<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 23, 1999
---------------------
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 23, 1999, at 3:30 p.m. Central Standard Time, for the purpose
of considering and acting upon:
(1) The election of three directors for terms expiring in 2002.
(2) A proposal to approve amendments to the Company's 1991 Stock Incentive
Plan to (a) increase the number of shares of the Company's Common Stock
available for issuance pursuant to awards thereunder, (b) extend the term
of the 1991 Stock Incentive Plan until February 26, 2006 and (c) limit
the number of shares of Common Stock that can be issued as restricted
stock awards under the 1991 Stock Incentive Plan.
(3) Such other business as may properly come before the meeting and any
adjournments thereof.
Shareholders of record at the close of business on January 7, 1999, 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
[DAVID F. FISHER]
DAVID F. FISHER
SECRETARY
January 19, 1999
<PAGE>
[LOGO]
ADC Telecommunications, Inc.
12501 Whitewater Drive
Minnetonka, Minnesota 55343
(612) 938-8080
----------------------------------
PROXY STATEMENT
------------------------
ANNUAL SHAREHOLDERS' MEETING
TO BE HELD FEBRUARY 23, 1999
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 23, 1999, 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 19, 1999.
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 7, 1999, are the only persons entitled to
vote at the Annual Meeting. As of that date, there were 135,172,788 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, 1998, 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 11,865,196 8.78%
One State Farm Plaza
Bloomington, Illinois 61710
William J. Cadogan 768,375(1) *
Lynn J. Davis 371,474(1) *
William L. Martin III 98,057(1) *
Robert E. Switz 84,744(1) *
Vivek Ragavan 84,482(1) *
Charles W. Oswald 87,000(2) *
Warde F. Wheaton 66,275(2) *
Thomas E. Holloran 62,000(2) *
John D. Wunsch 56,700(2,)(3) *
Donald M. Sullivan 56,000(2) *
Jean-Pierre Rosso 53,800(2) *
B. Kristine Johnson 49,700(2) *
James C. Castle 27,000(2) *
Alan E. Ross 24,000(2) *
All executive officers and directors as a group 1,972,500(4) 1.46%
(17 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
560,318 shares and (b) 15,951 shares; for Mr. Davis (a) options to purchase
250,559 shares and (b) 7,297 shares; for Mr. Martin (a) options to purchase
82,445 shares and (b) 4,580 shares; for Mr. Switz (a) options to purchase
59,135 shares and (b) 3,045 shares; and for Mr. Ragavan (a) options to
purchase 66,501 shares and (b) 481 shares.
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(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. Oswald options to purchase 24,000 shares;
for Mr. Wheaton options to purchase 52,000 shares; for Mr. Holloran options to
purchase 44,000 shares; for Mr. Wunsch options to purchase 52,000 shares; for
Mr. Sullivan options to purchase 48,000 shares; for Mr. Rosso options to
purchase 44,000 shares; for Ms. Johnson options to purchase 44,000 shares; for
Dr. Castle options to purchase 24,000 shares; and for Mr. Ross options to
purchase 24,000 shares.
(3) Does not include 2,696,004 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) 1,449,168 shares issuable pursuant to stock options exercisable
within 60 days after the date of this Proxy Statement and (b) 35,749 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 10. 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. James C. Castle, Ph.D., Donald M. Sullivan and
John D. Wunsch are the directors currently in the class with a term expiring at
the Annual Meeting. The Board of Directors has nominated Messrs. Castle,
Sullivan and Wunsch for election to the Board at the Annual Meeting for terms
expiring at the Annual Shareholders' Meeting in 2002.
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. Castle, Sullivan and
Wunsch. 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.
Certain information regarding the nominees to the Board of Directors and the
other incumbent directors is set forth below. In accordance with Board policy
requiring mandatory retirement from the Board at age 70, Charles W. Oswald, an
incumbent director, will retire from the Board on the date of the
3
<PAGE>
Annual Meeting. At this time, the Board of Directors has not nominated a
director to fill the vacancy that will be created by Mr. Oswald's retirement.
<TABLE>
<CAPTION>
NAME AGE NOMINEE OR CONTINUING DIRECTOR AND TERM
- -------------------------- --- --------------------------------------------------
<S> <C> <C>
James C. Castle, Ph.D. 62 Director; nominee with term expiring in 2002
Donald M. Sullivan 63 Director; nominee with term expiring in 2002
John D. Wunsch 50 Director; nominee with term expiring in 2002
Thomas E. Holloran 69 Director with term expiring in 2001
Charles W. Oswald 70 Director with term expiring in 2001
Alan E. Ross 63 Director with term expiring in 2001
Warde F. Wheaton 69 Director with term expiring in 2001
William J. Cadogan 50 Director with term expiring in 2000
B. Kristine Johnson 47 Director with term expiring in 2000
Jean-Pierre Rosso 58 Director with term expiring in 2000
</TABLE>
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 Corp., The PMI Group, Inc. and Leasing
Solutions, Inc.
Mr. Sullivan has been a director of the Company since 1990. He served as
Chairman of the Board from 1994 to January 1999 and Chief Executive Officer from
1987 to March 1998 of MTS Systems Corporation, a manufacturer of products,
systems and software that analyze engineering designs, evaluate materials and
automate production processes. He had worked at MTS since 1982, where his prior
positions included President, Chief Operating Officer and Executive 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.
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., the predecessor of Dain Rauscher Corporation. 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 served as Chief
Executive Officer of National Computer Systems, Inc., a provider of information
systems and services to education, commercial and financial markets, from 1970
to 1994, and also Chairman of the Board of that company from 1970 to 1995. He
was a director of National Computer Systems, Inc. from 1970 until his retirement
in May 1998.
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 group of that company. Mr. Ross is a director of Broadcom Corporation.
4
<PAGE>
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 National Computer Systems, Inc. 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, neurological devices 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.
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., Crown
Cork & Seal Company, Inc. and Medtronic, Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended October 31, 1998 ("Fiscal 1998"), the Board of
Directors held eight meetings and acted five 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. The Board of Directors has an Audit
Committee, Compensation and Organization Committee, Nominating 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. During Fiscal 1998, the Audit Committee held four meetings.
The Compensation and Organization Committee determines the compensation for
executive officers of the Company and establishes the Company's compensation
policies and practices. The Compensation and Organization Committee is composed
of Messrs. Holloran, Ross, Rosso, Wheaton and Wunsch and Ms. Johnson. During
Fiscal 1998, the Compensation and Organization Committee held four meetings and
acted one time by written action.
The Nominating Committee reviews and makes recommendations to the Board of
Directors regarding nominees for directors. The Nominating Committee is composed
of Messrs. Castle and Wunsch and Ms. Johnson. During Fiscal 1998, the Nominating
Committee held one meeting.
The Finance and Business Development Committee provides assistance to the
Board of Directors relating to the financing strategy, financial 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 and Ms. Johnson. During Fiscal 1998, the Finance and Business Development
Committee held one meeting.
5
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid an annual retainer
of $18,000 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.
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).
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 composed
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 the Company's
shareholders.
The executive compensation program provides an overall level of compensation
opportunity that is competitive with comparably sized and comparably performing
companies within the communications industry (the "Comparable Companies").
Certain of these companies are included in the Standard & Poor's Communication
Equipment Index ("S&P Communication Equipment Index"), an industry index,
composed of eight communication equipment companies, that 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. The Committee may also consider various measures of Company
performance in addition to those formally included in the Company's incentive
plans.
In determining Fiscal 1998 compensation levels, the Committee took into
account that in Fiscal 1998 the Company grew its revenues by 18.5% and grew its
net income by 35% (19% after eliminating non-recurring charges), but its
Economic Value Added (EVA-Registered Trademark-) decreased during Fiscal 1998.
The Committee also noted that, while the Company achieved new record levels for
both sales and net income, the market price of the Common Stock declined during
Fiscal 1998.
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
The Committee annually reviews the base salaries of the Company's executive
officers. Base salary levels for the Company's executives are generally targeted
at the 50th percentile of salaries paid by the Comparable Companies. In
determining salaries, the Committee takes into account individual experience,
performance during the preceding 12 months, future performance potential, salary
levels for similar positions at the Comparable Companies, retention
considerations 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.
7
<PAGE>
ANNUAL INCENTIVE COMPENSATION
The Management Incentive Plan (the "MIP") is the Company's annual incentive
program for executives and key managers. The purpose of the MIP is to provide a
financial incentive for management employees to help the Company achieve key
financial and strategic goals. Target MIP award levels are set at approximately
the 50th percentile level of similar incentive programs offered by the
Comparable Companies. Actual awards vary significantly above or below the target
award levels depending upon actual performance in relation to such goals.
MIP awards are based primarily upon overall Company or business unit
performance as compared to predetermined financial goals. For Fiscal 1998, MIP
awards depended 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. In order for participants to receive a MIP award, either the
threshold EVA improvement goal or the threshold revenue goal must be met.
The EVA improvement component of the MIP provides incentive compensation
that relates the financial reward to an increase in the value of the Company to
its shareholders. 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 level performance goals produces an
award of 100% of target bonus payout. For director-level management employees
and officers, the EVA component of the MIP does not have upside limitations but
may have negative consequences that are recognized through a "bonus bank." Under
the bonus bank mechanism, EVA awards in excess of 200% of target for a given
year are credited to the bonus bank and carried forward from year-to-year. If
performance is below the threshold level in future years, the resulting negative
award is debited against amounts credited to the bonus bank. This bonus bank
mechanism is intended to promote 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 six times the cash equivalent. The option exercise price is the fair
market value of the Common Stock as of the last business day of the fiscal year.
The options granted under the Exchange Plan for Fiscal 1998 will become
one-third vested on each of October 30, 1999, 2000 and 2001.
For Fiscal 1998, MIP awards were made only to participants from those
business divisions that exceeded their threshold levels of EVA improvement or
revenue goals. MIP participants in other divisions and corporate management
participants did not receive MIP awards for Fiscal 1998 because Company-wide or
divisional threshold performance goals for EVA improvement and revenues were not
achieved.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentives are provided to executive officers primarily through
the Company's stock option program. The primary purpose of the stock option
program is to align executive officer compensation directly with the creation of
shareholder value.
Guidelines for stock option grants are set at approximately the 50th
percentile level of similar programs maintained by the Comparable Companies. In
addition to competitive industry practice data, the Committee takes into
consideration factors such as overall Company performance and the amount of
stock options already outstanding or previously granted in determining the size
of stock option awards under the
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<PAGE>
Incentive Plan. The Company has also 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 determining the level of new stock
option awards.
Prior to Fiscal 1998, stock options were granted to executive officers on a
three-year grant cycle. However, beginning in Fiscal 1998, the Committee
implemented a program of granting options on an annual basis. Stock options have
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant. Generally, the stock options have a ten-year term and vest
ratably over a three-year period as of specified dates. Executive officers will
only receive benefit from stock options if, at the time the options are
exercised, the price of the Common Stock has appreciated over the price on the
date of the stock option grant.
In addition to the regular stock option grant practices described above, in
the fiscal year ended October 31, 1997 ("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 executive officer
named in the Summary Compensation Table below (other than the Chief Executive
Officer, whose award is described below) received option awards ranging from
100,000 to 400,000 shares of Common Stock. 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 the Company'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 end of Fiscal 1997 was $575,000. Effective
for Fiscal 1998, the Committee approved a merit increase of 8.7% which raised
his salary to $625,000. 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 $625,000 places Mr. Cadogan's pay at approximately the median
of the salaries of chief executive officers of the Comparable Companies.
Under the terms of the MIP program, aggressive Company-wide goals for EVA
improvement and revenues were established at the beginning of Fiscal 1998.
Despite the Company's achievement of record sales and net profits, the threshold
goals for Company-wide EVA improvement and revenues were not met. Accordingly,
Mr. Cadogan did not receive a MIP award for Fiscal 1998.
In accordance with the long-term incentive plan described above, Mr. Cadogan
received a stock option grant for 145,800 shares of Common Stock in Fiscal 1998.
These stock options have an exercise price equal to the fair market value of the
Common Stock on the date of grant and will become one-third vested on each of
October 31, 1998, 1999 and 2000. In addition to the regular stock option program
described above, in Fiscal 1997 Mr. Cadogan received a special award of premium
priced options to purchase a total of 1,000,000 shares of Common Stock. These
options have premium exercise prices, with
9
<PAGE>
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. These premium
options have a seven-year term and will vest four years from the date of grant.
In making this special grant, the Committee's purpose was to provide an
incentive for continued outstanding leadership and Company performance and to
promote Mr. Cadogan's retention in the highly competitive communications
industry. The use of premium priced options was also intended 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.
SECTION 162(m) POLICY
The Committee does not believe that during the fiscal year ending October
31, 1999 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 $1,000,000 for any such officer must meet
certain shareholder approval and Company performance requirements in order for
the Company to fully deduct these amounts. The Incentive Plan has provisions
approved by the Company's shareholders so that amounts realized from the
exercise of options granted under the Incentive Plan will not be included in
calculations under Section 162(m). It is the Committee's intention to keep all
executive compensation fully deductible now and in the future, but the Committee
reserves the right to provide non-deductible compensation if it deems it to be
in the best interests of the Company and its shareholders.
Thomas E. Holloran, Chairman
B. Kristine Johnson
Alan E. Ross
Jean-Pierre Rosso
Warde F. Wheaton
John D. Wunsch
Members
Compensation and Organization
Committee
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and the four other most highly compensated executive officers of
the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND BONUS(2) COMPENSATION OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1)($) ($) ($) SARS (#)(3) ($)(4)
- ------------------------------------- --------- ----------- ----------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Cadogan, Chairman 1998 $ 633,461 -0- -0- 145,800/-0- $ 23,780
of the Board, President, 1997 $ 559,416 $ 255,986 -0- 1,132,049/-0- $ 35,482
Chief Executive Officer and 1996 $ 493,162 $ 214,466 -0- 183,775/-0- $ 46,032
Chief Operating Officer
Lynn J. Davis, Senior Vice 1998 $ 311,385 $ 118,236 -0- 80,048/-0- $ 23,513
President, President, Broadband 1997 $ 279,750 $ 87,807 -0- 445,294/-0- $ 21,114
Connectivity Group 1996 $ 260,250 $ 108,865 -0- 93,287/-0- $ 23,944
Robert E. Switz, Senior Vice
President, 1998 $ 277,538 -0- -0- 40,500/-0- $ 7,764
Chief Financial Officer 1997 $ 239,795 $ 131,559 -0- 207,540/-0- $ 6,780
1996 $ 218,366 $ 108,620 -0- 10,342/-0- $ 9,475
William L. Martin III, Senior Vice 1998 $ 276,115 $ 12,334 -0- 43,754/-0- $ 15,235
President, President, Business 1997 $ 216,714 $ 95,878 -0- 249,458/-0- $ 33,273
Broadband Group 1996 $ 194,057 $ 53,836 -0- 46,132/-0- $ 7,743
Vivek Ragavan 1998 $ 306,979 $ 19,896 -0- 41,687/-0- $ 11,849
Senior Vice President, President, 1997 $ 280,808 $ 86,402 -0- 405,882/-0- $ 4,560
Residential Broadband Group(5) 1996 $ 220,129 $ 54,762 -0- 87,503/-0- $ 54,086
</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.
(3) The options granted in Fiscal 1998, Fiscal 1997 and the fiscal year ended
October 31, 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 1998 were as
follows: $7,717 to Mr. Cadogan; $7,845 to Mr. Davis; $7,764 to Mr. Switz;
$8,025 to Mr. Martin; and $7,819 to Mr. Ragavan. The amounts credited under
the 401(k) Excess Plan during Fiscal 1998 were as follows: $16,063 to Mr.
Cadogan; $15,668 to Mr. Davis; $0 to Mr. Switz; $7,211 to Mr. Martin; and
$4,031 to Mr. Ragavan. In the case of Mr. Martin, the compensation reported
includes a relocation bonus of $15,458 in Fiscal 1997.
(5) Mr. Ragavan has announced his intention to resign from the Company on
January 31, 1999.
11
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option grants and exercises during Fiscal
1998 to or by the executive officers named in the Summary Compensation Table
above, and the value of the options held by such persons at the end of Fiscal
1998. No stock appreciation rights ("SARs") are held by such executive officers.
OPTION/SAR GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE
--------------------------------------------------------- VALUE
NUMBER OF % OF TOTAL ------------
SECURITIES OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
GRANTED (#) FISCAL YEAR ($/SHARE) DATE ($)(10)
------------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Cadogan 8,571(1) 0.24% $ 35.00 11/04/2007 $ 299,985
137,229(2) 3.87% $ 35.00 11/04/2007 $ 4,803,015
Lynn J. Davis 8,571(1) 0.24% $ 35.00 11/04/2007 $ 299,985
40,029(3) 1.13% $ 35.00 11/04/2007 $ 1,401,015
31,448(4) 0.89% $ 23.00 10/30/2008 $ 723,304
Robert E. Switz 8,571(1) 0.24% $ 35.00 11/04/2007 $ 299,985
31,929(5) 0.90% $ 35.00 11/04/2007 $ 1,117,515
William L. Martin 8,571(1) 0.24% $ 35.00 11/04/2007 $ 299,985
31,929(5) 0.90% $ 35.00 11/04/2007 $ 1,117,515
3,254(6) 0.09% $ 23.00 10/30/2008 $ 74,842
Vivek Ragavan 5,714(7) 0.16% $ 35.00 11/04/2007 $ 199,990
34,786(8) 0.98% $ 35.00 11/04/2007 $ 1,217,510
5,292(9) 0.15% $ 23.00 10/30/2008 $ 121,716
</TABLE>
- ------------------------------
(1) These options become exercisable as follows: 2,857 shares on October 31,
1998; 2,857 shares on October 31, 1999; and 2,857 shares on October 31, 2000.
(2) These options become exercisable as follows: 45,743 shares on October 31,
1998; 45,743 shares on October 31, 1999; and 45,743 shares on October 31,
2000.
(3) These options become exercisable as follows: 13,343 shares on October 31,
1998; 13,343 shares on October 31, 1999; and 13,343 shares on October 31,
2000.
(4) These options were granted under the Exchange Plan for Fiscal 1998 and will
become exercisable as follows: 10,482 on October 30, 1999; 10,482 on October
30, 2000; and 10,482 shares on October 30, 2001.
(5) These options become exercisable as follows: 10,643 shares on October 31,
1998; 10,643 shares on October 31, 1999; and 10,643 shares on October 31,
2000.
(6) These options were granted under the Exchange Plan for Fiscal 1998 and will
become exercisable as follows: 1,084 shares on October 30, 1999; 1,085 shares
on October 30, 2000; and 1,085 shares on October 30, 2000.
(7) These options become exercisable as follows: 2,857 shares on October 31,
1999 and 2,857 shares on October 31, 2000.
(8) These options become exercisable as follows: 13,500 shares on October 31,
1998; 10,643 shares on October 31, 1999; and 10,643 shares on October 31,
2000.
(9) These options were granted under the Exchange Plan for Fiscal 1998 and will
become exercisable as follows: 1,764 shares on October 30, 1999; 1,764 shares
on October 30, 2000; and 1,764 shares on October 30, 2001.
(10) 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 date valuations: an
expected volatility of 68.6%; an expected term to exercise of 4.5 years for
all stock option grants; a risk-free rate of return of 5.19% 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. The present-value amounts should
not be used to predict future stock performance.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998 AND
VALUE OF OPTIONS AND SARS AT END OF FISCAL 1998
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE END OF FISCAL 1998 END OF FISCAL 1998
NAME EXERCISE (#) REALIZED(1) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(2)
- ------------------------ ------------ ------------ ------------------------- ---------------------------
<S> <C> <C> <C> <C>
William J. Cadogan 125,000 $ 4,495,990 560,318/1,618,434 $6,066,278/$3,516,551
Lynn J. Davis -0- -0- 250,559/571,334 $3,257,058/-0-
Robert E. Switz -0- -0- 59,135/241,435 $594,555/-0-
William L. Martin III -0- -0- 82,445/310,467 $602,640/-0-
Vivek Ragavan -0- -0- 66,501/455,176 $255,875/-0-
</TABLE>
- ------------------------------
(1) Value determined by subtracting the exercise price per share from the market
value per share of the Company's Common Stock at the 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 1998.
PENSION PLANS
Until December 31, 1997, the Company maintained a Pension Plan, which was a
qualified defined benefit pension plan. All benefit accrual under the Pension
Plan ceased on December 31, 1997, and participation was frozen on the same date.
The Pension Plan was terminated as of January 5, 1998.
Pension trust assets were sufficient for distributions made as a result of
the termination, and the Internal Revenue Service issued a determination letter
that the Pension Plan was qualified as of the date of its termination. Plan
assets were distributed on September 30, 1998.
As a result of the freeze on participation and benefit accrual on December
31, 1997, no additional benefits accrued to participants under the Pension Plan
after that date. Active and vested terminated participants were given the option
of receiving pension 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 was the actuarial equivalent of the accrued normal
retirement benefit. Annuities were purchased for retirees and beneficiaries
receiving benefits. Accrued benefits with a lump sum present value of $3,500 or
less were paid in cash. Accrued benefits of active participants with larger lump
sum present values were rolled over into their accounts in the Company's 401(k)
Plan. The estimated annual retirement benefits accrued through the Pension
Plan's termination date to Messrs. Cadogan, Davis, Switz, Martin and Ragavan
were $23,590, $42,899, $5,942, $4,648 and $2,064, respectively.
The Company also 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 as a result of participation in the 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").
Benefits payable under the Excess Plan were frozen as of January 5, 1998, and
the Excess Plan limited its participation to current participants as of December
31, 1997. 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 $46,007, $15,851, $5,859, $6,720
and $6,097, respectively.
13
<PAGE>
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 Excess Plan and
certain Social Security benefits payable to him. 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 1998 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 $1,840,383,
$1,300,186, $523,076, $600,634 and $706,334, 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"). In addition to stock options, the Committee has
also granted restricted stock awards to certain employees. All outstanding
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.
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 S&P Communication Equipment Index over
the same period (assuming the investment of $100 in the Company's Common Stock,
the S&P 500 Index and the S&P Communication Equipment Index on October 31, 1993,
and reinvestment of all dividends).
TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ADC S&P COMMUNICATION EQUIPMENT INDEX(2) S&P 500(1)
<S> <C> <C> <C>
1993 $100.00 $100.00 $100.00
1994 $129.11 $111.33 $103.87
1995 $219.18 $169.46 $131.33
1996 $374.66 $188.20 $162.97
1997 $363.01 $275.17 $215.31
1998 $252.05 $363.61 $262.66
</TABLE>
- ------------------------
(1) Total return calculations for the S&P 500 Index were performed by Standard &
Poor's Compustat.
(2) Total return calculations for the S&P Communication Equipment Index
(consisting of communications equipment manufacturers in competition with the
Company) were performed by Standard & Poor's Compustat.
The Company changed from the Telco Index to the S&P Communication Equipment
Index in Fiscal 1998, because the Telco Index was discontinued by Investor's
Business Daily. Because the Telco Index is no longer published, the Company's
total shareholder return for the last five fiscal years cannot be compared to
the Telco Index.
15
<PAGE>
CERTAIN TRANSACTIONS
The Company is currently engaged in negotiations with respect to certain
transactions with Siara Systems, Inc. ("Siara"). Siara is a development stage
company engaged in the development and manufacture of products using high-speed
video transport and packet technologies to provide telephony, data and Internet
services. The Company anticipates that it will make a preferred stock investment
in Siara of $3,500,000 and loan $9,500,000 to Siara. The Company also plans to
enter into certain arrangements under which it would distribute products
developed and supplied by Siara. Vivek Ragavan, who is currently Senior Vice
President of the Company and President of its Residential Broadband Group, has
announced that he will resign from the Company on January 31, 1999 to become
Chief Executive Officer and a director of Siara. The proposed transactions with
Siara were recommended to the Board of Directors by disinterested members of the
Company's management, and the Board approved these transactions following full
disclosure of Mr. Ragavan's interest in Siara.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), 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. 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. As a result of
administrative oversight, in Fiscal 1998, each of Charles W. Oswald and John D.
Wunsch, directors of the Company, had one late Form 4 report filing relating to
a single transaction. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company during Fiscal 1998, all other
Section 16(a) filing requirements applicable to its executive officers,
directors and greater-than-ten-percent beneficial owners were satisfied.
16
<PAGE>
PROPOSAL TO AMEND THE 1991 STOCK INCENTIVE PLAN
PROPOSED AMENDMENTS
In December 1998, the Company's Board of Directors adopted, subject to
shareholder approval, amendments to the Company's 1991 Stock Incentive Plan (the
"Incentive Plan") to (a) increase the number of shares of the Company's Common
Stock available for issuance pursuant to awards thereunder from 22,419,008 to
29,019,008, (b) extend the term of the Incentive Plan for five years (from
February 26, 2001 to February 26, 2006) and (c) limit the number of shares of
Common Stock that can be issued as restricted stock awards after the effective
date of such amendments to two percent of the total shares available for future
issuance as of such date (approximately 240,000 shares).
The Board of Directors believes that stock options have been, and will
continue to be, an important compensation element in attracting and retaining
key employees. The Company has also granted restricted stock awards to key
employees in the past and may continue to do so under the Incentive Plan in the
future. As of December 31, 1998, 5,243,981 shares of Common Stock remained
available for future grants of stock options, restricted stock and other awards
under the Incentive Plan. In addition, the Incentive Plan will terminate under
its existing terms on February 26, 2001. The Board of Directors believes that
the increase in authorized shares and the extension of the term of the Incentive
Plan are necessary because of the need to continue to make awards under the
Incentive Plan to attract and retain key employees. The Board believes that the
additional number of shares of Common Stock authorized under the Incentive Plan
and the extension of the term of the Incentive Plan will provide the Company
with adequate flexibility to ensure that the Company can continue to meet the
goals of attracting and retaining key personnel.
The Board of Directors also believes that it is in the best interests of the
Company and its shareholders to limit the number of shares of restricted stock
awards that can be issued under the Incentive Plan. As a result, the Board of
Directors proposes to limit the number of shares of restricted stock awards that
may be issued under the Incentive Plan to approximately 240,000 shares. If
shareholders of the Company approve the amendments to the Incentive Plan, the
Company will calculate the exact number of shares that can be issued pursuant to
restricted stock awards on February 23, 1999.
If the amendments to the Incentive Plan are approved by the Company's
shareholders, such amendments will be effective on February 23, 1999. If the
amendments are not approved, they 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 currently terminates on February 26, 2001, and no awards may be
made after such date unless the shareholders of the Company approve the
amendment discussed above to extend the term of the Incentive Plan until
February 26, 2006. 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 ("SARs"), (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
17
<PAGE>
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 award or awards under the Incentive Plan,
the value of which 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 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 (a) 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 (b) 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, except that Nonqualified Stock Options may be transferred by a
participant to certain members of such participant's immediate family or certain
family trusts or partnerships. Each award is exercisable, during such
individual's lifetime, only by such participant or such
18
<PAGE>
participant's permitted transferees, or, if permissible under applicable law, by
such individual'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 the outstanding awards and (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 (a) 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; (b) 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 (c) 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 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
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(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.
Special rules apply in the case of individuals subject to Section 16(b) of
the Exchange Act. In particular, under current law, unless a special election is
made pursuant to the Code, shares received pursuant to the exercise of a stock
option or SAR may be treated as restricted as to transferability and subject to
a substantial risk of forfeiture for a period of up to six months after the date
of exercise. Accordingly, the amount of any ordinary income recognized, and the
amount of the Company's tax deduction, may be determined as of the end of such
period.
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 of 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).
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
constitutes 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.
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, 1999. 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.
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SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholders wishing to present proposals to be considered at the 2000
Annual Shareholders' Meeting should submit the proposals to the Company in
accordance with all applicable rules and regulations of the SEC no later than
September 21, 1999.
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 interests of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
[DAVID F. FISHER]
DAVID F. FISHER
SECRETARY
January 19, 1999
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Appendix to Proxy Statement of ADC Telecommunications, Inc. dated January 19,
1999
ADC TELECOMMUNICATIONS, INC.
1991 STOCK INCENTIVE PLAN
(as amended and restated through February 23, 1999)
SECTION 1. PURPOSE; EFFECT ON PRIOR PLAN.
(a) PURPOSE. The purpose of the ADC Telecommunications, Inc. 1991 Stock
Incentive Plan (the "Plan") is to aid in maintaining and developing management
personnel capable of assuring the future success of ADC Telecommunications, Inc.
(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.
(b) EFFECT ON PRIOR PLAN. From and after the effective date of the Plan,
no stock options or restricted stock awards shall be granted under the Company's
Stock Option and Restricted Stock Plan. All outstanding stock options and
restricted stock awards previously granted under the Stock Option and Restricted
Stock Plan shall remain outstanding in accordance with the terms thereof.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii)
any entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award or Dividend Equivalent
granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not
less than three directors, each of whom is a "disinterested person" within
the meaning of Rule 16b-3.
(f) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
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(g) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding
the foregoing, for purposes of the Plan, the Fair Market Value of Shares on
a given date shall be (i) the last sale price of the Shares as reported on
the NASDAQ National Market System on such date, if the Shares are then
quoted on the NASDAQ National Market System 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.
(h) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422
of the Code or any successor provision thereto.
(i) "Key Employee" shall mean any employee of the Company or any Affiliate
who the Committee determines to be a key employee.
(j) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(k) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(l) "Participant" shall mean a Key Employee designated to be granted an
Award under the Plan.
(m) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association or trust.
(o) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(p) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation thereto.
(r) "Shares" shall mean shares of Common Stock, $.20 par value, of the
Company or such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(s) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
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SECTION 3. ADMINISTRATION.
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments are to be calculated in connection with) Awards; (iv)
determine the terms and conditions of any Award or Award Agreement; (v) amend
the terms and conditions of any Award or Award Agreement and accelerate the
exercisability of Options or the lapse of restrictions relating to Restricted
Stock or Restricted Stock Units; (vi) determine whether, to what extent and
under what circumstances Awards may be exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or suspended;
(vii) determine whether, to what extent and under what circumstances cash or
Shares payable with respect to an Award under the Plan shall be deferred either
automatically or at the election of the holder thereof or the Committee;
(viii) interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan; (ix) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (x) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Award and any employee of the Company or any Affiliate.
(b) MEETINGS OF THE COMMITTEE. The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
the Committee may determine. A majority of the Committee's members shall
constitute a quorum. All determinations of the Committee shall be made by not
less than a majority of its members. Any decision or determination reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(c),
the number of Shares available for granting Awards under the Plan shall be
29,019,008. If any Shares covered by an Award or to which an Award relates are
not purchased or are forfeited, or if an Award otherwise terminates without
delivery of any Shares or cash payments to be received thereunder, then the
number of Shares counted against the aggregate number of Shares available under
the Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan. In
addition, any Shares that are used by a Participant as full or partial payment
to the Company of the purchase price of Shares acquired upon exercise of an
Option shall again be available for granting Awards.
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(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4,
(i) if an Award entitles the holder thereof to receive or purchase
Shares, the number of Shares covered by such Award or to which such Award
relates shall be counted on the date of grant of such Award against the
aggregate number of Shares available for granting Awards under the Plan;
and
(ii) if an Award entitles the holder to receive cash payments but the
amount of such payments are denominated in or based on a number of Shares,
such number of Shares shall be counted on the date of grant of such Award
against the aggregate number of Shares available for granting Awards under
the Plan;
provided, however, that Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or that are substituted for,
other Awards may be counted or not counted under procedures adopted by the
Committee in order to avoid double counting.
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or securities or other property)
subject to outstanding Awards and (iii) the exercise price with respect to any
Award; provided, however, that the number of Shares covered by any Award or to
which such Award relates shall always be a whole number.
(d) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the number of
Shares available for granting Incentive Stock Options under the Plan shall not
exceed 29,019,008, subject to adjustment as provided in the Plan and Section 422
or 424 of the Code.
SECTION 5. ELIGIBILITY.
Any Key Employee, including any Key Employee who is an officer or director
of the Company or any Affiliate, shall be eligible to be designated a
Participant; provided, however, that an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
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(i) EXERCISE PRICE. The purchase price per Share purchasable under
an Option shall be determined by the Committee; provided, however, that
such purchase price shall not be less than the Fair Market Value of a Share
on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other securities, other Awards or other property,
or any combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which, payment of the exercise
price with respect thereto may be made or deemed to have been made.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates.
Such certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock. In the
case of Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
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(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise determined
by the Committee, upon termination of employment (as determined under
criteria established by the Committee) during the applicable restriction
period, all Shares of Restricted Stock and all Restricted Stock Units at
such time subject to restriction shall be forfeited and reacquired by the
Company; provided, however, that the Committee may, when it finds that a
waiver would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to Shares of Restricted
Stock or Restricted Stock Units. Shares representing Restricted Stock that
is no longer subject to restrictions shall be delivered to the holder
thereof promptly after the applicable restrictions lapse or are waived.
Upon the lapse or waiver of restrictions and the restricted period relating
to Restricted Stock Units evidencing the right to receive Shares, such
Shares shall be issued and delivered to the holders of the Restricted Stock
Units.
(iv) LIMIT ON RESTRICTED STOCK AWARDS. Effective February 23, 1999,
the maximum number of Shares under the Plan available for grants of
Restricted Stock made after such date shall be _____ Shares.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash or Shares (including, without limitation,
Restricted Stock) and (ii) shall confer on the holder thereof the right to
receive payments, in whole or in part, upon the achievement of such performance
goals during such performance periods as the Committee shall establish. Subject
to the terms of the Plan and any applicable Award Agreement, the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award granted and the amount
of any payment to be made pursuant to any Performance Award shall be determined
by the Committee.
(e) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to grant to
Participants Dividend Equivalents under which such Participants shall be
entitled to receive payments (in cash or Shares, as determined in the discretion
of the Committee) equivalent to the amount of cash dividends paid by the Company
to holders of Shares with respect to a number of Shares determined by the
Committee. Subject to the terms of the Plan and any applicable Award Agreement,
such Dividend Equivalents may have such terms and conditions as the Committee
shall determine.
(f) GENERAL.
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
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(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan
and of any applicable Award Agreement, payments to be made by the Company
or an Affiliate upon the grant, exercise or payment of an Award may be made
in Shares, cash or a combination thereof as the Committee shall determine,
and may be made in a single payment, in installments or on a deferred
basis, in each case in accordance with rules and procedures established by
the Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents with respect to installment or deferred payments.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any
such Award shall be assignable, alienable, salable or transferable by a
Participant otherwise than by will or by the laws of descent and
distribution; PROVIDED, HOWEVER, that a Participant may, in the manner
established by the Committee,
(A) designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant, or
(B) transfer a Non-Qualified Stock Option to any member of such
Participant's immediate family (which, for purposes of this clause (B)
shall mean such Participant's children, grandchildren, or current
spouse) or to one or more trusts established for the exclusive benefit
of one or more such immediate family members or partnerships in which
the Participant or such immediate family members are the only partners,
PROVIDED that (1) there is no consideration for such transfer, and
(2) the Non-Qualified Options held by such transferees continue to be
subject to the same terms and conditions (including restrictions on
subsequent transfers) as were applicable to such Non-Qualified Options
immediately prior to their transfer.
Each Award or right under any Award shall be exercisable during the
Participant's lifetime only by the Participant, by a transferee pursuant
to a transfer permitted by clause (B) of this Section 6(f)(iv), or, if
permissible under applicable law, by the Participant's or such
transferee's guardian or legal representative. No Award or right under
any such Award may be pledged, alienated, attached or otherwise encumbered,
and any purported pledge, alienation, attachment or encumbrance thereof
shall be void and unenforceable against the Company or any Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period
as may be determined by the Committee.
(vi) RULE 16B-3 SIX-MONTH LIMITATIONS. To the extent required in
order to comply with Rule 16b-3 only, any equity security offered pursuant
to the Plan may not be sold for at least six months after acquisition,
except in the case of death or disability, and any derivative security
issued pursuant to the Plan shall not be exercisable for at least six
months, except in case of death or disability. Terms used in the preceding
sentence shall, for the purposes of such sentence only, have the meanings,
if any, assigned or attributed to them under Rule 16b-3.
(vii) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for
Shares delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations and other requirements of the Securities and Exchange
Commission and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares are traded on a securities exchange, the Company shall not be
required to deliver any Shares covered by an Award unless and until such
Shares have been admitted for trading on such securities exchange.
(viii) AWARD LIMITATIONS UNDER THE PLAN. No Participant may be granted
any Award or Awards under the 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
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than 1,000,000 Shares, in the aggregate, in any one calendar year period
beginning with the 1994 calendar year. The foregoing annual limitation
specifically includes the grant of any Awards representing "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that:
(i) absent such approval, would cause Rule 16b-3 to become unavailable
with respect to the 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 that are 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 Plan.
(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof.
(c) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING; TAX BONUSES.
(a) WITHHOLDING. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to
assist a Participant in paying all federal and state taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to)
an Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or
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(ii) delivering to the Company Shares other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes. The election, if any, must be
made on or before the date that the amount of tax to be withheld is determined.
(b) TAX BONUSES. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve bonuses to designated Participants to be paid upon their
exercise or receipt of (or the lapse of restrictions relating to) Awards in
order to provide funds to pay all or a portion of federal and state taxes due as
a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. No Key Employee, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Key Employees, Participants or holders
or beneficiaries of Awards under the Plan. The terms and conditions of Awards
need not be the same with respect to different Participants.
(b) DELEGATION. The Committee may delegate to one or more officers of the
Company or any Affiliate or a committee of such officers the authority, subject
to such terms and limitations as the Committee shall determine, to grant Awards
to Key Employees who are not officers or directors of the Company for purposes
of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) GRANTING OF AWARDS. The granting of an Award pursuant to the Plan
shall take place only when an Award Agreement shall have been duly executed on
behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. In addition, the Company or an Affiliate may at any time dismiss
a Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
9
<PAGE>
without, in the determination of the Committee, materially altering the purpose
or intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction or Award, and the remainder of the Plan or any such Award shall
remain in full force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of its approval by the
shareholders of the Company.
SECTION 11. TERM OF THE PLAN.
Awards shall be granted under the Plan during a period commencing
February 26, 1991, the date the Plan was approved by the shareholders of the
Company, through February 26, 2006, the date to which the shareholders of the
Company extended the expiration date of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the ending date of the period stated
above, and the authority of the Committee provided for hereunder with respect
to the Plan and any Awards, and the authority of the Board of Directors of
the Company to amend the Plan, shall extend beyond the end of such period.
10
<PAGE>
[LOGO]
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE COMPANY #
CALL TOLL FREE *** ON A TOUCH TONE TELEPHONE CONTROL #
1-800-240-6326 -- ANYTIME
_______________________________________________________________________________
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, dated, signed and returned your proxy card. The
deadline for telephone voting is noon (CST), February 22, 1999.
AUTOMATED TELEPHONE VOTING INSTRUCTIONS
1. Using a touch-tone telephone, dial 1-800-240-6326. Please make sure you
stay on the line until you receive a confirmation of your vote.
2. When prompted, enter the 3-digit Company Number located in the box on the
upper right hand corner of the proxy card.
3. When prompted, enter your 7-digit numeric Control Number that follows the
Company Number.
Option #1: To vote as the Board of Directors recommends on ALL proposals:
Press "1" When asked, please confirm your vote by pressing 1 --
Thank you for voting.
Option #2: If you choose to vote on each proposal separately: Press "0" You
will hear these instructions:
Proposal 1: To vote FOR ALL nominees, press "1"; to WITHHOLD FOR
---------- ALL nominees, press "9"; to WITHHOLD FOR AN INDIVIDUAL
nominee, press "0" and listen to the instructions.
Proposal 2: To vote FOR, press "1"; AGAINST, press "9"; ABSTAIN,
---------- press "0"
When asked, please confirm your vote by pressing "1" -- Thank you for voting.
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK YOUR PROXY
PLEASE DETACH HERE
- -------------------------------------------------------------------------------
ADC TELECOMMUNICATIONS, INC.
ANNUAL MEETING
ADC Telecommunications, Inc.
12501 Whitewater Drive
Minnetonka, Minnesota 55343
FEBRUARY 23, 1999
Please detach here
- -------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD USING THE ENCLOSED ENVELOPE.
1. Election of three directors for terms expiring in 2002.
James C. Castle 01 Donald M. Sullivan 02 John D. Wunsch 03
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE BOX PROVIDED TO THE RIGHT.)
2. Approval of amendments to the Company's 1991 Stock Incentive Plan to (a)
increase the number of shares available for issuance pursuant to awards
thereunder, (b) extend the term of the 1991 Stock Incentive Plan until
February 26, 2006 and (c) limit the number of shares of Common Stock that can
be issued as restricted stock awards under the 1991 Stock Incentive Plan.
3. 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 as directed or, if no
direction is given, will be voted FOR each proposal.
Address change? Mark Box / /
Indicate changes below
/ / FOR all nominees listed below / / WITHHOLD
(except as marked to the contrary AUTHORITY to vote
below) for all nominees
listed below.
/ /
/ / FOR / / AGAINST / / ABSTAIN
Date _________________________________________
/ /
Signature(s) in Box
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.
