<PAGE>
SCHEDULE 14A (Rule 14a - 101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
EXCEL COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
[_] 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:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]
8750 NORTH CENTRAL EXPRESSWAY
SUITE 2000
DALLAS, TEXAS 75231
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dallas, Texas
March 28, 1997
To Our Stockholders:
Notice is hereby given that the 1997 Annual Meeting of the stockholders of
EXCEL Communications, Inc., a Delaware corporation (the "Company" or "EXCEL"),
will be held on Thursday, May 15, 1997, at 10:00 a.m. local time, at the
Wyndham Anatole Hotel, 2201 Stemmons Freeway, Dallas, Texas, for the following
purposes:
1. To elect four (4) directors for the ensuing year and until their
successors are duly elected and qualified;
2. To consider and approve the EXCEL Communications, Inc. 1997 Director
Stock Option Plan;
3. To consider and approve the EXCEL Communications, Inc. Director Stock
Option Agreement with Ronald A. McDougall; and
4. To transact such other business as properly may come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on March 17, 1997, will be
entitled to receive notice of, and to vote at the Meeting. Please note that
attendance at the Meeting will be limited to stockholders of EXCEL
Communications, Inc. as of the record date (or their authorized
representatives). If your shares are held by a bank or broker, please bring to
the meeting your bank or broker statement evidencing your beneficial ownership
of EXCEL stock. A complete list of stockholders entitled to vote at the
meeting will be maintained in the Company's offices at 8750 North Central
Expressway, Suite 2000, Dallas, Texas 75231 for ten (10) days prior to the
meeting and will be open to the examination of any stockholders during
ordinary business hours of the Company.
Please advise the Company's Transfer Agent, Bank of Boston, c/o Boston
Equiserve, LP, P.O. Box 8040, Boston, Massachusetts 02266-8040 of any changes
in your address.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE PROMPTLY
MARK, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
RETURN ADDRESSED ENVELOPE. STOCKHOLDERS WHO DECIDE TO ATTEND THE MEETING MAY
REVOKE THEIR PROXIES PRIOR TO THE MEETING AND VOTE IN PERSON EVEN IF HE OR SHE
PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors
[SIGNATURE OF JOHN J. MCLAINE APPEARS HERE]
John J. McLaine
Secretary
<PAGE>
EXCEL COMMUNICATIONS, INC.
8750 NORTH CENTRAL EXPRESSWAY
SUITE 2000
DALLAS, TEXAS 75231
----------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1997
----------------
SOLICITATION OF PROXIES
GENERAL INFORMATION
The enclosed proxy is solicited by the Board of Directors of EXCEL
Communications, Inc., a Delaware corporation ("EXCEL" or the "Company"), for
use at the 1997 Annual Meeting of the Company's stockholders (the "Annual
Meeting" or "Meeting"), to be held at the Wyndham Anatole Hotel, 2201 Stemmons
Freeway, Dallas, Texas, on Thursday, May 15, 1997, at 10:00 a.m. local time
and at any adjournments thereof for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. Whether or not you expect to attend the
Meeting in person, please return your executed proxy card in the enclosed
envelope and the shares represented thereby will be voted in accordance with
your wishes. It is anticipated that the first mailing of proxy statements and
accompanying proxies to stockholders will occur on March 28, 1997. The
Company's annual report for the fiscal year ended December 31, 1996 is being
mailed to all stockholders entitled to vote at the Annual Meeting. The annual
report does not constitute a part of the soliciting materials.
RECORD DATE; OUTSTANDING SHARES
Only stockholders of record at the close of business on March 17, 1997 (the
"Record Date") are entitled to receive notice of and to vote at the Meeting.
The outstanding voting securities of the Company as of such date consisted of
108,800,000 shares of common stock, par value $.001 per share (the "Common
Stock"). The Company has no other class of stock outstanding. For information
regarding holders of more than 5% of the outstanding Common Stock, see
"Election of Directors--Security Ownership of Certain Beneficial Owners
and Management."
REVOCABILITY OF PROXIES
The enclosed proxy is revocable at any time before its use by delivering to
the Company a written notice of revocation or a duly executed proxy bearing a
later date. If a person who has executed and returned a proxy is present at
the Meeting and wishes to vote in person, he or she may elect to do so and
thereby suspend the power of the proxy holders to vote his or her proxy.
VOTING AND SOLICITATION
Every stockholder of record on the Record Date is entitled, for each share
held, to one vote on each proposal or item that comes before the Meeting. Each
stockholder will be entitled to vote for four (4) nominees in the election of
directors, and the four (4) nominees with the greatest number of votes will be
elected. There are no cumulative voting rights. All other action proposed may
be taken upon the affirmative vote of a majority of the votes cast by the
stockholders requested at the Annual Meeting, provided a quorum is
constituted.
The cost of this solicitation will be borne by the Company. The Company will
reimburse expenses incurred by brokerage firms and other persons representing
beneficial owners of shares in forwarding solicitation material and the annual
report to beneficial owners. Proxies may be solicited by certain of the
Company's directors,
1
<PAGE>
officers, and regular employees, without additional compensation, personally,
by telephone, by facsimile or by telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR", "AGAINST", or "WITHHELD FROM" a matter are
treated as being present at the Meeting for purposes of establishing a quorum
and will be included in determining the number of shares that are represented
and voted at the Annual Meeting (the "Votes Cast") with respect to such
matter.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. Directors will be elected by plurality vote.
Therefore, votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may not be specified with respect to the
election of directors. With respect to the other items to be voted upon,
abstentions are counted for purposes of determining the presence or absence of
a quorum for the transaction of business. Accordingly, abstentions will have
the same effect as a vote against a proposal.
Broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to a
proposal and, therefore, will have no effect on the outcome of the vote.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company, addressed to John J. McLaine, Secretary, EXCEL
Communications, Inc., 8750 North Central Expressway, Suite 2000, Dallas, Texas
75231 no later than November 28, 1997 so that they may be included in the
proxy statement and form of proxy relating to the 1998 meeting. Such proposals
must comply with the requirements of Regulation 14A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
With respect to business to be brought before the Annual Meeting to be held
on May 15, 1997, the Company has not received any notices from stockholders
that the Company is required to include in this Proxy Statement.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP served as the Company's independent public accountants
for the fiscal year ended December 31, 1996 and is serving in such capacity
for the current fiscal year. The appointment of independent public accountants
is made annually by the Board of Directors. The decision of the Board of
Directors is based on the recommendation of the audit committee, which reviews
both the audit scope and estimated audit fees. Representatives of Arthur
Andersen LLP are expected to be present at the Annual Meeting and will have
the opportunity to make a statement if they desire to do so and to respond to
appropriate questions of stockholders.
REPORT ON FORM 10-K
A copy of the Company's Report on Form 10-K for the period ended December
31, 1996, filed with the Securities and Exchange Commission (including related
financial statements and schedules) will be provided by the Company to
stockholders without charge, upon written request to Investor Relations, ATTN:
Mary Bell, EXCEL Communications, Inc., 8750 North Central Expressway, Suite
2000, Dallas, Texas 75231.
OTHER BUSINESS
The Company knows of no business to be brought before the Annual Meeting
other than as set forth above. If other matters properly come before the
Meeting, it is the intention of the persons named in the solicited proxy to
vote the proxy on such matters in accordance with their best judgment.
2
<PAGE>
ACTION TO BE TAKEN UNDER PROXY
SHARES WILL BE VOTED AS INSTRUCTED IN THE ACCOMPANYING PROXY ON EACH MATTER
SUBMITTED TO THE VOTE OF STOCKHOLDERS. IF ANY DULY EXECUTED PROXY IS RETURNED
WITHOUT VOTING INSTRUCTIONS, THE PERSONS NAMED AS PROXIES THEREON INTEND TO
VOTE ALL SHARES REPRESENTED BY SUCH PROXY AS FOLLOWS:
1) FOR the election of the four (4) directors nominated by the Board of
Directors for the ensuing year and until their successors are duly
elected and qualified;
2) FOR the proposal to adopt the EXCEL Communications, Inc. 1997 Director
Stock Option Plan pursuant to which options to acquire up to 400,000
shares of Common Stock may be granted to non-employee directors of the
Company;
3) FOR the proposal to adopt the EXCEL Communications, Inc. Director Stock
Option Agreement with Ronald A. McDougall pursuant to which Mr.
McDougall was granted options to acquire 20,000 shares of Common Stock;
4) at the discretion of the proxy holders with regard to any other business
that may properly come before the Annual Meeting or any adjournment
thereof. The directors do not know of any such other matters or business
at this time.
3
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A Board of four (4) directors is to be elected at the Meeting. Unless
otherwise instructed, the proxy holders will vote all of the proxies received
by them for the Company's four (4) nominees named below. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner as will ensure
the election of as many of the nominees listed below as possible and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. In the event that any of the nominees shall become unavailable, the
proxy holders will vote in their discretion for a substitute nominee. All
nominees have indicated their willingness to serve if elected. It is not
expected that any nominee will be unavailable. The term of office of each
person elected as a director will continue until the next Annual Meeting of
Stockholders and until his successor has been duly elected and qualified.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting of the stockholders at which a
quorum of the voting group involved is present. A majority of the votes
entitled to be cast in the election by the voting group constitutes a quorum
of that voting group for the election. The four (4) nominees receiving the
highest number of affirmative votes of the shares entitled to be voted shall
be elected to the Board of Directors. Each outstanding share of Common Stock
is entitled to one vote in the election. Votes withheld from any director are
counted for purposes of determining the presence or absence of a quorum, but
have no other legal effect under Delaware law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF
THE NOMINEES NAMED HEREIN. UNLESS INDICATED OTHERWISE BY YOUR PROXY VOTE, THE
SHARES WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF SUCH NOMINEES.
The following information sets forth as of the Record Date, the name, age,
principal occupation, or employment during the last five years, memberships on
committees of the Board of Directors and directorships in other publicly held
companies:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenny A. Troutt................ 49 Chief Executive Officer, President,
Chairman of the Board, and Director
of the Company
Stephen R. Smith............... 52 Executive Vice President of Marketing and
Director of the Company
John J. McLaine................ 47 Executive Vice President, Chief Financial
Officer, Secretary, and Director of the
Company
Ronald A. McDougall............ 54 Director of the Company, Member of the
Compensation Committee of the Board, and
Chairman of the Audit Committee of the Board
</TABLE>
KENNY A. TROUTT, 49, Chief Executive Officer, President, Chairman of the
Board, Director and the founder of the Company, has served as President and a
director of the Company since the Company's formation in 1988. In January
1991, Mr. Troutt was elected as Chairman of the Board of the Company and, in
July 1995, he was elected as Chief Executive Officer of the Company. Mr.
Troutt served as Secretary and Treasurer of the Company from December 1988
until July 1995. Prior to 1988, Mr. Troutt served as President of SunTex
Resources, Inc., an oil and gas exploration company located in Dallas, Texas,
which he founded in 1982. In 1970, Mr. Troutt founded Kenny Troutt
Construction, a construction company located in Omaha, Nebraska, and served as
its sole manager until 1982. Mr. Troutt is a graduate of Southern Illinois
University.
4
<PAGE>
STEPHEN R. SMITH, 52, Executive Vice President of Marketing and Director,
served the Company as an independent consultant from January 1989 until
January 1996. Mr. Smith was elected as Executive Vice President and a director
of the Company in July 1995. Mr. Smith was elected as Executive Vice President
of Marketing of the Company in January 1996 and became an employee of the
Company in February 1996. Mr. Smith helped to develop the Company's network
marketing system. From 1984 through 1988, Mr. Smith served as an independent
representative and consultant for various network marketing organizations,
including Coastal Telephone, a regional long distance company, and Netcom
Information Systems, a voice mail company.
JOHN J. MCLAINE, 47, Executive Vice President, Chief Financial Officer,
Secretary, and Director, has served as Chief Financial Officer since August
1994. In July 1995, Mr. McLaine was elected as Secretary and a director of the
Company, and in January 1996, he was formally elected as Executive Vice
President and Chief Financial Officer of the Company. Mr. McLaine served as
Vice President and Treasurer of the Company from July 1995 until January 1996.
Prior to August 1994, Mr. McLaine served as President of McLaine Associates,
Inc., a consulting firm providing consulting services with respect to mergers
and acquisitions and business turnarounds, which he founded in 1990. From June
1991 until September 1992, Mr. McLaine provided services to, and served as
Chairman of the Board and Chief Executive Officer of, HPC Laboratories, Inc.
and its subsidiary Hunt Products Company, Inc., which were clients of McLaine
Associates, Inc. Hunt Products Company was a distributor of private label
personal care products. After Mr. McLaine's resignation, a change of control
of such companies occurred and, in February 1994, the subsidiary company was
put into involuntary bankruptcy. From 1989 until 1990, Mr. McLaine served as
the Chief Financial Officer and President of International Operations for
Pearle Vision, Inc., a retail optical chain. Prior to 1989, Mr. McLaine served
as Vice President of Finance and Control for American National Can Company, an
international packaging company. Mr. McLaine holds an MBA from DePaul
University and a BS degree from the University of Scranton and is a Certified
Public Accountant.
RONALD A. MCDOUGALL, 54, Director, Chairman of the Audit Committee of the
Board, and Member of the Compensation Committee of the Board, has served as a
member of the Board of Directors, a member of the Compensation Committee of
the Board, and the Chairman of the Audit Committee of the Board since
August 1996. Mr. McDougall has served as President and Chief Executive Officer
of Brinker International, Inc., a publicly-held company engaged in the casual
dining segment of the restaurant business throughout the world, since June
1995, having formerly held the office of President and Chief Operating Officer
since 1986. Mr. McDougall joined Brinker International, Inc. in 1983 and
served as Executive Vice President-Marketing and Strategic Development until
his promotion to President in 1986. Prior to joining Brinker International,
Inc., Mr. McDougall held senior management positions at Proctor and Gamble,
Sara Lee, The Pillsbury Company, and S&A Restaurant Corp. Mr. McDougall has
served as a member of the Board of Directors of Brinker International, Inc.
since September 1983 and is a member of the Executive and Nominating
Committees of Brinker International, Inc.
Pursuant to its listing agreement with the New York Stock Exchange, the
Company is required to appoint a second outside director within one year after
the Company's initial public offering (which was completed in May 1996). The
Company has received an extension of this requirement and intends to appoint
the second outside director no later than July 1, 1997. This director will be
elected by the Board of Directors and will serve until the next annual meeting
of stockholders (which will be the Company's 1998 Annual Meeting of
Stockholders) and until his successor is duly elected and qualified.
5
<PAGE>
INFORMATION CONCERNING BOARD OF DIRECTORS
MEETINGS OF THE BOARD OF DIRECTORS OF THE COMPANY
During 1996, the Board of Directors held no meetings, but rather took action
through unanimous written consents in lieu of meetings of the Board of
Directors on sixteen (16) occasions. In January 1997, the Board held a special
meeting at which all directors were in attendance.
Prior to the initial public offering of the Company's Common Stock in May
1996, the Company had no formal audit, nominating, or compensation committee
of the Board of Directors. All such functions were performed by the entire
Board of Directors, which, in 1996, consisted of Kenny A. Troutt, Stephen R.
Smith, and John J. McLaine. In August 1996, the Board elected Ronald A.
McDougall as a director and appointed him as a member of the Compensation
Committee and as Chairman of the Audit Committee.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors has a standing Audit Committee consisting of Ronald
A. McDougall. During 1996, the Audit Committee held no meetings, and the Audit
Committee met on one occasion in January 1997. The Audit Committee performs
the following functions: (a) review of periodic financial statements, (b)
communication with independent accountants, (c) review of the Company's
internal accounting controls, and (d) recommendation to the Board of Directors
as to the selection of independent accountants.
The Board of Directors has a standing Compensation Committee consisting of
Ronald A. McDougall. The Compensation Committee held no meetings during 1996,
and met on one occasion in January 1997. The duties of the Compensation
Committee are as follows: (a) to review and recommend to the Board of
Directors the annual salary, fees, bonuses, and other benefits of the
directors, officers, and employees of the Company and the Company's
subsidiaries; and (b) to review and submit to the Board of Directors
recommendations concerning compensation, stock plans, and other benefits for
the Company's directors, officers, and employees and expense account policies.
COMPENSATION OF DIRECTORS
Currently, the Company's policy is not to pay compensation to directors who
are also employees of the Company, but such employee directors are reimbursed
by the Company for expenses incurred in attending meetings of the Board of
Directors or any Committees thereof. Ronald A. McDougall entered into a stock
option agreement with the Company in August 1996, pursuant to which he
received a non-qualified stock option to acquire 20,000 shares of Common
Stock, subject to vesting requirements. Further, Mr. McDougall and all non-
employee directors elected in the future will be eligible to participate in
the EXCEL Communications, Inc. 1997 Director Stock Option Plan, pursuant to
which each will be eligible to receive non-qualified stock options. See
"Proposal No. 3--EXCEL Communications, Inc. Director Stock Option Agreement
with Ronald A. McDougall" and "Proposal No. 2--EXCEL Communications, Inc. 1997
Director Stock Option Plan."
Ronald A. McDougall, a non-employee director, has been compensated as
follows: (i) $1,000 for attending each regular and special meeting held by the
Board of Directors; (ii) an annual retainer of $30,000, which may be
converted, partially or totally, into stock options valued using a Black-
Scholes valuation; (iii) an option grant of 20,000 shares of Common Stock
(which he received in August 1996 and which is subject to vesting
requirements); and (iv) $1,000 for attending each meeting of the Audit
Committee and each meeting of the Compensation Committee. See "Proposal No.
3--EXCEL Communications, Inc. Director Stock Option Agreement with Ronald A.
McDougall."
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 15, 1997 regarding
the beneficial ownership of Common Stock by (i) each person or group known by
the Company to own more than five (5%) percent of the outstanding shares of
Common Stock, (ii) each director and nominee for director of the Company,
(iii) the Company's Named Executive Officers (as defined under "Executive
Compensation-Summary Compensation Table"), and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF EXISTING
BENEFICIAL OWNERSHIP PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK(1) OF CLASS(1)(2)
- ------------------------------------ -------------------- --------------
<S> <C> <C>
Kenny A. Troutt(3)......................... 64,180,800 59.0%
Troutt Family Trust(3)..................... 64,180,000 59.0%
10595 Strait Lane
Dallas, Texas 75229
Troutt Partners, Ltd.(3)(4)................ 53,000,000 48.7%
10595 Strait Lane
Dallas, Texas 75229
Stephen J. Troutt(4)....................... 20,275,492 18.6%
Kenny Allan Troutt Children's Trust II(4).. 20,000,000 18.4%
10595 Strait Lane
Dallas, Texas 75229
Stephen R. and Sarah H. Smith(5)(6)........ 9,966,000 9.2%
Austex Enterprises, Ltd.(6)................ 8,966,000 8.2%
16004 Chateau Avenue
Austin, Texas 78734
William A. Casner.......................... 9,280,000 8.5%
13181 Lakeview
Southlake, Texas 76092
John J. McLaine(7)......................... 215,594 *
Ronald A. McDougall(8)..................... 8,667 *
c/o Brinker International, Inc.
6820 LBJ Freeway
Dallas, Texas 75240
Paul D. Fletcher(9)........................ 2,629 *
Craig E. Holmes(10)........................ 77,828 *
J. Christopher Dance(11)................... 110,812 *
All directors and executive officers as a
group (7 persons)......................... 74,562,330 68.5%
</TABLE>
- --------
*less than 1%
1. Based upon 108,800,000 shares of Common Stock issued and outstanding.
2. The term "beneficial owner," which is used as defined in Rule 13d-3 of the
Exchange Act, means generally any person who, directly or indirectly, has
or shares voting power or investment power with respect to a security. All
information with respect to the beneficial ownership of any stockholder has
been furnished by such stockholder and the Company believes that, except as
otherwise indicated, each stockholder has sole voting and investment power
with respect to shares listed as beneficially owned by such stockholder.
Except as otherwise indicated, the address of each of the persons in this
table is as follows: c/o EXCEL Communications, Inc., 8750 North Central
Expressway, Suite 2000, Dallas, Texas 75231.
3. Kenny A. Troutt does not own of record any shares of Common Stock. The
shares of Common Stock beneficially owned by Kenny A. Troutt represent 800
shares held by Mr. Troutt's children, and the 64,180,000 shares held
beneficially by the Troutt Family Trust. The Troutt Family Trust (the
"Troutt Family Trust") is a trust formed under the laws of the State of
Texas, of which Kenny A. Troutt is the sole
7
<PAGE>
trustee. The shares held by the Troutt Family Trust represents 11,180,000
shares that are held of record directly by the Troutt Family Trust and
53,000,000 shares that are held of record directly by Troutt Partners,
Ltd., a Texas limited partnership (the "Troutt Family Partnership"), of
which the Troutt Family Trust is the managing general partner. Kenny A.
Troutt and the Troutt Family Trust share voting and investment power with
respect to the 11,180,000 shares held of record by the Troutt Family Trust;
and Kenny A. Troutt, the Troutt Family Trust, and the Troutt Family
Partnership share investment power with respect to all of the 53,000,000
shares held of record by the Troutt Family Partnership. A provision in the
partnership agreement of the Troutt Family Partnership permits, for tax
purposes, each partner (including each limited partner) to direct the
voting of shares held by the Troutt Family Partnership that were
contributed to the Troutt Family Partnership by such partners. As a result,
Kenny A. Troutt and the Troutt Family Trust share voting power with the
Troutt Family Partnership only with respect to the 32,836,326 shares of
Common Stock contributed by the Troutt Family Trust to the Troutt Family
Partnership in exchange for general and limited partnership interests in
the Troutt Family partnership. In addition, Kenny A. Troutt may be deemed
to share voting power with Steven J. Troutt, his brother, with respect to
certain shares over which Steven J. Troutt exercises voting control in his
capacity as sole trustee of several trusts established for the benefit of
Kenny A. Troutt's children, as described in footnote (4) below.
4. Steven J. Troutt does not own of record any shares of Common Stock. The
shares of Common Stock beneficially owned by Steven J. Troutt represent
12,818 shares held by the ESOP and allocated to Mr. Troutt's account,
81,837 shares that were contributed to the Troutt Family Partnership in
exchange for a general partnership interest by the Kenny Allan Troutt
Children's Trust (the "KAT Trust"), 81,837 shares that were contributed to
the Troutt Family partnership in exchange for a limited partnership with
interest with voting rights by the Lisa Elaine Troutt Children's Trust (the
"LET Trust"), 20,000,000 shares that were contributed to the Troutt Family
Partnership in exchange for a limited partnership interest with voting
rights by the Kenny Allan Troutt Children's Trust (the "KAT Trust II"), and
99,000 shares of Common Stock issuable upon exercise of options exercisable
within 60 days of March 15, 1997. The KAT Trust II does not own of record
any shares of Common Stock. Steven J. Troutt is the sole trustee of the KAT
Trust, the LET Trust, and the KAT Trust II. Steven J. Troutt has shared
voting power with respect to the 12,818 shares allocated to his ESOP
account. Steven J. Troutt, the KAT Trust II, and the Troutt Family
Partnership share voting power with respect to the 20,000,000 shares
contributed by the KAT Trust II to the Troutt Family Partnership. Steven J.
Troutt and the Troutt Family Partnership share voting power with respect to
the 81,837 shares contributed by the KAT Trust and the 81,837 shares
contributed by the LET Trust to the Troutt Family Partnership. Neither
Steven J. Troutt nor the KAT Trust II has investment power with respect to
the shares beneficially held by them, except that Steven J. Troutt will
have voting and investment power with respect to the 99,000 shares of
Common Stock issuable upon exercise of options exercisable within 60 days
of March 15, 1997.
5. Represents 500,000 shares of Common Stock held by Stephen R. Smith, 500,000
shares of Common Stock held by Sarah H. Smith, and 8,966,000 shares of
Common Stock held by Austex Enterprises, Ltd. Stephen R. Smith and Sarah H.
Smith are married; as a consequence, each may be deemed to be the
beneficial owner of all the shares.
6. Austex Enterprises, Ltd., which is the record owner of 8,966,000 shares of
Common Stock, is a Texas limited partnership of which Stara Corporation, a
Texas corporation, is the general partner. Stephen R. Smith is the
President of Stara Corporation and he and Sarah H. Smith are each directors
of Stara Corporation and each owns 50% of the outstanding common stock of
Stara Corporation; as a result, each of them has shared voting, investment,
and dispositive power with respect to the 8,966,000 shares held by Austex
Enterprises, Ltd. The limited partner interests in Austex Enterprises, Ltd.
are either held individually by Stephen R. Smith or Sarah H. Smith or by
trusts of which he or she, as the case may be, is the trustee. Stephen R.
Smith and Sarah H. Smith are married; as a consequence, each may be deemed
to be the beneficial owner of all the shares held by Austex Enterprises,
Ltd.
7. Represents 17,594 shares held by the ESOP and allocated to Mr. McLaine's
account and 198,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of March 15, 1997.
8. Includes 6,667 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 15, 1997.
9. Represents 2,629 shares held by the ESOP and allocated to Mr. Fletcher's
account.
10. Represents 8,528 shares held by the ESOP and allocated to Mr. Holmes'
account and 69,300 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of March 15, 1997.
11. Represents 11,812 shares held by the ESOP and allocated to Mr. Dance's
account and 99,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of March 15, 1997.
8
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the Company's
executive officers. Officers are elected annually by the Board of Directors
and serve at its discretion.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenny A. Troutt................... 49 Chief Executive Officer, President,
Chairman of the Board, and Director
of the Company
Stephen R. Smith.................. 52 Executive Vice President of Marketing
and Director of the Company
John J. McLaine................... 47 Executive Vice President, Chief Financial
Officer, Secretary, and Director of the
Company
J. Christopher Dance.............. 32 Vice President--Legal Affairs and
Assistant Secretary
Paul D. Fletcher.................. 38 Vice President and Treasurer
Craig E. Holmes................... 39 Vice President and
Chief Accounting Officer
</TABLE>
- --------
See "Proposal No. 1--Election of Directors" for biographical information
regarding Messrs. Troutt, Smith, and McLaine.
J. CHRISTOPHER DANCE, 32, Vice President-Legal Affairs and Assistant
Secretary, has served as general counsel since May 1995. In January 1996, Mr.
Dance was formally elected as Vice President-Legal Affairs and Assistant
Secretary of the Company. Prior to assuming his present position, Mr. Dance
served as an attorney with Munsch Hardt Kopf Harr & Dinan, P.C. From 1990
until 1994, Mr. Dance served as an attorney with Akin, Gump, Strauss, Hauer &
Feld, L.L.P. Mr. Dance holds a BBA in Accounting & Finance from Texas A & M
University and a JD from the University of Texas School of Law.
PAUL D. FLETCHER, 38, Vice President and Treasurer, has served as Vice
President and Treasurer of the Company since May 1996. From February 1987
until May 1996, Mr. Fletcher served as Senior Vice President for Lomas
Financial Corporation, a diversified financial services company. Lomas
Financial Corporation in October 1995 filed voluntary petitions pursuant to
Chapter 11 of the United States Bankruptcy Code. At such time, Mr. Fletcher
served as Senior Vice President--Finance for Lomas Financial Corporation. Mr.
Fletcher's duties included corporate finance, bank relations, and cash
management. Mr. Fletcher holds a BA from Albion College and an MBA from
Northwestern University.
CRAIG E. HOLMES, 39, Vice President and Chief Accounting Officer, has served
as Chief Accounting Officer since September 1995. In January 1996, Mr. Holmes
was formally elected Vice President and Chief Accounting Officer of the
Company. From 1982 until September 1995, Mr. Holmes was with Arthur Andersen
LLP, and he was elected as a Partner in the Audit and Business Advisory
Services unit at Arthur Andersen LLP in 1995. Mr. Holmes' practice focused in
the areas of financial audits, corporate finance, and business process
consulting services. Mr. Holmes holds BBA and MS degrees from Texas Tech
University and is a Certified Public Accountant.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the Chief Executive
Officer and the four (4) other most highly compensated named executive
officers (the "Named Executive Officers") of the Company, and one additional
non-executive officer employee, all of whose total compensation exceeded
$100,000 during the year ended December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
---------------------- COMPENSATION AWARDS
NAME AND PRINCIPAL SALARY SECURITIES UNDERLYING ALL OTHER
POSITION YEAR ($) BONUS ($) OPTION/SARS (#) COMPENSATION
- ------------------ ---- --------- --------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenny A. Troutt........ 1996 1,500,000 1,500,000 -- 672(1)
Chief Executive Offi-
cer, 1995 1,365,278 2,000,000 -- 168(1)
President and Chairman
of the Board
Stephen R. Smith....... 1996 -- -- -- 8,828,246(2)
Executive Vice Presi-
dent 1995 -- -- -- 3,938,000(2)
of Marketing
John J. McLaine........ 1996 320,177 340,000 -- 106,088(3)(1)
Executive Vice Presi-
dent, 1995 225,000 76,950 990,000(4) 66,351(5)(1)
Chief Financial Offi-
cer,
and Secretary
J. Christopher Dance... 1996 145,192 105,000 -- 103,760(3)(1)
Vice President--Legal 1995 81,731 27,952 495,000(4) 36,407(5)(1)
Affairs and Assistant
Secretary
Craig E. Holmes........ 1996 152,077 47,700 -- 102,542(3)(1)
Vice President and 1995 35,192(6) -- 346,500(4) 19,423(5)(1)
Chief Accounting Offi-
cer
M. Kathy Delahoussaye.. 1996 130,000 39,000 -- 104,598(3)(1)
Vice President-- 1995 122,500(7) 40,793 495,000(4) 48,775(5)(1)
Teleservices
</TABLE>
- --------
(1) Represents, in part, life insurance premiums paid for benefit of such
officer. The amounts of such life insurance premiums for the following
officers in the following years are as follows: (i) Mr. Troutt: in 1995,
$168 and in 1996, $672; (ii) Mr. McLaine: in 1995, $89 and in 1996, $358;
(iii) Mr. Dance: in 1995, $37 and in 1996, $148; (iv) Mr. Holmes: in 1995,
$33 and in 1996, $134; and (v) Ms. Delahoussaye: in 1995, $25 and in 1996,
$109.
(2) Represents amounts earned through commissions pursuant to a written
agreement between the Company and Mr. Smith that was entered into on May
1, 1989. Although Mr. Smith was elected as Executive Vice President of
Marketing of the Company in July 1995, Mr. Smith served the Company
principally as an independent consultant in 1995. Mr. Smith was elected as
Executive Vice President of Marketing of the Company in January 1996 and
became an employee of the Company in February 1996.
(3) Represents shares of Common Stock, valued at $21.125 per share as of
December 31, 1996, allocated in 1996 to the participant's account and a
cash dividend plus interest allocated in 1996 to the participant's account
under the ESOP. Each officer's amount of the cash dividend plus interest
and shares allocated in 1996 is as follows: (i) Mr. McLaine: $4,804 and
4,778 shares; (ii) Mr. Dance: $2,686 and 4,778 shares; (iii) Mr. Holmes:
$1,482 and 4,778 shares; and (iv) Ms. Delahoussaye: $3,563 and 4,778
shares.
(4) Represents stock options granted pursuant to the 1995 Stock Option Plan,
which have an exercise price of $4.55 and are subject to vesting
requirements.
10
<PAGE>
(5) Represents, in part, shares of Common Stock, valued at $5.17 per share,
allocated in 1995 to the participant's account under the ESOP. Each
officer's amount of shares allocated in 1995 is as follows: (i) Mr.
McLaine: 12,817 shares, (ii) Mr. Dance: 7,035 shares, (iii) Mr. Holmes:
3,751 shares, and (iv) Ms. Delahoussaye: 9,429 shares.
(6) Represents annual compensation earned from the time employment commenced
in September 1995 through December 31, 1995.
(7) Represents annual compensation earned from the time employment commenced
in January 1995 through December 31, 1995.
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NO. OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONEE OPTIONS AT FISCAL YEAR END (1) OPTIONS AT FISCAL YEAR END (1)(2)
- -------- ---------------------------------------- ---------------------------------
<S> <C> <C>
John J. McLaine......... 990,000 $16,409,250
J. Christopher Dance.... 495,000 $ 8,204,625
M. Kathy Delahoussaye... 495,000 $ 8,204,625
Craig E. Holmes......... 346,500 $ 5,743,238
</TABLE>
- --------
(1) Represents stock options granted pursuant to 1995 Stock Option Plan, which
have an exercise price of $4.55 and are subject to vesting 20% on May 1,
1997 with the remaining options vesting at varying rates over a five year
period thereafter. All of the options were unexcercisable on December 31,
1996.
(2) Calculated on the basis of the closing price of the Company's Common Stock
on the New York Stock Exchange on December 31, 1996 of $21.125 per share.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, executive officers,
and 10% or greater stockholders of the Company ("Reporting Persons") to file
with the Securities and Exchange Commission (the "SEC"), the New York Stock
Exchange, and the Company initial reports of ownership and reports of changes
in ownership of equity securities of the Company. To the Company's knowledge,
based solely on its review of the copies of such reports furnished to the
Company and written representations that certain reports were not required,
during the year ended December 31, 1996, all Section 16(a) filing requirements
applicable to Reporting Persons were complied with. Through an inadvertent
omission, during 1996, Mr. McDougall, an outside director of the Company,
failed to report his ownership of 2,000 shares of Common Stock acquired by Mr.
McDougall prior to becoming a Director of the Company. An amended report has
been filed by Mr. McDougall to reflect such ownership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REORGANIZATION
The Company was reorganized in January 1996 and pursuant to such
reorganization, among other things, EXCEL Telecommunications, Inc. (which,
prior to such reorganization, conducted all of the business and operations of
the Company) formed, and subsequently became an indirect wholly owned
subsidiary of EXCEL Communications, Inc. and, in connection therewith, the
former shareholders of EXCEL Telecommunications, Inc. became stockholders of
EXCEL Communications, Inc., receiving 1,000 shares of Common Stock for each
share of common stock held by them in EXCEL Telecommunications, Inc.
Currently, EXCEL Communications, Inc. conducts all of its business and
operations through its subsidiaries and, unless the context indicates
otherwise, all references to the Company refer to EXCEL Communications, Inc.
and include its direct and indirect subsidiaries and predecessors, including
its post-reorganization second-tier subsidiary, EXCEL Telecommunications, Inc.
Also, see "Compensation Committee Interlocks and Insider Participation."
11
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Effective January 1, 1996, the Company entered into an employment agreement
with Kenny A. Troutt, the Company's Chief Executive Officer, President,
Chairman of the Board, and a director, providing for a base salary of
$1,500,000 per year, subject to such increases as the Board of Directors may
approve. In addition, Mr. Troutt is eligible for such bonuses as the Board of
Directors may determine. The employment agreement is scheduled to terminate on
December 31, 2000, although it will automatically renew for successive one-
year periods unless either Mr. Troutt or the Company provides notice, at least
30 days prior to the scheduled termination date, to the other of his or its
desire to terminate the agreement. Mr. Troutt may also terminate the agreement
in his sole discretion upon 30 days' notice. If the agreement is voluntarily
terminated by Mr. Troutt, in his sole discretion, or if the agreement is
terminated because either party chooses not to renew it, Mr. Troutt will not
be entitled to any severance payments under the agreement. The agreement
automatically terminates upon the death of Mr. Troutt, although the Company
will be obligated to pay his estate his base salary for one year after death.
The Company may not terminate the agreement except for cause, as defined in
the agreement. Mr. Troutt will be entitled to receive all amounts that would
have been due to him through the scheduled termination of the agreement or, if
such a termination occurs within one year after a change of control (as
defined in the agreement), the greater of such amounts and two times the base
salary for the year during which such termination occurs ("Severance
Payment"). Furthermore, if Mr. Troutt terminates his employment within one
year after a change of control that is followed by either a material increase
or decrease in his duties from those that were required of him prior to the
change of control or the imposition of duties that are inconsistent with his
executive status, he will be entitled to the Severance Payment. A change of
control is deemed to have occurred if a majority of the
directors of the Company have not been voted for or approved by Mr. Troutt or
by other directors he has so voted for or approved. The agreement further
provides that the Board of Directors may delegate their authority under the
agreement to a compensation committee.
Effective May 1, 1989, the Company, through EXCEL Telecommunications, Inc.
its predecessor, entered into an agreement (which was amended in January 1,
1996, effective August 1, 1992, the date the parties verbally amended the
Agreement) with Stephen R. Smith, a Director and Executive Vice President of
Marketing of the Company, whereby he receives payment for all independent
representatives ("IRs"), and trainers enrolling with the Company as well as
payments for certain subscribers' long distance usage. See "Compensation
Committee Interlocks and Insider Participation."
All of the Named Executive Officers, other than Kenny A. Troutt and Stephen
R. Smith, hold stock options that have been granted under the 1995 Stock
Option Plan. Generally, these options vest in six installments of varying
percentages. The options granted under this plan begin vesting on May 1, 1997,
and become fully vested five years after the first vesting date. However, in
the event of (i) a merger or consolidation of the Company or transfer of
voting stock of the Company as a result of which the holders of all of the
voting stock of the Company prior to such event do not continue to hold either
directly or indirectly at least a majority of the Company's voting stock after
such event, (ii) a sale of all or substantially all of the assets of the
Company, or (iii) certain changes in the majority of the Board of Directors
during any 12 consecutive month period after the Company has registered
securities under the Securities Act of 1933, as amended (the "Securities
Act"), the options may be exercised in whole or in part without regard to the
installment vesting provisions thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the consummation of the Company's initial public offering on May 9,
1996, the Company did not have a Compensation Committee (or other committee of
the Board of Directors performing similar functions) and accordingly, the
Board of Directors determined the compensation for the executive officers and
other related matters. Prior to the consummation of the Company's initial
public offering, Messrs. Troutt, Smith, and McLaine participated in such
deliberations of the Board of Directors concerning executive officer
compensation. Effective
12
<PAGE>
August 19, 1996, the Company formed a Compensation Committee, of which Ronald
A. McDougall was the initial (and current) member. The Company may appoint one
or more of the outside directors to the Compensation Committee in the future.
No executive officer of the Company served as a director or as member of the
Compensation Committee (or equivalent) of another entity, one of whose
executive officers served on the Compensation Committee (or equivalent) or as
a director of the Company. On October 1, 1995, EXCEL Telecommunications, Inc.,
the Company's predecessor, amended and restated its 401(k) Plan to add the
Employee Stock Ownership Plan ("ESOP"). In connection therewith, EXCEL
Telecommunications, Inc., Kenny A. Troutt, the President, Chief Executive
Officer, Chairman of the Board, and a director of the Company, and Thomas P.
Wittmann, a shareholder who at that time held more than 5% of the common stock
of EXCEL Telecommunications, Inc., entered into a Stock Purchase Agreement,
whereby Messrs. Troutt and Wittmann sold, in the aggregate, 3,000,000 shares
of the Common Stock to Bank One Texas, N.A., acting in its capacity as trustee
of the EXCEL Telecommunications, Inc. Employee Ownership Plan Trust Agreement.
Under the terms and conditions set forth in the Stock Purchase Agreement, Mr.
Troutt received $2.00 per share for his 2,820,000 shares of Common Stock, or
$5,640,000, and Mr. Wittmann received $2.00 per share for his 180,000 shares
of Common Stock, or $360,000. In connection with these purchases, the ESOP
borrowed $6 million from EXCEL Telecommunications, Inc. to fund the
acquisition of these shares and executed a Non-Recourse Promissory Note, dated
October 1, 1995, in the original principal amount of $6.0 million and bearing
interest at annual rate equal to the lesser of (i) prime rate plus 0.50% or
(ii) the maximum legal rate. The principal and accrued interest was due on
October 1, 2002. Under the terms of the ESOP, the Company is required to
contribute an amount to the ESOP sufficient to timely amortize the principal
and interest of any loan incurred by the ESOP to acquire Company securities.
In connection therewith, the Company contributed $4.1 million in 1995 and $2.0
million in January 1996 to completely retire the principal and interest of the
ESOP's loan from the Company.
On December 31, 1995, Excel Telecommunications, Inc., the Company's
predecessor, declared a dividend payable to its then existing shareholders in
an aggregate amount of $20 million, which was paid in the second quarter of
1996. The Company, through EXCEL Telecommunications, Inc., its predecessor,
has an agreement with Stephen R. Smith, a director and the Executive Vice
President of Marketing of the Company, whereby he receives $5.00 for each IR
who enters the Company's network marketing program prior to the date of his
death and $5.00 for each person who enrolls as a trainer in EXCEL's training
program prior to the date of this death. In addition, Mr. Smith receives 0.5%
of the long distance charges paid by each subscriber using the Company's long
distance service as a result of its network marketing program. This agreement
with Mr. Smith, which is dated May 1, 1989, was amended January 8, 1996, with
such amendment being effective as of August 1, 1992 (the time at which the
parties verbally amended the agreement). Prior to August 2, 1992, the payments
to Mr. Smith were based upon new subscribers as well as on long distance usage
and were calculated using higher rates. These payments were $1.3 million, $3.9
million, and $8.8 million, respectively, for the fiscal years ended December
31, 1994, 1995 and 1996. All payments under the agreement must be made until
Mr. Smith's death. Thereafter, the Company will no longer be required to make
payments for new IRs or IR trainers, but will still be required to pay long
distance usage commissions to Mr. Smith's heirs and assigns indefinitely on
the Company's subscribers who are using the Company's long distance service at
the date of Mr. Smith's death.
The EXCEL Telecommunications, Inc. 1996 Management Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors of EXCEL
Telecommunications, Inc. and by the Board of Directors of EXCEL
Communications, Inc. on February 5, 1996 and replaced the previous incentive
plan, which had been adopted in July 1995.
The Incentive Plan provides for the payment of cash compensation to eligible
participants upon the achievement of individual and corporate performance
targets, which performance targets are reviewed by the Compensation Committee
of the Board of the Company based on the recommendations of senior management.
The chief executive officer, vice presidents, departmental directors, and such
other officers of the Company who are primarily responsible for the growth and
profitability of the Company are eligible to be participants in the Incentive
Plan. The performance measurement periods are each 12 months.
13
<PAGE>
In January 1997, the Board of Directors approved the adoption of the 1997
Director Stock Option Plan and reserved 400,000 shares of Common Stock for
issuance thereunder. See "Proposal No. 2--Approval of 1997 Director Stock
Option Plan."
In August 1996, the Board of Directors approved a Director Stock Option
Agreement with Ronald A. McDougall whereby Mr. McDougall, a director, was
granted options to acquire 20,000 shares of Common Stock at an exercise price
of $21.25. See "Proposal No. 3--Approval of 1997 Director Stock Option
Agreement with Ronald A. McDougall."
In January 1997, the Board of Directors adopted the Second Amendment to the
1995 Stock Option Plan whereby an optionee may exercise and satisfy
withholding tax obligations by, in addition to paying cash or check as
previously approved by the stockholders, delivering shares, withholding shares
or any other form of legal consideration acceptable to the Compensation
Committee. Mr. McLaine is on the Board of Directors and holds stock options
granted under the 1995 Stock Option Plan.
In December 1996 and January 1997, the Board of Directors amended the EXCEL
Communications, Inc. Employee Ownership Plan (the "Plan") such that (i) an
employee of the Company as of September 30, 1996 could participate in the ESOP
portion of the Plan irrespective of the six months of continuous service
requirement; (ii) Employee Securities (as defined in the Plan) held in a
suspense account pursuant to Section 16.01 of the Plan were allocated to
employees of the Company who were actively employed on the accounting date and
had met certain eligibility requirements including the number of hours of
service during such Plan year; (iii) the definition of Employee Securities was
clarified to mean Common Stock and non-callable preferred stock, which is
convertible into Common Stock; and (iv) within the ESOP Contribution Account
(as defined in the Plan), Employee Securities will be forfeited only after
other assets of the Company.
14
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of the Company,
describing the compensation policies and rationale applicable to the Company's
officers with respect to the compensation paid to the officers for the year
ended December 31, 1996. The information contained in the Report of the
Compensation Committee shall not be deemed to be "soliciting material" or to
be "filed" with the SEC, nor shall such information be incorporated by
reference into any future filing under the Securities Act or the Exchange Act
except to the extent that the Company specifically incorporates it by
reference into such filing.
As the Compensation Committee, it is my duty to administer the executive
compensation program for the Company. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of the Company and evaluating the performance of such executive
officers in meeting such goals. The elements of the executive compensation
program described below are implemented and periodically reviewed and adjusted
by the Compensation Committee.
The goals of the Compensation Committee in establishing the Company's
executive compensation program are as follows:
(1) To fairly compensate the executive officers of the Company for their
contributions to the Company's short-term and long-term performance. The
elements of the Company's compensation program are (i) annual base salaries,
(ii) annual cash bonuses, and (iii) equity incentives.
(2) To allow the Company to attract, motivate, and retain the best qualified
executive personnel.
(3) To provide an executive compensation program with incentives linked to
the financial performance of the Company. Under such program, incentive
compensation for executive officers is linked to the general financial
performance of the Company as measured by such items as revenues and income
from operations.
BASE SALARIES
The annual base salary of Kenny A. Troutt as Chairman of the Board and Chief
Executive Officer of the Company was predetermined pursuant to an employment
agreement that was entered into between the Company and Mr. Troutt prior to
the appointment of the Compensation Committee and was negotiated prior to the
Company's initial public offering. See "Report of Compensation Committee--
Compensation of Chief Executive Officer" and see "Compensation Committee
Interlocks and Insider Participation."
Stephen R. Smith receives no base salary as substantially all of his
compensation is paid pursuant to a commission agreement entered into in May of
1989 and which was amended in January 1996 (effective August 1, 1992, the date
the parties verbally amended the agreement) with EXCEL Telecommunications,
Inc., the predecessor of the Company. This agreement continues until Mr.
Smith's death. The Compensation Committee has not made any review or
evaluation of the amounts paid to Mr. Smith. See "Compensation Committee
Interlocks and Insider Participation."
Each of the other executive officer's base salary was set prior to the
appointment of the Compensation Committee. The Compensation Committee has,
however, reviewed such other base salaries in light of corporate performance,
individual performance, experience, and a comparison with salary ranges and
midpoints reflecting similar positions, duties, and levels of responsibility
of other companies in similar industries and with comparable revenues and has
found them to be reasonable.
ANNUAL BONUSES
For the year ended December 31, 1996, bonuses were paid to executive
officers other than Stephen R. Smith pursuant to the Incentive Plan, adopted
by the Board of Directors in February 1996. The Incentive Plan provides
15
<PAGE>
for the payment of annual compensation to key exempt employees who have
achieved critical annual operating and financial goals of the Company and
individual objectives. During 1996, the Incentive Plan was administered by the
Chief Executive Officer, Chief Financial Officer, and Vice President--Human
Resources (with each receiving bonuses under the Incentive Plan). Prior to the
payment of these bonuses, the Compensation Committee, reviewed and approved
these bonuses in light of individual and corporate performance and found them
to be reasonable, in the best interest of the Company, and at a level to those
in like positions in similar companies, in similar industries, and with
comparable revenues.
LONG-TERM INCENTIVE COMPENSATION
The Committee believes that long-term incentive compensation in the form of
stock options is the most direct way of making executive compensation
dependent upon increases in stockholder value. The Company's stock option plan
provides the means through which executive officers can build an investment in
the Company's Common Stock which will align such officers' economic interests
with the interests of stockholders. The value of the stock options
historically has increased as a result of increases in the price of the Common
Stock, and such options are highly valued by employees. The Committee believes
that the grant of stock options has been a particularly important component of
its success in retaining talented management employees.
The exercise price of each option has generally been the market price of the
Common Stock on the date of grant. The Committee believes that stock options
give the executive officers greater incentives throughout the term of the
options to strive to operate the Company in a manner that directly affects the
financial interests of the stockholders both on a long-term, as well as a
short-term, basis.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Kenny A. Troutt's compensation as Chief Executive Officers of the Company
consisted principally of a base salary of $1,500,000 and a bonus of
$1,500,000. Mr. Troutt's base salary was predetermined pursuant to an
employment agreement that was entered into between the Company and Mr. Troutt
prior to the appointment of the Compensation Committee and prior to the
Company's initial public offering. Mr. Troutt's bonus was paid under the
Incentive Plan and was reviewed and approved by the Compensation Committee in
light of the Chief Executive Officer's performance and the Company's
performance and found it to be reasonable, in the best interest of the
Company, and at a level of other Chief Executive Officers in similar
companies, in similar industries, and with comparable revenues.
SECTION 162(M)
Section 162(m) of the Code provides that, in the case of a publicly held
corporation, no deduction shall be allowed for "applicable employee
remuneration" with respect to any "covered employee" to the extent that the
amount of such remuneration for a taxable year exceeds $1,000,000. The term
"covered employee" means the chief executive officer of the taxpayer
corporation and any other employee of the taxpayer corporation whose total
compensation for the taxable year is required to be reported to stockholders
under the Exchange Act by reason of such employee being among the four highest
compensated officers (other than the chief executive officer). The term
"applicable employee remuneration" generally means the aggregate amount
allowable as a deduction under the Code for such taxable year for remuneration
for services performed by a covered employee (whether or not such services are
performed during the taxable year). Certain types of remuneration are excluded
from the definition of "applicable employee remuneration" and, therefore, are
not subject to the deduction limit. If a corporation pays remuneration
pursuant to a compensation plan or arrangement that existed during the period
the corporation was not publicly held and if certain other conditions are met,
the deduction limit does not apply to amounts paid during a stated relief
period. This relief period generally lasts until the first meeting of
stockholders at which directors are to be elected that occurs after the close
of the third calendar year following the calendar year in which an initial
public offering occurs or the earlier occurrence of several other events. The
Company has considered these requirements and believes that the Company will
satisfy the requirements of this exception with respect to amounts payable to
Kenny A. Troutt pursuant to the Company's employment
16
<PAGE>
agreement with Mr. Troutt for the 1996, 1997, 1998, and 1999 fiscal years and
believes that any compensation received by any executive officer or other
employee of the Company pursuant to the 1995 Stock Option Plan would also
qualify for such exception to the extent that the compensation is paid or an
option is granted prior to the expiration of the stated relief period. In
addition, if Section 162(m) would otherwise apply to the commissions paid to
Stephen R. Smith, the Company's Executive Vice President of Marketing,
pursuant to the agreement between him and the Company that was entered into on
May 1, 1989, the Company believes that there is an exception under the Code
relating to amounts paid to employees under a written binding contract that
was in effect on or prior to February 17, 1993 that should apply to prevent
such payments from being subject to the deduction limit.
CONCLUSION
Overall, the Committee believes that the executive officers of the Company
are being appropriately and reasonably compensated in a manner that relates to
performance of the Company and in the stockholders' long-term interests.
Compensation Committee
/s/Ronald A. McDougall
Ronald A. McDougall
17
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURNS
The following graph and table compare cumulative stockholder returns
(including reinvestment of dividends) for Excel Common Stock since May 9,
1996, the date of the Company's Initial Public Offering on an indexed basis as
compared with the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500") and the S&P Telecommunications (Long Distance) Index. The Companies
which comprise the S&P Telecommunications (Long Distance) Index are AT&T
Corp., MCI Communications Corporation, Sprint Corporation, and WorldCom, Inc.
LOGO
COMPARISON OF CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
1996
--------------------------------------
<S> <C>
EXCEL Communications $140.83
--------------------------------------
S&P 500 $115.00
--------------------------------------
S&P Telecom (Long Distance) $102.65
</TABLE>
- --------
Notes:
A. Assumes $100 invested on May 9, 1996, in the Common Stock of EXCEL and in
each of the other indices and that dividends are reinvested.
B. Weighted by market capitalization.
18
<PAGE>
PROPOSAL NO. 2
APPROVAL OF 1997 DIRECTOR STOCK OPTION PLAN
The Company's 1997 Director Stock Option Plan (the "1997 Director Option
Plan") was adopted in January 1997 by the Board of Directors, subject to
stockholder approval at the Meeting. The Board of Directors unanimously
approved the adoption of the 1997 Director Option Plan. No options will be
granted under the 1997 Director Option Plan until after it has been approved
by the stockholders of the Company.
The purpose of the 1997 Director Option Plan is to encourage ownership of
the Company by eligible non-employee directors of the Company whose continued
services are considered essential to the Company's future progress and to
provide them with a further incentive to remain as directors of the Company.
All options to be granted under the 1997 Director Option Plan will be non-
qualified options ("Nonqualified Options") that will not be eligible for
treatment as incentive stock options ("Incentive Stock Options") under Section
422 of the Internal Revenue of Code of 1986, as amended (the "Code"). A total
of 400,000 shares of Common Stock has been reserved for issuance under the
1997 Director Option Plan. The 1997 Director Option Plan is administered by
the Company's Board of Directors. The Board of Directors has full and final
authority in their discretion, subject to the 1997 Director Option Plan's
provisions: (i) to determine the individuals to whom, and the time or times at
which, options will be granted and the number of shares of Common Stock
covered by each option and (ii) to construe and interpret the terms of the
1997 Director Option Plan and options granted thereunder. The Company expects
that each new non-employee director of the Company, upon becoming a director,
will receive option grants that generally will vest one-third on the day
preceding the first annual meeting of stockholders of the Company held after
the date of grant and one-third on each of the two following anniversaries of
that date, so long as the director continues to serve as a director of the
Company. The Board will also have the authority to make additional option
grants to existing non-employee directors.
The exercise price per share for each option granted under the 1997 Director
Option Plan will be equal to 100% of the fair market value of the Company's
Common Stock on the date of grant. Each option will expire ten years from the
date of grant. Outstanding options will expire earlier if an optionee
terminates service as a director before the end of the first ten-year term. If
an optionee terminates service as a director for any reason including
disability or death, the option will automatically expire 12 months after the
date of termination (but in no event after the ten-year term). Options are not
assignable and may not be transferred other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order.
Upon a dissolution or liquidation of the Company, each outstanding Option will
terminate unless otherwise provided by the Board of Directors. In the event of
a proposed sale of all or substantially all of the assets of the Company or
upon certain mergers where the stockholders of the Company receive cash or
securities of another issuer, the options will be assumed by the successor
entity or substituted with an equivalent option.
The 1997 Director Option Plan provides that the Board of Directors may
suspend or discontinue the 1997 Director Option Plan or review or amend it in
any respect whatsoever. If required by Rule 16b-3 under the Exchange Act of
1934, as amended (the "Exchange Act"), or any Code or New York Stock Exchange
requirements, the Board of Directors will not amend or terminate the 1997
Director Option Plan without stockholder approval.
As of February 28, 1997, the benefits that will be paid under the 1997
Director Option Plan were not determinable and no options had been granted
under the 1997 Director Option Plan. Since it is the Company's policy to grant
options under the 1997 Director Option plan to non-employee directors of the
Company from time to time as determined by the Board of Directors of the
Company, it was not possible, as of February 28, 1997, to indicate the number
or names of directors who will receive options or the number of shares for
which options will be granted under the 1997 Director Option Plan. The Company
has filed with the Securities and Exchange Commission a Registration Statement
on Form S-8, which became effective upon filing, covering the issuance of
shares of Common Stock upon exercise of options to be granted under the 1997
Director Option Plan.
19
<PAGE>
The grant of Nonqualified Options under the 1997 Director Option Plan is
generally not a taxable event for the optionee and is not a taxable event for
the Company. Upon exercise of the option, the optionee will generally
recognize ordinary income in an amount equal to the excess, if any, of the
fair market value of the shares acquired upon exercise (determined as of the
date of exercise) over the exercise price, and the Company will be entitled to
a deduction equal to such amount. If the optionee is subject to Section 16 of
the Exchange Act, special rules will apply if the option is exercised during
the period of time within six months of the date it is issued. In such case,
the optionee will not recognize ordinary income and the Company will not be
entitled to a deduction until the expiration of the period following exercise
during which the sale of shares received could subject the optionee to
liability under Section 16 of the Exchange Act. Upon such expiration, the
optionee will recognize ordinary income, and the Company will be entitled to a
deduction, equal to the excess of the fair market value of the stock
(determined as of the expiration of such period) over the exercise price. Such
an optionee may elect under Section 83(b) of the Code to recognize ordinary
income on the date of exercise, in which case the Company would be entitled to
a deduction at that time equal to the amount of the ordinary income
recognized. The foregoing discussion of the federal income tax consequences of
participation in the 1997 Director Option Plan is only a summary of the
general rules applicable to the grant and exercise of stock options and does
not purport to give specific details on every variable and does not cover,
among other things, state, local and foreign tax treatment of participation in
such plans. The information is based on present law and regulations, which are
subject to being changed prospectively or retroactively.
APPROVAL BY STOCKHOLDERS
In order to be adopted and in order to comply with the rules of the New York
Stock Exchange, the 1997 Director Option Plan must be approved by the
affirmative vote of a majority of the outstanding shares of Common Stock
represented at the Meeting and entitled to vote. Shares may be voted for or
withheld from this matter. Under Delaware law, shares entitled to cast votes
on this matter at the Meeting which are withheld from this matter will be
treated for all purposes relevant to this matter as being present at the
Meeting and entitled to vote and thus will have the same effect as a vote of
such shares against this matter. Shares entitled to cast votes on this matter
at the Meeting which are the subject of a broker non-vote on this matter will
be treated for quorum purposes relevant to this matter as being present at the
Meeting and entitled to vote but not be so treated in determining whether a
majority or other required percentage of the shares present and entitled to
vote on the matter has been obtained.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1997
DIRECTOR OPTION PLAN. UNLESS INDICATED OTHERWISE BY YOUR PROXY VOTE, THE
SHARES WILL BE VOTED FOR THE APPROVAL OF THE 1997 DIRECTOR OPTION PLAN.
20
<PAGE>
PROPOSAL NO. 3
APPROVAL OF DIRECTOR STOCK OPTION AGREEMENT
WITH RONALD A. MCDOUGALL
In August 1996, the Company and Ronald A. McDougall entered into a Director
Stock Option Agreement (the "McDougall Option Agreement") pursuant to which
the Company granted options to acquire 20,000 shares of Common Stock to Mr.
McDougall in connection with Mr. McDougall's agreeing to serve as a director
of the Company. Mr. McDougall has served as a director of the Company since
August 1996 and is a nominee for election as a director at the Meeting. The
Board of Directors unanimously approved the McDougall Option Agreement.
The exercise price per share for the options granted to Mr. McDougall is
$21.25, which was the closing price per share of the Company's Common Stock on
the New York Stock Exchange on the date of grant. Accordingly, the exercise
price per share was equal to 100% of the fair market value of the Company's
Common Stock on the date of grant. As of February 28, 1997, the securities
underlying the options granted to Mr. McDougall were not in-the-money, based
on the closing price of $18.50 per share of the Company's Common Stock on the
New York Stock Exchange on such date. No additional options will be granted to
Mr. McDougall under the McDougall Option Agreement; accordingly, Mr. McDougall
received 100% of the options granted under the McDougall Option Agreement. The
Board of Directors has the authority, in its sole discretion, to grant
additional options to Mr. McDougall from time to time under the Company's 1997
Director Option Plan.
The options granted to Mr. McDougall are Nonqualified Options that are not
eligible for treatment as Incentive Stock Options under Section 422 of the
Code. The options granted to Mr. McDougall will vest one-third on the day
preceding the first annual meeting of stockholders of the Company held after
the date of grant, which will be the Meeting, and one-third on each of the two
following anniversaries of that date, so long as Mr. McDougall continues to
serve as a director of the Company. Each option will expire ten years from the
date of grant. In the event Mr. McDougall ceases to serve as a director of the
Company, the options may be exercised within 12 months after he ceases to
serve as a director, but only to the extent the options were exercisable at
the time of such cessation of service. In any event, the options will not be
exercisable after the expiration of 10 years from the date of grant.
The options are not assignable and may not be transferred other than by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order. Upon a dissolution or liquidation of the Company, the
outstanding options will terminate unless otherwise provided by the Board of
Directors. In the event of a proposed sale of all or substantially all of the
assets of the Company or upon certain mergers where the stockholders of the
Company receive cash or securities of another issuer, the options will be
assumed by the successor entity or substituted with an equivalent option. The
Company has filed with the Securities and Exchange Commission a Registration
Statement on Form S-8, which became effective upon filing, covering the
issuance of shares of Common Stock upon exercise of options granted to Mr.
McDougall under the McDougall Option Agreement.
The grant of Nonqualified Options is generally not a taxable event for the
optionee and is not a taxable event for the Company. Upon exercise of a
Nonqualified Option, the optionee will generally recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
acquired upon exercise (determined as of the date of exercise) over the
exercise price, and the Company will be entitled to a deduction equal to such
amount. However, if an optionee, such as Mr. McDougall, is subject to Section
16 of the Exchange Act, special rules will apply if the option is exercised
during the period of time within six months of the date it is issued. In such
case, the optionee will not recognize ordinary income and the Company will not
be entitled to a deduction until the expiration of the period following
exercise during which the sale of shares received could subject the optionee
to liability under Section 16 of the Exchange Act. Upon such expiration, the
optionee will recognize ordinary income, and the Company will be entitled to a
deduction, equal to the excess of the fair market value of the stock
(determined as of the expiration of such period) over the exercise price. Such
an optionee may elect under Section 83(b) of the Code to recognize ordinary
income on the date of exercise, in
21
<PAGE>
which case the Company would be entitled to a deduction at that time equal to
the amount of the ordinary income recognized. The foregoing discussion of the
federal income tax consequences is only a summary of the general rules
applicable to the grant and exercise of stock options and does not purport to
give specific details on every variable and does not cover, among other
things, state, local and foreign tax treatment of participation in such plans.
The information is based on present law and regulations, which are subject to
being changed prospectively or retroactively.
APPROVAL BY STOCKHOLDERS
In order to comply with the requirements of the New York Stock Exchange,
affirmative vote of a majority of the outstanding shares of Common Stock
represented at the Meeting and entitled to vote, must be obtained to approve
the McDougall Option Agreement. Shares may be voted for or withheld from this
matter. Under Delaware law, shares entitled to cast votes on this matter at
the Meeting which are withheld from this matter will be treated for all
purposes relevant to this matter as being present at the Meeting and entitled
to vote and thus will have the same effect as a vote of such shares against
this matter. Shares entitled to cast votes on this matter at the Meeting which
are the subject of a broker non-vote on this matter will be treated for quorum
purposes relevant to this matter as being present at the Meeting and entitled
to vote but not be so treated in determining whether a majority or other
required percentage of the shares present and entitled to vote on the matter
has been obtained.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE MCDOUGALL
OPTION AGREEMENT UNLESS INDICATED OTHERWISE BY YOUR PROXY VOTE, THE SHARES
WILL BE VOTED FOR THE APPROVAL OF THE MCDOUGALL OPTION AGREEMENT.
Stockholders are urged to mark, sign, and send in their proxies without
delay.
By Order of the Board of Directors
[SIGNATURE OF JOHN J. MCLAINE APPEARS HERE]
John J. McLaine
Secretary
Dallas, Texas
March 28, 1997
22
<PAGE>
EXCEL COMMUNICATIONS, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of this 1997 Director Stock Option Plan (the
-------
"Plan") of EXCEL Communications, Inc., a Delaware corporation (the "Company"),
is to encourage ownership in the Company by outside directors of the Company
whose continued services are considered essential to the Company's future
progress and to provide them with a further incentive to remain as directors of
the Company.
2. Eligibility. Options (each, an "Option") to purchase shares
-----------
("Shares") of the Company's common stock, par value $.001 per share ("Common
Stock"), may be granted only to Outside Directors. An "Outside Director" is a
member of the Board of Directors of the Company ("Board of Directors") that is
not an employee (each, an "Optionee"). "Employee" means any person, including
officers and directors, employed by the Company or any Parent or Subsidiary of
the Company. The payment of a Director's fee by the Company shall not be
sufficient to constitute "employment" by the Company. A "Parent" means a
"parent corporation," whether now or hereafter existing, as defined in Section
424(e) of the Internal Revenue Code of 1986, as amended to date and as it may be
amended from time to time (the "Code"), and a "Subsidiary" means a "subsidiary
corporation," whether now or hereafter existing, as defined in Section 424(f) of
the Code.
3. Administration
--------------
(a) Board of Directors. The Board of Directors of the Company shall
------------------
supervise and administer the Plan in compliance with the rules under Rule 16b-3
or any successor thereto ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All questions of interpretation of the
Plan or of any Options issued under it shall be determined by the Board of
Directors and such determination shall be final and binding upon all persons
having an interest in the Plan. In the event it becomes necessary after the
date on which the Plan is adopted to have the Plan administered by a committee
of the Board of Directors, then a committee designated by the Board of Directors
will administer the Plan, which committee shall be constituted to comply with
the rules under Rule 16b-3 relating to the administration of employee benefit
plans for Outside Directors, and all references in the Plan to the Board of
Directors shall be deemed to be a reference to such committee.
(b) Powers of the Board of Directors. Subject to the provisions of
--------------------------------
the Plan and subject to the approval of any relevant authorities, including the
approval, if required, of any stock exchange upon which the Common Stock is
listed, the Board of Directors shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 5(b) of the Plan;
<PAGE>
(ii) to determine the recipients of Options and the number of
shares to be covered by each Option granted hereunder, including the number
of shares to be covered by Options to be granted to an Optionee who,
pursuant to a separate contractual arrangement with the Company, elects to
convert the annual retainer to be paid to such Optionee into Options valued
using a Black/Scholes pricing model agreed upon by the Company and such
Optionee;
(iii) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised, any vesting, acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or the shares of Common Stock relating thereto, based in each case
on such factors as the Board of Directors, in its sole discretion, shall
determine; and
(iv) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan, and to amend, suspend or discontinue the Plan
as provided for in Section 10 hererof.
4. Stock Subject to the Plan
-------------------------
(a) Maximum Number of Shares. The maximum number of shares which may
------------------------
be issued under the Plan shall be 400,000 shares of Common Stock, subject to
adjustment as provided in Section 9 below.
(b) Termination of Options. If any Option shall for any reason expire
----------------------
or otherwise terminate without having been exercised in full, the stock not
purchased under such Option shall revert to and again become available for
issuance under the Plan unless the Plan shall have terminated; provided,
however, that shares of Common Stock that have been actually issued under the
Plan shall not be returned to the Plan and shall not become available for future
issuance under the Plan. Shares that are withheld as payment of the Exercise
Price of any Options (as set forth in Section 5(f)) shall be deemed issued for
purposes of this Section.
(c) Stock Subject to the Plan. The stock subject to the Plan may be
-------------------------
unissued shares or reacquired shares, bought on the market or otherwise.
5. Terms, Conditions and Form of Options
-------------------------------------
(a) Option Agreement
----------------
Each option agreement governing an Option ("Option Agreement")
shall be in the form attached hereto as Exhibit A. In the event any provisions
of the Option Agreement and the Plan conflict, the provisions of the Plan shall
control. The provisions of separate Options need not be identical, but each
Option Agreement shall include (through incorporation of provisions hereof
2
<PAGE>
by reference in the Option or otherwise) the substance of each of the following
provisions set forth in this Section 5.
(b) Option Exercise Price. The exercise price per share for each
---------------------
Option granted under the Plan shall be equal to one hundred percent (100%) of
the fair market value of each such share ("Fair Market Value") on the date of
grant. The Fair Market Value shall be equal to (i) if the Common Stock is
listed on any established stock exchange or a national market system, including
without limitation the New York Stock Exchange (the "NYSE"), the closing sales
price for such stock on the date of determination (or, if no such price is
reported on such date, such price as reported on the nearest preceding day) as
quoted on such exchange or system (or the exchange with the greatest volume of
trading in the Common Stock), as reported in The Wall Street Journal or such
-----------------------
other source as the Board of Directors deems reliable, or (ii) if the Common
Stock is quoted on the NASDAQ System (but not on the NASDAQ National Market
thereof) or is regularly quoted by a recognized securities dealer but selling
prices are not reported, the mean of the closing bid and asked prices for the
Common Stock on the date of determination (or if such prices are not reported on
such date, such prices as reported on the nearest preceding date), as reported
in The Wall Street Journal or such other source as the Board of Directors deems
-----------------------
reliable; or (iii) if the fair market value is not determined pursuant to (i) or
(ii) above, the fair market value as determined in good faith by the Board of
Directors.
(c) Options Non-Transferable. No Option shall be transferable by the
------------------------
Optionee otherwise than by will, or by the laws of descent and distribution, or
pursuant to a qualified domestic relations order, as defined in the Code or
Title I of the Employee Retirement Security Act of 1974, as amended ("ERISA"),
or the rules thereunder ("QDRO"), and shall be exercised during the lifetime of
the Optionee only by such person or any transferee pursuant to a QDRO. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during such person's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(d) Exercise Period. Subject to Section 7, each Option shall become
---------------
vested and exercisable as follows: The Options will vest one-third on the day
preceding the first Annual Meeting of Stockholders of the Company held after the
date of grant and one-third on each of the two following anniversaries of that
date so long as Optionee continues to serve as a director of the Company. In
the event an Optionee ceases to serve as a director of the Company, each such
Option may be exercised by the Optionee (or, in the event of such person's
death, by such person's administrator, executor or heirs), at any time within 12
months after the Optionee ceases to serve as a director, but only to the extent
such Option was exercisable at the time of such cessation of service.
Notwithstanding the foregoing, no Option shall be exercisable after the
expiration of 10 years from the date of grant.
(e) Exercise Procedure. Subject to Section 12, an Option shall be
------------------
deemed to be exercised when written notice ("Exercise Notice") of such exercise
has been given to the Company in accordance with the terms of the Option
Agreement by the person entitled to exercise the Option
3
<PAGE>
and full payment for the shares of Common Stock with respect to which the Option
is exercised has been received by the Company. Each Optionee who exercises an
Option shall, upon notification of the amount due (if any) and prior to or
concurrent with delivery of the certificate representing the shares, pay by cash
or check to the Company all amounts necessary to satisfy applicable federal,
state and local tax withholding requirements. No Option may at any time be
exercised with respect to a fractional share.
(f) Payment of Exercise Price. The purchase price of stock acquired
-------------------------
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations at the time the Option is exercised, either (i) in cash
or check, or (ii) at the discretion of the Board of Directors in one or a
combination of the following ways, (A) by delivery to the Company of other
shares of Common Stock of the Company to be valued at their Fair Market Value on
the exercise date (provided that any shares acquired directly or indirectly from
the Company shall have been owned by the Optionee for more than six months on
the date of surrender), or (B) withholding of shares that would otherwise be
issued upon the exercise of the Option to be valued at their Fair Market Value
on the exercise date. If the Fair Market Value of the number of whole shares
transferred or the number of whole shares subject to an Option surrendered is
less than the total exercise price of the Option, the shortfall must be made up
in cash or by check.
6. Nonstatutory Options. All Options granted under the Plan shall be
--------------------
nonstatutory Options not entitled to special tax treatment under Section 422 of
the Code.
7. Effective Date and Term
-----------------------
The Plan was adopted by the Board of Directors of the Company as of
5:00 p.m. on January 15, 1997 and became effective upon its adoption. The Plan
shall continue in effect until it is terminated by action of the Board, but such
termination shall not affect the terms of any outstanding Options.
8. Limitation of Rights
--------------------
(a) No Right to Continue as Director. Neither the Plan, nor the
--------------------------------
granting of an Option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) No Shareholders' Rights for Optionees. Neither an Optionee nor
-------------------------------------
any person to whom an Option is transferred pursuant to the Plan shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares of Common Stock subject to such Option including, but not limited to,
rights to vote or to receive dividends, unless and until such person has
satisfied all requirements for exercise of the Option pursuant to its terms, the
certificates evidencing such shares have been issued and such person has become
a record holder of such shares.
4
<PAGE>
9. Adjustments Upon Changes in Capitalization or Merger
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the aggregate number of shares of Common Stock
subject to Options, the number of shares of Common Stock subject to Options to
be granted on each event described in Section 5, the number of shares of Common
Stock covered by each outstanding Option and the number of shares of Common
Stock that have been authorized for issuance under the Plan but as to which no
Options have yet been granted or that have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board
of Directors, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger or consolidation
of the Company with or into another entity in which the shareholders of the
Company receive cash or securities of another issuer, or any combination
thereof, in exchange for their shares of Common Stock, each outstanding Option
shall be assumed or an equivalent option shall be substituted by such successor
entity or a parent or subsidiary of such successor entity. For the purposes of
this Section, the Option shall be considered assumed if, following the merger,
consolidation or sale of assets, the Option confers the right to purchase, for
each share of Common Stock subject to the Option immediately prior to the
merger, consolidation or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger, consolidation or sale
of assets by holders of Common Stock for each share held on the effective date
of the consummation of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of common stock).
10. Amendment of the Plan
---------------------
The Board of Directors may suspend or discontinue the Plan or review
or amend it in any respect whatsoever.
5
<PAGE>
11. Notice
------
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received. Any written notice to Optionees required by any
provisions of the Plan shall be addressed to the Optionee at the address on file
with the Company and shall become effective 3 days after it is mailed by
certified mail, postage prepaid to such address or at the time of delivery if
delivered sooner by messenger or overnight courier.
12. Regulatory Approval, Compliance and Other Matters.
-------------------------------------------------
(a) Options shall not be exercised, and shares shall not be issued
upon such exercise, unless the exercise of such Option and the issuance and
delivery of such shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended ("the Securities Act"), the Exchange Act, the
rules and regulations thereunder and the requirements of any stock exchange upon
which such shares may then be listed or approved for listing upon notice of
issuance, and such issuance shall be further subject to the approval of counsel
for the Company with respect to such compliance, including the availability of
an exemption from registration for the issuance and sale of such shares. The
inability of the Company to obtain from any regulatory body the authority deemed
by the Company to be necessary for the lawful issuance and sale of any shares
under this Plan, or the unavailability of an exemption from registration for the
issuance and sale of any shares under this Plan, shall relieve the Company of
any liability with respect to the non-issuance or sale of such shares.
(b) Other Conditions. The Company may require any Optionee, or any
----------------
person to whom an Option is transferred pursuant to the Plan, as a condition to
exercising any such Option, (i) to give written assurances satisfactory to the
Company as to the Optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matter, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Option; (ii) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the stock; and
(iii) to deliver such other documentation as may be necessary to comply with
federal and state securities laws. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act and all
applicable state securities laws, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock and may enter stop
transfer orders against the transfer of the shares of Common Stock issuable upon
the
6
<PAGE>
exercised Options. The Company has no obligation to undertake registration of
Options or the shares of Common Stock issuable upon the exercise of Options.
(c) Rule 16b-3. With respect to persons subject to Section 16 of the
----------
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such persons all
transactions shall be subject to such conditions regardless of whether they are
expressly set forth in the Plan or the Option Agreement. To the extent any
provision of the Plan or action by the Board of Directors fails to so comply, it
shall not apply to such persons or their transactions and shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Board of
Directors.
13. Governing Law. The Plan and all rights and obligations thereunder
-------------
shall be construed in accordance with and governed by the laws of the state of
Delaware without regard to its conflict of laws rules.
7
<PAGE>
EXHIBIT A
---------
8
<PAGE>
EXCEL COMMUNICATIONS, INC.
DIRECTOR STOCK OPTION AGREEMENT
THIS DIRECTOR STOCK OPTION AGREEMENT ("Agreement" or "Option Agreement") is
entered into between EXCEL COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), and the person named on the signature page hereof ("Optionee") with
the date of grant of the option as set forth on such signature page.
To carry out the purposes of the EXCEL COMMUNICATIONS, INC. 1997 DIRECTOR
STOCK OPTION PLAN (the "Plan"), by affording Optionee the opportunity to
purchase shares of common stock of the Company ("Common Stock"), and in
consideration of the mutual agreements and other matters set forth herein and in
the Plan, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby irrevocably grants to Optionee
---------------
the right and option ("Option") to purchase all or any part of the number of
shares of Common Stock as set forth on the signature page hereto, on the terms
and conditions set forth herein and in the Plan, which Plan is incorporated
herein by reference as a part of this Agreement. In the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail. The
Optionee may review a copy of the Plan at the office of the Secretary of the
Company at 8750 North Central Expressway, Suite 2000, Dallas, Texas 75231. This
Option shall not be treated as an incentive stock option within the meaning of
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Vesting Schedule. Except only as specifically provided elsewhere
----------------
herein, the Option shall be exercisable in the following cumulative
installments:
Up to one-third, or ______, of the total shares ("Optioned Shares") at
any time after the Initial Vesting Date. For purposes of this Option Agreement,
the "Initial Vesting Date" shall mean the day immediately preceding the day on
which the Company's ______ [INSERT DATE] annual meeting of stockholders is held;
Up to an additional one-third, or _____, of the total Optioned Shares
at any time after the first anniversary of the Initial Vesting Date; and
Up to an additional one-third, or _____, of the total Optioned Shares
at any time after the second anniversary of the Initial Vesting Date.
If an installment covers a fractional share, such installment will be
rounded off to the next highest share, except the final installment, which will
be for the balance of the total Optioned Shares.
9
<PAGE>
3. Purchase Price. The purchase price of Common Stock purchased pursuant
--------------
to the exercise of this Option is set forth on the signature page hereto, which
has been determined to be not less than the Fair Market Value of the Common
Stock at the date of grant of this Option.
4. Exercise of Option. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares.
5. Method of Payment. The purchase price of Exercised Shares acquired
-----------------
pursuant to an Option shall be paid as set forth in the Plan.
6. Nontransferable and Termination. This Option is not transferable by
-------------------------------
Optionee otherwise than by will or the laws of descent and distribution, and may
be exercised only by Optionee during Optionee's lifetime, except as provided in
the Plan.
7. Term. This Option shall not be exercisable in any event after the
----
expiration of ten years from the date of grant hereof. The purchase price of
shares as to which this Option is exercised shall be paid in full at the time of
exercise for the consideration set forth in the Plan. No fraction of a share of
Common Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the purchase price thereof.
8. Withholding of Tax. To the extent that the exercise of this Option or
------------------
the disposition of shares of Common Stock acquired by exercise of this Option
obligates the Company to withhold federal, state or local tax the Optionee shall
pay such amounts to the Company upon request by delivery of cash or check or in
such other manner as is permitted by the Plan.
9. Compliance with Securities Laws. Optionee agrees that the shares of
-------------------------------
Common Stock which Optionee may acquire by exercising this Option will not be
sold or otherwise disposed of in any manner which would constitute a violation
of any applicable securities laws, whether federal or state. Optionee also
agrees (i) that the certificates representing the shares of Common Stock
purchased under this Option may bear such legend or legends as the Board of
Directors of the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Common Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel to the Company constitute a violation of any applicable securities
law and (iii) that the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Common
Stock purchased under this Option.
10
<PAGE>
10. Tax Consequences. The grant and/or exercise of the Option will have
----------------
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES, PARTICULARLY WITH RESPECT TO HIS OR HER STATE'S TAX
LAWS.
11. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of any successors to the Company and all persons lawfully claiming under
Optionee.
12. Entire Agreement and Governing Law. The Plan is incorporated herein
----------------------------------
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. In the event of any conflicts between this Agreement and the Plan,
the Plan shall control. This Agreement is governed by Delaware law except for
that body of law pertaining to conflict of laws.
13. Miscellaneous. Optionee warrants and represents that he or she has
-------------
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understand all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board of Directors upon any questions relating to the
Plan and Option Agreement. Optionee further agrees to notify the Company upon
any change in the residence address indicated below.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Optionee has executed
this Agreement, all as of the day and year first above written.
EXCEL COMMUNICATIONS, INC.
By:_______________________________________________
Name:_____________________________________________
Title:____________________________________________
__________________________________________________
___________________, Optionee
Address:
__________________________________________________
__________________________________________________
Date of Grant: ________________
Exercise Price Per Share: $_______________
Total Number of Optioned Shares: ________________
Total Exercise Price: $_______________
Type of Option: Nonstatutory
Stock Option
Expiration Date: ________________
12
<PAGE>
EXCEL COMMUNICATIONS, INC.
1997 DIRECTOR STOCK OPTION PLAN
EXERCISE NOTICE
EXCEL Communications, Inc.
8750 North Central Expressway, Suite 2000
Dallas, TX 75231
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________, 199__, the
------------------
undersigned ("Purchaser") hereby elects to purchase __________ shares (the
"Shares") of the Common Stock of EXCEL Communications, Inc. (the "Company")
under and pursuant to the 1997 Director Stock Option Plan (the "Plan") and the
Director Stock Option Agreement dated _________, 199__ (the "Option Agreement").
The per share exercise price for the Shares shall be $__________, as specified
in the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares or ________________________________.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Purchaser as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 9 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser had consulted with any tax
consultants Purchaser deems advisable in connection with the purchaser or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
13
<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by Delaware law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: EXCEL COMMUNICATIONS, INC.
____________________________ By:______________________
Signature
____________________________ Its:_____________________
Print Name
Address: Address:
- ------- -------
____________________________ 8750 North Central Expressway, Suite 2000
____________________________ Dallas, TX 75231
14
<PAGE>
EXCEL COMMUNICATIONS, INC.
DIRECTOR STOCK OPTION AGREEMENT
THIS DIRECTOR STOCK OPTION AGREEMENT (this "Option Agreement") is entered
into as of August 26, 1996, between EXCEL COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and Ronald A. McDougall ("Optionee").
To afford Optionee, whose continued service as a director of the Company is
considered essential to the Company's future progress, the opportunity to
purchase shares of common stock, par value $.001 per share, of the Company (the
"Common Stock") and to provide Optionee with a further incentive to remain a
director of the Company, and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby irrevocably grants to Optionee
---------------
the right and option (the "Option") to purchase Common Stock of the Company, on
the terms and conditions set forth herein, as set forth below:
Optionee's Name and Address: Ronald A. McDougall
Brinker International, Inc.
6820 LBJ Freeway
Dallas, Texas 75240
Date of Grant: August 26, 1996
Exercise Price Per Share: $21.25
Total Number of Optioned Shares: 20,000
Total Exercise Price: $425,000
Type of Option: Nonstatutory Stock Option
Expiration Date: August 26, 2006
The Option shall not be treated as an incentive stock option within the meaning
of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
The Option will be a nonstatutory Option not entitled to special tax treatment
under Section 422 of the Code.
2. Vesting Schedule. Except only as specifically provided elsewhere
----------------
herein, the Option shall be exercisable in the following cumulative
installments:
Up to 6,667 total shares ("Optioned Shares") at any time after the
Initial Vesting Date. For purposes of this Option Agreement, the "Initial
Vesting Date" shall mean the day immediately preceding the day on which the
Company's 1997 annual meeting of stockholders is held;
<PAGE>
Up to an additional 6,667 total Optioned Shares at any time after the
first anniversary of the Initial Vesting Date; and
Up to an additional 6,666 total Optioned Shares at any time after the
second anniversary of the Initial Vesting Date.
If an installment covers a fractional share, such installment will be
rounded off to the next highest share, except the final installment, which will
be for the balance of the total Optioned Shares.
3. Purchase Price. The exercise price per share of Common Stock
--------------
purchased pursuant to the exercise of the Option, which is set forth in Section
1, has been determined to be not less than the Fair Market Value of the Common
Stock on the date of grant of the Option. The term "Fair Market Value" means
(i) if the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the New York Stock Exchange
("NYSE"), the closing sales price for such stock on the date of determination
(or, if no such price is reported on such date, such price as reported on the
nearest preceding day) as quoted on such exchange or system (or the exchange
with the greatest volume of trading in the Common Stock), as reported in The
---
Wall Street Journal or such other source as the Board of Directors deems
- -------------------
reliable, or (ii) if the Common Stock is quoted on the NASDAQ System (but not on
the NASDAQ National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the mean of the closing
bid and asked prices for the Common Stock on the date of determination (or if
such prices are not reported on such date, such prices as reported on the
nearest preceding date), as reported in The Wall Street Journal or such other
-----------------------
source as the Board of Directors deems reliable; or (iii) if the fair market
value is not determined pursuant to (i) or (ii) above, the fair market value as
determined in good faith by the Board of Directors.
4. Exercise of Option. The Option is exercisable by delivery of an
------------------
exercise notice, in the form attached hereto as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Optioned Shares in respect of which the Option is being exercised (the
"Exercised Shares"), and such other representations and agreements as may be
required by the Company pursuant to the provisions of this Option Agreement. The
Exercise Notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The Exercise Notice shall
be accompanied by payment of the aggregate exercise price as to all Exercised
Shares. The Option may not at any time be exercised with respect to a fractional
share, and no fraction of a share of Common Stock shall be issued by the Company
upon exercise of the Option or accepted by the Company in payment of the
purchase price thereof. No shares shall be issued pursuant to the exercise of
the Option unless such issuance and exercise complies with all relevant
provisions of Section 9(a) hereof. Assuming such compliance, for income tax
purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares. The
stock issued to Optionee upon exercise of the Option may be unissued shares or
reacquired shares, bought on the market or otherwise.
2
<PAGE>
5. Method of Payment. The purchase price of Common Stock acquired
-----------------
pursuant to the Option shall be paid, to the extent permitted by applicable
statutes and regulations at the time the Option is exercised, either (i) in cash
or check, and/or (ii) at the discretion of the Board of Directors, in one or a
combination of the following ways, (A) by delivery to the Company of other
shares of Common Stock of the Company to be valued at their Fair Market Value on
the exercise date (provided that any shares acquired directly or indirectly from
the Company shall have been owned by the Optionee for more than six months on
the date of surrender), or (B) withholding of shares that would otherwise be
issued upon the exercise of the Option to be valued at their Fair Market Value
on the exercise date. If the Fair Market Value of the number of whole shares
transferred or the number of whole shares subject to the Option surrendered is
less than the total exercise price of the Option, the shortfall must be made up
in cash or by check. THE USE OF SHARES OF STOCK ACQUIRED OR TO BE ACQUIRED TO
PAY FOR EXERCISED SHARES MAY HAVE INCOME TAX CONSEQUENCES FOR THE OPTIONEE.
6. Nontransferable and Termination.
-------------------------------
(a) The Option is not transferable by Optionee otherwise than by will
or the laws of descent and distribution, or pursuant to a qualified domestic
relations order, as defined in the Code or Title I of the Employee Retirement
Security Act of 1974, as amended ("ERISA"), or the rules thereunder ("QDRO"),
and may be exercised during Optionee's lifetime only by Optionee or any
transferee pursuant to a QDRO. Neither the Option nor an interest therein may
be transferred, assigned, pledged or hypothecated by the Optionee during such
person's lifetime, whether by operation of law or otherwise, or be made subject
to execution, attachment or similar process.
(b) In the event Optionee ceases to serve as a director of the
Company, the Option may be exercised by the Optionee (or, in the event of such
person's death, by such person's administrator, executor or heirs), at any time
within 12 months after the Optionee ceases to serve as a director, but only to
the extent the Option was exercisable at the time of such cessation of service.
Notwithstanding the foregoing, the Option shall not be exercisable in any event
after the expiration of 10 years from the date of grant.
7. Limitation of Rights.
--------------------
(a) No Right to Continue as Director. The granting of the Option
--------------------------------
shall not constitute or be evidence of any agreement or understanding, express
or implied, that the Company will retain Optionee as a director for any period
of time.
(b) No Shareholders' Rights for Optionee. Neither the Optionee nor
------------------------------------
any person to whom the Option is transferred pursuant to Section 6(a) hereof
shall be deemed to be the holder of, or to have any of the rights of a holder
with respect to, any shares of Common Stock subject to the Option including, but
not limited to, rights to vote or to receive dividends, unless and until such
person has satisfied all requirements for exercise of the Option pursuant to its
terms, the certificates evidencing such shares have been issued and such person
has become a record holder of such shares.
3
<PAGE>
8. Withholding of Tax. Optionee shall, upon notification of the amount
------------------
due (if any) and prior to or concurrent with delivery of the certificate
representing the Optioned Shares, pay by cash or check to the Company amounts
necessary to satisfy applicable federal, state and local tax withholding
requirements.
9. Compliance with Securities Laws.
-------------------------------
(a) The Option shall not be exercised, and shares shall not be issued
upon such exercise, unless the exercise of the Option and the issuance and
delivery of such shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended ("the Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the rules and regulations
thereunder and the requirements of any stock exchange upon which such shares may
then be listed or approved for listing upon notice of issuance, and such
issuance shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption from
registration for the issuance and sale of such shares. The inability of the
Company to obtain from any regulatory body the authority deemed by the Company
to be necessary for the lawful issuance and sale of any shares under this Option
Agreement, or the unavailability of an exemption from registration for the
issuance and sale of any shares under this Option Agreement, shall relieve the
Company of any liability with respect to the non-issuance or sale of such
shares.
(b) Optionee agrees that the shares of Common Stock which Optionee
may acquire by exercising the Option will not be sold or otherwise disposed of
in any manner which would constitute a violation of any applicable securities
laws, whether federal or state. Optionee also agrees (i) that the certificates
representing the shares of Common Stock purchased under the Option may bear such
legend or legends as the Board of Directors of the Company deems appropriate in
order to assure compliance with applicable securities laws, (ii) that the
Company may refuse to register the transfer of the shares of Common Stock
purchased under the Option on the stock transfer records of the Company if such
proposed transfer would in the opinion of counsel to the Company constitute a
violation of any applicable securities law and (iii) that the Company may give
related instructions to its transfer agent, if any, to stop registration of the
transfer of the shares of Common Stock purchased under the Option. The Company
may require Optionee, or any person to whom the Option is transferred under
Section 6(a), as a condition of exercising the Option, (i) to give written
assurances satisfactory to the Company stating that such person is acquiring the
stock subject to the Option for such person's own account and not with any
present intention of selling or otherwise distributing the stock; and (ii) to
deliver such other documentation as may be necessary to comply with federal and
state securities laws. In addition, the Company may require any person to whom
the Option is transferred under Section 6(a), as a condition of exercising the
Option, to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he is
4
<PAGE>
capable of evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Option.
10. Tax Consequences. The grant and/or exercise of the Option will have
----------------
federal and state income tax consequences, including a requirement that the
Company file certain information returns with the Internal Revenue Service. THE
OPTIONEE SHOULD CONSULT A TAX ADVISER UPON THE GRANT OF THE OPTION AND BEFORE
EXERCISING THE OPTION OR DISPOSING OF THE SHARES, PARTICULARLY WITH RESPECT TO
HIS STATE'S TAX LAWS.
11. Administration. The Board of Directors or a duly appointed committee
--------------
of the Board (the "Administrators") shall supervise and administer this Option
Agreement. All questions of interpretation of the Option issued hereunder shall
be determined by the Administrators and such determination shall be final and
binding upon the Optionee.
12. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. The number of shares of Common Stock
-------------------------
covered by the Option, as well as the price per share of Common Stock covered by
the Option, shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrators, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of Optioned Shares.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Administrators. The Administrators may, in the exercise of their sole
discretion in such instances, declare that the Option shall terminate as of a
date fixed by the Administrators and give the Optionee the right to exercise the
Option as to all or any part of the Optioned Shares, including shares as to
which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger, restructure,
reorganization or consolidation of the Company with or into another entity or
entities in which the shareholders of the Company receive cash or securities of
another issuer, or any combination thereof, in exchange for their shares of
Common Stock, the Option shall be assumed or an equivalent option shall be
substituted by such successor entity or an affiliate of such successor entity,
unless the Administrators determine, in the
5
<PAGE>
exercise of their sole discretion and in lieu of such assumption or
substitution, that the Optionee shall have the right to exercise the Option as
to all Optioned Shares, including shares as to which the Option would not
otherwise be vested. If the Administrators make the Option fully exercisable in
lieu of assumption or substitution in the event of a merger, restructure,
reorganization, consolidation or sale of assets, the Administrators shall notify
the Optionee that the Option shall be fully exercisable for a period of thirty
(30) days from the date of such notice or such shorter period as the
Administrators may specify in the notice, and the Option will terminate upon the
expiration of such period. For the purposes of this Section, the Option shall be
considered assumed if, following the merger, restructure, reorganization,
consolidation or sale of assets, the Option confers the right to purchase, for
each Optioned Share immediately prior to the merger, restructure,
reorganization, consolidation or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each share of Common Stock held on the
effective date of the consummation of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the merger, restructure,
reorganization, consolidation or sale of assets was not solely common equity of
the successor entity or its affiliate, the Administrators may, with the consent
of the successor entity and the Optionee, provide for the consideration to be
received upon the exercise of the Option, for each Optioned Share, to be solely
common stock of the successor entity or its affiliate equal in fair market value
to the per share consideration received by holders of Common Stock in the
merger, restructure, reorganization, consolidation or sale of assets.
13. Binding Effect. This OptionAgreement shall be binding upon and inure
--------------
to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
14. Entire Agreement and Governing Law. This Option Agreement constitutes
----------------------------------
the entire agreement of the parties with respect to the subject matter hereof
and supersedes in its entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This Option Agreement is governed by
Delaware law except for that body of law pertaining to conflict of laws.
15. Reserves. During the term of the Option, the Company shall keep
--------
available at all times and shall reserve the number of shares of Common Stock
required to satisfy the Option upon exercise thereof.
16. Notice. Any written notice to the Company required by any of the
------
provisions of this Option Agreement shall be addressed to the Secretary of the
Company and shall become effective when it is received. Any written notice to
the Optionee required by any provisions of this Option Agreement shall be
addressed to the Optionee at the address on file with the Company and shall
become effective three days after it is mailed by certified mail, postage
prepaid to such address or at the time of delivery if delivered sooner by
messenger or overnight courier.
6
<PAGE>
17. Miscellaneous. Optionee warrants and represents that he has reviewed
-------------
this Option Agreement in its entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option Agreement and fully understand
all provisions of this Option Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrators upon any questions relating to this Option Agreement. Optionee
further agrees to notify the Company upon any change in the address indicated in
Section 1 above.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Optionee has executed
this Agreement, all as of the day and year first above written.
EXCEL COMMUNICATIONS, INC.
By: /s/ Kenny A. Troutt
------------------------------------
Name: Kenny A. Troutt
Title: President and Chief Executive Officer
/s/ Ronald A. McDougall
---------------------------------------
Ronald A. McDougall, Optionee
7
<PAGE>
Exhibit A
<PAGE>
EXCEL COMMUNICATIONS, INC.
DIRECTOR STOCK OPTION AGREEMENT
EXERCISE NOTICE
EXCEL Communications, Inc.
8750 North Central Expressway
20th Floor
Dallas, Texas 75231
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________, 199__, the
------------------
undersigned ("Purchaser") hereby elects to purchase __________ shares (the
"Shares") of the Common Stock of EXCEL Communications, Inc. (the "Company")
under and pursuant to the Director Stock Option Agreement dated as of August 26,
1996 (the "Option Agreement"). The per share exercise price for the Shares
shall be $__________, as specified in the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares or___________________________________.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has read and understood the Option Agreement and agrees to abide by and be bound
by its terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Purchaser as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in the Option
Agreement.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement; Governing Law. The Option Agreement is incorporated
-------------------------------
herein by reference. This exercise notice and the Option Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the
Company and Purchaser with respect to the subject matter hereof, and may not be
modified adversely to the Purchaser's interest except by means of a writing
signed by the Company and Purchaser. This exercise notice is governed by
Delaware law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
PURCHASER: EXCEL COMMUNICATIONS, INC.
By:__________________________
_____________________________
Ronald A. McDougall Its:_________________________
Address: Address:
- ------- -------
Brinker International, Inc. 8750 North Central Expressway,
6820 LBJ Freeway 20th Floor
Dallas, Texas 75240 Dallas, Texas 75231
2
<PAGE>
DETACH HERE EXC 2
EXCEL COMMUNICATIONS, INC.
8750 North Central Expressway
Suite 2000
Dallas, Texas 75231
P SOLICITED BY THE BOARD OF DIRECTORS
FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
R
The undersigned hereby appoints John J. McLaine and J. Christopher
O Dance, and each of their proxies and attorneys-in-fact, each with the
power to appoint his substitute, and hereby authorizes them to represent
X and to vote, as designated on the reverse side, all shares of common
stock of EXCEL Communications, Inc. (the "Company") held of record by
Y the undersigned on March 17, 1997 at the Annual Meeting of Stockholders
to be held on May 15, 1997 at 10:00 a.m., local time, at the Wyndham
Anatole Hotel, 2201 Stemmons Freeway, Dallas, Texas, and any
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS MARKED BY YOU.
HOWEVER, IF THIS PROXY IS RETURNED UNMARKED WITH RESPECT TO A PARTICULAR
PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- --------------------------------------------------------------------------------
DETACH HERE EXC 3
- ----- Please mark
| X | votes as in ____
- ----- this example. |
|
1. Election of Directors
Nominees: Kenny A. Troutt, John J. McLaine,
Stephen R. Smith and Ronald A. McDougall
FOR WITHHOLD
ALL FROM ALL
NOMINEES NOMINEES
----- -----
| | | |
----- -----
-----
| |
----- ----------------------------------------------
(If you desire to withhold authority to vote
for any individual nominee, write that
nominee(s) name on the line above.)
FOR AGAINST ABSTAIN
2. Approve the EXCEL Communications, ----- ----- -----
Inc. 1997 Director Stock Option Plan. | | | | | |
----- ----- -----
FOR AGAINST ABSTAIN
3. Approve the EXCEL Communications, ----- ----- -----
Inc. Director Stock Option | | | | | |
Agreement with Ronald A. McDougall. ----- ----- -----
FOR AGAINST ABSTAIN
4. In their discretion, the proxies are ----- ----- -----
authorized to vote upon any other | | | | | |
business that may properly come ----- ----- -----
before the meeting or any adjourn-
ment thereof.
MARK HERE ----- MARK HERE IF YOU -----
FOR ADDRESS | | PLAN TO ATTEND | |
CHANGE AND ----- THE ANNUAL MEETING -----
NOTE AT LEFT ON MAY 15, 1997
Please date and sign exactly as your name appears hereon. Joint owners
should each sign. Executors, administrators, trustees, guardians or
other fiduciaries should give their full title as such. If for a
corporation, please sign in the full corporate name by a duly authorized
officer.
Signature Date Signature Date
-------------------- ----- -------------------- -----
