<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COHERENT COMMUNICATIONS SYSTEMS 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):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11(set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO] COHERENT(TM)
COMMUNICATIONS SYSTEMS CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, MAY 15, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Coherent Communications Systems Corporation (the "Company") will be held at the
Company's offices located at 44084 Riverside Parkway, Leesburg, Virginia 22075
on Thursday, May 15, 1997 at 11:00 a.m., local time, for the following purposes:
1. To elect seven directors;
2. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has established the close of business on March
31, 1997 as the record date for the determination of stockholders entitled to
receive notice of, and to vote at, the meeting or any adjournments thereof. In
order that the meeting can be held and a maximum number of shares can be voted,
whether or not you plan to be present at the meeting in person, please fill in,
date and sign, and promptly return the enclosed Proxy in the return envelope
provided for your use. No postage is required if mailed in the United States.
By order of the Board of Directors,
JAMES A. OUNSWORTH
Secretary
44084 Riverside Parkway
Leesburg, VA 22075
April 8, 1997
<PAGE>
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
44084 Riverside Parkway
Leesburg, VA 22075
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of Proxies by the Board of Directors (the "Board") of Coherent Communications
Systems Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held on May 15, 1997 (such meeting and any adjournment or
adjournments thereof referred to as the "Annual Meeting") for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders and in this
Proxy Statement. The Company intends to mail this Proxy Statement and related
form of Proxy to stockholders on or about April 8, 1997.
Voting Securities
Only the holders of shares of common stock, par value $.01 per share
(the "Common Stock"), of the Company of record at the close of business on March
31, 1997 (the "Shares") are entitled to receive notice of, and to vote at, the
Annual Meeting. On that date, there were 15,154,022 Shares outstanding and
entitled to be voted at the Annual Meeting. It is the intention of the persons
named in the Proxy to vote as instructed by the stockholders or, if no
instructions are given, to vote as recommended by the Board. Each stockholder
has one vote per Share on all business of the Annual Meeting.
The seven nominees receiving the highest number of affirmative votes of
the Shares present or represented and entitled to be voted will be elected as
directors.
A majority of outstanding Shares will constitute a quorum for the
transaction of business at the Annual Meeting. Votes withheld from any director,
abstentions and broker non-votes will be counted for purposes of determining the
presence of a quorum for the transaction of business at the Annual Meeting.
Abstentions are counted in tabulations of the votes cast on proposals presented
to stockholders. Broker non-votes are not counted for purposes of determining
whether a proposal has been approved.
Revocability of Proxy
Execution of the enclosed Proxy will not affect a stockholder's right
to attend the Annual Meeting and vote in person. A stockholder, in exercising
his right to vote in person at the Annual Meeting, effectively revokes all
previously executed Proxies. In addition, the Proxy is revocable at any time
prior to the effective exercise thereof by filing notice of revocation with the
Secretary of the Company or by filing a duly executed Proxy bearing a later
date.
1
<PAGE>
Persons Making the Solicitation
The solicitation of this Proxy is made by the Company. The cost of
soliciting Proxies on behalf of the Company, including the actual expenses
incurred by brokerage houses, nominees and fiduciaries in forwarding Proxy
materials to beneficial owners, will be borne by the Company. In addition to
solicitation by mail, certain officers and other employees of the Company may
solicit Proxies on behalf of the Company in person or by telephone.
Stockholder Proposals for 1998 Annual Meeting
Stockholders intending to present proposals at the next Annual Meeting
of Stockholders to be held in 1998 must notify the Company of the proposal no
later than December 9, 1997.
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 1997, the Company's
Common Stock beneficially owned by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Shares, the Company's only
class of equity securities outstanding. The table also shows the number of
Shares owned beneficially by each director, by each named executive officer, and
by all executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of Shares Percent of
Owned (1) Class
------------------ -----------
<S> <C> <C>
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087(2).......................................... 4,843,342 32.0%
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087(3)........................................... 872,400 5.8%
Charles A. Root(4).............................................. 117,722 *
Daniel L. McGinnis(4)........................................... 843,249 5.5%
David L. Powell................................................. 56,000 *
Lawrence J. Gallick(5).......................................... 18,068 *
Michael P. Gendron.............................................. 0
Delbert W. Johnson.............................................. 11,376 *
Warren V. Musser(6)............................................. 263,358 1.7%
Miles R. Pratt.................................................. 44,735 *
Charles M. Skibo(4)............................................. 11,000 *
Ernst Volgenau.................................................. 0 *
Executive officers and directors as a group
(10 persons)(7)............................................... 1,365,508 8.9%
</TABLE>
- ---------
* Less than 1% of the outstanding Common Stock.
(1) Except as otherwise disclosed, the nature of beneficial ownership is
the sole power to vote and to dispose of the Shares (except for Shares
held jointly with spouse).
2
<PAGE>
(2) Safeguard Scientifics (Delaware), Inc. ("Safeguard Delaware"), a wholly
owned subsidiary of Safeguard Scientifics, Inc. ("Safeguard"), is the
record owner of the Shares set forth above. Consequently, such Shares
are beneficially owned by Safeguard. All of the Shares beneficially
owned by Safeguard have been pledged by Safeguard as collateral under
its bank line of credit.
(3) As reflected in the Schedule 13G filed with the Securities and Exchange
Commission, Pilgrim Baxter & Associates, Ltd., a registered investment
advisor, PBHG Growth Fund, an investment company, Harold J. Baxter and
Gary L. Pilgrim are members of a group for purposes of Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934. Each of Pilgrim
Baxter & Associates, Ltd., Harold J. Baxter and Gary L. Pilgrim
beneficially owns 872,400 Shares over which they have shared voting
power and sole dispositive power and PBHG Growth Fund beneficially owns
682,500 Shares over which it has shared voting power and sole
dispositive power.
(4) Includes for Messrs. Root, McGinnis and Skibo 40,000 Shares, 100,751
Shares and 11,000 Shares, respectively, that may be acquired pursuant
to stock options that are currently exercisable or that will become
exercisable by May 29, 1997.
(5) Includes 600 Shares held by Mr. Gallick's spouse, 600 Shares held in
trust for his children, and 14,000 Shares that may be acquired pursuant
to stock options that are currently exercisable or that will become
exercisable by May 29, 1997. Mr. Gallick disclaims beneficial ownership
of the Shares owned by his spouse and in trust for his children.
(6) Excludes 4,843,342 Shares beneficially owned by Safeguard, for which
Mr. Musser serves as Chairman of the Board and Chief Executive Officer.
Mr. Musser disclaims beneficial ownership of the shares beneficially
owned by Safeguard.
(7) Includes 165,986 shares that may be acquired upon exercise of stock
options that are currently exercisable or that will become exercisable
by May 29, 1997.
I. ELECTION OF DIRECTORS
It is intended that the persons named as proxies for this Annual
Meeting will vote in favor of the election of the following nominees as
directors of the Company to hold office until the Annual Meeting of Stockholders
in 1998 and until their successors are elected and have qualified. All of the
nominees are presently serving as directors of the Company. Proxies may not be
voted for more than seven directors. Each of the nominees has consented to serve
if elected. However, if any of the nominees should become unavailable prior to
the election, the holder of the Proxies may vote the Proxies for the election of
such other persons as the Board may recommend, unless the Board reduces the
number of directors to be elected.
The Board unanimously recommends that stockholders vote FOR the
election of the nominees set forth in this Proposal. Proxies received by the
Board will be so voted unless stockholders specify otherwise on their Proxy
cards. The seven nominees receiving the highest number of affirmative votes of
the Shares present or represented and entitled to be voted shall be elected as
directors.
3
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation and Business Has Been a
Name Experience During Last Five Years Director Since Age
------- ------------------------------------------------ --------------- ----
<S> <C> <C> <C>
Charles A. Root Executive Vice President, Safeguard
Scientifics, Inc., a strategic information
systems company(1)(5)............................... 1986 64
Daniel L. McGinnis Chief Executive Officer of the
Company(1)(6)(11)................................... 1988 58
Lawrence J. Gallick Senior Partner and Director, Saperston &
Day, a Buffalo, New York law firm(2)(3)(7)(11)...... 1993 57
Delbert W. Johnson Chairman of the Board and Chief Executive
Officer, Pioneer Metal Finishing, a
specialty metal finishing division of
Safeguard(3)(4)(8).................................. 1993 58
Warren V. Musser Chairman of the Board and Chief
Executive Officer, Safeguard Scientifics
Inc.(2)(9).......................................... 1993 70
Charles M. Skibo Chairman, Allied International Industries,
Inc., a telecom, computer and high
technology acquisitions firm, and Chairman,
Strategic Enterprises and Communications,
Inc., a communications consulting and
acquisitions firm(2)(3)(10)......................... 1994 58
Ernst Volgenau President, Chief Executive Officer and
founder, SRA International, Inc., a provider of
computer, communications and management consulting
services and
software(12)........................................ 1996 63
</TABLE>
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee, of which Mr. Musser is Chairman.
(3) Member of the Audit Committee, of which Mr. Gallick is Chairman.
(4) Member of the Nominating Committee.
(5) Mr. Root served as the Company's Chief Executive Officer from 1988
until he resigned from such position in March 1994. Mr. Root is
Chairman of the Board of the Company, CompuCom Systems, Inc.
("CompuCom") and Tangram Enterprise Solutions, Inc. ("Tangram) and a
director of USDATA Corporation. CompuCom and Tangram are majority owned
subsidiaries of Safeguard.
(6) Mr. McGinnis has served as Chief Executive Officer of the Company since
September 1994, when he was promoted from the position of President and
Chief Operating Officer.
(7) Mr. Gallick is a director of G.W. Plastics, Inc.
(8) Mr. Johnson has been the President and Chief Executive Officer of
Pioneer Metal Finishing, a division of Safeguard, from 1978 until
October 1994, when he assumed the position of Chairman of the Board and
Chief Executive Officer of Pioneer Metal Finishing. Mr. Johnson is a
director of Safeguard, CompuCom Systems, Inc., Ault, Inc., Firstbank
Systems, Inc. and Tennant Company. Mr. Johnson was the Chairman of the
Ninth District Federal Reserve Bank from 1991 to 1993 and was the 1993
Chairman of the Federal Reserve Board Conference of Chairmen.
4
<PAGE>
(9) Mr. Musser has been Chairman of the Board and Chief Executive Officer
of Safeguard since 1953, and assumed the additional position of
President of Safeguard from November 1993 through February 1996. Mr.
Musser is Chairman of the Board of Cambridge Technology Partners
(Massachusetts), Inc., a director of CompuCom Systems, Inc. and
National Media Corporation, and a trustee of Brandywine Realty Trust.
Mr. Musser also serves on a variety of civic, educational and
charitable Boards of Directors including The Franklin Institute and the
Board of Overseers of The Wharton School of the University of
Pennsylvania, and serves as Vice President/Development, Cradle Liberty
Council, Boy Scouts of America, as Vice Chairman of The Eastern
Technology Council, and as Chairman of the Pennsylvania Council on
Economic Education.
(10) Prior to serving as Chairman of Allied International Industries, Inc.
and Chairman of Strategic Enterprises and Communications, Inc., Mr.
Skibo was Chairman and Chief Executive Officer of Cezar Industries,
Inc., a company engaged in international telecommunications, from
October 1991 to February 1992, and President and Chief Operating
Officer of AT&E Corporation, a company engaged in the development of
wireless personal communications messaging systems, from July 1988
through December 1990. Following his departure from AT&E Corporation, a
Chapter 11 bankruptcy petition was filed, after which AT&E subsequently
reorganized and sold its assets to a company to which it was indebted.
(11) Mr. McGinnis and Mr. Gallick are first cousins. There are no other
family relationships among the directors and executive officers of the
Company.
(12) Prior to founding SRA International, Inc., Dr. Volgenau was Director of
Inspection and Enforcement in the Nuclear Regulatory Commission from
1976 to 1978. He also taught electrical engineering, computer systems
and operations research at the University of California, American
University and George Washington University.
Directors' Compensation
Directors are elected annually and hold office until their successors
are elected and have qualified or until their earlier resignation or removal. In
1996, each director who was not an employee of the Company or Safeguard received
an annual cash retainer of $6,000 and $500 for each Board meeting attended.
Directors also were reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings or other Company business.
Directors' Stock Options
Directors who are not employees of the Company and its subsidiaries or
Safeguard and its subsidiaries and affiliated companies ("Eligible Directors")
participate in the 1993 Equity Compensation Plan (the "1993 Plan"). Each
Eligible Director receives an option to purchase 20,000 shares of the Company's
Common Stock upon his or her election to the Board. Thereafter, each Eligible
Director will receive a grant to purchase 4,000 shares of Common Stock on the
anniversary of his or her election following every two years' service
thereafter. The exercise price of each option is equal to the fair market value
of the shares on the date of grant. Options granted to Eligible Directors vest
in 25% installments, commencing on the first anniversary of the grant date, and
have a term of seven years. The maximum number of shares of Common Stock subject
to options granted to an Eligible Director under the 1993 Plan cannot exceed
40,000 shares. In February 1996, Mr. Skibo received an option to purchase 4,000
shares of Common Stock at an exercise price of $21.50 per share and in December
1996, Dr. Volgenau, upon his election to the Board, received an option to
purchase 20,000 shares at an exercise price of $20.375 per share.
5
<PAGE>
Committees and Meetings of the Board of Directors
The Board held four meetings in 1996. The Company's Board has appointed
standing Compensation, Executive, Audit and Nominating Committees. The
Compensation Committee reviews and recommends the compensation arrangements for
senior management of the Company, including salaries, bonuses and grants of
options to purchase shares of Common Stock under the Company's equity
compensation plan. The Compensation Committee met four times during 1996. The
Executive Committee, which did not meet during 1996, has the authority to
perform functions on behalf of the full Board of Directors between meetings,
except such functions as are required by law to be performed by the full Board
of Directors. The Audit Committee recommends the firm to be appointed as
independent certified public accountants to audit the Company's financial
statements, discusses the scope and results of the audit with the independent
certified public accountants, reviews with management and the independent
certified public accountants the Company's interim and year-end operating
results, considers the adequacy of the internal accounting controls and audit
procedures of the Company and reviews the non-audit services to be performed by
the independent certified public accountants. The Audit Committee met four times
during 1996. The Nominating Committee, which recommends nominees for election to
the Company's Board of Directors, did not meet during 1996. The Nominating
Committee will consider qualified candidates recommended by stockholders, who
should submit any such recommendations, including a detailed statement of
qualifications, to the Nominating Committee, c/o the Corporate Secretary,
Coherent Communications Systems Corporation, 44084 Riverside Parkway, Lansdowne
Business Center, Leesburg, VA 22075. All of the directors attended at least 75%
of the total number of meetings of the Board and the Committees of which they
were members during the period in which they served as a director.
REPORT OF THE BOARD COMPENSATION COMMITTEE
The Compensation Committee of the Board (the "Compensation Committee")
reviews and approves compensation levels recommended by management, including
incentive compensation, for the executives of the Company, and administers the
Company's equity compensation plan. Messrs. Gallick, Musser and Skibo currently
constitute the Compensation Committee.
Executive Compensation Policies
The Company is in a highly competitive industry. In order to succeed,
the Company believes that it must be able to attract and retain outstanding
executives, promote among them the economic benefits of stock ownership in the
Company, and motivate and reward executives who, by their industry, loyalty and
exceptional service, make contributions of special importance to the success of
the business of the Company. The Company has structured its executive
compensation program to support the strategic goals and objectives of the
Company.
Base compensation levels and benefits are established at the median for
companies of a comparable size in the telecommunications industry. For the
purpose of establishing these levels, jobs are graded into standard categories
and compared to similar categories in surveys published annually by the American
Electronics Association. A range of salary increases generally is determined at
the time the budget is established each year based on a review of the level of
achievement of financial and strategic objectives as defined in the Company's
annual strategic plan. Salary increases are awarded at the time of an
individual's review based upon such individual's performance and contributions
to the achievement of the Company's objectives. Such reviews are generally
performed near the anniversary of an individual's hire date. Annual cash bonuses
are intended to create an incentive for executives who significantly contribute
6
<PAGE>
to and influence the Company's strategic plans and are responsible for the
Company's performance. The aims are to focus executives' attention on areas such
as profitability and asset management, to encourage teamwork, and to tie
executive pay to corporate performance goals which are consistent with the
long-term goals of stockholders and other investors. Bonuses are awarded based
on the achievement of annual financial and strategic goals approved by the
Compensation Committee at the beginning of each year. These goals may include a
target range of pretax earnings, earnings per share, return on equity, or other
objective measurement consistent with long-term stockholder goals. The
Compensation Committee approves a target range for specific financial and/or
strategic goals and a range of potential bonus amounts for each executive,
stated as a percentage of base salary. Ranges of potential bonuses are
determined based upon the executive's ability to affect the Company's
performance. Actual bonuses are awarded following the year-end based on the
actual achievement level of the specified corporate goals compared to the target
range of achievement. For fiscal 1996, the Compensation Committee determined
that bonuses would be awarded based primarily upon a target range for annual
pretax earnings with the ability to adjust the payout among the participants
based on individual performance.
Grants of Company stock options are intended to align the interests of
executives and key employees with the long-term interests of the Company's
stockholders and other investors and to encourage executives and key employees
to remain in the Company's employ. Grants are not made in every year, but are
awarded subjectively based on a number of factors, including the individual's
level of responsibility, the amount and term of options already held by the
individual, the individual's contributions to the achievement of the Company's
financial and strategic objectives as defined in the Company's annual plan, and
the Company's achievement of its financial and strategic objectives, which may
include the goals described above as well as developing strategic alliances,
identifying and exploiting markets, expanding existing market share and
penetration, expanding operating capabilities and improving net operating
margins and return on equity. The Company also has implemented a program to
grant replacement stock options under its 1993 Plan to assist eligible employees
in the acquisition and retention of the Company's stock. So long as the program
remains in effect, participants may be eligible to receive a replacement option
by certifying upon exercise of a stock option that either (i) the participant's
stock ownership exceeds his or her stock ownership goal, as established by the
Company, or (ii) the participant is working toward achievement of that ownership
goal and has not sold over the 12 preceding months and does not presently intend
to sell more than 20% of the total number of shares of Company Common Stock
acquired upon the exercise of options.
Company Policy on Qualifying Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that publicly held companies may not deduct in any taxable
year compensation in excess of one million dollars paid to any of the
individuals named in the Summary Compensation Table which is not
"performance-based" as defined in section 162(m). The policy of the Board of
Directors and the Compensation Committee is to qualify future compensation
arrangements to ensure deductibility, except in those limited cases where
stockholder value is maximized by an alternative approach.
CEO Compensation
In accordance with the Company's guidelines for merit increases, the
Compensation Committee authorized an increase in Mr. McGinnis's 1997 base salary
of approximately 17% over 1996. Mr. McGinnis also was awarded a bonus for 1996
equal to 84% of his target bonus. Under the Company's 1996 bonus plan, Mr.
McGinnis was entitled to 100% of a standard bonus for a 25% increase in pretax
earnings over the prior year and up to a maximum of 200% of a standard bonus for
7
<PAGE>
a 35% increase. Pretax earnings for 1996 were 21% greater than 1995. During
1996, Mr. McGinnis also was awarded an option to purchase 7,617 shares under the
Company's 1993 Plan in accordance with the terms of the replacement option
program adopted by the Board in May 1995.
Other Executive Compensation
The Compensation Committee approved executive cash bonuses equal to an
average of 60% of the target bonus amounts based on the Company achieving pretax
earnings as noted above under discussion of the CEO's compensation. The
Compensation Committee also granted options under the Company's 1993 Plan to
certain of its executives and employees. These options were primarily granted to
recently hired executives and employees and to executives and employees under
the replacement option program adopted by the Board in May 1995.
By the Compensation Committee:
Lawrence J. Gallick Warren V. Musser Charles M. Skibo
8
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers
The following table sets forth information concerning compensation paid
during the last three fiscal years to the Chief Executive Officer and each of
the executive officers of the Company whose salary and bonus exceeded $100,000
in 1996 (collectively, the "Named Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
- --------------------------------|----------------------------------------|--------------------------|-----------------
| Annual Compensation | Long Term Compensation |
|----------------------------------------|--------------------------|
| Awards |
|--------------------------|
Other Securities
Annual Restricted Underlying All Other
Name and Principal Bonus Compen- Stock Options/ Compen-
Position Year Salary ($)(1) ($)(2) sation($) Award(s)($) SARS (#) sation ($)(4)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel L. McGinnis, 1996 $ 234,327 $ 117,000 -- -- 7,617 $ 20,386
Chief Executive
Officer 1995 200,000 140,000 -- -- 429 16,502
1994 170,000 110,000 -- -- -- 21,009
- ----------------------------------------------------------------------------------------------------------------------
David L. Powell, 1996 $ 159,500 $ 64,000 -- -- -- $ 19,212
President and Chief
Operating Officer 1995 135,000 95,000 -- -- -- 13,043
1994 170,664 18,600 $56,783 -- 40,000 7,510
- ----------------------------------------------------------------------------------------------------------------------
Michael P. Gendron, 1996 $ 100,000 $ 20,000 -- -- -- $ 4,240
Vice President,
Finance and Chief 1995 57,077 -- -- -- 14,000 --
Financial Officer(5)
- ----------------------------------------------------------------------------------------------------------------------
Miles R. Pratt, 1996 $ 102,885 $ 19,000 -- -- 1,491 $ 20,176
Vice President
1995 162,800 34,000 -- -- 1,176 16,501
1994 166,027 22,000 -- -- -- 18,180
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes annual compensation which has been deferred by Messrs.
McGinnis, Powell, Gendron and Pratt pursuant to the Company's 401(k)
Profit Sharing Plan (the "401(k) Plan"). Amounts shown do not include
amounts expended by the Company pursuant to plans (including group,
disability, life, health and international service insurance) that do
not discriminate in scope, terms or operation in favor of executive
officers or directors and that are generally available to all salaried
employees.
(2) Amounts have been listed for the year earned although actually paid in
the following fiscal year.
(3) Perquisites and other personal benefits for fiscal year 1996 did not
exceed the lesser of $50,000 or 10% of any executive officer's salary
and bonus.
(4) The amounts reported include the matching contributions and profit
sharing plan contributions, respectively, made by the Company pursuant
to the 401(k) Plan for the benefit of the following named officers: Mr.
McGinnis, $6,000 and $14,386; Mr. Powell, $6,000 and $13,212; Mr.
Gendron, $4,240 and $0; and Mr. Pratt, $5,790 and $14,386. The 401(k)
Plan is a defined contribution retirement plan sponsored by the
Company, pursuant to which total Company contributions, if any, are
determined at the discretion of the Company, subject to current and
accumulated earnings of the Company. In addition, Company matching
contributions pursuant to the 401(k) Plan are dependent upon
participant contributions.
(5) Mr. Gendron joined the Company in June 1995.
9
<PAGE>
Stock Options
The following tables set forth information with respect to (i)
individual grants of stock options during 1996 to each of the Named Officers,
(ii) options exercised during fiscal year 1996, and (iii) the number of
unexercised options and the value of unexercised in-the-money options at
December 31, 1996.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
- ----------------------------|----------------------------------------------------------|------------------------------
| |
| | Potential Realizable Value
| | at Assumed Annual Rates
| | of Stock Price Appreciation
| Individual Grants | For Option Term(1)
|----------------------------------------------------------|------------------------------
Number of % of Total
Securities Options/
Underlying SARs Exercise or
Options/ Granted to Base Price
SARs Employees In ($/Sh)(3) Expiration 5% 10%
Name Granted (#)(2) Fiscal Year Date ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. McGinnis 1,654 .79% $18.50 04/11/03 $ 12,457 $ 29,030
5,963 2.86% $20.125 10/30/03 $ 48,854 $ 113,851
- ----------------------------------------------------------------------------------------------------------------------
David L. Powell 0 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Michael P. Gendron 0 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Miles R. Pratt 1,491 .71% $20.125 10/30/03 $ 12,216 $ 28,468
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The potential realizable values are based on an assumption that the
stock price of the shares of Common Stock of the Company appreciate at
the annual rate shown (compounded annually) from the date of grant
until the end of the option term. These values do not take into account
amounts required to be paid as income taxes under the Code and any
applicable state laws or option provisions providing for termination of
an option following termination of employment, nontransferability or
vesting over periods of up to five years. These amounts are calculated
based on the requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock
price growth of the shares of Common Stock of the Company.
(2) Each option vests 20% each year commencing on the first anniversary of
the grant date, has a seven-year term and continues vesting and remains
exercisable so long as employment with the Company or one of its
subsidiaries continues. The option exercise price may be paid in cash
or by (i) delivery of previously acquired shares or (ii) same day
sales, i.e. cashless broker's exercises.
(3) All options have an exercise price at least equal to the fair market
value on the date of grant of the shares subject to each option.
10
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options/SARs In-the-Money Options/
On at Fiscal Year-End (#) SARs at Fiscal Year-End ($)(1)
Exercise Value
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. McGinnis 151,000 $ 2,659,087 100,421 57,961 $ 1,836,350 $ 916,654
- --------------------------------------------------------------------------------------------------------------------
David L. Powell 56,000 $ 1,049,000 0 59,000 0 $ 973,500
- --------------------------------------------------------------------------------------------------------------------
Michael P. Gendron 0 -- 2,800 11,200 0 $ 0
- --------------------------------------------------------------------------------------------------------------------
Miles R. Pratt 25,000 $ 398,125 235 27,432 0 $ 457,500
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The value of unexercised in-the-money options is calculated based upon
(i) the fair market value per share of the stock at December 31, 1996,
less the option exercise price, multiplied by (ii) the number of shares
subject to an option. On December 31, 1996, the fair market value of a
share of the Company's common stock was $19.50. This table is presented
solely for the purpose of complying with Securities and Exchange
Commission rules and does not necessarily reflect the amounts the
optionees will actually receive upon any sale of the shares acquired
upon the exercise of the options.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
The Company has entered into a severance and non-competition agreement
with Mr. McGinnis that provides for continued health benefits for up to a
one-year period and severance payments equal to one year of his base salary upon
the termination of his employment with the Company for reasons other than just
cause or voluntary resignation. Pursuant to this agreement, Mr. McGinnis has
agreed to refrain from competing with the Company for one year after the
termination of his employment, and the Company's severance payments and benefits
are conditioned upon adherence to such non-competition provisions. The Company
has entered into confidentiality agreements for a term of twelve months
commencing upon termination of employment with each of its executive officers
and key employees.
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
the Company's Common Stock for the period beginning with the commencement of the
Company's initial public offering on June 16, 1994 through December 31, 1996
with the cumulative total return on the Nasdaq Index and the cumulative total
return for a peer group index for the same period. The peer group consists of
SIC Code 366--Communications Equipment. The comparison assumes that $100 was
invested on June 16, 1994 in the Company's Common Stock and in each of the
comparison indices, and assumes reinvestment of dividends. The Company has
historically reinvested earnings in the growth of its business and has not paid
cash dividends on its Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURNS
800|------------------------------------------------------------------|
| * * |
| |
700|------------------------------------------------------------------|
| |
| |
600|------------------------------------------------------------------|
| |
| |
500|------------------------------------------------------------------|
| |
| |
400|------------------------------------------------------------------|
| |
| * |
300|------------------------------------------------------------------|
| |
| |
200|------------------------------------------------------------------|
| & & |
| &# # # |
100|--------*&#-------------------------------------------------------|
| |
| |
0----------|-------------|--------------|--------------|------------|
Jun-94 Dec-94 Dec-95 Dec-96
*=Coherent &=NASDAQ #=Peer Group
Jun-94 Dec-94 Dec-95 Dec-96
------------------------------------------------------
Coherent 100 325 770 780
NASDAQ 100 107 152 186
Peer Group 100 115 123 137
12
<PAGE>
CERTAIN TRANSACTIONS
The Company and Safeguard are parties to an Administrative Services
Agreement pursuant to which Safeguard provides the Company with administrative
support services for an annual fee equal to one and one-half percent of the
Company's first $30 million in calendar year net sales ("Annual Net Sales"), one
and one-quarter percent of Annual Net Sales exceeding $30 million and up to $40
million, one percent of Annual Net Sales exceeding $40 million and up to $50
million, and three-quarters of one percent of Annual Net Sales in excess of $50
million. The fee is paid monthly, provided, however, that no more than $800,000
shall be paid to Safeguard with respect to any calendar year. The administrative
support services include consultation regarding the Company's general
management, investor relations, financial management, certain legal services,
insurance programs administration, audit administration and tax research and
planning. The annual administrative services fee does not cover extraordinary
services provided by Safeguard to the Company or services that are contracted
out. The term of the agreement is from December 1, 1993 through December 31,
1998, with automatic annual renewals thereafter unless terminated by either
party upon notice at least ninety days prior to the scheduled termination date.
The Company expended $708,000 during 1996 for these services.
During 1993, Safeguard and the Company entered into an agreement
whereby the Company would lend to Safeguard its excess cash and receive a
negotiated interest rate which was higher than the rate the Company might
realize by independently investing the funds, but which was less than
Safeguard's cost of funds. Safeguard's borrowings under this arrangement accrued
interest at Safeguard's cost of funds less one percent. The principal and unpaid
interest on these borrowings are payable within three business days of demand by
the Company, and accrued interest on this note is payable on a monthly basis.
The highest principal balance of these borrowings since January 1, 1996 was $2
million. In June 1996 Safeguard paid $1 million against the principal and the
remaining $1 million was paid in September 1996.
INDEPENDENT PUBLIC ACCOUNTANTS
Since 1986, the Company has retained KPMG Peat Marwick LLP as its
independent public accountants, and it intends to retain KPMG Peat Marwick LLP
for the current year ending December 31, 1997. Representatives of KPMG Peat
Marwick LLP are expected to be present at the Annual Meeting and will have an
opportunity at the meeting to make a statement if they desire to do so and will
be available to respond to appropriate questions.
13
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities ("10%
Stockholders") to file reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company with the Securities and
Exchange Commission ("SEC"). Officers, directors and 10% Stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file. Based solely on its review of the copies of such
forms received by it and written representations from certain reporting persons
that no other reports were required for those persons, the Company believes that
all Section 16(a) filing requirements were complied with during the period from
January 1, 1996 to December 31, 1996.
OTHER MATTERS
The Company is not aware of any other business to be presented at the
Annual Meeting. If any other matters should properly come before the Annual
Meeting, however, the enclosed Proxy confers discretionary authority with
respect thereto.
The Company's Annual Report for 1996, including financial statements
and other information with respect to the Company and its subsidiaries, is being
mailed simultaneously to the stockholders but is not to be regarded as proxy
solicitation material.
Dated: April 8, 1997
14
<PAGE>
PROXY
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby constitute and appoint Daniel L. McGinnis and David L. Powell and
each of them, my true and lawful agents and proxies with full power of
substitution in each, to vote all shares held of record by me as specified on
the reverse side and, in their discretion, on all other matters which may
properly come before the 1997 Annual Meeting of Stockholders of Coherent
Communications Systems Corporation to be held on May 15, 1997, and at any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL NOMINEES TO THE BOARD OF DIRECTORS AND AS THE PROXIES
MAY DETERMINE IN THEIR DISCRETION WITH REGARD TO ANY OTHER MATTER PROPERLY
BROUGHT BEFORE THE MEETING.
PLEASE MARK, SIGN AND DATE THE PROXY CARD ON THE REVERSE SIDE AND
RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
--- FOLD AND DETACH HERE ---
<PAGE>
Please mark [X]
your votes as
indicated in
this example
The Board of Directors recommends a vote FOR proposal 1.
1. ELECTION OF DIRECTORS
Nominees:
Charles A. Root TO WITHHOLD AUTHORITY TO
Daniel L. McGinnis WITHHELD VOTE FOR ANY INDIVIDUAL
Lawrence J. Gallick FOR FOR ALL NOMINEE WHILE VOTING FOR
Delbert W. Johnson [ ] [ ] THE REMAINDER, STRIKE A
Warren V. Musser LINE THROUGH THE NOMINEE'S
Charles M. Skibo NAME IN THE LIST.
Ernst Volgenau
SIGNATURE(S)_______________________________________________ DATE: ____________
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREIN. Joint tenants must
both sign. When signing as attorney, executor, administrator, trustee or
guardian, or for a corporation or partnership, please give full title.
--- FOLD AND DETACH HERE ---
Your Proxy vote is important,
regardless of the number of shares you own.
Whether or not you plan to attend the meeting in person,
please complete, date and sign the above Proxy card and
return it without delay in the enclosed envelope.
[LOGO] COHERENT(TM)
COMMUNICATIONS SYSTEMS CORP.
