<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Octel Communications Corporation
- --------------------------------------------------------------------------------
(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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act 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:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_
(2) Form, Schedule or Registration Statement No.:
_
(3) Filing Party:
_
(4) Date Filed:
_
<PAGE> 2
OCTEL COMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 5, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Octel
Communications Corporation (the "Company") will be held on December 5, 1996 at
9:00 a.m., local time, at the Company's principal offices at 1001 Murphy Ranch
Road, Milpitas, California 95035 for the following purposes:
1. To elect seven directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected.
2. To approve an amendment to the Company's 1987 Employee Stock
Purchase Plan (the "Purchase Plan") increasing the number of shares of
Common Stock reserved for issuance by 1,500,000 shares.
3. To approve an amendment to the Company's Certificate of
Incorporation increasing the authorized number of shares of Common Stock of
the Company to 200,000,000.
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending June 30, 1997.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on October 25, 1996
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to sign and
return the enclosed proxy as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if the stockholder has previously returned a proxy.
By Order of the Board of Directors
LOGO
DEREK S. DALEY, Secretary
Milpitas, California
October 28, 1996
<PAGE> 3
OCTEL COMMUNICATIONS CORPORATION
PROXY STATEMENT FOR 1996
ANNUAL MEETING OF STOCKHOLDERS
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Octel Communications Corporation (the "Company") for use at the Annual Meeting
of Stockholders to be held on December 5, 1996 at 9:00 a.m., local time, or at
any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Company's principal offices at 1001 Murphy Ranch Road, Milpitas,
California 95035.
The proxy solicitation materials were mailed on or about October 28, 1996
to all stockholders entitled to vote at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on October 25, 1996 (the
"Record Date") are entitled to notice of the meeting and to vote at the meeting.
At the Record Date, approximately 52,437,000 shares of the Company's Common
Stock were issued and outstanding and held of record by approximately 3,073
registered stockholders. Each stockholder is entitled to one vote for each share
held. No shares of the Company's Preferred Stock were outstanding. See "Security
Ownership of Certain Beneficial Owners and Management" below for information
regarding beneficial owners of more than five percent of the Company's Common
Stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder voting for the election of directors (Proposal No. 1) may
cumulate his votes, giving one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares which the
stockholder is entitled to vote, or distributing the stockholder's votes on the
same principle among as many candidates as the stockholder chooses, provided
that votes may not be cast for more than seven candidates. However, no
stockholder shall be entitled to cumulate votes unless the candidates' names
have been placed in nomination prior to the voting and the stockholder, or any
other stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes. Any such notice should be
directed to the Inspector of Elections at the meeting. On all other matters
(Proposals No. 2-5), each share has one vote.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. The Company has retained Corporate Investor
Communications Inc. to aid in the solicitation of proxies from brokers, banks
and other institutional nominees. The fees and expenses of such firm are not
expected to exceed $20,000. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegraph or
personal solicitations by directors, officers or employees of the Company. No
additional compensation will be paid for any such services.
<PAGE> 4
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of a controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not have any effect on the outcome
of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1997 Annual Meeting of Stockholders must
be received by the Company no later than June 30, 1997 in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership as of October 23, 1996 of the Company's Common Stock as to (i) each
director, (ii) each of the executive officers listed in the Summary Compensation
Table below, (iii) all executive officers and directors as a group and (iv) each
person
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known by the Company to be the beneficial owner of five percent or more of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
NO. OF SHARES
DIRECTORS, EXECUTIVE OFFICERS AND BENEFICIALLY
FIVE PERCENT STOCKHOLDERS(1) OWNED PERCENTAGE
------------------------------------------------------------- ------------- ----------
<S> <C> <C>
Aim Management............................................... 2,739,000 5.2%
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Lynch & Mayer Inc............................................ 2,630,000 5.0%
520 Madison Avenue
New York, NY 10022
Pilgrim Baxter & Associates.................................. 2,655,000 5.1%
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Anson M. Beard, Jr.(2)....................................... 83,500 *
Donald L. Campodonico(3)..................................... 67,338 *
Leo J. Chamberlain(4)........................................ 67,206 *
Robert Cohn(5)............................................... 1,563,856 2.9%
Deborah A. Coleman(6)........................................ 38,000 *
Margaret Norton(7)........................................... 55,288 *
Nathaniel de Rothschild(8)................................... 132,840 *
Dag Tellefsen(9)............................................. 51,400 *
W. Michael West(10).......................................... 482,348 *
Charles Levine(11)........................................... 13,968 *
All directors and executive officers as a group
(17 persons)(12)........................................... 2,955,800 5.6%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) The persons named in the table, to the Company's knowledge, have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes hereunder.
(2) Includes 26,000 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996. Also includes 7,500 shares
held by a foundation for which Mr. Beard serves as a trustee, as to which
shares Mr. Beard disclaims beneficial ownership.
(3) Includes 58,300 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
(4) Includes 50,000 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
(5) Includes shares held of record by a trust for the benefit of Mr. Cohn and
his family. Also includes 800,000 shares issuable upon exercise of options
which are exercisable within 60 days of October 23, 1996.
(6) Includes 26,000 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
(7) Includes 54,700 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
(8) Includes 26,000 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996. Also includes an aggregate
of 102,600 shares outstanding or issuable upon exercise of options held by
foundations or trusts for which Mr. de Rothschild serves as trustee, as to
which shares Mr. de Rothschild disclaims beneficial ownership.
(9) Includes 50,000 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
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(10) Includes 250,200 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
(11) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
(12) Includes 1,680,550 shares issuable upon exercise of options that are
exercisable within 60 days of October 23, 1996.
As of the Record Date, the per share market value of the Company's Common
Stock was $15.75, based on the closing price on that date on The Nasdaq National
Market.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
NOMINEES
A board of seven directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's nominees named below. In the event
that any nominee of the Company is unable or declines to serve as a director at
the time of the Annual Meeting of the Stockholders, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner (in accordance with cumulative voting)
as will assure the election of as many of the nominees listed below as possible,
and in such event the specific nominees to be voted for will be determined by
the proxy holders. The term of office of each person elected as a director will
continue until the next Annual Meeting of Stockholders or until a successor has
been elected and qualified.
The nominees, and certain information about them as of the Record Date, are
set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION(S) SINCE
- ----------------------------------- --- ------------------------------------ --------
<S> <C> <C> <C>
Robert Cohn........................ 47 Chairman of the Board and Chief 1982
Executive Officer
W. Michael West.................... 46 President, Chief Operating Officer 1995
and Director
Anson M. Beard, Jr. ............... 60 Director 1994
Leo J. Chamberlain................. 66 Director 1989
Deborah A. Coleman................. 43 Director 1994
Nathaniel de Rothschild............ 50 Director 1994
Dag Tellefsen...................... 54 Director 1982
</TABLE>
Mr. Cohn, a founder of the Company, served as its President and Chief
Executive Officer from the Company's inception in 1982 until October 1990 and
then resumed those positions in November 1993. During fiscal 1996, he moved that
the Board appoint Mr. West as President, so that now Mr. Cohn serves as Chairman
of the Board and Chief Executive Officer. Mr. Cohn has also served as a director
from the Company's inception and, in June 1990, the Board of Directors appointed
Mr. Cohn Chairman of the Board. Mr. Cohn holds a B.S. in Mathematics and
Computer Science from the University of Florida and an M.B.A. from Stanford
University. Mr. Cohn is also a director of Spectralink Corporation, a
manufacturer of wireless phones for business applications.
Mr. West was named President and Chief Operating Officer of the Company
during fiscal 1996. From January 1995 to December 1995, Mr. West served as Vice
Chairman of the Company. Mr. West joined the Company in September 1986 as
Executive Vice President and was responsible for sales and customer service.
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From 1979 to September 1986, Mr. West was employed by ROLM, serving for three
years during this period as President of an operating subsidiary of ROLM and
then as General Manager of its National Sales Division. Mr. West attended
Southern Illinois University.
Mr. Beard has served as a director of the Company since June 1994. He
joined Morgan Stanley & Co. Incorporated in May 1977 and, from 1980 until his
retirement in February 1994, served as Managing Director of its Worldwide Equity
Division. In 1986, he was appointed as a director of Morgan Stanley Group, the
holding company for Morgan Stanley & Co. Incorporated. He retains the position
of Advisory Director of Morgan Stanley & Co. Incorporated. Mr. Beard is also a
member of the Wheaton College Board of Trustees and, from 1990 to 1992, was a
director of the National Association of Securities Dealers, Inc. (the "NASD"),
serving as Vice Chairman of the NASD in 1992.
Mr. Chamberlain has served as a director of the Company since March 1989.
Until ROLM's acquisition by IBM in 1984, Mr. Chamberlain served on the Board of
Directors of ROLM, where he had been employed as Executive Vice President until
his retirement in 1982. Mr. Chamberlain is also a director of KLA Instruments
Corporation, a manufacturer of semiconductor inspection equipment.
Ms. Coleman has served as a director of the Company since March 1994. Since
June 1994, Ms. Coleman has been Chairman and Chief Executive Officer of Merix
Corporation, a manufacturer of technologically advanced components for
sophisticated electronic equipment. From November 1992 to June 1994, Ms. Coleman
served as Vice President of Materials Operations for Tektronix, Inc., a
worldwide high technology equipment design and manufacturing firm. From June
1985 to October 1992, she held officer-level positions with Apple Computer,
Inc., including Vice President -- World Wide Operations and Vice
President -- Chief Financial Officer.
Mr. de Rothschild has served as a director of the Company since June 1994.
He is President of Nathaniel de Rothschild Holdings Ltd., a private investment
company that he founded in 1988. Mr. de Rothschild is also Chairman of the Board
of Global Asset Management (USA) Inc., the U.S. subsidiary of Global Asset
Management Ltd., a worldwide money management firm, and a director of St. James
Place Capital, Plc.
Mr. Tellefsen has served as a director of the Company since September 1982.
He is a general partner of Glenwood Management and Glenwood II Management
Corporation, investment management firms and the general partners of Glenwood
Ventures I and Glenwood Ventures II, respectively, which are venture capital
funds. He has been with Glenwood Management since 1982. Mr. Tellefsen is also a
director of KLA Instruments Corporation, a manufacturer of semiconductor
inspection equipment, Arix Computer Corporation, a manufacturer of symmetrical
multiprocessing UNIX systems, and Iwerks Entertainment, Inc., a producer of
out-of-home entertainment systems and software.
There are no family relationships between directors or executive officers
of the Company.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of the
shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but have no legal effect
under Delaware law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
the fiscal year ended June 30, 1996. The Audit Committee held five meetings, the
Compensation Committee held four meetings and the Board Affairs (formerly
Nominating) Committee held five meetings during the fiscal year ended June 30,
1996. Each director attended at least 85% of Board and, where applicable,
committee meetings held during fiscal 1996.
Mr. Beard and Ms. Coleman served on the Audit Committee of the Board of
Directors until the end of fiscal 1996. As of the beginning of fiscal 1997,
Messrs. Beard and Tellefsen and Ms. Coleman serve on the
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Audit Committee. The purpose of the Audit Committee is to review with the
Company's management and independent auditors the financial statements and
internal financial reporting system and controls of the Company, recommend
resolutions for any dispute between the Company's management and its auditors
and review other matters relating to the relationship of the Company with its
auditors.
Messrs. Chamberlain, de Rothschild and Tellefsen and Ms. Coleman served on
the Compensation Committee until the end of fiscal 1996. As of the beginning of
fiscal 1997, Messrs. Beard, de Rothschild and Tellefsen and Ms. Coleman serve on
the Compensation Committee. The purpose of the Compensation Committee is to
review and approve the compensation of the Company's executive officers and
certain highly compensated executives for each fiscal year. The compensation of
the President and Chief Executive Officer of the Company remains subject to
approval by the full Board of Directors.
Messrs. Beard, de Rothschild and Tellefsen served on the Nominating
Committee until the end of fiscal 1996. As of the beginning of fiscal 1997, the
Nominating Committee was renamed the Board Affairs Committee, and Messrs. Beard,
Chamberlain, de Rothschild and Tellefsen and Ms. Coleman serve on such
Committee. Through the Board Affairs Committee, the outside directors of the
Company oversee operational aspects of the Board of Directors, monitor trends in
corporate governance and review the Company's relationship with its management.
The Board Affairs Committee develops criteria for nominating new members of the
Board, identifies potential candidates for such nomination, coordinates board
procedures and governance, sets evaluation criteria for the Company's Chief
Executive Officer and Chief Operating Officer, ensures that Board committee
assignments reflect broad participation by members of the Board, reviews Board
compensation and provides ongoing information and recommendations regarding
board-related issues. The Board Affairs Committee will consider stockholder
recommendations for new directors. However, the final determination of whether a
candidate will be nominated to become a member of the Company's Board of
Directors is reserved for the Board Affairs Committee. Any suggestions may be
submitted in writing, attention "Board Affairs Committee of the Board of
Directors," at the Company's principal offices.
COMPENSATION OF DIRECTORS
During fiscal 1996, each of the directors was compensated for participating
in Board and committee meetings as follows: $5,000 annual fee, provided that the
director attended at least five of the six non-telephonic meetings of the Board
during the fiscal year; $1,500 for each meeting of the Board which the director
attended in person; $250 for each meeting of the Board which the director
attended via telephone; $500 for each meeting of a committee of the board
(except the Stock Option Committee) which the director attended in person; and
$500 per year for each member of the Stock Option Committee. Effective for
fiscal 1997, the annual fee is $10,000. In addition, the Company reimburses all
directors for travel and other necessary business expenses incurred in
fulfilling their duties as directors. Directors also receive stock options
granted pursuant to the 1988 Directors' Stock Option Plan. See "1988 Directors'
Stock Option Plan" below.
PROPOSAL NO. 2 -- APPROVAL OF AMENDMENT TO
THE 1987 EMPLOYEE STOCK PURCHASE PLAN
PROPOSED AMENDMENT
The 1987 Employee Stock Purchase Plan (the "Purchase Plan") was amended by
the Board of Directors in July 1996 to reserve an additional 1,500,000 shares of
Common Stock for issuance thereunder. At the Annual Meeting, the stockholders
are being requested to ratify and approve this amendment.
REASONS FOR THE AMENDMENT
The Company believes that its Purchase Plan is an important factor in
attracting and retaining skilled personnel. Each year the Company reviews the
number of shares available for issuance under the Purchase Plan and, based on
the Company's estimates of the number of shares expected to be purchased under
the Purchase Plan during the coming year, management presents to the Board of
Directors a recommendation for
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the addition of shares to the pool reserved for issuance under the Purchase
Plan. The Board then reviews this recommendation and presents a proposal such as
this one to the stockholders for approval.
SHARES SOLD PURSUANT TO THE PURCHASE PLAN
The initial offering period under the Purchase Plan began on February 26,
1988, and from that date to the Record Date 3,716,408 shares of the Company's
Common Stock were sold under the Purchase Plan. The number of shares sold in
each offering period will vary with the number of participants, the amount of
their payroll deductions and the fair market value of the Company's Common
Stock.
VOTE REQUIRED
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the amendment to the Purchase Plan.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
PURCHASE PLAN AS AMENDED, INCLUDING THE ADDITION OF SHARES TO THE POOL RESERVED
FOR ISSUANCE THEREUNDER.
The essential features of the Purchase Plan are outlined below.
GENERAL
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Tax Code. See "Tax Information -- The Purchase Plan."
PURPOSE
The purpose of the Purchase Plan is to provide employees of the Company
with an opportunity to purchase Common Stock of the Company at a discount
through accumulated payroll deductions.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors or a committee
of members of the Board appointed by the Board, who receive no separate
additional compensation for such service. All questions of interpretation or
application of the Purchase Plan are determined by the Board or its appointed
committee, whose decisions are final and binding upon all participants. Members
of the Board who are eligible employees are permitted to participate in the
Purchase Plan but may not vote on any matter affecting the administration of the
Purchase Plan or the grant of any option pursuant to the Purchase Plan.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company during the applicable offering period is
eligible to participate in the Purchase Plan, unless the employee would own five
percent or more of the total combined voting power or value of all classes of
stock of the Company or of its subsidiaries (including stock issuable upon
exercise of options held by such person) at the end of the offering period, or
the employee would receive more than $25,000 worth of stock (computed as of the
date of grant) pursuant to the Purchase Plan in any calendar year.
As of September 19, 1996, the Company employed approximately 3,000 people,
approximately 2,900 of whom were eligible to participate in the Purchase Plan.
Approximately 1,960 employees were participating in the Purchase Plan as of such
date.
OFFERING DATES
The Purchase Plan is generally implemented by one offering during each
six-month period. Offering periods commence on or about May 1 and November 1 of
each year.
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ENROLLMENT IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company's payroll office a subscription agreement authorizing payroll
deductions. Employees hired after the first day of an offering period (or who
otherwise become eligible after such date) may begin participation in the
Purchase Plan on the first business day of the calendar month following the
month in which they are hired (or become eligible). Under the Purchase Plan,
once an employee elects to participate in the Purchase Plan, enrollment in each
successive offering period occurs automatically unless the employee withdraws
from participation in the Purchase Plan.
PURCHASE PRICE
The purchase price per share under the Purchase Plan is the lower of (i)
85% of the fair market value of a share of Common Stock on the date of
commencement of the offering (or for employees beginning participation later,
the date such participation began) or (ii) 85% of the fair market value of a
share of Common Stock on the last day of the offering period. The fair market
value of the Common Stock on a given date is the closing sale price on The
Nasdaq National Market.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by after-tax payroll
deductions over the offering period. The deductions may not exceed 10% of a
participant's compensation. The total number of shares purchased by any
participant shall in no event exceed, in any calendar year, the number of shares
of Common Stock which $25,000 could purchase at the fair market value of a share
of the Company's Common Stock, calculated as of the offering date. A participant
may discontinue participation in the Purchase Plan, and may decrease but not
increase the rate of payroll deductions, during the offering period.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase Plan,
the employee is entitled to have shares placed under option to him. The maximum
number of shares placed under option to a participant in an offering is that
number determined by dividing the total amount of the participant's contribution
for the offering period by the lower of (i) 85% of the fair market value of the
Common Stock at the beginning of the offering period (or date his participation
began) or (ii) 85% of the fair market value of the Common Stock at the end of
the offering period, but in no event shall more than the number of shares of
Common Stock which $25,000 could purchase at the fair market value of a share of
the Company's Common Stock, calculated as of the offering date, be placed under
option to a single participant in any one calendar year. Unless the employee's
participation is discontinued, the option for the purchase of shares will be
exercised automatically at the end of the offering period at the applicable
price. No fractional shares will be issued upon exercise of the option. Any
amounts insufficient to purchase a full share remaining in a participant's
account after exercise of the option will be credited to the participant and
used in a future offering period. No interest will accrue on the payroll
deductions of a participant in the Purchase Plan.
WITHDRAWAL
A participant's interest in a given offering may be terminated by signing
and delivering to the Company a notice of withdrawal from the Purchase Plan.
Upon withdrawal from the Purchase Plan, accrued but unused payroll deductions
are returned to the employee. Such withdrawal may be elected at any time prior
to the end of the applicable six-month offering period. A participant's
withdrawal from an offering will not have any effect upon such participant's
eligibility to participate in subsequent offering periods under the Purchase
Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, cancels participation in the Purchase Plan immediately. In
such event the payroll deductions credited to the
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participant's account will be returned without interest to such participant, or,
in the case of death, to the person or persons entitled thereto as specified by
the employee in the subscription agreement.
CAPITAL CHANGES
In the event of changes in the capitalization of the Company, such as stock
splits or stock dividends, which result in an increase or decrease in the number
of shares of Common Stock without receipt of consideration by the Company,
appropriate adjustments will be made by the Company in the number of shares
subject to purchase and in the price per share.
EFFECT OF LIQUIDATION, DISSOLUTION, SALE OF ASSETS OR MERGER
In the event of a liquidation or dissolution of the Company, an employee's
participation in the Purchase Plan will be terminated immediately before
consummation of such event unless otherwise provided by the Board. In the event
of a sale of all or substantially all of the assets of the Company or a merger
of the Company with or into another corporation, the employee's rights may be
satisfied by assumption of the Company's obligations by such acquiring or
successor corporation. If such corporation refuses to assume those obligations,
the Board shall allow the immediate exercise of the employee's rights for 30
days, after which the employee's rights under the Purchase Plan shall terminate.
NON-ASSIGNABILITY
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned or transferred for any reason, and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
REPORTS
Individual accounting will be maintained for each participant in the
Purchase Plan. Each participant receives as promptly as practicable after the
end of the six-month offering period a report showing the details of the
participant's account.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend, alter, suspend or discontinue the Purchase
Plan, but, except under certain conditions, no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any
participant arising out of any offering period which has already commenced
without such participant's written consent. In addition, to the extent necessary
and desirable to comply with Rule 16b-3 under the Exchange Act or with Section
423 of the Tax Code (or any other applicable law or regulation, including the
requirements of the NASD or an established stock exchange), the Company shall
obtain stockholder approval of any Purchase Plan amendment in such a manner and
to such a degree as required.
TAX INFORMATION -- THE PURCHASE PLAN
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Tax Code. Under these provisions, no income will be taxable to a
participant until the shares purchased under the Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of the offering period, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the first day of the offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss,
9
<PAGE> 12
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding period(s) described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER
THE PURCHASE PLAN AND DOES NOT PURPORT TO BE COMPLETE. REFERENCE SHOULD BE MADE
TO THE APPLICABLE PROVISIONS OF THE TAX CODE. IN ADDITION, THIS SUMMARY DOES NOT
DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
PROPOSAL NO. 3 -- APPROVAL OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
PROPOSED AMENDMENT
Proposal No. 3 is to amend the Company's Certificate of Incorporation for
the purpose of increasing the total number of shares of Common Stock the Company
is authorized to issue. The Company's current Restated Certificate of
Incorporation (the "Certificate") authorizes the Company to issue 5,000,000
shares of Preferred Stock, par value $.001 per share, and 100,000,000 shares of
Common Stock, par value $.001 per share. In July 1996, the Board of Directors
authorized an amendment to the Certificate to increase the authorized number of
shares of Common Stock to 200,000,000 shares.
REASONS FOR THE AMENDMENT
In April 1996 the Company declared a dividend in the form of a two-for-one
stock split. This stock split doubled the number of shares outstanding and
therefore reduced significantly the number of shares that remained authorized
but unissued. The Company believes it is important to retain a significant
reserve of authorized but unissued Common Stock that could be used to declare
stock dividends or stock splits, raise additional capital through the sale of
securities, acquire another company or its business or assets, create
negotiating leverage and flexibility in the event of an unfriendly takeover bid
or establish a strategic relationship with a corporate partner, among other
uses. Accordingly, this Proposal No. 4 requests your approval for an increase in
the reserve of authorized shares.
CURRENT NUMBER OF SHARES OUTSTANDING AND SUBJECT TO OPTIONS
As of September 19, 1996, 52,316,054 shares of Common Stock were issued and
outstanding, approximately 9,962,479 additional shares were issuable upon
exercise of outstanding options or purchase rights and approximately 709,417
shares were reserved for future grants under the Company's stock plans. No
shares of Preferred Stock were outstanding or subject to options.
WORDING OF AMENDMENT
Under the proposed amendment, Sections 1 and 2 of Article FOURTH of the
Certificate would be amended to read as follows:
"Section 1. The total number of shares which the Corporation shall
have authority to issue is 205,000,000 shares of capital stock.
"Section 2. Of such authorized shares, two hundred million
(200,000,000) shares shall be designated 'Common Stock,' and have a par
value of $.001."
EFFECT OF AMENDMENT
If approved, the proposed amendment to the Certificate would authorize
additional shares of Common Stock that will be available in the event that the
Board of Directors determines to authorize stock dividends or stock splits, to
raise additional capital through the sale of securities, to acquire another
company or its business
10
<PAGE> 13
or assets, to create negotiating leverage and flexibility in the event of an
unfriendly takeover bid or to establish a strategic relationship with a
corporate partner, among other uses. If the proposed amendment is adopted,
100,000,000 additional shares of Common Stock of the Company will be available
for issuance at the discretion of the Board of Directors, except that certain
large issuances of shares may require stockholder approval in accordance with
the requirements of The Nasdaq National Market and certain stock-based employee
benefit plans may require stockholder approval in order to obtain desirable
treatment under tax or securities laws and accounting regulations.
The Board of Directors believes it desirable that the Company have the
flexibility to issue the additional shares as described above. As is typical in
publicly held technology companies, the holders of Common Stock have no
preemptive rights to purchase any stock of the Company. Stockholders should be
aware that the issuance of additional shares could have a dilutive effect on
earnings per share and on the equity ownership of the present holders of Common
Stock. No actions are currently being taken with respect to any large issuance
of additional shares.
The flexibility of the Board of Directors to issue additional shares of
stock could enhance the Board's ability to negotiate on behalf of the
stockholders in an unfriendly takeover situation. Although it is not the purpose
of the proposed amendment, the authorized but unissued shares of Common Stock
(as well as the existing authorized but unissued shares of Preferred Stock) also
could be used by the Board of Directors to discourage, delay or make more
difficult a change in the control of the Company. The Board of Directors is not
aware of any pending or proposed effort to acquire control of the Company.
VOTE REQUIRED
The approval of the amendment to the Certificate requires the affirmative
vote of a majority of the outstanding shares of Common Stock of the Company. An
abstention or nonvote is not an affirmative vote and, therefore, will have the
same effect as a vote against the proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 4 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has nominated KPMG Peat Marwick LLP to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 1997. Such nomination is being presented to the stockholders for
ratification at the meeting. A representative of KPMG Peat Marwick LLP is
expected to be present at the meeting, will have the opportunity to make a
statement and is expected to be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting is required
to ratify the Board's selection. If the stockholders reject the nomination, the
Board will reconsider its selection.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S AUDITORS.
ADDITIONAL INFORMATION RELATING TO
DIRECTORS AND OFFICERS OF THE COMPANY
CERTAIN TRANSACTIONS
The 1995 Incentive Stock Plan allows all participants to pay the exercise
price of an option with a promissory note. Accordingly, the Company has made
loans to a number of employees over the years, including the following executive
officers. In December 1994, the Company loaned $1,019,027 to Robert Cohn, an
executive officer and director of the Company, in connection with the exercise
of and payment of taxes regarding an incentive stock option to purchase 150,000
shares of Common Stock at $5.563 per share,
11
<PAGE> 14
with interest payable at a rate of 6.66%, compounded semi-annually, and a term
of three years. The loan is secured by 50,952 shares of the Company's Common
Stock having a market value of $1,515,822 at the Record Date. From October 1995
to December 1995, the Company loaned an aggregate of $1,523,443 to Mr. Cohn in
connection with the exercise of and payment of taxes regarding stock options to
purchase an aggregate of 152,660 shares of Common Stock at $5.563 per share,
with interest payable at rates between 5.65% and 5.90%, compounded annually, and
terms of three years. The loans are secured by an aggregate of 152,660 shares of
the Company's Common Stock having a market value of $4,541,635 at September 19,
1996. In February 1995, the Company loaned $267,000 to Derek S. Daley, an
executive officer of the Company, in connection with the exercise of an
incentive stock option to purchase 48,000 shares of Common Stock at $5.563 per
share, with interest payable at a rate of 7.43% compounded annually, and a term
of three years. The loan is secured by 24,840 shares of the Company's Common
Stock having a market value of $738,990 at September 19, 1996. In January 1996,
the Company loaned an aggregate of $379,526 to Mr. Daley in connection with the
exercise of and payment of taxes regarding stock options to purchase an
aggregate of 48,010 shares of Common Stock at $5.563 per share, with interest
payable at a rate of 5.50% compounded annually, and terms of three years. The
loans are secured by an aggregate of 48,010 shares of the Company's Common Stock
having a market value of $1,428,298 at September 19, 1996. In February 1996, the
Company loaned $99,989 to Charles Levine, a former executive officer of the
Company, in connection with the exercise of an incentive stock option to
purchase 9,968 shares of Common Stock at $10.031 per share, with interest
payable at 5.32%, compounded annually, and a term of three years. The loan was
repaid in full on September 30, 1996. In February 1996, the Company loaned
$450,173 to W. Michael West, an executive officer and director of the Company,
in connection with the exercise of an incentive stock option to purchase 80,930
shares of Common Stock at $5.563 per share, with interest payable at 5.32%,
compounded annually, and a term of three years. The loan is secured by 80,930
shares of the Company's Common stock having a market value of $2,407,668 at
September 19, 1996. As of September 19, 1996, the total amount outstanding on
Mr. Cohn's notes was $2,742,254, the total amount outstanding on Mr. West's note
was $464,346 and total amount outstanding on Mr. Daley's notes was $693,474.
Sales to Merix Corporation were approximately $100,000 during the Company's
fiscal year ended June 30, 1996. Deborah A. Coleman, a director of the Company,
is an executive officer and director of Merix Corporation. Based on its sales
terms and prices for similar products to similar companies, the Company believes
that sales to Merix Corporation were made on an arms' length basis.
The stock option agreements between the Company and certain of its officers
and key employees provide for full acceleration of exercisability if their
employment is terminated or their compensation is reduced in connection with a
change of control of the Company. See "Compensation Committee Report -- Chairman
and CEO Compensation."
The Company has entered into indemnification agreements with each of its
directors and officers. Such agreements require the Company to indemnify such
individuals to the full extent permitted by Delaware law if certain claims are
brought against them in their capacities with the Company.
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 executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors and ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) reports
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that Forms 5 have been
filed for such persons as required, the Company believes that, during the year
ended June 30, 1996, all reporting persons complied with Section 16(a) filing
requirements applicable to them, except that Anson M. Beard, Jr. filed one Form
4 late with respect to one transaction and Robert Cohn filed one Form 4 late
with respect to two transactions.
12
<PAGE> 15
COMPENSATION COMMITTEE REPORT
The following is the Report of the Compensation Committee of the Company
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to the compensation paid to such executive
officers for the year ended June 30, 1996. The information contained in the
report shall not be deemed to be "soliciting material" or to be "filed" with the
SEC nor shall such information be incorporated by reference into any future
filing under the Securities Act of 1933, as amended, or the Exchange Act except
to the extent that the Company specifically incorporates it by reference into
such filing.
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors of
Octel Communications Corporation determines the Company's executive compensation
policies. The Committee is comprised of four non-employee directors. The
Chairman and Chief Executive Officer and the President and Chief Operating
Officer participate as non-voting members. After evaluating management's
performance, the Committee recommends compensation programs and pay levels to
the full Board for approval.
COMPENSATION PHILOSOPHY
The goals of the executive compensation program are to attract, retain and
reward executive officers who contribute to the success of the Company.
Compensation opportunities are aligned with the Company's business objectives.
The compensation programs are designed to motivate executive officers to meet
annual corporate performance goals and enhance long-term stockholder value.
In designing and administering the individual elements of the executive
compensation program, the Committee strives to balance short- and long-term
incentive objectives and use prudent judgment in establishing performance
criteria, evaluating performance and determining actual incentive awards.
Using the assistance of an independent compensation consulting firm, the
Committee regularly evaluates the competitiveness and appropriateness of the
Company's executive compensation program by comparing its pay practices with
other companies in the industry. For this comparison, compensation levels are
compared to those of a select group of similar high technology companies with
approximately the same market capitalization, revenues and growth pattern as the
Company. The comparison group is subject to occasional changes as the Company or
the selected companies change their focus, merge or are acquired, or as new
companies emerge. Sales growth, operating income, P/E ratio, compound annual
growth rate and market capitalization are evaluated to ensure the comparative
companies have successful track records.
COMPENSATION VEHICLES
The Company's executive compensation program includes base salary, annual
incentive and long-term incentive compensation components.
BASE SALARY
The Company reviews base salaries annually for market competitiveness. In
determining competitive levels, the job responsibilities of each executive are
matched with like jobs in the comparison group. Individual base salary increases
may vary and reflect individual performance. This allows the Company to attract
and retain the key employees necessary to meet its business objectives and
enhance stockholder value.
As a cost-containment measure, fiscal year 1996 base salary increases for
the executive officers were deferred for six months and were reviewed and
approved in January 1996.
ANNUAL INCENTIVE PLAN
The annual incentive portion of the 1996 executive compensation program
provided cash rewards based on achievement of corporate financial goals and
corporate strategic business objectives. In 1996, the incentive target per
individual was defined as a percentage of his or her base compensation. The
annual incentive was
13
<PAGE> 16
based on the achievement by the Company and/or the executive's Strategic
Business Unit ("SBU") of financial goals (revenue and operating income) and
certain business objectives approved by the Board. The Company reviews the
incentive targets annually for market competitiveness based on job level and
responsibilities. The Company's philosophy is to leverage total compensation to
provide competitive pay for the achievement of aggressive performance measures.
The amount of compensation actually paid under this plan is variable or "at
risk," because it is tied directly to achievement of specific corporate
performance goals.
In fiscal year 1996, all Named Executive Officers received a cash award
under the annual incentive plan. A portion of the bonus (30% of total bonus
payable for the full year) was paid at the end of the first half of the year and
was based on the achievement of first half financial targets by the Company and
the executive's SBU. The remaining 70% of the total bonus payable at the end of
the second half of fiscal 1996 was based on second half financial targets (50%
of total bonus payable) and annual strategic business objectives (20% of total
bonus payable).
The Bonus Plan for fiscal year 1997 will have similar financial measures of
revenue and operating income and, for certain executives, will be partially
based on the performance of their respective business units. A portion of the
bonus (65% of the target bonus percentage) will be paid on a semi-annual basis
and will be based on these financial measures. The remaining 35% of the target
bonus percentage will be paid annually and will be based on achievement of
objectives regarding market share, productivity, customer satisfaction and
performance on key corporate projects.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee bases compensation of all officers (except the Chairman and
Chief Executive Officer) on the policies and procedures described above. The
Chairman's base salary paid in fiscal year 1996 was $300,000. Effective as of
the beginning of fiscal 1997, the Chairman's base salary is $375,000 per year.
Mr. Cohn was included in the annual incentive plan as of January 1, 1996 with a
bonus target of 100% of salary. The total cash compensation payable is below
competitive norms for a company of comparable size, based on information
provided by an independent compensation firm. The greatest portion of the
Chairman and Chief Executive Officer's compensation is directly associated with
the long-term capital growth of the Company. Although Mr. Cohn was not granted
any options in fiscal 1996, he was, concurrent with his appointment to the
position of Chairman and Chief Executive Officer of the Company in fiscal 1994,
granted the following options to purchase Common Stock of the Company:
700,000 shares at $12.50 per share;
400,000 shares at $17.50 per share; and
400,000 shares at $25.00 per share.
These options become exercisable as to 20% of the total shares under option
one year after the date of grant and up to an additional 20% after the end of
each subsequent twelve-month period. These options contain acceleration
provisions consistent with other stock purchases and options Mr. Cohn has made
and received. The Company believes that the rewards Mr. Cohn may receive are
tied to the stock price performance of the Company, from which other
stockholders will derive substantial benefit as well.
STOCK OPTIONS
To balance the annual incentive plan, stock options focus the executives'
attention on the long-term performance of the Company and maximizing stockholder
value. Stock options are granted with an exercise price equal to fair market
value at the time of grant. Grant ranges have been established for each officer
level that are based on competitive norms of the comparison group. Individual
grants may vary within the range to reflect individual performance and
potential. The option program also utilizes vesting periods to encourage
retention of key employees.
Specific information regarding compensation of the Chief Executive Officer
and other executive officers is contained in the accompanying table.
14
<PAGE> 17
TAX POLICY
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
deductions for certain executive compensation in excess of $1 million. The
Company endeavors to structure its compensation plans to achieve maximum
deductibility under Section 162(m) with minimal sacrifices in flexibility and
corporate objectives. With respect to non-equity compensation arrangements, the
Committee has reviewed the terms of those arrangements most likely to be subject
to Section 162(m).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Chamberlain, de Rothschild and Tellefsen and Ms. Coleman served on
the Compensation Committee until the end of fiscal 1996. As of the beginning of
fiscal 1997, Messrs. Beard, de Rothschild and Tellefsen and Ms. Coleman serve on
the Compensation Committee. Robert Cohn, the Chairman of the Board and Chief
Executive Officer of the Company and W. Michael West, the President and Chief
Operating Officer of the Company, currently attend meetings of the Compensation
Committee but do not vote. The Compensation Committee frequently holds executive
sessions at which neither Mr. Cohn nor Mr. West are in attendance. There are no
interlocks between the Company's Board of Directors or Compensation Committee
and boards of directors or compensation committees of other companies.
Anson M. Beard, Jr.
Deborah A. Coleman
Nathaniel de Rothschild
Dag Tellefsen
15
<PAGE> 18
STOCK PERFORMANCE GRAPH
In accordance with Exchange Act regulations, the following performance
graph compares the cumulative total stockholder return on the Company's Common
Stock to the cumulative total return on the Nasdaq Index and on the Hambrecht &
Quist Technology Index over the same period. The graph assumes the value of the
investment in the Company's Common Stock and each index was $100 at June 30,
1991 and that all dividends were reinvested. The information contained in the
performance graph shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act or
Exchange Act, except to the extent that the Company specifically incorporates it
by reference into such filing.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Octel NASDAQ H&Q Tech
<S> <C> <C> <C>
6/91 100.00 100.00 100.00
6/92 93.88 120.13 113.63
6/93 90.82 151.08 138.83
6/94 67.35 152.52 140.86
6/95 119.39 203.59 235.88
6/96 161.22 261.37 279.83
</TABLE>
16
<PAGE> 19
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth, for the three fiscal years ended June 30,
1996, certain compensation information with respect to the Company's Chief
Executive Officer during fiscal 1996 and each of the four other most highly
compensated executive officers other than the Chief Executive Officer who were
serving as executive officers as of June 30, 1996 (collectively, the "Named
Executive Officers"), based upon salary and bonus earned by such executive
officers and individuals in fiscal 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
BONUS COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($) (#)(2) ($)
- -------------------------------- ----- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Cohn..................... 1996 310,577 216,351 3,375(3) -- 9,597(4)
Chairman of the Board and 1995 257,933 -- 6,167(3) -- 7,005(4)
Chief Executive Officer 1994 237,692 -- 5,776(3) 1,500,000 9,318(4)
W. Michael West................. 1996 258,230 147,562 -- 200,000 10,397(4)
President and Chief Operating 1995 231,888 92,400 -- -- 5,595(4)
Officer 1994 238,658 92,450 -- 135,000 8,861(4)
197,500 182,926 -- 60,000 1,509(4)
Margaret Norton................. 1996 166,700 59,872 -- 35,000 720(4)
Senior Vice President 1995 109,680 -- -- 32,000 --
1994
193,269 79,122 -- -- 10,121(4)
Donald L. Campodonico........... 1996 188,222 67,500 -- -- 9,511(4)
Vice President 1995 193,467 65,441 -- 120,000 8,493(4)
1994
196,556 163,208 -- -- 10,700(4)
Charles Levine(5)............... 1996 102,554 44,154 -- 200,000 12,567(4)(6)
Senior Vice President 1995 N/A N/A N/A N/A N/A(7)
1994
</TABLE>
- ---------------
(1) Includes bonuses earned in the applicable fiscal year but paid or to be paid
in the following fiscal year.
(2) Represents stock options granted in the years shown with exercise prices
equal to fair market value on the date of grant. No SARs were granted in
such years.
(3) Comprised of Mr. Cohn's portion of the profit-sharing payments made to most
employees of the Company.
(4) Comprised of premiums for insurance policies where the officers are the
beneficiaries.
(5) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
(6) Includes $11,667 related to relocation expenses paid by the Company.
(7) Not applicable, as Mr. Levine was not hired by the Company until December
1994.
ANNUAL INCENTIVE PLAN
The Company's Board of Directors has adopted an Annual Incentive Plan (the
"Bonus Plan") providing for cash bonuses to officers and senior managers. Under
the Bonus Plan, fiscal year 1996 bonuses to all officers, including executive
officers, of the Company in an aggregate amount of approximately $2,850,000 were
awarded as percentages of the individuals' salaries, based on the Company's
achievement of revenue, operating income, strategic business and customer
satisfaction objectives approved by the Board of Directors.
The Bonus Plan for fiscal year 1997 will have similar financial measures of
revenue and operating income and, for certain executives, will be partially
based on the performance of their respective business units. A
17
<PAGE> 20
portion of the bonus (65% of the target bonus percentage) will be paid on a
semi-annual basis and will be based on these financial measures. The remaining
35% of the target bonus percentage will be paid annually and will be based on
achievement of objectives regarding market share, customer satisfaction,
productivity and performance on key corporate projects.
EMPLOYEE STOCK PLANS
The following is a brief summary of the Company's employee stock plans in
effect during the fiscal year ended June 30, 1996 under which officers,
employees, consultants and directors of the Company received benefits. The
closing sale price of the Company's Common Stock on the Record Date, as reported
by The Nasdaq National Market, was $15.75 per share.
1995 INCENTIVE STOCK PLAN
The Company's 1995 Incentive Stock Plan (the "Option Plan"), under which
19,200,000 shares are currently reserved for issuance, was originally adopted by
the Board of Directors in 1985 and approved by the Company's stockholders in
1985. The Option Plan was subsequently amended on a number of occasions, which
amendments were approved by the Board of Directors and stockholders as required
by law and the Option Plan. In 1995, the Option Plan was renewed for a term of
ten years and renamed. The Option Plan permits the direct sale of shares and the
grant of both "incentive stock options" (within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Tax Code")) and nonstatutory
stock options to employees and officers of, and consultants to, the Company.
The following table summarizes activity under the Option Plan as of
September 19, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Reserved Under the Option Plan................................... 19,200,000
Outstanding Options at a Weighted Average Exercise Price of
$13.69 per share............................................... 9,249,410
Shares Issued Directly or Options Exercised Since 1985........... 9,511,173
Available for Grant of Future Options............................ 439,417
</TABLE>
The Option Plan is administered by the Board of Directors or a committee
appointed by the Board. The Board or committee determines the terms of options
granted, including the exercise price, number of shares subject to the option
and the exercisability thereof. The exercise price of all options to purchase
shares of Common Stock under the Option Plan must be at least equal to the fair
market value of such shares on the date of grant, and the maximum term of each
incentive stock option is ten years, although the Board of Directors typically
grants options with a term of five years and six months. Options granted to
officers and certain key employees under the Option Plan provide for full
acceleration of exercisability in the event that, following a change in control
of the Company, the optionee's employment is terminated or the optionee's
compensation and benefits are reduced.
18
<PAGE> 21
OPTION/SAR GRANTS IN FISCAL 1996
The following table sets forth certain information regarding options for
the purchase of the Company's Common Stock that were awarded to the Named
Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
- -------------------------------------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS/ PRICE APPRECIATION FOR
UNDERLYING SARS GRANTED EXERCISE OR OPTION TERM(3)
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANT(#)(1) IN FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- ------------------------- ------------ ----------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert Cohn.............. -- -- -- -- -- --
W. Michael West.......... 60,000 2.16% $ 14.69 5/15/01 $271,026 $ 606,722
140,000 5.05 17.125 6/11/01 737,740 1,651,630
Margaret Norton.......... 60,000 2.16 14.69 5/15/01 271,026 606,722
Donald L. Campodonico.... -- -- -- -- -- --
Charles Levine(4)........ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options granted under the Option Plan generally become exercisable at a rate
of 1/4 of the shares subject to the option at the end of the first year and
1/4 of the shares subject to the option at the end of each year thereafter,
so long as the individual is employed by the Company.
(2) The Company granted options to purchase 2,774,214 shares of Common Stock
during fiscal year 1996.
(3) Potential realizable value is based on the assumption that the price of the
Common Stock appreciates at the annual rate shown, compounded annually, from
the date of grant until the end of the option term. The values are
calculated in accordance with rules promulgated by the Securities and
Exchange Commission (the "Commission") and do not reflect the Company's
estimate of future stock price appreciation.
(4) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
19
<PAGE> 22
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND OPTION/SAR VALUES AS OF JUNE 30, 1996
The following table sets forth certain information regarding options for
the purchase of the Company's Common Stock that were exercised or held by the
Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS/SARS AT
EXERCISE REALIZED JUNE 30, 1996 JUNE 30, 1996($)(2)
NAME (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------- ----------- --------- ------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Cohn................. 152,660 1,490,652 600,000 900,000 2,390,000 3,585,000
W. Michael West............. 80,930 1,112,788 158,000 317,000 1,210,188 1,552,762
Margaret Norton............. 27,200 368,064 41,550 114,050 391,983 787,754
Donald L. Campodonico....... 25,900 347,258 66,100 84,400 552,789 710,171
Charles Levine(3)........... 50,000 681,110 0 150,000 0 1,457,850
</TABLE>
- ---------------
(1) This column represents the difference between the fair market value of the
Common Stock on the date of exercise of the stock option by the identified
executive officer and the price paid for the shares by the officer (the
"Exercise Price").
(2) This column represents the difference between the fair market value of the
Common Stock and the Exercise Price, for in-the-money options, on June 30,
1996.
(3) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
1987 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1987 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in October 1987 and approved by the
stockholders in November 1987. The Purchase Plan was subsequently amended on a
number of occasions, which amendments were approved by the Board of Directors
and stockholders as required by law and the Purchase Plan. A total of 4,250,000
shares of Common Stock is currently reserved for issuance under the Purchase
Plan. The Purchase Plan, which is intended to qualify under Section 423 of the
Tax Code, is implemented by one offering during each six-month period. Offering
periods commence on or about May 1 and November 1 of each year. The Purchase
Plan is administered by the Board of Directors of the Company or by a committee
appointed by the Board. Employees are eligible to participate if they are
employed by the Company for at least 20 hours per week and more than five months
per year. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's
compensation, at 85% of the lower of the fair market value of the Common Stock
at the beginning or at the end of each offering period.
As of the Record Date, 3,716,408 shares had been sold (since 1988) under
the Purchase Plan at a weighted average purchase price per share of $8.245 and
533,592 shares remained available for future issuance. See Proposal No. 2
regarding a proposal to make certain amendments to the Purchase Plan, including
the addition of 1,500,000 shares to the Purchase Plan.
20
<PAGE> 23
PURCHASE PLAN
The following table sets forth, as to the Named Executive Officers, all
current executive officers as a group and all other employees who participated
in the Purchase Plan: (i) the number of shares of the Company's Common Stock
purchased under the Purchase Plan during the last fiscal year; and (ii) the
dollar value of the benefit (see footnote (1) to the table):
<TABLE>
<CAPTION>
(I)
NUMBER OF (II)
SHARES DOLLAR VALUE
NAME OF INDIVIDUAL OR IDENTITY OF GROUP PURCHASED ($)(1)
------------------------------------------------------------- --------- ------------
<S> <C> <C>
Robert Cohn.................................................. 2,016 $ 19,938
W. Michael West.............................................. 2,478 $ 24,507
Margaret Norton.............................................. -- --
Donald L. Campodonico........................................ 814 $ 8,050
Charles Levine(2)............................................ -- --
All current executive officers as a group (12 persons)....... 8,958 $ 88,595
All other employees as a group............................... 469,328 $ 4,588,000
</TABLE>
- ---------------
(1) This column represents the market value of the shares on date of purchase,
minus the purchase price.
(2) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
1988 DIRECTORS' STOCK OPTION PLAN
The Company's 1988 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors in November 1988, was amended in 1989 and was
approved by the Company's stockholders in 1989. The Directors' Plan was
subsequently amended on a number of occasions, which amendments were approved by
the Board of Directors and stockholders as required by law and the Directors'
Plan. A total of 700,000 shares of Common Stock is reserved for issuance under
the Directors' Plan. The Directors' Plan is administered by the Board of
Directors. Only non-employee directors are eligible to participate in the
Directors' Plan. Eligible directors are automatically granted an option to
purchase 50,000 shares of the Company's Common Stock on the date they are first
elected a director, such option becoming exercisable cumulatively with respect
to 10,000 shares on each of the first five anniversaries of the date of grant,
unless accelerated because of a director's death or disability. On the date of
the Annual Meeting of Stockholders each year, all non-employee directors who
have served since the previous Annual Meeting of Stockholders and are reelected
receive an immediately exercisable option for 6,000 shares. The exercise price
of an option granted under the Directors' Plan is the fair market value (based
on The Nasdaq National Market closing price) of the stock on the date the option
is granted.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
By Order of the Board of Directors
LOGO
DEREK S. DALEY, Secretary
Milpitas, California
October 28, 1996
21
<PAGE> 24
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OCTEL COMMUNICATIONS CORPORATION
1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder(s) of Octel Communications Corporation, a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated October 28, 1996, and
hereby appoints Robert Cohn and Derek S. Daley, and each of them, Proxies and
Attorneys-in-Fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1996 Annual
Meeting of Stockholders of Octel Communications Corporation, to be held on
December 5, 1996, at 9:00 a.m., local time, at the Company's principal offices
at 1001 Murphy Ranch Road, Milpitas, California 95035, and at any adjournments
thereof, and to vote all shares of Common Stock which the undersigned is
entitled to vote on the matters set forth below:
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on reverse side)
<PAGE> 25
/X/ Please mark your
votes in the box
The Board of Directors recommends a vote FOR Proposals 1,2,3 and 4.
1. ELECTION OF DIRECTORS:
NOMINEES: Robert Cohn, Anson M. Beard, Jr., Leo J. Chamberlain, Deborah A.
Coleman, Nathaniel de Rothschild, Dag Tellefsen, W. Michael West.
FOR WITHHOLD
/ / / /
- -------------------------------------------------------------------------
If you wish to withhold authority to vote for any individual nominee, write
that nominee's name on the line above:
This proxy should be marked, dated, signed by the stockholder(s) exactly as
the stockholder's name appears herein and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.
2. Proposal to amend the 1987 Employee Stock
Purchase Plan to increase the number
of shares reserved for issuance thereunder. / / / / / /
3. Proposal to amend the Certificate of
Incorporation to increase the authorized
number of shares of Common Stock of the
Company to 200,000,000. / / / / / /
4. Proposal to ratify the appointment of KPMG
Peat Marwick LLP as independent auditors
of the Company for the 1997 fiscal year. / / / / / /
In their discretion the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
Signature: --------------------------------------------- Date ---------------
Signature: --------------------------------------------- Date ---------------
