<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:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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):
/ / $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 transaction 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:
- --------------------------------------------------------------------------------
/X/ 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 25, 1996
Dear Fellow Stockholder:
This year's Annual Meeting of Stockholders will be held at The Grand
Kempinski Hotel, 15201 Dallas Parkway, Dallas, Texas, on April 25, 1996, 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 of Stockholders. The Company's Board of Directors recommends (i)
election of management's three nominees for the Board of Directors; (ii)
approval of a proposal to increase the number of shares of common stock subject
to the DSC Communications Corporation 1993 Employee Stock Option and Securities
Award Plan; (iii) approval of amendments to the DSC Communications Corporation
1993 Employee Stock Option and Securities Award Plan; (iv) approval of an
amendment to the DSC Communications Corporation 1994 Long-Term Incentive
Compensation Plan; and (v) approval of the DSC Communications Corporation Annual
Incentive Bonus Plan.
To be certain that your shares are voted at the Annual Meeting, whether or
not you plan to attend in person, please sign, date and return the enclosed
proxy as soon as possible. Your vote is important.
At the Annual 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,
/s/ JAMES L. DONALD
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 25, 1996
Notice is hereby given that the Annual Meeting of Stockholders of DSC
Communications Corporation, a Delaware corporation (the "Company"), will be held
at The Grand Kempinski Hotel, 15201 Dallas Parkway, Dallas, Texas, on Thursday,
April 25, 1996, at 10:00 AM local time for the following purposes:
1. To elect three Class III Directors for terms expiring in 1999.
2. To approve a proposal to increase the number of shares of common
stock subject to the DSC Communications Corporation 1993 Employee
Stock Option and Securities Award Plan.
3. To approve amendments to the DSC Communications Corporation 1993
Employee Stock Option and Securities Award Plan.
4. To approve an amendment to the DSC Communications Corporation 1994
Long-Term Incentive Compensation Plan.
5. To approve the DSC Communications Corporation Annual Incentive Bonus
Plan.
6. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The accompanying Proxy Statement contains information regarding the
business to be considered at the Annual Meeting.
Only stockholders of record at the close of business on February 27, 1996
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof. A list of stockholders will be made available at the offices of Baker &
McKenzie, located at 4500 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas
at least 10 days prior to the Annual Meeting for examination by any stockholder
for any purpose germane to the Annual Meeting.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL 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 Annual 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
/s/ GEORGE B. BRUNT
GEORGE B. BRUNT
Vice President, Secretary
and General Counsel
Plano, Texas
March 25, 1996
<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 on Thursday, April 25, 1996, at 10:00 AM local time, at The Grand Kempinski
Hotel, 15201 Dallas Parkway, Dallas, Texas.
This Proxy Statement and accompanying form of proxy will first be mailed to
stockholders of record on or about March 25, 1996.
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 of Directors 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 of Directors currently consists of
nine members. Three Class III directors, to serve until the 1999 Annual Meeting
of Stockholders, will be nominated for election at the Annual Meeting.
Management's three nominees for election as Class III Directors are listed
below and are currently members of the Board of Directors.
<TABLE>
<CAPTION>
AGE AS OF DIRECTOR OF
PRINCIPAL OCCUPATION FEBRUARY 27, COMPANY
OR EMPLOYMENT 1996 SINCE
------------------------------------------ ------------ -----------
<S> <C> <C> <C>
James L. Donald............ Chairman of the Board, President and Chief 64 1981
Executive Officer; employed by the Company
since 1981.
Robert S. Folsom........... Chairman of the Board, Folsom Properties, 69 1983
Inc. (real estate development) for more
than the past five years; Director of
BeautiControl Cosmetics, Inc. (cosmetics).
James M. Nolan............. Marketing Consultant to the Company; sole 61 1981
stockholder of Nolan Consulting, Inc.
since 1978; Director of Capital Southwest
Corporation (investment company).
</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 cast 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 INCREASE THE NUMBER OF SHARES OF COMMON STOCK
SUBJECT TO THE DSC COMMUNICATIONS CORPORATION
1993 EMPLOYEE STOCK OPTION AND SECURITIES AWARD PLAN
The Board of Directors and the Compensation Committee of the Board of
Directors (the "Compensation Committee") have determined that it is in the best
interest of the Company and the stockholders to add 6,000,000 shares of common
stock of the Company, par value $.01 per share ("Common Stock"), to the DSC
Communications Corporation 1993 Employee Stock Option and Securities Award Plan
(the "1993 Plan"). There are currently 4,000,000 shares of Common Stock subject
to the 1993 Plan, of which 3,244,911 shares of Common Stock were issued or are
currently subject to options or restricted stock awards under the 1993 Plan at
February 27, 1996. The Board of Directors and the Compensation Committee also
approved certain amendments to the 1993 Plan effective as of October 30, 1995,
subject to approval by the Company's stockholders. See "Proposal to Approve
Amendments to the DSC Communications Corporation 1993 Employee Stock Option and
Securities Award Plan" on pages 8 through 10. The 1993 Plan, as amended, is
attached as Exhibit A to this Proxy Statement.
The Company in the past has used stock options for attracting, retaining
and motivating key employees and directors, by providing them incentives to
enhance the growth and profitability of the Company. The 1993 Plan continues the
objectives embodied in the plans previously adopted by the Company: namely, to
provide incentives to persons with experience and ability so that they will
remain in the employ of the Company or its subsidiaries, to attract new
employees whose services are considered valuable to the Company or its
subsidiaries and to encourage a proprietary interest by such persons in the
development and financial success of the Company.
As of February 27, 1996, there were 755,089 shares of Common Stock
available for the grant of stock options and restricted stock awards under the
1993 Plan (exclusive of the Executive Option discussed below). The Board of
Directors believes that this is not a sufficient number of shares of Common
Stock to accomplish the objectives described above. The inclusion of 6,000,000
additional shares of Common Stock subject to the 1993 Plan will enable the
Company to further promote these objectives.
In addition and effective December 20, 1995, the Compensation Committee
granted Mr. James L. Donald an option under the 1993 Plan to acquire 2,000,000
shares of the Company's Common Stock (the "Executive Option"). The Executive
Option is subject to the approval of the Company's stockholders to add 6,000,000
shares of Common Stock to the 1993 Plan and the amendments to the 1993 Plan. See
"Proposal to Approve Amendments to the DSC Communications Corporation 1993
Employee Stock Option and Securities Award Plan" on pages 8 through 10, and the
"Report of Compensation Committee" on pages 28 through 30. The exercise price of
the Executive Option is $33.75 per share, which was the closing sale price of
the Common Stock on the date of the grant as reported by the National
Association of Securities Dealers, Inc. National Market System (the "NASDAQ
Stock Market"). In addition to the exercise provisions of the 1993 Plan, the
Executive Option will be exercisable upon the earlier to occur of (i) the date
the closing sale price of the Common Stock on the NASDAQ Stock Market equals or
exceeds $67.50 or (ii) nine and 1/2 years after the date of grant.
The 1993 Plan was approved by the Board of Directors on January 25, 1993
and provides for the granting to selected employees of the Company of (i)
options to purchase shares of Common Stock ("Options"), and (ii) shares of
restricted stock ("Restricted Stock") or other securities (together "Securities
Awards") (collectively, grants of Options and Securities Awards are referred to
in this Proxy Statement as "Plan Awards"). The stockholders approved the 1993
Plan on April 26, 1993 at the Annual Meeting of Stockholders. The Options
granted under the 1993 Plan are intended to be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") or Options that
do not meet the requirements for Incentive Stock Options ("Nonstatutory
Options"). The 1993 Plan originally had 4,000,000 shares of Common Stock subject
to the plan.
The closing sale price of the Company's Common Stock as reported by the
NASDAQ Stock Market on February 27, 1996 was $30.25.
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<PAGE> 6
PRIOR GRANTS OF PLAN AWARDS
As of February 27, 1996, there were 582 participants in the 1993 Plan.
During 1995 there were grants of Options for 1,272,300 shares of the Company's
Common Stock (exclusive of the Executive Option) of which grants of Options for
295,000 shares were granted to the Company's named executive officers. During
1995 there were awards of Restricted Stock for 110,027 shares of the Company's
Common Stock, of which 48,237 shares of Restricted Stock were awarded to the
Company's named executive officers. See "Executive Compensation" on pages 15
through 22. In January 1996, the Company awarded Mr. James L. Donald, Chairman
of the Board, President, and Chief Executive Officer, and Mr. Gerald F. Montry,
Senior Vice President and Chief Financial Officer, 126,802 and 19,020 shares of
Restricted Stock under the 1993 Plan, respectively, as partial payment for
amounts due to each of them under the Company's 1990 Long-Term Incentive
Compensation Plan. See "Donald Agreement" and "Long-Term Incentive Compensation
Plans" under "Executive Compensation" on pages 19 through 21.
The following table summarizes the Plan Awards outstanding under the 1993
Plan as of February 27, 1996:
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED STOCK
NAME AND PRINCIPAL POSITION NUMBER OF OPTIONS AWARDS
----------------------------------------------------- ----------------- ----------------
<S> <C> <C>
James L. Donald...................................... 220,000(A) 159,395
Chairman of the Board, President and Chief
Executive Officer
Gerald F. Montry..................................... 90,000 31,242
Senior Vice President and Chief Financial Officer
Allen R. Adams....................................... 70,000 5,422
Group Vice President
Hensley E. West(B)................................... -- --
Daryl J. Eigen(B).................................... 45,000 --
Michael R. Bernique(B)............................... 54,999 1,666
All current executive officers as a group (8
persons)........................................... 522,999 224,889
========= =======
All current directors who are not executive officers
as a group (7 persons)............................. -- --
========= =======
All employees, including all current officers who are
not executive officers, as a group................. 1,781,462 75,495
========= =======
</TABLE>
- ---------------
(A) Excludes the grant of the Executive Option for 2,000,000 shares, subject to
stockholder approval of certain amendments and an increase in the number of
shares of Common Stock authorized for issuance under the 1993 Plan.
(B) As of November 8, 1995, Mr. Bernique was no longer serving as an executive
officer of the Company. Subsequent to December 31, 1995, Mr. West and Mr.
Eigen were no longer serving as executive officers of the Company.
AMOUNT OF STOCK SUBJECT TO THE 1993 PLAN
Under the terms of the 1993 Plan, as amended, the Company may grant Plan
Awards with respect to an aggregate of 4,000,000 shares of Common Stock. On
October 30, 1995, the Compensation Committee amended the 1993 Plan to add an
additional 6,000,000 shares of Common Stock to the 1993 Plan, subject to
stockholder approval.
1993 PLAN ADMINISTRATION
The 1993 Plan is administered by the Compensation Committee, which is
composed of non-employee directors of the Company and has the authority to grant
Plan Awards and set the terms and conditions of such
3
<PAGE> 7
grants and awards. Except for the Executive Option, no determination has been
made as to the amount or type of Plan Awards remaining available for grants or
awards under the 1993 Plan and no specific participants have been selected. The
1993 Plan is proposed to be amended to require that the Compensation Committee
be comprised solely of "Outside Directors" within the meaning of Section 162(m)
of the Internal Revenue Code. See "Proposal to Approve Amendments to the DSC
Communications Corporation 1993 Employee Stock Option and Securities Award Plan"
on pages 8 through 10.
ELIGIBILITY
In general, all key employees of the Company or persons who have been
engaged to become key employees of the Company are eligible to receive Plan
Awards under the 1993 Plan. The 1993 Plan is proposed to be amended to provide
that the maximum number of shares subject to Plan Awards that may be granted to
any single individual under the Plan during any three-year period shall be
3,000,000. See "Proposal to Approve Amendments to the DSC Communications
Corporation 1993 Employee Stock Option and Securities Award Plan" on pages 8
through 10.
OPTION FEATURES
The type of Options that may be granted under the 1993 Plan are
Nonstatutory Options, Incentive Stock Options, or any combination of the two.
The option price per share shall not be less than 100% of the closing sale price
on the NASDAQ Stock Market (the "Fair Market Value") of a share of the Company's
Common Stock on the date of grant. The Compensation Committee may, in its
discretion, authorize a loan by the Company to an optionee in an amount not to
exceed the exercise price of the Option upon such terms as the Compensation
Committee deems appropriate. If an Option or portion thereof or Securities Award
expires or terminates for any reason without having been exercised in full, the
unpurchased shares covered by the Option or Securities Award shall be available
for future grants of Options and Securities Awards.
An Option may not be granted which expires more than ten years from the
date of grant. The Compensation Committee may establish vesting provisions for
an Option so that the Option becomes fully vested to the optionee in a series of
cumulative portions. The Compensation Committee may also accelerate the vesting
of an Option, or portion thereof. The 1993 Plan is proposed to be amended to
allow Nonstatutory Options to have a termination date longer than ten years. See
"Proposal to Approve Amendments to the DSC Communications Corporation 1993
Employee Stock Option and Securities Award Plan" on pages 8 through 10.
The Compensation Committee may also provide that shares received by an
optionee pursuant to the exercise of an Option or SAR (as defined below) will be
subject for a number of years to restrictions on transferability and to the
Company's option to repurchase all or a portion of the shares acquired by the
participant pursuant to the exercise of his Options and SARs if the participant
ceases to be employed by the Company ("Restricted Plan Awards"). The price for
the repurchase of Restricted Plan Awards pursuant to the Company's option must
be equal to the lower of (i) the price per share paid by the optionee or (ii)
the Fair Market Value on the date the optionee ceased to be an employee of the
Company. If a participant acquires shares subject to a Restricted Plan Award
pursuant to the exercise of a SAR, the Company will have the option to reacquire
such shares without the payment of any consideration. During the term of the
restrictions, a participant may not transfer the shares but shall otherwise have
all the rights of a stockholder, including the right to receive dividends and
vote such shares. The Compensation Committee may establish different terms of
restrictions with respect to different shares of Common Stock acquired pursuant
to a Restricted Plan Award. The Committee may also accelerate the dates at which
the restrictions end or otherwise waive or modify the restrictions on Restricted
Plan Awards with the consent of the participant. The 1993 Plan is proposed to be
amended to modify the time periods, prices and conditions for reacquisition of a
participant's shares. See "Proposal to Approve Amendments to the DSC
Communications Corporation 1993 Employee Stock Option and Securities Award Plan"
on pages 8 through 10.
In the event of an optionee's death, any outstanding Option shall be
exercisable only within one year after death (but not subsequent to the
expiration of the Option) by the optionee's estate or beneficiary. In the event
4
<PAGE> 8
of an optionee's retirement from the Company at or after the age of 55, the
Compensation Committee may allow the optionee to exercise his or her Option
until the earlier of (i) the termination date specified in the Option or (ii)
the fifth anniversary of the effective date of optionee's retirement. In the
event of an optionee's voluntary or involuntary termination of employment with
the Company for any reason other than disability, death or retirement, any
outstanding Options shall, except in the limited circumstances described below,
expire thirty days after the date of termination of employment. However, if the
optionee's employment is terminated for dishonesty or if the Optionee commits
other acts detrimental to the interests of the Company or for breach of an
employment or other contract with the Company, any outstanding Options granted
to the participant shall thereupon become null and void. The 1993 Plan is
proposed to be amended to allow the Compensation Committee the right to extend
the termination date of an Option under certain circumstances. See "Proposal to
Approve Amendments to the DSC Communications Corporation 1993 Employee Stock
Option and Securities Award Plan" on pages 8 through 10.
No Option granted under the 1993 Plan shall be assignable or transferable
except by will or the laws of descent and distribution. The 1993 Plan is
proposed to be amended to provide the Compensation Committee with the discretion
to permit transfer of any Option other than an Incentive Stock Option to a
member of the Optionee's family or to a trust or partnership whose beneficiaries
are members of the Optionee's family. See "Proposal to Approve Amendments to the
DSC Communications Corporation 1993 Employee Stock Option and Securities Award
Plan" on pages 8 through 10.
STOCK APPRECIATION RIGHTS
At or after the grant of an Option, the Compensation Committee may, at its
discretion, grant a participant a stock appreciation right ("SAR") defined as a
right to surrender to the Company his or her option, or portion thereof, and
receive in exchange for such number of shares of Common Stock as have an
aggregate Fair Market Value, on the date of exercise of the SAR, equal to the
excess, if any, as of such date, of (i) the Fair Market Value of the shares of
Common Stock associated with the Option or portion thereof, which is
surrendered, over (ii) the aggregate option price of such shares to the optionee
if he or she exercised such Option, or portion thereof. Upon an optionee's
exercise of a SAR, the Company's payment to the participant shall be made solely
in shares of Common Stock. A SAR is only exercisable during the term of the
associated Option.
SECURITIES AWARDS
Securities Awards represent the right of a participant to receive shares of
Common Stock, shares of other capital stock or other securities of the Company,
as determined by the Compensation Committee in its discretion. Such awards may
be absolute or contingent upon various factors, may provide for payment by the
participant of amounts that are less than the fair market value of such
securities or for no consideration and may provide such securities be considered
Restricted Plan Awards, all on such terms and subject to such conditions as may
be determined by the Compensation Committee in its discretion. Such awards may
be payable in whole or in part on the date thereof, as determined from time to
time by the Compensation Committee in its discretion. In all other respects,
such awards will be subject to the provisions and limitations of the 1993 Plan,
and will be evidenced by written agreements containing such provisions and
limitations of the 1993 Plan, and any other provisions not inconsistent with the
terms or the 1993 Plan which the Compensation Committee may prescribe. The 1993
Plan is proposed to be amended to provide that Securities Awards may be granted
upon attainment of certain performance goals by the participant. See "Proposal
to Approve Amendments to the DSC Communications Corporation 1993 Stock Option
and Securities Award Plan" on pages 8 through 10.
CHANGE IN CONTROL
In the event that an offer (other than an offer by the Company) to purchase
or otherwise acquire Common Stock results in the purchase or other acquisition
by the offeror of at least 40% of the Company's outstanding Common Stock,
restrictions as to the date on which all Options, Securities Awards and SARs
would otherwise become fully vested are waived.
5
<PAGE> 9
AMENDMENT AND TERMINATION
The Board of Directors may terminate or from time to time suspend or amend
the 1993 Plan without stockholder approval, except that (i) no modification may,
without the participant's consent, alter or impair any of the rights or
obligations under any Option, SAR or Securities Award theretofore granted, and
(ii) no modification, without stockholder approval, shall materially modify the
eligibility requirements for receiving Plan Awards, increase the maximum number
of shares for which Plan Awards may be granted, reduce the minimum option price
per share, extend the period of granting Plan Awards, or materially increase in
any other way the benefits accruing to participants. The 1993 Plan is proposed
to be amended to allow the Compensation Committee the discretion at any time,
with the consent of the Optionee, to modify or amend any outstanding Option
except as to the option price or as to any modification that would cause an
Option intended to be granted as an Incentive Stock Option to fail to qualify as
an Incentive Stock Option. The 1993 Plan is also proposed to be amended to
provide that, without stockholder approval, the Compensation Committee shall not
amend the 1993 Plan to increase the maximum number of Plan Awards that may be
granted to any single individual under the 1993 Plan during any three-year
period or to modify the performance goals of the 1993 Plan. See "Proposal to
Approve Amendments to the DSC Communications Corporation 1993 Employee Stock
Option and Securities Award Plan" on pages 8 through 10.
No Plan Awards may be made under the 1993 Plan after December 31, 2002.
FEDERAL INCOME TAX CONSEQUENCES
The following general summary is based upon the Internal Revenue Code and
does not include a discussion of any state or local tax consequences.
Incentive Stock Options. An optionee does not realize taxable income upon
the grant or exercise of an Incentive Stock Option.
The income tax treatment of any gain or loss realized upon an optionee's
disposition of shares of Common Stock received upon exercise of an Incentive
Stock Option depends on the timing of the disposition. If the optionee holds the
shares received upon exercise of an Incentive Stock Option for at least two
years from the date such Incentive Stock Option was granted, and one year from
the date of exercise, the difference (if any) between the amount realized from
the sale of such shares and the optionee's tax basis will be taxed as long-term
capital gain or loss.
If an optionee disposes of the shares of Common Stock before the end of the
applicable holding periods described above (i.e., makes a "disqualifying
disposition"), such optionee may be deemed to be in receipt of taxable income in
the year of the disqualifying disposition, depending on the selling price. If
the selling price exceeds the fair market value of the Incentive Stock Option on
the date of exercise, the excess of that fair market value over the exercise
price is taxable to the optionee as ordinary income, and the excess of the
selling price over the fair market is taxable to the optionee as capital gain.
If the selling price exceeds the exercise price but not the fair market value on
the date of exercise, the excess of the selling price over the exercise price is
taxable to the optionee as ordinary income. If the selling price is less than
the exercise price, the difference is treated as capital loss.
The Company is not entitled to a deduction for federal income tax purposes
with respect to the grant or exercise of an Incentive Stock Option or the
disposition of shares of Common Stock acquired upon exercise (if the applicable
holding periods have been met). In the event of a disqualifying disposition,
however, the Company is entitled to a federal income tax deduction in an amount
equal to the ordinary income recognized by the optionee.
Current optionees may be subject to the alternative minimum tax, which in
individual cases could reduce or eliminate any tax benefits to them under the
1993 Plan.
Nonstatutory Options. An optionee will not recognize any taxable income
upon the grant of a Nonstatutory Option. However, upon exercise of a
Nonstatutory Option, an optionee must recognize ordinary income in an amount
equal to the excess of the fair market value of the shares of Common Stock at
the time
6
<PAGE> 10
of exercise over the exercise price. Upon the subsequent disposition of the
shares, the optionee will realize a capital gain or loss, depending on whether
the selling price exceeds the fair market value of the shares on the date of
exercise. The optionee's holding period in the shares, for capital gain and loss
purposes, begins on the date of exercise.
An optionee's tax basis in the shares of Common Stock received on exercise
of a Nonstatutory Option will be equal to the amount of consideration paid by
the optionee on exercise, plus the amount of ordinary income recognized as a
result of the receipt of such shares. The Company will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount as the optionee recognizes ordinary income.
If an optionee exercises a Nonstatutory Option by delivering other shares
of the Company's Common Stock, the optionee will not recognize gain or loss with
respect to the shares delivered by the optionee, even if the then fair market
value of such shares is different from the optionee's tax basis therein. The
optionee, however, will be taxed as described above with respect to the exercise
of the Nonstatutory Option as if he or she had paid the exercise price in cash,
and the Company likewise generally will be entitled to an equivalent tax
deduction. The optionee's tax basis in the shares of Common Stock received on
such exercise will be equal to his or her basis in the number of shares
surrendered on such exercise plus the fair market value of the number of shares
received in excess of the number of shares surrendered, and the holding period
for such number of shares received will include the holding period of the shares
surrendered.
Stock Appreciation Rights. An optionee will not recognize any taxable
income upon the grant of a SAR. Upon exercise, however, an optionee must
recognize ordinary income equal to the fair market value of the shares of
Company's Common Stock he or she receives. Upon the subsequent disposition of
the shares, the optionee will recognize a capital gain or loss, depending on
whether the selling price exceeds the fair market value of the shares on the
date of exercise. The optionee's holding period in the shares, for capital gain
and loss purposes, begins on the date of exercise.
An optionee's tax basis in the shares of Common Stock he or she receives
from exercise of a SAR will be equal to the fair market value of such shares.
The Company will be entitled to a deduction for federal income tax purposes at
the same time and in the same amount as the optionee recognizes ordinary income.
Securities Awards. A participant who receives a Securities Award will not
recognize taxable income upon the grant of a Securities Award where the
Securities Award (consisting of Common Stock) is nontransferable and subject to
a substantial risk of forfeiture. The participant will recognize ordinary income
at the time at which the restrictions that impose a substantial risk of
forfeiture of such Securities Awards (the "Restrictions") lapse, or on the date
of grant of a Securities Award if there are no restrictions, in an amount equal
to the fair market value of such shares. The ordinary income recognized by a
participant with respect to Securities Awards pursuant to the 1993 Plan will be
deemed compensation income subject to applicable wage withholding.
A participant may elect, pursuant to Section 83(b) of the Internal Revenue
Code, to include in gross income the fair market value of the Securities Award,
notwithstanding that the Securities Award would otherwise not be includable in
gross income at that time. If such election is made 30 days after the date of
grant, then the participant would include in gross income the Fair Market Value
of the Restricted Stock on the date of grant, and any change in the value of the
Securities Award after the date of grant would be capital gain or capital loss
only if and when the participant disposes of the shares. If the Section 83(b)
election is made, the participant's capital gain holding period begins on the
date of grant.
If a Section 83(b) election is made and the participant then forfeits the
Securities Award, the participant may not deduct as an ordinary loss the amount
previously included in gross income.
Any dividends received on a Securities Award before the Restrictions on
such shares lapse will be treated as additional compensation, and not as
dividend income, for federal income tax purposes and will be subject to
applicable wage withholding.
7
<PAGE> 11
A participant's tax basis in a Securities Award received pursuant to the
1993 Plan will be equal to the ordinary income recognized by that participant.
Unless a Section 83(b) election is made, the participant's holding period for
his or her Securities Award for purposes of determining gain or loss on a
subsequent sale will begin on the date the Restrictions on those shares lapse.
In general, the Company will be entitled to a deduction for federal income
tax purposes in an amount equal to the ordinary income recognized by a
participant with respect to a Securities Award pursuant to the 1993 Plan.
If, subsequent to the lapse of Restrictions on his or her shares, a
participant sells those shares, the difference, if any, between the amount
realized from the sale and the tax basis of those shares to the participant will
be taxed as long-term or short-term capital gain or loss depending on whether
the participant's holding period for those shares exceeds the applicable holding
period at the time of sale.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO ALL INDIVIDUALS.
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR A DETERMINATION AS TO THE
SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM.
VOTE REQUIRED FOR APPROVAL
The proposal to increase the number of shares of Common Stock subject to
the DSC Communications Corporation 1993 Employee Stock Option and Securities
Award Plan must receive the favorable vote of a majority of the total number of
shares of Common Stock represented and entitled to vote at the Annual Meeting or
any adjournment thereof for approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK SUBJECT TO THE DSC
COMMUNICATIONS CORPORATION 1993 EMPLOYEE STOCK OPTION AND SECURITIES AWARD PLAN.
PROPOSAL TO APPROVE AMENDMENTS TO THE
DSC COMMUNICATIONS CORPORATION
1993 EMPLOYEE STOCK OPTION AND SECURITIES AWARD PLAN
The Board of Directors and the Compensation Committee have determined that
it is in the best interest of the Company and the stockholders to make certain
amendments to the 1993 Plan. The amendments were approved by the Compensation
Committee and the Board of Directors effective as of October 30, 1995, subject
to approval by the Company's stockholders. The 1993 Plan, as amended, is
attached as Exhibit A to this Proxy Statement. The amendments are being made to
permit the deduction by the Company of compensation attributable to Plan Awards
that in certain instances would not otherwise be deductible under Section 162(m)
of the Internal Revenue Code and to afford flexibility to the Compensation
Committee in granting of Plan Awards under the 1993 Plan. Section 162(m)
generally limits to $1 million the allowable deduction for compensation paid by
a publicly held company to the chief executive officer and to each of the other
four most highly compensated employees for taxable years beginning on or after
January 1, 1994. Certain of the material amendments are summarized below but all
amendments to the 1993 Plan are qualified in their entirety by the actual text
of the amendments reflected in the copy of the 1993 Plan attached to this Proxy
Statement. By approving these amendments, the Company's stockholders shall be
deemed to have approved the 1993 Plan as amended and restated as Exhibit A
attached to this Proxy Statement.
Section 2.22 of the 1993 Plan has been amended to allow Nonstatutory
Options to have a termination date longer than ten years. The Internal Revenue
Code requires Incentive Stock Options to terminate on the tenth anniversary of
the date on which the Option is granted. There is no restriction in the Internal
Revenue
8
<PAGE> 12
Code in respect of termination regarding Nonstatutory Options. The 1993 Plan
previously applied this restriction to both Nonstatutory Options and Incentive
Stock Options.
Sections 2.13 and 3.2 of the 1993 Plan have been amended by replacing the
term "Disinterested Directors" with the term "Outside Directors" which means
directors within the meaning of Section 162(m) of the Internal Revenue Code.
Pursuant to Section 162(m), in general, outside directors of a corporation are
individuals who are not employees of, or independent contractors to, the
corporation and are not employed by an entity (or self-employed by an entity)
which rendered personal services to the corporation for which the entity was
paid during the previous fiscal year more than 5% of the entity's revenue, or if
the services were legal, accounting, investment banking or management consulting
services, more than $60,000.
Section 3.4 of the 1993 Plan has been amended to allow the Compensation
Committee the discretion at any time, with the consent of the Optionee, to
modify or amend any outstanding Option except as to the Option Price or as to
any amendment that would cause an Option intended to be granted as an Incentive
Stock Option to fail to qualify as an Incentive Stock Option.
Section 4.1 of the 1993 Plan has been amended to provide that the maximum
number of shares subject to Plan Awards that may be granted to any single
individual under the Plan during any three-year period shall be 3,000,000. As a
result of this amendment, the maximum amount of compensation that any employee
could receive from Plan Awards during any three-year period can be determined
under the following formulae: (a) in the case of Options, (i) the difference
between the Fair Market Value of the shares at the time of exercise and the
exercise price (which will be no less than the Fair Market Value of the shares
at the date of grant), (ii) multiplied by 3,000,000; and (b) in the case of
Securities Awards, (i) the fair market value of the shares at the time of
vesting, (ii) multiplied by 3,000,000.
Section 6.8 of the 1993 Plan has been amended to provide the Compensation
Committee with the discretion to permit the transfer of any Option other than an
Incentive Stock Option to a member of the Optionee's family or to a trust or
partnership whose beneficiaries are members of the Optionee's family. The 1993
Plan previously provided certain restrictions on the transfer of Options.
Section 6.9(a) of the 1993 Plan has been amended to provide that the
Compensation Committee may extend the termination date of an Option if an
Optionee ceases to be employed by the Company other than for cause or by reason
of death or retirement after reaching age 55. The 1993 Plan previously did not
allow for this discretion.
Section 6.9(b) of the 1993 Plan has been amended to provide that in the
event of death of the Optionee while employed by the Company, an Option may be
exercised at any time or from time to time prior to the termination date of the
Option. The 1993 Plan previously provided that Options under such circumstances
be exercised by the earlier of one year after the date of death or the
termination date of the Option.
Section 6.9(c) of the 1993 Plan has been amended to extend the termination
date for any Option upon the retirement of an employee. The 1993 Plan previously
provided that the Compensation Committee had discretion regarding whether to so
extend the termination date.
Section 6.12(c) of the 1993 Plan has been amended to provide that the
Company shall have a right to repurchase Restricted Plan Awards from any
participant who ceases to be an employee of the Company for any reason other
than death, disability, or retirement during the term of the restrictions on
such shares, at the price paid by the participant (in the case of shares
acquired pursuant to Options) or for no consideration (in the case of shares
acquired pursuant to a SAR). The amendments further provide that the Company
must exercise this right within 90 days after the participant ceases to be
employed by the Company, that the Company must notify the participant in writing
of the exercise of the right, and that the Company must pay the participant
within five days after exercising this right. The 1993 Plan previously provided
that the Company had an option to repurchase Restricted Plan Awards from any
participant who ceased to be an employee of the Company for any reason, that the
participant would be required to tender to the Company the certificate
evidencing such shares, that the consideration to be paid by the Company in the
case of shares acquired pursuant to Options was to be the lower of (i) the price
per share paid by the participant or (ii) the Fair Market Value on the date the
participant ceased to be employed by the Company, and that the Company
9
<PAGE> 13
must elect whether to exercise its option within thirty days after receipt of
the certificate evidencing such shares.
Sections 7.1 and 7.2 of the 1993 Plan have been amended to provide that the
Compensation Committee may award Securities Awards upon the attainment of one or
more predetermined performance goals ("Performance Goals") by the participant.
The Committee may establish Performance Goals for Securities Awards in writing
and the vesting of such Shares shall be contingent upon the attainment of such
Performance Goals. Such Performance Goals shall be based upon one or more of the
following business criteria: (a) income before federal income taxes; (b) working
capital, measured either in absolute dollars or relative to sales; and/or (c)
earnings growth, revenues, expenses, stock price, operating profit, market
share, return on assets, equity, capital employed or investment, regulatory
compliance, satisfactory internal or external audits or improvement of financial
ratings. The Committee shall fix such Performance Goals for each Securities
Award within the time required for qualification under section 162(m) of the
Code and shall certify the attainment of such goals.
Section 8.1 of the 1993 Plan has been amended to provide that, without
stockholder approval, the Compensation Committee shall not be allowed to amend
the 1993 Plan to increase the maximum number of shares subject to Plan Awards
that may be granted to any single individual under the 1993 Plan during any
three-year period.
Certain of the amendments to the 1993 Plan are necessary to allow the grant
of the Executive Option. See "Proposal to Increase the Number of Shares of
Common Stock Subject to the DSC Communications Corporation 1993 Employee Stock
Option and Securities Award Plan" on pages 2 through 8. The amendments are also
necessary to qualify the amounts earned by Mr. Donald under the Executive Option
as compensation expense to the Company under Section 162(m) of the Internal
Revenue Code. The Executive Option will also be transferable by Mr. Donald to
his family members or any trust or partnership established for the benefit of
his family members. The ability to transfer the Executive Option by Mr. Donald
is subject to the approval of the amendments to the 1993 Plan. See "Report of
Compensation Committee" on pages 28 through 30.
VOTE REQUIRED FOR APPROVAL
The proposal to approve the amendments to the DSC Communications
Corporation 1993 Employee Stock Option and Securities Award Plan must receive
the favorable vote of a majority of the total number of shares of Common Stock
represented and entitled to vote at the Annual Meeting or any adjournment
thereof for approval. An affirmative vote by a stockholder shall also be deemed
to be approval of the Performance Goals for Securities Awards under the 1993
Plan for purposes of Section 162(m) of the Internal Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENTS TO THE DSC COMMUNICATIONS CORPORATION 1993 EMPLOYEE STOCK OPTION
AND SECURITIES AWARD PLAN.
PROPOSAL TO AMEND THE DSC COMMUNICATIONS CORPORATION
1994 LONG-TERM INCENTIVE COMPENSATION PLAN
The Company's stockholders approved the adoption of the DSC Communications
Corporation 1994 Long-Term Incentive Compensation Plan (the "1994 LTIP") at the
1994 Annual Meeting of Stockholders held on April 27, 1994. Effective December
20, 1995, the Compensation Committee amended the 1994 LTIP, subject to approval
by the Company's stockholders of such amendment and of the performance goals
contemplated by the 1994 LTIP. The 1994 LTIP, prior to this amendment, provided
that no individual could receive in excess of 100,000 units during the duration
of the 1994 LTIP. The amendment provides that no individual may receive in
excess of 140,000 units during the duration of the 1994 LTIP.
The 1994 LTIP is intended to allow the Compensation Committee to make
awards that qualify as performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code.
10
<PAGE> 14
Section 162(m) generally limits to $1 million the allowable deduction for
compensation paid by a publicly held company to the chief executive officer and
to each of the other four most highly compensated employees for taxable years
beginning on or after January 1, 1994. However, "performance-based" compensation
is not subject to the $1 million deduction limit. In general, to qualify as
performance-based compensation, the following requirements must be satisfied:
(i) the performance goals are determined by a committee consisting solely of two
or more "outside directors", (ii) the material terms under which the
compensation is to be paid, including the performance goals, are approved by a
majority of the corporation's stockholders, and (iii) the committee certifies
that the applicable performance goals were satisfied before payment of any
performance-based compensation is made. The 1994 LTIP has been designed by the
Compensation Committee to meet these criteria.
Achievement of the performance goals is reflected in increases in the value
of each unit of the 1994 LTIP. The incremental unit value ("Incremental Unit
Value") with respect to any calendar year shall be equal to the product of the
Measuring Price (defined below) multiplied by eight-tenths of the percentage by
which the earnings per share, as defined in the 1994 LTIP ("Earnings Per
Share"), for that calendar year exceeds the Earnings Per Share for the calendar
year ending December 31 immediately prior to the year in which participation
commences, but in no event shall this be less than zero. The measuring price
("Measuring Price") for each unit is the closing price per share of the
Company's Common Stock on December 31 of the year immediately prior to the year
in which the individual's participation commences, but shall not be lower than
$61.50. The Incremental Unit Value of each unit shall be cumulated to determine
the Cumulative Unit Value. In no event shall the value of any unit exceed four
times the Measuring Price ("Maximum Cumulative Value"). The 1994 LTIP terminates
on December 31, 2003, and no units may be awarded thereafter.
The maximum amount of compensation that any employee can receive under the
1994 LTIP can be determined by applying the above formula to the maximum number
of units per employee, which is 140,000.
Each unit of the 1994 LTIP vests 40% two years after the award date and 20%
each year thereafter, except that each unit becomes fully vested upon the
occurrence of attainment of that unit's Maximum Cumulative Value, a change in
control of the Company, as defined in the 1994 LTIP ("Change in Control"),
termination without cause of the participant, or the participant's death,
disability or retirement on or after age 65.
Any fully vested unit must be exercised. A partially vested unit may be
exercised to the extent vested, and the unvested portion will be forfeited. Upon
exercise, a participant will be entitled to receive that unit's cumulative
value. Except upon a Change of Control, when payment must be made solely in
cash, not less than 40% of the amount due must be paid in cash and the balance,
as determined by the Compensation Committee in its discretion, may be paid in
cash, in shares of common stock, or in both. If exercised, or upon termination
of a participant's employment (except that, in the case of the participant's
death, disability, retirement on or after age 65, termination without cause, or
other reason approved in advance by the Compensation Committee, the term of a
unit will continue for 14 months after such occurrence), such units will be
canceled and all rights with respect thereto will expire.
11
<PAGE> 15
The amendment is necessary to allow the grant of a total of 140,000 units
of the 1994 LTIP to Mr. James L. Donald. The following table summarizes the
awards outstanding under the 1994 LTIP as of February 27, 1996, if the amendment
is approved by the stockholders:
<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME AND PRINCIPAL POSITION VALUE($) OF UNITS
------------------------------------------------------------------ --------- --------
<S> <C> <C>
James L. Donald................................................... (A) 140,000
Chairman of the Board, President and Chief Executive Officer
Gerald F. Montry.................................................. (A) 20,000
Senior Vice President and Chief Financial Officer
Allen R. Adams.................................................... (A) 15,000
Group Vice President
Hensley E. West(B)................................................ -- --
Daryl J. Eigen(B)................................................. -- --
Michael R. Bernique(B)............................................ -- --
All current executive officers as a group (8 persons)............. (A) 175,000
All directors who are not current executive officers as a group (7
persons)........................................................ None --
All employees, including officers who are not current executive
officers,
as a group...................................................... (A) 2,000
</TABLE>
- ---------------
(A) The units shown were awarded in late 1995 and early 1996 with participation
beginning in 1996; therefore, these units had no value as of December 31,
1995. If participation under the 1994 LTIP had begun during 1995, the pro
forma unit value as of December 31, 1995 would have been approximately $15
per unit, as determined under the provisions of the 1994 Plan using 1994
and 1995 historical information, representing only one year of performance.
The Maximum Cumulative Value for these units under the 1994 LTIP is four
times the Measuring Price, as defined by the provisions of the 1994 LTIP.
(B) As of November 8, 1995, Mr. Bernique was no longer serving as an executive
officer of the Company. Subsequent to December 31, 1995, Mr. West and Mr.
Eigen were no longer serving as executive officers of the Company.
VOTE REQUIRED FOR APPROVAL
The proposal to approve the amendment to the DSC Communications Corporation
1994 Long-Term Incentive Compensation Plan must receive the favorable vote of a
majority of the total number of shares of Common Stock represented and entitled
to vote at the Annual Meeting or any adjournment thereof for approval. An
affirmative vote by a stockholder shall also be deemed to be approval of the
performance goals under the 1994 LTIP for purposes of Section 162(m) of the
Internal Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO THE DSC COMMUNICATIONS CORPORATION 1994 LONG-TERM INCENTIVE
COMPENSATION PLAN.
PROPOSAL TO ADOPT THE DSC COMMUNICATIONS CORPORATION
ANNUAL INCENTIVE BONUS PLAN
Effective January 1, 1996, the Compensation Committee adopted the DSC
Communications Corporation Annual Incentive Bonus Plan (the "Bonus Plan") and
the performance goals established therein, subject to stockholder approval. The
Bonus Plan is designed to recognize the significant contributions of the
Company's Chief Executive Officer (the "CEO") to the growth, profitability and
success of the Company by rewarding the CEO for the achievement of
preestablished annual performance goals. The following summary of the Bonus Plan
contains all material provisions of the Bonus Plan, but does not purport to be
complete, and is subject in all respects to, and qualified by, the provisions of
the Bonus Plan which appear as Exhibit B to this Proxy Statement. The Bonus Plan
is intended to allow the Compensation Committee to pay benefits that
12
<PAGE> 16
qualify as performance-based compensation within the meaning of Section 162(m)
of the Internal Revenue Code.
The sole participant in the Bonus Plan will be the CEO, currently Mr. James
L. Donald.
The Bonus Plan will be administered by the Compensation Committee, which
consists of two or more "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code.
The actual amount of benefits to be received by the CEO (the "Incentive
Bonus") pursuant to the Bonus Plan is not currently determinable, as the amount
of such benefits is linked to the Company's earnings before income taxes as
defined in Section 2.3 of the Bonus Plan ("Earnings") during each fiscal year in
which the Bonus Plan is in effect. The amount of compensation awardable under
the Bonus Plan is not subject to any maximum limitation. Each fiscal year's
performance goals and Incentive Bonus are as follows:
<TABLE>
<CAPTION>
PERFORMANCE GOALS
(EARNINGS FOR THE
FISCAL YEAR) INCENTIVE BONUS DOLLAR VALUE($)
- ----------------------------- ------------------------------------- --------------------
<S> <C> <C>
Up to $250 million None 0
$250 million to 0.75% of Earnings in this range 0-1,500,000
$450 million
$451 million to 0.50% of Earnings in this range 1,500,000-2,500,000
$650 million plus Incentive Bonus from lower
ranges
$651 million to 0.25% of Earnings in this range 2,500,000-3,250,000
$950 million plus Incentive Bonus from lower
ranges
Over $950 million 0.10% of Earnings in this range plus 3,250,000 and up
Incentive Bonus from lower ranges
</TABLE>
If the Bonus Plan had been in effect during the fiscal year ended December
31, 1995, the Company's CEO, Mr. James L. Donald, would have received $299,625
as an Incentive Bonus for that fiscal year.
Any payments of the Incentive Bonus will be made from the Company's general
assets. Incentive Bonus payments will be made after the Compensation Committee
ascertains the amount of Incentive Bonus to which the CEO is due for a fiscal
year, upon verification by the Company's independent accountants of the
Company's financial results for that fiscal year. The Committee has discretion
to award partial payments of the anticipated amount of any Incentive Bonus
before the final amount of the Incentive Bonus is determined.
No Incentive Bonus will be paid for any fiscal year unless the CEO is an
employee of the Company at the end of that fiscal year, except that if the CEO's
employment terminates during a fiscal year by reason of death, disability,
retirement or any other reason as defined by the Compensation Committee, the CEO
(or the CEO's beneficiary) will receive, in a single cash payment, the Incentive
Bonus for that fiscal year, prorated to the date of termination of employment.
The Bonus Plan including the performance goals stated therein can be
amended by the Compensation Committee alone, unless such amendment is required
to be approved by the Company stockholders under applicable law.
VOTE REQUIRED FOR ADOPTION
The proposal to adopt the DSC Communications Corporation Annual Incentive
Bonus Plan must receive the favorable vote of a majority of the total number of
shares of Common Stock represented and entitled to vote at the Annual Meeting or
any adjournment thereof for approval. An affirmative vote by a stockholder shall
also be deemed to be approval of the performance goals under the DSC
Communications Corporation Annual Incentive Bonus Plan for purposes of Section
162(m) of the Internal Revenue Code.
13
<PAGE> 17
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE DSC COMMUNICATIONS CORPORATION ANNUAL INCENTIVE BONUS PLAN.
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(R) Index and the S&P(R) High Technology Composite Index
over the same periods (assuming an investment of $100 in the Company's Common
Stock, the S&P 500(R) Index and the S&P(R) High Technology Composite Index on
December 31, 1990 and reinvestment of all dividends).
DSC COMMUNICATIONS CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
S&P(R) HIGH TECH
MEASUREMENT PERIOD S&P "500"(R) COMPOSITE
(FISCAL YEAR COVERED) DSC INDEX INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 56 130 114
1992 320 140 119
1993 895 155 146
1994 1044 153 170
1995 1073 210 245
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DSC $100 $ 56 $320 $895 $1,044 $1,073
S&P "500"(R) Index 100 130 140 155 153 210
S&P(R) High Tech Composite Index 100 114 119 146 170 245
</TABLE>
14
<PAGE> 18
EXECUTIVE COMPENSATION
The following executive compensation disclosures reflect all plan and
non-plan compensation awarded to, earned by, or paid to the named executive
officers and directors of the Company. The "named executive officers" are the
CEO, regardless of compensation level, and the four most highly compensated
executive officers other than the CEO serving as such on December 31, 1995. The
table also shows all such compensation paid to Mr. Bernique, who would have been
one of the four most highly compensated executive officers of the Company other
than the CEO, except for the fact that he was not serving as an executive
officer at December 31, 1995. Where a named executive officer has served during
any part of the year ended December 31, 1995, the disclosures reflect
compensation for the full year in each of the periods presented.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------------------------
BONUS ($)
-------------------------------------
(C)
1990
LONG-TERM
INCENTIVE (D)
(A) COMPEN- OTHER ANNUAL
NAME AND SALARY (B) SATION COMPENSATION
PRINCIPAL POSITION YEAR ($) CASH PLAN TOTAL ($)
- ------------------------- ---- ------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
James L. Donald.......... 1995 919,492 -- 4,676,000 4,676,000 --
Chairman of the 1994 740,816 750,048 6,716,000 7,466,048 --
Board, President and 1993 687,682 1,460,000 2,588,000 4,048,000 411,346
Chief Executive Officer
Gerald F. Montry......... 1995 429,012 -- 701,400 701,400 --
Senior Vice President 1994 364,692 374,400 1,007,400 1,381,800 --
and Chief Financial 1993 347,198 170,000 388,200 558,200 160,367
Officer
Allen R. Adams........... 1995 329,670 195,000 -- 195,000 --
Group Vice President 1994 261,000 300,300 -- 300,300 --
1993 226,400 130,000 -- 130,000 126,751
Hensley E. West.......... 1995 308,000 250,000 -- 250,000 --
Group Vice President 1994 252,390 286,000 -- 286,000 --
1993 216,240 130,000 -- 130,000 84,490
Daryl J. Eigen........... 1995 265,600 100,000 -- 100,000 --
Senior Vice President 1994 191,600 210,600 -- 210,600 --
1993 * * * * *
Michael R. Bernique...... 1995 290,100 125,000 -- 125,000 --
1994 230,400 285,000 -- 285,000 --
1993 197,079 196,001 -- 196,001 --
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS PAYOUTS
------------------------- -------
(F)(G)
(B)(E) SECURITIES
RESTRICTED UNDERLYING (D)
(A) STOCK OPTIONS/ LTIP ALL OTHER
NAME AND AWARDS SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) (#) ($) ($)
- ------------------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C>
James L. Donald.......... 1,100,014 2,150,000(H) -- 50,129
Chairman of the -- 70,000 -- 38,630
Board, President and 809,375 100,000 -- 50,089
Chief Executive Officer
Gerald F. Montry......... 412,493 40,000 -- 14,636
Senior Vice President -- 30,000 -- 8,817
and Chief Financial 226,625 60,000 -- 15,595
Officer
Allen R. Adams........... 115,493 30,000 -- 13,474
Group Vice President -- 20,000 -- 10,937
395,375 60,000 -- 6,855
Hensley E. West.......... -- 25,000 -- 11,508
Group Vice President -- 20,000 -- 6,661
145,688 60,000 -- 6,351
Daryl J. Eigen........... -- 25,000 -- 7,688
Senior Vice President -- 20,000 -- 13,843
* * * *
Michael R. Bernique...... -- 25,000 -- 7,020
-- 20,000 -- 6,186
286,313 70,000 -- 4,497
</TABLE>
- ---------------
* Not applicable as Mr. Eigen became an executive officer during 1994.
(A) Represents the Chief Executive Officer and the four most highly compensated
executive officers, other than the Chief Executive Officer, at December 31,
1995. Mr. Bernique was no longer serving as an executive officer of the
Company as of November 8, 1995. Subsequent to December 31, 1995, Mr. West
and Mr. Eigen were no longer serving as executive officers of the Company.
(B) For Mr. Donald and Mr. Montry, all of the annual bonus for 1995 was paid at
their election in the form of restricted stock. For Mr. Adams, a portion of
the annual bonus for 1995 was paid at his election in the form of
restricted stock. These amounts paid in the form of restricted stock have
been included in the "Restricted Stock Awards" column.
(C) Represents amounts earned and payable in cash under the Company's 1990
Long-Term Incentive Compensation Plan (the "1990 LTIP"). No cash payments
were made in 1995, 1994, or 1993 under the 1990 LTIP reflected above.
Additionally, 126,802 and 19,020 shares of restricted stock were issued
under the 1990 LTIP in January 1996 to Mr. Donald and Mr. Montry,
respectively. These shares will vest in equal annual increments over two
years. See "Long-Term Incentive Compensation Plans" on page 21.
15
<PAGE> 19
(D) Amounts of "Other Annual Compensation" include amounts reimbursed during
1993 for the payment of taxes. For 1995, "All Other Compensation" consisted
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................... $4,500 $18,001 $ 27,628 $ -- $50,129
Gerald F. Montry.................. 3,288 9,000 2,348 -- 14,636
Allen R. Adams.................... 4,500 4,509 921 3,544 13,474
Hensley E. West................... 3,660 5,580 -- 2,268 11,508
Daryl J. Eigen.................... 4,500 1,818 -- 1,370 7,688
Michael R. Bernique............... 4,500 2,520 -- -- 7,020
</TABLE>
- ---------------
(E) The amounts reported in the table represent the Fair Market Value of the
shares of Common Stock at the date of grant. Awards of restricted stock
vest in equal annual increments over a two or 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 other than by retirement after age 55,
death, or disability 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, 1995 consisted of:
<TABLE>
<CAPTION>
MARKET
VALUE AT
DECEMBER 31,
SHARES 1995
------ ------------
<S> <C> <C>
James L. Donald................................................ 49,260 $1,816,463
Gerald F. Montry............................................... 16,889 622,782
Allen R. Adams................................................. 10,089 372,032
Hensley E. West................................................ 3,000 110,625
Daryl J. Eigen................................................. -- --
Michael R. Bernique............................................ 4,666 172,059
</TABLE>
- ---------------
(F) Represents the number of stock options granted to the named executive
officer for the year noted. The Company has not made any grants of SARs.
(G) All option amounts reflect a two-for-one stock split, effected in the form
of a 100% stock dividend, declared by the Board of Directors on April 27,
1994 for stockholders of record on May 11, 1994.
(H) Includes the grant of the Executive Option for 2,000,000 shares, subject to
stockholder approval of certain amendments and an increase in the number of
shares of Common Stock authorized for issuance under the Company's 1993
Employee Stock Option and Securities Award Plan. See "Proposal to Increase
the Number of Shares of Common Stock Subject to the DSC Communications
Corporation 1993 Employee Stock Option and Securities Award Plan" and
"Proposal to Approve Amendments to the DSC Communications Corporation 1993
Employee Stock Option and Securities Award Plan" on pages 2 through 10.
16
<PAGE> 20
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all individual grants of stock options to the
named executive officers during the year ended December 31, 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------
(A)(B)
NUMBER OF POTENTIAL REALIZABLE
SECURITIES (B) VALUE AT ASSUMED
UNDERLYING % OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/ OPTIONS/SARS EXERCISE PRICE APPRECIATION
SARS GRANTED TO OR BASE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($)(C) 10%($)(C)
- -------------------------- --------- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Donald........... 150,000 4.53% 35.875 4/26/05 3,384,300 8,576,400
Chairman of the Board, 2,000,000(F) 60.42% 33.750 12/20/05 42,450,000 107,578,000
President and Chief
Executive Officer
Gerald F. Montry.......... 40,000 1.21% 35.875 4/26/05 902,480 2,287,040
Senior Vice President
and Chief Financial
Officer
Allen R. Adams............ 30,000 0.91% 35.875 4/26/05 676,860 1,715,280
Group Vice President
Hensley E. West........... 25,000 0.76% 35.875 4/26/05 564,050 1,429,400
Group Vice President
Daryl J. Eigen............ 25,000 0.76% 35.875 4/26/05 564,050 1,429,400
Senior Vice President
All stockholders.......... 2,577,855,988(D) 6,532,731,760(D)
2,453,217,295(E) 6,217,013,196(E)
Michael R. Bernique....... 25,000 0.76% 35.875 4/26/05 564,050 1,429,400
</TABLE>
- ---------------
(A) Options have a ten year life. Other than the grant of the Executive Option
for 2,000,000 shares, Options vest in equal annual increments over three
years and are priced at the Fair Market Value on the date of grant. The
Executive Option is exercisable upon the earlier to occur of (i) the date
the closing sale price of the Common Stock on the NASDAQ Stock Market equals
or exceeds $67.50 or (ii) nine and 1/2 years after the date of grant.
(B) The Company has not made any grants of SARs.
(C) These are hypothetical values using assumed growth as prescribed by the
Securities and Exchange Commission.
(D) The potential realizable value is calculated from $35.875, the exercise
price of the options listed above, granted on April 26, 1995, based on the
number of outstanding shares of Common Stock on April 26, 1995.
(E) The potential realizable value is calculated from $33.75, the exercise price
of the options listed above, granted on December 20, 1995, based on the
number of outstanding shares of Common Stock on December 20, 1995.
(F) The granting of the Executive Option is subject to stockholder approval of
certain amendments and an increase in the number of shares of Common Stock
authorized for issuance under the Company's 1993 Employee Stock Option and
Securities Award Plan. See "Proposal to Increase the Number of Shares of
Common Stock Subject to the DSC Communications Corporation 1993 Employee
Stock Option and Securities Award Plan" and "Proposal to Approve Amendments
to the DSC Communications Corporation 1993 Employee Stock Option and
Securities Award Plan" on pages 2 through 10.
17
<PAGE> 21
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table shows aggregate exercises of options (or tandem stock
appreciation rights) and freestanding stock appreciation rights during the year
ended December 31, 1995 by each of the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY
SARS AT OPTIONS/SARS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995($)
(A) (A)(B)
SHARES ACQUIRED VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME ON EXERCISE (#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ----------------------------- --------------- ----------- -------------------- --------------------
<S> <C> <C> <C> <C>
James L. Donald(C)........... 400,000 12,487,500 890,001 E 27,845,431 E
Chairman of the Board, 2,229,999 U 7,597,069 U
President and Chief
Executive Officer
Gerald F. Montry............. 81,332 2,819,787 260,001 E 7,470,221 E
Senior Vice President and 79,999 U 591,654 U
Chief Financial Officer
Allen R. Adams............... 11,000 406,724 45,514 E 716,976 E
Group Vice President 63,332 U 509,151 U
Hensley E. West.............. -- -- 42,001 E 509,013 E
Group Vice President 60,332 U 489,813 U
Daryl J. Eigen............... -- -- 10,667 E 93,754 E
Senior Vice President 44,333 U 201,871 U
Michael R. Bernique.......... 33,201 417,029 18,667 E 214,774 E
Senior Vice President 66,865 U 627,064 U
</TABLE>
- ---------------
(A) The Company has not made any grants of SARs.
(B) Amounts shown are based upon the closing price of the Company's Common Stock
on the NASDAQ Stock Market on December 31, 1995, which was $36.875.
(C) Mr. Donald's option information at December 31, 1995 includes the grant of
the Executive Option for 2,000,000 shares. These options were issued subject
to stockholder approval of certain amendments and an increase in the number
of shares of Common Stock authorized for issuance under the Company's 1993
Employee Stock Option and Securities Award Plan. See "Proposal to Increase
the Number of Shares of Common Stock Subject to the DSC Communications
Corporation 1993 Employee Stock Option and Securities Award Plan" and
"Proposal to Approve Amendments to the DSC Communications Corporation 1993
Employee Stock Option and Securities Award Plan" on pages 2 through 10.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In July 1994, the Company entered into Amended and Restated Severance
Compensation Agreements with Messrs. Montry, Adams, and West, and Severance
Compensation Agreements with Messrs. Bernique and Eigen (collectively, the
"Severance Agreements"). Mr. Bernique was no longer serving as an executive
officer of the Company as of November 8, 1995. Subsequent to December 31, 1995,
Mr. West and Mr. Eigen were no longer serving as executive officers of the
Company.
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 (as defined
below) 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.
18
<PAGE> 22
The "base amount" is defined by Section 280G(b) of the Internal Revenue
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 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
from 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 1996, the maximum aggregate
amount payable pursuant to the Severance Agreements would be as follows: Mr.
Montry approximately $8,539,000 and Mr. Adams approximately $2,605,000. 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, 1999, unless a Change in
Control occurs prior to such date.
In addition, in the event of a Change in Control, all restrictions will
lapse on employee stock options, restricted stock grants, and awards under the
1994 LTIP.
DONALD AGREEMENT
In 1990, the Compensation Committee approved an employment agreement with
Mr. Donald. On December 20, 1995, the Compensation Committee approved certain
amendments to Mr. Donald's employment agreement (the employment agreement, as
amended is referred to as the "Donald Employment Agreement").
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 of Chief Executive Officer at any time after July 5, 1996,
without terminating his employment under the Donald Employment Agreement.
Compensation. Prior to December 20, 1995, Mr. Donald's base salary was
subject to discretionary increases by the Board of Directors, and Mr. Donald was
eligible to receive annual incentive awards at the discretion of the Board of
Directors and participate in stock plans the Company maintains for its
employees. Effective January 1, 1996, Mr. Donald's base salary was fixed for the
term of the Donald Employment Agreement at $1,000,000 annually. In addition, Mr.
Donald is eligible to participate in any benefit plans the Company maintains for
its employees. Effective December 20, 1995, Mr. Donald was awarded the Executive
Option under the 1993 Plan to acquire 2,000,000 shares of the Company's Common
Stock (See "Proposal to Increase the Number of Shares of Common Stock Subject to
the DSC Communications Corporation 1993 Employee Stock Option and Securities
Award Plan" and "Proposal to Approve Amendments to the DSC Communications
Corporation 1993 Employee Stock Option and Securities Award Plan" on pages 2
through 10) and is entitled to participate in the Bonus Plan (See "Proposal to
Adopt the DSC Communications Corporation Annual Incentive Bonus Plan" on pages
12 through 14) and the 1994 LTIP (See "Proposal to Amend the DSC Communications
Corporation 1994 Long-Term Incentive Compensation Plan on pages 10 through 12).
19
<PAGE> 23
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 in 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 in 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 in the term of the
Donald 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 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 participation 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 1996, the maximum amount payable to Mr.
Donald under the Donald Employment Agreement would be approximately $18,679,000.
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
Internal Revenue Code, the Company will make a "gross-up" payment in the amount
necessary to pay any excise taxes imposed by Section 4999 of the Internal
Revenue 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 Donald 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 outside directors. The
Continuation Plan was amended effective December 20, 1995.
If Mr. Donald terminates his employment with the Company on or after his
reaching age 65, he will receive an annual 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"); provided, effective as of December 20,
1995, the maximum annual compensation cannot exceed $3,000,000 for purposes of
calculating 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 payable at age 65 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
20
<PAGE> 24
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.
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, provided 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 sum shall be paid.
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 an
actuarially equivalent 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. In the event of the death of Mr. Donald
prior to his retirement, but after reaching age 65, he shall be deemed to have
retired on the day before his death and the Survivor Benefit shall be payable.
The Company has agreed to establish a trust to fund Accrued Benefits
payable to Mr. Donald. As of December 31, 1995, no trust fund had been
established. At December 31, 1995, the estimated annual Accrued Benefit payable
to Mr. Donald under the Income Continuation Plan at normal retirement date would
be approximately $849,000. Under the terms of the Income Continuation Plan, the
benefits will be adjusted to reflect changes in Mr. Donald's compensation,
subject to the $3,000,000 limit on maximum annual compensation.
Life Insurance. Effective January 1, 1990, the Company and Mr. Donald
entered into an agreement pursuant to which the Company provides Mr. Donald with
a $5,000,000 life insurance policy which replaced 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 is paid by the Company. Dividends
attributable to the policy are applied to purchase additional insurance. Upon
Mr. Donald's death, the Company will 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.
LONG-TERM INCENTIVE COMPENSATION PLANS
The DSC Communications Corporation 1990 LTIP provided for the award of up
to 600,000 Units ("Units") to individuals participating in the 1990 LTIP. Units
awarded under the 1990 LTIP vested over a six-year period beginning January 1,
1990 and ended December 31, 1995. The "Cumulative Unit Value" of a Unit was
determined by a formula which established and totaled the Incremental Unit Value
for each completed Performance Year. The Incremental Unit Value of the Unit for
a Performance Year was determined by formula. The Cumulative Unit Value as of
December 31, 1995 was $46.64. The 1990 LTIP terminated on December 31, 1995. As
of December 31, 1995, Mr. Donald and Mr. Montry had 400,000 and 60,000 Units,
respectively, in the 1990 LTIP. The aggregate amount payable to Mr. Donald and
Mr. Montry under the 1990 LTIP upon termination was $13,980,000 and $2,097,000
in cash, respectively, and 126,802 and 19,020, respectively, in restricted
stock. This restricted stock, which vests in equal annual increments over two
years, was issued in January 1996.
The 1994 LTIP contains certain provisions which would allow immediate
vesting and payment in cash of all units awarded thereunder upon a Change in
Control of the Company (as defined therein). The amount so payable is not
presently capable of determination. See "Proposal to Amend the DSC
Communications Corporation 1994 Long-Term Incentive Compensation Plan" on pages
10 through 12.
21
<PAGE> 25
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
The provisions of the Severance Agreements, the 1993 Plan, 1994 LTIP, 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 1996 SINCE
------------------------------------------ ------------ -------
<S> <C> <C> <C>
Frank J. Cummiskey(1)....... Vice Chairman of the Company. Retired Vice 69 1987
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(1)....... Retired; former president and Chief 60 1992
Executive Officer of European American
Bank; Director of Freuhauf Trailer Corp.
James L. Fischer(1)......... 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.
Clement M. Brown, Jr.(2).... Retired; former President of Squibb Europe 75 1981
(SEV) S.A.
Sir John Fairclough(2)...... Chairman, Rothschild Venture Ltd. since 65 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(2)......... Senior Vice President and Chief Financial 57 1989
Officer of the Company since 1986;
Director of InterVoice, Inc. (computer
controlled voice automation systems) since
1994.
</TABLE>
- ---------------
(1) Term expires in 1997.
(2) Term expires in 1998.
MEETING OF THE BOARD OF DIRECTORS AND COMMITTEE
During the year ended December 31, 1995, the Board of Directors met five
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
22
<PAGE> 26
independent auditors concerning the audit; (iii) evaluates non-audit services
and financial statements and accounting developments that may affect the
Company; and (iv) meets with management concerning matters similar to those
discussed with outside auditors. The Audit Committee met four times during the
year ended December 31, 1995.
The Compensation Committee, which currently consists of Messrs. Dempsey and
Folsom, (i) determines the remuneration arrangements for senior management; (ii)
administers the Company's stock option and stock purchase plans; (iii) reviews
and approves new benefit plans or modifications to existing plans; and (iv)
makes such reports 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, 1995, the Compensation Committee met seven
times. See "Report of Compensation Committee" on pages 28 through 30.
The Company does not have a Nominating Committee. Nominations 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, 1995, 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, except that Mr. Brown
attended 44% of such aggregate number of meetings. Mr. Brown's absence was due
to the illness and death of his wife.
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. $212,000 for the year ended December 31, 1995. 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, 1995, 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, 1995, Mr. Cummiskey received $200,400 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 $11,895 per quarter. For the year ended December 31, 1995, Sir
John Fairclough earned $47,580 for consulting services.
Messrs. Brown, Cummiskey and Fairclough are also directors of certain
European subsidiaries of the Company. During the year ended December 31, 1995,
Mr. Brown received $53,947 and Mr. Cummiskey and Mr. Fairclough were each paid
$7,930 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 26,
1995, Messrs. Brown, Cummiskey, Dempsey, Fairclough, Fischer, Folsom and
23
<PAGE> 27
Nolan each received an option to purchase 10,000 shares of the Company's Common
Stock at an exercise price per share of $35.875, the reported closing sale price
per share of the Company's Common Stock on that date. 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 Annual Meeting.
LITIGATION
On January 26, 1994, C.L. Grimes, a stockholder 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 LTIP. On this new claim,
the plaintiff seeks a decree that the 1994 proxy statement insofar as it relates
to the 1994 LTIP and the actions taken pursuant to the proxy statement with
respect to the 1994 LTIP are null and void and seeks to enjoin the Company from
implementing the 1994 LTIP.
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. On March 6,
1995, the plaintiff filed an appeal of the dismissed claims to the Delaware
Supreme Court. All parties have filed appellate briefs and oral argument has
been conducted by the court. A ruling is expected by the court within the next
several months.
24
<PAGE> 28
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, 1996, (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>
AXA Assurance I.A.R.D. Mutuelle(3)...................... 6,681,508 5.67%
101-100 Terrasse Boieldieu
92042 Paris La Defense, France
FMR Corp.(4)............................................ 7,961,919 6.76%
82 Devonshire Street
Boston, MA 02109-3614
Allen R. Adams.......................................... 135,094 *
Michael R. Bernique(5).................................. 71,531 *
Clement M. Brown, Jr.................................... 36,000 *
Frank J. Cummiskey...................................... 62,000 *
Raymond J. Dempsey...................................... 30,000 *
James L. Donald(6)...................................... 2,029,022 1.72%
Daryl J. Eigen(5)....................................... 55,000 *
Sir John Fairclough..................................... 50,000 *
James L. Fischer........................................ 44,000 *
Robert S. Folsom(7)..................................... 101,000 *
Gerald F. Montry........................................ 387,611 *
James M. Nolan(8)....................................... 169,012 *
Hensley E. West(5)...................................... 8,537 *
All directors and current executive officers as a group
(15 persons).......................................... 3,225,170 2.74%
</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 60
days as follows: Allen R. Adams, 108,846 shares; Michael R. Bernique, 66,865
shares; Clement M. Brown, Jr., 30,000 shares; Frank J. Cummiskey, 30,000
shares; Raymond J. Dempsey, 20,000 shares; James L. Donald, 1,120,000
shares; Daryl J. Eigen, 55,000 shares; Sir John Fairclough, 50,000 shares;
James L. Fischer, 30,000 shares; Robert S. Folsom, 20,000 shares; Gerald F.
Montry, 340,000 shares; James M. Nolan, 30,000 shares; Hensley E. West, no
shares; and all directors and current executive officers as a group (15
persons), 1,921,845 shares.
(2) Based upon 115,852,134 shares of Common Stock outstanding as of February 27,
1996, 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 Schedule 13G dated February 14, 1996 filed with the Securities
and Exchange Commission. At December 31, 1995, AXA Assurances I.A.R.D.
Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle,
Alpha Assurances Vie Mutuelle, Uni Europe Assurance Mutuelle, and AXA, as a
group, had sole voting power for 6,182,538 shares, shared voting power for
34,900 shares, sole dispositive power for 6,652,498 shares, and shared
dispositive power for 29,010 shares. The Equitable Companies Incorporated,
also a member of the above group, had sole voting power for 6,156,038
shares, shared voting power for 34,900 shares, sole dispositive power for
6,625,998 shares, and shared dispositive power for 29,010 shares. Other
members of the above group were Alliance Capital Management, L.P.,
Donaldson, Lufkin & Jenrette Securities Corporation, and The Equitable Life
Assurance Society of the United States, each of which is a subsidiary of The
Equitable Companies Incorporated.
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<PAGE> 29
(4) Based upon Schedule 13G dated January 10, 1996, filed with the Securities
and Exchange Commission. At December 31, 1995, FMR Corp. had sole voting
power for 765,412 shares and sole dispositive power for 7,961,919 shares.
(5) Mr. Bernique was no longer serving as an executive officer of the Company
as of November 8, 1995. Subsequent to December 31, 1995, Mr. West and Mr.
Eigen were no longer serving as executive officers of the Company.
(6) Excludes the Executive Option for 2,000,000 shares, subject to approval by
the Company's stockholders of certain amendments and an increase in the
number of shares of Common Stock authorized for issuance under the
Company's 1993 Employee Stock Option and Securities Award Plan. See
"Proposal to Increase the Number of Shares of Common Stock Subject to the
DSC Communications Corporation 1993 Employee Stock Option and Securities
Award Plan" and "Proposal to Approve Amendments to the DSC Communications
Corporation 1993 Employee Stock Option and Securities Award Plan" on pages
2 through 10.
(7) Includes 7,000 shares held by Mr. Folsom's spouse and 7,000 shares held by
the Folsom Family Trust.
(8) Includes 25,000 shares held by Mr. Nolan's spouse.
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
Securities and Exchange Commission 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, 1995, 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
and directors of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company selected the firm of Ernst & Young
LLP as independent auditors for the fiscal year ended December 31, 1996. A
representative of Ernst & Young LLP is expected to attend the Annual Meeting
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 1997 must deliver the proposal
to the executive offices of the Company no later than December 1, 1996, 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 Annual 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 Annual Meeting
from time to time, without notice other than an announcement at
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<PAGE> 30
the Annual Meeting until a quorum is present or represented. At any such
adjourned Annual Meeting at which a quorum is presented or represented, any
business may be transacted that might have been transacted at the Annual Meeting
as originally called.
Abstentions from voting will not affect the outcome with respect to the
election of directors and will have the same effect as a vote against the
proposals to approve the increase in the number of shares of Common Stock
subject to the 1993 Plan, the amendments to the 1993 Plan, the amendment to the
1994 LTIP, and the adoption of the Bonus Plan. Because broker non-votes are not
considered "shares present" with respect to a matter requiring the affirmative
vote of a majority of shares present in person or by proxy at the Annual
Meeting, broker non-votes will not affect the outcome with respect to the
election of directors, the increase in the shares under the 1993 Plan, the
approval of proposed plan amendments, or the adoption of the Bonus Plan.
ACTIONS TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and returned
will be voted at the Annual 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 III Directors to serve
until 1999.
(2) For approval of the proposal to increase the number of shares of
Common Stock subject to the DSC Communications Corporation 1993
Employee Stock Option and Securities Award Plan.
(3) For approval of the amendments to the DSC Communications Corporation
1993 Employee Stock Option and Securities Award Plan.
(4) For approval of the amendment to the DSC Communications Corporation
1994 Long-Term Incentive Compensation Plan.
(5) For approval of the DSC Communications Corporation Annual Incentive
Bonus 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 Annual Meeting. If, however, other matters
properly come before the Annual 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 Annual 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 personal contact. The estimated cost of the
professional solicitation will be approximately $8,500 plus out-of-pocket
expenses.
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<PAGE> 31
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 Annual 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 outside directors within the meaning of Section 162(m)
of the Internal Revenue Code (see "Policy on Qualifying Compensation" on page
30), 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 consultant's 1995 study, which confirmed the stated
compensation strategy. The Committee met seven times during 1995.
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 set
forth in the following sections.
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 with which the Company competes
for senior-level executives and, in several instances, included 32 of the 52
companies listed in the S&P(R) High Tech Composite Group, which the Company uses
in the Five-Year Performance Comparison graph on page 14. The Committee
exercises its discretionary 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 1995 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. 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) makes discretionary adjustments in the amount based
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<PAGE> 32
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 CEO,
the recommendations of the CEO. Effective January 1, 1996, the Compensation
Committee adopted and the Board of Directors ratified the Bonus Plan and the
performance goals established therein, subject to stockholder approval. The
Bonus Plan is designed to provide annual bonus compensation to the Company's
CEO. See "Proposal to Adopt the DSC Communications Corporation Annual Incentive
Bonus Plan" on pages 12 through 14.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation consists of the Company's
stock option plans and the 1990 and 1994 Long-Term Incentive Compensation Plans.
The Committee views the granting of stock option, restricted stock and
long-term incentive compensation 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 discretionary judgment and
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, restricted stock and long-term incentive
compensation awards. Stock option, restricted stock and long-term incentive
compensation 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. The stock option exercise price is the closing
price of the Company's Common Stock on the date of grant. 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 in the Company's stock. The Committee
believes this ownership, combined with a significant 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 1995. The Committee has adopted the compensation
program described below in recognition of Mr. Donald's exceptional abilities,
experience and vision, his dedication to the Company and its stockholders and
the respect he commands in the industry.
The Committee took note of the fact that the Company's 1995 revenue of over
$1.4 billion and earnings of $193 million grew to record levels, with increases
over 1994 of 42 percent and 18 percent, respectively; and backlog grew 14
percent to over $680 million. Additionally, the Company's return on average
equity in 1995 was 20 percent.
The Company's financial condition continues to improve. Cash and marketable
securities were $569 million. Stockholders' equity grew 32 percent to $1,124
million and debt as a percentage of stockholders' equity was 29 percent at the
end of 1995.
At the end of 1995, 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.
Prior to 1996, under the Donald Employment Agreement, Mr. Donald's base
salary was subject to discretionary increases by the Compensation Committee and
he was eligible to receive annual incentive awards at the discretion of the
Board of Directors and to participate in stock plans that the Company maintains
for its employees. Effective January 1, 1996, for the remainder of the term of
the Donald
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<PAGE> 33
Employment Agreement, Mr. Donald has waived discretionary salary increases and
eligibility for annual awards under the management incentive award plan, in
which other eligible executives participate. See "Executive
Compensation -- Donald Agreement."
The most significant components of Mr. Donald's compensation continue to be
based on the results he achieves in increasing the earnings of the Company and
enhancing stockholder value. Such compensation is in the form of stock options,
incentive compensation, and long-term incentives, as set forth herein. In
addition, Mr. Donald is eligible to participate in any benefit plans that the
Company maintains for its employees. On December 20, 1995, Mr. Donald was
granted an option under the 1993 Plan to acquire 2,000,000 shares of the
Company's Common Stock (See "Proposal to Increase the Number of Shares of Common
Stock Subject to the DSC Communications Corporation 1993 Employee Stock Option
and Securities Award Plan" and "Proposal to Approve Amendments to the DSC
Communications Corporation 1993 Employee Stock Option and Securities Award Plan"
on pages 2 through 10). Effective January 1, 1996, he is entitled to participate
in the Bonus Plan (See "Proposal to Adopt the DSC Communications Corporation
Annual Incentive Bonus Plan" on pages 12 through 14). Also, effective January 1,
1996, Mr. Donald was awarded 140,000 Units under the 1994 LTIP (See "Proposal to
Amend the DSC Communications Corporation 1994 Long-Term Incentive Compensation
Plan" on pages 10 through 12).
POLICY ON QUALIFYING COMPENSATION
Section 162(m) of the Internal Revenue Code, adopted in 1993, provides 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). Assuming approval by the
stockholders of the amendments to the 1993 Plan, the 1994 LTIP, and the
Incentive Bonus Plan and the performance goals under each of these plans, it is
anticipated that incentive-based compensation paid in excess of $1 million will
be deductible under Section 162(m).
The Committee believes that there are circumstances in which the Company's
interests are best served by providing compensation that is not fully deductible
under Section 162(m). The Committee reserves the ability to exercise discretion
to authorize compensation that may not be deductible, in whole or in part, under
Section 162(m).
With regard to Mr. Donald, the Company's paramount concern is to retain and
appropriately reward the best qualified CEO for the Company. The Committee
believes that its ability to exercise discretion under the Company's
compensation plans in the future may outweigh 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 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 either Act.
30
<PAGE> 34
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, 1996, there were outstanding and entitled to vote 115,852,134
shares of its Common Stock. Only stockholders of record at the close of business
on February 27, 1996 are entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof.
By Order of the Board of Directors
/s/ GEORGE B. BRUNT
GEORGE B. BRUNT
Vice President, Secretary and
General Counsel
Plano, Texas
March 25, 1996
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<PAGE> 35
EXHIBIT A
DSC COMMUNICATIONS CORPORATION
1993 EMPLOYEE STOCK OPTION AND SECURITIES AWARD PLAN
ARTICLE I
Purpose
The purpose of the DSC Communications Corporation 1993 Employee Stock
Option and Securities Award Plan (the "Plan") is to provide favorable
opportunities for certain selected key employees of DSC Communications
Corporation to purchase or receive shares of common stock or other securities of
DSC Communications Corporation or to benefit from the appreciation thereof. Such
opportunities should provide an increased incentive for these employees to
contribute to the future success and prosperity of DSC Communications
Corporation, thus enhancing the value of the stock for the benefit of the
stockholders, and increase the ability of DSC Communications Corporation to
attract and retain individuals of exceptional skill upon whom, in large measure,
its sustained progress, growth and profitability depend.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the respective
meanings set forth in this Article:
2.1 Board: The Board of Directors of DSC Communications Corporation.
2.2 Code: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
2.3 Committee: The DSC Communications Corporation Compensation
Committee.
2.4 Common Stock: The common stock of DSC Communications
Corporation.
2.5 Company: DSC Communications Corporation and any of its
subsidiaries.
2.6 Employer: The corporation that employs the employee or optionee.
2.7 Fair Market Value: The closing price of the Common Stock on the
NASDAQ National Market System.
2.8 ISO: An incentive stock option within the meaning of Section 422
of the Code.
2.9 Non-ISO: A stock option that is not an ISO.
2.10 Option: A stock option granted under the Plan.
2.11 Option Price: The purchase price of a share of Common Stock
under an Option.
2.12 Optionee: An employee of the Company who has been granted one or
more Options.
2.13 Outside Directors: Outside directors within the meaning of
Section 162(m) of the Code.
2.14 Parent Corporation: A parent corporation, as defined in Section
424(e) of the Code.
2.15 Participant: An employee of the Company who has been granted one
or more Securities Awards.
2.16 Plan: The DSC Communications Corporation 1993 Employee Stock
Option and Securities Award Plan.
2.17 Restricted Period: A period beginning on the date an Option or
Securities Award is granted and ending on a date determined by
the Committee.
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<PAGE> 36
2.18 Restricted Stock: Common Stock subject to the restrictions
described in Section 6.12 of the Plan, so long as such
restrictions are in effect.
2.19 Securities Award: An award of Common Stock or other securities
of the Company granted pursuant to Article VII of the Plan.
2.20 Stock Appreciation Right: A stock appreciation right as defined
in Section 6.7 of the Plan.
2.21 Subsidiary: A subsidiary corporation, as defined in Section
424(f) of the Code.
2.22 Termination Date: A date fixed by the Committee but, in the case
of an Option intended to be an ISO, not later than the day
preceding the tenth anniversary of the date on which the Option
is granted.
ARTICLE III
ADMINISTRATION
3.1 Except as otherwise provided in the Plan, the Committee shall
administer the Plan and shall have full power to grant Options and Securities
Awards, construe and interpret the Plan, establish and amend rules and
regulations for its administration, and perform all other acts relating to the
Plan, including the delegation of administrative responsibilities which it
believes reasonable and proper.
3.2 The Committee shall consist of not less than two members of the Board,
all of whom shall be Outside Directors. The members of the Committee shall serve
at the pleasure of the Board, which shall have the power, at any time and from
time to time, to remove members from the Committee or to add members thereto.
Vacancies on the Committee, however caused, shall be filled by the Board.
3.3 Subject to the provisions of the Plan, the Committee shall, in its
discretion, determine which employees of the Company shall be granted Options
and Securities Awards, the number of shares subject to option under any such
Options, the dates after which Options may be exercised, in whole or in part,
whether Options shall be ISOs, and the terms and conditions including vesting
provisions, if any, of the Options and Securities Awards.
3.4 The Committee in its sole discretion may at any time, with the consent
of the Optionee, modify or amend any outstanding Option except as to the Option
Price or as to any modification that would cause an Option intended to be
granted as an ISO to fail to qualify as an ISO.
3.5 Any decision made, or action taken, by the Committee or the Board
arising out of or in connection with the interpretation and administration of
the Plan shall be final and conclusive.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1 The number of shares of Common Stock available for grants of Options
and Securities Awards under the Plan is as follows: two million shares reserved
for issuance upon establishment of the Plan in 1993 (adjusted to four million
shares in accordance with Article VIII of the Plan in 1994 to reflect a
two-for-one split of Common Stock) increased in 1996 by six million shares, for
a total of ten million shares, subject to adjustment in accordance with Article
VIII of the Plan. These shares may be either authorized but unissued or
reacquired shares of Common Stock. If an Option or portion thereof or Securities
Award shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares covered by such Option or Securities Award shall be
available for future grants of Options and Securities Awards. A Stock
Appreciation Right exercised pursuant to Section 6.7 of the Plan shall be
treated, for the purposes of this Article IV, as though the Option, or portion
thereof to which the Stock Appreciation Right is attached, had been exercised
through the purchase of Common Stock, with the result that the shares of Common
Stock subject to the Option, or portion thereof, that was so exercised shall not
be available for future grants of Options or Securities Awards. The maximum
number of shares subject to Options or Securities Awards granted to any single
individual under the Plan during any three-year period shall be three million.
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<PAGE> 37
ARTICLE V
ELIGIBILITY
5.1 Options and Securities Awards may be granted to key employees of the
Company or to persons who have been engaged to become key employees of the
Company. Members of the Board who are not employees of the Company shall not be
eligible for Option grants or Securities Awards.
ARTICLE VI
TERMS OF OPTIONS
6.1 Option Agreements. All Options shall be evidenced by written
agreements executed by the Company and the Optionee. Such Options shall be
subject to the applicable provisions of the Plan, and shall contain such
provisions as are required by the Plan and any other provisions the Committee
may prescribe. All agreements evidencing Options shall specify the total number
of shares subject to each grant, the Option Price and the Termination Date.
Those Options that are intended to be granted as ISOs and that comply with the
requirements for an ISO set forth in Section 422 of the Code shall be designated
ISOs and all other Options shall be designated Non-ISOs.
6.2 Option Price. The Option Price shall not be less than the Fair Market
Value of a share of Common Stock on the date the Option is granted.
6.3 Period of Exercise. The Committee shall determine the dates after
which Options may be exercised in whole or in part. If Options are exercisable
in installments, installments or portions thereof that are exercisable and not
exercised shall accumulate and remain exercisable. The Committee may also amend
an Option to accelerate the dates after which Options may be exercised in whole
or in part. However, no Option or portion thereof shall be exercisable after the
Termination Date.
6.4 Special Rules Regarding ISOs Granted to Certain Employees.
Notwithstanding any contrary provisions of Sections 6.2 and 6.3 of the Plan, no
ISO shall be granted to any employee who, at the time the Option is granted,
owns (directly, or within the meaning of Section 424(d) of the Code) more than
ten percent of the total combined voting power of all classes of stock of the
employer or of any Subsidiary or Parent Corporation thereof, unless (a) the
Option Price under such Option is at least 110 percent of the Fair Market Value
of a share of Common Stock on the date the Option is granted and (b) the
Termination Date of such Option is a date not later than the day preceding the
fifth anniversary of the date on which the Option is granted.
6.5 Manner of Exercise and Payment. An Option, or portion thereof, shall
be exercised by delivery of a written notice of exercise to the Company and
payment of the full price of the shares being purchased pursuant to the Option.
An Optionee may exercise an Option with respect to less than the full number of
shares for which the Option may then be exercised, but an Optionee must exercise
the Option in full shares of Common Stock. The Committee may require that an
Option be exercised only with respect to a multiple number of shares so as to
avoid (to the extent practicable) the issuance of fractional shares upon the
termination of the Restricted Period with respect to shares of Restricted Stock,
and any such requirement need not be stated in the Option agreement. The price
of Common Stock purchased pursuant to an Option, or portion thereof, may be
paid:
(a) by certified check, bank draft or money order payable to the order
of the Company;
(b) with approval of the Committee, through the delivery of shares of
Common Stock with an aggregate Fair Market Value on the date of exercise equal
to the Option Price; or
(c) by any combination of the above methods of payment.
In addition, the Committee may designate certain Optionees who may, upon
their request, borrow from the Company up to 100% of the option price (less the
aggregated par value of shares purchased, which shall be paid in cash);
provided, however, that the terms of any such loans (which terms shall be fixed
by the
A-3
<PAGE> 38
Committee) shall be on such terms as the Committee determines (i) do not
materially increase the benefits accruing to Optionees under the Plan; (ii)
materially increase the number of securities which may be issued under the Plan,
or (iii) materially modify the requirements of eligibility to participate in the
Plan within the meaning of Rule 16(b) promulgated under the Securities Exchange
Act of 1934, as amended. An Optionee's right to request a loan to pay the
exercise price may be established or terminated by the Committee any time by
written notice to such Optionee.
The Committee shall determine acceptable methods for tendering Common Stock
as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate, including, without limitation, any limitation or prohibition
designed to avoid certain accounting consequences which may result from the use
of Common Stock as payment upon exercise of an Option.
6.6 Withholding Taxes. The Company may, in its discretion, require an
Optionee to pay to the Company at the time of exercise the amount that the
Company deems necessary to satisfy its obligation to withhold federal, state or
local income or other taxes incurred by reason of the exercise. Upon the
exercise of an Option requiring tax withholding, an Optionee may make a written
election to have shares of Common Stock withheld by the Company from the shares
otherwise to be received. The number of shares so withheld shall have an
aggregate Fair Market Value on the date of exercise sufficient to satisfy the
applicable withholding taxes. The acceptance of any such election by an Optionee
shall be at the sole discretion of the Committee. Where the exercise of an
Option does not give rise to an obligation to withhold federal income taxes on
the date of exercise, the Company may, in its discretion, require an Optionee to
place shares of Common Stock purchased under the Option in escrow for the
benefit of the Company until such time as federal income tax withholding is
required on amounts included in the gross income of the Optionee as a result of
the exercise of an Option or the disposition of shares of Common Stock acquired
pursuant thereto. At such time, the Company, in its discretion, may require an
Optionee to pay to the Company the amount that the Company deems necessary to
satisfy its obligation to withhold federal, state or local income or other taxes
incurred by reason of the exercise of the Option or the disposition of shares of
Common Stock, in which case the shares of Common Stock will be released from
escrow to the Optionee. Alternatively, subject to acceptance by the Committee,
in its sole discretion, an Optionee may make a written election to have shares
of Common Stock held in escrow applied toward the Company's obligation to
withhold federal, state or local income or other taxes incurred by reason of the
exercise of the Option or the disposition of shares of Common Stock, based on
the Fair Market Value of the shares on the date of the termination of the escrow
arrangement. Upon application of such shares toward the Company's withholding
obligation, any shares of Common Stock held in escrow and not, in the judgment
of the Committee, necessary to satisfy such obligation shall be released from
escrow to the Optionee.
6.7 Stock Appreciation Rights. At or after the grant of an Option, the
Committee, in its discretion, may grant the Optionee a Stock Appreciation Right.
A Stock Appreciation Right is a right to receive, in lieu of exercise of an
Option or any portion thereof, shares of Common Stock having a Fair Market Value
on the date of exercise equal to the excess of the Fair Market Value of a share
of Common Stock on the date of exercise over the Option Price, multiplied by the
number of shares of Common Stock that the Optionee would have received had the
Option or portion thereof been exercised through the purchase of shares of
Common Stock at the Option Price, provided that (a) such Option or portion
thereof has been designated as exercisable in this alternative manner, (b) such
Option or portion thereof is otherwise exercisable, and (c) the Fair Market
Value of a share of Common Stock on the date of exercise exceeds the Option
Price. The Committee may require that a Stock Appreciation Right be exercised
only so as to entitle the Optionee to receipt of a multiple number of shares of
Common Stock so as to avoid (to the extent practicable) the issuance of
fractional shares upon the termination of the Restricted Period with respect to
Restricted Stock, and any such requirement need not be stated in the Option
agreement.
6.8 Transferability of Options. The Committee, in its sole discretion, may
permit transfer of any Option other than an ISO to a member of the Optionee's
family or to a trust or partnership whose beneficiaries are members of the
Optionee's family.
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<PAGE> 39
6.9 Cessation of Employment of Optionee.
(a) Cessation of Employment Other than by Reason of Death or Retirement
After Age 55. If an Optionee ceases to be employed by the Company other than by
reason of death or retirement after reaching age 55, the Committee may in its
sole discretion extend the Termination Date specified in any Option to the
extent not previously exercised; provided, however, that (i) in the event that
employment of the Optionee is terminated for dishonesty or other acts
detrimental to the interest of the Company or for any breach by the Optionee of
any employment contract with the Company or (ii) if after termination, the
Optionee commits acts that the Committee determines to be detrimental to the
interests of the Company, then any unexercised Options held by the Optionee
shall be null and void after such termination occurs or such determination is
made.
(b) Cessation of Employment by Reason of Death. In the event of death of
the Optionee while employed by the Company, an Option may be exercised, at any
time or from time to time prior to the Termination Date, by the person or
persons (including any trust or partnership) to whom the Optionee's rights under
such Option shall have passed. Unless otherwise specified by the Committee, each
such Option shall be exercisable in full without restriction. Any person or
persons to whom an Optionee's rights under an Option have passed by will, by
applicable laws of descent and distribution or by authorized transfer shall be
subject to all terms and conditions of the Plan and the Option applicable to the
Optionee.
(c) Retirement. In the event the Optionee, after reaching age 55, elects to
retire from the Company, the period of time during which the Optionee may
exercise his or her option extends to the earlier of (i) the Termination Date
specified in the Option or (ii) the fifth anniversary of the effective date of
the Optionee's retirement. Each Option held by any Optionee who retires after
reaching age 55 shall be exercisable in full without restriction.
6.10 Acceleration of Options. Notwithstanding any other provision of this
Plan, if an offer (other than an offer by the Company) to purchase or otherwise
acquire Common Stock for cash, securities of another corporation or some
combination thereof results in the purchase or acquisition by the offeror of at
least 40% of the outstanding Common Stock, the date on which all Options (and
any Stock Appreciation Rights relating thereto), or any portion thereof not then
exercisable, may be exercised shall be advanced, and all Stock Options shall be
immediately exercisable in full.
6.11 Notification of Sales of Common Stock. Any Optionee who disposes of
shares of Common Stock acquired upon the exercise of an ISO either (a) within
two years after the date of the grant of the ISO under which the shares were
acquired or (b) within one year after the transfer of such shares to the
Optionee, shall notify the Company of such disposition and of the amount
realized upon such disposition.
6.12 Restrictions Upon Shares of Common Stock Acquired Upon Exercise of an
Option.
(a) Provisions Concerning Restricted Stock. An Option may provide, in the
discretion of the Committee, that all or a portion of the Common Stock to be
received by the Optionee upon exercise of an Option (including exercise of a
Stock Appreciation Right) shall be Restricted Stock. None of the shares of
Common Stock acquired by the Optionee upon the exercise of an Option shall be
Restricted Stock unless the Option agreement expressly provides that all or a
portion of such shares shall be shares of Restricted Stock and the Restricted
Period with respect to such shares is stated in the Option agreement. The
Committee may establish different Restricted Periods with respect to different
shares of Common Stock acquired pursuant to an Option. The Committee may also
accelerate the dates at which the Restricted Period ends or otherwise waive or
modify the restrictions on Restricted Stock with the consent of the Optionee
before or after an Option is exercised. In the event that an offer to purchase
or acquire Common Stock described in Section 6.10 of the Plan results in the
purchase or acquisition by the offeror of at least 40% of the outstanding Common
Stock, all restrictions with respect to Restricted Stock shall terminate.
Notwithstanding the provisions of any Option agreement, Common Stock delivered
to an estate, heir or beneficiary of an Optionee pursuant to the exercise of an
Option after the Optionee's death shall not be Restricted Stock.
(b) Restrictions on Transferability. During the Restricted Period, shares
of Restricted Stock may not be sold, assigned or transferred, except as provided
herein. Except for such restrictions, the Optionee, as owner of
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<PAGE> 40
such shares, shall have all the rights of a stockholder, including (but not
limited to) the right to receive all dividends paid on such shares and the right
to vote such shares.
Subject to the provisions of Section 6.6 of the Plan, Restricted Stock may
be placed in escrow pursuant to Section 6.6 of the Plan, or be transferred to
the Company in satisfaction of the Company's obligation to withhold taxes
pursuant to Section 6.6 of the Plan, and any restrictions with respect to shares
transferred in satisfaction of such obligation shall terminate. Each certificate
issued in respect of shares of Restricted Stock acquired pursuant to the
exercise of an Option shall be registered in the name of the Optionee, and if so
requested by the Committee at the time of exercise, shall be deposited by the
Optionee with the Company together with a stock power endorsed in blank and
shall bear the following or similar legend:
"The shares represented by this certificate are subject to
restrictions on transferability imposed by that certain instrument entitled
"DSC Communications Corporation 1993 Employee Stock Option and Securities
Award Plan", which grants to the Corporation an option to purchase such
shares in certain instances. A copy of such Plan is on file at the
principal office of the Corporation."
At the end of the Restricted Period, or when the restrictions have
otherwise terminated with respect to one or more shares of Restricted Stock, the
Company shall deliver to the Optionee (or his or her legal representative,
beneficiary or heir) one share of Common Stock without the legend referred to
herein for each such share of Restricted Stock deposited with it by the
Optionee.
(c) Company's Right to Repurchase or Reacquire Restricted Shares upon
Cessation of Employment. If an Optionee ceases to be an employee of the Company
during the Restricted Period for any reason other than death, disability or
retirement, the Company shall have the right, with respect to Options exercised
other than pursuant to a Stock Appreciation Right, to purchase all or a portion
of any shares of Restricted Stock acquired pursuant to the exercise of any
Option, at the price paid therefor by the Optionee. With respect to shares of
Restricted Stock acquired pursuant to the exercise of a Stock Appreciation
Right, the Company shall have the right to reacquire such shares without the
payment of any consideration. The Company may exercise its right to purchase or
reacquire the Restricted Stock within ninety days after the date on which the
Optionee ceases to be employed by the Company. The Company shall exercise its
right by giving notice to the Optionee in writing of such exercise. With respect
to shares of Restricted Stock acquired by an Optionee other than pursuant to a
Stock Appreciation Right, the Company shall pay in cash the purchase price for
shares of Restricted Stock within five days after exercising such right. If the
Company does not exercise its right to purchase or reacquire shares of
Restricted Stock, upon expiration of the period for exercise of such right the
Company shall deliver to the Optionee (or the Optionee's legal representative,
beneficiary, heir or authorized transferee) one share of Common Stock without
the legend referred to herein for each share of Restricted Stock deposited with
it by the Optionee.
6.13 Limitation of ISOs. The aggregate Fair Market Value (determined as of
the date the option is granted) of Common Stock with respect to which an ISO is
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Employer and its Parent Corporation and Subsidiaries) shall not
exceed $100,000.
ARTICLE VII
TERMS OF SECURITIES AWARDS
7.1 Securities Awards shall consist of awards of Common Stock, of other
shares of capital stock or of other securities of the Company, which awards may
be absolute or contingent upon continuation of employment or achievement of one
or more performance targets, may provide for payment by the Participant of cash
or deferred consideration that is less than the fair market value of such
securities or for no such consideration, and may provide for repurchase of such
securities by the Company in specified circumstances, all on such terms and
subject to such conditions as may be determined by the Committee in its
discretion. Securities Awards may be payable in part on the date of the award
thereof, as determined from time to time by the Committee in its discretion. A
Securities Award that consists of Common Stock shall be subject to the
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<PAGE> 41
provisions of Section 6.12(a) [other than the last sentence thereof], (b) and
(c) of the Plan by substituting for the terms "Option", "Optionee" and
"exercise" the terms "Securities Awards", "Participant" and "grant" wherever the
context requires.
7.2 The Committee may establish Performance Goals for Securities Awards in
writing and the vesting of such Shares shall be contingent upon the attainment
of such Performance Goals. Such Performance Goals shall be based upon one or
more of the following business criteria: (a) income before federal income taxes;
(b) working capital, measured in either absolute dollars or relative to sales;
and/or (c) earnings growth, revenues, expenses, stock prices, operating profit,
market share, return on assets, equity, capital employed or investment,
regulatory compliance, satisfactory internal or external audits, or improvement
of financial ratings. The Committee shall fix such Performance Goals for each
Securities Award within the time required for qualification under Section 162(m)
of the Code and shall certify the attainment of such goals.
ARTICLE VIII
ADJUSTMENTS
8.1 If (a) the Company shall at any time be involved in a transaction to
which Section 424(a) of the Code is applicable; (b) the Company shall declare a
dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any
other event shall occur which in the judgment of the Committee necessitates
action by way of adjusting the terms of the outstanding Options, the Committee
may take any action as in its judgment shall be necessary to preserve the
Optionee's rights substantially proportionate to the rights existing prior to
such event and to the extent that such action shall include an increase or
decrease in the number of shares of Common Stock subject to outstanding Options,
the number of shares available under Article IV above shall be increased or
decreased, as the case may be, proportionately, or increase or decrease the
maximum number of Options or Securities Awards that may be granted to any single
individual under the Plan during any three-year period. The judgment of the
Committee with respect to any matter referred to in this Article shall be
conclusive and binding upon each Optionee.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part or amend it in such respects as the Board may deem
appropriate; provided, however, that no such amendment shall be made, which
would, without approval of the stockholders:
(a) materially modify the eligibility requirements for receiving Options
or Securities Awards;
(b) increase the total number of shares of Common Stock which may be
issued pursuant to Options or Securities Awards, except as is provided for in
accordance with Article VIII of the Plan;
(c) reduce the minimum Option Price;
(d) extend the period of granting Options or Securities Awards; or
(e) materially increase in any other way the benefits accruing to
Optionees or Participants.
9.2 No amendment, suspension or termination of this Plan shall, without
the Optionee's or Participant's consent, alter or impair any of the rights or
obligations under any Option or Securities Award theretofore granted to an
Optionee or Participant under the Plan.
9.3 The Board may amend this Plan, subject to the limitations cited above,
in such manner as it deems necessary to permit the granting of Options meeting
the requirements of future amendments or issued regulations, if any, to the
Code.
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<PAGE> 42
ARTICLE X
GOVERNMENT AND OTHER REGULATIONS
10.1 The obligation of the Company to issue, or transfer and deliver
shares for Options exercised under the Plan or to transfer and deliver shares or
other securities pursuant to Securities Awards shall be subject to all
applicable laws, regulations, rules, orders and approvals which shall then be in
effect and required by governmental entities and any stock exchanges on which
Common Stock is traded.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Plan Does Not Confer Employment or Stockholder Rights. The right of
the Company to terminate (whether by dismissal, discharge, retirement or
otherwise) the Optionee's or Participant's employment with it at any time at
will, or as otherwise provided by any agreement between the Company and the
Optionee or Participant, is specifically reserved. Neither the Optionee nor any
person entitled to exercise the Optionee's rights in the event of the Optionee's
death shall have any rights of a stockholder with respect to the shares subject
to each Option, except to the extent that, and until, such shares have been
issued upon the exercise of each Option.
11.2 Plan Expenses. Any expenses of administering this Plan shall be borne
by the Company.
11.3 Use of Exercise Proceeds. Payments received from Optionees upon
exercise of Options and any payments received in respect of Securities Awards
shall be used for the general corporate purposes of the Company, except that any
Common Stock received in payment may be retired, or retained as treasury stock
and reissued.
11.4 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board, or the Committee, the members of the
Committee and the Board shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under in connection with the plan or any Option or
Securities Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except a judgment based upon a finding
of bad faith; provided that upon the institution of any such action, suit or
proceeding a Committee or Board member shall, in writing, give the Company
notice thereof and any opportunity, at its own expense, to handle and defend the
same before such Committee or Board member undertakes to handle and defend it on
such member's own behalf.
11.5 Remedies and Venue. The Company shall be entitled to recover from an
Optionee or Participant reasonable attorney's fees incurred in connection with
the enforcement of the terms and provisions of the Plan whether by an action to
enforce specific performance or for damages for its breach or otherwise. The
Company shall be entitled to enforce the terms and provisions of the Plan,
including the remedy of specific performance, in Collin County, Texas.
ARTICLE XII
STOCKHOLDER APPROVAL AND EFFECTIVE DATE
12.1 The Plan shall become effective when it is adopted by the Board.
However if the Plan is not approved within one year after the Plan is adopted by
the Board by the vote at a meeting of the stockholders of DSC Communications
Corporation by the holders of a majority of the shares of DSC Communications
Corporation represented and entitled to vote at such meeting, the Plan and all
Options and Securities Awards shall terminate at the time of that meeting of
stockholders. Options and Securities Awards may not be granted under the Plan
after December 31, 2002.
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<PAGE> 43
EXHIBIT B
DSC COMMUNICATIONS CORPORATION
ANNUAL INCENTIVE BONUS PLAN
I. ESTABLISHMENT AND PURCHASE
1.1 Establishment of the Plan. DSC Communications Corporation (the
"Company") hereby establishes the DSC COMMUNICATIONS CORPORATION ANNUAL
INCENTIVE BONUS PLAN (the "Plan"). The Plan provides for payment to the Chief
Executive Officer of the Company of an annual incentive bonus based on the
achievement of preestablished performance goals. Subject to the approval of the
stockholders of the Company, the Plan shall be effective as of January 1, 1996.
1.2 Purpose. The purpose of the Plan is to recognize the significant
contributions of the Chief Executive Officer to the growth, profitability and
success of the Company by rewarding him for the achievement of preestablished
annual performance goals. It is intended that any incentive bonus payable under
the Plan shall be deductible by the Company in accordance with Section 162(m) of
the Internal Revenue Code as amended (the "Code").
II. DEFINITIONS
2.1 Board. The Board of Directors of the Company.
2.2 Committee. The Compensation Committee of the Board, which shall consist
of two or more "outside directors" within the meaning of Section 162(m)
of the Code.
2.3 Earnings. For any Fiscal Year, the consolidated income of the Company
and its subsidiaries from continuing operations before income taxes,
determined in accordance with generally accepted accounting principles,
as reported in the Company's audited consolidated financial statements
for that Fiscal Year, adjusted to exclude any item of nonrecurring gain
or loss in excess of $2.5 million.
2.4 Fiscal Year. The fiscal year of the Company, which is the calendar
year.
2.5 Incentive Bonus. The amount determined by the Committee to have been
earned by the Participant for each Fiscal Year, as provided in Section
5.1 below.
2.6 Participant. The Chief Executive Officer of the Company.
2.7 Performance Goals. The performance measures established for purposes of
the Plan, as provided in Section 4.1 below.
III. ADMINISTRATION
3.1 Authority of the Committee. The Plan shall be administered by the
Committee, which shall have exclusive authority to certify achievement of the
Performance Goals; interpret the Plan; amend the Plan, subject to stockholder
approval to the extent required by applicable law; and adopt such rules and
procedures for the Plan's administration as the Committee may from time to time
deem necessary or proper. The Committee shall have discretion to make partial
payment of the anticipated amount of any Incentive Bonus before determination of
the final amount in accordance with Section 5.1 below.
3.2 Decisions Binding. All determinations and decisions by the Committee
in the exercise of its authority under the Plan shall be final, binding and
conclusive for all purposes and upon all persons.
3.3 Liability. In administering the Plan neither the Committee, the Board,
any member of either, the Company nor any of its officers or employees shall be
liable of any acts of omission or commission except for its or his or her own
willful and intentional wrongdoing.
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<PAGE> 44
IV. PERFORMANCE GOALS
4.1 Preestablished Performance Goals. The pre-established Performance
Goals for each Fiscal Year, and related reward for the Participant, shall be
based on Earnings for the Fiscal Year, as follows:
<TABLE>
<CAPTION>
EARNINGS FOR THE FISCAL YEAR PARTICIPANT'S REWARD
----------------------------------------- -----------------------------------------
<S> <C>
Up to $250 million Zero
Above $250 million, up to .75% of Earnings in this range
$450 million plus
Above $451 million, up to .50% of Earnings in this range
$650 million plus
Above $651 million, up to .25% of Earnings in this range
$950 million plus
Above $950 million .10% of Earnings above $950 million
</TABLE>
4.2 Certification. As soon as practicable following verification by the
Company's independent public accountants of the Company's financial results for
any Fiscal Year, the Committee shall certify the extent to which the Performance
Goals were achieved in respect of that Fiscal Year.
V. DETERMINATION AND PAYMENT OF INCENTIVE BONUS
5.1 Determination of Amount. As soon as practicable following
certification by the Committee of the extent of the achievement of the
Performance Goals for the Fiscal Year, the Committee shall compute the
Participant's Incentive Bonus for the Fiscal Year consistent with Section 4.1
above.
5.2 Form and Time of Payment. Subject to the Committee's exercise of
discretion under Section 3.1 above, the Incentive Bonus for any Fiscal Year
shall be paid to the Participant in a cash lump sum as soon as practicable
following the Committee's determination of the amount.
5.3 Termination of Employment. No Incentive Bonus shall be paid for any
Fiscal Year unless the Participant is an employee of the Company at the end of
that Fiscal Year; provided, however, that if his employment terminates during a
Fiscal Year by reason of (a) death, (b) disability, (c) retirement or (d)
otherwise, as defined by the Committee, the Participant (or his beneficiary)
shall receive, in a single cash payment, his Incentive Bonus for that Fiscal
Year, prorated to the date of termination of employment.
5.4 Unfunded Plan. Incentive Bonuses shall be paid from the general assets
of the Company, and no fund or trust shall be deemed to have been established
under the Plan. Until payment of any Incentive Bonus that has been earned, the
Participant shall be a general creditor of the Company.
VI. MISCELLANEOUS
6.1 Nonassignability. Except in the event of death, the rights and
interest of the Participant under the Plan may not be assigned, encumbered or
transferred. No employee or other person shall have any claim or right to
receive benefits under the Plan except as provided in the Plan.
6.2 Withholding. The Company shall have the right to deduct from the
payment of any Incentive Bonus any taxes required by law to be withheld with
respect to such payment.
6.3 Designation of Beneficiary. The Participant shall designate, in a
manner prescribed by the Committee, a beneficiary to receive any payment due
under the Plan in the event of his death. If no designated beneficiary survives
the Participant, the beneficiary shall be his surviving spouse or, if none, his
estate.
6.4 Governing Law. The Plan shall be governed by and construed and
interpreted in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws.
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<PAGE> 45
P R O X Y
DSC COMMUNICATIONS CORPORATION
PROXY CARD
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 1996
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 25, 1996, and the Proxy Statement in connection therewith, each
dated March 25, 1996; (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, 1996, at such Annual Meeting and at any
adjournment(s) thereof; and (d) revokes any proxies heretofore given.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
SEE REVERSE
SIDE
<PAGE> 46
PLEASE MARK YOUR
/X/ VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C>
FOR WITHHELD
1. Election of Directors: [ ] [ ] NOMINEES: James L. Donald
Robert S. Folsom
James M. Nolan
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of a proposal to increase the number of shares of Common Stock [ ] [ ] [ ]
subject to the DSC Communications Corporation 1993 Employee Stock Option and
Securities Award Plan from 4,000,000 to 10,000,000.
FOR AGAINST ABSTAIN
3. Approval of amendments to the DSC Communications Corporation 1993 Employee [ ] [ ] [ ]
Stock Option and Securities Award Plan.
FOR AGAINST ABSTAIN
4. Approval of an amendment to the DSC Communications Corporation 1994 [ ] [ ] [ ]
Long-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
5. Approval of the adoption of the DSC Communications Corporation Annual [ ] [ ] [ ]
Incentive Bonus Plan.
6. In their discretion, the proxies are authorized to vote upon such other business as may come before the meeting
or any adjournment thereof.
SIGNATURE(S)____________________________________________________________ DATE ____________________
SIGNATURE(S)____________________________________________________________ DATE ____________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such.
</TABLE>
