<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ADC TELECOMMUNICATIONS, INC.
(Name of Registrant as Specified in its Charter)
(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.
12501 Whitewater Drive
Minnetonka, Minnesota 55343
(612) 938-8080
----------------------------------
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
TO BE HELD FEBRUARY 24, 1998
---------------------
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 24, 1998, 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 2001.
(2) Such other business as may properly come before the meeting and any
adjournments thereof.
Shareholders of record at the close of business on January 8, 1998, 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 20, 1998
<PAGE>
[LOGO]
ADC Telecommunications, Inc.
12501 Whitewater Drive
Minnetonka, Minnesota 55343
(612) 938-8080
----------------------------------
PROXY STATEMENT
------------------------
ANNUAL SHAREHOLDERS' MEETING
TO BE HELD FEBRUARY 24, 1998
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 24, 1998, 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 20, 1998.
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 8, 1998, are the only persons entitled to
vote at the Annual Meeting. As of that date, there were 133,928,138 issued and
outstanding shares of Common Stock, the only outstanding voting securities of
the Company. Each shareholder is entitled to one vote for each share held.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, 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 8.82%
One State Farm Plaza
Bloomington, Illinois 61710
American Express Financial Advisors 7,886,500 5.90%
IDS Tower 10
Minneapolis, Minnesota 55402-2100
William J. Cadogan 512,186(1) *
Lynn J. Davis 325,679(1) *
William L. Martin III 67,172(1) *
Robert E. Switz 66,556(1) *
Thomas E. Holloran 62,000(2) *
Charles W. Oswald 60,000(2) *
Warde F. Wheaton 60,000(2) *
Vivek Ragavan 52,828(2) *
Donald M. Sullivan 52,000(2) *
John D. Wunsch 46,200(2,3) *
Jean-Pierre Rosso 45,800(2) *
B. Kristine Johnson 41,000(2) *
James C. Castle 19,000(2) *
Alan E. Ross 16,000(2) *
Irene M. Qualters 16,000(2) *
All executive officers and directors as a group (21 1,545,206(4) 1.15%
persons)
</TABLE>
- ------------------------
* Less than 1%.
(1) 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 Company's Retirement
Savings Plan (the "401(k) Plan"): for Mr. Cadogan (a) options to purchase
317,128 shares and (b) 2,952 shares; for Mr. Davis (a) options to purchase
203,264 shares and (b) 7,297
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shares; for Mr. Martin (a) options to purchase 53,568 shares and (b) 2,572
shares; for Mr. Switz (a) options to purchase 42,188 shares and (b) 2,304
shares; and for Mr. Ragavan (a) options to purchase 35,166 shares and (b) 162
shares.
(2) 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. Holloran options to purchase 44,000
shares; for Mr. Oswald options to purchase 16,000 shares; for Mr. Wheaton
options to purchase 44,000 shares; for Mr. Sullivan options to purchase 44,000
shares; for Mr. Wunsch options to purchase 44,000 shares; for Mr. Rosso
options to purchase 36,000 shares; for Ms. Johnson options to purchase 36,000
shares; for Dr. Castle options to purchase 16,000 shares; for Mr. Ross options
to purchase 16,000 shares; and for Ms. Qualters options to purchase 15,600
shares.
(3) Does not include 2,656,741 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.
(4) Includes (a) 1,058,321 shares issuable pursuant to stock options exercisable
within 60 days after the date of this Proxy Statement and (b) 18,301 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. Thomas E. Holloran, Charles W. Oswald, Alan E.
Ross and Warde F. Wheaton are the directors currently in the class with a term
expiring at the Annual Meeting. The Board of Directors has nominated Messrs.
Holloran, Oswald, Ross and Wheaton for election to the Board at the Annual
Meeting for terms expiring at the Annual Shareholders' Meeting in 2001.
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 Messrs. Holloran, Oswald,
Ross and Wheaton. 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.
<TABLE>
<CAPTION>
NAME AGE NOMINEE OR CONTINUING DIRECTOR AND TERM
- -------------------------- --- --------------------------------------------------
<S> <C> <C>
Thomas E. Holloran 68 Director; nominee with term expiring in 2001
Charles W. Oswald 69 Director; nominee with term expiring in 2001
Alan E. Ross 62 Director; nominee with term expiring in 2001
Warde F. Wheaton 68 Director; nominee with term expiring in 2001
William J. Cadogan 49 Director with term expiring in 2000
B. Kristine Johnson 46 Director with term expiring in 2000
Irene M. Qualters 48 Director with term expiring in 2000
Jean-Pierre Rosso 57 Director with term expiring in 2000
James C. Castle, Ph.D. 61 Director with term expiring in 1999
Donald M. Sullivan 62 Director with term expiring in 1999
John D. Wunsch 49 Director with term expiring in 1999
</TABLE>
3
<PAGE>
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.
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., Excel Switching Corp. and
Pentair, Inc.
Ms. Johnson has been a director of the Company since 1990. She is Senior
Vice President and Chief Administrative Officer of Medtronic, Inc., a
manufacturer of cardiac pacemakers and other medical products. She has served as
an officer of Medtronic since 1984, with her previous positions including
President of the Vascular business and President of the Tachyarrhythmia
Management business.
Ms. Qualters has been a director of the Company since July 1996. She is
President of Cray Research, a subsidiary of Silicon Graphics, Inc., and also
serves as Senior Vice President of Silicon Graphics, Inc. Ms. Qualters has been
employed by Cray Research since 1976 and previously held other officer positions
with Cray Research, including Senior Vice President, Vice President of
Supercomputing Systems and Vice President of Software Development, in addition
to various software programming management positions.
Mr. Rosso has been a director of the Company since 1993. Mr. Rosso is
Chairman of the Board 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. and
Crown Cork & Seal Company, Inc.
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, PMI 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
4
<PAGE>
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.
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 1997. From 1990 to January
1997, he served as President of Perrybell Investments, Inc., a registered
investment advisory company. Mr. Wunsch is a director of Medical Graphics
Corporation and Telident, Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended October 31, 1997 ("Fiscal 1997"), the Board of
Directors held eight meetings and acted two times 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 Ms. Qualters and Mr.
Sullivan, who each attended approximately 70% of such meetings. The Board of
Directors has an Audit Committee, Compensation and Organization Committee and
Finance and Business Development 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 and legal controls of
the Company. The Audit Committee is composed of Messrs. Wunsch, Holloran, Oswald
and Sullivan and Ms. Qualters. During Fiscal 1997, 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
composed of Messrs. Holloran, Ross, Rosso, Wheaton and Wunsch and Ms. Johnson.
During Fiscal 1997, the Compensation and Organization Committee held four
meetings and acted three times by written action.
The Finance and Business Development Committee provides assistance to the
Board of Directors relating to the financing strategy, financing policies and
financial condition of the Company, including evaluation of major acquisitions
and divestitures, review of modifications to the Company's capital structure and
review of the annual financial performance of benefit plans. The Finance and
Business Development Committee is composed of Messrs. Holloran, Castle and
Oswald, Ms. Johnson and Ms. Qualters. During Fiscal 1997, the Finance and
Business Development Committee held two meetings.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are 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 receive an additional 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.
From 1990 through December 1996, the Company 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, and the value of
benefits accrued under the Supplemental Plan prior to termination was replaced
by a special one-time grant of stock options to the Company's non-employee
directors described below under the caption "Nonemployee Director Stock Option
Plan." While in effect, the Supplemental Plan covered directors
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<PAGE>
who died or retired from the Board after at least five years of continuous
service as a director. The Supplemental Plan provided for monthly cash payments
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
for no more than 120 months. Benefits were payable upon the later of (i) the
date the director attained age 65 or (ii) the date the director ceased 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 840,000 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.
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 meeting of the Company's shareholders; provided that the Company's return
on equity for the fiscal year immediately preceding such annual meeting was at
least 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 shareholders' investment in the
Company as of the next preceding fiscal year. 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 after the date of grant. The option exercise price is payable in cash. The
options expire 10 years from the date of grant (subject to earlier termination
in the event of death).
In addition to the annual Fiscal 1997 stock option grants, nonemployee
directors on April 1, 1997 received a one-time grant of stock options in lieu of
the accrued value of benefits under the Supplemental Plan. Stock options were
granted to each nonemployee director based upon the length of service prior to
December 31, 1996, the date that the Supplemental Plan was terminated. These
options included: for Dr. Castle, options to purchase 2,750 shares; for Mr.
Holloran, options to purchase 9,100 shares; for Ms. Johnson, options to purchase
6,350 shares; for Mr. Oswald, options to purchase 9,100 shares; for Ms.
Qualters, options to purchase 900 shares; for Mr. Ross, options to purchase
2,750 shares; for Mr. Rosso, options to purchase 3,650 shares; for Mr. Sullivan,
options to purchase 6,350 shares; for Mr. Wheaton, options to purchase 9,100
shares; and for Mr. Wunsch, options to purchase 5,450 shares. These options
become exercisable on the earlier of October 1, 2006 or the date on which the
individual director is no longer a member of the Board of Directors. All such
options shall expire 10 years from the date of grant.
6
<PAGE>
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
and major compensation policies. 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 composed of
approximately 200 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 compensation
program. The Committee, however, retains the right to consider factors other
than those described below in setting executive compensation levels for
individual officers. These additional factors include individual performance,
the executive officer's potential and retention considerations. 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 1997 compensation levels, the Committee took into
account that in Fiscal 1997 the Company grew its revenues by 41%, grew its
operating income by 24% (41% after eliminating non-recurring charges), and
improved its Economic Value Added (EVA-Registered Trademark-) by 38% over the
fiscal year ended October 31, 1996 ("Fiscal 1996"). The Committee also noted
that, while financial performance was very strong, the closing price of the
Common Stock declined 3% from October 31, 1996 to October 31, 1997.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program is composed 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
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performance as compared to predetermined financial goals. In addition,
individual performance may be 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.
For Fiscal 1997, the Committee approved a new MIP under which bonuses are
based 60% on achievement of EVA improvement goals, 20% on attainment of revenue
levels, and 20% on achievement of key division goals and individual performance
levels. The EVA component of the MIP provides incentive compensation in a form
which relates the financial reward to an increase in the value of the Company to
its shareholders. EVA improvement targets are established for three-year
periods. In general, EVA is the excess of net operating profit after taxes, less
a capital charge intended to represent the return expected by the providers of
the Company's capital. The Company believes that EVA improvement is a financial
performance measure closely correlated with increases in shareholder value.
Under the MIP, achievement of target performance produces an award of 100%
of target bonus payout. For director-level management employees and officers,
the MIP does not have upside or downside limitations on the EVA component of MIP
bonuses. However, EVA awards in excess of 200% of target are credited to a
"bonus bank" and carried forward from year-to-year. Performance below 0% of
target in future years yields a "negative" award, which is debited against the
bonus bank. This feature promotes sustained year-over-year improvements in EVA
performance.
MIP awards are payable in cash. However, executive officers and other
designated management employees may elect to participate in the Company's
Executive Incentive Exchange Plan (the "Exchange Plan") and receive stock
options in lieu of 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 Common Stock as of the last day of the fiscal year. The
options granted under the Exchange Plan for Fiscal 1997 will become one-third
vested on each of October 31, 1999, 2000 and 2001. For the fiscal year ending
October 31, 1998 ("Fiscal 1998"), the exchange multiple has been decreased to
six times the cash equivalent of the portion of the MIP payout which is
exchanged for options.
In addition to MIP bonuses, a discretionary bonus was awarded to one of the
executive officers named in the Summary Compensation Table below in recognition
of his individual performance during the year.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation program is composed
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 executive officers. Minimum
dollar value stock ownership guidelines range from one to four times salary, and
the Company's policy provides that such minimums should be achieved within four
years of becoming an executive officer. The Committee considers each officer's
actual stock ownership in comparison to the guideline amounts in making ongoing
stock option awards. The Company's general practice is to grant stock options to
executives as part of its long-term incentive program, while restricted stock
awards are made selectively by the Committee as circumstances warrant.
Stock options have historically been granted to executive officers every
three years. However, for the new grant cycle beginning in Fiscal 1998, options
will generally be granted annually. Stock options have an
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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 Fiscal 1997, other than options
granted under the Exchange Plan and the option grants described in the next
paragraph, option grants to executives under the Incentive Plan were limited to
grants to new executives or executives receiving promotions and grants under the
Incentive Plan.
In Fiscal 1997, the five executive officers named in the Summary
Compensation Table below and one other executive officer received a special
award of premium options. Each of such executive officers (other than the Chief
Executive Officer) received awards ranging from 100,000 to 400,000 shares. These
options have premium exercise prices, with one-third of the shares under each
option priced at 145%, 135% and 120% of the fair market value of the Common
Stock on the date of grant. Each of the options has a seven-year term and will
vest four years from the 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 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 provides
allowances to its senior executives in lieu of certain perquisites.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Cadogan's base salary at the beginning of Fiscal 1997 was $500,000. He
received a 15% merit increase during the year, which raised his salary to
$575,000. 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 at the Company and within 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
$575,000 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 1997 was determined in
accordance with the MIP program and represented 147% of his target award under
the MIP. Under the MIP, Mr. Cadogan received $255,986 in cash, which was
deferred. In addition, Mr. Cadogan also received 132,049 stock options under the
Exchange Plan for Fiscal 1997. In determining Mr. Cadogan's award, the Committee
considered, in addition to financial results, without assigning relative
weights, Mr. Cadogan's performance with respect to leadership, strategic
planning, human resources, communication with shareholders, and community,
industry and Board relations. The Committee believes Mr. Cadogan continues to
demonstrate effective long term strategic and executive leadership while
delivering strong financial results.
Mr. Cadogan did not receive any stock option grants in Fiscal 1997 as part
of the regular long-term incentive program. He did, however, receive options in
connection with the Exchange Plan described above. In addition, in 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 the option have an exercise price
equal to 145%, 135% and 120% of the fair market value of the Common Stock on the
date of grant. In making this special grant, the Committee's purpose was to
incent continued outstanding leadership and Company performance and to promote
Mr. Cadogan's retention in the highly competitive telecommunications
environment. In using premium options, the Committee also wanted to ensure that
the value of the options granted was dependent on significant increases in the
value of the Common Stock after the date of grant.
9
<PAGE>
SECTION 162(M) POLICY
The Committee does not believe that Fiscal 1998 annual compensation provided
to any of the executive officers named in the table entitled "Summary
Compensation Table" below will exceed $1,000,000 within the meaning of Section
162(m) of the Internal Revenue Code. Under Section 162(m), all compensation in
excess of $1,000,000 for any such officer must meet certain requirements related
to Company performance and shareholder approval in order for the Company to
fully deduct these amounts. During the fiscal year ended October 31, 1995
("Fiscal 1995"), the Incentive Plan was amended to provide that amounts realized
from the exercise of options granted under the Plan would not be included in
calculations under Section 162(m). It is the Committee's intention to keep all
executive compensation fully deductible now and in the future, but the Committee
reserves the right to provide non-deductible compensation if it deems it to be
in the best interests of the Company and its shareholders.
Thomas E. Holloran, Chairman
B. Kristine Johnson
Alan E. Ross
Jean-Pierre Rosso
Warde F. Wheaton
John D. Wunsch
Members
Compensation and Organization
Committee
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and the four other most highly compensated executive officers of
the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ---------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND BONUS(2) COMPENSATION OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1)($) ($) ($) SARS (#)(3) ($)(4)
- ----------------------------------- ----- ----------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Cadogan, Chairman 1997 $ 559,416 $ 255,986 -0- 1,132,049/-0- $ 35,482
of the Board, President, 1996 $ 493,162 $ 214,466 -0- 183,775/-0- $ 46,032
Chief Executive Officer and 1995 $ 439,119 $ 356,067 -0- 219,600/-0- $ 42,815
Chief Operating Officer
Lynn J. Davis, Senior Vice 1997 $ 279,750 $ 87,807 -0- 445,294/-0- $ 21,114
President, President Broadband 1996 $ 260,250 $ 108,865 -0- 93,287/-0- $ 23,944
Connectivity Group 1995 $ 242,062 $ 172,462 -0- 81,000/-0- $ 27,876
Robert E. Switz, Senior Vice 1997 $ 239,795 $ 131,559 -0- 207,540/-0- $ 6,780
President,
Chief Financial Officer 1996 $ 218,366 $ 108,620 -0- 10,342/-0- $ 9,475
1995 $ 186,218 $ 114,207 -0- -0-/-0- $ 8,761
William L. Martin III, Senior Vice 1997 $ 216,714 $ 95,878 -0- 249,458/-0- $ 33,273
President, President Transport 1996 $ 194,057 $ 53,836 -0- 46,132/-0- $ 7,743
Systems Group(5) 1995 $ 136,225 -0- -0- 64,600/-0- $ 13,209
Vivek Ragavan 1997 $ 280,808 $ 86,402 -0- 405,882/-0- $ 4,560
Senior Vice President, President 1996 $ 220,129 $ 54,762 -0- 87,503/-0- $ 54,086
Broadband Communications
Division(6)
</TABLE>
- ------------------------------
(1) Amounts include allowances paid to the executive officers in lieu of the
Company providing them with certain perquisites.
(2) The bonus amounts were paid pursuant to the Company's MIP described above
under the caption "Compensation and Organization Committee Report on Executive
Compensation." Additional amounts were earned under the EVA component of the
MIP for Fiscal 1997 but not paid for certain officers. The additional amounts
will either be paid in later years or forfeited, depending on the extent to
which future EVA improvement goals under the MIP are achieved. The bonus
amounts do not include the value of stock options granted under the Exchange
Plan. In the case of Mr. Ragavan, the bonus amounts reported includes a
discretionary bonus awarded based on his individual performance during Fiscal
1997 and a hiring bonus of $25,000 awarded in Fiscal 1996.
(3) The options granted in Fiscal 1997 and Fiscal 1996 include stock options
granted under the Exchange Plan.
(4) 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. Company
contributions under the 401(k) Plan accrued during Fiscal 1997 were as
follows: $3,784 to Mr. Cadogan; $5,115 to Mr. Davis; $5,191 to Mr. Switz;
$5,238 to Mr. Martin; and $2,186 to Mr. Ragavan. The amounts credited under
the 401(k) Excess Plan during Fiscal 1997 were as follows: $30,098 to Mr.
Cadogan; $14,742 to Mr. Davis; $0 to Mr. Switz; $11,079 to Mr. Martin; and $0
to Mr. Ragavan. In the case of Mr. Martin, the compensation reported includes
a relocation bonus of $15,458 in Fiscal 1997 and relocation expenses of $6,414
in Fiscal 1995. In the case of Mr. Ragavan, the compensation reported includes
a relocation bonus of $20,833 and relocation expenses of $33,253 in Fiscal
1996.
(5) Mr. Martin became a Vice President of the Company in September 1994 and
became the President of the Company's Transport Systems Group (formerly the
Network Services Division) in February 1996.
(6) Mr. Ragavan joined the Company in January 1996 and became Senior Vice
President of the Company and President, Broadband Communications Division
(formerly the Video Systems Division) in June 1996.
11
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option grants and exercises during Fiscal
1997 to or by the executive officers named in the Summary Compensation Table
above, and the value of the options and SARs held by such persons at the end of
Fiscal 1996. No SARs were granted or exercised during Fiscal 1997.
OPTION/SAR GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF GRANT DATE
SECURITIES % OF TOTAL VALUE
UNDERLYING OPTIONS ------------
OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SHARE) DATE VALUE ($)(2)
- ------------------------ ------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Cadogan 266,666(3) 4.80% $ 46.219 12/30/2003 $ 3,954,657
266,667(3) 4.80% $ 43.031 12/30/2003 $ 4,122,672
266,667(3) 4.80% $ 38.250 12/30/2003 $ 4,397,339
66,666(4) 1.20% $ 44.044 01/02/2004 $ 941,991
66,667(4) 1.20% $ 41.006 01/02/2004 $ 982,005
66,667(4) 1.20% $ 36.450 01/02/2004 $ 1,047,339
132,049(5) 2.38% $ 33.125 10/31/2007 $ 2,478,560
Lynn J. Davis 133,333(3) 2.40% $ 46.219 12/30/2003 $ 1,977,328
133,333(3) 2.40% $ 43.031 12/30/2003 $ 2,061,328
133,334(3) 2.40% $ 38.250 12/30/2003 $ 2,198,678
45,294(6) 0.82% $ 33.125 10/31/2007 $ 850,168
Robert E. Switz 33,333(3) 0.60% $ 46.219 12/30/2003 $ 494,328
33,333(3) 0.60% $ 43.031 12/30/2003 $ 515,328
33,334(3) 0.60% $ 38.250 12/30/2003 $ 549,678
33,333(7) 0.60% $ 48.575 05/27/2004 $ 519,328
33,333(7) 0.60% $ 45.225 05/27/2004 $ 541,328
33,334(7) 0.60% $ 40.200 05/27/2004 $ 577,678
7,540(8) 0.14% $ 33.125 10/31/2007 $ 141,526
William L. Martin III 66,666(3) 1.20% $ 46.219 12/30/2003 $ 988,657
66,667(3) 1.20% $ 43.031 12/30/2003 $ 1,030,672
66,667(3) 1.20% $ 38.250 12/30/2003 $ 1,099,339
49,458(9) 0.89% $ 33.125 10/31/2007 $ 928,327
Vivek Ragavan 133,333(3) 2.40% $ 46.219 12/30/2003 $ 1,977,328
133,333(3) 2.40% $ 43.031 12/30/2003 $ 2,061,328
133,334(3) 2.40% $ 38.250 12/30/2003 $ 2,198,678
5,882(10) 0.11% $ 33.125 10/31/2007 $ 110,405
</TABLE>
- ------------------------------
(1) These options do not include options reported in the option grant table for
its 1997 Annual Shareholders' Meeting that were granted on November 18, 1996
under the Exchange Plan for Fiscal 1996.
(2) These amounts represent the estimated fair value of stock options, measured
at the date of grant using the Black-Scholes option pricing model. There are
four underlying assumptions used in developing the grant valuations: an
expected volatility of 44.7%; an expected term to exercise of seven years for
all stock option grants; a risk-free rate of return of 6.41% for the expected
term of the option; and no dividend yield. The actual value, if any, an
executive officer may realize will depend on the amount by which the stock
price exceeds the exercise price on the date the option is exercised.
Consequently, there is no assurance the value realized by an executive officer
will be at or near the value estimated above. These amounts should not be used
to predict stock performance.
(3) These options become exercisable on December 30, 2000.
12
<PAGE>
(4) These options become exercisable on January 2, 2001.
(5) These options were granted under the Exchange Plan for Fiscal 1997 and will
become exercisable as follows: 44,016 shares on October 31, 1999; 44,016
shares on October 31, 2000; and 44,017 shares on October 31, 2001.
(6) These options were granted under the Exchange Plan for Fiscal 1997 and will
become exercisable as follows: 15,098 shares on October 31, 1999; 15,098
shares on October 31, 2000; and 15,098 shares on October 31, 2001.
(7) These options become exercisable on May 27, 2001.
(8) These options were granted under the Exchange Plan for Fiscal 1997 and will
become exercisable as follows: 2,513 shares on October 31, 1999; 2,513 shares
on October 31, 2000; and 2,514 shares on October 31, 2001.
(9) These options were granted under the Exchange Plan for Fiscal 1997 and will
become exercisable as follows: 16,486 shares on October 31, 1999; 16,486
shares on October 31, 2000; and 16,486 shares on October 31, 2001.
(10) These options were granted under the Exchange Plan for Fiscal 1997 and will
become exercisable as follows: 1,960 shares on October 31, 1999; 1,961 shares
on October 31, 2000; and 1,961 shares on October 31, 2001.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997 AND
VALUE OF OPTIONS AND SARS AT END OF FISCAL 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE END OF FISCAL 1997 END OF FISCAL 1997
NAME EXERCISE (#) REALIZED(1) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(2)
- ------------------------ ------------- ------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
William J. Cadogan 38,000 $ 1,267,446 442,128/1,715,824(3) $10,986,743/$9,074,800(3)
Lynn J. Davis 96,836 $ 3,545,631 203,264/538,581(4) $5,188,065/$0(4)
Robert E. Switz 0 $ 0 42,188/217,882(3) $995,340/$0(3)
William L. Martin III 2,524 $ 58,999 53,568/295,590(3) $1,111,536/$0(3)
Vivek Ragavan 17,500 $ 252,665 35,166/440,719(3) $536,281/$142,343(3)
</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 1997.
(3) As of October 31, 1997, no SARs or Limited Stock Appreciation Rights
("LSARs") were held by such executive officer.
(4) The amounts indicate the number and value of unexercised options held by Mr.
Davis as of October 31, 1997. As of such date, Mr. Davis also held unexercised
LSARs with respect to 13,664 shares, all of which are exercisable in the event
of a change in control of the Company and as of the end of Fiscal 1997 are
valued at $412,052. 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.
13
<PAGE>
PENSION PLANS
During Fiscal 1997 and in prior years, the Company maintained a Pension
Plan, which was a qualified defined benefit pension plan. All benefit accrual
ceased on December 31, 1997. The Pension Plan was terminated as of January 5,
1998.
The Pension Plan provided for monthly benefits for life upon retirement and
survivor benefits for the spouse of an employee who died before retirement.
Benefit payments were based on the sum of a "past service benefit" and a "future
service benefit." The past service benefit was calculated on the basis of a
formula which multiplied 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 was equal to 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 amounts for the plan year ended December 31,
1988 was calculated on the basis of a formula which divided the number of days
of plan participation in 1988 by 365 and multiplied that percentage 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
taxable wage base for that year. The benefit amount for the plan year ended
December 31, 1989 and all plan years thereafter was calculated on the basis of a
formula which divided the number of days of plan participation in each such year
by 365 and multiplied that percentage 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 was a rounded amount which was 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
attained Social Security retirement age in such year. Adjusted covered
compensation for the 1997 plan year was $44,100. A maximum of 30 years was 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 have been eligible for the minimum benefit for service
prior to January 1, 1994, an employee 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 after December 31, 1993 required a minimum of 1,872 total hours of
employment for each plan year. The pension benefit was equal to the greater of
(a) the past and future service formula calculations or (b) the minimum benefit.
If a participant did not qualify for the minimum benefit, the pension benefit
was based on the results of the past and future service formulas.
As a result of the Board's action to cease all benefit accrual on December
31, 1997, no additional benefits will accrue to participants under the Pension
Plan after such date. Participants will have the option of receiving retirement
benefits accrued through December 31, 1997 in the form of an annuity (through a
group annuity contract purchased by the Company) or as a lump sum payment which
is the actuarial equivalent of the accrued normal retirement benefit. Lump sum
payments in amounts of $3,500 or less will be paid in cash. Larger lump sums
will be rolled over into participants' accounts in the Company's 401(k) Plan.
The estimated annual benefits payable under the Pension Plan to Messrs. Cadogan,
Davis, Switz, Martin and Ragavan upon normal retirement at age 65 will be
$23,590, $42,899, $5,942, $4,648 and $2,064, respectively. Such annual benefit
amounts could be greater if a determination is made that the Pension Plan was
overfunded as of its date of termination.
Prior to January 1, 1998, the Company maintained 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 as a result of participation in the
14
<PAGE>
Company's Deferred Compensation Plan (which permits employees to defer payments
made to them under the MIP until retirement) and the Exchange Plan, and for the
amount of benefits which could not be paid from the Pension Plan because of
maximum benefit and compensation limitations under the Internal Revenue Code of
1986, 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, Switz,
Martin and Ragavan upon normal retirement at age 65 are $34,754, $14,327,
$5,646, $5,874 and $3,101, respectively.
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 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 the Chief Executive Officer, vice presidents, director-level
management employees and other employees of the Company who are participants in
the MIP or certain other incentive bonus plans. The Severance Pay Plan provides
for severance payments to eligible employees whose employment is terminated,
either voluntarily with "good reason" (as defined in the Severance Pay Plan) or
involuntarily, during the two-year period following a change in control. The
amount of severance pay is based on the employee's position in the Company and
his or her base salary and bonus payable under the MIP or such other incentive
bonus plan, if any. The Severance Pay Plan also provides for payment of a pro
rata portion of the employee's bonus under the MIP or other incentive bonus
plan. Payment will be made in a lump sum upon termination. Under the Severance
Pay Plan, any severance payment to an employee would be reduced by the amount,
if any, necessary to prevent any part of payments made to such employee as a
result of the change in control being treated as an "excess parachute payment"
within the meaning of Section 280G of the Code. If there had been a change in
control as of the end of Fiscal 1997 and the employment of the five executive
officers named in the Summary Compensation Table above was immediately
terminated, then Messrs. Cadogan, Davis, Switz, Martin and Ragavan would have
been entitled to receive, pursuant to the terms of the Severance Pay Plan but
without taking into account any reductions necessary to avoid excess parachute
payments under Section 280G, lump sum payments upon termination of $3,666,136,
$1,054,339, $904,121, $983,696 and $605,031, 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.
15
<PAGE>
CERTAIN TRANSACTIONS
During Fiscal 1997, the Company purchased approximately 52 acres of
undeveloped land in Eden Prairie, Minnesota, from MTS Systems Corporation
("MTS") for a purchase price of approximately $5,700,000. Donald M. Sullivan, a
director of the Company, is the Chairman of the Board, Chief Executive Officer
and a director of MTS. Thomas E. Holloran, a director of the Company, is also a
director of MTS. The land purchase was approved by a majority of the members of
the Company's Board of Directors, with Messrs. Sullivan and Holloran abstaining.
In the opinion of the Company's management, the purchase price of the land was
at a price no more or less favorable than that which an unaffiliated third party
would pay for a similar property.
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 Telco Index over the same period
(assuming the investment of $100 in the Company's Common Stock, the S&P 500
Index and the Telco Index on October 31, 1992, and reinvestment of all
dividends).
TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR ADC TELCO INDEX (2) S&P 500 (1)
<S> <C> <C> <C>
1992 $100.00 $100.00 $100.00
1993 $197.30 $220.69 $113.80
1994 $254.73 $234.94 $118.20
1995 $432.43 $406.83 $149.45
1996 $739.19 $532.69 $185.47
1997 $716.22 $724.97 $245.03
</TABLE>
- ------------------------
(1) Total return calculations for the S&P 500 Index were performed by Investor's
Business Daily and are price value calculations. The total return calculations
for the graph in the Company's 1994 proxy statement were performed by another
firm and were market value calculations.
(2) The Telco Index (consisting of approximately 203 companies as of October 31,
1997) 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, as amended, 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
16
<PAGE>
changes in ownership of Common Stock and other equity securities of the Company.
Executive 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, 1997, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater-than-ten-percent beneficial owners
were satisfied.
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.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholders wishing to present proposals to be considered at the 1999
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 22, 1998.
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
[LOGO]
DAVID F. FISHER
SECRETARY
January 20, 1998
17
<PAGE>
ADC TELECOMMUNICATIONS, INC.
12501 Whitewater Drive, Minnetonka, Minnesota 55343 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 8, 1998, at the annual meeting of the shareholders of the
Company to be held on February 24, 1998 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 2001.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed
contrary below) below
</TABLE>
Thomas E. Holloran Charles W. Oswald
Alan E. Ross Warde F. Wheaton
(Instruction: To withhold authority to vote for any nominee,
write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(SIGN ON REVERSE SIDE.)
<PAGE>
SHAREHOLDER NUMBER NUMBER OF SHARES
2. 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:
----------------------------------------------------------,
1998
----------------------------------
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.
