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Item 1. Legal Proceedings

2025-11-04 compared with 2025-08-05 · 122 added, 11 removed, 115 unchanged (54% of the section changed)

LEGAL PROCEEDINGS

The information presented under the caption “DPLTA Appraisal Proceedings” in Note 16 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report is incorporated herein by reference.

The information presented under the captions "Legal Matters" and “DPLTA Appraisal Proceedings” in Note 18 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report is incorporated herein by reference.

RI SK FACTORS

A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2024 Form 10-K/A.

A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 20, 2025 (the "2024 Form 10-K/A").

There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2024 Form 10-K/A other than as described in the risk factors below.

Risks Related to our Financial Results and Company Success

We require a significant amount of cash to service our indebtedness, our payment obligations to Adtran Networks shareholders under the DPLTA, and other obligations.

Our ability to generate cash depends on many factors beyond our control and any failure to service our outstanding indebtedness could harm our business, financial condition and results of operations.

Furthermore, we have entered into a DPLTA with Adtran Networks.

Additionally, pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us a recurring cash payment of €0.52 per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”) payment, or (2) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share, plus guaranteed interest (the “Exit Compensation”).

For the year ended December 31, 2024, approximately 831 thousand shares of Adtran Networks stock were tendered to the Company.

This resulted in total Exit Compensation payments of approximately €15.7 million, or approximately $17.4 million, based on exchange rates at the time of the transactions, being paid to Adtran Networks shareholders.

Any failure to satisfy our payment obligations under the DPLTA could harm our business, financial condition and results of operations.

Moreover, on September 19, 2025, the Company issued $201.3 million aggregate principal amount of convertible senior notes (the “2030 Notes” or the “Notes”).

The Notes accrue interest at a rate of 3.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2026.

Unless repurchased earlier, redeemed, or converted, the Notes will mature on September 15, 2030.

Our ability to make payments on and to refinance our indebtedness, to cover our payment obligations under the DPLTA and the 2030 Notes, and to fund working capital needs and planned capital expenditures depends on our ability to generate cash in the future.

This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

If our business does not generate sufficient cash flow from operations, we do not sufficiently reduce costs in a timely manner, or if our future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to raise additional debt or equity capital, refinance all or a portion of our indebtedness, sell assets, reduce or delay capital investments, any of which could have a material adverse effect.

The Company experienced revenue declines in 2024.

However, customers began replenishing their inventories to meet increasing demand, and revenue increased throughout the first three quarters of 2025.

There can be no assurance that revenue will continue to increase or that the Company will be successful in effecting its plans to preserve cash liquidity and maintain compliance with the Company's covenants on commercially reasonable terms or at all.

We may need to further reduce capital expenditure and/or take other steps to preserve working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants.

Our ability to raise additional debt capital or to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.

Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

The terms of existing or future debt instruments or preferred stock may limit or prevent us from taking any of these actions.

In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness or dividend payments on any future outstanding shares of preferred stock would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness or otherwise raise capital on commercially reasonable terms or at all.

Our inability to generate sufficient cash flow to satisfy our debt service, payment obligations to Adtran Networks shareholders under the DPLTA, and other obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations.

Furthermore, if we raise additional funds through the issuance of equity or securities convertible into equity, or undertake certain transactions intended to address our existing indebtedness, our existing stockholders could suffer dilution in their percentage ownership of the Company, or our leverage and outstanding indebtedness could increase.

Current capital market conditions, including the impact of inflation, have increased borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods should we seek additional funding.

Our significant indebtedness exposes us to various risks.

As of September 30, 2025, the Company’s borrowings under the revolving line of credit were $25.0 million, all of which was borrowed by Adtran Networks.

As of September 30, 2025, the U.S.

Borrower had a total of $5.8 million in letters of credit under the Amended Credit Agreement, leaving a net amount (after giving effect to the $25.0 million of outstanding borrowings described above) of $319.2 million available for future borrowings;

however, as of September 30, 2025, the Company was limited to additional borrowings of $232.0 million based on debt covenant compliance metrics.

The credit facilities provided under the Credit Agreement mature in July 2027, but we may request extensions subject to customary conditions.

In addition, on September 19, 2025, the Company issued $201.3 million principal amount of its 3.75% convertible senior notes due September 15, 2030 (the “2030 Notes” or the “Notes”).

See "Cash Requirements" in Part I, Item 2 of this report for additional information.

Our indebtedness has and may continue to adversely affect our operations and liquidity.

Our level of indebtedness:

• could make it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make its scheduled debt payments;

• has caused us and may continue to cause us to use a larger portion of our cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and development and other business activities;

• has contributed to our decision to suspend quarterly dividend payments to the Company's stockholders;

• limits our ability to assume debt in a future acquisitions.

Specifically, our Credit Agreement with Wells Fargo limits the amount of debt we can assume in an acquisition.

This could limit our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;

• could cause us to be more vulnerable to general adverse economic and industry conditions;

• could cause us to be disadvantaged compared to competitors with less leverage;

• limits our ability to borrow additional money.

Specifically, our Credit Agreement with Wells Fargo limits our ability to borrow additional money, which could limit our ability to fund working capital, capital expenditures, research and development and other general corporate needs in the future.

Our ability to satisfy our debt obligations and renew the credit facility is dependent upon our future performance and other risk factors discussed in this section.

We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If we fail to pay interest on, or repay, our borrowings under the Wells Fargo credit facility when required, we will be in default under the applicable loans, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time.

In addition, our failure to repurchase the 2030 Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture.

We are attempting to further reduce our operating expenses in order to fund our obligations, and we may be forced to further reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness.

We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled obligations or that these actions would be permitted under the terms of our current or future debt agreements.

If we fail to implement these reductions or are unable to achieve sufficient operating results and resources, we could face substantial liquidity challenges and might be required to dispose of material assets or operations to meet our debt service and other obligations.

We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and other obligations when due.

Any of these events could have a material adverse effect on our business, results of operations and financial condition.

We may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase our total indebtedness.

Although the terms of its existing and future credit agreements and of the indentures governing its debt contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions and debt incurred in compliance with these restrictions could be substantial.

If we or our restricted subsidiaries incur significant additional debt, the relative risks may intensify.

Risks Related to our 2030 Notes and Capped Calls

Our indebtedness and liabilities could limit the cash flow available for our operations and expose us to risks that could adversely affect our business, financial condition and results of operations.

In addition, if we are unable to raise additional capital and/or restructure some of our existing indebtedness, we may be unable to meet our obligations as they come due, including with respect to the 2030 Notes.

Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

• increasing our vulnerability to adverse economic and industry conditions;

• limiting our ability to obtain additional financing;

• making us unable to meet our obligations as they come due;

• requiring the dedication of a substantial portion of our cash flows from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;

• limiting our flexibility to plan for, or react to, changes in our business;

• diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2030 Notes;

• placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the 2030 Notes and the Amended Credit Agreement, and our cash needs may increase in the future.

In addition, the Wells Fargo Credit Agreement contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.

If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

We may be unable to raise the funds necessary to repurchase the 2030 Notes for cash following a fundamental change or to pay any cash amounts due upon maturity or conversion of the 2030 Notes, and our other indebtedness may limit our ability to repurchase the 2030 Notes or to pay any cash amounts due upon their maturity or conversion.

Noteholders may, subject to a limited exception, require us to repurchase their 2030 Notes following a “fundamental change” (as defined in the Indenture) at a cash repurchase price generally equal to the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, if any.

In addition, all conversions of the 2030 Notes will be settled partially or entirely in cash.

We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2030 Notes or pay the cash amounts due upon conversion.

In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the 2030 Notes or pay the cash amounts due upon conversion.

Our failure to repurchase the 2030 Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture.

A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full.

We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the 2030 Notes.

Provisions in the Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the 2030 Notes and the Indenture could make a third party attempt to acquire us more difficult or expensive.

For example, if a takeover constitutes a fundamental change, then, subject to a limited exception, noteholders will have the right to require us to repurchase their 2030 Notes for cash.

In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate.

In either case, and in other cases, our obligations under the 2030 Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.

The accounting method for the 2030 Notes may adversely affect our reported financial condition and results.

The accounting method for reflecting the 2030 Notes on our balance sheet, accruing interest expense for the 2030 Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.

In accordance with applicable accounting standards, the 2030 Notes have been and may continue to be reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the 2030 Notes, net of discount and issuance costs.

The issuance costs have been and may continue to be treated as a debt discount for accounting purposes, which are amortized into interest expense over the term of the 2030 Notes.

As a result of this amortization, the interest expense that we have recognized and expect to

continue to recognize for the 2030 Notes for accounting purposes has been and may continue to be greater than the cash interest payments we will pay on the 2030 Notes, which has resulted and may continue to result in higher reported loss and which may result in lower reported income in the future.

In addition, the shares underlying the 2030 Notes have been reflected and may continue to be reflected in our diluted earnings per share using the “if converted” method, in accordance with ASU 2020-06.

Under that method, if the conversion value of the 2030 Notes exceeds their principal amount for a reporting period, then we calculate our diluted earnings per share assuming that all of the Notes were converted at the beginning of the reporting period and that we issued shares of our common stock to settle the excess.

However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, then the shares underlying the Notes will not be reflected in our diluted earnings per share.

The application of the "if converted" method may reduce our reported diluted earnings per share, and accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share.

Furthermore, if any of the conditions to the convertibility of the 2030 Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the 2030 Notes as a current, rather than a long-term, liability.

This reclassification could be required even if no noteholders convert their 2030 Notes and could materially reduce our reported working capital.

Transactions relating to our 2030 Notes may affect the value of our common stock.

Conversions of the 2030 Notes offered hereby may significantly dilute the ownership interests of our common stockholders and depress the market price of our common stock.

Furthermore, in connection with the 2030 Notes, we have entered into privately negotiated Capped Calls with one of the initial purchasers of the Notes or its affiliate and certain other financial institutions.

The Capped Calls are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2030 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.

In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and (x) are likely to do so following any repurchase of the Notes by us in connection with any fundamental change and (y) are likely to do so during any observation period related to a conversion of the Notes or following any repurchase or redemption of Notes by us, other than in connection with any fundamental change, if we elect to unwind a corresponding portion of the Capped Calls in connection with such conversion, repurchase or redemption).

This activity could also cause or avoid an increase or decrease in the market price of our common stock.

We are subject to counterparty risk with respect to the Capped Calls, and the Capped Calls may not operate as planned.

The option counterparties are, or are affiliates of, financial institutions, and we will be subject to the risk that one or more of such option counterparties might default under the Capped Calls.

Our exposure to the credit risk of the option counterparties is not secured by any collateral.

If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our Capped Calls with that option counterparty.

Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated with increases in the market price or the volatility of our common stock.

In addition, upon a default by an option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock.

We can provide no assurances as to the financial stability or viability of any option counterparty.

In addition, the Capped Calls are complex, and they may not operate as planned.

For example, the terms of the Capped Calls may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur.

Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the Capped Calls.

Risks related to the regulatory environments in which we do business

16 unchanged sentences

For example, within the past three years, numerous states have adopted or are in the process of adopting various privacy-related laws and regulations.

In addition, on July 16, 2020, the Court of Justice of the European Union issued a decision that invalidated the EU-U.S.

In addition, on July 16, 2020, the Court of Justice of the European Union ("EU") issued a decision that invalidated the EU-U.S.

Privacy Shield framework as a basis for transfers of personal data from the EU to the U.S., resulting in uncertainty and potential additional compliance obligations to ensure that a valid basis under the GDPR exists for these data transfers.

42 unchanged sentences

In recent years, international market conditions and the international regulatory environment have been increasingly affected by competition among countries and geopolitical frictions.

During the first half of 2025 and into July 2025, the U.S.

During the first three quarters of 2025 and into November 2025, the U.S.

introduced trade policy actions that have increased import tariffs across a wide range of countries at various rates, with certain exemptions.

17 unchanged sentences

The adoption and expansion of tariffs or other trade restrictions, increasing trade tensions, or other changes in governmental policies related to taxes, tariffs, trade agreements or policies, are difficult to predict, which makes attendant risks difficult to anticipate and mitigate.

unable to navigate further changes in U.S.

If we are unable to navigate further changes in U.S.

or international trade policy, it could have a material adverse impact on our business and results of operations.

17 unchanged sentences

Further downgrades of the U.S.

credit rating, impending automatic spending cuts or a government shutdown could negatively impact our liquidity, financial condition and earnings.

credit rating, impending automatic spending cuts, the current government shutdown, or future government shutdowns could negatively impact our liquidity, financial condition and earnings.

debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States.

3 unchanged sentences

long-term issuer and senior unsecured ratings to Aa1 from Aaa and changed its outlook to stable from negative in response to the increase in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.

Moreover, on July 4, 2025, President Trump signed H.R.

1, Republicans’ “One Big Beautiful Bill,” into law.

Moreover, on July 4, 2025, President Trump signed the OBBBA into law.

The bill increased the federal government’s debt limit by $5 trillion, making it unlikely that the limit will be reached in the immediate future.

4 unchanged sentences

Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.

Moreover, future government shutdowns, as well as adverse political and economic conditions, could have a material adverse effect on our business, financial condition and results of operations.

Moreover, the current government shutdown or future government shutdowns, as well as adverse political and economic conditions, could have a material adverse effect on our business, financial condition and results of operations.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2025, we did not repurchase any shares of our common stock.

As of June 30, 2025, there is no current authorization to repurchase common stock.

During the three months ended September 30, 2025, we did not repurchase any shares of our common stock.

As of September 30, 2025, there is no current authorization to repurchase common stock.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings