<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section240.14a-11(c) or
Section240.14a-12
ADC TELECOMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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)(1)
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 Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435-5480
(612) 938-8080
----------------------------------
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
TO BE HELD FEBRUARY 25, 1997
---------------------
TO THE SHAREHOLDERS OF ADC TELECOMMUNICATIONS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Shareholders' Meeting of ADC
Telecommunications, Inc. (the "Company") will be held at the Lutheran
Brotherhood Building, 625 Fourth Avenue South, Minneapolis, Minnesota 55415, on
Tuesday, February 25, 1997, at 3:30 p.m. Central Standard Time, for the purpose
of considering and acting upon:
(1) The election of four directors for terms expiring in 2000.
(2) A proposal to amend the Company's 1991 Stock Incentive Plan to increase
the total number of authorized shares of Common Stock available for grant
under the plan from 16,431,708 shares to 22,419,008 shares, an increase
of 5,987,300 shares.
(3) A proposal to amend the Company's Nonemployee Director Stock Option Plan
to increase the total number of shares of Common Stock available for
grant under the plan from 440,000 shares to 840,000 shares, an increase
of 400,000 shares.
(4) Such other business as may properly come before the meeting and any
adjournments thereof.
Shareholders of record at the close of business on January 9, 1997, are the
only persons entitled to notice of and to vote at the meeting.
Your attention is directed to the attached Proxy Statement. If you do not
expect to be present at the meeting, please fill in, sign, date and mail the
enclosed Proxy as promptly as possible in order to save the Company further
solicitation expense. There is enclosed with the Proxy an addressed envelope for
which no postage is required if mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ David F. Fisher
DAVID F. FISHER
SECRETARY
January 27, 1997
<PAGE>
[LOGO]
ADC Telecommunications, Inc.
4900 West 78th Street
Minneapolis, Minnesota 55435-5480
(612) 938-8080
----------------------------------
PROXY STATEMENT
------------------------
ANNUAL SHAREHOLDERS' MEETING
TO BE HELD FEBRUARY 25, 1997
The enclosed Proxy is solicited by the Board of Directors of ADC
Telecommunications, Inc. (the "Company") in connection with the Annual
Shareholders' Meeting of the Company to be held on February 25, 1997, and at any
and all adjournments thereof (the "Annual Meeting"). The costs of solicitation,
including the cost of preparing and mailing the Notice of Annual Shareholders'
Meeting and this Proxy Statement, are being paid by the Company. In addition,
the Company will, upon the request of brokers, dealers, banks, voting trustees
and their nominees who are holders of record of shares of the Company's common
stock ("Common Stock") on the record date specified below, bear their reasonable
expenses for mailing copies of this material to the beneficial owners of such
shares. Officers and other regular employees of the Company who will receive no
extra compensation for their services may solicit Proxies in person or by
telephone or facsimile. In addition, the Company has retained Morrow & Co., Inc.
to assist in the solicitation of Proxies for a fee estimated to be $6,000 plus
out-of-pocket expenses. The Proxy Statement and accompanying form of Proxy will
be first mailed to shareholders on or about January 27, 1997.
The Proxy may be revoked at any time prior to its exercise by giving written
notice of revocation to an officer of the Company or by filing a new written
appointment of a proxy with an officer of the Company. Unless so revoked,
properly executed Proxies will be voted in the manner set forth in this Proxy
Statement or as otherwise specified by the shareholder giving such Proxy.
Shareholders of record on January 9, 1997, are the only persons entitled to
vote at the Annual Meeting. As of that date, there were issued and outstanding
130,513,897 shares of Common Stock, the only outstanding voting securities of
the Company. Each shareholder is entitled to one vote for each share held.
On September 24, 1996, the Company declared a two-for-one stock split in the
form of a 100% stock dividend which was paid on October 31, 1996, and all
references to shares in this Proxy Statement reflect this dividend.
1
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 2, 1997, unless otherwise
noted, certain information with respect to all shareholders known to the Company
to have been beneficial owners of more than five percent of its Common Stock,
and information with respect to the Company's Common Stock beneficially owned by
directors of the Company, the executive officers of the Company included in the
Summary Compensation Table set forth under the caption "Executive Compensation"
below and all directors and executive officers of the Company as a group. Except
as otherwise indicated, the shareholders listed in the table have sole voting
and investment powers with respect to the Common Stock owned by them.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS AMOUNT AND NATURE OF COMMON STOCK
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- ---------------------------------------------------------------------- --------------------- ------------
<S> <C> <C>
State Farm Mutual Automobile Insurance Company 11,798,496 9.04%
One State Farm Plaza
Bloomington, Illinois 61710
LeRoy C. Kopp 8,846,389(1) 6.78%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
William J. Cadogan 540,833(2) *
Lynn J. Davis 371,978(2) *
William L. Martin III 46,753(2) *
Robert E. Switz 45,080(2) *
Richard S. Gilbert 41,201(2) *
Warde F. Wheaton 57,275(3) *
Thomas E. Holloran 54,000(3) *
Charles W. Oswald 52,000(3) *
Donald M. Sullivan 44,000(3) *
John D. Wunsch 36,000(3),(4) *
Jean-Pierre Rosso 35,800(3) *
B. Kristine Johnson 33,000(3) *
James C. Castle 27,000(3) *
Alan E. Ross 24,000(3) *
Irene M. Qualters 16,000(3) *
All executive officers and directors as a group (20 persons) 1,636,253(5) 1.25%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes, as of December 31, 1996, (a) 5,461,285 shares of Common Stock held
in client accounts managed by Kopp Investment Advisors, Inc. ("KIA"), an
investment advisory firm of which Mr. Kopp is President and sole shareholder,
and (b) 3,385,104 shares of Common Stock owned by
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LeRoy C. Kopp, members of his family, and a family foundation. KIA generally
does not possess voting power with respect to the shares held in client
accounts but exercises limited investment power with respect to such shares.
(2) Includes (a) shares issuable pursuant to stock options exercisable within 60
days after the date of this Proxy Statement and (b) shares held in trust for
the benefit of the executive officers pursuant to the ADC Retirement Savings
Plan (the "401(k) Plan"): for Mr. Cadogan (a) options to purchase 368,928
shares and (b) 2,900 shares; for Mr. Davis (a) options to purchase 273,100
shares and (b) 7,256 shares; for Mr. Martin (a) options to purchase 34,556
shares and (b) 3,689 shares; for Mr. Switz (a) options to purchase 22,856
shares and (b) 160 shares; and for Mr. Gilbert (a) options to purchase 40,666
shares and (b) 535 shares.
(3) Includes shares issuable pursuant to options exercisable within 60 days
after the date of this Proxy Statement granted under the Company's Nonemployee
Director Stock Option Plan: for Mr. Wheaton options to purchase 36,000 shares;
for Mr. Holloran options to purchase 36,000 shares; for Mr. Oswald options to
purchase 36,000 shares; for Mr. Sullivan options to purchase 36,000 shares;
for Mr. Wunsch options to purchase 36,000 shares; for Mr. Rosso options to
purchase 28,000 shares; for Ms. Johnson options to purchase 28,000 shares; for
Dr. Castle options to purchase 24,000 shares; for Mr. Ross options to purchase
24,000 shares; and for Ms. Qualters options to purchase 16,000 shares.
(4) Does not include 2,675,661 shares held in custody by Family Financial
Strategies, Inc. ("FFSI"), an investment advisory company of which Mr. Wunsch
is President. FFSI may vote shares held on behalf of its clients if they fail
to direct the manner in which the shares are to be voted and may exercise
limited investment powers with respect to the shares. Title to all of these
shares is held by Forsam & Co. (of which Mr. Wunsch is a general partner) or
Cede & Co. as nominee for FFSI.
(5) Includes (a) 900,544 shares issuable pursuant to stock options exercisable
within 60 days after the date of this Proxy Statement and (b) 21,040 shares
held in trust for the benefit of executive officers pursuant to the 401(k)
Plan.
ELECTION OF DIRECTORS
The number of directors currently serving on the Company's Board of
Directors is 11. The directors are divided into three classes. The members of
each class are elected to serve three-year terms with the term of office of each
class ending in successive years. William J. Cadogan, B. Kristine Johnson and
Jean-Pierre Rosso are the directors currently in the class with a term expiring
at the Annual Meeting. Also, during the last fiscal year, the Board appointed
Irene M. Qualters to a newly created seat on the Board of Directors. The Board
of Directors has nominated Mr. Cadogan, Ms. Johnson, Ms. Qualters and Mr. Rosso
for election to the Board at the Annual Meeting for terms expiring at the Annual
Shareholders' Meeting in 2000.
The affirmative vote of a majority of the shares of Common Stock present and
entitled to vote at the meeting is required for the election of the above
nominees to the Board of Directors. Proxies solicited by the Board of Directors
will, unless otherwise directed, be voted to elect Mr. Cadogan, Ms. Johnson, Ms.
Qualters and Mr. Rosso. Shares represented by proxies as to which the authority
to vote for a nominee has been withheld will be deemed present and entitled to
vote for purposes of determining the existence of a quorum and calculating the
numbers of votes cast, but will be deemed not to have been voted in favor of the
candidate with respect to whom the proxy authority has been withheld. In the
unlikely event that the nominees are not candidates for election at the Annual
Meeting, the persons named as proxies will vote for such other persons as the
Board of Directors or proxies may designate.
3
<PAGE>
The table below gives certain information concerning the nominees and other
directors:
<TABLE>
<CAPTION>
NAME AGE NOMINEE OR CONTINUING DIRECTOR AND TERM
- --------------------------- --- -----------------------------------------------------
<S> <C> <C>
William J. Cadogan 48 Director; nominee with term expiring in 2000
B. Kristine Johnson 45 Director; nominee with term expiring in 2000
Irene M. Qualters 47 Director; nominee with term expiring in 2000
Jean-Pierre Rosso 56 Director; nominee with term expiring in 2000
James C. Castle, Ph.D. 60 Director with term expiring in 1999
Donald M. Sullivan 61 Director with term expiring in 1999
John D. Wunsch 48 Director with term expiring in 1999
Thomas E. Holloran 67 Director with term expiring in 1998
Charles W. Oswald 68 Director with term expiring in 1998
Alan E. Ross 61 Director with term expiring in 1998
Warde F. Wheaton 67 Director with term expiring in 1998
</TABLE>
Mr. Cadogan has been a director of the Company since 1991 and the Chairman
of the Board since 1994. He has also been the President, Chief Executive Officer
and Chief Operating Officer of the Company for more than five years. He was
Senior Vice President of the Telecom Group of the Company from 1989 to 1990 and
served as a Vice President from 1987 to 1989. Prior to joining the Company, Mr.
Cadogan was employed by Intelsat, most recently as General Manager of Business
Development. Mr. Cadogan is a director of Banta Corp. and Pentair, Inc.
Ms. Johnson has been a director of the Company since 1990. She is Senior
Vice President of Medtronic, Inc., a manufacturer of cardiac pacemakers and
other medical products, and President of its Vascular business. She has served
as an officer of Medtronic since 1984. Ms. Johnson is a director of six
closed-end investment companies managed by Voyageur Fund Managers, Inc.
Ms. Qualters has been a director of the Company since July 1996. She has
held the position of Vice President, Supercomputing Systems, Cray Research,
Inc., a Silicon Graphics company, since the acquisition of Cray Research, Inc.
by Silicon Graphics, Inc. in July 1996. Previous officer positions held with
Cray Research, Inc. include Senior Vice President and Vice President of Software
Development, in addition to various software programming management positions
since 1976.
Mr. Rosso has been a director of the Company since 1993. Mr. Rosso is
Chairman of the Board, President and Chief Executive Officer of Case
Corporation, a manufacturer of construction and agriculture equipment. Mr. Rosso
was President of the Home and Building Control division of Honeywell, Inc. from
1991 to 1994 and President of Honeywell Europe, in Brussels, Belgium, from 1987
to 1991. Mr. Rosso is a director of Inland Steel Industries, Inc., Ryerson Tull,
Inc., Crown Cork & Seal Company, Inc., and Principal Mutual Life Insurance
Company.
Dr. Castle has been a director of the Company since 1994. He has been
Chairman of the Board and Chief Executive Officer of USCS International, Inc., a
worldwide provider of computer services to the cable industry and a provider of
billing services to the cable, telephony, financial services and utility
industries, since 1992. For one year prior to such time, he was President of
Teradata Corporation, until that company merged with NCR Corporation, a
subsidiary of AT&T. From 1987 to 1991, he was Chairman of the Board, President,
Chief Executive Officer and a director of Infotron Systems Corporation. Dr.
Castle is a director of Par Technology Corporation and Leasing Solutions, Inc.
Mr. Sullivan has been a director of the Company since 1990. He has served as
Chief Executive Officer since 1987 and Chairman of the Board since 1994 of MTS
Systems Corporation, a manufacturer of products, systems and software that
analyze engineering designs, evaluate materials and automate production
processes. He has worked at MTS since 1982, where his prior positions included
President, Chief Operating Officer, Executive Vice President and Vice President.
Mr. Sullivan is a director of TSI Incorporated.
4
<PAGE>
Mr. Wunsch has been a director of the Company since 1991. He has been
President and Chief Executive Officer of Family Financial Strategies, Inc., a
registered investment advisory company, since January 1, 1997. From 1990 to
January 1997, he served as President of Perrybell Investments, Inc., a
registered investment advisory company.
Mr. Holloran has been a director of the Company since 1985. He has held the
position of Professor in the Graduate School of Business at the University of
St. Thomas, Minneapolis, Minnesota, since 1985. From 1976 to 1985, Mr. Holloran
served as Chairman of the Board and Chief Executive Officer of Inter-Regional
Financial Group, Inc. Mr. Holloran is a director of Flexsteel Industries, Inc.,
Medtronic, Inc., MTS Systems Corporation and National City Bancorporation.
Mr. Oswald has been a director of the Company since 1985. He has served as a
director of National Computer Systems, Inc., a provider of information systems
and services to education, commercial and financial markets, since 1970. He was
Chief Executive Officer of that company from 1970 to 1994 and Chairman of the
Board from 1970 to 1995.
Mr. Ross has been a director of the Company since 1994. From 1993 until his
retirement in January 1996, he served as President of the Telecommunications
Division at Rockwell International Corporation, where he had been employed since
1988. From 1990 to 1993, Mr. Ross was Vice President of the Digital
Communications Division at Rockwell International Corporation, and from 1988 to
1990 he was Vice President and General Manager of the Network Transmission
Systems of that company.
Mr. Wheaton has been a director of the Company since 1980. He served as
President of the Defense and Marine Systems Business of Honeywell Inc., a
manufacturer of control and information systems, from 1987 until his retirement
in 1989. Prior to such time he served as Executive Vice President of Honeywell's
Aerospace and Defense Business.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended October 31, 1996 ("Fiscal 1996"), the Board of
Directors held nine meetings and acted twice by written action. Each director
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors plus the total number of meetings of all committees of the
Board on which he or she served, with the exception of Messrs. Ross and Castle,
who each attended approximately 70% of such meetings. The Board of Directors has
an Audit Committee and a Compensation and Organization Committee.
The Audit Committee recommends to the Board of Directors the selection of
independent accountants and reviews the activities and reports of the
independent accountants as well as the internal accounting controls of the
Company. The Audit Committee is comprised of Messrs. Sullivan, Holloran, Oswald
and Wunsch. During Fiscal 1996, the Audit Committee held three meetings.
The Compensation and Organization Committee determines the compensation for
executive officers of the Company, establishes the Company's compensation
policies and practices and recommends to the Board of Directors nominees for
directors. No procedures have been established for considering nominations for
directors by shareholders. The Compensation and Organization Committee is
comprised of Messrs. Holloran, Castle, Ross, Rosso, Wheaton and Wunsch and Ms.
Johnson. During Fiscal 1996, the Compensation and Organization Committee held
four meetings and acted six times by written action.
COMPENSATION OF DIRECTORS
During Fiscal 1996, directors who are not employees of the Company were paid
an annual retainer of $16,000 plus a fee of $1,000 for each Board meeting
attended and $850 for each committee meeting attended. In addition, directors
acting as chairpersons of Board committees received an additional annual
retainer of $1,500. Beginning in Fiscal 1997, chairpersons of Board committees
will receive an annual retainer of $3,000. Amounts received by a director may be
deferred pursuant to the Company's Restated Compensation Plan for Directors.
Interest is paid on deferred amounts based on the prime commercial rate of
Norwest Bank Minnesota, National Association.
5
<PAGE>
Since 1990, the Company has maintained the Directors' Supplemental
Retirement Plan (the "Supplemental Plan") for nonemployee directors. Effective
December 17, 1996, the Compensation and Organization Committee of the Board
terminated the Supplemental Plan, however, benefits accrued under the
Supplemental Plan prior to termination remain payable. While in effect, the
Supplemental Plan covered directors who die or retire from the Board after at
least five years of continuous service as a director. The Supplemental Plan
provided for monthly benefits for a period of time based on the director's
service or, in the event of death before all benefits are paid, for death
benefits payable to the director's estate. The monthly amount of the benefit was
equal to 1/12 of the director's annual retainer in effect at the director's
retirement or death. The benefit was payable monthly for the period of months
equal to the director's service, but not to exceed 120 months. Benefits were
payable upon the later of (i) the date the director attains age 65 or (ii) the
date the director ceases to be a director.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
Since 1991, the Company has maintained a Nonemployee Director Stock Option
Plan (the "Nonemployee Director Plan"). A total of 440,000 shares of Common
Stock are reserved for issuance under the Nonemployee Director Plan. Each
director of the Company is eligible to participate in the Nonemployee Director
Plan unless such director is an employee of the Company or any subsidiary of the
Company. See the summary of the Nonemployee Director Plan which appears below
under the caption "Proposal to Amend the Nonemployee Director Stock Option
Plan."
Under the Nonemployee Director Plan, each nonemployee director automatically
receives an initial grant of an option to purchase 16,000 shares of Common Stock
upon initial election to the Board of Directors and thereafter receives an
annual grant of an option to purchase 8,000 shares of Common Stock following
each annual meeting of the Company's shareholders.
EXECUTIVE COMPENSATION
COMPENSATION AND ORGANIZATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation and Organization Committee (the "Committee") of the Board
of Directors is responsible for the Company's executive compensation philosophy,
major compensation policies and Board governance. The Committee is also
responsible for determining all aspects of the compensation paid to the Chief
Executive Officer, and reviews and approves recommendations for compensation
paid to the other executive officers. The Committee has access to an independent
compensation consultant and to competitive compensation data. The Committee is
comprised entirely of outside, independent directors.
The primary objectives of the Company's executive compensation program are
to:
- Provide compensation that will attract, retain and motivate a
superior executive team.
- Motivate the achievement of important Company performance
goals.
- Align the interests of the executive officers with those of
Company shareholders.
The executive compensation program provides an overall level of compensation
opportunity that is competitive with comparably sized and comparably performing
companies within the telecommunications and electronics industries ("Comparable
Companies"). Many of these companies are included in the Telecommunications
Equipment Company Index ("Telco Index"), a broad industry index comprised of
approximately 154 companies, which appears in the table set forth under the
caption "Comparative Stock Performance" below.
The following discussion describes the Company's approach to executive
compensation, and provides commentary on each major element of the program. The
Committee, however, retains the
6
<PAGE>
right to consider additional factors in setting executive compensation levels
for individual officers. These factors include individual performance, potential
and retention. The Committee may also consider various measures of Company
performance above and beyond those formally included in the Company's incentive
plans.
In determining Fiscal 1996 compensation levels, the Committee noted and took
into account that in Fiscal 1996 the Company grew its revenue by 41% and its
operating income by 66% over Fiscal 1995, and that the total shareholder return
on the Common Stock of the Company was 71%.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program is comprised of base salary,
annual incentive compensation, long-term incentive compensation and various
benefits generally available to all full-time employees of the Company.
BASE SALARY
Base salary levels for the Company's executives are generally targeted at
the 50th percentile of salaries paid by the Comparable Companies. In determining
actual salaries, the Committee also takes into account individual experience,
performance during the preceding 12 months, future performance potential, and
other issues particular to the executive and the Company. Salaries for the
Company's executives generally fall within a band of plus or minus 25% from the
average salaries paid by the Comparable Companies.
ANNUAL INCENTIVE COMPENSATION
The Management Incentive Plan (the "MIP") is the Company's annual incentive
program for executives and key managers. MIP awards are based primarily upon
overall Company and business unit performance as compared to predetermined
financial goals. In addition, individual performance is taken into account in
determining actual MIP payouts. Target MIP award levels are set at approximately
the 50th percentile level of similar incentive programs offered by the
Comparable Companies.
Under the MIP for Fiscal 1996, the Company had three predetermined levels of
financial performance and a formula for determining the amount of the MIP award
payouts relative to such performance levels. A threshold level of performance
produced an award equal to 30% of target payout. Targeted performance produced
an award of 100% of target payout, and a maximum level of performance resulted
in an award equal to 200% of the target payout. The financial performance goals
and standards are approved and monitored by the Committee. Under the MIP for
Fiscal 1996, no MIP awards would have been paid unless the Company achieved an
after-tax return on equity of at least 10%.
For the Fiscal 1996 MIP, the following measures of Company performance and
weighting for such measures were selected: 30% on corporate and business unit
revenue, 40% on corporate and business unit operating income, 10% on a key
corporate or divisional goal (the corporate goal was based on international
revenue) and 20% on individual contribution. In Fiscal 1996, the targeted
corporate measure of operating profit was significantly exceeded; however, the
100% targets for revenue and international revenue were not met.
Effective for Fiscal 1996, the Committee approved a plan (the "Executive
Incentive Exchange Plan") under which executive officers and other designated
officers may elect to receive stock options having a value based upon up to 50%
of their annual incentive payout under the MIP, pursuant to the Company's 1991
Stock Incentive Plan (the "Incentive Plan"). Such options are valued using the
Black Scholes methodology and are awarded at a multiple of ten times the cash
equivalent. The option exercise price is the fair market value of the Company's
Common Stock on the grant date designated by the Committee. The options granted
under the Executive Incentive Exchange Plan for Fiscal 1996 will vest one-third
on each of October 31, 1998, 1999 and 2000.
7
<PAGE>
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation program is comprised
exclusively of stock-based awards issued under the Incentive Plan. Through the
Incentive Plan, the Company provides periodic stock option and restricted stock
awards to the Company's executives and key managers.
Long-term incentives are granted at approximately the 50th percentile level
of similar programs maintained by the Comparable Companies. In addition to
industry competitive practice data, the Committee takes into consideration
factors such as overall Company performance and the amount of stock options and
restricted stock already outstanding or previously granted in determining the
size of awards under the Incentive Plan. The Company has developed and
implemented stock ownership guidelines for its officers. Minimum ownership
guidelines range from one to four times salary for the group, and the guidelines
provide that such minimums should be achieved within four years of achieving
officer status. The Committee considers each officer's actual stock ownership
compared to the guidelines in making ongoing stock option awards. The Company's
general practice is to grant stock options to executives as part of the
long-term incentive plan, while restricted stock awards are used selectively by
the Committee as circumstances warrant.
Stock options are generally granted to each eligible executive and manager
every three years. Stock options have an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant and generally have a
ten-year term and exercise restrictions that lapse ratably over a three-year
period. In 1996, grants to executives under the Incentive Plan were limited to
new hires and promotions, except that, under the terms of the Executive
Incentive Exchange Plan, eligible executives did receive non-qualified stock
options which vest ratably on October 31, 1998, 1999 and 2000.
In the first quarter of Fiscal 1997, the five executive officers named in
the Summary Compensation Table below and three other executive officers received
a special award of premium options. The award made to the Chief Executive
Officer is described in the next section of this report. Each of the recipients
other than Mr. Cadogan received awards ranging from 100,000 to 400,000 options
to purchase shares of Common Stock. All of these options have premium exercise
prices with one-third of the shares under each grant priced at 145%, 135% and
120%, respectively, of the fair market value of the Company's Common Stock on
date of grant. Each of the options has a seven-year term and will vest four
years from date of grant. This special grant was designed to promote retention
of senior management personnel critical to ADC's future growth and success while
ensuring that the value of the options granted was dependent on significant
increases in the value of the Company's Common Stock after the date of grant.
BENEFITS
The Company provides medical and pension benefits to its executives that are
generally similar to those available to Company employees. The Company does
provide a flexible perquisite benefit to its senior executives that does not
exceed 10% of salary for any named executive officer.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Cadogan's base salary at the beginning of Fiscal 1996 was $440,000. He
received a 13.6% merit increase during the year, which raised his salary to
$500,000. In determining to raise Mr. Cadogan's salary, the Committee considered
such factors as the Company's financial performance in comparison to that of
other companies, the Company's strategic product and market positioning, Mr.
Cadogan's leadership within the Company and the industry, his performance with
respect to personal objectives, and his pay in relation to the pay of the chief
executive officers of the Comparable Companies. The base salary of $500,000
places Mr. Cadogan's pay at approximately the median of the salaries of chief
executive officers of the Comparable Companies.
Mr. Cadogan's annual incentive award in Fiscal 1996 was determined in
accordance with the MIP program and represented 141% of his target award under
the MIP. Under the MIP, Mr. Cadogan received $214,466 in cash, which was
deferred. In addition, Mr. Cadogan also received 183,775 stock
8
<PAGE>
options under the Executive Incentive Exchange Program for Fiscal 1996. In
addition to the Company's financial results, the Committee also considered,
without assigning relative weights, Mr. Cadogan's performance with respect to
the following objectives (which were established at the beginning of Fiscal year
1996): leadership; strategic planning; human resources; communication with
shareholders; and community, industry and board relations. The Committee
believes Mr. Cadogan has demonstrated effective leadership, has placed the
Company in a strong position for future growth, and has enabled the Company to
achieve extremely strong results again in Fiscal 1996.
Mr. Cadogan did not receive any stock option grants in Fiscal 1996 as part
of the regular option grants under the Incentive Plan. He did, however, receive
options in connection with the Executive Incentive Exchange Plan as described
above. In addition, in the first quarter of Fiscal 1997, the Committee granted
Mr. Cadogan premium options to purchase a total of 1,000,000 shares of Common
Stock which have a seven-year term and will vest four years from the date of
grant. The premium exercise prices under these options were set so that
one-third of the shares under each grant has an exercise price equal to 145%,
135% and 120%, respectively, of fair market value of the Company's Common Stock
on the date of grant. Considerations in making this special grant included the
Committee's intent to both incent continued outstanding leadership and Company
performance and to promote Mr. Cadogan's retention in the highly competitive
telecommunications environment while ensuring that the value of the options
granted was dependent on significant increases in the value of the Company's
Common Stock after the date of grant.
162(M) POLICY
The Committee does not believe that in Fiscal 1997 annual compensation
provided to any of the executive officers named in the table entitled "Summary
Compensation Table" below will exceed $1 million within the meaning of Section
162(m) of the Internal Revenue Code. Under 162(m), all compensation in excess of
$1,000,000 for any such officer must meet certain requirements related to
Company performance and shareholder approval in order for the Company to fully
deduct these amounts. In Fiscal 1995, the Incentive Plan was amended to provide
that options granted under the Plan would not be included in calculations under
162(m). It is the Committee's intention to keep all executive compensation fully
deductible now and in the future, but the Committee reserves the right to
provide non-deductible compensation if it deems it to be in the best interests
of the Company and its shareholders.
Thomas E. Holloran, Chairman
James C. Castle
B. Kristine Johnson
Alan E. Ross
Jean-Pierre Rosso
Warde F. Wheaton
John D. Wunsch
Members
Compensation and Organization
Committee
9
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and the four other most highly compensated executive officers of
the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ---------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND BONUS(1) COMPENSATION OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($) ($) SARS (#)(2) ($)(3)
- -------------------------------- ----- ----------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Cadogan, Chairman 1996 $ 493,162 $ 214,466 -0- 183,775/-0- $ 46,032
of the Board, President, 1995 $ 439,119 $ 356,067 -0- 219,600/-0- $ 42,815
Chief Executive Officer and 1994 $ 356,780 $ 300,000 $ 163,836(4) 416,000/-0- $ 30,791
Chief Operating Officer
Lynn J. Davis, Senior Vice 1996 $ 260,250 $ 108,865 -0- 93,287/-0- $ 23,944
President, President Broadband 1995 $ 242,062 $ 172,462 -0- 81,000/-0- $ 27,876
Connectivity Group 1994 $ 199,439 $ 105,033 $ 122,877(4) 13,500/-0- $ 20,496
Richard S. Gilbert, Senior Vice 1996 $ 238,693 $ 72,212 -0- 61,879/-0- $ 18,889
President, President Enterprise 1995 $ 190,288 $ 97,973 -0- 71,000/-0- $ 16,314
Networking Group 1994 $ 128,863 $ 68,202 $ 105,701(4) 6,000/-0- $ 2,635
Robert E. Switz, Vice President, 1996 $ 218,366 $ 108,620 -0- 10,342/-0- $ 9,475
Chief Financial Officer 1995 $ 186,218 $ 114,207 -0- -0-/-0- $ 8,761
1994 $ 144,712 $ 95,668 -0- 87,900/-0- $ 30,000
William L. Martin III, Vice 1996 $ 194,057 $ 53,836 -0- 46,132/-0- $ 7,743
President, President Network 1995 $ 136,225 -0- -0- 64,600/-0- $ 13,209
Services Division(5) 1994 $ 6,282 -0- -0- -0-/-0- $ 14,583
</TABLE>
- ------------------------------
(1) The bonus amounts are payable pursuant to the Company's MIP described above
under the caption "Compensation and Organization Committee Report on Executive
Compensation." The amount for Fiscal 1996 does not include the value of stock
options granted under the Executive Incentive Exchange Plan for Fiscal 1996.
See notes to the table of Options/SAR Grants in Fiscal Year 1996, below.
(2) The options granted in 1996 include stock options granted on November 18,
1996 under the Executive Incentive Exchange Plan for Fiscal 1996.
(3) The compensation reported includes (a) Company contributions (excluding
employee earnings reduction contributions) under the Company's 401(k) Plan and
(b) amounts credited under the Company's 401(k) Excess Plan (excluding
employee deferred compensation). Company contributions under the 401(k) Plan
accrued during Fiscal 1996 were as follows: $8,477 to Mr. Cadogan; $7,983 to
Mr. Davis; $7,952 to Mr. Gilbert; $7,975 to Mr. Switz; and $6,570 to Mr.
Martin. The amounts credited under the 401(k) Excess Plan during Fiscal 1996
were as follows: $36,055 to Mr. Cadogan; $14,461 to Mr. Davis; $9,437 to Mr.
Gilbert; $0 to Mr. Switz; and ($327) to Mr. Martin. In the case of Mr. Gilbert
the compensation reported for Fiscal 1994 includes the Company contribution
under the 401(k) Plan accrued during Fiscal 1994 in the amount of $889. In the
case of Mr. Switz, the compensation reported for Fiscal 1994 was a hiring
bonus. In the case of Mr. Martin, the compensation reported includes
relocation expenses reported of $6,414 for Fiscal 1995 and $14,583 for Fiscal
1994.
(4) Represents Company reimbursement of income taxes payable by this executive
officer upon the lapsing in Fiscal 1994 of restrictions on previously granted
restricted stock awards pursuant to the Incentive Plan.
(5) Mr. Martin became a Vice President of the Company in September 1994 and
became the President of the Company's Network Services Division in February
1996.
10
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option grants and exercises during Fiscal
1996 to or by the executive officers named in the Summary Compensation Table
above, and the value of the options and SARs held by such persons at the end of
Fiscal 1996. No SARs were granted or exercised during Fiscal 1996.
OPTION/SAR GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES OF
------------------------------------------------------ STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM
UNDERLYING GRANTED TO EXERCISE OR COMPOUNDED ANNUALLY(6)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- --------------------- ------------ ------------ ----------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Cadogan 183,775(1) 8.47% $36.75 11/18/06 $ 0 $3,480,450 $9,542,492
Lynn J. Davis 93,287(2) 4.30% $36.75 11/18/06 $ 0 $1,766,730 $4,843,915
Richard S. Gilbert 61,879(3) 2.85% $36.75 11/18/06 $ 0 $1,171,905 $3,213,059
Robert E. Switz 10,342(4) 0.48% $36.75 11/18/06 $ 0 $ 195,864 $ 537,007
William L. Martin III 46,132(5) 2.13% $36.75 11/18/06 $ 0 $ 873,678 $2,395,398
</TABLE>
- ------------------------------
(1) These options were granted on November 18, 1996 under the Executive Exchange
Plan for Fiscal 1996, and will become exercisable as follows: 61,258 on
October 31, 1998; 61,258 on October 31, 1999; and 61,259 on October 31, 2000.
(2) These options were granted on November 18, 1996 under the Executive Exchange
Plan for Fiscal 1996, and will become exercisable as follows: 31,095 on
October 31, 1998; 31,096 on October 31, 1999; and 31,096 on October 31, 2000.
(3) These options were granted on November 18, 1996 under the Executive Exchange
Plan for Fiscal 1996, and will become exercisable as follows: 20,626 on
October 31, 1998; 20,626 on October 31, 1999; and 20,627 on October 31, 2000.
(4) These options were granted on November 18, 1996 under the Executive Exchange
Plan Fiscal 1996, and will become exercisable as: 3,447 on October 31, 1998;
3,447 on October 31, 1999; and 3,448 on October 31, 2000.
(5) These options were granted on November 18, 1996 under the Executive Exchange
Plan for Fiscal 1996, and will become exercisable as follows: 15,377 on
October 31, 1998; 15,377 on October 31, 1999; and 15,378 on October 31, 2000.
(6) Values determined by using the market value per share of the Company's
Common Stock at the end of Fiscal 1996.
11
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1996 AND
VALUE OF OPTIONS AND SARS AT END OF FISCAL 1996
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE END OF FISCAL 1996 END OF FISCAL 1996
NAME EXERCISE (#) REALIZED(1)($) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(2)
- ------------------------- ------------- ------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
William J. Cadogan 120,000 $ 3,519,360 406,928/656,975(3) $11,351,030/$11,480,949(3)
Lynn J. Davis 116,432 $ 3,107,221 273,100/120,287(4) $8,011,157/$610,874(4)
Richard S. Gilbert 2,000 $ 37,874 44,666/92,213(5) $999,151/$642,969(5)
Robert E. Switz 45,712 $ 1,075,054 22,856/29,674(6) $582,095/$492,346(6)
William L. Martin III 8,508 $ 139,319 34,556/67,668(7) $781,829/$487,251(7)
</TABLE>
- ------------------------------
(1) Value determined by subtracting the exercise price per share from the market
value per share of the Company's Common Stock at date of exercise.
(2) Value determined by subtracting the exercise price per share from the market
value per share of the Company's Common Stock at the end of Fiscal 1996.
(3) The amounts indicate the number and value of unexercised options held by Mr.
Cadogan as of October 31, 1996. As of such date, Mr. Cadogan also held
unexercised Limited Stock Appreciation Rights ("LSARs") with respect to 33,328
shares, all of which are exercisable in the event of a change in control of
the Company and as of the end of Fiscal 1996 were valued at $1,039,434. Such
LSARs were granted in tandem with options granted in Fiscal 1990. The exercise
of an option reduces the number of LSARs by a corresponding number of shares,
and the exercise of an LSAR would similarly reduce the number of shares
subject to the related option. The amounts include stock options granted on
November 18, 1996 under the Company's Executive Exchange Plan for Fiscal 1996.
See Note 1 to the Option/SAR Grants in Fiscal Year 1996 table above.
(4) The amounts indicate the number and value of unexercised options held by Mr.
Davis as of October 31, 1996. As of such date, Mr. Davis also held unexercised
LSARs with respect to 80,000 shares, all of which are exercisable in the event
of a change in control of the Company and as of the end of Fiscal 1996 are
valued at $2,497,520. Such LSARs were granted in tandem with options granted
in Fiscal 1990. The exercise of an option reduces the number of LSARs by a
corresponding number of shares, and the exercise of an LSAR would similarly
reduce the number of shares subject to the related option. The amounts include
stock options granted on November 18, 1996 under the Company's Executive
Exchange Plan for Fiscal 1996. See Note 2 to the Option/SAR Grants in Fiscal
Year 1996 table above.
(5) The amounts indicate the number and value of unexercised options held by Mr.
Gilbert as of October 31, 1996. As of such date, no SARs or LSARs were held by
him. The amounts include stock options granted on November 18, 1996 under the
Company's Executive Exchange Plan for Fiscal 1996. See Note 3 to the
Option/SAR Grants in Fiscal Year 1996 table above.
(6) The amounts indicate the number and value of unexercised options held by Mr.
Switz as of October 31, 1996. As of such date, no SARs or LSARs were held by
him. The amounts include stock options granted on November 18, 1996 under the
Company's Executive Exchange Plan for Fiscal 1996. See Note 4 to the
Option/SAR Grants in Fiscal Year 1996 table above.
(7) The amounts indicate the number and value of unexercised options held by Mr.
Martin as of October 31, 1996. As of such date, no SARs or LSARs were held by
him. The amounts include stock options granted on November 18, 1996 under the
Company's Executive Exchange Plan for Fiscal 1996. See Note 5 to the
Option/SAR Grants in Fiscal Year 1996 table above.
12
<PAGE>
PENSION PLANS
The ADC Telecommunications, Inc., Pension Plan (the "Pension Plan"), which
is a tax qualified defined benefit pension plan, provides for monthly benefits
for life upon retirement and survivor benefits for the spouse of an employee who
dies before retirement. Benefit payments are based on the sum of a "past service
benefit" and a "future service benefit." The past service benefit is calculated
on the basis of a formula which multiplies the number of years of credited
service prior to January 1, 1988, by a dollar amount equal to 1% of the
employee's average annual compensation for the five years prior to January 1,
1988, plus .5% of the employee's average annual compensation in excess of
$30,000. The future service benefit equals the sum of the benefit amounts
determined separately under a formula for each calendar year of service after
December 31, 1987, including the year of retirement. The benefit amount for the
plan year ended December 31, 1988, is calculated on the basis of a formula which
divides the number of days of plan participation in 1988 by 365 and multiplies
that figure by a dollar amount equal to 1% of the employee's annualized
compensation for the year plus .5% of the employee's annualized compensation in
excess of the Social Security table wage base for that year. The benefit amounts
for the plan year ended December 31, 1989, and all plan years thereafter are
calculated on the basis of a formula which divides the number of days of plan
participation in each such year by 365 and multiplies that figure by a dollar
amount equal to 1% of the employee's annualized compensation for the year up to
the adjusted covered compensation for the year plus 1.4% of the employee's
annualized compensation for the year in excess of the adjusted covered
compensation for that year. Adjusted covered compensation is a rounded amount
which is 150% of the average of the Social Security taxable wage bases in effect
for the 35-year period ending in the year the benefit is being determined for an
individual who attains Social Security retirement age in such year. Adjusted
covered compensation for the 1996 plan year was $41,400. No more than 30 years
can be taken into account in determining the past and future service benefits.
Effective January 1, 1994, the Pension Plan was amended to provide a minimum
benefit for both past and future service equal to $25 for each month of benefit
service. In order to be eligible for the minimum benefit for service prior to
January 1, 1994, a participant must have had average annual hours of employment
for the 10 year period ended December 31, 1993 (or total employment, if less
than 10 years) of at least 1,872. Eligibility for the minimum benefit for
service since December 31, 1993, requires a minimum of 1,872 total hours of
employment for each plan year. The pension benefit will be equal to the greater
of (a) the past and future service formula calculations, or (b) the minimum
benefit. If a participant does not qualify for the minimum benefit, the pension
benefit will be based on the results of the past and future service formulas.
The estimated annual benefits payable to Messrs. Cadogan, Davis, Gilbert, Switz
and Martin upon normal retirement at age 65 are $53,436, $59,196, $47,256,
$32,448 and $32,496 respectively. These estimates are based on the assumption
that each such employee's compensation remains equal to the employee's current
salary plus his current target bonus payable under the Company's MIP.
The Company maintains a Pension Excess Plan (the "Excess Plan") intended to
compensate certain employees, as determined in the discretion of the Board of
Directors, for the amount of benefits lost under the Company's Pension Plan due
to participation in the Company's Deferred Compensation Plan (which permits
employees to defer payments made to them under the MIP until retirement) and for
benefits which cannot be paid from the Pension Plan because of maximum benefit
and compensation limitations under the Internal Revenue Code of 1985, as amended
(the "Code"). Upon termination of employment, participants receive a lump sum
payment equal to the amount of such benefits. The estimated annual benefits
payable under the Excess Plan to Messrs. Cadogan, Davis, Gilbert, Switz and
Martin upon normal retirement at age 65 are $183,072, $54,984, $56,952, $39,072
and $25,800, respectively. These estimates are based on the assumption that each
employee's compensation until retirement remains equal to the individual's
current salary plus his current target bonus payable under the MIP.
Effective as of November 1, 1990, the Company entered into a Supplemental
Executive Retirement Plan with Mr. Cadogan (as amended to date, the "SERP"). The
SERP provides for supplemental
13
<PAGE>
retirement income benefits that allow Mr. Cadogan, upon the termination of his
employment with the Company and subject to certain conditions, to receive a
single lump sum payment on the first day of the calendar month following his
termination of employment with the Company. The amount payable to Mr. Cadogan is
derived from a formula based upon an amount equal to 50% of Mr. Cadogan's
average monthly compensation during the preceding five years less the total of
all benefits attributable to employer contributions which are payable to Mr.
Cadogan from the Pension Plan and the Pension Excess Plan and certain Social
Security benefits payable to him. Reductions from this amount are made if Mr.
Cadogan's employment termination occurs prior to his 50th birthday. Benefits
payable under the SERP are unfunded and will be paid only from the general
assets of the Company.
CHANGE IN CONTROL ARRANGEMENTS
The Company maintains a Severance Pay Plan to provide severance pay in the
event of a "change in control" (as defined in the Severance Pay Plan) of the
Company for executive officers and other employees of the Company who are
participants in the MIP. The Severance Pay Plan provides for severance pay to
those covered employees who terminate employment, either voluntarily or
involuntarily, during the two-year period following a change in control. Payment
is based on the sum of the employee's base salary and bonus under the MIP, if
any. The Severance Pay Plan also provides for a pro rata payment of the
employee's bonus under the MIP. Payment will be made in a lump sum upon
termination. If there had been a change in control as of the end of Fiscal 1996
and the employment of the five executive officers named in the Summary
Compensation Table above were immediately terminated, then Messrs. Cadogan,
Davis, Gilbert, Switz and Martin would have been entitled to receive, pursuant
to the terms of the Severance Pay Plan, lump sum payments upon termination of
$2,786,796, $935,462, $788,850, $691,378 and $586,344, respectively.
The Company has certain other compensatory arrangements with its executive
officers relating to a change in control of the Company. All stock option
agreements outstanding under the Company's employee stock option and stock award
plans provide for the acceleration of exercisability of options if the
optionee's employment is terminated within two years following a change in
control (except in certain cases where the optionee is terminated for "cause" or
resigns without "good reason"). All restricted stock award agreements provide
for pro rata vesting of all outstanding shares of restricted stock following a
change in control and for full vesting of such shares if the holder's employment
is terminated within two years following a change in control. The Pension Plan
and Excess Plan prohibit any decrease in benefits payable under such plans
during the two-year period following a change in control of the Company. The
Pension Plan prohibits any decrease in benefits payable under the Pension Plan
during such two-year period and credits up to two years of additional service
for employees who terminate employment during this period. The Excess Plan
prohibits any decrease in benefits during the two-year period following a change
in control of the Company.
CERTAIN TRANSACTIONS
During July 1996, the Company made a bridge loan to John A. Schofield, an
executive officer of the Company, in connection with the purchase of a home. The
entire loan in the amount of $103,840 was repaid within two weeks with interest
at an annual rate of 8.25%.
14
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The table below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the S&P 500 Index and the Telecommunications Equipment Company
Index over the same period (assuming the investment of $100 in the Company's
Common Stock, the S&P 500 Index and the Telecommunications Equipment Company
Index on October 31, 1991, and reinvestment of all dividends).
TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR ADC S&P 500 (1) TELCO INDEX (2)
<S> <C> <C> <C>
1991 100 100 100
1992 149 110 107
1993 299 126 241
1994 387 131 256
1995 656 166 444
1996 1122 206 581
</TABLE>
- ------------------------
(1) Total return calculations for the S&P 500 Index were performed by Investor's
Business Daily and are price value calculations.
(2) The Telecommunications Equipment Company Index (consisting of approximately
154 companies as of October 31, 1996) is maintained and reported by Investor's
Business Daily. Total return calculations for the Index as it appears above
were performed by Investor's Business Daily and are price value calculations.
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
the Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) reports they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company during the Fiscal year ended October 31, 1996, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with, except that Lawrence Asten, a former
executive officer of the Company, was late in filing one Form 4 relating to a
sale of Common Stock after the date of his resignation from the Company.
15
<PAGE>
PROPOSAL TO AMEND THE 1991 STOCK INCENTIVE PLAN
PROPOSED AMENDMENT
In November 1996, the Company's Board of Directors adopted, subject to
shareholder approval, an amendment to the Company's 1991 Stock Incentive Plan
(as amended to date, the "Incentive Plan") to increase the number of shares of
the Company's Common Stock available for issuance pursuant to awards thereunder
from 16,431,708 shares to 22,419,008 shares, an increase of 5,987,300 shares.
The Board of Directors believes that stock options and restricted stock
awards have been, and will continue to be, an important compensation element in
attracting and retaining key employees. As of December 31, 1996, 4,474,913
shares of Common Stock remained available for future grants of stock options,
restricted stock and other awards under the Incentive Plan. The Board of
Directors believes that the increase in authorized shares is necessary because
of the need to continue to make awards under the Incentive Plan to attract and
retain key employees.
If the amendment to the Incentive Plan is approved by the Company's
shareholders, such amendment will be effective on February 25, 1997. If the
amendment is not approved, it will not take effect.
SUMMARY OF INCENTIVE PLAN
The purpose of the Incentive Plan is to aid the Company in maintaining and
developing management personnel capable of assuring the future success of the
Company, to offer such personnel incentives to put forth maximum efforts for the
success of the Company's business and to afford such personnel an opportunity to
acquire a proprietary interest in the Company. All key employees of the Company
and its subsidiaries and affiliates in which the Company has a significant
equity interest are eligible to receive awards under the Incentive Plan. The
Incentive Plan terminates on February 26, 2001, and no awards may be made after
such date. However, unless otherwise expressly provided in the Incentive Plan or
an applicable award agreement, any award granted may extend beyond the
termination date of the Incentive Plan.
The Incentive Plan permits the granting of: (a) stock options, including
"incentive stock options" meeting the requirements of Section 422 of the Code
("Incentive Stock Options") and stock options that do not meet such requirements
("Nonqualified Stock Options"), (b) stock appreciation rights, (c) restricted
stock and restricted stock units, (d) performance awards and (e) dividend
equivalents. The Incentive Plan is administered by the Compensation and
Organization Committee of the Company's Board of Directors (the "Committee").
The Committee has the authority to establish rules for the administration of the
Incentive Plan; to select the key employees to whom awards are granted; to
determine the types of awards to be granted and the number of shares of Common
Stock covered by such awards; and to set the terms and conditions of such
awards. The Committee may also determine whether the payment of any amounts
received under any award shall or may be deferred and may authorize payments
representing cash dividends in connection with any deferred award of shares of
Common Stock. Determinations and interpretations with respect to the Incentive
Plan are in the sole discretion of the Committee, whose determinations and
interpretations are binding on all interested parties. The Committee may
delegate to one or more officers the right to grant awards with respect to
individuals who are not subject to Section 16(b) of the Exchange Act. Awards are
granted for no cash consideration or for such minimal cash consideration as may
be required by applicable law. Awards may provide that upon the grant or
exercise thereof the holder will receive shares of Common Stock, cash or any
combination thereof, as the Committee shall determine.
No Participant may be granted any awared or awards under the Incentive Plan,
the value of which award or awards are based solely on an increase in the value
of shares after the date of grant of such award or awards, for more than
1,000,000 shares, in the aggregate, in any one calendar year.
The exercise price per share under any stock option or the grant price of
any SAR cannot be less than 100% of the fair market value of the Company's
Common Stock on the date of the grant of such
16
<PAGE>
option or SAR. Options may be exercised by payment in full of the exercise
price, either in cash or, at the discretion of the Committee, in whole or in
part by the tendering of shares of Common Stock or other consideration having a
fair market value on the date the option is exercised equal to the exercise
price. Determinations of fair market value under the Incentive Plan are made in
accordance with methods and procedures established by the Committee. For
purposes of the Incentive Plan, the fair market value of shares of Common Stock
on a given date is (i) the last sales price of the shares as reported on the
Nasdaq National Market, if the shares are then being quoted on the Nasdaq
National Market or (ii) the closing price of the shares on such date on a
national securities exchange, if the shares are then being traded on a national
securities exchange.
The holder of an SAR is entitled to receive the excess of the fair market
value (calculated as of the exercise date or, if the Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.
The holder of restricted stock may have all of the rights of a shareholder
of the Company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted. Restricted stock may not be transferred by the holder until
the restrictions established by the Committee lapse. Holders of restricted stock
units have the right, subject to any restrictions imposed by the Committee, to
receive shares of Common Stock (or a cash payment equal to the fair market value
of such shares) at some future date. Upon termination of the holder's employment
during the restriction period, restricted stock and restricted stock units shall
be forfeited, unless the Committee determines otherwise.
Performance awards provide the holder thereof the right to receive payment,
in whole or in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. A performance award
granted under the Incentive Plan may be denominated or payable in cash, shares
of Common Stock or restricted stock. Dividend equivalents entitle the holder
thereof to receive payments (in cash or shares, as determined by the Committee)
equivalent to the amount of cash dividends with respect to a specified number of
shares.
No award granted under the Incentive Plan may be assigned, transferred,
pledged or otherwise encumbered by the individual to whom it is granted,
otherwise than by will, by designation of a beneficiary, or by laws of descent
and distribution and except that Nonqualified Stock Options may be transferred
by a plan participant to certain members of such participants' immediate family
or certain family trusts or partnerships. Each award is exercisable, during such
participant's lifetime, only by such participant or such participant's permitted
transferees, or, if permissible under applicable law, by such participant's
guardian or legal representative.
If any shares of Common Stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards become available for future awards under the Incentive
Plan. Except as otherwise provided under procedures adopted by the Committee to
avoid double counting with respect to awards granted in tandem with or in
substitution for other awards, all shares relating to awards granted are counted
against the aggregate number of shares available for granting awards under the
Incentive Plan.
If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
shares of Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the shares of Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Incentive
Plan, the Committee may, in such manner as it deems equitable, adjust (a) the
number and type of shares (or other securities or property) which thereafter may
be made the subject of awards, (b) the number and type of shares (or other
securities or property) subject to outstanding awards, and
17
<PAGE>
(c) the exercise price with respect to any award. The Committee may correct any
defect, supply any omission, or reconcile any inconsistency in the Incentive
Plan or any award agreement in the manner and to the extent it shall deem
desirable to carry the Incentive Plan into effect.
The Board of Directors may amend, alter or discontinue the Incentive Plan at
any time, provided that shareholder approval must be obtained for any change
that (i) absent such shareholder approval, would cause Rule 16b-3 as promulgated
by the SEC under the Exchange Act to become unavailable with respect to the
Incentive Plan; (ii) requires the approval of the Company's shareholders under
any rules or regulations of the National Association of Securities Dealers, Inc.
or any securities exchange applicable to the Company; or (iii) requires the
approval of the Company's shareholders under the Code in order to permit
Incentive Stock Options to be granted under the Incentive Plan.
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the Incentive Plan. The grant of an option
or SAR is not expected to result in any taxable income for the recipient. The
holder of an Incentive Stock Option generally will have no taxable income upon
exercising the Incentive Stock Option (except that a liability may arise
pursuant to the alternative minimum tax), and the Company will not be entitled
to a tax deduction when an Incentive Stock Option is exercised. Upon exercising
a Nonqualified Stock Option, the optionee must recognize ordinary income equal
to the excess of the fair market value of the shares of Common Stock acquired on
the date of exercise over the exercise price, and the Company will be entitled
at that time to a tax deduction for the same amount. Upon exercising an SAR, the
amount of any cash received and the fair market value on the exercise date of
any shares of Common Stock received are taxable to the recipient as ordinary
income and deductible by the Company. The tax consequences to an Optionee upon a
disposition of shares acquired through the exercise of an option will depend on
how long the shares have been held and upon whether such shares were acquired by
exercising an Incentive Stock Option or by exercising a Nonqualified Stock
Option or SAR. Generally, there will be no tax consequence to the Company in
connection with a disposition of shares acquired under an option, except that
the Company may be entitled to a tax deduction in the case of a disposition of
shares acquired under an Incentive Stock Option before the applicable Incentive
Stock Option holding periods set forth in the Code have been satisfied.
With respect to other awards granted under the Incentive Plan that are
payable either in cash or shares of Common Stock that are either transferable or
not subject to substantial risk of forfeiture, the holder of such an award must
recognize ordinary income equal to the excess of (a) the cash or the fair market
value of the shares of Common Stock received (determined as of the date of such
receipt) over (b) the amount (if any) paid for such shares of Common Stock by
the holder of the award, and the Company will be entitled at that time to a
deduction for the same amount. With respect to an award that is payable in
shares of Common Stock that are restricted as to transferability and subject to
substantial risk of forfeiture, unless a special election is made pursuant to
the Code, the holder of the award must recognize ordinary income equal to the
excess of (i) the fair market value of the shares of Common Stock received
(determined as of the first time the shares become transferable or not subject
to substantial risk of forfeiture, whichever occurs earlier) over (ii) the
amount (if any) paid for such shares of Common Stock by the holder, and the
Company will be entitled at that time to a tax deduction for the same amount.
Under the Incentive Plan, the Committee may permit participants receiving or
exercising awards, subject to the discretion of the Committee and upon such
terms and conditions as it may impose, to surrender shares of Common Stock
(either shares received upon the receipt or exercise of the award or shares
previously owned by the optionee) to the Company to satisfy federal and state
withholding tax obligations. In addition, the Committee may grant, subject to
its discretion and such rules as it may adopt, a bonus to a participant in order
to provide funds to pay all or a portion of federal and state taxes due as a
result of the receipt or exercise of (or lapse of restrictions relating to) an
award. The amount of any such bonus will be taxable to the participant as
ordinary income, and the Company will have a corresponding deduction equal to
such amount (subject to the usual rules concerning reasonable compensation).
18
<PAGE>
BOARD RECOMMENDATION AND SHAREHOLDER VOTE REQUIRED
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE PROPOSAL TO AMEND THE INCENTIVE PLAN. Unless otherwise directed,
the persons named in the accompanying Proxy intend to vote the proxies held by
them in favor of such proposal. The affirmative vote of the holders of a
majority of the shares of Common Stock present and entitled to vote at the
Annual Meeting on this item of business is required for the approval of the
proposal (provided that the number of shares voted in favor of the proposal
constitute more than 25% of the outstanding shares of the Common Stock of the
Company).
If a shareholder abstains from voting as to this proposal, then the shares
held by such shareholder shall be deemed present at the Annual Meeting for
purposes of determining a quorum and for purposes of calculating the vote with
respect to this proposal, but shall not be deemed to have been voted in favor of
this proposal. If a broker returns a "non-vote" proxy, indicating a lack of
authority to vote on this proposal, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum, but
not present for purposes of calculating the vote with respect to this proposal.
PROPOSAL TO AMEND THE
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
PROPOSED AMENDMENT
In November 1996, the Company's Board of Directors adopted, subject to
shareholder approval, an amendment to the Company's Nonemployee Director Stock
Option Plan (the "Nonemployee Director Plan") to increase the number of shares
of the Company's Common Stock available for issuance pursuant to awards
thereunder from 440,000 to 840,000 shares, an increase of 400,000 shares.
As of December 31, 1996, only 120,000 shares remained available for future
grants of stock options under the Nonemployee Director Plan. The Board of
Directors believes that stock options are necessary to the Company's competitive
ability to attract and retain the services of experienced and knowledgeable
directors who are not employees of the Company or any of its subsidiaries (a
"Nonemployee Director") and to provide additional incentive for such Nonemployee
Directors to increase their interest in the Company's long-term success and
progress.
If the amendment is approved by the Company's shareholders, such amendment
will be effective on February 25, 1997. If the amendment is not approved by the
Company's shareholders, such amendment will not take effect.
SUMMARY OF THE NONEMPLOYEE DIRECTOR PLAN
Each Nonemployee Director of the Company is eligible to participate in the
Nonemployee Director Plan. Under the Nonemployee Director Plan, an initial
option to purchase 16,000 shares (the "Initial Option Grant") is granted
automatically on the first business day immediately following each meeting of
the Company's shareholders or Board of Directors to each Nonemployee Director,
if any, who is elected to the Board of Directors for the first time at such
meeting. In addition, under the Nonemployee Director Plan, an option to purchase
8,000 shares (the "Annual Option Grant") is granted automatically on the first
business day immediately following each annual meeting of the Company's
shareholders (the "Annual Option Grant Date") to each Nonemployee Director in
office on such Annual Option Grant Date who prior to such Annual Option Grant
Date has received an Initial Option Grant. However, under the terms of the
Nonemployee Director Plan, Annual Option Grants will not be made if the
Company's "return on equity" for the Fiscal year ended immediately preceding an
Annual Option Grant Date was less than 10%. For purposes of the Nonemployee
Director Plan, "return on equity" is defined as the percentage determined by
dividing (i) the net income of the Company for such Fiscal year by (ii) the
total stockholders' investment in the Company as of the end of the next
preceding Fiscal year.
19
<PAGE>
All options granted under the Nonemployee Director Plan have an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant and become exercisable one year from the date of grant (subject to
earlier termination in the event of death) and are not transferable otherwise
than by will, by designation of a beneficiary, or by laws of descent and
distribution except that options may be transferred by a plan participant to
certain members of such participants' immediate family or certain family trusts
or partnerships. If an optionee dies prior to the time that an option is fully
exercised, an option may be exercised at any time within one year after such
optionee's death (unless the option expires) to the extent it was exercisable on
the date of death.
The Board of Directors may suspend, discontinue, revise or amend the
Nonemployee Director Plan at any time, but may not, without shareholder
approval, make any revisions or amendments to the Nonemployee Director Plan that
(a) absent such shareholder approval, would cause Rule 16b-3 to become
unavailable with respect to the Nonemployee Director Plan or (b) require the
approval of the shareholders under any rules or regulations of the National
Association of Securities Dealers, Inc. or any securities exchange applicable to
the Company. The Board may not alter or impair any option granted under the
Nonemployee Director Plan without the consent of the holder of the option. The
Nonemployee Director Plan will expire on February 26, 2001.
Under the Nonemployee Director Plan, appropriate adjustments in the Plan and
outstanding options will be made in the event of changes in the Company's Common
Stock through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split or other change in corporate structure.
Options granted under the Nonemployee Director Plan are intended to be
Nonqualified Stock Options, the attributes of which, for federal income tax
purposes, are discussed above under the caption "Proposal to Amend the 1991
Stock Incentive Plan."
BOARD RECOMMENDATION AND SHAREHOLDER VOTE REQUIRED
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE PROPOSAL TO AMEND THE NONEMPLOYEE DIRECTOR PLAN. Unless otherwise directed,
the persons named in the accompanying Proxy intend to vote the Proxies held by
them in favor of such proposal. The affirmative vote of the holders of a
majority of the shares of Commons Stock present and entitled to vote at the
Annual Meeting on this item of business is required for the approval of the
proposal (providing that the number of shares voted in favor of the proposal
constitute more than 25% of the outstanding shares of the Common Stock of the
Company).
If a shareholder abstains from voting as to this proposal, then the shares
held by such shareholder shall be deemed present at the Annual Meeting for
purposes of determining a quorum and for purposes of calculating the vote with
respect to this proposal, but shall not be deemed to have been voted in favor of
this proposal. If a broke returns a "non-vote" proxy, indicating a lack of
authority to vote on this proposal, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum, but
not present for purposes of calculating the vote with respect to this proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has audited the books and records of the Company since
1960, and the Board of Directors intends to reappoint Arthur Andersen LLP for
the Company's fiscal year ending October 31, 1997. Representatives of Arthur
Andersen LLP will be present at the Annual Meeting with the opportunity to make
a statement if they desire and will be available to respond to questions. The
Audit Committee of the Board of Directors meets at least annually with
representatives of Arthur Andersen LLP to review audit and accounting matters
and the scope and level of fees for services rendered.
20
<PAGE>
SHAREHOLDERS PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholders wishing to present proposals to be considered at the 1998
annual meeting of shareholders should submit the proposals to the Company in
accordance with all applicable rules and regulations of the SEC no later than
September 29, 1997.
OTHER MATTERS
The Company knows of no other matters to come before the Annual Meeting. If
other matters are properly brought before the Annual Meeting, it is the
intention of the persons named as proxies in the enclosed Proxy to vote as they
deem in the best interest of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ David F. Fisher
DAVID F. FISHER
SECRETARY
January 27, 1997
21
<PAGE>
ADC TELECOMMUNICATIONS, INC.
4900 West 78th Street, Minneapolis, Minnesota 55435 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) William J. Cadogan and David F. Fisher as
Proxies, each with power to appoint his substitute, and hereby authorizes them
to represent and to vote, as designated below, all of the shares of Common Stock
of ADC Telecommunications, Inc. (the "Company") held by the undersigned of
record on January 9, 1997, at the annual meeting of the shareholders of the
Company to be held on February 25, 1997 and at any and all adjournments thereof,
and hereby revokes all former proxies:
<TABLE>
<S> <C> <C>
1. Election of four directors for terms expiring in 2000.
/ /FOR all nominees listed below / /WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed
contrary below) below
</TABLE>
William J. Cadogan B. Kristine Johnson
Irene M. Qualters Jean-Pierre Rosso
(Instruction: To withhold authority to vote for any nominee,
write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. A proposal to amend the Company's 1991 Stock Incentive Plan to increase the
number of shares of the Company's Common Stock available for grant under the
plan from 16,431,708 shares to 22,419,008 shares, an increase of 5,987,300
shares.
/ / FOR / / AGAINST / / ABSTAIN
3. A proposal to amend the Company's Nonemployee Director Stock Option Plan to
increase the number of shares of Common Stock available for grant under the
plan from 440,000 shares to 840,000 shares, an increase of 400,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(SIGN ON REVERSE SIDE.)
<PAGE>
SHAREHOLDER NUMBER NUMBER OF SHARES
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR EVERY ITEM LISTED ABOVE.
Dated: , 1997
-----------------------------
----------------------------------
Signature
----------------------------------
Signature if held jointly
PLEASE SIGN EXACTLY AS NAME APPEARS ON
THIS CARD. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by president
PLEASE MARK, SIGN, DATE AND RETURN or other authorized officer. If a
PROXY CARD PROMPTLY USING THE ENCLOSED partnership, please sign in partnership
ENVELOPE. name by authorized person.
<PAGE>
ADC RETIREMENT SAVINGS PLAN
VOTING INSTRUCTIONS TO TRUSTEE
I hereby direct First Trust National Association, as Trustee of the ADC
Retirement Savings Plan, to vote at the annual meeting of the shareholders of
ADC Telecommunications, Inc. (the "Company") to be held on February 25, 1997 and
at any and all adjournments thereof, the shares of common stock of the Company
allocated to my account as specified on this card. If this card is not received
by the Trustee by February 20, 1997, or if it is received but the voting
instructions are invalid, the stock with respect to which I could have
instructed the Trustee will be voted in proportion to the instructed shares.
<TABLE>
<S> <C> <C>
1. Election of four directors for terms expiring in 2000.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed
below) below
</TABLE>
William J. Cadogan B. Kristine Johnson
Irene M. Qualters Jean-Pierre Rosso
(Instruction: To withhold authority to vote for any nominee,
write that nominee's name in the space provided below.)
- -------------------------------------------------------------------------------
(SIGN ON REVERSE SIDE.)
<PAGE>
2. Proposal to amend the Company's 1991 Stock Incentive Plan to increase the
total number of authorized shares of Common Stock available for grant under
the plan from 16,431,708 shares to 22,419,008 shares, an increase of
5,987,300 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to amend the Company's Nonemployee Director Stock Option Plan to
increase the total number of shares of Common Stock available for grant
under the plan from 440,000 shares to 840,000 shares, an increase of 400,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Dated: , 1997
---------------
-----------------------------
Signature
PLEASE SIGN, DATE AND
PROMPTLY RETURN THIS CARD
USING THE ENCLOSED ENVELOPE
<PAGE>
To participants in The ADC Retirement Savings Plan
- --------------------------------------------------------------------------------
We are trustee of the Trust established in connection with the ADC Retirement
Savings Plan (the "Plan"). As Trustee, we are the record owner of the shares of
Common Stock of ADC Telecommunications, Inc. (the "Company") held in the Trust
Fund for the benefit of Participants.
The Plan permits each participant to instruct the Trustee how to vote the
Company's Common Stock in the Trust Fund that are allocated to his/her account.
We enclose (1) a Notice of Annual Shareholders' Meeting To Be Held February 25,
1997 and Proxy Statement, (2) a 1996 Annual Report, (3) a card for giving us
voting instructions, and (4) a return envelope. If you complete the card and
return it to us in the enclosed envelope by February 20, 1997, we will vote, in
accordance with your instructions, the shares of the Company's Common Stock
allocated to your account.
Although the Plan provides that you may give the Trustee voting instructions
with respect to such stock, it is important to note that the Trustee remains the
record owner of such stock. Therefore, the ability to instruct the Trustee how
to vote confers no right on Participants to directly vote at the Annual
Shareholders' Meeting.
(CONTINUED ON REVERSE SIDE)
<PAGE>
As stated above, the enclosed instruction card must be properly completed if
voting instructions are to be honored. If the card is not received by February
20, 1997 or if the card is received but the voting instructions are invalid, the
shares with respect to which you could have instructed us will be voted in
proportion to the instructed shares.
Your voting instructions are strictly confidential.
Please complete, date, sign and promptly return the enclosed voting instruction
card.
Sincerely,
[SIGNATURE]
Michael J. Clark
Vice President
First Trust National Association
