<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DSC Communications Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
DSC Communications Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[DSC LOGO]
March 17, 1995
Dear Fellow Stockholder:
This year's Annual Meeting of Stockholders will be held at the Doubletree
Hotel -- Santa Rosa, 3555 Round Barn Blvd, Santa Rosa, California 95403, on
April 26, 1995, at 10:00 AM local time. You are cordially invited to attend. The
matters you are asked to consider are described in the attached Proxy Statement
and Notice of Annual Meeting. The Company's Board of Directors recommends (i)
election of management's three nominees for the Board of Directors; (ii)
approval of an amendment to the Company's Restated Certificate of Incorporation
increasing the authorized number of shares of Common Stock, $.01 par value, from
250,000,000 to 500,000,000; and (iii) approval of the proposal to add an
additional 1,000,000 shares of Common Stock to the DSC Communications
Corporation 1990 Employee Stock Purchase Plan.
To be certain that your shares are voted at the meeting, whether or not you
plan to attend in person, please sign, date and return the enclosed proxy card
as soon as possible. Your vote is important.
At the meeting, I will review the Company's activities during the past year
and its plans and prospects for the future. An opportunity will be provided for
questions by the stockholders. I hope you will be able to join us.
Sincerely,
JAMES L. DONALD
Chairman of the Board,
President and Chief
Executive Officer
<PAGE> 3
[DSC LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 1995
Notice is hereby given that the Annual Meeting of Stockholders of DSC
Communications Corporation, a Delaware corporation (the "Company"), will be held
at the Doubletree Hotel -- Santa Rosa, 3555 Round Barn Blvd, Santa Rosa,
California 95403, on Wednesday, April 26, 1995, at 10:00 AM local time for the
following purposes:
1. To elect three Class II Directors for terms expiring in 1998.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the authorized number of shares of Common Stock,
$.01 par value, from 250,000,000 to 500,000,000.
3. To approve a proposal to add an additional 1,000,000 shares of
Common Stock to the DSC Communications Corporation 1990 Employee Stock
Purchase Plan.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The accompanying Proxy Statement contains information regarding the
business to be considered at the meeting.
Only stockholders of record at the close of business on February 27, 1995,
are entitled to notice of, and to vote at, the Annual Meeting of Stockholders or
any adjournment thereof. A list of stockholders will be made available at the
Company's offices located at 1310-C Redwood Way, Petaluma, California at least
10 days prior to such meeting for examination by any stockholder for any purpose
germane to the meeting.
You are cordially invited to attend the meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND DATE THE ACCOMPANYING PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. If you attend
the meeting, you may vote in person if you wish, whether or not you have
returned your proxy. A proxy may be revoked at any time before it is exercised.
By Order of the Board of Directors
GEORGE B. BRUNT
Vice President, Secretary
and General Counsel
Plano, Texas
March 17, 1995
<PAGE> 4
DSC COMMUNICATIONS CORPORATION
1000 COIT ROAD
PLANO, TEXAS 75075
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy, mailed with this Proxy Statement, is solicited on
behalf of DSC Communications Corporation, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders of the Company to be
held Wednesday, April 26, 1995, at 10:00 AM local time, at the Doubletree
Hotel -- Santa Rosa, 3555 Round Barn Blvd, Santa Rosa, California 95403.
This Proxy Statement and accompanying form of proxy will first be mailed to
stockholders of record on or about March 17, 1995.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the
Company's Board of Directors shall consist of not less than seven nor more than
fifteen persons and that the Board shall be divided into three classes serving
staggered three year terms with each class to consist as nearly as possible of
one-third of the directors; provided, that once elected, no director's term
shall be reduced. The Board currently consists of nine members. Three Class II
directors, to serve until the 1998 Annual Meeting, will be elected at the Annual
Meeting.
Management's three nominees for election as Class II Directors listed below
are currently members of the Board of Directors.
<TABLE>
<CAPTION>
AGE AS OF DIRECTOR OF
PRINCIPAL OCCUPATION FEBRUARY 27, COMPANY
OR EMPLOYMENT 1995 SINCE
------------------------------------------ ------------ -----------
<S> <C> <C> <C>
Clement M. Brown, Jr....... Retired; former President of Squibb Europe 74 1981
(SEV) S.A.
Sir John Fairclough........ Chairman, Rothschild Venture Ltd. since 64 1992
1990; Chief Scientific Adviser, Cabinet
Office, U.K. 1986-1990; Director of N.M.
Rothschild & Sons (banking); Lucas
Industries PLC (aerospace); Oxford
Instruments Group PLC (scientific
instruments).
Gerald F. Montry........... Senior Vice President and Chief Financial 56 1989
Office of the Company since 1986; Director
of Intervoice, Inc. (computer controlled
voice automation systems) since 1994.
</TABLE>
VOTE REQUIRED FOR ELECTION OF DIRECTORS
To be elected as a Director, each nominee must receive the favorable vote
of a plurality of the total number of shares of Common Stock represented and
entitled to vote at the Annual Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
THREE NOMINEES NAMED ABOVE.
<PAGE> 5
PROPOSAL TO AMEND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED CAPITAL STOCK
The Company's Restated Certificate of Incorporation provides for
250,000,000 shares of Common Stock having a par value of $.01 per share ("Common
Stock"). The proposed amendment to the Company's Restated Certificate of
Incorporation would amend Subsection (a) of Article Fourth to increase the
authorized shares of the Company's Common Stock from 250,000,000 to 500,000,000
shares. The text of this amended Subsection is set forth below:
"(a) the total number of shares of Common Stock which the Corporation
shall have authority to issue shall be five hundred million (500,000,000)
shares of the par value of $.01 each."
At February 27, 1995, shares of Common Stock were issued and
outstanding or were reserved for issuance under the Company's existing
compensation plans, leaving a balance of shares of Common Stock available
for other purposes.
The Company has not made any decision respecting the issuance of additional
shares of Common Stock. However, management deems it wise to increase the number
of authorized shares of Common Stock at this time, because, in its opinion, it
is important that management have available to it the means and flexibility to
take advantage of any opportunities that may occur without incurring the expense
or delay involved with holding a special meeting of stockholders to increase the
number of authorized shares. Some or all of such additional shares would be
available for issuance in connection with a stock split or stock dividend (such
as the two-for-one stock split declared on April 27, 1994), for sale to raise
additional equity for the Company or for issuance in the event the Company
acquired a business for consideration which was payable in whole or in part in
shares of the Company's Common Stock. Further authorization for the issuance of
such Common Stock by a vote of security holders would not be solicited prior to
such issuance unless required by law. In the event shares of such Common Stock
were issued, other than pursuant to a stock split or stock dividend, the
percentage ownership of the Company of each stockholder would be proportionately
reduced. No other rights of stockholders would be affected. Stockholders have no
pre-emptive right to subscribe for or purchase any additional shares issued by
the Company. Upon effectiveness of the proposed amendment, the Company will have
shares of the 500,000,000 total authorized shares available for
issuance.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF
THE PROPOSED AMENDMENT.
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
SUBJECT TO THE DSC COMMUNICATIONS CORPORATION
1990 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has determined that it is in the best interest of
the Company and the stockholders to add 1,000,000 shares of the Company's Common
Stock to the DSC Communications Corporation 1990 Employee Stock Purchase Plan
(the "1990 Purchase Plan"). The Board of Directors believes that the 1990
Purchase Plan benefits the Company and its stockholders by encouraging employees
to acquire a proprietary interest in the Company.
ADMINISTRATION
The 1990 Purchase Plan is administered by a Committee (the "Purchase Plan
Committee") appointed by the Board of Directors of the Company. The Purchase
Plan Committee shall consist of at least two persons, at least one of which
shall be a member of the Board.
EFFECTIVE TIME AND DURATION
The 1990 Purchase Plan became effective upon its approval by the Board of
Directors of the Company on January 22, 1990, subject to stockholder approval.
The stockholders approved 950,000 shares of Common Stock for issuance under the
1990 Purchase Plan on April 23, 1990. On April 26, 1993, the stockholders
2
<PAGE> 6
authorized an additional 2,000,000 shares of Common Stock for issuance under the
1990 Purchase Plan. The Board of Directors has adopted a resolution authorizing
an additional 1,000,000 shares of Common Stock for issuance under the 1990
Purchase Plan, subject to stockholder approval (the "Additional Shares").
Offerings of the Company's Common Stock under the 1990 Purchase Plan may be made
from time to time until the earlier of the date all shares are issued or
December 31, 1999.
OFFERINGS UNDER THE 1990 PURCHASE PLAN
The Board of Directors has approved a total of 4,728,517 shares of Common
Stock for issuance under the 1990 Purchase Plan, including an increase of
778,517 shares for the effect of a two-for-one stock split effective in May
1994. The stockholders must approve the Additional Shares before they are
available for issuance under the 1990 Purchase Plan. Of the existing 3,728,517
shares which have been previously approved by the stockholders, 2,985,624 shares
have been issued or have been subscribed for and 742,893 are available for
issuance.
ELIGIBILITY
All full-time employees of the Company or any of its subsidiaries
designated by the Purchase Plan Committee to be participating subsidiaries in
the 1990 Purchase Plan are eligible to purchase the Company's Common Stock under
the terms and conditions of any offering of such Common Stock under the 1990
Purchase Plan, except (a) employees whose customary employment is less than 32
hours per week or less than five months during any calendar year, or (b)
employees, who immediately after a right to purchase the Company's Common Stock
under the 1990 Purchase Plan is granted, own stock possessing 5% or more of the
total combined voting power of all classes of stock of the Company or any of its
subsidiaries. For purposes of determining stock ownership pursuant to
subparagraph (b) above, any stock which an employee may purchase under
outstanding options shall be treated as owned by the employee and the
attribution rules of Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"), shall be applicable. In addition, no option shall be
granted under the 1990 Purchase Plan to any employee which would permit such
employee to purchase shares of the Company's Common Stock pursuant to all
unexpired offerings under all existing employee stock purchase plans of the
Company accruing at a rate which exceeds, during any calendar year, $25,000
based upon the fair market value of such shares at the time the option is
granted. At December 31, 1994, the Company had 4,612 full-time employees
eligible to participate in the 1990 Purchase Plan.
It is the present policy of the Company to discourage participation by
executive officers in the 1990 Purchase Plan. No executive officers of the
Company participated in the 1990 Purchase Plan during the year ended December
31, 1994. While it is contemplated that one or more additional offerings will be
made under the 1990 Purchase Plan from time to time during the year ending
December 31, 1995, and thereafter, it cannot be determined at this time what
benefits or amounts will be realized by any individual or group under the 1990
Purchase Plan during the year ending December 31, 1995 and thereafter.
SECURITIES SUBJECT TO THE 1990 PURCHASE PLAN
If this proposal is adopted, the aggregate number of shares of the
Company's Common Stock that may be sold pursuant to all offerings of such Common
Stock under the 1990 Purchase Plan shall not exceed 4,728,517 shares, as
adjusted for any recapitalization or reorganization of the Company as set forth
in the 1990 Purchase Plan. Each offering shall specify the maximum number of
shares available thereunder and the method of determining the maximum number of
shares which may be purchased by any employee electing to participate in such
offering. The maximum number of shares which may be purchased pursuant to any
offering by each participating employee shall bear a uniform relationship to the
basic or regular rate of compensation of all Company employees on the effective
date of the applicable offering, subject to any stated maximum number of shares
(such maximum number to be not less than 300) that may be specified by the
Purchase Plan Committee and to any other limitations set forth in the 1990
Purchase Plan.
3
<PAGE> 7
METHOD OF EMPLOYEE PARTICIPATION IN THE 1990 PURCHASE PLAN
An eligible employee may elect to participate in any offering of the
Company's Common Stock under the 1990 Purchase Plan by filing an election to
purchase such stock pursuant to that offering, together with a payroll deduction
authorization, within such time as may be specified in that offering. The
Company shall maintain a stock purchase account for each participating employee
to which interest may be credited, if any, no less than annually, at a rate, if
any, to be specified in the applicable offering. Upon the expiration date of
each offering, the funds accumulated in the stock purchase account of each
participating employee shall be applied to the purchase of the Company's Common
Stock at a price per share equal to the lesser of (a) 85% of the fair market
value per share of the Company's Common Stock on the expiration date of the
applicable offering; or (b) 85% of the fair market value per share of the
Company's Common Stock on the effective date or the applicable offering. Stock
certificates shall be issued to each participating employee promptly thereafter.
No participating employee shall have any rights as a stockholder of the Company
in respect to Common Stock purchased under the 1990 Purchase Plan until the
issuance of stock certificates for such shares.
DEATH, TERMINATION OF EMPLOYMENT AND ASSIGNABILITY
In the event a participating employee dies or ceases to be an employee for
any reason, he or she will receive any balance in cash plus accrued interest, if
any. In any offering, the Purchase Plan Committee may further provide that in
the case of death of an employee, all amounts in his or her account plus
interest shall be paid to his or her beneficiary or estate.
FEDERAL INCOME TAX CONSEQUENCES
If a participant under the 1990 Purchase Plan makes no disposition of the
shares purchased by him upon the exercise of such an option within one year
after the shares are transferred to him or within two years after the date of
the granting of the option, then (i) no income is realized by the participant at
the time he purchases such shares; (ii) if he thereafter sells or otherwise
disposes of such shares or if he dies while owning such shares, the participant
will include in his gross income as ordinary income (and not as gain upon the
sale or exchange of a capital asset) for the taxable year in which the date of
such disposition occurs or for the taxable year closing with his death,
whichever applies, an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition or death over the
amount paid for the shares under the option, or (2) the excess of the fair
market value of the shares at the time the option was granted over the option
price; (iii) upon disposition of such shares by the participant, his basis in
such shares will be increased by an amount equal to the amount so includable in
his gross income; (iv) any gain realized by the participant upon sale or
exchange of such shares in excess of the amount of ordinary income described in
(iii) above is taxed to him as capital gain, and any loss sustained by him is a
capital loss provided the shares are held as capital assets; (v) if the
participant dies before the shares are sold, the basis of the shares in the
hands of the participant's heirs or estate shall be equal to the fair market
value of the shares on the date of the participant's death; and (vi) as to the
granting of such option and the sale of shares pursuant thereto, the Company is
allowed no deduction for federal income tax purposes for any portion of the
excess of the fair market value of the shares over the cost of the same to the
participant. However, if the participant makes a disposition of such shares
before the expiration of the requisite holding period above, (a) ordinary income
is realized by him in the amount of the difference between the option price and
the fair market value of the stock at the time the option was exercised; (b)
capital gain is realized by him on the difference between the sale price and
fair market value of the shares on the date the option was exercised and he will
have a capital loss if the sale price is less than the fair market value of the
shares on the date the option was exercised, and (c) the Company will be
allowed, for federal income tax purposes, a compensation expense deduction for
the difference between the fair market value of the shares at the time of
exercise by the participant and the option price.
4
<PAGE> 8
MARKET PRICE
On February 27, 1995, the closing price of the Company's Common Stock in
the National Association of Securities Dealers, Inc. Nasdaq National Market, as
reported in the Southwest Edition of The Wall Street Journal was $34.875 per
share.
Based solely on the closing price of the Company's Common Stock in the
Nasdaq National Market on February 27, 1995, the aggregate value of the
underlying securities available for issuance including shares for the 1994-1995
offering and the additional 1,000,000 shares approved by the Board of Directors
under the 1990 Purchase Plan is $78,109,538, and the aggregate maximum purchase
price to be paid by the participants in the 1990 Purchase Plan in connection
with the current 1994-1995 offering and all future offerings is $62,014,374. The
actual value of the underlying securities and the actual aggregate amount to be
paid to the Company by all participants in the 1990 Purchase Plan will be
determined by the fair market value of the securities to be offered pursuant to
each offering under the 1990 Purchase Plan on the effective date and the
expiration date of each offering.
AMENDMENTS TO THE PLAN
The Board of Directors of the Company may suspend, terminate, reconstitute,
amend or revise the 1990 Purchase Plan at any time except that (a) no amendment
shall cause any right to purchase the Company's Common Stock under the 1990
Purchase Plan to fail to qualify as a stock purchase option under the Code, (b)
without approval of the stockholders, no amendment shall increase the number of
shares which may be offered or sold pursuant to any offering of such shares
under the 1990 Purchase Plan or make any change in the employees or class of
employees eligible to participant in any such offering, or (c) without the
approval of a participating employee, no change shall be made in the terms of
any outstanding right to purchase the Company's Common Stock under the 1990
Purchase Plan which is adverse to such participating employee.
VOTE REQUIRED FOR ADOPTION OF THE PROPOSAL TO ADD THE ADDITIONAL SHARES TO THE
1990 PURCHASE PLAN
Adoption of the proposal to add the Additional Shares to the 1990 Purchase
Plan will require the affirmative vote of a majority of the total number of
shares of Common Stock represented and entitled to vote at the Annual Meeting or
any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ADOPTION
OF THE PROPOSAL TO ADD THE ADDITIONAL SHARES TO THE DSC COMMUNICATIONS
CORPORATION 1990 EMPLOYEE STOCK PURCHASE PLAN.
5
<PAGE> 9
PERFORMANCE GRAPH
The following Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference the proxy
statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The graph below compares the cumulative total stockholder return on the
Company's Common Stock for the last five fiscal years with the cumulative total
return on the S&P 500 Index and the S&P High Technology Composite Index over the
same period (assuming the investment of $100 in the Company's Common Stock, the
S&P 500 Index and the S&P High Technology Composite Index on December 31, 1989
and reinvestment of all dividends).
DSC COMMUNICATIONS CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
S&P(R) HIGH
TECH
MEASUREMENT PERIOD COMPOSITE
(FISCAL YEAR COVERED) DSC S&P INDEX
<S> <C> <C> <C>
1989 100 100 100
1990 47 97 102
1991 27 126 117
1992 152 136 121
1993 424 150 149
1994 495 148 174
</TABLE>
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following executive compensation disclosures reflect all plan and
non-plan compensation awarded to, earned by, or paid to the named executive
officers and directors of the Company. The "named executive officers" are the
Company's Chief Executive Officer (the "CEO"), regardless of compensation level,
and the four most highly compensated executive officers other than the CEO
serving as such on December 31, 1994. Where a named executive officer has served
during any part of the year ended December 31, 1994, the disclosures reflect
compensation for the full year in each of the periods presented.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------------------------
BONUS ($)
-------------------------------------
(A)
1990 (B)
LONG-TERM OTHER ANNUAL
NAME AND SALARY INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR ($) CASH PLAN TOTAL ($)
- ------------------------- ---- ------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
James L. Donald.......... 1994 740,816 750,048 6,716,000 7,466,048 --
Chairman of the 1993 687,682 1,460,000 2,588,000 4,048,000 411,346
Board, President and 1992 650,004 300,000 -- 300,000 17,546
Chief Executive Officer
Gerald F. Montry......... 1994 364,692 374,400 1,007,400 1,381,800 --
Senior Vice President 1993 347,198 170,000 388,200 558,200 160,367
and Chief Financial 1992 314,512 125,000 -- 125,000 4,518
Officer
Allen R. Adams........... 1994 261,000 300,300 -- 300,300 --
Senior Vice President 1993 226,400 130,000 -- 130,000 126,751
1992 195,258 90,000 -- 90,000 --
Hensley E. West.......... 1994 252,390 286,000 -- 286,000 --
Senior Vice President 1993 216,240 130,000 -- 130,000 84,490
1992 161,978 99,426 -- 99,426 --
Michael R. Bernique...... 1994 230,400 285,000 -- 285,000 --
Senior Vice President 1993 197,079 196,001 -- 196,001 --
1992 * * * * *
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
------------------------- -------
(D)(F)
(C) SECURITIES
RESTRICTED UNDERLYING (E) (B)
STOCK OPTIONS/ LTIP ALL OTHER
NAME AND AWARDS SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) (#) ($) ($)
------------------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C>
James L. Donald.......... -- 70,000 -- 38,630
Chairman of the 809,375 100,000 -- 50,089
Board, President and 313,500 -- -- 34,515
Chief Executive Officer
Gerald F. Montry......... -- 30,000 -- 8,817
Senior Vice President 226,625 60,000 -- 15,595
and Chief Financial 49,500 -- -- 24,445
Officer
Allen R. Adams........... -- 20,000 -- 10,937
Senior Vice President 395,375 60,000 -- 6,855
49,500 -- -- 4,364
Hensley E. West.......... -- 20,000 -- 6,661
Senior Vice President 145,688 60,000 -- 6,351
44,775 -- -- 33,466
Michael R. Bernique...... -- 20,000 -- 6,186
Senior Vice President 286,313 70,000 -- 4,497
* * * *
</TABLE>
- --------------------
* Not applicable as Mr. Bernique became an executive officer during 1993.
(A) Represents amounts earned under the Company's 1990 Long-Term Incentive
Compensation Plan (the "LTIP"). No amounts earned under the LTIP reflected
above were paid in 1994 or 1993.
7
<PAGE> 11
(B) Amounts of "Other Annual Compensation" includes amounts reimbursed during
1993 and 1992 for the payment of taxes. For 1994, "All Other Compensation"
consists of the following for the named executive officers:
<TABLE>
<CAPTION>
COMPANY CONTRIBUTIONS
------------------------------------------------------------
THRIFT RESTORATION SPLIT DOLLAR
PLAN PLAN LIFE INSURANCE OTHER TOTAL
------ ----------- -------------- ------ -------
<S> <C> <C> <C> <C> <C>
James L. Donald................... $4,498 $ 9,458 $ 24,674 $ -- $38,630
Gerald F. Montry.................. 4,500 2,079 2,238 -- 8,817
Allen R. Adams.................... 4,500 2,591 869 2,977 10,937
Hensley E. West................... 4,498 999 1,164 -- 6,661
Michael R. Bernique............... 4,500 1,544 -- 142 6,186
</TABLE>
(C) The amounts reported in the table represent the market value of the shares
of Common Stock at the date of grant. Awards of restricted stock vest in
equal annual increments over a three year period with the initial increment
vesting on the first anniversary of the date awarded. Holders of the
restricted shares retain all rights of a stockholder (including the right
to receive dividends if and when paid on Common Stock), except the
restricted shares cannot be sold until they are vested. Upon termination of
employment of the holder, all unvested shares are forfeited to the Company.
No cash dividends have been declared or paid on Common Stock.
Aggregate restricted stock holdings at December 31, 1994 consisted of:
<TABLE>
<CAPTION>
MARKET
VALUE AT
DECEMBER 31,
SHARES(F) 1994
--------- ------------
<S> <C> <C>
James L. Donald.............................................. 44,334 $1,590,482
Gerald F. Montry............................................. 15,334 550,107
Allen R. Adams............................................... 19,334 693,607
Hensley E. West.............................................. 12,000 430,500
Michael R. Bernique.......................................... 9,333 334,821
</TABLE>
(D) Represents the number of stock options granted to the named executive
officer for the year noted. The Company has not made any grants of SARs.
(E) No cash payouts have been made under the LTIP.
(F) All option and restricted share amounts have been restated to retroactively
reflect a two-for-one stock split, effected in the form of a 100% stock
dividend, declared by the Board of Directors on April 27, 1994 for
stockholders of record on May 11, 1994.
8
<PAGE> 12
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all individual grants of stock options to the
named executive officers during the year ended December 31, 1994.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------
(A)(B)(C)
NUMBER OF POTENTIAL REALIZABLE
SECURITIES (C) VALUE AT ASSUMED
UNDERLYING % OF TOTAL (A) ANNUAL RATES OF STOCK
OPTIONS/ OPTIONS/SARS EXERCISE PRICE APPRECIATION
SARS GRANTED TO OR BASE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($)(D) 10%($)(D)
- -------------------------- --------- ------------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James L. Donald........... 70,000 15.10% 26.00 3/08/04 1,144,570 2,900,590
Chairman of the Board,
President and Chief
Executive Officer
Gerald F. Montry.......... 30,000 6.47% 26.00 3/08/04 490,530 1,243,110
Senior Vice President
and
Chief Financial Officer
Allen R. Adams............ 20,000 4.31% 26.00 3/08/04 327,020 828,740
Senior Vice President
Hensley E. West........... 20,000 4.31% 26.00 3/08/04 327,020 828,740
Senior Vice President
Michael R. Bernique....... 20,000 4.31% 26.00 3/08/04 327,020 828,740
Senior Vice President
All Stockholders.......... 1,824,200,263(E) 4,622,921,308(E)
</TABLE>
- ---------------
<TABLE>
<S> <C>
(A) All option and exercise price amounts have been adjusted to reflect a two-for-one stock
split, effected in the form of a 100% stock dividend, declared by the Board of
Directors on April 27, 1994 for stockholders of record on May 11, 1994.
(B) Options have a ten year life, vest in equal annual increments over three years and are
priced at the fair market value on the date of grant.
(C) The Company has not made any grants of SARs.
(D) These are hypothetical values using assumed growth as prescribed by the Securities and
Exchange Commission.
(E) The potential realizable value is calculated from $26.00, the exercise price of the
options listed above, granted on March 8, 1994, based on the number of outstanding
shares of Common Stock on March 8, 1994. Amounts shown have been adjusted to reflect
the two-for-one stock split.
</TABLE>
9
<PAGE> 13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table shows aggregate exercises of options (or tandem stock
appreciation rights) and free standing stock appreciation rights during the year
ended December 31, 1994, by each of the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY
SARS AT OPTIONS/SARS AT
DECEMBER 31, 1994(#) DECEMBER 31, 1994($)
SHARES ACQUIRED (A)(B) (B)(C)
ON EXERCISE VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME (#)(A) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ---------------------------------------- --------------- ----------- -------------------- --------------------
<S> <C> <C> <C> <C>
James L. Donald......................... 600,000 15,618,750 1,233,334 E 39,206,263 E
Chairman of the Board, 136,666 U 2,003,737 U
President and Chief
Executive Officer
Gerald F. Montry........................ 233,334 5,887,095 311,333 E 9,512,846 E
Senior Vice President and 69,999 U 924,568 U
Chief Financial Officer
Allen R. Adams.......................... 25,000 603,500 29,847 E 625,562 E
Senior Vice President 59,999 U 825,818 U
Hensley E. West......................... 72,667 2,216,089 13,334 E 103,339 E
Senior Vice President 63,999 U 793,155 U
Michael R. Bernique..................... 15,067 299,626 16,667 E 129,169 E
Senior Vice President 77,066 U 1,054,599 U
</TABLE>
- ---------------
(A) Share and option amounts have been adjusted to reflect a two-for-one stock
split, effected in the form of a 100% stock dividend, declared by the Board
of Directors on April 27, 1994 for stockholders of record on May 11, 1994.
(B) The Company has not made any grants of SARs.
(C) Amounts shown are based upon the closing price of the Company's Common Stock
on December 31, 1994, which was $35.875.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In July 1994, the Company entered into Amended and Restated Severance
Compensation Agreements with Messrs. Montry, Adams and West, and a Severance
Compensation Agreement with Mr. Bernique (collectively, the "Severance
Agreements").
Each of the Severance Agreements provides that if a Change in Control (as
defined below) occurs and within two years of the Change in Control either (i)
the officer voluntarily terminates his employment for "good reason"; or (ii) the
officer's employment is involuntarily terminated other than for cause, death or
disability, the Company will pay to the officer a lump sum amount equal to three
times the officer's "base amount" income. The Severance Agreements further
provide that each of the officers will be reimbursed for excise taxes payable by
reason of payments made pursuant to the Severance Agreements.
The "base amount" is defined by Section 280G(b) of the Internal Revenue
Code of 1986, as amended (the "Code") as the average of all compensation
(including compensation from the exercise of stock options) received by the
officer in each of the five taxable years preceding the year in which the Change
in Control occurs.
A "Change in Control" of the Company is defined in the Severance Agreements
as any of the following: (i) consummation of a merger in which the Company is
not the surviving entity; (ii) sale or transfer of substantially all of the
assets of the Company; (iii) liquidation or dissolution of the Company; (iv)
acquisition
10
<PAGE> 14
of at least 20% of the Company's Common Stock by a third party; or (v) under
certain circumstances, a change of a majority of the members of the Company's
Board of Directors during any two-year period.
"Good Reason" is defined in the Severance Agreements as any reduction in
compensation, duties, status or benefits or relocation of more than 50 miles of
the Company's principal place of business.
No sums have been paid under any of the Severance Agreements. Should
payment of severance compensation be triggered in 1995, the maximum aggregate
amount payable pursuant to the Severance Agreements, would be as follows: Mr.
Montry approximately $6,756,000, Mr. Adams approximately $1,944,000, Mr. West
approximately $2,354,000, and Mr. Bernique approximately $1,300,000. These
amounts will change during each calendar year and do not take into account any
additional tax or other payments which are indeterminable at this time.
None of the named executive officers will be entitled to severance pay
until a Change in Control has occurred. The officer's right to receive severance
pay lapses (i) if he continues to be employed by the Company for a period of two
years after the change in Control; or (ii) on July 19, 1995, unless a Change in
Control occurs prior to such date.
In addition, the Company's stock option plans provide that in the event of
a Change in Control, all restrictions on employee stock options and restricted
stock grants lapse.
DONALD AGREEMENTS
In 1990, the Compensation Committee approved an employment agreement (the
"Donald Employment Agreement") with Mr. Donald.
Term. The term of employment pursuant to the Donald Employment Agreement
commenced on January 1, 1990 and continues for a period of six and one-half
years. The Donald Employment Agreement renews daily, but in no event will it
extend beyond the date Mr. Donald reaches the age of 75, or such earlier date as
may be specified in a written notice given by either party to the other and
delivered six years and six months prior to such specified date. Mr. Donald may
relinquish the office as Chief Executive Officer at any time after July 5, 1996,
without terminating his employment under the Donald Employment Agreement.
Compensation. Mr. Donald's base salary is reviewed annually and is subject
to discretionary increases by the Board of Directors, which increases cannot be
less than the average percentage increase during the prior calendar year of the
base salaries of those executives reporting directly to Mr. Donald. Pursuant to
the Donald Employment Agreement, Mr. Donald will also be eligible to receive
annual incentive awards at the discretion of the Board of Directors and will be
eligible to participate in any benefit and stock plans the Company maintains for
its employees.
Termination. If, in the absence of a Change in Control (as defined in the
Donald Employment Agreement), Mr. Donald's employment is constructively
terminated or terminated without cause, the Company will be required to pay Mr.
Donald for each year remaining on the term of the Donald Employment Agreement
(i) his then base salary; (ii) annual incentive awards equal to the average of
the three highest annual incentive awards he received during the last ten years
of his employment; and (iii) all other benefits that were payable to Mr. Donald
at the time of his termination. He will also be entitled to continued
participation for the remainder of the term of the Donald Employment Agreement
in all employee benefit plans in which he was a participant on the date of his
termination and to medical benefits for himself and his wife for life and for
his children until they reach age 23.
Change in Control. If, within two years following a Change in Control, Mr.
Donald's employment is constructively terminated or terminated without cause,
Mr. Donald will be entitled to receive a lump sum cash payment within 30 days
following termination, equal to the sum of (i) his then-base salary for each
year remaining on the term of the Donald Employment Agreement; (ii) the average
of his three highest annual incentive awards received during the last ten years
of his employment multiplied by the number of years remaining on the term of the
Employment Agreement; (iii) any accrued incentive awards; (iv) the aggregate
difference between the option price and the fair market value of the Company's
stock subject to the
11
<PAGE> 15
unexercisable options that Mr. Donald holds at the time of termination; and (v)
the fair market value of each share of restricted stock not vested held by Mr.
Donald at the time of termination. Mr. Donald will also be entitled to continued
participating for the remainder of the term of the Donald Employment Agreement
in all employee benefits for himself and his wife for life and for his children
until they reach age 23. Should the severance compensation be triggered in 1995,
the maximum amount payable to Mr. Donald under the Donald Employment Agreement
would be approximately $13,792,000. This amount will change during each calendar
year and does not take into account any additional tax or other payments which
are indeterminable at this time.
Additional Payments. If the Internal Revenue Service determines that any
payment made to Mr. Donald pursuant to the Donald Employment Agreement or
otherwise constitutes an "Excess Parachute Payment" within the meaning of the
Code, the Company will make a "gross-up" payment in the amount necessary to pay
any excise taxes imposed by Section 4999 of the Code and any income taxes on the
payment to him. Any "gross-up" payment made to Mr. Donald would be a
non-deductible expense of the Company.
Disclosure of Confidential Information and Agreement Not to Compete. Under
the terms of the Employment Agreement, Mr. Donald may not disclose at any time
confidential information about the Company that he acquires during his
employment. In addition, he is subject to an agreement not to compete with the
Company during the term of his employment and for one year thereafter.
Income Continuation Plan. Effective January 1, 1990, Mr. Donald and the
Company entered into an Income Continuation Plan Agreement (the "Continuation
Plan"). The Continuation Plan is administered by the Compensation Committee. The
Compensation Committee consists of not less than two non-employee directors.
If Mr. Donald terminates his employment with the Company on or after his
reaching age 65, he will receive an amount equal to 3% of the average of his
compensation for the highest three calendar years of his final ten years of
employment as the Company's Chief Executive Officer multiplied by the number of
years of service (the "Accrued Benefit"). If Mr. Donald terminates his
employment with the Company due to disability prior to age 65, he will receive
the Accrued Benefit except that his years of service shall be deemed to continue
until age 65; provided, however, that in the event of his death following
termination of employment due to disability and prior to reaching age 65, no
further benefits shall be paid.
If Mr. Donald's employment is terminated without cause, other than due to
death or disability, the Company will pay Mr. Donald the Accrued Benefit on the
date his base salary ceases pursuant to the terms of the Donald Employment
Agreement described above provided that Mr. Donald's years of service shall be
deemed to continue until his Accrued Benefit becomes payable; and, provided,
further, that in the event of Mr. Donald's death following termination of
employment and prior to the date the Accrued Benefit would otherwise be payable,
no further sums shall be paid.
If Mr. Donald voluntarily terminates his employment other than because of
his death or disability or if the Company terminates Mr. Donald for cause, Mr.
Donald shall receive the Accrued Benefit on his reaching age 65 or his
termination of employment, whichever is later.
The Accrued Benefit shall be paid in the form of monthly payments for life.
However, Mr. Donald may elect to take the Accrued Benefit in the form of a
ten-year certain and life annuity.
In the event Mr. Donald dies following the commencement of the monthly
benefit payment described above, his surviving spouse shall receive 50% of the
monthly amount otherwise payable (the "Survivor Benefit"). If neither Mr. Donald
nor his spouse survives for ten years after commencement of the monthly benefits
then, upon the latter of the date of death of Mr. Donald or his spouse, the
Survivor Benefit shall be paid in equal shares to his children until the latter
of (1) the tenth anniversary of the date benefits commenced; or (2) the death of
the last surviving child of Mr. Donald. The Company has agreed to establish a
trust to fund Accrued Benefits payable to Mr. Donald. As of December 31, 1994,
no trust fund has been established.
12
<PAGE> 16
At December 31, 1994, the estimated annual Accrued Benefit payable to Mr.
Donald under the Income Continuation Plan was approximately $597,000 and at
normal retirement date, such Accrued Benefit would be approximately $688,000.
Under the terms of the Income Continuation Plan, the benefits will be adjusted
to reflect changes in Mr. Donald's compensation.
Life Insurance. Effective January 1, 1990, the Company and Mr. Donald
entered into an agreement pursuant to which the Company will provide Mr. Donald
with a $5,000,000 life insurance policy which replaces a previous life insurance
policy of $7,000,000. Mr. Donald pays the portion of the premium on the policy
that is equal to the amount of economic benefit that would be taxable to him but
for such payment. The balance of such premiums are paid by the Company.
Dividends attributable to the policy shall be applied to purchase additional
insurance. Upon Mr. Donald's death, the Company shall be entitled to receive an
amount equal to the cumulative premiums paid by the Company, provided that Mr.
Donald's designated beneficiary shall receive not less than $5,000,000.
1990 LONG-TERM INCENTIVE COMPENSATION PLAN
The DSC Communications Corporation 1990 Long-Term Incentive Compensation
Plan (the "1990 Plan") provides for the award of up to 600,000 Units ("Units")
to individuals participating in the 1990 Plan and to date, 520,000 Units have
been awarded. There are currently two participants in the 1990 Plan, Mr. Donald
and Mr. Montry who hold 400,000 and 60,000 Units, respectively. The 1990 Plan
will terminate on December 31, 1995, unless earlier terminated by the Board of
Directors. All benefits under the 1990 Plan will be paid in cash.
Units awarded under the 1990 Plan vest over a six-year period beginning
January 1, 1990, and ending December 31, 1995. Units become fully vested upon
(i) the attainment of the Maximum Cumulative Unit Value (as determined by the
Committee) with respect to the Units; (ii) the occurrence of certain "change in
control" events with respect to the Company; and (iii) the termination of the
participant's employment by reason of retirement, death or disability, or
termination of the participant's employment other than for "cause."
Units that have vested may be exercised at any time during a participant's
employment for an amount equal to the then-current Cumulative Unit Value (as
defined below) of the Units and a corresponding number of Units will be
canceled. The Company also will pay the participant an amount equal to the
Cumulative Unit Value of the then outstanding Units upon the termination of the
1990 Plan. The "Cumulative Unit Value" of a Unit is determined by a formula
which establishes and totals the Incremental Unit Value for each completed
Performance Year. The Incremental Unit Value of the Unit for a Performance Year
is established by the Committee.
Upon the occurrence of a "change in control" of the Company, each
participant will be entitled to receive in respect of any Unit then outstanding
a lump sum cash payment equal to the greater of (a) the Cumulative Unit Value
per outstanding Unit held by the participant (but not more than the amount
established by the Committee as the Maximum Cumulative Unit Value of $54.37),
$23.26 as of December 31, 1994; or (b) the then fair market value of a share of
the Company's Common Stock on the date of the "change of control," multiplied by
five times the number of Units held by the participant, or $174.37 per Unit
based on the closing sales price of the Company s common Stock as reported by
the Nasdaq National Market on February 27, 1995.
In addition, if the Internal Revenue Service determines that such payment
constitutes an "Excess Parachute Payment" as defined in the Code, the Company
will make a "gross-up" payment to the participant in an amount necessary to pay
any excise taxes imposed by Section 4999 of the Code and any income taxes on the
payment to the participant. Any "gross-up" payment made to a participant will be
a nondeductible expense of the Company.
13
<PAGE> 17
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
The provisions of the Severance Agreements, the 1990 Plan, and the Donald
Employment Agreement may be deemed to have an anti-takeover effect and may
delay, defer, or prevent a tender offer or takeover attempt that a stockholder
may consider to be in that stockholder's best interest, including attempts that
might result in a premium over the market price for shares held by stockholders.
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
DIRECTOR
AGE AS OF OF
PRINCIPAL OCCUPATION FEBRUARY 27, COMPANY
OR EMPLOYMENT 1995 SINCE
------------------------------------------ ------------ -------
<S> <C> <C> <C>
Frank J. Cummiskey(2)....... Vice Chairman of the Company, Retired Vice 68 1988
President of International Business
Machines Corporation ("IBM"). Served in a
variety of domestic and international
executive positions including President
and director of IBM Europe, S.A.,
President and director of IBM World Trade
Europe and Middle East, Africa
Corporation, and President of IBM's
General Business Group/International.
Raymond J. Dempsey(2)....... Retired; former president and Chief 59 1992
Executive Officer of European American
Bank; Director of Freuhauf Trailer Corp.
James L. Donald(1).......... Chairman of the Board, President and Chief 63 1981
Executive Officer; employed by the Company
since 1981.
James L. Fischer(2)......... Retired; former Executive Vice President, 68 1989
principal financial officer and manager of
corporate staff functions of Texas
Instruments Incorporated ("TI"). During
his 29 years at TI, he held a number of
senior management level positions.
Robert S. Folsom(1)......... Chairman of the Board, Folsom Properties, 68 1983
Inc. (real estate development) for more
than the past five years; Director of
BeautiControl Cosmetics, Inc. (cosmetics);
FM Properties (real estate).
James M. Nolan(1)........... Marketing Consultant to the Company; sole 60 1981
stockholder of Nolan Consulting, Inc.
since 1978; Director of Capital Southwest
Corporation (investment company).
</TABLE>
- ---------------
(1) Term expires in 1996.
(2) Term expires in 1997.
MEETING OF THE BOARD OF DIRECTORS AND COMMITTEE
During the year ended December 31, 1994, the Board of Directors met four
times.
The Audit Committee, which currently consists of Messrs. Brown, Fischer and
Fairclough, (i) annually recommends selection of the Company's independent
auditors to the Board of Directors; (ii) meets with the
14
<PAGE> 18
independent auditors concerning the audit; (iii) evaluates non-audit services
and financial statements and accounting developments that may affect the
Company; (iv) and meets with management concerning matters similar to those
discussed with outside auditors. The Audit Committee met four times during the
year ended December 31, 1994.
The Compensation Committee, which currently consists of Messrs. Dempsey and
Folsom, (i) makes recommendations to the full Board concerning remuneration
arrangements for senior management and directors; (ii) administers the Company's
stock option and stock purchase plans; (iii) reviews, approves and recommends to
the Board of Directors new benefit plans or modifications to existing plans; and
(iv) makes such reports and recommendations from time to time to the Board of
Directors upon such matters as the committee may deem appropriate or as may be
requested by the Board. During the year ended December 31, 1994, the
Compensation Committee met six times. See "Report of Compensation Committee" on
page 20.
The Company does not have a Nominating Committee. Nomination for directors
of the Company are considered by the entire Board. Stockholders wishing to
recommend a candidate for consideration by the Board can do so in writing to the
Secretary of the Company at its corporate offices in Plano, Texas, giving the
candidate's name, biographical data and qualifications. Any such recommendation
must be accompanied by a written statement from the individual of his or her
consent to be named as a candidate and, if nominated and elected, to serve as a
director.
During the year ended December 31, 1994, each member of the Board attended
not less than 75% of the aggregate number of (i) board meetings and (ii)
meetings of committee of which such person was a member.
COMPENSATION OF DIRECTORS
Non-employee directors are paid $1,500 per month and $1,000 for each Board
of Directors meeting attended. Members of the Audit and Compensation Committees
each receive $800 for each committee meeting attended. The Chairmen of the Audit
and Compensation Committees each receive an additional $417 per month.
The Company has entered into a Management Consulting Agreement with Nolan
Consulting, Inc. and James M. Nolan pursuant to which the Company paid Nolan
Consulting, Inc. $195,333 for the year ended December 31, 1994. Mr. Nolan is the
sole stockholder of Nolan Consulting, Inc. and a member of the Board of
Directors of the Company. Additionally, the Company has a consulting agreement
with Mr. Brown which pays Mr. Brown $1,000 per month. During the year ended
December 31, 1994, Mr. Brown was paid $12,000.
The Company has entered into a consulting agreement with Frank J.
Cummiskey, a member of the Company's Board of Directors, pursuant to which the
Company pays Mr. Cummiskey $16,700 per month. He serves as Vice Chairman of the
Company's Board of Directors, Chairman of the Company's Long-Range Strategy
Committee and Chairman of the Board of a wholly-owned subsidiary of the Company.
During the year ended December 31, 1994 Mr. Cummiskey received $240,000 for
consulting services.
The Company has entered into a consulting agreement with Sir John
Fairclough, a director of the Company, which provides for the payment of
approximately $11,475 per quarter. For services rendered during the year ended
December 31, 1994, Sir John Fairclough earned $45,900 for consulting services.
Messrs. Brown, Cummiskey and Fairclough are also directors of certain
European subsidiaries of the Company. During the year ended December 31, 1994,
Mr. Brown received $36,750 and Mr. Cummiskey and Mr. Fairclough were each paid
$7,650 in these capacities.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In 1993 the Board of Directors adopted, and the stockholders approved, the
DSC Communications Corporation 1993 Non-Employee Directors Stock Option Plan
(the "Directors Plan"). Under the terms of the Directors Plan, on April 27,
1994, Messrs. Brown, Cummiskey, Dempsey, Fairclough, Fischer, Folsom and Nolan
each received an option to purchase 10,000 shares of the Company's Common Stock
at an exercise price per share of $28.625, the reported closing price per share
of the Company's Common Stock on that date.
15
<PAGE> 19
These amounts have been adjusted to reflect the 1994 two-for-one stock split.
Each such option is exercisable for a period of not longer than ten years from
the date of grant. Each non-employee Director continuing in office will receive
a similar option under similar terms following the 1995 annual meeting.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
From January 1994 until August 1994, the Compensation Committee of the
Board of Directors consisted of Messrs. Dempsey, Folsom and Clement R. Brown,
Jr. Mr. Brown resigned from the Compensation Committee in August 1994, and the
Compensation Committee currently consist of Messrs. Dempsey and Folsom.
On April 23, 1990, the Company granted options to purchase 20,000 shares of
Common Stock at an exercise price of $6.0625 per share (the "Exercise Price") to
each of seven individuals then serving as directors of the Company, including
Messrs. Nolan and Brown. All of the options were to expire on April 22, 1994. As
a result of an administrative error by the Company, the options granted to
Messrs. Nolan and Brown were not exercised, even though the closing sales price
of the Common Stock covered by such options on the date of expiration was
$28.625. All of the other options either were exercised timely or terminated as
a result of director resignations. Because of the Company's administrative error
and in consideration of such individual's long service to the Company, the
Company's Board of Directors, excluding Messrs. Nolan and Brown, approved the
sale of 20,000 treasury shares of Common Stock to each of Messrs. Nolan and
Brown at the exercise price, which sale occurred on August 29, 1994. On such
date the closing sales price of the Common Stock was $27.625 per share. All
amounts shown above reflect the two-for-one stock split effective in May 1994.
LITIGATION
On January 26, 1994 C.L. Grimes, a shareholder of the Company, filed a
derivative suit in Delaware Chancery Court, purportedly on behalf of the Company
as the real party in interest and as a stockholder of the Company, seeking a
declaration that the Employment Agreement of James L. Donald, his Executive
Income Continuation Plan and the 1990 Long-Term Incentive Compensation Plan as
it applies to Mr. Donald and all other benefits of Mr. Donald, including
previously granted Company stock options, are null and void. The defendants in
the suit are Mr. Donald, all current non-employee Directors and two former
directors of the Company. The Company itself is a nominal defendant. The
plaintiff contends that Mr. Donald's employment contract contains an improper
delegation of Board of Directors' authority to Mr. Donald and excess payments.
The suit also contends that the salary and benefits established for Mr. Donald
pursuant to the Donald agreements referred to above and approved by the
Company's Board of Directors are excessive and constitute a diversion and waste
of corporate assets. The suit seeks an injunction restraining Mr. Donald from
exercising any stock options, taking any action to implement any of the Donald
agreements, or declaring a constructive termination of his employment and also
seeks unspecified damages against the defendants and Grimes' legal fees. On June
1, 1994, the plaintiff filed an amended complaint in which he restated his
existing claims and added a new claim contending that the Company's 1994 proxy
statement was misleading in its description of the 1994 Long-Term Incentive
Compensation Plan (the "1994 Plan"). On this new claim, the plaintiff seeks a
decree that the 1994 proxy statement insofar as it relates to the 1994 Plan and
the actions taken pursuant to the proxy statement with respect to the 1994 Plan
are null and void and seeks to enjoin the Company from implementing the 1994
Plan.
On June 15, 1994, all defendants filed motions to dismiss all of the
plaintiff's claims, with the exception of the claim relating to the Company's
1994 proxy statement. On January 11, 1995, the Delaware Chancery Court granted
defendants' motions to dismiss. The plaintiff later filed a motion seeking entry
of a final judgment of dismissal so that he would be free to pursue an immediate
appeal of the Court's decision. In response, the Court directed entry of a final
judgment and certified the dismissed claims for appellate review. No appeal has
yet been filed by the plaintiff. Defendants will continue to vigorously contest
the plaintiff's claims.
16
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of February 27, 1995, (except as otherwise
indicated) by (a) each director and named executive officer of the Company; (b)
all current executive officers and directors of the Company as a group; and (c)
each person known to the Company who is a beneficial holder of more than five
percent of the shares of its Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- ------------------------------------------------------ ----------------------- -----------
<S> <C> <C>
FMR Corp.(3)..........................................
82 Devonshire Street
Boston, MA 02109-3614
Allen R. Adams........................................ *
Michael R. Bernique................................... *
Clement M. Brown, Jr.................................. *
Frank J. Cummiskey.................................... *
Raymond J. Dempsey.................................... *
James L. Donald.......................................
Sir John Fairclough................................... *
James L. Fischer...................................... *
Robert S. Folsom...................................... *
Gerald F. Montry...................................... *
James M. Nolan(4)..................................... *
Hensley E. West....................................... *
All directors and current executive officers as a
group ( persons)...................................
</TABLE>
- ---------------
* Ownership of less than 1% of the outstanding Common Stock.
(1) Each individual, unless otherwise noted, has sole voting and investment
power with respect to all shares owned by such individual. Includes shares
that a person has a right to acquire if such right is exercisable within
sixty days as follows: Allen R. Adams, shares; Michael R.
Bernique, shares; Clement M. Brown, Jr., shares; Frank
J. Cummiskey, shares; Raymond J. Dempsey, shares: James
L. Donald, shares; Sir John Fairclough, shares; James L.
Fischer, shares; Robert S. Folsom, shares; Gerald F.
Montry, shares; James M. Nolan, shares: Hensley E. West,
shares; and all directors and current executive officers as a
group ( persons), shares.
(2) Based upon shares of Common Stock outstanding as of February 27,
1995, plus any shares of Common Stock under options of the particular
director, executive officer or stockholder, or, in the case of all directors
and current executive officers as a group, under options of all directors
and current executive officers as a group.
(3) Based upon Form 13G dated February 13, 1995, filed with the Securities and
Exchange Commission. At December 31, 1994, FMR Corp. had sole voting power
for shares and sole dispositive power for shares.
(4) Includes shares held by Mr. Nolan's spouse.
17
<PAGE> 21
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than ten percent stockholders are required by
SEC Regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1994, all Section
16(a) filing requirements applicable to the officers, directors and greater than
ten percent beneficial owners were complied with. It is the practice of the
Company to attend to the filing of Section 16(a) forms on behalf of the officers
of the Company.
INDEPENDENT PUBLIC ACCOUNTS
The Board of Directors of the Company selected the firm of Ernst & Young as
independent auditors for the fiscal year ending December 31, 1995. A
representative of Ernst & Young is expected to attend the Annual Meeting of
Stockholders with the opportunity to make a statement if such representative
desires to do so and to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder of the Company desiring to present a proposal for action at
the Annual Meeting of Stockholders to be held in 1996 must deliver the proposal
to the executive offices of the company no later than November 17, 1995, unless
the Company notifies the stockholders otherwise. Only those proposals that are
proper for stockholder action and otherwise proper may be included in the
Company's Proxy Statement.
QUORUM; VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the meeting. Abstentions and broker non-votes are counted for purposes
of determining whether a quorum is present. If a quorum is not present or
represented by proxy, the stockholders entitled to vote thereat, present in
person or represented by proxy, have the power to adjourn the meeting from time
to time, without notice other than an announcement at the meeting until a quorum
is present or represented. At any such adjourned meeting at which a quorum is
presented or represented, any business may be transacted that might have been
transacted at the meeting as originally called.
On all matters (including election of directors) submitted to a vote of the
stockholders at the meeting or any adjournment thereof, each stockholder will be
entitled to one vote for each share of Common Stock owned of record by such
stockholder at the close of business on February 27, 1995. Abstentions and
broker non-votes will be treated as a vote against the proposed amendment to the
Company's Restated Certificate of Incorporation. Abstentions and broker
non-votes will have no effect in determining the adoption of the proposal to add
an additional 1,000,000 shares of Common Stock to the DSC Communications
Corporation 1990 Employee Stock Purchase Plan or on the election of the nominees
to the Board of Directors.
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ACTIONS TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and returned
will be voted at the meeting and any adjournment thereof and will be voted in
accordance with the instructions thereon. Any proxy upon which no instructions
have been indicated with respect to a specified matter will be voted as follows
with respect to such matters:
(1) For election of management's three Class II Directors to serve
until 1998;
(2) For approval of an amendment to the Company's Restated Certificate
of Incorporation increasing the authorized number of shares of Common
Stock, $.01 par value, from 250,000,000 to 500,000,000; and
(3) For approval of the proposal to add an additional 1,000,000 shares
of Common Stock to the DSC Communications Corporation 1990 Employee Stock
Purchase Plan.
Each of the nominees for election as directors has agreed to serve if
elected. The Company knows of no reason why any of the nominees for election as
directors would be unable to serve. Should any or all of the nominees be unable
to serve, all proxies returned to the Company will be voted in accordance with
the best judgment of the persons named as proxies except where a contrary
instruction is given.
The Company knows of no other matters, other than those stated above, to be
presented for consideration at the meeting. If, however, other matters properly
come before the meeting or any adjournments thereof, it is the intention of the
persons named in the accompanying proxy to vote such proxy in accordance with
their judgment on any such matters. The persons named in the accompanying proxy
may also, if it is deemed advisable, vote such proxy to adjourn the meeting from
time to time.
PROXY SOLICITATION
The expense of the solicitation of proxies will be borne by the Company.
Solicitation of proxies may be in person or by mail, telephone or telegraph by
directors, current executive officers and regular employees of the Company. The
Company will request banking institutions, brokerage firms, custodians, nominees
and fiduciaries to forward solicitation material to the beneficial owners of
Common Stock of the Company held of record by such persons, and the Company will
reimburse the forwarding expense. The Company has retained the services of
Kissel-Blake, Inc., 25 Broadway, New York, New York 10004 to solicit proxies by
mail, telephone, telegraph or person contact. The estimated cost of the
professional solicitation will be approximately $9,500 plus out-of-pocket
expenses.
REVOCATION OF PROXY
Any stockholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise (a) by giving written notice to the Company of
such revocation; (b) by voting in person at the meeting; or (c) by executing and
delivering to the Company a later dated proxy.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed of two independent nonemployee directors (see page 15),
develops and oversees the Company's executive compensation strategy. The
strategy is implemented through policies and programs designed to support the
achievement of the Company's business objectives and the enhancement of
stockholder value. The Committee reviews on an ongoing basis all aspects of
executive compensation and has retained an independent compensation consulting
firm to assist in assessing executive compensation policies and programs. The
Committee reviewed the consultants 1994 study which confirmed the stated
compensation strategy. The Committee met six times during 1994.
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<PAGE> 23
The Committee's executive compensation policies and programs support the
following objectives:
- To reinforce management's concern for enhancing stockholder value.
- To align management's compensation with the annual and long-term
performance of the Company.
- To provide competitive compensation opportunities for exceptional
performance.
The basic elements of the Company's executive compensation strategy are:
Base Salary. The Committee annually reviews each executive's base salary.
In determining salary adjustments, the Committee considers the Company's growth
in earnings and revenues and the executive's performance level, as well as other
factors relating to the executive's specific responsibilities. Also considered
are the executive's time in position, experience, skills, potential for
advancement, responsibility and current salary in relation to the expected level
of pay for the position. The expected level of pay for each position is
established at between the 50th and 75th percentile of comparable positions of
the companies included in the executive compensation surveys in which the
Company participates. These surveys included companies which the Company
competes for senior-level executives and, in several instances, included 40 of
the 53 companies listed in the S&P High Tech Composite Group, which the Company
uses in the Five-Year Performance Comparison graph on page 6. The Committee
exercises its judgment based upon the above criteria and does not apply a
specific formula or assign a weight to each factor considered. The Committee
decided upon the 1994 salary changes for executive officers after reviewing each
officer's duties and performance level for the previous year and considering the
Chief Executive Officer's recommendations.
Annual incentive compensation. At the beginning of each year, the Committee
establishes performance goals for the Company for that year, which may include
target increases in sales, net income and earnings per share, as well as more
subjective goals with respect to quality, product development and manufacturing.
Additionally, at the beginning of each year, the Committee establishes incentive
award "guidelines" for each executive. In the belief that the executive officers
are responsible for the overall financial performance of the Company, the
Committee tied their "guideline" incentive awards to targeted earnings per
share. If actual earnings per share equals or exceeds the target, the
"guideline" incentive awards will range from approximately 32% to 72% of the
executive's base compensation. At the end of the year, the Committee (1)
determines each executive officer's "guideline" incentive award based upon the
level of achievement of the pre-established guidelines and (2) adjusts the
amount based upon its own review of the performance of the executive, taking
into consideration the individual's responsibilities and the Committee's
pre-established goals, as well as, in the case of executives other than the
Chief Executive Officer, the recommendations of the Chief Executive Officer. For
1994, actual earnings per share exceeded the pre-established target.
Consequently, cash incentive awards totaled approximately 112% of the base
salaries of all executive officers, other than the Company's Chief Executive
Officer, for 1994.
Long-term incentive compensation. The Company's long-term incentive
compensation consists of the Company Stock Option Plans and the 1990 and 1994
Long-Term Incentive Compensation Plans. See pages 13 and 14.
The Committee views the granting of stock options and restricted stock
awards as a significant method of aligning management's long-term interests with
those of the stockholders. The Committee determines awards to executives based
on its evaluation of criteria that include responsibilities, compensation, past
and expected contributions to the achievement of the Company's long-term
performance goals, and current competitive practice as indicated by the
compensation surveys in which the Company participates. When making awards, the
Committee generally does not consider prior stock option and restricted stock
awards. The stock option exercise price is the closing price of the Company's
Common Stock on the date of grant. Stock option and restricted stock awards are
designed to focus executives on the long-term performance of the Company by
enabling executives to share in any increases in value of the Company's stock.
Restricted stock grants are used selectively to attract and retain executives
and to recognize outstanding performance.
The Committee encourages executives, individually and collectively, to
maintain a long-term ownership position the Company's stock. The Committee
believes this ownership, combined with a significant
20
<PAGE> 24
performance-based incentive compensation opportunity, forges a strong linkage
between the Company's executives and its stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. James L. Donald is Chief Executive Officer, President and Chairman of
the Board of Directors of the Company. The Committee considered the Company's
excellent record in all aspects of its business in its annual review of Mr.
Donald's performance during 1994.
The Committee took note of the fact that the Company's 1994 revenue of over
$1 billion and earnings of $163 million grew to record levels, with increases
over 1993 of 37 percent and 99 percent, respectively; and backlog grew 88
percent to over $600 million. Additionally, the Company's return on average
equity in 1994 was 22 percent.
The Company completed the successful acquisition of NKT Electronic A/S
(renamed DSC Communications A/S), a Copenhagen, Denmark-based manufacturer of
optical transmission equipment in late 1994. This acquisition will accelerate
DSC's entry into new product areas and expand the Company's international
presence.
The Company's financial condition continues to improve. Cash and marketable
securities were $271.3 million, after spending $149 million on the acquisition
of DSC Communications A/S. Stockholders' equity grew 38 percent to $851 million
and long-term debt as a percentage of stockholders equity declined to 5 percent
compared to 11 percent at the end of 1993.
At the end of 1994, the Company was well positioned from a product
portfolio perspective. The Company has a positive acceptance of its products and
has in place stringent cost controls. Additionally, the Company continues very
active programs in quality improvement, cycle time reduction and introduction of
new telecommunications services and applications.
Pursuant to an employment agreement between the Company and Mr. Donald, his
base salary is reviewed annually and is subject to discretionary increases by
the Board of Directors in an amount not less than the average percentage
increase during the year of the base salaries of those executives reporting
directly to Mr. Donald. The Board approved an increase in Mr. Donald's annual
base salary to $750,048 effective February 2, 1994. The Board also granted him
an incentive award for 1994 of $750,048 based upon the criteria discussed above
for payment of annual incentive compensation. Mr. Donald's incentive award
determined under the Company's annual incentive plan was 100% of his 1994 base
salary. The Board also granted Mr. Donald stock options for 70,000 shares, which
will vest in equal annual increments over a three-year period. These actions
were in accordance with the policies and procedures set forth on pages 20 and
21.
POLICY ON QUALIFYING COMPENSATION
Section 162(m) of the Internal Revenue Code, adopted in 1993, provided that
public companies may not deduct in any year compensation in excess of $1 million
paid to any of the individuals named in the Summary Compensation Table that is
not "performance based," as defined in Section 162(m).
The Committee believes that there are circumstances in which the Company's
interest are best served by providing compensation that is not fully deductible
under Section 162(m). Currently these circumstances relate to the employment of
Mr. Donald; in the future, circumstances may require the ability to exercise
discretion regarding other executives.
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With regard to Mr. Donald, the Company's paramount concern is to retain and
appropriately reward the best qualified CEO for the Company. Also, the Committee
believes that its ability to exercise discretion under the Company's
compensation plans outweighs the desirability of qualifying these plans under
Section 162(m) and outweighs the limited effect of the loss of deductibility.
COMPENSATION COMMITTEE
RAYMOND J. DEMPSEY, Chairman
ROBERT S. FOLSOM
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933 of the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under either Act.
OUTSTANDING COMMON STOCK
The only outstanding voting securities of the Company are shares of its
Common Stock, each share of which entitles the holder thereof to one vote. At
February 27, 1995, there were outstanding an entitled to vote shares
of its Common Stock. Only stockholders of record at the close of business on
February 27, 1995 are entitled to notice of, and to vote at, the 1995 Annual
Meeting of Stockholders and any adjournments thereof.
By Order of the Board of Directors
GEORGE B. BRUNT
Vice President, Secretary and
General Counsel
Plano, Texas
March 17, 1995
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<PAGE> 26
DSC COMMUNICATIONS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 26, 1995
The undersigned hereby (a) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of DSC Communications Corporation (the "Company") to be
held on April 26, 1995, and the Proxy Statement in connection therewith, each
dated March 17, 1995; (b) appoints James L. Donald, Gerald F. Montry and George
B. Brunt as Proxies, or any of them, each with the power to appoint a
substitute; (c) authorizes the Proxies to represent and vote, as designated
hereon, all the shares of Common Stock of the Company, held of record by the
undersigned on February 27, 1995, at such Annual Meeting and at any
adjournment(s) thereof; and (d) revokes any proxies heretofore given.
(Continued and to be signed on reverse side)
<PAGE> 27
<TABLE>
<S> <C>
/X/ Please mark your votes SHARES IN YOUR NAME REINVESTMENT SHARES
votes as in the
example.
The Board of Directors recommends a vote FOR
each of these proposals:
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval of an amendment to the Company's / / / / / /
Directors Restated Certificate of Incorporation
Increasing the authorized number of shares
Nominees are: of Common Stock, $.01 par value, from
Clement M. Brown, Jr., Sir John Fairelough, 250,000,000 to 500,000,000
Gerald F. Montry
For, except vote withheld from the following 3. Approval of a proposal to add an / / / / / /
nominee(s): additional 1,000,000 shares of Common
_____________________________________________ Stock to the DSC Communications
Corporation 1990 Employee Stock
Purchase Plan.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may come before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
INDICATED, THIS PROXY WILL BE VOTED (i) FOR ELECTION OF ALL NOMINEES
LISTED IN THIS PROXY TO THE BOARD OF DIRECTORS; (ii) FOR APPROVAL OF
AN AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE,
FROM 250,000,000 TO 500,000,000; AND (iii) FOR ADOPTION OF THE
PROPOSAL TO ADD AN ADDITIONAL 1,000,000 SHARES OF COMMON STOCK TO THE
DSC COMMUNICATIONS CORPORATION 1990 EMPLOYEE STOCK PURCHASE PLAN.
Signature(s) ______________________________________________________ DATE ______________________
Signature(s) ______________________________________________________ DATE ______________________
Please sign your name above exactly as it appears on your stock certificate, date and return
promptly. When signing on behalf of a corporation, partnership, estate, trust, or in any other
representative occupancy, please sign your name and title. For joint accounts, each joint owner
must sign.
</TABLE>