
|
|
|
Accrued interest income on short-term investments
|
|
|
(1,180
|
)
|
|
|
797
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net
of effects from acquisition in 2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,774
|
)
|
|
|
(2,810
|
)
|
|
|
4,711
|
|
|
|
|
Inventories
|
|
|
(1,877
|
)
|
|
|
(3,416
|
)
|
|
|
2,366
|
|
|
|
|
Prepaid expenses and other
|
|
|
(2,483
|
)
|
|
|
1,215
|
|
|
|
(792
|
)
|
|
|
|
Other assets
|
|
|
(58
|
)
|
|
|
(220
|
)
|
|
|
324
|
|
|
|
|
Accounts payable
|
|
|
5,015
|
|
|
|
(1,294
|
)
|
|
|
(4,819
|
)
|
|
|
|
Accrued compensation and related benefits
|
|
|
1,697
|
|
|
|
(898
|
)
|
|
|
(1,334
|
)
|
|
|
|
Accrued warranty
|
|
|
237
|
|
|
|
10
|
|
|
|
(282
|
)
|
|
|
|
Other current liabilities
|
|
|
1,455
|
|
|
|
(853
|
)
|
|
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(18,089
|
)
|
|
|
(30,380
|
)
|
|
|
(20,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,782
|
)
|
|
|
(1,108
|
)
|
|
|
(648
|
)
|
|
Purchases of short-term investments
|
|
|
(50,499
|
)
|
|
|
(1,050
|
)
|
|
|
(50
|
)
|
|
Proceeds from sales/maturities of short-term
investments
|
|
|
15,000
|
|
|
|
36,432
|
|
|
|
|
|
|
Net cash from acquisition
|
|
|
|
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities
|
|
|
(39,281
|
)
|
|
|
33,820
|
|
|
|
(698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of convertible preferred
stock
|
|
|
23,821
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock
|
|
|
36,433
|
|
|
|
4,086
|
|
|
|
9,589
|
|
|
Proceeds from the sale of stock under employee
stock purchase and stock option plans
|
|
|
3,573
|
|
|
|
1,245
|
|
|
|
229
|
|
|
Repurchase of common stock
|
|
|
(231
|
)
|
|
|
(706
|
)
|
|
|
(107
|
)
|
|
Proceeds from the issuance of short-term debt
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
Restricted cash related to short-term debt
|
|
|
|
|
|
|
|
|
|
|
(3,000
|
)
|
|
Proceeds from issuance of long-term debt
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(1,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
62,542
|
|
|
|
4,625
|
|
|
|
9,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
5,172
|
|
|
|
8,065
|
|
|
|
(11,238
|
)
|
Cash and cash equivalents, Beginning of year
|
|
|
2,568
|
|
|
|
7,740
|
|
|
|
15,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, End of year
|
|
$
|
7,740
|
|
|
$
|
15,805
|
|
|
$
|
4,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock compensation, net of forfeitures
|
|
$
|
36,397
|
|
|
$
|
(9,591
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible preferred stock into
common stock
|
|
$
|
48,120
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gain on available-for-sale
investments
|
|
$
|
80
|
|
|
$
|
(80
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subscription receivable
|
|
$
|
|
|
|
$
|
9,589
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in acquisition
|
|
$
|
|
|
|
$
|
42,056
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for asset purchase
|
|
$
|
|
|
|
$
|
2,549
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
64
|
|
|
$
|
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
10
|
|
|
$
|
19
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-16
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Years Ended December 31, 2000, 2001 and
2002
1. Going
Concern
The accompanying financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As shown in the financial statements,
during the year ended December 31, 2002, VINA used cash in
operating activities of $20.3 million. As of
December 31, 2002, VINA had cash and cash equivalents of
$4.6 million and an accumulated deficit of
$177.6 million. These factors, among others, indicate that
VINA may be unable to continue as a going concern for a
reasonable period of time. VINA has implemented, and is
continuing to pursue, aggressive cost cutting programs in order
to preserve available cash. VINA is also evaluating other
sources of funding, such as the line of credit secured in
February 2003. (See Note 15). The financial statements do
not include any adjustments that might result from the outcome
of this uncertainty.
2. Business and
Significant Accounting Policies
Business
VINA Technologies, Inc. (VINA or VINA), incorporated in June
1996, designs, develops, markets and sells multiservice
broadband access communications equipment that enables
telecommunications service providers to deliver bundled voice
and data services. VINA has incurred significant losses since
inception and expects that net losses and negative cash flows
from operations will continue for the foreseeable future.
Basis of
Presentation
The
consolidated financial statements include the accounts of VINA
Technologies, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of
Estimates
The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses
during the reporting period. Such management estimates include
an allowance for doubtful accounts receivable, reserves for
sales returns, provisions for inventory to reflect the net
realizable value, valuation allowances against deferred income
taxes, restructuring reserves and accruals for product warranty
and other liabilities. Actual results could differ from those
estimates.
Certain Significant Risks and
Uncertainties
Financial
instruments which potentially subject VINA to concentrations of
credit risk consist primarily of cash equivalents, short-term
investments and accounts receivable. VINA only invests its cash
in highly liquid and high investment grade instruments. VINA
sells its products to distributors and end users primarily in
the United States and generally does not require its customers
to provide collateral or other security to support accounts
receivable. To reduce credit risk, management performs ongoing
credit evaluations of its customers financial condition
and maintains allowances for estimated potential bad debt
losses. VINAs contract manufacturer has obtained or has on
order substantial amounts of inventory to meet its revenue
forecasts. If future shipments do not utilize the committed
inventory, the contract manufacturer has the right to bill VINA
for any excess component and finished goods inventory. VINA also
has a non-cancelable purchase order with a major chip supplier
for one of its critical components. (See Note 9)
VINA participates in a dynamic high technology
industry and believes that changes in any of the following areas
could have a material adverse effect on VINAs future
consolidated financial position, results of operations or cash
flows: advances, trends in new technologies and developing
industry standards; competitive pressures in the form of new
products or price reductions on current products; changes in the
overall demand for products offered by VINA; changes in certain
strategic relationships or customer
F-17
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
relationships; litigation or claims against VINA
based on intellectual property, patent, product, regulatory or
other factors; risk associated with changes in domestic and
international economic and/or political conditions or
regulations; VINAs ability to obtain additional capital to
support operations; VINAs ability to integrate acquired
businesses and VINAs ability to attract and retain
employees necessary to support its growth.
Certain components and subassemblies used in
VINAs products are purchased from a sole supplier or a
limited group of suppliers. In addition, VINA outsources the
production and manufacture of its access integration devices to
a sole turnkey manufacturer. Any manufacturing disruption,
shortage of supply of products or components, or the inability
of VINA to procure products or components from alternative
sources on acceptable terms could have a material adverse effect
on VINAs business, consolidated financial position and
results of operations.
Cash
Equivalents
VINA
classifies all investments in highly liquid debt instruments
with maturities at the date of purchase of three months or less
as cash equivalents.
Restricted
Cash
Restricted cash
consists of cash and a certificate of deposit (CD) with a
maturity of less than one year. This cash and CD are carried at
fair value and are restricted as collateral for specified
obligations under certain line of credit and lease agreements.
Short-Term
Investments
Short-term
investments consist of various instruments with investment grade
credit ratings. All of VINAs short-term investments are
classified as available-for-sale based on
VINAs intended use and are stated at fair market value
based on quoted market prices. The difference between amortized
cost and fair value representing unrealized holding gains or
losses is recorded as a component of stockholders equity,
net of tax, as accumulated other comprehensive income. Gains and
losses on sales are determined on a specific identification
basis.
Fair Value of Financial
Instruments
VINAs
financial instruments include cash equivalents and short-term
investments. Cash equivalents are stated at cost which
approximates fair market value based on quoted market prices.
Short-term investments are stated at fair market value based on
quoted market prices.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Deposits
Deposits consist of money deposited with specific vendors and
landlords as security. The carrying amounts are the values to be
returned upon cessation of security requirements.
Prepaid and Other
Assets
Prepaid and other
assets consists of various interest and other non-revenue
receivables, prepaid licenses and royalties.
Property and
Equipment
Property and
equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line
method over estimated useful lives of three to five years.
Amortization of leasehold improvements is computed over the
shorter of the lease term or the estimated useful lives of the
related assets.
Long-Lived
Assets
VINA evaluates
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss would be recognized when
the sum of the undiscounted future net cash flows expected to
result from the use of the asset and its eventual disposition is
less than its carrying amount. Such impairment loss would be
measured as the difference between the carrying amount of the
asset and its fair value based on the present value of estimated
future cash flows.
Short-Term
Debt
Short-term debt
consists of a committed revolving line of credit with a term of
one year, which bears interest at a rate of the Prime rate plus
two percent. The line is secured by
F-18
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$3 million of restricted cash as of
December 31, 2002. The line of credit is carried at fair
value. The entire balance was repaid in January 2003.
Income
Taxes
VINA accounts for
income taxes under an asset and liability approach. Deferred
income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes, and operating loss and tax credit
carryforwards measured by applying currently enacted tax laws. A
valuation allowance is provided to reduce net deferred tax
assets to an amount that is more likely than not to be realized.
Stock-Based
Compensation
VINA accounts
for stock-based awards to employees using the intrinsic value
method in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to
Employees, and to nonemployees using the fair value method in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation. See Note 10 for discussion of assumptions
used in computing fair values and the pro forma results of
operations, had VINA accounted for employee stock-based
compensation in accordance with SFAS No. 123.
For purposes of pro forma disclosure under
SFAS No. 123, the estimated fair value of the options
is assumed to be amortized to expense over the options
vesting period, using the multiple option method. Pro forma
information is as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
(43,332
|
)
|
|
$
|
(48,642
|
)
|
|
$
|
(55,430
|
)
|
Add: Stock-based compensation included in
reported net loss, net of related tax effects
|
|
|
23,534
|
|
|
|
9,747
|
|
|
|
1,273
|
|
Less: Stock-based compensation expense determined
under the fair value method for all awards, net of related tax
effects
|
|
|
(24,426
|
)
|
|
|
(15,503
|
)
|
|
|
(1,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(44,224
|
)
|
|
$
|
(54,398
|
)
|
|
$
|
(55,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, as reported basic
and diluted
|
|
$
|
(2.63
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share basic
and diluted
|
|
$
|
(2.69
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Recognition
VINA
recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered,
the price is fixed and determinable and collectibility is
reasonably assured. VINA generates revenue from sale of products
and related services to communications service providers and
through original equipment manufacturers and value added
resellers.
Product revenue is generated from the sale of
communications equipment embedded with software that is
essential to its functionality, and accordingly, VINA accounts
for these transactions in accordance with SEC Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition
in Financial Statements, and Statement of Position
(SOP) 97-2, Software Revenue Recognition. Product revenue
is recognized when all SAB No. 101 and SOP 97-2
criteria are met which generally occurs at the time of shipment.
In multiple element arrangements where there are undelivered
elements at the time of shipment, product revenue is recognized
at the time of shipment as the residual value of the arrangement
after allocation of fair value to the undelivered elements based
on vendor specific objective evidence (VSOE). There is no VSOE
on the sales of communications equipment due to the wide range
in customer discounts provided by VINA.
Service revenue is generated from the sale of
installation, training and postcontract customer support (PCS)
agreements related to the communications equipment. VINA also
accounts for these transactions
F-19
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in accordance with SAB No. 101 and
SOP 97-2, and as such recognizes revenue when all of the
related revenue recognition criteria are met which is:
(i) at the time the installation or training service is
delivered; and (ii) ratably over the term of the PCS
agreement. In multiple element arrangements where these services
are undelivered when the communications equipment is shipped,
VINA defers the fair value of these undelivered elements based
on VSOE and recognizes revenue as the services are delivered.
VSOE of these elements is based on stand-alone sales (including
renewal rates of PCS agreements) of the services. For all
periods presented service revenue has been less than 10% of
total net revenue.
VINA additionally records a provision for
estimated sales returns and warranty costs at the time the
product revenue is recognized.
Research and
Development
Costs incurred
in research and development are charged to operations as
incurred.
Foreign Currency
The functional currency of VINAs
foreign subsidiary is the U.S. dollar. Transaction and
remeasurement gains and losses were not significant for any of
the periods presented.
Net Loss per Share
Basic earnings per share (EPS)
excludes dilution and is computed by dividing net loss
attributable to common stockholders by the weighted average
number of common shares outstanding for the period excluding the
weighted average common shares subject to repurchase. Diluted
EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible
preferred stock, common stock options and warrants using the
treasury stock method) were exercised or converted into common
stock. Potential common shares in the diluted EPS computation
are excluded in net loss periods, as their effect would be
antidilutive.
Comprehensive Loss
In accordance with
SFAS No. 130, Reporting Comprehensive Income, VINA
reports by major components and as a single total, the change in
its net assets during the period from nonowner sources in a
consolidated statement of comprehensive loss, which has been
included with the consolidated statements of stockholders
equity.
Related Party Transactions
VINA accounts for related party
transactions as arms length agreements in the normal
course of business. In 2002, VINA incurred consulting expenses
of $100,000 from a director of VINA. As of December 31,
2002, $20,000 of such expense is included in accrued liabilities.
New Accounting Standards
In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that all business
combinations initiated after June 30, 2001 be accounted for
under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired
in a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their
acquisition. SFAS No. 142 provides that intangible
assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be
amortized, but will be tested at least annually for impairment.
VINA adopted SFAS No. 142 for its fiscal year
beginning January 1, 2002. Upon adoption of
SFAS No. 142, VINA stopped the amortization of
intangible assets with indefinite lives (goodwill, which
includes the reclass of workforce-in-place, and tradenames) with
a net carrying value of $27.6 million at December 31,
2001 and annual amortization of $8.8 million that resulted
from business combinations initiated prior to the adoption of
SFAS No. 141. The deterioration of the telecom
industry and the decline of VINAs product sales in 2002
were factors that required VINA to evaluate goodwill, determine
it to be impaired, and record a $27.3 million impairment
charge during 2002.
F-20
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2001, the FASB issued
SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement is
effective for VINA on January 1, 2002. The deterioration of
the telecom industry and the decline of VINAs product
sales in 2002 were factors that required VINA to evaluate
intangibles, determine them to be impaired, and record a
$2.5 million impairment charge during 2002.
In November 2002, the FASB issued FASB
Interpretation No. 45 Guarantors Accounting and
Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
(FIN 45). FIN 45 requires the guarantor to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. It also elaborates on the disclosures to be made by a
guarantor in its financial statements about its obligations
under certain guarantees that it has issued and to be made in
regard of product warranties. Disclosures required under
FIN 45 are already included in these financial statements,
however, the initial recognition and initial measurement
provisions of this FIN are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. VINA
does not expect the adoption of FIN 45 to have a material
effect on its consolidated financial statements.
In June 2002, the FASB issued
SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146). SFAS No. 146 addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF 94-3
Liability Recognition for Certain Employee Termination
Benefits and other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146
requires that a liability for a cost associated with an exit or
disposal activity to be recognized when the liability is
incurred. Under EITF 94-3, a liability for an exit cost as
generally defined in EITF 94-3 was recognized at the date
of the commitment to an exit plan. SFAS No. 146 states that
a commitment to a plan, by itself, does not create an obligation
that meets the definition of a liability. Therefore, SFAS
No. 146 eliminates the definition and requirements for
recognition of exit costs in EITF 94-3. It also establishes
that fair value is the objective for initial measurement of the
liability. SFAS No. 146 is to be applied prospectively to
exit or disposal activities initiated after December 31,
2002. VINA does not expect the adoption of SFAS No. 146 to
have a material effect on its consolidated financial statements.
In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. This
Statement amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to
SFAS No. 123s fair value method of accounting for
stock-based employee compensation. This Statement also amends
the disclosure provision of SFAS No. 123 and APB
No. 28, Interim Financial Reporting, to require disclosure
in the summary of significant accounting policies of the effects
of an entitys accounting policy with respect to
stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements.
VINA has elected to continue accounting for employee stock
option plans according to APB No. 25, and VINA adopted the
disclosure requirements under SFAS No. 148 commencing on
December 31, 2002.
|
|
3.
|
Short-Term Investments
|
VINAs short-term investments at
December 31, 2002 and 2001 consists of certificates of
deposit in the amount of $50,000 and $500,000, respectively. The
amortized cost of the investments is equivalent to the fair
value at December 31, 2002 and 2001.
Available-for-sale debt securities and
certificates of deposit are classified as current assets as all
maturities are within one year.
F-21
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2001
|
|
2002
|
|
|
|
|
|
Raw materials and subassemblies
|
|
$
|
1,783
|
|
|
$
|
1,684
|
|
Finished goods
|
|
|
3,950
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
5,733
|
|
|
$
|
3,367
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Property and Equipment
|
Property and equipment consists of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2001
|
|
2002
|
|
|
|
|
|
Computer equipment and software
|
|
$
|
3,066
|
|
|
|
1,531
|
|
Machinery and equipment
|
|
|
4,449
|
|
|
|
3,415
|
|
Furniture and fixtures
|
|
|
989
|
|
|
|
671
|
|
Leasehold improvements
|
|
|
540
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,044
|
|
|
|
5,885
|
|
Accumulated depreciation and amortization
|
|
|
(3,773
|
)
|
|
|
(3,917
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
5,271
|
|
|
$
|
1,968
|
|
|
|
|
|
|
|
|
|
|
Woodwind Communications
On February 27, 2001, VINA completed the
acquisition of Woodwind Communications Systems, Inc. (Woodwind),
a provider of voice-over-broadband network edge access
solutions, based in Germantown, Maryland. The acquisition was
accounted for as a purchase in accordance with APB No. 16.
Under the terms of the merger agreement, VINA acquired all
outstanding capital stock of Woodwind by paying
$7.5 million in cash and issuing 4,148,745 shares of
VINAs common stock. VINA assumed Woodwinds
outstanding stock options, which, if fully vested and exercised,
would result in the issuance of an additional 1,106,892 shares
of VINAs common stock. The total purchase price as of
February 27, 2001 has been allocated to the assets acquired
and liabilities assumed based on their respective fair values as
follows (in thousands):
|
|
|
|
|
|
Total purchase price:
|
|
|
|
|
|
Cash consideration
|
|
$
|
7,500
|
|
|
Common stock
|
|
|
39,465
|
|
|
Options assumed
|
|
|
2,591
|
|
|
Acquisition expenses
|
|
|
726
|
|
|
|
|
|
|
|
|
$
|
50,282
|
|
|
|
|
|
|
|
Purchase price allocation:
|
|
|
|
|
|
Fair market value of net tangible assets acquired
at February 27, 2001
|
|
$
|
6,728
|
|
|
|
|
|
|
F-22
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic
|
|
|
|
|
Life
|
|
|
|
|
|
Intangible assets acquired:
|
|
|
|
|
|
|
|
|
|
Workforce-In-Place
|
|
|
1,236
|
|
|
|
3
|
|
|
Tradename
|
|
|
346
|
|
|
|
4
|
|
|
Core technology
|
|
|
3,022
|
|
|
|
4
|
|
|
Current technology
|
|
|
310
|
|
|
|
4
|
|
|
In-process research and development
|
|
|
5,081
|
|
|
|
|
|
|
Goodwill
|
|
|
35,525
|
|
|
|
4
|
|
|
Deferred tax liabilities
|
|
|
(1,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VINA recorded a one-time charge of
$5.1 million in the first quarter of 2001 for purchased
in-process research and development related to development
projects that had not reached technological feasibility, had no
alternative future use, and for which successful development was
uncertain. The conclusion that the in-process research and
development effort, or any material sub-component, had no
alternative future use was reached in consultation with
VINAs and Woodwinds management.
Significant assumptions that were used to
determine the value of in-process technology, include the
following: first, an income approach that focused on the income
producing capability of the acquired technology, and best
represented the presented value of the future economic benefits
VINA expected to derive from them; second, forecasted net cash
flows that VINA expected might result from the development
effort were determined using projections prepared by VINAs
management; third, a discount rate of 25% was used, based upon
the estimated weighted average rate of return for Woodwind,
which is consistent with the implied transaction discount rate;
and fourth, a premium of 10% for the in-process technology was
added to reflect the additional risk of the in-process
technology, thus resulting in the use of an overall 35% discount
rate.
In accordance with FASB Interpretation
No. 44, Accounting for Certain Transactions Involving Stock
Compensation, VINA recorded the intrinsic value, measured as the
difference between the grant price and fair market value on the
acquisition consummation date, of unvested options assumed in
the acquisition as deferred stock compensation. Such deferred
stock compensation, which aggregated $588,000, is recorded as a
separate component of stockholders equity and will be
amortized over the vesting term of the related options. For the
years ended December 31, 2001 and 2002, VINA amortized
$125,000 and $63,000, respectively, as stock-based compensation
related to these options in the accompanying consolidated
statements of operations.
The operating results of Woodwind have been
included in the accompanying consolidated statements of
operations since the date of acquisition. The following selected
unaudited pro forma combined results of operations for the years
ended December 31, 2000 and 2001 of VINA and Woodwind have
been prepared assuming that the acquisition had occurred at the
beginning of the periods presented. The following unaudited pro
forma financial information is not necessarily indicative of the
actual results that would have
F-23
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
occurred had the acquisition been completed at
the beginning of the period indicated nor is it indicative of
future operating results (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
December 31,
|
|
|
|
|
|
2000
|
|
2001
|
|
|
|
|
|
Net revenue
|
|
$
|
32,299
|
|
|
$
|
45,112
|
|
Net loss
|
|
$
|
(61,469
|
)
|
|
$
|
(48,340
|
)
|
Net loss per share
|
|
$
|
(2.98
|
)
|
|
$
|
(1.28
|
)
|
Shares used in calculation of net loss per share
|
|
|
20,616
|
|
|
|
37,790
|
|
The pro forma results of operations give effect
to certain adjustments, including amortization of purchased
intangibles, goodwill and deferred stock compensation associated
with the acquisition. The $5.1 million charge for purchased
in-process research and development has been excluded from the
pro forma results, as it is a material nonrecurring charge.
|
|
|
Intellectual Property and Related
Assets
|
In December 2001, VINA purchased optical
concentrator technology and related equipment from a related
party by issuing 2,217,527 shares of VINAs common stock
valued at $2.5 million on the purchase date. In addition,
VINA incurred approximately $676,000 in direct acquisition
expenses. The total purchase price of $3.2 million was
allocated on a fair value basis resulting in $1.9 million
of intellectual property (intangible assets) and
$1.3 million of fixed assets. The acquired assets are being
amortized over their useful lives ranging from three to four
years.
|
|
7.
|
Acquired Intangibles and Goodwill,
Net
|
As VINA operates in one reportable segment, the
design, development, marketing and sale of multi-service
broadband access communications equipment, and has only one
reporting unit, VINA consolidated, the measurement of the fair
value for goodwill is its market capitalization. The
deterioration of the telecom industry and the decline in
VINAs current product sales in the first quarter, were
factors that required VINA to evaluate the fair value of the
intangible assets and goodwill. Management evaluated the fair
value of VINA as determined by its market capitalization against
its carrying value, net assets, and determined that the
intangible assets and goodwill were impaired. In addition, under
SFAS No. 144 Accounting for the Impairment of
Disposal of Long-Lived Assets VINA evaluated the
intangible assets for impairment and determined a portion of the
intangible assets were impaired. Also, under
SFAS No. 142 Goodwill and Other Intangible
Assets VINA evaluated the goodwill for impairment and
determined that it was impaired. VINA recorded a
$29.8 million impairment charge during 2002. The amount was
comprised of $27.3 million of goodwill and
$2.5 million intangible assets.
F-24
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible assets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2001
|
|
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
Amortization
|
|
Carrying
|
|
Accumulated
|
|
|
|
Carrying
|
|
Accumulated
|
|
Impairment
|
|
|
|
|
Period
|
|
Amount
|
|
Amortization
|
|
Net
|
|
Amount
|
|
Amortization
|
|
Loss
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
4 years
|
|
|
$
|
3,022
|
|
|
$
|
(630
|
)
|
|
$2,392
|
|
$
|
2,898
|
|
|
$
|
(935
|
)
|
|
$
|
(1,963
|
)
|
|
|
Current technology
|
|
|
4 years
|
|
|
|
310
|
|
|
|
(64
|
)
|
|
246
|
|
|
310
|
|
|
|
(83
|
)
|
|
|
(227
|
)
|
|
|
Trade name
|
|
|
4 years
|
|
|
|
346
|
|
|
|
(73
|
)
|
|
273
|
|
|
346
|
|
|
|
(73
|
)
|
|
|
(273
|
)
|
|
|
Intellectual property
|
|
|
4 years
|
|
|
|
1,859
|
|
|
|
|
|
|
1,859
|
|
|
1,859
|
|
|
|
(465
|
)
|
|
|
|
|
|
$1,394
|
Workforce-in-place
|
|
|
3 years
|
|
|
|
1,236
|
|
|
|
(343
|
)
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
6,773
|
|
|
$
|
(1,110
|
)
|
|
$5,663
|
|
$
|
5,413
|
|
|
$
|
(1,556
|
)
|
|
$
|
(2,463
|
)
|
|
$1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of VINAs intangible assets are subject
to amortization except for workforce-in-place and tradename.
Workforce in place was reallocated to goodwill as of
January 1, 2002.
Estimated future amortization expense is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Fiscal year
|
|
|
|
|
|
|
2003
|
|
$
|
465
|
|
|
|
2004
|
|
|
465
|
|
|
|
2005
|
|
|
464
|
|
|
|
|
|
|
Total Amortization
|
|
$
|
1,394
|
|
|
|
|
|
|
The changes in the carrying amount of goodwill,
including workforce in place, for the year ended
December 31, 2002 are as follows (in thousands):
|
|
|
|
|
Balance as of January 1, 2002
|
|
$
|
27,319
|
|
Impairment loss
|
|
|
(27,319
|
)
|
|
|
|
|
|
Balance as of December 31, 2002
|
|
$
|
|
|
|
|
|
|
|
Had the provisions of FAS No. 142 been
applied beginning on January 1, 2001 VINAs net loss
and net loss per share would have been as follows (in thousands
except per share amounts):
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2001
|
|
|
|
Net loss as reported
|
|
$
|
(48,642
|
)
|
Add back amortization:
|
|
|
|
|
|
Goodwill
|
|
|
7,133
|
|
|
Workforce-in-place
|
|
|
343
|
|
|
Tradename
|
|
|
73
|
|
|
|
|
|
|
Adjusted net loss
|
|
$
|
(41,093
|
)
|
|
|
|
|
|
EPS basic and diluted, as reported
|
|
$
|
(1.31
|
)
|
Goodwill, workforce-in-place and tradename
amortization
|
|
|
0.20
|
|
|
|
|
|
|
Adjusted EPS
|
|
$
|
(1.11
|
)
|
|
|
|
|
|
F-25
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
8. Restructurings
During the year ended December 31, 2001,
VINA announced and completed a restructuring plan that included
a workforce reduction and other operating reorganizations. As a
result of the restructuring efforts, VINA reduced its workforce
by approximately 20%. (See Note 15)
During April and July 2002, VINA announced and
completed restructuring plans intended to better align its
operations with the changing market conditions. These plans were
designed to prioritize VINAs growth areas of business,
focus on profit contribution and reduce expenses. The
restructurings includes a workforce reduction and other
operating reorganizations. As a result of the restructuring
efforts, VINA reduced its workforce by approximately 23% and 26%
in April and July 2002, respectively.
A summary of the restructuring benefit and
expenses for the year ended December 31, 2002 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Workforce
|
|
Compensation
|
|
Abandonment
|
|
Capital
|
|
|
|
|
Reductions
|
|
Benefits
|
|
of Facilities
|
|
Equipment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2000 remaining provision
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
July 2001 provision
|
|
|
991
|
|
|
|
(2,569
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,578
|
)
|
Net provision utilized
|
|
|
(945
|
)
|
|
|
2,569
|
|
|
|
|
|
|
|
|
|
|
|
1,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 remaining provision
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
April 2002 provision
|
|
|
835
|
|
|
|
(1,547
|
)
|
|
|
400
|
|
|
|
340
|
|
|
|
28
|
|
July 2002 provision
|
|
|
602
|
|
|
|
(762
|
)
|
|
|
35
|
|
|
|
945
|
|
|
|
820
|
|
December 2002 provision
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
148
|
|
Net provision utilized
|
|
|
(1,483
|
)
|
|
|
2,309
|
|
|
|
(485
|
)
|
|
|
(1,285
|
)
|
|
|
(944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
$
|
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
Reductions
These
restructuring programs resulted in the reduction of 80 employees
across all functions (43 in April of 2002 and 37 in July 2002).
The 2001 restructuring program resulted in the reduction of
approximately 40 employees across all functions. As of
December 31, 2002, VINA has disbursed the total amount
related to the 2002 severance, $1,437,000, $945,000 related to
the 2001 severance and have reversed $46,000 pertaining to the
remaining balance from the 2001 workforce reduction.
Stock Compensation
Benefits
In connection
with the April 2002 workforce reduction, VINA recorded a net
benefit of $1,547,000. This net benefit resulted from a
$1,577,000 benefit for the reversal of prior period estimated
stock compensation expense on forfeited stock options offset by
$30,000 of stock compensation expense resulting from the
acceleration of unvested stock options in accordance with
employee separation agreements. The July 2002 workforce
reduction resulted in a benefit of $762,000 for the reversal of
prior period estimated stock compensation expense on forfeited
stock options. The July 2001 workforce reduction resulted in a
benefit of $2,569,000. This net benefit resulted from a
$3.0 million benefit for the reversal of prior period
estimated stock compensation expense on forfeited stock options,
offset by $431,000 of stock compensation expense resulting from
the acceleration of unvested stock options in accordance with
employee separation agreements.
Abandonment of
Facilities
Part of the
restructuring included the closure of VINAs engineering
facilities in Maryland and Texas in April 2002 and July 2002,
respectively. In December 2002, VINA incurred an additional
restructuring charge of $148,000 for the remaining portion of
the Maryland lease. (See Note 15). There were no facilities
closed as part of the July 2001 restructuring and therefore
there were no associated costs.
F-26
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capital
Equipment
As a result of
the closing of VINAs Maryland and Texas facilities and
VINAs reductions in headcount, VINA determined that it had
excess capital equipment with total book values substantially
less than market value. VINA finalized the dispositions in
September of 2002. There was no excess capital equipment related
to the 2001 restructuring.
9. Commitments
and Contingencies
Leases
VINA leases office space under various noncancelable, operating
leases that expire through 2007. VINA has an option to renew the
primary facility lease for an additional five years at the then
current market rent. Future obligations under VINAs
operating leases are as follows (in thousands):
|
|
|
|
|
Years Ending December 31:
|
|
|
|
|
2003
|
|
$
|
467
|
|
2004
|
|
|
337
|
|
2005
|
|
|
430
|
|
2006
|
|
|
491
|
|
2007
|
|
|
292
|
|
|
|
|
|
|
Lease commitments
|
|
$
|
2,017
|
|
|
|
|
|
|
Rent expense incurred under the operating leases
for, 2000, 2001 and 2002 was $703,000, $1.4 million, and
$2.0 million, respectively.
VINA records rent expense under non-cancelable
operating leases using a straight-line method after
consideration of increases in rental payments over the lease
term, and records the difference between actual payments and
rent expense as deferred rent included within the caption other
current liabilities in the accompanying consolidated balance
sheets.
Litigation
The high technology and telecommunications industry in which
VINA operates is characterized by frequent claims and related
litigation regarding patent and other intellectual property
rights. VINA is not a party to any such litigation; however any
such litigation in the future could have a material adverse
effect on VINAs consolidated financial position, results
of operations and cash flows.
Purchase
Commitments
VINAs
contract manufacturer has obtained or has on order substantial
amounts of inventory to meet their revenue forecasts. If future
shipments do not utilize the committed inventory, the contract
manufacturer has the right to bill for any excess component and
finished goods inventory. VINA also has a non-cancelable
purchase order with a major chip supplier for one of its
critical components. As of December 31, 2002, the estimated
purchase commitments and non-cancelable purchase orders to those
companies is $1.6 million. In August 2002, VINA placed
$1.0 million on deposit with its contract manufacturer as
security against these purchase commitments.
Warranty
VINA provides a full 60-month parts and factory labor warranty
against defects in materials and workmanship for all VINA
Integrated Access Device (IAD) product lines. A 12-month parts
and factory labor warranty against defects in materials and
workmanship is provided for all VINA Integrated Multi-Service
Access Platform (IMAP) product lines. All VINA-supplied software
is also covered by a 60-month warranty for IAD products, and a
12-month warranty for IMAP products. VINA accounts for warranty
liability by taking a charge in the period of shipment for the
estimated warranty costs that will be incurred related to
shipments. A weighted average of the cost per warranty
transaction per product line is developed taking into
consideration: the costs of freight, replacement, rework and
repair. Estimated returns over time are calculated taking into
account experience by product line. A warranty liability is
calculated by applying the number of units under warranty
against a factor representing the
F-27
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
likelihood of a return and the estimated cost per
return transaction. Actual warranty charges are tracked and
reported separately from other transactions.
The changes in the warranty reserve balances
during the years ended December 31, 2002 and 2001 are as
follows (in $ thousands):
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
2002
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
686
|
|
|
$
|
696
|
|
Payments made under the warranty
|
|
|
(58
|
)
|
|
|
(228
|
)
|
Product warranty issued for new sales
|
|
|
88
|
|
|
|
(18
|
)
|
Changes in accrual in respect of warranty periods
ending
|
|
|
(20
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of year
|
|
$
|
696
|
|
|
$
|
414
|
|
|
|
|
|
|
|
|
|
|
10. Stockholders
Equity
In August 2000, VINA completed its initial public
offering of 3,450,000 shares of common stock at $12.00 per
share, for net proceeds of $36.4 million.
|
|
|
Convertible Preferred Stock
|
In 1998, VINA issued 4,167 shares of
Series D convertible preferred stock at $6.00 per
share, for which the proceeds were not payable until 1999, and
accordingly, VINA established a $25,000 subscription receivable
at December 31, 1998.
In 1999, VINA issued an additional 10,746 shares
of Series D convertible preferred stock at $6.00 per share
resulting in proceeds of $65,000.
In 2000, VINA issued 3,404,140 shares of
Series E convertible preferred stock at $7.00 per
share resulting in net proceeds of $23.8 million.
Upon completion of the initial public offering,
7,500,000 convertible preferred shares of Series A,
3,000,000 convertible preferred shares of Series B,
3,000,000 convertible preferred shares of Series C, 790,517
convertible preferred shares of Series D and 3,404,140
convertible preferred shares of Series E were converted
into common stock on a one-to-one basis, resulting in the
issuance of 17,694,657 shares of common stock to the then
convertible preferred stockholders.
Restricted common stock issued under certain
stock purchase agreements is subject to repurchase by VINA. The
number of shares subject to repurchase is generally reduced over
a four-year vesting period. At December 31, 2000, 2001, and
2002, 433,334 shares, 260,000 shares, and 141,940 shares
respectively, were subject to repurchase.
|
|
|
Stockholders Rights
Plan
|
During 2001, VINAs Board of Directors
declared a dividend of one preferred share purchase right (a
Right) for each outstanding share of common stock, of VINA. Each
Right entitles the registered holder to purchase from VINA one
one-thousandth of a share of Series A Preferred Stock, of
VINA, at a price of $35.00 per one one-thousandth of a
share, subject to certain antidilution adjustment provisions.
The Rights, as amended, are exercisable in the event that a
person, entity or group acquires beneficial ownership of 20% or
more of the outstanding shares of VINAs common stock. The
Rights will expire on
F-28
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the earlier of (i) July 25, 2011,
(ii) consummation of a merger transaction meeting certain
requirements, or (iii) redemption or exchange of the Rights
by VINA. At December 31, 2002 62,080,636 Rights were
outstanding.
|
|
|
Common Stock Private
Placement
|
During the fourth quarter of 2001, VINA completed
a $14.2 million private placement equity financing. Under
the subscription agreement, VINA issued 22,150,369 shares of
common stock at a weighted average price of $0.64 per
share. In addition, warrants to acquire 7,090,000 shares of
VINAs common stock were attached to the common stock. The
warrants are immediately exercisable at $1.00 per share and
expire three years from the date of issuance or upon VINAs
stock price exceeding predefined trading prices. All such
warrants were outstanding at December 31, 2002.
VINA allocated $2.0 million of the sales
price to the warrants based on the relative fair value of the
warrants. The fair value for the warrants was determined using
the Black-Scholes option pricing model over the contractual term
of the warrants using the following assumptions: stock
volatility, 75%; risk free interest rate, 3.6% and no dividends
during the expected term.
Certain employees participated in the private
placement and purchased 375,742 common shares with 120,050
attached warrants at a price below fair market value. VINA
recorded the associated $289,000 of intrinsic value as
stock-based compensation in 2001. The intrinsic value was
measured as the difference between the equity issuance prices
and their fair market values on the date of issuance.
The following is a calculation of the
denominators used for the basic and diluted net loss per share
computations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
18,927
|
|
|
|
38,239
|
|
|
|
62,098
|
|
Weighted average common shares outstanding
subject to repurchase
|
|
|
(2,460
|
)
|
|
|
(1,118
|
)
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation, basic and diluted
|
|
|
16,467
|
|
|
|
37,121
|
|
|
|
61,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During all periods presented, VINA had securities
outstanding, which could potentially dilute basic EPS in the
future, but were excluded in the computation of diluted EPS in
such periods, as their effect would have been antidilutive due
to the net loss reported in such periods. Such outstanding
securities consist of the following at: December 31, 2000,
1,859,680 shares of common stock subject to repurchase and
options to purchase 10,692,788 shares of common stock;
December 31, 2001, 915,461 shares of common stock
subject to repurchase and options to purchase
13,353,743 shares of common stock and warrants to purchase
7,090,000 shares of common stock; December 31, 2002,
141,940 shares of common stock subject to repurchase and
options to purchase 5,625,010 shares of common stock and
warrants to purchase 7,090,000 shares of common stock.
In July 2000, VINA adopted the 2000 Stock
Incentive Plan. The 2000 Stock Incentive Plan serves as the
successor equity incentive program to VINAs 1996 Stock
Option/Stock Issuance Plan and the 1998 Stock Incentive Plan, as
amended (the Predecessor Plans). Options outstanding under the
Predecessor Plans on July 11, 2000 (9,071,061 shares)
were incorporated into the 2000 Stock Incentive Plan. Such
incorporated options continue to be governed by their existing
terms, which are similar to the 2000 Stock Incentive Plan. Under
the 2000 Stock Incentive Plan, VINA is authorized to provide
awards in the form
F-29
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of restricted shares, stock units, options or
stock appreciation rights. The number of shares reserved under
this plan was 7,301,873 shares which can be increased for
repurchases of unvested common shares issued under the
Predecessor Plans up to a total share reserve of
10,000,000 shares. The share reserve is automatically
increased on January 1 of each calendar year, beginning in
2001, by an amount equal to the lesser of: (i) 2,500,000
shares; (ii) 4% of the outstanding shares of stock of VINA
on such date; or (iii) a lesser amount determined by
VINAs Board of Directors (2,480,550 shares on
January 1, 2002).
Under the 2000 Stock Incentive Plan, VINA may
grant options to purchase or directly issue common stock to
employees, outside directors and consultants at prices not less
than the fair market value at the date of grant for incentive
stock options and not less than par value at the date of grant
for non-statutory stock options. These options generally expire
ten years from the date of grant and are generally immediately
exercisable. VINA has a right to repurchase (at the option
exercise price) common stock issued under option exercises for
unvested shares. The right of repurchase generally expires 25%
after the first 12 months from the date of grant and then
ratably over a 36-month period. Settlement and vesting terms for
awards of restricted stock, stock appreciation rights, and stock
units are governed by individual agreements. There were no
awards of restricted stock, stock appreciation rights or stock
units in 2000, 2001 and 2002.
In May 2002, the Board of Directors approved a
Stock Option Exchange Program. Under this program, eligible
employees could elect to exchange certain outstanding stock
options with an exercise price greater than or equal to $1.00
for a new option to purchase the same number of shares of
VINAs common stock. The replacement options are to be
issued at least six months and one day after the cancellation
date, August 15, 2002, and will be issued from the 2000
Stock Option Plan. The new options will be non-statutory stock
options and will have an exercise price equal to closing price
of VINAs common stock on the date prior to the replacement
date. The new options will vest according to the same schedule
as the cancelled options. As of the cancellation date, VINA had
accepted 2,692,082 shares for exchange under the Program.
(See Note 15 for replacement options granted after year
end.)
Stock option activity under the stock plan is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Number of
|
|
Exercise
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
Balances at January 1, 2000
(1,163,408 shares vested at a weighted average exercise
price of $0.33 per share)
|
|
|
7,540,482
|
|
|
$
|
0.64
|
|
Granted (weighted average fair value of $6.53 per
share)
|
|
|
7,555,391
|
|
|
|
3.47
|
|
Canceled
|
|
|
(1,321,112
|
)
|
|
|
1.58
|
|
Exercised
|
|
|
(3,081,973
|
)
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2000
(1,463,399 shares vested at a weighted average exercise
price of $0.643 per share)
|
|
|
10,692,788
|
|
|
|
2.37
|
|
Granted (weighted average fair value of $1.46 per
share)
|
|
|
6,802,243
|
|
|
|
1.51
|
|
Canceled
|
|
|
(3,122,840
|
)
|
|
|
2.74
|
|
Exercised
|
|
|
(1,018,448
|
)
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
F-30
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Number of
|
|
Exercise
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
Balances at December 31, 2001
(3,656,376 shares vested at a weighted average exercise
price of $1.85 per share)
|
|
|
13,353,743
|
|
|
|
1.99
|
|
Granted (weighted average fair value of $0.37 per
share)
|
|
|
1,770,375
|
|
|
|
0.40
|
|
Canceled
|
|
|
(9,285,160
|
)
|
|
|
2.20
|
|
Exercised
|
|
|
(213,948
|
)
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
5,625,010
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2002, VINA had
13,427,116 shares available for future grants under the
2000 Stock Incentive Plan.
Additional information regarding options
outstanding at December 31, 2002 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
Vested Options
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
Range of
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
Exercise
|
Exercise Prices
|
|
Outstanding
|
|
Life (Years)
|
|
Price
|
|
Vested
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
$0.13 - $0.36
|
|
|
1,168,964
|
|
|
|
7.8
|
|
|
$
|
0.30
|
|
|
|
624,900
|
|
|
$
|
0.20
|
|
$0.40 - $0.61
|
|
|
1,335,027
|
|
|
|
8.0
|
|
|
|
0.59
|
|
|
|
900,292
|
|
|
|
0.57
|
|
$0.70 - $1.00
|
|
|
1,177,303
|
|
|
|
7.1
|
|
|
|
0.98
|
|
|
|
965,422
|
|
|
|
0.99
|
|
$1.03 - $1.92
|
|
|
1,396,082
|
|
|
|
8.3
|
|
|
|
1.55
|
|
|
|
642,193
|
|
|
|
1.64
|
|
$2.00 - $6.50
|
|
|
547,634
|
|
|
|
7.6
|
|
|
|
4.31
|
|
|
|
359,303
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.13 - $6.50
|
|
|
5,625,010
|
|
|
|
7.8
|
|
|
$
|
1.21
|
|
|
|
3,492,110
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
|
In July 2000, VINA adopted the 2000 Employee
Stock Purchase Plan (the ESPP). Under the ESPP,
eligible employees are allowed to have salary withholdings of up
to 10% of their base compensation to purchase shares of common
stock at a price equal to 85% of the lower of the market value
of the stock at the beginning or end of defined purchase
periods. Offering periods commence on February 1 and
August 1 of each year. One million eighty thousand shares
of common stock are reserved for issuance under ESPP and will be
increased on the first day of each fiscal year, the lesser of:
(a) 80,000 shares; (b) 1% of VINAs outstanding
common stock on the day of the increase; or (c) a lesser
number of shares determined by VINAs Board of Directors
(80,000 shares on January 1, 2002).
Shares issued under the ESPP were 194,707 in 2002
at a weighted average price of $0.68 per share. There were
677,544 shares available for future issuance under this plan at
December 31, 2002.
As discussed in Note 2, VINA accounts for
employee stock plans under the intrinsic value method prescribed
by Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and
Financial Accounting Standards Board Interpretation
(FIN) No. 44, Accounting for Certain
Transactions Involving Stock Compensation (an Interpretation of
APB No. 25) and has adopted the disclosure-only provisions
of SFAS No. 123, Accounting for Stock-Based Compensation.
VINA accounts for stock-based compensation relating to equity
instruments issued to non-employees based on the
F-31
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fair value of options or warrants estimated using
the Black-Scholes model on the date of grant in compliance with
the Emerging Issues Task Force No. 96-18, Accounting for
Equity Instruments that are issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.
Compensation expense resulting from non-employee options is
amortized using the multiple option approach in compliance with
FIN No. 28, Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans.
Pursuant to FIN No. 44, options assumed in a
purchase business combination are valued at the date of
acquisition at their fair value calculated using the
Black-Scholes option pricing model. The fair value of the
assumed options is included as part of the purchase price. The
intrinsic value attributable to the unvested options is recorded
as unearned stock-based compensation and amortized over the
remaining vesting period of the related options. Options assumed
by VINA related to the business combination made on behalf of
VINA subsequent to July 1, 2000 (the effective date of FIN
No. 44) have been accounted for pursuant to FIN No. 44.
VINAs calculations of fair value for
employee stock-based compensation were made using the
Black-Scholes option pricing model, which requires subjective
assumptions, including expected time to exercise and future
stock price volatility, which greatly affects the calculated
values. The following weighted average assumptions were used to
calculate the fair value of employee awards under VINAs
option plans: expected life, 3.2 years in 2000, 2001 and
2002; volatility, 29% in 2000, 75% in 2001 and 154% in 2002;
risk free interest rate, 6.4% in 2000, 4.2% in 2001 and 3.1% in
2002; and no dividends during the expected term. VINAs
fair value calculations on stock-based awards under the ESPP in
2001 and 2002 were also made using the Black-Scholes option
pricing model with the following weighted average assumptions:
expected life, six months; volatility, 75% in 2001 and 154% in
2002; risk free interest rate of 3.74 in 2001 and 3.05% in 2002;
and no dividends during the expected term. VINAs
calculations are based on a multiple option award valuation and
amortization approach, which results in accelerated amortization
of the expense. Forfeitures are recognized as they occur.
VINA recorded no income tax benefit or provision
in any of the periods presented. The difference between the
recorded amounts is reconciled to the federal statutory rate as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
Federal statutory tax benefit at 35%
|
|
$
|
(15,166
|
)
|
|
$
|
(17,025
|
)
|
|
$
|
(19,401
|
)
|
State tax benefit
|
|
|
(2,490
|
)
|
|
|
(800
|
)
|
|
|
(1,123
|
)
|
Research and development credits
|
|
|
(774
|
)
|
|
|
(400
|
)
|
|
|
|
|
Nondeductible stock compensation
|
|
|
9,848
|
|
|
|
4,249
|
|
|
|
447
|
|
In process research and development
|
|
|
|
|
|
|
2,043
|
|
|
|
|
|
Amortization of goodwill and intangible assets
|
|
|
|
|
|
|
3,313
|
|
|
|
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
9,562
|
|
Change in valuation allowance
|
|
|
8,973
|
|
|
|
8,040
|
|
|
|
11,463
|
|
Other
|
|
|
(391
|
)
|
|
|
580
|
|
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net deferred tax assets are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2001
|
|
2002
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accruals and reserves not currently deductible
|
|
$
|
2,730
|
|
|
$
|
1,661
|
|
Net operating loss carryforwards
|
|
|
26,492
|
|
|
|
37,313
|
|
Tax credit carryforwards
|
|
|
2,423
|
|
|
|
2,769
|
|
Identified acquisition intangibles
|
|
|
(1,626
|
)
|
|
|
|
|
Other
|
|
|
937
|
|
|
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,956
|
|
|
|
42,419
|
|
Valuation allowance
|
|
|
(30,956
|
)
|
|
|
(42,419
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Due to VINAs lack of earnings history, the
net deferred tax assets have been fully offset by a valuation
allowance. The valuation allowance increased by approximately
$11.5 million during 2002.
As of December 31, 2002, VINA had available
for carryforward net operating losses for federal and state
income tax purposes of approximately $98.0 million and
$36.0 million, respectively. Net operating losses of
approximately $1.3 million and $800,000 for federal and
state tax purposes, respectively, attributable to the tax
benefit relating to the exercise of nonqualified stock options
and disqualifying dispositions of incentive stock options are
excluded from the components of deferred income tax assets. The
tax benefit associated with this net operating loss will be
recorded as an adjustment to stockholders equity when VINA
generates taxable income. Federal net operating loss
carryforwards will expire, if not utilized, in 2011 through
2022. State net operating loss carryforwards will expire, if not
utilized, in 2006 through 2014.
As of December 31, 2002, VINA had available
for carryforward research and experimentation tax credits for
federal and state income tax purposes of approximately
$1.5 million and $1.6 million, respectively. Federal
research and experimentation tax credit carryforwards expire in
2011 through 2022. VINA also had approximately $300,000 in
California manufacturers investment credits.
Current federal and California tax laws include
substantial restrictions on the utilization of net operating
losses and tax credits in the event of an ownership
change of a corporation. Use of approximately
$14.0 million of the net operating loss carryforward of
Woodwind from periods prior to the merger with VINA is limited
to approximately $2.7 million per year. VINAs ability
to utilize other net operating loss and tax credit carryforwards
may be further limited as a result of an ownership change. Such
a limitation could result in the expiration of carryforwards
before they are utilized.
F-33
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Customer Concentrations
|
The following table summarizes net revenue and
accounts receivable for customers which accounted for 10% or
more of accounts receivable or net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Years Ended December 31,
|
|
|
|
|
|
Customer
|
|
2001
|
|
2002
|
|
2000
|
|
2001
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
|
|
|
12
|
%
|
|
|
27
|
%
|
|
|
31
|
%
|
|
|
44
|
%
|
|
|
18
|
%
|
C
|
|
|
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
D
|
|
|
32
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
37
|
%
|
E
|
|
|
28
|
%
|
|
|
26
|
%
|
|
|
28
|
%
|
|
|
21
|
%
|
|
|
16
|
%
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
|
|
|
|
13.
|
Employee Benefit Plan
|
VINA has a 401(k) tax deferred savings plan to
provide for retirement of employees meeting certain eligibility
requirements. Employee contributions are limited to 20% of their
annual compensation subject to IRS annual limitations. VINA may
make contributions at the discretion of the Board of Directors.
There were no discretionary employer contributions to the 401(k)
plan in 2000, 2001, or 2002.
As defined by the requirements of
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, VINA operates in one
reportable segment: the design, development, marketing and sale
of multiservice broadband access communications equipment.
International sales were insignificant for all periods
presented. VINAs chief operating decision maker is its
chief executive officer.
As of December 31, 2002, VINA had a
certificate of deposit for $3.0 million that secured a
$3.0 million committed revolving line of credit. In January
2003, VINA remitted full payment for the $3.0 million
revolving line of credit.
In January 2003, VINA announced and completed a
restructuring plan intended to better align its operations with
the continued decline in the telecommunications market. This
plan was designed to focus on profit contribution and reduce
expenses. The restructuring includes a workforce reduction with
related severance and outplacement of approximately $296,000.
The restructuring has been accounted for in accordance with the
provisions of SFAS No. 146.
On February 17, 2003, VINA granted 2,601,982
option grants as part of the Stock Option Exchange Program
approved by the Board of Directors in May 2002. Under this
program, eligible employees were able to make an election to
exchange certain outstanding stock option grants with an
exercise price greater than or equal to $1.00 for a new option
to purchase the same number of shares of VINA Technologies Inc.
common stock. The replacement option was issued per the Option
Exchange Program at least six months and one day after the
cancellation date of August 15, 2002. The new options were
issued from VINAs 2000 Stock Option Plan and are
non-statutory stock options. The individuals participating in
this program were employees of VINA Technologies, Inc. on the
replacement grant date making them eligible to receive the new
stock options. No consideration for the canceled stock options
was provided to individuals terminating employment prior to the
replacement grant date. The new option has an exercise price of
$0.16, which is equal to VINA Technologies Inc. common
stocks closing price on the date prior
F-34
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to the replacement grant. The new stock options
will continue to vest on the same schedule as the canceled
options.
In February 2003, VINA reached a settlement
agreement to terminate the lease for its Maryland facility.
Actual lease termination costs are $98,000, which has resulted
in a change in estimate of the restructuring charges originally
accrued as of December 31, 2002. The decrease in
restructuring reserves of $318,000 has been reflected in the
consolidated financial statements as of December 31, 2002.
In February 2003, VINA established an asset
secured credit line with a bank for up to $3.5 million.
VINA needs to meet monthly covenants to be able to borrow
against this credit line and can meet them currently. The credit
line has a one-year duration and has terms of prime plus 2%.
There is no outstanding balance on this credit line.
|
|
16.
|
Selected Consolidated Quarterly Financial
Results (Unaudited)
|
The following tables set forth selected unaudited
quarterly results of operations for the years ended
December 31, 2001 and 2002 (in thousands, except per share
amounts). In the opinion of management, such unaudited
information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the
interim information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
|
2001
|
|
2001
|
|
2001
|
|
2001
|
|
2002
|
|
2002
|
|
2002
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
11,029
|
|
|
$
|
12,028
|
|
|
$
|
13,010
|
|
|
$
|
9,045
|
|
|
$
|
6,439
|
|
|
$
|
6,624
|
|
|
$
|
6,035
|
|
|
$
|
6,045
|
|
Gross profit (excluding stock-based compensation)
|
|
|
2,783
|
|
|
|
4,958
|
|
|
|
5,211
|
|
|
|
3,446
|
|
|
|
314
|
|
|
|
2,463
|
|
|
|
2,480
|
|
|
|
2,352
|
|
Loss from operations
|
|
|
(19,188
|
)
|
|
|
(12,378
|
)
|
|
|
(7,496
|
)
|
|
|
(10,963
|
)
|
|
|
(41,165
|
)
|
|
|
(5,566
|
)
|
|
|
(6,957
|
)
|
|
|
(1,938
|
)
|
Net loss
|
|
|
(18,576
|
)
|
|
|
(11,998
|
)
|
|
|
(7,219
|
)
|
|
|
(10,849
|
)
|
|
|
(41,093
|
)
|
|
|
(5,482
|
)
|
|
|
(6,934
|
)
|
|
|
(1,921
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.57
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.03
|
)
|
Shares used in computation, basic and diluted
|
|
|
32,783
|
|
|
|
35,589
|
|
|
|
36,139
|
|
|
|
43,974
|
|
|
|
61,531
|
|
|
|
61,546
|
|
|
|
61,623
|
|
|
|
61,871
|
|
F-35
VINA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
|
2002
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share
|
|
|
and per share amounts)
|
|
|
|
|
|
(Unaudited)
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents
|
|
$
|
4,567
|
|
|
$
|
2,673
|
|
|
Restricted cash
|
|
|
3,500
|
|
|
|
333
|
|
|
Short-term investments
|
|
|
50
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
3,348
|
|
|
|
1,689
|
|
|
Inventories
|
|
|
3,367
|
|
|
|
3,839
|
|
|
Prepaid expenses and other
|
|
|
2,354
|
|
|
|
1,084
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,186
|
|
|
|
9,618
|
|
|
Property and equipment, net
|
|
|
1,968
|
|
|
|
1,655
|
|
|
Other assets
|
|
|
32
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
1,394
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,580
|
|
|
$
|
12,550
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS
EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,979
|
|
|
$
|
1,864
|
|
|
Accrued compensation and related benefits
|
|
|
900
|
|
|
|
539
|
|
|
Accrued warranty
|
|
|
414
|
|
|
|
400
|
|
|
Other current liabilities
|
|
|
1,915
|
|
|
|
1,532
|
|
|
Current debt
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,208
|
|
|
|
4,335
|
|
Commitments (Note 7)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock; $0.0001 par value;
5,000,000 shares authorized; none outstanding
|
|
|
|
|
|
|
|
|
Common stock; $0.0001 par value; 125,000,000
shares authorized; shares outstanding: December 31, 2002,
62,080,636; March 31, 2003, 62,189,930
|
|
|
6
|
|
|
|
6
|
|
|
Additional paid-in capital
|
|
|
189,297
|
|
|
|
188,786
|
|
|
Deferred stock compensation
|
|
|
(315
|
)
|
|
|
(112
|
)
|
|
Accumulated deficit
|
|
|
(177,616
|
)
|
|
|
(180,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
11,372
|
|
|
|
8,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
20,580
|
|
|
$
|
12,550
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial
statements
F-36
VINA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
|
|
|
2002
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except
|
|
|
per share amounts)
|
|
|
|
|
|
(Unaudited)
|
Net revenue
|
|
$
|
6,439
|
|
|
$
|
2,708
|
|
Cost of revenue (excluding stock-based
compensation)
|
|
|
6,125
|
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) (excluding stock-based
compensation)
|
|
|
314
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Research and development (excluding stock-based
compensation)
|
|
|
5,423
|
|
|
|
1,828
|
|
|
Selling, general and administrative (excluding
stock-based compensation)
|
|
|
4,803
|
|
|
|
1,936
|
|
|
Stock-based compensation, net*
|
|
|
1,653
|
|
|
|
(324
|
)
|
|
Amortization of goodwill and intangible assets
|
|
|
324
|
|
|
|
116
|
|
|
Impairment of goodwill and intangible assets
|
|
|
29,276
|
|
|
|
|
|
|
Restructuring expenses (excluding stock-based
compensation)
|
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
41,479
|
|
|
|
3,865
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(41,165
|
)
|
|
|
(2,849
|
)
|
Other income, net
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41,093
|
)
|
|
$
|
(2,849
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.67
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Shares used in computation basic and diluted
|
|
|
61,531
|
|
|
|
62,047
|
|
|
|
|
|
|
|
|
|
|
*Stock-based compensation, net:
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
158
|
|
|
$
|
|
|
|
Research and development
|
|
|
401
|
|
|
|
20
|
|
|
Selling, general and administrative
|
|
|
1,094
|
|
|
|
(8
|
)
|
|
Restructuring benefit
|
|
|
|
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,653
|
|
|
$
|
(324
|
)
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial
statements
F-37
VINA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
|
|
|
2002
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
(Unaudited)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41,093
|
)
|
|
$
|
(2,849
|
)
|
|
Reconciliation of net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
909
|
|
|
|
441
|
|
|
|
Disposal of property and equipment
|
|
|
304
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
29,276
|
|
|
|
|
|
|
|
Stock-based compensation, net
|
|
|
1,653
|
|
|
|
(324
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4,886
|
|
|
|
1,659
|
|
|
|
Inventories
|
|
|
596
|
|
|
|
(472
|
)
|
|
|
Prepaid expenses and other
|
|
|
199
|
|
|
|
1,270
|
|
|
|
Other assets
|
|
|
(2
|
)
|
|
|
32
|
|
|
|
Accounts payable
|
|
|
(1,589
|
)
|
|
|
(1,115
|
)
|
|
|
Accrued compensation and related benefits
|
|
|
(55
|
)
|
|
|
(361
|
)
|
|
|
Accrued warranty
|
|
|
(29
|
)
|
|
|
(14
|
)
|
|
|
Other current liabilities
|
|
|
(135
|
)
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(5,080
|
)
|
|
|
(2,116
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(302
|
)
|
|
|
(11
|
)
|
|
Proceeds from sales/maturities of short-term
investments
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities
|
|
|
(302
|
)
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payment of short-term debt
|
|
|
|
|
|
|
(3,000
|
)
|
|
Release of restricted cash
|
|
|
|
|
|
|
3,167
|
|
|
Proceeds from sale of common stock
|
|
|
9,803
|
|
|
|
|
|
|
Proceeds from sale of stock under employee stock
purchase plan
|
|
|
|
|
|
|
16
|
|
|
Repurchase of common stock
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
9,711
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
4,329
|
|
|
|
(1,894
|
)
|
CASH AND CASH EQUIVALENTS, Beginning of period
|
|
|
15,805
|
|
|
|
4,567
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, End of period
|
|
$
|
20,134
|
|
|
$
|
2,673
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial
statements
F-38
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. Unaudited
Interim Financial Information
Business VINA Technologies, Inc. (the
Company or VINA), incorporated in June 1996, designs, develops,
markets and sells multi-service broadband access communications
equipment that enables telecommunications service providers to
deliver bundled voice and data services. The Company has
incurred significant losses since inception and expects that net
losses and negative cash flows from operations will continue for
the foreseeable future. On March 17, 2003, VINA, Larscom
Incorporated, a Delaware corporation (Larscom) and a
wholly-owned subsidiary of Larscom, entered into an Agreement
and Plan of Merger, under which the Larscom subsidiary will
merge with and into VINA, followed by the merger of VINA with
and into Larscom, with Larscom as the surviving corporation. As
a result of the merger, each issued and outstanding share of
VINA common stock will be automatically converted into the right
to receive 0.2659 of a validly issued, fully paid and
nonassessable share of Larscom common stock. The merger is
intended to be a tax-free reorganization under Section 368
of the Internal Revenue Code of 1986, as amended, and is
expected to be treated as a purchase for financial accounting
purposes, in accordance with generally accepted accounting
principles.
Basis of Presentation The condensed
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter
company accounts and transactions have been eliminated in
consolidation. The accompanying interim financial information is
unaudited and has been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, it does not include all of
the information and Notes required by generally accepted
accounting principles for annual financial statements. In the
opinion of management, such unaudited information includes all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim information.
Operating results for the three-months ended March 31, 2003
are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further
information, refer to the Companys reports filed with the
Securities and Exchange Commission, including its Annual Report
on Form 10-K for the year ended December 31, 2002.
In this report, all references to
VINA we, us, our
or the Company mean VINA Technologies, Inc. and its
subsidiaries, except where it is made clear that the term means
only the parent company.
Going Concern The accompanying
financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As
of March 31, 2003, we had cash and cash equivalents of
$2.7 million and its accumulated deficit was
$180.5 million. These factors among others raise
substantial doubt that we will be able to continue as a going
concern for a reasonable period of time. We has implemented, and
is continuing to pursue, aggressive cost cutting programs in
order to preserve available cash.
Our intent is to complete the announced merger
with Larscom in the second quarter. If we are unsuccessful in
completing the merger during the second quarter, then we will
need to obtain additional funding during the second quarter of
2003 to continue operations. Currently, we have no other
immediately available sources of liquidity. The sale of
additional equity or other securities could result in additional
dilution to our stockholders. Arrangements for additional
financing may not be available in amounts or on terms acceptable
to us, if at all.
Revenue Recognition The Company
recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered,
the price is fixed and determinable and collectibility is
reasonably assured. The Company generates revenue from sale of
products and related
F-39
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
services to communications service providers and
through original equipment manufacturers and value added
resellers.
Product revenue is generated from the sale of
communications equipment embedded with software that is
essential to its functionality, and accordingly, the Company
accounts for these transactions in accordance with SEC Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition
in Financial Statements, and Statement of Position
(SOP) 97-2, Software Revenue Recognition. Product revenue
is recognized when all SAB No. 101 and SOP 97-2 criteria
are met which generally occurs at the time of shipment. In
multiple element arrangements where there are undelivered
elements at the time of shipment, product revenue is recognized
at the time of shipment as the residual value of the arrangement
after allocation of fair value to the undelivered elements based
on vendor specific objective evidence (VSOE). There is no VSOE
on the sales of communications equipment due to the wide range
in customer discounts provided by the Company.
Service revenue is generated from the sale of
installation, training and post contract customer support
(PCS) agreements related to the communications equipment.
The Company also accounts for these transactions in accordance
with SAB No. 101 and SOP 97-2, and as such recognizes
revenue when all of the related revenue recognition criteria are
met which is: (i) at the time the installation or training
service is delivered; and (ii) ratably over the term of the
PCS agreement. In multiple element arrangements where these
services are undelivered when the communications equipment is
shipped, the Company defers the fair value of these undelivered
elements based on VSOE and recognizes revenue as the services
are delivered. VSOE of these elements is based on stand-alone
sales (including renewal rates of PCS agreements) of the
services. For all periods presented, service revenue has been
less than 10% of total net revenue.
The Company additionally records a provision for
estimated sales returns and warranty costs at the time the
product revenue is recognized.
Stock Based Compensation The Company
accounts for employee stock plans under the intrinsic value
method prescribed by Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to
Employees, and Financial Accounting Standards Board
Interpretation (FIN) No. 44, Accounting for
Certain Transactions Involving Stock Compensation (an
Interpretation of APB No. 25) and has adopted the
disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The Company accounts for stock-based
compensation relating to equity instruments issued to
non-employees based on the fair value of options or warrants
estimated using the Black-Scholes model on the date of grant in
compliance with the Emerging Issues Task Force No. 96-18,
Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods
or Services. Compensation expense resulting from non-employee
options is amortized using the multiple option approach in
compliance with FIN No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans.
Pursuant to FIN No. 44, options assumed in a
purchase business combination are valued at the date of
acquisition at their fair value calculated using the
Black-Scholes option pricing model. The fair value of the
assumed options is included as part of the purchase price. The
intrinsic value attributable to the unvested options is recorded
as unearned stock-based compensation and amortized over the
remaining vesting period of the related options. Options assumed
by the Company related to the business combination made on
behalf of the Company subsequent to July 1, 2000 (the
effective date of FIN No. 44) have been accounted for
pursuant to FIN No. 44.
F-40
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For purposes of pro forma disclosure under SFAS
No. 123, the estimated fair value of the options is assumed
to be amortized to expense over the options vesting
period, using the multiple option method. Pro forma information
is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2002
|
|
2003
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
(41,093
|
)
|
|
$
|
(2,849
|
)
|
Add: Stock-based compensation included in
reported net loss, net of related tax effects
|
|
|
1,653
|
|
|
|
(324
|
)
|
Less: Stock-based compensation expense determined
under fair value method for all awards, net of related tax
effects
|
|
|
(1,396
|
)
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss)
|
|
$
|
(40,836
|
)
|
|
$
|
(3,619
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share, as reported basic
and diluted
|
|
$
|
(0.67
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma loss per share, as reported
basic and diluted
|
|
$
|
(0.66
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss Comprehensive loss
for the three months ended March 31, 2002 and March 31,
2003 was the same as net loss.
Recent Accounting Standards In June
2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires that all business combinations initiated
after June 30, 2001 be accounted for under the purchase method
and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition
and measurement of intangible assets acquired outside of a
business combination and the accounting for goodwill and other
intangible assets subsequent to their acquisition. SFAS
No. 142 provides that intangible assets with finite useful
lives be amortized and that goodwill and intangible assets with
indefinite lives will not be amortized, but will be tested at
least annually for impairment. The Company adopted SFAS
No. 142 on January 1, 2002. Upon adoption of SFAS No.
142, the Company has stopped the amortization of intangible
assets with indefinite lives (goodwill, which includes the
re-class of workforce-in-place) with a net carrying value of
$27.6 million at December 31, 2001 and annual
amortization of $8.8 million that resulted from business
combinations initiated prior to the adoption of SFAS
No. 141. The Company evaluated goodwill under SFAS
No. 142 upon adoption, on January 1, 2002, and
determined that there was no impairment. However, in accordance
with SFAS No. 142, the Company was required to reevaluate
goodwill and other intangibles for impairment in March 2002
because events and circumstances changed that more likely than
not would reduce the fair value of the reporting unit below its
carrying amount (See Note 4).
In August 2001, the FASB issued SFAS
No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of, and addresses
financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for
the Company on January 1, 2002. The adoption of this
statement did not have an impact on the financial position,
results of operations or cash flows of the Company.
In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which addresses financial accounting and reporting
for costs associated with exit or disposal activities and
supersedes Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
This statement requires that a Liability for a cost associated
F-41
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability
for an exit cost as defined in Issue 94-3 was recognized at the
date of an entitys commitment to an exit plan. This
statement also establishes that the liability should initially
be measured and recorded at fair value. This statement is
effective for the Company on January 1, 2003. The adoption
of this statement did not have an impact on the financial
position, results of operations or cash flows of the Company.
In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an
amendment of FASB Statement No. 123. SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. This statement is effective for the
Companys fiscal year beginning January 1, 2003. The
Company has elected to continue accounting for employee stock
option plans according to APB No. 25, and the Company
adopted the disclosure requirements under SFAS No. 148
commencing on December 31, 2002.
In November 2002, the FASB issued FASB
Interpretation No. 45 Guarantors Accounting and
Disclosure requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires the guarantor to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. It also elaborates on the
disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that
it has issued and to be made in regard of product warranties.
Disclosures required under FIN 45 are included in these
financial statements (see Note 7 concerning the reserve for
warranty costs). However, the initial recognition and initial
measurement provisions of this FIN are applicable for guarantees
issued or modified after December 31, 2002. The adoption of
the recognition and measurement provisions of FIN 45 did not
have a material effect on the Companys consolidated
financial statements.
2. Inventories
Inventories consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
|
2002
|
|
2003
|
|
|
|
|
|
Raw materials and subassemblies
|
|
|
1,684
|
|
|
|
1,572
|
|
Finished goods
|
|
|
1,683
|
|
|
|
2,267
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
3,367
|
|
|
|
3,839
|
|
|
|
|
|
|
|
|
|
|
3. Net Loss Per
Share
The following is a calculation of the
denominators used for the basic and diluted net loss per share
computations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Ended March 31,
|
|
|
|
|
|
2002
|
|
2003
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
62,207
|
|
|
|
62,152
|
|
Weighted average common shares outstanding
subject to repurchase
|
|
|
(676
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
Shares used in computation, basic and diluted
|
|
|
61,531
|
|
|
|
62,047
|
|
|
|
|
|
|
|
|
|
|
F-42
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the three months ended March 31, 2002
and 2003, we had securities outstanding which could potentially
dilute basic earnings per share in the future, but were excluded
in the computation of diluted earnings per shares in such
periods, as their effect would have been antidilutive due to the
net loss reported in such periods. Such outstanding securities
consist of the following at: March 31, 2002, 577,774 shares
of common stock subject to repurchase and options to purchase
12,668,119 shares of common stock and warrants to purchase
7,090,000 of our common stock; March 31, 2003, 70,075
shares of common stock subject to repurchase and options to
purchase 6,743,377 shares of common stock, and warrants to
purchase 7,090,000 shares of common stock.
4. Goodwill and
Intangible Assets
As VINA operates in one reportable segment, the
design, development, marketing and sale of multiservice
broadband access communications equipment, and has only one
reporting unit, VINA consolidated, the measurement of the fair
value for our goodwill is our market capitalization. The
deterioration of the telecom industry and the decline in our
current product sales in the first quarter were factors that
required the Company to evaluate the fair value of the goodwill.
Management evaluated our fair value as determined by its market
capitalization against its carrying value, net assets, and
determined that goodwill was impaired. In addition, under SFAS
No. 144 Accounting for the impairment of Disposal of
Long-Lived Assets the Company evaluated the intangible
assets for impairment and determined a portion of the intangible
assets were impaired. We recorded a $29.3 million
impairment charge during the quarter ended March 31, 2002.
The amount was comprised of $27.3 million of goodwill and
$2.0 million of intangible assets.
Intangible assets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
March 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
Amortization
|
|
Carrying
|
|
Accumulated
|
|
|
|
Carrying
|
|
Accumulated
|
|
|
|
|
Period
|
|
Amount
|
|
Amortization
|
|
Net
|
|
Amount
|
|
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
|
4 years
|
|
|
$
|
1,859
|
|
|
|
(465
|
)
|
|
$
|
1,394
|
|
|
$
|
1,859
|
|
|
|
(582
|
)
|
|
$
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated future amortization expense is as
follows (in thousands):
|
|
|
|
|
Fiscal year
|
|
Total
|
|
|
|
(Remaining nine months) 2003
|
|
$
|
347
|
|
2004
|
|
|
465
|
|
2005
|
|
|
465
|
|
|
|
|
|
|
Total Amortization
|
|
$
|
1,277
|
|
|
|
|
|
|
5. Restructuring
During January 2003, VINA announced and completed
restructuring plans intended to better align its operations with
the changing market conditions. These plans were designed to
focus on profit contribution and reduce expenses. The
restructuring includes a workforce reduction and other operating
reorganizations. As a result of the restructuring efforts, the
Company reduced its workforce by approximately 35%. The 2003
restructuring actions were accounted for in accordance with the
guidance set forth in SFAS No. 146.
F-43
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the restructuring benefit and
expenses for the month ended March 31, 2003 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
Workforce
|
|
Compensation
|
|
Abandonment of
|
|
|
|
|
Reductions
|
|
Benefits
|
|
Facilities
|
|
Total
|
|
|
|
|
|
|
|
|
|
2002 remaining provision
|
|
$
|
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
98
|
|
January 2003 provision
|
|
|
309
|
|
|
|
(336
|
)
|
|
|
|
|
|
|
(27
|
)
|
Net provision utilized
|
|
|
(309
|
)
|
|
|
336
|
|
|
|
98
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2003
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. 2002 Stock
Option Exchange Program
On February 17, 2003, we granted 2,601,982
option grants as part of the Stock Option Exchange Program
approved by the Board of Directors in May 2002. Under this
program, eligible employees were able to make an election to
exchange certain outstanding stock option grants with an
exercise price greater than or equal to $1.00 for a new option
to purchase the same number of shares of VINA Technologies Inc.
common stock. The replacement option was issued per the Option
Exchange Program at least six months and one day after the
cancellation date of August 15, 2002. The new options were
issued from our 2000 Stock Option Plan and are non-statutory
stock options. The individuals participating in this program
were employees of VINA Technologies, Inc. on the replacement
grant date making them eligible to receive the new stock
options. No consideration for the canceled stock options was
provided to individuals terminating employment prior to the
replacement grant date. The new option has an exercise price of
$0.16, which is equal to VINA Technologies Inc. Common
stocks closing price on the date prior to the replacement
grant. The new stock options will continue to vest on the same
schedule as the canceled options.
7. Commitments
and Contingencies
The Companys contract manufacturer has
obtained or has on order substantial amounts of inventory to
meet their revenue forecasts. If future shipments do not utilize
the committed inventory, the contract manufacturer has the right
to bill for any excess component and finished goods inventory.
The Company also has a non-cancelable purchase order with a
major chip supplier for one of its critical components. As of
March 31, 2003, the estimated purchase commitments and
non-cancelable purchase orders to those companies is
approximately $870,000. In August 2002, the Company placed
$1.0 million on deposit with its contract manufacturer as
security against these purchase commitments, of which $600,000
was used in April 2003 to pay outstanding balances. The
remaining $400,000 is still on deposit with its contract
manufacturer.
As of March 31, 2003, we have lease
commitments of $1.8 million for leases on two properties,
which expire by July 31, 2007.
The Company provides a full 60-month parts and
factory labor warranty against defects in materials and
workmanship for all VINA Integrated Access Device (IAD) product
lines. A 12-month parts and factory labor warranty against
defects in materials and workmanship is provided for all VINA
Integrated Multi-Service Access Platform (IMAP) product
lines. All VINA-supplied software is also covered by a 60-month
warranty for IAD products, and a 12-month warranty for IMAP
products. The Company accounts for warranty liability by taking
a charge in the period of shipment for the estimated warranty
costs that will be incurred related to shipments. A weighted
average of the cost per warranty transaction per product line is
developed taking into consideration: the costs of freight,
replacement, rework and repair. Estimated returns over time are
calculated taking into account experience by product line. A
warranty
F-44
VINA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liability is calculated by applying the number of
units under warranty against a factor representing the
likelihood of a return and the estimated cost per return
transaction. Actual warranty charges are tracked and reported
separately from other transactions.
The changes in the warranty reserve balances
during the three months ended March 31, 2003 and the year ended
December 31, 2002 are as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2002
|
|
$
|
696
|
|
Additions related to current period sales
|
|
|
(18
|
)
|
Warranty costs incurred in the current period
|
|
|
(228
|
)
|
Adjustments to accruals related to prior period
sales
|
|
|
(36
|
)
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
414
|
|
Additions related to current period sales
|
|
|
(5
|
)
|
Warranty costs incurred in the current period
|
|
|
(8
|
)
|
Adjustments to accruals related to prior period
sales
|
|
|
(1
|
)
|
|
|
|
|
|
Balance at March 31, 2003
|
|
$
|
400
|
|
|
|
|
|
|
Certain of the Companys sales agreements
require that the Company indemnify the customer for any expenses
or liabilities resulting from claimed infringements of patents,
trademarks or copyrights of third parties.
The high technology and telecommunications
industry in which we operate is characterized by frequent claims
and related litigation regarding patent and other intellectual
property rights. We are not a party to any such litigation;
however any such litigation in the future could have a material
adverse effect on our consolidated operations and cash flows.
8. Subsequent
Event
In April 2003, VINA received a letter from
Larscom under which Larscom indicates that it is reserving its
rights arising from an alleged breach by VINA of the merger
agreement. In its letter Larscom stated that, while reserving
its rights, it intends to work toward the consummation of the
merger. VINA also intends to work with Larscom toward the
consummation of the merger. In that regard, VINA and Larscom
have filed with the Securities and Exchange Commissions a joint
proxy statement/prospectus on SEC Form S-4 in connection
with the merger. VINA and Larscom mailed the joint proxy
statement/prospectus to stockholders of Larscom and VINA on or
about May 2, 2003. Under the merger agreement, VINA made a
representation and warranty that its anticipated revenue for the
first quarter of 2003 would not be materially below
$3.5 million. VINAs revenue for the first quarter of
2003 was approximately $2.7 million. Under the terms of the
merger agreement, either party may terminate the merger
agreement if a breach of any representation or warranty,
individually or in the aggregate, by the other party has had or
is reasonably likely to have a material adverse effect on such
party as defined in the merger agreement. VINA does not believe
that its first quarter 2003 revenue shortfall would permit a
termination of the merger agreement, because, among other
things, VINAs value cannot be measured by one
quarters operating results.
F-45
ANNEX A
AGREEMENT AND PLAN OF MERGER
by and among
VERILINK CORPORATION,
SRI ACQUISITION CORP.
and
LARSCOM INCORPORATED
dated as of
April 28, 2004
A-1
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
ARTICLE I
|
THE MERGER
|
|
|
The Merger
|
|
A-8
|
|
|
The Closing
|
|
A-8
|
|
|
Effective Time
|
|
A-9
|
|
|
Certificate of Incorporation and Bylaws of the
Surviving Corporation
|
|
A-9
|
|
|
Directors and Officers of the Surviving
Corporation
|
|
A-9
|
|
|
Directors of Verilink
|
|
A-9
|
|
|
Tax Consequences
|
|
A-9
|
ARTICLE II
|
CONVERSION OF SECURITIES
|
|
|
Conversion of Capital Stock
|
|
A-10
|
|
|
Exchange of Certificates
|
|
A-11
|
|
|
Larscom Stock Plans and Larscom Warrants
|
|
A-13
|
|
|
Adjustment Factor
|
|
A-14
|
|
|
Taking Necessary and Further Action
|
|
A-15
|
ARTICLE III
|
REPRESENTATIONS AND
WARRANTIES OF LARSCOM
|
|
|
Organization, Standing and Power
|
|
A-15
|
|
|
Charter Documents
|
|
A-16
|
|
|
Capitalization
|
|
A-16
|
|
|
Subsidiaries
|
|
A-17
|
|
|
Authority; No Conflict; Required Filings and
Consents
|
|
A-18
|
|
|
SEC Filings; Financial Statements; Information
Provided
|
|
A-19
|
|
|
No Undisclosed Liabilities
|
|
A-20
|
|
|
Absence of Certain Changes or Events
|
|
A-20
|
|
|
Taxes
|
|
A-21
|
|
|
Owned and Leased Real Properties
|
|
A-22
|
|
|
Intellectual Property
|
|
A-22
|
|
|
Agreements, Contracts and Commitments
|
|
A-24
|
|
|
Litigation
|
|
A-25
|
|
|
Environmental Matters
|
|
A-25
|
|
|
Employees
|
|
A-26
|
|
|
Employee Benefit Plans
|
|
A-27
|
|
|
Compliance With Laws
|
|
A-30
|
|
|
Permits
|
|
A-30
|
|
|
Insurance
|
|
A-30
|
|
|
Title to Assets
|
|
A-30
|
|
|
Equipment and Leaseholds
|
|
A-30
|
|
|
Receivables; Customers; Inventory
|
|
A-31
|
|
|
Certain Business Practices
|
|
A-31
|
A-2
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
Opinion of Financial Advisor
|
|
A-31
|
|
|
Section 203 of the DGCL Not Applicable
|
|
A-31
|
|
|
Brokers
|
|
A-31
|
|
|
Loans to Executive Officers
|
|
A-31
|
|
|
Financial Controls
|
|
A-31
|
ARTICLE IV
|
REPRESENTATIONS AND
WARRANTIES OF VERILINK AND THE MERGER SUB
|
|
|
Organization, Standing and Power
|
|
A-32
|
|
|
Charter Documents
|
|
A-32
|
|
|
Capitalization
|
|
A-32
|
|
|
Authority; No Conflict; Required Filings and
Consents
|
|
A-33
|
|
|
SEC Filings; Financial Statements; Information
Provided
|
|
A-35
|
|
|
No Undisclosed Liabilities
|
|
A-35
|
|
|
Absence of Certain Changes or Events
|
|
A-35
|
|
|
Intellectual Property
|
|
A-36
|
|
|
Litigation
|
|
A-37
|
|
|
Compliance With Laws
|
|
A-37
|
|
|
Certain Business Practices
|
|
A-37
|
|
|
Opinion of Financial Advisor
|
|
A-37
|
|
|
Brokers
|
|
A-37
|
|
|
Operations of the Merger Sub
|
|
A-37
|
|
|
Section 203 of the DGCL Not Applicable
|
|
A-37
|
|
|
Loans to Executive Officers
|
|
A-37
|
|
|
Financial Controls
|
|
A-37
|
ARTICLE V
|
CONDUCT OF BUSINESS
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Covenants of Larscom
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A-38
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Covenants of Verilink
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A-40
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Confidentiality
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A-40
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Required Communications
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A-41
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ARTICLE VI
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ADDITIONAL AGREEMENTS
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No Solicitation
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A-41
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Joint Proxy Statement/Prospectus and Registration
Statement
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A-43
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[Reserved]
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A-45
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Access to Information
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A-45
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Stockholders Meetings
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A-45
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Legal Conditions to Merger
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A-46
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Public Disclosure
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A-47
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Section 368(a) Reorganization
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A-47
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Affiliate Legends
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A-47
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Nasdaq Stock Market Listing
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A-47
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A-3
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Page
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Stockholder Litigation
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A-47
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Indemnification
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A-48
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Notification of Certain Matters
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A-49
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Exemption from Liability Under Section 16(b)
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A-49
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[Reserved]
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A-49
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Employee Benefits
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A-49
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Termination of Employee Benefit Plans
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A-50
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Tax Matters
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A-50
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Registration Rights Agreement
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A-50
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ARTICLE VII
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CONDITIONS TO MERGER
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Conditions to Each Partys Obligation To
Effect the Merger
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A-51
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Additional Conditions to the Obligations of
Larscom
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A-51
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Additional Conditions to the Obligations of
Verilink and Merger Sub
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A-52
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ARTICLE VIII
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TERMINATION AND AMENDMENT
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Termination
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A-53
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Effect of Termination
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A-55
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Fees and Expenses
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A-55
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Amendment
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A-57
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Extension; Waiver
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A-57
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ARTICLE IX
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MISCELLANEOUS
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Nonsurvival of Representations and Warranties
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A-57
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Notices
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A-57
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Entire Agreement
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A-58
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No Third Party Beneficiaries
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A-58
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Assignment
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A-58
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Severability
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A-58
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Counterparts and Signature
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A-58
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Interpretation
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A-59
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Governing Law
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A-59
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Consent to Jurisdiction; Venue
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A-59
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Remedies
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A-59
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Waiver of Jury Trial
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A-59
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EXHIBITS
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Exhibit A Form of Larscom Voting
Agreement
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Exhibit B Form of Verilink Voting
Agreement
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Exhibit C Form of Registration
Rights Agreement
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Exhibit D Form of Rule 145
Affiliate Letter
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A-4
TABLE OF DEFINED TERMS
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Term
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Cross Reference in Agreement
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Accounting Firm
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Section 2.4(b)
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Acquisition Proposal
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Section 6.1(f)
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Acquisition Transaction
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Section 8.3(f)
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Adjustment Date
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Section 2.4(b)
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Adjustment Factor
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Section 2.4(a)
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Affiliate
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Section 3.3(e)
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Agreement
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Preamble
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Allowed Proposal
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Section 6.1(f)
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Antitrust Laws
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Section 6.6(b)
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Antitrust Order
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Section 6.6(b)
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Bankruptcy and Equity Exception
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Section 3.5(a)
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Blue Sky Laws
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Section 3.5(c)
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Certificate of Merger
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Section 1.1
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Certificates
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Section 2.2(a)
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Closing
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Section 1.2
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Closing Date
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Section 1.2
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Closing Net Adjusted Working Capital Amount
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Section 2.4(c)
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Code
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Preamble
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Confidentiality Agreement
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Section 5.3
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Continuing Employee
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Section 6.16
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Delivery Date
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Section 2.4(b)
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DGCL
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Preamble
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DOL
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Section 3.16(c)
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Effective Time
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Section 1.3
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Employee Benefit Plan
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Section 3.16(a)
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Environmental Laws
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Section 3.14
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Environmental Permits
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Section 3.14
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ERISA
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Section 3.16(a)
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ERISA Affiliate
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Section 3.16(a)
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Exchange Act
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Section 3.5(c)
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Exchange Agent
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Section 2.2(a)
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Exchange Fund
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Section 2.2(a)
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Exchange Ratio
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Section 2.1(b)
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GAAP
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Section 3.6(b)
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Governmental Bid
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Section 3.12(e)
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Governmental Contract
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Section 3.12(e)
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Governmental Entity
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Section 3.5(c)
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Hazardous Materials
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Section 3.14
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Hazardous Materials Activity
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Section 3.14
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Indemnified Parties
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Section 6.12(a)
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Intellectual Property
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Section 3.11(a)
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IRS
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Section 3.16(b)
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A-5
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Term
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Cross Reference in Agreement
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Joint Proxy Statement/Prospectus
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Section 6.2(a)
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Larscom
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Preamble
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Larscom Balance Sheet
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Section 3.6(b)
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Larscom Board
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Preamble
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Larscom Business Facility
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Section 3.14
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Larscom Charter Documents
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Section 3.2
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Larscom Common Stock
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Section 2.1(b)
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Larscom Consents
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Section 3.5(b)
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Larscom Disclosure Schedule
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Article III
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Larscom Employee Plans
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Section 3.16(a)
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Larscom ESPP
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Section 2.3(e)
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Larscom Expenses
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Section 8.3(d)
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Larscom Insiders
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Section 6.14(c)
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Larscom Insurance Policies
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Section 3.19
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Larscom Intellectual Property
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Section 3.11(c)
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Larscom International Employee Plan
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Section 3.16(g)
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Larscom Leased Property
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Section 3.10(b)
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Larscom Leases
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Section 3.10(b)
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Larscom Material Adverse Effect
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Section 3.1
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Larscom Material Contracts
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Section 3.12(a)
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Larscom Material Inbound Licenses
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Section 3.11(b)
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Larscom Material Licenses
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Section 3.11(c)
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Larscom Material Outbound Licenses
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Section 3.11(c)
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Larscom Meeting
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Section 3.5(d)
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Larscom Permits
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Section 3.18
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Larscom Preferred Stock
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Section 3.3(a)
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Larscom SEC Reports
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Section 3.6(a)
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Larscom Software
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Section 3.11(g)
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Larscom Stock Option
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Section 2.3(a)
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Larscom Stock Plans
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Section 2.3(a)
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Larscom Stockholder Approval
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Section 3.5(a)
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Larscom Terminating Plan(s)
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Section 6.17
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Larscom Voting Agreement
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Preamble
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Larscom Voting Proposal
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Section 3.5(a)
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Larscom Warrants
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Section 3.3(a)
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Liens
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Section 3.5(b)
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Merger
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Preamble
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Merger Sub
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Preamble
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Ordinary Course of Business
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Section 3.7
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Outside Date
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Section 8.1(b)
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Registration Rights Agreement
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Section 6.19
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Registration Statement
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Section 6.2(a)
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Regulation M-A Filing
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Section 6.2(b)
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Representatives
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Section 6.1(a)
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A-6
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Term
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Cross Reference in Agreement
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Returns
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Section 3.9(b)
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Review Period
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Section 2.4(b)
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Rule 145 Affiliates
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Section 6.9
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SEC
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Section 3.6(a)
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Section 16 Information
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Section 6.14(b)
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Securities Act
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Section 3.3(e)
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Specified Time
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Section 6.1(a)
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Statement of Closing Net Adjusted Working Capital
Amount
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Section 2.4(b)
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Subsidiary
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Section 3.4(a)
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Superior Proposal
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Section 6.1(f)
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Surviving Corporation
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Section 1.1
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Targeted Net Adjusted Working Capital Amount
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Section 2.4(a)
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Tax
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Section 3.9(a)
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Taxes
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Section 3.9(a)
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Verilink
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Preamble
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Verilink Balance Sheet
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Section 4.5(b)
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Verilink Benefit Plan
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Section 6.16
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Verilink Board
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Preamble
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Verilink Charter Documents
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Section 4.2
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Verilink Common Stock
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Section 2.1(b)
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Verilink Disclosure Schedule
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Article IV
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Verilink Expenses
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Section 8.3(b)
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Verilink Intellectual Property
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Section 4.8(b)
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Verilink Material Adverse Effect
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Section 4.1
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Verilink Material License
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Section 4.8(b)
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Verilink Meeting
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Section 4.4(d)
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Verilink Preferred Stock
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Section 4.3(a)
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Verilink Rights Plan
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Section 4.3
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Verilink SEC Reports
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Section 4.5(a)
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Verilink Stockholder Approval
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Section 4.4(a)
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Verilink Voting Agreement
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Preamble
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Verilink Voting Proposal
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Section 4.4(a)
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WARN Act
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Section 3.15(d)
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A-7
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this
Agreement), dated as of April 28, 2004, is by
and among Verilink Corporation, a Delaware corporation
(Verilink), SRI Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Verilink (the
Merger Sub), and Larscom Incorporated, a Delaware
corporation (Larscom) (Larscom, taken together as
one party, and Verilink and Merger Sub, taken together as the
other party, are sometimes referred to herein as a
party and collectively as the parties).
WHEREAS, the board of directors of Larscom (the
Larscom Board) and the board of directors of
Verilink (the Verilink Board) each deems it
advisable and in the best interests of its corporation and its
stockholders that Verilink acquire Larscom, by means of a merger
of Merger Sub with and into Larscom with Larscom surviving as a
wholly owned subsidiary of Verilink (the Merger) in
accordance with the terms of this Agreement and the General
Corporation Law of the State of Delaware (the DGCL);
WHEREAS, concurrently with the execution and
delivery of this Agreement and as a condition and inducement to
Verilinks willingness to enter into this Agreement, the
majority stockholders of Larscom will be entering into the
Larscom Voting Agreement, dated as of the date of this
Agreement, in the form attached hereto as Exhibit A (the
Larscom Voting Agreement), pursuant to which each
such stockholder will, among other things, agree to give
Verilink a proxy to vote all of the shares of capital stock of
Larscom that such stockholder owns, subject to certain
restrictions, in order to consummate the transactions
contemplated hereby;
WHEREAS, concurrently with the execution and
delivery of this Agreement and as a condition and inducement to
Larscoms willingness to enter into this Agreement, certain
stockholders of Verilink will be entering into the Verilink
Voting Agreement, dated as of the date of this Agreement, in the
form attached hereto as Exhibit B (the Verilink
Voting Agreement), pursuant to which each such stockholder
will, among other things, agree to give Larscom a proxy to vote
all of the shares of capital stock of Verilink that such
stockholder owns in order to consummate the transactions
contemplated hereby;
WHEREAS, for United States federal income tax
purposes, it is intended that the Merger shall qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the
Code), and the rules and regulations promulgated
thereunder, and that each of Verilink, the Merger Sub and
Larscom are a party to a reorganization within the meaning of
Section 368(a) of the Code;
NOW, THEREFORE, in consideration of the foregoing
and the respective representations, warranties, covenants and
agreements set forth below, Verilink, the Merger Sub and Larscom
agree as follows:
ARTICLE I
THE MERGER
1.1
The
Merger.
Upon and subject to the terms and conditions of
this Agreement, the Merger Sub shall merge with and into Larscom
at the Effective Time. From and after the Effective Time, the
separate corporate existence of the Merger Sub shall cease, and
Larscom shall continue as the surviving corporation in the
Merger. Larscom following the Merger is sometimes referred to
herein as the Surviving Corporation. The Merger
shall be effected by filing a certificate of merger (the
Certificate of Merger) in a form mutually acceptable
to Verilink and Larscom and executed by the Surviving
Corporation in accordance with Section 251(c) of the DGCL.
The Merger shall have the effects set forth in Section 259
of the DGCL.
1.2
The
Closing.
(a) Unless this Agreement is earlier
terminated pursuant to Article VIII, the closing of the
Merger (the Closing) shall take place at
9:00 a.m., eastern time, on a date to be specified by
Larscom and
A-8
Verilink (the Closing Date), which
shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in
Article VII (other than delivery of items to be delivered
at the Closing and other than satisfaction of those conditions
that by their nature are to be satisfied at the Closing, it
being understood that the occurrence of the Closing shall remain
subject to the delivery of such items and the satisfaction or
waiver of such conditions at the Closing), at the offices of
Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree
Street, Atlanta, Georgia 30303, unless another date, place or
time is agreed to in writing by Larscom and Verilink.
(b) At the Closing:
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(i) Verilink shall deliver to Larscom the
various certificates, instruments and documents referred to in
Section 7.2;
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(ii) Larscom shall deliver to Verilink the
various certificates, instruments and documents referred to in
Section 7.3; and
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(iii) Larscom, on behalf of the Surviving
Corporation, shall file the Certificate of Merger with the
Secretary of State of the State of Delaware.
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1.3
Effective
Time.
Subject to the provisions of this Agreement, the
parties shall cause the Merger contemplated by this Agreement to
be consummated by the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware. The Merger
shall become effective at such time as the Certificate of Merger
has been duly filed with the Secretary of State of the State of
Delaware, or at such subsequent date or time as the parties
shall mutually agree upon (the time the Merger becomes effective
referred to herein as the Effective Time).
1.4
Certificate
of Incorporation and Bylaws of the Surviving Corporation.
(a) The Certificate of Incorporation of
Larscom shall be amended and restated, by means of the
Certificate of Merger, to substantially conform to the
Certificate of Incorporation of the Merger Sub as in effect
immediately prior to the Effective Time (except that the name of
the Surviving Corporation shall be Larscom or such
other name as is mutually agreed to by Verilink and Larscom)
and, as so amended, such Certificate of Incorporation shall be
the Certificate of Incorporation of the Surviving Corporation,
until further amended in accordance with the DGCL and such
Certificate of Incorporation.
(b) As of the Effective Time, by virtue of
the Merger and without any action on the part of the Merger Sub
and Verilink, the Bylaws of the Surviving Corporation shall be
amended and restated to read the same as the Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, until
thereafter amended in accordance with the DGCL, the Certificate
of Incorporation of the Surviving Corporation and such Bylaws.
1.5
Directors
and Officers of the Surviving Corporation.
(a) The directors of the Merger Sub
immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
(b) The officers of the Merger Sub
immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
1.6
Directors
of Verilink.
Prior to the Effective Time, Verilink shall
take all necessary action to cause the number of directors
constituting the full Verilink Board to be increased by one
director as of the Effective Time and to cause Desmond P.
Wilson III to be appointed to the Verilink Board to fill
such vacancy.
1.7
Tax
Consequences.
The parties hereto intend that the Merger
shall constitute a reorganization within the meaning of
Section 368(a) of the Code. The parties hereto adopt this
Agreement as a plan of reorganization within the
meaning of Section 1.368-3(a) of the U.S. Income Tax
Regulations.
A-9
ARTICLE II
CONVERSION OF SECURITIES
2.1
Conversion
of Capital Stock.
As of the Effective Time, by virtue of
the Merger and without any action on the part of the Merger Sub,
Larscom or the holder of any shares of the capital stock of
Larscom or the Merger Sub:
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(a)
Capital Stock of the Merger Sub.
Each share of the common stock of the Merger Sub issued and
outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share
of common stock, $0.01 par value per share, of the
Surviving Corporation. From and after the Effective Time, all
certificates representing the common stock of the Merger Sub
shall be deemed for all purposes to represent the number of
shares of common stock of the Surviving Corporation into which
they were converted in accordance with this Section 2.1(a).
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(b)
Exchange Ratio for Larscom Common
Stock.
Subject to this Section 2.1 and Section 2.2
hereof, each share of common stock of Larscom, $0.01 par
value (the Larscom Common Stock) issued and
outstanding immediately prior to the Effective Time, other than
shares to be cancelled in accordance with Section 2.1(c)
hereof, shall be automatically converted into the right to
receive the number of validly issued, fully paid and
nonassessable shares of Common Stock, $0.01 par value per
share, of Verilink (Verilink Common Stock) equal to
1.166 multiplied by the Adjustment Factor as defined in
Section 2.4 (the Exchange Ratio). As of the
Effective Time, all such shares of Larscom Common Stock shall no
longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a
certificate representing any such shares of Larscom Common Stock
shall cease to have any rights with respect thereto, except the
right to receive the Verilink Common Stock pursuant to this
Section 2.1(b) and any cash in lieu of fractional shares of
Verilink Common Stock to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance
with Section 2.2, without interest.
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(c)
Cancellation of Treasury Stock and
Verilink-Owned Stock.
All shares of Larscom Common Stock
that are owned by Larscom as treasury stock and any shares of
Larscom Common Stock owned by Verilink or the Merger Sub
immediately prior to the Effective Time shall be cancelled and
shall cease to exist and no shares of Verilink or other
consideration shall be delivered in exchange therefor.
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(d)
Adjustments to Exchange Ratio.
The Exchange Ratio shall be adjusted to reflect fully the effect
of any reclassification, share or stock split, reverse split,
share or stock dividend (including any dividend or distribution
of securities convertible into Verilink Common Stock or Larscom
Common Stock), reorganization, recapitalization or other like
change with respect to Verilink Common Stock or Larscom Common
Stock occurring (or for which a record date is established)
after the date hereof and prior to the Effective Time.
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(e)
Unvested Stock.
If any shares of
Larscom Common Stock outstanding immediately prior to the
Effective Time are unvested or are subject to a repurchase
option, risk of forfeiture or other condition under any
applicable restricted stock purchase agreement or other
agreement with Larscom, then the shares of Verilink Common Stock
issued in exchange for such shares of Larscom Common Stock will
also be unvested or subject to the same repurchase option, risk
of forfeiture or other condition, and the certificates
representing such shares of Verilink Common Stock will
accordingly be marked with appropriate legends. All outstanding
rights which Larscom may hold immediately prior to the Effective
Time to repurchase unvested shares of Larscom Common Stock or to
exercise any other right with respect to shares of Larscom
Common Stock that are restricted shall be automatically assigned
to Verilink in the Merger at the Effective Time and shall
thereafter be exercisable by Verilink upon the same terms and
conditions (including, without limitation, any provision for
acceleration) in effect immediately prior to the Effective Time,
except that the shares purchasable pursuant to such rights and
the purchase price payable per share shall be appropriately
adjusted to reflect the Exchange Ratio. Larscom shall take all
reasonable steps necessary to cause the foregoing provisions of
this Section 2.1(e) to occur.
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2.2
Exchange
of Certificates.
The procedures for exchanging
outstanding shares of Larscom Common Stock for Verilink Common
Stock pursuant to the Merger are as follows:
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(a)
Exchange Agent.
At or promptly
following the Effective Time, Verilink shall deposit, or cause
to be deposited, with Verilinks transfer agent or another
bank or trust company designated by Verilink and reasonably
acceptable to Larscom (the Exchange Agent), for the
benefit of the holders of shares of Larscom Common Stock, for
exchange, in accordance with this Section 2.2:
(i) Verilink Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding shares of Larscom
Common Stock, (ii) cash in an amount sufficient to make
payments for fractional shares required pursuant to
Section 2.2(c), and (iii) any dividends or
distributions to which holders of certificates which immediately
prior to the Effective Time represented outstanding shares of
Larscom Common Stock (the Certificates) may be
entitled pursuant to Section 2.2(d) (such Verilink Common
Stock, together with the amount of any dividends or other
distributions payable with respect thereto and any cash in lieu
of fractional shares, being collectively hereinafter referred to
as the Exchange Fund).
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(b)
Exchange Procedures.
Promptly
following the Effective Time, the Exchange Agent shall mail to
each holder of record of a Certificate or Certificates whose
shares were converted pursuant to Section 2.1 into the
right to receive shares of Verilink Common Stock (i) a
letter of transmittal in customary form, reasonably satisfactory
to Larscom (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent, and
shall contain such other provisions as Verilink may reasonably
require) and (ii) instructions for effecting the surrender
of the Certificates in exchange for Verilink Common Stock (plus
cash in lieu of fractional shares of Verilink Common Stock, if
any, and any dividends or distributions as provided below). Upon
surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by
Verilink, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required
by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate
representing that number of whole shares of Verilink Common
Stock which such holder has the right to receive pursuant to the
provisions of Section 2.1 plus cash in lieu of fractional
shares pursuant to Section 2.2(c) and any dividends or
distributions pursuant to Section 2.2(d), and the
Certificate so surrendered shall immediately be cancelled. In
the event of a valid transfer of ownership of Larscom Common
Stock which is not registered in the transfer records of
Larscom, a certificate representing the proper number of shares
of Verilink Common Stock plus cash in lieu of fractional shares
pursuant to Section 2.2(c) and any dividends or
distributions pursuant to Section 2.2(d) may be issued or
paid to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate is
presented to the Exchange Agent, accompanied by all documents
reasonably required to evidence and effect such transfer and by
evidence that any applicable stock transfer taxes have been paid
or are not payable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive
upon such surrender the Verilink Common Stock issued in
consideration therefor plus cash in lieu of fractional shares
pursuant to Section 2.2(c) and any dividends or
distributions pursuant to Section 2.2(d) as contemplated by
this Section 2.2.
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(c)
No Fractional Shares.
No fraction
of a share of Verilink Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional
share interests shall not entitle the owner thereof to vote or
to any other rights of a stockholder of Verilink.
Notwithstanding any other provision of this Agreement, each
holder of shares of Verilink Common Stock converted pursuant to
the Merger who would otherwise have been entitled to receive a
fraction of a share of Verilink Common Stock (after taking into
account all Certificates delivered by such holder and the
aggregate number of shares of Larscom Common Stock represented
thereby) shall receive, in lieu thereof, cash (without interest)
in an amount equal to such fractional part of a share of
Verilink Common Stock multiplied by the last reported sale price
of a share of Verilink Common Stock at the 4:00 p.m.
Eastern time, end of regular trading hours on The Nasdaq Stock
Market, on the last trading
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day prior to the Effective Time (or if the
Verilink Common Stock shall not be traded on The Nasdaq Stock
Market at such time, the last reported sale price on such day as
reported on the OTC Bulletin Board, if so reported, or the
average of the high and low bid prices in the over-the-counter
market on such day if not so reported).
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(d)
Distributions with Respect to
Unexchanged Shares.
No dividends or other distributions
declared or made after the Effective Time with respect to
Verilink Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered
Certificate until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable
laws, promptly following surrender of any such Certificate, the
Exchange Agent shall deliver to the record holder thereof,
without interest, (i) the amount of dividends or other
distributions with a record date after the Effective Time
previously paid with respect to such whole shares of Verilink
Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions payable with respect
to such whole shares of Verilink Common Stock having a record
date after the Effective Time but prior to the date of such
surrender and a payment date subsequent to the date of such
surrender.
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(e)
No Further Ownership Rights in
Verilink Common Stock.
All shares of Verilink Common Stock
issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash or
dividends or other distributions paid pursuant to
Section 2.2(c) or 2.2(d)) shall be deemed to have been
issued (and paid) in full satisfaction of all rights pertaining
to such shares of Larscom Common Stock, and from and after the
Effective Time there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the shares of Larscom Common Stock which were
outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be
cancelled and exchanged for the consideration provided for, and
in accordance with the procedures set forth, in this
Article II.
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(f)
Termination of Exchange
Fund/Limitation of Liability.
Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any
Verilink Common Stock) that remains unclaimed by the
stockholders of Larscom for six (6) months after the
Effective Time shall be paid to Verilink. Any stockholders of
Larscom who have not theretofore complied with this
Article II shall thereafter look only to Verilink for
payment of their shares of Verilink Common Stock and any cash,
dividends and other distributions in respect of Verilink Common
Stock payable and/or issuable pursuant to Section 2.1,
2.2(c) and 2.2(d) upon due surrender of the Certificates (or
affidavits of loss in lieu thereof and, if required, the posting
of a bond), in each case, without any interest thereon. To the
extent permitted by applicable law, none of Verilink, the Merger
Sub, Larscom, the Surviving Corporation or the Exchange Agent
shall be liable to any holder of shares of Verilink Common Stock
or Larscom Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) delivered to a
public official pursuant to any applicable abandoned property,
escheat or similar law.
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(g)
Withholding Rights.
Each of the
Exchange Agent, Verilink and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Article II to any holder of shares
of Larscom Common Stock such amounts as it reasonably determines
that it is required to deduct and withhold with respect to the
making of such payment under the Code, or any other applicable
provision of state, local or foreign tax law or any other
applicable legal requirement. To the extent that amounts are so
deducted or withheld by the Exchange Agent, the Surviving
Corporation or Verilink, as the case may be, such deducted or
withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of
Larscom Common Stock in respect of which such deduction and
withholding was made by the Exchange Agent, the Surviving
Corporation or Verilink, as the case may be.
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(h)
Lost Certificates.
In the event
that any Certificate shall have been lost, stolen or destroyed,
the Exchange Agent may require the stockholder of such lost,
stolen or destroyed Certificate, in exchange for such lost,
stolen or destroyed Certificate, to make and deliver an
affidavit of that fact
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and provide such other documentation and pay such
fees, or post such bonds, as is the customary practice of the
Exchange Agent to require, prior to delivering the certificates
representing the shares of Verilink Common Stock into which the
shares of Larscom Common Stock represented by such lost, stolen
or destroyed Certificate was converted pursuant to
Section 2.1 and cash for fractional shares, if any, as may
be required pursuant to Section 2.2(c) and any dividends or
distributions payable pursuant to Section 2.2(d), in each
case without any interest thereon; provided, however, that
Verilink may, in its discretion and as a condition precedent to
the issuance of such certificates representing shares of
Verilink Common Stock and other distributions, require the owner
of such lost, stolen or destroyed Certificate to deliver a bond
in such sum as it may reasonably direct as indemnity against any
claim that may be made against Verilink, the Surviving
Corporation, or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed;
provided, further, that in no event shall Verilink be required
to pay any fee or post any bond referred to in this
Section 2.2(h).
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2.3
Larscom
Stock Plans and Larscom Warrants.
(a) At the Effective Time, each outstanding
option to purchase Larscom Common Stock under any of the Larscom
Incorporated Stock Incentive Plan, the Larscom Incorporated
Stock Option Plan for Non-Employee Directors, the VINA
Technologies, Inc. 2000 Stock Incentive Plan, the VINA
Technologies, Inc. 1998 Stock Plan, and the VINA Technologies,
Inc. 1996 Stock Option/Stock Issuance Plan (collectively, the
Larscom Stock Plans), all of which shall be fully
vested and exercisable (each a Larscom Stock Option)
and each Larscom Warrant shall be assumed by Verilink and shall
thereafter be exercisable, on the same terms and conditions as
were applicable under such Larscom Stock Option (subject to the
applicable Larscom Stock Plan as administered by Verilink from
and after the Effective Time) or Larscom Warrant (in accordance
with the past practices of Larscom with respect to the
interpretation and application of such terms and conditions), as
the case may be, prior to the Effective Time, except that
(i) each Larscom Stock Option and Larscom Warrant shall be
exercisable for that number of whole shares of Verilink Common
Stock equal to the product obtained by multiplying (x) the
number of shares of Larscom Common Stock that were issuable upon
exercise of such Larscom Stock Option or Larscom Warrant
immediately prior to the Effective Time by (y) the Exchange
Ratio, rounded, in the case of a Larscom Warrant, up, and, in
the case of any Larscom Stock Option, down, to the nearest whole
number of shares of Larscom Common Stock, and (ii) the per
share exercise price for the shares of Larscom Common Stock
issuable upon exercise of such assumed Larscom Stock Option or
Larscom Warrant shall be equal to the quotient determined by
dividing (x) the exercise price per share of Larscom Common
Stock at which such Larscom Stock Option or Larscom Warrant was
exercisable immediately prior to the Effective Time, by
(y) the Exchange Ratio, rounded up to the nearest whole
cent.
(b) The parties intend that, to the extent
that any Larscom Stock Option constituted an incentive stock
option immediately prior to the Effective Time, such option
continues to qualify as an incentive stock option to the maximum
extent permitted by Section 422 of the Code, and the
assumption of the Larscom Stock Option provided in
Section 2.3(a) satisfy the conditions of
Section 424(a) of the Code. Holders of Larscom Stock
Options or Larscom Warrants will not be entitled to acquire
shares of Larscom Common Stock after the Merger. In addition,
prior to the Effective Time, Larscom will make any amendments to
the terms of such Larscom Stock Plans or arrangements that are
necessary to give effect to the transactions contemplated by
this Section 2.3.
(c) As soon as practicable after the
Effective Time, Verilink shall deliver to the participants in
the Larscom Stock Plans and holders of Larscom Warrants an
appropriate notice evidencing the foregoing assumption of such
Larscom Stock Options or Larscom Warrants, as the case may be,
and setting forth such participants rights in the Larscom
Stock Options and Larscom Warrants, as provided in this
Section 2.3.
(d) Verilink shall take all corporate action
necessary to reserve for issuance a sufficient number of shares
of Verilink Common Stock for delivery upon exercise of Larscom
Stock Options and Larscom Warrants assumed in accordance with
this Section 2.3. Within ten (10) business days after
the Effective
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Time, Verilink shall file one or more
registration statements on Form S-8 (or any successor form)
with respect to the shares of Verilink Common Stock subject to
such Larscom Stock Options (to the extent a Form S-8 is
available for such options) and shall maintain the effectiveness
of such registration statement or registrations statements (and
maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Larscom Stock Options
remain outstanding.
(e) The rights of participants in the
Larscom Incorporated Stock Purchase Plan (the Larscom
ESPP) with respect to any offering then underway under the
Larscom ESPP shall be determined by treating the last business
day prior to the Effective Time as the last day of such offering
and by making such other pro rata adjustments as may be
necessary to reflect the shortened offering but otherwise
treating such shortened offering as a fully effective and
completed offering for all purposes under the Larscom ESPP.
Outstanding rights to purchase shares of Larscom Common Stock
shall be exercised in accordance with the Larscom ESPP, and each
share of Larscom Common Stock purchased pursuant to such
exercise shall by virtue of the Merger, and without any action
on the part of the holder thereof, be converted into the right
to receive a number of shares of Verilink Common Stock in
accordance with Section 2.1(b) hereof without issuance of
certificates representing issued and outstanding shares of
Larscom Common Stock to participants under the Larscom ESPP. As
of the Effective Time, the Larscom ESPP shall be terminated.
Prior to the Effective Time, Larscom shall (i) provide
Verilink with evidence that the Larscom ESPP has been terminated
pursuant to resolutions of Larscoms Board, the form and
substance of such resolutions shall be subject to prior review
and approval of Verilink (the approval of which shall not be
unreasonably withheld) and (ii) take such other actions
(including, but not limited to, if appropriate, amending the
Larscom ESPP) that are necessary to give effect to the
transaction contemplated by this Section 2.3(e).
2.4
Adjustment
Factor.
(a) The Adjustment Factor shall
be equal to the quotient obtained by dividing (i) the
Closing Net Adjusted Working Capital Amount plus $24,365,600 by
(ii) the Targeted Net Adjusted Working Capital Amount plus
$24,365,600; provided, however, if the Closing Net Adjusted
Working Capital Amount is less than the Targeted Net Working
Capital Amount by $100,000.00 or less, or exceeds the Targeted
Net Working Capital Amount, then, in either case, the Adjustment
Factor shall be equal to 1. The Targeted Net Adjusted
Working Capital Amount shall be:
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(i) $5,500,000 if the Closing Date occurs on
or before July 9, 2004;
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(ii) $5,000,000 if the Closing Date occurs
on or after July 10, 2004 and before August 15,
2004; or
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(iii) $4,500,000 if the Closing Date occurs
on or after August 15, 2004.
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(b) Larscom shall cause to be prepared and
delivered to Verilink a Statement of Closing Net Adjusted
Working Capital Amount, which shall include Larscoms
calculation of the Closing Net Adjusted Working Capital Amount,
as of the anticipated Closing Date, which date shall be two
business days after the later to occur of the Verilink
Stockholders Meeting or the Larscom Stockholders Meeting or such
other date as may be mutually agreed upon by Verilink and
Larscom (the Adjustment Date).
Verilink shall have an opportunity to participate
in Larscoms preparation of the Statement of Closing Net
Adjusted Working Capital Amount and to review all records and
workpapers related thereto. Larscom shall deliver the Statement
of Closing Net Adjusted Working Capital Amount no later than ten
(10) Business Days prior to the Adjustment Date (the
Delivery Date). If Larscom and Verilink are unable
to agree on the Statement of Closing Net Adjusted Working
Capital Amount within ten (10) Business Days after the
Delivery Date, then Verilink and Larscom agree to retain an
accounting firm selected by Verilink and reasonably acceptable
to Larscom (the Accounting Firm) to read and analyze
the Statement of Closing Net Adjusted Working Capital Amount
delivered by Larscom for correctness and compliance with the
calculation described in Section 2.4(c) below within five
(5) Business Days of the date of the delivery of
Larscoms Statement of Closing Net Adjusted Working Capital
Amount (the Review Period) to the Accounting Firm.
Both Verilink and Larscom agree to execute and deliver such
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indemnity and other agreements related to the
engagement of the Accounting Firm as may be required by the
Accounting Firm. Based upon the foregoing procedures, the
Accounting Firm shall have the right, in its sole discretion, to
modify the Statement of Closing Net Adjusted Working Capital
Amount to ensure that it complies with the calculation described
in Section 2.4(c) below. The Accountings Firms
procedures and modifications, if any, of the Statement of
Closing Net Adjusted Working Capital Amount, if any, shall be
binding on the Parties. Both Larscom and Verilink shall have an
opportunity to participate in such analysis and comment on the
workpapers related thereto prior to the delivery of the final
Statement of Closing Net Adjusted Working Capital Amount by the
Accounting Firm.
(c) For the purposes of this
Section 2.4, the Closing Net Adjusted Working Capital
Amount shall be calculated as follows:
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(i) Current Assets of Larscom (as defined
under, and calculated in accordance with, GAAP on a consistent
basis with the Larscom Balance Sheet), less
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(ii) Current Liabilities of Larscom (as
defined under, and calculated in accordance with, GAAP on a
consistent basis with the Larscom Balance Sheet); provided,
however, that (A) up to $690,000 of Larscoms expenses
associated with the transactions contemplated by this Agreement
(including, without limitation, all legal, investment banking
and other professional fees and expenses and all printing,
mailing and transfer agent fees associated with the Joint Proxy
Statement/Prospectus delivered to Larscoms stockholders
(such printing and mailing fees calculated on a pro rata basis
between Larscoms total number of record and beneficial
stockholders as of the record date for the Larscom Meeting and
Verilinks total number of record and beneficial
stockholders as of the record date for the Verilink Meeting)),
(B) employee severance expenses relating to employees whose
employment is terminated immediately prior to or after the
Closing, and (C) expenses relating to retention bonuses payable
to Larscom employees, whether or not any of the expenses set
forth in clauses (A) through (C) have been paid
or are payable on or after the Closing Date, shall not be taken
into account for any purpose to decrease the Closing Net
Adjusted Working Capital Amount.
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2.5
Taking
Necessary and Further Action.
If, at any time after the
Effective Time, any further action is necessary or desirable to
carry out the purpose of this Agreement and to vest the
Surviving Corporation with the full right, title and possession
to all assets, property, rights, privileges, powers and
franchises of Larscom and the Merger Sub, the officers and
directors of Larscom and the Merger Sub will take all such
reasonable, lawful and necessary action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LARSCOM
Larscom represents and warrants to Verilink and
the Merger Sub that the statements contained in this
Article III are true and correct, except as expressly set
forth herein or in the disclosure schedule delivered by Larscom
to Verilink on the date of this Agreement which is made a part
hereof (the Larscom Disclosure Schedule). The
Larscom Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained
in this Agreement.
3.1
Organization,
Standing and Power.
Larscom is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being
conducted and as presently proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the character of the
properties it owns, operates or leases or the nature of its
activities makes such qualification necessary, except for such
failures to be so organized, qualified or in good standing,
individually or in the aggregate, which have not had, and are
not reasonably likely to have a Larscom Material Adverse Effect.
For purposes of this Agreement, the term Larscom Material
Adverse Effect means any material adverse change, event,
circumstance or development with respect to, or material adverse
effect on, the business, assets, liabilities, capitalization,
condition (financial or other), or results of operations of
Larscom and its Subsidiaries, taken as a whole;
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provided, however, that none of the following
shall, in and of itself, be taken into account when determining
whether there has been, or will be, a Larscom Material Adverse
Effect: (i) any failure by Larscom to meet or exceed
analysts published revenues or analysts published
earnings predictions or any change in Larscoms stock price
or trading volume; (ii) with respect to the use of the term
Larscom Material Adverse Effect in the
representations and warranties contained in Section 3.8,
any effect resulting directly from the announcement or pendency
of this Agreement or the Merger; or (iii) any effect that
results from changes affecting generally the industry or
industries in which Larscom or any of its Subsidiaries
participates, the U.S. economy as a whole or foreign
economies in any locations where Larscom or any of its
Subsidiaries has material operations, or sales or customers
unless such condition shall disproportionately adversely affect
Larscom or any of its Subsidiaries.
3.2
Charter
Documents.
Larscom has previously furnished or made
available to Verilink a complete and correct copy of its
(i) Certificate of Incorporation and Bylaws as amended to
date (together, the Larscom Charter Documents) and
(ii) each of its Subsidiaries Certificate of
Incorporation, or equivalent organizational documents, and
Bylaws, or equivalent organizational documents. Such Larscom
Charter Documents and equivalent organizational documents of
each of its Subsidiaries are in full force and effect. Larscom
is not in violation of any of the provisions of the Larscom
Charter Documents, and no Subsidiary of Larscom is in violation
of its equivalent organizational documents.
3.3
Capitalization.
(a) The authorized capital stock of Larscom
consists of 111,900,000 shares of Larscom Common Stock,
$0.01 par value per share, of which there were
5,100,255 shares issued and outstanding as of the close of
business on April 28, 2004, and 5,000,000 shares of
preferred stock, $0.01 par value per share (Larscom
Preferred Stock), of which no shares are outstanding. As
of the close of business on April 28, 2004, (i) no
shares of Larscom Common Stock were held in the treasury for
Larscom; (ii) 637,010 shares of Larscom Common Stock
were reserved for future issuance pursuant to the Larscom
Incorporated Stock Plans and 586,133 shares were subject to
outstanding options; (iii) 44,836 shares of Larscom
Common Stock were reserved for future issuance pursuant to the
Larscom ESPP and no shares were subject to outstanding purchase
rights; and (iv) 269,319 shares of Larscom Common
Stock were reserved for future issuance upon the exercise of
outstanding warrants (the Larscom Warrants).
(b) Section 3.3(b) of the Larscom
Disclosure Schedule lists all issued and outstanding shares of
Larscom Common Stock that constitute restricted stock or that
are otherwise subject to a repurchase or redemption right or
right of first refusal in favor of Larscom, indicating the name
of the applicable stockholder, the vesting schedule for any such
shares, including the extent to which any such repurchase or
redemption right or right of first refusal has lapsed as of the
date of this Agreement, the price at which such stock can be
repurchased and redeemed and whether (and to what extent) the
vesting will be accelerated in any way by the Merger or by
termination of employment or change in position following
consummation of the Merger.
(c) Section 3.3(c) of the Larscom
Disclosure Schedule sets forth a complete and accurate list, as
of the date of this Agreement, of all Larscom Stock Options,
indicating with respect to each such Larscom Stock Option the
name of the holder thereof, the Larscom Stock Plan under which
it was granted, the number of shares of Larscom Common Stock
subject to such Larscom Stock Option, the exercise price, the
date of grant and expiration, and the vesting schedule,
including the vesting commencement date and whether (and to what
extent) the vesting will be accelerated in any way by the Merger
or by termination of employment or change in position following
consummation of the Merger. All Larscom Stock Options have been
granted under one of the Larscom Stock Plans. Larscom has
provided or made available to Verilink complete and accurate
copies of all Larscom Stock Plans and the forms of all stock
option agreements evidencing Larscom Stock Options and Larscom
Warrants. No acceleration of vesting, exercise, or repurchase of
any Larscom Stock Option or Larscom Warrant will occur as a
result of or in connection with the Merger or by termination of
employment or change in position following consummation of the
Merger. The exercise period of each Larscom Stock Option
terminates within 90 days or less of the termination of the
holders employment or service to Larscom.
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(d) There are no equity securities or other
similar ownership interests of any class or series of capital
stock of Larscom, or any securities convertible into or
exercisable or exchangeable for such equity securities or other
similar ownership interests issued, reserved for issuance or
outstanding. Except for securities Larscom owns, directly or
indirectly through any of its Subsidiaries, there are no equity
securities, partnership interests or other similar ownership
interests of any class or series of capital stock of any
Subsidiary of Larscom, or any securities convertible into or
exercisable or exchangeable for such equity securities,
partnership interests or other similar ownership interests
issued, reserved for issuance or outstanding. There are no
options, warrants, equity securities, partnership interests or
other similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any kind or
character to which Larscom or any of its Subsidiaries is a party
or by which Larscom or any of its Subsidiaries is bound
obligating Larscom or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition, of any shares of capital
stock of Larscom or any of its Subsidiaries or obligating
Larscom or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity
security, partnership interest or other similar ownership
interest, call, right, commitment or agreement. There are no
outstanding stock appreciation, phantom stock or similar rights
with respect to Larscom or any of its Subsidiaries.
(e) There is no agreement, written or oral,
between Larscom or any Affiliate of Larscom and any holder of
the securities of Larscom relating to the sale or transfer
(including agreements relating to rights of first refusal,
co-sale rights or drag-along rights), registration
under the Securities Act of 1933, as amended (together with the
rules and regulations promulgated thereunder, the
Securities Act), or voting, of the capital stock of
Larscom. There is no rights agreement, poison pill
anti-takeover plan or other agreement or understanding to which
Larscom is a party or by which it is bound with respect to any
equity security of any class of Larscom. For purposes of this
Agreement, the term Affiliate when used with respect
to any party means any person who is an affiliate of
that party within the meaning of Rule 405 promulgated under
the Securities Act.
(f) All outstanding shares of Larscom Common
Stock are and all shares of Larscom Common Stock subject to
issuance as specified in Section 3.3(a) above will be upon
issuance (on the terms and conditions specified in the
instruments pursuant to which they are issuable), duly
authorized, validly issued, fully paid and nonassessable and not
subject to or issued in violation of any purchase option, call
option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the DGCL,
Larscoms Charter Documents or any agreement to which
Larscom is a party or is otherwise bound. All outstanding shares
of capital stock, the Larscom Stock Options, the Larscom
Warrants and other securities of Larscom and its Subsidiaries
have been issued and granted in compliance in all material
respects with all applicable securities laws and other
applicable laws and all requirements set forth in any applicable
contracts.
(g) No consent of the holders of Larscom
Stock Options is required in connection with the actions
contemplated by Section 2.3.
(h) Stockholders of Larscom are not entitled
to dissenters or appraisal rights under applicable state
law in connection with the Merger.
3.4
Subsidiaries.
(a) Section 3.4(a) of the Larscom
Disclosure Schedule sets forth, for each Subsidiary of Larscom:
(i) its name; (ii) the number and type of outstanding
equity securities owned of record and beneficially by Larscom
(as well as securities exchangeable or exercisable for and
convertible into equity securities thereby) and a list of the
holders thereof and the identity of, and the percentage of
outstanding equity securities owned of record and beneficially,
by, any other stockholder of a Subsidiary of Larscom; and
(iii) the jurisdiction of organization. For purposes of
this Agreement, the term Subsidiary means, with
respect to any party, any corporation, partnership, trust,
limited liability company or other non-corporate business
enterprise in which such party (or another Subsidiary of such
party) holds stock or other ownership interests representing
(A) more than 50% of the voting power of all outstanding
stock or
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ownership interests of such entity or
(B) the right to receive more than 50% of the net assets of
such entity available for distribution to the holders of
outstanding stock or ownership interests upon a liquidation or
dissolution of such entity.
(b) Each Subsidiary of Larscom is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority
to own, lease and operate its properties and assets and to carry
on its business as now being conducted and as presently proposed
to be conducted, and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction
where the character of its properties owned, operated or leased
or the nature of its activities makes such qualification
necessary, except for such failures to be so organized,
qualified or in good standing that, individually or in the
aggregate, have not had, and are not reasonably likely to have,
a Larscom Material Adverse Effect. All of the outstanding shares
of capital stock and other equity securities or interests of
each Subsidiary of Larscom are duly authorized, validly issued,
fully paid, nonassessable and not subject to or were not issued
in violation of any purchase option, call option, right of first
refusal, preemptive right, subscription right or any similar
right under any provision of applicable law, such
Subsidiarys charter documents or any agreement to which
such Subsidiary is a party or is otherwise bound, and all such
shares are owned, of record and beneficially, by Larscom or
another of its Subsidiaries free and clear of all security
interests, liens, claims, pledges, agreements, limitations in
Larscoms voting rights, charges or other Liens of any
nature. There are no voting trusts, proxies or other agreements
or understandings with respect to the voting of any capital
stock of any Subsidiary of Larscom.
(c) Larscom does not control directly or
indirectly or have any direct or indirect equity participation
or similar interest in any corporation, partnership, limited
liability company, joint venture, trust or other business
association or entity, which is not a Subsidiary of Larscom.
There are no obligations, contingent or otherwise, of Larscom or
any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of any Subsidiary of Larscom
or to provide funds to or make any material investment (in the
form of a loan, capital contribution or otherwise) in any
Subsidiary of Larscom or any other entity.
3.5
Authority;
No Conflict; Required Filings and Consents.
(a) Larscom has all requisite corporate
power and authority to execute and deliver this Agreement,
subject only to the adoption of this Agreement and approval of
the Merger (the Larscom Voting Proposal) by
Larscoms stockholders under the DGCL and the rules of The
Nasdaq Stock Market, Inc. and applicable law (the Larscom
Stockholder Approval), to perform its obligations
hereunder and to consummate the transactions contemplated by
this Agreement. Without limiting the generality of the
foregoing, the Larscom Board, at a meeting duly called and held,
by the unanimous vote of all directors (i) determined that
the Merger is fair, advisable and in the best interests of
Larscom and its stockholders, (ii) adopted and approved
this Agreement in accordance with the provisions of the DGCL and
the Larscom Charter Documents, (iii) approved the Larscom
Voting Agreement and the transactions contemplated thereby, and
(iv) directed that this Agreement and the Larscom Voting
Proposal be submitted to the stockholders of Larscom for their
adoption and approval and resolved to recommend that the
stockholders of Larscom vote in favor of the adoption of this
Agreement and the approval of the Larscom Voting Proposal. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by Larscom have been duly
authorized by all necessary corporate action on the part of
Larscom, subject only to the required receipt of the Larscom
Stockholder Approval. This Agreement has been duly executed and
delivered by Larscom and constitutes the valid and binding
obligation of Larscom, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights
and to general equity principles (the Bankruptcy and
Equity Exception). No takeover statute or similar statute
or regulation applies to the Merger, this Agreement or any of
the transactions contemplated hereby.
(b) The execution and delivery of this
Agreement by Larscom do not, and the consummation by Larscom of
the transactions contemplated by this Agreement shall not,
(i) conflict with, or result in any violation or breach of,
any provision of the Certificate of Incorporation or Bylaws of
Larscom or of the
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charter, bylaws, or other organizational document
of any Subsidiary of Larscom, (ii) conflict with, or result
in any violation or breach of, or constitute (with or without
notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a
consent or waiver under, constitute a change in control under,
require the payment of a penalty under or result in the
imposition of any mortgages, security interests, pledges, liens,
charges or encumbrances of any nature (Liens) on
Larscoms or any of its Subsidiaries assets under any
of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract or other
agreement, instrument or obligation to which Larscom or any of
its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound, or (iii) subject
to obtaining the Larscom Stockholder Approval and compliance
with the requirements specified in clauses (i)
through (vi) of Section 3.5(c), conflict with or
violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or
regulation applicable to Larscom or any of its Subsidiaries or
any of its or their properties or assets, except in the case of
clauses (ii) and (iii) of this Section 3.5(b),
for any such conflicts, violations, breaches, defaults,
terminations, cancellations, accelerations or losses which,
individually or in the aggregate, are not, reasonably likely to
have a Larscom Material Adverse Effect. Section 3.5(b) of
the Larscom Disclosure Schedule lists all consents, waivers and
approvals under any of Larscoms or any of its
Subsidiaries agreements, licenses or leases required to be
obtained in connection with the consummation of the Merger
(collectively, the Larscom Consents).
Section 7.3 of the Larscom Disclosure Schedule lists all
consents, waivers and approvals under any of Larscoms or
any of its Subsidiaries agreements, licenses or leases
required to be obtained in connection with the consummation of
the Merger and transactions contemplated hereby, which, if
individually or in the aggregate were not obtained, would result
in a material loss of benefits to Verilink, Larscom or the
Surviving Corporation as a result of the Merger or a Larscom
Material Adverse Effect.
(c) No consent, approval, license, permit,
order or authorization of, or registration, declaration, notice
or filing with, any court, arbitrational tribunal,
administrative agency or commission or other governmental or
regulatory authority, agency or instrumentality (a
Governmental Entity) is required by or with respect
to Larscom or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Larscom or the
performance by Larscom of the transactions contemplated by this
Agreement, except for (i) applicable requirements, if any,
of the Securities Act or the Securities Exchange Act of 1934, as
amended (together with the rules and regulations promulgated
thereunder, the Exchange Act), (ii) the filing
of the Certificate of Merger with the Delaware Secretary of
State and appropriate corresponding documents with the
appropriate authorities of other states in which Larscom is
qualified as a foreign corporation to transact business,
(iii) the filing of such reports, schedules or materials
under Section 13 of or Rule 14a-12 under the Exchange
Act and materials under Rule 165 and Rule 425 of the
Securities Act as may be required in connection with this
Agreement and the transactions contemplated hereby,
(iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under
applicable state securities laws (Blue Sky Laws) and
the laws of any foreign country, (v) the rules and
regulations of The Nasdaq Stock Market, Inc. and (vi) such
consents, authorizations, orders, filings, approvals and
registrations which, if not obtained or made, would not be
reasonably likely to have a Larscom Material Adverse Effect.
(d) The affirmative vote for adoption of the
Larscom Voting Proposal by the holders of a majority of the
outstanding shares of Larscom Common Stock on the record date
for the meeting of Larscoms stockholders to consider the
Larscom Voting Proposal (the Larscom Meeting)
present or represented by proxy is the only vote of the holders
of any class or series of Larscoms capital stock or other
securities necessary to approve the Larscom Voting Proposal.
There are no bonds, debentures, notes or other indebtedness of
Larscom having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any
matters on which stockholders of Larscom may vote.
3.6
SEC
Filings; Financial Statements; Information Provided.
(a) Larscom and its Subsidiaries have filed
all registration statements, forms, reports and other documents
required to be filed by Larscom with the Securities and Exchange
Commission (SEC) since
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January 1, 2001 and has made available to
Verilink copies of all registration statements, forms, reports
and other documents (including, without limitation, all
certifications and statements required by Rule 13a-14 or
15d-14 under the Exchange Act or Section 906 of the
Sarbanes-Oxley Act of 2002) filed by Larscom or its Subsidiaries
with or furnished to the SEC since such date, all of which
(other than the certifications pursuant to said
Section 906) are available on the SECs EDGAR system.
All such required registration statements, forms, reports and
other documents (including those that Larscom may file after the
date hereof until the Closing) are referred to herein as the
Larscom SEC Reports. The Larscom SEC Reports
(i) were or will be filed on a timely basis, (ii) at
the time filed, were or will be prepared in compliance with the
applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Larscom SEC Reports, and
(iii) did not or will not at the time they were or are
filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Larscom SEC
Reports or necessary in order to make the statements in such
Larscom SEC Reports, in the light of the circumstances under
which they were made, not misleading. No Subsidiary of Larscom
is subject to the reporting requirements of Sections 13(a)
or 15(d) of the Exchange Act.
(b) Each of the audited consolidated
financial statements (including, in each case, any related notes
and schedules) and unaudited interim consolidated financial
statements contained or to be contained in Larscom SEC Reports
at the time filed (i) complied or will comply as to form in
all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto, (ii) were or will be prepared in accordance with
United States generally accepted accounting principles
(GAAP) applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to
such financial statements or, in the case of unaudited interim
financial statements, as permitted by the SEC on Form 10-Q
under the Exchange Act) and (iii) fairly presented or will
fairly present the consolidated financial position of Larscom
and its Subsidiaries as of the dates indicated and the
consolidated results of Larscom and its Subsidiaries
operations and cash flows for the periods indicated, consistent
with the books and records of Larscom and its Subsidiaries,
except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which
were not or are not expected to be material in amount. The
consolidated, audited balance sheet of Larscom as of
December 31, 2003 is referred to herein as the
Larscom Balance Sheet.
(c) Larscom has previously furnished to
Verilink a complete and correct copy of any amendments or
modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Larscom
with the SEC pursuant to the Securities Act or the Exchange Act.
(d) Since the Larscom Balance Sheet neither
Larscom nor any of its Subsidiaries has changed any of its
methods of accounting or accounting practices in any material
respect.
3.7
No
Undisclosed Liabilities.
Except for normal and recurring
liabilities incurred since the date of the Larscom Balance Sheet
in the ordinary course of business consistent with past practice
(the Ordinary Course of Business), Larscom and its
Subsidiaries do not have any material liabilities, either
accrued, contingent or otherwise (whether or not required to be
reflected in financial statements in accordance with generally
accepted accounting principles), and whether due or to become
due.
3.8
Absence
of Certain Changes or Events.
Except as set forth in
Larscom SEC Reports which were available on the SECs EDGAR
system on the day before the date of this Agreement, since the
date of the Larscom Balance Sheet, Larscom and its Subsidiaries
have conducted their respective businesses only in the Ordinary
Course of Business and, since such date, (a) there has not
been any change, event, circumstance, development or effect that
individually or in the aggregate has had, or is reasonably
likely to have, a Larscom Material Adverse Effect,
(b) there has not been any material damage, destruction or
other casualty loss with respect to any material asset or
property owned, leased or otherwise used by Larscom or any of
its Subsidiaries, whether or not covered by insurance,
(c) neither Larscom nor any of its Subsidiaries has
declared, accrued, set aside or paid any dividend or made any
other distribution in respect of any shares of capital stock or
other similar ownership interests or repurchased, redeemed or
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otherwise reacquired any shares of capital stock
or other securities or other similar ownership interests,
(d) neither Larscom nor any of its Subsidiaries has made
any material Tax elections and (e) neither Larscom nor any
of its Subsidiaries has agreed or committed to take any of the
actions referred to in clauses (c) and (d) above.
3.9
Taxes.
(a) For the purposes of this Agreement,
Tax or Taxes refers to any and all
federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities
relating to taxes, including, without limitation, taxes based
upon or measured by gross receipts, income, profits, sales, use
and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise
and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability
for Taxes as a transferee or successor, by contract or otherwise.
(b) Larscom and each of its Subsidiaries
have timely filed all material federal, state, local and foreign
returns, estimates, information statements, reports, elections
and all other filings (Returns) relating to Taxes
required to be filed by Larscom and each of its Subsidiaries
with any Tax authority. Such Returns are true and correct in all
material respects, accurately reflect the liability for Taxes of
Larscom and each of its Subsidiaries, and have been completed in
accordance with applicable law, and Larscom and each of its
Subsidiaries have paid or withheld and paid to the appropriate
governmental body all Taxes shown to be due on such Returns.
(c) Neither Larscom nor any of its
Subsidiaries has been delinquent in the payment of any material
Tax nor is there any material Tax deficiency outstanding,
proposed or assessed against Larscom or any of its Subsidiaries,
nor has Larscom or any of its Subsidiaries executed any
unexpired waiver or extension of any statute of limitations on
or extending the period for the assessment or collection of any
Tax, nor has any such waiver or extension been requested from
Larscom or any of its Subsidiaries other than an extension
resulting from the filing of a Tax Return after its due date in
the Ordinary Course of Business.
(d) No audit, action, suit or other
examination of any Return of Larscom or any of its Subsidiaries
by any Tax authority is presently in progress, nor has Larscom
or any of its Subsidiaries been notified of any request for such
an audit or other examination.
(e) No adjustment relating to any Returns
filed by Larscom or any of its Subsidiaries has been proposed in
writing formally or informally by any Tax authority to Larscom
or any of its Subsidiaries or any representative thereof and
there is no basis for such a claim for which Larscom or any of
its Subsidiaries should be aware.
(f) None of Larscom and its Subsidiaries
(i) has been a member of an affiliated group filing a
consolidated federal income Tax Return (other than a group the
common parent of which was Larscom) or (ii) has any
liability for the Taxes of any person (other than Larscom and
its Subsidiaries) under Treasury Regulation 1.1502-6 (or
any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(g) Neither Larscom nor any of its
Subsidiaries has any liability for any material unpaid Taxes
which has not been accrued for or reserved on the Larscom
Balance Sheet or the Larscom unaudited balance sheet dated as of
March 31, 2004 other than any liability for unpaid Taxes
that may have accrued since March 31, 2004 in connection
with the operation of the business of Larscom and its
Subsidiaries in the Ordinary Course of Business, (i) in
accordance with GAAP, whether asserted or unasserted, contingent
or otherwise or (ii) that would result in a material
decrease in the net worth of Larscom or any such Subsidiary.
(h) Neither Larscom nor any of its
Subsidiaries has, within the two (2) year period ending on
the Effective Time, made a distribution to which Code
Section 355 applies.
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(i) No consent under Section 341(f) of
the Code has been filed with respect to Larscom or any of its
Subsidiaries.
(j) Neither Larscom nor any of its
Subsidiaries is, or has been, at any time, a United States real
property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
3.10
Owned
and Leased Real Properties.
(a) Neither Larscom nor any of its
Subsidiaries owns or has ever owned any real property.
(b) Section 3.10 of the Larscom
Disclosure Schedule sets forth a complete and correct list of
all real property leased, subleased, licensed or occupied by
Larscom or any of its Subsidiaries (collectively the
Larscom Leases) and the locations of each such
premises. The premises subject to the Larscom Leases are
hereinafter referred to as collectively as Larscom Leased
Property. Neither Larscom, nor any of its Subsidiaries
nor, to Larscoms knowledge, any other party, is in default
under any of the Larscom Leases (nor does there exist any
condition which, upon the passage of time or the giving of
notice or both, would cause a default). No property subject to a
Larscom Lease is occupied by a third party other than Larscom,
and, to Larscoms knowledge, no third party has a right to
occupy such property other than Larscom. Larscom has provided to
Verilink complete and correct copies of all Larscom Leases,
including all amendments thereto; no term or condition of any of
the Larscom Leases has been modified, amended or waived except
as shown in such copies; and there are no other agreements or
arrangements whatsoever relating to Larscoms or its
Subsidiaries use or occupancy of any of the Larscom Leased
Property. Larscom has not transferred, mortgaged, or otherwise
pledged or encumbered, or assigned any interest in any of the
Larscom Leases. Larscom or its Subsidiaries occupies all of the
Larscom Leased Property. To Larscoms knowledge, there is
no pending or threatened condemnation, rezoning, or similar
proceeding affecting any Larscom Leased Property or any portion
thereof, each Larscom Leased Property is supplied with utilities
and other services sufficient to operate the business of Larscom
as presently conducted and neither the operations of the Larscom
on the Larscom Leased Property, nor the Larscom Leased Property,
violate in any material manner any applicable building code,
zoning requirement, or classification or statute relating to the
particular property or such operations. The Larscom Leased
Property is in good operating condition and repair and is
suitable for the conduct of business as presently conducted
therein.
3.11
Intellectual
Property.
(a) Larscom and its Subsidiaries own,
license or otherwise possess legally enforceable rights to use
all Intellectual Property used in or necessary to conduct the
business of Larscom and its Subsidiaries as currently conducted.
For purposes of this Agreement, the term Intellectual
Property means any or all of the following and all rights
in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof;
(ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing;
(iii) all copyrights, copyrights registrations and
applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs
and any registrations and applications therefor throughout the
world; (v) all mask works and any registrations and
applications therefor throughout the world; (vi) all trade
names, logos, URLs, common law trademarks and service marks,
trademark and service mark registrations and applications
therefor throughout the world; (vii) all databases and data
collections and all rights therein throughout the world;
(viii) all moral and economic rights of authors and
inventors, however denominated, throughout the world, and
(ix) any similar or equivalent rights to any of the
foregoing anywhere in the world.
(b) Section 3.11(b) of the Larscom
Disclosure Schedule accurately identifies, as of the date of
this Agreement, all licenses, sublicenses, and other agreements
pursuant to which Larscom or any of its Subsidiaries is
authorized or licensed to use any third party Intellectual
Property (i) for incorporation or embedding into
Larscoms or any of its Subsidiaries products,
(ii) in conjunction with, or in the
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development of, Larscoms or any of its
Subsidiaries products, or (iii) that is otherwise
material to the conduct of the business of Larscom or any of its
Subsidiaries as currently conducted (it being understood that
(1) shrink wrap or click and accept licenses
for off-the-shelf software programs, and
(2) agreements providing for future license fees,
royalties, or other payment obligations by Larscom or any of its
Subsidiaries that do not exceed $10,000 annually per agreement
(other than contingent or unliquidated amounts) will not be
considered to be agreements to which reference is made in
clauses (ii) and (iii) of this Section 3.11(b))
(collectively, the Larscom Material Inbound
Licenses).
(c) Section 3.11(c) of the Larscom
Disclosure Schedule accurately identifies, as of the date of
this Agreement, all licenses, sublicenses, and other agreements
pursuant to which (i) any third party has been granted any
exclusive license under, or otherwise has received or acquired
any exclusive right or interest in, any Larscom Intellectual
Property, or (ii) any third party has been granted any
non-exclusive license under, or otherwise has received or
acquired any non-exclusive right or interest in, any Larscom
Intellectual Property and pursuant to which such third party had
or has aggregate license fee or royalty payment obligations
(other than contingent or unliquidated amounts) in excess of
$10,000 annually (collectively, the Larscom Material
Outbound Licenses and, together with the Larscom Material
Inbound Licenses, the Larscom Material Licenses). As
used herein, Larscom Intellectual Property means any
Intellectual Property that is owned by, or purported to be owned
by, Larscom or any of its Subsidiaries.
(d) Section 3.11(d) of the Larscom
Disclosure Schedule sets forth, as of the date of this
Agreement, a complete and accurate list of each patent,
copyright registration, trademark and service mark or any
applications or registrations therefor (including, where
applicable, the jurisdiction of issuance or application) of
Larscom or any of its Subsidiaries. All issued patents and
registered trademarks, service marks, and copyrights, which are
held by, or registered in the name of, Larscom or any of its
Subsidiaries, are valid and in full force and effect. Larscom
and each of its Subsidiaries has, in a timely manner, taken all
reasonable actions (including, without limitation, the payment
of any applicable fees) necessary to ensure that all
applications filed by or on behalf of Larscom or any of its
Subsidiaries for any patent, trademark, service mark, copyright,
or other form of Intellectual Property remain in full force and
effect. Larscom and each of its Subsidiaries has taken
reasonable measures to maintain the confidentiality of and
otherwise establish, protect, and enforce its rights in the
Larscom Intellectual Property that Larscom or any of its
Subsidiaries holds, or purports to hold, as a trade secret.
(e) Larscom and its Subsidiaries exclusively
own all right, title, and interest to and in the Larscom
Intellectual Property free and clear of all Liens (other than
non-exclusive licenses under the Larscom Intellectual Property
granted by Larscom, its Subsidiaries, or their predecessors in
the Ordinary Course of Business). Without limiting the
generality of the foregoing, each person who is or was an
employee or contractor of Larscom or any of its Subsidiaries and
who is or was involved in the creation or development of
Intellectual Property for Larscom or any of its Subsidiaries has
signed a valid, enforceable agreement containing an assignment
of the Intellectual Property so created or developed to Larscom
or one of its Subsidiaries and confidentiality provisions
protecting Larscoms or its Subsidiaries confidential
information.
(f) To Larscoms knowledge, neither
Larscom nor any of its Subsidiaries have ever infringed,
misappropriated, or otherwise violated any Intellectual Property
of any third party. Without limiting the generality of the
foregoing and solely to Larscoms knowledge, neither
(i) the products previously or currently sold or under
development by Larscom or any of its Subsidiaries, or
(ii) the business or activities previously or currently
conducted by Larscom or any of its Subsidiaries, has infringed,
violated, or constituted a misappropriation of any Intellectual
Property of any third party. Neither Larscom nor any of its
Subsidiaries has received any complaint, claim, or notice
alleging any such infringement, violation, or misappropriation.
Neither Larscom nor any of its Subsidiaries has received any
correspondence, requests or demands since January 1, 2000,
by third parties regarding the licensing of such third
partys patents, copyrights, trademarks or other
Intellectual Property or proprietary rights. Larscom and its
Subsidiaries have never assumed, or agreed to discharge or
otherwise take responsibility for, any existing or potential
liability of any third party for infringement, misappropriation,
or violation of any Intellectual Property. To Larscoms
knowledge, no other person or entity has infringed, violated, or
misappropriated, and no other
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person or entity is currently, infringing,
violating, or misappropriating, any material Larscom
Intellectual Property or any Intellectual Property that Larscom
or any of its Subsidiaries is authorized or licensed to use
under any Larscom Material Inbound License.
(g) To Larscoms knowledge, none of the
software (including firmware and other software embedded in
hardware devices) developed (or currently being developed),
distributed, licensed, or sold by Larscom or any of its
Subsidiaries (collectively, the Larscom Software)
contains any bug, defect, or error that materially and adversely
affects, or would reasonably be expected to materially and
adversely affect, the use, functionality, or performance of such
Larscom Software or any product or system containing or used in
conjunction with such Larscom Software. To Larscoms
knowledge, no Larscom Software contains any back
door, drop dead device, time bomb,
Trojan horse, virus, or worm
(as such terms are commonly understood in the software industry)
or any other code designed or intended to have, or capable of
performing, any of the following functions: (i) disrupting,
disabling, harming, or otherwise impeding in any manner the
operation of, or providing unauthorized access to, a computer
system or network or other device on which such code is stored
or installed; or (ii) damaging or destroying any data or
file without the users consent. No source code for any
Larscom Software has been delivered, licensed, or made available
to any escrow agent or other person or entity. To Larscoms
knowledge, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, result in the
delivery, license, or disclosure of the source code for any
Larscom Software to any other person.
(h) The execution and delivery of this
Agreement and consummation of the Merger will not result in
(i) the breach of, or create on behalf of any third party
the right to terminate or modify, any Larscom Material License,
(ii) a loss of, or Lien on, any Larscom Intellectual
Property, (iii) the release, disclosure, or delivery of any
Larscom Intellectual Property by or to any escrow agent or other
person, (iv) the grant, assignment, or transfer to any
other person of any license or other right or interest under,
to, or in any of the Larscom Intellectual Property,
(v) either Verilink, the Surviving Corporation, or any of
their Subsidiaries being bound by or subject to, as a result of
Larscoms contracts and other legal obligations, any
non-compete or other restriction on the operation or scope of
their respective businesses, or (vi) Verilink, the
Surviving Corporation, or any of their Subsidiaries being
obligated to pay any royalties or other amounts to any third
party in excess of those payable by Larscom or the Surviving
Corporation, respectively, prior to the Closing.
3.12
Agreements,
Contracts and Commitments.
(a) Except as set forth in
Section 3.12(a) of the Larscom Disclosure Schedule and
other than those material contracts identified on the exhibit
index of Larscoms Annual Report on Form 10-K for the
year ended December 31, 2003, there are no contracts or
agreements that are material contracts (as defined in
Item 601(b)(10) of Regulation S-K) with respect to
Larscom and its Subsidiaries (such contracts or agreements,
together with any Larscom Material Licenses, any contracts or
agreement listed or required to be listed in
Section 3.12(d) of the Larscom Disclosure Schedule, any
contract or agreement with a material customer or supplier and
any other contract or agreement that is material to the business
of Larscom or any of its Subsidiaries (the Larscom
Material Contracts). Each Larscom Material Contract is in
full force and effect and is enforceable in accordance with its
terms, subject to the Bankruptcy and Equity Exception. Neither
Larscom nor any of its Subsidiaries nor, to Larscoms
knowledge, any other party to any Larscom Material Contract is
in material violation of or in material default under any
Larscom Material Contract, nor, to Larscoms knowledge, has
any event occurred or circumstance or condition exists, that
(with or without notice or lapse of time) would reasonably be
expected to (i) result in a material violation of or
material default under any Larscom Material Contract,
(ii) give any party the right to cancel or terminate or
modify any Larscom Material Contract or (iii) give any
party the right to seek material damages or other material
remedies.
(b) Section 3.12(b) of the Larscom
Disclosure Schedule sets forth a complete and accurate list of
each contract or agreement to which Larscom or any of its
Subsidiaries is a party or bound by with any Affiliate of
Larscom (other than any Subsidiary, which is a direct or
indirect wholly owned subsidiary of
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Larscom). Complete and accurate copies of all the
agreements, contracts and arrangements set forth in
Section 3.12(b) of the Larscom Disclosure Schedule have
heretofore been furnished or made available to Verilink. Neither
Larscom nor any of its Subsidiaries has entered into any
transaction with any Affiliate of Larscom or any of its
Subsidiaries or any transaction that would be subject to proxy
statement disclosure pursuant to Item 404 of
Regulation S-K.
(c) Larscom is not a party to any contract,
agreement, arrangement or course of dealing (i) involving
future expenditures (whether actual, potential, fixed or
contingent) by Larscom or (ii) that requires or may require
Larscom to provide services in connection with the sale, upgrade
or maintenance of products to any person after the Closing.
Complete and accurate copies of all contracts listed in
Section 3.12(c) of the Larscom Disclosure Schedule have
been made available to Verilink.
(d) There is no non-competition or other
similar agreement, arrangement, understanding, commitment,
judgment, injunction or order to which Larscom or any of its
Subsidiaries is a party or to which Larscom or any of its
Subsidiaries is subject that has or could reasonably be expected
to have the effect of prohibiting or impairing the conduct of
the business of Larscom or any of its Subsidiaries or Verilink
or any of its Subsidiaries as currently conducted and as
proposed to be conducted in any material respect. Neither
Larscom nor any of its Subsidiaries has entered into (or is
otherwise bound by) any agreement under which it is restricted
in any material respect from selling, licensing or otherwise
distributing any of its technology or products, or providing
services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or
any segment of the market or line of business.
(e) Since January 1, 2000, Larscom has
not been a party to any Governmental Contract or Governmental
Bid. Governmental Bid means any quotation bid or
proposal submitted to any Governmental Entity or any proposed
prime contractor or higher-tier subcontractor of any
Governmental Entity. Governmental Contract means any
prime contract, subcontract, letter contract, purchase order or
delivery order executed or submitted to or on behalf of any
Governmental Entity or any prime contractor or higher-tier
subcontractor, or under which any Governmental Entity or any
such prime contractor or subcontractor otherwise has or may
acquire any right or interest.
(f) As of the date hereof, Larscom is not a
party to any oral or written (i) consulting, compensation,
commission or similar agreement with any present or former
director, officer, employee or independent contractor or any
entity controlled by any such person, (ii) agreement with
any executive officer or other key employee of Larscom the
benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction
involving Larscom of the nature contemplated by this Agreement,
or (iii) agreement with respect to any executive officer or
other key employee of Larscom providing any term of employment
or compensation guarantee. Larscom has not entered into any
current arrangement, oral or written, with any employee to
induce such employee to be employed by Larscom, whether by way
of payment, of stay bonuses or otherwise.
3.13
Litigation.
There is no action, suit, proceeding, claim, arbitration or
investigation pending or, to the knowledge of Larscom,
threatened against or affecting Larscom or any of its
Subsidiaries or any properties or rights of Larscom or its
Subsidiaries, by any person or by or before any Governmental
Entity, arbitrator or mediator. Neither Larscom nor any of its
Subsidiaries has commenced any action, suit, proceeding or
arbitration before any Governmental Entity, arbitrator or
mediator. There are no material judgments, orders or decrees
outstanding against Larscom or any of its Subsidiaries.
3.14
Environmental
Matters.
Larscom and its Subsidiaries (i) have
obtained all permits, licenses and other authorizations that are
required under Environmental Laws (Environmental
Permits) and all such Environmental Permits are valid and
in full force and effect, (ii) are in compliance in all
respects with all terms and conditions of such required
Environmental Permits and all Environmental Laws,
(iii) have conducted all Hazardous Material Activities in
compliance with all Environmental Laws, other than, as to each
of (i), (ii), and (iii), such as would not have a Larscom
Material Adverse Effect. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of Larscom, threatened, concerning
or relating to any Environmental Permit or any
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Hazardous Materials Activity of Larscom or any of
its Subsidiaries. Larscom or any of its Subsidiaries have never
received any notice or other communication (in writing or
otherwise) from any Governmental Body or other Person regarding
any actual, alleged, possible or potential liability arising
from or relating to Hazardous Material Activity of Larscom or
any of its Subsidiaries. As of the date hereof, except in
compliance with Environmental Laws and in a manner that would
not subject Larscom or any Subsidiary of Larscom to material
liability, to the knowledge of Larscom, no Hazardous Materials
are present in, on or under any Larscom Business Facility
currently owned, leased, operated or occupied, by Larscom or any
Subsidiary of Larscom or were present on any other Larscom
Business Facility at the time it ceased to be owned, leased,
operated or occupied by Larscom or any Subsidiary of Larscom.
Larscom or any of its Subsidiaries have never permitted
(knowingly or otherwise) any Hazardous Material to be generated,
manufactured, produced, used, treated, refined, processed,
handled, stored, discharged, released or disposed of (whether
lawfully or unlawfully): (i) on or beneath the surface of
any real property that is, or that has at any time been, owned
by, leased to, controlled by or used by Larscom or any
Subsidiary of Larscom; (ii) in or into any surface water,
groundwater, soil or air associated with or adjacent to any such
real property; or (iii) in or into any well, pit, pond,
lagoon, impoundment, ditch, landfill, building, structure,
facility, improvement, installation, equipment, pipe, pipeline,
vehicle or storage container that is or was located on or
beneath the surface of any such real property or that is or has
at any time been owned by, leased to, controlled by or used by
Larscom or any Subsidiary of Larscom. Each storage tank or other
storage container that is or has been owned by, leased to,
controlled by or used by Larscom or any of its Subsidiaries or
that is located on or beneath the surface of any real property
owned by, leased to, controlled by or used by Larscom or any of
its Subsidiaries: (i) is in sound condition; and
(ii) has been demonstrated by accepted testing
methodologies to be free of any corrosion or leaks. For the
purposes of this Section 3.14, Larscom Business
Facility means any property, including the land, the
improvements thereon, the groundwater thereunder and the surface
water thereon, that is or at any time has been owned, operated,
occupied, controlled, used or leased by Larscom or any
Subsidiary of Larscom in connection with the operation of its
business. Environmental Laws means all applicable
Federal, state, local and foreign laws, regulations, rules and
statutes which prohibit, regulate or control Hazardous Materials
or any Hazardous Materials Activity or which relate to pollution
of the environment (including ambient air, surface water, ground
water, land surface or subsurface strata) or the protection of
human health and worker safety. Hazardous Materials
means any material, chemical, or substance that is prohibited or
regulated by any Environmental Law or that has been designated
by any Governmental Entity to be toxic, radioactive, hazardous
or otherwise a danger to health, reproduction or the
environment, excluding, however, Hazardous Materials contained
in products typically used for office and janitorial purposes
properly and safely maintained in accordance with Environmental
Laws. Hazardous Materials Activity is the
transportation, transfer, recycling, storage, use, treatment,
manufacture, removal, remediation, release, exposure of others
to, sale, or distribution of any Hazardous Material or any
product containing a Hazardous Material.
3.15
Employees.
(a) To the knowledge of Larscom, no employee
of Larscom or any Subsidiary of Larscom is in violation of any
term of any patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer
relating to the right of any such employee to be employed by
Larscom or any of its Subsidiaries because of the nature of the
business conducted or presently proposed to be conducted by
Larscom or any of its Subsidiaries or the Surviving Corporation
following the Effective Time or to the use of trade secrets or
proprietary information of others. To the knowledge of Larscom,
no key employee or group of employees has any plans to terminate
employment with Larscom or its Subsidiaries.
(b) There is no pending action, suit,
proceeding, claim, arbitration, charge or investigation
involving Larscom or its Subsidiaries with respect to wages,
compensation, bonuses, commissions or awards or payroll
deductions; equal employment or human rights violations under
any applicable equal employment laws or regulations of any
Governmental Entity prohibiting discrimination, retaliation or
harassment; representation petitions or unfair labor practices;
grievances or arbitrations pursuant to current or expired
collective bargaining agreements or employment agreements;
occupational safety and health; workers
A-26
compensation; wrongful termination; negligent
hiring, retention or supervision; invasion of privacy;
defamation; or immigration.
(c) Neither Larscom nor any of its
Subsidiaries is presently, or has been in the past, bound by or
subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union or
labor organization. Larscom and its Subsidiaries are not a party
to and have no obligations under any agreement, collective
bargaining or otherwise, with any party regarding the rates of
pay or working conditions of any of Larscoms or any of its
Subsidiaries employees, nor is Larscom or any of its
Subsidiaries obligated under any agreement to recognize or
bargain with any labor organization or union. No employees of
Larscom or any of its Subsidiaries is represented by any labor
union or covered by any collective bargaining agreement and, to
the knowledge of Larscom, there is no pending question
concerning such representation, and to the knowledge of Larscom
there is no campaign to establish such walkout, work stoppage,
slow-down or lockout involving Larscom or any of its
Subsidiaries and any group of its employees nor has Larscom or
any of its Subsidiaries experienced any material labor
interruptions, strikes, slowdown, picketing or work stoppage by
any union or other group of employees, whether engaged in
collective action or not, over the past
three (3) years. There is no organization activity
among any of Larscoms or its Subsidiaries employees,
and neither Larscom nor its Subsidiaries, nor any of its
officers or directors or employees have been charged or,
threatened with a charge of any unfair labor practice. Larscom
and its Subsidiaries are in compliance in all material respects
with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and
hours.
(d) Section 3.15(d) of the Larscom
Disclosure Schedule indicates each place of business where
Larscom or its Subsidiaries has employees located, and lists
each employee of Larscom or its Subsidiaries who incurred:
(a) an employment termination, other than due to a
discharge for cause or voluntary departure; (b) a layoff
for any reason; or (c) a reduction in hours of work of more
than fifty percent (50%), in each case during the
ninety (90) days preceding the date hereof, indicating
next to the employees name, the date of each such
occurrence(s). Larscom and its Subsidiaries have not violated
the Worker Adjustment and Retraining Notification Act (the
WARN Act) or any similar state or local law.
3.16
Employee
Benefit Plans.
(a) Section 3.16(a) of the Larscom
Disclosure Schedule sets forth a complete and accurate list of
all Employee Benefit Plans maintained, or contributed to, or
required to be contributed to by Larscom, any of Larscoms
Subsidiaries or any of their ERISA Affiliates or with respect to
which Larscom has or may in the future have any material
liability (together, the Larscom Employee Plans)
(excluding any agreements with individual employees that are
covered by Section 3.16(i) and any employment agreements
that are terminable at will). For purposes of this
Agreement, the following terms shall have the following
meanings: (i) Employee Benefit Plan means any
employee pension benefit plan (as defined in
Section 3(2) of ERISA), any employee welfare benefit
plan (as defined in Section 3(1) of ERISA), and any
other written or oral plan, agreement or arrangement providing
for direct or indirect compensation, including insurance
coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation and all unexpired
severance agreements, written or otherwise, for the benefit of,
or relating to, any current or former, officer, employee,
director, or consultant of the entity in question or any of its
Subsidiaries or ERISA Affiliates; (ii) ERISA
means the Employee Retirement Income Security Act of 1974, as
amended; and (iii) ERISA Affiliate means any
entity which is, or at any applicable time was, a member of
(1) a controlled group of corporations (as defined in
Section 414(b) of the Code), (2) a group of trades or
businesses under common control (as defined in
Section 414(c) of the Code), or (3) an affiliated
service group (as defined under Section 414(m) of the Code
or the regulations under Section 414(o) of the Code), any
of which includes or included the entity in question or any of
its Subsidiaries.
(b) Larscom has made available to Verilink a
complete and accurate copy of each Larscom Employee Plan and,
for each such Larscom Employee Plan, (i) the three
(3) most recent annual reports
A-27
(Form 5500) filed with the
U.S. Internal Revenue Service (the IRS), if
any, required under ERISA or the Code, (ii) each amendment,
trust agreement, group annuity contract, administrative service
agreement, policy pertaining to fiduciary liability insurance
covering the fiduciaries of each Larscom Employee Plan, and
summary plan description together with the summaries of material
modifications thereto, if any, relating to such Larscom Employee
Plan, (iii) the most recent financial statements for each
Larscom Employee Plan that is required to be funded,
(iv) the three (3) most recent reports regarding the
satisfaction of the nondiscrimination requirements, if any,
applicable to each Larscom Employee Plan including those of
Sections 410(b), 401(a)(4), 401(k) and 401(m) of the Code,
(v) the most recent annual actuarial valuations, if any,
prepared for each Larscom Employee Plan; (vi) the most
recent IRS determination, opinion, notification or advisory
letter issued with respect to each Larscom Employee Plan
intended to be qualified under Section 401(a) of the Code;
(vii) all communications material to any employee or
employees with respect to any Larscom Employee Plan and any
proposed Larscom Employee Plans, in each case relating to any
amendments, terminations, establishments, increases or decreases
in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability to
Larscom; and (viii) all material correspondence to or from
any governmental agency relating to any Larscom Employee Plan.
(c) Each Larscom Employee Plan has been
established, maintained and administered in all material
respects in accordance with, and Larscom, its Subsidiaries and
their ERISA Affiliates have performed in all material respects
all obligations required to be performed by them under, are not
in material default under or violation of, and have no knowledge
with respect to any other party to each Larscom Employee Plan of
that partys material default under or violation of ERISA,
the Code and all other applicable laws and the regulations
thereunder and the terms of each Larscom Employee Plan, and each
of Larscom, Larscoms Subsidiaries and their ERISA
Affiliates has in all material respects met its obligations with
respect to each Larscom Employee Plan and has made all required
contributions thereto (or reserved such contributions which are
required but not yet due on the Larscom Balance Sheet). All
filings and reports as to each Larscom Employee Plan required to
have been submitted to the IRS, the Pension Benefit Guaranty
Corporation or to the United States Department of Labor
(DOL) have been timely submitted, except where
failures to timely submit have been cured and are not reasonably
likely, individually or in the aggregate, to cause material harm
to Larscom. There are no audits, inquiries or proceedings
pending or, to the knowledge of Larscom, Larscoms
Subsidiaries or their ERISA Affiliates, threatened by the IRS,
DOL or any other governmental entity with respect to any Larscom
Employee Plan. Neither Larscom nor any of its Subsidiaries or
ERISA Affiliates is subject to any material penalty or tax with
respect to any Larscom Employee Plan under Section 502(i)
of ERISA or Sections 4975 through 4980 of the Code and no
prohibited transaction, within the meaning of
Section 4975 of the Code or Sections 406 and 407 of
ERISA, and not otherwise exempt under Section 4975 of the
Code or Section 408 of ERISA (or any administrative class
exemption issued thereunder), has occurred with respect to any
Larscom Employee Plan which could reasonably be expected to
have, individually or in the aggregate, a Larscom Material
Adverse Effect. There are no actions, suits or claims pending,
or, to the knowledge of Larscom, threatened or reasonably
anticipated (other than routine claims for benefits) against any
Larscom Employee Plan or against the assets of any Larscom
Employee Plan and, to the knowledge of Larscom, no event has
occurred, and there exists no condition or set of circumstances
in connection with which Larscom or any of its Subsidiaries
could be subject to any liability that is reasonably likely,
individually or in the aggregate, to have a Larscom Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to each Larscom Employee
Plan, there are no benefit obligations for which contributions
have not been made or properly accrued and there are no benefit
obligations which have not been accounted for by reserves, or
otherwise properly footnoted in accordance with GAAP, on the
financial statements of Larscom, which obligations are
reasonably likely, individually or in the aggregate, to have a
Larscom Material Adverse Effect.
The assets of each Larscom Employee Plan that is
funded are reported at their fair market value on the books and
records of such plan.
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(e) Neither Larscom nor any ERISA Affiliate
has ever maintained, established, sponsored, participated in,
contributed to, or is obligated to contribute to, or otherwise
incurred any obligation or liability (including, without
limitation, any contingent liability) under any
multiemployer plan (as defined in Section 3(37)
of ERISA), any Employee Benefit Plan subject to Title IV of
ERISA or Section 412 of the Code, any multiple employer
plan (as defined in ERISA or the Code), or any funded
welfare plan within the meaning of Section 419 of the
Code. Any Larscom Employee Plan intended to be qualified under
Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either applied
for or obtained a favorable determination, notification,
advisory and/or opinion letter, as applicable, as to its
qualified status from the IRS (and no such letter has been
revoked nor has revocation been threatened) or still has a
remaining period of time under applicable Treasury Regulations
or IRS pronouncements in which to apply for such letter and to
make any amendments necessary to obtain a favorable
determination. To the knowledge of Larscom, for each Larscom
Employee Plan that is intended to be qualified under
Section 401(a) of the Code, there has been no event,
condition or circumstance that has adversely affected or is
likely to adversely affect such qualified status. Except as
specifically set forth in Section 3.16(e) of the Larscom
Disclosure Schedule, no Larscom Employee Plan provides health or
death benefits that are not fully insured through an insurance
contract.
(f) No Larscom Employee Plan is funded by or
a member of a voluntary employees beneficiary
association within the meaning of Section 501(c)(9)
of the Code. No Larscom Employee Plan holds securities issued by
Larscom, any of Larscoms Subsidiaries or any of their
ERISA Affiliates.
(g) Each Larscom International Employee Plan
has been established, maintained and administered in material
compliance with its terms and conditions and with the
requirements prescribed by any and all applicable laws. No
Larscom International Employee Plan has unfunded liabilities,
that as of the Effective Time, will not be offset by insurance
or fully accrued. For purposes of this Agreement, Larscom
International Employee Plan shall mean each Larscom
Employee Plan that has been adopted or maintained by Larscom or
any ERISA Affiliate, whether informally or formally, or with
respect to which Larscom or any ERISA Affiliate will or may have
any material liability, for the benefit of employees who perform
services outside the United States.
(h) Each Larscom Employee Plan, including,
without limitation, any Larscom International Employee Plan, is
amendable and terminable unilaterally by Larscom and any of
Larscoms Subsidiaries which are a party thereto or covered
thereby at any time, including after the Effective Time, without
material liability to Larscom, the Surviving Corporation or any
of their Subsidiaries as a result thereof (other than for
benefits accrued through the date of termination or amendment
and reasonable administrative expenses related thereto), and no
Larscom Employee Plan, plan documentation or agreement, summary
plan description or other written communication distributed
generally to employees by its terms prohibits Larscom or any of
its Subsidiaries from amending or terminating any such Larscom
Employee Plan. The investment vehicles used to fund Larscom
Employee Plans may be changed at any time without incurring a
material sales charge, surrender fee or other similar expense.
(i) Neither Larscom nor any of its
Subsidiaries is a party to any oral or written
(i) agreement with any current or former stockholder,
director, executive officer or other key employee of Larscom or
any of its Subsidiaries (A) the benefits of which are
contingent, or the terms of which are materially altered, upon
the occurrence of a transaction involving Larscom or any of its
Subsidiaries of the nature of any of the transactions
contemplated by this Agreement (either alone or upon the
occurrence of any additional or subsequent event),
(B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other
benefits after the termination of employment of such director,
executive officer or key employee; (ii) agreement, plan or
arrangement under which any person may receive payments from
Larscom or any of its Subsidiaries that may be subject to the
tax imposed by Section 4999 of the Code or that constitute
an excess parachute payment for such person under
Section 280G of the Code, without regard to
Section 280G(b)(4); or (iii) agreement or plan binding
Larscom or any of its Subsidiaries, including any stock option
plan or agreement, stock appreciation right plan, restricted
stock plan, stock purchase plan or severance benefit plan, any
of the benefits of which shall be increased, or the vesting of
the benefits of which shall be accelerated, by the execution of
this Agreement or the occurrence of any of
A-29
the transactions contemplated by this Agreement
or the value of any of the benefits of which shall be calculated
on the basis of any of the transactions contemplated by this
Agreement.
(j) None of the Larscom Employee Plans
promises or provides retiree medical or other retiree welfare
benefits to any person, except as required by applicable law.
Neither Larscom nor any of its Subsidiaries has ever
represented, promised or contracted (whether in oral or written
form) to any employee (either individually or to employees as a
group) or any other person that such employee(s) or other person
would be provided with retiree health, except to the extent
required by applicable law.
(k) Larscom has no current or future
obligations respecting any benefit liabilities under the Axel
Johnson Inc. Retirement Plan, contingent or otherwise. The
circumstances giving rise to Larscoms relief from any such
current and future liabilities does not create any potential for
liability under Section 4069 of ERISA.
(l) Larscom has no current or future
obligations respecting any benefit liabilities under the Axel
Johnson Inc. Retirement Restoration Program, contingent or
otherwise.
3.17
Compliance
With Laws.
Larscom and each of its Subsidiaries have
complied with, are not in violation of, and have not received
any notice alleging any violation with respect to, any
applicable provisions of any statute, law or regulation, and
are, and have been, in compliance with the Sarbanes-Oxley Act of
2002 and any related statutes, laws or regulations, including
the rules and regulations of The Nasdaq Stock Market, Inc,
except for failures to comply or violations which, individually
or in the aggregate, have not had and are not reasonably likely
to have a Larscom Material Adverse Effect.
3.18
Permits.
Larscom and each of its Subsidiaries have all permits, licenses
and franchises from Governmental Entities required to conduct
their businesses as now being conducted or as presently proposed
to be conducted (the Larscom Permits), except for
such permits, licenses and franchises the lack of which,
individually or in the aggregate, have not resulted in, and are
not reasonably likely to result in, a Larscom Material Adverse
Effect. Larscom and its Subsidiaries are in compliance with the
terms of the Larscom Permits, except where the failure to so
comply, individually or in the aggregate, is not reasonably
likely to have a Larscom Material Adverse Effect.
3.19
Insurance.
Section 3.19 of the Larscom Disclosure Schedule sets forth
a complete and accurate list of all insurance policies
maintained by, at the expense of, or for the benefit of Larscom
and any of its Subsidiaries and identifies any material claims
made thereunder since January 1, 1998. Each of Larscom and
its Subsidiaries maintains insurance policies (the Larscom
Insurance Policies) with reputable insurance carriers
against all risks of a character as are usually insured against,
and in such coverage amounts as are usually maintained, by
similarly situated companies in the same or similar businesses.
Each Larscom Insurance Policy is in full force and effect. Since
January 1, 1998, neither Larscom nor any of its
Subsidiaries has received any notice or other communication (in
writing or otherwise) regarding any actual or possible
(a) cancellation or invalidation of any insurance policy
(b) refusal of any coverage or rejection of any material
claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to
any insurance policy.
3.20
Title
to Assets.
Larscom and its Subsidiaries own, and have
good and valid title to, all assets purported to be owned by
them, including: (a) all assets reflected on the Larscom
Balance Sheet (except for assets sold or otherwise disposed of
in the Ordinary Course of Business since December 31,
2003); and (b) all other assets reflected in the books and
records of Larscom and its Subsidiaries as being owned by
Larscom and its Subsidiaries. All of said assets are owned by
Larscom and its Subsidiaries free and clear of any Liens, except
for (i) any Lien for current taxes not yet due and payable
and (ii) immaterial Liens that have arisen in the Ordinary
Course of Business and that do not (in any case or in the
aggregate) materially detract from the value of the assets
subject thereto or materially impair the operations of Larscom
or any of its Subsidiaries.
3.21
Equipment
and Leaseholds.
All material items of equipment and
other tangible assets owned by or leased to Larscom or any of
its Subsidiaries are adequate for the uses to which they are
being put, are in good and safe condition and repair (ordinary
wear and tear excepted) and are adequate for the
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conduct of the business of Larscom and its
Subsidiaries in the manner in which such business is currently
being conducted and presently proposed to be conducted.
3.22
Receivables;
Customers; Inventory.
(a) All existing accounts receivable of
Larscom and its Subsidiaries as the date hereof (including those
accounts receivable reflected on the Larscom Balance Sheet that
have not yet been collected and those accounts receivable that
have arisen since December 31, 2003, and have not yet been
collected) (i) represent valid obligations of customers of
Larscom and its Subsidiaries arising from bona fide transactions
entered into in the Ordinary Course of Business, (ii) are
current and, to the knowledge of Larscom, will be collected in
full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed the allowance set
forth in the Larscom Balance Sheet).
(b) The gross revenue of Larscom in the
second quarter of fiscal 2004 will not be below minimum
anticipated levels. The condensed consolidated statement of
operations for the quarter ended March 31, 2004 and
condensed consolidated balance sheet as of March 31, 2004
included in Section 3.22(b) of the Larscom Disclosure will
be consistent in all material respects with the unaudited
interim financial statements included in Larscoms
Form 10-Q for the quarter ended March 31, 2004.
(c) All of Larscoms and its
Subsidiaries existing inventory (including all inventory
that is reflected on the Larscom Balance Sheet, net of any
inventory reserves, and that has not been disposed of by Larscom
or any of its Subsidiaries since December 31, 2003) is of
such quality and quantity as to be usable and saleable by
Larscom or any of its Subsidiaries in the Ordinary Course of
Business.
3.23
Certain
Business Practices.
Neither Larscom nor any of its
Subsidiaries nor any director, officer, agent, employee or
affiliate of Larscom or any of its Subsidiaries who was acting
or purporting to act on behalf of Larscom or any of its
Subsidiaries has (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (b) made any unlawful
payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns or
violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, nor (c) made any other unlawful payment.
3.24
Opinion
of Financial Advisor.
The financial advisor of Larscom,
Standard & Poors, has delivered to the Larscom
Board an opinion dated the date of this Agreement to the effect
that, as of such date, the Exchange Ratio is fair, from a
financial point of view, to the holders of Larscom Common Stock.
A copy of the written opinion of Standard & Poors
will be provided to Verilink solely for information purposes
within one business day following receipt thereof by Larscom.
3.25
Section 203
of the DGCL Not Applicable.
The Larscom Board has taken
the necessary actions to render Section 203 of the DGCL
inapplicable to this Agreement or the Larscom Voting Agreement
or the consummation of the Merger, or the other transactions
contemplated by this Agreement or the Larscom Voting Agreement.
3.26
Brokers.
No agent, broker, investment banker, financial advisor or other
firm or person is or shall be entitled, as a result of any
action, agreement or commitment of Larscom or any of its
Affiliates, to any brokers, finders, financial
advisors or other similar fee or commission in connection
with any of the transactions contemplated by this Agreement.
3.27
Loans
to Executive Officers.
Since July 30, 2002, Larscom
has not extended or maintained credit, arranged for the
extension of credit, or renewed an extension of credit, in the
form of a personal loan to or for any director or executive
officer (or equivalent thereof) of Larscom except to the extent
permitted under the second sentence of Section 13(k)(1) of
the Exchange Act.
3.28
Financial
Controls.
Larscom maintains accurate books and records
reflecting its assets and liabilities and maintains proper and
adequate internal accounting controls which provide assurance
that (a) transactions are executed with managements
authorization; (b) transactions are recorded as necessary
to permit preparation of the consolidated financial statements
of Larscom and to maintain accountability for Larscoms
consolidated assets; (c) access to Larscoms assets is
permitted only in accordance with
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managements authorization; (d) the
reporting of Larscoms assets is compared with existing
assets at regular intervals; and (e) accounts, notes and
other receivables and inventory are recorded accurately, and
proper and adequate procedures are implemented to effect the
collection thereof on a current and timely basis.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VERILINK AND
THE MERGER SUB
Verilink and the Merger Sub represent and warrant
to Larscom that the statements contained in this Article IV
are true and correct, except as expressly set forth herein or in
the disclosure schedule delivered by Verilink to Larscom on the
date of this Agreement which is made a part hereof (the
Verilink Disclosure Schedule). The Verilink
Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this
Agreement.
4.1
Organization,
Standing and Power.
Verilink is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified
to do business and is in good standing as a foreign corporation
in each jurisdiction where the character of the properties it
owns, operates or leases or the nature of its activities makes
such qualification necessary, except for such failures to be so
organized, qualified or in good standing, individually or in the
aggregate, which have not had, and are not reasonably likely to
have a Verilink Material Adverse Effect. For purposes of this
Agreement, the term Verilink Material Adverse Effect
means any material adverse change, event, circumstance or
development with respect to, or material adverse effect on, the
business, assets, liabilities, capitalization, condition
(financial or other), or results of operations of Verilink and
its Subsidiaries, taken as a whole; provided, however, that none
of the following shall, in and of itself, be taken into account
when determining whether there has been, or will be, a Verilink
Material Adverse Effect: (i) any failure by Verilink to
meet or exceed analysts published revenues or earnings
predictions or any change in Verilinks stock price or
trading volume, (ii) with respect to the use of the term
Verilink Material Adverse Effect in the
representations and warranties contained in Section 4.7,
any effect resulting from the announcement or pendency of this
Agreement or the Merger, or (iii) other than with respect
to the use of the term Verilink Material Adverse
Effect in the representations and warranties contained in
Section 4.6, any effect that results from changes affecting
generally the industry or industries in which Verilink or any of
its Subsidiaries participates, the U.S. economy as a whole
or foreign economies in any locations where Verilink or any of
its Subsidiaries has material operations, or sales or customers
unless such condition shall disproportionately adversely affect
Verilink or any of its Subsidiaries.
4.2
Charter
Documents.
Verilink has previously furnished or made
available to Larscom a complete and correct copy of its
(i) Certificate of Incorporation and Bylaws as amended to
date (together, the Verilink Charter Documents) and
(ii) Merger Subs Certificate of Incorporation, or
equivalent organizational documents, and Bylaws, or equivalent
organizational documents. Such Verilink Charter Documents and
equivalent organizational documents of each of Merger Sub are in
full force and effect. Verilink is not in violation of any of
the provisions of the Verilink Charter Documents, and Merger Sub
is not in violation of its equivalent organizational documents.
4.3
Capitalization.
(a) The authorized share capital of Verilink
consists of 40,000,000 shares of Verilink Common Stock,
$0.01 par value per share (the Verilink Common
Stock), of which 15,398,876 shares of Verilink Common
Stock were issued and outstanding as of the close of business on
April 27, 2004, and 1,000,000 shares of preferred
stock, $0.01 par value per share (Verilink Preferred
Stock), of which none of which were outstanding as of the
close of business April 27, 2004. As of the close of
business on April 27, 2004, (i) 40,000 shares of
Verilink Preferred Stock, designated Series A Junior
Participating Preferred Stock, were reserved for future issuance
upon exercise of rights pursuant to the rights agreement
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between Verilink and EquiServe Trust Company,
N.A. dated November 29, 2001, amended as of May 30,
2002 and April 28, 2004 (the Verilink Rights
Plan); (ii) no shares of Verilink Common Stock were
held in the treasury for Verilink; and
(iii) 4,393,112 shares of Verilink Common Stock were
reserved for future issuance pursuant to Verilinks Stock
Plans and 3,952,016 shares were subject to outstanding
options. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, par value $0.001 per
share, of which all outstanding shares are held by Verilink.
(b) Except as described in
Section 3.3(a) above, there are no equity securities or
other similar ownership interests of any class or series of
capital stock of Verilink, or any securities convertible into or
exercisable or exchangeable for such equity securities or other
similar ownership interests issued, reserved for issuance or
outstanding. Except for securities Verilink owns, directly or
indirectly through any of its Subsidiaries, there are no equity
securities or other similar ownership interests of any class or
series of capital stock of any Subsidiary of Verilink, or any
securities convertible into or exercisable or exchangeable for
such equity securities, partnership interests or other similar
ownership interests issued, reserved for issuance or
outstanding. Except as described in Section 3.3(a) above,
there are no options, warrants, equity securities, partnership
interests or other similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any
kind or character to which Verilink or any of its Subsidiaries
is a party or by which Verilink or any of its Subsidiaries is
bound obligating Verilink or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition, of any shares of capital
stock of Verilink or any of its Subsidiaries or obligating
Verilink or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity
security, partnership interest or other similar ownership
interest, call, right, commitment or agreement. There are no
outstanding stock appreciation, phantom stock or similar rights
with respect to Verilink or any of its Subsidiaries.
(c) Except for the Verilink Rights Plan,
there is no agreement, written or oral, between Verilink or any
Affiliate of Verilink and any holder of the securities of
Verilink relating to the sale or transfer (including agreements
relating to rights of first refusal, co-sale rights or
drag-along rights), registration under the
Securities Act (including any rights to include securities in
the Registration Statement), or voting, of the shares of
Verilink.
(d) All shares of Verilink Common Stock to
be issued pursuant to this Agreement will be upon issuance
(pursuant to the terms of this Agreement), duly authorized,
validly issued, fully paid and nonassessable and not subject to
or issued in violation of any purchase option, call option,
right of first refusal, preemptive right, subscription right or
any similar right under any provision of the DGCL, the Verilink
Charter Documents or any agreement to which Verilink is a party
or is otherwise bound.
(e) Stockholders of Verilink are not
entitled to dissenters or appraisal rights under
applicable state or federal law in connection with the Merger.
4.4
Authority;
No Conflict; Required Filings and Consents.
(a) Each of Verilink and the Merger Sub has
all requisite corporate power and authority to execute and
deliver this Agreement, subject only to approval of the issuance
of Verilink Common Stock under this Agreement (collectively, the
Verilink Voting Proposal) by Verilinks
stockholders under the DGCL and the rules of The Nasdaq Stock
Market, Inc. and applicable law (the Verilink Stockholder
Approval), to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, the Verilink
Board, at a meeting duly called and held, by the unanimous vote
of all directors (i) determined that the Merger is fair,
advisable and in the best interests of Verilink and its
stockholders, (ii) adopted and approved this Agreement in
accordance with the provisions of the DGCL and the Verilink
Charter Documents, (iii) approved the Registration Rights
Agreement, (iv) approved the Verilink Voting Agreement and
the transactions contemplated thereby, and (v) directed
that this Agreement and the Verilink Voting Proposal be
submitted to the stockholders of Verilink for their adoption and
approval and resolved to recommend that the stockholders of
Verilink vote in favor of the adoption of this Agreement and the
approval of the Verilink Voting Proposal. The execution and
delivery of this Agreement and the Registration Rights Agreement
and the consummation
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of the transactions contemplated hereby and
thereby by Verilink and the Merger Sub have been duly authorized
by all necessary corporate action on the part of each of
Verilink and the Merger Sub (including the approval of the
Merger by Verilink as the sole stockholder of the Merger Sub),
subject only to the required receipt of the Verilink Stockholder
Approval. This Agreement has been, and the Registration Rights
Agreement will be, duly executed and delivered by each of
Verilink and the Merger Sub, as applicable, and each constitute
a valid and binding obligation of each of Verilink and the
Merger Sub, as applicable, enforceable in accordance with its
respective terms, subject to the Bankruptcy and Equity
Exception. No takeover statute or similar statute or regulation
applies to the Merger, this Agreement or any of the transactions
contemplated hereby.
(b) The execution and delivery of this
Agreement and the Registration Rights Agreement by each of
Verilink and the Merger Sub, as applicable, do not, and the
consummation by Verilink and the Merger Sub, as applicable, of
the transactions contemplated by this Agreement and the
Registration Rights Agreement shall not (i) conflict with,
or result in any violation or breach of, any provision of the
Certificate of Incorporation or Bylaws of Verilink, the
Certificate of Incorporation or Bylaws of the Merger Sub or of
the charter, bylaws or other organizational document of any
other Subsidiary of Verilink, (ii) conflict with, or result
in any violation or breach of, or constitute (with or without
notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a
consent or waiver under, constitute a change in control under,
require the payment of a penalty under or result in the
imposition of any Liens on Verilinks or any of its
Subsidiaries assets under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease,
license, contract or other agreement, instrument or obligation
to which Verilink or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be
bound, or (iii) subject to obtaining the Verilink
Stockholder Approval and compliance with the requirements
specified in clauses (i) through (vi) of
Section 4.4(c), conflict with or violate any permit,
concession, franchise, license, judgment, injunction, order,
decree, statute, law, ordinance, rule or regulation applicable
to Verilink or any of its Subsidiaries or any of its or their
properties or assets, except in the case of clauses (ii)
and (iii) of this Section 4.4(b) for any such
conflicts, violations, breaches, defaults, terminations,
cancellations, accelerations or losses which, individually or in
the aggregate, are not, reasonably likely to have a Verilink
Material Adverse Effect. Section 4.4(b) of the Verilink
Disclosure Schedule lists all consents, waivers and approvals
under any of Verilinks or any of its Subsidiaries
agreements, licenses or leases required to be obtained in
connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate
were not obtained, would result in a material loss of benefits
to Verilink, Larscom or the Surviving Corporation as a result of
the Merger or a Verilink Material Adverse Effect.
(c) No consent, approval, license, permit,
order or authorization of, or registration, declaration, notice
or filing with, any Governmental Entity is required by or with
respect to Verilink or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the
performance by Verilink or the Merger Sub of the transactions
contemplated by this Agreement, except for (i) applicable
requirements, if any, of the Securities Act or the Exchange Act,
(ii) the filing of the Certificate of Merger and
Certificate of Ownership and Merger with the Delaware Secretary
of State and appropriate corresponding documents with the
appropriate authorities of other states in which Verilink is
qualified as a foreign corporation to transact business,
(iii) the filing of such reports, schedules or materials
under Section 13 of or Rule 14a-12 under the Exchange
Act and materials under Rule 165 and Rule 425 of the
Securities Act as may be required in connection with this
Agreement and the transactions contemplated hereby,
(iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under
Blue Sky Laws and the laws of any foreign country, (v) the
filing of a Notification Form: Listing of Additional Shares with
The Nasdaq Stock Market, Inc. for the shares of Verilink Common
Stock to be issued in the transactions contemplated by this
Agreement and (vi) such consents, authorizations, orders,
filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Verilink Material
Adverse Effect.
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(d) The affirmative vote for adoption of the
Verilink Voting Proposal by the holders of a majority of the
voting power of the outstanding shares of Verilink Common Stock
on the record date for the meeting of Verilinks
stockholders to consider the Verilink Voting Proposal (the
Verilink Meeting) present or represented by proxy is
the only vote of the holders of any class or series of
Verilinks capital stock or other securities necessary to
approve the Verilink Voting Proposal. There are no bonds,
debentures, notes or other indebtedness of Verilink having the
right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
stockholders of Verilink may vote.
4.5
SEC
Filings; Financial Statements; Information Provided.
(a) Verilink has filed all registration
statements, forms, reports and other documents required to be
filed by Verilink with the SEC since June 30, 2001 and has
made available to Larscom copies of all registration statements,
forms, reports and other documents (including, without limit,
all certifications and statements required to by
Rule 13a-14 or 15d-14 under the Exchange Act or
Section 906 of the Sarbanes-Oxley Act of 2002) filed by
Verilink with or furnished to the SEC since such date, all of
which (other than the certifications pursuant to said
Section 906) are available on the SECs EDGAR system.
All such required registration statements, forms, reports and
other documents (including those that Verilink may file after
the date hereof until the Closing) are referred to herein as the
Verilink SEC Reports. The Verilink SEC Reports
(i) were or will be filed on a timely basis, (ii) at
the time filed, were or will be prepared in compliance with the
applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Verilink SEC Reports, and
(iii) did not or will not at the time they were or are
filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Verilink SEC
Reports or necessary in order to make the statements in such
Verilink SEC Reports, in the light of the circumstances under
which they were made, not misleading. No Subsidiary of Verilink
is subject to the reporting requirements of Sections 13(a)
or 15(d) of the Exchange Act.
(b) Each of the audited consolidated
financial statements (including, in each case, any related notes
and schedules) and unaudited interim consolidated financial
statements contained or to be contained in Verilink SEC Reports
at the time filed (i) complied or will comply as to form in
all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto, (ii) were or will be prepared in accordance with
GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited interim
financial statements, as permitted by the SEC on Form 10-Q
under the Exchange Act) and (iii) fairly presented or will
fairly present the consolidated financial position of Verilink
and its Subsidiaries as of the dates indicated and the
consolidated results of Verilink and its Subsidiaries
operations and cash flows for the periods indicated, consistent
with the books and records of Verilink and its Subsidiaries,
except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which
were not or are not expected to be material in amount. The
consolidated, audited balance sheet of Verilink as of
June 27, 2003 is referred to herein as Verilink
Balance Sheet.
(c) Verilink has previously furnished to
Larscom a complete and correct copy of any amendments or
modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Verilink
with the SEC pursuant to the Securities Act or the Exchange Act.
4.6
No
Undisclosed Liabilities.
Except for normal and recurring
liabilities incurred since the date of the Verilink Balance
Sheet in the Ordinary Course of Business, Verilink and its
Subsidiaries do not have any liabilities, either accrued,
contingent or otherwise (whether or not required to be reflected
in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which
individually or in the aggregate, are reasonably likely to have
a Verilink Material Adverse Effect.
4.7
Absence
of Certain Changes or Events.
Except as set forth in the
Verilink SEC Reports which were available on the SECs
EDGAR system on the day before the date of this Agreement, there
has not
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been any change, event, circumstance, development
or effect that individually or in the aggregate has had, or is
reasonably likely to have, a Verilink Material Adverse Effect.
4.8
Intellectual
Property.
(a) Verilink and its Subsidiaries own,
license or otherwise possess legally enforceable rights to use
all Intellectual Property used in or necessary to conduct the
business of Verilink and its Subsidiaries as currently conducted.
(b) The execution and delivery of this
Agreement and consummation of the Merger will not result in
(i) the breach of, or create on behalf of any third party
the right to terminate or modify, any Verilink Material License,
(ii) a loss of, or Lien on, any Verilink Intellectual
Property, (iii) the release, disclosure, or delivery of any
Verilink Intellectual Property by or to any escrow agent or
other person, (iv) the grant, assignment, or transfer to
any other person of any license or other right or interest
under, to, or in any of the Verilink Intellectual Property,
(v) either Larscom or its Subsidiaries being bound by or
subject to, as a result of Verilinks contracts and other
legal obligations, any non-compete or other restriction on the
operation or scope of their respective businesses, or
(vi) Verilink, the Surviving Corporation, or any of their
Subsidiaries being obligated to pay any royalties or other
amounts to any third party in excess of those payable by
Verilink or the Surviving Corporation, respectively, prior to
the Closing. As used herein, Verilink Intellectual
Property means any Intellectual Property that is owned by,
or purported to be owned by, Verilink or any of its
Subsidiaries, and Verilink Material License means as
of the date of this agreement any licenses, sublicenses, and
other agreements pursuant to which either: (A) Verilink or
any of its Subsidiaries is authorized or licensed to use any
third party Intellectual Property (i) for incorporation or
embedding into Verilinks or any of its Subsidiaries
products, (ii) in conjunction with, or in the development
of, Verilinks or any of its Subsidiaries products,
or (iii) that is otherwise material to the conduct of the
business of Verilink or any of its Subsidiaries as currently
conducted (it being understood that (1) shrink wrap or
click and accept licenses for
off-the-shelf software programs, and
(2) agreements providing for future license fees,
royalties, or other payment obligations by Verilink or any of
its Subsidiaries that do not exceed $10,000 annually per
agreement (other than contingent or unliquidated amounts) will
not be considered to be agreements to which reference is made in
clauses (A)(ii) and (A)(iii) of this Section 4.8(b)),
or (B) (i) any third party has been granted any
exclusive license under, or otherwise has received or acquired
any exclusive right or interest in, any Verilink Intellectual
Property, or (ii) any third party has been granted any
non-exclusive license under, or otherwise has received or
acquired any non-exclusive right or interest in, any Verilink
Intellectual Property and pursuant to which such third party had
or has aggregate license fee or royalty payment obligations
(other than contingent or unliquidated amounts) in excess of
$10,000 annually.
(c) To Verilinks knowledge, neither
Verilink nor any of its Subsidiaries have ever infringed,
misappropriated, or otherwise violated any Intellectual Property
of any third party. Without limiting the generality of the
foregoing and solely to Verilinks knowledge, neither
(i) the products previously or currently sold or under
development by Verilink or any of its Subsidiaries, or
(ii) the business or activities previously or currently
conducted by Verilink or any of its Subsidiaries, has infringed,
violated, or constituted a misappropriation of any Intellectual
Property of any third party. Neither Verilink nor any of its
Subsidiaries has received any complaint, claim, or notice
alleging any such infringement, violation, or misappropriation.
Neither Verilink nor any of its Subsidiaries has received any
correspondence, requests or demands since January 1, 2000,
by third parties regarding the licensing of such third
partys patents, copyrights, trademarks or other
Intellectual Property or proprietary rights. Verilink and its
Subsidiaries have never assumed, or agreed to discharge or
otherwise take responsibility for, any existing or potential
liability of any third party for infringement, misappropriation,
or violation of any Intellectual Property. To Verilinks
knowledge, no other person or entity has infringed, violated, or
misappropriated, and no other person or entity is currently,
infringing, violating, or misappropriating, any material
Verilink Intellectual Property or any Intellectual Property that
Verilink or any of its Subsidiaries is authorized or licensed to
use under any Verilink Material Inbound License.
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4.9
Litigation.
There is no action, suit, proceeding, claim, arbitration or
investigation pending or, to the knowledge of Verilink,
threatened against or affecting Verilink or any of its
Subsidiaries or any properties or rights of Verilink or its
Subsidiaries, by any person or by or before any Governmental
Entity, arbitrator or mediator. Neither Verilink nor any of its
Subsidiaries has commenced any action, suit, proceeding or
arbitration before any Governmental Entity, arbitrator or
mediator. There are no material judgments, orders or decrees
outstanding against Verilink or any of its Subsidiaries.
4.10
Compliance
With Laws.
Verilink and each of its Subsidiaries have
complied with, are not in violation of, and have not received
any notice alleging any violation with respect to, any
applicable provisions of any statute, law or regulation and are,
and have been, in compliance with the Sarbanes-Oxley Act of 2002
and any related statutes, laws or regulations, including the
rules and regulations of The Nasdaq Stock Market, Inc., except
for failures to comply or violations which, individually or in
the aggregate, have not had, and are not reasonably likely to
have, a Verilink Material Adverse Effect.
4.11
Certain
Business Practices.
Neither Verilink nor any of its
Subsidiaries nor any director, officer, agent, employee or
affiliate of Verilink or any of its Subsidiaries who was acting
or purporting to act on behalf of Verilink or any of its
Subsidiaries has (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (b) made any unlawful
payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns or
violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, nor (c) made any other unlawful payment.
4.12
Opinion
of Financial Advisor.
The financial advisor of Verilink,
Raymond James & Associates, Inc., has delivered to the
Verilink Board an opinion dated the date of this Agreement to
the effect that, as of such date, the Exchange Ratio is fair,
from a financial point of view, to Verilink. A copy of the
written opinion of Raymond James & Associates, Inc.
will be provided to Larscom solely for information purposes
within one business day following receipt thereof by Verilink.
4.13
Brokers.
No agent, broker, investment banker, financial advisor or other
firm or person is or shall be entitled, as a result of any
action, agreement or commitment of Verilink or any of its
Affiliates, to any brokers, finders, financial
advisors or other similar fee or commission in connection
with any of the transactions contemplated by this Agreement.
4.14
Operations
of the Merger Sub.
The Merger Sub was formed solely for
the purpose of engaging in an acquisition transaction, has
engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement.
4.15
Section 203
of the DGCL Not Applicable.
The Verilink Board has taken
the necessary actions to render Section 203 of the DGCL
inapplicable to this Agreement or the Verilink Voting Agreement
or the consummation of the Merger, or the other transactions
contemplated by this Agreement or the Verilink Voting Agreement.
4.16
Loans
to Executive Officers.
Since July 30, 2002,
Verilink has not extended or maintained credit, arranged for the
extension of credit, or renewed an extension of credit, in the
form of a personal loan to or for any director or executive
officer (or equivalent thereof) of Verilink except to the extent
permitted under the second sentence of Section 13(k)(1) of
the Exchange Act.
4.17
Financial
Controls.
Verilink maintains accurate books and records
reflecting its assets and liabilities and maintains proper and
adequate internal accounting controls which provide assurance
that (a) transactions are executed with managements
authorization; (b) transactions are recorded as necessary
to permit preparation of the consolidated financial statements
of Verilink and to maintain accountability for Verilinks
consolidated assets; (c) access to Verilinks assets
is permitted only in accordance with managements
authorization; (d) the reporting of Verilinks assets
is compared with existing assets at regular intervals; and
(e) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and
timely basis.
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ARTICLE V
CONDUCT OF BUSINESS
5.1
Covenants
of Larscom.
Except as expressly provided herein or as
consented to in writing by Verilink, from and after the date of
this Agreement until the earlier of the termination of this
Agreement in accordance with Article VIII and the Effective
Time, Larscom shall, and shall cause each of its Subsidiaries
to, (a) act and carry on its business in the Ordinary
Course of Business and pay its debts and Taxes and perform its
other obligations when due (subject to good faith disputes over
such debts, Taxes or obligations), (b) comply in all
material respects with applicable laws, rules and regulations,
and (c) use commercially reasonable efforts, consistent
with past practices, to maintain and preserve its and each of
its Subsidiaries business organization, assets and
properties, keep available the services of its present officers
and key employees and preserve its advantageous business
relationships with customers, strategic partners, suppliers,
distributors and others having business dealings with it.
Without limiting the generality of the foregoing, from and after
the date of this Agreement until the earlier of the termination
of this Agreement in accordance with Article VIII and the
Effective Time, Larscom shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, do any of the
following (i) except with the prior written consent of
Verilink (which consent will not be unreasonably withheld or
delayed) or (ii) except as specifically permitted by any
other provision of this Agreement or (iii) except as
expressly provided in Section 5.1 of the Larscom Disclosure
Schedule:
(a) (i) declare, set aside or pay any
dividends on, or make any other distributions (whether in cash,
securities or other property) in respect of, any of its capital
stock (other than dividends and distributions by a direct or
indirect wholly owned Subsidiary of Larscom to its parent);
(ii) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock or any of its other securities, or
(iii) purchase, redeem or otherwise acquire any shares of
its capital stock or any other of its securities or any rights,
warrants or options to acquire any such shares or other
securities (except, in the case of this clause (iii), for
the acquisition of shares of Larscom Common Stock from former
employees, directors and consultants in accordance with
agreements providing for the repurchase of shares at their
original issuance price in connection with any termination of
services to Larscom);
(b) issue, deliver, sell, grant, pledge or
otherwise dispose of or encumber any shares of its capital
stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or
exchangeable securities (other than (i) the issuance of
shares of Larscom Common Stock upon the exercise of Larscom
Stock Options and Larscom Warrants (A) outstanding on the
date of this Agreement in accordance with their present terms or
(B) granted after the date of this Agreement as permitted
by the provisions of this Agreement, and (ii) the issuance
of Larscom Common Stock in the Ordinary Course of Business under
Larscoms ESPP as currently in effect;
(c) amend the Larscom Charter Documents or
other comparable charter or organizational documents;
(d) form any Subsidiary or acquire any
equity interest or ownership interest in any other person;
(e) acquire (i) by merging or
consolidating with, or by purchasing all or a substantial
portion of the assets or any stock of, or by any other manner,
any business or any corporation, partnership, joint venture,
limited liability company, association or other business
organization or division thereof or (ii) any assets that
are material, individually or in the aggregate, to Larscom and
its Subsidiaries, taken as a whole;
(f) whether or not in the Ordinary Course of
Business, sell, lease, license, encumber, dispose of or
otherwise transfer any assets material to Larscom and its
Subsidiaries, taken as a whole (including any accounts, leases,
contracts or Intellectual Property or any assets or the stock of
any of its Subsidiaries, but excluding the sale or license of
products in the Ordinary Course of Business);
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(g) except for a confidentiality agreement
as permitted by Section 6.1, enter into an agreement with
respect to any merger, consolidation, liquidation or business
combination, or any acquisition or disposition of all or
substantially all of the assets or securities of Larscom or any
of its Subsidiaries;
(h) authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or
enter into any agreement in principle or an agreement with
respect to, any plan of liquidation or dissolution of Larscom;
(i) (i) incur or suffer to exist any
indebtedness for borrowed money or guarantee any such
indebtedness of another person, (ii) issue, sell or amend
any debt securities or warrants or other rights to acquire any
debt securities of Larscom or any of its Subsidiaries, guarantee
any debt securities of another person, enter into any keep
well or other agreement to maintain any financial
statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing,
or (iii) make any loans, advances (other than routine
advances to employees of Larscom in the Ordinary Course of
Business) or capital contributions to, or investment in, any
other person, other than Larscom or any of its direct or
indirect wholly owned Subsidiaries;
(j) make any capital expenditures or other
expenditures with respect to property, plant or equipment for
Larscom and its Subsidiaries, taken as a whole in excess of
$25,000 in the aggregate;
(k) make any changes in accounting methods,
principles or practices, except insofar as may have been
required by the SEC or a change in GAAP or, except as so
required, change any assumption underlying, or method of
calculating, any bad debt, contingency or other reserve;
(l) except in the Ordinary Course of
Business, modify, amend or terminate any material contract or
agreement to which Larscom or any of its Subsidiaries is party,
or knowingly waive, release or assign any material rights or
claims (including any write-off or other compromise of any
accounts receivable of Larscom of any of its Subsidiaries);
(m) except as otherwise expressly
contemplated by this Agreement and except with respect to
commitments or liabilities incurred in connection with this
Agreement and the transactions contemplated hereby, including
the incurrence of reasonable legal and accounting fees and
expenses and the investment banker fees and expenses set forth
in the agreement to be delivered pursuant to Section 3.26
hereof, except in the Ordinary Course of Business,
(i) enter into any material contract, agreement or
transaction or take any other material action or
(ii) license any material Intellectual Property rights to
or from any third party;
(n) except as required to comply with
applicable law or agreements, plans or arrangements existing on
the date hereof, (i) take any action with respect to,
adopt, enter into, terminate or amend any employment, severance
or similar agreement or benefit plan for the benefit or welfare
of any future, current or former director, officer, employee or
consultant or any collective bargaining agreement,
(ii) increase in any material respect the compensation or
fringe benefits of, or pay any bonus to, any director, officer,
employee or consultant (whether in cash, stock, equity
securities, property or otherwise), (iii) waive any stock
repurchase rights, accelerate, amend or change the period of
exercisability of options or restricted stock or reprice options
granted under any employee, consultant, director or other stock
plans or authorize cash payments in exchange for any options
granted under any of such plans, (iv) pay any material
benefit not provided for as of the date of this Agreement under
any Larscom Employee Plan, (v) grant any awards under any
bonus, incentive, performance or other compensation plan or
arrangement or benefit plan, or (vi) take any action other
than in the Ordinary Course of Business to fund or in any other
way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or benefit
plan;
(o) hire any new employee at the level of
director or above or with an annual base salary in excess of
$100,000 or promote any employee to the level of executive
officer or above;
(p) make or change any material Tax
election, change any annual tax accounting period, adopt or
change any method of tax accounting, file any material amended
Tax Return, settle or compromise any
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material Tax claim, assessment, or proposed
assessment, or take any other action, if any such action would
have the effect of increasing the post-closing Tax liability of
Larscom, and of its Subsidiaries or any person related to
Larscom by a material amount;
(q) initiate, compromise, pay, discharge or
settle any material claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or
otherwise), litigation or arbitration proceeding, exclusive of
any amounts covered by Larscom Insurance Policies;
(r) fail to maintain insurance at levels
substantially comparable to levels existing as of the date of
this Agreement;
(s) enter into any agreement to purchase or
sell any interest in real property, grant or accept any security
interest in any real property, enter into any lease, sublease,
license or other occupancy agreement with respect to any real
property or alter, amend, modify or terminate any of the terms
of any Larscom Lease; or
(t) authorize any of, or commit or agree, in
writing or otherwise, to take any of, the foregoing actions or
any action which would make any representation or warranty of
Larscom in this Agreement untrue or incorrect in any material
respect, or would materially impair or prevent the satisfaction
of any conditions in Article VII hereof.
5.2
Covenants
of Verilink.
Except as expressly provided herein or as
consented to in writing by Larscom, from and after the date of
this Agreement until the earlier of the termination of this
Agreement in accordance with Article VIII and the Effective
Time, Verilink shall, and shall cause each of its Subsidiaries
to, (a) act and carry on its business in the Ordinary
Course of Business and pay its debts and Taxes and perform its
other obligations when due (subject to good faith disputes over
such debts, Taxes or obligations), (b) comply in all
material respects with applicable laws, rules and regulations,
and (c) use commercially reasonable efforts, consistent
with past practices, to maintain and preserve its and each of
its Subsidiaries business organization, assets and
properties, keep available the services of its present officers
and key employees and preserve its advantageous business
relationships with customers, strategic partners, suppliers,
distributors and others having business dealings with it.
Without limiting the generality of the foregoing, from and after
the date of this Agreement until the earlier of the termination
of this Agreement in accordance with Article VIII and the
Effective Time, Verilink shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, do any of the
following (i) except with the prior written consent of
Larscom (which consent will not be unreasonably withheld or
delayed) or (ii) except as specifically permitted by any
other provision of this Agreement or (iii) except as
expressly provided in Section 5.2 of the Verilink
Disclosure Schedule:
(a) (i) declare, set aside or pay any
dividends on, or make any other distributions (whether in cash,
securities or other property) in respect of, any of its capital
stock (other than dividends and distributions by a direct or
indirect wholly owned Subsidiary of Verilink to its parent or
(ii) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for any shares of its
capital stock or any of its other securities;
(b) amend the Verilink Charter Documents or
other comparable charter or organizational documents, except as
otherwise expressly provided by this Agreement;
(c) authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or
enter into any agreement in principle or an agreement with
respect to, any plan of liquidation or dissolution of Verilink;
or
(d) authorize any of, or commit or agree, in
writing or otherwise, to take any of, the foregoing actions or
any action which would make any representation or warranty of
Verilink in this Agreement untrue or incorrect in any material
respect, or would materially impair or prevent the satisfaction
of any conditions in Article VII hereof.
5.3
Confidentiality.
The parties acknowledge that Larscom and Verilink have
previously executed a Mutual Confidentiality Agreement dated as
of December 4, 2003 (the Confidentiality
Agreement),
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which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms, except as
expressly modified by this Agreement.
5.4
Required
Communications.
Until the earlier of the termination of
this Agreement in accordance with Article VIII and the
Effective Time, Larscom shall not without the prior consent of
Verilink, which consent shall not be unreasonably withheld or
delayed, agree to any new or modify any existing material
commitments with its customers, suppliers and distributors.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1
No
Solicitation.
(a)
No Solicitation or Negotiation.
From and after the date of this Agreement until the Effective
Time or the termination of this Agreement pursuant to
Article VIII hereof, and except as set forth in this
Section 6.1, Verilink and Larscom shall not, shall cause
their respective Subsidiaries not to, and shall cause their or
their Subsidiaries respective directors, officers,
investment bankers, attorneys, accountants or other advisors or
representatives (such directors, officers, investment bankers,
attorneys, accountants, affiliates, other advisors and
representatives, collectively, Representatives) not
to, directly or indirectly:
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(i) solicit, initiate, knowingly encourage
or take any other action to facilitate any inquiries or the
making, submission or announcement of any proposal or offer that
constitutes, or could reasonably be expected to lead to, any
Acquisition Proposal, with respect to itself;
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(ii) enter into, continue or otherwise
participate in any discussions or negotiations regarding,
furnish to any person any information with respect to, knowingly
assist or participate in any effort or attempt by any person
with respect to, or otherwise knowingly cooperate in any way
with any proposal or offer that constitutes, or could reasonably
be expected to lead to, any Acquisition Proposal, except
discussions as to the existence of these provisions;
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(iii) approve, endorse or recommend any
Acquisition Proposal with respect to itself; or
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(iv) enter into any letter of intent or
similar document or any contract, agreement or commitment
contemplating or otherwise relating to any Acquisition Proposal
or transaction contemplated thereby with respect to itself.
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Notwithstanding the foregoing, in the event that,
to the extent required by their respective fiduciary
obligations, as determined in good faith by the applicable Board
of Directors, prior to (A) in the case of Verilink, the
approval of the Verilink Voting Proposal at the Verilink Meeting
or, (B) in the case of Larscom, the approval of the Larscom
Voting Proposal at the Larscom Meeting (in each case, the
Specified Time), Verilink or Larscom, as the case
may be, receives an Acquisition Proposal with respect to itself
from a third party which (1) constitutes a Superior
Proposal or (2) which its Board of Directors in good faith
concludes is more favorable to its stockholders than the
transactions contemplated by this Agreement and which could
reasonably be expected to result in a Superior Proposal in all
other respects, and such Acquisition Proposal did not result
from a breach by Verilink or Larscom, as the case may be, of
this Section 6.1, and subject to compliance with
Section 6.1(c), then Verilink or Larscom, as the case may
be, or any of their respective Representatives may take the
following actions: (x) furnish nonpublic information to the
party which is the subject of the Acquisition Proposal to the
person making such Acquisition Proposal and its Representatives
pursuant to a customary confidentiality agreement not less
restrictive of the other party than the Confidentiality
Agreement and (y) participate in discussions or
negotiations with such person and its Representatives regarding
any such Acquisition Proposal.
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(b)
No Change in Recommendation or
Alternative Acquisition Agreement.
Beginning immediately
upon the execution of this Agreement, neither the Verilink Board
nor the Larscom Board nor any committee thereof shall:
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(i) except as set forth in this
Section 6.1, withdraw or modify, or publicly propose to
withdraw or modify, in a manner adverse to the other party, its
approval or recommendation with respect to the Verilink Voting
Proposal or the Larscom Voting Proposal, as the case may be;
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(ii) cause or permit Verilink or Larscom to
enter into any letter of intent, memorandum of understanding,
agreement in principle, acquisition agreement, merger agreement
or similar agreement constituting or relating to any Acquisition
Proposal (other than a confidentiality agreement referred to in
Section 6.1(a) entered into in the circumstances referred
to in Section 6.1(a)); or
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(iii) adopt, approve or recommend, or
propose to adopt, approve or recommend, any Acquisition Proposal.
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Notwithstanding the foregoing, the Verilink Board
or the Larscom Board may, in compliance with this
Section 6.1, withdraw or modify or propose to withdraw or
modify its recommendation with respect to the Verilink Voting
Proposal or the Larscom Voting Proposal, as the case may be,
publicly indicate that it is doing so (and to the extent
required in order to comply with such Boards fiduciary
duties under applicable law, as determined in good faith by the
applicable Board of Directors, may endorse or recommend such
Superior Proposal) if the Verilink Board or the Larscom Board,
as the case may be, determines in good faith (after consultation
with outside counsel) that its fiduciary obligations require it
to do so, but only at a time that is prior to the Specified Time
and is after the second business day following receipt by
Larscom or Verilink, as the case may be, of written notice
advising (x) whether such action is taken in connection
with an Acquisition Proposal and if so, specifying the material
terms and conditions of such Superior Proposal and identifying
the person making such Superior Proposal and (y) otherwise
specifying in reasonable detail the reasons and basis for such
action.
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(c)
Notices; Additional Negotiations.
Each party shall immediately advise the other party orally, with
written confirmation to follow promptly, of any Acquisition
Proposal or any request for nonpublic information in connection
with any Acquisition Proposal, or of any inquiry with respect
to, or that could reasonably be expected to lead to, any
Acquisition Proposal, the material terms and conditions of any
such Acquisition Proposal or inquiry and the identity of the
person making any such Acquisition Proposal or inquiry. Neither
party shall provide any information to or participate in
discussions or negotiations with (except for discussions as to
the existence of these provisions) the person or entity making
any Acquisition Proposal which constitutes a Superior Proposal
or which could reasonably be expected to result in a Superior
Proposal until two business days after such party has first
notified the other party of such Acquisition Proposal as
required by the preceding sentence. The party receiving an
Acquisition Proposal shall (i) orally, and in writing
within 24 hours of receipt thereof, keep the other party
fully informed of the status and material terms of any such
Acquisition Proposal, request or inquiry (including notifying
the other party orally and in writing of the identity of the
person making such Acquisition Proposal, request or inquiry, and
of any material change to the terms of such Acquisition
Proposal) and (ii) if the other party to this Agreement
shall make a competing proposal, consider and cause its
financial and legal advisors to negotiate on its behalf in good
faith with respect to the terms of such competing proposal.
Contemporaneously with providing any information to a third
party in connection with any such Acquisition Proposal, the
party receiving such Acquisition Proposal shall furnish a copy
of such information to the other party to the extent that such
copy has not previously been provided to the other party. In
addition to the foregoing, Verilink or Larscom shall
(A) provide the other party with at least 24 hours
prior notice (or such lesser prior notice as provided to the
members of the Verilink Board or to the members of the Larscom
Board but in no event less than eight hours) of any meeting of
the Verilink Board or the Larscom Board at which the Verilink
Board or the Larscom Board is reasonably expected to consider an
Acquisition Proposal which constitutes a Superior Proposal or
which could reasonably be expected to result in a Superior
Proposal and (B) provide the other party with at least two
business days prior
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written notice of a meeting of the Verilink Board
or the Larscom Board at which the Verilink Board or the Larscom
Board is reasonably expected to recommend a Superior Proposal to
its stockholders and together with such notice a copy of the
definitive documentation relating to such Superior Proposal to
the extent that such copy has not previously been provided to
the other party.
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(d)
Certain
Permitted Disclosure.
Nothing contained in this
Section 6.1 or in Section 6.5 shall be deemed to
prohibit either party from taking and disclosing to its
stockholders a position with respect to a tender offer
contemplated by Rules 14d-9 or 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal, if, in the
good faith judgment of the Verilink Board or the Larscom Board,
as the case may be, based on the advice of outside counsel,
failure to so disclose would be inconsistent with its
obligations under applicable law.
(e)
Cessation of
Ongoing Discussions.
Each party shall, and shall cause its
Subsidiaries and its and their Representatives to, cease
immediately all discussions and negotiations regarding any
proposal that constitutes, or could reasonably be expected to
lead to, an Acquisition Proposal. As of the date of this
Agreement, each of Verilink and Larscom represents that neither
it nor any of its Subsidiaries is engaged, directly or
indirectly, in any discussions or negotiations with any other
party with respect to an Acquisition Proposal.
(f)
Definitions.
For purposes of this Agreement.
Acquisition Proposal means, with
respect to any party, (i) any inquiry, proposal or offer
for a merger, consolidation, dissolution, sale of substantial
assets, tender offer, recapitalization, share exchange or other
business combination involving such party or any of its
Subsidiaries, (ii) any proposal for the issuance by such
party or any of its Subsidiaries of over 20% of its equity
securities or the voting power of its equity securities or
(iii) any proposal or offer to acquire in any manner,
directly or indirectly, over 20% of the equity securities or the
voting power of its equity securities or consolidated total
assets of such party; provided, however, in each case
Acquisition Proposal shall not include the Merger contemplated
by this Agreement; provided, further, that in the case of
Verilink the term Acquisition Proposal shall not include any
inquiry, proposal or offer that does not require, propose,
contemplate, or would not be reasonably expected to result in,
the termination or abandonment of this Agreement and the Merger
(an Allowed Proposal).
Superior Proposal means, with respect
to any party, any unsolicited, bona fide written proposal made
by a third party to acquire, directly or indirectly, pursuant to
a tender or exchange offer, merger, consolidation or other
business combination or asset purchase, all or substantially all
of the assets of Verilink or Larscom, as the case may be, or a
majority of the total outstanding voting securities in the case
of Verilink or Larscom, as the case may be, and as a result of
which the stockholders of Verilink or Larscom, as the case may
be, immediately preceding such transaction would hold less than
fifty percent (50%) of the voting power of the total outstanding
equity interests in the surviving or resulting entity of such
transaction or any direct or indirect parent or subsidiary
thereof, on terms that the Board of Directors of Larscom or
Verilink, as the case may be, has in good faith concluded to be
more favorable, from a financial point of view, to its
stockholders generally (in their capacities as stockholders)
than the transactions contemplated by this Agreement (following
consultation with outside and independent legal and financial
advisors and after taking into account all the terms and
conditions of such proposal and this Agreement (including any
proposal by either party to amend the terms of this Agreement)
and on the terms proposed, taking into account all financial,
regulatory, legal and other aspects of such proposal; provided,
however, that no Acquisition Proposal shall be deemed to be a
Superior Proposal if any financing required to consummate the
Acquisition Proposal is not committed, and in the case of
Verilink, is an Allowed Proposal.
6.2
Joint
Proxy Statement/Prospectus and Registration Statement.
(a) As promptly as practicable after the
execution of this Agreement, Larscom and Verilink shall jointly
prepare and file with the SEC a joint proxy statement/prospectus
(together with any amendments thereof or supplements thereto,
the Joint Proxy Statement/Prospectus) to be sent to
the stockholders of
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Larscom and Verilink in connection with the
Larscom Meeting and Verilink Meeting, respectively, and Verilink
shall prepare and file with the SEC a registration statement on
Form S-4 in which the Joint Proxy Statement/Prospectus will
be included as a prospectus, to register under the Securities
Act the issuance of shares of Verilink Common Stock in
connection with the Merger (together with all amendments
thereto, the Registration Statement). Each of
Verilink and Larscom shall provide promptly to the other party
such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate
for inclusion in the Joint Proxy Statement/Prospectus and the
Registration Statement, or in any supplements or amendments
thereto, and cause its counsel and auditors to cooperate with
the others counsel and auditors in the preparation of the
Joint Proxy Statement/Prospectus and the Registration Statement.
Each of Larscom and Verilink shall respond to any comments of
the SEC and shall use its respective commercially reasonable
efforts to have the Joint Proxy Statement/Prospectus cleared by
the SEC and the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filings
and Larscom and Verilink shall cause the Joint Proxy
Statement/Prospectus to be mailed to their respective
stockholders at the earliest practicable time after both the
Joint Proxy Statement/Prospectus is cleared by the SEC and the
Registration Statement is declared effective under the
Securities Act; provided, however, that the parties shall
consult and cooperate with each other in determining the
appropriate time for mailing the Joint Proxy
Statement/Prospectus in light of the date sets for the Larscom
Meeting and the Verilink Meeting. Each of Larscom and Verilink
shall notify the other promptly upon the receipt of any comments
from the SEC or its staff or any other government officials and
of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration
Statement, the Joint Proxy Statement/Prospectus or any filing
pursuant to Section 6.2(c) or for additional information
and shall supply the other with copies of all correspondence
between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government
officials, on the other hand, with respect to the Registration
Statement, the Joint Proxy Statement/Prospectus, the Merger or
any filing pursuant to Section 6.2(c). Each of Larscom and
Verilink shall use commercially reasonable efforts to cause all
documents that it is responsible for filing with the SEC or
other regulatory authorities under this Section 6.2 to
comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in
an amendment or supplement to the Joint Proxy
Statement/Prospectus, the Registration Statement or any filing
pursuant to Section 6.2(b), Larscom or Verilink, as the
case may be, shall promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other
Governmental Entity or government officials, and/or mailing to
stockholders of Larscom and Verilink, such amendment or
supplement.
(b) Each of Verilink and Larscom agrees, as
to itself and its Subsidiaries, that none of the information
supplied or to be supplied by it for inclusion or incorporation
by reference in (i) the Registration Statement will, at the
time the Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading,
(ii) the Joint Proxy Statement/Prospectus will, at the time
of first mailing to the Verilink stockholders or Larscom
stockholders or at the time of the Verilink Meeting or Larscom
Meeting, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they are made, not misleading, or (iii) any filing
pursuant to Rule 165 and 425 under the Securities Act or
Rule 14a-12 under the Exchange Act (each a
Regulation M-A Filing), when taken together
with the Joint Proxy Statement/Prospectus, will, at the time of
filing with the SEC or, if applicable, at the time first mailed
or otherwise communicated to Verilink or Larscom stockholders,
contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are
made, not misleading. Notwithstanding the foregoing, no
representation or warranty is made by Verilink with respect to
statements made or incorporated by reference therein about
Larscom or supplied by Larscom for inclusion or incorporation by
reference in the Registration Statement, Joint Prospectus/Proxy
Statement or Regulation M-A Filing and no representation or
warranty is made by Larscom with respect to statements
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made or incorporated by reference therein about
Verilink that are supplied by the Verilink for inclusion or
incorporation by reference in the Registration Statement, the
Joint Proxy Statement/Prospectus or any Regulation M-A Filing.
(c) Larscom and Verilink shall promptly make
all necessary filings with respect to the Merger under the
Securities Act, the Exchange Act, applicable Blue Sky Laws, the
applicable laws of any other jurisdiction and the rules and
regulations thereunder; provided, however, that neither
Verilink, Larscom nor the Surviving Corporation shall be
required (i) to qualify to do business as a foreign
corporation in any jurisdiction in which it is not now qualified
or (ii) to file a general consent to service of process in
any jurisdiction.
6.3
[Reserved]
6.4
Access
to Information.
From and after the date of this
Agreement until the earlier of the termination of this Agreement
in accordance with Article VIII and the Effective Time,
each of Larscom and Verilink shall (and shall cause each of its
Subsidiaries to) afford to the other partys
Representatives, reasonable access, during normal business hours
during the period prior to the Effective Time, to all its
properties, books, work papers, Tax Returns, contracts,
commitments, personnel, customers, suppliers and vendors and
records and, during such period, each of Larscom and Verilink
shall (and shall cause each of its Subsidiaries to) furnish
promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements
of federal or state securities laws or the securities laws of
any other applicable jurisdiction and (b) all other
information concerning its business, properties, assets and
personnel as the other party may reasonably request. Each of
Larscom and Verilink will hold any such information which is
nonpublic in confidence in accordance with the Confidentiality
Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.4 or otherwise
shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.
6.5
Stockholders
Meetings.
(a) Verilink, acting through the Verilink
Board, shall take all actions in accordance with applicable law,
its Certificate of Incorporation and Bylaws and the rules of The
Nasdaq Stock Market, Inc. to promptly and duly call, give notice
of, convene and hold as promptly as practicable after the
declaration of effectiveness of the Registration Statement, the
Verilink Stockholders Meeting for the purpose of considering and
voting upon the Verilink Voting Proposal. Except as expressly
permitted by Section 6.1(b), to the fullest extent
permitted by applicable law, (i) the Verilink Board shall
unanimously recommend approval and adoption of the Verilink
Voting Proposal by the stockholders of Verilink and include such
unanimous recommendation in the Joint Proxy
Statement/Prospectus, and (ii) neither the Verilink Board
nor any committee thereof shall withdraw or modify, or propose
or resolve to withdraw or modify, in a manner adverse to
Larscom, the recommendation of the Verilink Board that
Verilinks stockholders vote in favor of the Verilink
Voting Proposal. Notwithstanding anything to the contrary
contained in this Agreement, after consultation with Larscom,
Verilink may adjourn or postpone the Verilink Stockholder
Meeting to the extent necessary to ensure that any required
supplement or amendment to the Joint Proxy Statement/Prospectus
is provided to Verilinks stockholders or, if, as of the
time for which the Verilink Stockholders Meeting is originally
scheduled (as set forth in the Joint Proxy
Statement/Prospectus), there are insufficient shares of Verilink
Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the
Verilink Stockholders Meeting.
(b) Larscom, acting through the Larscom
Board, shall take all actions in accordance with applicable law,
its Certificate of Incorporation and Bylaws and the rules of The
Nasdaq Stock Market, Inc. to promptly and duly call, give notice
of, convene and hold as promptly as practicable after the
declaration of effectiveness of the Registration Statement, the
Larscom Stockholders Meeting for the purpose of considering and
voting upon the Larscom Voting Proposal. Except as expressly
permitted by Section 6.1(b), to the fullest extent
permitted by applicable law, (i) the Larscom Board shall
unanimously
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recommend approval and adoption of the Larscom
Voting Proposal by the stockholders of Larscom and include such
unanimous recommendation in the Joint Proxy
Statement/Prospectus, and (ii) neither the Larscom Board
nor any committee thereof shall withdraw or modify, or propose
or resolve to withdraw or modify, in a manner adverse to
Verilink, the recommendation of the Larscom Board that
Larscoms stockholders vote in favor of the Larscom Voting
Proposal. Notwithstanding anything to the contrary contained in
this Agreement, after consultation with Verilink, Larscom may
adjourn or postpone the Larscom Stockholders Meeting to the
extent necessary to ensure that any required supplement or
amendment to the Joint Proxy Statement/Prospectus is provided to
Larscoms stockholders or, if, as of the time for which the
Larscom Stockholders Meeting is originally scheduled (as set
forth in the Joint Proxy Statement/Prospectus), there are
insufficient shares of Larscom Common Stock represented (either
in person or by proxy) to constitute a quorum necessary to
conduct the business of the Larscom Stockholders Meeting.
6.6
Legal
Conditions to Merger.
(a) Subject to the terms hereof, including
Section 6.6(b), and applicable law, Verilink and Larscom
shall each use commercially reasonable efforts to (i) take,
or cause to be taken, all actions, and do, or cause to be done,
and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby as promptly as
practicable, (ii) as promptly as practicable, obtain from
any Governmental Entity or any other third party any consents,
licenses, permits, waivers, approvals, authorizations, or orders
required to be obtained or made by Verilink or Larscom or any of
their Subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, (iii) as promptly as
practicable, make all necessary filings, and thereafter make any
other required submissions, with respect to this Agreement and
the Merger required under (A) the Securities Act and the
Exchange Act, and any other applicable federal or state
securities laws, (B) the HSR Act, if applicable, and any
related governmental request thereunder, and (C) any other
applicable law, and (iv) execute or deliver any additional
instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this
Agreement. Verilink and Larscom shall cooperate with each other
in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party
and its advisors prior to filing and, if requested, accepting
all reasonable additions, deletions or changes suggested in
connection therewith. Verilink and Larscom shall use their
respective commercially reasonable efforts to furnish to each
other all information required for any application or other
filing to be made pursuant to the rules and regulations of any
applicable law (including all information required to be
included in the Joint Proxy Statement/Prospectus and the
Registration Statement) in connection with the transactions
contemplated by this Agreement. For the avoidance of doubt,
Larscom and Verilink agree that nothing contained in this
Section 6.6(a) shall modify or affect their respective
rights and responsibilities under Section 6.6(b).
(b) Subject to the terms hereof, Larscom and
Verilink agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective
commercially reasonable efforts to obtain any government
clearances or approvals required for Closing under the HSR Act,
if applicable, and any other federal, state or foreign law or,
regulation or decree designed to prohibit, restrict or regulate
actions for the purpose or effect of monopolization or restraint
of trade reasonably determined by the parties to apply
(collectively Antitrust Laws), to respond to any
government requests for information under any Antitrust Law, and
to contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other
order (whether temporary, preliminary or permanent) (an
Antitrust Order) that restricts, prevents or
prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement under any Antitrust
Law. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in
connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with
proceedings under or relating to any Antitrust Law.
Notwithstanding anything in this Agreement to the contrary in
this Section 6.6, neither Larscom nor Verilink shall be
under any obligation to (i) make
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proposals, execute or carry out agreements or
submit to orders providing for the sale or other disposition or
holding separate (through the establishment of a trust or
otherwise) of any material assets or categories of assets of
Larscom or Verilink or the holding separate of the shares of
Larscom Common Stock (or shares of stock of the Surviving
Corporation) or imposing or seeking to impose any material
limitation on the ability of Larscom or Verilink to conduct its
business or own such assets or to acquire, hold or exercise full
rights of ownership of the shares of Larscom Common Stock (or
shares of stock of the Surviving Corporation) or (ii) take
any action under this Section 6.6 if the United States
Department of Justice or the United States Federal Trade
Commission or any applicable foreign regulatory agency
authorizes its staff to seek a preliminary injunction or
restraining order to enjoin consummation of the Merger.
(c) Each of Verilink and Larscom shall give
(or shall cause their respective Subsidiaries to give) any
notices to third parties, and use, and cause their respective
Subsidiaries to use, their commercially reasonable efforts to
obtain any third party consents related to or required in
connection with the Merger that are (A) necessary to
consummate the transactions contemplated hereby,
(B) disclosed or required to be disclosed in the Verilink
Disclosure Schedule or Larscom Disclosure Schedule, as the case
may be, or (C) required to prevent a Verilink Material Adverse
Effect or a Larscom Material Adverse Effect from occurring prior
to or at the Effective Time.
6.7
Public
Disclosure.
From and after the date of this Agreement
until the earlier of the termination of this Agreement in
accordance with Article VIII and the Effective Time each
party shall not, and shall not permit any of its Representatives
to, issue any press release or otherwise publicly disseminate
any document or other written material relating to the Merger or
any other transaction contemplated by this Agreement unless
(a) the other party shall have approved such press release
or written material (such approval not to be unreasonably
withheld or delayed) or (b) such party shall have been
advised by its outside legal counsel that the issuance of such
press release or dissemination of such written material is
required by law or The Nasdaq Stock Market, Inc. rules and
regulations and such party shall have consulted with the other
party prior to issuing such press release or disseminating such
written material.
6.8
Section 368(a)
Reorganization.
Neither Larscom nor Verilink nor any of
their Subsidiaries shall take any action that would reasonably
be expected to cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368(a) of the
Code. Verilink and Larscom shall each make all commercially
reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368(a) of the
Code.
6.9
Affiliate
Legends.
Section 6.9 of the Larscom Disclosure
Schedule sets forth a list of those persons who are, in
Larscoms reasonable judgment, affiliates of
Larscom within the meaning of Rule 145 promulgated under
the Securities Act (Rule 145 Affiliates).
Larscom shall notify Verilink in writing of any change in the
identity of its Rule 145 Affiliates prior to the Closing.
Verilink shall be entitled to place appropriate legends on the
Verilink Common Stock to be received by Rule 145 Affiliates
of Larscom in the Merger reflecting the restrictions set forth
in Rule 145 promulgated under the Securities Act and to
issue appropriate stop transfer instructions to the transfer
agent for Verilink Common Stock.
6.10
Nasdaq
Stock Market Listing.
Verilink shall use commercially
reasonable best efforts (a) to cause the Verilink Common
Stock to be issued pursuant to this Agreement to the holders of
Larscom Common Stock in connection with the Merger to be
approved for listing upon the Effective Time on the Nasdaq Stock
Market, if applicable, and (b) to cause the Verilink Common
Stock issued upon the exercise of converted Larscom Stock
Options and Larscom Warrants to be approved for listing on the
Nasdaq Stock Market, if applicable, and shall, if required by
the rules of The Nasdaq Stock Market, Inc., file timely with The
Nasdaq Stock Market, Inc. a Notification Form: Listing of
Additional Shares with respect to such shares of Verilink Common
Stock.
6.11
Stockholder
Litigation.
From and after the date of this Agreement
until the earlier of the termination of this Agreement in
accordance with Article VIII and the Effective Time, each
party shall give the other party the opportunity to participate
in the defense or settlement of any stockholder litigation
relating to this Agreement or any of the transactions
contemplated by this Agreement, and shall not settle
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any such litigation without the other
partys prior written consent, which shall not be
unreasonably withheld or delayed.
6.12
Indemnification.
(a) From and after the Effective Time,
Verilink shall, and shall cause the Surviving Corporation to,
for a period of six years from the Effective Time, indemnify,
defend and hold harmless each present and former director and
officer of Larscom (the Indemnified Parties),
against any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing
or occurring at or prior to the Effective Time (including for
acts or omissions occurring in connection with the approval of
this Agreement and the consummation of the transactions
contemplated hereby), whether asserted or claimed prior to, at
or after the Effective Time, to the fullest extent that Larscom
would have been permitted under Delaware law, the Sarbanes-Oxley
Act of 2002 and any related statutes laws or regulations, the
Larscom Charter Documents and any agreements for indemnification
in effect on the date hereof to indemnify an Indemnified Party,
in the forms provided by Larscom to Verilink prior to the date
hereof, (and Verilink and the Surviving Corporation shall also
advance expenses as incurred to the fullest extent permitted
under Delaware law, the Sarbanes-Oxley Act of 2002 and any
related statutes laws or regulations and such Larscom Charter
Documents and the agreements set forth on Section 6.12(a)
of the Larscom Disclosure Schedule, provided the Indemnified
Party to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification). Neither
Verilink nor the Surviving Corporation shall amend, appeal or
otherwise modify the indemnification or exculpation from
liability or other similar provisions set forth in the Restated
Certificate or the current bylaws of Verilink for a period of
six years after the Effective Time in any manner that would
adversely affect the rights thereunder of any person who,
immediately prior to the Effective Time, was an indemnified
party under the indemnification or exculpation from liability
provisions of the Larscom Charter Documents.
(b) Prior to the Effective Time, Larscom
shall purchase and pay for directors and officers
liability insurance tail coverage covering those persons who are
currently covered by Larscoms directors and
officers liability insurance policy (a copy of which has
been heretofore delivered or made available to Verilink) with
coverage in the amount of $10,000,000 and scope at least as
favorable as provided to Larscoms directors and officers
with respect to claims arising from facts or events which
occurred on or before the Effective Time (including for acts or
omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated
hereby); provided that Verilink will pay one-half the cost of
such tail coverage to Larscom at the time Larscom purchases such
coverage and to the extent such payment does not exceed the
limit set forth on Schedule 6.12(b) of the Verilink
Disclosure Schedule.
(c) In the event that Verilink or the
Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other
person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all its properties and assets to
any person, then, and in each such case, Verilink shall cause
proper provisions to be made so that the successors and assigns
of Verilink or the Surviving Corporation, as the case may be,
assume the obligations set forth in this Section 6.12.
(d) The provisions of this Section 6.12
are intended to be in addition to the rights otherwise available
to the current officers and directors of Larscom by law,
charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives. The obligations
of Verilink and the Surviving Corporation under this
Section 6.12 shall not be terminated or modified in such a
manner as to adversely affect any Indemnified Party to whom this
Section 6.12 applies without the express written consent of
such affected Indemnified Party (it being expressly agreed that
the Indemnified Parties to whom this Section 6.12 applies
shall be third party beneficiaries of this Section 6.12).
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6.13
Notification
of Certain Matters.
Larscom shall give prompt notice to
Verilink, and Verilink shall give prompt notice to Larscom, of
the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be reasonably likely to
cause (a) (i) any representation or warranty of such party
contained in this Agreement that is qualified as to materiality
to be untrue or inaccurate in any respect or (ii) any other
representation or warranty of such party contained in this
Agreement to be untrue or inaccurate in any material respect, in
each case at any time from and after the date of this Agreement
until the Effective Time, or (b) any material failure of
Verilink and the Merger Sub or Larscom, as the case may be, or
of any officer, director, employee or agent thereof, to comply
with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
Notwithstanding the above, the delivery of any notice pursuant
to this Section will not limit or otherwise affect the remedies
available hereunder to the party receiving such notice or the
conditions to such partys obligation to consummate the
Merger.
6.14
Exemption
from Liability Under Section 16(b).
(a) The Larscom Board, or a committee
thereof consisting of non-employee directors (as such term is
defined for purposes of Rule 16b-3(d) under the Exchange
Act), and the Verilink Board, or a committee thereof consisting
of non-employee directors (as such term is defined for purposes
of Rule 16b-3(d) under the Exchange Act) shall,
respectively, adopt resolutions in advance of the Effective Time
providing that the receipt by Larscom Insiders (as defined
below) of Verilink securities in exchange for shares of Larscom
Common Stock, and of options and warrants to purchase Verilink
securities upon assumption and conversion of Larscom Stock
Options and Warrants, in each case pursuant to the transactions
contemplated hereby and to the extent such securities are listed
in the Section 16 Information, is intended to be exempt
pursuant to Rule 16b-3 under the Exchange Act.
(b) For purposes of Section 6.14(a),
Section 16 Information shall mean information
regarding Larscom Insiders and the number of shares of Larscom
Common Stock or other Larscom equity securities deemed to be
beneficially owned by each such Larscom Insider and expected to
be exchanged for Verilink securities, or options or warrants to
purchase Verilink securities, in each case, in connection with
the Merger which shall be provided by Larscom to Verilink no
later than 10 business days prior to the Closing.
(c) For purposes of Section 6.14(a),
Larscom Insiders shall mean those officers and
directors of Larscom who are subject to the reporting
requirements of Section 16(a) of the Exchange Act as listed
in the Section 16 Information.
6.15
[Reserved]
6.16
Employee
Benefits.
Following the Effective Time, Verilink will
give each Continuing Employee full credit for (i) prior
service with Larscom or its Subsidiaries for purposes of
(A) eligibility and vesting under any Employee Benefit Plan
of Verilink (each a Verilink Benefit Plan),
(B) determination of benefits levels under any Verilink
Employee Plan or policy relating to vacation or severance,
(C) determination of retiree status under any
Verilink Employee Plan, and (ii) any annual deductibles,
co-payments or such other expenses required under any Larscom
health or other Larscom Employee Plan that are paid during the
year of the Merger prior to the Effective Time in satisfying any
applicable deductible, out-of-pocket or other such requirements
for the corresponding period under any Verilink health or other
Verilink Employee Plan, in each case for which the Continuing
Employee is otherwise eligible and in which the Continuing
Employee is offered participation, but except where such
crediting would (i) result in a duplication of benefits or
(ii) otherwise cause Verilink or its Subsidiaries or any
Verilink Employee Plan or trust relating thereto to accrue or
pay for benefits that accrued in or are payable for any time
period prior to the Effective Time. Verilink agrees that each
Continuing Employee shall be eligible to either:
(A) participate in Verilink Employee Plans as permitted by
the terms of such Verilink Employee Plans, (B) participate
in Larscom Employee Plans that are continued by Verilink, or
(C) a combination of clauses (A) and (B) so
that each Continuing Employee is eligible for benefits that are
substantially similar in the aggregate to those of similarly
situated employees of Verilink, and so that no Continuing
Employee incurs a gap in coverage solely as a result of the
Merger. Continuing Employee
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shall mean any employee of Larscom who continues
employment with Verilink or the Surviving Corporation after the
Effective Time. Nothing in this Section 6.16 or elsewhere
in this Agreement shall be construed to create a right in any
employee to employment with Verilink or the Surviving
Corporation and the employment with any Continuing Employee
shall be at will employment. Following the Effective
Time, Verilink agrees to comply with Larscoms severance
policies with respect to Larscom employees that are not
Continuing Employees to the extent such severance policies are
set forth in Section 3.16(a) of the Larscom Disclosure
Schedule and such severance benefits are not paid prior to the
Effective Time.
6.17
Termination
of Employee Benefit Plans.
Effective immediately prior
to the Effective Time, Larscom shall terminate any and all group
severance, separation or salary continuation plans, programs or
arrangements, and shall terminate any and all Larscom Employee
Plans which are intended to include a Code Section 401(k)
arrangement (unless Verilink consents, as evidenced by written
notice to Larscom, to the continuation of any such plan, program
or arrangement, which consent shall not be unreasonably
withheld) (collectively, Larscom Terminating
Plan(s)). Verilink agrees that the Continuing Employees
shall be eligible to participate, to substantially the extent
they were eligible to participate in any Larscom Terminating
Plan, in the corresponding Verilink Employee Plan regarding
group severance, separation or salary continuation and in the
corresponding Verilink Employee Plan intended to include a Code
Section 401(k) arrangement, program or arrangement, as
promptly following the Effective Time, as is permitted by the
terms of such Verilink Employee Plan, program or arrangement.
Unless Verilink provides such written consent to Larscom, no
later than three business days prior to the Effective Time,
Larscom shall provide Verilink with evidence that such Larscom
Terminating Plan(s) have been terminated (effective immediately
prior to the Effective Time) pursuant to resolutions of the
Larscom Board. The form and substance of such resolutions shall
be subject to review and approval of Verilink. Larscom also
shall take such other actions in furtherance of terminating such
Larscom Terminating Plan(s) as Verilink may reasonably require.
6.18
Tax
Matters.
At or prior to the filing of the Registration
Statement, Verilink and Larscom shall execute and deliver to
Powell, Goldstein, Frazer & Murphy LLP and to Cooley
Godward LLP tax representation letters in customary form.
Verilink and Larscom shall each confirm to Powell, Goldstein,
Frazer & Murphy LLP and to Cooley Godward LLP the
accuracy and completeness as of the Effective Time of the tax
representation letters delivered pursuant to the immediately
preceding sentence. Verilink and Larscom shall use all
reasonable efforts prior to the Effective Time to cause the
Merger to qualify as a tax-free reorganization under
Section 368(a)(1) of the Code. Following delivery of the
tax representation letters pursuant to the first sentence of
this Section 6.18, each of Verilink and Larscom shall use
its reasonable efforts to cause Powell, Goldstein,
Frazer & Murphy LLP and Cooley Godward LLP,
respectively, to deliver to it a tax opinion satisfying the
requirements of Item 601 of Regulation S-K promulgated
under the Securities Act. In rendering such opinions and the
opinions required pursuant to Sections 7.2(c) and 7.3(c),
each of such counsel shall be entitled to rely on the tax
representation letters referred to in this Section 6.18.
6.19
Registration
Rights Agreement.
Prior to the Closing, Verilink shall
enter into a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C (the Registration
Rights Agreement), with the stockholders listed on the
signature pages thereto, which agreement will be effective at
the Effective Time.
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ARTICLE VII
CONDITIONS TO MERGER
7.1
Conditions
to Each Partys Obligation To Effect the Merger.
The respective obligations of each party to this Agreement to
effect the Merger shall be subject to the satisfaction prior to
the Closing Date of the following conditions:
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(a)
Stockholder Approvals.
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The Verilink Voting Proposal shall have been
approved and adopted at the Verilink Meeting, at which a quorum
is present, by the requisite vote of the stockholders of
Verilink under applicable law, the rules of The Nasdaq Stock
Market, Inc. and the Verilink Charter Documents. The Larscom
Voting Proposal shall have been approved at the Larscom Meeting,
at which a quorum is present, by the requisite vote of the
stockholders of Larscom under applicable law, the rules of The
Nasdaq Stock Market, Inc. and the Larscom Charter Documents.
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(b)
HSR Act.
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If applicable, the waiting period applicable to
the consummation of the Merger under the HSR Act shall have
expired or been terminated.
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(c)
Governmental Approvals.
Other
than the filing of the Certificate of Merger, all
authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity in connection with the
Merger and the consummation of the other transactions
contemplated by this Agreement, the failure of which to file,
obtain or occur is reasonably likely to have a Larscom Material
Adverse Effect or a Verilink Material Adverse Effect shall have
been filed, been obtained or occurred on terms and conditions
which are not reasonably be likely to have a Larscom Material
Adverse Effect or a Verilink Material Adverse Effect.
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(d)
Registration Statement; Joint Proxy
Statement/Prospectus.
The Registration Statement shall have
become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall
have been issued and no proceeding for that purpose, and no
similar proceeding with respect to the Joint Proxy
Statement/Prospectus, shall have been initiated or threatened in
writing by the SEC or its staff.
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(e)
No Injunctions or Proceedings.
No
Governmental Entity of competent jurisdiction shall have
(i) enacted, issued, promulgated, enforced or entered any
order, executive order, stay, decree, judgment or injunction
(preliminary or permanent) or statute, rule or regulation which
is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger or
the other transactions contemplated by this Agreement or
(ii) commenced any action or proceeding seeking any of the
foregoing.
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(f)
Statement of Closing Net Adjusted
Working Capital Amount.
The final Statement of Closing Net
Adjusted Working Capital Amount shall have been agreed to by the
parties or delivered by the Accounting Firm in accordance with
the provisions of Section 2.4.
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7.2
Additional
Conditions to the Obligations of Larscom.
The
obligations of Larscom to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of each of the
following additional conditions, any of which may be waived in
writing exclusively by Larscom:
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(a)
Representations and Warranties.
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(i) The representations and warranties of
Verilink set forth in Section 4.5 and Section 4.6
shall be true and correct in all material respects as of the
Closing Date as though made on and as of the Closing Date
(except (x) to the extent such representations and
warranties are specifically made as of a particular date, in
which case such representations and warranties shall be true and
correct in all material respects as of such date, (y) for
changes expressly contemplated by this Agreement, including the
Verilink Disclosure Schedule hereto); and
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(ii) The representations and warranties of
Verilink set forth in this Agreement and in any certificate or
other writing delivered by Verilink pursuant hereto shall be
true and correct as of the Closing Date as though made on and as
of the Closing Date (except (x) to the extent such
representations and warranties are specifically made as of a
particular date, in which case such representations and
warranties shall be true and correct in all material respects as
of such date, (y) for changes expressly contemplated by
this Agreement, including the Verilink Disclosure Schedule
hereto and (z) where the failure to be true and correct
(without regard to any materiality, Verilink Material Adverse
Effect or knowledge qualifications contained therein),
individually or in the aggregate, have not had, and are not
reasonably likely to have, a Verilink Material Adverse Effect)
and Larscom shall have received a certificate signed on behalf
of Verilink by the chief executive officer and the chief
financial officer of Verilink with respect to the matters in
Sections 7.2(a)(i) and (ii).
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(b)
Performance of Obligations of
Verilink and the Merger Sub.
Verilink and the Merger Sub
shall have performed in all material respects all obligations
required to be performed by it under this Agreement on or prior
to the Closing Date; and Larscom shall have received a
certificate signed on behalf of Verilink by the chief executive
officer and the chief financial officer of Verilink to such
effect.
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(c)
Tax Opinion.
Larscom shall have
received the written opinion of Cooley Godward LLP, counsel to
Larscom, to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the
Code; provided that if Cooley Godward LLP does not render such
opinion, this condition shall nonetheless be deemed satisfied if
Powell, Goldstein, Frazer & Murphy LLP, counsel to
Verilink, renders such opinion to Larscom.
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(d)
Nasdaq Notification.
Verilink
shall have submitted to The Nasdaq Stock Market, Inc. a
Notification Form: Listing of Additional Shares with respect to
the Verilink Common Stock to be issued pursuant to the
transactions contemplated by this Agreement.
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(e)
Registration Rights Agreement.
The Registration Rights Agreement shall have been executed by
Verilink and delivered to the stockholders listed on the
signature pages thereto.
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7.3
Additional
Conditions to the Obligations of Verilink and Merger
Sub.
The obligations of Verilink and the Merger Sub to
effect the Merger shall be subject to the satisfaction on or
prior to the Closing Date of each of the following additional
conditions, any of which may be waived in writing exclusively by
Verilink:
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(a)
Representations and Warranties.
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(i) The representations and warranties of
Larscom set forth in Section 3.6 and Section 3.7 shall
be true and correct in all material respects as of the Closing
Date as though made on and as of the Closing Date (except
(x) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties shall be true and correct in all
material respects as of such date, (y) for changes
expressly contemplated by this Agreement, including the Larscom
Disclosure Schedule hereto); and
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(ii) the representation in
Section 3.22(b) shall be true and correct as of the Closing
Date as though made on and as of the Closing Date; and
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(iii) The representations and warranties of
Larscom set forth in this Agreement and in any certificate or
other writing delivered by Larscom pursuant hereto shall be true
and correct as of the Closing Date as though made on and as of
the Closing Date (except (x) to the extent such
representations and warranties are specifically made as of a
particular date, in which case such representations and
warranties shall be true and correct in all material respects as
of such date, (y) for changes expressly contemplated by
this Agreement, including the Larscom Disclosure Schedule hereto
and (z) where the failure to be true and correct (without
regard to any materiality, Larscom Material Adverse Effect or
knowledge qualifications contained therein),
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individually or in the aggregate, have not had,
and are not reasonably likely to have, a Larscom Material
Adverse Effect) and Verilink shall have received a certificate
signed on behalf of Larscom by the chief executive officer and
the chief financial officer of Larscom with respect to the
matters in Sections 7.3(a)(i), (ii) and (iii).
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(b)
Performance of Obligations of
Larscom.
Larscom shall have performed in all material
respects all obligations required to be performed by them under
this Agreement on or prior to the Closing Date, and Verilink
shall have received a certificate signed on behalf of Larscom by
the chief executive officer and the chief financial officer of
Larscom to such effect.
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(c)
Tax Opinion.
Verilink shall have
received the written opinion of Powell, Goldstein,
Frazer & Murphy LLP, counsel to Verilink, to the effect
that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code; provided that if
Powell, Goldstein, Frazer & Murphy LLP does not render
such opinion, this condition shall nonetheless be deemed
satisfied if Cooley Godward LLP, counsel to Larscom, renders
such opinion to Verilink.
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(d)
Required Consents.
The Larscom
Consents set forth on Section 7.3 of the Larscom Disclosure
Schedule shall have been obtained.
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(e)
Other Agreements.
The following
agreements and documents shall have been delivered to Verilink
and shall be in full force and effect:
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(i) Affiliate Letters in the form of
Exhibit D executed by each Rule 145 Affiliate.
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(ii) The Registration Rights Agreement
executed by each stockholder on the signature pages thereto.
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(f)
Employees.
At least seventy-five
percent (75%) of the individuals identified in
Section 7.3(f) of the Verilink Disclosure Schedule shall
not have ceased to be employed by Larscom; provided that
Verilink shall (i) have offered employment to all such
individuals, (ii) have provided for retention bonuses
consistent with its past practice to such individuals and
(iii) offered compensation that is comparable to such
individuals current compensation.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.1
Termination.
This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 8.1(b) through
8.1(j), by written notice by the terminating party to the other
party), whether before or after approval and adoption of the
Verilink Voting Proposal by the stockholders of Verilink or
approval of the Larscom Voting Proposal by the stockholders of
Larscom:
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(a) by mutual written consent duly
authorized by the Boards of Directors of Larscom and Verilink;
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(b) by either Larscom or Verilink if the
Merger shall not have been consummated by September 30,
2004 (the Outside Date) (provided that the right to
terminate this Agreement under this Section 8.1(b) shall
not be available to any party whose action or failure to act, in
breach of this Agreement, has been a principal cause of or
resulted in the failure of the Merger to occur on or before the
Outside Date);
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(c) by either Larscom or Verilink if a
Governmental Entity of competent jurisdiction shall have issued
a nonappealable final order, decree or ruling or taken any other
nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the
Merger;
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(d) by either Larscom or Verilink if at the
Verilink Meeting (including any adjournment or postponement
permitted by this Agreement), at which a vote on the Verilink
Voting Proposal is taken, the requisite vote of the stockholders
of Verilink in favor of the Verilink Voting Proposal shall not
have been obtained (provided that the right to terminate this
Agreement under this
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Section 8.1(d) shall not be available
(x) to any party whose failure to fulfill any obligation
under this Agreement has been a principal cause of or resulted
in the failure to obtain such requisite vote or (y) to
Verilink, if the failure to obtain such requisite vote has been
caused by a breach of the Verilink Voting Agreement by any party
thereto other than Larscom);
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(e) by either Larscom or Verilink if at the
Larscom Meeting (including any adjournment or postponement
permitted by this Agreement), at which a vote on the Larscom
Voting Proposal is taken, the requisite vote of the stockholders
of Larscom in favor of the Larscom Voting Proposal shall not
have been obtained (provided that the right to terminate this
Agreement under this Section 8.1(e) shall not be available
(x) to any party whose failure to fulfill any obligation
under this Agreement has been a principal cause of or resulted
in the failure to obtain such requisite vote or (y) to
Larscom, if the failure to obtain such requisite vote has been
caused by a breach of the Larscom Voting Agreement by any party
thereto other than Verilink);
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(f) by Larscom, if: (i) the Verilink
Board shall have failed to give its recommendation to the
approval of the Verilink Voting Proposal in the Joint Proxy
Statement/Prospectus or shall have withdrawn or modified in a
manner adverse to Larscom its recommendation of the Verilink
Voting Proposal; (ii) the Verilink Board (or any committee
thereof) shall have approved or recommended to the stockholders
of Verilink an Acquisition Proposal; (iii) a tender offer
or exchange offer for outstanding shares of Verilink Common
Stock is commenced, and the Verilink Board fails to reconfirm
its recommendation of this Agreement or the Merger within 10
business days after its receipt of a request by Larscom to do so
following the public announcement of an Acquisition Transaction;
or (iv) Verilink shall have materially breached its
obligations under Section 6.1 or Section 6.5 of this
Agreement;
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(g) by Verilink, if: (i) the Larscom
Board shall have failed to give its recommendation to the
approval of the Larscom Voting Proposal in the Joint Proxy
Statement/Prospectus or shall have withdrawn or modified in a
manner adverse to Verilink its recommendation of the Larscom
Voting Proposal; (ii) the Larscom Board (or any committee
thereof) shall have approved or recommended to the stockholders
of Larscom an Acquisition Proposal; (iii) a tender offer or
exchange offer for outstanding shares of Larscom Common Stock is
commenced, and the Larscom Board (or any committee thereof)
(A) recommends that the stockholders of Larscom tender
their shares in such tender or exchange offer, (B) within
10 business days after the commencement of such tender or
exchange offer, the Larscom Board fails to recommend rejection
of such offer, or (C) the Larscom Board fails to reconfirm
its recommendation of this Agreement or the Merger within 10
business days after its receipt of a request by Verilink to do
so following the public announcement of an Acquisition
Transaction; or (iv) Larscom shall have materially breached
its obligations under Section 6.1 or Section 6.5 of
this Agreement;
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(h) by Larscom, if at anytime prior to the
Larscom Meeting (i) the Larscom Board shall have failed to
give its recommendation to the approval of the Larscom Voting
Proposal in the Joint Proxy Statement/Prospectus or shall have
withdrawn or modified in a manner adverse to Verilink its
recommendation of the Larscom Voting Proposal or (ii) the
Larscom Board (or any committee thereof) shall have approved or
recommended to the stockholders of Larscom an Acquisition
Proposal, so long as (A) the Larscom Board has determined
in good faith, after consultation with outside and independent
legal and financial advisors, that an Acquisition Proposal is a
Superior Proposal (and the Acquisition Proposal did not result
from a breach of Section 6.1) and, after consultation with
independent legal counsel, determines in good faith that such
action is required for the Larscom Board to comply with its
fiduciary obligations to stockholders under applicable law and
(B) Larscom pays to Verilink all amounts due under
Section 8.3;
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(i) by Verilink, if at anytime prior to the
Verilink Meeting (i) the Verilink Board shall have failed
to give its recommendation to the approval of the Verilink
Voting Proposal in the Joint Proxy Statement/Prospectus or shall
have withdrawn or modified in a manner adverse to Larscom its
recommendation of the Verilink Voting Proposal or (ii) the
Verilink Board (or any committee
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thereof) shall have approved or recommended to
the stockholders of Verilink an Acquisition Proposal, so long as
(A) the Verilink Board has determined in good faith, after
consultation with outside and independent legal and financial
advisors, that an Acquisition Proposal is a Superior Proposal
(and the Acquisition Proposal did not result from a breach of
Section 6.1) and, after consultation with independent legal
counsel, determines in good faith that such action is required
for the Verilink Board to comply with its fiduciary obligations
to stockholders under applicable law and (B) Verilink pays
to Larscom all amounts due under Section 8.3;
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(j) [Reserved];
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(k) by Larscom, if there has been a breach
of or failure to perform any representation, warranty, covenant
or agreement on the part of Verilink set forth in this Agreement
or if any such representation or warranty shall be untrue as of
the date of this Agreement or shall have become untrue as of a
date subsequent to the date of this Agreement (as if made on
such subsequent date), which breach or failure (i) would
cause the conditions set forth in Section 7.2(a) or
(b) not to be satisfied as of the time of such breach or
failure or as of the time any such representation or warranty
shall have become untrue, and (ii) shall not have been
cured within 20 days following receipt by Verilink of
written notice of such breach from Larscom (it being agreed that
Larscom may not terminate this Agreement pursuant to this
paragraph (k) if it shall be in material breach of
this Agreement or if such breach by Verilink is cured during
such 20 day period); or
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(l) by Verilink, if there has been a breach
of or failure to perform any representation, warranty, covenant
or agreement on the part of Larscom set forth in this Agreement
or if any such representation or warranty shall be untrue as of
the date of this Agreement or shall have become untrue as of a
date subsequent to the date of this Agreement (as if made on
such subsequent date), which breach or failure (i) would
cause the conditions set forth in Section 7.3(a) or
(b) not to be satisfied as of the time of such breach or
failure or as of the time any such representation or warranty
shall have become untrue, and (ii) shall not have been
cured within 20 days following receipt by Larscom of
written notice of such breach from Verilink (it being agreed
that Verilink may not terminate this Agreement pursuant to this
paragraph (l) if it shall be in material breach of
this Agreement or if such breach by Larscom is cured during such
20 day period).
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8.2
Effect
of Termination.
In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall
immediately become void and there shall be no liability or
obligation on the part of Larscom, Verilink, the Merger Sub or
their respective officers, directors, stockholders or
Affiliates, provided that (i) any such termination shall
not relieve any party from liability for any willful or
intentional misrepresentation or breach of this Agreement, and
(ii) the provisions of this Section 8.2,
Section 8.3 and Article IX of this Agreement and the
Confidentiality Agreement shall remain in full force and effect
and survive any termination of this Agreement.
8.3
Fees
and Expenses.
(a) Except as set forth in this
Section 8.3, all fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such fees and expenses,
whether or not the Merger is consummated; provided, however,
that Verilink and Larscom shall share equally (i) the
aggregate filing fees of both parties pre-merger
notification report under the HSR Act, if applicable, and
(ii) all fees and expenses, other than accountants
and attorneys fees, incurred with respect to the printing
and filing of the Joint Proxy Statement/Prospectus (including
any related preliminary materials) and the Registration
Statement and any amendments or supplements thereto.
(b) Larscom shall pay Verilink a termination
fee of $1,000,000 plus an amount equal to the aggregate amount
of all fees and expenses (including all financial advisory fees,
investment banking fees, attorneys fees and filing and
mailing fees) that have been paid or that may become payable by
or on behalf of Verilink in connection with the preparation and
negotiation of this Agreement and otherwise in connection with
the Merger (collectively, and excluding the termination fee,
Verilink Expenses), not to exceed $1,200,000 in the
aggregate, in the event of the termination of this Agreement
(i) by Verilink or
A-55
Larscom pursuant to Section 8.1(e),
(ii) by Verilink pursuant to Section 8.1(g) or
(iii) by Larscom pursuant to Section 8.1(h). The
termination fees due under this Section 8.3(b) shall be
paid by wire transfer of same-day funds (A) within two
business days after the date of termination of this Agreement
pursuant to Section 8.1(e) or Section 8.1(g) and
(B) prior to the date of termination of this Agreement
pursuant to Section 8.1(h).
(c) If this Agreement is terminated pursuant
to Section 8.1(b) or (k) and at or prior to the time
of termination of this Agreement an Acquisition Proposal for
Larscom shall have been disclosed, announced, commenced,
submitted or made, then Larscom shall make a non-refundable cash
payment to Verilink, within two business days of Verilinks
invoice, in an amount equal to the Verilink Expenses, and if
Larscom shall consummate within 12 months of such
termination an Acquisition Transaction that was first disclosed,
announced, commenced, submitted or made prior to termination or
within 60 days after termination, then Larscom shall prior
to the date of such consummation pay Verilink an additional
$1,000,000 provided that the aggregate of all such payments by
Larscom to Verilink pursuant to this Section 8.3(c) shall
not exceed $1,200,000.
(d) Verilink shall pay Larscom a termination
fee of $1,000,000 plus an amount equal to the aggregate amount
of all fees and expenses (including all financial advisory fees,
investment banking fees, attorneys fees and filing and
mailing fees) that have been paid or that may become payable by
or on behalf of Larscom in connection with the preparation and
negotiation of this Agreement and otherwise in connection with
the Merger (collectively, and excluding the termination fee,
Larscom Expenses), not to exceed $1,200,000 in the
aggregate, in the event of the termination of this Agreement
(i) by Verilink pursuant to Section 8.1(i) or
(ii) by Larscom pursuant to Section 8.1(f). The
termination fees due under this Section 8.3(d) shall be
paid by wire transfer of same-day funds within two business days
after the date of termination of this Agreement pursuant to
Section 8.1(i) or Section 8.1(f).
(e) If this Agreement is terminated pursuant
to Section 8.1(b) and at or prior to the time of
termination of this Agreement an Acquisition Proposal for
Verilink shall have been disclosed, announced, commenced,
submitted or made and if Verilink shall consummate within
12 months of such termination an Acquisition Transaction
that was first disclosed, announced, commenced, submitted or
made prior to termination or within 60 days after
termination, then Verilink shall prior to the date of such
consummation pay Larscom a fee of $1,000,000 plus the Larscom
Expenses provided that the aggregate of all such payments by
Larscom to Verilink pursuant to this Section 8.3(e) shall
not exceed $1,200,000.
(f) For purposes of this Agreement,
Acquisition Transaction shall mean any of the
following transactions (other than the transaction contemplated
by this Agreement): (i) a sale or other disposition by
Larscom or Verilink of business or assets representing more than
50% of its net revenues, net income or assets immediately prior
to such sale; (ii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or
issuance by Larscom or Verilink), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership
of more than 50% of the outstanding voting power or equity
interest in Larscom or Verilink; or (iii) a merger,
consolidation, business combination or similar transaction
involving Larscom or Verilink in which the stockholders of
Larscom or Verilink, as the case may be, own less than a
majority of the voting power or equity interest in the surviving
or acquiring entity in such transaction.
(g) The parties acknowledge that the
agreements contained in this Section 8.3 are an integral
part of the transactions contemplated by this Agreement, and
that, without these agreements, the parties would not enter into
this Agreement. If one party fails to promptly pay to the other
any termination fee due hereunder, the defaulting party shall
pay the costs and expenses (including legal fees and expenses)
in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment,
together with interest on the amount of any unpaid fee at the
publicly announced prime rate of Citibank, N.A., plus two
percent per annum, compounded quarterly, from the date such
termination fee was required to be paid. Payment of the
termination fee described in this Section 8.3 shall not be
in lieu of damages incurred in the event of a breach of this
Agreement described in clause (i) of Section 8.2.
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8.4
Amendment.
This Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at
any time before or after approval of the matters presented in
connection with the Merger by the stockholders of any of the
parties; provided, however, that after any such approval, no
amendment shall be made which by applicable law requires further
approval by such stockholders without such further approval; and
provided, further, that an amendment made subsequent to adoption
of the Agreement by the stockholders of Verilink or Larscom
without such further approval shall not (a) alter or change
the amount or kind of consideration to be received upon
conversion of the Larscom Common Stock, or (b) alter or
change any of the terms and conditions of the Agreement if such
alteration or change would adversely affect the stockholders of
Verilink or Larscom. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties
hereto.
8.5
Extension;
Waiver.
At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf
of such party. No extension or waiver in any one instance shall
be deemed to extend to any prior or subsequent instance. The
failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
ARTICLE IX
MISCELLANEOUS
9.1
Nonsurvival
of Representations and Warranties.
The respective
representations and warranties of Verilink, the Merger Sub and
Larscom contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall expire with, and be
terminated and extinguished upon, the Effective Time and only
the covenants that by their terms survive the Effective Time
shall survive the Effective Time. This Section 9.1 shall
have no effect upon any other obligations of the parties hereto,
whether to be performed before or after the consummation of the
Merger.
9.2
Notices.
All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered (a) four
business days after being sent by registered or certified mail,
return receipt requested, postage prepaid, or (b) one
business day after being sent for next business day delivery,
fees prepaid, via a reputable nationwide overnight courier
service or (c) if delivered by facsimile transmission to
the facsimile number as provided for in this Section 9.2,
be deemed given upon facsimile confirmation during business
hours or if after business hours, then one business day after
facsimile confirmation, in each case to the intended recipient
as set forth below:
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Larscom Incorporated
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1845 McCandless Drive
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Milpitas, California 95035
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Attn: Chief Executive Officer
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with a copy to:
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Cooley Godward LLP
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One Maritime Plaza
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20th Floor
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San Francisco, California 94111
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Attention: Jamie E. Chung, Esq.
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Facsimile No.: (415) 951-3699
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(ii) if to Verilink or the Merger Sub, to
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Verilink Corporation
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127 Jetplex Circle
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Madison, Alabama 35758
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Attn: Chief Executive Officer
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with a copy to:
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Powell, Goldstein, Frazer & Murphy LLP
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191 Peachtree Street
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16th Floor
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Atlanta, Georgia 30303
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Attention: Eliot Robinson, Esq.
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Facsimile No.: (404) 572-6999
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Any party to this Agreement may give any notice
or other communication hereunder using any other means
(including personal delivery, messenger service, telecopy,
telex, ordinary mail or electronic mail), but no such notice or
other communication shall be deemed to have been duly given
unless and until it actually is received by the party for whom
it is intended. Any party to this Agreement may change the
address to which notices and other communications hereunder are
to be delivered by giving the other parties to this Agreement
notice in the manner herein set forth.
9.3
Entire
Agreement.
This Agreement (including the Schedules and
Exhibits hereto and the documents and instruments referred to
herein that are to be delivered at the Closing) constitutes the
entire agreement among the parties to this Agreement and
supersedes any prior understandings, agreements or
representations by or among the parties hereto, or any of them,
written or oral, with respect to the subject matter hereof;
provided that the Confidentiality Agreement shall remain in
effect in accordance with its terms.
9.4
No
Third Party Beneficiaries.
Except as provided in
Section 6.12, this Agreement is not intended, and shall not
be deemed, to confer any rights or remedies upon any person
other than the parties hereto and their respective successors
and permitted assigns, to create any agreement of employment
with any person or to otherwise create any third-party
beneficiary hereto.
9.5
Assignment.
Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned or delegated,
in whole or in part, by operation of law or otherwise by any of
the parties hereto without the prior written consent of the
other parties, and any such assignment without such prior
written consent shall be null and void. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns.
9.6
Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any
other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision
hereof is invalid or unenforceable, the parties hereto agree
that the court making such determination shall have the power to
limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified. In the event such court
does not exercise the power granted to it in the prior sentence,
the parties hereto agree to replace such invalid or
unenforceable term or provision with a valid and enforceable
term or provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or
unenforceable term.
9.7
Counterparts
and Signature.
This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but
all of which together shall be considered one and the same
agreement and shall become effective when counterparts have been
signed by each of the parties hereto
A-58
and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
This Agreement may be executed and delivered by facsimile
transmission.
9.8
Interpretation.
When reference is made in this Agreement to an Article or a
Section, such reference shall be to an Article or Section of
this Agreement, unless otherwise indicated. The table of
contents, table of defined terms and headings contained in this
Agreement are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this
Agreement. The language used in this Agreement shall be deemed
to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be
applied against any party. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural, and vice versa. Any
reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
Whenever the words include, includes or
including are used in this Agreement, they shall be
deemed to be followed by the words without
limitation. No summary of this Agreement prepared by any
party shall affect the meaning or interpretation of this
Agreement. For purposes of this Agreement, (a) the term
knowledge means with respect to a party hereto, with
respect to any matter in question, that any of the executive
officers of such party and the executive officers of each of its
Subsidiaries has actual knowledge of such matter; and
(b) the term person shall mean any individual,
corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership,
joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other
enterprise, association, organization, entity or Governmental
Entity.
9.9
Governing
Law.
This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware
without giving effect to any choice or conflict of law provision
or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of laws of any
jurisdictions other than those of the State of Delaware.
9.10
Consent
to Jurisdiction; Venue.
In any action or proceeding
between any of the parties arising out of or relating to this
Agreement or any of the transactions contemplated by this
Agreement, each of the parties: (a) irrevocably and
unconditionally consents and submits to the exclusive
jurisdiction and venue of the state courts of the State of
Delaware and to the jurisdiction of the United States District
Court for the District of Delaware, and (b) agrees that all
claims in respect of such action or proceeding may be heard and
determined exclusively in any Delaware state or federal court
sitting in the State of Delaware.
9.11
Remedies.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other
remedy. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in
addition to any other remedy to which they are entitled at law
or in equity.
9.12
Waiver
of Jury Trial.
EACH OF LARSCOM, THE MERGER SUB AND
VERILINK HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS
OF LARSCOM, THE MERGER SUB OR VERILINK IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT.
[THE REMAINDER OF THIS PAGE INTENTIONALLY
LEFT BLANK SIGNATURE PAGE FOLLOWS]
A-59
IN WITNESS WHEREOF, each of Larscom, the Merger
Sub and Verilink has caused this Agreement to be signed by their
respective officers thereunto duly authorized as of the date
first written above.
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By:
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/s/ DANIEL L. SCHARRE
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Name: Daniel
L. Scharre
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Title: Chief
Executive Officer
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SRI ACQUISITION CORP.
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Name: Leigh
S. Belden
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Title: President
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VERILINK CORPORATION
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Name: Leigh
S. Belden
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Title: President
and Chief Executive Officer
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[Signature page to Merger Agreement]
A-60
ANNEX A1
VOTING AGREEMENT
THIS VOTING AGREEMENT (this
Agreement) is made as of the 28th day of April,
2004, by and between Verilink Corporation, a Delaware
corporation (Verilink), and the stockholders listed
on the signature pages hereto (the Stockholders, and
each a Stockholder).
WHEREAS, the Stockholders own the number of
shares and class or series of capital stock of Larscom
Incorporated, a Delaware corporation (Larscom), set
forth opposite each Stockholders name on Schedule 1
hereto (all of such shares now owned and any additional shares
of capital stock of Larscom which may hereafter be acquired by a
Stockholder from any source prior to the termination of this
Agreement, the Larscom Shares); and
WHEREAS, Larscom, Verilink and Landspeed
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Verilink (the Merger Sub), have
entered into that certain Agreement and Plan of Merger of even
date herewith (the Merger Agreement) pursuant to
which the Merger Sub will merge with and into Larscom (the
Merger) with Larscom as the surviving corporation
(capitalized terms used and not defined herein have the
respective meaning ascribed to them in the Merger
Agreement); and
WHEREAS, as an inducement and a condition to
entering into the Merger Agreement, Verilink has required that
the Stockholders agree, and the Stockholders have agreed, to
enter into this Agreement.
NOW THEREFORE, THE PARTIES HEREBY AGREE AS
FOLLOWS:
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1.
Definitions.
For purposes of this Agreement, Person shall mean an
individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
Beneficial ownership, beneficially own
and similar terms shall refer to beneficial ownership within the
meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act), and
Rule 13d-3 thereunder.
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2.
Provisions
Concerning the Larscom Shares.
During the period commencing
on the date hereof and continuing until the first to occur of
(a) the Effective Time, (b) termination of the Merger
Agreement in accordance with its terms or (c) the written
agreement of the parties hereto to terminate this Agreement (the
Voting Expiration Date), each Stockholder agrees
that it shall, at any meeting (or any adjournment thereof) of
the holders of Larscom Common Stock, however called, or in
connection with any written consent of the holders of Larscom
Common Stock, vote (or cause to be voted) the Larscom Shares
then held of record or beneficially owned by each such
Stockholder (unless such shares are otherwise voted pursuant to
the proxy granted hereunder), (i) for approval and adoption
of the Larscom Voting Proposal, including the Merger, the Merger
Agreement and the transactions contemplated thereby,
(ii) against any action or agreement that could reasonably
be expected to result in a breach in any material respect of any
covenant, representation or warranty or any other obligation of
Larscom under the Merger Agreement, or could reasonably be
expected to result in any of the conditions set forth in
Article VII of the Merger Agreement not being fulfilled,
(iii) against any Acquisition Proposal other than the
Merger, the Merger Agreement and transactions contemplated
thereby, and (iv) against (A) any other extraordinary
corporate transaction other than the Merger, the Merger
Agreement and the transactions contemplated thereby, such as a
merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving Larscom or any of its
Subsidiaries or (B) any other proposal or transaction not
covered by the foregoing which is intended, or could be
reasonably be expected to, impede, frustrate, prevent, hinder,
delay or nullify the Merger, the Merger Agreement and the
transactions contemplated thereby. Each Stockholder agrees not
to enter into any agreement or understanding with any Person the
effect of which would be inconsistent with or violative of the
provisions and agreements contained in this Section 2.
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Each Stockholder, in furtherance of the
transactions contemplated hereby and by the Merger Agreement,
and in order to secure the performance of such
Stockholders duties under this
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A1-1
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Agreement, shall concurrently with the execution
of this Agreement execute and deliver to Verilink an irrevocable
proxy in the form of Exhibit A hereto, and irrevocably
appoints Verilink or its designees, with full power of
substitution, its attorney, agent and proxy to vote (or cause to
be voted) or, if applicable, to give consent with respect to,
all of the Larscom Shares in the manner, and with respect to the
matters, set forth above. Each Stockholder acknowledges that the
proxy executed and delivered by it shall be coupled with an
interest, shall constitute, among other things, an inducement
for Verilink to enter into the Merger Agreement, shall be
irrevocable and binding on any successor in interest of such
Stockholder and shall not be terminated by operation of law upon
the occurrence of any event. Such proxy shall operate to revoke
and render void any prior proxy as to any of the Larscom Shares
heretofore granted by the Stockholders. Such proxy shall
terminate upon the Voting Expiration Date. Each Stockholder
shall promptly cause to be delivered to Verilink an additional
proxy substantially in the form attached hereto as
Exhibit A executed on behalf of the record owner of any
outstanding shares of Larscom Common Stock that such Stockholder
owned beneficially (but not of record).
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3.
Covenants,
Representations and Warranties of Stockholder.
Each
Stockholder, severally and not jointly, hereby represents and
warrants to and agrees with Verilink as follows:
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(a)
Ownership of Larscom Shares.
Stockholder is the record and beneficial owner of the Larscom
Shares set forth on Schedule 1 hereto. On the date hereof,
the Larscom Shares constitute all of the capital stock of
Larscom that Stockholder has the right to vote with respect to
the Larscom Voting Proposal. Stockholder has sole voting power,
sole power of disposition, sole power of conversion, sole power
to demand appraisal or dissenters rights and sole power to
agree to all of the matters set forth in this Agreement, in each
case with respect to all of Stockholders Larscom Shares,
with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of
this Agreement.
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(b)
Power; Binding Agreement.
Stockholder has the legal capacity, power and authority to enter
into and perform all of its obligations under this Agreement.
The execution, delivery and performance of this Agreement by
Stockholder will not violate any other agreement to which
Stockholder is a party including, without limitation, any voting
agreement, proxy arrangement, pledge agreement,
shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by Stockholder and
constitutes a valid and binding agreement of Stockholder,
enforceable against Stockholder in accordance with its terms.
There is no beneficiary or holder of a voting trust certificate
or other interest of any trust of which Stockholder is a trustee
whose consent is required for the execution and delivery of this
Agreement or the consummation by Stockholder of the transactions
contemplated hereby.
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(c)
No Conflicts.
None of the
execution and delivery of this Agreement by Stockholder, the
consummation by Stockholder of the transactions contemplated
hereby or compliance by Stockholder with any of the provisions
hereof will (i) conflict with or result in any breach of
any applicable organizational documents applicable to
Stockholder, (ii) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination,
cancellation, modification or acceleration (herein collectively,
a Default)) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage,
indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of
any kind to which Stockholder is a party or by which Stockholder
or any of its properties or assets may be bound,
(iii) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to
Stockholder or any of its properties or assets or
(iv) require any filing with, authorization, consent or
approval of (herein collectively, a Consent), any
state or federal authority; which Default or violation or the
failure to obtain any Consent, in the case of clauses (ii),
(iii) and (iv) above, would have a material adverse
effect on the ability of Stockholder to perform
Stockholders obligations hereunder.
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A1-2
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(d)
No Encumbrances.
The Larscom
Shares and the certificates representing such Larscom Shares are
now, and at all times during the term hereof will be, held by
Stockholder, or by a nominee or custodian for the benefit of
Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for
any such encumbrances or proxies arising hereunder.
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(e)
No Solicitation or Negotiation.
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(i) During the term of this Agreement,
Stockholder shall not, and shall cause its Representatives not
to on Stockholders behalf, in both cases in
Stockholders capacity as a Stockholder of Larscom,
directly or indirectly, (A) solicit, initiate, knowingly
encourage or take any other action to facilitate any inquiries
or the making, submission or announcement of any proposal or
offer that constitutes, or could reasonably be expected to lead
to, any Acquisition Proposal, with respect to Larscom,
(B) enter into, continue or otherwise participate in any
discussions or negotiations regarding, furnish to any Person any
information with respect to, knowingly assist or participate in
any effort or attempt by any Person with respect to, or
otherwise knowingly cooperate in any way with any proposal or
offer that constitutes, or could reasonably be expected to lead
to, any Acquisition Proposal with respect to Larscom, except
discussions as to the existence of these provisions,
(C) approve, endorse or recommend any Acquisition Proposal
with respect to Larscom or (D) enter into any letter of
intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any
Acquisition Proposal or transaction contemplated thereby with
respect to Larscom.
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(ii) Stockholder shall immediately advise
Verilink orally, with written confirmation to follow within
48 hours, of any Acquisition Proposal with respect to
Larscom or any request for nonpublic information in connection
with any such Acquisition Proposal, or of any inquiry with
respect to, or that could reasonably be expected to lead to, any
Acquisition Proposal with respect to Larscom, the material terms
and conditions of any such Acquisition Proposal or inquiry and
the identity of the Person making any such Acquisition Proposal
or inquiry.
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(f)
Non-Interference.
During the term
of this Agreement, Stockholder shall not, directly or
indirectly, take any action that would knowingly take any
representation or warranty of Stockholder contained herein
untrue or incorrect or have the effect of preventing or
disabling Stockholder from performing its obligations under this
Agreement.
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(g)
Reliance by Verilink.
Stockholder
understands and acknowledges that Verilink is entering into the
Merger Agreement in reliance upon Stockholders execution
and delivery of this Agreement.
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(h)
Transfer of Title.
During the
term of this Agreement, Stockholder covenants and agrees not to
directly or indirectly sell, assign, pledge, hypothecate,
transfer, exchange, convert or dispose of (collectively
Transfer), or enter into any contract, option or
other arrangement with respect to the Transfer of, any of the
Larscom Shares, any options or warrants to purchase capital
stock of Larscom or any interest therein or deposit any of the
Larscom Shares into a voting trust or enter into a voting trust
agreement or arrangement with respect to the Larscom Shares, or
take any other action with respect to the Larscom Shares, or
otherwise permit or authorize any of the foregoing actions,
other than pursuant to the Merger Agreement or this Agreement.
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(i)
Waiver of Appraisal Rights.
Stockholder hereby irrevocably and unconditionally waives, and
agrees to cause to be waived and to prevent the exercise of, any
rights of appraisal, any dissenters rights and any similar
rights relating to the Merger or any related transaction that
Stockholder or any other Person may have by virtue of
Stockholders beneficial or record ownership of any shares
of Larscom Common Stock. This waiver does not affect
Stockholders appraisal or dissenters rights with
respect to any other transaction.
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A1-3
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4.
Further
Assurances.
From time to time, at Verilinks request
and without further consideration, each Stockholder shall
execute and deliver such additional documents and take all such
further lawful action as may be reasonably necessary or
desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by
this Agreement.
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5.
Stop
Transfer.
During the term of this Agreement, each
Stockholder hereby agrees and consents to the entry of stop
transfer instructions with Larscoms transfer agent against
the transfer of any Larscom Shares, consistent with the terms of
Section 3(h). During the term of this Agreement, each
Stockholder further agrees that it shall not request that
Larscom or any other Person register the transfer (by book-entry
or otherwise) of any certificate or uncertificated interest
representing any of such Stockholders Larscom Shares,
unless such transfer is made in compliance with this Agreement
and unless the transferee agrees in writing, in form and
substance satisfactory to Verilink, to be bound by the
provisions hereof for the benefit of Verilink.
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6.
Standstill.
During the term of this Agreement and except as contemplated by
the Merger Agreement, each Stockholder shall not, nor shall such
Stockholder permit any of its Representatives on
Stockholders behalf, in both cases in such
Stockholders capacity as a stockholder of Larscom, in any
manner, directly or indirectly, to effect, or seek, offer, or
propose (whether publicly or otherwise) to effect, or cause or
participate in any acquisition of (a) any securities (or
beneficial ownership thereof) of Verilink or Larscom or
(b) any direct or indirect rights or options to acquire any
capital stock of Verilink or Larscom, (c) any merger,
consolidation, tender or exchange offer, or other business
combination involving Verilink or Larscom.
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7.
Termination.
This Agreement shall terminate upon the Voting Expiration Date.
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8.
Confidentiality.
Each Stockholder recognizes that successful consummation of the
transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to
herein. In this connection, pending public disclosure thereof,
each Stockholder agrees that such Stockholder shall not, and
shall cause its Representatives not to, disclose or discuss such
matters with anyone not a party to this Agreement (other than
Stockholders and Larscoms Representatives) without
the prior written consent of Verilink, except for disclosures
which Stockholders counsel advises are necessary in order
to fulfill such Stockholders obligations imposed by law,
in which event Stockholder shall give prior notice of such
disclosure to Verilink as promptly as practicable and in any
event prior to the time any such disclosure is made.
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9.
No
Ownership Interest.
Nothing contained in this Agreement
shall be deemed to vest in Verilink any direct or indirect
ownership or incidence of ownership of or with respect to any
Larscom Shares. All rights, ownership and economic benefits of
and relating to the Larscom Shares shall remain vested in and
belong to the Stockholders, and Verilink shall have no authority
to manage, direct, superintend, restrict, regulate, govern, or
administer any of the policies or operations of Larscom or
exercise any power or authority to direct the Stockholders in
the voting of any of the Larscom Shares, except as otherwise
provided herein.
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10.
No Group.
Each Stockholder is acting individually and not as part of a
group as defined in the Exchange Act, except that
the Stockholders identified on the signature pages hereof as SV
entities are members of a group consisting of the SV entities,
and the Stockholders identified on the signature pages hereof as
AJ Entities are members of a group consisting of the AJ entities.
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11.
Miscellaneous.
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(a)
Entire Agreement.
This Agreement
and the proxy contains the entire understanding of the parties
with respect to the matters covered herein and supersedes all
prior agreements and understandings, written or oral, between
the parties relating to the subject matter hereof.
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(b)
Binding Agreement.
This Agreement
and the obligations hereunder shall attach to the Larscom Shares
and shall be binding upon any Person to which record or
beneficial ownership of such Larscom Shares shall pass, whether
by operation of law or otherwise. Notwithstanding any transfer of
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A1-4
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Larscom Shares, the transferor shall remain
liable for the performance of all obligations under this
Agreement of the transferor.
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(c)
Assignment.
This Agreement shall
not be assignable by operation of law or otherwise without the
prior written consent of the other parties.
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(d)
Amendments, Waivers, Etc.
This
Agreement may not be amended, changed, supplemented, waived or
otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
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(e)
Notices.
Unless otherwise
provided, any notice, request, demand or other communication
required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon delivery to
the party to be notified when sent by telecopier (with receipt
confirmed), or overnight courier service, or upon deposit with
the United States Post Office, by registered or certified mail,
postage prepaid and addressed as follows (or at such other
address as a party may designate by notice to the other):
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If to Verilink:
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Verilink Corporation
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127 Jetplex Circle
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Madison, AL 35758-8989
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Attn: Chief Executive Officer
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with a copy to:
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Powell, Goldstein, Frazer & Murphy LLP
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191 Peachtree Street
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16th Floor
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Atlanta, Georgia 30303
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Attention: Eliot Robinson, Esq.
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Facsimile No.: (404) 572-6999
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If to the Stockholders:
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To the addresses set forth on the signature pages
hereto.
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(f)
Severability.
If one or more
provisions of this Agreement are held to be unenforceable,
invalid or void by a court of competent jurisdiction, such
provision shall be excluded from this Agreement and the balance
of this Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its
terms.
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(g)
Specific Performance.
Each of the
parties hereto recognizes and acknowledges that a breach by it
of any covenants or agreements contained in this Agreement will
cause the other party to sustain damages for which it would not
have an adequate remedy at law for money damages, and,
therefore, in the event of any such breach, the aggrieved party
shall be entitled to the remedy of specific performance of such
covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be
entitled, at law or in equity.
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(h)
Remedies Cumulative.
All rights,
powers and remedies provided under this Agreement or otherwise
available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any right,
power or remedy by any party shall not preclude the simultaneous
or later exercise of any other right, power or remedy by such
party.
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(i)
No Waiver.
The observance of any
term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively)
only with the written consent of the party against whom such
waiver is sought to be enforced. No waiver by either party of
any default with respect to any provision, condition or
requirement hereof shall be deemed to be a continuing waiver in
the future thereof or a waiver of any other provision, condition
or requirement hereof; nor
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shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
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(j)
No Third Party Beneficiaries.
This Agreement is not intended to be for the benefit of, and
shall not be enforceable by, any Person that is not a party
hereto.
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(k)
Several Obligations; Capacity.
Notwithstanding anything herein to the contrary, (i) the
representations, warranties, covenants, agreements and
conditions of this Agreement applicable to the Stockholders are
several and not joint, (ii) the covenants and agreements of
the Stockholders under this Agreement shall not require the
Representatives of any Stockholder to act (or refrain from
acting) in their capacity as an officer or director of Larscom
and shall not affect the duties and obligations of any
Representative of Stockholder acting in his or her capacity as
an officer or director of Larscom and (iii) no action or
failure to take action by any of Stockholders
Representatives in their capacity as an officer or director of
Larscom shall be deemed to be an action taken by such
Stockholder in its capacity as a stockholder of Larscom.
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(l)
Governing Law.
This Agreement
shall be governed and construed in accordance with the laws of
the State of Delaware, without giving effect to the principles
of conflicts of law thereof.
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(m)
Titles and Subtitles.
The titles
and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting
this Agreement. Any reference in this Agreement to a statutory
provision or rule or regulation promulgated thereunder shall be
deemed to include any similar successor statutory provision or
rule or regulation promulgated thereunder.
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(n)
Counterparts.
This Agreement may
be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
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[Signature Pages Attached On Following Pages]
A1-6
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above written.
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Title:
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President and Chief Executive Officer
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STOCKHOLDERS:
AXEL JOHNSON, INC.
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By:
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/s/ DESMOND P. WILSON III
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Name: Desmond
P. Wilson III
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Title: Managing
Director
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Address:
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300 Atlantic Street
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Stamford,
CT 06901-3530
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Tel:
(203) 326-5258
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Fax:
(203) 326-5282
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SIERRA VENTURES V, L.P.
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By:
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/s/ JEFFREY M. DRAZAN
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Name: Jeffrey
M. Drazan
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Title: General
Partner
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Address:
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2884 Sand Hill Road
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Suite 100
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Menlo
Park, CA 94025
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Tel:
(650) 854-1000
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Fax:
(650) 854-5593
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A1-7
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By:
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/s/ JEFFREY M. DRAZAN
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Address:
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2884 Sand Hill Road
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Suite 100
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Menlo Park, CA 94025
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Tel: (650) 854-1000
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Fax: (650) 854-5593
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By:
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/s/ JEFFREY M. DRAZAN
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Address:
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2884 Sand Hill Road
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Suite 100
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Menlo Park, CA 94025
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Tel: (650) 854-1000
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Fax: (650) 854-5593
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A1-8
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By:
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/s/ JEFFREY M. DRAZAN
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Address:
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2884 Sand Hill Road
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Suite 100
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Menlo Park, CA 94025
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Tel: (650) 854-1000
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Fax: (650) 854-5593
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SIERRA VENTURES VII, L.P.
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By:
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/s/ JEFFREY M. DRAZAN
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Address:
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2884 Sand Hill Road
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Suite 100
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Menlo Park, CA 94025
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Tel: (650) 854-1000
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Fax: (650) 854-5593
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SIERRA VENTURES ASSOCIATES VII, LLC
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as nominee for its members
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By:
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/s/ JEFFREY M. DRAZAN
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Address:
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2884 Sand Hill Road
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Suite 100
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Menlo Park, CA 94025
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Tel: (650) 854-1000
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Fax: (650) 854-5593
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A1-9
EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties
of the undersigned pursuant to the Voting Agreement, dated as of
April , 2004 (the
Voting Agreement), between the undersigned and
Verilink Corporation, a Delaware corporation, a copy of such
agreement being attached hereto and incorporated by reference
herein, the undersigned hereby irrevocably appoints Leigh S.
Belden and C.W. Smith, and each of them, as the sole and
exclusive attorneys, agents and proxies, with full power of
substitution in each of them, for the undersigned, and in the
name, place and stead of the undersigned, to vote (or cause to
be voted), and exercise all voting and related rights or, if
applicable, to give consent, in such manner as each such
attorney, agent and proxy or his/her substitute shall in his/her
sole discretion deem proper to record such vote (or consent) in
the manner, and with respect to the matters, set forth in
Section 2 of the Voting Agreement with respect to all of
the Larscom Shares (as such term is defined in the Voting
Agreement) of Larscom Incorporated, a Delaware corporation
(Larscom), which the undersigned is or may be
entitled to vote at any meeting of Larscom held after the date
hereof, whether annual or special and whether or not an
adjourned meeting, or, if applicable, to give written consent
with respect thereto. The Stockholder may vote the Larscom
Shares on all matters not referred to in this proxy and the
attorneys, agents and proxies named above may not exercise this
proxy with respect to such other matters. This proxy is coupled
with an interest, shall be irrevocable and binding on any
successor in interest of the undersigned and shall not be
terminated by operation of law upon the occurrence of any event,
including, without limitation, the death or incapacity of the
undersigned. This proxy shall operate to revoke and render void
any prior proxy as to the Larscom Shares heretofore granted by
the undersigned, and the undersigned agrees that no subsequent
proxies will be given by the undersigned with respect to any of
the Larscom Shares. This proxy shall terminate upon the
termination of the Voting Agreement. If any provision of this
proxy or any part of such provision is held to be invalid or
unenforceable in any circumstances and in any jurisdiction, then
(a) such provision or part thereof shall, with respect to
such circumstance and jurisdiction, be deemed amended to conform
to applicable law so as to be valid and enforceable to the
fullest extent possible, and (b) the invalidity or
unenforceability of such provision or part of a provision under
such circumstances and in such jurisdiction shall not affect the
validity or enforceability (i) of such provision or part
thereof under any other circumstance or in any other
jurisdiction, (ii) of the remainder of such provision or
(iii) of any other provision of this proxy.
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By:
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Name:
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Title:
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Dated: ________________________________________________________________________ , 2004
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A1-10
ANNEX A2
VOTING AGREEMENT
THIS VOTING AGREEMENT (this
Agreement) is made as of the 28th day of April,
2004, by and between Larscom Incorporated, a Delaware
corporation (Larscom), and the stockholders listed
on the signature pages hereto (the Stockholders, and
each a Stockholder).
WHEREAS, the Stockholders own the number of
shares and class or series of capital stock of Verilink
Corporation, a Delaware corporation (Verilink), set
forth opposite each Stockholders name on Schedule 1
hereto (all of such shares now owned and any additional shares
of capital stock of Larscom which may hereafter be acquired by a
Stockholder from any source prior to the termination of this
Agreement, the Verilink Shares); and
WHEREAS, Larscom, Verilink and Larscom
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Verilink (the Merger Sub), have
entered into that certain Agreement and Plan of Merger of even
date herewith (the Merger Agreement) pursuant to
which the Merger Sub will merge with and into Larscom (the
Merger) with Larscom as the surviving corporation
(capitalized terms used and not defined herein have the
respective meaning ascribed to them in the Merger
Agreement); and
WHEREAS, as an inducement and a condition to
entering into the Merger Agreement, Larscom has required that
the Stockholders agree, and the Stockholders have agreed, to
enter into this Agreement.
NOW THEREFORE, THE PARTIES HEREBY AGREE AS
FOLLOWS:
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1.
Definitions.
For purposes of this Agreement, Person shall mean an
individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
Beneficial ownership, beneficially own
and similar terms shall refer to beneficial ownership within the
meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act), and
Rule 13d-3 thereunder.
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2.
Provisions
Concerning the Verilink Shares.
During the period commencing
on the date hereof and continuing until the first to occur of
(a) the Effective Time, (b) termination of the Merger
Agreement in accordance with its terms or (c) the written
agreement of the parties hereto to terminate this Agreement (the
Voting Expiration Date), each Stockholder agrees
that it shall, at any meeting (or any adjournment thereof) of
the holders of Verilink Common Stock, however called, or in
connection with any written consent of the holders of Verilink
Common Stock, vote (or cause to be voted) the Verilink Shares
then held of record or beneficially owned by each such
Stockholder (unless such shares are otherwise voted pursuant to
the proxy granted hereunder), (i) for approval and adoption
of the Verilink Voting Proposal, including the Merger, the
Merger Agreement and the transactions contemplated thereby,
(ii) against any action or agreement that could reasonably
be expected to result in a breach in any material respect of any
covenant, representation or warranty or any other obligation of
Verilink under the Merger Agreement, or could reasonably be
expected to result in any of the conditions set forth in
Article VII of the Merger Agreement not being fulfilled,
(iii) against any Acquisition Proposal other than the
Merger, the Merger Agreement and transactions contemplated
thereby, and (iv) against (A) any other extraordinary
corporate transaction other than the Merger, the Merger
Agreement and the transactions contemplated thereby, such as a
merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving Larscom or any of its
Subsidiaries or (B) any other proposal or transaction not
covered by the foregoing which is intended, or could be
reasonably be expected to, impede, frustrate, prevent, hinder,
delay or nullify the Merger, the Merger Agreement and the
transactions contemplated thereby. Each Stockholder agrees not
to enter into any agreement or understanding with any Person the
effect of which would be inconsistent with or violative of the
provisions and agreements contained in this Section 2.
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A2-1
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Each Stockholder, in furtherance of the
transactions contemplated hereby and by the Merger Agreement,
and in order to secure the performance of such
Stockholders duties under this Agreement, shall
concurrently with the execution of this Agreement execute and
deliver to Larscom an irrevocable proxy in the form of
Exhibit A hereto, and irrevocably appoints Larscom or its
designees, with full power of substitution, its attorney, agent
and proxy to vote (or cause to be voted) or, if applicable, to
give consent with respect to, all of the Verilink Shares in the
manner, and with respect to the matters, set forth above. Each
Stockholder acknowledges that the proxy executed and delivered
by it shall be coupled with an interest, shall constitute, among
other things, an inducement for Larscom to enter into the Merger
Agreement, shall be irrevocable and binding on any successor in
interest of such Stockholder and shall not be terminated by
operation of law upon the occurrence of any event. Such proxy
shall operate to revoke and render void any prior proxy as to
any of the Verilink Shares heretofore granted by the
Stockholders. Such proxy shall terminate upon the Voting
Expiration Date. Each Stockholder shall promptly cause to be
delivered to Larscom an additional proxy substantially in the
form attached hereto as Exhibit A executed on behalf of the
record owner of any outstanding shares of Verilink Common Stock
that such Stockholder owned beneficially (but not of record).
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3.
Covenants,
Representations and Warranties of Stockholder.
Each
Stockholder, severally and not jointly, hereby represents and
warrants to and agrees with Larscom as follows:
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(a)
Ownership of Verilink Shares.
Stockholder is the record and beneficial owner of the Verilink
Shares set forth on Schedule 1 hereto. On the date hereof,
the Verilink Shares constitute all of the capital stock of
Verilink that Stockholder has the right to vote with respect to
the Verilink Voting Proposal. Stockholder has sole voting power,
sole power of disposition, sole power of conversion, sole power
to demand appraisal or dissenters rights and sole power to
agree to all of the matters set forth in this Agreement, in each
case with respect to all of Stockholders Verilink Shares,
with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of
this Agreement.
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(b)
Power; Binding Agreement.
Stockholder has the legal capacity, power and authority to enter
into and perform all of its obligations under this Agreement.
The execution, delivery and performance of this Agreement by
Stockholder will not violate any other agreement to which
Stockholder is a party including, without limitation, any voting
agreement, proxy arrangement, pledge agreement,
shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by Stockholder and
constitutes a valid and binding agreement of Stockholder,
enforceable against Stockholder in accordance with its terms.
There is no beneficiary or holder of a voting trust certificate
or other interest of any trust of which Stockholder is a trustee
whose consent is required for the execution and delivery of this
Agreement or the consummation by Stockholder of the transactions
contemplated hereby.
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(c)
No Conflicts.
None of the
execution and delivery of this Agreement by Stockholder, the
consummation by Stockholder of the transactions contemplated
hereby or compliance by Stockholder with any of the provisions
hereof will (i) conflict with or result in any breach of
any applicable organizational documents applicable to
Stockholder, (ii) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination,
cancellation, modification or acceleration (herein collectively,
a Default)) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage,
indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of
any kind to which Stockholder is a party or by which Stockholder
or any of its properties or assets may be bound,
(iii) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to
Stockholder or any of its properties or assets or
(iv) require any filing with, authorization, consent or
approval of (herein collectively, a Consent), any
state or federal authority; which Default or violation or the
failure to obtain any Consent, in the case of clauses (ii),
(iii) and (iv) above, would have a
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A2-2
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material adverse effect on the ability of
Stockholder to perform Stockholders obligations hereunder.
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(d)
No Encumbrances.
The Verilink
Shares and the certificates representing such Verilink Shares
are now, and at all times during the term hereof will be, held
by Stockholder, or by a nominee or custodian for the benefit of
Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for
any such encumbrances or proxies arising hereunder.
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(e)
No Solicitation or Negotiation.
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(i) During the term of this Agreement,
Stockholder shall not, and shall cause its Representatives not
to on Stockholders behalf, in both cases in
Stockholders capacity as a Stockholder of Verilink,
directly or indirectly, (A) solicit, initiate, knowingly
encourage or take any other action to facilitate any inquiries
or the making, submission or announcement of any proposal or
offer that constitutes, or could reasonably be expected to lead
to, any Acquisition Proposal, with respect to Verilink,
(B) enter into, continue or otherwise participate in any
discussions or negotiations regarding, furnish to any Person any
information with respect to, knowingly assist or participate in
any effort or attempt by any Person with respect to, or
otherwise knowingly cooperate in any way with any proposal or
offer that constitutes, or could reasonably be expected to lead
to, any Acquisition Proposal with respect to Verilink, except
discussions as to the existence of these provisions,
(C) approve, endorse or recommend any Acquisition Proposal
with respect to Verilink or (D) enter into any letter of
intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any
Acquisition Proposal or transaction contemplated thereby with
respect to Verilink.
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(ii) Stockholder shall immediately advise
Larscom orally, with written confirmation to follow within
48 hours, of any Acquisition Proposal with respect to
Verilink or any request for nonpublic information in connection
with any such Acquisition Proposal, or of any inquiry with
respect to, or that could reasonably be expected to lead to, any
Acquisition Proposal with respect to Verilink, the material
terms and conditions of any such Acquisition Proposal or inquiry
and the identity of the Person making any such Acquisition
Proposal or inquiry.
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(f)
Non-Interference.
During the term
of this Agreement, Stockholder shall not, directly or
indirectly, take any action that would knowingly take any
representation or warranty of Stockholder contained herein
untrue or incorrect or have the effect of preventing or
disabling Stockholder from performing its obligations under this
Agreement.
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(g)
Reliance by Larscom.
Stockholder
understands and acknowledges that Larscom is entering into the
Merger Agreement in reliance upon Stockholders execution
and delivery of this Agreement.
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(h)
Transfer of Title.
During the
term of this Agreement, Stockholder covenants and agrees not to
directly or indirectly sell, assign, pledge, hypothecate,
transfer, exchange, convert or dispose of (collectively
Transfer), or enter into any contract, option or
other arrangement with respect to the Transfer of, any of the
Verilink Shares, any options or warrants to purchase capital
stock of Verilink or any interest therein or deposit any of the
Verilink Shares into a voting trust or enter into a voting trust
agreement or arrangement with respect to the Verilink Shares, or
take any other action with respect to the Verilink Shares, or
otherwise permit or authorize any of the foregoing actions,
other than pursuant to the Merger Agreement or this Agreement.
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(i)
Waiver of Appraisal Rights.
Stockholder hereby irrevocably and unconditionally waives, and
agrees to cause to be waived and to prevent the exercise of, any
rights of appraisal, any dissenters rights and any similar
rights relating to the Merger or any related transaction that
Stockholder or any other Person may have by virtue of
Stockholders beneficial or record ownership of any shares
of Verilink Common Stock. This waiver does not affect
Stockholders appraisal or dissenters rights with
respect to any other transaction.
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A2-3
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4.
Further
Assurances.
From time to time, at Larscoms request and
without further consideration, each Stockholder shall execute
and deliver such additional documents and take all such further
lawful action as may be reasonably necessary or desirable to
consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
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5.
Stop
Transfer.
During the term of this Agreement, each
Stockholder hereby agrees and consents to the entry of stop
transfer instructions with Verilinks transfer agent
against the transfer of any Verilink Shares, consistent with the
terms of Section 3(h). During the term of this Agreement,
each Stockholder further agrees that it shall not request that
Verilink or any other Person register the transfer (by
book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholders Verilink
Shares, unless such transfer is made in compliance with this
Agreement and unless the transferee agrees in writing, in form
and substance satisfactory to Larscom, to be bound by the
provisions hereof for the benefit of Larscom.
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6.
Standstill.
During the term of this Agreement and except as contemplated by
the Merger Agreement, each Stockholder shall not, nor shall such
Stockholder permit any of its Representatives on
Stockholders behalf, in both cases in such
Stockholders capacity as a stockholder of Verilink, in any
manner, directly or indirectly, to effect, or seek, offer, or
propose (whether publicly or otherwise) to effect, or cause or
participate in any acquisition of (a) any securities (or
beneficial ownership thereof) of Larscom or Verilink or
(b) any direct or indirect rights or options to acquire any
capital stock of Larscom or Verilink, (c) any merger,
consolidation, tender or exchange offer, or other business
combination involving Larscom or Verilink.
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7.
Termination.
This Agreement shall terminate upon the Voting Expiration Date.
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8.
Confidentiality.
Each Stockholder recognizes that successful consummation of the
transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to
herein. In this connection, pending public disclosure thereof,
each Stockholder agrees that such Stockholder shall not, and
shall cause its Representatives not to, disclose or discuss such
matters with anyone not a party to this Agreement (other than
Stockholders and Verilinks Representatives) without
the prior written consent of Larscom, except for disclosures
which Stockholders counsel advises are necessary in order
to fulfill such Stockholders obligations imposed by law,
in which event Stockholder shall give prior notice of such
disclosure to Larscom as promptly as practicable and in any
event prior to the time any such disclosure is made.
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9.
No
Ownership Interest.
Nothing contained in this Agreement
shall be deemed to vest in Larscom any direct or indirect
ownership or incidence of ownership of or with respect to any
Verilink Shares. All rights, ownership and economic benefits of
and relating to the Verilink Shares shall remain vested in and
belong to the Stockholders, and Larscom shall have no authority
to manage, direct, superintend, restrict, regulate, govern, or
administer any of the policies or operations of Verilink or
exercise any power or authority to direct the Stockholders in
the voting of any of the Verilink Shares, except as otherwise
provided herein.
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10.
Miscellaneous.
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(a)
Entire Agreement.
This Agreement
and the proxy contains the entire understanding of the parties
with respect to the matters covered herein and supersedes all
prior agreements and understandings, written or oral, between
the parties relating to the subject matter hereof.
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(b)
Binding Agreement.
This Agreement
and the obligations hereunder shall attach to the Verilink
Shares and shall be binding upon any Person to which record or
beneficial ownership of such Verilink Shares shall pass, whether
by operation of law or otherwise. Notwithstanding any transfer
of Verilink Shares, the transferor shall remain liable for the
performance of all obligations under this Agreement of the
transferor.
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(c)
Assignment.
This Agreement shall
not be assignable by operation of law or otherwise without the
prior written consent of the other parties.
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A2-4
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(d)
Amendments, Waivers, Etc.
This
Agreement may not be amended, changed, supplemented, waived or
otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
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(e)
Notices.
Unless otherwise
provided, any notice, request, demand or other communication
required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon delivery to
the party to be notified when sent by telecopier (with receipt
confirmed), or overnight courier service, or upon deposit with
the United States Post Office, by registered or certified mail,
postage prepaid and addressed as follows (or at such other
address as a party may designate by notice to the other):
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If to Larscom:
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Larscom Incorporated
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1845 McCandless Drive
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Milpitas, California 95035
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Attn: Chief Executive Officer
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with a copy to:
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Cooley Godward LLP
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One Maritime Plaza
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20th Floor
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San Francisco, California 94111
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Attention: Jamie E. Chung, Esq.
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Facsimile No.: (415) 951-3699
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If to the Stockholders:
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To the addresses set forth on the signature pages
hereto.
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(f)
Severability.
If one or more
provisions of this Agreement are held to be unenforceable,
invalid or void by a court of competent jurisdiction, such
provision shall be excluded from this Agreement and the balance
of this Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its
terms.
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(g)
Specific Performance.
Each of the
parties hereto recognizes and acknowledges that a breach by it
of any covenants or agreements contained in this Agreement will
cause the other party to sustain damages for which it would not
have an adequate remedy at law for money damages, and,
therefore, in the event of any such breach, the aggrieved party
shall be entitled to the remedy of specific performance of such
covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be
entitled, at law or in equity.
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(h)
Remedies Cumulative.
All rights,
powers and remedies provided under this Agreement or otherwise
available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any right,
power or remedy by any party shall not preclude the simultaneous
or later exercise of any other right, power or remedy by such
party.
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(i)
No Waiver.
The observance of any
term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively)
only with the written consent of the party against whom such
waiver is sought to be enforced. No waiver by either party of
any default with respect to any provision, condition or
requirement hereof shall be deemed to be a continuing waiver in
the future thereof or a waiver of any other provision, condition
or requirement hereof; nor shall any delay or omission of either
party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
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(j)
No Third Party Beneficiaries.
This Agreement is not intended to be for the benefit of, and
shall not be enforceable by, any Person that is not a party
hereto.
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A2-5
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(k)
Several Obligations; Capacity.
Notwithstanding anything herein to the contrary, (i) the
representations, warranties, covenants, agreements and
conditions of this Agreement applicable to the Stockholders are
several and not joint, (ii) the covenants and agreements of
the Stockholders under this Agreement shall not require the
Stockholder or Stockholders Representatives to act (or
refrain from acting) in their capacity as an officer or director
of Verilink and shall not affect the duties and obligations of
Stockholder or Stockholders Representatives acting in his
capacity as an officer or director of Verilink and (iii) no
action or failure to take action by any Stockholder or
Stockholders Representatives in his capacity as an officer
or director of Verilink shall be deemed to be an action taken by
such Stockholder in his capacity as a stockholder of Verilink.
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(l)
Governing Law.
This Agreement
shall be governed and construed in accordance with the laws of
the State of Delaware, without giving effect to the principles
of conflicts of law thereof.
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(m)
Titles and Subtitles.
The titles
and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting
this Agreement. Any reference in this Agreement to a statutory
provision or rule or regulation promulgated thereunder shall be
deemed to include any similar successor statutory provision or
rule or regulation promulgated thereunder.
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(n)
Counterparts.
This Agreement may
be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
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[Signature Pages Attached On Following Page]
A2-6
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above written.
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By:
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/s/ DANIEL L. SCHARRE
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Title:
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President and Chief Executive Officer
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STOCKHOLDERS:
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LEIGH S. BELDEN
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/s/ LEIGH S. BELDEN
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Address:
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127 Jetplex Circle
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Madison,
Alabama
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Tel:
(256) 327-2300
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Fax:
(256) 327-2521
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BELTECH, INC.
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Address:
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127 Jetplex Circle
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Madison,
Alabama
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Tel:
(256) 327-2300
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Fax:
(256) 327-2521
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A2-7
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LEIGH S. BELDEN AND DEBORAH TINKER BELDEN, OR
THEIR SUCCESSORS, TRUSTEES U/A DATED 12/09/88
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Name: Leigh
S. Belden
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Title: Trustee
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Address:
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127 Jetplex Circle
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Madison,
Alabama
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Tel:
(256) 327-2300
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Fax:
(256) 327-2521
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STEVEN C. TAYLOR
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/s/ STEVEN C. TAYLOR
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Address:
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127 Jetplex Circle
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Madison,
Alabama
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Tel:
(256) 327-2001
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Fax:
(256) 327-2521
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A2-8
EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties
of the undersigned pursuant to the Voting Agreement, dated as of
April 28, 2004 (the Voting Agreement), between
the undersigned and Larscom Incorporated, a Delaware
corporation, a copy of such agreement being attached hereto and
incorporated by reference herein, the undersigned hereby
irrevocably appoints Daniel L. Scharre and Donald W.
Morgan, and each of them, as the sole and exclusive attorneys,
agents and proxies, with full power of substitution in each of
them, for the undersigned, and in the name, place and stead of
the undersigned, to vote (or cause to be voted), and exercise
all voting and related rights or, if applicable, to give
consent, in such manner as each such attorney, agent and proxy
or his/her substitute shall in his/her sole discretion deem
proper to record such vote (or consent) in the manner, and with
respect to the matters, set forth in Section 2 of the
Voting Agreement with respect to all of the Verilink Shares (as
such term is defined in the Voting Agreement) of Verilink
Corporation, a Delaware corporation (Verilink),
which the undersigned is or may be entitled to vote at any
meeting of Verilink held after the date hereof, whether annual
or special and whether or not an adjourned meeting, or, if
applicable, to give written consent with respect thereto. The
Stockholder may vote the Verilink Shares on all matters not
referred to in this proxy and the attorneys, agents and proxies
named above may not exercise this proxy with respect to such
other matters. This proxy is coupled with an interest, shall be
irrevocable and binding on any successor in interest of the
undersigned and shall not be terminated by operation of law upon
the occurrence of any event, including, without limitation, the
death or incapacity of the undersigned. This proxy shall operate
to revoke and render void any prior proxy as to the Verilink
Shares heretofore granted by the undersigned, and the
undersigned agrees that no subsequent proxies will be given by
the undersigned with respect to any of the Verilink Shares. This
proxy shall terminate upon the termination of the Voting
Agreement. If any provision of this proxy or any part of such
provision is held to be invalid or unenforceable in any
circumstances and in any jurisdiction, then (a) such
provision or part thereof shall, with respect to such
circumstance and jurisdiction, be deemed amended to conform to
applicable law so as to be valid and enforceable to the fullest
extent possible, and (b) the invalidity or unenforceability
of such provision or part of a provision under such
circumstances and in such jurisdiction shall not affect the
validity or enforceability (i) of such provision or part
thereof under any other circumstance or in any other
jurisdiction, (ii) of the remainder of such provision or
(iii) of any other provision of this proxy.
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Dated: ______________________________ , 2004
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A2-9
ANNEX B
RAYMOND JAMES
April 28, 2004
Board of Directors
Verilink Corporation
127 Jetplex Circle
Madison, Alabama 35758-8989
Members of the Board:
You have requested our opinion as to the
fairness, from a financial point of view, to Verilink
Corporation (the Company) of the consideration to be
paid by the Company in connection with the acquisition (the
Merger) of Larscom, Inc. (the Target)
pursuant and subject to the Agreement and Plan of Merger dated
April 28, 2004, between the Company and the Target (the
Agreement). The consideration to be paid in the
merger for each outstanding share of common stock of the Target
will be 1.166 shares of Company common stock, subject to
adjustment pursuant to the Agreement.
In connection with our review of the proposed
Merger and the preparation of our opinion herein, we have, among
other things:
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1. reviewed the financial terms and
conditions as stated in the Agreement;
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2. reviewed the audited financial statements
of the Target as of and for the fiscal years ended
December 31, 2001, 2002, 2003 and the preliminary unaudited
financial statements of the Target for the quarter ended
March 31, 2004;
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3. reviewed the audited financial statements
of the Company as of and for the fiscal years ended
June 29, 2001, June 28, 2002 and June 27, 2003
and the preliminary unaudited financial statements of the
Company for the quarters ended October 3, 2003,
January 2, 2004 and April 2, 2004;
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4. reviewed the Companys and the
Targets annual reports filed on Form 10-K for the
fiscal years ended June 29, 2001, June 28, 2002 and
June 27, 2003, and December 31, 2001, 2002 and 2003,
respectively;
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5. reviewed other Company and Target
financial and operating information, including financial
projections through 2004, requested from and/or provided by the
Company or the Target; and
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6. discussed with members of the senior
management of the Company and the Target certain information
relating to the aforementioned and any other matters which we
have deemed relevant to our inquiry.
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We have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made
available to us by the Company, the Target or any other party,
and we have undertaken no duty or responsibility to verify
independently any of such information. We have not made or
obtained an independent appraisal of the assets or liabilities
(contingent or otherwise) of the Target. With respect to
financial forecasts and other information and data provided to
or otherwise reviewed by or discussed with us, we have assumed
that such forecasts and other information and data have been
reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of management, and
we have relied upon each party to advise us promptly if any
information previously provided became inaccurate or was
required to be updated during the period of our review. We have
assumed that the final terms of the Merger will be substantially
the same as the terms set forth in the Agreement.
Our opinion is based upon market, economic,
financial and other circumstances and conditions existing and
disclosed to us as of April 28, 2004, and any material
change in such circumstances and conditions would require a
reevaluation of this opinion, which we are under no obligation
to undertake.
B-1
Board of Directors
Verilink Corporation
April 28, 2004
Page 2
We express no opinion as to the underlying
business decision to effect the Merger, the structure or tax
consequences of the Agreement or the availability or
advisability of any alternatives to the Merger. We did not
structure the Merger or negotiate the final terms of the Merger.
This letter does not express any opinion as to the likely
trading range of the Companys stock following the Merger,
which may vary depending on numerous factors that generally
impact the price of securities or on the financial condition of
the Company at that time. Our opinion is limited to the
fairness, from a financial point of view, of the consideration
to be paid by the Company in connection with the Merger. We
express no opinion with respect to any other reasons, legal,
business, or otherwise, that may support the decision of the
Board of Directors to approve or consummate the Merger.
In conducting our investigation and analyses and
in arriving at our opinion expressed herein, we have taken into
account such accepted financial and investment banking
procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected
revenues, operating earnings and capitalization of the Target
and certain other publicly held companies in businesses we
believe to be comparable to the Target; (ii) the current
and projected financial position and results of operations of
the Target; (iii) financial and operating information
concerning selected business combinations which we deemed
comparable in whole or in part; (iv) the historical market
prices and trading activity of the common stock of the Target;
(v) pro forma historical and projected financial
contribution of the Target; and (vi) the general condition
of the securities markets.
In arriving at this opinion, Raymond
James & Associates, Inc. (Raymond James)
did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and
factor. Accordingly, Raymond James believes that its analyses
must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, would create an
incomplete view of the process underlying this opinion.
Raymond James is actively engaged in the
investment banking business and regularly undertakes the
valuation of investment securities in connection with public
offerings, private placements, business combinations and similar
transactions. Raymond James has been engaged to render financial
advisory services to the Company in connection with the proposed
Merger and will receive a fee for such services, which fee is
contingent upon consummation of the Merger. Raymond James will
also receive a fee upon the delivery of this opinion. In
addition, the Company has agreed to indemnify us against certain
liabilities arising out of our engagement.
In the ordinary course of our business, Raymond
James may trade in the securities of the Company for our own
account or for the accounts of our customers and, accordingly,
may at any time hold a long or short position in such securities.
It is understood that this letter is for the
information of the Board of Directors of the Company in
evaluating the proposed Merger and does not constitute a
recommendation to any shareholder of the Company regarding how
said shareholder should vote on the proposed Merger. This
opinion is not to be quoted or referred to, in whole or in part,
without our prior written consent, which will not be
unreasonably withheld.
Based upon and subject to the foregoing, it is
our opinion that, as of April 28, 2004, the consideration
to be paid by the Company in connection with the Merger is fair,
from a financial point of view, to the Company.
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Very truly yours,
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/s/ RAYMOND JAMES & ASSOCIATES, INC.
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RAYMOND JAMES & ASSOCIATES, INC.
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B-2
ANNEX C
Confidential
April 28, 2004
Board of Directors
Larscom, Inc.
39745 Eureka Drive
Newark, CA 94560
To the Board of Directors:
You have requested our opinion as to the
fairness, from a financial point of view, to the stockholders of
Larscom, Inc. of the exchange ratio in the proposed combination
of Verilink Corporation (Verilink) and Larscom, Inc.
(Larscom or the Company) to be effected
through a merger that qualifies as a tax-free reorganization
(the Transaction). The draft Merger Agreement dated
April 26, 2004 (Merger Agreement) sets forth
the principal terms of the Transaction. The Merger Agreement
provisions include:
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Larscom shareholders will receive 6 million
newly issued shares of common stock of Verilink in exchange for
all the issued and outstanding shares of Larscom on a fully
diluted basis which corresponds to an exchange ratio of 1.167
(based on Larscoms and Verilinks stock price as of
April 23, 2004);
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An adjustment factor will be applied to the
exchange ratio based on a net working capital adjustment;
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At the conclusion of the Transaction, Verilink
will be the surviving corporation;
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Verilinks current CEO, Leigh Belden, will
be the CEO of the combined company; and
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Verilink will designate five of a total of six
members of the board of directors of the combined company.
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In connection with our opinion, we have:
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(a) considered the draft Agreement and Plan
of Merger dated April 26, 2004;
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(b) considered certain financial and other
information relating to Larscom and Verilink that was publicly
available or furnished to us by Larscom and Verilink, including
financial forecasts and details regarding the
$10.48 million convertible note issued by Verilink in
connection with its acquisition of XEL Communications, Inc.;
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(c) interviewed Larscoms and
Verilinks management to discuss the business, operations,
historical financial results and future prospects of the
respective companies on a stand-alone and combined basis;
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(e) considered certain financial and
operational data of Larscom and Verilink and compared that data
with similar data for other publicly-held companies in similar
businesses;
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(f) considered the financial terms of
certain recent acquisitions of companies in similar businesses;
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C-1
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(g) performed discounted cash flow analyses
of Larscom and Verilink as stand-alone entities, and subjected
such analyses to sensitivity adjustments around key value
drivers including, but not limited to, revenue and
margins; and
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(h) considered such other information,
financial studies, analyses and investigations and financial,
economic and market criteria as we deemed relevant and
appropriate for purposes of this opinion.
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The opinion expressed below is subject to the
following qualifications and limitations:
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(i) Except as set forth in our letter of
engagement, this document has been prepared solely for the
Companys Board of Directors for the purposes stated herein
and should not be relied upon for any other purpose. Unless
required by law, it shall not be provided to any third party
without our prior written consent. In no event, regardless of
whether consent has been provided, shall we assume any
responsibility to any third party to which the report is
disclosed or otherwise made available.
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(ii) In arriving at our opinion, we have
relied upon and assumed, without independent verification, the
accuracy and completeness of all financial and other information
that was publicly available or furnished to us by Larscom and
Verilink. Our conclusions were dependent on such information
being complete and accurate in all material respects. In
addition, we accept no responsibility for the accuracy and
completeness of such provided information.
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(iii) With respect to the financial
forecasts used by us, we have assumed that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of Larscoms and
Verilinks management as to the future financial
performance of Larscom and Verilink. Such information,
estimates, or opinions are not offered as predictions or as
assurances that a particular level of revenue or profit will be
achieved, that events will occur, or that a particular price
will be offered or accepted. Actual results achieved during the
period covered by the prospective financial analyses may vary
from those we employed in forming our opinion, and the
variations may be material.
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(iv) Our opinion does not constitute a view
regarding the solvency of Larscom or Verilink prior to the
Transaction, or of Larscom or Verilink, or Larscom and Verilink
in combination, subsequent to the Transaction. S&P CVC has
performed no procedures to determine the solvency of Larscom or
Verilink, or Larscom and Verilink in combination. As such, this
opinion does not constitute a solvency opinion, and should not
be relied upon for such purposes.
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(v) S&P CVC did not, as part of these
services, perform an audit, review, or examination (as defined
by the American Institute of Certified Public Accountants) of
any of the historical or prospective financial information used,
and therefore does not express any opinion with regard to the
same.
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(vi) S&P CVC has not had the benefit of
receiving or reviewing an auditors due diligence report.
Any subsequent errors, omissions, or misstatements of the
financial statements may render our fairness opinion invalid.
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(vii) Audited financial statements for
Larscom and Verilink for year to date 2004 were not available at
the time of our analysis. We relied on unaudited financial
statements provided to us by Larscom and Verilink. Any
restatement of Larscoms or Verilinks financial
statements by their respective auditors or a change in deal
terms prior to closing would cause us to reconsider our analysis
and may render our fairness opinion invalid.
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(viii) As of the date of our analysis, we
had no information that any of Larscoms or Verilinks
customers were likely to terminate or significantly reduce its
relationship with Larscom or Verilink.
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(ix) We have received and relied upon
managements representation that Larscoms projected
working capital balances and other parameters specified in
Section 2.4 of the draft Agreement and Plan of Merger will
be such that the Adjustment Factor will equal 1.0, resulting in
no change in the effective exchange ratio.
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C-2
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(x) Our opinion does not address, and should
not be construed to address, either the underlying business
decision to effect the Transaction or whether the exchange ratio
in the Transaction represents the best terms negotiable. We
express no view as to the federal, state or local tax
consequences of the Transaction.
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(xi) Our opinion is based on business,
economic, market and other conditions as they exist as of the
date hereof.
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(xii) This opinion is effective as of the
date hereof. We have no obligation to update the opinion and
expressly disclaim any responsibility to do so.
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Based upon and subject to the foregoing, it is
our opinion that as of the date hereof, the number of shares
offered and corresponding exchange ratio in the proposed merger
between Larscom and Verilink is fair to the stockholders of
Larscom from a financial point of view.
We will receive a fee as compensation for our
services in rendering this opinion.
Except as set forth in our letter of engagement,
this letter is for the information of the Board of Directors in
connection with the Transaction described herein. This opinion
may not be quoted or referred to, in whole or in part, filed
with, or furnished or disclosed to any other party, or used for
any other purpose, without our prior written consent.
Yours sincerely,
/s/ Standard & Poors Corporate
Value Consulting
Standard & Poors Corporate Value
Consulting
Managing Director
C-3
ANNEX D
SECTION 262 OF THE GENERAL CORPORATION
LAW
OF THE STATE OF DELAWARE
§ 262. Appraisal
Rights
(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a
demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
§ 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the
stockholders shares of stock under the circumstances
described in subsections (b) and (c) of this section.
As used in this section, the word stockholder means
a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words
stock and share mean and include what is
ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words depository receipt mean a receipt or other
instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for
the shares of any class or series of stock of a constituent
corporation in a merger or consolidation to be effected pursuant
to § 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
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(1) Provided, however, that no appraisal
rights under this section shall be available for the shares of
any class or series of stock, which stock, or depository
receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote
of the stockholders of the surviving corporation as provided in
subsection (f) of § 251 of this title.
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(2) Notwithstanding paragraph (1) of
this subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
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a. Shares of stock
of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof;
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b. Shares of stock
of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of
the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by
more than 2,000 holders;
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c. Cash in lieu of
fractional shares or fractional depository receipts described in
the foregoing subparagraphs a. and b. of this paragraph; or
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d. Any combination
of the shares of stock, depository receipts and cash in lieu of
fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
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D-1
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(3) In the event all of the stock of a
subsidiary Delaware corporation party to a merger effected under
§ 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware
corporation.
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(c) Any corporation may provide in its
certificate of incorporation that appraisal rights under this
section shall be available for the shares of any class or series
of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as
follows:
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(1) If a proposed merger or consolidation
for which appraisal rights are provided under this section is to
be submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become effective;
or
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(2) If the merger or consolidation was
approved pursuant to § 228 or § 253 of this
title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving
or resulting corporation within 10 days thereafter shall
notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section. Such notice
may, and, if given on or after the effective date of the merger
or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such
holders shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of such holders shares. If such notice did
not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that
are entitled to appraisal rights of the effective date of the
merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than
20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of
such holders shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give
either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given,
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provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed
and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding
the day on which the notice is given.
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(e) Within 120 days after the effective
date of the merger or consolidation, the surviving or resulting
corporation or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw
such stockholders demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by
a stockholder, service of a copy thereof shall be made upon the
surviving or resulting corporation, which shall within
20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly
verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week
before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or
such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the
Court shall determine the stockholders who have complied with
this section and who have become entitled to appraisal rights.
The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders
entitled to an appraisal, the Court shall appraise the shares,
determining their fair value exclusive of any element of value
arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who
has submitted such stockholders certificates of stock to
the Register in Chancery, if such is required, may
D-3
participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of
the fair value of the shares, together with interest, if any, by
the surviving or resulting corporation to the stockholders
entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the
certificates representing such stock. The Courts decree
may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be
determined by the Court and taxed upon the parties as the Court
deems equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys fees and the fees and expenses of experts, to be
charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the
merger or consolidation, no stockholder who has demanded
appraisal rights as provided in subsection (d) of this
section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective
date of the merger or consolidation); provided, however, that if
no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholders
demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective
date of the merger or consolidation as provided in subsection
(e) of this section or thereafter with the written approval
of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting
corporation to which the shares of such objecting stockholders
would have been converted had they assented to the merger or
consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
ANNEX E
VERILINK CORPORATION
2004 STOCK INCENTIVE PLAN
E-1
VERILINK CORPORATION
2004 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
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Page
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SECTION 1 DEFINITIONS
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E-3
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1.1
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Definitions
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E-3
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SECTION 2 THE STOCK INCENTIVE
PLAN
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E-5
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2.1
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Purpose of the Plan
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E-5
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2.2
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Stock Subject to the Plan
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E-5
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2.3
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Administration of the Plan
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E-5
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2.4
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Eligibility and Limits
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E-5
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SECTION 3 TERMS OF STOCK
INCENTIVES
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E-6
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3.1
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Terms and Conditions of All Stock Incentives
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E-6
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3.2
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Terms and Conditions of Options
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E-6
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(a) Option Price
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E-7
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(b) Option Term
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E-7
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(c) Payment
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E-7
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(d) Conditions to the
Exercise of an Option
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E-7
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(e) Termination of Incentive
Stock Option
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E-7
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(f) Special Provisions for
Certain Substitute Options
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E-8
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3.3
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Terms and Conditions of Stock Appreciation Rights
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E-8
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(a) Settlement
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E-8
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(b) Conditions to Exercise
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E-8
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3.4
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Terms and Conditions of Stock Awards
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E-8
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3.5
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Terms and Conditions of Dividend Equivalent Rights
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E-8
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(a) Payment
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E-9
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(b) Conditions to Payment
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E-9
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3.6
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Terms and Conditions of Performance Unit Awards
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E-9
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(a) Payment
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E-9
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(b) Conditions to Payment
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E-9
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3.7
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Terms and Conditions of Phantom Shares
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E-9
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(a) Payment
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E-9
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(b) Conditions to Payment
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E-9
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3.8
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Treatment of Awards Upon Termination of Employment
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E-10
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SECTION 4 RESTRICTIONS ON STOCK
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E-10
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4.1
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Escrow of Shares
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E-10
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4.2
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Restrictions on Transfer
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E-10
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SECTION 5 GENERAL PROVISIONS
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E-10
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5.1
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Withholding
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E-10
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5.2
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Changes in Capitalization; Merger; Liquidation
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E-11
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5.3
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Cash Awards
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E-11
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5.4
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Compliance with Code
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E-11
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5.5
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Right to Terminate Employment
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E-12
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5.6
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Non-Alienation of Benefits
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E-12
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5.7
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Restrictions on Delivery and Sale of Shares;
Legends
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E-12
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5.8
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Listing and Legal Compliance
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E-12
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5.9
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Termination and Amendment of the Plan
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E-12
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5.10
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Stockholder Approval
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E-12
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5.11
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Choice of Law
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E-12
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5.12
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Effective Date and term of Plan
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E-13
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E-2
VERILINK CORPORATION
2004 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1
Definitions.
Whenever used herein, the masculine pronoun will be deemed to
include the feminine, and the singular to include the plural,
unless the context clearly indicates otherwise, and the
following capitalized words and phrases are used herein with the
meaning thereafter ascribed:
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(1) Any Subsidiary or Parent,
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(2) An entity that directly or through one
or more intermediaries controls, is controlled by, or is under
common control with the Company, as determined by the
Company, or
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(3) Any entity in which the Company has such
a significant interest that the Company determines it should be
deemed an Affiliate, as determined in the sole
discretion of the Company.
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(b)
Board of Directors
means the board of directors of the Company.
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(c)
Code
means the
Internal Revenue Code of 1986, as amended.
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(d)
Committee
means the
committee appointed by the Board of Directors to administer the
Plan. The Board of Directors shall consider the advisability of
whether the members of the Committee shall consist solely of at
least two members of the Board of Directors who are both
outside directors as defined in Treas. Reg.
§ 1.162-27(e) as promulgated by the Internal Revenue
Service and non-employee directors as defined in
Rule 16b-3(b)(3) as promulgated under the Exchange Act. If
the Committee has not been appointed, the Board of Directors in
their entirety shall constitute the Committee.
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(e)
Company
means
Verilink Corporation, a Delaware corporation.
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(f)
Disability
has the
same meaning as provided in the long-term disability plan or
policy maintained or, if applicable, most recently maintained,
by the Company or, if applicable, any Affiliate of the Company
for the Participant. If no long-term disability plan or policy
was ever maintained on behalf of the Participant or, if the
determination of Disability relates to an Incentive Stock
Option, Disability means that condition described in Code
Section 22(e)(3), as amended from time to time. In the
event of a dispute, the determination of Disability will be made
by the Committee and will be supported by advice of a physician
competent in the area to which such Disability relates.
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(g)
Dividend Equivalent
Rights
means certain rights to receive cash payments
as described in Section 3.5.
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(h)
Exchange Act
means
the Securities Exchange Act of 1934, as amended from time to
time.
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(i)
Fair Market Value
with regard to a date means:
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(1) the price at which Stock shall have been
sold on that date or the last trading date prior to that date as
reported by the national securities exchange selected by the
Committee on which the shares of Stock are then actively traded
or, if applicable, as reported by the NASDAQ Stock Market;
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(2) if such market information is not
published on a regular basis, the price of Stock in the
over-the-counter market on that date or the last business day
prior to that date as reported by the NASDAQ Stock Market or, if
not so reported, by a generally accepted reporting
service; or
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(3) if Stock is not publicly traded, as
determined in good faith by the Committee with due consideration
being given to (i) the most recent independent appraisal of
the Company, if such
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E-3
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appraisal is not more than twelve months old and
(ii) the valuation methodology used in any such appraisal.
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For purposes of Paragraphs (1), (2), or (3)
above, the Committee may use the closing price as of the
applicable date, the average of the high and low prices as of
the applicable date or for a period certain ending on such date,
the price determined at the time the transaction is processed,
the tender offer price for shares of Stock, or any other method
which the Committee determines is reasonably indicative of the
fair market value.
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(j)
Incentive Stock
Option
means an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code.
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(k)
Nonqualified Stock
Option
means a stock option that is not an Incentive
Stock Option.
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(l)
Option
means a
Nonqualified Stock Option or an Incentive Stock Option.
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(m)
Over 10% Owner
means
an individual who at the time an Incentive Stock Option is
granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Subsidiaries,
determined by applying the attribution rules of Code
Section 424(d).
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(n)
Parent
means any
corporation (other than the Company) in an unbroken chain of
corporations ending with the Company if, with respect to
Incentive Stock Options, at the time of the granting of the
Option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such
chain. A Parent shall include any entity other than a
corporation to the extent permissible under Section 424(f)
or regulations and rulings thereunder.
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(o)
Participant
means an
individual who receives a Stock Incentive hereunder.
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(p)
Performance Unit
Award
refers to a performance unit award as described
in Section 3.6.
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(q)
Phantom Shares
refers
to the rights described in Section 3.7.
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(r)
Plan
means the
Verilink Corporation 2004 Stock Incentive Plan.
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(s)
Stock
means the
Companys common stock, $.01 par value per share.
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(t)
Stock Appreciation
Right
means a stock appreciation right described in
Section 3.3.
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(u)
Stock Award
means a
stock award described in Section 3.4.
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(v)
Stock Incentive
Agreement
means an agreement between the Company and a
Participant or other documentation evidencing an award of a
Stock Incentive.
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(w)
Stock Incentive
Program
means a written program established by the
Committee, pursuant to which Stock Incentives are awarded under
the Plan under uniform terms, conditions and restrictions set
forth in such written program.
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(x)
Stock Incentives
means, collectively, Dividend Equivalent Rights, Incentive Stock
Options, Nonqualified Stock Options, Phantom Shares, Stock
Appreciation Rights, Stock Awards and Performance Unit Awards.
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(y)
Subsidiary
means any
corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain. A
Subsidiary shall include any entity other than a
corporation to the extent permissible under Section 424(f)
or regulations or rulings thereunder.
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(z)
Termination of
Employment
means the termination of the
employee-employer relationship between a Participant and the
Company and its Affiliates, regardless of whether severance or
similar payments are made to the Participant for any reason,
including, but not by way of limitation, a
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E-4
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termination by resignation, discharge, death,
Disability or retirement. The Committee will, in its absolute
discretion, determine the effect of all matters and questions
relating to a Termination of Employment, including, but not by
way of limitation, the question of whether a leave of absence
constitutes a Termination of Employment.
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SECTION 2 THE STOCK INCENTIVE
PLAN
2.1
Purpose of
the Plan.
The Plan is intended to (a) provide incentive
to directors, officers, key employees and other service
providers of the Company and its Affiliates to stimulate their
efforts toward the continued success of the Company and to
operate and manage the business in a manner that will provide
for the long-term growth and profitability of the Company;
(b) encourage stock ownership by directors, officers, key
employees and other service providers by providing them with a
means to acquire a proprietary interest in the Company, acquire
shares of Stock, or to receive compensation which is based upon
appreciation in the value of Stock; and (c) provide a means
of obtaining, rewarding and retaining directors, officers, key
employees and other service providers.
2.2
Stock Subject
to the Plan.
Subject to adjustment in accordance with
Section 5.2, one million three hundred thousand (1,300,000)
shares of Stock (the Maximum Plan Shares) are hereby
reserved exclusively for issuance upon exercise or payment
pursuant to Stock Incentives. In addition, during the term of
the Plan, the Maximum Plan Shares shall automatically increase
as of the last day of each fiscal year of the Company in
increments equal to the lesser of (a) one million
(1,000,000) or (b) the result of one million eight hundred
thousand (1,800,000) minus the number of Maximum Plan Shares
remaining available for issuance under the Plan immediately
prior to the calculation of the annual adjustment, such annual
adjustments to commence with the fiscal year ending immediately
following the effective date of the Plan, as set forth in
Section 5.12. The shares of Stock attributable to the
nonvested, unpaid, unexercised, unconverted or otherwise
unsettled portion of any Stock Incentive that is forfeited or
cancelled or expires or terminates for any reason without
becoming vested, paid, exercised, converted or otherwise settled
in full will again be available for purposes of the Plan. The
number of shares of Stock available for purposes of the Plan
shall be reduced only by the actual number of shares of Stock
issued in the settlement of each Stock Incentive, without regard
to the number of shares of Stock associated with any award for
the purpose of determining the extent of the Participants
rights in the Stock Incentive.
2.3
Administration
of the Plan.
The Plan is administered by the Committee. The
Committee has full authority in its discretion to determine the
directors, officers, employees and service providers of the
Company or its Affiliates to whom Stock Incentives will be
granted and the terms and provisions of Stock Incentives,
subject to the Plan. Subject to the provisions of the Plan, the
Committee has full and conclusive authority to interpret the
Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of
the respective Stock Incentive Agreements and to make all other
determinations necessary or advisable for the proper
administration of the Plan. The Committees determinations
under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are
similarly situated). The Committees decisions are final
and binding on all Participants. Each member of the Committee
shall serve at the discretion of the Board of Directors and the
Board of Directors may from time to time remove members from or
add members to the Committee. Vacancies on the Committee shall
be filled by the Board of Directors.
2.4
Eligibility
and Limits.
Stock Incentives may be granted only to
directors, officers, employees and other service providers of
the Company, or any Affiliate of the Company; provided, however,
that an Incentive Stock Option may only be granted to an
employee of the Company or any Subsidiary. In the case of
Incentive Stock Options, the aggregate Fair Market Value
(determined as at the date an Incentive Stock Option is granted)
of stock with respect to which stock options intended to meet
the requirements of Code Section 422 become exercisable for
the first time by an individual during any calendar year under
all plans of the Company and its Subsidiaries may not exceed
$100,000; provided further, that if the
E-5
limitation is exceeded, the Incentive Stock
Option(s) which cause the limitation to be exceeded will be
treated as Nonqualified Stock Option(s).
SECTION 3 TERMS OF STOCK
INCENTIVES
3.1
Terms and
Conditions of All Stock Incentives.
(a) The number of shares of Stock as to
which a Stock Incentive may be granted will be determined by the
Committee in its sole discretion, subject to the provisions of
Section 2.2 as to the total number of shares available for
grants under the Plan. To the extent required under
Section 162(m) of the Code and the regulations thereunder,
subject to adjustment in accordance with Section 5.2, the
maximum number of shares of Stock with respect to which Options
or Stock Appreciation Rights may be granted during any fiscal
year of the Company to any employee may not exceed one million
(1,000,000). If, after grant, an Option is cancelled, the
cancelled Option shall continue to be counted against the
maximum number of shares for which options may be granted to an
employee as described in this Section 3.1. If, after grant,
the exercise price of an Option is reduced or the base amount on
which a Stock Appreciation Right is calculated is reduced, the
transaction shall be treated as the cancellation of the Option
or the Stock Appreciation Right, as applicable, and the grant of
a new Option or Stock Appreciation Right, as applicable. If an
Option or Stock Appreciation Right is deemed to be cancelled as
described in the preceding sentence, the Option or Stock
Appreciation Right that is deemed to be canceled and the Option
or Stock Appreciation Right that is deemed to be granted shall
both be counted against the maximum number of shares for which
Options or Stock Appreciation Rights may be granted to an
employee as described in this Section 3.1.
(b) Each Stock Incentive will either be
evidenced by a Stock Incentive Agreement in such form and
containing such terms, conditions and restrictions as the
Committee may determine to be appropriate, including without
limitation, performance goals that must be achieved as a
condition to vesting or payment of the Stock Incentive, or be
made subject to the terms of a Stock Incentive Program,
containing such terms, conditions and restrictions as the
Committee may determine to be appropriate, including without
limitation, performance goals that must be achieved as a
condition to vesting or payment of the Stock Incentive. Each
Stock Incentive Agreement or Stock Incentive Program is subject
to the terms of the Plan and any provisions contained in the
Stock Incentive Agreement or Stock Incentive Program that are
inconsistent with the Plan are null and void.
(c) The date a Stock Incentive is granted
will be the date on which the Committee has approved the terms
and conditions of the Stock Incentive and has determined the
recipient of the Stock Incentive and the number of shares
covered by the Stock Incentive, and has taken all such other
actions necessary to complete the grant of the Stock Incentive.
(d) Any Stock Incentive may be granted in
connection with all or any portion of a previously or
contemporaneously granted Stock Incentive. Exercise or vesting
of a Stock Incentive granted in connection with another Stock
Incentive may result in a pro rata surrender or cancellation of
any related Stock Incentive, as specified in the applicable
Stock Incentive Agreement or Stock Incentive Program.
(e) Stock Incentives are not transferable or
assignable except by will or by the laws of descent and
distribution and are exercisable, during the Participants
lifetime, only by the Participant; or in the event of the
Disability of the Participant, by the legal representative of
the Participant; or in the event of death of the Participant, by
the legal representative of the Participants estate or if
no legal representative has been appointed, by the successor in
interest determined under the Participants will; provided,
however, that the Committee may waive any of the provisions of
this Section or provide otherwise as to any Stock Incentives
other than Incentive Stock Options.
3.2
Terms and
Conditions of Options.
Each Option granted under the Plan
must be evidenced by a Stock Incentive Agreement. At the time
any Option is granted, the Committee will determine whether the
Option is to be an Incentive Stock Option described in Code
Section 422 or a Nonqualified Stock Option, and the Option
must be clearly identified as to its status as an Incentive
Stock Option or a Nonqualified
E-6
Stock Option. Incentive Stock Options may only be
granted to employees of the Company or any Subsidiary or Parent.
At the time any Incentive Stock Option granted under the Plan is
exercised, the Company will be entitled to legend the
certificates representing the shares of Stock purchased pursuant
to the Option to clearly identify them as representing the
shares purchased upon the exercise of an Incentive Stock Option.
An Incentive Stock Option may only be granted within ten
(10) years from the earlier of the date the Plan is adopted
or approved by the Companys stockholders.
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(a)
Option Price.
Subject to
adjustment in accordance with Section 5.2 and the other
provisions of this Section 3.2, the exercise price (the
Exercise Price) per share of Stock purchasable under
any Option must be as set forth in the applicable Stock
Incentive Agreement, but in no event may it be less than the
Fair Market Value on the date the Option is granted with respect
to an Incentive Stock Option. With respect to each grant of an
Incentive Stock Option to a Participant who is an Over 10%
Owner, the Exercise Price may not be less than 110% of the Fair
Market Value on the date the Option is granted.
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(b)
Option Term.
Any Incentive Stock
Option granted to a Participant who is not an Over 10% Owner is
not exercisable after the expiration of ten (10) years
after the date the Option is granted. Any Incentive Stock Option
granted to an Over 10% Owner is not exercisable after the
expiration of five (5) years after the date the Option is
granted. The term of any Nonqualified Stock Option must be as
specified in the applicable Stock Incentive Agreement.
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(c)
Payment.
Payment for all shares
of Stock purchased pursuant to exercise of an Option will be
made in any form or manner authorized by the Committee in the
Stock Incentive Agreement or by amendment thereto, including,
but not limited to, cash or, if the Stock Incentive Agreement
provides:
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(i) by delivery to the Company of a number
of shares of Stock which have been owned by the holder for at
least six (6) months prior to the date of exercise having
an aggregate Fair Market Value of not less than the product of
the Exercise Price multiplied by the number of shares the
Participant intends to purchase upon exercise of the Option on
the date of delivery;
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(ii) in a cashless exercise through a broker
provided, however, that any such cashless exercise is consistent
with the restrictions of Section 13(k) of the Exchange Act
(Section 402 of the Sarbanes-Oxley Act of 2002); or
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(iii) by having a number of shares of Stock
withheld, the Fair Market Value of which as of the date of
exercise is sufficient to satisfy the Exercise Price.
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In its discretion, the Committee also may
authorize (at the time an Option is granted or thereafter)
Company financing to assist the Participant as to payment of the
Exercise Price on such terms as may be offered by the Committee
in its discretion. Payment must be made at the time that the
Option or any part thereof is exercised, and no shares may be
issued or delivered upon exercise of an option until full
payment has been made by the Participant. The holder of an
Option, as such, has none of the rights of a stockholder.
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(d)
Conditions to the Exercise of an
Option.
Each Option granted under the Plan is exercisable by
the Participant or any other designated person, at such time or
times, or upon the occurrence of such event or events, and in
such amounts, as the Committee specifies in the Stock Incentive
Agreement; provided, however, that subsequent to the grant of an
Option, the Committee, at any time before complete termination
of such Option, may accelerate the time or times at which such
Option may be exercised in whole or in part, including, without
limitation, upon a Change in Control as defined in the Stock
Incentive Agreement and may permit the Participant or any other
designated person to exercise the Option, or any portion
thereof, for all or part of the remaining Option term,
notwithstanding any provision of the Stock Incentive Agreement
to the contrary.
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(e)
Termination of Incentive Stock
Option.
With respect to an Incentive Stock Option, in the
event of Termination of Employment of a Participant, the Option
or portion thereof held by the
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E-7
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Participant which is unexercised will expire,
terminate, and become unexercisable no later than the expiration
of three (3) months after the date of Termination of
Employment; provided, however, that in the case of a holder
whose Termination of Employment is due to death or Disability,
one (1) year will be substituted for such three
(3) month period; provided, further that such time limits
may be exceeded by the Committee under the terms of the grant,
in which case, the Incentive Stock Option will be a Nonqualified
Option if it is exercised after the time limits that would
otherwise apply. For purposes of this Subsection (e),
Termination of Employment of the Participant will not be deemed
to have occurred if the Participant is employed by another
corporation (or a parent or subsidiary corporation of such other
corporation) which has assumed the Incentive Stock Option of the
Participant in a transaction to which Code Section 424(a)
is applicable.
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(f)
Special Provisions for Certain
Substitute Options.
Notwithstanding anything to the contrary
in this Section 3.2, any Option issued in substitution for
an option previously issued by another entity, which
substitution occurs in connection with a transaction to which
Code Section 424(a) is applicable, may provide for an
exercise price computed in accordance with such Code Section and
the regulations thereunder and may contain such other terms and
conditions as the Committee may prescribe to cause such
substitute Option to contain as nearly as possible the same
terms and conditions (including the applicable vesting and
termination provisions) as those contained in the previously
issued option being replaced thereby.
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3.3
Terms and
Conditions of Stock Appreciation Rights.
Each Stock
Appreciation Right granted under the Plan must be evidenced by a
Stock Incentive Agreement. A Stock Appreciation Right entitles
the Participant to receive the excess of (1) the Fair
Market Value of a specified or determinable number of shares of
the Stock at the time of payment or exercise over (2) a
specified or determinable price which, in the case of a Stock
Appreciation Right granted in connection with an Option, may not
be less than the Exercise Price for that number of shares
subject to that Option. A Stock Appreciation Right granted in
connection with a Stock Incentive may only be exercised to the
extent that the related Stock Incentive has not been exercised,
paid or otherwise settled.
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(a)
Settlement.
Upon settlement of a
Stock Appreciation Right, the Company must pay to the
Participant the appreciation in cash or shares of Stock (valued
at the aggregate Fair Market Value on the date of payment or
exercise) as provided in the Stock Incentive Agreement or, in
the absence of such provision, as the Committee may determine.
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(b)
Conditions to Exercise.
Each
Stock Appreciation Right granted under the Plan is exercisable
or payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee specifies
in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the
Committee, at any time before complete termination of such Stock
Appreciation Right, may accelerate the time or times at which
such Stock Appreciation Right may be exercised or paid in whole
or in part.
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3.4
Terms and
Conditions of Stock Awards.
The number of shares of Stock
subject to a Stock Award and restrictions or conditions on such
shares, if any, will be as the Committee determines, and the
certificate for such shares will bear evidence of any
restrictions or conditions. Subsequent to the date of the grant
of the Stock Award, the Committee has the power to permit, in
its discretion, an acceleration of the expiration of an
applicable restriction period with respect to any part or all of
the shares awarded to a Participant. The Committee may require a
cash payment from the Participant in an amount no greater than
the aggregate Fair Market Value of the shares of Stock awarded
determined at the date of grant in exchange for the grant of a
Stock Award or may grant a Stock Award without the requirement
of a cash payment.
3.5
Terms and
Conditions of Dividend Equivalent Rights.
A Dividend
Equivalent Right entitles the Participant to receive payments
from the Company in an amount determined by reference to any
cash dividends paid on a specified number of shares of Stock to
Company stockholders of record during the period such rights are
effective. The Committee may impose such restrictions and
conditions on any
E-8
Dividend Equivalent Right as the Committee in its
discretion shall determine, including the date any such right
shall terminate and may reserve the right to terminate, amend or
suspend any such right at any time.
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(a)
Payment.
Payment in respect of a
Dividend Equivalent Right may be made by the Company in cash or
shares of Stock (valued at Fair Market Value as of the date
payment is owed) as provided in the Stock Incentive Agreement or
Stock Incentive Program, or, in the absence of such provision,
as the Committee may determine.
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(b)
Conditions to Payment.
Each
Dividend Equivalent Right granted under the Plan is payable at
such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee specifies in the
applicable Stock Incentive Agreement or Stock Incentive Program;
provided, however, that subsequent to the grant of a Dividend
Equivalent Right, the Committee, at any time before complete
termination of such Dividend Equivalent Right, may accelerate
the time or times at which such Dividend Equivalent Right may be
paid in whole or in part.
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3.6
Terms and
Conditions of Performance Unit Awards.
A Performance Unit
Award shall entitle the Participant to receive, at a specified
future date, payment of an amount equal to all or a portion of
the value of a specified or determinable number of units (stated
in terms of a designated or determinable dollar amount per unit)
granted by the Committee. At the time of the grant, the
Committee must determine the base value of each unit, the number
of units subject to a Performance Unit Award, and the
Performance goals applicable to the determination of the
ultimate payment value of the Performance Unit Award. The
Committee may provide for an alternate base value for each unit
under certain specified conditions.
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(a)
Payment.
Payment in respect of
Performance Unit Awards may be made by the Company in cash or
shares of Stock (valued at Fair Market Value as of the date
payment is owed) as provided in the applicable Stock Incentive
Agreement or Stock Incentive Program or, in the absence of such
provision, as the Committee may determine.
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(b)
Conditions to Payment.
Each
Performance Unit Award granted under the Plan shall be payable
at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee shall specify in
the applicable Stock Incentive Agreement or Stock Incentive
Program; provided, however, that subsequent to the grant of a
Performance Unit Award, the Committee, at any time before
complete termination of such Performance Unit Award, may
accelerate the time or times at which such Performance Unit
Award may be paid in whole or in part.
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3.7
Terms and
Conditions of Phantom Shares.
Phantom Shares shall entitle
the Participant to receive, at a specified future date, payment
of an amount equal to all or a portion of the Fair Market Value
of a specified number of shares of Stock at the end of a
specified period. At the time of the grant, the Committee will
determine the factors which will govern the portion of the
phantom shares so payable, including, at the discretion of the
Committee, any performance criteria that must be satisfied as a
condition to payment. Phantom Share awards containing
performance criteria may be designated as performance share
awards.
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(a)
Payment.
Payment in respect of
Phantom Shares may be made by the Company in cash or shares of
Stock (valued at Fair Market Value as of the date payment is
owed) as provided in the applicable Stock Incentive Agreement or
Stock Incentive Program, or, in the absence of such provision,
as the Committee may determine.
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(b)
Conditions to Payment.
Each
Phantom Share granted under the Plan is payable at such time or
times, or upon the occurrence of such event or events, and in
such amounts, as the Committee specify in the applicable Stock
Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Phantom Share, the
Committee, at any time before complete termination of such
Phantom Share, may accelerate the time or times at which such
Phantom Share may be paid in whole or in part.
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E-9
3.8
Treatment of
Awards Upon Termination of Employment.
Except as otherwise
provided by Plan Section 3.2(e), any award under this Plan
to a Participant who has experienced a Termination of Employment
may be cancelled, accelerated, paid or continued, as provided in
the applicable Stock Incentive Agreement or Stock Incentive
Program, or, in the absence of such provision, as the Committee
may determine. The portion of any award exercisable in the event
of continuation or the amount of any payment due under a
continued award may be adjusted by the Committee to reflect the
Participants period of service from the date of grant
through the date of the Participants Termination of
Employment or such other factors as the Committee determines are
relevant to its decision to continue the award.
SECTION 4 RESTRICTIONS ON STOCK
4.1
Escrow of
Shares.
Any certificates representing the shares of Stock
issued under the Plan will be issued in the Participants
name, but, if the applicable Stock Incentive Agreement or Stock
Incentive Program so provides, the shares of Stock will be held
by a custodian designated by the Committee (the
Custodian). Each applicable Stock Incentive
Agreement or Stock Incentive Program providing for transfer of
shares of Stock to the Custodian must appoint the Custodian as
the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive
Program, with full power and authority in the Participants
name, place and stead to transfer, assign and convey to the
Company any shares of Stock held by the Custodian for such
Participant, if the Participant forfeits the shares under the
terms of the applicable Stock Incentive Agreement or Stock
Incentive Program. During the period that the Custodian holds
the shares subject to this Section, the Participant is entitled
to all rights, except as provided in the applicable Stock
Incentive Agreement or Stock Incentive Program, applicable to
shares of Stock not so held. Any dividends declared on shares of
Stock held by the Custodian shall, as the Committee may provide
in the applicable Stock Incentive Agreement or Stock Incentive
Program, be paid directly to the Participant or, in the
alternative, be retained by the Custodian or by the Company
until the expiration of the term specified in the applicable
Stock Incentive Agreement or Stock Incentive Program and shall
then be delivered, together with any proceeds, with the shares
of Stock to the Participant or to the Company, as applicable.
4.2
Restrictions
on Transfer.
The Participant does not have the right to make
or permit to exist any disposition of the shares of Stock issued
pursuant to the Plan except as provided in the Plan or the
applicable Stock Incentive Agreement or Stock Incentive Program.
Any disposition of the shares of Stock issued under the Plan by
the Participant not made in accordance with the Plan or the
applicable Stock Incentive Agreement or Stock Incentive Program
will be void. The Company will not recognize, or have the duty
to recognize, any disposition not made in accordance with the
Plan and the applicable Stock Incentive Agreement or Stock
Incentive Program, and the shares so transferred will continue
to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
SECTION 5 GENERAL PROVISIONS
5.1
Withholding.
The Company must deduct from all cash distributions under the
Plan any taxes required to be withheld by federal, state or
local government. Whenever the Company proposes or is required
to issue or transfer shares of Stock under the Plan or upon the
vesting of any Stock Award, the Company has the right to require
the recipient to remit to the Company an amount sufficient to
satisfy any federal, state and local tax withholding
requirements prior to the delivery of any certificate or
certificates for such shares or the vesting of such Stock Award.
A Participant may pay the withholding obligation in cash, or, if
the applicable Stock Incentive Agreement or Stock Incentive
Program provides, a Participant may elect to have the number of
shares of Stock he is to receive reduced by, or with respect to
a Stock Award, tender back to the Company, the smallest number
of whole shares of Stock which, when multiplied by the Fair
Market Value of the shares of Stock determined as of the Tax
Date (defined below), is sufficient to satisfy federal, state
and local, if any, withholding obligation arising from exercise
or
E-10
payment of a Stock Incentive (a Withholding
Election). A Participant may make a Withholding Election
only if both of the following conditions are met:
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(a) The Withholding Election must be made on
or prior to the date on which the amount of tax required to be
withheld is determined (the Tax Date) by executing
and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
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(b) Any Withholding Election made will be
irrevocable except on six months advance written notice
delivered to the Company; however, the Committee may in its sole
discretion disapprove and give no effect to the Withholding
Election.
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5.2
Changes in
Capitalization; Merger; Liquidation.
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(a) The number of shares of Stock reserved
for the grant of Options, Dividend Equivalent Rights,
Performance Unit Awards, Phantom Shares, Stock Appreciation
Rights and Stock Awards; the number of shares of Stock reserved
for issuance upon the exercise or payment, as applicable, of
each outstanding Option, Dividend Equivalent Right, Phantom
Share and Stock Appreciation Right and upon vesting or grant, as
applicable, of each Stock Award; the Exercise Price of each
outstanding Option and the specified number of shares of Stock
to which each outstanding Dividend Equivalent Right, Phantom
Share and Stock Appreciation Right pertains must be
proportionately adjusted for any increase or decrease in the
number of issued shares of Stock resulting from a subdivision or
combination of shares or the payment of a stock dividend in
shares of Stock to holders of outstanding shares of Stock or any
other increase or decrease in the number of shares of Stock
outstanding effected without receipt of consideration by the
Company.
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(b) In the event of a merger, consolidation,
reorganization, extraordinary dividend, spin-off, sale of
substantially all of the Companys assets, other change in
capital structure of the Company, tender offer for shares of
Stock, or a change in control of the Company (as defined by the
Committee in the applicable Stock Incentive Agreement) the
Committee may make such adjustments with respect to awards and
take such other action as it deems necessary or appropriate,
including, without limitation, the assumption of other awards,
the substitution of new awards, the adjustment of outstanding
awards, the acceleration of awards, the removal of restrictions
on outstanding awards, or the termination of outstanding awards
in exchange for the cash value determined in good faith by the
Committee of the vested and/or unvested portion of the award,
all as may be provided in the applicable Stock Incentive
Agreement or, if not expressly addressed therein, as the
Committee subsequently may determine in its sole discretion. Any
adjustment pursuant to this Section 5.2 may provide, in the
Committees discretion, for the elimination without payment
therefor of any fractional shares that might otherwise become
subject to any Stock Incentive, but except as set forth in this
Section may not otherwise diminish the then value of the Stock
Incentive.
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(c) The existence of the Plan and the Stock
Incentives granted pursuant to the Plan must not affect in any
way the right or power of the Company to make or authorize any
adjustment, reclassification, reorganization or other change in
its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having
preferences or priorities as to the Stock or the rights thereof,
the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any
other corporate act or proceeding.
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5.3
Cash
Awards.
The Committee may, at any time and in its
discretion, grant to any holder of a Stock Incentive the right
to receive, at such times and in such amounts as determined by
the Committee in its discretion, a cash amount which is intended
to reimburse such person for all or a portion of the federal,
state and local income taxes imposed upon such person as a
consequence of the receipt of the Stock Incentive or the
exercise of rights thereunder.
5.4
Compliance
with Code.
All Incentive Stock Options to be granted
hereunder are intended to comply with Code Section 422, and
all provisions of the Plan and all Incentive Stock Options
granted hereunder must be construed in such manner as to
effectuate that intent.
E-11
5.5
Right to
Terminate Employment.
Nothing in the Plan or in any Stock
Incentive confers upon any Participant the right to continue as
an employee or officer of the Company or any of its Affiliates
or affect the right of the Company or any of its Affiliates to
terminate the Participants employment or services at any
time.
5.6
Non-Alienation
of Benefits.
Other than as provided herein, no benefit under
the Plan may be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
charge; and any attempt to do so shall be void. No such benefit
may, prior to receipt by the Participant, be in any manner
liable for or subject to the debts, contracts, liabilities,
engagements or torts of the Participant.
5.7
Restrictions
on Delivery and Sale of Shares; Legends.
Each Stock
Incentive is subject to the condition that if at any time the
Committee, in its discretion, shall determine that the listing,
registration or qualification of the shares covered by such
Stock Incentive upon any securities exchange or under any state
or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Incentive or the
purchase or delivery of shares thereunder, the delivery of any
or all shares pursuant to such Stock Incentive may be withheld
unless and until such listing, registration or qualification
shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state
securities laws with respect to the shares of Stock purchasable
or otherwise deliverable under Stock Incentives then
outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery
of Stock pursuant to a Stock Incentive, that the Participant or
other recipient of a Stock Incentive represent, in writing, that
the shares received pursuant to the Stock Incentive are being
acquired for investment and not with a view to distribution and
agree that the shares will not be disposed of except pursuant to
an effective registration statement, unless the Company shall
have received an opinion of counsel that such disposition is
exempt from such requirement under the Securities Act of 1933
and any applicable state securities laws. The Company may
include on certificates representing shares delivered pursuant
to a Stock Incentive such legends referring to the foregoing
representations or restrictions or any other applicable
restrictions on resale as the Company, in its discretion, shall
deem appropriate.
5.8
Listing and
Legal Compliance.
The Committee may suspend the exercise or
payment of any Stock Incentive so long as it determines that
securities exchange listing or registration or qualification
under any securities laws is required in connection therewith
and has not been completed on terms acceptable to the Committee.
5.9
Termination
and Amendment of the Plan.
The Board of Directors at any
time may amend or terminate the Plan without stockholder
approval; provided, however, that the Board of Directors shall
obtain stockholder approval for any amendment to the Plan that
increases the number of shares of Stock available under the
Plan, materially expands the classes of individuals eligible to
receive Stock Incentives, or materially expands the type of
awards available for issuance under the Plan. No such
termination or amendment without the consent of the holder of a
Stock Incentive may adversely affect the rights of the
Participant under such Stock Incentive.
5.10
Stockholder
Approval.
The Plan must be submitted to the stockholders of
the Company for their approval within twelve (12) months
before or after the adoption of the Plan by the Board of
Directors of the Company. If such approval is not obtained, any
Stock Incentive granted hereunder will be void.
5.11
Choice of
Law.
The laws of the State of Delaware shall govern the
Plan, to the extent not preempted by federal law, without
reference to the principles of conflict of laws.
E-12
5.12
Effective
Date and Term of Plan.
This Plan was approved by the Board
of Directors
on ,
2004 and shall expire
on ,
2014.
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Title: President and
Chief Executive Officer
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E-13
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
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Item 20.
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Indemnification of Officers and
Directors
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Delaware law provides that a corporation may
eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, subject to certain exceptions.
The effect of this provision is to eliminate the personal
liability of directors to the company or its stockholders for
monetary damages for actions involving a breach of their
fiduciary duty of care, including any actions involving gross
negligence.
Delaware law also provides, in general, that a
corporation has the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation), because the person is or
was a director or officer of the corporation. Such indemnity may
be against expenses (including attorneys fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the
best interests of the corporation and if, with respect to any
criminal action or proceeding, the person did not have
reasonable cause to believe the persons conduct was
unlawful.
Delaware law further provides, in general, that a
corporation has the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor because the
person is or was a director or officer of the corporation,
against any expenses (including attorneys fees) actually
and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted
in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation.
Additionally, under Delaware law, a corporation
generally has the power to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the
corporation against any liability asserted against the person in
any such capacity, or arising out of the persons status as
such, whether or not the corporation would have the power to
indemnify the person against such liability under the provisions
of the law.
Verilinks certificate of incorporation
eliminates to the fullest extent permissible under Delaware law
the liability of directors to Verilink and its stockholders for
monetary damages for breach of fiduciary duty as a director.
This provision does not eliminate liability: (a) for any
breach of a directors duty of loyalty to Verilink or its
stockholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of the law; (c) in connection with payment of any illegal
dividend or illegal stock repurchase; or (d) for any
transaction from which the director derives an improper personal
benefit. In addition, these provisions do not apply to equitable
remedies such as injunctive relief.
Verilinks bylaws provide that
indemnification of directors and officers must be provided to
the fullest extent permitted under Delaware law and
Verilinks certificate of incorporation.
The above discussion of Delaware law and of
Verilink certificate of incorporation is not intended to be
exhaustive and is qualified in its entirety by such statutes and
Verilinks certificate of incorporation, as amended and
restated.
Verilink has obtained insurance policies insuring
its directors and officers against some liabilities they may
incur in their capacity as directors and officers.
II-1
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Item 21.
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Exhibits and Financial Statement
Schedules
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The following exhibits are filed as part of this
registration statement:
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2
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.1*
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Agreement and Plan of Merger by and among
Verilink Corporation, SRI Acquisition Corp. and Larscom
Incorporated, dated as of April 28, 2004 (included as
Annex A to the joint proxy statement/prospectus forming a
part of this registration statement).
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2
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.2
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Stock Purchase Agreement, dated as of
February 5, 2004, by and between Verilink Corporation and
The Kennedy Company (exhibits and schedules omitted but copies
will be furnished supplementally to the Securities and Exchange
Commission upon request) (incorporated by reference to
Exhibit 2.1 to Verilinks Current Report on Form 8-K
filed February 20, 2004, Commission file
No. 000-28562).
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3
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.1
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Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to
Verilinks Registration Statement on Form S-1,
effective June 10, 1996, Commission File No. 333-4010).
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3
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.2
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Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to Verilinks Registration
Statement on Form
S-1, effective June 10, 1996, Commission File
No. 333-4010).
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4
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.1
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Amendment No. 2 to the Rights Agreement by
and between Verilink Corporation and American Stock
Transfer & Trust Company, dated as of April 28,
2004 (incorporated by reference to Exhibit 4.1 to
Verilinks Current Report on Form 8-K filed April 30,
2004, Commission File No. 000-28562).
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5
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.1**
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Opinion of Powell, Goldstein, Frazer &
Murphy LLP, regarding legality of the securities to be issued.
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8
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.1**
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Opinion of Powell, Goldstein, Frazer &
Murphy LLP, regarding certain U.S. federal tax aspects of
the merger.
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8
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.2**
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Opinion of Cooley Godward LLP, regarding certain
U.S. federal tax aspects of the merger.
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10
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.1*
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Verilink Corporation 2004 Stock Incentive Plan
(included as Annex E to the joint proxy
statement/prospectus forming a part of this registration
statement).
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10
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.2*
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Form of Registration Rights Agreement by and
between Verilink Corporation and certain stockholders as listed
therein.
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10
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.3
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Convertible Promissory Note issued to The Kennedy
Company on February 5, 2004 (incorporated by reference to
Exhibit 10.1 to Verilinks Current Report on
Form 8-K filed February 20, 2004, Commission file
No. 000-28562).
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10
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.4
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Loan and Security Agreement by and between RBC
Centura Bank, and Verilink Corporation, V-X Acquisition Company
and XEL Communications, Inc., dated as of April 8, 2004
(incorporated by reference to Exhibit 10.1 to
Verilinks Current Report on Form 8-K filed
April 28, 2004, Commission file No. 000-28562).
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10
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.5
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Promissory Note of Verilink Corporation, V-X
Acquisition Company and XEL Communications, Inc., in favor of
RBC Centura Bank, dated as of April 8, 2004 (incorporated
by reference to Exhibit 10.2 to Verilinks Current
Report on Form 8-K filed April 28, 2004 Commission
file No. 000-28562).
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10
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.6**
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Form of Change in Control Agreement for executive
officers other than CEO.
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23
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.1**
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Consent of PricewaterhouseCoopers LLP with
respect to Verilinks audited financial statements.
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23
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.2**
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Consent of PricewaterhouseCoopers LLP with
respect to Larscoms audited financial statements.
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23
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.3**
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Consent of Ehrhardt Keefe Steiner & Hottman
PC.
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23
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.4**
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Consent of Deloitte & Touche LLP.
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23
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.5**
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Consent of Powell, Goldstein, Frazer &
Murphy LLP (included in Exhibit 8.1 to this registration
statement).
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23
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.6**
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Consent of Cooley Godward LLP (included in
Exhibit 8.2 to this registration statement).
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23
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.7*
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Consent of Raymond James & Associates,
Inc.
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II-2
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23
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.8*
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Consent of Standard & Poors
Corporate Value Consulting.
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24
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.1*
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Power of Attorney.
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99
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.1*
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Voting Agreement by and between Verilink
Corporation, Axel Johnson, Inc., Sierra Ventures V, L.P.,
SV Associates V, L.P., Sierra Ventures VI, L.P., SV
Associates VI, L.P., Sierra Ventures VII, L.P. and
Sierra Ventures Associates VII, LLC, dated as of
April 28, 2004 (included as Annex A2 to the joint
proxy statement/prospectus forming a part of this registration
statement).
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99
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.2*
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Voting Agreement by and between Larscom
Incorporated, Leigh S. Belden, Beltech, Inc., Leigh S. Belden
and Deborah Tinker Belden or Their Successors Trustees U/A DTD
12/09/88 and Steven C. Taylor (included as Annex A1 to the
joint proxy statement/prospectus forming a part of this
registration statement).
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99
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.3**
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Form of Verilink Corporation Proxy Card.
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99
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.4**
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Form of Larscom Incorporated Proxy Card.
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Management contract or compensatory plan or
arrangement.
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The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any
liability under the Securities Act, each filing of the
registrants annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act (and, where applicable,
each filing of an employee benefit plans annual report
pursuant to Section 15(d) of the Securities Act) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial
bona fide
offering thereof;
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(b) (1)
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That prior to any public reoffering of the
securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of
Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
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(2)
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That every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or
(ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial
bona fide
offering thereof;
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(c) Insofar as indemnification for liabilities
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
II-3
whether such indemnification by it is against
public policy as expressed in the Act and will be governed by
the final adjudication of such issue;
(d) To respond to requests for information that
is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business
day of receipt of any such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed
subsequent to the effective date of this registration statement
through the date of responding to such request; and
(e) To supply by means of a post-effective
amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the
subject of and included in this registration statement when it
became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities
Act, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Madison, state of Alabama, on
June 24, 2004.
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Leigh S. Belden
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President and Chief Executive
Officer
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Pursuant to the requirements of the Securities
Act, this registration statement has been signed by the
following persons in the capacities and as of the dates
indicated:
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Signature
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Title
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Date
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/s/ LEIGH S. BELDEN
Leigh S. Belden
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President, Chief Executive Officer and Director
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June 24, 2004
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/s/ C.W. SMITH
C.W. Smith
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Vice President and Chief Financial Officer
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June 24, 2004
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*
Howard Oringer
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Chairman of the Board
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June 24, 2004
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*
Steven C. Taylor
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Director
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June 24, 2004
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*
John E. Major
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Director
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June 24, 2004
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*
John A. McGuire
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Director
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June 24, 2004
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*By:
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/s/ LEIGH S. BELDEN
Leigh S. Belden
Attorney-in-Fact
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II-5
EXHIBIT INDEX
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2
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.1*
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Agreement and Plan of Merger by and among
Verilink Corporation, SRI Acquisition Corp. and Larscom
Incorporated, dated as of April 28, 2004 (included as
Annex A to the joint proxy statement/prospectus forming a
part of this registration statement).
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2
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.2
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Stock Purchase Agreement, dated as of
February 5, 2004, by and between Verilink Corporation and
The Kennedy Company (exhibits and schedules omitted but copies
will be furnished supplementally to the Securities and Exchange
Commission upon request) (incorporated by reference to
Exhibit 2.1 to Verilinks Current Report on Form 8-K
filed February 20, 2004, Commission file
No. 000-28562).
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3
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.1
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Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to
Verilinks Registration Statement on Form S-1,
effective June 10, 1996, Commission File No. 333-4010).
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3
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.2
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Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to Verilinks Registration
Statement on Form S-1, effective June 10, 1996,
Commission File No. 333-4010).
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4
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.1
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Amendment No. 2 to the Rights Agreement by
and between Verilink Corporation and American Stock
Transfer & Trust Company, dated as of April 28,
2004 (incorporated by reference to Exhibit 4.1 to
Verilinks Current Report on Form 8-K filed April 30,
2004, Commission File No. 000-28562).
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5
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.1**
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Opinion of Powell, Goldstein, Frazer &
Murphy LLP, regarding legality of the securities to be issued.
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8
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.1**
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Opinion of Powell, Goldstein, Frazer &
Murphy LLP, regarding certain U.S. federal tax aspects of
the merger.
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8
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.2**
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Opinion of Cooley Godward LLP, regarding certain
U.S. federal tax aspects of the merger.
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10
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.1*
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Verilink Corporation 2004 Stock Incentive Plan
(included as Annex E to the joint proxy statement/prospectus
forming a part of this registration statement).
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10
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.2*
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Form of Registration Rights Agreement by and
between Verilink Corporation and certain stockholders as listed
therein.
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10
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.3
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Convertible Promissory Note issued to The Kennedy
Company on February 5, 2004 (incorporated by reference to
Exhibit 10.1 to Verilinks Current Report on Form 8-K
filed February 20, 2004, Commission file
No. 000-28562).
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10
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.4
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Loan and Security Agreement by and between RBC
Centura Bank, and Verilink Corporation, V-X Acquisition Company
and XEL Communications, Inc., dated as of April 8, 2004
(incorporated by reference to Exhibit 10.1 to
Verilinks Current Report on Form 8-K filed April 28,
2004, Commission file No. 000-28562).
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10
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.5
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Promissory Note of Verilink Corporation, V-X
Acquisition Company and XEL Communications, Inc., in favor of
RBC Centura Bank, dated as of April 8, 2004 (incorporated
by reference to Exhibit 10.2 to Verilinks Current
Report on Form 8-K filed April 28, 2004 Commission file
No. 000-28562).
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10
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.6**
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Form of Change in Control Agreement for executive
officers other than CEO.
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23
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.1**
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Consent of PricewaterhouseCoopers LLP with
respect to Verilinks audited financial statements.
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23
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.2**
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Consent of PricewaterhouseCoopers LLP with
respect to Larscoms audited financial statements.
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23
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.3**
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Consent of Ehrhardt Keefe Steiner & Hottman
PC.
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23
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.4**
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Consent of Deloitte & Touche LLP.
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23
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.5**
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Consent of Powell, Goldstein, Frazer &
Murphy LLP (included in Exhibit 8.1 to this registration
statement).
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23
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.6**
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Consent of Cooley Godward LLP (included in
Exhibit 8.2 to this registration statement).
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23
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.7*
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Consent of Raymond James & Associates,
Inc.
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23
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.8*
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Consent of Standard & Poors
Corporate Value Consulting.
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24
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.1*
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|
Power of Attorney.
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II-6
|
|
|
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99
|
.1*
|
|
Voting Agreement by and between Verilink
Corporation, Axel Johnson, Inc., Sierra Ventures V, L.P.,
SV Associates V, L.P., Sierra Ventures VI, L.P., SV
Associates VI, L.P., Sierra Ventures VII, L.P. and Sierra
Ventures Associates VII, LLC, dated as of April 28, 2004
(included as Annex A2 to the joint proxy
statement/prospectus forming a part of this registration
statement).
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99
|
.2*
|
|
Voting Agreement by and between Larscom
Incorporated, Leigh S. Belden, Beltech, Inc., Leigh S. Belden
and Deborah Tinker Belden or Their Successors Trustees U/A DTD
12/09/88 and Steven C. Taylor (included as Annex A1 to the
joint proxy statement/ prospectus forming a part of this
registration statement).
|
|
99
|
.3**
|
|
Form of Verilink Corporation Proxy Card.
|
|
99
|
.4**
|
|
Form of Larscom Incorporated Proxy Card.
|
|
|
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|
|
Management contract or compensatory plan or
arrangement.
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II-7