Part 3 of the proxy statement:
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company in 1996 and the four other most
highly compensated executive officers of the Company as of December 31, 1996
whose total salary and bonus for 1996 exceeded $100,000, for services in all
capacities to the Company, during 1996:
SUMMARY COMPENSATION TABLE (1)
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------
OTHER AWARDS
NAMED AND PRINCIPAL NON-CASH OPTIONS
POSITION YEAR SALARY BONUS COMPENSATION (2) (SHARES)
------------------- ---- -------- -------- ---------------- ------------
Mory Ejabat............... 1996 $327,928 $487,500 $3,983 400,000
President and Chief 1995 233,103 230,000 4,740 1,023,840
Executive Officer 1994 163,015 81,505 5,159 186,664
Curtis N. Sanford.........
Senior Vice President,
International Sales and 1996 541,051 -- 4,860 150,000
General Manager of 1995 333,465 -- 4,860 251,680
International Operations 1994 135,500 667,675 4,824 160,000
Michael Hendren........... 1996 325,227 -- -- 150,000
Senior Vice President, 1995 331,029 -- -- 170,000
North America Sales 1994 128,026 -- -- 680,000
Robert K. Dahl............
Vice President, Finance, 1996 290,960 435,000 14,272 350,000
Chief Financial 1995 201,308 200,000 19,290 401,680
Officer and Secretary 1994 135,000 70,000 26,130 866,644
Jeanette Symons........... 1996 200,000 300,000 3,240 300,000
Executive Vice President, 1995 141,500 141,500 3,240 501,760
Advanced Products and 1994 105,000 21,000 -- 106,664
Technology Group and
Chief Technical Officer
--------
(1) Total amount of personal benefits paid to each executive officer during
the year was less than the lesser of (i) $50,000 or (ii) 10% of the
officer's total reported salary and bonus.
(2) Represents interest waived by the Company which had accrued on full-
recourse notes from the executive officer during the fiscal year.
5
OPTION GRANTS IN 1996
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during 1996 to the persons
named in the Summary Compensation Table:
OPTION GRANTS IN 1996
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS EXERCISE APPRECIATION
OPTIONS GRANTED TO PRICE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PER EXPIRATION ---------------------------
NAME (SHARES)(1) FISCAL YEAR SHARE(2) DATE 5% 10%
---- ------------- ------------ ---------- ---------- ------- ---
Mory Ejabat............. 400,000 5.1% $61.875 12/16/06 $ 15,565,142 $ 39,445,126
Curtis N. Sanford....... 150,000 1.9 61.875 12/16/06 5,836,928 14,791,922
Michael Hendren......... 50,000 0.6 65.938 5/29/06 2,073,387 5,254,370
100,000 1.3 61.875 12/16/06 3,891,286 9,861,281
Robert K. Dahl.......... 350,000 4.4 61.875 12/16/06 13,619,499 34,514,485
Jeanette Symons......... 300,000 3.9 61.875 12/16/06 11,673,857 29,583,844
--------
(1) All options granted in 1996 were granted under the Company's 1989 Stock
Option Plan. Options generally vest, in the case of new employees, as to
1/4th of the subject shares on the first anniversary of the employee's
hire date, and an additional 1/48th of the subject shares upon completion
of each succeeding full month of continuous employment with the Company
thereafter. Subsequent options granted to an employee typically vest as to
1/48th of the subject shares upon completion of each full month of
continuous employment following the date of grant. All of the options
granted to people in the above chart conform to the aforementioned vesting
schedule. The Board of Directors of the Company retains discretion to
modify the terms, including the price, of outstanding options.
(2) All options were granted with an exercise price equal to the fair market
value per share of the Common Stock on the date of grant.
(3) Potential gains are net of the exercise price but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the
Company, overall market conditions and the option holder's continued
employment through the vesting period.
6
AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in 1996, and unexercised
options held as of December 31, 1996, by the persons named in the Summary
Compensation Table:
AGGREGATE OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/96(1) 12/31/96(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Mory Ejabat............. 231,774 $13,807,206 1,328,182 0 $44,237,070 $ 0
Curtis N. Sanford....... -- -- 456,687 0 14,905,750 0
Michael Hendren......... 250,584 13,668,269 525,416 0 21,706,547 0
Robert K. Dahl.......... 41,520 2,689,254 682,160 0 11,995,385 0
Jeanette Symons......... -- -- 895,093 0 31,998,440 0
--------
(1) Options granted under the Company's 1989 Stock Option Plan generally are
exercisable immediately subject to a repurchase right in favor of the
Company which lapses as the option vests as described in Footnote 1 to the
table entitled "Option Grants in 1996."
(2) Valuation based on the difference between the option exercise price and
the fair market value of the Company's Common Stock on December 31, 1996
(which was $62.125 per share, based on the closing sales price of the
stock on the Nasdaq National Market).
EMPLOYMENT CONTRACTS AND TERMINATION AND CHANGE OF CONTROL ARRANGEMENTS
Certain options granted under the Company's 1989 Stock Option Plan (the
"Option Plan") or under the Company's 1994 Outside Directors Stock Option Plan
contain provisions pursuant to which the unvested portions of outstanding
options become immediately exercisable and fully vested upon a merger of the
Company in which the Company's stockholders do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company or its successor, if the successor corporation fails to assume
the outstanding options or substitute options for the successor corporation's
stock to replace the outstanding options. The outstanding options will
terminate to the extent they are not exercised as of the consummation of the
merger, or assumed or substituted for by the successor corporation.
DIRECTOR COMPENSATION
For each meeting of the Board of Directors which they attend, directors are
reimbursed for reasonable travel expenses incurred. Pursuant to the Company's
1994 Outside Directors Stock Option Plan, all directors who are not employees
of the Company are automatically granted non-qualified stock options to
purchase the Company's Common Stock upon their initial appointment to the
Board of Directors and then thereafter on an annual basis. The grant on
initial appointment is for an option to purchase 192,000 shares and the annual
grant is for an option to purchase 48,000 shares. Such options generally
become vested and exercisable in equal annual installments over a four-year
period beginning on the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company accepted full-recourse notes, bearing interest at
5.4% per annum, from certain executive officers and key employees in payment
of the exercise price for options granted in January 1994. The Company waived
an aggregate of approximately $43,000, $33,000 and $30,000 of interest which
had accrued on
7
these notes during 1994, 1995 and 1996 respectively. The Company received
notes with principal amounts of $105,000, $487,500, $90,000 and $60,000 from
Mr. Ejabat, Mr. Dahl, Mr. Sanford and Ms. Symons, respectively.
For a description of the compensation of officers of the Company, see
"Executive Compensation and Other Matters."
To date, the Company has made no loans to officers, directors, principal
stockholders or other affiliates other than as described above or other than
advances of reimbursable expenses. All such transactions, including loans, are
subject to approval by a majority of the Company's independent and
disinterested directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Compensation Committee was comprised of two outside
directors of the Board of Directors, Ms. Atkins and Mr. Kramlich.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors, and greater-than-ten percent
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written representations from certain
reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the year ended December 31,
1996, all relevant Section 16(a) filing requirements were complied with,
except that each of Mory Ejabat , an executive officer and director, Robert K.
Dahl, an executive officer and director, Jeanette Symons, an executive
officer, Michael J. Johnson, an executive officer, Anthony Stagno, an
executive officer, Curtis N. Sanford, an executive officer, Michael Hendren,
an executive officer, and William H. Kind, an executive officer, filed one
late report with respect to grants of options under the Option Plan.
8
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of two outside directors of the
Board of Directors and is responsible for setting and monitoring policies
governing compensation of executive officers and certain other key employees.
The Compensation Committee reviews the performance and compensation levels for
executive officers, sets salary and bonus levels for these individuals and
recommends to the Board of Directors option grants for these individuals under
the Option Plan. The objectives of the Compensation Committee are to correlate
executive officer compensation with the Company's business objectives and
performance, and to enable the Company to attract, retain and reward executive
officers and other key employees who contribute to the long-term success of
the Company.
OVERVIEW AND POLICIES FOR 1996
In 1996, compensation for the Company's executive officers consisted
primarily of base salary, potential bonuses based upon the Company's
performance for the year and long-term equity incentives in the form of stock
options.
Base Salary
Due to the importance of executive compensation in attracting and retaining
qualified executive officers, the Compensation Committee and management
engaged consultants to survey the compensation practices in the high
technology industry to ensure that the Company's compensation structure was
competitive. Additionally, the Compensation Committee reviewed the Company's
financial performance in 1995, certain milestones achieved by the Company
(including profitability, sales levels and new product introductions) and
individual executive officer duties. As a result of the survey and based upon
the Company's strong performance in 1995, the Compensation Committee approved
increases to executive officer base salaries so that they were approximately
in the 75th percentile range for comparable positions at similarly sized high
technology companies.
For 1996, each executive officer, including the Chief Executive Officer,
received his or her base salary as recommended by the Compensation Committee.
Performance Bonuses
It is the policy of the Compensation Committee that a portion of the annual
cash compensation of each executive officer be contingent upon the performance
of the Company. The Compensation Committee approves an executive bonus plan
each year. During 1996, the Company's bonus plan was based upon performance
objectives for sales and pre-tax income and had three targeted bonus
performance levels. Annual bonus compensation at the lowest, mid-range and
highest targeted bonus performance levels represented up to approximately 60%,
80% and 100%, respectively, of the base salary for each executive officer who
participated in the bonus plan, including the Chief Executive Officer.
The Company attained the highest level for both sales and pre-tax income
objectives for 1996, and in accordance with the bonus plan, paid bonuses to
each executive officer in an amount equal to approximately 100% of the
respective executive officer's base salary.
Long-Term Equity Incentives
The Compensation Committee strongly believes in granting stock options to
the Company's executive officers to tie executive officer compensation
directly to the long-term success of the Company and increases in stockholder
value. In addition, the Compensation Committee believes annual unvested stock
option grants to executive officers are important to encourage executive
officer retention.
9
In January 1996, each executive officer was granted a stock option under the
Option Plan. The size of each grant was based on the executive officer's
position with the Company, the executive officer's past performance and the
number of unvested options then held by the executive officer. In addition to
these annual grants, during 1996 the Compensation Committee granted options to
William H. Kind, Vice President, Engineering, upon commencement of his
employment with the Company in October 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Ejabat has served as an executive officer of the Company since January
1990 and has served as the Company's Chief Executive Officer since June 1995.
As described above for the Company's other executive officers, Mr. Ejabat's
base salary in 1996 was established by the Compensation Committee based upon
the Company's financial performance, Mr. Ejabat's individual duties and the
salaries paid to executives holding comparable positions at similarly situated
high technology companies. In addition to his base salary and based primarily
upon the Company's achievement of target sales and pre-tax profits for 1996,
Mr. Ejabat earned a bonus under the Company's bonus plan, as described above,
of approximately 100% of his base salary. Based on the criteria described
above regarding grants of unvested stock options to executive officers, Mr.
Ejabat also received in December 1996 a stock option for 400,000 shares under
the Option Plan as part of his compensation for 1997.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Effective January 1, 1994, the Internal Revenue Code (the "Code") was
amended to impose a limit under Section 162(m) on the amount of compensation
which may be deducted by a publicly-held corporation with respect to the
corporation's chief executive officer and its four other most highly-
compensated officers, set at $1,000,000 per executive per year. Exemptions
from this deductibility limit are provided for certain types of "performance-
based compensation," including compensation related to stock option plans
meeting certain criteria. In order to permit compensation under the Option
Plan to qualify for this exemption, the Board of Directors concluded that it
would be advisable to establish certain restrictions on the granting of
options under the Option Plan. These restrictions were approved by the
Company's stockholders in April 1994. The Compensation Committee does not
believe that other components of the Company's compensation will be likely in
the aggregate to exceed $1,000,000 for any executive officer in any year in
the foreseeable future, and therefore concluded that no further action with
respect to qualifying its executive compensation for deductibility of such
compensation was necessary at this time. The policy of the Compensation
Committee is to qualify executive compensation for deductibility under the
applicable tax laws as practicable. In the future, the Compensation Committee
will continue to evaluate the advisability of qualifying the deductibility of
such compensation.
The Compensation Committee
Betsy S. Atkins
C. Richard Kramlich
10
COMPARISON OF STOCKHOLDER RETURNS
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock with the
cumulative total return of the Standard and Poor's 500 Index and the Nasdaq
Telecommunications Industry Index from May 13, 1994, the date of the Company's
initial public offering, through December 31, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN
FROM MAY 13, 1994 THROUGH DECEMBER 31, 1996(1)
AMONG ASCEND COMMUNICATIONS, INC., S&P 500 INDEX AND
NASDAQ TELECOMMUNICATIONS INDUSTRY INDEX
PERFORMANCE GRAPH APPEARS HERE
ASCEND NASDAQ
Measurement Period COMMUNICATIONS, S&P TELECOMMUNICATIONS
(Fiscal Year Covered) INC. 500 INDEX IND. INDEX
------------------- --------------- --------- ------------------
Measurement Pt-05/13/94 $ 100.0 $100.0 $100.0
FYE 12/30/94 $ 217.7 $105.5 $101.6
FYE 12/29/95 $2163.3 $145.2 $133.1
FYE 12/31/96 $3313.3 $179.0 $136.0
-----------
* Data prepared by the Center for Research in Security Prices.
(1) Assumes that $100.00 was invested on May 13, 1994 in the Company's Common
Stock and each index. Stockholder returns over the indicated period
should not be considered indicative of future stockholder returns.
11
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Ernst & Young LLP as
independent auditors to audit the financial statements of the Company for the
year ending December 31, 1997. Ernst & Young LLP has acted as the Company's
independent auditors since the Company's inception. A representative of Ernst
& Young LLP is expected to be present at the Annual Meeting with the
opportunity to make a statement if the representative desires to do so, and is
expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the Annual Meeting,
at which a quorum representing a majority of all outstanding shares of Common
Stock of the Company is present and voting, either in person or by proxy, is
required for approval of this proposal. Abstentions and broker non-votes each
will be counted as present for purposes of determining the presence of a
quorum. Abstentions have the same effect as a negative vote on this proposal.
Broker non-votes will have no effect on the outcome of this vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1997.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company must be received by the Company at
its offices at One Ascend Plaza, 1701 Harbor Bay Parkway, Alameda, California,
94502, Attn: Secretary, not later than December 31, 1997, and satisfy the
conditions established by the SEC for stockholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the Annual
Meeting is as set forth above. If any other matter or matters are properly
brought before the Annual Meeting, or any adjournment or postponement thereof,
it is the intention of the persons named in the accompanying form of proxy to
vote the proxy on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ ROBERT K. DAHL
Robert K. Dahl
Secretary
April 30, 1997
12
[LOGO OF RECYCLED PAPER]
ASCEND COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Mory Ejabat and Michael J. Johnson, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of the common stock, par value $0.001 per share, of
Ascend Communications, Inc. (the "Company") which the undersigned is entitled to
vote at the Annual Meeting of Stockholders (the "Annual Meeting") of the Company
to be held at the Company's principal executive offices at One Ascend Plaza,
1701 Harbor Bay Parkway, Alameda, California, on Wednesday, May 28, 1997 at 1:00
p.m. local time, and at any adjournment or postponement thereof (1) as
hereinafter specified upon the proposals listed on the reverse side and as more
particularly described in the Company's Proxy Statement and (2) in their
discretion upon such other matters as may properly come before the Annual
Meeting.
The undersigned hereby acknowledges receipt of the: (1) Notice of Annual
Meeting of Stockholders of the Company, (2) accompanying Proxy Statement and (3)
Annual Report of the Company for the year ended December 31, 1996.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
1. Election of the following directors:
Nominees:
Mory Ejabat, Robert K. Dahl, Betsy S. Atkins, Roger L. Evans,
C. Richard Kramlich, James P. Lally, Martin Schoffstall
[ ] FOR ALL NOMINEES [ ] WITHHOLD FROM ALL NOMINEES
[ ]
--------------------------
For all nominees except as
written above
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE ANNUAL MEETING.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 AND 2.
[ ] CHECK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT.
[ ] CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign this Proxy. If shares of stock are held of record by a
corporation, this Proxy should be executed by the President or Vice President
and the Secretary or Assistant Secretary, and the corporate seal should be
affixed thereto. Executors or administrators or other fiduciaries who execute
this Proxy for a deceased stockholder should give their full title. Please date
this Proxy.
Dated: , 1997
--------
Signature(s):
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