<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
DSC Communications Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of filing fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[DSC LOGO]
March 31, 1997
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 30, 1997, 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 two nominees for the Board of Directors; and (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.
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 30, 1997
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 Wednesday,
April 30, 1997, at 10:00 AM local time for the following purposes:
1. To elect two Class I Directors for terms expiring in 2000.
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 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 March 3, 1997 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
75201 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 31, 1997
<PAGE> 4
DSC COMMUNICATIONS CORPORATION
1000 COIT ROAD
PLANO, TEXAS 75075
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy, mailed with this Proxy Statement, is solicited on
behalf of DSC Communications Corporation, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders of the Company to be
held Wednesday, April 30, 1997, 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 31, 1997.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the
Company's Board of Directors shall consist of not less than seven nor more than
fifteen persons and that the Board shall be divided into three classes serving
staggered three-year terms with each class to consist as nearly as possible of
one-third of the directors; provided, that once elected, no director's term
shall be reduced. The Board will consist of seven members upon conclusion of the
Annual Meeting. Two Class I directors, each to serve for a three-year term, will
be nominated for election at the Annual Meeting.
Management's two nominees for election as Class I Directors are listed
below and are currently members of the Board of Directors.
<TABLE>
<CAPTION>
AGE AS OF DIRECTOR OF
PRINCIPAL OCCUPATION MARCH 3, COMPANY
OR EMPLOYMENT 1997 SINCE
-------------------- --------- -----------
<S> <C> <C> <C>
Raymond J. Dempsey................ Retired; former President and Chief 61 1992
Executive Officer of European American
Bank; Director of Freuhauf Trailer Corp.
James L. Fischer.................. Retired; former Executive Vice President, 69 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.
</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 of the Company, par
value $0.01 per share ("Common Stock"), represented and entitled to vote at the
Annual Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
TWO 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 to the DSC Communications Corporation 1993 Employee Stock
Option and Securities Award Plan (the "1993 Plan"). There are currently
10,000,000 shares of Common Stock subject to the 1993 Plan, of which 8,977,512
shares of Common Stock were issued or are currently subject to options or stock
awards under the 1993 Plan as of March 3, 1997.
The Company in the past has used stock options and stock awards 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 March 3, 1997, there were 1,022,488 shares of Common Stock available
for the grant of stock options and stock awards under the 1993 Plan. 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.
The Compensation Committee's ability to reprice Options (as defined below)
or substitute Options previously granted with new Options has been restricted.
The Compensation Committee shall not, without further approval of the
stockholders of the Company, authorize the amendment of any outstanding Option
to reduce the option price. The Compensation Committee shall not, without
further approval of the stockholders of the Company, permit the surrender and
cancellation of a previously granted Option and the grant of a replacement
Option.
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. At the 1996
Annual Meeting of Stockholders held on April 25, 1996, the stockholders approved
certain amendments to the 1993 Plan to increase the number of shares of Common
Stock subject to the 1993 Plan from 4,000,000 shares to 10,000,000 shares, 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 of 1986, as amended (the "Internal Revenue Code")
and to afford flexibility to the Compensation Committee in granting of Plan
Awards under the 1993 Plan. 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 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. Under
the terms of the 1993 Plan as amended in 1996, the Company may grant Plan Awards
with respect to an aggregate of 10,000,000 shares of Common Stock.
The closing sale price of the Company's Common Stock as reported by the
Nasdaq National Market on March 3, 1997 was $20.625.
PRIOR GRANTS OF PLAN AWARDS
As of March 3, 1997, there were 1,043 participants in the 1993 Plan. During
1996 there were grants of Options for 4,229,990 shares of the Company's Common
Stock, net of 2,911,840 of replacement Options
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granted during 1996 upon the surrender and cancellation of previously granted
Options. Included in the 4,229,990 Options granted during 1996 were Options for
165,000 shares granted to the Company's named executive officers. None of the
replacement Options were issued to the Company's named executive officers.
During 1996 there were awards of Restricted Stock for 337,822 shares of the
Company's Common Stock, of which 145,822 shares of Restricted Stock were awarded
to the Company's named executive officers. See "Executive Compensation" on pages
through .
The following table summarizes the Plan Awards outstanding under the 1993
Plan as of March 3, 1997:
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED STOCK
NAME AND PRINCIPAL POSITION NUMBER OF OPTIONS AWARDS
--------------------------- ----------------- ----------------
<S> <C> <C>
James L. Donald...................................... 2,220,000 79,698
Chairman of the Board, President and Chief
Executive Officer
Gerald F. Montry..................................... 115,000 15,621
Senior Vice President and Chief Financial Officer
Allen R. Adams....................................... 95,000 1,711
Senior Vice President
Wylie D. Basham...................................... 108,000 --
Group Vice President
Philip A. Wilkinson.................................. 85,000 815
Senior Vice President
All current executive officers as a group (13
persons)........................................... 2,963,999 99,067
========= =======
All current directors who are not executive officers
as a group (6 persons)............................. -- --
========= =======
All employees, including all current officers who are
not executive officers, as a group................. 4,858,203 202,910
========= =======
</TABLE>
1993 PLAN ADMINISTRATION
The 1993 Plan is administered by the Compensation Committee, which is
composed solely of "outside directors" of the Company within the meaning of
section 162(m) of the Internal Revenue Code. Outside directors are directors of
a corporation who are not current employees of the corporation, who are not
former employees of the corporation who receive compensation for prior services
during the year; who have not been officers of the corporation; and who do not
receive remuneration from the corporation, either directly or indirectly, in any
capacity other than as a director. A director will not be considered an outside
director if he or she is 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. The Compensation Committee has the authority to
grant Plan Awards and set the terms and conditions of such grants and awards. 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.
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 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.
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<PAGE> 7
OPTION FEATURES
The types 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 National 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 Incentive Stock Option may not be granted which expires more than ten
years from the date of grant. There is no restriction regarding the termination
of Nonstatutory Options. 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 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 or her 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.
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, by the Optionee's estate or beneficiary. In the
event of an Optionee's retirement from the Company at or after the age of 55,
the Optionee may 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 for 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
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 Compensation Committee has 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. Except as provided in the preceding sentence, no Option granted under
the 1993 Plan shall be assignable or transferable except by will or the laws of
descent and distribution.
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 such number of shares of Common Stock as have an
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<PAGE> 8
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 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 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 of the 1993 Plan which the
Compensation Committee may prescribe. Securities Awards of Common Stock are
subject to the same restrictions as Restricted Plan Awards.
The Compensation Committee may make Securities Awards conditional upon the
attainment of one or more predetermined performance goals ("Performance Goals")
by the participant. The Committee shall 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 taxes and net interest expense; (b) working capital, generally defined
to include receivables, inventories and controllable current liabilities,
measured either in absolute dollars or relative to sales; and/or (c) earnings
growth, revenues, expenses, stock price, net operating profit after taxes,
market share, return on assets, equity, capital employed or investment,
regulatory compliance, satisfactory internal or external audits, improvement of
financial ratings, or achievement of balance sheet, income statement or cash
flow objectives. 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.
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 Company must exercise this right within 90 days after
the participant ceases to be employed by the Company, notify the participant in
writing of the exercise of the right, and pay the participant within five days
after exercising this right.
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.
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
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<PAGE> 9
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 under the 1993 Plan, reduce the
minimum option price per share, extend the period for granting Plan Awards, or
materially increase in any other way the benefits accruing to participants. The
Compensation Committee has discretion at any time, with the consent of the
participant, 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.
Without stockholder approval, the Compensation Committee shall not 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 or to modify the performance goals of the 1993 Plan.
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 Value 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 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
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<PAGE> 10
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. The holding period for
such number of shares received in exchange for the shares surrendered will
include the holding period of the shares surrendered. The holding period for
such number of shares received in excess of the shares surrendered will begin on
the date of exercise.
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 the
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 the Securities Award when 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 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 Securities Award 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 the 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.
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.
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<PAGE> 11
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.
8
<PAGE> 12
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) Technology 500 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) Technology 500 Index on December 31, 1991 and
reinvestment of all dividends).
DSC COMMUNICATIONS CORPORATION
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
DSC Communications Corporation $100 $568 $1,587 $1,852 $1,903 $923
S&P "500"(R) Index 100 108 118 120 165 203
S&P(R) Technology 500 Index 100 104 128 149 215 305
</TABLE>
9
<PAGE> 13
EXECUTIVE COMPENSATION
The following executive compensation disclosures reflect all plan and
non-plan compensation awarded to, earned by, or paid to the named executive
officers of the Company. The "named executive officers" are the Chief Executive
Officer, regardless of compensation level, and the four most highly compensated
executive officers other than the CEO serving as such on December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------------ ---------------------------------
BONUS ($) AWARDS PAYOUTS
---------------------------------- ----------------------- -------
(A) (E)
1990 (C)(D) SECURITIES
LONG-TERM (B) RESTRICTED UNDERLYING
INCENTIVE OTHER ANNUAL STOCK OPTIONS/ LTIP
NAME AND SALARY COMPENSATION COMPENSATION AWARDS SARS PAYOUTS
PRINCIPAL POSITION YEAR ($) CASH PLAN TOTAL ($) ($) (#) ($)
------------------ ---- ------- ------- ------------ --------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
James L. Donald......... 1996 999,044 -- -- -- 6,410 4,675,824 -- --
Chairman of the 1995 919,492 -- 4,676,000 4,676,000 -- 1,100,014 2,150,000 --
Board, President and 1994 740,816 750,048 6,716,000 7,466,048 -- -- 70,000 --
Chief Executive
Officer
Gerald F. Montry........ 1996 458,027 -- -- -- 21,787 701,363 25,000 --
Senior Vice President 1995 429,012 -- 701,400 701,400 -- 412,493 40,000 --
and Chief Financial 1994 364,692 374,400 1,007,400 1,381,800 -- -- 30,000 --
Officer
Allen R. Adams.......... 1996 347,694 -- -- -- 41,242 -- 25,000 --
Senior Vice President 1995 329,670 195,000 -- 195,000 -- 115,493 30,000 --
1994 261,000 300,300 -- 300,300 -- -- 20,000 --
Wylie D. Basham......... 1996 293,077 110,000(G) -- 110,000 2,142 -- 66,000 --
Group Vice President 1995 248,100 100,000 -- 100,000 -- -- 12,000 --
1994 205,240 110,000 -- 110,000 -- -- 15,000 --
Philip A. Wilkinson..... 1996 328,492 -- -- -- 60,704 -- 49,000 --
Senior Vice President 1995 106,080 100,000 -- 100,000 -- 55,013 36,000 --
1994 * * * * * * * *
<CAPTION>
(F)
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
------------------ ------------
<S> <C>
James L. Donald......... 555,878
Chairman of the 50,129
Board, President and 38,630
Chief Executive
Officer
Gerald F. Montry........ 78,543
Senior Vice President 14,636
and Chief Financial 8,817
Officer
Allen R. Adams.......... 109,063
Senior Vice President 13,474
10,937
Wylie D. Basham......... 36,085
Group Vice President 6,240
4,975
Philip A. Wilkinson..... 122,598
Senior Vice President 81,225
*
</TABLE>
- ---------------
* Not applicable as Mr. Wilkinson joined the Company in August 1995.
(A) Amounts shown under 1990 Long-Term Incentive Plan (the "1990 Plan")
represent amounts earned in 1994 and 1995 under the Company's 1990 Plan,
which terminated on December 31, 1995.
(B) Amounts of "Other Annual Compensation" include financial planning consulting
totaling $36,829 and $53,607 for Mr. Adams and Mr. Wilkinson, respectively.
No amounts are included for Messrs. Donald, Montry or Basham related to
perquisites and other personal benefits as the amount of these benefits for
these named executive officers did not exceed the lesser of $50,000 or 10%
of their salary and bonus. Additionally, amounts shown include above-market
interest, as defined by the Securities and Exchange Commission, earned in
1996 on the Company's Executive Deferred Income Plan.
(C) In 1995, Mr. Donald and Mr. Montry elected to take restricted stock as a
portion of the amounts earned during 1995 under the 1990 Plan. As a result,
126,802 and 19,020 shares of restricted stock earned in 1995 were issued in
January 1996 to Mr. Donald and Mr. Montry, respectively. These shares vest
in equal annual increments over two years.
(D) 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 stock retain all rights of a stockholder (including the right
to receive dividends if and when paid on Common Stock), except the
restricted stock cannot be sold until it vests. Upon termination of
employment of the holder, all unvested shares are forfeited to the Company.
No cash dividends have been declared or paid on Common Stock.
10
<PAGE> 14
Aggregate restricted stock holdings at December 31, 1996 consisted of:
<TABLE>
<CAPTION>
FAIR MARKET
VALUE AT
DECEMBER 31,
SHARES 1996
------- ------------
<S> <C> <C>
James L. Donald............................................. 143,099 $2,557,895
Gerald F. Montry............................................ 25,131 449,217
Allen R. Adams.............................................. 1,711 30,584
Wylie D. Basham............................................. -- --
Philip A. Wilkinson......................................... 815 14,568
</TABLE>
(E) 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.
(F) Amounts of "All Other Compensation" for 1996 consisted of the following for
the named executive officers:
<TABLE>
<CAPTION>
COMPANY CONTRIBUTIONS
RELOCATION -----------------------------------
ACCRUED EXPENSE SPLIT
VACATION REIM- THRIFT RESTORATION DOLLAR LIFE
PAYOUT(1) BURSEMENT PLAN PLAN INSURANCE OTHER TOTAL
--------- ---------- ------- ----------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Donald........ $428,154 $ -- $13,500 $83,065 $31,159 $ -- $555,878
Gerald F. Montry....... 54,711 -- 11,125 7,503 2,530 2,674 78,543
Allen R. Adams......... 77,033 -- 13,500 17,540 990 -- 109,063
Wylie D. Basham........ 15,168 -- 13,203 7,714 -- -- 36,085
Philip A. Wilkinson.... 5,231 105,943 6,069 5,355 -- -- 122,598
</TABLE>
- ---------------
(1) During 1996, the Company changed its vacation policy to require
employees to take all vacation days earned each year or, without
management approval, lose any remaining vacation days not taken at the
end of the year. As a result, during 1996 the Company paid accrued
vacation balances for employees in lieu of future time off.
(G) The payment to Mr. Basham was discretionary and separate from the Company's
Incentive Awards Plan, in recognition of his promotion to Group Vice
President in August 1996.
11
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all individual grants of stock options to the
named executive officers during the year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
(A)(B)
NUMBER OF POTENTIAL REALIZABLE
SECURITIES (B) VALUE AT ASSUMED
UNDERLYING % OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/ OPTIONS/SARS EXERCISE PRICE APPRECIATION
SARS GRANTED TO OR BASE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($)(C) 10%($)(C)
---- ---------- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Donald........... -- -- -- -- -- --
Chairman of the Board,
President and Chief
Executive Officer
Gerald F. Montry.......... 25,000 0.59% 31.25 4/25/06 491,325 1,245,100
Senior Vice President
and Chief Financial
Officer
Allen R. Adams............ 25,000 0.59% 31.25 4/25/06 491,325 1,245,100
Senior Vice President
Wylie D. Basham........... 36,000 0.85% 31.25 4/25/06 707,508 1,792,944
Group Vice President.... 30,000 0.71% 13.50 10/28/06 254,700 645,480
Philip A. Wilkinson....... 49,000 1.16% 31.25 4/25/06 962,997 2,440,396
Senior Vice President
All stockholders.......... 2,279,809,573(D) 5,777,420,036(D)
995,381,727(E) 2,522,571,643(E)
</TABLE>
- ---------------
(A) Options have a ten-year life, vest in annual increments over three years and
are priced at the Fair Market Value on 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 $31.25, the exercise price
of the options granted on April 25, 1996, based on the number of outstanding
shares of Common Stock on April 25, 1996.
(E) The potential realizable value is calculated from $13.50, the exercise price
of the options granted on October 28, 1996, based on the number of
outstanding shares of Common Stock on October 28, 1996.
12
<PAGE> 16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table shows aggregate exercises of options (or tandem stock
appreciation rights) and freestanding stock appreciation rights during the year
ended December 31, 1996 by each of the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY
SARS AT OPTIONS/SARS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)
(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............... 300,000 8,081,250 696,667E 6,587,500E
Chairman of the Board, 2,123,333U --U
President and Chief
Executive Officer
Gerald F. Montry.............. -- -- 303,333E 2,770,625E
Senior Vice President and 61,667U --U
Chief Financial Officer
Allen R. Adams................ -- -- 82,180E 65,553E
Senior Vice President 51,666U --U
Wylie D. Basham............... -- -- 29,000E --E
Group Vice President 79,000U 131,250U
Phillip A. Wilkinson.......... -- -- 12,000E --E
Senior Vice President 73,000U --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 National Market on December 31, 1996, which was $17.875.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company entered into Amended and Restated Severance Compensation
Agreements with Messrs. Montry and Adams in July 1994, and Severance
Compensation Agreements with Messrs. Basham and Wilkinson in July 1994 and
October 1996, respectively (collectively, the "Severance Agreements").
Each of the Severance Agreements provides that if a Change in Control (as
defined below) occurs and within two years of the Change in Control either (i)
the officer voluntarily terminates his employment for "good reason" or (ii) the
officer's employment is involuntarily terminated other than for cause, death or
disability, the Company will pay to the officer a lump-sum amount equal to three
times the officer's "base amount" income. The Severance Agreements further
provide that each of the officers will be reimbursed for excise taxes payable by
reason of payments made pursuant to the Severance Agreements.
The "base amount" is defined by Section 280G(b) of the Internal Revenue
Code 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 in the majority of the members of the
Company's Board of Directors during any two-year period.
"Good Reason" is defined in the Severance Agreements as any reduction in
compensation, duties, status or benefits or relocation of more than 50 miles of
the Company's principal place of business.
13
<PAGE> 17
No sums have been paid under any of the Severance Agreements. Should
payment of severance compensation be triggered in 1997, the maximum aggregate
amount payable pursuant to the Severance Agreements would be approximately as
follows: Mr. Montry $8,654,000, Mr. Adams $2,925,000, Mr. Basham $2,015,000 and
Mr. Wilkinson $1,132,000. 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, in the case of
Messrs. Montry, Adams, and Basham, and October 13, 2000 in the case of Mr.
Wilkinson, 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 Long-Term Incentive Compensation Plan.
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 without terminating his
employment under the Donald Employment Agreement.
Compensation. Mr. Donald's base salary is 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.
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 remaining year of the term of the Donald Employment Agreement
(i) his then base salary; (ii) an annual incentive award 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
remaining year of 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 remaining years of 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 1997, the maximum amount payable to Mr.
Donald under the Donald Employment Agreement would be approximately $14,979,000.
This amount
14
<PAGE> 18
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 solely of outside directors. The Continuation
Plan was amended effective December 20, 1995.
If Mr. Donald terminates his employment with the Company, 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 his service (the "Accrued
Benefit"); provided that the maximum annual compensation cannot exceed
$3,000,000 for purposes of calculating the Accrued Benefit.
If Mr. Donald's employment is terminated without cause and other than due
to death or disability, the Company will pay Mr. Donald the Accrued Benefit on
the date his base salary ceases pursuant to the terms of the Donald Employment
Agreement.
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 monthly benefit
payments, 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 earlier of (i) the tenth
anniversary of the date benefits commenced or (ii) the death of the last
surviving child of Mr. Donald. In the event of the death of Mr. Donald prior to
his retirement, he shall be deemed to have retired on the day before his death
and the Survivor Benefit shall be payable.
On February 28, 1997, the Company established a trust to fund Accrued
Benefits payable to Mr. Donald. At December 31, 1996, the estimated annual
Accrued Benefit payable to Mr. Donald under the Income Continuation Plan would
be approximately $905,000. Under the terms of the Income Continuation Plan, the
Accrued Benefit will be adjusted to reflect changes in Mr. Donald's
compensation, subject to a $3,000,000 limit on maximum annual compensation.
Life Insurance. Effective January 1, 1990, the Company and Mr. Donald
entered into an agreement to provide Mr. Donald with a $5,000,000 life insurance
policy. 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 the premiums is paid by the Company. Dividends
attributable to the policy are applied to purchase additional insurance. Upon
Mr. Donald's death, the Company is entitled to receive an amount equal to the
cumulative premiums paid by the Company, provided that Mr. Donald's designated
beneficiary does not receive less than $5,000,000.
15
<PAGE> 19
ANNUAL INCENTIVE BONUS PLAN
The stockholders of the Company approved the DSC Communications Corporation
Annual Incentive Bonus Plan (the "Bonus Plan") at the 1996 Annual Meeting of
Stockholders held on April 25, 1996. The sole participant in the Bonus Plan is
the Company's Chief Executive Officer (the "CEO"), currently Mr. Donald. The
actual amount of benefits to be received by the CEO (the "Incentive Bonus")
pursuant to the Bonus Plan is linked to the Company's earnings before income
taxes, as defined ("Earnings"), in the Bonus Plan during each fiscal year in
which the Bonus Plan is in effect. The amount of compensation awardable under
the Bonus Plan is not subject to any maximum limitation. Each fiscal year's
performance goals and Incentive Bonus are as follows:
<TABLE>
<CAPTION>
PERFORMANCE GOALS
(EARNINGS FOR
THE FISCAL YEAR) INCENTIVE BONUS DOLLAR VALUE($)
- ----------------- --------------- ---------------
<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 range
$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 excess 3,250,000 and up
of $950 million plus Incentive Bonus from
lower ranges
</TABLE>
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.
LONG-TERM INCENTIVE COMPENSATION PLAN
The DSC Communications Corporation 1994 Long-Term Incentive Compensation
Plan (the "1994 LTIP") provides for the award of units to participants upon
achieving the performance-based goals established in the 1994 LTIP. The
stockholders approved an amendment to the 1994 LTIP at the 1996 Annual Meeting
of Stockholders held on April 25, 1996, which increased the maximum number of
units an individual could receive during the duration of the 1994 LTIP from
100,000 units to 140,000 units.
Each unit of the 1994 LTIP vests 40% after two years from the award date
and 20% each year thereafter for three years, except that each unit becomes
fully vested upon the occurrence of attainment of that unit's Maximum Cumulative
Value as defined below, 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 Unit
Value. Except upon a Change in 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
16
<PAGE> 20
will be canceled and all rights with respect thereto will expire. No units may
be awarded under the 1994 LTIP after December 31, 2003.
The incremental unit value ("Incremental Unit Value") with respect to any
year shall be equal to the product of the measuring price ("Measuring Price")
multiplied by eight-tenths of the percentage by which the earnings per share, as
defined in the 1994 LTIP ("Earnings Per Share"), for that year exceeds the
Earnings Per Share for the year ending December 31 immediately prior to the year
in which the individual's participation commences, but in no event shall this be
less than zero. The 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 not less than
$61.50. The Incremental Unit Value of each unit shall be cumulated to determine
the cumulative unit value (the "Cumulative Unit Value"). In no event shall the
value of any unit exceed four times the Measuring Price ("Maximum Cumulative
Value").
As of December 31, 1996, Mr. Donald, Mr. Montry, and Mr. Adams had 140,000,
20,000 and 15,000 units, respectively, in the 1994 LTIP. These units were
awarded in late 1995 and early 1996 with participation beginning in 1996. These
units had no value as of December 31, 1996, as determined under the provisions
of the 1994 LTIP. 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.
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.
17
<PAGE> 21
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
DIRECTOR
AGE AS OF OF
PRINCIPAL OCCUPATION MARCH 3, COMPANY
OR EMPLOYMENT 1997 SINCE
-------------------- ---------- --------
<S> <C> <C> <C>
Sir John Fairclough(1).................. Chairman, Rothschild Venture Ltd. since 66 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(1)..................... Senior Vice President and Chief Financial 58 1989
Officer of the Company since 1986.
Morton L. Topfer(2)..................... Vice Chairman of Dell Computer Corporation [59] (3)
("Dell") since June 1994. He also shares
the office of the Chief Executive Officer
of Dell. For 23 years prior to joining
Dell, he held various positions with
Motorola, Inc., last serving as Corporate
Executive Vice President and President of
the Land Mobile Products Sector.
James L. Donald(2)...................... Chairman of the Board, President and Chief 65 1981
Executive Officer; employed by the Company
since 1981.
Robert S. Folsom(2)..................... Chairman of the Board, Folsom Properties, 70 1983
Inc. (real estate development) for more
than the past five years; Director of
BeautiControl Cosmetics, Inc. (cosmetics).
</TABLE>
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(1) Term expires in 1998.
(2) Term expires in 1999.
(3) Mr. Topfer became a member of the Board of Directors on January 27, 1997.
Mr. Topfer filled the vacancy created when Mr. Nolan resigned his position
as a member of the Board of Directors on October 26, 1996. Mr. Topfer will
hold office for the remainder of the full term of the class of directors of
which Mr. Nolan was a member, which expires in 1999.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEE
During the year ended December 31, 1996, the Board of Directors met six
times.
During 1996, the Audit Committee consisted of Mr. Clement M. Brown, Jr.,
Mr. James L. Fischer, and Sir John Fairclough. Mr. Brown retired from his
position as a member of the Board of Directors of the Company effective January
1, 1997. The Audit Committee (i) annually recommends selection of the Company's
independent auditors to the Board of Directors; (ii) meets with the 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,
1996.
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, 1996, the
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<PAGE> 22
Compensation Committee met four times. See "Report of Compensation Committee" on
pages , and .
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, 1996, each member of the Board attended
not less than 75% of the aggregate number of (i) board meetings and (ii)
meetings of any committee of which such person was a member, except that Mr.
Cummiskey attended 67% of the meetings. Mr. Cummiskey's absence was due to
illness.
COMPENSATION OF DIRECTORS
Non-employee directors are paid $2,000 per month and $1,250 for each Board
of Directors meeting attended. Members of the Audit and Compensation Committees
each receive $1,000 for each committee meeting attended. The Chairmen of the
Audit and Compensation Committees each receive an additional $625 per month.
The Company had a consulting agreement with Clement M. Brown, Jr., pursuant
to which the Company paid Mr. Brown $4,000 through April 1996, at which time the
agreement was terminated. Mr. Brown retired from his positions as a member of
the Board of Directors and the Audit Committee effective January 1, 1997.
The Company had a consulting agreement with Frank J. Cummiskey pursuant to
which the Company paid Mr. Cummiskey $50,100 through April 1996, at which time
the agreement was terminated. Mr. Cummiskey served during 1996 as Chairman of
the Company's Long-Range Strategy Committee.
The Company had a consulting agreement with Sir John Fairclough pursuant to
which the Company paid him $23,187 through April 1996, at which time the
agreement was terminated.
The Company has a Management Consulting Agreement with Nolan Consulting,
Inc. and James M. Nolan pursuant to which the Company paid Nolan Consulting,
Inc. $250,666 through December 1996. Mr. Nolan is the sole stockholder of Nolan
Consulting, Inc. Mr. Nolan retired from his position as a member of the Board of
Directors of the Company effective October 26, 1996.
Messrs. Brown, Cummiskey and Fairclough served during 1996 as directors of
certain European subsidiaries of the Company. During the year ended December 31,
1996, Mr. Brown received $30,529 and Mr. Cummiskey and Mr. Fairclough were each
paid $14,945 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 25,
1996, Messrs. Brown, Cummiskey, Dempsey, Fairclough, Fischer, Folsom and Nolan
each received an option to purchase 10,000 shares of the Company's Common Stock
at an exercise price per share of $31.25, 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.
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<PAGE> 23
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Dempsey and
Folsom. No member of the Compensation Committee had any relationships during
1996 requiring disclosure according to applicable rules and regulations of the
Securities and Exchange Commission.
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<PAGE> 24
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 March 3, 1997, (except as otherwise
indicated) by (i) each director and named executive officer of the Company; (ii)
all current executive officers and directors of the Company as a group; and
(iii) 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>
Allen R. Adams.......................................... *
Wylie D. Basham......................................... *
Frank J. Cummiskey...................................... *
Raymond J. Dempsey...................................... *
James L. Donald......................................... %
Sir John Fairclough..................................... *
James L. Fischer........................................ *
Robert S. Folsom(3)..................................... *
Gerald F. Montry........................................ *
Morton L. Topfer........................................ *
Philip A. Wilkinson..................................... *
All directors and current executive officers as a group
( persons)........................................ %
</TABLE>
- ---------------
* Ownership of less than 1% of the outstanding Common Stock.
(1) Each individual, unless otherwise noted, has sole voting and investment
power with respect to all shares owned by such individual. Includes shares
that a person has a right to acquire if such right is exercisable within 60
days as follows: Allen R. Adams, shares; Wylie D. Basham, shares;
Frank J. Cummiskey, shares; Raymond J. Dempsey, shares; James L.
Donald, shares; Sir John Fairclough, shares; James L. Fischer,
shares; Robert S. Folsom, shares; Gerald F. Montry, shares;
Morton L. Topfer, shares; Philip A. Wilkinson, shares; and all
directors and current executive officers as a group ( persons),
shares.
(2) Based upon shares of Common Stock outstanding as of March 3, 1997, 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) Includes shares held by Mr. Folsom's spouse.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than ten percent stockholders are required by
SEC Regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1996, all Section
16(a) filing requirements applicable to the officers, directors and greater than
ten percent beneficial owners were complied with. It is the practice of the
Company to attend to the filing of Section 16(a) forms on behalf of the officers
of the Company.
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<PAGE> 25
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, 1997. 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 1998 must deliver the proposal
to the executive offices of the Company no later than November , 1997, unless
the Company notifies the stockholders otherwise. Only those proposals that are
proper for stockholder action and in compliance with the Company's bylaws 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 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 on any matter will be included in the voting tally
and will have the same effect as a vote withheld on the election of directors
and against the proposal to approve the increase in the number of shares of
stock subject to the 1993 Plan. Broker non-votes are shares held by a broker or
nominee which are represented at the Annual Meeting, but with respect to which
such broker or nominee is not empowered to vote on a particular proposal.
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 or the proposal to approve the
increase in the number of shares of stock subject to the 1993 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:
(i) For election of management's two Class I Directors to serve until
2000.
(ii) 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.
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.
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<PAGE> 26
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., 110 Wall Street, New York, NY 10005 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.
REVOCATION OF PROXY
Any stockholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise by (a) giving written notice to the Company of
such revocation; (b) voting in person at the Annual Meeting; or (c) executing
and delivering to the Company a later dated proxy.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two "Outside Directors" within the meaning of Section 162(m) of the
Internal Revenue Code. The Committee 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 1996
study, which confirmed the stated compensation strategy. The Committee met four
times during 1996.
The Committee's executive compensation policies and programs support the
following objectives:
- To reinforce management's efforts to enhance stockholder value.
- To align management's compensation with the annual and long-term
performance of the Company.
- To provide competitive compensation.
The basic elements of the Company's executive compensation strategy are set
forth below:
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 base
salary for the position. The expected level of base salary 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 include companies with which the Company
competes for senior-level executives and, in several instances, include [ of
the
23
<PAGE> 27
companies listed in the S&P(R) Technology 500 Index, which the Company uses in
the Five-Year Performance Comparison graph on page ]. The Committee exercises
its judgment based upon the above criteria and does not apply a specific formula
or assign a weight to each factor considered. The Committee decided upon 1996
base 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 ties their
"guideline" incentive awards to targeted earnings per share. At the end of the
year, the Committee (i) determines each executive officer's "guideline"
incentive award based upon the level of achievement of the guidelines and (ii)
adjusts the amount based upon its own review of the performance of the
executive, taking into consideration the individual's responsibilities and the
Committee's goals.
Additionally, to recognize the significant contributions to the growth,
profitability and success of the Company, the Chief Executive Officer is also
eligible to participate in the DSC Communications Corporation Annual Incentive
Bonus Plan (the "Bonus Plan"). The Bonus Plan rewards the Chief Executive
Officer for the achievement of pre-established annual performance goals, which
is linked to the Company's earnings before income taxes during each fiscal year
in which the Bonus Plan is in effect. See pages through .
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation consists of the Company
stock option plans and the 1994 Long-Term Incentive Compensation Plan.
The Committee views the granting of stock options and restricted stock
awards as a significant method of aligning management's long-term interests with
those of the stockholders. The Committee determines awards to executives based
on its evaluation of criteria that include responsibilities, compensation, past
and expected contributions to the achievement of the Company's long-term
performance goals, and current competitive practice as indicated by the
compensation surveys in which the Company participates. When making awards, the
Committee generally does not consider prior stock option and restricted stock
awards. The stock option exercise price is the closing price of the Company's
Common Stock on the date of grant. Stock option and restricted stock awards are
designed to focus executives on the long-term performance of the Company by
enabling executives to share in any increases in value of the Company's stock.
Restricted stock grants and the 1994 LTIP 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.
Mr. Donald's base salary is fixed at $1,000,000 per year for the remainder
of the term of his employment contract. See "Executive Compensation -- Donald
Agreement". The remainder of Mr. Donald's compensation is performance-based in
the form of stock options, annual incentive compensation, and long-term
incentives as set forth herein. Mr. Donald also is eligible to participate in
any benefit plans the Company maintains for its employees, as well as in the
Bonus Plan. In addition, the Committee has discretion to
24
<PAGE> 28
recognize and reward outstanding achievement in any year when merited beyond the
scope of these benefits and the Bonus Plan.
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).
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 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 Chief Executive Officer for the Company.
The Committee believes that its ability to exercise discretion under the
Company's compensation plans outweighs the desirability of qualifying these
plans under Section 162(m) and outweighs the limited effect of the loss of
deductibility.
COMPENSATION COMMITTEE
RAYMOND J. DEMPSEY, Chairman
ROBERT S. FOLSOM
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933 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.
25
<PAGE> 29
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
March 3, 1997, there were outstanding and entitled to vote 117,338,363 shares of
its Common Stock. Only stockholders of record at the close of business on March
3, 1997 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 31, 1997
26
<PAGE> 30
PROXY
Please mark your
[ ] votes as in this
example.
FOR WITHHELD
1. Election of Directors [ ] [ ] NOMINEES: Raymond J. Dempsey
James L. Fischer
For, except vote withheld from the following nominee(s):
- ---------------------------------------------------
2. Approval of a proposal to increase the number of shares subject to the DSC
Communications Corporation 1993 Employee Stock Option and Securities Award Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may come before the meeting or any adjournment thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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.
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 30, 1997
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 30, 1997, and the Proxy Statement in connection therewith, each
dated March 31, 1997; (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 March 3, 1997, at such Annual Meeting and at any adjournment(s)
thereof; and (d) revokes any proxies hertofore given.
- --------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
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SEE REVERSE
SIDE
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