<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 (S)240.14a-11(c) or (S)240.14a-12
ASCEND COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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
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 No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ASCEND COMMUNICATIONS, INC.
ONE ASCEND PLAZA
1701 HARBOR BAY PARKWAY
ALAMEDA, CALIFORNIA 94502
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1997
To the Stockholders of Ascend Communications, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Ascend
Communications, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 28, 1997, at 1:00 p.m. local time, at the Company's principal
executive offices located at the above-stated address, for the following
purposes:
1. To elect seven (7) members of the Board of Directors to hold office
until the 1998 Annual Meeting of Stockholders and until their
respective successors are elected and qualified.
2. To vote upon a proposal to ratify the appointment of Ernst & Young
LLP as the Company's independent auditors for the year ending
December 31, 1997.
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on April 18, 1997 are
entitled to notice of, and to vote at, this meeting and any adjournments or
postponements thereof. For ten (10) days prior to the meeting, a complete list
of the stockholders entitled to vote at the meeting will be available for
examination by any stockholder for any purpose relating to the meeting during
ordinary business hours at the Company's principal executive offices located
at the above-stated address.
By Order of the Board of Directors
/s/ ROBERT K. DAHL
Robert K. Dahl
Secretary
Alameda, California
April 30, 1997
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. PROXIES ARE REVOCABLE, AND
ANY STOCKHOLDER MAY WITHDRAW HIS OR HER PROXY AND VOTE IN PERSON AT THE
MEETING.
<PAGE>
ASCEND COMMUNICATIONS, INC.
ONE ASCEND PLAZA
1701 HARBOR BAY PARKWAY
ALAMEDA, CALIFORNIA 94502
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 30, 1997
The accompanying proxy is solicited by the Board of Directors of Ascend
Communications, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held Wednesday,
May 28, 1997, at 1:00 p.m. local time, or any adjournment or postponement
thereof, for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. The date of this Proxy Statement is April 30, 1997,
the approximate date on which this Proxy Statement and the accompanying form
of proxy were first sent or given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the year ended December 31, 1996, is
enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of business
on April 18, 1997 will be entitled to vote at the meeting and any adjournment
or postponement thereof. As of that date, there were 120,794,242 shares of
common stock of the Company, par value $0.001 per share (the "Common Stock"),
issued and outstanding. Stockholders may vote in person or by proxy. Each
holder of shares of Common Stock is entitled to one vote for each share of
Common Stock held on the proposals presented in this Proxy Statement. The
Company's bylaws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the Annual Meeting.
Solicitation of Proxies. The cost of soliciting proxies will be borne by the
Company. In addition to soliciting stockholders by mail through its regular
employees, the Company may request banks and brokers, and other custodians,
nominees and fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will reimburse them for
their reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors and others to solicit proxies, personally or by telephone,
without additional compensation. The Company also has retained Skinner & Co.,
Inc., a proxy solicitation firm, in connection with the Annual Meeting at a
cost of approximately $3,500, along with reasonable out-of-pocket expenses.
Voting of Proxies. All valid proxies received prior to the Annual Meeting
will be voted. All shares represented by a valid proxy will be voted, and
where a stockholder specifies by means of the proxy a choice with respect to
any matter to be acted upon, the shares will be voted in accordance with the
specification so made. If no choice is indicated on the proxy, the shares will
be voted in favor of the proposal. A stockholder giving a proxy has the power
to revoke his or her proxy, at any time prior to the time it is voted, by
delivery to the Secretary of the Company of a written instrument revoking the
proxy or a duly executed proxy with a later date, or by attending the Annual
Meeting and voting in person.
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each director and director-nominee of the Company, (ii) the individuals who
served as the Chief Executive Officer of the Company in 1996, and the four
other highest compensated executive officers of the Company whose salary and
bonus for the year ended December 31, 1996 exceeded $100,000, (iii) all
directors and executive officers of the Company as a group and (iv) each
person known by the Company to own more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES OWNED(1)
---------------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF
BENEFICIAL OWNERS SHARES CLASS
------------------- --------- -------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Mory Ejabat....................................... 1,320,622(2) 1.08%
Roger L. Evans ................................... 1,050,279(3) *
c/o Greylock Capital Limited Partnership
One Federal Street
Boston, MA 02110
Robert K. Dahl.................................... 805,599(4) *
C. Richard Kramlich............................... 238,618(5) *
c/o New Enterprise Associates
235 Montgomery Street, Suite 1025
San Francisco, CA 94104
Betsy S. Atkins................................... 167,515(6) *
James P. Lally.................................... 213,808(7) *
c/o Kleiner Perkins Caufield & Buyers
2750 Sand Hill Road
Menlo Park, CA 94025
Curtis N. Sanford................................. 616,502(8) *
Jeanette Symons................................... 1,073,765(9) *
Michael Hendren................................... 458,132(10) *
Martin Schoffstall................................ 1,600 *
Directors and executive officers as a group (15
persons).......................................... 6,748,993(11) 5.36%
5% STOCKHOLDER
FMR Corp. ........................................ 8,035,720(12) 6.65%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- --------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table 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. Unless otherwise indicated,
the individuals in the table may be contacted c/o Ascend Communications,
Inc., One Ascend Plaza, 1701 Harbor Bay Parkway, Alameda, CA 94502.
(2) Mr. Ejabat is the President, Chief Executive Officer and a director of
the Company. Includes (i) 1,273,844 shares which are subject to options
exercisable within 60 days of March 31, 1997 and (ii) 4,000 shares held
as trustee for the benefit of his children.
(3) Mr. Evans is a director of the Company. Includes (i) 870,279 shares held
as trustee of the Roger Evans and Jacqueline Evans Family Trust, dated
March 8, 1989 and (ii) 180,000 shares which are subject to options
exercisable within 60 days of March 31, 1997.
(4) Mr. Dahl is Vice President, Finance, Chief Financial Officer, Secretary
and a director of the Company. Includes 599,786 shares which are subject
to options exercisable within 60 days of March 31, 1997.
(5) Mr. Kramlich is a director of the Company. Includes 132,000 shares which
are subject to options exercisable within 60 days of March 31, 1997.
2
<PAGE>
(6) Ms. Atkins is a director of the Company. Includes (i) 72,000 shares which
are subject to options exercisable within 60 days of March 31, 1997 and
(ii) 37,182 shares held by her husband.
(7) Mr. Lally is a director of the Company. Includes 180,000 shares which are
subject to options exercisable within 60 days of March 31, 1997.
(8) Mr. Sanford is Senior Vice President, International Sales and General
Manager of International Operations of the Company. Includes (i) 456,688
shares which are subject to options exercisable within 60 days of March
31, 1997 and (ii) 2,000 shares owned by Mr. Sanford's child.
(9) Ms. Symons is Executive Vice President, Advanced Products and Technology
Group and Chief Technical Officer of the Company. Includes 895,093 shares
which are subject to options exercisable within 60 days of March 31,
1997.
(10) Mr. Hendren is Senior Vice President, North America Sales of the Company.
Includes 458,124 shares which are subject to options exercisable within
60 days of March 31, 1997.
(11) Includes (i) 5,050,072 shares which are subject to options exercisable
within 60 days of March 31, 1997 and (ii) 913,461 shares held by various
family members of and trusts benefiting family members of certain
directors and executive officers listed above.
(12) Based solely on a Schedule 13G filed with the Securities and Exchange
Commission on February 10, 1997.
ELECTION OF DIRECTORS
Seven (7) directors, constituting the Company's full Board of Directors, are
to be elected at the Annual Meeting. If elected, the nominees will serve as
directors until the Company's Annual Meeting of Stockholders in 1998 and until
their successors are elected and qualified.
Management's nominees for election to the Board of Directors and certain
information with respect to their age and background are set forth below.
Management knows of no reason why any nominee would be unable or unwilling to
serve. However, if any nominee(s) should for any reason be unable or unwilling
to serve, the proxies will be voted for such substitute nominees as management
may designate.
If a quorum is present and voting, the nominees for directors receiving the
highest number of votes will be elected as directors. Abstentions and shares
held by brokers that are present, but not voted because the brokers were
prohibited from exercising discretionary authority, i.e., "broker non-votes,"
will be counted as present for purposes of determining whether a quorum is
present.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION WITH THE COMPANY AGE SINCE
- ---- ------------------------- --- --------
<S> <C> <C> <C>
Mory Ejabat...................... Director, President and Chief 47 1994
Executive Officer
Robert K. Dahl................... Director, Vice President, Finance, 56 1995
Chief Financial Officer and Secretary
Betsy S. Atkins.................. Director 43 1989
Roger L. Evans................... Director 51 1989
C. Richard Kramlich.............. Director 62 1990
James P. Lally................... Director 51 1989
Martin Schoffstall............... Director 37 1996
</TABLE>
There are no family relationships among any directors or executive officers
of the Company.
Mr. Ejabat joined the Company in January 1990 as Vice President, Operations,
and he served in this capacity until December 1992. From December 1992 until
March 1994, he served as Executive Vice President. From
3
<PAGE>
March 1994 until June 1995, he served as President, Chief Operating Officer
and a director of the Company. Since June 1995, he has served as President,
Chief Executive Officer and a director of the Company. From January 1979 to
June 1989, Mr. Ejabat was employed by Micom Systems, Inc., a data
communications equipment manufacturer, where he served in various management
capacities, including Vice President for Wide Area Communications Products and
Vice President of Development and Operations.
Mr. Dahl joined the Company in January 1994 as Vice President, Finance and
Chief Financial Officer. He has served as a director of the Company since July
1995. From May 1991 to December 1993, Mr. Dahl was a private investor and a
principal in Dahl-De Vivo Management Co., a private investment firm. From
January 1991 to May 1991, he was employed as Executive Vice President and
Chief Financial Officer for Digital Microwave Corporation. From January 1988
to December 1990, Mr. Dahl was Senior Vice President, Chief Financial Officer
and a member of the Board of Directors of American President Cos., Ltd., a
diversified transportation company. From July 1986 to December 1987, he was
employed by Ungermann-Bass, Inc., a networking equipment supplier, as
Executive Vice President and Chief Financial Officer and also served as a
member of its Board of Directors. From June 1979 to July 1986, he was employed
as Vice President and Chief Financial Officer of ROLM Corporation, a
manufacturer of customer premises communications equipment.
Ms. Atkins has served as a director of the Company since August 1989. Ms.
Atkins was President and Chief Executive Officer of Nellson Candies, Inc. from
1990 to 1993. From August 1989 to January 1990, she was Vice President of
Marketing and Sales for the Company. From 1987 to 1988, she was Vice President
of Marketing for Unisys Corporation, a computer manufacturer.
Mr. Evans has served as a director of the Company since April 1989. Mr.
Evans has been a special limited partner of Greylock Capital Limited
Partnership, a venture capital partnership, and a member of the management of
Greylock Management Corporation, the service organization to the Greylock
venture capital partnerships, since 1989, and has been a general partner of
Greylock Limited Partnership since 1991, Greylock Equity Limited Partnership
since 1994 and Greylock IX Limited Partnership since early 1997. From October
1988 until joining Greylock, Mr. Evans was a consultant. From 1985 until
October 1988, he served as President and Chief Executive Officer of Micom
Systems, Inc., a manufacturer of data communications equipment. Mr. Evans also
serves on the Board of Directors of HNC Software, Inc.
Mr. Kramlich has served as a director of the Company since February 1990.
Mr. Kramlich has been a general partner of New Enterprise Associates, a
venture capital firm, since June 1978. Mr. Kramlich also serves on the Board
of Directors of Chalone, Inc., Macromedia, Inc., Neopath, Inc., Silicon
Graphics, Inc., SyQuest Technology, Inc., Lumisys, Inc. and Graphix Zone, Inc.
Mr. Lally has served as a director of the Company since April 1989. Mr.
Lally has been a general partner at Kleiner Perkins Caufield & Byers, a
venture capital firm, since September 1981. Mr. Lally also serves on the Board
of Directors of Visioneer, Inc.
Mr. Schoffstall has served as a director of the Company since June 1996. Mr.
Schoffstall is a founder of Epicenter, Inc., an Internet gaming company, and
has served as its President and Chairman of the Board of Directors since its
inception in April 1996. Mr. Schoffstall is a co-founder of PSINet Inc.
("PSINet"), an Internet access and service provider, and served as PSINet's
Senior Vice President from February 1995 to April 1996 and as director and
Chief Technical Officer of PSINet from its inception in 1988 to April 1996.
Mr. Schoffstall also served as Vice President and Treasurer of PSINet from
1988 to February 1995. Prior to forming PSINet, Mr. Schoffstall was a co-
founder and, from 1987 to 1989, served as Vice President for Technology and
Marketing, of NYSERNet (New York State Education and Research Network). Mr.
Schoffstall co-authored the national standard network management software,
SNMP.
During 1996, the Board of Directors held four (4) meetings. No incumbent
director serving on the Board of Directors in 1996 attended fewer than 75% of
such meetings of the Board of Directors and the Committees on which he or she
serves, except Mr. Schoffstall.
4
<PAGE>
The Company has an Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
auditors and management the annual financial statements and independent
auditors' opinion, review the scope and results of the examination of the
Company's financial statements by the independent auditors, approve all
professional services and related fees performed by the independent auditors,
recommend the retention of the independent auditors to the Board of Directors,
subject to ratification by the stockholders, and periodically review the
Company's accounting policies and internal accounting and financial controls.
The members of the Audit Committee are Messrs. Evans and Lally. During 1996,
the Audit Committee held one (1) meeting.
The Compensation Committee's function is to review and establish salary
levels for executive officers and certain other management employees and to
grant stock options. The members of the Compensation Committee are Ms. Atkins
and Mr. Kramlich. During 1996, the Compensation Committee held two (2)
meetings. For additional information concerning the Compensation Committee,
see "Compensation Committee Report On Executive Compensation."
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company in 1996 and the four other most
highly compensated executive officers of the Company as of December 31, 1996
whose total salary and bonus for 1996 exceeded $100,000, for services in all
capacities to the Company, during 1996:
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------
OTHER AWARDS
NAMED AND PRINCIPAL NON-CASH OPTIONS
POSITION YEAR SALARY BONUS COMPENSATION (2) (SHARES)
------------------- ---- -------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Mory Ejabat............... 1996 $327,928 $487,500 $3,983 400,000
President and Chief 1995 233,103 230,000 4,740 1,023,840
Executive Officer 1994 163,015 81,505 5,159 186,664
Curtis N. Sanford.........
Senior Vice President,
International Sales and 1996 541,051 -- 4,860 150,000
General Manager of 1995 333,465 -- 4,860 251,680
International Operations 1994 135,500 667,675 4,824 160,000
Michael Hendren........... 1996 325,227 -- -- 150,000
Senior Vice President, 1995 331,029 -- -- 170,000
North America Sales 1994 128,026 -- -- 680,000
Robert K. Dahl............
Vice President, Finance, 1996 290,960 435,000 14,272 350,000
Chief Financial 1995 201,308 200,000 19,290 401,680
Officer and Secretary 1994 135,000 70,000 26,130 866,644
Jeanette Symons........... 1996 200,000 300,000 3,240 300,000
Executive Vice President, 1995 141,500 141,500 3,240 501,760
Advanced Products and 1994 105,000 21,000 -- 106,664
Technology Group and
Chief Technical Officer
</TABLE>
- --------
(1) Total amount of personal benefits paid to each executive officer during
the year was less than the lesser of (i) $50,000 or (ii) 10% of the
officer's total reported salary and bonus.
(2) Represents interest waived by the Company which had accrued on full-
recourse notes from the executive officer during the fiscal year.
5
<PAGE>
OPTION GRANTS IN 1996
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during 1996 to the persons
named in the Summary Compensation Table:
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS EXERCISE APPRECIATION
OPTIONS GRANTED TO PRICE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PER EXPIRATION ---------------------------
NAME (SHARES)(1) FISCAL YEAR SHARE(2) DATE 5% 10%
---- ------------- ------------ ---------- ---------- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Mory Ejabat............. 400,000 5.1% $61.875 12/16/06 $ 15,565,142 $ 39,445,126
Curtis N. Sanford....... 150,000 1.9 61.875 12/16/06 5,836,928 14,791,922
Michael Hendren......... 50,000 0.6 65.938 5/29/06 2,073,387 5,254,370
100,000 1.3 61.875 12/16/06 3,891,286 9,861,281
Robert K. Dahl.......... 350,000 4.4 61.875 12/16/06 13,619,499 34,514,485
Jeanette Symons......... 300,000 3.9 61.875 12/16/06 11,673,857 29,583,844
</TABLE>
- --------
(1) All options granted in 1996 were granted under the Company's 1989 Stock
Option Plan. Options generally vest, in the case of new employees, as to
1/4th of the subject shares on the first anniversary of the employee's
hire date, and an additional 1/48th of the subject shares upon completion
of each succeeding full month of continuous employment with the Company
thereafter. Subsequent options granted to an employee typically vest as to
1/48th of the subject shares upon completion of each full month of
continuous employment following the date of grant. All of the options
granted to people in the above chart conform to the aforementioned vesting
schedule. The Board of Directors of the Company retains discretion to
modify the terms, including the price, of outstanding options.
(2) All options were granted with an exercise price equal to the fair market
value per share of the Common Stock on the date of grant.
(3) Potential gains are net of the exercise price but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the
Company, overall market conditions and the option holder's continued
employment through the vesting period.
6
<PAGE>
AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in 1996, and unexercised
options held as of December 31, 1996, by the persons named in the Summary
Compensation Table:
AGGREGATE OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/96(1) 12/31/96(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mory Ejabat............. 231,774 $13,807,206 1,328,182 0 $44,237,070 $ 0
Curtis N. Sanford....... -- -- 456,687 0 14,905,750 0
Michael Hendren......... 250,584 13,668,269 525,416 0 21,706,547 0
Robert K. Dahl.......... 41,520 2,689,254 682,160 0 11,995,385 0
Jeanette Symons......... -- -- 895,093 0 31,998,440 0
</TABLE>
- --------
(1) Options granted under the Company's 1989 Stock Option Plan generally are
exercisable immediately subject to a repurchase right in favor of the
Company which lapses as the option vests as described in Footnote 1 to the
table entitled "Option Grants in 1996."
(2) Valuation based on the difference between the option exercise price and
the fair market value of the Company's Common Stock on December 31, 1996
(which was $62.125 per share, based on the closing sales price of the
stock on the Nasdaq National Market).
EMPLOYMENT CONTRACTS AND TERMINATION AND CHANGE OF CONTROL ARRANGEMENTS
Certain options granted under the Company's 1989 Stock Option Plan (the
"Option Plan") or under the Company's 1994 Outside Directors Stock Option Plan
contain provisions pursuant to which the unvested portions of outstanding
options become immediately exercisable and fully vested upon a merger of the
Company in which the Company's stockholders do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company or its successor, if the successor corporation fails to assume
the outstanding options or substitute options for the successor corporation's
stock to replace the outstanding options. The outstanding options will
terminate to the extent they are not exercised as of the consummation of the
merger, or assumed or substituted for by the successor corporation.
DIRECTOR COMPENSATION
For each meeting of the Board of Directors which they attend, directors are
reimbursed for reasonable travel expenses incurred. Pursuant to the Company's
1994 Outside Directors Stock Option Plan, all directors who are not employees
of the Company are automatically granted non-qualified stock options to
purchase the Company's Common Stock upon their initial appointment to the
Board of Directors and then thereafter on an annual basis. The grant on
initial appointment is for an option to purchase 192,000 shares and the annual
grant is for an option to purchase 48,000 shares. Such options generally
become vested and exercisable in equal annual installments over a four-year
period beginning on the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company accepted full-recourse notes, bearing interest at
5.4% per annum, from certain executive officers and key employees in payment
of the exercise price for options granted in January 1994. The Company waived
an aggregate of approximately $43,000, $33,000 and $30,000 of interest which
had accrued on
7
<PAGE>
these notes during 1994, 1995 and 1996 respectively. The Company received
notes with principal amounts of $105,000, $487,500, $90,000 and $60,000 from
Mr. Ejabat, Mr. Dahl, Mr. Sanford and Ms. Symons, respectively.
For a description of the compensation of officers of the Company, see
"Executive Compensation and Other Matters."
To date, the Company has made no loans to officers, directors, principal
stockholders or other affiliates other than as described above or other than
advances of reimbursable expenses. All such transactions, including loans, are
subject to approval by a majority of the Company's independent and
disinterested directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Compensation Committee was comprised of two outside
directors of the Board of Directors, Ms. Atkins and Mr. Kramlich.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors, and greater-than-ten percent
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written representations from certain
reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the year ended December 31,
1996, all relevant Section 16(a) filing requirements were complied with,
except that each of Mory Ejabat , an executive officer and director, Robert K.
Dahl, an executive officer and director, Jeanette Symons, an executive
officer, Michael J. Johnson, an executive officer, Anthony Stagno, an
executive officer, Curtis N. Sanford, an executive officer, Michael Hendren,
an executive officer, and William H. Kind, an executive officer, filed one
late report with respect to grants of options under the Option Plan.
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of two outside directors of the
Board of Directors and is responsible for setting and monitoring policies
governing compensation of executive officers and certain other key employees.
The Compensation Committee reviews the performance and compensation levels for
executive officers, sets salary and bonus levels for these individuals and
recommends to the Board of Directors option grants for these individuals under
the Option Plan. The objectives of the Compensation Committee are to correlate
executive officer compensation with the Company's business objectives and
performance, and to enable the Company to attract, retain and reward executive
officers and other key employees who contribute to the long-term success of
the Company.
OVERVIEW AND POLICIES FOR 1996
In 1996, compensation for the Company's executive officers consisted
primarily of base salary, potential bonuses based upon the Company's
performance for the year and long-term equity incentives in the form of stock
options.
Base Salary
Due to the importance of executive compensation in attracting and retaining
qualified executive officers, the Compensation Committee and management
engaged consultants to survey the compensation practices in the high
technology industry to ensure that the Company's compensation structure was
competitive. Additionally, the Compensation Committee reviewed the Company's
financial performance in 1995, certain milestones achieved by the Company
(including profitability, sales levels and new product introductions) and
individual executive officer duties. As a result of the survey and based upon
the Company's strong performance in 1995, the Compensation Committee approved
increases to executive officer base salaries so that they were approximately
in the 75th percentile range for comparable positions at similarly sized high
technology companies.
For 1996, each executive officer, including the Chief Executive Officer,
received his or her base salary as recommended by the Compensation Committee.
Performance Bonuses
It is the policy of the Compensation Committee that a portion of the annual
cash compensation of each executive officer be contingent upon the performance
of the Company. The Compensation Committee approves an executive bonus plan
each year. During 1996, the Company's bonus plan was based upon performance
objectives for sales and pre-tax income and had three targeted bonus
performance levels. Annual bonus compensation at the lowest, mid-range and
highest targeted bonus performance levels represented up to approximately 60%,
80% and 100%, respectively, of the base salary for each executive officer who
participated in the bonus plan, including the Chief Executive Officer.
The Company attained the highest level for both sales and pre-tax income
objectives for 1996, and in accordance with the bonus plan, paid bonuses to
each executive officer in an amount equal to approximately 100% of the
respective executive officer's base salary.
Long-Term Equity Incentives
The Compensation Committee strongly believes in granting stock options to
the Company's executive officers to tie executive officer compensation
directly to the long-term success of the Company and increases in stockholder
value. In addition, the Compensation Committee believes annual unvested stock
option grants to executive officers are important to encourage executive
officer retention.
9
<PAGE>
In January 1996, each executive officer was granted a stock option under the
Option Plan. The size of each grant was based on the executive officer's
position with the Company, the executive officer's past performance and the
number of unvested options then held by the executive officer. In addition to
these annual grants, during 1996 the Compensation Committee granted options to
William H. Kind, Vice President, Engineering, upon commencement of his
employment with the Company in October 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Ejabat has served as an executive officer of the Company since January
1990 and has served as the Company's Chief Executive Officer since June 1995.
As described above for the Company's other executive officers, Mr. Ejabat's
base salary in 1996 was established by the Compensation Committee based upon
the Company's financial performance, Mr. Ejabat's individual duties and the
salaries paid to executives holding comparable positions at similarly situated
high technology companies. In addition to his base salary and based primarily
upon the Company's achievement of target sales and pre-tax profits for 1996,
Mr. Ejabat earned a bonus under the Company's bonus plan, as described above,
of approximately 100% of his base salary. Based on the criteria described
above regarding grants of unvested stock options to executive officers, Mr.
Ejabat also received in December 1996 a stock option for 400,000 shares under
the Option Plan as part of his compensation for 1997.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Effective January 1, 1994, the Internal Revenue Code (the "Code") was
amended to impose a limit under Section 162(m) on the amount of compensation
which may be deducted by a publicly-held corporation with respect to the
corporation's chief executive officer and its four other most highly-
compensated officers, set at $1,000,000 per executive per year. Exemptions
from this deductibility limit are provided for certain types of "performance-
based compensation," including compensation related to stock option plans
meeting certain criteria. In order to permit compensation under the Option
Plan to qualify for this exemption, the Board of Directors concluded that it
would be advisable to establish certain restrictions on the granting of
options under the Option Plan. These restrictions were approved by the
Company's stockholders in April 1994. The Compensation Committee does not
believe that other components of the Company's compensation will be likely in
the aggregate to exceed $1,000,000 for any executive officer in any year in
the foreseeable future, and therefore concluded that no further action with
respect to qualifying its executive compensation for deductibility of such
compensation was necessary at this time. The policy of the Compensation
Committee is to qualify executive compensation for deductibility under the
applicable tax laws as practicable. In the future, the Compensation Committee
will continue to evaluate the advisability of qualifying the deductibility of
such compensation.
The Compensation Committee
Betsy S. Atkins
C. Richard Kramlich
10
<PAGE>
COMPARISON OF STOCKHOLDER RETURNS
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock with the
cumulative total return of the Standard and Poor's 500 Index and the Nasdaq
Telecommunications Industry Index from May 13, 1994, the date of the Company's
initial public offering, through December 31, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN
FROM MAY 13, 1994 THROUGH DECEMBER 31, 1996(1)
AMONG ASCEND COMMUNICATIONS, INC., S&P 500 INDEX AND
NASDAQ TELECOMMUNICATIONS INDUSTRY INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
ASCEND NASDAQ
Measurement Period COMMUNICATIONS, S&P TELECOMMUNICATIONS
(Fiscal Year Covered) INC. 500 INDEX IND. INDEX
- ------------------- --------------- --------- ------------------
<S> <C> <C> <C>
Measurement Pt-05/13/94 $ 100.0 $100.0 $100.0
FYE 12/30/94 $ 217.7 $105.5 $101.6
FYE 12/29/95 $2163.3 $145.2 $133.1
FYE 12/31/96 $3313.3 $179.0 $136.0
- -----------
* Data prepared by the Center for Research in Security Prices.
(1) Assumes that $100.00 was invested on May 13, 1994 in the Company's Common
Stock and each index. Stockholder returns over the indicated period
should not be considered indicative of future stockholder returns.
</TABLE>
11
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Ernst & Young LLP as
independent auditors to audit the financial statements of the Company for the
year ending December 31, 1997. Ernst & Young LLP has acted as the Company's
independent auditors since the Company's inception. A representative of Ernst
& Young LLP is expected to be present at the Annual Meeting with the
opportunity to make a statement if the representative desires to do so, and is
expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the Annual Meeting,
at which a quorum representing a majority of all outstanding shares of Common
Stock of the Company is present and voting, either in person or by proxy, is
required for approval of this proposal. Abstentions and broker non-votes each
will be counted as present for purposes of determining the presence of a
quorum. Abstentions have the same effect as a negative vote on this proposal.
Broker non-votes will have no effect on the outcome of this vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1997.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company must be received by the Company at
its offices at One Ascend Plaza, 1701 Harbor Bay Parkway, Alameda, California,
94502, Attn: Secretary, not later than December 31, 1997, and satisfy the
conditions established by the SEC for stockholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the Annual
Meeting is as set forth above. If any other matter or matters are properly
brought before the Annual Meeting, or any adjournment or postponement thereof,
it is the intention of the persons named in the accompanying form of proxy to
vote the proxy on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ ROBERT K. DAHL
Robert K. Dahl
Secretary
April 30, 1997
12
<PAGE>
[LOGO OF RECYCLED PAPER]
<PAGE>
ASCEND COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Mory Ejabat and Michael J. Johnson, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of the common stock, par value $0.001 per share, of
Ascend Communications, Inc. (the "Company") which the undersigned is entitled to
vote at the Annual Meeting of Stockholders (the "Annual Meeting") of the Company
to be held at the Company's principal executive offices at One Ascend Plaza,
1701 Harbor Bay Parkway, Alameda, California, on Wednesday, May 28, 1997 at 1:00
p.m. local time, and at any adjournment or postponement thereof (1) as
hereinafter specified upon the proposals listed on the reverse side and as more
particularly described in the Company's Proxy Statement and (2) in their
discretion upon such other matters as may properly come before the Annual
Meeting.
The undersigned hereby acknowledges receipt of the: (1) Notice of Annual
Meeting of Stockholders of the Company, (2) accompanying Proxy Statement and (3)
Annual Report of the Company for the year ended December 31, 1996.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
1. Election of the following directors:
Nominees:
Mory Ejabat, Robert K. Dahl, Betsy S. Atkins, Roger L. Evans,
C. Richard Kramlich, James P. Lally, Martin Schoffstall
[ ] FOR ALL NOMINEES [ ] WITHHOLD FROM ALL NOMINEES
[ ]
--------------------------
For all nominees except as
written above
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE ANNUAL MEETING.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 AND 2.
[ ] CHECK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT.
[ ] CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign this Proxy. If shares of stock are held of record by a
corporation, this Proxy should be executed by the President or Vice President
and the Secretary or Assistant Secretary, and the corporate seal should be
affixed thereto. Executors or administrators or other fiduciaries who execute
this Proxy for a deceased stockholder should give their full title. Please date
this Proxy.
Dated: , 1997
--------
Signature(s):
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