<PAGE>
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 Section 240.14a-11(c) or Section 240.14a-12
U.S. ROBOTICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
U.S. ROBOTICS CORPORATION
- --------------------------------------------------------------------------------
(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)(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:
-------------------------------------------------------------------------
[_] 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:
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Notes:
<PAGE>
U.S. ROBOTICS CORPORATION
8100 NORTH MCCORMICK BOULEVARD
SKOKIE, ILLINOIS 60076-2999
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 5, 1997
TO THE STOCKHOLDERS OF U.S. ROBOTICS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of U.S.
ROBOTICS CORPORATION, a Delaware corporation (the "Company"), will be held at
the Fairmont Hotel, 200 North Columbus Drive, Chicago, Illinois 60601, on
March 5, 1997 at 9:30 A.M. Central Time, for the purpose of considering and
acting upon the following matters:
1. To elect two (2) directors to the Board of Directors of the Company,
each to serve for a term of 3 years.
2. To consider and act upon such other business as may properly come
before the meeting.
Stockholders of record as of the close of business on January 17, 1997 will
be entitled to notice of and to vote at the meeting. For ten days prior to the
meeting, a list of stockholders entitled to vote at the meeting with the
address of and number of shares held by each will be kept on file at the
offices of the Company at 8100 North McCormick Boulevard, Skokie, Illinois
60076 and at the offices of the Company's transfer agent, Harris Trust and
Savings Bank, located at 311 W. Monroe Street, Chicago, IL 60606 and will be
subject to inspection by any stockholder at any time during usual business
hours. The list will also be available for inspection by any stockholder
during the meeting. Stockholders are urged to execute and return the
accompanying proxy card in the envelope enclosed, whether or not they expect
to attend the meeting in person.
The annual report of the Company for the fiscal year ended September 29,
1996 is being mailed to all stockholders of record and accompanies this Proxy
Statement.
By order of the Board of Directors,
George A. Vinyard
Secretary
Skokie, Illinois
January 27, 1997
<PAGE>
PROXY STATEMENT
U.S. ROBOTICS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MARCH 5, 1997
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of U.S. Robotics
Corporation, a Delaware corporation (the "Company"), having its principal
executive offices at 8100 North McCormick Boulevard, Skokie, Illinois 60076,
in connection with the solicitation of proxies by its Board of Directors for
use at the Annual Meeting of Stockholders to be held on March 5, 1997 and any
adjournments thereof (the "Meeting"). The approximate date on which this Proxy
Statement and the accompanying proxy card are first being sent to stockholders
is January 27, 1997. As used herein, references to the "Company" include U.S.
Robotics, Inc., the Company's predecessor, for periods prior to February 22,
1995. All shares and per share amounts for dates and periods prior to May 10,
1996 and September 8, 1995 have been adjusted to reflect the 2-for-1 stock
splits effected in the form of a 100% stock dividend paid on each of those
dates to stockholders of record on April 25, 1996 and August 25, 1995,
respectively.
A proxy is revocable at any time before it is voted, by a subsequently dated
proxy, by written notification to the persons named therein as proxies which
may be mailed or delivered to the Company at the above address, or by
attendance at the Meeting and voting in person. All shares represented by
effective proxies will be voted at the Meeting and any adjournments thereof.
The Company has one class of stock outstanding, common stock, $.01 par value
per share ("Common Stock"). On January 17, 1997, 89,003,656 shares of Common
Stock were outstanding and entitled to one vote each on all matters to be
considered at the Meeting. Stockholders of record as of the close of business
on January 17, 1997, are entitled to notice of and to vote at the Meeting.
There are no cumulative voting rights with respect to the election of
directors.
2
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table shows with respect to each beneficial owner of more than
5% of the Company's Common Stock, each of the directors and nominees for
director of the Company, each of the named executive officers and all
directors and executive officers of the Company as a group: (i) the total
number of shares of Common Stock beneficially owned as of January 17, 1997 and
(ii) the percent of the Common Stock so owned as of that date. Unless
otherwise indicated below, the persons named in the table below have sole
voting and investment power with respect to all shares shown as beneficially
owned by them:
<TABLE>
<CAPTION>
AMOUNT AND
NAME OF NATURE OF
BENEFICIAL BENEFICIAL PERCENT
OWNER OWNERSHIP OF CLASS
---------- ---------- --------
<S> <C> <C>
Casey Cowell.......................................... 1,819,154(1) 2.0
John McCartney........................................ 1,443,570(1) 1.6
Jonathan N. Zakin..................................... 970,338(1)(2) 1.1
Ross W. Manire........................................ 657,697(1) *
Michael Seedman....................................... 114,669(1) *
James E. Cowie........................................ 20,000(1) *
Terence M. Graunke.................................... 21,895(1) *
Peter I. Mason........................................ 69,328(1) *
Paul G. Yovovich...................................... 102,800(1) *
All directors and executive officers as a group (15
persons)............................................. 5,370,501(1)(2) 5.8
</TABLE>
- --------
* Less than 1.0%
(1) Includes options to acquire shares, exercisable within 60 days, as
follows: Mr. Cowell 440,000, Mr. McCartney 1,105,266, Mr. Zakin 949,548,
Mr. Manire 657,693, Mr. Seedman 114,669, Mr. Cowie 20,000, Mr. Graunke
20,000, Mr. Mason 40,000, Mr. Yovovich 90,000, and certain executive
officers not named above, 150,000.
(2) Excludes currently exercisable options to purchase 93,016 shares held in
an irrevocable trust for Mr. Zakin's adult children, as to which he
disclaims beneficial interest.
SECTION 16(a) BENEFICIAL OWNER REPORTING COMPLIANCE
The Company's directors, executive officers and persons who beneficially own
more than 10% of the Company's Common Stock are required to file with the
Securities and Exchange Commission ("SEC") reports disclosing their initial
and subsequent changes in ownership of Company Common Stock. To the Company's
knowledge, all filing requirements were satisfied by the Company's directors
and executive officers during such year, with the exception of two reports
which were filed late by Spencer Kirk when he was Vice President and General
Manager of the Company's Mobile Communications subsidiary. Mr. Kirk was late
in reporting two gifts and five sales of securities owned by him in October
and November 1995. In making these disclosures, the Company has relied solely
on written representations of its directors and officers and copies of the
reports they have filed with the SEC.
3
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NUMBER 1 ON THE ENCLOSED PROXY CARD)
The By-laws of the Company provide that the number of directors of the
Company shall be not less than three nor more than 25 and will be determined
from time to time by resolution of the Board of Directors. The number of
directors is currently set at seven. The Certificate of Incorporation of the
Company provides for a classified Board of Directors consisting of three
classes elected to hold office for terms of three years or until their
successors are elected and qualified. Of those persons identified below as
nominees for election, Messrs. Cowie and Zakin are currently serving terms
expiring in 1997 and have been nominated for election to full three year terms
ending in 2000. Also listed below are the remaining directors of the Company
whose terms expire in 1998 and 1999, as indicated.
It is intended, in the absence of contrary specifications, that votes will
be cast pursuant to the enclosed form of proxy for the election of such
nominees. Should any of the nominees become unable or unwilling to accept
nomination or election, it is intended, in the absence of contrary
specifications, that the proxies will vote for the balance of those named and
for a substitute nominee or nominees. However, officials of the Company now
know of no reason to anticipate such an occurrence. All of the nominees have
consented to be named as nominees and to serve as directors if elected.
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY, BUSINESS
NAME AGE EXPERIENCE, AND OTHER POSITIONS
---- --- ---------------------------------------
<C> <C> <S>
A. NOMINEES FOR ELECTION:
Jonathan N. Zakin................ 47 Mr. Zakin joined the Company as Vice
President, Sales in 1987. He served as
the Company's Executive Vice President,
Sales and Marketing from 1989 until
April 1995, when he was named Executive
Vice President, Business Strategy and
Corporate Development. Mr. Zakin has
been a director since 1988.
James E. Cowie................... 42 Mr. Cowie has served as a director of
the Company since March 1994. Mr. Cowie
has been a General Partner of Frontenac
Company, a Chicago-based private equity
investment firm, since 1989. Mr. Cowie
is also a director of PLATINUM
technology, inc., and US Servis, Inc.
B. TERMS EXPIRING IN 1998:
John McCartney................... 44 Mr. McCartney has been an officer of
the Company since 1984 and a director
since 1985. Effective January 1997, he
was named President. In January 1996,
Mr. McCartney was designated Chief
Operating Officer. He held the position
of Executive Vice President from 1988
until January 1997 and Vice President
from 1984 until 1988. He served as the
Company's Chief Financial Officer from
1984 to 1992 and as Secretary from 1989
to 1992.
Peter I. Mason................... 44 Mr. Mason has served as a director of
the Company since 1983. He is a
founding partner of the Chicago law
firm of Freeborn & Peters, and served
as Chairman of its Operating Committee
from 1989 to 1996. Freeborn & Peters
has provided legal services to the
Company since 1983. He currently is a
director of May and Speh, Inc. and
Eagle River Interactive, Inc., as well
as several privately held companies.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY, BUSINESS
NAME AGE EXPERIENCE, AND OTHER POSITIONS
---- --- ---------------------------------------
<C> <C> <S>
C. TERMS EXPIRING IN 1999:
Casey Cowell..................... 44 Mr. Cowell, a founder of the Company,
has served as Chairman of the Board,
Chief Executive Officer and a director
of the Company since 1983. In addition,
he served as President from 1983 to
1997. Mr. Cowell also serves as a
director of Eagle River Interactive,
Inc. and Northwestern Memorial Corp.,
parent company of Northwestern Memorial
Hospital.
Terence M. Graunke............... 38 Mr. Graunke has served as a director of
the Company since March 1996. He has
served as President and Chief Executive
Officer of Eagle River Interactive,
Inc., an interactive news media and
services company, since May 1994. He
was Chairman and Chief Executive
Officer of Rapp Collins Communications,
an advertising agency owned by the
Omnicom Group, Inc., from January 1993
to May 1994. From December 1989 to
December 1992, he served as President
and Chief Executive Officer of U.S.
Communications, a marketing agency.
Paul G. Yovovich................. 43 Mr. Yovovich has served as a director
of the Company since 1991. He served as
President of Advance Ross Corporation,
an international financial services
company, from 1993 until May 1996. Mr.
Yovovich served in several executive
positions with Centel Corporation, from
1982 to 1992, where his last position
was that of president of its Central
Telephone Company subsidiary.
Additionally, Mr. Yovovich serves as a
director of Comarco, Inc., Illinois
Superconductor Corporation, and APAC
TeleServices, Inc., and is a certified
public accountant.
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS, BOARD COMMITTEES AND COMMITTEE COMPOSITION
The Board of Directors maintains an Executive Committee, an Audit Committee,
and a Stock Option and Compensation Committee.
The Executive Committee is empowered to exercise the authority of the Board
of Directors in the management of the business and affairs of the Company
between meetings of the Board, except as provided by the By-laws or limited by
the provisions of the Delaware General Corporation Law. The Executive
Committee is currently composed of Messrs. Cowell, McCartney and Zakin.
The Audit Committee recommends to the Board of Directors the appointment of
the independent public accountants for the following year and reviews the
scope of the audit, the independent auditor's report, and the auditor's
comments relative to the adequacy of the Company's system of internal controls
and accounting policies. The Audit Committee is currently composed of Messrs.
Mason and Yovovich. During fiscal 1996, the Audit Committee met four times.
The Stock Option and Compensation Committee administers the Company's stock
option plans and determines the salaries and other compensation for the most
highly paid Company officers. The Stock Option and Compensation Committee is
currently composed of Messrs. Cowie and Yovovich. During fiscal 1996, this
committee met six times.
The Company has no nominating committee. The nominating function is
performed by the Executive Committee, which has not established any policy or
procedure for considering nominees recommended by stockholders.
During fiscal 1996, the Board of Directors met five times. All members of
the Board of Directors attended at least 75% of the Board meetings and of
their respective committee meetings held during the period.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee of the Board of Directors (the
"Committee") determines the compensation for the Company's Chief Executive
Officer and its other executive officers. To ensure that the Company's
executive compensation program is administered in an objective manner, the
Committee is composed entirely of directors who are neither executive officers
nor employees of the Company. In addition to determining the salary and bonus
compensation for all of the Company's most highly compensated executive
officers, the Committee determines the nature, timing and amount of awards and
grants under all of the Company's stock option plans and makes recommendations
as to the administration of other compensation plans and programs of the
Company, as they relate to executive officers.
This report is intended to clearly describe the philosophy that underlies
the cash and equity-based components of the Company's executive compensation
program. It also describes the details of each element of the program, as well
as the rationale for compensation paid to the Company's Chief Executive
Officer and its executive officers in general.
Compensation of Executive Officers Generally
The Company's executive compensation program is designed to link executive
pay to Company performance and to provide an incentive to executives to manage
the Company with a principal view to enhancing stockholder value.
Generally, the Company's executive compensation program makes a very
significant portion of each executive's cash compensation contingent upon
growth and improvement in the Company's results of operations, with the
potential to earn exceptional rewards for exceptional performance. More
specifically, the program is designed to provide compensation for meeting and
exceeding internal goals for earnings per share and to provide incentives to
increase the market value of the Company's Common Stock. The program is also
designed to attract and retain talented executives who are essential to the
Company's long-term success within a highly competitive industry that demands
unique talents, skills and capabilities.
Compensation criteria are evaluated annually to ensure they are appropriate
and consistent with the business objectives which are important in meeting the
Company's earnings per share, operating profits and revenue goals and in
enhancing stockholder value. The Company's executive compensation policies and
programs are intended to: (i) provide rewards contingent upon Company and
individual performance; (ii) link executive compensation to sustainable
increases in and the preservation of stockholder value; (iii) promote teamwork
among executives and other Company employees; (iv) effect retention of a
strong management team; and (v) encourage personal and professional
development and growth.
Components of Compensation
The primary components of the Company's executive compensation program are
salary, performance bonuses and stock options which become exercisable over
time.
Salary. The Committee reviews the salary of each of the most highly
compensated executive officers annually. Objective and subjective performance
goals are set each year for each such executive officer. These goals vary
depending upon the specific position or role of the executive within the
Company. The Committee's review takes into consideration both the Company's
performance with respect to earnings per share, operating
6
<PAGE>
profits and revenue, and also the duties and performance of each executive.
The Committee also considers provisions relating to salary set forth in
employment agreements with certain of the Company's executive officers. In
making salary recommendations or decisions, the Committee exercises its
discretion and judgment based on the foregoing criteria, without applying a
specific formula to determine the weight of each factor considered. The
Committee also considers equity and fairness when comparing base salaries of
executives. The salary changes for executive officers of the Company for
fiscal 1996 were responsive to significant growth and improvements in
performance at every level of the Company, in earnings per share, operating
profits and revenue, and to the achievement of other individual performance
objectives.
Performance Bonuses. Under the Company's Senior Executive Performance Bonus
Plan (the "Plan"), as adopted and implemented for fiscal 1996, certain
employees of the Company who perform significant management and decision-
making functions were eligible to receive a performance bonus. At the
beginning of the fiscal year, the Committee set quarterly and annual earnings
per share targets for the fiscal year. These targets were confirmed in March
1996 following stockholder approval of the Plan. In addition, the Committee
determined which employees were "Eligible Participants" ("Plan Participants")
for the 1996 fiscal year and the level of each Plan Participant's
participation based upon the compensation category into which such person was
placed by the Committee as provided in the Plan. The Plan Participants were
eligible to receive quarterly and annual bonuses based upon the Company
achieving and surpassing the earnings per share targets set by the Committee
at the beginning of the year.
The earnings per share targets consisted of a threshold earnings per share
target ("Threshold Target") and a base case earnings per share target (the
"Base Target"). Subject to the Committee's discretion to eliminate, reduce or
defer bonus payments under certain circumstances, Plan Participants were
eligible to receive a pre-determined bonus if the Company attained the
Threshold Target. No bonus would be paid under the Plan if earnings per share
fell short of the Threshold Target. To the extent that the earnings per share
exceeded the Threshold Target, the potential bonus amounts increased in direct
proportion (based upon a pre-established formula) to the increase in earnings
per share until the Base Target was met. If the Base Target was met, an
additional pre-determined sum was potentially payable to each Plan
Participant. To the extent that the Company's earnings per share exceeded the
Base Target, Plan Participants were eligible to receive additional bonus
amounts in direct proportion (based upon a pre-established formula) to the
amounts by which earnings per share exceeded the Base Target. This latter
amount was designated the "Special Incentive Bonus." In computing the bonus
amounts payable, the Committee was empowered to make adjustments to earnings
per share for any period to eliminate the effects of non-recurring gains or
charges, changes in capitalization or other items which, in the Committee's
judgment, rendered reliance on reported earnings figures inconsistent with the
purposes of the Senior Executive Performance Bonus Plan.
For fiscal 1996, the Company's quarterly and annual earnings per share
(after excluding non-recurring charges) substantially exceeded the Base Target
with the result that the Eligible Participants earned substantial Special
Incentive Bonuses in addition to the Bonuses payable with respect to
achievement of the Threshold and Base Targets. In accordance with the terms of
the Plan, the Committee determined to pay less than the full amount of the
Special Incentive Bonuses payable pursuant to the Plan for fiscal 1996. The
Committee reserved the right, however, to consider at a later time whether to
pay any additional amounts otherwise payable with respect to fiscal 1996
during fiscal 1997.
Stock Options. The Committee believes that the granting of stock options is
an important method of rewarding and motivating management by aligning
management's interests with those of the Company's stockholders on a long-term
basis. In addition, the Committee recognizes that the Company conducts its
business in an increasingly competitive industry and that, in order for the
Company to remain highly competitive and at the same time pursue a high-growth
strategy, it must employ the best and most talented executives, managers, and
research and development personnel who possess demonstrated skills and
experience. The Company believes that stock options have given and continue to
give the Company a significant advantage in attracting and retaining such
employees. For these reasons, the Company adopted the Executive Officers and
Directors Stock
7
<PAGE>
Option Plan (the "Executive Plan") as a stock-based incentive program
primarily for its executive officers and directors. The Committee believes the
Executive Plan is an important feature of the Company's executive compensation
package. Under the Executive Plan, the Committee may grant options to
executive officers who are expected to contribute materially to the Company's
future success. In determining the size of stock option grants, the Committee
focuses primarily on the Company's performance and the perceived role of each
executive in accomplishing such performance objectives, as well as the
satisfaction of individual performance objectives. Stock options granted to
executive officers generally become exercisable in equal annual installments
over a five-year period and are typically granted with an exercise price equal
to the fair market value of the Company's Common Stock as of the date of
grant. The value of the stock options is directly tied to the value of a share
of the Company's Common Stock.
The Committee intends to continue using stock options as the primary long-
term incentive for the Company's executive officers. Because they generally
provide rewards to executives only to the extent the Company's stock price
increases after the options are granted and to the extent the executives
remain committed to the Company until the options become exercisable, the
Committee feels that stock options granted under the Executive Plan are an
appropriate means to provide executives with incentives that closely align
their interests with those of stockholders and thereby encourage them to
promote the ongoing success of the Company.
Compensation of the Chief Executive Officer
Mr. Cowell currently serves as Chief Executive Officer and Chairman of the
Board of the Company, and served as President until January 1997. Mr. Cowell
was compensated during the 1996 fiscal year utilizing the same general
philosophy and criteria used for other executive officers as described above,
including (i) the Company's achievement of earnings per share, operating
profits and revenue goals, (ii) the growth and expansion of the Company, both
domestically and internationally, (iii) setting the strategic direction and
vision for the Company, and (iv) increasing the productivity of the Company
and other subjective criteria. Mr. Cowell received a salary for the 1996
fiscal year of $520,000 pursuant to his employment agreement with the Company
and he received bonuses under the Senior Executive Performance Bonus Plan for
the 1996 fiscal year totaling $2,910,000, which represented approximately 28%
of the aggregate bonuses paid under the Senior Executive Bonus Plan. During
the 1996 fiscal year, Mr. Cowell was also granted options to purchase 500,000
shares of the Company's Common Stock under the Executive Plan.
The Committee believes that Mr. Cowell exceeded his individual performance
objectives for the 1996 fiscal year, as reflected by the Company's outstanding
overall performance. The Company's net sales increased to $1,977.5 million for
the 1996 fiscal year from $889.3 million in the prior year while net earnings
increased to $224.0 million from $89.2 million and net earnings per share
increased to $2.36 from $1.05, excluding in each case the effect of non-
recurring merger-related charges incurred in connection with the acquisitions
of Scorpio Communications Ltd. in September 1996 and Megahertz Corporation in
February 1995. The Committee believes that Mr. Cowell's total compensation for
the 1996 fiscal year fairly and sufficiently rewarded him for such
performance. Further, the Committee believes that the Company's executive
compensation program is well designed to reward Mr. Cowell appropriately and
to retain his services as a key employee.
Tax Considerations
The Committee has considered the provisions of Section 162(m) of the
Internal Revenue Code which, except in the case of "performance-based
compensation" and certain other types of compensation, limits to $1,000,000
the amount of the Corporation's federal income tax deduction for compensation
paid to each of the chief executive officer and the other four most highly
paid officers. At the Annual Meeting of Stockholders in March 1996, the
stockholders approved the Company's Senior Executive Performance Bonus Plan,
which was designed in accordance with Section 162(m) to assure that bonus
compensation paid thereunder would be fully deductible for federal income tax
purposes. The Committee intends to continue to administer this Plan in a
manner calculated primarily to meet the purposes and objectives of the
Company's executive compensation program as described above, while also
maximizing the Company's federal income tax deductions as permitted by Section
162 (m). Notwithstanding the foregoing, the Committee believes that the
Company's current
8
<PAGE>
compensation arrangements, which are primarily based on performance measures
expected to be reflected in increasing stockholder value over time, are
appropriate and in the best interests of the Company and its stockholders,
without regard to tax considerations. Thus, in the event of changes in the tax
laws or their interpretation or other circumstances which might render some
portion of the executive compensation paid by the Company non-deductible for
federal tax purposes, the Committee would not anticipate making significant
changes in the basic philosophy and practices reflected in the Company's
executive compensation program described above.
The Committee believes the wisdom of the Company's compensation philosophy
has been reflected in the Company's performance over the years since its stock
has been publicly traded.
The foregoing report has been approved by all of the members of the
Committee.
The Stock Option and Compensation
Committee
James E. Cowie
Paul G. Yovovich
9
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the annual percentage changes in the Company's
cumulative total stockholder return from October 11, 1991 (the date of the
initial public offering of the Company's predecessor, U.S. Robotics, Inc.)
through September 29, 1996 (the end of the Company's 1996 fiscal year) with the
cumulative total return of the S&P 500 Composite Index, the NASDAQ-U.S. Index
and the NASDAQ Computer Manufacturers Index for the same periods. This graph
assumed the investment of $100 in the Company's Common Stock, the S&P Composite
500 Index, the NASDAQ-U.S. Index and the NASDAQ Computer Manufacturers Index on
October 11, 1991 and the reinvestment of all dividends.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG USRX, S&P 500 INDEX, NASDAQ AND COMPUTER MFG
<TABLE>
<CAPTION>
Measurement Period S&P
(Fiscal Year Covered) USRX 500 INDEX NASDAQ Computer Mfg
- --------------------- ---- --------- ------ ------------
<S> <C> <C> <C> <C>
Measurement Pt-
10/11/91 $100 $100 $100 $100
FYE 10/2/92 $119 $108 $112 $109
FYE 10/1/93 $269 $121 $149 $117
FYE 10/2/94 $258 $121 $150 $132
FYE 10/1/95 $1312 $153 $208 $234
FYE 9/29/96 $2131 $180 $247 $309
</TABLE>
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid and payable by the
Company for services rendered during the last three fiscal years to its Chief
Executive Officer and its four other most highly compensated executive
officers:
SUMMARY COMPENSATION TABLE AND LONG-TERM COMPENSATION AWARDS
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME AND FISCAL OTHER ANNUAL (# OF COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SHARES) (1)
------------------ ------ -------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Casey Cowell............ 1996 $520,000 $2,910,000 -- 500,000 $17,462
Chairman and Chief 1995 450,000 2,349,000 -- 300,000 16,620
Executive Officer 1994 400,000 1,055,965 -- 600,000 10,355
John McCartney.......... 1996 387,250 1,858,000 -- 333,332 16,800
President and Chief 1995 330,000 1,409,400 -- 200,000 15,920
Operating Officer 1994 300,000 791,974 -- 399,000 10,355
Jonathan N. Zakin....... 1996 343,000 1,455,000 -- 250,000 17,473
Executive Vice 1995 330,000 1,409,400 -- 200,000 16,620
President 1994 300,000 791,974 -- 399,000 10,370
Ross W. Manire.......... 1996 343,000 1,455,000 -- 250,000 10,325
Senior Vice President 1995 275,000 1,174,500 -- 200,000 9,420
and General Manager, 1994 195,000 284,299 -- 225,000 3,401
Network Systems
Michael Seedman......... 1996 286,000 1,164,000 -- 200,000 8,957
Vice President and 1995 250,000 469,800 $105,405 200,000 8,020
General Manager, 1994 207,692 116,588 -- 770,000 3,200
Personal Communications
(2)
</TABLE>
- --------
(1) Represents amounts paid by the Company during fiscal 1996 for (i) long-
term and short-term disability insurance premiums as follows: Mr. Cowell
$7,207, Mr. McCartney $6,545, Mr. Zakin $7,203, Mr. Manire $5,205 and Mr.
Seedman $3,837, (ii) life insurance premiums for which the Company is not
the beneficiary as follows: Messrs. Cowell and McCartney $5,135 each and
Mr. Zakin $5,150, and (iii) 401(k) employer contributions of $5,120 for
each of the above-named executive officers.
(2) Mr. Seedman joined the Company in fiscal 1994. The other annual
compensation paid in 1995 principally represents amounts paid by the
Company in connection with Mr. Seedman's relocation.
11
<PAGE>
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended September 29, 1996 to each of
the above-named executive officers.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OPTION OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE TERM FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------------
NAME GRANTED(1) YEAR PER SHARE(1) DATE 5% 10%
---- ---------- ---------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Casey Cowell............ 500,000 10.2 $ 39.625 10/11/05 $ 12,459,975 $ 31,576,022
John McCartney.......... 250,000 5.1 39.625 10/11/05 6,229,987 15,788,011
83,332 1.7 42.625 01/03/06 2,233,850 5,661,015
Jonathan N. Zakin....... 250,000 5.1 39.625 10/11/05 6,229,987 15,788,011
Ross W. Manire.......... 250,000 5.1 39.625 10/11/05 6,229,987 15,788,011
Michael Seedman......... 200,000 4.1 39.625 10/11/05 4,983,990 12,630,409
</TABLE>
- --------
(1) Non-qualified options granted on October 11, 1995 and January 3, 1996, at
the fair market value on the date of grant, $39.625 and $42.625
respectively, which become exercisable in equal annual installments on the
first five anniversaries of the date of grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
market performance of the Company's Common Stock and the date on which the
options are exercised. The amounts represented in this table may not
necessarily be achieved.
OPTION EXERCISES AND YEAR-END VALUE
The following table sets forth certain information concerning the exercise
of stock options during the fiscal year ended September 29, 1996 by each of
the above-named executive officers and the number and value of unexercised
options held by each of the above-named executive officers on September 29,
1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR VALUE OF UNEXERCISED IN-THE-MONEY
ACQUIRED END OPTIONS AT FISCAL YEAR END(2)
ON VALUE ------------------------- ----------------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- ----------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Casey Cowell............ 784,472 $30,521,657 -- 1,420,000 -- $72,832,500
John McCartney.......... 332,064 19,883,423 812,400 945,532 $53,897,200 48,232,564
Jonathan N. Zakin....... 265,000 17,276,477 916,364 862,200 60,447,094 46,013,850
Ross W. Manire.......... 80,000 5,171,600 470,422 684,542 30,556,349 34,695,029
Michael Seedman......... 200,000 9,844,375 40,669 693,667 2,480,809 36,051,187
</TABLE>
- --------
(1) Calculated as the difference between the fair market value of the
Company's Common Stock at the time of the option exercise and the exercise
price. All options exercised and all options outstanding at fiscal year
end were non-qualified so that the value realized or realizable upon
exercise was or would be subject to taxation as ordinary income.
(2) The stock price at the close of business on September 29, 1996 was $69.25
per share.
12
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into a three-year employment agreement with each of
Messrs. Cowell, McCartney and Zakin effective January 1, 1997. These
employment agreements provide for minimum annual base salaries of $950,000,
$500,000, and $400,000, respectively. These salary amounts are subject to
review by the Stock Option and Compensation Committee of the Board of
Directors and may be increased on an annual basis at the beginning of each
fiscal year. The term of each of these agreements is automatically extended at
the end of each year by one additional year, in the absence of a notice of
non-extension from either the Company or the executive. Each of the foregoing
employment agreements contemplates participation by the executive in the
Company's Senior Executive Performance Bonus Plan or a comparable bonus
arrangement. Each agreement also provides for severance compensation payable
as a lump sum in an amount equal to three times such executive's annual base
salary, plus the total of the executive's bonus compensation for each of the
preceding three years (less the amount of bonuses paid in the year of
termination), if termination occurs for any reason, including a "Change in
Control" of the Company, as defined in such agreements, other than for cause,
death, disability, impaired health or resignation for other than "Good
Reason", as defined in such agreements. Such severance compensation is limited
to an amount that is less than the maximum amount that the officer could
receive without it being deemed an "excess parachute payment" under Section
280G of the Internal Revenue Code.
Also effective on January 1, 1997, the Company entered into a two-year
employment agreement with each of Messrs. Manire and Seedman. Each of these
employment agreements provides for a minimum annual base salary of $375,000.
These base salary amounts are subject to review by the Stock Option and
Compensation Committee and may be increased on an annual basis at the
beginning of each fiscal year. These Agreements contain provisions for
automatic renewals for successive one-year terms following the initial term,
absent notice of non-renewal from either the Company or the executive. Each
agreement also provides for severance compensation in an amount equal to the
sum of the executive's current salary and bonus for the prior year in the
event of termination for any reason following a Change in Control.
As defined in the foregoing agreements, a "Change in Control" means: (i) the
acquisition by any person or entity (other than certain entities affiliated
with the Company) of 25% or more of the combined voting power of the Company's
then outstanding securities ordinarily entitled to vote for the election of
directors; (ii) during any two consecutive years, the composition of the Board
of Directors changes such that a majority consists of persons who are not
either directors who were in office at the beginning of such period or whose
nominations were approved by two-thirds of the directors who were either in
office at the beginning or were so nominated; (iii) certain mergers or
consolidations in which the voting securities of the Company remaining
outstanding or the voting securities into which such securities are converted
represent less than 50% of the outstanding voting securities of the surviving
entity or (iv) a complete liquidation of the Company or the sale or
disposition of all or substantially all of the assets of the Company, other
than such a sale or disposition to a person or persons who beneficially own at
least 50% of the combined voting power of the outstanding securities of the
Company at the time of such sale. Agreements such as the foregoing, which
provide severance compensation contingent upon changes in control, could
discourage possible takeovers of the Company since they would tend to increase
the cost of such acquisitions to potential acquirors.
DIRECTORS' COMPENSATION
Messrs. Cowie, Graunke and Yovovich each receive directors' fees of $10,000
per annum plus $750 for each Board or standing committee meeting attended. Mr.
Mason will also receive a director's fee of $10,000
per annum plus $750 for each Board or standing committee meeting attended
commencing with the March 5, 1997 Board meeting. Previously, Mr. Mason
received no direct compensation for his services as a Director, but his law
firm billed the Company for the time he spent attending Board and Committee
meetings at his standard hourly rates (estimated to total approximately
$14,000 for fiscal 1996). Directors who are not employees are also eligible to
receive stock options under the Executive Plan. Under the Executive Plan, each
newly elected or appointed non-employee member of the Board shall receive an
option to purchase 15,000 shares and each continuing non-employee member of
the Board shall receive an additional option to purchase 15,000
13
<PAGE>
shares at the fair market value on date of grant every three years on the
anniversary date of the initial grant. No directors were granted options during
fiscal 1996.
CERTAIN TRANSACTIONS
Peter I. Mason, a director of the Company, is a partner at the law firm of
Freeborn & Peters. Since 1983, Freeborn & Peters has performed legal services
for the Company and is expected to continue to do so during 1997.
When appropriate in the ordinary course of business, the Company arranges
charter air transportation through Richmor Aviation, Inc. ("Richmor"), an
unaffiliated aircraft management firm. Richmor provides contract management,
maintenance and operating services with respect to private aircraft owned by
Business Research Group, Inc. ("BRG") and other Richmor customers. Mr. Cowell
is the sole owner of BRG, which receives compensation for Richmor's use of the
BRG aircraft in providing charter service to the Company and others. Richmor
charges the Company for air transportation services at rates that are more
favorable to the Company than those charged to other third parties who charter
the BRG aircraft. Amounts charged to the Company by Richmor for air
transportation utilizing the BRG aircraft during fiscal 1996 and the first
quarter of fiscal 1997 were approximately $325,480 and $144,920 respectively.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
In order for a proposal by a stockholder of the Company to be included in the
Company's proxy statement and form of proxy for the 1998 Annual Meeting of
stockholders, the proposal must be received by the Company no later than
September 29, 1997 and must otherwise comply with SEC requirements.
VOTING PROCEDURES
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business at the Meeting.
With regard to the election of directors, votes may be cast in favor or
withheld. Votes that are withheld and broker non-votes will be excluded
entirely from the vote and will have no effect on the outcome.
INDEPENDENT PUBLIC ACCOUNTANTS
Grant Thornton LLP, the Company's independent public accountants, has audited
the Company's financial statements for the fiscal year ended September 29,
1996. The Company expects representatives of Grant Thornton LLP to be present
at the meeting and to be available to respond to appropriate questions from
stockholders. The Grant Thornton LLP representatives will be given an
opportunity to make a statement if they desire.
OTHER MATTERS
The Company knows of no matters, other than those referred to herein which
will be presented at the meeting. If, however, any other appropriate business
should properly be presented at the meeting, the proxies named in the enclosed
form of proxy will vote the proxies in accordance with their best judgment.
14
<PAGE>
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will be
paid by the Company. Solicitation may be made personally, or by telephone,
telegraph or mail, by one or more employees of the Company, without additional
compensation. The Company will reimburse brokerage houses and other
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred in forwarding copies of solicitation material to beneficial owners of
Common Stock held of record by such persons.
By order of the Board of Directors,
George A. Vinyard
Secretary
Skokie, Illinois
January 27, 1997
15
<PAGE>
PROXY
U.S. ROBOTICS CORPORATION
8100 North McCormick Boulevard
Skokie, Illinois 60076
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Casey Cowell, Mark Remissong and George A.
Vinyard as Proxies, each with power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side, all
shares of Common Stock of U.S. Robotics Corporation (the "Company") held of
record by the undersigned on Friday, January 17, 1997, at the annual meeting of
stockholders to be held on Wednesday, March 5, 1997, or any adjournment thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE>
1. Election of Directors: For Withhold For All
Nominees: Jonathan N. Zakin and James E. Cowie. All All Except
(INSTRUCTION: to withhold authority to vote [_] [_] [_]
for any individual nominee, write such name or
names in the space provided below.)
-------------------------------------------------
2. In their discretion, the Proxies are authorized to
vote upon such other business that may properly come
before the meeting.
I plan to attend the Annual Meeting [_]
To change your address, please mark this box
and correct below. [_]
--------------------------------------------
--------------------------------------------
Dated: , 1997
---------------------------
Signature
-----------------------------------
--------------------------------------------
Please sign exactly as name appears on the reverse side. When
shares are held as joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee, or guardian,
please give full title as such. If a corporation, please sign in
full corporate name by president or other duly authorized officer.
If a partnership, please sign in partnership name by authorized person.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
