<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1997
REGISTRATION NO. 333-20665
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
IXC COMMUNICATIONS, INC.
(Exact name of registrant as specified in charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813 74-2644120
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
5000 PLAZA ON THE LAKE, SUITE 200
AUSTIN, TEXAS 78746
(512) 328-1112
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN J. WILLINGHAM
IXC COMMUNICATIONS, INC.
5000 PLAZA ON THE LAKE, SUITE 200
AUSTIN, TEXAS 78746
(512) 328-1112
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
ELAINE R. LEVIN, ESQ. JERRY V. ELLIOTT, ESQ.
MICHAEL P. WHALEN, ESQ. JAMES S. SCOTT, SR., ESQ.
RIORDAN & MCKINZIE SHEARMAN & STERLING
695 TOWN CENTER DRIVE, SUITE 1500 599 LEXINGTON AVENUE
COSTA MESA, CA 92626 NEW YORK, NY 10022
(714) 433-2900 (212) 848-4000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued March 11, 1997
1,500,000 Shares
IXC LOGO IXC Communications, Inc.
COMMON STOCK
------------------------
Of the 1,500,000 shares of Common Stock offered hereby, 1,050,000 shares are
being sold by the Company and 450,000 are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"IIXC." The last reported sale price for the Common Stock on March 10, 1997, as
reported on the Nasdaq National Market, was $26 7/8 per share. See "Price Range
of Common Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3)................... $ $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) The Company and the Selling Stockholders have granted to the
Underwriters an option, exercisable within 30 days of the date hereof,
to purchase up to an aggregate of 157,500 and 67,500, respectively,
additional shares of Common Stock at the price to public less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions,
proceeds to the Company and proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Principal and Selling Stockholders" and "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about , 1997 at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
, 1997
<PAGE> 3
[MAP]
<PAGE> 4
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and if given or made, such information or representation must not be relied upon
as having been authorized by the Company or by any Underwriter. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Common Stock offered hereby to any person in any
jurisdiction in which it is unlawful to make any such offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made hereby
shall under any circumstance imply that the information contained herein is
correct as of any date subsequent to the date hereof.
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would permit
a public offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company and the Underwriters to inform themselves about and
to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET
MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS".
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 9
Use of Proceeds....................................................................... 21
Price Range of Common Stock........................................................... 21
Dividend Policy....................................................................... 21
Capitalization........................................................................ 22
Selected Historical Financial Data.................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 25
Industry Overview..................................................................... 34
Business.............................................................................. 37
Management............................................................................ 55
Certain Transactions.................................................................. 60
Principal and Selling Stockholders.................................................... 63
Description of Capital Stock.......................................................... 65
Shares Eligible for Future Sale....................................................... 68
Description of Certain Indebtedness................................................... 69
Underwriters.......................................................................... 70
Legal Matters......................................................................... 71
Experts............................................................................... 71
Available Information................................................................. 72
Glossary.............................................................................. A-1
Index to Financial Statements......................................................... F-1
</TABLE>
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
3
<PAGE> 6
PROSPECTUS SUMMARY
Certain of the information contained in this Prospectus, including
information regarding the Company's network expansion and switched long distance
services and related strategy and financing, are forward-looking statements. For
a discussion of important factors that could cause actual results to differ
materially from the matters described in the forward-looking statements and
other matters that should be carefully considered by prospective investors, see
"Risk Factors." Certain terms used herein are defined in the Glossary at page
A-1.
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the Consolidated
Financial Statements (including the Notes thereto), appearing elsewhere in this
Prospectus. As used herein, unless the context otherwise requires, the term
"Company" refers to IXC Communications, Inc. ("IXC Communications") and its
subsidiaries, including predecessor corporations. Industry data was obtained
from a report issued in March 1996 from the FCC and from reports dated April
1995 and January 1996 from International Data Corporation (an industry research
organization), which the Company has not independently verified. Unless
otherwise indicated, all information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised and has been adjusted
to reflect stock splits prior to the Company's initial public offering.
THE COMPANY
The Company provides two principal services to long distance companies: (i)
transmission of voice and data over dedicated circuits ("private lines"); and
(ii) switched long distance services. The Company is one of only five carriers
that currently own a digital telecommunications network extending from
coast-to-coast (the other carriers are AT&T, MCI, Sprint and WorldCom). As of
February 28, 1997, the Company's network included approximately 10,000 digital
route miles, containing over 96,000 fiber miles. Its facilities also include
five long distance switches located in Los Angeles, Dallas, Chicago,
Philadelphia and Atlanta and ten Frame Relay-ATM switches located in major
cities. The Company is currently engaged in a major expansion of its network, as
set forth in the map on the inside front cover page of this Prospectus.
The Company had revenues of $203.8 million in 1996, with approximately
$99.8 million generated by its private line business and approximately $104.0
million generated by its switched services business. The Company has private
line circuit contracts with over 200 long distance carriers, including AT&T,
MCI, Sprint, WorldCom, Cable & Wireless, Frontier and LCI. The Company also
provides private line transmission service to customers after contract
expiration on a month-to-month basis. Pursuant to the Company's private line
contracts, customers are required to make fixed monthly payments, generally in
advance. Many of such contracts contain substantial "take or pay" commitments.
The Company has historically enjoyed a high customer retention rate in its
private line business.
The Company recently expanded into the business of selling switched long
distance services to long distance resellers in order to complement its private
line business and to capitalize on its ability to provide switched services over
its own network. Switched long distance services are telecommunications services
that are processed through the Company's digital switches and carried over long
distance circuits and other transmission facilities owned or leased by the
Company. The Company sells switched long distance services on a per-call basis,
charging by minutes of use ("MOUs"), with payment due monthly after services are
rendered. The Company's customers for switched services are principally long
distance resellers (both switchless resellers and switched resellers that lack a
switch in a geographic region) that use the Company's network to provide long
distance service to end-user customers. The Company's switched network became
fully operational in February 1996.
The Company has switched long distance services contracts with over 70 long
distance resellers. Excel, the Company's largest customer of switched long
distance services, is contractually obligated to continue to utilize a minimum
of 70 million minutes of traffic per month until reaching total usage of 4.2
billion minutes (subject to Excel's right to reduce or terminate its commitment
under certain circumstances), of which approximately 3.3 billion minutes
remained as of February 28, 1997. The Company's switched long distance
4
<PAGE> 7
business has grown rapidly, with Excel accounting for most of the growth. The
Company's switched long distance revenues amounted to approximately $104.0
million in 1996, with $3.6 million in the first quarter, $19.0 million in the
second quarter, $35.3 million in the third quarter and $46.1 million in the
fourth quarter. The Company plans to continue to expand the capabilities of the
switched network in 1997 to meet customer demand by adding additional equipment,
including three long distance switches anticipated to be located in Fresno,
California, Joplin, Missouri and New York. The Company believes that it is
well-positioned to continue to attract long distance resellers as customers for
its switched long distance services because: (i) it is not currently a
significant competitor for sales to end users; and (ii) it provides more focused
service to its reseller customers, since servicing such customers is its primary
business, unlike its major competitors whose main business is selling retail
long distance service to end users in competition with their reseller customers.
The Company's primary business objectives over the near term are: (i) to
continue to increase revenue from its switched long distance services business;
(ii) to complete substantial portions of the network expansion in 1997; and
(iii) to utilize its expanded network to increase its revenues and
profitability.
INDUSTRY OVERVIEW
The domestic long distance market generated revenues of approximately $75.9
billion in 1995. In 1995, the first-tier long distance providers (AT&T, MCI and
Sprint) accounted for approximately 85.6% of such revenue, the second-tier
companies (WorldCom, Frontier, Cable & Wireless, LCI and others) accounted for
approximately 8.9%, and the third-tier companies (approximately 400 companies)
accounted for the remaining 5.5% of the long distance market. According to data
included in an FCC report issued in March 1996, while total long distance
revenues grew at a compound annual rate of over 8% during the period from 1989
through 1995, the revenues of all carriers other than the first-tier carriers
grew in the aggregate at an annual compound rate of over 22% during the same
period. The report also stated that the second-tier and third-tier carriers
increased their market share sixfold over a ten-year period, increasing from
less than 3% in 1984 to more than 17% in 1994. In addition, industry sources
estimate that combined revenues of second-tier and third-tier carriers grew by
17.9% in 1995. The Company provides private line services to companies in all
three tiers and switched long distance services to companies in the second and
third tiers.
NETWORK EXPANSION
Because of geographic limitations and capacity constraints, the Company
currently supplements its own facilities with a significant amount of fiber
capacity obtained from other carriers. The Company is currently engaged in a
major expansion of its network to increase the Company's geographic scope and
network capacity. Prior to beginning construction of the network expansion in
late 1995, the Company owned a coast-to-coast network containing over 1,700
route miles of fiber optic cable and over 5,000 route miles of digital
microwave. The network expansion includes routes planned: (i) from New York to
Los Angeles via Cleveland, Chicago, St. Louis, Dallas and Phoenix; (ii) from Los
Angeles to San Francisco; (iii) from New York to Houston via Atlanta; and (iv)
from Houston to Dallas. These routes would add over 7,180 route miles to the
Company's network. As of February 28, 1997, over 3,300 route miles of the
network expansion were complete.
The network expansion is expected to deliver significant strategic and
financial benefits to the Company through:
(i) producing substantial savings by allowing the Company to move a
portion of its excess private line traffic from leased circuits on the
networks of other carriers to its own expanded network;
(ii) providing high-capacity new routes and substantially increasing
the capacity of certain existing routes, allowing the Company to increase
revenues by leasing additional circuits to its customers, including
high-capacity circuits such as OC-48's, OC-12's and OC-3's;
(iii) allowing the Company to improve profitability in its switched
long distance services business by reducing its underlying transmission
costs; and
5
<PAGE> 8
(iv) creating sufficient capacity to support increased demand which
may result from Internet and multimedia applications, Frame Relay and ATM.
The Company plans to meet the costs of the routes from New York to Los
Angeles via St. Louis and from New York to Houston via Atlanta with cash on
hand, the proceeds of this offering (the "Offering"), the proceeds from a
placement of convertible preferred stock (described below), the proceeds from
sales of fiber to LCI and MCI, additional cost-saving arrangements, cash flow
from its operations and vendor financing it may seek. The Company is reducing
the per-route-mile cost of these routes through the fiber sale to LCI and
through a similar sale to MCI, fiber exchange arrangements with WorldCom and
Vyvx (a video transmission subsidiary of The Williams Companies) and joint
construction and other cost-saving arrangements with other carriers.
In 1996 the Company began equipping its network with the data switches and
other equipment necessary to enter into the Frame Relay and ATM transmission
business. This equipment, in connection with the network expansion and
additional equipment and software to be installed in 1997, should allow the
Company to enter into the business of Frame Relay and ATM transmission for
Internet and Intranet providers and other large users of data capacity. The
Company began beta-testing such facilities in late 1996 and will begin offering
such services in the first half of 1997. Although such services will not be a
significant source of revenues in 1997, the Company expects that the market for
such high-capacity data uses will grow substantially in the future along with
the expected growth of Internet and Intranet use. To position itself to benefit
from such growth, the Company seeks to establish itself as a high quality
provider of choice of these services.
RECENT EVENTS
During the last six months, the Company continued to sign contracts with
new and existing customers for switched long distance services and private line
services. During this period, Excel's usage of the Company's network increased
substantially above its 70 million minute per month minimum. In addition, the
Company entered into a significant agreement with a major long distance carrier
that will obtain private line services from the Company. Under this contract the
Company will supply DS-3 circuits for aggregate revenues of over $24.0 million
during 1997-1998. The Company also entered into an interconnection agreement
with Bell Atlantic that will facilitate its entry into the data communications
business.
In February 1997, Morgan Stanley Capital Partners III, L.P. (together with
certain affiliates thereof "MSCAP") and the Trustees of General Electric Pension
Trust ("GEPT"), the Company's largest stockholder, agreed to purchase $100.0
million of 7% Series A Convertible Preferred Stock (the "Convertible Preferred
Stock") of the Company (the "Preferred Stock Sale"). The Convertible Preferred
Stock will be convertible into Common Stock at a price of $38.40 per share. The
transaction is subject to customary closing conditions, and is expected to close
in March 1997.
Over 3,300 route miles of the network expansion had been completed through
February 28, 1997. The Company has entered into several agreements with other
carriers that will result in reductions or offsets to its per-route-mile cost of
construction, including:
(i) a contract with LCI pursuant to which LCI will purchase an
indefeasible right to use fibers from Chicago to Los Angeles for
approximately $97.9 million (the "LCI Fiber Sale");
(ii) a contract with MCI pursuant to which MCI will purchase an
indefeasible right to use fibers from Los Angeles to New York for
approximately $121.0 million (the "MCI Fiber Sale"). This contract replaces
a $20.0 million lease contract with MCI for OC-48 capacity announced in
January 1997;
(iii) a contract with Vyvx to exchange the use of certain fibers on
the Company's New York to Los Angeles route for the use of fibers on a
1,600-mile route to be constructed by Vyvx from Washington, D.C. to
Houston;
6
<PAGE> 9
(iv) joint construction contracts with other carriers: LCI
(Youngstown, Ohio -- Toledo), DTI (Anderson, Missouri -- Kansas City), and
CCTS (Riverdale, Illinois -- Chicago). These arrangements allow the Company
and the other carriers to share the costs of construction of these routes;
(v) a contract with MFS, a recently acquired subsidiary of WorldCom,
pursuant to which MFS will include fibers for the Company in a route MFS is
constructing from Cleveland through upstate New York to New York City. This
route, which replaces a previously planned Company route from Cleveland to
Philadelphia, will substantially increase the scope of the Company's
network by including cities in upstate New York, bring the network to
Albany (which may facilitate a future extension to Boston), and provide
additional fibers into New York City; and
(vi) other contracts providing for the Company to sell another carrier
the use of fibers in routes the Company is constructing: GST (Phoenix to
the Arizona-New Mexico border) and WorldCom (Phoenix -- Las Vegas).
In January 1997, the Company entered into agreements to purchase two long
distance companies, LD Services, Inc. ("LDS"), a switchless reseller with 1996
revenues of approximately $30.0 million, and Telecom One, Inc. ("Telecom One"),
a switchless reseller with 1996 revenues of approximately $8.0 million. The
consideration for these acquisitions will be Common Stock of the Company. For a
description of how many shares of Common Stock will be issued pursuant to these
acquisitions, see "Business -- Acquisitions." The Company expects to complete
these acquisitions in 1997 upon the satisfaction of certain conditions,
including receipt of regulatory approvals.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 1,050,000 shares
Common Stock offered by the Selling Shareholders... 450,000 shares
Common Stock outstanding immediately after this
offering......................................... 31,849,560 shares(1)
Use of proceeds.................................... Capital expenditures, including the
network expansion. See "Use of
Proceeds."
Nasdaq National Market symbol...................... IIXC
</TABLE>
- ------------------
(1) Computed using shares outstanding at March 1, 1997. Accordingly, the
following shares are not included: (i) 1,212,450 shares of Common Stock
reserved for issuance under the 1994 Stock Plan (as defined herein), of
which options to purchase 1,151,526 shares were outstanding as of March 1,
1997 at a weighted average exercise price of $4.78 per share; (ii) 2,121,787
shares of Common Stock reserved for issuance under the 1996 Stock Plan (as
defined herein), of which options to purchase 743,000 shares were
outstanding as of March 1, 1997 at a weighted average exercise price of
$25.02 per share; and (iii) 67,900 shares of Common Stock reserved for
issuance under the Special Stock Plan (as defined herein), of which options
to purchase 67,900 shares were outstanding as of March 1, 1997 at a weighted
average exercise price of $3.01 per share. Also does not include shares to
be issued in connection with LDS and Telecom One acquisitions or upon the
conversion of the Convertible Preferred Stock. The Company estimates that
the aggregate number of shares of Common Stock to be issued to the
shareholders of LDS and Telecom One at the closings of these acquisitions
will be between 1.1 million and 1.3 million. In addition, at the end of
1999, the Company will be required to pay the Telecom One shareholders
additional shares of Common Stock, depending upon the future revenues of
Telecom One and the balance sheet of Telecom One at the end of 1999, which
the Company estimates is unlikely to exceed 200,000 shares. See "Risk
Factors -- Shares Eligible for Future Sale," "Business -- Acquisitions" and
"Description of Capital Stock -- Preferred Stock."
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial data
of the Company. The historical financial data as of and for the years ended
December 31, 1994, 1995 and 1996 have been derived from the audited Consolidated
Financial Statements of the Company. The summary consolidated financial data set
forth below is qualified in its entirety by, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements, the Notes thereto and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues..................................... $ 80,663 $ 91,001 $203,761
Operating income (loss).................................... 14,085 1,429 (14,016)
Interest expense........................................... 6,105 14,597 37,076
Income (loss) before extraordinary gain (loss)(1).......... 5,017 (3,218) (37,448)
Net income (loss) per common and common equivalent share... $ .22 $ (.27) $ (1.39)
Weighted average common and common equivalent shares used
in computations of income (loss) per share.............. 24,993 25,108 28,209
BALANCE SHEET DATA:
Cash and cash equivalents(2)............................... $ 6,048 $ 6,915 $ 61,340
Escrow under Senior Notes(2)............................... -- 198,266 51,412
Total assets............................................... 105,409 336,475 459,151
Total debt and capital lease obligations................... 69,124 298,794 302,281
Stockholders' equity....................................... $ 14,189 $ 6,858 $ 63,479
OTHER FINANCIAL AND OPERATIONS DATA:
EBITDA(3).................................................. $ 26,206 $ 18,867 $ 13,225
Capital expenditures....................................... $ 7,087 $ 23,670 $136,391
Ratio of EBITDA to interest expense(4)..................... 4.29x 1.29x --
Minutes of use (in millions)............................... -- 12.8 1,105.2
Digital route miles(5)..................................... 6,700 6,758 7,325
Fiber miles(6)............................................. 20,747 22,159 33,445
</TABLE>
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(1) The Company recognized an extraordinary gain (involving a related party) of
$2.3 million in 1994 and an extraordinary loss of $1.7 million in 1995, in
each case relating to the early extinguishment of debt.
(2) The Company made significant capital expenditures in the first two months of
1997. As of February 28, 1997, all escrow funds have been expended and the
Company's cash and cash equivalents total approximately $31.0 million.
(3) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA for 1995 and 1996 includes the negative EBITDA of the
Company's switched long distance services business. During 1995 and the
first quarter of 1996 such negative EBITDA relates to start-up and operating
expenses incurred before the Company began generating material revenues from
its switched long distance business. The Company has included information
concerning EBITDA because it believes that EBITDA is used by certain
investors as one measure of an issuer's historical ability to service its
debt. EBITDA is not a measurement determined in accordance with GAAP, should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP and is not necessarily
comparable with similarly titled measures for other companies.
(4) For 1996, EBITDA was insufficient to cover interest expense by $23.9
million. The Company made the interest payments on the Senior Notes in 1996
with funds from the Escrow under Senior Notes.
(5) Includes 5,000 digital microwave miles. With the completion of portions of
the network expansion in early 1997, as of February 28, 1997, the Company
had approximately 10,000 digital route miles.
(6) Fiber miles represent the number of fiber route miles of a fiber optic route
multiplied by the number of fiber strands in the route. With the completion
of portions of the network expansion in early 1997, as of February 28, 1997,
the Company had approximately 96,000 fiber miles (excluding fibers as to
which the Company has sold or exchanged long-term rights to use).
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Common Stock, which involves a high degree of risk. Statements contained in
this Prospectus regarding the Company's expectations with respect to its network
expansion, related financings and fiber sale and cost-saving agreements, future
operations and other information, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "seek" or "continue" or the negative thereof or other variations
thereon or comparable terminology, are forward-looking statements. The
discussions set forth below constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
risks and uncertainties, that could cause actual results to differ materially
from results referred to in the forward-looking statements. There can be no
assurance that the Company's expectations regarding any of these matters will be
fulfilled.
NEGATIVE CASH FLOW AND CAPITAL REQUIREMENTS
The Company's total capital expenditures were $136.4 million for 1996 and
the Company's EBITDA minus interest expense and capital expenditures (adjusted
for the change in working capital) was negative $130.2 million. The Company
estimates that the total capital expenditures for 1997 will be $340.0 million
(of which $49.7 million were made in the first two months of 1997) and the
Company expects to continue to make substantial capital expenditures thereafter.
The Company anticipates meeting the cash requirements relating to such capital
expenditures from cash on hand, the proceeds of this Offering, the proceeds from
the Preferred Stock Sale, the proceeds of the LCI Fiber Sale and the MCI Fiber
Sale, additional cost-saving arrangements, cash flow from its operations and
vendor financing it may seek. The amount of actual capital expenditures may vary
materially as a result of cost-saving arrangements, increases or decreases in
the amount of traffic on the Company's network, unexpected costs, delays or
advances in the timing of certain capital expenditures and other factors. See
"Business -- Acquisitions." The Company's ability to meet the cash costs of such
capital expenditures is dependent upon the Company's ability to complete the
construction of the network expansion in a timely manner and otherwise perform
its obligations so that it can complete the LCI Fiber Sale and the MCI Fiber
Sale, to enter into cost-saving arrangements with carriers or other large users
of fiber capacity, to otherwise raise significant capital and/or to
significantly increase its cash flow. The failure of the Company to accomplish
any of the foregoing may significantly delay or prevent such capital
expenditures, which would have a material adverse effect on the Company and the
value of the Common Stock.
The Company's switched long distance business will require cash to meet
operating expenses. In order to offer switched long distance services, the
Company installed switches, connected them to its network and to the LECs,
acquired software and hired the personnel needed to establish a national
switched network. Taken on a stand-alone basis, the switched long distance
business generated negative gross margins over the first two quarters of 1996
and began to generate slightly positive gross margins during the third and
fourth quarters of 1996 as the Company began to carry more switched long
distance traffic. After allocating selling, general and administrative expense
to the switched long distance business, however, it would have generated
negative EBITDA for each of the four quarters of 1996. The Company expects that
the network expansion will result in an improvement in the gross margins and
EBITDA generated by its switched long distance business. For a discussion of
important factors that could cause the Company's switched long distance business
to fail to generate positive EBITDA, see "-- Development Risks and Dependence on
Switched Long Distance Business."
The Company is required to make annual interest payments of $35.6 million
with respect to the Senior Notes. The Company is currently unable to satisfy
such obligations solely with its cash flow. The Company's ability to meet its
debt service requirements over the long term is dependent on a significant
increase in its cash flow and/or its ability to raise additional equity capital.
The Company will also be required to make interest payments with respect to the
Proposed Credit Facility (defined below), if obtained, and dividend payments
with respect to the Convertible Preferred Stock. Although the Company is allowed
to make such dividend payments using additional Convertible Preferred Stock
through March 31, 1999, after that date, the Company will be required to make
cash dividend payments on the Convertible Preferred Stock. Delays in the network
expansion, larger than anticipated capital expenditures for the Company's
network or continued
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negative cash flow from the switched long distance business could impair the
ability of the Company to meet its obligations under the Senior Notes and other
indebtedness to pay cash dividends on the Convertible Preferred Stock and to
access additional sources of funding, any of which would have a material adverse
effect on the Company and the value of the Common Stock.
The forward-looking statements set forth above with respect to the
estimated cash requirements relating to capital expenditures, the Company's
ability to meet such cash requirements, and the Company's ability to improve its
gross margins and EBITDA in its switched long distance business are based on
certain assumptions, including that: (i) there will be no significant delays or
cost overruns with respect to the network expansion; (ii) the Company's
contractors and partners in cost-saving arrangements will perform their
obligations; (iii) rights-of-way can be obtained on a timely, cost-effective
basis; (iv) the routes of the network expansion scheduled for completion in 1997
are substantially completed on schedule; (v) the Company will continue to
increase traffic on its switched network; (vi) the Company can successfully
commence service for new switched long distance customers and successfully
provide switched long distance services on a cost effective basis (including the
provision of billing information in an accurate and timely manner) for volumes
that it has not previously handled; (vii) the Company can successfully complete
the Preferred Stock Sale, the LCI Fiber Sale and the MCI Fiber Sale; and (viii)
the Company can obtain vendor financing. See "-- Risks Relating to the Network
Expansion," "-- Development Risks and Dependence on Switched Long Distance
Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- The Company's Network."
The cash requirements described above do not include any cash which may be
required for acquisitions the Company may make. See "-- Acquisition Risks" and
"Business -- Acquisitions."
RECENT AND EXPECTED LOSSES
The Company reported positive EBITDA of $13.2 million and a net loss of
$37.4 million for 1996. The Company does not expect to generate net income in
1997, due to substantial interest expense associated with the Senior Notes and
operational expenses associated with the switched long distance business.
Thereafter, the Company's ability to generate operating income, EBITDA and net
income will depend to a great extent on demand for the private line circuits
constructed in the network expansion and the success of the Company's switched
long distance services. There can be no assurance that the Company will return
to profitability in the future. Failure to generate operating income, EBITDA and
net income will impair the Company's ability to: (i) meet its obligations under
the Senior Notes or other indebtedness; (ii) pay cash dividends on the
Convertible Preferred Stock; (iii) expand its switched long distance business;
and (iv) raise additional equity or debt financing which will be necessary to
continue the network expansion or which may be required for other reasons. Such
events could have a material adverse effect on the Company and the value of the
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RISKS RELATING TO THE NETWORK EXPANSION
The continuing network expansion is an essential element of the Company's
future success. Although the Company has made significant progress, right-of-way
acquisition for, and construction of, the New York to Los Angeles via St. Louis
route are not yet complete. The Company has, from time to time, experienced
delays with respect to the construction of certain portions of the network
expansion and may experience similar delays in the future. These delays have not
had a material effect on the Company to date but have delayed the receipt of
certain revenues from its private line business and have affected operating
results, including EBITDA, by delaying the Company's ability to carry long
distance traffic over its owned facilities instead of facilities it leases from
other carriers. The Company has substantial existing commitments to purchase
materials and labor for construction of the network expansion, and will need to
obtain additional materials and labor which may cost more than anticipated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Substantial segments of the
route from New York to Los Angeles via St. Louis and all the route from
Washington to Houston via Atlanta are being constructed by contractors or,
pursuant to cost-saving arrangements, by third parties such as right-of-way
providers or carriers that will include the Company's fiber in routes such
carriers are constructing
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for their own use. See "Business -- Company's Network" for a description of such
cost-saving arrangements. The successful completion of these routes is
dependent, among other things, on the performance of such contractors,
right-of-way providers and carriers and on the Company's ability: (i) to obtain
rights-of-way; (ii) to manage effectively the construction of the new fiber
routes; and (iii) to enter into additional cost-saving arrangements, obtain
additional financing and/or significantly increase its cash flow. Difficulties
or delays with respect to any of the foregoing may significantly delay or
prevent the completion of the network expansion, which would have a material
adverse effect on the Company, its financial results and the value of the Common
Stock.
The Company has entered into an agreement with WorldCom, relating to the
construction by each party of a fiber route approximately 1,100 miles long and
the placing of fiber for the use of both parties in such route. WorldCom's route
extends from Akron through Indianapolis to the Missouri-Oklahoma border, with a
spur from Indianapolis to a suburb of Chicago. The Company's route extends from
Dallas to Phoenix with a spur to Ft. Worth.
In December 1996, the Company entered into an agreement with Vyvx whereby
the Company will provide Vyvx with the right to use fibers from Los Angeles to
New York City in exchange for the right to use fibers from Houston to
Washington, D.C. The parties are required to complete their routes by December
31, 1997, with penalties taking effect in July 1998 if one party, but not the
other, has failed to complete its route. Although the Company anticipates that
it will complete its route in time to avoid any penalty, there can be no
assurance in this regard. Such penalties increase from $400,000 per month
commencing in July 1998 to $800,000 per month commencing in October 1998.
The Company entered into a significant agreement with a major long distance
carrier that will obtain private line services from the Company utilizing routes
included in the network expansion, including routes under construction. Under
this contract, the Company will supply DS-3 circuits for aggregate revenues of
over $24.0 million during 1997-1998. Delays in completion of such routes could
result in cancellation of orders under such contract.
In February 1997, the Company agreed to make the LCI Fiber Sale. The
agreement provides for (i) the Company to issue credits to LCI in the amount of
$3.00 per route mile per day on uncompleted sections if the route is not
completed by September 1, 1997 and (ii) the Company to provide OC-48 capacity to
LCI along uncompleted sections (which capacity may have to be obtained by the
Company from other carriers), if the route is not completed by December 1, 1997.
In March 1997, the Company agreed to make the MCI Fiber Sale. The agreement
provides for the Company to issue a credit to MCI of $100 per route mile per
month along any incomplete route segment, commencing January 1, 1998.
Although the Company does not anticipate undue difficulty in obtaining
performance by its contractors or by its partners in cost-sharing arrangements
or in acquiring the necessary rights-of-way or in managing the construction of
the network expansion, there can be no assurance that such third parties
(including WorldCom and Vyvx) will perform or that such rights will be acquired
or that the network expansion routes (including the routes from New York to Los
Angeles via St. Louis and from New York to Houston via Atlanta) will be
completed without significant delays or penalties, within its budget or at all.
Increased costs or significant delays in the completion of these routes,
including the portion to be constructed by WorldCom or Vyvx, could have a
material adverse effect on the Company and the value of the Common Stock. See
"Business -- The Company's Network."
PRICING PRESSURES AND RISKS OF INDUSTRY OVER-CAPACITY
The long distance transmission industry has generally been characterized by
over-capacity and declining prices since shortly after the AT&T divestiture in
1984. The Company believes that, in the last several years, increasing demand
has ameliorated the over-capacity and that pricing pressure has been reduced.
However, the Company anticipates that prices for its services will continue to
decline over the next several years. The Company is aware that certain long
distance carriers (WorldCom, MCI, LCI and others) are expanding their capacity
and believes that other long distance carriers, as well as potential new
entrants to the industry, are considering the construction of new fiber optic
and other long distance transmission networks. In particular,
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Qwest has announced its intention to construct a coast-to-coast fiber optic
network and Frontier has announced it will purchase fibers for $500 million in
Qwest's network. Although the Company believes that there are significant
barriers to entry for some new entrants that may consider building a new fiber
optic network, such as substantial construction costs, and the difficulty and
expense of securing appropriate rights-of-way, establishing and maintaining a
sufficient customer base, recruiting and retaining appropriate personnel and
maintaining a reliable network, certain of these barriers may not apply to some
new entrants (such as Qwest, utility companies or railroads which already have
significant rights-of-way). Since the cost of the actual fiber is a relatively
small portion of building new transmission lines, companies building such lines
are likely to install fiber that provides substantially more transmission
capacity than will be needed over the short or medium term. Further, recent
technological advances have shown the potential to greatly expand the capacity
of existing and new fiber optic cable. Although such technological advances may
enable the Company to increase its capacity, an increase in the capacity of the
Company's competitors could adversely affect the Company's business. In
addition, the LCI Fiber Sale, the MCI Fiber Sale and the Company's cost-saving
arrangements with other carriers, which involve the sale or lease of capacity or
fibers on the network expansion, will result in competitors having capacity on
the Company's routes, which may in turn result in pricing pressures with respect
to traffic carried along these routes. If industry capacity expansion results in
capacity that exceeds overall demand in general or along any of the Company's
routes, severe additional pricing pressure could develop. In addition, strategic
alliances or similar transactions, such as the long distance capacity purchasing
alliance among certain RBOCs announced in the spring of 1996, could result in
additional pricing pressure on long distance carriers. Furthermore, the marginal
cost of carrying additional calls over existing fiber optic cable is extremely
low. As a result, certain industry observers have predicted that, within a few
years, there may be dramatic and substantial price reductions and that long
distance calls will not be materially more expensive than local calls. Price
reductions could have a material adverse effect on the Company and the value of
the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
DEVELOPMENT RISKS AND DEPENDENCE ON SWITCHED LONG DISTANCE BUSINESS
The success of the Company in the switched long distance business is
dependent on the Company's ability to generate significant customer traffic, to
manage an efficient switched long distance network and related customer service
and the timely completion of the network expansion, especially the route from
New York to Los Angeles via St. Louis. Prior to 1996 the Company had not
previously managed a switched long distance network and there can be no
assurance that its switched long distance services can generate positive EBITDA
or net income. The failure of the Company to generate increased customer
traffic, to complete these routes in a timely manner, or to effectively manage
the switched network and related customer service or to generate positive EBITDA
or net income from the switched long distance business would have a material
adverse effect on the Company and the value of the Common Stock. The Company's
switched long distance business will require cash to meet its operating
expenses. In order to offer switched long distance services, the Company
installed switches, connected them to its network and to the LECs, acquired
software and hired the personnel needed to establish a national switched
network. Taken on a stand-alone basis, the switched long distance business
generated negative gross margins over the first two quarters of 1996 and began
to generate slightly positive gross margins during the third and fourth quarters
of 1996 as the Company began to carry more switched long distance traffic. After
allocating selling, general and administrative expense to the switched long
distance business, however, it would have generated negative EBITDA for each of
the four quarters of 1996. The Company expects that the network expansion will
result in an improvement in the gross margins and EBITDA generated by its
switched long distance business. The Company has experienced and expects to
continue to experience difficulties in commencing services for end users of
carrier customers. In late 1996, Excel experienced service interruptions and
other difficulties in connection with transferring its end users to the networks
of MCI, WorldCom and the Company. The Company has encountered similar
difficulties in transferring end user customers of other carriers to its
network. These difficulties have, on occasion, led to billing disputes and
requests by carrier customers that the Company provide refunds or credits.
Although the Company believes that its performance with respect to these matters
has met or exceeded industry norms, such difficulties may adversely affect the
Company's relationships with its customers.
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Important factors that could cause the Company's switched long distance
business to fail to generate positive EBITDA include changes in the businesses
of the Company's reseller customers, an inability to attract new customers, or
to quickly transfer new customers to its network without problems, the loss of
existing customers, problems in the operation of the switched network, the
Company's lack of experience with switched long distance services, increases in
operating expenses or other factors affecting the Company's revenue or expenses,
including delays in the construction of the network expansion. If such traffic
does not increase, there can be no assurance that the switched long distance
business will ever generate positive EBITDA. In addition, to the extent that
LECs grant volume discounts with respect to local access charges, the Company
may have a cost disadvantage versus the larger carriers. Furthermore, the credit
risk for the Company's switched long distance business is substantially greater
than the credit risk for the Company's long-haul business, because switched long
distance customers will be charged in arrears on the basis of MOUs (which are
frequently subject to dispute), and because many switched long distance
customers (in particular, resellers of debit card services) are not as well
capitalized as most of the Company's private line customers. See
"Business -- Switched Long Distance Services."
RISKS INHERENT IN RAPID GROWTH
Part of the Company's strategy is to achieve rapid growth through expanding
its switched long distance business and through completing the network
expansion. In addition, the Company may from time to time make acquisitions of
resellers which it believes provide a strategic fit with its business and
network. See "-- Acquisition Risks." The Company's rapid growth has placed, and
its planned future growth will continue to place, a significant and increasing
strain on the Company's financial, management, technical, information and
accounting resources. Continued rapid growth would require: (i) the retention
and training of new personnel; (ii) the satisfactory performance by the
Company's customer interface and billing systems; (iii) the development and
introduction of new products; and (iv) the control of the Company's expenses
related to the expansion into the switched long distance business and the
network expansion. The failure by the Company to satisfy these requirements, or
otherwise to manage its growth effectively, would have a material adverse effect
on the Company and the value of the Common Stock. See "Business -- Private Line
Services" and "Business -- Switched Long Distance Services." An area of recent
and anticipated growth for the Company has been in selling private lines to
Internet service providers. Because such customers are generally not as well
capitalized as most of the Company's private line customers, sales to such
customers increase the Company's collection risks.
SUBSTANTIAL INDEBTEDNESS
The Company is highly leveraged. As of December 31, 1996, the Company had
approximately $302.3 million of long-term debt and capital lease obligations
(including the current portion thereof) principally related to its outstanding
$285.0 million principal amount of 12 1/2% Senior Notes due 2005 (the "Senior
Notes"). In addition, the Company is engaged in discussion with potential
lenders regarding a revolving credit facility (the "Proposed Credit Facility").
The Company anticipates that borrowings under the Proposed Credit Facility would
be available with respect to a percentage of its eligible accounts receivable.
Although the total availability under the Proposed Credit Facility will vary
from time to time according to the aggregate amount of eligible accounts
receivable, the Company anticipates that the lender will impose a limit on
borrowings under the facility. Although the Company may succeed in obtaining a
higher limit in the future, the Company anticipates that the limit will
initially be $25.0 million. There can be no assurance that the Company will
obtain the Proposed Credit Facility. The Company's significant debt burden could
have several important consequences to the Company, including, but not limited
to: (i) the cash received from operations may be insufficient to meet the
principal and interest due on the Senior Notes, in addition to paying the other
indebtedness of the Company as it becomes due; (ii) a significant portion of the
Company's cash flow from operations must be used to service its debt instead of
being used in the Company's business; and (iii) the Company's flexibility to
obtain additional financing in the future, as needed to continue the network
expansion or any other reason, may be impaired by the amount of debt outstanding
and the restrictions imposed by the covenants contained in the indenture for the
Senior Notes (the "Indenture") or in agreements relating to other indebtedness.
See "Description of Certain Indebtedness." The ability of the Company to meet
its
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obligations will be subject to financial, business and other factors, including
factors beyond its control, such as prevailing economic conditions. There can be
no assurance that the Company's cash flow from operations will be sufficient to
meet its obligations under the Senior Notes or other indebtedness as payments
become due or that the Company will be able to refinance the Senior Notes or
other indebtedness at maturity.
ACQUISITION RISKS
As part of its growth strategy, the Company has agreed to acquire LDS and
Telecom One and may, from time to time, acquire businesses, assets or securities
of companies which it believes provide a strategic fit with its business and
network. Although the Company currently has no commitments or agreements with
respect to any possible acquisitions other than with LDS and Telecom One, it has
reviewed potential acquisition candidates and has held preliminary discussions
with a number of these candidates. Any such acquisitions will be accompanied by
the risks commonly associated with acquisitions. These risks include potential
exposure to unknown liabilities of acquired companies, the difficulty and
expense of integrating the operations and personnel of the companies, the
potential disruption to the business of the Company, the potential diversion of
management time and attention, the impairment of relationships with and the
possible loss of key employees and customers of the acquired business, the
incurrence of amortization expenses if an acquisition is accounted for as a
purchase and dilution to the stockholders of the Company if the acquisition is
made for stock. Any acquired businesses will need to be integrated with the
Company's existing operations. This will entail, among other things, integration
of switching, transmission, technical, sales, marketing, billing, accounting,
quality control, management, personnel, payroll, regulatory compliance and other
systems and operating hardware and software, some or all of which may be
incompatible with the Company's existing systems. The Company has limited
expertise dealing with these problems. In addition, persons receiving Common
Stock in an acquisition may sell such stock, which could have a negative impact
on the market price of the Common Stock. There can be no assurance that
services, technologies or businesses of acquired companies will be effectively
assimilated into the business or product offerings of the Company or that they
will contribute to the Company's revenues or earnings to any material extent. In
addition, the Company's relationships with its carrier customers are based, in
part, on the fact that the Company generally does not compete with its carrier
customers for end users. To the extent that the Company is perceived as
competing for end users, it may be viewed as a less attractive supplier by its
carrier customers. The risks associated with acquisitions could have a material
adverse effect on the Company and the value of the Common Stock.
The closings of the LDS and Telecom One acquisitions are subject to the
satisfaction of customary closing conditions, including the receipt of any
required approvals of state and federal regulators. There can be no assurance
that such conditions will be satisfied or that such approvals will be obtained
in a timely manner or at all. A failure to satisfy or to obtain waivers to such
conditions or to obtain such regulatory approvals would prevent consummation of
the related acquisition.
The Company will issue shares of its Common Stock as consideration for the
acquisitions of LDS and Telecom One and may use its Common Stock to pay all or a
portion of the purchase price for acquisitions it may make in the future. For a
description of the number of shares of Common Stock to be issued in connection
with the LDS and Telecom One acquisitions, see "Business -- Acquisitions". To
the extent that the Company uses its Common Stock for all or a portion of such
consideration, dilution in ownership will be experienced by existing
stockholders, including purchasers in the Offering. Furthermore, because the
value of the Common Stock to be used in an acquisition may be determined prior
to the closing of the acquisition, the value of the Common Stock to be issued at
the closing may exceed the value of such Common Stock at the date the
acquisition agreement is executed. Also, the Company may grant registration
rights to the holders of such stock, as it has agreed to do with respect to the
holders of LDS and Telecom One stock. In the event that the Company's Common
Stock is not used as consideration for an acquisition, the Company would be
required to utilize its cash resources, if available, in order to make
acquisitions. To the extent that the Company agrees to pay cash for any
acquisition, such cash will not be available for the Company's extensive planned
capital expenditures. See "Business -- Acquisitions."
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RELIANCE ON MAJOR CUSTOMERS
The Company's ten largest customers in 1996 accounted for approximately 70%
of its revenues, with Excel, WorldCom and Frontier as its three largest
customers. Excel first became a customer in 1996 and accounted for 35% of the
Company's revenues (69% of the Company's switched long distance revenues) during
1996. During 1994, 1995 and 1996, WorldCom accounted for approximately 25%, 20%
and 8% respectively, of the Company's revenues (the Company derived no revenues
from capacity-exchange arrangements with WorldCom in 1994, and approximately 4%
and 3% of its revenues from such arrangements with WorldCom in 1995 and 1996,
respectively) and Frontier (including Allnet) accounted for 23%, 21% and 10%,
respectively, of the Company's revenues.
The Company's strategy for establishing and growing its switched long
distance business is based in large part on its relationship with Excel. The
failure by the Company to fulfill its obligations to provide a reliable switched
network for use by Excel or the failure by Excel: (i) to fulfill its obligations
to utilize the Company's switched long distance services (even though such
failure could give rise in certain circumstances to claims by the Company); (ii)
to utilize the volume of MOUs that the Company expects it to utilize or (iii) to
maintain and expand its business, could result in a material adverse effect on
the Company and the value of the Common Stock. In addition to its commitments to
its other suppliers, Excel has entered into a four-year, $900.0 million contract
to purchase switched long distance services from WorldCom and a two-year, $120.0
million contract to purchase switched long distance services from MCI. Although
the Company believes that Excel's commitments to WorldCom and MCI will not
impair Excel's relationship with the Company, WorldCom and MCI are significant
competitors to the Company for Excel's business. In the event the Company is not
able to effectively compete with WorldCom, MCI or other Excel suppliers, it may
not continue to obtain revenues from Excel after Excel's commitment to the
Company has been satisfied. Excel has announced that it intends to commence
development of its own nationwide long distance network, including acquiring or
leasing switches and long distance transmission circuits. To the extent Excel
implements its own network, it will utilize the network to transmit traffic
which would otherwise have been transmitted over the network of the Company or
another of Excel's suppliers. In such event, subject to contractual minimums,
Excel may reduce its traffic on the Company's network. Furthermore, such
minimums may be reduced or eliminated after June 30, 1998 under certain
circumstances if Excel allows the Company to bid on the long distance
transmission circuits for Excel's network. The loss of Excel as a customer after
Excel's commitment has been satisfied or a significant reduction by Excel of its
commitment to the Company (as is permitted in certain circumstances by the terms
of its contract with the Company) could have a material adverse effect on the
Company and the value of the Common Stock. See "Business -- Switched Long
Distance Services."
WorldCom has grown substantially in recent years, largely through
acquisitions, including the acquisition of certain customers of the Company. In
1995, WorldCom acquired WilTel, a facilities-based carrier that has been both a
long-term customer of, and supplier to, the Company. The Company believes that
as a result of WorldCom's ownership of the WilTel long distance transmission
network, WorldCom is likely to transfer private line circuits now leased from
the Company, other than the private line circuits under capacity exchange
arrangements with the Company, to its own network when its leases expire. During
1996, the Company had revenues from WorldCom of approximately $16.8 million. Of
such revenues, approximately 38% related to capacity-exchange agreements, 36%
related to leases expiring in 1997, and 26% related to leases expiring after
1997. Prior to its acquisition in 1995 by Frontier (which is also a customer of
the Company), Allnet was a large customer of the Company, accounting for
approximately 18% and 17% of the Company's revenues in 1993 and 1994,
respectively. Frontier has announced that it will pay $500.0 million to obtain
fibers in the coast-to-coast system Qwest is constructing, which will reduce
Frontier's need to lease circuits from the Company. The Company does not expect
an immediate loss of Frontier's business because: (i) Frontier has "take or pay"
commitments to the Company for the period 1997 through 2000 of over $14.2
million as of December 31, 1996; (ii) Frontier does not currently own
significant long distance network capacity; and (iii) the Company believes that
the acquisition of Allnet by Frontier will not affect the combined carrier's
requirements for long distance transmission circuits. However, as segments of
the Qwest network are completed, it is likely that Frontier will not renew
circuits on the Company's network that can be
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carried on such completed segments. Although there can be no assurance, the
Company believes that if revenues from WorldCom or from Frontier do not continue
or are reduced, they can be replaced over time with revenues generated from
other customers. However, in such event, the Company's revenues may in the
short-term be adversely affected and if such revenues are not replaced, then the
loss of, or reductions in the revenues from, Excel, WorldCom, Frontier or other
significant customers could have a material adverse effect on the Company and
the value of the Common Stock. In addition, construction by other customers of
the Company of their own facilities or further consolidations in the
telecommunications industry involving the Company's customers could have a
material adverse effect on the Company and the value of the Common Stock. See
"Business -- Private Line Services."
COMPETITION
The telecommunications industry is highly competitive. Many of the
Company's competitors (such as AT&T, MCI, Sprint, WorldCom and others) and
potential competitors (such as Qwest and Frontier) have substantially greater
financial, personnel, technical, marketing and other resources than those of the
Company and a far more extensive transmission network than the Company. Such
competitors may build additional fiber capacity in the geographic areas to be
served by the network expansion. Qwest has announced that it intends to build a
new nationwide long distance fiber optic network and Frontier has announced that
it will pay $500 million to obtain fibers in Qwest's network. In addition, many
telecommunications companies are acquiring switches and users of switches will
have an increasing number of alternative providers of switched long distance
services. The Company competes primarily on the basis of pricing, availability,
transmission quality, customer service (including the capability of making rapid
additions to add end users and access to end-user traffic records) and variety
of services. The ability of the Company to compete effectively will depend on
its ability to maintain high-quality services at prices generally equal to or
below those charged by its competitors.
An alternative method of transmitting telecommunications traffic is through
satellite transmission. Satellite transmission is superior to fiber optic
transmission for distribution communications, for example, video broadcasting.
Although satellite transmission is not preferred to fiber optic transmission for
voice traffic in most parts of the United States because it exhibits a slight
(approximately one-quarter-second) time delay, such delay is not important for
many data-oriented uses. In the event the market for data transmission grows,
the Company will compete with satellite carriers in such market. Also, at least
one satellite company, Orion Network Systems, Inc., has announced its intention
to provide internet access services to businesses through satellite technology.
In the United States, price competition in the long distance business has
generally been intensive. The FCC has, on several occasions since 1984, approved
or required price decreases by AT&T through the imposition of "price cap"
regulations. However, the FCC recently classified AT&T as a "non-dominant
interexchange carrier," with the effect that AT&T is no longer subject to price
regulation of its long distance services. Since the Company believes that its
customers generally price their service offerings at or below the prices charged
by AT&T for its telecommunications services, reductions by AT&T in its rates may
necessitate similar price decreases by the Company. In addition, the
Telecommunications Act of 1996 (the "Telecommunications Act") will allow the
RBOCs and others such as electric utilities and cable television companies to
enter the long distance market, and has removed restraints on GTE. In fact, the
RBOCs have begun providing out-of-region interLATA long distance services.
Ameritech recently filed (but withdrew without prejudice) an application for
authorization to provide in-region long distance services. Ameritech has stated
that it intends to refile its application at the end of March, 1997. Other RBOCs
are actively working to satisfy prerequisites for re-entry into the in-region
long distance business. Formal RBOC applications are likely to be filed soon.
GTE has begun providing both out-of-region interLATA long distance services and
in-region long distance services. Further, a continuing trend toward
consolidation, mergers, acquisitions and strategic alliances in the
telecommunications industry could also give rise to significant new competitors
to the Company or to the Company's customers. See "-- Recent Legislation and
Regulatory Uncertainty," "Industry Overview," "Business -- Private Line
Services," "Business -- Switched Long Distance Services" and "Business --
Regulation."
16
<PAGE> 19
On February 15, 1997, the United States Trade Representative designate
announced that an agreement had been reached with World Trade Organization
("WTO") countries to open world telecommunications markets to competition. The
agreement, known as the WTO Basic Telecommunications Services Agreement ("WTO
Agreement"), is scheduled to become effective on January 1, 1998. The WTO
Agreement will provide U.S. companies with foreign market access for local, long
distance, and international services, either on a facilities basis or through
resale of existing network capacity. The WTO Agreement also provides that U.S.
companies can acquire, establish or hold a significant stake in
telecommunications companies around the world. Conversely, foreign companies
will be permitted to enter domestic U.S. telecommunications markets and acquire
ownership interest in U.S. companies. Therefore, foreign telecommunications
companies could also be significant new competitors to the Company or the
Company's customers. See "Industry Overview," "Business -- Private Line
Services," "Business -- Switched Long Distance Services."
DEPENDENCE ON KEY PERSONNEL
The Company's businesses are managed by a small number of key executive
officers, the loss of whom could have a material adverse effect on the Company.
The Company believes that its growth and future success will depend in large
part on its continued ability to attract and retain highly skilled and qualified
personnel. The loss of one or more members of senior management or the failure
to recruit additional qualified personnel in the future could significantly
impede attainment of the Company's financial, expansion, marketing and other
objectives.
DEVELOPMENT RISKS OF THE FRAME RELAY AND ATM TRANSMISSION BUSINESS
The Company will soon begin offering Frame Relay, ATM and other data
transmission services. Although the Company has not yet made a material
investment for, or generated material revenues from, this business, the Company
believes that data transmission services present a promising opportunity for the
Company. To succeed in providing these services, the Company must compete with
AT&T, MCI, Sprint, WorldCom and other large competitors. In addition, the
Company expects that it will be necessary to continue to make upgrades to its
network (in advance of related revenues) to be competitive in providing these
services. The provision of data transmission services involves technical issues
with which the Company has very limited experience. In addition, the provision
of these services must be successfully integrated with the Company's existing
businesses. To the extent the Company does not successfully compete in providing
these services, it will not realize a return on its investment in data switches
and other equipment and it will not benefit from the growth, if any, in demand
for these services. A failure to successfully compete in data transmission
services could have a material adverse effect on the Company and the value of
the Common Stock.
RECENT LEGISLATION AND REGULATORY UNCERTAINTY
Certain of the Company's operations are subject to regulation by the FCC
under the Communications Act of 1934, as amended (the "Communications Act"). In
addition, certain of the Company's businesses are subject to regulation by state
public utility or public service commissions. Changes in the regulation of, or
the enactment or changes in interpretation of legislation affecting, the
Company's operations could have a material adverse affect on the Company and the
value of the Common Stock. In 1996 the federal government enacted the
Telecommunications Act, which, among other things, allows the RBOCs and others
to enter the long distance business. Entry of the RBOCs or other entities such
as electric utilities and cable television companies into the long distance
business may have a negative impact on the Company or its customers. The Company
anticipates that certain of such entrants will be strong competitors because,
among other reasons, they may enjoy one or more of the following advantages:
they may (i) be well capitalized; (ii) already have substantial end-user
customer bases; and/or (iii) enjoy cost advantages relating to local loops and
access charges. The introduction of additional strong competitors into the
switched long distance business would mean that the Company and its customers
would face substantially increased competition. This could have a material
adverse effect on the Company and the value of the Common Stock. Further, the
FCC has recently commenced rulemaking proceedings relating to universal service
funding by interstate telecommunications carriers, and to the access charges the
Company and its customers are required to pay to LECs. The outcomes
17
<PAGE> 20
of these FCC proceedings are impossible to predict. In addition, the
Telecommunications Act provides that state proceedings may in certain instances
determine access charges the Company and its customers are required to pay to
the LECs. There can be no assurance that such proceedings will not result in
increases in such rates. Such increases could have a material adverse effect on
the Company or its customers and on the value of the Common Stock. See "Industry
Overview" and "Business -- Regulation."
RISKS RELATED TO RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. For example, there have been recent technological advances that
show the potential to greatly expand the capacity of existing and new fiber
optic cable, which could greatly increase supply. There can be no assurance that
the Company will maintain competitive services or that the Company will obtain
appropriate new technologies on a timely basis or on satisfactory terms. Such an
increase in supply or failure by the Company to maintain competitive services or
obtain new technologies could have a material adverse effect on the Company and
the value of the Common Stock. See "Industry Overview -- Technology."
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this Offering and after giving effect to the Preferred
Stock Sale (assuming no conversion of the Convertible Preferred Stock into
shares of Common Stock) which is expected to close in March 1997, GEPT will
beneficially own, approximately 26.0% of the outstanding Common Stock, Grumman
Hill Investments, L.P. ("GHI") and Richard D. Irwin together will beneficially
own approximately 21.8% of the outstanding Common Stock, and four of the members
of senior management and their affiliates will beneficially own approximately
20.6% of the outstanding Common Stock. Such stockholders also control a majority
of IXC Communications' 10% Junior Series 3 Preferred Stock (the "Series 3
Preferred Stock") and GEPT will own 25% of the Convertible Preferred Stock. See
"Certain Transactions." As a result, certain of these stockholders, if they act
together, generally would be able to elect a majority of directors elected by
the holders of the Common Stock (and the director elected by the holders of the
Series 3 Preferred Stock) and exercise control over the business, policies and
affairs of IXC Communications, and would have the power to approve or disapprove
most actions requiring stockholder approval, including amendments to IXC
Communications' charter and by-laws, certain mergers or similar transactions and
sales of all or substantially all of IXC Communications' assets (subject to
approval of the holders of Convertible Preferred Stock in certain instances). In
addition, the holders of Convertible Preferred Stock will have the right to
elect one director of the Company and, upon a failure to pay six quarterly
dividends, the holders of Convertible Preferred Stock will have the right to
elect an additional three directors. At the closing of the Preferred Stock Sale,
MSCAP and GEPT will be the only record holders of the Convertible Preferred
Stock. This concentration of stock ownership could have the effect of delaying
or preventing a change of control of IXC Communications or the removal of
existing management and may discourage attempts to do so. See "Principal and
Selling Stockholders."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has fluctuated over a broad range
since the completion of the Company's initial public offering in July 1996. The
trading price of the Common Stock is subject to wide fluctuations in response to
numerous factors, including, but not limited to, quarterly variations in
operating results of the Company or any of its principal customers, competition,
announcements of technological innovations or new products or pricing by the
Company or its competitors, product enhancements by the Company or its
competitors, regulatory changes, any difference between actual results and
results expected by investors and analysts, changes in financial estimates by
securities analysts and other events or factors. In addition, the stock market
has experienced volatility that has affected the market prices of equity
securities of many companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Common Stock. See "Underwriters."
ANTI-TAKEOVER PROVISIONS
The Restated Certificate of Incorporation of IXC Communications (the
"Restated Certificate") permits the Board of Directors to establish the rights,
preferences, privileges and restrictions of, and to issue, up to an
18
<PAGE> 21
additional 2,977,450 shares of Preferred Stock (after giving effect to the
Preferred Stock Sale) without any further vote or action by IXC Communications'
common stockholders. Except for the Convertible Preferred Stock and, subject to
the approval of holders of Series 3 Preferred Stock, additional shares of Series
3 Preferred Stock for payment in kind of previously accumulated and future
dividends on the Series 3 Preferred Stock, the Company has no present plans to
issue any additional shares of Preferred Stock. However, the issuance of
additional preferred stock could adversely affect the holders of Common Stock.
See "Description of Capital Stock." In addition, under certain circumstances,
the holders of the Senior Notes can require the Company to repurchase the Senior
Notes upon the occurrence of a Change of Control (as defined in the Indenture).
See "Description of Certain Indebtedness." If there is a change of control of
the Company while the market price of the Common Stock is below $38.40 per
share, the Company is also required to offer to redeem the Convertible Preferred
Stock or adjust the conversion price to the then current market price of the
Common Stock. The issuance of additional preferred stock and/or the existence of
such change of control provisions in the Indenture or with respect to the
Convertible Preferred Stock could have the effect of delaying or preventing a
change in control of the Company and may discourage attempts to do so.
SHARES ELIGIBLE FOR FUTURE SALE
Following this Offering (assuming no exercise of the Underwriters'
over-allotment option) approximately 25.0 million shares of the outstanding
Common Stock will be "restricted securities" and may in the future be sold in
compliance with Rule 144 adopted under the Securities Act. Upon the closing of
the acquisition of LDS, the LDS shareholders will receive approximately
1,015,400 shares of Common Stock of the Company (such number may change
significantly depending on the increase, if any, in market price of the Common
Stock and on the balance sheet of LDS at the time of the closing). Upon the
closing of the acquisition of Telecom One, the Company estimates that the
Telecom One shareholders will receive approximately 106,000 shares of Common
Stock of the Company (such number may change significantly depending on the
balance sheet of Telecom One at the time of the closing). The Company estimates
that the aggregate number of shares of Common Stock to be issued to the
shareholders of LDS and Telecom One at the closings of these acquisitions will
be between 1.1 million and 1.3 million. In addition, at the end of 1999, the
Company will be required to pay the Telecom One shareholders additional shares
of Common Stock, depending on the future revenues of Telecom One and the balance
sheet of Telecom One at the end of 1999. Although the Company cannot presently
determine the number of shares to be paid to Telecom One shareholders in such
second installment, the Company believes it is unlikely to exceed 200,000
shares. For a description of how the number of shares of Common Stock to be
issued in connection with the acquisitions is calculated, see "Business --
Acquisitions." All of such shares of Common Stock issued to LDS and Telecom One
shareholders will also be "restricted securities" and may be sold in compliance
with Rule 144. Rule 144 generally provides that beneficial owners of Common
Stock who have held such Common Stock for two years may sell within a three-
month period a number of shares not exceeding the greater of 1% of the total
outstanding shares or the average weekly trading volume of the shares during the
four calendar weeks preceding such sale. The Commission recently adopted a rule
reducing the two-year holding period to one year effective at the end of April
1997. All, or substantially all, of the approximately 25.0 million shares of
outstanding restricted Common Stock, other than 840,053 shares of Common Stock
issued to GEPT in a private placement which occurred simultaneously with the
closing of the IPO on July 9, 1996 (the "GEPT Private Placement"), has met the
two-year holding period requirement under Rule 144, and can be sold subject to
the conditions of Rule 144. The Convertible Preferred Stock may be converted
into approximately 2.6 million shares (subject, under certain circumstances, to
anti-dilution adjustments) of Common Stock at the option of the holders at any
time after the first year anniversary of the date of issuance (the second
anniversary for MSCAP in certain instances) or, in certain circumstances, upon a
change of control. Future sales of Common Stock or the perception that such
sales may occur could negatively impact the market price of the Common Stock.
However, pursuant to the terms of certain lock-up agreements, the Common Stock
owned by executive officers, directors, GEPT (including the shares purchased in
the GEPT Private Placement) and GHI may not be sold until 90 days from the date
of this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. In connection with the GEPT Private Placement, GEPT and certain
other stockholders were granted registration rights with respect to all the
shares of Common Stock owned by them (a total of approximately 19.5 million
shares), which registration rights became exercisable on March 1, 1997. Each of
the stockholders that are
19
<PAGE> 22
signatories to such agreement has waived its registration rights in connection
with this Offering. In connection with the Preferred Stock Sale, the Company
granted certain demand registration rights and "piggy-back" registration rights
to the holders of Convertible Preferred Stock and has agreed, subject to certain
limitations, to file a shelf registration statement covering resales of the
Convertible Preferred Stock. In addition, upon the closing of the acquisitions
of LDS and Telecom One, the shareholders of LDS and Telecom One will be granted
registration rights with respect to the shares of Common Stock issued by the
Company for such acquisitions. See "Description of Capital Stock -- Registration
Rights." The Company has registered 1,212,450 shares, 2,121,787 shares and
67,900 shares of Common Stock for issuance to its employees, directors,
consultants and advisors under the Company's 1994 Stock Plan, 1996 Stock Plan
and Special Stock Plan, respectively. As of March 1, 1997, options to purchase
1,151,526 shares, 743,000 shares and 67,900 shares of Common Stock were
outstanding under the 1994 Stock Plan, the 1996 Stock Plan and the Special Stock
Plan, respectively. See "Management -- 1996 Stock Plan," "Management -- 1994
Stock Plan," "Management -- Special Stock Plan," "Description of Capital
Stock -- Registration Rights" and "Shares Eligible for Future Sale."
20
<PAGE> 23
USE OF PROCEEDS
The net proceeds to IXC Communications from the sale of the shares of
Common Stock offered hereby are estimated to be $25.8 million (assuming a price
to public of $26 7/8), after deducting underwriting discounts and commissions
and offering expenses. IXC Communications will not receive any net proceeds from
the sale of shares of Common Stock offered by the Selling Stockholders. IXC
Communications expects to use substantially all of the net proceeds of this
Offering to fund capital expenditures, including a portion of the network
expansion, and the balance for general corporate purposes, including possible
acquisitions. Pending such uses, the Company intends to deposit all such net
proceeds in interest-bearing bank accounts, or invest such proceeds in United
States government securities or other highly liquid investments. Although the
Company currently has no commitments or agreements with respect to any possible
acquisition other than with LDS and Telecom One, it has reviewed potential
acquisition candidates and has held preliminary discussions with a number of
such candidates.
PRICE RANGE OF COMMON STOCK
The price to public in the initial public offering of the Company's common
stock (the "IPO") was $16 per share. The Common Stock is quoted on the Nasdaq
National Market under the trading symbol "IIXC." The following table sets forth,
on a per share basis for the periods indicated, the high and low closing sale
prices for the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE RANGE
--------------
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year 1996
Third quarter (from July 3, 1996)................................... $21 1/8 $11 1/2
Fourth quarter...................................................... 30 3/4 19 5/8
Fiscal Year 1997
First Quarter (through March 10, 1997).............................. 36 1/4 26 7/8
</TABLE>
See the cover page of this Prospectus for a recent closing sale price of
the Common Stock as reported by the Nasdaq National Market. As of March 3, 1997,
there were approximately 93 holders of record of the Common Stock and
approximately 86 holders of record of Series 3 Preferred Stock.
DIVIDEND POLICY
IXC Communications has never paid any cash dividends on its Common Stock
and does not expect to pay cash dividends on its Common Stock in the foreseeable
future. The terms of the Indenture restrict the payment of cash dividends. No
dividends may be paid on the Common Stock until all dividends are paid in full
on the Company's Convertible Preferred Stock and Series 3 Preferred Stock.
Dividends on the Convertible Preferred Stock are payable quarterly in cash (or
prior to March 31, 1999 in additional shares of Convertible Preferred Stock) in
arrears from the date of issuance at a rate of 7% per annum of the liquidation
preference ($100.0 million plus an amount equal to any accumulated and unpaid
dividends) on March 31, June 30, September 30 and December 31 of each year,
commencing on June 30, 1997. As of December 31, 1996 the Company's Series 3
Preferred Stock had a liquidation preference of $19.1 million. Dividends on the
Series 3 Preferred Stock accumulate at an annual rate of 10% (based on the
liquidation preference) plus interest. IXC Communications anticipates paying the
dividends on the Series 3 Preferred Stock (and related interest) when cash is
available after funding its cash needs for operations and capital expenditures
(or, subject to the approval of the holders of Series 3 Preferred Stock, in
additional shares of Series 3 Preferred Stock) and provided that the amount of
such payment is permitted under the terms of the Indenture and applicable
provisions of state law. In addition to paying such dividends, IXC
Communications currently intends to retain future earnings, if any, to finance
its operations and fund the growth of its business. Any payment of future
dividends on its Common Stock will be at the discretion of the Board of
Directors of IXC Communications and will depend upon, among other things, IXC
Communications' earnings, financial condition, capital requirements, level of
indebtedness, contractual and legal restrictions with respect to the payment of
dividends and other factors that IXC Communications' Board of Directors deems
relevant.
21
<PAGE> 24
CAPITALIZATION
The following table sets forth the cash and the capitalization of IXC
Communications as of December 31, 1996, and as adjusted to reflect the sale of
10,000 shares of 7% Series A Convertible Preferred Stock for net proceeds of
$98.1 million, assuming a placement fee of $1.9 million but without deducting
other expenses (anticipated to close in March 1997) and the sale by IXC
Communications of 1,050,000 shares of Common Stock offered hereby, assuming a
price to public of $26 7/8 and underwriting discounts and commissions and
offering expenses of $2.5 million, as if both transactions had occurred on
December 31, 1996. This table should be read in conjunction with the
Consolidated Financial Statements, the Notes thereto and other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)........................................... $ 61,340 $ 185,232
========= ========
Debt and capital lease obligations:
12 1/2% Senior Notes due 2005........................................ $277,656 $ 277,656
Capital lease obligations............................................ 17,862 17,862
Senior subordinated note............................................. 3,046 3,046
Promissory note...................................................... 3,717 3,717
--------- --------
Debt and capital lease obligations........................... 302,281 302,281
--------- --------
7% Series A Convertible Preferred Stock, $.01 par value(2)(3).......... -- 98,125
Stockholders' equity:
10% Junior Series 3 Cumulative Preferred Stock, $.01 par value;
12,550 shares issued and outstanding (aggregate liquidation
preference, including accrued and unpaid dividends, of
$19,059,000)(2)................................................... 13 13
Common stock, $.01 par value; 100,000,000 shares authorized;
30,795,014 shares issued and outstanding (actual)(4); and
31,845,014 shares issued and outstanding (as adjusted)(4)(5)...... 308 318
Additional paid-in capital(5)........................................ 123,434 149,191
Accumulated deficit.................................................. (60,276) (60,276)
--------- --------
Total stockholders' equity .................................. 63,479 89,246
--------- --------
Total capitalization.................................... $365,760 $ 489,652
========= ========
</TABLE>
- ---------------
(1) Excludes $51.4 million held in an escrow account. See Note 5 to the
Consolidated Financial Statements. As of February 28, 1997, all escrow funds
had been expended and the Company's cash and cash equivalents total
approximately $31.0 million.
(2) Preferred stock, 3,000,000 shares authorized.
(3) On March 31, 2009, the 7% Series A Convertible Preferred Stock must be
redeemed by the Company at a price equal to the liquidation preference plus
accrued and unpaid dividends, thus it is "mandatorily redeemable" and not
included in stockholders' equity. Each share of Convertible Preferred Stock
is convertible into Common Stock at the price of $38.40 per share at the
option of the holder at any time after the first anniversary of the original
date of issuance (the second anniversary for MSCAP) or under certain
circumstances upon a change in control.
(4) Does not include 1,700,573 shares of Common Stock issuable upon the exercise
of stock options outstanding as of December 31, 1996 under the Company's
1996 Stock Plan, 1994 Stock Plan and Special Stock Plan (of which, options
covering 257,527 shares were exercisable as of December 31, 1996).
(5) Upon consummation of the LD Services and Telecom One acquisitions, the
Common Stock and additional paid in capital amounts will increase to reflect
the issuance of Common Stock in consideration therefor. The Company has not
included an estimate of shares to be issued because the number of shares
will depend on the price of the Company's Common Stock and the performance
of the entities to be acquired. See "Business -- Acquisitions."
22
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical financial data
of the Company and its predecessor. The historical financial data for the
Company has been derived from the audited Consolidated Financial Statements of
the Company as of and for the periods ended December 31, 1992, 1993, 1994, 1995
and 1996. The historical financial data for the period January 1, 1992 through
August 14, 1992 relates to the "Company's Predecessor", IXC Carrier, Inc. ("IXC
Carrier"), and has been derived from unaudited financial statements. The data
should be read in conjunction with the Consolidated Financial Statements,
related Notes, and other financial information included herein.
<TABLE>
<CAPTION>
THE
COMPANY'S
PREDECESSOR THE COMPANY
----------- --------------------------------------------------------
JAN. 1 AUG. 15
THROUGH THROUGH YEAR ENDED DECEMBER 31,
AUG. 14, DEC. 31, --------------------------------------------
1992 1992 1993 1994 1995 1996
----------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues......................... $ 42,081 $ 23,893 $ 71,123 $ 80,663 $ 91,001 $203,761
Operating expenses:
Cost of services............................. 26,116 13,588 37,823 33,896 39,852 143,469
Operations and administration................ 11,226 6,759 22,835 20,561 32,282 47,067
Depreciation and amortization................ 10,517 8,033 21,061 12,121 17,438 27,241
--------- --------- --------- --------- --------- ---------
Operating income (loss)........................ (5,778) (4,487) (10,596) 14,085 1,429 (14,016)
Interest income................................ 45 -- 215 211 468 2,838
Interest income on escrow under Senior Notes... -- -- -- -- 2,552 7,404
Interest expense............................... (18,749) (1,398) (4,943) (6,105) (14,597) (37,076)
Contract settlement costs...................... -- (2,000) (59) -- -- --
Write-down of property and equipment........... -- -- (37,960) -- -- --
Equity in net income (loss) of unconsolidated
subsidiaries................................. -- -- -- (94) 19 (1,961)
Benefit (provision) for income taxes........... (77) 2,847 21,977 (3,157) 1,693 5,981
Minority interests............................. -- 710 (446) 77 5,218 (618)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary gain
(loss)(1).................................... (24,559) (4,328) (31,812) 5,017 (3,218) (37,448)
Extraordinary gain (loss)(2)................... -- -- 8,495 2,298 (1,747) --
--------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ (24,559) $ (4,328) $(23,317) $ 7,315 $ (4,965) $(37,448)
========= ========= ========= ========= ========= =========
Income (loss) per common and common equivalent
share:
Before extraordinary gain (loss)............. $ (1.39) $ .13 $ (.20) $ (1.39)
Extraordinary gain (loss).................... .35 .09 (.07) --
--------- --------- --------- ---------
Net income (loss)............................ $ (1.04) $ .22 $ (.27) $ (1.39)
========= ========= ========= =========
Weighted average common and common equivalent
shares used in computation of income (loss)
per share.................................... 24,009 24,993 25,108 28,209
========= ========= ========= =========
As adjusted net loss per common and common
equivalent share(3):
Net loss....................................... $ (1.59)
=========
Weighted average common and common equivalent
shares used in computation of income (loss)
per share.................................... 29,259
=========
BALANCE SHEET DATA:
Cash and cash equivalents(4)................... $ 2,039 $ 2,746 $ 6,230 $ 6,048 $ 6,915 $ 61,340
Escrow under Senior Notes(4)................... -- -- -- -- 198,266 51,412
Total assets................................... 195,288 117,741 94,281 105,409 336,475 459,151
Total debt and capital lease obligations....... 329,242 32,891 59,954 69,124 298,794 302,281
Stockholders' equity (deficit)................. (164,432) 30,028 6,871 14,189 6,858 63,479
OTHER FINANCIAL AND OPERATIONS DATA:
EBITDA(5)...................................... 4,739 3,546 10,465 26,206 18,867 13,225
Capital expenditures........................... 18 1,435 27,008 7,087 23,670 136,391
Ratio of EBITDA to interest expense(6)......... -- 2.54x 2.12x 4.29x 1.29x --
Minutes of use (in millions)................... -- -- -- -- 12.8 1,105.2
</TABLE>
23
<PAGE> 26
- ---------------
(1) Includes a $38.0 million non-cash charge in 1993 relating to a write-down of
microwave equipment.
(2) The extraordinary items for all periods result from early extinguishment of
debt (involving a related party in 1994), including capital lease
obligations, net of applicable income taxes.
(3) Net income (loss) per common and common equivalent share as adjusted and
weighted average common and common equivalent shares outstanding as adjusted
reflect the 1,050,000 shares to be issued in this Offering as if they had
been issued at the beginning of the period presented and the Preferred Stock
Sale as if it had also occurred at the beginning of the period presented.
(4) The Company made significant capital expenditures in the first two months of
1997. As of February 28, 1997, all escrow funds have been expended and the
Company's cash and cash equivalents total approximately $31.0 million.
(5) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA for 1995 and 1996 includes the negative EBITDA of the
Company's switched long distance services business. During 1995 and the
first quarter of 1996 such negative EBITDA relates to start-up and operating
expenses incurred before the Company began generating material revenues from
its switched long distance business. The Company has included information
concerning EBITDA because it believes that EBITDA is used by certain
investors as one measure of an issuer's historical ability to service its
debt. EBITDA is not a measurement determined in accordance with GAAP, should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP and is not necessarily
comparable with similarly titled measures for other companies.
(6) For the period January 1 through August 14, 1992 and the year ended December
31, 1996, EBITDA was insufficient to cover interest expense by $14.0 million
and $23.9 million, respectively. The Company made the interest payments on
the Senior Notes in 1996 with funds from the Escrow under Senior Notes.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides two principal services to long distance companies: (i)
transmission of voice and data over dedicated circuits (referred to as private
line services) and (ii) switched long distance services. The Company is one of
only five carriers that currently own a digital telecommunications network
extending from coast-to-coast. The Company's facilities also include five long
distance switches located in Los Angeles, Dallas, Chicago, Philadelphia and
Atlanta and ten Frame Relay-ATM switches located in major cities.
Private Line Business. Substantially all of the Company's revenues in 1995
and prior years and approximately 49% of its revenues for 1996 (37% for the
fourth quarter of 1996) were generated by its private line business, which has
historically provided positive cash flow (even in years when the Company had net
losses, as in 1993, 1995 and 1996). The Company provides private line service to
customers either on a "take or pay" long-term basis or, after contract
expiration, on a month-to-month basis. The Company's private line transmission
agreements are generally long-term leases which provide for monthly payment in
advance on a fixed-rate basis, calculated according to the capacity and length
of the circuit used. Many of such contracts contain substantial "take or pay"
commitments. During 1996, the Company leased transmission capacity to 252
customers, with the ten largest private line customers during that year
accounting for approximately 36% of revenues. The Company's two largest private
line customers, Frontier and WorldCom, accounted for approximately 10% and 8%,
respectively, of the Company's revenues in 1996. See "Risk Factors -- Reliance
on Major Customers."
Substantially all of the costs of services of the private line business are
fixed. The largest component of such costs for the private line business is the
expense of leasing off-net capacity from other carriers to meet customer needs
which the Company cannot currently meet with its own network due to capacity or
geographic constraints. In addition to such leases, in the normal course of
business, the Company enters into capacity-exchange agreements with other
carriers. Pursuant to such agreements, the Company exchanges excess capacity on
its network with other carriers for capacity on the other carrier's network. As
such exchange agreements generally do not provide for cash payments to be made,
they allow the Company to substantially reduce the cash payments it must make
for off-net capacity from other carriers. Such exchanges are accounted for at
the fair value of the capacity exchanged, as non-cash revenue and expense in
equal amounts, which reduces the Company's overall gross margin as a percentage
of revenues. In 1995 and in 1996 the Company recorded revenue and expense of
$13.8 million and $14.0 million, respectively, relating to such exchanges. In
addition, certain right-of-way arrangements in connection with the construction
of the Company's network constitute operating leases and will contribute to the
cost of communications services in the future. The amount of such operating
leases for prior periods, including 1996, was immaterial.
Switched Long Distance Business. The Company recently expanded into the
business of selling switched long distance services to long distance resellers.
The Company sells switched long distance services on a per-call basis, charging
by MOUs, with payment due monthly after services are rendered. The Company's
rates for calls generally vary with the duration of the call, the day and time
of day the call was made and whether the traffic is intrastate, interstate or
international. The Company has contracts with over 70 long distance resellers.
The Company's largest switched long distance customer, Excel, accounted for
approximately 35% of the Company's revenues in 1996. See "Risk
Factors -- Reliance on Major Customers" and "Business -- Switched Long Distance
Services."
The three main components of the costs of the switched long distance
business are LEC access charges, long distance network leasing costs (including
MOUs and long distance circuits) and operations and administration expenses. The
LEC access charges, which are variable, represent a significant majority of the
total cost for the switched long distance business. As the Company transfers
traffic onto its newly constructed network routes, the Company expects to
realize cost savings for the switched long distance business because it will be
able to reduce the amount of long distance network capacity that otherwise would
be required to be leased from other parties. However, the Company does not
intend to expand its network to all areas of the United States. Accordingly, the
Company anticipates that it will continue to need to lease a significant amount
25
<PAGE> 28
of capacity from other carriers regardless of the network expansion. Because the
switched long distance business generally has lower margins than the private
line business, increases in switched long distance volumes have caused and will
continue to cause a decrease in the Company's overall margins.
During 1995, the Company set up the infrastructure for its switched long
distance business by installing its switches, connecting them to its network and
to the LECs, leasing related long distance circuits, acquiring software and
hiring personnel and entering into contracts with customers. The Company's
switched network became fully operational in February 1996 and the Company did
not have material revenues from the switched long distance business during 1995.
The switched long distance business generated revenues of $104.0 million for
1996, the majority of which was in the third and fourth quarters. The
development and further expansion of the Company's switched long distance
business requires significant expenditures, a substantial portion of which will
be incurred before the realization of operating cash flow from such activities.
Taken on a stand-alone basis, the switched long distance business generated
negative gross margins over the first two quarters of 1996 and began to generate
slightly positive gross margins during the third and fourth quarters of 1996 as
the Company began to carry more switched long distance traffic. After allocating
selling, general and administrative expense to the switched long distance
business, however, it would have generated negative EBITDA for each of the four
quarters of 1996. For a discussion of important factors that could cause the
Company's switched long distance business to fail to generate positive cash
flows as described, see "Risk Factors -- Development Risks and Dependence on
Switched Long Distance Business." The Company will fund such negative EBITDA
from cash flow from its private line business and cash on hand. If such traffic
does not increase, there can be no assurance that the switched long distance
business will generate positive EBITDA. See "Risk Factors -- Negative Cash Flow
and Capital Requirements," "Risk Factors -- Development Risks and Dependence on
Switched Long Distance Business" and "Risk Factors -- Recent and Expected
Losses."
Capital Expenditures. The Company has spent significant amounts of capital
to develop its coast-to-coast network to service its private line and switched
long distance businesses and is currently engaged in a substantial expansion of
its network. The Company spent $136.4 million for capital expenditures during
1996 and estimates that it will spend approximately $340.0 million in 1997 (of
which $49.7 million was spent in the first two months of 1997) and the Company
expects to continue to make substantial capital expenditures thereafter.
However, the amount of actual capital expenditures may vary materially as a
result of cost-saving arrangements, increases or decreases in the amount of
traffic on the Company's network, unexpected costs, delays or advances in the
timing of certain capital expenditures and other factors. The Company's ability
to meet the cash costs of such capital expenditures is dependent upon the
Company's ability to complete the construction of the network expansion in a
timely manner and otherwise perform its obligations so that it can complete the
LCI Fiber Sale and the MCI Fiber Sale, to enter into cost-saving arrangements
with carriers or other large users of fiber capacity, to otherwise raise
significant capital and/or to significantly increase its cash flow. The failure
of the Company to accomplish any of the foregoing may significantly delay or
prevent such capital expenditures, which would have a material adverse effect on
the Company and the value of the Common Stock. See " -- Liquidity and Capital
Resources" and "Risk Factors -- Negative Cash Flow and Capital Requirements."
Pricing; Net Losses. The Company expects that, as competition increases,
prices for both private line and switched services will decline. The Company
incurred an operating loss during 1996 and does not expect to generate net
income in 1997 due to substantial interest expense associated with the Senior
Notes and operating expenses associated with the switched long distance
business. As the Company transfers traffic onto its newly constructed network
routes, the Company expects to realize cost savings by reducing the amount of
off-net capacity it leases from other carriers. However, reductions in lease
expense as a result of transferring traffic onto its newly constructed routes
will be offset to some extent by increased depreciation expense as the
investment in the newly constructed network routes is depreciated.
Acquisition and Financing Transactions. In 1994, the Company and Excel
formed Switched Services Communications, L.L.C. ("SSC"), a joint venture, to
lease, install and operate the five switches and to provide switched long
distance services to the Company and Excel. In January 1996, the Company
purchased Excel's interest in SSC for a short-term non-interest bearing note for
approximately $6.2 million which was
26
<PAGE> 29
fully paid in 1996. Excel continues to have a contractual commitment to use the
Company's network. See "Business -- Switched Long Distance Services -- Excel."
In August 1994, IXC Communications acquired an 85% interest in MSM
Associates, Limited Partnership ("MSM"), which owns fiber capacity in Michigan
and Indiana, from GE Capital Corporation. Frontier, the owner of the remaining
15% minority interest of MSM, is a customer of the Company.
In October 1995, the Company issued $285.0 million of Senior Notes
primarily to finance a portion of the network expansion. See "Description of
Certain Indebtedness."
In July 1996, the Company raised gross proceeds of approximately $83.3
million (before deducting certain expenses) through its IPO and $12.5 million
from the GEPT Private Placement.
Marca-Tel S.A. de C.V. ("Marca-Tel"), a joint venture in which the Company
indirectly holds a minority interest, has been successful in obtaining a license
from the Mexican government to provide certain telecommunication services in
Mexico. However, the Marca-Tel services in Mexico are not yet in operation. The
Company and Westel jointly have contributed funds (approximately $7.3 million by
the Company as of December 31, 1996) to the company which owns a 49% interest in
Marca-Tel, substantially all of which has been used to fund Marca-Tel. See
"Business -- Mexican Joint Venture."
The Company has entered into agreements to acquire LDS and Telecom One and
has had discussions with several other telecommunications companies that it may
acquire. Other than agreements with LDS and Telecom One, no commitment or
agreement has been reached with any acquisition candidates as of the date of
this Prospectus. See "Business -- Acquisitions."
In March 1997, the Company expects to raise net proceeds of $98.1 million
(after deducting a placement agent fee and before deducting other expenses)
through the Preferred Stock Sale.
Fiber Sales. In February 1997, the Company and LCI entered into an
agreement providing for the LCI Fiber Sale for approximately $97.9 million.
Assuming that the network expansion between Los Angeles and Chicago proceeds
according to schedule, the Company expects to receive this amount in 1997.
In February 1997, the Company entered into the MCI Fiber Sale agreement
under which the Company is entitled to receive approximately $121.0 million.
Assuming that the network expansion proceeds according to schedule, this amount
will be due in January 1998. However, MCI has the option to pay this amount over
a period of up to 24 months commencing January 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for each of the Company's quarters in 1995 and 1996. In the opinion
of the Company's management, this quarterly information has been prepared on the
same basis as the audited financial statements appearing elsewhere in this
Prospectus and includes all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set
forth herein. The Company's quarterly results have in the past been subject to
fluctuations, and thus, the operating results for any quarter are not
necessarily indicative of results for any future period. The Company may
experience substantial fluctuations in quarterly results in the future as a
result of various factors, including customer turnover, variations in the
success of its customers' businesses and price competition. These fluctuations
may be particularly large as a percentage of revenues over the near term,
27
<PAGE> 30
because the Company has recently entered the switched long distance business. In
addition, delays in completion of the construction of new network routes could
cause quarterly results to vary.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------------
1995 1996
------------------------------------------------ ------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ ----------- -------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net operating revenues:
Private line circuits... $ 21,766 $ 22,721 $ 22,772 $22,304 $ 22,628 $ 24,003 $ 25,766 $ 27,396
Switched long
distance.............. -- -- -- 1,438 3,622 19,004 35,250 46,092
------- ------- ------- ------- -------- -------- ------- -------
Net operating
revenues.............. 21,766 22,721 22,772 23,742 26,250 43,007 61,016 73,488
Operating expenses:
Cost of services........ 8,175 8,210 10,423 13,044 15,600 31,643 43,774 52,452
Operations and
administration........ 6,256 6,987 8,604 10,435 10,417 10,786 12,083 13,781
Depreciation and
amortization.......... 3,619 3,995 4,645 5,179 6,010 6,644 7,280 7,307
------- ------- ------- ------- -------- -------- ------- -------
Total operating
expenses.......... 18,050 19,192 23,672 28,658 32,027 49,073 63,137 73,540
------- ------- ------- ------- -------- -------- ------- -------
Operating income (loss)... $ 3,716 $ 3,529 $ (900) $(4,916) $ (5,777) $ (6,066) $ (2,121) $ (52)
======= ======= ======= ======= ======== ======== ======= =======
Income (loss) before
extraordinary gain
(loss).................. $ 1,267 $ 1,502 $ (307) $(5,680) $(11,699) $(12,067) $ (5,624) $ (8,058)
======= ======= ======= ======= ======== ======== ======= =======
Net income (loss)......... $ 1,267 $ 496 $ (307) $(6,421) $(11,699) $(12,067) $ (5,624) $ (8,058)
======= ======= ======= ======= ======== ======== ======= =======
Income (loss) per share:
Before extraordinary
items................. $ 0.03 $ .04 $ (.03) $ (.24) $ (.49) $ (.50) $ (.19) $ (.27)
Extraordinary items..... -- (.04) -- (.03) -- -- -- --
------- ------- ------- ------- -------- -------- ------- -------
Net income (loss)....... $ 0.03 $ -- $ (.03) $ (.27) $ (.49) $ (.50) $ (.19) $ (.27)
======= ======= ======= ======= ======== ======== ======= =======
OTHER FINANCIAL AND
OPERATIONS DATA:
EBITDA(1)................. $ 7,335 $ 7,524 $ 3,745 $ 263 $ 233 $ 578 $ 5,159 $ 7,255
Minutes of use (in
millions)............... -- -- -- 12.8 33.9 199.3 375.1 496.1
</TABLE>
- ---------------
(1) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA for 1995 and 1996 includes the negative EBITDA of the
Company's switched long distance services business. During 1995 and the
first quarter of 1996 such negative EBITDA relates to start-up and operating
expenses incurred before the Company began generating material revenues from
its switched long distance business. The Company has included information
concerning EBITDA because it believes that EBITDA is used by certain
investors as one measure of an issuer's historical ability to service its
debt. EBITDA is not a measurement determined in accordance with GAAP, should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP and is not necessarily
comparable with similarly titled measures for other companies.
RESULTS OF OPERATIONS
1996 Compared With 1995
Net operating revenues for 1996 increased 124.0% to $203.8 million from
$91.0 million for 1995. The increase is primarily a result of the successful
commencement of the Company's switched long distance business (particularly the
addition of Excel as a customer). Switched long distance services revenues were
$104.0 million for 1996 (compared to $1.4 million for 1995). The vast majority
of these revenues were generated in the third and fourth quarters of 1996.
Billable MOUs were 1,105.2 million for 1996. Revenue per MOU decreased from
10.7c in the first quarter of 1996 to 9.3c in the fourth quarter of 1996. This
decrease resulted from continuing competitive price pressure, which is expected
to continue. Revenues for the Company's private line business for 1996 increased
11.4% to $99.8 million from $89.6 million for 1995.
Cost of communication services consists principally of access charges paid
to LECs and transmission lease payments to, and exchanges with, other carriers.
Cost of communication services for 1996 increased 259.6% to $143.5 million from
$39.9 million for 1995. The increase is primarily a result of the addition of
long distance leases supporting the switched long distance business, MOUs leased
from other carriers and access charges paid to LECs in connection with the
switched long distance business. The Company did not incur any significant
expenses for the switched long distance business during 1995. The Company has
historically had a relatively low cost of communications services as a
percentage of revenues because substantially all its revenues were derived from
private line services, generally made at a relatively low cost over its own
network.
28
<PAGE> 31
The Company expects that, in the event it achieves increases in private line
revenues, its cost of communications services as a percentage of such revenues
will increase because additional leases (or exchanges) of capacity from other
carriers at a relatively high cost will be required to support new business. The
cost of communications services as a percentage of revenues in the switched long
distance business is substantially greater than that in the private line
business due to the relatively high cost of LEC access charges, leases for long
distance circuits and MOUs leased from other carriers. Accordingly, increases in
switched long distance revenues are expected to further increase the Company's
cost of communications services as a percentage of revenues.
Operations and administration expenses for 1996 increased 45.8% to $47.1
million from $32.3 million for 1995. This increase is primarily the result of
operating expenses associated with the Company's switched network. The Company
anticipates that as it expands its switched service business, operations and
administration expenses will continue to increase, but will decline as a
percentage of revenue. In addition, the Company expects that for 1997 operations
and administration expenses will increase slightly due to the integration of LDS
and Telecom One into the Company's operations.
Depreciation and amortization for 1996 increased 56.3% to $27.2 million
from $17.4 million for 1995. The increase is primarily the result of
depreciation related to capital expenditures associated with the Company's
expansion and improvement of its network. Depreciation and amortization will
increase in subsequent periods, as the Company's investment in newly constructed
routes and other network equipment is depreciated.
Interest income for 1996 increased to $10.2 million from $3.0 million for
1995. The increase is primarily related to interest earned on the investment of
the proceeds from the sale of the Senior Notes issued in October 1995 and the
interest earned in 1996 on the investment of the proceeds from the IPO and the
GEPT Private Placement.
Interest expense for 1996 increased to $37.1 million from $14.6 million for
1995. The increase is primarily the result of interest expense attributable to
the Senior Notes, which were issued during the fourth quarter of 1995.
Equity in net income (loss) of unconsolidated subsidiaries for 1996 was a
loss of $2.0 million in 1996 compared to slight income for 1995. The loss was
primarily the result of start-up losses relating to the Company's investment in
its Mexican Joint Venture.
Income taxes for 1996 resulted in a $6.0 million tax benefit compared to a
benefit of $1.7 million for 1995. The difference between the tax benefits
recorded for 1996 and the expected benefit at the federal statutory rate is
primarily due to state taxes, losses incurred (the tax benefit of which is not
recorded due to uncertainty regarding its realization), and resolution of
Federal income tax examinations which were concluded in the second and third
quarters of 1996.
The Company experienced a net loss of $37.4 million for 1996 compared to a
net loss of $5.0 million for 1995 as a result of the factors discussed above.
1995 Compared With 1994
The year ended December 31, 1995 was a period of increased revenues, but a
net loss for the Company, primarily due to start-up and operational expenses
related to the Company's switched long distance business. Reduced operating
income and a significant increase in interest expense because of the issuance of
the Senior Notes during the fourth quarter of 1995 resulted in a net loss for
the year.
Net operating revenues for 1995 increased 12.8% to $91.0 million from $80.7
million in 1994. The increase is primarily the result of: (i) an increase in
non-cash revenues attributable to network capacity exchanged with other carriers
from $8.0 million in 1994 to $13.8 million in 1995; (ii) additional revenue in
the amount of $5.4 million associated with MSM (IXC Communications' 85% interest
in MSM was acquired in August 1994); and (iii) increased long-haul traffic in
the amount of $1.6 million due to the Company's expansion of its fiber optic
network in South Texas. These increases were partially offset by $2.5 million in
proceeds from an escrow account used to supplement lease payments in 1994, which
did not occur in 1995.
29
<PAGE> 32
Cost of communication services for 1995 increased 17.7% to $39.9 million
(or 43.8% of net operating revenues) from $33.9 million (or 42.0% of net
operating revenues) in 1994. The increase is primarily a result of an increase
in transmission lease expense (to $38.7 million in 1995 from $29.3 million in
1994) associated with: (i) an increase of $3.6 million in leases for
transmission services primarily to support the switched long distance business;
and (ii) an increase in non-cash expense attributable to network capacity
exchanged with other carriers from $8.0 million in 1994 to $13.8 million in
1995. These increases were partially offset by a non-recurring decrease in lease
expenses under certain operating equipment leases as a result of a May 1994
lease restructuring (such leases generated no expense in 1995 as opposed to $3.4
million in 1994).
Operations and administration expenses for 1995 increased 56.8% to $32.3
million from $20.6 million in 1994. The increase is primarily the result of $9.4
million of start-up and operating expenses associated with the Company's
implementation of its switched network and the inclusion in the Company's
results of operations of an increase in the Company's operating expenses of $1.1
million associated with the MSM network.
Depreciation and amortization for 1995 increased 43.8% to $17.4 million
from $12.1 million in 1994. The increase is primarily the result of depreciation
associated with the MSM network, together with increased depreciation associated
with the Company's development of its switched network.
Interest income for 1995 increased to $3.0 million from $.2 million in
1994. The increase is primarily related to interest earned on investment of the
proceeds from the sale of the Senior Notes issued in the fourth quarter of 1995.
Interest expense for 1995 increased to $14.6 million from $6.1 million in
1994. The increase is primarily the result of interest expense attributable to
the Senior Notes issued in the fourth quarter of 1995.
Income taxes for 1995 resulted in a $1.7 million tax benefit as opposed to
a provision for income taxes of $3.2 million in 1994. In 1995 and 1994, the
Company's effective tax rate did not significantly differ from the federal
statutory rate.
Minority interest during 1995 was $5.2 million resulting primarily from
Excel's share of operations and administration expenses and the cost of
communications services associated with its minority share of SSC, a joint
venture formed in 1995. In January 1996 the Company purchased Excel's interest
in SSC, thereby eliminating the minority interest in SSC for 1996 and future
years.
In 1994, the Company exercised a debt prepayment option in connection with
financing of debt that resulted in a net extraordinary gain of $2.3 million.
The Company experienced a net loss of $5.0 million in 1995 as opposed to
net income of $7.3 million in 1994 as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Except for the historical information contained below, the matters
discussed in this section are forward-looking statements that involve a number
of risks and uncertainties. The Company's actual liquidity needs, capital
resources and results may differ materially from the discussion set forth below
in such forward-looking statements. For a discussion of important factors that
could materially affect such matters, see "Risk Factors," particularly "Risk
Factors -- Negative Cash Flow and Capital Requirements."
The Company's private line operations have historically provided positive
cash flow (even in years of net losses, as in 1993 and 1995), which has provided
adequate liquidity to meet the Company's operational needs. However, the
Company's capital expenditures and, since the issuance of the Senior Notes in
the fourth quarter of 1995, its interest expense have been financed with the
proceeds of debt and equity securities. The Company expects to be able to
service its interest expense in 1997 and subsequent periods with internal cash
flow, although there can be no assurance in this regard. For 1995 and 1996, the
Company's EBITDA minus interest expense and capital expenditures (adjusted for
the change in working capital) was negative $13.1 million and negative $130.2
million, respectively.
30
<PAGE> 33
Cash used in operating activities was $28.7 million in 1996, as compared to
cash provided by operating activities of $11.6 million in 1995, primarily as a
result of start-up and operational expenses associated with the Company's
development of its switched services business. The Company's switched long
distance business will require cash to meet operating expenses. For a discussion
of important factors that could cause the Company's switched long distance
business to fail to generate positive EBITDA, see "-- Development Risks and
Dependence on Switched Long Distance Business."
Cash used in investing activities in 1995 was $221.9 million, primarily as
a result of the Company investing the proceeds of the Senior Notes. Cash
provided by investing activities in 1996 was $10.4 million, resulting from the
release of funds from the escrow under the Senior Notes and offset by purchases
of property and equipment. The Company's total capital expenditures were $136.4
million for 1996 and $23.7 million for 1995 (including capital expenditures
relating to the construction of network routes and related equipment).
Cash provided by financing activities was $72.7 million in 1996 and $211.2
million in 1995. The cash provided by financing activities in 1995 resulted
primarily from the issuance of the Senior Notes, partially offset by payments on
long-term debt and capital lease obligations. The cash provided by financing
activities in 1996 resulted primarily from the issuance of Common Stock in the
IPO and to GEPT, partially offset by payments on long-term debt and capital
lease obligations.
As of February 28, 1997, the Company had approximately $31.0 million in
cash. The net proceeds to the Company of this Offering are estimated to be $25.8
million (based on a price per share of $26 7/8). In March 1997, the Company
expects to receive net proceeds of $98.1 million from the Preferred Stock Sale
(after deducting a placement agent fee and before deducting other expenses). In
February 1997, the Company and LCI entered into the LCI Fiber Sale which will
result in proceeds to the Company of approximately $97.9 million. The Company
expects to receive all of such amount in 1997, assuming the construction of the
network expansion between Los Angeles and Chicago proceeds according to
schedule. In addition, the Company is engaged in discussions with potential
lenders regarding the Proposed Credit Facility under which it expects to be able
to borrow up to a certain percentage of eligible accounts receivable. Although
the total availability under the Proposed Credit Facility will vary from time to
time according to the aggregate amount of eligible accounts receivable, the
Company anticipates that the lender will impose a limit on borrowings under the
facility. Although the Company may succeed in obtaining a higher limit in the
future, the Company anticipates that the limit initially will be $25.0 million.
However, there can be no assurance that the Company will obtain such facility.
See "Description of Certain Indebtedness."
The Company anticipates the following major uses for its available cash:
(i) the network expansion and other capital expenditures; (ii) debt service;
(iii) lease payments; (iv) funding its joint venture in Mexico; and (v) working
capital.
The Company anticipates that capital expenditures for 1997 will be as
follows: (i) for construction of the network expansion, approximately $201.0
million; and (ii) for other capital expenditures, approximately $139.0 million.
Approximately $49.7 million of capital expenditures were made in the first two
months of 1997. The Company expects to continue to make substantial capital
expenditures in 1998 and thereafter.
The Company is required to make interest payments in the amount of $35.6
million on the Senior Notes each year. See "Description of Certain
Indebtedness." For 1996, EBITDA was insufficient to cover the Company's debt
service requirements under the Senior Notes. The Company anticipates that such
payments during 1997 will be made from cash on hand. For a discussion of
important factors that may cause actual results, including the Company's
assumption that increases in its EBITDA will occur as a result of the successful
completion and utilization of the network expansion and growth in the switched
long distance business, to differ materially from the foregoing forward-looking
statement, see "Risk Factors -- Negative Cash Flow and Capital Requirements" and
"Risk Factors -- Development Risks and Dependence on Switched Long Distance
Business." The Company is also required to make principal payments of $1.63
million on other debt in 1997 and quarterly principal payments of $560,000 on
another debt instrument from March 31, 1998 through December 31, 1999. At
December 31, 1996, there were approximately $6.5 million of accrued and unpaid
dividends on the Series 3 Preferred Stock. Such dividends accrue at an annual
rate of 10% (based on the liquidation preference) plus interest. Subject to the
approval of the holders
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<PAGE> 34
of the Series 3 Preferred Stock, the Company may pay such dividends in
additional shares of Series 3 Preferred Stock. The Company will also be required
to pay quarterly cash dividends on the Convertible Preferred Stock (at an annual
rate of 7%) beginning June 30, 1999 (and prior to such time such dividends may
be paid in additional shares of Convertible Preferred Stock). Payment of cash
dividends is not currently permitted under the terms of the Indenture. In the
event that six or more quarterly dividend payments are in arrears, then if at
least 2,000 shares of Convertible Preferred Stock are outstanding, the holders
of Convertible Preferred Stock, voting as a separate class, have the right to
elect three additional members of the Board of Directors, until such time as the
arrearages have been paid in full. See "Description of Capital Stock --
Preferred Stock."
The Company is required to make minimum annual lease payments for
facilities, equipment and transmission capacity used in its operations. In 1997,
1998 and 1999, the Company is currently required to make payments of
approximately $6.6 million, $5.1 million and $4.6 million, respectively, on
capital leases and $22.6 million, $13.4 million and $4.0 million, respectively,
on operating leases. The Company expects to incur additional operating and
capital lease costs in connection with the network expansion.
In connection with its fiber optic network expansion, the Company has
entered into various construction and installation agreements with contractors.
Total commitments remaining under these agreements were approximately $39.6
million at December 31, 1996.
In connection with the network expansion, as of December 31, 1996, the
Company had committed to pay $32.9 million for fiber usage rights on other long
distance carriers' networks. Pursuant to these agreements relating to the
construction of the network expansion, the Company has committed to pay a total
of $28.2 million for periods ranging from twenty to twenty-five years for
maintenance and license fees. For 1997, estimates of these shared construction
costs are included in the Company's capital expenditure estimates.
The Company expects to meet its needs for cash in 1997 by using cash on
hand, the proceeds anticipated to be received from the Preferred Stock Sale, the
proceeds of this Offering, cash generated by operations, the proceeds of the LCI
Fiber Sale, additional cost-saving arrangements and vendor financing it may
seek. In addition, the Company is engaged in discussions with potential lenders
regarding the Proposed Credit Facility under which it expects to be able to
borrow up to a certain percentage of eligible accounts receivable. Although the
total availability under the Proposed Credit Facility will vary from time to
time according to the aggregate amount of eligible accounts receivable, the
Company anticipates that the lender will impose a limit on borrowings under the
facility. Although the Company may succeed in obtaining a higher limit in the
future, the Company anticipates that the limit initially will be $25.0 million.
There can be no assurance that the Company will be successful in obtaining the
necessary cash or the Proposed Credit Facility to meet its needs. A failure to
raise such cash would delay or prevent such capital expenditures and the
construction of the network expansion. Also, the foregoing capital expenditure
and cash requirements for 1997 and 1998 do not take into account any
acquisitions. See "Business --Acquisitions."
The Company is indirectly participating in the development of a long
distance network to engage in the telecommunications business in Mexico by
Marca-Tel. The Company indirectly owns 24.5% of Marca-Tel through its ownership
of 50% of Progress International LLC ("Progress International"), which owns 49%
of Marca-Tel. The remaining 51% of Marca-Tel is owned by a Mexican individual
and Fomento Radio Beep, S.A. de C.V. The other 50% of Progress International is
owned by Westel. See "Business -- Mexican Joint Venture."
Progress International, which is seeking FCC authority to operate in the
United States as an international resale carrier, is responsible for providing
all the capital that may be required from Marca-Tel's stockholders in order to
finance Marca-Tel. The Company and Westel jointly have contributed funds to
Progress International (approximately $7.3 million by the Company as of December
31, 1996), substantially all of which has been used to fund Marca-Tel. Although
the Company cannot accurately predict the capital that will be required from
Progress International to implement the Marca-Tel business plan, it estimates
that an additional $45.0 million (and possibly significantly more) will be
required by Marca-Tel from the stockholders of Progress International during
1997-1998. Progress International is considering selling equity interests in
Progress International to one or more third parties who could assist Progress
International with the funding of
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Marca-Tel. However, Progress International has not had any material discussions
in this regard and there can be no assurance that any such funding will be
available on satisfactory terms or at all. The Company is currently, and may
remain, the primary source of funds available to Progress International for
investment in Marca-Tel. Since the ownership interests of the Company and Westel
in Progress International are to be proportional to their respective capital
contributions, the Company's percentage ownership of Progress International, and
therefore its indirect ownership interest in Marca-Tel, could increase if it
makes additional capital contributions. The Indenture contains significant
limitations on the Company's ability to invest in Progress International or
Marca-Tel.
Marca-Tel is deploying three switching centers and a fiber optic route
linking Mexico's three major cities (Mexico City, Monterrey and Guadalajara),
with interconnection to the Company's U.S. network at its border crossing at
Reynosa/McAllen. Marca-Tel has entered into a turn-key contract with a major
international supplier of telecommunications equipment for a portion of this
build that provides for interim vendor financing for the equipment and fiber
purchases as well as a portion of the construction work. The Company anticipates
that Marca-Tel may be able to obtain additional funding through some combination
of the following: (i) offerings of debt or equity securities; (ii) other
incurrences of debt; (iii) joint venture arrangements with third parties; and
(iv) additional vendor financing of equipment purchases. Initially, such sources
of capital likely will not be adequate to meet the needs of Marca-Tel, and the
Company anticipates that, until such sources are adequate to enable Marca-Tel to
continue to pursue its business plan, it will be necessary for Progress
International to fund the shortfall. The Company is not obligated to continue to
fund Progress International; however, if Progress International does not fund
Marca-Tel's needs, the Company's interest in Progress International, and thus
its indirect interest in Marca-Tel, may be diluted or lost entirely. Although
the Indenture generally restricts the amount of funding the Company can provide
Progress International, the Indenture does allow the Company to use the $12.5
million proceeds of the GEPT Private Placement for Progress International (as of
February 28, 1997 approximately $1.1 million of such proceeds remained available
for this purpose). The Indenture also allows the Company to fund Progress
International with the proceeds of certain equity offerings or, under certain
circumstances, with funds raised through debt incurrence or, provided that the
Company meets certain financial ratios, from working capital. No assurance can
be given that adequate funding sources will be available from Progress
International or from third parties to implement Marca-Tel's business plan or,
if implemented, that such business plan will be successful. See
"Business -- Mexican Joint Venture."
The forward-looking statements set forth above with respect to the
estimated cash requirements relating to capital expenditures, the Company's
ability to meet such cash requirements, the Company's ability to service its
debt, the Company's and Westel's ability to fund Marca-Tel and the successful
completion and operation of Marca-Tel's fiber optic system in Mexico are based
on certain assumptions as to future events. Important factors that could
adversely affect the Company's ability to achieve the results discussed above
include that: (i) there will be no significant delays or cost overruns with
respect to the network expansion; (ii) the Company's contractors and partners in
cost-saving arrangements will perform their obligations; (iii) rights-of-way can
be obtained in a timely, cost-effective basis; (iv) the routes of the network
expansion scheduled for completion in 1997 are substantially completed on
schedule; (v) the Company will continue to increase traffic on its switched
network; (vi) the Company can successfully commence service for new switched
long distance services on a cost effective basis (including the provision of
billing information in an accurate and timely manner) for volumes that it has
not previously handled; (vii) the Company can successfully complete the
Preferred Stock Sale, the LCI Fiber Sale and the MCI Fiber Sale; and (viii) the
Company can obtain vendor financing.
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INDUSTRY OVERVIEW
DEVELOPMENT AND REGULATION
The development of the long distance telecommunications industry was
strongly influenced by a 1982 court decree requiring the divestiture by AT&T of
its seven RBOCs and dividing the country into approximately 200 LATAs. The seven
RBOCs were allowed to provide local telephone service, local access service to
long distance carriers and intra-LATA long distance service (service within a
LATA), but were prohibited from providing inter-LATA service (service between
LATAs). The right to provide inter-LATA service was given to AT&T and the other
interexchange carriers, including the LECs that are not RBOCs. The FCC requires
all interexchange carriers to allow the resale of their inter-LATA services to
long distance carriers, and the 1982 court decree substantially eliminated
different access arrangements as distinguishing features among long distance
carriers. These and other legislative and judicial factors have helped smaller
long distance carriers emerge as alternatives to AT&T, MCI and Sprint for long
distance services.
In 1996, the federal government enacted the Telecommunications Act, which,
among other things, allows the RBOCs and others such as electric utilities and
cable television companies to enter the long distance business. The Company
expects that the Telecommunications Act will substantially alter the way in
which the telecommunications industry is regulated. Such changes are, however,
difficult to predict accurately, because the FCC has not yet enacted all of the
numerous regulations necessary to implement the Telecommunications Act. Entry of
the RBOCs or other entities such as electric utilities, cable television
companies or foreign companies into the long distance business may result in
reduced market shares for existing long distance companies and additional
pricing pressure on long distance providers such as the Company. See "Risk
Factors -- Competition," "Risk Factors -- Recent Legislation and Regulatory
Uncertainty" and "Business -- Regulation."
MARKET AND COMPETITION
General. Companies in the domestic long distance market had estimated
revenues of $75.9 billion in 1995. AT&T is the largest long distance carrier,
with an estimated 56.5% of total market revenues in 1995, while MCI and Sprint
had an estimated 19.7% and 9.4%, respectively, of total market revenues in that
year. These three carriers constitute what generally is referred to as the
"first tier" in the long distance market. Medium-sized long distance companies,
some with national capabilities, such as WorldCom, Frontier, Cable & Wireless
and LCI, constitute the "second tier" of the industry and, cumulatively, are
believed to have accounted for approximately 8.9% of total market revenues in
1995. The remainder of the market share is held by smaller companies, which are
known as "third-tier" carriers. The Company provides private line services to
companies in all three tiers and switched long distance services to companies in
the second and third tiers.
According to data included in Long Distance Market Shares, Fourth Quarter
1995, an FCC report issued in March 1996, while long distance revenues grew at a
compound annual rate of over 8% during the period from 1989 through 1995, the
revenues of all carriers other than the first tier grew in the aggregate at a
compound annual rate of over 22% during the same period. The report also stated
that the smaller second-tier and third-tier carriers increased their market
share sixfold over a ten-year period, increasing from less than 3% in 1984 to
more than 17% in 1994. In addition, industry sources estimate that combined
revenues of second-tier and third-tier carriers grew by 17.9% in 1995.
Competition among the Company's customers and other retail long distance
providers for end-user customers is based upon advertising, pricing, customer
service, network quality and value-added services. The Company believes that
AT&T, MCI and Sprint engage in only limited direct sales to small and
medium-sized commercial users, generally focusing on residential and large
commercial accounts, thus creating opportunities for smaller long distance
providers. Industry observers estimate that over 400 smaller companies have
emerged to compete in the long distance business. See "Risk
Factors -- Competition."
Private Line Services. Long distance companies may be categorized as
facilities-based carriers and non-facilities-based carriers. Sellers of private
line services are generally facilities-based carriers that own long distance
transmission facilities, such as fiber optic cable or digital microwave
equipment. The first-tier and
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some second-tier long distance companies are facilities-based carriers offering
private line service nationwide. Facilities-based carriers in the third tier of
the market generally offer private line services only in a limited geographic
area. Customers using private line services include: (i) facilities-based
carriers that require long distance transmission capacity where they have
geographic gaps in their facilities, need additional capacity or require
geographically different alternative routing; and (ii) non-facilities-based
carriers requiring long distance transmission capacity to carry their customers'
long distance traffic. The Company's competitors in the private line business
include AT&T, MCI, Sprint and WorldCom and certain regional carriers. Qwest has
announced its intention to construct a coast-to-coast fiber optic network and
Frontier has announced that it will pay $500.0 million for fibers in Qwest's
network. As such network is completed, Qwest will become a competitor of the
Company, and Frontier may also become a competitor of the Company, in the
private line business. Important competitive factors in the private line
business are price, customer service, network location and quality, reliability
and availability. See "Business -- Private Line Services."
Switched Long Distance Services. Long distance companies may be
characterized as switched or switchless carriers. Sellers of switched long
distance services are generally switched carriers, such as the Company, that own
one or more switches that direct telecommunications traffic. Facilities-based
carriers are generally switched carriers. However, many non-facilities based
carriers (i.e., many long distance resellers) have switches. The Company's
customers are switchless carriers that depend on switched carriers to provide
switched long distance services to their end users. The Company's competitors in
the switched long distance business include AT&T, MCI, Sprint, WorldCom and
Frontier and many non-facilities-based switched carriers. Important competitive
factors in the switched long distance business are customer service
(particularly with respect to speed in delivery of computer billing records and
set-up of new end users with the LECs), ability of the network to complete calls
with a minimum of network-caused busy signals, scope of services offered, price,
reliability and transmission quality.
CALL ROUTING
An inter-LATA long distance telephone call begins with the caller's LEC
transmitting the call by means of its local switched network to a point of
connection with an interexchange carrier. The interexchange carrier, through its
switches and long distance transmission network, transmits the call to the
called party's LEC, which then completes the call over its local facilities. For
each long distance call, the originating LEC charges an access fee. The
interexchange carrier also charges a fee for its transmission of the call, a
portion of which consists of a fee charged by the LEC used to deliver the call.
Under the Telecommunications Act, state proceedings may in certain instances
determine LEC access charge rates. It is uncertain at this time what effect such
proceedings may have on such rates.
The following diagram illustrates the routing of an inter-LATA telephone
call (the diagram assumes the carrier switches are not within the local dialing
areas of either the caller or called party).
[INTER-LATA TELEPHONE CALL DIAGRAM]
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TECHNOLOGY
Long distance voice traffic generally is transmitted through digital
microwave or fiber optic systems. Long distance data traffic is generally
transmitted through fiber optic systems or satellites.
Fiber Optic Systems. Fiber optic systems use laser-generated light to
transmit voice and data in digital format through fine strands of glass. Fiber
optic systems are characterized by large circuit capacity, good sound quality,
resistance to external signal interference and direct interface with digital
switching equipment. A pair of modern fiber optic strands, using current
technology, is capable of carrying 192 DS-3s, or over 129,000 simultaneous
telephone calls. Because fiber optic signals disperse over distance, they must
be regenerated at sites located along the fiber optic cable (on older fiber
optic systems the interval is 20 to 25 miles; on newer systems that utilize
modern fiber optic cable and splicing methods, such as will be used in the
network expansion, it is approximately 50 to 75 miles).
Microwave Systems. Although limited in capacity in comparison with fiber
optic systems (generally, no more than 28 DS-3s can be transmitted by microwave
between two antennae), digital microwave systems offer an effective and reliable
means of transmitting voice and data signals over intermediate and longer
distances. Microwaves are very high frequency radio waves that can be reflected,
focused and beamed in a line-of-sight transmission path. Because of their
electro-physical properties, microwaves can be used to transmit signals through
the air, with relatively little power. To create a communications circuit,
microwave signals are transmitted through a focusing antenna, received by an
antenna at the next station in the network, then amplified and retransmitted.
Because microwaves attenuate as they travel through the air, this transmission
process must be repeated at repeater stations, which consist of radio equipment,
antennae and back-up power sources, located on average every 25 miles along the
transmission network. As of December 31, 1996, the remaining net depreciated
book value of the Company's microwave equipment was less than 3% of total
assets.
Satellites. An alternative method of transmitting telecommunications
traffic is through satellite transmission. Satellite transmission is superior to
fiber optic transmission for distribution communications, for example, video
broadcasting. Although satellite transmission is not preferred to fiber optic
transmission for voice traffic in most parts of the United States because it
exhibits a slight (approximately one-quarter-second) time delay, such delay is
not important for many data-oriented uses. In the event the market for data
transmission grows, the Company will compete with satellite carriers in such
market.
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BUSINESS
COMPANY OVERVIEW
The Company provides two principal services to long distance companies: (i)
transmission of voice and data over dedicated circuits ("private lines"); and
(ii) switched long distance services. The Company is one of only five carriers
that currently own a digital telecommunications network extending from
coast-to-coast (the other carriers are AT&T, MCI, Sprint and WorldCom). As of
February 28, 1997, the Company's network included approximately 10,000 digital
route miles, containing over 96,000 fiber miles (excluding fibers as to which
the Company has sold or exchanged long-term rights to use). Its facilities
include five long distance switches located in Los Angeles, Dallas, Chicago,
Philadelphia and Atlanta and ten Frame Relay-ATM switches located in major
cities.
The Company had revenues of $203.8 million for 1996, with approximately
$99.8 million generated by its private line business and approximately $104.0
million generated by its switched services business. The Company has private
line circuit contracts with over 200 long distance carriers, including AT&T,
MCI, Sprint, WorldCom, Cable & Wireless, Frontier and LCI. The Company also
provides private line transmission service to customers after contract
expiration on a month-to-month basis. Pursuant to the Company's private line
contracts, customers are required to make fixed monthly payments, generally in
advance. Many of such contracts contain substantial "take or pay" commitments.
The Company has historically enjoyed a high customer retention rate in its
private line business.
The Company expanded into the business of selling switched long distance
services to long distance resellers in order to complement its private line
business and to capitalize on its ability to provide switched services over its
own network. Switched long distance services are telecommunications services
that are processed through the Company's digital switches and carried over long
distance circuits and other transmission facilities owned or leased by the
Company. The Company sells switched long distance services on a per-call basis,
charging by minutes of use ("MOUs"), with payment due monthly after services are
rendered. The Company's switched network became fully operational in February
1996.
The Company has switched long distance services contracts with over 70 long
distance resellers. Excel, the Company's largest customer of switched long
distance services, is contractually obligated to continue to utilize a minimum
of 70 million minutes of traffic per month until reaching total usage of 4.2
billion minutes (subject to Excel's right to reduce or terminate its commitment
under certain circumstances), of which approximately 3.3 billion minutes
remained as of February 28, 1996. The Company's switched long distance business
has grown rapidly, with Excel accounting for most of the growth. The Company's
switched long distance revenues amounted to approximately $104.0 million for
1996, with $3.6 million in the first quarter, $19.0 million in the second
quarter, $35.3 million in the third quarter and $46.1 million in the fourth
quarter. The Company plans to continue to expand the capabilities of the
switched network in 1997 to meet customer demand by adding additional equipment,
including at least three long distance switches anticipated to be located in
Fresno, California, Joplin, Missouri and New York. See "Business -- Switched
Long Distance Services." The Company believes that it is well-positioned to
continue to attract long distance resellers as customers for its switched long
distance services because: (i) it is not currently a significant competitor for
sales to end users; and (ii) it provides more focused service to its reseller
customers, since servicing such customers is its primary business, unlike its
major competitors whose main business is selling retail long distance service to
end users in competition with their reseller customers.
The Company's primary business objectives over the near term are: (i) to
continue to increase revenue from its switched long distance services business;
(ii) to complete a substantial portion of the network expansion in 1997; and
(iii) to utilize its expanded network to increase its revenues and
profitability.
Because of geographic limitations and capacity constraints, the Company
currently supplements its own facilities with a significant amount of fiber
capacity obtained from other carriers. The Company is currently engaged in a
major expansion of its network, to increase the Company's geographic scope and
network capacity. Prior to beginning construction of the network expansion in
late 1995, the Company owned a coast-to-coast network containing over 1,700
route miles of fiber optic cable and over 5,000 route miles of
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digital microwave. The network expansion includes routes planned: (i) from New
York to Los Angeles via Cleveland, Chicago, St. Louis, Dallas and Phoenix; (ii)
from Los Angeles to San Francisco; (iii) from New York to Houston via Atlanta;
and (iv) from Houston to Dallas. These routes would add over 7,180 route miles
to the Company's network. As of February 28, 1997, over 3,300 route miles of the
network expansion were complete.
The network expansion is expected to deliver significant strategic and
financial benefits to the Company through:
(i) producing substantial savings by allowing the Company to move a
portion of its excess private line traffic from leased circuits on the
networks of other carriers to its own expanded network;
(ii) providing high-capacity new routes and substantially increasing
the capacity of certain existing routes, allowing the Company to increase
revenues by leasing additional circuits to its customers, including
high-capacity circuits such as OC-48's, OC-12's and OC-3's;
(iii) allowing the Company to improve profitability in its switched
long distance services business by reducing its underlying transmission
costs; and
(iv) creating sufficient capacity to support increased demand which
may result from Internet and multimedia applications, Frame Relay and ATM.
The Company plans to meet the costs of the routes from New York to Los
Angeles via St. Louis and from New York to Houston via Atlanta with cash on
hand, the proceeds of this Offering, the proceeds from the Preferred Stock Sale,
the proceeds from the LCI Fiber Sale and the MCI Fiber Sale, additional
cost-saving arrangements, cash flow from its operations and vendor financing it
may seek. The Company is reducing the per-route-mile cost of these routes
through fiber sales to LCI and MCI, fiber exchange arrangements with WorldCom
and Vyvx and joint construction arrangements with other carriers.
In 1996 the Company began equipping its network with the data switches and
other equipment necessary to enter into the Frame Relay and ATM transmission
business. This equipment, in connection with the network expansion and
additional equipment and software to be installed in 1997, should allow the
Company to enter into the business of Frame Relay and ATM transmission for
Internet and Intranet providers and other large users of data capacity. The
Company began beta-testing such facilities in late 1996 and will begin such
services in the first half of 1997. Although such services will not be a
significant source of revenues in 1997, the Company expects that the market for
such high-capacity data uses will grow substantially in the future along with
the expected growth of Internet and Intranet use. To position itself to benefit
from such growth, the Company seeks to establish itself as a high quality
provider of choice of these services.
During the last six months, the Company continued to sign contracts with
new and existing customers for switched long distance services and private line
services. During this period, Excel's usage of the Company's network increased
substantially above its 70 million minute per month minimum. In addition, the
Company entered into a significant agreement with a major long distance carrier
that will obtain private line services from the Company. Under this contract the
Company will supply DS-3 circuits for aggregate revenues of over $24.0 million
during 1997-1998. The Company also entered into an interconnection agreement
with Bell Atlantic that will facilitate its entry into the data communications
business.
In February 1997, MSCAP and GEPT, the Company's largest stockholder, agreed
to purchase $100.0 million of the Convertible Preferred Stock of the Company.
The Convertible Preferred Stock will be convertible into Common Stock at a price
of $38.40 per share. The transaction is subject to customary closing conditions,
and is expected to close in March 1997.
Over 3,300 route miles of the network expansion had been completed through
February 28, 1997. The Company has entered into several agreements with other
carriers that will result in reductions or offsets to its per-route-mile cost of
construction, including:
(i) a contract with LCI pursuant to which LCI will purchase an
indefeasible right to use fibers from Chicago to Los Angeles for
approximately $97.9 million;
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(ii) a contract with MCI pursuant to which MCI will purchase an
indefeasible right to use fibers from Los Angeles to New York for
approximately $121.0 million. This contract replaces a $20.0 million lease
contract with MCI for OC-48 capacity announced in January 1997;
(iii) a contract with Vyvx to exchange the use of certain fibers on
the Company's New York to Los Angeles route for the use of fibers on a
1,600-mile route Vyvx is constructing from Washington, D.C. to Houston;
(iv) joint construction contracts with other carriers: LCI
(Youngstown, Ohio -- Toledo), DTI (Anderson, Missouri -- Kansas City), and
CCTS (Riverdale, Illinois -- Chicago). These arrangements allow the Company
and the other carriers to share the costs of construction of these routes;
(v) a contract with MFS, a recently acquired subsidiary of WorldCom,
pursuant to which MFS will include fibers for the Company in a route MFS is
constructing from Cleveland through upstate New York to New York City. This
route, which replaces a previously planned Company route from Cleveland to
Philadelphia, will substantially increase the scope of the Company's
network by including cities in upstate New York, bring the network to
Albany (which may facilitate a future extension to Boston), and provide
many additional fibers into New York City; and
(vi) other contracts providing for the Company to sell another carrier
the use of fibers in routes the Company is constructing: GST (Phoenix to
the Arizona-New Mexico border) and WorldCom (Phoenix -- Las Vegas).
In January 1997, the Company entered into agreements to purchase two long
distance companies, LDS, a switchless reseller with 1996 revenues of
approximately $30.0 million, and Telecom One, a switchless reseller with 1996
revenues of approximately $8.0 million. The consideration for these acquisitions
will be Common Stock of the Company. The Company expects to complete these
acquisitions in 1997 upon the satisfaction of certain conditions, including
receipt of regulatory approvals. For a description of how many shares of Common
Stock will be issued pursuant to these acquisitions, see "-- Acquisitions."
The principal executive offices of IXC Communications are located at 5000
Plaza on the Lake, Suite 200, Austin, Texas, 78746 and its telephone number is
(512) 328-1112.
BUSINESS STRATEGY
The Company's primary business objectives over the near term are: (i) to
continue to increase revenue from its switched long distance services business;
(ii) to complete the route from New York to Los Angeles via St. Louis and a
substantial portion of the route from New York to Houston via Atlanta in 1997;
and (iii) to utilize its expanded network to increase its revenues and
profitability.
The key elements of the Company's strategy to achieve these objectives are:
Reducing Costs. The Company seeks to achieve substantial cost savings
through the network expansion by reducing the amount of capacity it would
otherwise obtain from other carriers. The Company incurred costs (including
through non-cash capacity exchanges) of $60.1 million for off-net fiber optic
capacity from other carriers for 1996. In the event the Company achieves revenue
growth in the private line business or the switched long distance business, its
usage of long distance transmission capacity (including capacity leased from
other carriers) will increase. The Company believes the network expansion will
enable it to reduce expenditures for capacity now leased off-net (and to reduce
the additional expenses for leasing capacity that would otherwise be required to
support revenue growth) and thereby increase its operating cash flow, because
the new fiber routes: (i) should carry much of the traffic that would otherwise
be transmitted over off-net circuits and (ii) may enable the Company to enter
into additional exchanges of fiber capacity with other carriers. See "-- The
Company's Network" and "Risk Factors -- Risks Relating to Completion of the
Network Expansion."
Increasing Private Line Revenues. The Company's ability to expand its
private line business has previously been limited because the existing network
owned by the Company is geographically limited and because the digital microwave
portion of its network has been utilized at or near its maximum practical
capacity. The Company seeks through the network expansion to install
high-capacity new routes and substantially increase the capacity of certain
existing routes, allowing the Company to lease additional circuits to its
customers, including high-capacity circuits such as OC-48's, OC-12's and OC-3's.
The network
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expansion has already enabled the Company to obtain significant orders for
capacity on the new routes. The Company entered into a contract in September
1996 with a major long distance carrier for the Company to provide DS-3
circuits, each with a one-year term, principally along the route from New York
to Los Angeles via St. Louis. The carrier has ordered circuits under the
contract for aggregate revenue in excess of $24.0 million during 1997-1998. The
Company continues to seek significant new orders over the network expansion
routes and believes that it is well positioned to obtain such orders.
Establishing a Platform for Capacity-Intensive Data Applications. The
Company is using advanced fiber optic technology in the network expansion. The
expanded network will have SONET technology and the broadband capabilities to
provide a platform to support advanced, capacity-intensive products such as
Frame Relay, ATM, multimedia and Internet related applications. In 1996 the
Company began equipping its network with the data switches and other equipment
necessary to enter into the Frame Relay and ATM transmission business. This
equipment, in connection with the network expansion and additional equipment and
software to be installed in 1997, should allow the Company to enter into the
business of Frame Relay and ATM transmission for Internet and Intranet providers
and other large users of data capacity. The Company began beta-testing with such
facilities in late 1996 and will begin offering such services in the first half
of 1997. Although such services will not be a significant source of revenues in
1997, the Company expects that the market for such high-capacity data uses will
grow substantially in the future along with the expected growth of Internet and
Intranet use. To position itself to benefit from such growth, the Company seeks
to establish itself as a high quality provider of choice of these services. The
Company entered into an interconnection agreement with Bell Atlantic in late
1996 that will facilitate its entry into the data services business. See "-- The
Company's Network" and "Risk Factors -- Development Risks of the Frame Relay and
ATM Transmission Business."
Providing Backup Routing for Major Carriers. An area of growth in certain
markets for the Company in recent years has been the provision of circuits to
facilities-based carriers such as AT&T, MCI, Sprint and WorldCom (the other four
companies that currently own coast-to-coast digital networks), to be used as
alternative routes by such carriers in the event of a service outage. Such
companies prefer alternative routes separated geographically from their routes
to increase the possibility that the alternative route will be functional in the
event of a natural disaster. The Company has planned the network expansion to be
separated geographically as far as practicable from the existing fiber routes of
such carriers. The Company believes that the network expansion, with the
resulting significant increase in fiber optic geographic coverage and capacity,
will greatly increase the attractiveness of the Company's network as alternative
routing to certain major carriers as a backup to their own networks.
Capitalizing on Excel Relationship. The Company views Excel as the "anchor
tenant" of its switched network, providing the Company with significant traffic
volumes on which to base its entry into the switched long distance services
business. The Company seeks to maintain and increase its level of traffic from
Excel, which currently obtains the bulk of the switched long distance services
it requires from other carriers, through customer service, network quality and
geographic availability. See "-- Switched Long Distance Services -- Customers
and Marketing." Excel entered into a four-year, $900.0 million contract to
purchase switched long distance services from WorldCom and a two-year, $120.0
million contract to purchase switched long distance services from MCI. Although
the Company believes that Excel's commitments to WorldCom, MCI and its other
suppliers will not impair Excel's relationship with the Company, WorldCom and
MCI will be significant competitors for Excel's business. See "Risk
Factors -- Reliance on Major Customers."
Establishing Other Long-Term Relationships. The Company seeks to establish
a dependable revenue stream through long-term relationships with its customers.
The Company has private line contracts (generally on a long-term basis) with
over 200 long distance carriers, including AT&T, MCI, Sprint, WorldCom, Cable &
Wireless, Frontier and LCI. The Company has historically enjoyed a high customer
retention rate in its private line business. Although the Company's switches
first became fully operational in the first quarter of 1996, the Company has
already entered into contracts with over 70 long distance resellers.
Providing an Automated Software Interface. The Company seeks to increase
its attractiveness to existing and potential customers of switched long distance
services by providing a sophisticated automated interface to
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the Company's computer system through its proprietary IXC Online software.
Utilizing IXC Online, customers are able to access up-to-date information
regarding their end-user customers and the calls made by such end-users. IXC
Online is designed to allow each of the Company's carrier customers to: (i)
download call detail records for its end-users for billing purposes; (ii)
arrange with the appropriate LEC to register the carrier as the designated long
distance carrier for its new end-users; and (iii) file trouble reports for
resolution.
Acting as an Alternative Switched Long Distance Services Provider. The
Company believes that it is well positioned to attract long distance resellers
as customers for its switched long distance services because: (i) it is not
currently a significant competitor for sales to end users; and (ii) it provides
more focused service to its reseller customers, since servicing such customers
is its primary business, unlike its major competitors (AT&T, MCI, Sprint,
WorldCom and Frontier) whose main business is selling retail long distance
service to end-users in competition with their reseller customers. See
"-- Switched Long Distance Services" and "Risk Factors -- Development Risks and
Dependence on Switched Long Distance Business."
Acquisitions. As part of its growth strategy, the Company has agreed to
acquire LDS and Telecom One and may, from time to time, acquire businesses,
assets or securities of companies which it believes provide a strategic fit with
its business and network. Although the Company currently has no commitments or
agreements with respect to any possible acquisitions other than with LDS and
Telecom One, it has reviewed potential acquisition candidates and has held
preliminary discussions with a number of these candidates. The Company will use
shares of its Common Stock as consideration for the LDS and Telecom One
acquisitions and may use Common Stock as consideration for other acquisitions.
See "-- Acquisitions" and "Risk Factors -- Acquisition Risks."
THE COMPANY'S NETWORK
Services
The Company provides two basic services: (i) private line services; and
(ii) switched long distance services. In addition, the Company is entering into
the business of providing data services.
Private Line Services. A private line is an unswitched telecommunications
transmission circuit used by customers, such as non-facilities-based carriers
that have switches but do not own transmission facilities, to transport their
traffic between LATAs. Calls being transmitted over a private line circuit for a
carrier customer are generally routed by the customer through a switch to a
receiving terminal in the Company's network. The Company transmits the signals
over a private line to the terminal where the signals exit the Company's
network. The signals are generally then routed by the carrier customer through
another switch and to the call recipient through a LEC. The Company typically
bills carrier customers a fixed monthly rate depending on the capacity and
length of the circuit, regardless of the amount the circuit is actually used.
See "-- Private Line Services."
Switched Long Distance Services. Switched long distance services are
telecommunications services such as residential and commercial long distance
service that involve processing calls through the switches of a carrier. Among
the Company's switched long distance services product offerings are two basic
services: (i) call origination and termination services and (ii) call
termination services. For non-facilities-based carriers such as switchless
carriers, the Company provides call origination and termination. This generally
includes: (i) arranging with the caller's LEC to connect the call to the
Company's switching center (this is referred to as "origination") and (ii)
transmitting the call to another Company switching center or a hub connecting
the call to the recipient's LEC and arranging with the LEC to connect the call
to the recipient (this is referred to as "termination"). Other customers (for
example, non-facilities based carriers with regional switches in certain areas
but not in others) require termination but not origination services. In this
case, the customer delivers a call to the Company's switching center and the
Company transmits the call to the recipient's LEC, which then terminates the
call. The Company typically bills the customer at a variable rate depending on
the duration, day and time of day of the call and whether the call is
intrastate, interstate or international. See "-- Switched Long Distance
Services."
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Data Services. Data services are telecommunications services such as ATM
and Frame Relay that provide high-speed transmission of data. The Company will
offer these services to carriers for resale to end users. Although the Company
is still beta-testing its data services facilities, when these facilities are in
commercial use the Company intends to bill customers for data services generally
at a variable rate depending on usage.
Facilities
The Company is one of only five carriers that currently owns a
coast-to-coast digital network. As of February 28, 1997, the Company's network
included approximately 10,000 route miles (containing over 96,000 fiber miles).
Prior to beginning construction of the network expansion in late 1995, the
Company owned a coast-to-coast network containing over 1,700 route miles of
fiber optic cable and over 5,000 route miles of digital microwave. As of
February 28, 1997, the Company and its partners in cost-saving arrangements had
substantially completed over 3,300 fiber route miles of the network expansion.
See the map depicting the network on the inside front cover of this Prospectus.
The Company's own facilities are supplemented with over 200,000 DS-3 miles
of fiber capacity obtained from other carriers. Of such capacity, over 161,000
DS-3 miles are leased by the Company. Approximately 39,000 DS-3 miles of such
capacity are obtained by the Company through long-term capacity-exchange
agreements with MCI and WorldCom whereby the Company trades capacity or fibers
on its fiber network for capacity on the other carriers' networks. In addition,
the Company has recently entered into agreements with CCTS and LCI to exchange
OC-48 capacity on certain routes. The Company has been able to negotiate these
significant exchange agreements because of the placement of the Company's
existing networks in locations where other facilities-based carriers require
additional capacity and the comparatively large expense to such other carriers
of constructing new fiber optic facilities. Such exchange agreements increase
the scope of the Company's network through the addition of the exchanged
capacity while reducing the Company's cash expenditures for off-net facilities.
The Company's network includes five digital switches located in Los
Angeles, Dallas, Chicago, Philadelphia and Atlanta, each directly connected over
either on-net or off-net private line circuits: (i) to at least two other
switching centers; (ii) to certain of the Company's over 50 Hubs (local
connection points); and (iii) to certain LEC Central Office switches. The
Company plans to install additional switches in 1997 in Fresno, California,
Joplin, Missouri and New York. The Hubs are connected (generally by off-net
circuits) to LEC Central Office switches, which in turn are connected to
end-user telephone lines. The switches utilize common channel signaling (SS7),
which reduces connect time delays and directs calls using least-cost routing.
The Company's network also includes ten Frame Relay-ATM data switches located in
major cities. The Company's switched operations are supplemented by agreements
with Allnet and WorldCom. Under such agreements, Allnet and WorldCom supply
switched capacity to the Company on a per-minute basis, automatically handling
calls routed through LEC Central Offices not connected to the Company's Hubs or
switches and calls which exceed the capacity of the Company's switched network.
The capacity of the Company's switches may be expanded with processor
upgrades, additional memory and ports. The Company plans to add more ports and
other equipment for its existing switches and to add additional switches as
required to accommodate customer demand. While the Company cannot yet ascertain
the capital cost of such ports, additional equipment and switches, the Company
anticipates that it will be able, subject to certain restrictions under the
Indenture, to obtain such equipment under capital leases.
Network Reliability
The Company's network offers a reliable means of transmitting large volumes
of voice and data signals. To assist in providing reliable and high-quality
transmission service, all important functions of the network are monitored
during regular business hours from regional operations centers in Columbus,
Kansas City, Fort Worth and Tucson. Thereafter, monitoring is conducted from the
Company's national operations center in its Austin headquarters. The national
center also provides overall system monitoring on a 24-hour basis. This system
alerts the Company to situations which could affect customer transmission and
generally allows the
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Company to take remedial actions before customer service is affected. In
addition, at December 31, 1996, the Company employed approximately 34 operations
personnel who are based along the network to perform preventative maintenance as
well as repair functions on its private line network. Company operations
personnel conduct annual system performance testing and make periodic
unannounced visits to terminal sites to evaluate technician performance. At
December 31, 1996, the Company maintained a staff of 21 technicians to provide
maintenance and other technical support services for switched long distance
services.
Network Expansion
In 1995 the Company undertook a significant increase in its network. The
Company believes the network expansion will improve its profitability and cash
flow by improving its cost of communications services as it moves traffic onto
facilities it owns and increasing its revenues by allowing the lease of
substantial additional private line capacity. The network expansion is planned
to add thousands of additional fiber route miles to increase the geographic
scope and capacity of the Company's previously existing network. It will connect
the Company's switches with high-capacity private line circuits, utilizing
advanced fiber optic technology capable of efficiently transmitting
capacity-intensive services, such as Internet, Intranet and multimedia
applications, Frame Relay and ATM. The routes of the network expansion are
planned to be generally geographically diverse from the existing fiber networks
of AT&T, MCI, Sprint and WorldCom.
In 1996 the Company began equipping its network with the data switches and
other equipment necessary to enter into the Frame Relay and ATM transmission
business. This equipment, in connection with the network expansion and
additional equipment and software being installed in 1997, should allow the
Company to enter into the business of Frame Relay and ATM transmission for
Internet and Intranet providers and other large users of data capacity. The
Company began beta-testing such facilities in late 1996 and will begin offering
such services in the first half of 1997. Although such services will not be a
significant source of revenues in 1997, the Company expects that the market for
such high-capacity data uses will grow substantially in the future along with
the expected growth of Internet and Intranet use. To position itself to benefit
from such growth, the Company seeks to establish itself as a high quality
provider of choice of these services.
The Company estimates that the network expansion will produce additional
cost savings by supporting growth in its private line and switched long distance
businesses which would otherwise require significant off-net capacity usage. The
network expansion will enable the Company to avoid increased expenditures for
leasing off-net capacity because the new fiber routes: (i) should carry much of
the traffic that would otherwise be transmitted over off-net circuits and (ii)
may enable the Company to enter into additional exchanges of fiber capacity with
other carriers. In this way, the Company seeks to improve cash flow through
increasing revenues and improving certain costs. The network expansion has
already enabled the Company to obtain significant orders for capacity on the new
routes. The Company entered into a contract in September 1996 with a major long
distance carrier for the Company to provide DS-3 circuits, each with a one-year
term, principally along the new route from New York to Los Angeles via St.
Louis. The Company will supply circuits under the contract for aggregate
revenues in excess of $24.0 million during 1997-1998. The Company continues to
seek significant new orders over the network expansion routes and believes that
it is well positioned to obtain such orders.
Construction. The Company has planned the network expansion to cover, to
the greatest extent practicable, routes where one or more of the following
factors are present: (i) customer demand indicates a need for high-capacity
fiber network on the route; (ii) the route is attractive as a complement to the
routes of other carriers, which may enable the Company to lease its new capacity
on the route to other carriers or exchange a portion of its new capacity on the
route for capacity from other carriers; or (iii) the capacity will replace
capacity leased by the Company from other carriers. At the time of the Company's
IPO in July 1996, the Company had planned to construct the network expansion in
two phases: Phase I from Philadelphia through Chicago, Dallas and Phoenix to Los
Angeles and Phase II from New York to Houston along with additional spurs to the
Phase I route. The Company's plans for the network expansion routes and the
scheduled completion of such routes have changed because the Company has been
successful in selling capacity on certain uncompleted routes and in entering
advantageous cost-saving arrangements and because of certain delays in
constructing portions of the planned routes. The most significant route changes
made include
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(i) acceleration of the Joplin, Missouri to Kansas City route originally planned
for Phase II because significant new capacity on the route has been ordered by
the Company's customers; (ii) replacement of the Akron-Pittsburgh-Philadelphia
route with a Cleveland-upstate New York-New York City route because of a
cost-saving arrangement with MFS through which MFS will include fibers for the
Company in the route which MFS is constructing for its own use, and (iii)
acceleration of the Washington, D.C. to Houston route originally planned for
Phase II because, pursuant to the cost-saving arrangement entered into with
Vyvx, Vyvx will construct such route (at no cash cost to the Company other than
the costs of electronics to equip the route) for the Company in exchange for
fibers elsewhere on the Company's network.
Although such changes in the planned routes make exact comparisons
impossible, the Company believes that the network expansion is progressing well,
without significant delays or cost overruns. The Cleveland to Phoenix portion of
the route from New York to Los Angeles via St. Louis is now complete. In
addition, to meet customer demand, the Company has augmented that route to
include: (i) a Kansas City to Joplin, Missouri route and other routes not
originally planned for Phase I; and (ii) substantially more electronics than
originally planned. The New York to Cleveland portion of the network expansion
is scheduled for completion in the fourth quarter of 1997. The Phoenix to Los
Angeles portion of the network expansion is also scheduled for completion in
1997.
The Company presently plans to complete the network expansion along the
following routes (the routes and expected delivery dates are subject to change):
(i) One route will consist of a fiber optic route to supplement the
Company's existing New York-Los Angeles route, which consists primarily of
digital microwave facilities which are now used to capacity. This
coast-to-coast route is to extend from New York City to Los Angeles over
new fiber optic cable through upstate New York, Cleveland, Chicago, St.
Louis, Dallas and Phoenix. This route, much of which is already complete,
is scheduled for completion in 1997.
(ii) An additional route is now under construction from New York via
Washington and Atlanta to Houston. The Washington-Houston portion of the
route will be constructed by Vyvx and is scheduled for completion by the
end of 1997. The portion of the route from New York City to Washington,
D.C. is also scheduled to be completed by the end of 1997.
(iii) Routes are also planned for later construction from Los Angeles
to San Francisco, from Houston to Dallas, from Toledo to Detroit, and from
South Bend to Chicago.
Additional routes will be added to the network expansion as opportunities
for advantageous cost sharing or exchange arrangements arise or as customer
demand requires.
The Company plans generally to light initially only four of the new fibers
in the route from New York to Los Angeles via St. Louis and the route from New
York to Houston via Atlanta (which will add an aggregate of approximately
350,000 DS-3 miles to the Company's network). Certain of the remaining fibers
will be reserved and used as a platform to support emerging capacity-intensive
data and multimedia applications. The Company intends to light additional fibers
as needed in the future and may use the other additional fibers for sale or
exchange arrangements. See "-- Business Strategy" and "Risk Factors -- Risks
Relating to the Network Expansion."
A portion of the network expansion is being constructed in connection with
an agreement entered into with WorldCom (the "WorldCom Fiber Build Agreement").
Pursuant to this agreement, each company is constructing a fiber route
approximately 1,100 miles long and placing fibers for both companies in the
route. WorldCom's route extends from Akron through Indianapolis to a suburb of
St. Louis, with a spur from Indianapolis to a suburb of Chicago. The Company's
route extends from Dallas to Phoenix. Each party will maintain the fiber in its
route at no cost to the other party. This arrangement will result in substantial
savings for the Company as compared to constructing both routes by itself.
In December 1996, the Company entered into an agreement with Vyvx whereby
the Company will provide Vyvx with the use of fibers from Los Angeles to New
York City in exchange for the use of fibers from Houston to Washington, D.C. The
parties are required to complete their routes by December 31, 1997, with
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penalties taking effect in July 1998 if one party, but not the other, has failed
to complete its route. Although the Company anticipates that it will complete
its route in time to avoid any penalty, there can be no assurance in this
regard. Such penalties increase from $400,000 per month commencing July 1998 to
$800,000 per month commencing October 1998.
The Company has entered into several additional agreements with others that
will result in reductions to its per-route-mile cost of construction, including:
(i) the LCI Fiber Sale pursuant to which LCI will purchase an
indefeasible right to use fibers from Chicago to Los Angeles for
approximately $97.9 million;
(ii) the MCI Fiber Sale pursuant to which MCI will purchase an
indefeasible right to use fibers from Los Angeles to New York for
approximately $121.0 million. This contract replaces a $20.0 million lease
contract with MCI for OC-48 capacity announced in January 1997;
(iii) a contract with Vyvx to exchange the use of certain fibers on
the Company's New York to Los Angeles route for the use of fibers on a
1,600-mile route to be constructed by Vyvx from Washington, D.C. to
Houston;
(iv) joint construction contracts with other carriers: LCI
(Youngstown, Ohio -- Toledo), DTI (Anderson, Missouri -- Kansas City), and
CCTS (Riverdale, Illinois -- Chicago). These arrangements allow the Company
and the other carriers to share the costs of construction of these routes;
(v) a contract with MFS, a recently acquired subsidiary of WorldCom,
pursuant to which MFS will include fibers for the Company in a route MFS is
constructing from Cleveland through upstate New York to New York City. This
route, which replaces a previously planned Company route from Cleveland to
Philadelphia, will substantially increase the scope of the Company's
network by including cities in upstate New York, bring the network to
Albany (which may facilitate a future extension to Boston), and provide
many additional fibers into New York City; and
(vi) other contracts providing for the Company to sell another carrier
the use of fibers in routes the Company is constructing: GST (Phoenix to
the Arizona-New Mexico border) and WorldCom (Phoenix -- Las Vegas).
Cost. The principal components of the cost of the network expansion will
include: (i) fiber optic cable; (ii) engineering and construction; (iii)
electronics; and (iv) rights-of-way. The rights-of-way will be provided pursuant
to long-term leases or other arrangements (some of which may provide for
substantial continuing payments) entered into with railroads, highway
commissions, pipeline owners, utilities or others. Although the Company has not
yet obtained all the necessary rights-of-way along the planned routes, the
Company anticipates that the rights-of-way will be available.
Through the WorldCom Fiber Build Agreement, the Vyvx fiber exchange and the
other cost-saving arrangements described above, the Company has reduced its
expected cost of the network expansion. The Company seeks to enter into
additional cost-saving arrangements such as: (i) including additional fibers in
the network expansion for lease or sale to other carriers; (ii) exchanging
excess fibers or capacity on the Company's expanded network for excess fibers or
capacity on other carriers' networks; and (iii) obtaining the right to install
Company-owned fibers in new fiber optic routes being constructed by other
carriers along the proposed network expansion routes in exchange for the Company
(a) sharing construction costs with the other carrier, (b) allowing the other
carrier to use excess Company fiber elsewhere in the Company's network, or (c)
allowing the other carrier to add its own fibers to segments of the network
expansion. See "Risk Factors -- Negative Cash Flow and Capital Requirements."
The Company has had experience with arrangements of this type with several major
carriers, including MCI, Sprint, Cable & Wireless, WorldCom and LCI.
The Company anticipates that the routes from New York to Los Angeles via
St. Louis and from New York to Houston via Atlanta will cost approximately
$310.0 million (taking into account the effect of cost-saving arrangements it
has already entered into). After deducting the net proceeds of the LCI Fiber
Sale and the MCI Fiber Sale, the net cost of these routes will be less than
$120.0 million or approximately
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$19,000 per route mile. The Company will seek to meet the remaining costs of the
1997 and 1998 network expansion through: (i) cash on hand; (ii) the proceeds of
this Offering; (iii) the proceeds from the Preferred Stock Sale; (iv) the
proceeds of the LCI Fiber Sale, the MCI Fiber sale or other fiber sales; (v)
additional cost-saving arrangements; (vi) cash flow from its existing
operations; (vii) increased cash flow resulting from reduced off-net capacity
costs as segments of the network expansion are completed; (viii) if the Company
is able to successfully develop the switched-products business, increased cash
flow from the switched-products business; and (ix) vendor financing the Company
may seek. In the event no other cost-saving arrangements are entered into, and
the sources of cash referred to above are not available as soon as desired, the
Company anticipates that, to complete the network expansion, it will be
necessary either: (i) to meet the remaining costs through a combination of debt
or equity funding (subject to the restrictions set forth in the Indenture); or
(ii) to slow or delay the construction until sufficient funds are available.
There can be no assurance that sufficient cash will in fact be available from
the sources listed above. See "-- The Company's Network," "-- Business
Strategy," "Risk Factors -- Negative Cash Flow and Capital Requirements," "Risk
Factors -- Risks Relating to the Network Expansion," "Risk
Factors -- Substantial Indebtedness," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Construction Management. The Company's management and staff have
substantial experience in the construction of long-haul telecommunications
systems. The Company's existing nationwide digital network including 3,300 miles
of fiber optic cable completed as part of the network expansion and its 346-mile
Texas fiber network constructed in 1993, were engineered and constructed by the
Company. The completed segments of the network expansion and Texas fiber network
incorporated modern fiber optic cable and SONET optronics. In addition, the
Company successfully closed contracts on its Texas fiber network with AT&T, MCI
and Sprint after such companies carefully reviewed the Company's engineering and
operations capabilities. The Company believes that its experienced engineering
and operations management and staff have the requisite skills and experience to
successfully complete the network expansion.
PRIVATE LINE SERVICES
Overview
Substantially all of the Company's 1995 revenues, approximately 49% of its
revenues in 1996 and approximately 37% of its revenues in the fourth quarter of
1996 were generated by its private line business. The Company has private line
circuit contracts with over 200 long distance carriers.
Strategy
The Company is seeking to increase revenues in its private line business
through meeting these primary objectives: (i) expanding its network to provide
additional capacity on its existing routes and high-capacity new routes to
provide access to major population centers (including routes which may be
attractive to major carriers as backup routes); (ii) providing high-quality,
reliable private line services on a fixed-cost basis at rates generally below
those currently offered by AT&T and competitive with those offered by other
carriers; and (iii) using the expanded network as a platform to support
increased private line circuit demand which may result in the future from Frame
Relay, ATM, multimedia, Internet and other capacity-intensive applications.
The Company is seeking to decrease expenses in its private line business
through the network expansion, which the Company anticipates will allow it to
move traffic from circuits leased from other carriers to its own network.
Customers and Marketing
The Company has private line contracts with over 200 long distance
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, Frontier and
LCI. The Company also provides private line transmission to customers after
contract expiration on a month-to-month basis. The Company's private line
contracts provide for fixed monthly payments, generally in advance. Many of such
contracts contain substantial "take or pay" commitments. The Company has
historically enjoyed a high customer retention rate in its private line
business.
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The Company markets its private line circuit capacity generally to: (i)
facilities-based carriers that require private line capacity where they have
geographic gaps in their facilities, need additional capacity or require
geographically different, alternative routing; and (ii) non-facilities-based
carriers requiring private line capacity to carry their customers' long distance
traffic. The Company focuses most of its direct sales efforts on providing
customer support services to existing customers and on adding new customers. The
Company's long-haul circuit sales force at December 31, 1996 consisted of ten
account managers based at the Company's headquarters in Austin and at direct
sales offices in or near Washington, D.C., New Haven, San Francisco, Kansas
City, Chicago, St. Louis, Houston and Sunrise Beach, Missouri.
During 1994, 1995 and 1996, WorldCom and Frontier, the Company's two
largest private line customers, accounted for 25% and 23%, 20% and 21%, and 8%
and 10% respectively, of the Company's revenues. During 1996, the Company leased
transmission capacity to 252 customers. The ten largest private line customers
during that year accounted for approximately 36% of revenues. See "Risk
Factors -- Reliance on Major Customers."
Prices and Contracts
The Company's strategy is to offer prices generally lower than those of
AT&T and competitive with the prices of other carriers, to permit the Company's
customers, through a stable, long-term fixed pricing structure, to maintain
control over transmission costs. The Company's private line transmission
agreements with its customers generally provide for original terms of one to
three years and for monthly payment in advance on a fixed-rate basis, calculated
according to the capacity and length of the circuit. Many of such contracts
contain substantial "take or pay" commitments. Furthermore, circuit orders under
private line agreements are generally for a term of one year or more and may not
be cancelled by the customer. However, the agreements generally provide that the
customer may terminate the affected service without penalty "for cause" in the
event of substantial and prolonged outages arising from causes within the
Company's control, and for certain other defined causes. Generally, the lease
agreements further provide that the customer may terminate the agreement "for
convenience" at its discretion at any time upon notice to the Company. However,
termination for convenience generally requires either full payment of all
charges through the end of the lease term or the payment of substantial
termination fees intended to allow the Company to recover certain costs and, in
some cases, lost profits. Damages attributable to a customer's termination of
the agreement are generally reduced, however, by an offset for any income the
Company earns from re-leasing the terminated capacity during the remaining
portion of the lease term.
Competition
In providing private line capacity, the Company competes with AT&T, which
is the largest supplier of long distance voice and data transmission services in
the United States, MCI, WorldCom and Sprint, all of which have substantially
greater financial resources than the Company and a far more extensive
transmission network than the Company's network. As a result of the
Telecommunications Act and recent WTO Agreement, the Company and its customers
will also face competition from the RBOCs, GTE and others such as electric
utilities, cable television companies and foreign companies. Qwest has announced
its intention to construct a coast-to-coast fiber optic network and Frontier has
announced that it will pay $500 million for fibers in Qwest's network. As such
network is completed, Qwest will become a competitor of the Company and Frontier
may also become a competitor of the Company in the long-haul business. Important
competitive factors in the long-haul business are price, customer service,
network location and quality, reliability and availability. See
"Business -- Private Line Services." The Company also competes on a regional
basis with major regional carriers. Important competitive factors in the
long-haul business are price, customer service, network location and quality,
reliability and availability. See "Risk Factors -- Competition."
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SWITCHED LONG DISTANCE SERVICES
Overview
In late 1995, the Company expanded into the business of selling switched
long distance services to long distance resellers in order to complement its
private line business and to capitalize on its ability to provide switched
services over its own network. Switched long distance services are
telecommunications services that are processed through the Company's digital
switches and carried over long-haul circuits and other transmission facilities
owned or leased by the Company. During 1995, the Company set up the
infrastructure for its switched long distance business by installing its
switches, connecting them to its network and to the LECs, acquiring software,
hiring personnel and entering into contracts with customers. The Company's
switched network became fully operational in February 1996. The Company sells
switched long distance services on a per-call basis, charging by MOUs with
payment due monthly after services are rendered. The Company believes that it is
well-positioned to attract long distance resellers as customers for its switched
long distance services because: (i) it is not currently a significant competitor
for sales to end users; and (ii) it provides more focused service to its
reseller customers, since servicing such customers is its primary business,
unlike its major competitors whose main business is selling retail long distance
service to end users.
Strategy
The Company seeks to rapidly increase revenues from its switched long
distance business through: (i) long-term arrangements with significant customers
and customers the Company considers likely to grow quickly; (ii) providing a
sophisticated automated software interface with its customers; (iii) offering
pricing which is generally lower than that charged by AT&T and competitive with
that of other long distance service providers; and (iv) acquisitions. The
Company seeks to increase the profitability of its switched long distance
services business by decreasing its average cost per MOU through efficiencies
achieved with higher volumes and through reducing network costs through the
network expansion. See "-- Business Strategy."
Customers and Marketing
The Company focuses its sales efforts on directly contacting large reseller
customers with monthly volumes of at least $1 million and smaller, growing
resellers with volumes between $50,000 and $250,000 per month that the Company
expects to be reasonably likely to grow to the $1 million per month level. The
Company's switched-products sales force at December 31, 1996 included 29 sales
executives based at the Company's headquarters in Austin and at direct sales
offices in Atlanta, Dallas, Denver and Los Angeles. Although sales of switched
long distance services to end-user customers do not currently account for a
significant portion of the Company's switched long distance business, LDS and
Telecom One, companies which the Company expects to acquire, do sell directly to
end users. In addition, the Company may, from time to time, consider acquiring
other long distance resellers or end-user customer bases. Notwithstanding such
potential acquisitions, however, the Company does not expect to change its
strategic focus from its reseller customers. Instead, the Company intends to
operate any such acquired companies separately from its reseller business so as
to ensure its continued focus on reseller customers.
Excel. Excel, the Company's largest customer of switched long distance
services, is contractually obligated to utilize at least 70 million minutes of
traffic per month. Excel's commitment continues through the earlier of the date
on which Excel has routed 4.2 billion minutes over the Company's network or June
30, 2001. As of February 28, 1997, approximately 3.3 billion minutes of the
commitment remained. The minimum commitment is subject to reduction or
termination: (i) if Excel installs its own switches and invites the Company to
bid along with other carriers (to win such bids, the Company would have to be
the lowest bidder) to provide Excel with the long-haul circuits utilized by such
switches (even if this did occur, Excel would still have to meet the minimum
commitment of 70 million minutes per month until June 30, 1998); or (ii) for
breach of contract by the Company or for other reasons which the Company
believes should be under its control. Although Excel's minimum commitment is 70
million minutes per month, its usage increased substantially above the minimum
commitment by December 1996. The Company is Excel's main or sole
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supplier of 1 Plus Switched Service in over 50 LATAs. The Company believes that
Excel will utilize the Company's 1 Plus Switched Service for most or all of
Excel's growth in such LATAs.
Customer Contracts. The Company's rates for switched long distance services
generally vary with the duration of the call, the day and the time of day the
call was made and whether the traffic is intrastate, interstate or
international. The rates charged are not affected by which facilities are
selected by the Company's switching centers for transmission of the call or by
the distance of the call. Different rates are applied to combined origination
and termination services than are applied to termination services. The
agreements between the Company and its customers for switched long distance
services generally provide for payment in arrears based on MOUs. The agreements
generally also provide that the customer may terminate the affected service
without penalty in the event of substantial and prolonged outages arising from
causes within the Company's control, and for certain other defined causes.
Generally, the agreements provide that the customer, in order to avoid being
obligated to pay higher rates (or, in some cases, penalties), must utilize at
least a minimum dollar amount (measured by dollars or MOUs) of switched long
distance services per month for the term of the agreement.
Customer Care. The Company believes that customer support is an important
factor in attracting and retaining customers for its switched long distance
services. Customer service for switched long distance services includes
processing new accounts, responding to inquiries and disputes relating to
billing, credit adjustments and cancellations and conducting technical repair
and other support services. IXC Online is designed to allow each of the
Company's carrier customers to: (i) download current call detail records for its
end-users for billing purposes; (ii) arrange with the appropriate LEC to
register the carrier as the designated long distance carrier for its new end
users; and (iii) file trouble reports for resolution. The Company employed
approximately 45 people in its switched long distance services customer service
group as of December 31, 1996. See "Risk Factors -- Development Risks and
Dependence on Switched Long Distance Business."
Decreased Costs through Increased Volumes
Large MOU volumes should enable the Company to spread its fixed costs over
more MOUs and to more efficiently configure its network, reducing the cost per
MOU. The Company seeks to efficiently configure the circuits available so that
calls are completed on a cost-effective basis. The Company periodically analyzes
calling patterns using mathematical formulas to determine the circuit capacity
required to cost-effectively service the expected call volume. For example, if
there is sufficient calling traffic available, the Company may upgrade
transmission circuitry in an area from DS-1 to DS-3. A similar analysis will be
made when deciding whether to install a new switch in a region.
Services
The Company markets a variety of switched long distance services, including
operator services, directory assistance, international service and the
following:
1 Plus Switched Service. Provides direct-dial service over the Company's
digital network.
1 Plus Dedicated Service. Provides direct-dial service over the Company's
digital network for end users that have arranged to connect to the Company's
nearest hub through a local loop. This service is less expensive than 1 Plus
Switched Service because the access charges of the end-user's LEC are reduced.
800/888 Switched Service. Provides 800/888 service over the Company's
digital network.
800/888 Dedicated Service. Provides 800/888 service over the Company's
digital network for end users that have arranged to connect to the Company's
nearest hub through a local loop. This service is less expensive than 800/888
Switched Service because the access charges of the end-user's LEC are reduced.
Calling Card Service. Provides telephone card service.
Debit Card Service. Provides prepaid telephone card service.
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Switched Termination Service. Provides carrier customers having use of a
switch in one area with termination services in other areas.
Acquisitions
As part of its growth strategy, the Company has agreed to acquire LDS and
Telecom One and may, from time to time, acquire businesses, assets or securities
of companies which it believes provide a strategic fit with its business and
network. Although the Company currently has no commitments or agreements with
respect to any possible acquisitions other than with LDS and Telecom One, it has
reviewed potential acquisition candidates and has held preliminary discussions
with a number of these candidates. The Company will use shares of its Common
Stock as payment for the LDS and Telecom One acquisitions and may use Common
Stock as consideration for other acquisitions.
In January 1997, the Company agreed to purchase all the stock of LDS, a
switchless reseller, for a purchase price payable in the Company's Common Stock.
LDS is based in Los Angeles and markets to niche ethnic markets (for example,
immigrants from Mexico, India and Asia). The acquisition by the Company of LDS
is contingent on the satisfaction of a number of conditions, including receipt
of certain regulatory approvals from federal and state agencies. There can be no
assurance that such regulatory approvals will be obtained or that the other
conditions will be satisfied. The exact number of shares to be paid to the LDS
shareholders will not be determined until the closing date. The purchase price
has two components: (i) 1,015,385 shares of Common Stock (calculated to be worth
$29.7 million based on a per share price of $29.25, the 20-day average closing
price of the Common Stock when the agreement was reached), the number of shares
will be adjusted depending on the LDS balance sheet at the closing date; and
(ii) in the event the five-day average closing price of the Common Stock prior
to the closing has increased above $29.25 per share, a number of shares of
Common Stock having a market value on the closing date equal to 150,000
multiplied by the amount of the increase. In addition, the Company has agreed to
grant certain registration rights to the LDS shareholders upon the closing of
the acquisition of LDS. See "Risk Factors -- Shares Eligible for Future Sale."
The Company anticipates that this acquisition will be completed in mid-1997.
In January 1997, the Company agreed to purchase all the stock of Telecom
One, a switchless reseller with an agent program, for a purchase price payable
in the Company's Common Stock. Telecom One's agent program is an arrangement in
which Telecom One pays commissions to agents who sell Telecom One's services to
end users. The acquisition by the Company of Telecom One is contingent on the
satisfaction of a number of conditions, including the receipt of certain
regulatory approvals from federal and state agencies. There can be no assurance
that such regulatory approvals will be obtained or that the other conditions
will be satisfied. The shareholders of Telecom One will be paid Common Stock in
two installments: at the closing date and at the end of 1999. The value of the
Common Stock to be issued to the shareholders of Telecom One on the closing date
will be equal to 50% of the estimated value of Telecom One, calculated based on
revenues. The value of the Common Stock to be issued at the end of 1999 will be
equal to 50% of the estimated value of Telecom One, calculated based on its then
current revenues and EBITDA. The amount of these payments will be adjusted
depending on the Telecom One balance sheet at the payment dates. The Company
estimates that the initial payment will be approximately 106,000 shares of
Common Stock (or approximately $3.0 million based on a per-share price of
$28.14, the average closing price of the Common Stock during the 20-day period
prior to the date of the acquisition agreement). In addition, the Company has
agreed to grant certain registration rights to the Telecom One shareholders. See
"Risk Factors -- Shares Eligible for Future Sale." The Company anticipates that
this acquisition will be completed in mid-1997.
The Company estimates that the aggregate number of shares of Common Stock
to be issued to the shareholders of LDS at the closing of the LDS acquisition
and in the initial installment of the Telecom One acquisition will be between
1.1 million and 1.3 million. In addition, at the end of 1999, the Company will
be required to pay the Telecom One shareholders additional shares of Common
Stock, depending upon the future revenues of Telecom One and the balance sheet
of Telecom One at the end of 1999, which the Company estimates is unlikely to
exceed 200,000 shares.
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The Company expects that the acquisitions of LDS and Telecom One will
result in increased revenues to the Company. In addition, the Company believes
it can improve the profitability of the acquired companies because it can lower
their costs of call transmission. These acquisitions are a part of a Company
strategy to expand by acquiring select resellers on advantageous terms as
opportunities arise. The Company believes that LDS's niche marketing business
and that Telecom One's agent program present solid opportunities for continued
growth. The Company does not expect these acquisitions to change its strategic
focus of providing services to its reseller customers. Instead, the Company
intends to operate the acquired companies under their own names and separately
from its reseller business so as to ensure the Company's continued focus on
reseller customers. Accordingly, the Company does not believe these acquisitions
will adversely affect the Company's relationship with its existing reseller
customers although there can be no assurance in this regard. See "Risk
Factors -- Acquisition Risks."
Competition
The Company competes with numerous facilities-based interexchange carriers,
some of which are substantially larger, have substantially greater financial,
technical and marketing resources and utilize larger transmission systems than
the Company. AT&T is the largest supplier of switched long distance services in
the United States inter-LATA market. The Company also competes in selling
switched long distance services with: (i) other facilities-based carriers, such
as MCI, Sprint, WorldCom and certain regional carriers, and (ii) certain
non-facilities-based carriers. Qwest has announced its intention to construct a
coast-to-coast fiber optic network and Frontier has announced that it will pay
$500 million for fibers in Qwest's network. Upon completion of segments of such
network, Qwest and Frontier may also become competitors of the Company. As a
result of the Telecommunications Act and recent WTO Agreement, the Company will
also now face competition from the RBOCs, GTE and others such as electric
utilities, cable television companies and foreign companies. The Company
believes that the principal competitive factors affecting it are customer
service (particularly with respect to speed in delivery of computer billing
records and set-up of new end users with the LECS), ability of the network to
complete calls with a minimum of network-caused busy signals, scope of services
offered, price, reliability and transmission quality. The Company seeks to
compete effectively with other interexchange carriers and resellers on the basis
of these factors. The ability of the Company to compete effectively will depend
upon its ability to maintain high-quality services at prices generally equal to
or below those charged by its competitors. In the United States, price
competition in the long distance business has been intensive over the last five
years. The FCC has, on several occasions since 1984, approved or required price
decreases by AT&T through the imposition of "price cap" regulations. However,
the FCC recently classified AT&T as a "non-dominant interexchange carrier," with
the effect that AT&T is no longer subject to price regulation of its long
distance services. Since the Company believes that its customers generally price
their service offerings at or below the prices charged by AT&T for its
telecommunications services, reductions by AT&T in its rates may necessitate
similar price decreases by the Company. See "Risk Factors -- Competition."
An alternative method of transmitting telecommunications traffic is through
satellite transmission. Satellite transmission is superior to fiber optic
transmission for distribution communications, for example, video broadcasting.
Although satellite transmission is not preferred to fiber optic transmission for
voice traffic in most parts of the United States because it exhibits a slight
(approximately one-quarter-second) time delay, such delay is not important for
many data-oriented uses. In the event the market for data transmission grows,
the Company will compete with satellite carriers in such market. Also, at least
one satellite company, Orion Network Systems, Inc., has announced its intent to
provide internet access services to businesses through satellite technology.
REGULATION
Certain subsidiaries of the Company operate as communications common
carriers. These subsidiaries are subject to applicable FCC regulations under the
Communications Act, some of which may be affected by the Telecommunications Act
and regulations being promulgated thereunder. See "Risk Factors -- Recent
Legislation and Regulatory Uncertainty." In addition, those subsidiaries which
operate the Company's
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microwave network are subject to applicable FCC regulations for use of the radio
frequencies. The FCC issues licenses to use certain radio frequency spectrum at
transmitter site locations. Each license gives the Company the right to operate
the microwave radio station for the term of the license. Currently, the Company
holds licenses to operate the microwave sites in the Company's network. The
licenses all expire in 2001. These licenses are renewable upon application
containing a statement that they are used in compliance with the applicable FCC
rules. The Company expects that the FCC will renew its licenses in due course.
The Company is subject to regulation by the Federal Aviation Administration with
respect to the construction of transmission towers and to certain local zoning
regulation affecting construction of towers and other facilities.
Recent court decisions (which were issued before the Telecommunications
Act) require the FCC to require carriers to file tariffs. However, the FCC
currently does not actively exercise its authority to regulate such carriers'
rates and services. Moreover, the Telecommunications Act gives the FCC authority
to forebear from applying provisions of the Communications Act, including the
requirement that carriers file tariffs. The FCC has recently issued an order
implementing a mandatory detariffing policy that eliminates the tariff
requirements for non-dominant interstate, interexchange carriers. A court
challenge of the FCC's order resulted in the order being stayed. (Oral argument
is scheduled for September 1997.) The FCC will retain jurisdiction to act upon
complaints against any common carrier for failure to comply with its statutory
obligations as a common carrier.
In addition, the FCC recently freed AT&T from price cap regulation. This
FCC action may affect the Company, because it competes with AT&T. The FCC's
current and future actions could result in decreases in the rates charged to
end-user customers by AT&T and other competitors for their services. Thus, one
effect of the FCC's action may be to further intensify price competition among
long distance companies.
The FCC regulates many of the rates, charges and services provided by the
local exchange carriers. Such regulation can also affect the costs of business
for the Company, its customers and its competitors, because carriers such as the
Company must purchase local access services from LECs to originate and terminate
calls. The FCC's current price cap regulation of the RBOCs and other LECs
provides them with considerable flexibility in pricing their services. The
pricing of transport services is under an interim rate structure which is a
transitional step toward pro-competitive, cost-based transport rates. The FCC
has commenced a proceeding to reform access charges and transport rate structure
and pricing. As part of access charge reform, the FCC is considering whether to
use: (i) a market-based approach, which would ultimately deregulate LEC
interstate access services when such services are subject to substantial
competition; or (ii) a prescriptive approach, under which the FCC would adopt
rules to drive access rates to economically efficient levels. The outcome of the
FCC proceeding is impossible to predict, but future changes with respect to
access charges are likely.
The Telecommunications Act, among other things, allows the RBOCs and others
to enter the long distance business. Entry of the RBOCs or other entities such
as electric utilities and cable television companies into the long distance
business may have a negative impact on the Company or its customers. In
addition, the Telecommunications Act provides that State proceedings may in
certain instances determine access charge rates the Company and its customers
are required to pay to the LECs. It is uncertain at this time what effect such
proceedings may have on such rates. There can be no assurance that such rates
will not be increased. Such increases could have a material adverse effect on
the Company and its customers. See "Risk Factors -- Recent Legislation and
Regulatory Uncertainty" and "Industry Overview."
The ability of the Company to provide long distance services within any
State is generally subject to regulation by a regulatory board in that State. As
of December 31, 1996, the Company is operating in the 48 contiguous continental
United States. The Company has obtained the requisite licenses and approvals in
46 of those States, and is being permitted to operate in the two remaining
States while its applications are pending. The Company expects to obtain all
such licenses and approvals by the end of 1997.
EMPLOYEES
As of December 31, 1996, the Company employed 520 people, of whom 242
provided operational and technical services, 58 provided engineering services
and the balance were engaged in administration and
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marketing. The Company's employees are not represented by any labor union. The
Company considers its employee relations to be good and has not experienced any
work stoppages.
PROPERTIES AND LEASES
The principal properties owned by the Company consist of: (i) the Michigan,
Texas and New York to Washington, D.C. fiber optic systems, including the fiber
optic cable and associated electronics and other equipment; (ii) the portion of
the network expansion completed or under construction; and (iii) the coast-to-
coast microwave system, consisting of microwave transmitters, receivers, towers
and antennae, auxiliary power equipment, transportation equipment, equipment
shelters and miscellaneous components. Generally, the Company's fiber optic
system and microwave relay system components are standard commercial products
available from a number of suppliers.
The principal offices of the Company are located in approximately 44,000
square feet of space in Austin. The Company leases approximately 38,000 square
feet of such space under an agreement which expires in December 2000, at a
current annual base rental of approximately $750,000, and has an option to renew
the lease for a five-year term at the then-prevailing market rate (but not less
than the then-current rental rate) at the time of renewal, and leases
approximately 6,000 square feet of such space under an agreement which expires
in November 2000 at a current annual base rental of approximately $121,000. The
Company has additional offices in two other locations in Austin, consisting of
approximately 16,000 square feet and 57,000 square feet. The Company leases the
space in the first location under an agreement which expires in the year 2000,
at a current annual base rental of approximately $163,000, and subleases the
space in the second location under an agreement which expires in 1997, at a
current annual base rental of approximately $450,000. Upon the expiration of the
sublease in the second location, the Company will lease such space from the
landlord under an agreement which expires in January 2003, at an annual base
rental of approximately $570,000.
The Company leases sites for its switches in or near Los Angeles, Dallas,
Chicago, Atlanta, and Philadelphia under lease agreements that expire between
2000 and 2005. The total current rental commitments for the switch site leases
are approximately $30,000 per month. The Company's five switches are leased
under capital leases from DSC Finance Corporation over a term of five years.
LITIGATION
The Company is involved in various legal proceedings, all of which have
arisen in the ordinary course of business and some of which are covered by
insurance. In the opinion of the Company's management, none of the claims
relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
MEXICAN JOINT VENTURE
The Company is indirectly participating in the development of a long
distance network to engage in the telecommunications business in Mexico by
Marca-Tel. The Company indirectly owns 24.5% of Marca-Tel through its ownership
of 50% of Progress International which owns 49% of Marca-Tel. The remaining 51%
of Marca-Tel is owned by a Mexican individual and Fomento Radio Beep, S.A. de
C.V. The other 50% of Progress International is owned by Westel.
Progress International, which is seeking FCC authority to operate in the
United States as an international resale carrier, is responsible for providing
all the capital that may be required from Marca-Tel's stockholders in order to
finance Marca-Tel. The Company and Westel jointly have contributed funds to
Progress International (approximately $7.3 million by the Company as of December
31, 1996), substantially all of which has been used to fund Marca-Tel. Although
the Company cannot accurately predict the capital that will be required from
Progress International to implement the Marca-Tel business plan, it estimates
that an additional $45.0 million (and possibly significantly more) will be
required by Marca-Tel from the stockholders of Progress International during
1997-1998. Progress International is considering selling equity interests in
Progress International to one or more third parties who could assist Progress
International with the funding of
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Marca-Tel. However, Progress International has not had any material discussions
in this regard and there can be no assurance that any such funding will be
available on satisfactory terms or at all. The Company is currently, and may
remain, the primary source of funds available to Progress International for
investment in Marca-Tel. Since the ownership interests of the Company and Westel
in Progress International are to be proportional to their respective capital
contributions, the Company's percentage ownership of Progress International, and
therefore its indirect ownership interest in Marca-Tel, could increase if it
makes additional capital contributions. The Indenture contains significant
limitations on the Company's ability to invest in Progress International or
Marca-Tel.
Marca-Tel is deploying three switching centers and a fiber optic route
linking Mexico's three major cities (Mexico City, Monterrey and Guadalajara),
with interconnection to the Company's U.S. network at its border crossing at
Reynosa/McAllen. Marca-Tel has entered into a turnkey contract with a major
international supplier of telecommunications equipment for a portion of this
build that provides for interim vendor financing for the equipment and fiber
purchases as well as a portion of the construction work. The Company anticipates
that Marca-Tel may be able to obtain additional funding through some combination
of the following: (i) offerings of debt or equity securities; (ii) other
incurrences of debt; (iii) joint venture arrangements with third parties; and
(iv) additional vendor financing of equipment purchases. Initially, such sources
of capital likely will not be adequate to meet the needs of Marca-Tel, and the
Company anticipates that, until such sources are adequate to enable Marca-Tel to
continue to pursue its business plan, it will be necessary for Progress
International to fund the shortfall. The Company is not obligated to continue to
fund Progress International; however, if Progress International does not fund
Marca-Tel's needs, the Company's interest in Progress International, and thus
its indirect interest in Marca-Tel, may be diluted or lost entirely. Although
the Indenture generally restricts the amount of funding the Company can provide
Progress International, the Indenture does allow the Company to use the $12.5
million proceeds of the GEPT Private Placement for Progress International (as of
February 28, 1997 approximately $1.1 million of such proceeds remained available
for this purpose). The Indenture also allows the Company to fund Progress
International with the proceeds of certain equity offerings or, under certain
circumstances, with funds raised through debt incurrence or, provided that the
Company meets certain financial ratios, from working capital. No assurance can
be given that adequate funding sources will be available from Progress
International or from third parties to implement Marca-Tel's business plan or,
if implemented, that such business plan will be successful.
HISTORY
IXC Communications, a holding company formed in July 1992, acquired a
one-half interest in Electra Communications Corporation ("Electra"), the owner
of a fiber optic network in Texas, for $9.0 million. IXC Communications became
the sole owner of Electra in 1993 when stock held by the other stockholder was
redeemed for $13.7 million. IXC Communications acquired I-Link, Inc., the owner
of another fiber optic network in Texas, in 1994 in a stock-for-stock merger. At
the same time, it also acquired IXC Carrier, Inc. in a stock-for-stock merger.
IXC Carrier has certain subsidiaries that have been active in the communications
business for over 25 years, initially serving as analog microwave carriers for
television signals for cable operators in Ohio and Texas. Commencing in 1979,
IXC Carrier, then a subsidiary of The Times Mirror Company ("Times Mirror"),
entered into long-term circuit lease agreements with various carriers such as
MCI in Texas and Sprint in the Ohio Valley and began the development of a
coast-to-coast network through the acquisition, construction and leasing of
microwave and fiber optic facilities.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of IXC Communications and their ages
as of March 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
Ralph J. Swett..................... 62 Chairman, President, Chief Executive
Officer and Director
Richard D. Irwin................... 61 Director
Wolfe H. Bragin.................... 53 Director
Carl W. McKinzie................... 57 Director
Phillip L. Williams................ 74 Director
Joe C. Culp........................ 63 Director
Kenneth F. Hinther................. 53 Executive Vice President
John R. Fleming.................... 42 Executive Vice President
John J. Willingham................. 40 Senior Vice President, Chief Financial
Officer and Assistant Secretary
David J. Thomas.................... 46 Executive Vice President
James F. Guthrie................... 52 Executive Vice President
</TABLE>
Each director holds office until his successor has been elected and
qualified. Officers serve at the pleasure of the Board of Directors. Following
the issuance of Convertible Preferred Stock which is expected to close in March
1997, its holders intend to nominate an additional director prior to the next
annual meeting of stockholders.
Mr. Swett has served as Chairman, Chief Executive Officer and President of
IXC Communications since its formation in July 1992. Prior to that, Mr. Swett
served as Chairman of the Board and Chief Executive Officer of Communications
Transmission, Inc. ("CTI") from 1986 to 1992. From 1969 to 1986, Mr. Swett
served in increasingly senior positions (Vice President, President and Chairman)
of Times Mirror Cable Television ("TMCT"), a subsidiary of Times Mirror and a
previous owner of IXC Carrier, and as a Vice President of Times Mirror from 1981
to 1986. Mr. Swett has served as Chairman of IXC Carrier since 1979, its Chief
Executive Officer since 1986 and its President since 1991. Mr. Swett has managed
communications businesses for the past 26 years.
Mr. Irwin has served as a director of IXC Communications since its
formation in July 1992. He has served as the President of Grumman Hill Company,
L.L.C. or its predecessor ("Grumman Hill"), a merchant banking firm and the
general partner of GHI, since 1985. Prior to the formation of Grumman Hill, Mr.
Irwin was a Managing Director of Dillon, Read & Co. Inc., from 1983 to 1985.
Prior to that, he served as Chief Executive Officer of Fotomat Corporation for
12 years. Mr. Irwin is also a member of the Board of Directors of PharmChem
Laboratories, Inc. and was the Chairman of ALC from August 1988 through August
1995.
Mr. Bragin has served as a director of IXC Communications since May 1993.
Mr. Bragin has served since 1985 as Vice President of GEIC, a subsidiary of GE
that acts as an investment advisor to GEPT. Prior to joining GEIC in 1984, Mr.
Bragin served in numerous equipment leasing, investment and portfolio management
positions for General Electric Credit Corporation, now known as General Electric
Capital Corporation. Mr. Bragin is a member of the Board of Directors of a
number of private companies.
Mr. McKinzie has served as a director of IXC Communications since May 1993.
Mr. McKinzie has been a principal of Riordan & McKinzie, a Professional Law
Corporation ("Riordan & McKinzie"), since 1980.
Mr. Williams was elected a director of IXC Communications in June 1996. Mr.
Williams has been a private investor and business advisor since May 1993. Prior
to that, Mr. Williams served as Vice Chairman of the Board of Times Mirror from
1987 to May 1993. Mr. Williams is a member of the Board of Directors of Tejon
Ranch Company.
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Mr. Culp was elected a director of IXC Communications in June 1996. Mr.
Culp has been President of Culp Communications Associates, a management and
marketing consulting firm, since 1990. From 1989 to 1990 Mr. Culp served as
Executive Vice President of CTI. Prior to that, Mr. Culp served as President and
Chief Executive Officer of Lightnet, Inc. from 1988 to 1989 and as President of
Rockwell International's Telecommunications Group from 1982 until 1988. Mr. Culp
has over 40 years experience in the communications industry.
Mr. Hinther has served as Executive Vice President of IXC Communications
since March 1996 and as Senior Vice President of IXC Communications from July
1992 through March 1996. Prior to that, Mr. Hinther served as Senior Vice
President -- Engineering and Operations of CTI from 1989 to July 1992 and as
Vice President -- Network Operations of CTI from 1986 to 1989. Mr. Hinther
served IXC Carrier as a Manager of Engineering from 1979 to 1982, and as
Director of Business Development from 1982 to 1986, and as a Vice President
since 1986. Mr. Hinther was Product Manager, Satellite Communications at
Rockwell International prior to joining IXC Carrier. He has over 25 years of
experience in the telecommunications industry.
Mr. Fleming has served as Executive Vice President of IXC Communications
since March 1996 and as Senior Vice President of IXC Communications from October
1994 through March 1996. He served as Vice President of Sales and Marketing of
IXC Communications from its formation in July 1992 until October 1994. Prior to
that, Mr. Fleming served as Director of Business Development and Director of
Carrier Sales of CTI from 1986 to March 1990 and as Vice President -- Marketing
and Sales of CTI from March 1990 to July 1992. Mr. Fleming was a Branch Manager
for Satellite Business Systems from 1983 to 1986. Mr. Fleming has been employed
with IXC Carrier since 1986 and a Vice President of IXC Carrier since 1990. Mr.
Fleming has over 16 years experience in the telecommunications industry.
Mr. Willingham has served as Chief Financial Officer of IXC Communications
since July 1992, as Senior Vice President of IXC Communications since October
1994 and as Assistant Secretary of IXC Communications since February 1997. He
served as Vice President of IXC Communications from July 1992 through September
1994 and as Secretary of IXC Communications from July 1992 through January 1997.
Mr. Willingham served as Vice President and Controller from September 1989 to
June 1990 and as Vice President and Chief Financial Officer from June 1990 to
July 1992 of CTI. Prior to joining CTI, Mr. Willingham was employed by Ernst &
Young LLP for eight years as a certified public accountant. Mr. Willingham has
been a Vice President of IXC Carrier since 1989 and Chief Financial Officer of
IXC Carrier since 1990. Mr. Willingham has over 10 years experience in the
telecommunications industry.
Mr. Thomas has served as Executive Vice President of IXC Communications
since March 1996 and as Senior Vice President of IXC Communications from August
1995 through March 1996. He was employed with ALC from 1983 to 1995, serving as
Vice President from 1991 to 1995 and as Treasurer from 1989 to 1995. Mr. Thomas
has over 14 years experience in the telecommunications industry.
Mr. Guthrie has served as Executive Vice President of IXC Communications
since March 1996 and as Senior Vice President, Strategic Planning of IXC
Communications from December 1995 through March 1996. Prior to that, Mr. Guthrie
served as Vice President and Chief Financial Officer of Times Mirror from 1993
to 1995 and as the Chief Financial Officer of TMCT from 1982 to 1993.
DIRECTOR COMPENSATION
Non-employee directors currently receive annual compensation of $10,000 in
cash and certain non-employee directors (Messrs. Bragin, Culp and Williams)
receive a $20,000 annual contribution by the Company under the Phantom Stock
Plan (described below) for service to the Company as members of the Board of
Directors. Any director compensation owed to Mr. Bragin is paid to GEPT. All
directors receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board. Mr. Culp was granted an option in
connection with consulting services provided for the Company which is fully
exercisable to purchase 60,622 shares of Common Stock at a purchase price of
$3.01 per share. Mr. Swett receives no compensation for services rendered as a
director. The Company adopted a Phantom Stock Plan in May 1996 for certain of
its outside directors, pursuant to which $20,000 per director per year of their
director's fees will be automatically deferred and treated as if it were
invested in Common Stock. No
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stock will be actually purchased under the plan, and the participants will
receive cash benefits equal to the value of the shares that they are deemed to
have purchased under the plan, with such value to be determined on the date of
distribution. The distribution of the benefits generally will occur three years
after the deferral. The Phantom Stock Plan will be administered by Messrs.
Swett, Irwin and McKinzie, none of whom are participants in the plan.
Audit Committee. The Board of Directors established the Audit Committee in
June 1996 to: (i) make recommendations concerning the engagement of independent
public accountants; (ii) review with the independent public accountants the
plans for, and scope of, the audit procedures to be utilized and results of the
audit; (iii) approve the professional services provided by the independent
public accountants; (iv) review the independence of the independent public
accountants; and (v) review the adequacy and effectiveness of the Company's
internal accounting controls. Mr. Williams, Mr. Culp and Mr. McKinzie are the
members of the Audit Committee.
Compensation Committee. The Board of Directors established the Compensation
Committee in June 1996 consisting of Mr. Irwin, Mr. Bragin and Mr. McKinzie,
none of whom are employees of the Company. The Compensation Committee will
determine the compensation for the Company's executive officers and administer
the 1996 Stock Plan, the 1994 Stock Plan and the Special Stock Plan, except that
all grants of stock-based awards are made by the entire Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1996, IXC Communications did not have a compensation
committee or any other committee of the Board of Directors performing equivalent
functions. All decisions regarding executive compensation were made by the Board
of Directors of IXC Communications prior to the establishment of the
Compensation Committee, none of whom, other than Mr. Swett, was an executive
officer of IXC Communications. Decisions with respect to Mr. Swett's
compensation were approved by all members of the Board other than Mr. Swett. The
Company's Compensation Committee, which was established in June 1996, consists
of Messrs. Irwin, Bragin and McKinzie, none of whom were at any time during
fiscal 1996 or at any other time an officer or employee of the Company. There
are no compensation committee interlocks between the Company and other entities
involving the Company's executive officers and Board members who serve as
executive officers or Board members of such other entities.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Chief Executive Officer and the four most highly compensated
executive officers other than the Chief Executive Officer (the "Named Executive
Officers") for their services to the Company for the years ended December 31,
1995 and December 31, 1996.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ AWARDS
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS/SARS(#) (2)
- ---------------------------------- ---- -------- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ralph J. Swett.................... 1996 $299,712 $175,000 $ 10,000 -- $ 21,986(3)
Chairman, President and 1995 285,000 -- 10,000 -- 883,813(3)
Chief Executive Officer
Kenneth F. Hinther................ 1996 165,519 100,000 7,500 -- 14,207
Executive Vice President 1995 212,083(4) -- 7,500 -- 444,739(5)
John R. Fleming................... 1996 165,519 100,000 7,500 -- 14,322
Executive Vice President 1995 212,083(4) -- 7,500 -- 444,739(5)
John J. Willingham................ 1996 143,519 100,000 7,500 -- 12,415
Senior Vice President and 1995 183,417(6) -- 7,500 -- 442,871(5)
Chief Financial Officer
James F. Guthrie.................. 1996 200,000 -- 8,000 342,490 17,842
Executive Vice President 1995 -- -- -- -- --
</TABLE>
- ---------------
(1) These amounts represent automobile allowances paid to the Named Executive
Officers in 1996 and 1995.
57
<PAGE> 60
(2) Includes payments in 1995 of $862,027 (with respect to Mr. Swett) and
$431,014 (with respect to each of Mr. Hinther, Mr. Fleming and Mr.
Willingham) made in connection with a prior incentive arrangement. The
incentive payments were earned in 1993 but did not become payable until
1995.
(3) Includes an employer contribution of $13,500 and $13,700 under the 401(k)
Plan (as defined herein) in 1995 and 1996, respectively, and payments of
$8,286 for term life insurance premiums in 1995 and 1996.
(4) Represents $153,750 in salary and an additional amount of $58,333 in
compensation earned and deferred in prior years but paid in 1995.
(5) Includes employer contributions of $13,725 and $14,207 for Mr. Hinther,
$13,725 and $14,322 for Mr. Fleming and $11,858 and $12,415 for Mr.
Willingham under the 401(k) Plan in 1995 and 1996, respectively.
(6) Represents $131,750 in salary and an additional amount of $51,667 in
compensation earned and deferred in prior years but paid in 1995.
EMPLOYMENT AGREEMENTS
Mr. Guthrie entered into an employment agreement with IXC Communications in
December 1995 for a term of three years pursuant to which Mr. Guthrie is
entitled to an annual base salary of $200,000, subject to adjustment in
accordance with IXC Communications' policies and procedures, and an annual bonus
of up to $75,000 if approved by the Board of Directors. Other than Mr. Guthrie,
none of the Named Executive Officers have entered into employment agreements
with the Company.
STOCK OPTIONS
The following table sets forth information concerning each grant of stock
options made during 1996 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------------
NAME GRANTED IN PERIOD SHARE DATE 5% 10%
- ------------------------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph J. Swett........... -- -- -- --
Kenneth F. Hinther....... -- -- -- --
John R. Fleming.......... -- -- -- --
John J. Willingham....... -- -- -- --
James F. Guthrie(2)...... 242,490(3) 21.4% $ 3.01 1/08/06 $ 459,027 $1,163,265
100,000(4) 8.8% $ 22.25 10/28/06 $1,399,291 $3,546,077
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option.
(2) All of Mr. Guthrie's options become immediately exercisable upon the sale of
substantially all of the Company's assets, a successful tender offer for
greater than fifty percent (50%) of the outstanding capital stock of the
Company or a merger or consolidation in which the stockholders of the
Company immediately preceding such merger or consolidation will not hold a
majority of the outstanding capital stock of the surviving corporation
immediately after such merger or consolidation.
(3) The options become exercisable in three equal installments beginning on
January 19, 1997 and continuing on the two successive annual anniversary
dates thereafter.
58
<PAGE> 61
(4) The options become exercisable in four equal installments beginning on
October 29, 1997 and continuing on the three successive annual anniversary
dates thereafter.
The following table sets forth the number and value as of December 31, 1996
of shares underlying unexercised options held by each of the Named Executive
Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ralph J. Swett..................... -- -- -- --
Kenneth F. Hinther................. -- -- -- --
John R. Fleming.................... -- -- -- --
John J. Willingham................. -- -- -- --
James F. Guthrie................... 0 342,490 0 $ 7,576,673
</TABLE>
- ---------------
(1) Based on the fair market value (the closing price for the Company's Common
Stock as reported on the
Nasdaq National Market as of December 31, 1996, ($30.75 per share)), less
the exercise price payable upon exercise of such options.
1996 STOCK PLAN
In May 1996, IXC Communications adopted the IXC Communications, Inc. 1996
Stock Plan (the "1996 Stock Plan"), a stock incentive plan covering 2,121,787
shares of Common Stock of IXC Communications that may be awarded in order to
attract, retain and reward employees, directors and other persons providing
services to the Company. The Compensation Committee administers the 1996 Stock
Plan, except that all grants of stock-based awards are made by the entire Board
of Directors. Any employee, director or other person providing services to the
Company is eligible to receive awards under the 1996 Stock Plan, at the
discretion of the Board of Directors. Awards available under the 1996 Stock Plan
include Common Stock options with exercise prices at least equal to the fair
market value of the Common Stock on the date of grant. Mr. Guthrie was the only
Named Executive Officer granted options to acquire stock of IXC Communications
in 1996.
1994 STOCK PLAN
In November 1994, IXC Communications adopted a stock incentive plan (the
"1994 Stock Plan") covering 1,212,450 shares of Common Stock of IXC
Communications to attract, retain and reward employees, directors and other
persons providing services to the Company. The Compensation Committee
administers the 1994 Stock Plan, except that all grants of stock-based awards
are made by the entire Board of Directors. Any employee, director or other
person providing services to the Company is eligible to receive awards under the
1994 Stock Plan, at the Board's discretion. Awards available under the 1994
Stock Plan include Common Stock purchase options and restricted Common Stock.
Mr. Culp is the only director who holds options to acquire stock. No options
were granted in 1996 to Named Executive Officers under the 1994 Stock Plan.
SPECIAL STOCK PLAN
In October 1996, IXC Communications adopted a stock incentive plan (the
"Special Stock Plan") covering 67,900 shares of Common Stock of IXC
Communications to induce certain individuals to become employed with the Company
and/or its subsidiaries. The Compensation Committee administers the Special
Stock Plan. Any employee, director or other person providing services to the
Company is eligible to receive awards under the Special Stock Plan, at the
Board's discretion. Awards available under the Special Stock Plan include Common
Stock purchase options and restricted Common Stock. All available options to
acquire stock
59
<PAGE> 62
under the Special Stock Plan were granted in 1996, none of which were granted to
a Named Executive Officer of the Company.
401(K) PLAN
The IXC Carrier, Inc. 401(k) and Pension Plan and Trust (the "401(k) Plan")
is a tax-qualified retirement plan. In general, all employees of IXC Carrier
(substantially all the employees of the Company) who have attained age 18 and
completed one year of service are eligible to participate in the 401(k) Plan.
Participants may make pre-tax contributions to the 401(k) Plan, in an amount
currently not to exceed $9,500 per year. IXC Carrier may elect to make matching
contributions each year, which are allocated among participants depending on the
amount that they contribute to the 401(k) Plan. IXC Carrier may also elect to
make profit-sharing contributions to the 401(k) Plan, which are allocated among
participants as a percentage of compensation.
INDEMNIFICATION AND EXCULPATION ARRANGEMENTS
The Restated Certificate limits the liability of directors to IXC
Communications or its stockholders to the fullest extent permitted by the
Delaware General Corporation Law (the "DGCL"). Accordingly, pursuant to the
provisions of the DGCL presently in effect, directors of IXC Communications will
not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit. In
addition, the bylaws of IXC Communications require IXC Communications to
indemnify its directors and officers to the fullest extent permitted by the laws
of the State of Delaware.
CERTAIN TRANSACTIONS
Prior to the sale of the Senior Notes: (i) GHI, a partnership whose general
partner is Grumman Hill, a limited liability company of which Mr. Irwin is a
member, and GEPT each held 598 shares of IXC Communications' 10% Senior Series 1
Cumulative Redeemable Preferred Stock ("Series 1 Preferred Stock"); (ii) Messrs.
Swett, Williams, Hinther and Fleming owned 78, 60, 13 and 13 shares of Series 1
Preferred Stock, respectively; and (iii) Mr. McKinzie, a director of IXC
Communications and a principal of Riordan & McKinzie, the law firm that will
pass upon the validity of the issuance of the Common Stock in this Offering,
owned 100 shares of Series 1 Preferred Stock. The Series 1 Preferred Stock was
redeemed with a portion of the proceeds of the sale of the Senior Notes at a
price equal to the amount paid for such stock plus accrued but unpaid dividends
at 10% per annum. The approximate amounts received by such persons with respect
to such redemption were: (i) GHI, $813,544; (ii) GEPT, $813,544; (iii) Mr.
Swett, $106,114; (iv) Mr. Williams, $76,229; (v) Mr. Hinther, $17,686; (vi) Mr.
Fleming, $17,686; and (vii) Mr. McKinzie, $120,554.
Prior to the sale of the Senior Notes, GHI and GEPT held shares of
preferred stock of a subsidiary of IXC Communications. Such preferred stock was
redeemed with a portion of the proceeds of the sale of the Senior Notes at a
price equal to the amount paid for such stock plus accrued but unpaid dividends
at 10% per annum. The approximate amounts received by such persons with respect
to such redemption were: (i) GHI, $905,934; and (ii) GEPT, $897,115.
Certain debentures of IXC Communications and one of its subsidiaries also
were redeemed at the original purchase price plus accrued but unpaid interest
with a portion of the proceeds of the sale of the Senior Notes. The approximate
amounts received by the following persons with respect to such redemption were:
(i) GEPT, $6,760,602; (ii) GHI, $6,788,635; (iii) Mr. Swett, $301,400; (iv) Mr.
Hinther, $50,233; and (v) Mr. Fleming, $50,233.
60
<PAGE> 63
In 1994, IXC Communications and ALC (which has since been acquired by
Frontier) formed a corporation to acquire all of the equity interests in MSM for
an aggregate purchase price of $1,500,000 from a wholly owned subsidiary of
General Electric Credit Corporation, an affiliate of GEIC. In addition, in 1995,
IXC Communications entered into a ten-year agreement with GE Capital
Communication, an affiliate of GEIC, to supply it with switched products to be
resold by GE Capital Communication. Mr. Bragin, a director of IXC
Communications, is Vice President of GEIC, which is the investment advisor to
GEPT. "See Business -- Switched Long Distance Services."
Prior to the sale of the Senior Notes, a subsidiary of IXC Communications
was indebted to GEPT under the terms of a note agreement (the "GEPT Note
Agreement"). Certain stockholders of IXC Communications, including Messrs.
Swett, Hinther, Fleming, Williams, Willingham and Irwin and GHI, had pledged
their stock and debentures of IXC Communications (and, in the case of GHI, its
stock and debentures of a subsidiary of IXC Communications) as security for such
indebtedness. Such indebtedness, in the approximate principal amount of
$5,571,348, was repaid with a portion of the proceeds of the sale of the Senior
Notes and such pledges were released.
Mr. Swett, Mr. Hinther, Mr. Fleming, GEPT and GHI purchased Senior Notes in
the amounts of $250,000, $50,000, $50,000, $20,000,000 and $5,000,000,
respectively, on October 5, 1995.
For the years ended December 31, 1994, 1995 and 1996, the law firm of
Riordan & McKinzie, of which Mr. McKinzie, a director and stockholder of IXC
Communications, is a principal, provided certain legal services to IXC
Communications in the amount of approximately $1.4 million, $2.6 million and
$3.5 million, respectively.
Grumman Hill, a corporation whose president is Mr. Irwin, receives an
annual fee of $100,000 from the Company for performing certain advisory services
with respect to the management, operation and business development activities of
IXC Communications.
Culp Communications Associates, of which Mr. Culp is President, received
approximately $8,000, $106,000 and $67,600 in connection with Mr. Culp's
consulting services provided to the Company in 1994, 1995 and 1996,
respectively. Mr. Culp is continuing to provide such consulting services to the
Company in 1997.
Mr. Williams received fees for serving as an advisor to the Company's Board
of Directors of $12,500 in 1994 and 1995 and $14,375 in 1996.
Mr. Thomas entered into an employment agreement with IXC Communications in
August 1995 for a term of three years pursuant to which Mr. Thomas is entitled
to an annual base salary of $160,000, subject to adjustment in accordance with
IXC Communications' policies and procedures, and an annual bonus of up to
$75,000 if approved by the Board of Directors. Mr. Thomas was granted stock
options on August 28, 1995 for 243,353 shares of Common Stock at a price of
$3.01 per share vesting over a three-year period which, subject to certain
conditions, vest immediately upon a change of control of IXC Communications as
set forth in his employment agreement and stock option agreement. Additionally,
Mr. Thomas receives an annual automobile allowance of $8,000 and is entitled to
receive reimbursement of certain relocation costs. On October 29, 1996, Mr.
Thomas was granted additional stock options for 100,000 shares of Common Stock
at a price of $22.25 per share vesting over a four-year period.
In order to reduce the dilution of GEPT's stock ownership caused by the
IPO, GEPT acquired 840,053 shares of Common Stock from the Company at a per
share price of $14.88 (the price paid by the underwriters in the IPO, that is,
the public offering price per share less underwriters' discounts and
commissions) for an aggregate purchase price of $12.5 million in the GEPT
Private Placement simultaneously with the closing of the IPO. Although GEPT
received Common Stock which was not registered under the Securities Act, it
received registration rights with respect to such stock and all other Company
Common Stock it owns, of which its demand registration rights are not
exercisable until March 1, 1997. See "Description of Capital
Stock -- Registration Rights." The Company is able to use the $12.5 million
proceeds, if it so elects, to pursue the Marca-Tel opportunity in Mexico. See
"Business -- Mexican Joint Venture."
61
<PAGE> 64
In connection with the IPO and the GEPT Private Placement, GEPT, GHI and
Messrs. Irwin, Swett, Willingham, McKinzie and Williams have entered into an
agreement with IXC Communications pursuant to which they were granted
registration rights, of which its demand registration rights are not exercisable
until March 1, 1997 with respect to shares of IXC Communications Common Stock
held by them. See "Description of Capital Stock -- Registration Rights."
Pursuant to the terms of a letter agreement dated August 22, 1996 among IXC
Communications, GEPT and Messrs. Swett, Hinther and Fleming, each of GEPT and
Messrs. Swett, Hinther and Fleming (the "Affiliate Senior Note Holders") waived
the right to require the Company to file a shelf registration statement for the
Senior Notes held by the Affiliate Senior Note Holders on or prior to August 30,
1996 in exchange for the Company granting the Affiliate Senior Note Holders of
at least 70% of the then remaining transfer restricted Senior Notes the right to
require the Company to file a shelf registration statement as long as such
Affiliate Senior Note Holders hold transfer-restricted Senior Notes.
In connection with the Preferred Stock Sale which is expected to close in
March 1997, GEPT and MSCAP will acquire an aggregate of 2,500 shares and 7,500
shares, respectively, of Convertible Preferred Stock at a per share price of
$10,000. GEPT and MSCAP will receive registration rights with respect to the
Convertible Preferred Stock. See "Description of Capital Stock -- Registration
Rights." In addition, Morgan Stanley & Co. Incorporated, an affiliate of MSCAP
will receive a fee of $1.875 million for acting as placement agent in connection
with the Preferred Stock Sale to MSCAP. Morgan Stanley & Co. Incorporated also
acted as an underwriter in the IPO and received approximately $6.3 million in
connection therewith.
62
<PAGE> 65
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of March 1, 1997
regarding the beneficial ownership of: (i) each class of IXC Communications'
voting securities by each person who is known by IXC Communications to be the
beneficial owner of more than 5% of any class of IXC Communications' voting
securities, and (ii) each class of equity securities of IXC Communications by
(a) each director of IXC Communications, (b) each person who is selling shares
of Common Stock in the Offering (a "Selling Stockholder"), (c) each of IXC
Communications' Named Executive Officers (as defined under the heading
"Management -- Executive Compensation"), and (d) all directors and executive
officers of IXC Communications as a group. The table also gives effect to this
Offering and the Preferred Stock Sale which is expected to close in March 1997
and assumes that no other person or entity listed in the table purchases shares
of Common Stock in this Offering.
<TABLE>
<CAPTION>
SERIES 3 CONVERTIBLE SHARES OF
PREFERRED PREFERRED COMMON PERCENT OF
STOCK PERCENT OF STOCK PERCENT OF STOCK COMMON
BENEFICIALLY SERIES 3 BENEFICIALLY CONVERTIBLE BENEFICIALLY STOCK
NAME AND ADDRESS OWNED PREFERRED OWNED PREFERRED OWNED BEFORE BEFORE
OF BENEFICIAL OWNER (1)(2) STOCK (1)(3) STOCK OFFERING(1) OFFERING
- -------------------------------------- ------------ ---------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph J. Swett(5)(6).................. 25.00 * -- -- 3,037,061 9.9%
Kenneth F. Hinther(5)(7).............. -- -- -- -- 1,353,738 4.4
John R. Fleming(5).................... -- -- -- -- 1,353,739 4.4
John J. Willingham(5)(8).............. -- -- -- -- 1,272,568 4.1
James F. Guthrie(5)(9)................ -- -- -- 80,830 *
David J. Thomas(5)(10)................ -- -- -- -- 81,118 *
Richard D. Irwin(11).................. 995.58 7.9% 6,951,174 22.6
Carl W. McKinzie(12).................. -- -- -- -- 231,917 *
300 S. Grand Avenue, 29th Floor,
Los Angeles, CA 90071
Wolfe H. Bragin....................... -- -- -- -- 2,000 *
2029 Century Park East,
Suite 1230
Los Angeles, CA 90067
Phillip L. Williams(13)............... -- -- -- -- 144,150 *
633 West Fifth Street, Suite 4000,
Los Angeles, CA 90071-2007
Joe C. Culp(14)....................... -- -- -- -- 60,622 *
#5 Hedge Lane,
Austin, TX 78746
Grumman Hill Investments, L.P.(15).... -- -- -- -- 4,636,990 15.1
191 Elm Street,
New Canaan, CT 06840
Grumman Hill Associates, Inc.......... 915.42 7.3 -- -- -- --
191 Elm Street,
New Canaan, CT 06840
Trustees of General Electric Pension
Trust............................... 6,725.00 53.6 2,500 25% 8,289,258 26.9
3003 Summer Street,
Stamford, CT 06905
Morgan Stanley Capital Partners III,
L.P.(16)............................ -- -- 7,500 75 -- --
1221 Avenue of the Americas
New York, NY 10020
Putnam Investments, Inc.(17)
One Post Office Square
Boston, MA 02109.................... -- -- -- -- 2,532,799 8.2
All directors and executive officers
of IXC Communications as a group (11
persons)............................ 1,020.58 8.1 -- -- 14,568,917 47.0
<CAPTION>
SHARES OF
NUMBER OF COMMON
SHARES OF STOCK PERCENT OF
COMMON BENEFICIALLY COMMON
STOCK TO BE OWNED AFTER STOCK
NAME AND ADDRESS SOLD IN THE OFFERING AFTER
OF BENEFICIAL OWNER OFFERING (1)(4) OFFERING
- -------------------------------------- ----------- ------------ ----------
<S> <<C> <C> <C>
Ralph J. Swett(5)(6).................. 150,000 2,887,061 9.1%
Kenneth F. Hinther(5)(7).............. 100,000 1,253,738 3.9
John R. Fleming(5).................... 100,000 1,253,739 3.9
John J. Willingham(5)(8).............. 100,000 1,172,568 3.7
James F. Guthrie(5)(9)................ -- 80,830 *
David J. Thomas(5)(10)................ -- 81,118 *
Richard D. Irwin(11).................. -- 6,951,174 21.8
Carl W. McKinzie(12).................. -- 231,917 *
300 S. Grand Avenue, 29th Floor,
Los Angeles, CA 90071
Wolfe H. Bragin....................... -- 2,000 *
2029 Century Park East,
Suite 1230
Los Angeles, CA 90067
Phillip L. Williams(13)............... -- 144,150 *
633 West Fifth Street, Suite 4000,
Los Angeles, CA 90071-2007
Joe C. Culp(14)....................... -- 60,622 *
#5 Hedge Lane,
Austin, TX 78746
Grumman Hill Investments, L.P.(15).... -- 4,636,990 14.6
191 Elm Street,
New Canaan, CT 06840
Grumman Hill Associates, Inc.......... -- -- --
191 Elm Street,
New Canaan, CT 06840
Trustees of General Electric Pension
Trust............................... -- 8,289,258 26.0
3003 Summer Street,
Stamford, CT 06905
Morgan Stanley Capital Partners III,
L.P.(16)............................ -- -- --
1221 Avenue of the Americas
New York, NY 10020
Putnam Investments, Inc.(17)
One Post Office Square
Boston, MA 02109.................... -- 2,532,799 8.0
All directors and executive officers
of IXC Communications as a group (11
persons)............................ 450,000 14,118,917 44.0
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock relating to options currently
exercisable or
63
<PAGE> 66
exercisable within 60 days of March 1, 1997, are deemed outstanding for
computing the percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
(2) The shares of Series 3 Preferred Stock vote together with the shares of
Common Stock as a class, except where otherwise required by law, and have
the right to elect one member of the Board of Directors. See "Description
of Capital Stock -- Preferred Stock."
(3) Upon the closing of the Preferred Stock Sale which is expected to close in
March 1997, the shares of Convertible Preferred Stock issuable will be
nonvoting except upon the occurrence of certain events as described in the
Certificate of Designations and will have the right to elect one member of
the Board of Directors. See "Description of Capital Stock."
(4) Assumes no exercise of the Underwriters' over-allotment option. In the
event the Underwriters' over-allotment option is exercised in full, Messrs.
Swett, Hinther, Fleming and Willingham will sell up to an aggregate of
22,500, 15,000, 15,000, and 15,000 additional shares of Common Stock,
respectively.
(5) The address of such persons is c/o IXC Communications, Inc. 5000 Plaza on
the Lake, Suite 200, Austin, Texas 78746.
(6) Includes 484,980 shares held by Ralph J. Swett, Trustee of the EMS 1994
Trust and 484,980 shares held by Ralph J. Swett, Trustee of the RJS 1994
Trust.
(7) Includes 181,867 shares held by Kenneth F. Hinther, Trustee of LISA's 1994
Trust, 181,867 shares held by Lisa Hinther, Trustee of KEN's 1994 Trust and
121,245 shares held by Craig A. Hinther, Trustee for the Kenneth A. Hinther
1996 Trust.
(8) Includes 121,915 shares held by John McC. Witherspoon, Trustee of trust for
the benefit of Jonica Lynn Willingham and 121,915 shares held by John McC.
Witherspoon, Trustee of trust for the benefit of Russell Dennis Willingham.
(9) Represents shares issuable with respect to the exercise of options. See
"Management -- Option Grants in Last Fiscal Year."
(10) Represents shares issuable with respect to the exercise of options. See
"Certain Transactions."
(11) Includes 1,628,216 shares held by The Irwin Family Limited Partnership
dated January 4, 1995, 341,341 shares held by The Irwin Family Limited
Partnership #2 and 150,148 shares held by The Irwin Family Limited
Partnership #3. Also includes 21.16 shares of Series 3 Preferred Stock held
by Richard D. Irwin Revocable Living Trust dated January 4, 1995, 915.42
shares of Series 3 Preferred Stock held by Grumman Hill and 4,636,990
shares of Common Stock held by GHI. Mr. Irwin is President of Grumman Hill,
and Mr. Irwin may be deemed a beneficial owner of the shares owned by such
entity.
(12) Such shares are held by Trust for the Riordan & McKinzie Profit Sharing and
Savings Plan for the benefit of Carl W. McKinzie.
(13) Such shares are held by Phillip L. Williams, as Trustee of the Phillip and
Jane Williams Living Trust, UDT August 20, 1985.
(14) Represents shares issuable with respect to the exercise of options. See
"Management -- Director Compensation."
(15) The sole general partner of Grumman Hill Investments, L.P. is Grumman Hill
Company, L.L.C., a Delaware limited liability company, of which Mr. Irwin,
a director of the Company, is the general manager and a beneficial owner of
a membership interest. Mr. Irwin may be deemed to have voting and
investment power with respect to the shares held of record by Grumman Hill
Investments, L.P.
(16) Represents 6,634.20 shares of Convertible Preferred Stock being purchased
by Morgan Stanley Capital Partners, III, L.P., 186.58 shares being
purchased by Morgan Stanley Capital Investors, L.P. and 679.22 shares being
purchased by MSCP III 892 Investors, L.P.; provided, however, that the
specific allocation among such purchasers may be changed prior to the
closing of the Preferred Stock Sale which is expected to occur in March
1997.
(17) Represents 2,451,599 shares held by Putnam Investment Management, Inc.
("PIM") and 81,200 shares held by Putnam Advisory Company, Inc. ("PAC").
PIM and PAC are each registered investment advisors that are wholly owned
by Putnam Investments, Inc. The share amounts for PIM and PAC are based
upon information contained in a Schedule 13G filed with the Commission on
January 30, 1997.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $.01 per share, and 3,000,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"). The following summary of
certain provisions of the Common Stock and the Preferred Stock of IXC
Communications does not purport to be complete and is subject to, and qualified
in its entirety by, the Restated Certificate, the Certificate of Designations
(which will be filed prior to the closing of the Preferred Stock Sale which is
expected to close in March 1997) and Bylaws of IXC Communications, as amended,
which have been filed as Exhibits to the Registration Statement of which this
Prospectus is a part, and the provisions of applicable law.
COMMON STOCK
As of March 1, 1997, there were 30,799,560 outstanding shares of Common
Stock held by 93 holders of record. The Convertible Preferred Stock when issued
upon the closing of the Preferred Stock Sale, which is expected to occur in
March 1997, will vote with Common Stock on an as converted basis when required
by law or in connection with a change of control transaction. Each holder of
Common Stock or Series 3 Preferred Stock (described below) is entitled to one
vote per share on all matters to be voted on by the stockholders, voting
together as a single class. Subject to the rights of the holders of the
Preferred Stock, each holder of Common Stock is entitled to receive ratably such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of the
liquidation, dissolution or winding up of IXC Communications, the holders of the
Common Stock are entitled to share ratably in all assets, if any, remaining,
after payment of liabilities, subject to the prior liquidation rights of holders
of the Preferred Stock described below. The Common Stock has no preemptive or
other similar rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby will be, when issued and
delivered, validly issued, fully paid and non-assessable.
PREFERRED STOCK
IXC Communications has designated 12,000 shares of Preferred Stock as
Convertible Preferred Stock, 2,000 shares of Preferred Stock as Series 1
Preferred Stock and 12,550 shares of Preferred Stock as Series 3 Preferred
Stock. Upon the closing of the Preferred Stock Sale which is expected to close
in March 1997 there will be 10,000 shares of Convertible Preferred Stock issued
and outstanding. All of the 12,550 shares of Series 3 Preferred Stock are issued
and outstanding, all of the previously outstanding shares of Series 1 Preferred
Stock have been redeemed and no other shares of Preferred Stock are outstanding.
The shares of Convertible Preferred Stock to be purchased by MSCAP and GEPT in
the Preferred Stock Sale which is expected to close in March 1997 will be at a
purchase price of $10,000 per share. The shares of Series 3 Preferred Stock were
purchased upon the formation of IXC Communications at a purchase price of $1.00
per share.
On March 31, 2009 (the "Mandatory Redemption Date"), IXC Communications
will be required to redeem all of the Convertible Preferred Stock then
outstanding at a redemption price equal to the Liquidation Preference thereof of
$10,000 plus an amount equal to all accumulated and unpaid dividends per share
(such sum, the "Liquidation Preference"). IXC Communications may redeem the
Convertible Preferred Stock, in whole or in part, at any time on or after March
31, 2000, at a price that is equal to the Liquidation Preference thereof.
Dividends on the Convertible Preferred Stock are payable quarterly in cash (or
in additional shares of Convertible Preferred Stock prior to March 31, 1999) in
arrears from the date of issuance at a rate of 7% per annum (plus interest on
accrued and unpaid dividends at 12% through March 31, 1999) of the Liquidation
Preference thereof on March 31, June 30, September 30 and December 31 of each
year commencing on June 30, 1997. Shares of the Convertible Preferred Stock will
be convertible into Common Stock at the option of the holder at any time after
the first anniversary of the original date of issuance (the second anniversary
for MSCAP in certain instances) at a conversion rate equal to $38.40 per share.
In addition, the holders of Convertible Preferred Stock may require IXC
Communications to redeem its shares of Convertible Preferred Stock at a
redemption price equal to the Liquidation Preference thereof or convert its
shares of Convertible Preferred Stock into shares of Common Stock at a price
equal to the lesser of the conversion price then in effect or the price that the
Board of Directors believes, in its good faith, will be the highest price per
share to
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be paid to holders of Common Stock in connection with a change of control upon
the public announcement of any transaction that would result in a change of
control as set forth in the Restated Certificate. The Convertible Preferred
Stock is nonvoting, except that: (i) the holders of the Convertible Preferred
Stock, voting as a separate class, have the right to elect one member of the
Board of Directors so long as at least 2,000 shares of the Convertible Preferred
Stock are outstanding; (ii) in the event that six or more quarterly dividend
payments are in arrears or the Company fails to redeem the Convertible Preferred
Stock then outstanding on the Mandatory Redemption Date, then if at least 2,000
shares of the Convertible Preferred Stock are outstanding, the holders of the
Convertible Preferred Stock, voting as a separate class, have the right to elect
an additional three members of the Board of Directors until such time as the
arrearages have been paid in full or IXC Communications remedies such failure to
redeem the Convertible Preferred Stock, as applicable; and (iii) the holders of
Convertible Preferred Stock have the right to vote, together with the holders of
Common Stock as a single class, in connection with any transaction that would
result in a merger, sale of substantially all the assets or change of control of
IXC Communications.
The holders of Series 3 Preferred Stock, subject to the terms of the
Restated Certificate, as amended, are entitled to receive a liquidation
preference of $1,000 per share, plus an amount equal to all accrued and unpaid
dividends and IXC Communications may voluntarily redeem the Series 3 Preferred
Stock for $1,000 per share, plus an amount equal to all accrued and unpaid
dividends. In addition, the holders of Series 3 Preferred Stock are entitled to
receive annual dividends, subject to the limitations of the Restated Certificate
and in the Indenture, in an amount equal to $100 per share, plus an amount
determined by applying a 10% annual rate compounded annually, to any accrued but
unpaid dividend amount from the last day of the period when such dividend
accrues to the actual date of payment. Cumulative dividends, including accrued
but unpaid interest, with respect to the Series 3 Preferred Stock, as of
December 31, 1996, were approximately $6.5 million. The holders of the Series 3
Preferred Stock have the right to elect one member of the Board of Directors.
The Board of Directors of IXC Communications has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, terms of redemption, redemption prices, liquidation
preferences, voting rights and the number of shares consisting of any series or
the designation of such series without further vote or action by the
stockholders. The issuance of Preferred Stock (or the ability of the Board of
Directors to issue Preferred Stock) may have the effect of delaying, deferring
or preventing a change in control of IXC Communications without further action
by the stockholders and may adversely affect the voting and other rights of the
holders of Common Stock. The issuance of Preferred Stock with voting or
conversion rights may adversely affect the voting power of the holders of Common
Stock. IXC Communications has no present intention to issue additional shares of
Preferred Stock.
REGISTRATION RIGHTS
In June 1996, IXC Communications granted certain registration rights (the
"GEPT Registration Rights Agreement") to GEPT, GHI and Messrs. Irwin, Swett,
Willingham, McKinzie and Williams, in consideration of the GEPT Private
Placement and the lock-up arrangements each of the parties entered into in
connection with the IPO. Such registration rights cover all the shares of Common
Stock of IXC Communications held by such persons (a total of approximately 19.5
million shares) which registration rights became exercisable on March 1, 1997.
Each of the stockholders that are signatories to the GEPT Registration Rights
Agreement has waived its registration rights in connection with this Offering.
Subject to certain exceptions, whenever IXC Communications registers any of its
Common Stock under the Securities Act during the period the agreement is
effective, whether or not for sale for its own account, the holders of such
registration rights are entitled to written notice of the registration and are
entitled to include (at IXC Communications' expense) such Common Stock in such
registration. GEPT also has the right, subject to certain limitations, to
require IXC Communications to use its best efforts to file registration
statements under the Securities Act covering Common Stock held by GEPT. All
fees, costs and expenses of such registrations (other than underwriting
discounts and commissions) will be borne by IXC Communications.
In connection with the Preferred Stock Sale which is expected to close in
March 1997, the Company will grant certain "piggy-back" registration rights to
the holders of Convertible Preferred Stock entitling the
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holders of Convertible Preferred Stock to participate in a piggy-back
registration under the GEPT Registration Rights Agreement. The Company will also
grant certain demand registration rights to the holders of Convertible Preferred
Stock beginning July 1, 1997 through two years after the date of issuance of the
Convertible Preferred Stock subject to certain limitations. The holders of
Convertible Preferred Stock holding at least 3% of the outstanding Common Stock
(on an as converted basis) will have the right to require IXC Communications,
during the period such rights are effective, to file a registration statement
under the Securities Act with respect to such preferred stock (and the Common
Stock resulting from conversion of the Convertible Preferred Stock in some
instances) and IXC Communications will be required to effect such registration,
subject to certain conditions and limitations. All expenses of such
registrations will be borne by IXC Communications. In addition, the Company has
agreed to use its best efforts to file a shelf registration statement covering
resales of the Convertible Preferred Stock to become effective prior to one year
after the closing of the Preferred Stock Sale which is expected to occur in
March 1997 and to keep such registration effective, subject to certain
limitations, for two years or until there is no Convertible Preferred Stock
outstanding, whichever is later.
In addition, upon the closing of the acquisitions of LDS and Telecom One,
respectively, the shareholders of LDS and Telecom One will be granted
registration rights with respect to the shares of Common Stock paid by the
Company for such acquisitions. The Company has agreed to file a shelf
registration statement for the benefit of such shareholders.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BYLAWS AND THE
INDENTURE
The Bylaws of IXC Communications provide that stockholders may call a
special meeting of stockholders only upon a request of stockholders owning at
least 50% of IXC Communications' outstanding capital stock entitled to vote. In
addition, in the event of a Change of Control (as such term is defined in the
Indenture), holders of the Senior Notes will have the right to require IXC
Communications to purchase their Senior Notes, in whole or in part, at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages (as such term is defined in the Indenture), if
any, to the date of purchase. These provisions, as well as the authorized and
unissued preferred stock described above, could discourage potential acquisition
proposals and could delay or prevent a change in control or management of IXC
Communications.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
IXC Communications is subject to Section 203 of the DGCL which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in certain
"business combinations" with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder,
unless the transaction is approved in a prescribed manner. The business
combinations to which Section 203 applies include a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholders. In
general, Section 203 defines an "interested stockholder" as a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the outstanding voting stock of the corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation.
LISTING
The Common Stock is listed on the Nasdaq National Market under the symbol
"IIXC."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering IXC Communications will have a total of
31,849,560 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option or options outstanding under the Company's
stock plans). Of these shares, 1,500,000 shares of Common Stock offered hereby
and 5,600,000 shares of Common Stock sold in the IPO will be freely tradeable
without restriction or registration under the Securities Act if held by persons
other than "affiliates" of the Company, as defined under the Securities Act.
Approximately 19 million shares of Common Stock (including the 840,053 shares
issued in the GEPT Private Placement) and the shares of Convertible Preferred
Stock to be issued pursuant to the Preferred Stock Sale which is expected to
close in March 1997 (which are convertible into Common Stock at the option of
the holder at any time after the first anniversary of the original date of
issuance (the second anniversary for MSCAP in certain instances) and, if
outstanding, must be redeemed by the Company on March 31, 2009) are "restricted
securities" as that term is defined by Rule 144 promulgated under the Securities
Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) which has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 318,500 shares upon completion
of this Offering) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. An affiliate of IXC Communications may sell securities that are
not restricted without regard to the period of beneficial ownership but subject
to the volume restrictions described above. Sales under Rule 144 are also
subject to certain manner-of-sale provisions and notice requirements, and to the
availability of current public information about IXC Communications. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.
Upon the closing of the acquisition of LDS, the LDS shareholders will
receive approximately 1,015,400 shares of Common Stock of the Company (such
number may change significantly depending on the increase, if any, in market
price of the Common Stock and the balance sheet of LDS at the time of the
closing). Upon the closing of the acquisition of Telecom One, the Company
estimates that the Telecom One shareholders will receive approximately 106,000
shares of Common Stock of the Company (such number may change significantly
depending on the balance sheet of Telecom One at the time of the closing). The
Company estimates that the aggregate number of shares of Common Stock to be
issued to the shareholders of LDS and Telecom One at the closing of these
acquisitions will be between 1.1 million and 1.3 million. In addition, at the
end of 1999, the Company will be required to pay the Telecom One shareholders
additional shares of Common Stock, depending on the future revenues of Telecom
One and the balance sheet of Telecom One at the end of 1999. Although the
Company cannot presently determine the number of shares to be paid to Telecom
One shareholders in such second installment, the Company believes it is unlikely
to exceed 200,000 shares. Such shares of Common Stock issued to LDS and Telecom
One shareholders will also be restricted securities and may be sold in
compliance with Rule 144.
Under Rule 144 (and subject to the conditions thereof), approximately 24.0
million of the approximately 25.0 million restricted shares of Common Stock are
eligible for sale. However, 21,983,802 shares of Common Stock are subject to
lock-up restrictions. Pursuant to these lock-up restrictions, certain of IXC
Communications' current stockholders, including its executive officers and
directors, have agreed that, subject to certain exceptions, they will not,
directly or indirectly, sell, offer or sell any shares of Common Stock (other
than 134,303 shares of Common Stock which are subject to options held by third
parties) without the prior written consent of Morgan Stanley & Co. Incorporated,
on behalf of the Underwriters, for a period of 90 days from the date of this
Prospectus. See "Underwriters." Certain of the Company's existing stockholders
have registration rights with respect to their Common Stock. See "Description of
Capital Stock -- Registration Rights." In addition, the Company has agreed to
issue additional shares of Common Stock to the stockholders of LDS and Telecom
One, as consideration for the acquisition of such companies and has agreed to
grant certain registration rights with respect to all of such shares. See
"Description of Capital Stock." To the extent the
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Company issues additional shares of Common Stock in other acquisitions, such
shares will become eligible for future sale at various times, either under Rule
144 or in registered sales.
In addition, the Commission has adopted a rule which reduces the applicable
holding periods under Rule 144(d) and Rule 144(k) to one and two years,
respectively (from the current periods of two and three years). The adopted rule
becomes effective at the end of April 1997. IXC Communications cannot predict
the effect thereof on the trading market for its Common Stock.
The preceding description does not include shares of Common Stock acquired
upon exercise of options under the 1994 Stock Plan, the 1996 Stock Plan or the
Special Stock Plan. IXC Communications has registered under the Securities Act
1,212,450, 2,121,787 and 67,900 shares of Common Stock for issuance pursuant to
the 1994 Stock Plan, the 1996 Stock Plan and the Special Stock Plan,
respectively.
No prediction can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair IXC Communications' future ability to raise capital through an
offering of its equity securities.
DESCRIPTION OF CERTAIN INDEBTEDNESS
On October 5, 1995, IXC Communications issued and sold its Senior Notes in
the aggregate principal amount of $285.0 million to a group of institutional and
accredited investors. Of the approximately $268.8 million net proceeds of such
sale, IXC Communications placed $200.0 million into an escrow account to be used
for the Fiber Expansion, debt service of the Senior Notes and other capital
expenditures. The escrow agreement is incorporated by reference as an exhibit to
the Registration Statement of which this Prospectus is a part. The Company has
fully utilized all amounts in such escrow account. On August 2, 1996, IXC
Communications consummated its offer with certain holders to exchange its 12.5%
Series A Senior Notes due 2005 for 12.5% Series B Senior Notes due 2005
registered under the Securities Act as required by a registration rights
agreement among IXC Communications and the initial purchasers named therein. The
indenture for the Senior Notes contains certain covenants that, among other
things, limit the ability of IXC Communications and certain of its subsidiaries
(the "Restricted Subsidiaries") to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase Equity
Interests (as defined in the indenture for the Senior Notes) or subordinated
indebtedness, create certain liens, enter into certain transactions with
affiliates, sell assets of IXC Communications or its Restricted Subsidiaries (as
defined in such indenture), issue or sell Equity Interests of IXC
Communications' Restricted Subsidiaries or enter into certain mergers and
consolidations. In addition, under certain limited circumstances, IXC
Communications will be required to offer to purchase Senior Notes at a price
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of purchase, with the excess
proceeds of certain Asset Sales (as defined in such indenture). In the event of
a Change of Control, holders of the Senior Notes will have the right to require
IXC Communications to purchase their Senior Notes, in whole or in part, at a
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase. The
indenture relating to the Senior Notes is an exhibit to the Registration
Statement of which this Prospectus is a part.
In addition, the Company is engaged in discussions with potential lenders
regarding the Proposed Credit Facility under which it expects to be able to
borrow up to a certain percentage of the amount of eligible accounts receivable.
Although the total availability under the Proposed Credit Facility will vary
from time to time according to the aggregate amount of eligible accounts
receivable, the Company anticipates that the lender will impose a limit on
borrowings under the facility. Although the Company may succeed in obtaining a
higher limit in the future, the Company anticipates that the limit initially
will be $25.0 million. The Indenture limits the Company from borrowing under
such a facility, if one should be obtained, in excess of 85% of the amount of
such eligible accounts receivable. The Company anticipates that its obligations
under the Proposed Credit Facility, if it is obtained, will be secured by
intercompany notes from the subsidiaries owning the accounts receivable, which
notes will in turn be secured by such accounts receivable. However, there can be
no assurance that the Company will obtain such facility. As of December 31,
1996, the Company's accounts receivable (net of allowance for doubtful accounts)
were approximately $45.1 million.
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UNDERWRITERS
Under the terms and subject to the conditions of the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below have severally agreed to purchase, and IXC Communications and the Selling
Stockholders have agreed to sell to them severally, the respective number of
shares of Common Stock set forth opposite the names of each Underwriter below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated....................................
Credit Suisse First Boston Corporation...............................
Dillon, Read & Co. Inc...............................................
-----------
Total...................................................... 1,500,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page of
this Prospectus and part to certain dealers at a price that represents a
concession of not in excess of $ per share under the Price to Public. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.
Pursuant to the Underwriting Agreement, the Company and each of the Selling
Stockholders have granted to the Underwriters, an option exercisable for 30 days
after the date of this Prospectus, to purchase up to 157,500 and 67,500
additional shares of Common Stock, respectively, at the Price to Public set
forth on the cover page hereof, less underwriting discounts and commissions. To
the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Common Stock as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
offered hereby.
IXC Communications and each of the executive officers and directors of IXC
Communications, GHI (other than 134,303 shares of Common Stock which are subject
to options held by third parties), certain trusts and partnerships and GEPT have
agreed that without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not (A) register for sale,
issue, offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (other than shares of Common Stock acquired in the
open market after the date of this Prospectus) or (B) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (A) or (B) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise for a period of 90 days
after the date of this Prospectus, other than (A) the shares of Common Stock to
be sold hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option issued pursuant to the Company's 1994 Stock Plan, 1996
Stock Plan or the Special Stock Plan and (C) the issuance of additional options
to purchase shares of Common Stock pursuant to the Company's 1994 Stock Plan or
1996 Stock Plan. See "Shares Eligible for Future Sale."
IXC Communications and the Selling Stockholders have agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act.
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The Underwriters have informed IXC Communications and the Selling
Stockholders that they do not intend sales to discretionary accounts to exceed
5% of the total number of shares of Common Stock offered by them.
Dillon, Read & Co. Inc. and Credit Suisse First Boston Corporation acted as
the initial purchasers of the Senior Notes and received customary compensation
in connection therewith. Morgan Stanley & Co. Incorporated, Credit Suisse First
Boston Corporation and Dillon, Read & Co. Inc. acted as underwriters for the IPO
and received customary compensation in connection therewith. Morgan Stanley &
Co. Incorporated will act as placement agent in connection with the Preferred
Stock Sale which is expected to close in March 1997 and will receive customary
compensation in connection therewith.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for IXC Communications by Riordan & McKinzie. Certain legal matters
in connection with the Common Stock offered hereby will be passed upon for the
Underwriters by Shearman & Sterling. Carl W. McKinzie, a director and
stockholder of IXC Communications, is a stockholder of Riordan & McKinzie. IXC
Communications has granted an option covering shares of Common Stock to another
stockholder of Riordan & McKinzie. Also, certain attorneys of Riordan & McKinzie
beneficially own additional shares of IXC Communications.
EXPERTS
The consolidated financial statements of IXC Communications at December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at its offices at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such materials can be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Such reports and other
information concerning the Company are also available for inspection at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006. In addition the Commission maintains an Internet site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission.
The Company has filed with the Commission a registration statement on Form
S-1 (together with all exhibits, schedules, amendments, and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered by this Prospectus. This Prospectus, which forms a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement (certain parts of which have been omitted in
accordance with the rules and regulations of the Commission). For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement, or other document are not necessarily
complete, and, in each instance, reference is made to the copy of the document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by reference to such exhibit. The Registration
Statement may be inspected and copied at the public reference facilities at the
Commission's offices at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven
World Trade Center, 13th Floor, New York, New York, 10048. Copies of all or any
part thereof may be obtained from such office upon payment of prescribed fees.
72
<PAGE> 75
GLOSSARY
Access charges -- The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ALC -- ALC Communications Corporation, the parent of Allnet. ALC was
acquired by Frontier in August, 1995.
Allnet -- Allnet Communication Services, Inc.
Ameritech -- Ameritech Communications, Inc.
ATM (asynchronous transfer mode) -- An information transfer standard that
is one of a general class of technologies that relay traffic by way of an
address contained within the first five bytes of a standard 53-byte-long packet
or cell. The ATM format can be used by many different information systems,
including local area networks, to deliver traffic at varying rates, permitting a
mix of voice, video and data (multimedia).
AT&T -- AT&T Corp.
Backbone -- The through-portions of a transmission network, as opposed to
spurs which branch off the through-portions.
Bandwidth -- The range of frequencies that can be transmitted through a
medium, such as glass fibers, without distortion. The greater the bandwidth, the
greater the information-carrying capacity of such medium.
Broadband -- Broadband communications systems can transmit large quantities
of voice, data and video. Examples of broadband communication systems include
DS-3 fiber optic systems, which can transmit 672 simultaneous voice
conversations, or a broadcast television station signal, that transmits high
resolution audio and video signals into the home. Broadband connectivity is also
an essential element for interactive multimedia applications.
Cable & Wireless -- Cable & Wireless, P.L.C.
CAP (Competitive Access Provider) -- A company that provides its customers
with an alternative to the LEC for local transport of private line, special
access and interstate transport of switched access telecommunications service.
Capacity-intensive -- Refers to products which use comparatively large
amounts of bandwidth.
Carriers -- Companies that provide telecommunications transmission
services.
CCTS -- Consolidated Communications Telecom Services, Inc.
Central Offices -- The switching centers or central switching facilities of
the LECs.
Dedicated -- Refers to telecommunications lines dedicated or reserved for
use by particular customers along predetermined routes.
Digital -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies (both
fiber and microwave) employ a sequence of these pulses to represent information
as opposed to the continuously variable analog signal. The precise digital
numbers minimize distortion (such as graininess or snow in the case of video
transmission, or static or other background distortion in the case of audio
transmission). Both the Company's microwave and fiber optic facilities transmit
digital information.
Digital route miles -- Route miles of the Company's microwave and fiber
optic routes.
DS-1, DS-3 -- Standard telecommunications industry digital signal formats,
which are distinguishable by bit rate (the number of binary digits (0 and 1)
transmitted per second). DS-0 service has a bit rate of 64 kilobits per second
and can transmit only one voice or data transmission at a time. DS-1 service has
a bit rate of 1.544 megabits per second and can transmit 24 simultaneous voice
or data transmissions. DS-3 service has a bit rate of 45 megabits per second and
can transmit 672 simultaneous voice or data transmissions.
A-1
<PAGE> 76
DS-3 miles -- A measure of the total capacity and length of a transmission
path, calculated as the capacity of the transmission path in DS-3s multiplied by
the length of the path in miles.
DTI -- Digital Teleport, Inc.
EBITDA -- Operating income (loss) plus depreciation and amortization.
EBITDA is not a measurement determined in accordance with GAAP, should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP and is not necessarily comparable with similarly titled
measures for other companies.
800/888 service -- A telecommunications service for businesses that allows
calls to be made to a specific location at no charge to the calling party. Use
of the "800" or "888" service code denotes calls that are to be billed to the
receiving party. A computer database in the provider's network translates the
800 or 888 number into a conventional telephone number.
Enhanced data services -- Products and services designed for the transport
and delivery of integrated information to include voice, data and video and any
combination thereof.
Excel -- EXCEL Communications, Inc.
Facilities-based carrier -- Carriers who own transmission facilities.
FCC -- Federal Communications Commission.
Fiber miles -- The number of fiber route miles of a fiber optic route
multiplied by the number of fiber strands in the route.
Frame Relay -- A high-speed, data-packet switching service used to transmit
data between computers. Frame Relay supports data units of variable lengths at
access speeds ranging from 56 kilobits per second to 1.5 megabits per second.
This service is well-suited for connecting local area networks, but is not
appropriate for voice and video applications due to the variable delays which
can occur. Frame Relay was designed to operate at high speeds on modern fiber
optic networks.
Frontier -- Frontier Corporation.
GAAP -- Generally Accepted Accounting Principles.
GE Capital Communication -- GE Capital Communication Services Corporation.
GEIC -- General Electric Investment Corporation.
GST -- GST Net, Inc.
GTE -- GTE Corporation.
Hubs -- Collection centers located centrally in an area where
telecommunications traffic can be aggregated for transport and distribution.
ISDN (Integrated Services Digital Network) -- A complex networking concept
designed to provide a variety of voice, data and digital interface standards.
Incorporated into ISDN are many new enhanced services, such as high-speed data
file transfer, desktop video conferencing, telepublishing, telecommuting,
telepresence learning-remote collaboration, data network linking and home
information services.
Interexchange Carrier -- A company providing inter-LATA or long distance
services between LATAs on an intrastate or interstate basis.
Inter-LATA -- InterLATA calls are calls that pass from one LATA to another.
Typically, these calls are referred to as long distance calls.
Intra-LATA -- IntraLATA calls are those local calls that originate and
terminate within the same LATA.
A-2
<PAGE> 77
Intranet -- An infrastructure based on Internet standards and technologies
that provides access to information within limited and well-defined groups such
as universities, governments and other large organizations.
Kilobit -- One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "kilobits per
second."
LATAs (local access and transport areas) -- The approximately 200
geographic areas that define the areas between which the RBOCs were prohibited
from providing long distance services prior to the Telecommunications Act.
LCI -- LCI International Management Services, Inc.
LDS -- L.D. Services, Inc.
LEC (local exchange carrier) -- A company providing local telephone
services.
Local loop -- A circuit within a LATA.
MCI -- MCI Communications Corporation.
Megabit -- One million bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "megabits per
second."
MFS -- MFS Network Technologies, Inc.
MOUs -- Minutes of use of long distance service.
MSCAP -- Morgan Stanley Capital Investors, L.P., MSCP III 892 Investors,
L.P. and Morgan Stanley Capital Partners III, L.P.
Non-facilities based carrier -- Carriers that do not own transmission
facilities.
OC-3, OC-12 and OC-48 -- Standard telecommunications industry measurements
for optical transmission capacity distinguishable by bit rate transmitted per
second and the number of voice or data transmissions that can be simultaneously
transmitted through fiber optic cable. An OC-3 is generally equivalent to three
DS-3s and has a bit rate of 155.52 megabits per second and can transmit 2,016
simultaneous voice or data transmissions. An OC-12 has a bit rate of 622.08
megabits per second and can transmit 8,064 simultaneous voice or data
transmissions. An OC-48 has a bit rate of 2,488.32 megabits per second and can
transmit 32,256 simultaneous voice or data transmissions.
Off-net -- Refers to circuits on transmission facilities not owned by the
Company.
On-net -- Refers to circuits on transmission facilities owned by the
Company.
Optronic -- a combination of optical and electronic equipment.
Qwest -- Qwest Communications Corporation.
RBOCs (regional Bell operating companies) -- The seven local telephone
companies (formerly part of AT&T) established by court decree in 1982.
Rockwell International -- Rockwell International Corp.
Route miles -- The measure of the length of a transmission path in miles.
SONET (synchronous optical network technology) -- An electronics and
network architecture for variable-bandwidth products which enables transmission
of voice, video and data (multimedia) at very high speeds.
Sprint -- Sprint Corp.
Switch -- A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
A-3
<PAGE> 78
Switched long distance services -- Telecommunications services such as
residential long distance services that are processed through digital switches
and delivered over long-haul circuits and other transmission facilities.
Telecom One -- Telecom One, Inc.
Vyvx -- Vyvx, Inc., a subsidiary of The Williams Companies, Inc.
Westel -- Westel International, Inc.
WilTech -- The WilTech Group.
WilTel -- WilTel Network Services, Inc.
WorldCom -- WorldCom, Inc.
A-4
<PAGE> 79
IXC COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996.................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
IXC Communications, Inc.
We have audited the accompanying consolidated balance sheets of IXC
Communications, Inc. and its subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IXC
Communications, Inc. and its subsidiaries at December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Austin, Texas
February 28, 1997
F-2
<PAGE> 81
IXC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................. $ 6,915 $ 61,340
Accounts receivable:
Trade, net of allowance for doubtful accounts of $1,769,000 in
1995 and $4,030,000 in 1996...................................... 5,537 45,102
Other............................................................. 782 2,466
-------- --------
6,319 47,568
Income tax receivable.................................................. 1,296 --
Deferred tax assets (Note 12).......................................... 450 463
Prepaid expenses....................................................... 1,069 1,734
-------- --------
Total current assets.............................................. 16,049 111,105
Property and equipment, net (Note 4)................................... 106,399 268,609
Escrow under Senior Notes (Note 5)..................................... 198,266 51,412
Investment in unconsolidated subsidiaries.............................. 187 5,486
Deferred charges and other non-current assets.......................... 15,574 22,539
-------- --------
Total assets................................................. $336,475 $459,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable -- trade.............................................. $ 6,792 $ 64,923
Accrued liabilities (Note 6)........................................... 14,306 18,928
Current portion of long-term debt and capital lease obligations (Notes
7 and 8)............................................................. 4,534 6,750
-------- --------
Total current liabilities......................................... 25,632 90,601
Long-term debt and capital lease obligations (Notes 7 and 8)........... 294,260 295,531
Deferred tax liability (Note 12)....................................... 8,303 2,434
Other noncurrent liabilities........................................... 469 6,201
Commitments and contingencies (Notes 8 and 16)
Minority interest...................................................... 953 905
Stockholders' equity:
Preferred stock; 3,000,000 shares authorized:
10% Junior Series 3 cumulative preferred stock, $.01 par value;
12,550 shares issued and outstanding in 1995 and 1996 (aggregate
liquidation preference of $19,059,000 at December 31, 1996)...... 13 13
Common Stock, $.01 par value; 100,000,000 shares authorized; shares
issued and outstanding 24,335,255 in 1995 and 30,795,014 in
1996.............................................................. 243 308
Additional paid-in capital........................................... 29,430 123,434
Accumulated deficit.................................................. (22,828) (60,276)
-------- --------
Total stockholders' equity........................................... 6,858 63,479
-------- --------
Total liabilities and stockholders' equity........................ $336,475 $459,151
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 82
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net operating revenues (Note 10):
Private line.............................................. $80,663 $ 89,563 $ 99,793
Switched long distance.................................... -- 1,438 103,968
-------- ------- --------
$80,663 $ 91,001 $203,761
Operating expenses:
Cost of services.......................................... 33,896 39,852 143,469
Operations and administration............................. 20,561 32,282 47,067
Depreciation and amortization............................. 12,121 17,438 27,241
-------- ------- --------
Operating income (loss)................................ 14,085 1,429 (14,016)
Interest income............................................. 211 468 2,838
Interest income on escrow under Senior Notes................ -- 2,552 7,404
Interest expense............................................ (6,105) (14,597) (37,076)
Equity in net income (loss) of unconsolidated
subsidiaries.............................................. (94) 19 (1,961)
-------- ------- --------
Income (loss) before income taxes, minority interests and
extraordinary gain (loss)................................. 8,097 (10,129) (42,811)
Benefit (provision) for income taxes (Note 12).............. (3,157) 1,693 5,981
Minority interests.......................................... 77 5,218 (618)
-------- ------- --------
Income (loss) before extraordinary gain (loss).............. 5,017 (3,218) (37,448)
Extraordinary gain (loss) on early extinguishment of debt
(involving a related party in 1994), less applicable
(provision) benefit for income taxes of ($1,472,000) in
1994 and $1,164,000 in 1995............................... 2,298 (1,747) --
-------- ------- --------
Net income (loss)........................................... 7,315 (4,965) (37,448)
Dividends applicable to preferred stock..................... 1,752 1,843 1,739
-------- ------- --------
Net income (loss) applicable to common stockholders......... $ 5,563 $ (6,808) $(39,187)
======== ======= ========
Income (loss) per common and common equivalent share:
Before extraordinary gain (loss).......................... $ .13 $ (.20) $ (1.39)
Extraordinary gain (loss)................................. .09 (.07) --
-------- ------- --------
Net income (loss)......................................... $ .22 $ (.27) $ (1.39)
======== ======= ========
Weighted average common and common equivalent shares used in
computation of income (loss) per share.................... 24,993 25,108 28,209
======== ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 83
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
10% SENIOR SERIES 10% JUNIOR SERIES
1 3
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ----------------- ----------------- ADDITIONAL TOTAL
NUMBER OF NUMBER OF NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------- --------- ------ --------- ------ ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... 1 $ 1,460 13 $ 13 24,274 $242 $ 29,428 $ (24,272) $ 6,871
Issuance of common stock...... -- -- -- -- 61 1 2 -- 3
Net income.................... -- -- -- -- -- -- -- 7,315 7,315
--- ------- --- ---- ------ ---- ------ ------- -------
Balance at December 31, 1994.... 1 1,460 13 13 24,335 243 29,430 (16,957) 14,189
Redemption of preferred
stock....................... (1) (1,460) -- -- -- -- -- -- (1,460)
Net loss...................... -- -- -- -- -- -- -- (4,965) (4,965)
Dividends paid -- preferred
stock -- 10% Senior Series
1........................... -- -- -- -- -- -- -- (505) (505)
Dividends paid -- preferred
stock of consolidated
subsidiary.................. -- -- -- -- -- -- -- (401) (401)
--- ------- --- ---- ------ ---- ------ ------- -------
Balance at December 31, 1995.... -- -- 13 13 24,335 243 29,430 (22,828) 6,858
Issuance of common stock...... -- -- -- -- 6,460 65 94,004 -- 94,069
Net loss...................... -- -- -- -- -- -- -- (37,448) (37,448)
--- ------- --- ---- ------ ---- ------ ------- -------
Balance at December 31, 1996.... -- $ -- 13 $ 13 30,795 $308 $123,434 $ (60,276) $ 63,479
=== ======= === ==== ====== ==== ====== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 84
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $ 7,315 $(4,965) $(37,448)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation............................................... 11,131 16,608 23,695
Amortization............................................... 990 830 3,546
Amortization of debt issue costs and Senior Note
discount................................................ 472 858 1,086
Provision for doubtful accounts............................ 1,565 1,505 3,060
Equity in net (income) loss of unconsolidated
subsidiaries............................................ 94 (19) 1,961
Minority interest in net income (loss) of subsidiaries..... (77) (5,218) 618
Compensation expense on stock options...................... -- -- 182
Extraordinary (gain) loss on early extinguishment of
debt.................................................... (3,770) 2,911 --
Gain on sale of property and equipment..................... (90) -- --
Changes in assets and liabilities, net of effects of
acquisitions:
Increase in accounts receivable......................... (1,000) (4,108) (44,309)
Decrease (increase) in other current assets............. 141 (1,466) 490
Increase (decrease) in accounts payable - trade......... (4,619) 5,196 17,950
Increase in accrued liabilities......................... 139 7,503 4,436
Increase (decrease) in deferred income taxes............ 2,847 (1,847) (5,882)
Decrease in deferred charges and other non-current
assets................................................ (854) (4,092) (4,538)
Increase (decrease) in other noncurrent liabilities..... (752) (2,089) 6,466
------- ------- --------
Total adjustments..................................... 6,217 16,572 8,761
------- ------- --------
Net cash provided by (used in) operating
activities....................................... 13,532 11,607 (28,687)
------- ------- --------
</TABLE>
F-6
<PAGE> 85
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
See accompanying notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM INVESTING ACTIVITIES:
Release of funds from escrow under Senior Notes.......... $ -- $ 4,300 $ 154,244
Deposit into escrow under Senior Notes................... -- (202,552) (7,404)
Purchase of property and equipment....................... (7,087) (23,670) (136,391)
Sale of property and equipment........................... 235 -- --
Payments for businesses acquired, net of cash received... (11,976) -- --
-------- -------- ---------
Net cash provided by (used in) investing
activities................................... (18,828) (221,922) 10,449
-------- -------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Senior Notes, net of
discount............................................... -- 277,148 --
Capital contribution in subsidiary by minority
shareholders........................................... -- 6,002 --
Capital contribution to unconsolidated subsidiary........ -- -- (7,319)
Proceeds from long-term debt............................. 12,999 18,695 --
Payments on long-term debt and capital lease
obligations............................................ (7,837) (76,490) (12,786)
Payments from escrow..................................... 1,500 -- --
Payment of debt issue costs.............................. (1,551) (10,407) (1,301)
Redemption of preferred stock............................ -- (1,460) --
Redemption of preferred stock of consolidated subsidiary
held by minority interests............................. -- (1,400) --
Dividend payments........................................ -- (906) --
Issuance of common stock................................. 3 -- 94,069
-------- -------- ---------
Net cash provided by financing activities...... 5,114 211,182 72,663
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents..... (182) 867 54,425
Cash and cash equivalents at beginning of year........... 6,230 6,048 6,915
-------- -------- ---------
Cash and cash equivalents at end of year................. $ 6,048 $ 6,915 $ 61,340
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) for:
Income taxes........................................ $ 891 $ 1,240 $ (832)
======== ======== =========
Interest............................................ $ 4,496 $ 4,955 $ 37,561
======== ======== =========
</TABLE>
See accompanying notes.
F-7
<PAGE> 86
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND ACQUISITIONS
IXC Communications, Inc. and its subsidiaries (collectively referred to as
"IXC" or the "Company") is an Austin, Texas based supplier of telecommunications
services. IXC provides two principal services to long distance companies: (i)
private line voice and data circuits and (ii) switched long distance services.
Consistent with industry practice, the Company considers itself to be operating
in one business segment.
Long distance companies may be categorized as facilities-based carriers or
non-facilities-based carriers. Sellers of private line services are generally
facilities-based carriers, like IXC, that own private line transmission
facilities, such as fiber optic or digital microwave transmission facilities.
Customers using private line services include: (i) facilities-based carriers
that require private line capacity where they have geographic gaps in their
facilities, need additional capacity or require geographically different
routing; and (ii) non-facilities-based carriers requiring private line capacity
to carry their customers' long distance traffic. The Company provides private
line services to customers either on a "take-or-pay" long term basis, or after
contract expiration on a month-to-month basis.
In late 1995, the Company expanded into the business of selling switched
long distance services to long distance resellers. Long distance companies may
be characterized as switched or switchless carriers. Sellers of switched long
distance services are generally switched carriers, like IXC, that own one or
more switches that direct telecommunications traffic. Customers using the
Company's switched long distance service generally are switchless carriers that
depend on switched carriers to provide long distance services to their users.
The Company sells switched long distance services on a per-call basis, with
payment due monthly after services are rendered.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
IXC, a Delaware corporation, was incorporated in 1992 and, through a series
of transactions through 1994, acquired various wholly-owned and majority-owned
subsidiaries which are included in the consolidated financial statements. The
consolidated financial statements of IXC include the accounts of IXC
Communications, Inc. and its wholly-owned and majority-owned subsidiaries. The
Company has a 50% interest in Progress International L.L.C. ("Progress") which
is accounted for using the equity method. Progress has a 49% interest in
Marca-Tel S.A. de C.V. ("Marca-Tel"), a telecommunications company located in
Mexico. The Company also accounts for its 25% interest in U.S. Advantage Long
Distance, Inc., a reseller of long distance minutes, using the equity method.
Significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Revenues
Private line voice and data circuit revenues are generated primarily by
providing capacity on the Company's fiber optic and microwave transmission
network at rates established under long-term contractual arrangements or on a
month-to-month basis after contract expiration. Revenues are recognized as
services are provided.
Switched long-distance service revenues are generated primarily by
providing voice and data communications. Revenues are recognized as services are
provided.
The Company accounts for capacity exchange agreements with other carriers
by recognizing the fair value of the revenue earned and expense incurred under
the respective agreements.
F-8
<PAGE> 87
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost and classified as available for sale.
Short-term investments held in the Company's escrow related to the Senior Notes
(see Note 5) are not included as a cash equivalent. Escrow investments are
recorded at cost.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the various assets,
ranging from three to twenty years. Maintenance and repairs are charged to
operations as incurred. Property and equipment recorded under capital leases are
included with the Company's owned assets. Amortization of assets recorded under
capital leases is included in depreciation expense.
Costs associated with uncompleted portions of the fiber optic network are
classified as construction in progress in the accompanying consolidated balance
sheets. Upon completion, the costs will be classified as transmission systems
and depreciated over their useful lives.
Upon indication of an impairment, the Company records a loss on its
long-lived assets when the undiscounted cash flows estimated to be generated by
those assets are less than the related carrying amount of the assets.
Fiber Exchange Agreements
In connection with its fiber optic network expansion, the Company has
entered into various agreements to purchase, sell or exchange fiber usage
rights. Purchases of fiber usage rights from other carriers are recorded at cost
as a separate component of property and equipment. The recorded assets are
amortized over the lesser of the term of the related agreement or the estimated
life of the fiber optic cable. Sales of fiber usage rights are recorded as
deferred revenue and are included in other non-current liabilities in the
accompanying consolidated balance sheets. Revenues are recognized over the terms
of the related agreements. Non-monetary exchanges of fiber usage rights (swaps
of fiber usage rights with other long distance carriers) are recorded at the
cost of the asset transferred.
Capitalization of Interest
Interest costs are capitalized as part of the cost of constructing the
Company's fiber optic network. Interest costs capitalized during construction
periods are computed by determining the average accumulated expenditures for
each interim capitalization period and applying the interest rate related to the
specific borrowings associated with each construction project. Total interest
incurred during the years ended December 31, 1994, 1995 and 1996 was $6.1
million, $15.0 million and $40.0 million, respectively, of which, $34,000, $0.4
million and $2.9 million was capitalized.
Income Taxes
The Company accounts for income taxes using the liability method as
required by Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes.
Deferred income taxes are provided for net operating losses and for
temporary differences between the basis of assets and liabilities for financial
reporting and income tax reporting. Investment tax credits are accounted for by
the flow-through method.
F-9
<PAGE> 88
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Charges and Other Non-current Assets
Costs incurred in connection with obtaining long-term financing have been
deferred and are being amortized as interest expense over the terms of the
related debt agreements. Deferred costs relating to long-term financing at
December 31, 1995 and 1996 were $10.4 million and $11.4 million, respectively.
Accumulated amortization of these costs at December 31, 1995 and 1996 was $0.5
million and $1.4 million, respectively.
Costs incurred to obtain certain regulatory licenses are amortized on a
straight-line basis over ten to forty years.
Certain costs incurred in connection with installation of the switched long
distance network have been deferred and are being amortized on a straight-line
basis over four years. Deferred network costs at December 31, 1995 and 1996 were
$1.8 million and $5.0 million, with accumulated amortization of $0.1 million and
$1.0 million, respectively.
The acquisition cost of customer accounts obtained through an outside sales
organization have been deferred and amortized over the estimated average term of
the related customer contracts.
Stock-Based Compensation
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations, because, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25 compensation expense is
recognized only when the exercise price of the Company's employee stock options
is less than the market price of the underlying stock on the date of grant.
Income (Loss) Per Common and Common Equivalent Share
Income (loss) per common share is based on net income (loss) less preferred
stock dividend requirements, divided by the weighted average common and common
equivalent shares outstanding during the period. Outstanding options are
included in the calculation to the extent they are dilutive or were issued
within one year of the Company's initial public offering. Income (loss) per
share on a fully diluted basis is not presented as the fully diluted effect is
either antidilutive or not materially different from primary income (loss) per
common share, as computed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, funds held
in escrow and trade receivables. The Company places its cash equivalents and
funds held in escrow in quality investments with reputable financial
institutions. Trade receivables include significant balances due from a small
number of customers. At December 31, 1996,
F-10
<PAGE> 89
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$9.1 million in trade receivables from the Company's private line services are
due from seven customers. Switched long distance services receivables are also
concentrated, with $21.1 million in trade receivables due from one customer. If
any of these individually significant customers experienced deteriorating
financial condition, results of operations of the Company could be adversely
affected. The Company performs ongoing credit evaluations of its customers'
financial condition. IXC has not experienced significant losses from sales to
any of its significant customers. (See Note 10)
Reclassifications
Certain amounts for prior years have been reclassified to conform to the
1996 presentation.
3. ACQUISITION OF MINORITY INTEREST
Effective January 1, 1996, IXC purchased the minority interest in a joint
venture for $6.2 million. The acquisition of the minority interest was accounted
for as a purchase and the financial statements of the former joint venture have
been consolidated with the Company from the date of acquisition. The purchase
price was allocated based on estimated fair values at the date of acquisition.
The excess of purchase price over net assets acquired was $5.6 million and is
being amortized on a straight-line basis over five years. Unaudited pro forma
operating results for the year ended December 31, 1995 as if the minority
interest had been acquired as of January 1, 1995, are as follows (in thousands,
except per share amounts):
<TABLE>
<S> <C>
Net operating revenues.................................................. $ 91,001
========
Loss before income taxes, minority interests and extraordinary loss..... $(11,246)
========
Net loss................................................................ $ (9,352)
========
Loss per common and common equivalent share:
Before extraordinary loss............................................. $ (.38)
Extraordinary loss.................................................... (.07)
--------
Net loss........................................................... $ (.45)
========
</TABLE>
4. PROPERTY AND EQUIPMENT
The following table summarizes the Company's property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and right of ways....................................... $ 2,344 $ 2,345
Buildings and improvements................................... 4,021 5,048
Transmission systems......................................... 137,398 181,170
Furniture and other.......................................... 2,407 4,629
Fiber usage rights........................................... -- 38,533
Construction in progress..................................... 5,658 106,017
------- -------
151,828 337,742
Less: Accumulated depreciation and amortization.............. (45,429) (69,133)
------- -------
Property and equipment, net.................................. $106,399 $268,609
======= =======
</TABLE>
F-11
<PAGE> 90
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ESCROW UNDER SENIOR NOTES
Under the terms of the Company's Senior Notes, issued in October 1995, the
Company was required to place $200 million of Senior Notes proceeds in an escrow
account, which proceeds and the earnings thereon are restricted in their use to
network expansion, capital expenditures, certain interest, principal and other
payments on the Senior Notes and other permitted uses (see Note 7). Such funds
have been invested in short-term, investment-grade, interest-bearing securities
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Overnight investments.......................................... $ 96,975 $ 14,201
U.S. Government securities..................................... 101,291 37,211
-------- --------
$198,266 $ 51,412
======== ========
</TABLE>
The escrow account is subject to a security interest under the Company's
Senior Notes. The investments in the escrow account at December 31, 1995 and
1996 were all due in three months or less and classified as available for sale.
6. ACCRUED LIABILITIES
The following table summarizes the Company's accrued liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued taxes.................................................. $ 2,924 $ 2,750
Deferred revenue............................................... 1,693 3,044
Accrued interest............................................... 8,748 8,906
Other.......................................................... 941 4,228
------- -------
$14,306 $18,928
======= =======
</TABLE>
7. LONG-TERM DEBT
Long-term debt and capital lease obligations of IXC consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes -- 12.5%, net of unamortized discount of
$7,762,000 and $7,344,000 at December 31, 1995 and 1996,
respectively................................................. $277,238 $277,656
Senior subordinated note -- 7%................................. 4,416 3,046
Promissory note -- 9%.......................................... 3,401 3,717
Capital lease obligations...................................... 13,697 17,862
Other debt..................................................... 42 --
-------- --------
Total long-term debt and capital lease obligations........ $298,794 $302,281
Less current portion........................................... (4,534) (6,750)
-------- --------
Long-term debt and capital lease obligations................... $294,260 $295,531
======== ========
</TABLE>
F-12
<PAGE> 91
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Senior Notes
On October 5, 1995, the Company issued $285 million of 12 1/2% Senior Notes
(effective rate 12.8%) due October 1, 2005, with interest payable semi-annually.
In July 1996, the Company exchanged certain of the Senior Notes for registered
Senior Notes. Until the exchange was consummated, the Company was required to
make additional interest payments at the rate of .5% per annum on the principal
amount.
The Senior Notes may be redeemed at the option of the Company, in whole or
in part, on or after October 1, 2000 at a premium declining to zero in 2004. At
any time prior to October 1, 1998, the Company may redeem Senior Notes with an
aggregate principal amount of up to $100 million at a redemption price of 112.5%
of the principal amount from the net proceeds of a sale of Capital Stock of the
Company, provided that at least $100 million in aggregate principal amount of
Senior Notes remains outstanding immediately after the occurrence of such
redemption and that the redemption occurs within 35 days of the date of the
closing of the offering of such equity securities. Also, the Senior Notes
contain provisions that, in the event of a Change in Control (which meets the
definition set forth in the Indenture) of the Company, provide their holders the
right to require the Company to repurchase all or any part of the Senior Notes
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest.
Of the net proceeds of approximately $277 million, $200 million was
deposited into an escrow account primarily restricted for the construction of a
major network expansion program (see Note 5). Approximately $53.7 million of the
net proceeds was used to repay or repurchase certain previously-existing
indebtedness of the Company, including $22.7 million paid to certain
stockholders. This resulted in an extraordinary loss on early extinguishment of
debt of $1.7 million in 1995, net of applicable income tax benefit of $1.2
million. In addition, approximately $3.8 million was used to redeem certain
preferred stock.
The Senior Notes are senior unsecured obligations of the Company, except
for a security interest in the escrow account, and are guaranteed on a senior
unsecured basis by certain wholly owned direct and indirect subsidiaries of IXC.
The obligations of each guarantor are limited to the minimum extent necessary to
prevent the guarantee from violating or becoming voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. See Note 20 for financial
information for guarantor and non-guarantor subsidiaries.
The Senior Notes contain certain covenants that restrict the ability of the
Company and its subsidiaries to incur additional indebtedness and issue certain
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company or its subsidiaries, issue or sell equity
interests of the Company's subsidiaries or enter into certain mergers and
consolidations.
Senior Subordinated Note
During 1994, the Company issued a $6.2 million, 7% senior subordinated
promissory note to a minority investor in one of IXC's subsidiaries. Under the
terms of the senior subordinated promissory note, principal and interest are due
in monthly installments of $136,000 through December 31, 1998.
Promissory Note
During 1994, to facilitate an acquisition, the Company issued a $3.0
million 9% promissory note to a minority investor in the acquired entity. Under
the terms of the promissory note, principal and interest payments of $560,000
are due quarterly beginning March 31, 1998 and ending December 31, 1999. Thus,
accrued interest is reflected in the balance of the note.
F-13
<PAGE> 92
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt at December 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997.............................................. $ 1,470
1998.............................................. 3,170
1999.............................................. 2,123
2005.............................................. 285,000
--------
291,763
Less discount on Senior Notes..................... (7,344)
--------
$284,419
========
</TABLE>
8. CAPITAL AND OPERATING LEASES
The Company leases certain facilities, equipment and transmission capacity
used in its operations under noncancellable capital and operating leases. Future
minimum annual lease payments under these lease agreements at December 31, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997.................................................... $ 6,599 $22,597
1998.................................................... 5,120 13,432
1999.................................................... 4,616 4,029
2000.................................................... 3,737 1,211
2001.................................................... 1,143 712
-------
21,215
Less amounts related to interest........................ (3,353)
-------
Present value of capital lease obligations.............. 17,862
Less current portion.................................... (5,280)
-------
Long-term capital lease obligations..................... $12,582
=======
</TABLE>
The gross amount of assets recorded under capital leases at December 31,
1995 and 1996 was $17.9 million and $22.2 million, respectively. The related
accumulated amortization was $4.1 million and $5.9 million at December 31, 1995
and 1996, respectively.
Lease expense relating to facilities, equipment and transmission capacity
leases, excluding amortization of fiber exchange agreements, was approximately
$28.7 million, $29.1 million and $49.9 million for the years ended December 31,
1994, 1995 and 1996, respectively.
In November 1994, IXC entered into an agreement whereby certain deferred
lease obligations payable through 1998 were restructured resulting in all the
deferred obligations, $4.4 million, being due during 1995. These obligations
were repaid in 1995 from the proceeds the Company received from the issuance of
the Senior Notes.
In 1995 and 1996, the Company entered into equipment leases for network
switching equipment, for which the lease obligations had a present value of $9.8
million and $7.2 million, respectively. In 1996, the Company entered into
equipment leases for broadband network switching equipment for which the lease
obligations had a present value of $1.3 million.
F-14
<PAGE> 93
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON AND PREFERRED STOCK
Preferred Stock
The 10% Junior Series 3 Cumulative Redeemable Preferred Stock ("Series 3
Preferred Stock") votes as a single class with IXC's common stock, is entitled
to elect one director and may be redeemed at the Company's option in whole or in
part at any time, subject to certain debt covenants, at a price of $1,000 per
share, plus accumulated and unpaid dividends and accrued interest. The
liquidation value of each Series 3 Preferred share is $1,000 plus any
accumulated and unpaid dividends including accrued interest. The Series 3
Preferred Stock is nonparticipatory and has no mandatory redemption
requirements. Dividends are payable at the determination of the Board of
Directors, subject to debt covenants. Interest accrues on unpaid dividends at an
annual rate of 10%. Cumulative preferred dividends in arrears, including
interest, at December 31, 1995 and 1996 were $4.8 million ($380.59 per share)
and $6.5 million ($518.65 per share), respectively.
IXC's 10% Senior Series 1 Cumulative Redeemable Preferred Stock was
non-voting and was redeemed on October 6, 1995 from the proceeds of the Senior
Notes for $2.0 million, including cumulative dividends in arrears and related
interest of $505,000.
During 1993, an indirect subsidiary of IXC issued 1,400 shares of 10%
Senior Series 1 Cumulative Redeemable Preferred Stock (the "ILHI Series 1
Preferred Stock") at $1,000 per share to stockholders of IXC. The ILHI Series 1
Preferred Stock was redeemed on October 6, 1995 from the proceeds of the Senior
Notes for $1.8 million, including cumulative dividends in arrears and related
interest of $401,000.
Common Stock
During 1996, the Company issued 6,440,000 shares of Common Stock in an
initial public offering and a private placement, resulting in net proceeds of
$94.0 million. At December 31, 1996, the Company has 3,382,435 shares reserved
for future issuance under stock option plans.
During 1996, the Company effected stock splits resulting in a 2.4249 for 1
split of the Company's common stock (with fractional shares paid in cash). The
Company also increased the number of authorized shares of its common stock to
100,000,000 and the number of authorized shares of its preferred stock to
3,000,000. The accompanying financial statements have been retroactively
adjusted to reflect the stock splits and the increase in authorized shares.
Stock Option and Award Plans
In November 1994, the Board of Directors adopted the IXC Communications,
Inc. Stock Plan, as amended (the "1994 Stock Plan"), which provides for the
issuance of restricted stock or the granting of stock options for up to
1,212,450 shares of common stock to key employees and others. Awards under the
1994 Stock Plan are given at the discretion of the Board of Directors and
include common stock options with exercise prices at least equal to the fair
market value at the date of grant. Options granted may be either "incentive
stock options," within the meaning of Section 422(a) of the Internal Revenue
Code, or non-qualified options. The options expire after 10 years and generally
vest at rates of 25% and 33% per year commencing one year after the date of
grant, with the exception of two options covering 84,871 shares which were 100%
vested upon grant.
In 1996, IXC adopted the IXC Communications, Inc. 1996 Stock Plan, as
amended, (the "1996 Stock Plan"), which provides for the issuance of restricted
stock or the granting of stock options for up to 2,121,787 shares of common
stock to key employees and others. Awards under the 1996 Stock Plan are given at
the discretion of the Board of Directors and include common stock options with
exercise prices at least equal to the fair market value at the date of grant.
Options granted may be either "incentive stock options," within the meaning of
Section 422(a) of the Internal Revenue Code, or non-qualified options. The
options expire after
F-15
<PAGE> 94
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON AND PREFERRED STOCK (CONTINUED)
10 years and generally vest at rates of 25% and 33% per year commencing one year
after the date of grant. During 1996, 476,600 options were granted under the
1996 Stock Plan.
The Company has not issued any restricted stock under the 1994 Stock Plan
or the 1996 Stock Plan. All options granted under the 1994 Stock Plan and the
1996 Stock Plan were granted at estimated market value at the date of grant. In
the event of a change of control of the Company, the options outstanding
immediately following the consummation of such change of control fully vest, and
the options may be exercised in full to purchase the total number of shares
covered by the option.
In October 1996, IXC adopted a stock incentive plan (the "Special Stock
Plan") covering 67,900 shares of common stock. Any employee, director or other
person providing services to the Company is eligible to receive awards under the
Special Stock Plan, at the Board's discretion. Awards available under the
Special Stock Plan include common stock purchase options and restricted common
stock. All available options to acquire stock under the Special Stock Plan were
granted in 1996 at exercise prices less than market value at the date of grant.
In 1996, the Company recognized $182,000 in compensation expense related to
grants under the Special Stock Plan.
On May 14, 1996 the Board of Directors adopted the IXC Communications, Inc.
Outside Directors' Phantom Stock Plan (the "Directors' Plan"), pursuant to which
$20,000 per year of outside director's fees for certain directors is deferred
and treated as if it were invested in shares of the Company's common stock. No
shares of common stock will be actually purchased and the participants will
receive cash benefits equal to the value of the shares that they are deemed to
have purchased under the Directors' Plan, with such value to be determined on
the date of distribution. Distribution of benefits generally will occur three
years after the deferral. Compensation expense is determined based on the market
price of the shares deemed to have been purchased and is charged to expense over
the related period. On June 6, 1996 the stockholders approved the Directors'
Plan. In 1996, the Company recognized $60,000 as directors' fees related to the
Directors' Plan.
Stock Based Compensation
The Company has elected to account for its employee stock options under APB
25. As a result, pro forma information regarding net income and income (loss)
per share is required by SFAS No. 123, which requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates ranging
from 5.74% to 5.95% and 5.25% to 6.73%; no dividend yield; volatility factor of
the expected market price of the Company's common stock of .523; and a
weighted-average expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
F-16
<PAGE> 95
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON AND PREFERRED STOCK (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Pro forma loss applicable to common stockholders................ $(6,871) $(39,805)
Pro forma loss per common and common equivalent share........... $ (0.27) $ (1.41)
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------ -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year........ -- $ -- 206,113 $3.01 645,880 $ 3.01
Granted.............................. 206,113 3.01 439,767 3.01 1,138,351 12.04
Exercised............................ -- -- -- -- (19,702) 3.01
Forfeited............................ -- -- -- -- (63,956) 3.01
--- --- ------ --- ------ ---
Outstanding-end of year.............. 206,113 $ 3.01 645,880 $3.01 1,700,573 $ 9.05
=== === ====== === ====== ===
Exercisable at end of year........... -- 121,243 257,527
Weighted-average fair value of
options granted during the year.... -- $ 1.51 $ 7.34
</TABLE>
The following table summarizes outstanding options at December 31, 1996 by
price range:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------------------------------- ---------------------
WEIGHTED- WEIGHTED-AVERAGE WEIGHTED-
NUMBER AVERAGE REMAINING NUMBER AVERAGE
OF RANGE OF EXERCISE CONTRACTUAL OF EXERCISE
OPTIONS EXERCISE PRICE PRICE LIFE OF OPTIONS OPTIONS PRICE
--------- ----------------- --------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.01
1,059,323 $3.01 8.8 257,527 $3.01
15.43
302,250 15.38 to 16.00 9.6 -- --
22.25
339,000 22.25 9.8 -- --
------------
$ 9.05
1,700,573 $3.01 to $22.25 9.2 257,527 $3.01
============
</TABLE>
10. MAJOR CUSTOMERS
Prior to 1996, substantially all of the Company's revenues were earned from
private line services. Private line services generally are provided to carriers
under long-term contractual arrangements or on a month-to-month basis after
contract expiration. In late 1995, the Company expanded into the business of
selling switched long distance services to long distance resellers. Excel
Communications is the Company's largest switched long distance customer. Sales
to certain customers exceeded 10% of total revenues for each of the years ended
December 31, 1994, 1995 and 1996. The percentages of revenues represented by
these customers are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Excel Communications.................................... -- -- 35%
Frontier Communications................................. 23% 21% 10%
WorldCom, Inc........................................... 25% 20% 8%
</TABLE>
F-17
<PAGE> 96
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution retirement and 401(k) savings plan
which covers all full-time employees with one year of service. The Company
contributes 6% of eligible compensation, as defined in the plan, and matches 50%
of the employee's contributions up to a maximum of 6% of the employee's
compensation. Employees vest in the Company's contribution over five years.
Benefit expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $468,000, $522,000 and $779,000, respectively.
12. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards..................................... $ 2,411 $ 2,068
Net operating loss carryforwards............................. 2,489 22,240
Accrued expenses............................................. 908 3,156
Other........................................................ 1,286 --
------ ------
Gross deferred tax assets............................... 7,094 27,464
Valuation allowance..................................... -- (17,264)
------ ------
Net deferred tax assets........................................ 7,094 10,200
Deferred tax liabilities:
Tax over book depreciation................................... (8,384) (10,372)
Other liability accruals..................................... (5,090) (1,799)
Other........................................................ (1,473) --
------ ------
(14,947) (12,171)
------ ------
Net deferred tax liability..................................... $ (7,853) $ (1,971)
====== ======
As recorded in the consolidated balance sheets:
Deferred tax assets.......................................... $ 450 $ 463
Deferred tax liability....................................... (8,303) (2,434)
------ ------
$ (7,853) $ (1,971)
====== ======
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $55.6 million for income tax purposes that expire through 2011.
The Company has minimum tax and investment tax credit carryforwards at December
31, 1996 of approximately $0.7 million and $1.4 million, respectively. The
minimum tax credits can be carried forward indefinitely and the investment tax
credits expire in 2001.
At December 31, 1996, a valuation allowance of $17.3 million was
established to offset a portion of the Company's deferred tax assets. The
valuation allowance is related to deferred tax assets, primarily net operating
losses, that may not be realizable. No valuation allowance was provided for
deferred tax assets at December 31, 1994 or 1995.
F-18
<PAGE> 97
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES (CONTINUED)
Significant components of the benefit (provision) for income taxes
(excluding the effect attributable to extraordinary items) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $(1,188) $ 381 $ 829
State............................................... (404) -- (250)
------ ------- -------
Total current......................................... (1,592) 381 579
Deferred:
Federal............................................. (1,131) 1,144 4,136
State............................................... (434) 168 1,266
------ ------- -------
Total deferred........................................ (1,565) 1,312 5,402
------ ------- -------
Benefit (provision) for income taxes.................. $(3,157) $ 1,693 $ 5,981
====== ======= =======
</TABLE>
The reconciliation of income tax benefit (provision) attributable to
continuing operations computed at the U.S. federal statutory tax rates to income
tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit (provision) at federal statutory rates... $(2,780) $ 1,670 $ 14,766
State income tax benefit (provision) net of federal
effect............................................. (432) 302 3,106
Net operating losses not benefited................... -- -- (17,264)
Resolution of tax examinations....................... -- -- 3,511
Permanent and other differences...................... 55 (279) 1,862
------ ------- -------
Benefit (provision) for income taxes................. $(3,157) $ 1,693 $ 5,981
====== ======= =======
</TABLE>
13. CAPACITY EXCHANGE AGREEMENTS
In the normal course of business, IXC enters into long-term agreements with
other carriers to exchange capacity on such carriers' networks for access to the
Company's fiber optic communication systems. Exchanges are accounted for at fair
value (see Note 2). Exchange agreements accounted for noncash revenue and
expense (in equal amounts) of $8.0 million in 1994, $13.8 million in 1995 and
$14.0 million in 1996.
14. RELATED PARTY TRANSACTIONS
A law firm, of which a director and stockholder of the Company was a
principal, provided certain legal services to the Company and received fees from
the Company in the amount of approximately $1.4 million in 1994, $2.6 million in
1995 and $3.5 million in 1996.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
F-19
<PAGE> 98
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Accounts receivable and accounts payable: The carrying amounts reported in
the balance sheets for accounts receivable and accounts payable approximate
fair value.
Escrow under Senior Notes: The carrying amount reported in the balance
sheets for restricted short-term investments held in escrow approximates
fair value.
Long-term debt: The fair value of the Senior Notes is estimated at $311
million based on the last trading price of the Senior Notes in 1996.
16. COMMITMENTS AND CONTINGENCIES
In connection with its fiber optic network expansion, the Company has
entered into various construction and installation agreements with contractors.
Total commitments under these agreements are approximately $87.2 million. At
December 31, 1996, capital expenditures totaling $47.6 million have been made
under these agreements.
In connection with its fiber expansion agreements, the Company has
committed to pay $40.3 million for fiber usage rights on other long distance
carriers' networks, $7.4 million of which was paid by December 31, 1996.
Pursuant to the same agreements, the Company has committed to pay a total of
$28.2 million, in periodic installments for twenty to twenty-five years for
maintenance and license fees. Several of these agreements require the Company to
share network construction costs with the other party. The exact amounts of
these construction costs are not specified in the related agreements and are
thus excluded from the figures above.
The Company is from time to time involved in various legal proceedings, all
of which have arisen in the ordinary course of business and some of which are
covered by insurance. In the opinion of the Company's management, none of the
claims relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
17. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance for doubtful accounts was as follows
(in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
FOR THE YEARS ENDED OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1994........................ $ 429 $1,565 $1,232 $ 762
December 31, 1995........................ $ 762 $1,505 $ 498 $ 1,769
December 31, 1996........................ $1,769 $3,060 $ 799 $ 4,030
</TABLE>
F-20
<PAGE> 99
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. QUARTERLY RESULTS (UNAUDITED)
The Company's unaudited quarterly results are as follows:
<TABLE>
<CAPTION>
FOR THE 1995 QUARTER ENDED:
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net operating revenues.................... $ 21,766 $ 22,721 $22,772 $ 23,742
Operating income (loss)................... 3,716 3,529 (900) (4,916)
Income (loss) before extraordinary gain
(loss).................................. 1,267 1,502 (307) (5,680)
Net income (loss)......................... 1,267 496 (307) (6,421)
Net income (loss) per common share before
extraordinary gain (loss)............... $ 0.03 $ 0.04 $ (0.03) $ (0.24)
Net income (loss) per common share........ 0.03 -- (0.03) (0.27)
</TABLE>
<TABLE>
<CAPTION>
FOR THE 1996 QUARTER ENDED:
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30
-------- -------- -------------
DECEMBER 31
------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (A)
<S> <C> <C> <C> <C>
Net operating revenues.................... $ 26,250 $ 43,007 $61,016 $ 73,488
Operating loss............................ (5,777) (6,066) (2,121) (52)
Net loss.................................. (11,699) (12,067) (5,624) (8,058)
Net loss per common share................. $ (0.49) $ (0.50) $ (0.19) $ (0.27)
</TABLE>
- ---------------
(a) Includes a $1.9 million loss relating to the Company's share of losses of
its unconsolidated subsidiary, Progress.
19. SUBSEQUENT EVENTS
On January 22, 1997 the Company signed separate agreements to acquire L.D.
Services, Inc. and Telecom One, Inc., both long distance resellers. Subject to
certain adjustments, the Company will acquire L.D. Services, Inc. for
approximately $30 million and Telecom One, Inc. for approximately $5 million,
both to be paid in common stock of the Company. Consummation of these
transactions is pending regulatory approval.
Effective February 4, 1997 the Company entered into an agreement to sell
fiber to a common carrier without optronics along IXC's Chicago to Los Angeles
fiber optic route for approximately $97.9 million. The route from Chicago to Los
Angeles is scheduled for completion in mid-1997. The agreement provides for
certain penalties if IXC does not complete construction of the route within the
timeframe specified in the agreement. Management does not anticipate that the
Company will incur any penalties under these provisions.
On February 27, 1997 the Company agreed to issue $100 million (10,000
shares) of new 7% Series A Convertible Preferred Stock. The preferred stock will
be convertible into common stock at a conversion price of $38.40 per share. The
holders of the 7% Series A Convertible Preferred Stock will have the right to
elect one director to the Board of Directors. On March 31, 2009, the outstanding
7% Series A Convertible Preferred Stock must be redeemed by the Company at a
price equal to the liquidation preference of $10,000 per share plus accumulated
and unpaid dividends.
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
IXC conducts a significant portion of its business through subsidiaries.
The Senior Notes are unconditionally guaranteed, jointly and severally, by
certain wholly-owned direct and indirect subsidiaries (the "Subsidiary
Guarantors"). The obligations of each Guarantor are limited to the minimum
extent necessary to prevent the guarantee from violating or becoming voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. Certain IXC
subsidiaries do not guarantee the Senior Notes (the "Non-Guarantor
Subsidiaries"). The claims of creditors
F-21
<PAGE> 100
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
of Non-Guarantor Subsidiaries have priority over the rights of IXC to receive
dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for IXC,
the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996.
The equity method has been used by IXC with respect to investments in
subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
The following table sets forth the Guarantor and Non-Guarantor
subsidiaries:
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
------------------------------------------ ------------------------------------------
<S> <C>
Broadband Services, Inc. Mutual Signal Holding Corp.
IXC Carrier, Inc. Mutual Signal Corporation
Atlantic States Microwave Mutual Signal Corporation of
Transmission Company Michigan
Central States Microwave MSM Associates, Limited Partnership
Transmission Company Progress International L.L.C.
Rio Grande Transmission, Inc. Marca-Tel S.A. de C.V.
Telecom Engineering, Inc. Switched Services Communications, L.L.C.
Tower Communications System Corp. Summer Street Communications, Inc.
West Texas Microwave Company US Advantage Long Distance, Inc.
Western States Microwave Company
IXC Long Distance, Inc.
Link Net International, Inc.
</TABLE>
F-22
<PAGE> 101
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenues............ $ -- $ 78,448 $ 3,410 $ (1,195)(a) $ 80,663
Operating expenses:
Cost of services................ -- 33,848 810 (762)(a) 33,896
Operations and administration... 570 19,336 898 (243)(a) 20,561
Depreciation and amortization... 32 11,166 923 -- 12,121
------ ------ ------ ------- ------
(602) 14,098 779 (190) 14,085
Interest income................... 139 194 8 (130)(a) 211
Interest expense.................. (653) (5,141) (441) 130(a) (6,105)
Equity in net income (loss) of
unconsolidated subsidiaries..... 7,864 83 -- (8,041)(b) (94)
------ ------ ------ ------- ------
Income before income taxes,
minority interests and
extraordinary gain.............. 6,748 9,234 346 (8,231) 8,097
Benefit (provision) for income
taxes........................... 567 (3,477) (247) -- (3,157)
Minority interests................ -- -- -- 77(c) 77
------ ------ ------ ------- ------
Income before extraordinary
gain............................ 7,315 5,757 99 (8,154) 5,017
Extraordinary gain, net of
taxes........................... -- 2,298 -- -- 2,298
------ ------ ------ ------- ------
Net income................... $7,315 $ 8,055 $ 99 $ (8,154) $ 7,315
====== ====== ====== ======= ======
</TABLE>
- ---------------
(a) Eliminations of intercompany administration services, communication services
and interest charges.
(b) Eliminations of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of minority interest in equity or earnings loss of non-guarantor
subsidiaries.
F-23
<PAGE> 102
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $(1,262) $ 9,935 $ 1,199 $ 3,660(a)(b) $ 13,532
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment...................... -- (3,545) (3,732) 190 (7,087)
Sale of property and equipment... -- 235 -- -- 235
Payments for businesses acquired,
net of cash received........... -- -- (11,976) -- (11,976)
------- ------- -------- ------- --------
Net cash provided by (used in)
investing activities........... -- (3,310) (15,708) 190 (18,828)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments from (advances to)
affiliates, net................ 1,411 (1,525) 114 -- --
Proceeds from long-term debt..... -- 229 15,770 (3,000)(a) 12,999
Payments on long-term debt and
capital lease obligations...... -- (7,331) (506) -- (7,837)
Payments from escrow............. -- 1,500 -- -- 1,500
Payments of debt issue costs..... (139) (976) (436) -- (1,551)
Capital contribution in
subsidiary by minority
shareholders................... -- -- 500 (500)(b) --
Issuance of common stock......... 3 -- 1 (1)(b) 3
------- ------- -------- ------- --------
Net cash provided by (used in)
financing activities........... 1,275 (8,103) 15,443 (3,501) 5,114
Net increase (decrease) in cash
and cash equivalents........... 13 (1,478) 934 349 (182)
Cash and cash equivalents at
beginning of year.............. 133 6,097 -- -- 6,230
------- ------- -------- ------- --------
Cash and cash equivalents at end
of year........................ $ 146 $ 4,619 $ 934 $ 349 $ 6,048
======= ======= ======== ======= ========
</TABLE>
- ---------------
(a) Eliminations of intercompany receivables, debt and lease obligations.
(b) Eliminations of intercompany capital contribution.
F-24
<PAGE> 103
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 1,418 $ 3,332 $ 1,742 $ 423(a) $ 6,915
Accounts receivable and
other, net............... -- 6,717 1,148 (2,328)(d) 6,319
Other current assets........ 6,565 4,481 358 (7,807)(d) 2,815
-------- -------- ------- --------- --------
Total current assets.......... 7,983 14,530 3,248 (9,712) 16,049
Property and equipment, net... -- 76,804 29,910 (315) 106,399
Escrow under Senior Notes..... 198,266 -- -- -- 198,266
Due from affiliate............ 74,604 3,351 568 (78,523)(d) --
Other assets.................. 12,707 16,948 4,191 (18,085)(b) 15,761
-------- -------- ------- --------- --------
Total assets.................. $293,560 $111,633 $ 37,917 $ (106,635) $336,475
======== ======== ======= ========= ========
Current liabilities:
Accounts payable and other
current liabilities...... $ 8,984 $ 13,922 $ 2,720 $ (4,528)(a)(d) $ 21,098
Due to affiliate............ 258 6,458 1,832 (8,548)(d) --
Current portion of long-term
debt and lease
obligations.............. -- 1,511 3,023 -- 4,534
-------- -------- ------- --------- --------
Total current liabilities..... 9,242 21,891 7,575 (13,076) 25,632
Long-term debt and capital
lease obligations........... 277,238 3,207 17,215 (3,400)(d) 294,260
Deferred tax liability........ 222 10,997 -- (2,916) 8,303
Due to affiliate/parent....... -- 70,384 3,878 (74,262)(d) --
Other noncurrent
liabilities................. -- 469 -- -- 469
Minority interest............. -- 1 -- 952(c) 953
Stockholders' equity:
Preferred stock............. 13 -- -- -- 13
Common stock................ 243 3 1 (4)(b) 243
Additional paid-in
capital.................. 29,430 30,051 20,750 (50,801)(b) 29,430
Accumulated deficit......... (22,828) (25,370) (11,502) 36,872(b)(c)(d) (22,828)
-------- -------- ------- --------- --------
Total stockholders' equity.... 6,858 4,684 9,249 (13,933) 6,858
-------- -------- ------- --------- --------
Total liabilities
and stockholders'
equity............ $293,560 $111,633 $ 37,917 $ (106,635) $336,475
======== ======== ======= ========= ========
</TABLE>
- ---------------
(a) Eliminations of intercompany settlements in transit.
(b) Eliminations of investments in consolidated subsidiaries
(c) Recording of minority interest in equity operations.
(d) Eliminations of intercompany receivables, payables and lease obligations.
F-25
<PAGE> 104
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenues.......... $ 404 $ 89,339 $ 12,155 $(10,897)(a) $ 91,001
Operating expenses:
Cost of services.............. -- 38,950 10,075 (9,173)(a) 39,852
Operations and
administration............. 1,116 26,155 6,322 (1,311)(a) 32,282
Depreciation and
amortization............... 57 12,728 4,653 -- 17,438
-------- ------- -------- -------- --------
(769) 11,506 (8,895) (413) 1,429
Interest income................. 3,766 399 67 (3,764)(a) 468
Interest income on escrow under
Senior Notes.................. 2,552 -- -- -- 2,552
Interest expense................ (10,982) (5,838) (1,541) 3,764(a) (14,597)
Equity in net income (loss) of
unconsolidated subsidiaries... (1,474) (7,678) -- 9,171(b) 19
-------- ------- -------- -------- --------
Loss before income taxes,
minority interests and
extraordinary loss............ (6,907) (1,611) (10,369) 8,758 (10,129)
Benefit (provision) for income
taxes......................... 2,246 546 (1,099) -- 1,693
Minority interests.............. -- -- -- 5,218(c) 5,218
-------- ------- -------- -------- --------
Loss before extraordinary
items......................... (4,661) (1,065) (11,468) 13,976 (3,218)
Extraordinary loss, net of
taxes......................... (304) (1,309) (134) -- (1,747)
-------- ------- -------- -------- --------
Net loss........................ $ (4,965) $ (2,374) $ (11,602) $ 13,976 $ (4,965)
======== ======= ======== ======== ========
</TABLE>
- ---------------
(a) Eliminations of intercompany administration services, communication services
and interest charges.
(b) Eliminations of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of minority interest in equity or earnings loss of non-guarantor
subsidiaries.
F-26
<PAGE> 105
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR IXC
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............. $ (8,324) $ 24,272 $(8,333) $ 3,992(a) $ 11,607
CASH FLOWS FROM INVESTING
ACTIVITIES:
Release of funds from escrow under
Senior Notes..................... 4,300 -- -- -- 4,300
Purchase of restricted short-term
investments...................... (202,552) -- -- -- (202,552)
Purchase of property and
equipment........................ -- (14,282) (9,565) 177 (23,670)
--------- -------- -------- ------- ---------
Net cash used in investing
activities....................... (198,252) (14,282) (9,565) 177 (221,922)
CASH FLOW FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
Senior Notes, net of discount.... 277,148 -- -- -- 277,148
Capital contribution in subsidiary
by minority shareholders......... -- (14,248) 20,250 -- 6,002
Payments from (advances to)
affiliates, net.................. (50,827) 50,827 -- -- --
Proceeds from long-term debt....... -- 17,150 1,545 -- 18,695
Payments on long-term debt and
capital lease obligations........ (5,700) (63,606) (3,089) (4,095)(a) (76,490)
Payments of debt issue costs....... (10,407) -- -- -- (10,407)
Redemption of preferred stock...... (1,460) (1,400) -- -- (2,860)
Dividend payments.................. (906) -- -- -- (906)
--------- -------- -------- ------- ---------
Net cash provided by (used in)
financing activities............. 207,848 (11,277) 18,706 (4,095) 211,182
Net increase (decrease) in cash and
cash equivalents................. 1,272 (1,287) 808 74 867
Cash and cash equivalents at
beginning of year................ 146 4,619 934 349 6,048
--------- -------- -------- ------- ---------
Cash and cash equivalents at end
of year.......................... $ 1,418 $ 3,332 $ 1,742 $ 423 $ 6,915
========= ======== ======== ======= =========
</TABLE>
- ---------------
(a) Eliminations of intercompany receivables, debt and lease obligations.
F-27
<PAGE> 106
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 65,363 $ (9,455) $ 4,611 $ 821(a) $ 61,340
Accounts receivable and
other, net............... 111 28,657 32,363 (13,563)(d) 47,568
Other current assets........ 937 3,765 549 (3,054)(d) 2,197
-------- -------- -------- --------- --------
Total current assets.......... 66,411 22,967 37,523 (15,796) 111,105
Property and equipment, net... 8 231,514 37,347 (260) 268,609
Escrow under Senior Notes..... 51,412 -- -- -- 51,412
Due from affiliate............ 225,093 40,742 6,574 (272,409)(d) --
Other assets.................. 8,429 6,527 13,049 20(b) 28,025
-------- -------- -------- --------- --------
Total assets.................. $351,353 $301,750 $ 94,493 $ (288,445) $459,151
======== ======== ======== ========= ========
Current liabilities:
Accounts payable, and other
current liabilities...... $ 10,077 $ 70,207 $ 16,909 $ (13,342)(a)(d) $ 83,851
Due to affiliate............ 141 523 40 (704)(d) --
Current portion of long-term
debt and lease
obligations.............. -- 2,469 6,024 (1,743) 6,750
-------- -------- -------- --------- --------
Total current liabilities..... 10,218 73,199 22,973 (15,789) 90,601
Long-term debt and capital
lease obligations........... 277,656 1,487 21,548 (5,160)(d) 295,531
Deferred tax liability........ -- 7,484 -- (5,050) 2,434
Due to affiliate/parent....... -- 231,666 40,743 (272,409)(d) --
Other noncurrent
liabilities................. -- 6,201 749 (749) 6,201
Minority interest............. -- -- -- 905(c) 905
Stockholders' equity:
Preferred stock............. 13 -- 2,585 (2,585) 13
Common stock................ 308 4 2 (6)(b) 308
Additional paid-in
capital.................. 123,434 30,053 36,249 (66,302)(b) 123,434
Accumulated deficit......... (60,276) (48,344) (30,356) 78,700(b)(c)(d) (60,276)
-------- -------- -------- --------- --------
Total stockholders' equity.... 63,479 (18,287) 8,480 9,807 63,479
-------- -------- -------- --------- --------
Total liabilities
and stockholders'
equity............ $351,353 $301,750 $ 94,493 $ (288,445) $459,151
======== ======== ======== ========= ========
</TABLE>
- ---------------
(a) Eliminations of intercompany settlements in transit.
(b) Eliminations of investments in consolidated subsidiaries
(c) Recording of minority interest in equity operations.
(d) Eliminations of intercompany receivables, payables and lease obligations.
F-28
<PAGE> 107
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenues............ $ 66 $148,692 $ 104,156 $(49,153)(a) $203,761
Operating expenses:
Cost of services................ -- 86,929 103,912 (47,372)(a) 143,469
Operations and administration... 3,955 36,711 7,558 (1,157)(a) 47,067
Depreciation and amortization... 58 18,055 9,453 (325) 27,241
-------- -------- -------- -------- --------
(3,947) 6,997 (16,767) (299) (14,016)
Interest income................... 17,572 6,738 596 (22,068)(a) 2,838
Interest income on escrow under
Senior Notes.................... 7,404 -- -- -- 7,404
Interest expense.................. (38,181) (15,936) (5,027) 22,068(a) (37,076)
Equity in net income (loss) of
unconsolidated subsidiaries..... (26,277) (23,688) -- 48,004(b) (1,961)
-------- -------- -------- -------- --------
Loss before income taxes and
minority interest............... (43,429) (25,889) (21,198) 47,705 (42,811)
Benefit (provision) for income
taxes........................... 5,981 2,915 2,344 (5,259) 5,981
Minority interest................. -- -- -- (618)(c) (618)
-------- -------- -------- -------- --------
Net loss.......................... $(37,448) $(22,974) $ (18,854) $ 41,828 $(37,448)
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Eliminations of intercompany administration services, communication services
and interest charges.
(b) Eliminations of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of minority interest in equity or earnings loss of non-guarantor
subsidiaries.
F-29
<PAGE> 108
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR IXC
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $ (25,099) $ 49,161 $ (40,627) $(12,122)(a)(b) $ (28,687)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Release of funds from escrow
under Senior Notes............. 154,244 -- -- -- 154,244
Deposit into escrow under Senior
Notes.......................... (7,404) -- -- -- (7,404)
Purchase of property and
equipment...................... (9) (169,498) (7,259) 40,375(b) (136,391)
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities........... 146,831 (169,498) (7,259) 40,375 10,449
CASH FLOW FROM FINANCING
ACTIVITIES:
Capital contributions to
unconsolidated subsidiary...... 12,422 (44,714) -- 24,973 (7,319)
Payments on long-term debt and
capital lease obligations...... -- (9,018) (583) (3,185)(a) (12,786)
Payments of debt issue costs..... (1,301) -- -- -- (1,301)
Issuance of preferred stock...... -- -- 2,585 (2,585) --
Issuance of common stock......... 81,581 -- 15,500 (3,012) 94,069
Advances to affiliates........... (150,489) 161,282 33,253 (44,046) --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities........... (57,787) 107,550 50,755 (27,855) 72,663
Net increase (decrease) in cash
and cash equivalents........... 63,945 (12,787) 2,869 398 54,425
Cash and cash equivalents at
beginning of period............ 1,418 3,332 1,742 423 6,915
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of period...................... $ 65,363 $ (9,455) $ 4,611 $ 821 $ 61,340
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Eliminations of intercompany receivables, debt and lease obligations.
(b) Eliminations of intercompany capitalized labor.
F-30
<PAGE> 109
IXC LOGO
IXC COMMUNICATIONS, INC.
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Securities and
Exchange Commission (the "Commission") and the filing fee for the National
Association of Securities Dealers, Inc. ("NASD").
<TABLE>
<CAPTION>
ITEM AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
Commission registration fee............................................... $ 24,784
NASD filing fee........................................................... 8,679
Nasdaq National Market listing fee........................................ 17,500
Printing and engraving expenses........................................... 225,000
Legal fees and expenses (excluding Blue Sky).............................. 300,000
Blue Sky fees and expenses................................................ 12,000
Accounting fees and expenses.............................................. 300,000
Transfer agent and registrar fees......................................... 6,200
Miscellaneous............................................................. 5,837
----------
Total........................................................... $900,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
IXC Communications, Inc. ("IXC Communications") is a Delaware corporation.
Article VII, Section 8 of IXC Communications' Bylaws provides that IXC
Communications shall indemnify its officers, directors, employees and agents to
the fullest extent permitted by the Delaware General Corporation Law ("DGCL").
Section 145 of the DGCL provides that a Delaware corporation has the power to
indemnify its officers and directors in certain circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, provided that such director or officer had no cause to believe his
or her conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such director or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action was brought shall determine that despite the
adjudication of liability, but in view of all the circumstances of the case,
such director or officer is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
II-1
<PAGE> 111
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation shall have power to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against him or her or incurred by him or her in any such capacity or
arising out of his or her status as such whether or not the corporation would
have the power to indemnify him or her against such liabilities under Section
145.
Article Tenth of the Restated Certificate of Incorporation of IXC
Communications currently provides that each director shall not be personally
liable to IXC Communications or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to IXC Communications or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for unlawful payment of dividends or unlawful
stock repurchases or redemptions as provided under Section 174 of the DGCL; or
(iv) for any transaction from which the director derived an improper personal
benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, IXC
Communications has sold the following unregistered securities (share amounts for
the Common Stock, par value $.01 (the "Common Stock") have been adjusted to
reflect a stock split of 4,782-to-1 effective January 31, 1994 and the stock
splits that were effected in June 1996).
On May 26, 1994, IXC Communications issued and sold 60,685 shares of Common
Stock to American Business Development Corporations for an aggregate purchase
price of $2,502.
During the period from December 16, 1994 through March 1, 1997, IXC
Communications granted stock options to 115 individuals (including two executive
officers) covering an aggregate of 2,050,630 shares of Common Stock. No
consideration was paid for such options. Such grants were exempt from the
registration requirement of the Securities Act of 1933, as amended (the
"Securities Act") as not involving the sale of a security. Stock options
representing such shares have been subsequently registered under the Securities
Act.
On October 5, 1995, IXC Communications issued and sold 12.5% Series A
Senior Notes due 2005 (the "Series A Notes") in the aggregate principal amount
of $285.0 million to an aggregate of 82 purchasers each of which was either an
"accredited investor" or "qualified institutional buyer" (as such terms are
defined in Rule 501(a) and Rule 144A(a) of the Securities Act) for proceeds to
IXC Communications of approximately $268.8 million, net of original issue
discount and placement fees of approximately $8.3 million. The aggregate
offering price of the Series A Notes was approximately $277.1 million. On August
2, 1996, IXC Communications and various of its subsidiaries consummated its
offer to exchange registered 12.5% Series B Senior Notes due 2005 for the Series
A Notes. Dillon, Read & Co. Inc. and CS First Boston Corporation acted as
placement agents in connection with the sale of the Series A Notes.
On July 9, 1996, IXC Communications issued and sold 840,053 shares of
Common Stock to Trustee of General Electric Pension Trust ("GEPT") (the "GEPT
Private Placement") for an aggregate purchase price of $12.5 million
concurrently with the closing of IXC Communications' initial public offering.
In March 1997, IXC Communications expects to issue and sell 6,634.20,
186.58 and 679.22 shares of 7% Series A Convertible Preferred Stock
("Convertible Preferred Stock") to Morgan Stanley Capital Partners III, L.P.,
Morgan Stanley Capital Investors, L.P. and MSCP III 892 Investors, L.P.,
respectively (collectively, "MSCAP"), and 2,500 shares of Convertible Preferred
Stock to GEPT (the "Preferred Stock Sale") for an aggregate purchase price of
$100.0 million. The specific allocation among MSCAP may be changed prior to the
closing of the Preferred Stock Sale which is expected to occur in March 1997.
Morgan Stanley & Co. Incorporated will receive $1.875 million for acting as
placement agent in connection with the sale of the Convertible Preferred Stock
to MSCAP.
II-2
<PAGE> 112
The sales and issuances of the Common Stock and the Series A Notes, the
GEPT Private Placement and the Preferred Stock Sale (upon the closing thereof)
described above were deemed to be exempt from registration under the Securities
Act in reliance upon Section 4(2) thereof, as transactions not involving a
public offering. The purchasers in such private offerings of stock represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. The purchasers of Series A Notes represented
that they were not acquiring the Series A Notes with a view to of for sale in
connection with any distribution thereof or with any present intention of
offering or selling any of the Senior Notes in a transaction that would violate
the Securities Act. Appropriate legends were affixed to the certificates
representing the securities issued in such transactions. All purchasers had
adequate access, through their employment or other relationships or otherwise,
to sufficient information about IXC Communications to make an informed
investment decision. No underwriter or placement agent was employed with respect
to any such sales, other than the firms named above which participated as
placement agents in connection with the sale of the Series A Notes and Morgan
Stanley & Co. Incorporated which will participate as placement agent in
connection with the sale of the Convertible Preferred Stock.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------
<S> <C> <C>
1.1 + Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of IXC Communications, Inc., as amended
(incorporated by reference to Exhibit 3.1 of IXC Communications, Inc.
Registration Statement on Form S-1 filed with the Commission on May 20, 1996, as
amended (File No. 333-4061) (the "S-1")).
3.2 Bylaws of IXC Communications, Inc., as amended (incorporated by reference to
Exhibit 3.2 of the S-1).
4.1 Specimen certificate representing shares of Common Stock of IXC Communications,
Inc. (incorporated by reference to Exhibit 4.1 of the S-1).
4.2 Indenture dated as of October 5, 1995 by and among IXC Communications, Inc., on
its behalf and as successor-in-interest to I-Link Holdings, Inc. and IXC Carrier
Group, Inc., each of IXC Carrier, Inc., on its behalf and as
successor-in-interest to I-Link, Inc., CTI Investments, Inc., Texas Microwave,
Inc. and WTM Microwave, Inc., Atlantic States Microwave Transmission Company,
Central States Microwave Transmission Company, Telcom Engineering, Inc., on its
behalf and as successor-in-interest to SWTT Company and Microwave Network, Inc.,
Tower Communication Systems Corp., West Texas Microwave Company, Western States
Microwave Transmission Company, Rio Grande Transmission, Inc., IXC Long
Distance, Inc., Link Net International, Inc. (collectively, the "Guarantors")
and IBJ Schroder Bank & Trust Company, as Trustee, with respect to the 12 1/2%
Series A and Series B Senior Notes due 2005 (incorporated by reference to
Exhibit 4.1 of IXC Communications, Inc.'s and each of the Guarantor's
Registration Statement on Form S-4 filed with the Commission on April 1, 1996,
as amended (File No. 333-2936) (the "S-4")).
4.3 Purchase Agreement dated October 5, 1995 by and among IXC Communications, Inc.,
and the Purchasers named therein (incorporated by reference to Exhibit 4.2 of
the S-4).
4.4 A/B Exchange Registration Rights Agreement dated as of October 5, 1995 by and
among IXC Communications, Inc., the Guarantors and the Purchasers named therein
(incorporated by reference to Exhibit 4.3 of the S-4).
4.5 Escrow Account and Disbursement Agreement dated as of October 5, 1995 by and
among IXC Communications, Inc., IBJ Schroder Bank & Trust Company, as Escrow
Holder, and IBJ Schroder Bank & Trust Company, as Collateral Agent (incorporated
by reference to Exhibit 4.4 of the S-4).
4.6 Escrow Account Security Agreement dated as of October 5, 1995 by and between IXC
Communications, Inc. and IBJ Schroder Bank & Trust Company (incorporated by
reference to Exhibit 4.5 of the S-4).
</TABLE>
II-3
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------
<S> <C> <C>
4.7 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to
Exhibit 4.6 of the S-4).
4.8 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee
(incorporated by reference to Exhibit 4.8 of the S-1).
4.9 Registration Rights Agreement dated as of August 6, 1992 by and among Telecom
Services Group, Inc., predecessor-in-interest to IXC Communications, Inc., and
each of the signatories thereto (incorporated by reference to Exhibit 4.9 of the
S-1).
4.10 Amendment to Registration Rights Agreement dated as of May 1, 1996 by and among
IXC Communications, Inc. and each of the signatories thereto (incorporated by
reference to Exhibit 4.10 of the S-1).
4.11 Amendment No. 1 to Indenture and Subsidiary Guarantee dated as of June 4, 1996
by and among IXC Communications, Inc., the Guarantors and the Trustee
(incorporated by reference to Exhibit 4.11 of the S-1).
4.12 Stock Exchange Agreement dated as of June 10, 1996 by and between IXC
Communications, Inc., and Trustees of General Electric Pension Trust ("GEPT")
(incorporated by reference to Exhibit 4.12 of the S-1).
4.13 Registration Rights Agreement dated as of June 10, 1996 by and among IXC
Communications, Inc., GEPT and certain stockholders of IXC Communications, Inc.
(incorporated by reference to Exhibit 4.13 of the S-1).
4.14 + Securities Purchase Agreement dated as of February 27, 1997 by and among IXC
Communications, Inc., Morgan Stanley Capital Partners III, L.P., Morgan Stanley
Capital Investors, L.P., MSCP III 892 Investors, L.P. and GEPT.
4.15 Form of Certificate of Powers, Designations, Preferences and Relative,
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions Thereof of the 7% Series A Convertible Preferred Stock of IXC
Communications, Inc. (incorporated by reference to IXC Communications, Inc.'s
Current Report on Form 8-K filed with the Commission on March 3, 1997 (File No.
0-20803)).
5.1 + Opinion of Riordan & McKinzie, a Professional Law Corporation regarding the
validity of the issuance of the securities registered hereunder.
10.1 Office Lease dated June 21, 1989 with USAA Real Estate Company, as amended
(incorporated by reference to Exhibit 10.1 of the S-4).
10.2 Equipment Lease dated as of December 1, 1994 by and between DSC Finance
Corporation and Switched Services Communications, L.L.C.; Assignment Agreement
dated as of December 1, 1994 by and between Switched Services Communications,
L.L.C. and DSC Finance Corporation; and Guaranty dated December 1, 1994 made in
favor of DSC Finance Corporation by IXC Communications, Inc. (incorporated by
reference to Exhibit 10.2 of the S-4).
10.3 ++ Amended and Restated 1994 Stock Plan of IXC Communications, Inc., as amended.
10.4 Form of Non-Qualified Stock Option Agreement under the 1994 Stock Plan of IXC
Communications, Inc. (incorporated by reference to Exhibit 10.4 of the S-4).
10.5 Form of IXC Communications, Inc. Restricted Stock Agreement (incorporated by
reference to Exhibit 10.5 of the S-4).
10.6 Form of IXC Communications, Inc. Restricted Stock Agreement (incorporated by
reference to Exhibit 10.6 of the S-4).
10.7 Amended and Restated Development Agreement by and between Intertech Management
Group, Inc. and IXC Long Distance, Inc. (incorporated by reference to Exhibit
10.7 of the S-4).
10.8 Second Amended and Restated Service Agreement dated as of January 1, 1996 by and
between Switched Services Communications, L.L.C. and Excel Telecommunications,
Inc. (incorporated by reference to Exhibit 10.8 of the S-4).
</TABLE>
II-4
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------
<S> <C> <C>
10.9 Equipment Purchase Agreement dated as of January 16, 1996 by and between Siecor
Corporation and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.9 of
the S-4).
10.10 ++ 1996 Stock Plan of IXC Communications, Inc., as amended.
10.11 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier,
Inc. (incorporated by reference to Exhibit 10.11 of the S-4).
10.12 ++ Outside Directors' Phantom Stock Plan of IXC Communications, Inc., as amended.
10.13 Business Consultant and Management Agreement dated as of January 3, 1995 by and
between IXC Communications, Inc. and Culp Communications Associates
(incorporated by reference to Exhibit 10.13 of the S-1).
10.14 Employment Agreement dated December 28, 1995 by and between IXC Communications,
Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the
S-1).
10.15 Employment Agreement dated August 28, 1995, by and between IXC Communications,
Inc. and David J. Thomas (incorporated by reference to Exhibit 10.15 of the
S-1).
10.16 ++ Special Stock Plan of IXC Communications, Inc.
10.17 ++ Stock Acquisition Agreement and Plan of Merger dated as of January 17, 1997 by
and among IXC Communications, Inc., IXC Long Distance, Inc., IXC-One Acquisition
Corp., L.D. Services, Inc. and the Shareholders named therein.
11.1 ++ Statement of Computation of Earnings per Share.
21.1 ++ Subsidiaries of IXC Communications, Inc.
23.1 + Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2 ++ Consent of Ernst & Young LLP.
24.1 Power of Attorney (contained on page II-7).
</TABLE>
- ---------------
+ To be filed by amendment.
++ Filed herewith.
(b) Financial Statement Schedules
All schedules are omitted since the required information is inapplicable or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements and Notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 115
(c) The undersigned the registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on March 10, 1997.
IXC Communications, Inc.,
a Delaware corporation
By: /s/ JOHN J. WILLINGHAM
----------------------------------
John J. Willingham
Senior Vice President, Chief
Financial
Officer and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
* Chairman, President and Chief March 10, 1997
- --------------------------------------------- Executive Officer, and Director
Ralph J. Swett (Principal Executive Officer)
/s/ JOHN J. WILLINGHAM Senior Vice President, Chief March 10, 1997
- --------------------------------------------- Financial Officer and Assistant
John J. Willingham Secretary (Principal Financial
and Accounting Officer)
* Director March 10, 1997
- ---------------------------------------------
Richard D. Irwin
* Director March 10, 1997
- ---------------------------------------------
Wolfe H. Bragin
* Director March 10, 1997
- ---------------------------------------------
Carl W. McKinzie
* Director March 10, 1997
- ---------------------------------------------
Phillip L. Williams
* Director March 10, 1997
- ---------------------------------------------
Joe C. Culp
*By: /s/ JOHN J. WILLINGHAM
- ---------------------------------------------
John J. Willingham
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 117
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1.1 + Form of Underwriting Agreement........................................
3.1 Restated Certificate of Incorporation of IXC Communications, Inc., as
amended (incorporated by reference to Exhibit 3.1 of IXC
Communications, Inc. Registration Statement on Form S-1 filed with the
Commission on May 20, 1996, as amended (File No. 333-4061) (the
"S-1"))...............................................................
3.2 Bylaws of IXC Communications, Inc., as amended (incorporated by
reference to Exhibit 3.2 of the S-1)..................................
4.1 Specimen certificate representing shares of Common Stock of IXC
Communications, Inc. (incorporated by reference to Exhibit 4.1 of the
S-1)..................................................................
4.2 Indenture dated as of October 5, 1995 by and among IXC Communications,
Inc., on its behalf and as successor-in-interest to I-Link Holdings,
Inc. and IXC Carrier Group, Inc., each of IXC Carrier, Inc., on its
behalf and as successor-in-interest to I-Link, Inc., CTI Investments,
Inc., Texas Microwave, Inc. and WTM Microwave, Inc., Atlantic States
Microwave Transmission Company, Central States Microwave Transmission
Company, Telcom Engineering, Inc., on its behalf and as successor-
in-interest to SWTT Company and Microwave Network, Inc., Tower
Communication Systems Corp., West Texas Microwave Company, Western
States Microwave Transmission Company, Rio Grande Transmission, Inc.,
IXC Long Distance, Inc., Link Net International, Inc. (collectively,
the "Guarantors") and IBJ Schroder Bank & Trust Company, as Trustee,
with respect to the 12 1/2% Series A and Series B Senior Notes due
2005 (incorporated by reference to Exhibit 4.1 of IXC Communications,
Inc.'s and each of the Guarantor's Registration Statement on Form S-4
filed with the Commission on April 1, 1996, as amended (File No.
333-2936) (the "S-4"))................................................
4.3 Purchase Agreement dated October 5, 1995 by and among IXC
Communications, Inc., and the Purchasers named therein (incorporated
by reference to Exhibit 4.2 of the S-4)...............................
4.4 A/B Exchange Registration Rights Agreement dated as of October 5, 1995
by and among IXC Communications, Inc., the Guarantors and the
Purchasers named therein (incorporated by reference to Exhibit 4.3 of
the S-4)..............................................................
4.5 Escrow Account and Disbursement Agreement dated as of October 5, 1995
by and among IXC Communications, Inc., IBJ Schroder Bank & Trust
Company, as Escrow Holder, and IBJ Schroder Bank & Trust Company, as
Collateral Agent (incorporated by reference to Exhibit 4.4 of the
S-4)..................................................................
4.6 Escrow Account Security Agreement dated as of October 5, 1995 by and
between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company
(incorporated by reference to Exhibit 4.5 of the S-4).................
4.7 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by
reference to Exhibit 4.6 of the S-4)..................................
4.8 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary
Guarantee (incorporated by reference to Exhibit 4.8 of the S-1).......
4.9 Registration Rights Agreement dated as of August 6, 1992 by and among
Telecom Services Group, Inc., predecessor-in-interest to IXC
Communications, Inc., and each of the signatories thereto
(incorporated by reference to Exhibit 4.9 of the S-1).................
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------
<S> <C> <C> <C>
4.10 Amendment to Registration Rights Agreement dated as of May 1, 1996 by
and among IXC Communications, Inc. and each of the signatories thereto
(incorporated by reference to Exhibit 4.10 of the S-1)................
4.11 Amendment No. 1 to Indenture and Subsidiary Guarantee dated as of June
4, 1996 by and among IXC Communications, Inc., the Guarantors and the
Trustee (incorporated by reference to Exhibit 4.11 of the S-1)........
4.12 Stock Exchange Agreement dated as of June 10, 1996 by and between IXC
Communications, Inc., and Trustees of General Electric Pension Trust
("GEPT") (incorporated by reference to Exhibit 4.12 of the S-1).......
4.13 Registration Rights Agreement dated as of June 10, 1996 by and among
IXC Communications, Inc., GEPT and certain stockholders of IXC
Communications, Inc. (incorporated by reference to Exhibit 4.13 of the
S-1)..................................................................
4.14 + Securities Purchase Agreement dated as of February 27, 1997 by and
among IXC Communications, Inc., Morgan Stanley Capital Partners III,
L.P., Morgan Stanley Capital Investors, L.P., MSCP III 892 Investors,
L.P. and GEPT.........................................................
4.15 Form of Certificate of Powers, Designations, Preferences and Relative,
Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the 7% Series A Convertible
Preferred Stock of IXC Communications, Inc. (incorporated by reference
to IXC Communications, Inc.'s Current Report on Form 8-K filed with
the Commission on March 3, 1997 (File No. 0-20803))...................
5.1 + Opinion of Riordan & McKinzie, a Professional Law Corporation
regarding the validity of the issuance of the securities registered
hereunder.............................................................
10.1 Office Lease dated June 21, 1989 with USAA Real Estate Company, as
amended (incorporated by reference to Exhibit 10.1 of the S-4)........
10.2 Equipment Lease dated as of December 1, 1994 by and between DSC
Finance Corporation and Switched Services Communications, L.L.C.;
Assignment Agreement dated as of December 1, 1994 by and between
Switched Services Communications, L.L.C. and DSC Finance Corporation;
and Guaranty dated December 1, 1994 made in favor of DSC Finance
Corporation by IXC Communications, Inc. (incorporated by reference to
Exhibit 10.2 of the S-4)..............................................
10.3 ++ Amended and Restated 1994 Stock Plan of IXC Communications, Inc., as
amended...............................................................
10.4 Form of Non-Qualified Stock Option Agreement under the 1994 Stock Plan
of IXC Communications, Inc. (incorporated by reference to Exhibit 10.4
of the S-4)...........................................................
10.5 Form of IXC Communications, Inc. Restricted Stock Agreement
(incorporated by reference to Exhibit 10.5 of the S-4)................
10.6 Form of IXC Communications, Inc. Restricted Stock Agreement
(incorporated by reference to Exhibit 10.6 of the S-4)................
10.7 Amended and Restated Development Agreement by and between Intertech
Management Group, Inc. and IXC Long Distance, Inc. (incorporated by
reference to Exhibit 10.7 of the S-4).................................
10.8 Second Amended and Restated Service Agreement dated as of January 1,
1996 by and between Switched Services Communications, L.L.C. and Excel
Tele-communications, Inc. (incorporated by reference to Exhibit 10.8
of the S-4)...........................................................
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------
<S> <C> <C> <C>
10.9 Equipment Purchase Agreement dated as of January 16, 1996 by and
between Siecor Corporation and IXC Carrier, Inc. (incorporated by
reference to Exhibit 10.9 of the S-4).................................
10.10 ++ 1996 Stock Plan of IXC Communications, Inc., as amended...............
10.11 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC
Carrier, Inc. (incorporated by reference to Exhibit 10.11 of the
S-4)..................................................................
10.12 ++ Outside Directors' Phantom Stock Plan of IXC Communications, Inc., as
amended.
10.13 Business Consultant and Management Agreement dated as of January 3,
1995 by and between IXC Communications, Inc. and Culp Communications
Associates (incorporated by reference to Exhibit 10.13 of the S-1)....
10.14 Employment Agreement dated December 28, 1995 by and between IXC
Communications, Inc. and James F. Guthrie (incorporated by reference
to Exhibit 10.14 of the S-1)..........................................
10.15 Employment Agreement dated August 28, 1995, by and between IXC
Communications, Inc. and David J. Thomas (incorporated by reference to
Exhibit 10.15 of the S-1).............................................
10.16 ++ Special Stock Plan of IXC Communications, Inc. .......................
10.17 ++ Stock Acquisition Agreement and Plan of Merger dated as of January 17,
1997 by and among IXC Communications, Inc., IXC Long Distance, Inc.,
IXC-One Acquisition Corp., L.D. Services, Inc. and the Shareholders
named therein.........................................................
11.1 ++ Statement of Computation of Earnings per Share........................
21.1 ++ Subsidiaries of IXC Communications, Inc. .............................
23.1 + Consent of Riordan & McKinzie (contained in Exhibit 5.1)..............
23.2 ++ Consent of Ernst & Young LLP..........................................
24.1 Power of Attorney (contained on page II-7)............................
</TABLE>
- ---------------
+ To be filed by amendment.
++ Filed herewith.
<PAGE> 1
EXHIBIT 10.3
IXC COMMUNICATIONS, INC.
AMENDED AND RESTATED 1994 STOCK PLAN
1. PURPOSE. The purpose of the IXC Communications, Inc. Amended and
Restated 1994 Stock Plan ("Plan") is to promote the interests of IXC
Communications, Inc. ("Company") and its shareholders by enabling it to offer
grants of stock to better attract, retain, and reward employees, directors, and
other persons providing services to it and, accordingly, to strengthen the
mutuality of interests between those persons and the Company's shareholders by
providing those persons with a proprietary interest in pursuing the Company's
long-term growth and financial success.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below.
(a) "Board" means the Board of Directors of IXC
Communications, Inc.
(b) "Code" means the Internal Revenue Code of 1986, as
amended. Reference to any specific section of the Code shall be deemed
to be a reference to any successor provision.
(c) "Committee" means the administrative Committee of this
Plan that is provided in Section 3 below.
(d) "Common Stock" means the common stock of the Company or
any security issued in substitution, exchange, or in lieu thereof.
(e) "Company" means IXC Communications, Inc., a Delaware
corporation, or any successor corporation. Except where the context
indicates otherwise, the term "Company" shall include its Parent and
Subsidiaries.
(f) "Disabled" means permanent and total disability, as
defined in Code Section 22(e)(3).
(g) "Exchange Act" means the Securities Exchange Act of 1934.
(h) "Fair Market Value" of Common Stock shall be determined in
accordance with the following rules.
(i) If the Common Stock is admitted to trading or
listed on a national securities exchange, the closing price
for any day shall be the last reported sale price regular way,
or if no such reported sale takes place on that day, the
average of the last reported bid and ask prices regular way,
in either case on the principal national securities exchange
on which the Common Stock is admitted to trading or listed.
<PAGE> 2
(ii) If not listed or admitted to trading on any
national securities exchange, the last sale price on that day
of the Common Stock reported on the Nasdaq National Market of
the Nasdaq Stock Market ("Nasdaq National Market") or, if no
such reported sale takes place on that day, the average of the
closing bid and ask prices on that day.
(iii) If not included in the Nasdaq National Market,
the average of the closing bid and ask prices of the Common
Stock on that day reported by the Nasdaq Stock Market, or any
comparable system on that day.
(iv) If the Common Stock is not included in the Nasdaq
Stock Market or any comparable system, the closing bid and ask
prices on that day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to
time by the Company for that purpose.
In the case of an Incentive Stock Option, "Fair Market Value" shall be
determined without reference to any restriction other than one that, by
its terms, will never lapse.
(i) "Incentive Stock Option" means an option to purchase
Common Stock that is intended to be an incentive stock option within
the meaning of Section 422 of the Code.
(j) "Insider" means a person who is subject to Section 16 of
the Exchange Act.
(k) "Non-Qualified Stock Option" means any option to purchase
Common Stock that is not an Incentive Stock Option.
(l) "Option" means an Incentive Stock Option or a
Non-Qualified Stock Option.
(m) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company
if each of the corporations (other than the Company) owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain, as determined in accordance with the rules of Code Section
424(e).
(n) "Participant" means a person who was been granted an
Option or Restricted Stock.
(o) "Plan" means this IXC Communications, Inc. Amended and
Restated 1994 Stock Plan, as it may be amended from time to time.
- 2 -
<PAGE> 3
(p) "Restricted Stock" means shares of Common Stock issued
under Section 8 below that are subject to restrictions upon assignment
or alienation prior to vesting.
(q) "Severance" means, with respect to a Participant, the
termination of the Participant's provision of services to the Company
as an employee, director, or independent contractor, whether by reason
of death, disability, or any other reason. For purposes of determining
the exercisability of an Incentive Stock Option, a Participant who is
on a leave of absence that exceeds ninety (90) days will be considered
to have incurred a Severance on the ninety-first (91st) day of the
leave of absence, unless the Participant's rights to reemployment are
guaranteed by statute or contract. However, a Participant will not be
considered to have incurred a Severance because of a transfer of
employment between the Company and a Subsidiary or Parent (or vice
versa).
(r) "Subsidiary" means any corporation or entity in which the
Company, directly or indirectly, controls fifty percent (50%) or more
of the total voting power of all classes of its stock having voting
power, as determined in accordance with the rules of Code Section
424(f).
(s) "Ten Percent Shareholder" means any person who owns (after
taking into account the constructive ownership rules of Section 424(d)
of the Code) more than ten percent (10%) of the stock of the IXC
Communications, Inc. or of any of its Parents or Subsidiaries.
3. ADMINISTRATION.
(a) This Plan shall be administered by a Committee appointed
by the Board. The Board may remove members from, or add members to, the
Committee at any time. To the extent possible and advisable, the
Committee shall be composed of individuals that satisfy Rule 16b-3
under the Exchange Act and Code Section 162(m).
(b) The Committee may conduct its meetings in person or by
telephone. A majority of the members of the Committee shall constitute
a quorum, and any action shall constitute the action of the Committee
if it is authorized by:
(i) A majority of the members present at any meeting
conducted in accordance with the Company's bylaws; or
(ii) The unanimous consent of all of the members in
writing without a meeting.
(c) The Committee is authorized to interpret this Plan and to
adopt rules and procedures relating to the administration of this Plan.
All actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties.
- 3 -
<PAGE> 4
(d) Subject to the limitations of Sections 10 and 13 below,
the Committee is expressly authorized to make such modifications to
this Plan and the grants of Restricted Stock and Options hereunder as
are necessary to effectuate the intent of this Plan as a result of any
changes in the tax, accounting, or securities laws treatment of
Participants and the Plan.
(e) The Committee may delegate its responsibilities to others
under such conditions and limitations as it may prescribe, except that
the Committee may not delegate its authority with regard to the
granting of Options or Restricted Stock to Insiders.
4. DURATION OF PLAN.
(a) The effective date of this Plan shall be November 1, 1994.
(b) In the event that this Plan is not so approved, this Plan
shall terminate and any Options granted under this Plan shall be void.
(c) This Plan shall terminate on October 31, 2003, except with
respect to Options then outstanding.
5. NUMBER OF SHARES.
(a) The aggregate number of shares of Common Stock which may
be issued pursuant to this Plan shall be five hundred thousand
(500,000). This aggregate number may be adjusted from time to time as
set forth in Section 12 below. The maximum number of shares that may be
issued to a single Participant is one hundred thousand (100,000).
(b) Upon the expiration or termination of an outstanding
Option which shall not have been exercised in full, the shares of
Common Stock remaining unissued under the Option shall again become
available for use under the Plan.
(c) Upon the forfeiture of shares of Restricted Stock, the
forfeited shares of Common Stock shall again become available for use
under the Plan.
(d) The payment of part or all of the exercise price of an
Option in the form of Common Stock shall not be considered to reduce
the number of shares issuable upon the exercise of the Option for
purposes of determining the maximum number of shares that may be issued
under the Plan.
- 4 -
<PAGE> 5
6. ELIGIBILITY.
(a) Persons eligible for Options under this Plan shall consist
of employees, directors, and other persons providing services to the
Company. However, Incentive Stock Options may only be granted to
employees.
(b) In the event that the Company acquires another entity, the
Committee may authorize the issuance of Options ("Substitute Options")
to the individuals performing services for the acquired entity in
substitution of stock options previously granted to those individuals
in connection with their performance of services for such entity upon
such terms and conditions as the Committee shall determine, taking into
account the limitations of Code Section 424(a) in the case of a
Substitute Option that is intended to be an Incentive Stock Option.
7. FORM OF OPTIONS.
(a) Options shall be granted under this Plan on such terms and
in such form as the Committee may approve, which shall not be
inconsistent with the provisions of this Plan.
(b) The exercise price per share of Common Stock purchasable
under an Option shall be set forth in the Option, which in all cases
shall be at least equal to the Fair Market Value of the Common Stock on
the date of the grant.
(c) The exercise price of an Incentive Stock Option,
determined on the date of the grant, shall be no less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock in the
case of a Ten Percent Shareholder.
8. EXERCISE OF OPTIONS.
(a) An Option shall be exercisable at such time or times and
be subject to such terms and conditions as may be set forth in the
Option.
(b) The aggregate Fair Market Value (determined as of the date
of grant) of the number of shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year shall not exceed one hundred
thousand dollars ($100,000) or such other limit as may be required by
Section 422 of the Code.
(c) Options shall only be exercisable for whole numbers of
shares.
(d) Options are exercised by payment of the full amount of the
purchase price to the Company.
- 5 -
<PAGE> 6
(i) The payment shall be in the form of cash or such
other forms of consideration as the Committee shall deem
acceptable, such as the surrender of outstanding shares of
Common Stock owned by the Participant or by withholding shares
that would otherwise be issued upon the exercise of the
Option.
(ii) If the payment is made by means of the surrender
of Restricted Stock, a number of shares issued upon the
exercise of the Option equal to the number of shares of
Restricted Stock surrendered shall be subject to the same
restrictions as the Restricted Stock that was surrendered.
(iii) After giving due considerations of the
consequences under Rule 16b-3 under the Exchange Act and under
the Code, the Committee may also authorize the exercise of
Options by the delivery to the Company or its designated agent
of an irrevocable written notice of exercise form together
with irrevocable instructions to a broker-dealer to sell or
margin a sufficient portion of the shares of Common Stock and
to deliver the sale or margin loan proceeds directly to the
Company to pay the exercise price of the Option.
9. RESTRICTED STOCK.
(a) The Committee may issue grants of Restricted Stock, upon
such terms and conditions as it may deem appropriate, which need not be
the same for each such grant.
(b) Restricted Stock may not be sold to Participants for less
than Fair Market Value.
(c) A Participant shall not have a vested right to the shares
subject to the grant of Restricted Stock until satisfaction of the
vesting requirements specified in the grant. The Participant may not
assign or alienate the Participant's interest in the shares of
Restricted Stock prior to vesting.
(d) The following rules apply with respect to events that
occur prior to the date on which the Participant obtains a vested right
to the Restricted Stock.
(i) Stock dividends, shares resulting from stock
splits, etc. that are issued with respect to the shares
covered by a grant of Restricted Stock shall be treated as
additional shares received under the grant of Restricted
Stock.
(ii) Cash dividends constitute taxable compensation
to the Participant that is deductible by the Company.
- 6 -
<PAGE> 7
10. MODIFICATION OF OPTIONS.
(a) The Committee may modify an existing Option, including the
right to:
(i) Accelerate the right to exercise it;
(ii) Extend or renew it; or
(iii) Cancel it and issue a new Option.
However, no modification may be made to an Option that would impair
the rights of the Participant holding the Option without the
Participant's consent. Similar modifications can be made to grants of
Restricted Stock.
(b) Whether a modification of an existing Incentive Stock
Option will be treated as the issuance of a new Incentive Stock Option
will be determined in accordance with the rules of Code Section 424(h).
(c) Whether a modification of an existing grant of Restricted
Stock or of an Option granted to an Insider will be treated as a new
grant will be determined in accordance with Rule 16b-3 under the
Exchange Act.
11. TERMINATION OF OPTIONS.
(a) Except to the extent the terms of an Option require its
prior termination, each Option shall terminate on the earliest of the
following dates.
(i) The date which is ten (10) years from the date on
which the Option is granted or five (5) years in the case of
an Incentive Stock Option granted to a Ten Percent
Shareholder.
(ii) The date which is one (1) year from the date of
the Severance of the Participant to whom the Option was
granted, if the Participant was Disabled at the time of
Severance.
(iii) The date which is one (1) year from the date of
the Severance of the Participant to whom the Option was
granted, if the Participant's death occurs:
(A) While the Participant is employed by the
Company; or
(B) Within three (3) months following the
Participant's Severance.
- 7 -
<PAGE> 8
(iv) In the case of any Severance other than one
described in Subparagraphs (ii) or (iii) above, the date that
is three (3) months from the date of the Participant's
Severance.
12. NON-TRANSFERABILITY OF OPTIONS.
(a) No Option under this Plan shall be assignable or
transferable except by will or the laws of descent and distribution.
(b) Grants of Restricted Stock shall be subject to such
restrictions on transferability as may be imposed in such grants.
13. ADJUSTMENTS
(a) In the event of any change in the capitalization of the
Company affecting its Common Stock (e.g., a stock split, reverse stock
split, stock dividend, recapitalization, combination, or
reclassification), the Committee shall authorize such adjustments as it
may deem appropriate with respect to:
(i) The aggregate number of shares of Common Stock
that may be issued under this Plan;
(ii) The number of shares of Common Stock covered by
each outstanding Option; and
(iii)The exercise price per share in respect of each
outstanding Option.
(b) The Committee may also make such adjustments in the event
of a spin-off or other distribution) of Company assets to shareholders
(other than normal cash dividends.
14. AMENDMENT AND TERMINATION.
(a) The Board may at any time amend or terminate this Plan.
However, no modification may be made to the Plan that would impair the
rights of the Participant holding an Option without the Participant's
consent.
(b) Without the approval of the majority of the shareholders
of the Company, the Board may not amend the provisions of this Plan
regarding:
(i) The class of individuals entitled to receive
Incentive Stock Options; or
- 8 -
<PAGE> 9
(ii) The aggregate number of shares of
Common Stock that may be issued under the Plan,
except as provided in Section 12 above.
(c) Except as may otherwise be permitted under Rule 16b-3
under the Exchange Act, no amendment to the Plan may be adopted without
the approval of the shareholders that would materially:
(i) Increase the number of shares that may be issued
to Insiders;
(ii) Increase the benefits accruing to Insiders; or
(iii) Modify the requirements for Insiders to
participate.
15. TAX WITHHOLDING.
(a) The Company shall have the right to take such actions as
may be necessary to satisfy its tax withholding obligations relating to
the operation of this Plan.
(b) If Common Stock that was surrendered by the Participant is
used to satisfy the Company's tax withholding obligations, the stock
shall be valued based on its Fair Market Value when the tax withholding
is required to be made.
16. NO ADDITIONAL RIGHTS.
(a) Neither the adoption of this Plan nor the granting (or
exercise) of any Option or Restricted Stock shall:
(i) Affect or restrict in any way the power of the
Company to undertake any corporate action otherwise permitted
under applicable law; or
(ii) Confer upon any Participant the right to
continue performing services for the Company, nor shall it
interfere in any way with the right of the Company to
terminate the services of any Participant at any time, with or
without cause.
(b) No Participant shall have any rights as a shareholder with
respect to any shares covered by an Option granted to the Participant
or subject to a grant of Restricted Stock until the date a certificate
for such shares has been issued to the Participant.
17. SECURITIES LAW RESTRICTIONS.
(a) No shares of Common Stock shall be issued under this Plan
unless the Committee shall be satisfied that the issuance will be in
compliance with applicable federal and state securities laws.
- 9 -
<PAGE> 10
(b) The Committee may require certain investment (or other)
representations and undertakings by the Participant (or other person
exercising an Option or purchasing Restricted Stock by reason of the
death of the Participant) in order to comply with applicable law.
(c) Certificates for shares of Common Stock delivered under
this Plan may be subject to such restrictions as the Committee may deem
advisable. The Committee may cause a legend to be placed on the
certificates to refer to these restrictions.
18. INDEMNIFICATION. To the maximum extent permitted by law, the
Company shall indemnify each member of the Board and of the Committee, as well
as any other employee of the Company with duties under this Plan, against
expenses (including any amount paid in settlement) reasonably incurred by the
individual in connection with any claims against him or her by reason of the
performance of the individual's duties under this Plan, unless the losses are
due to the individual's gross negligence or lack of good faith.
19. GOVERNING LAW. This Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
IXC COMMUNICATIONS, INC.,
A DELAWARE CORPORATION
BY: /s/ JOHN J. WILLINGHAM
-----------------------------------
ITS: Senior Vice President and
Chief Financial Officer
DATE: June 4, 1996
- 10 -
<PAGE> 11
AMENDMENT TO IXC COMMUNICATIONS, INC.
AMENDED AND RESTATED 1994 STOCK PLAN
This Amendment to IXC Communications, Inc. Amended and Restated 1994
Stock Plan (this "Amendment") is made as of October 29, 1996 (the "Amendment
Effective Date") and amends that certain Amended and Restated 1994 Stock Plan
(the "Plan") of IXC Communications, Inc., a Delaware corporation (the
"Company").
Section 14 of the Plan provides that the Board of Directors of the
Company may amend the Plan at any time, subject to certain limitations set
forth in the Plan (which do not apply to the foregoing amendments). This
Amendment shall be effective as of the Amendment Effective Date which is the
date the Board of Directors approved this Amendment.
1. Section 3(a) of the Plan is hereby amended to read in its entirety
as follows:
"This Plan shall be administered by a Committee appointed by
the Board. The Board may remove members from, or add members to, the
Committee at any time. To the extent possible and advisable, the
Committee shall be composed of individuals that satisfy Rule 16b-3
under the Exchange Act and Code Section 162(m). Notwithstanding
anything herein to the contrary, any action which may be taken by the
Committee may also be taken by the Board."
2. Section 4(b) of the Plan is hereby deleted in its entirety and
Section 4(c) of the Plan is hereby renumbered as Section 4(b).
3. Section 5(a) of the Plan is hereby amended to read in its entirety
as follows:
"The aggregate number of shares of Common Stock which may be
issued pursuant to this Plan shall be one million two hundred twelve
thousand four hundred and fifty (1,212,450) determined after giving
effect to stock splits that occurred on or prior to the Amendment
Effective Date. This aggregate number may be adjusted from time to
time as set forth in Section 13 below. The maximum number of shares
that may be issued to a single Participant on or after June 4, 1996 is
two hundred forty two thousand four hundred ninety (242,490)
determined after giving effect to stock splits that occurred on or
prior to the Amendment Effective Date."
4. Section 7(a) of the Plan is hereby amended to read in its entirety
as follows:
"Options shall be granted under this Plan on such terms and in
such form as the Committee may approve, which shall not be
inconsistent with the provisions of this Plan; provided, however, that
in the event a grant of any Options by the Committee would not be
exempt under Section 16b-3 of the Exchange Act, the Board may grant
- 11 -
<PAGE> 12
such Options under this Plan on such terms and in such form as the
Board may approve, which shall not be otherwise inconsistent with the
provisions of this Plan."
5. Section 14(c) of the Plan is hereby deleted in its entirety.
6. This Amendment is effective as of the Amendment Effective Date.
7. All other terms and conditions of the Agreement not specifically
amended herein shall remain in full force and effect.
IXC Communications, Inc.
By: /s/ John J. Willingham
---------------------------------
Its: Senior Vice President and
Chief Financial Officer
- 12 -
<PAGE> 1
EXHIBIT 10.10
IXC COMMUNICATIONS, INC.
1996 STOCK PLAN
1. PURPOSE. The purpose of the IXC Communications, Inc. 1996 Stock Plan
("Plan") is to promote the interests of IXC Communications, Inc. ("Company") and
its shareholders by enabling it to offer grants of stock to better attract,
retain, and reward its employees, directors, and other persons providing
services to it and, accordingly, to strengthen the mutuality of interests
between those persons and the Company's shareholders by providing those persons
with a proprietary interest in pursuing the Company's long-term growth and
financial success.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below.
(a) "Board" means the Board of Directors of IXC
Communications, Inc.
(b) "Code" means the Internal Revenue Code of 1986, as
amended. Reference to any specific section of the Code shall be deemed
to be a reference to any successor provision.
(c) "Committee" means the administrative Committee of this
Plan that is provided in Section 3 below.
(d) "Common Stock" means the common stock of the Company or
any security issued in substitution, exchange, or in lieu thereof.
(e) "Company" means IXC Communications, Inc., a Delaware
corporation, or any successor corporation. Except where the context
indicates otherwise, the term "Company" shall include its Parent and
Subsidiaries.
(f) "Disabled" means permanent and total disability, as
defined in Code Section 22(e)(3).
(g) "Exchange Act" means the Securities Exchange Act of 1934.
(h) "Fair Market Value" of Common Stock shall be determined in
accordance with the following rules.
(i) If the Common Stock is admitted to trading or
listed on a national securities exchange, the closing price
for any day shall be the last reported sale price regular way,
or if no such reported sale takes place on that day, the
average of the last reported bid and ask prices regular way,
in either case on the principal national securities exchange
on which the Common Stock is admitted to trading or listed.
<PAGE> 2
(ii) If not listed or admitted to trading on any
national securities exchange, the last sale price on that day
of the Common Stock reported on the Nasdaq National Market of
the Nasdaq Stock Market ("Nasdaq National Market") or, if no
such reported sale takes place on that day, the average of the
closing bid and ask prices on that day.
(iii) If not included in the Nasdaq National Market,
the average of the closing bid and ask prices of the Common
Stock on that day reported by the Nasdaq Stock Market, or any
comparable system on that day.
(iv) If the Common Stock is not included in the Nasdaq
Stock Market or any comparable system, the closing bid and ask
prices on that day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to
time by the Company for that purpose.
In the case of an Incentive Stock Option, "Fair Market Value" shall be
determined without reference to any restriction other than one that,
by its terms, will never lapse.
(i) "Incentive Stock Option" means an option to purchase
Common Stock that is an incentive stock option within the meaning of
Section 422 of the Code.
(j) "Insider" means a person who is subject to Section 16 of
the Exchange Act.
(k) "Non-Qualified Stock Option" means any option to purchase
Common Stock that is not an Incentive Stock Option.
(l) "Option" means an Incentive Stock Option or a
Non-Qualified Stock Option.
(m) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company
if each of the corporations (other than the Company) owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain, as determined in accordance with the rules of Code Section
424(e).
(n) "Participant" means a person who was been granted an
Option or Restricted Stock.
(o) "Plan" means this IXC Communications, Inc. 1996 Stock
Plan, as it may be amended from time to time.
(p) "Restricted Stock" means shares of Common Stock issued
under Section 9 below that are subject to restrictions upon assignment
or alienation prior to vesting.
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<PAGE> 3
(q) "Severance" means, with respect to a Participant, the
termination of the Participant's provision of services to the Company
as an employee, director, or independent contractor, whether by reason
of death, disability, or any other reason. For purposes of determining
the exercisability of an Incentive Stock Option, a Participant who is
on a leave of absence that exceeds ninety (90) days will be considered
to have incurred a Severance on the ninety-first (91st) day of the
leave of absence, unless the Participant's rights to reemployment are
guaranteed by statute or contract. However, a Participant will not be
considered to have incurred a Severance because of a transfer of
employment between the Company and a Subsidiary or Parent (or vice
versa).
(r) "Subsidiary" means any corporation or entity in which the
Company, directly or indirectly, controls fifty percent (50%) or more
of the total voting power of all classes of its stock having voting
power, as determined in accordance with the rules of Code Section
424(f).
(s) "Ten Percent Shareholder" means any person who owns (after
taking into account the constructive ownership rules of Section 424(d)
of the Code) more than ten percent (10%) of the stock of the IXC
Communications, Inc. or of any of its Parents or Subsidiaries.
3. ADMINISTRATION.
(a) This Plan shall be administered by a Committee appointed
by the Board. The Board may remove members from, or add members to, the
Committee at any time. To the extent possible and advisable, the
Committee shall be composed of individuals that satisfy Rule 16b-3
under the Exchange Act and Code Section 162(m).
(b) The Committee may conduct its meetings in person or by
telephone. A majority of the members of the Committee shall constitute
a quorum, and any action shall constitute the action of the Committee
if it is authorized by:
(i) A majority of the members present at any meeting
conducted in accordance with the Company's bylaws; or
(ii) The unanimous consent of all of the members in
writing without a meeting.
(c) The Committee is authorized to interpret this Plan and to
adopt rules and procedures relating to the administration of this Plan.
All actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties.
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<PAGE> 4
(d) Subject to the limitations of Sections 10 and 14 below,
the Committee is expressly authorized to make such modifications to
this Plan, and to the grants of Options and Restricted Stock hereunder
as are necessary to effectuate the intent of this Plan as a result of
any changes in the tax, accounting, or securities laws treatment of
Participants and the Plan.
(e) The Committee may delegate its responsibilities to others
under such conditions and limitations as it may prescribe, except that
the Committee may not delegate its authority with regard to the
granting of Options or Restricted Stock to Insiders.
4. DURATION OF PLAN.
(a) This Plan shall be effective as of May 14, 1996, provided
it is approved by the majority of the Company's shareholders, in
accordance with the provisions of Code Section 422, within twelve (12)
months before or after the date of its adoption by the Board of
Directors.
(b) In the event that this Plan is not so approved, this Plan
shall terminate and any Options granted under this Plan shall be void.
(c) This Plan shall terminate on May 13, 2006, except with
respect to Options then outstanding.
5. NUMBER OF SHARES.
(a) The aggregate number of shares of Common Stock which may
be issued pursuant to this Plan shall be eight hundred seventy-five
thousand (875,000). This aggregate number may be adjusted from time to
time as set forth in Section 13 below. The maximum number of shares
that may be issued to a single Participant is one hundred thousand
(100,000).
(b) Upon the expiration or termination of an outstanding
Option which shall not have been exercised in full, the shares of
Common Stock remaining unissued under the Option shall again become
available for use under the Plan.
(c) Upon the forfeiture of shares of Restricted Stock, the
forfeited shares of Common Stock shall again become available for use
under the Plan.
(d) The payment of part or all of the exercise price of an
Option in the form of surrendering Common Stock owned by the
Participant shall not be considered to reduce the number of shares
issuable upon the exercise of the Option for purposes of determining
the maximum number of shares that may be issued under the Plan.
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<PAGE> 5
6. ELIGIBILITY.
(a) Persons eligible for Options under this Plan shall consist
of employees, directors, and other persons providing services to the
Company. However, Incentive Stock Options may only be granted to
employees.
(b) In the event that the Company acquires another entity, the
Committee may authorize the issuance of Options ("Substitute Options")
to the individuals performing services for the acquired entity in
substitution of stock options previously granted to those individuals
in connection with their performance of services for such entity upon
such terms and conditions as the Committee shall determine, taking into
account the limitations of Code Section 424(a) in the case of a
Substitute Option that is intended to be an Incentive Stock Option.
7. FORM OF OPTIONS.
(a) Options shall be granted under this Plan on such terms and
in such form as the Committee may approve, which shall not be
inconsistent with the provisions of this Plan.
(b) The exercise price per share of Common Stock purchasable
under an Option shall be set forth in the Option, which in all cases
shall be at least equal to the Fair Market Value of the Common Stock on
the date of the grant.
(c) The exercise price of an Incentive Stock Option granted to
a Ten Percent Shareholder shall be no less than one hundred ten percent
(110%) of the Fair Market Value of the Common Stock on the date of the
grant.
8. EXERCISE OF OPTIONS.
(a) An Option shall be exercisable at such time or times and
be subject to such terms and conditions as may be set forth in the
Option.
(b) The aggregate Fair Market Value (determined as of the date
of grant) of the number of shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year shall not exceed one hundred
thousand dollars ($100,000) or such other limit as may be required by
Section 422 of the Code.
(c) Options shall only be exercisable for whole numbers of
shares.
(d) Options are exercised by payment of the full amount of the
purchase price to the Company.
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<PAGE> 6
(i) The payment shall be in the form of cash or such
other forms of consideration as the Committee shall deem
acceptable, such as the surrender of outstanding shares of
Common Stock owned by the Participant or by withholding shares
that would otherwise be issued upon the exercise of the
Option.
(ii) If the payment is made by means of the surrender
of Restricted Stock, a number of shares issued upon the
exercise of the Option equal to the number of shares of
Restricted Stock surrendered shall be subject to the same
restrictions as the Restricted Stock that was surrendered.
(iii) After giving due considerations of the
consequences under Rule 16b-3 under the Exchange Act and under
the Code, the Committee may also authorize the exercise of
Options by the delivery to the Company or its designated agent
of an irrevocable written notice of exercise form together
with irrevocable instructions to a broker-dealer to sell or
margin a sufficient portion of the shares of Common Stock and
to deliver the sale or margin loan proceeds directly to the
Company to pay the exercise price of the Option.
9. RESTRICTED STOCK.
(a) The Committee may issue grants of Restricted Stock upon
such terms and conditions as it may deem appropriate, which need not be
the same for each such grant.
(b) Restricted Stock may not be sold to Participants for less
than Fair Market Value.
(c) A Participant shall not have a vested right to the shares
subject to the grant of Restricted Stock until satisfaction of the
vesting requirements specified in the grant. The Participant may not
assign or alienate the Participant's interest in the shares of
Restricted Stock prior to vesting.
(d) The following rules apply with respect to events that
occur prior to the date on which the Participant obtains a vested right
to the Restricted Stock.
(i) Stock dividends, shares resulting from stock
splits, etc. that are issued with respect to the shares
covered by a grant of Restricted Stock shall be treated as
additional shares received under the grant of Restricted
Stock.
(ii) Cash dividends constitute taxable compensation
to the Participant that is deductible by the Company.
10. MODIFICATION OF GRANTS.
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<PAGE> 7
(a) The Committee may modify an existing Option, including the
right to:
(i) Accelerate the right to exercise it;
(ii) Extend or renew it; or
(iii) Cancel it and issue a new Option.
However, no modification may be made to an Option that would impair
the rights of the Participant holding the Option without the
Participant's consent. Similar modifications can be made to grants of
Restricted Stock.
(b) Whether a modification of an existing Incentive Stock
Option will be treated as the issuance of a new Incentive Stock Option
will be determined in accordance with the rules of Code Section 424(h).
(c) Whether a modification of an existing grant of Restricted
Stock or of an Option granted to an Insider will be treated as a new
grant will be determined in accordance with Rule 16b-3 under the
Exchange Act.
11. TERMINATION OF OPTIONS.
(a) Except to the extent the terms of an Option require its
prior termination, each Option shall terminate on the earliest of the
following dates.
(i) The date which is ten (10) years from the date on
which the Option is granted or five (5) years in the case of
an Incentive Stock Option granted to a Ten Percent
Shareholder.
(ii) The date which is one (1) year from the date of
the Severance of the Participant to whom the Option was
granted, if the Participant was Disabled at the time of
Severance.
(iii) The date which is one (1) year from the date of
the Severance of the Participant to whom the Option was
granted, if the Participant's death occurs:
(A) While the Participant is employed by the
Company; or
(B) Within three (3) months following the
Participant's Severance.
(iv) In the case of any Severance other than one
described in Subparagraphs (ii) or (iii) above, the date that
is three (3) months from the
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<PAGE> 8
date of the Participant's Severance.
12. NON-TRANSFERABILITY OF GRANTS.
(a) No Option under this Plan shall be assignable or
transferable except by will or the laws of descent and distribution.
(b) Grants of Restricted Stock shall be subject to such
restrictions on transferability as may be imposed in such grants.
13. ADJUSTMENTS
(a) In the event of any change in the capitalization of the
Company affecting its Common Stock (e.g., a stock split, reverse stock
split, stock dividend, recapitalization, combination, or
reclassification), the Committee shall authorize such adjustments as it
may deem appropriate with respect to:
(i) The aggregate number of shares of Common Stock
that may be issued under this Plan;
(ii) The number of shares of Common Stock covered by
each outstanding Option; and
(iii) The exercise price per share in respect of each
outstanding Option.
(b) The Committee may also make such adjustments in the
event of a spin-off or other distribution of Company assets to
shareholders, other than normal cash dividends.
14. AMENDMENT AND TERMINATION.
(a) The Board may at any time amend or terminate this Plan.
However, no modification may be made to the Plan that would impair the
rights of the Participant holding an Option without the Participant's
consent.
(b) Without the approval of the majority of the shareholders
of the Company, the Board may not amend the provisions of this Plan
regarding:
(i) The class of individuals entitled to receive
Incentive Stock Options; or
(ii) The aggregate number of shares of Common Stock
that may be issued under the Plan, except as provided in
Section 13 above.
(c) Except as may otherwise be permitted under Rule 16b-3
under the
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<PAGE> 9
Exchange Act, no amendment to the Plan may be adopted without the
approval of the shareholders that would materially:
(i) Increase the number of shares that may be issued
to Insiders;
(ii) Increase the benefits accruing to Insiders; or
(iii) Modify the requirements for Insiders to
participate.
15. NOTICE OF DISQUALIFYING DISPOSITION. A Participant must notify the
Company if the Participant disposes of stock acquired pursuant to the exercise
of an Incentive Stock Option issued under the Plan prior to the expiration of
the holding periods required to qualify for long-term capital gains treatment on
the sale.
16. TAX WITHHOLDING.
(a) The Company shall have the right to take such actions as
may be necessary to satisfy its tax withholding obligations relating to
the operation of this Plan.
(b) If Common Stock that was surrendered by the Participant is
used to satisfy the Company's tax withholding obligations, the stock
shall be valued based on its Fair Market Value when the tax withholding
is required to be made.
17. NO ADDITIONAL RIGHTS.
(a) Neither the adoption of this Plan nor the granting (or
exercise) of any Option or Restricted Stock shall:
(i) Affect or restrict in any way the power of the
Company to undertake any corporate action otherwise permitted
under applicable law; or
(ii) Confer upon any Participant the right to
continue performing services for the Company, nor shall it
interfere in any way with the right of the Company to
terminate the services of any Participant at any time, with or
without cause.
(b) No Participant shall have any rights as a shareholder with
respect to any shares covered by an Option granted to the Participant
or subject to a grant of Restricted Stock until the date a certificate
for such shares has been issued to the Participant.
18. SECURITIES LAW RESTRICTIONS.
(a) No shares of Common Stock shall be issued under this Plan
unless the
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<PAGE> 10
Committee shall be satisfied that the issuance will be in compliance
with applicable federal and state securities laws.
(b) The Committee may require certain investment (or other)
representations and undertakings by the Participant (or other person
exercising an Option or purchasing Restricted Stock by reason of the
death of the Participant) in order to comply with applicable law.
(c) Certificates for shares of Common Stock delivered under
this Plan may be subject to such restrictions as the Committee may deem
advisable. The Committee may cause a legend to be placed on the
certificates to refer to these restrictions.
19. INDEMNIFICATION. To the maximum extent permitted by law, the
Company shall indemnify each member of the Board, as well as any other employee
of the Company with duties under this Plan, against expenses (including any
amount paid in settlement) reasonably incurred by the individual in connection
with any claims against him or her by reason of the performance of the
individual's duties under this Plan, unless the losses are due to the
individual's gross negligence or lack of good faith.
20. GOVERNING LAW. This Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
IXC COMMUNICATIONS, INC.,
A DELAWARE CORPORATION
BY: /s/ JOHN J. WILLINGHAM
------------------------------
ITS: Senior Vice President and Chief
and Chief Financial Officer
DATE: June 4, 1996
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<PAGE> 11
AMENDMENT TO IXC COMMUNICATIONS, INC.
1996 STOCK PLAN
This Amendment to IXC Communications, Inc. 1996 Stock Plan (this
"Amendment") is made as of October 29, 1996 (the "Amendment Effective Date")
and amends that certain 1996 Stock Plan (the "Plan") of IXC Communications,
Inc., a Delaware corporation (the "Company").
Section 14 of the Plan provides that the Board of Directors of the
Company may amend the Plan at any time, subject to certain limitations set
forth in the Plan (which do not apply to the foregoing amendments). This
Amendment shall be effective as of the Amendment Effective Date which is the
date the Board of Directors approved this Amendment.
1. Section 3(a) of the Plan is hereby amended to read in its entirety
as follows:
"This Plan shall be administered by a Committee appointed by
the Board. The Board may remove members from, or add members to, the
Committee at any time. To the extent possible and advisable, the
Committee shall be composed of individuals that satisfy Rule 16b-3
under the Exchange Act and Code Section 162(m). Notwithstanding
anything herein to the contrary, any action which may be taken by the
Committee may also be taken by the Board."
2. Section 4(b) of the Plan is hereby deleted in its entirety and
Section 4(c) of the Plan is hereby renumbered as Section 4(b).
3. Section 5(a) of the Plan is hereby amended to read in its entirety
as follows:
"The aggregate number of shares of Common Stock which may be
issued pursuant to this Plan shall be two million one hundred
twenty-one thousand seven hundred and eighty-seven (2,121,787)
determined after giving effect to stock splits that occurred on or
prior to the Amendment Effective Date. This aggregate number may be
adjusted from time to time as set forth in Section 13 below. The
maximum number of shares that may be issued to a single Participant on
or after June 4, 1996 is two hundred forty two thousand four hundred
ninety (242,490) determined after giving effect to stock splits that
occurred on or prior to the Amendment Effective Date."
4. Section 7(a) of the Plan is hereby amended to read in its entirety
as follows:
"Options shall be granted under this Plan on such terms and in
such form as the Committee may approve, which shall not be
inconsistent with the provisions of this Plan; provided, however, that
in the event a grant of any Options by the Committee would not be
exempt under Section 16b-3 of the Exchange Act, the
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<PAGE> 12
Board may grant such Options under this Plan on such terms and in such
form as the Board may approve, which shall not be otherwise
inconsistent with the provisions of this Plan."
5. Section 14(c) of the Plan is hereby deleted in its entirety.
6. This Amendment is effective as of the Amendment Effective Date.
7. All other terms and conditions of the Agreement not specifically
amended herein shall remain in full force and effect.
IXC Communications, Inc.
By: /s/ John J. Willingham
----------------------------------
Its: Senior Vice President and Chief
and Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.12
IXC COMMUNICATIONS, INC.
OUTSIDE DIRECTORS' PHANTOM STOCK PLAN
1. PURPOSES.
(a) The purpose of the IXC Communications, Inc. Outside
Directors' Phantom Stock Plan ("Plan") is to provide stock-based cash
compensation to certain Outside Directors of IXC Communications, Inc.
("Company") to better attract, retain, and reward those Outside
Directors and, accordingly, to strengthen the mutuality of interests
between those Outside Directors and the Company's stockholders by
providing those Outside Directors with a proprietary interest in
pursuing the Company's long-term growth and financial success.
(b) It is expressly intended that the benefits under the Plan
qualify for the exemption from the definition of "derivative security"
under Rule 16a-1(c)(3) promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934 by reason of being
cash-only rights.
(c) Because the Plan only benefits certain Outside Directors,
it is intended that the Plan be exempt from the Employee Retirement
Income Security Act of 1974 ("ERISA").
2. EFFECTIVE DATE. The effective date ("Effective Date") of the
Plan shall be the date on which the Registration Statement for the initial
public offering of the Common Stock becomes effective. Notwithstanding the
preceding sentence, if the initial public offering does not close, the Plan
shall automatically terminate retroactively to its Effective Date.
3. DEFINITIONS. For purposes of this Plan, each of the following terms
shall have the meanings set forth below:
(a) "Account" means the unfunded account established for each
Participant.
(b) "Annual Stockholders' Meeting" means the annual meeting of
the Stockholders at which the members of the Board of Directors are
elected.
(c) "Board of Directors" means the Board of Directors of IXC
Communications, Inc.
(d) "Change in Control" means any of the following:
(i) A sale of all or substantially all of the assets
of the Company;
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<PAGE> 2
(ii) A successful tender offer for greater than fifty
percent (50%) of the outstanding capital stock of the Company;
or
(iii) A merger or consolidation of the Company with
any other corporation in which the parties who were
Stockholders immediately preceding such merger or
consolidation will not hold a majority of the outstanding
capital stock of the surviving corporation (whether or not the
Company is the surviving corporation) immediately after such
merger or consolidation.
(e) "Class Year" means the period commencing on the Outside
Director's Participation Commencement Date and ending on the date of
the next Annual Stockholders' Meeting.
(f) "Committee" means the committee designated in accordance
with Section 4 below that is responsible for the administration of the
Plan.
(g) "Common Stock" means the common stock of the Company or
any security issued in substitution, exchange, or in lieu thereof.
(h) "Company" means IXC Communications, Inc., a Delaware
corporation, or any successor corporation.
(i) "Director" means a director of the Company.
(j) "Disabled" means permanent and total disability, as
defined in Internal Revenue Code Section 22(e)(3).
(k) The "Fair Market Value" of Common Stock shall be
determined in accordance with the general rules stated in Subparagraph
(i) below and the special rules stated in Subparagraph (ii) below.
(i) The following general rules shall apply for
valuation purposes.
(A) If the Common Stock is admitted to
trading or listed on a national securities exchange,
its value for any day shall be the last reported sale
price regular way, or if no such reported sale takes
place on that day, the average for the last reported
bid and ask prices regular way, in either case, on
the principal national securities exchange on which
the Common Stock is admitted to trading or listed.
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<PAGE> 3
(B) If the Common Stock is not admitted to
trading or listed on any national securities
exchange, its value for any day shall be the last
sale price on that day that is reported on the Nasdaq
National Market of the Nasdaq Stock Market ("Nasdaq
National Market") or, if no such reported sale takes
place on that day, the average of the closing bid and
ask prices on that day.
(C) If the Common Stock is not included in
the Nasdaq National Market, its value for any day
shall be the average of the closing bid and ask
prices of the Common Stock on that day reported by
the Nasdaq Stock Market, or any comparable system on
that day.
(D) If the Common Stock is not included in
the Nasdaq Stock Market or any comparable system, its
value for any day shall be the closing bid and ask
prices on that day as furnished by any member of the
National Association of Securities Dealers, Inc.
selected from time to time by the Company for that
purpose.
(ii) Notwithstanding the provisions of Subparagraph
(i) above, the following special valuation rules shall apply.
(A) The Fair Market Value of the Common
Stock on the Effective Date shall be the price at
which the Company effects its initial underwritten
public offering of the Common Stock, as set forth on
the cover page to the final prospectus relating to
such offering under the caption "Price to the
Public."
(B) After the Effective Date, the Fair
Market Value of Common Stock for purposes of
calculating the number of shares that are deemed to
be purchased with a Participant's Fixed Credit under
Section 9 below or the amount of the cash benefit
payable to the Participant under Section 12 below,
the Fair Market Value of the Common Stock will be the
average value of the Common Stock for the five (5)
trading days preceding the relevant date.
(C) In the case of a Change in Control, the
Fair Market Value of the Common Stock shall be the
value of the consideration paid for it in the
transaction that effects the Change in Control.
(l) "Fixed Credit" means the amount that is credited to the
Participant's Account pursuant to the rules of Section 8 below for
services rendered as an Outside Director.
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<PAGE> 4
(m) "Inside Director" means a Director who is also an employee
of the Company or of one of its subsidiaries.
(n) "Outside Director" means a Director who is not an employee
of the Company or of one of its subsidiaries.
(o) "Participant" means an Outside Director who has an Account
in the Plan.
(p) "Participation Commencement Date" means the date that an
Outside Director commences participation in the Plan, as determined in
accordance with Section 5 below. An Outside Director's Participation
Commencement Date will be determined separately for each Class Year.
(q) "Plan" means this IXC Communications, Inc. Outside
Directors' Phantom Stock Plan, as it may be amended from time to time.
(r) "Stockholders" mean the stockholders of the Company.
4. ADMINISTRATION.
(a) This Plan shall be administered by a committee
("Committee") composed of Directors who (i) are Inside Directors and
(ii) are Outside Directors but who have elected not to participate in
the Plan in accordance with Section 5 below. At the Effective Date,
such Committee shall consist of Ralph J. Swett, an Inside Director, as
well as Richard D. Irwin and Carl W. McKinzie, Outside Directors who
have elected not to participate in the Plan.
(b) The Committee may conduct its meetings in person or by
telephone. A majority of the members of the Committee shall constitute
a quorum, and any action shall constitute the action of the Committee
if it is authorized by:
(i) A majority of the members present at any meeting
conducted in accordance with the Company's bylaws; or
(ii) The unanimous consent of all of the members in
writing without a meeting.
(c) The Committee is authorized to interpret this Plan and to
adopt rules and procedures relating to the administration of this Plan.
All actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties.
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<PAGE> 5
(d) The Committee is expressly authorized to make such
modifications to this Plan as are necessary to effectuate the intent of
this Plan as a result of any changes in the tax, accounting, or
securities laws treatment of the Participants, Plan, or the Company.
(e) The Committee may delegate its responsibilities to others
under such conditions and limitations as it may determine.
5. PARTICIPATION.
(a) The persons eligible to participate in this Plan shall be
limited to Outside Directors.
(b) Each Outside Director shall automatically commence
participation in the Plan upon his or her Participation Commencement
Date, determined in accordance with the following rules.
(i) In the case of an individual who was an Outside
Director on the Effective Date, the Participation Commencement
Date shall be the Effective Date.
(ii) In the case of an individual who is elected at a
meeting of the Stockholders, the Participation Commencement
Date shall be the date of that meeting.
(iii) In the case of an individual who is appointed
to the Board of Directors, the Participation Commencement Date
shall be the effective date of the appointment.
(iv) In the case of an individual who ceases to be an
Inside Director and becomes an Outside Director, the
Participation Commencement Date shall be the date of the
termination of his or her employment with the Company or a
subsidiary.
(v) In the case of an Outside Director who revokes a
prior waiver of participation, the Participation Commencement
Date shall be the effective date of the revocation, determined
in accordance with Section 6 below.
6. WAIVERS OF PARTICIPATION.
(a) Outside Directors may elect not to participate in the Plan
in accordance with such rules and procedures as the Committee may
prescribe. Outside Directors who elect not to participate in the Plan
will not be granted any compensation in lieu of participation in this
Plan.
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<PAGE> 6
(b) At the Effective Date, Outside Directors Richard D. Irwin
and Carl W. McKinzie have elected not to participate in the Plan.
(c) After the Effective Date, Outside Directors who elect not
to participate in the Plan must provide the Company with written notice
of such election:
(i) Within thirty (30) days of election or
appointment to the Board of Directors, in the case of an
individual who becomes an Outside Director after the Effective
Date; or
(ii) Within thirty (30) days after an Inside Director
becomes an Outside Director.
(d) An Outside Director who waives participation in the Plan
may later revoke such waiver only with the consent of all other
Directors. The effective date of the revocation will be set forth in
the minutes of the meeting of the Board of Directors at which all other
Directors consent to such revocation.
7. ACCOUNTS.
(a) For each Class Year, each Participant's Account will be
credited using the Participant's Fixed Credit, determined in accordance
with Section 8 below.
(b) The Fixed Credit will be deemed to be credited to a
Participant's Account on the individual's Participation Commencement
Date.
8. FIXED CREDIT.
(a) The initial amount used to establish the Fixed Credit for
a Class Year shall be twenty thousand dollars ($20,000), which amount
may be adjusted from time to time by the Committee.
(b) The amount used to establish the Fixed Credit shall be
prorated in the case of any individual whose Participation Commencement
Date does not coincide with the Annual Shareholders' Meeting.
9. INVESTMENTS.
(a) The amount credited on a Participant's Account for a Class
Year will be the deemed maximum number of whole and partial shares of
Common Stock that could be purchased with the Participant's Fixed
Credit for the Class Year, based on the Fair Market Value of the Common
Stock on the date on which the amount was deemed credited to the
Participant's Account under the rules of Section 7 above.
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<PAGE> 7
(b) If the company pays cash dividends on its shares of Common
Stock, each Participant's Account shall be credited with a deemed
dividend payment on the shares credited to the Participant's Account
using the dividend per share amount established by the Company.
(c) Any cash dividends that are deemed to be paid on the
shares of Common Stock held in a Participant's Account will be deemed
to be used to purchase additional whole and partial shares of Common
Stock. The Fair Market Value of the Common Stock for this purpose will
be determined as of the date on which the dividends are paid.
10. VESTING.
(a) Each Participant shall earn a vested right to the amount
of shares deemed to be credited to the Participant's Account for a
Class Year on a monthly basis, over the remaining term of the Class
Year, starting on the individual's Participation Commencement Date.
(b) A Participant will cease vesting in the shares deemed to
be credited to the Participant's Account for a Class Year, if the
Participant becomes an Inside Director.
(c) If a Participant ceases serving as a Director prior to the
last day of a Class Year for a reason other than death or Disability,
the Participant will forfeit the nonvested portion of the Participant's
Account attributable to that Class Year.
(d) Any additional shares of Common Stock deemed to be
acquired during the Class Year (e.g., as a result of cash or stock
dividends paid on Common Stock) shall be subject to the vesting rules
of this Section 10, treating such additional shares as if they had been
deemed acquired on the individual's Participation Commencement Date of
that applicable Class Year.
11. TIMING OF BENEFIT PAYMENTS.
(a) The entire vested amount in a Participant's Account
attributable to a Class Year shall be paid to the Participant as soon
as reasonably practicable following the third Annual Stockholders'
Meeting that occurs after the individual's Participation Commencement
Date.
(b) In the event that the Participant dies or becomes Disabled
before the date specified in Paragraph (a) above, the entire amount of
the Participant's benefit under the Plan (i.e., the amount attributable
to all Class Years) will be paid as soon as reasonably practicable
after that date, but in no event later than ninety (90) days after that
date, based on the Fair Market Value on the date of the Participant's
death
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<PAGE> 8
or Disability (whichever is applicable).
(c) Except as provided in Paragraph (b) above, no benefits
will be payable at the time of termination of a Participant's status as
a Director, but, rather, the Participant's benefit will be paid solely
in accordance with Paragraph (a) above.
12. FORM OF BENEFIT PAYMENTS. Benefits will be paid in the form
of a lump sum distribution of cash equal to the Fair Market Value of the Common
Stock deemed to be held in the Participant's Account on the date of the event on
which the amount of the benefit is to be determined.
13. EFFECT OF CHANGE IN CONTROL. Notwithstanding anything in this Plan
to the contrary, upon a Change in Control:
(a) All Accounts shall become fully vested as of that date;
and
(b) All benefits under the Plan shall become payable as soon
after that date as is reasonably practicable, but in no event later
than ten (10) business days after that event.
14. DESIGNATION OF BENEFICIARY. In the event of the death of a
Participant prior to the date on which the Participant's entire benefit under
the Plan is paid, the benefit (or the remaining portion thereof) shall be paid
to the Participant's estate, unless the Participant has designated a beneficiary
in accordance with such rules and procedures as the Committee may prescribe.
15. PAYEES UNDER LEGAL DISABILITY. If any payee is a minor, or
if the Committee reasonably believes that any payee is legally incapable of
giving a valid receipt and discharge for any payment due the payee, the
Committee may have the payment made to the person (or persons or institution)
whom it believes is caring for or supporting the payee. Any such payment shall
be a payment for the benefit of the payee and shall be a complete discharge of
any liability under the Plan to the payee.
16. PAYMENT OF BENEFITS. All payments under the Plan shall be
delivered in person or mailed to the last address of the Participant (or, in the
case of the death of the Participant, to that of the Participant's estate or of
the Participant's designated beneficiary, whichever is applicable). Each
Participant shall be responsible for furnishing the Committee with his or her
current address and that of his or her beneficiary (if applicable).
17. CHANGES IN CAPITALIZATION. In the event of any change in
the capitalization of the Company affecting its Common Stock (e.g., a stock
split, reverse stock split, stock dividend, recapitalization, combination, or
reclassification), the Committee shall make such adjustments as it may deem
appropriate with respect to the aggregate number of shares of Common Stock
deemed to be held in Participants' Accounts.
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<PAGE> 9
18. NON-TRANSFERABILITY OF GRANTS. Benefits under this Plan are not
assignable or transferable except by will or the laws of descent and
distribution.
19. FUNDED STATUS OF BENEFITS.
(a) The Plan is intended to be an unfunded deferred
compensation arrangement, with the benefits payable, when due, by the
Company out of its general assets.
(b) All rights created under the Plan shall be mere unsecured
contractual rights of Participants against the Company.
(c) Nothing in this Plan shall in any way diminish any rights
of a Participant to pursue his or her rights as a general creditor of
Company with respect to his or her benefit under the Plan.
20. AMENDMENT AND TERMINATION. The Board may amend or terminate this
Plan at any time.
21. TAX WITHHOLDING. Any payments from the Plan shall be subject to
such withholding for taxes as may be required by applicable federal or state
law.
22. NO ADDITIONAL RIGHTS. Neither the adoption of this Plan nor the
participation of any Outside Director in this Plan shall:
(a) Affect or restrict in any way the power of the Company to
undertake any corporate action otherwise permitted under applicable
law; or
(b) Confer upon any Participant the right to continue
performing services for the Company as a Director, nor shall it
interfere in any way with the right of the Stockholders to terminate
the services of any Participant as a Director at any time, with or
without cause.
23. INDEMNIFICATION. To the maximum extent permitted by law,
the Company shall indemnify each member of the Board, as well as any other
employee of the Company with duties under this Plan, against any and all
liabilities and expenses (including any amount paid in judgment or settlement)
reasonably incurred by the individual in connection with any claims against the
individual by reason of the performance of the individual's duties under this
Plan, unless the losses are due to the individual's gross negligence or lack of
good faith.
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<PAGE> 10
24. GOVERNING LAW. This Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
IXC COMMUNICATIONS, INC.,
A DELAWARE CORPORATION
BY: /s/ Ralph J. Swett
-------------------------
Ralph J. Swett
ITS: Chairman, President and
Chief Executive Officer
DATE: June 4, 1996
-----------------------
ATTEST:
/s/ Richard D. Irwin
- -----------------------------
Richard D. Irwin
/s/ Carl W. McKinzie
- -----------------------------
Carl W. McKinzie
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<PAGE> 11
AMENDMENT TO IXC COMMUNICATIONS, INC.
OUTSIDE DIRECTORS' PHANTOM STOCK PLAN
This Amendment to IXC Communications, Inc. Outside Directors' Phantom
Stock Plan (this "Amendment") is made as of October 29, 1996 (the "Amendment
Effective Date") and amends that certain Amended and Restated 1994 Stock Plan
(the "Plan") of IXC Communications, Inc., a Delaware corporation (the
"Company").
Section 20 of the Plan provides that the Board of Directors of the
Company may amend or terminate the Plan at any time. This Amendment shall be
effective as of the Amendment Effective Date which is the date the Board of
Directors approved this Amendment.
1. Section 4(a) of the Plan is hereby amended to read in its entirety
as follows:
"This Plan shall be administered by a committee ("Committee")
composed of Directors who (i) are Inside Directors and (ii) are Outside
Directors but who have elected not to participate in the Plan in
accordance with Section 5 below. At the Effective Date, such Committee
shall consist of Ralph J. Swett, an Inside Director, as well as Richard
D. Irwin and Carl W. McKinzie, Outside Directors who have elected not
to participate in the Plan. Notwithstanding anything herein to the
contrary, any action which may be taken by the Committee may also be
taken by the Board."
2. Section 1(b) of the Plan is hereby amended to read in its entirety
as follows:
"With respect to benefits granted under the Plan prior to
August 15, 1996, it is expressly intended that such benefits qualify
for the exemption from the definition of "derivative security" under
Rule 16a-1(c)(3) promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934 (the "Exchange Act") as in
effect on January 1, 1996 by reason of being cash-only rights."
3. Section 2 of the Plan is hereby amended to read in its entirety as
follows:
"Effective Date. The effective date ("Effective Date") of the
Plan shall be July 2, 1996."
4. Section 3(k)(ii)(A) of the Plan is hereby amended to read in its
entirety as follows:
"The Fair Market Value of the Common Stock on the Effective
Date shall be $16.00."
5. Sections 4(a) and 4(e) of the Plan are hereby amended to read in
their
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<PAGE> 12
entirety as follows:
"(a) To the extent possible and advisable, this Plan shall be
administered by a committee ("Committee") composed of Directors who (i)
are Inside Directors and (ii) are Outside Directors but who have
elected not to participate in the Plan in accordance with Section 5
below. At the Effective Date, such Committee shall consist of Ralph J.
Swett, an Inside Director, as well as Richard D. Irwin and Carl W.
McKinzie, Outside Directors who have elected not to participate in the
Plan. Notwithstanding the foregoing, the Board of Directors may
administer the Plan in the event that the benefits granted by the
Committee hereunder would not be exempt under Rule 16b-3 of the
Exchange Act."
* * * * * *
"(e) The Committee may delegate its responsibilities to others
under such conditions and limitations as it may determine; provided,
however, that the Committee may not delegate its responsibilities in
the event such delegation would preclude the availability of an
exemption under Rule 16b-3 of the Exchange Act."
6. Section 8 of the Plan is hereby amended to read in its entirety as
follows:
"The Fixed Credit for a Class Year shall be twenty thousand
dollars ($20,000)."
7. This Amendment is effective as of the Amendment Effective Date.
8. All other terms and conditions of the Agreement not specifically
amended herein shall remain in full force and effect.
IXC Communications, Inc.,
By: /s/ John J. Willingham
-------------------------
Its: Senior Vice President and
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.16
IXC COMMUNICATIONS, INC.
SPECIAL STOCK PLAN
1. PURPOSE. The purpose of the IXC Communications, Inc. Special
Stock Plan ("Plan") is to promote the interests of IXC Communications, Inc.
("Company") and its stockholders by enabling it to offer grants of stock to
induce certain individuals to enter into employment agreements with the Company
and/or to subsidiaries and, accordingly, to strengthen the mutuality of
interests between those persons and the Company's stockholders by providing
those persons with a proprietary interest in pursuing the Company's long-term
growth and financial success.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below.
(a) "Board" means the Board of Directors of IXC
Communications, Inc.
(b) "Code" means the Internal Revenue Code of 1986, as
amended. Reference to any specific section of the Code shall be deemed
to be a reference to any successor provision.
(c) "Committee" means the administrative Committee of this
Plan that is provided in Section 3 below.
(d) "Common Stock" means the common stock of the Company or
any security issued in substitution, exchange, or in lieu thereof.
(e) "Company" means IXC Communications, Inc., a Delaware
corporation, or any successor corporation. Except where the context
indicates otherwise, the term "Company" shall include its Parent and
Subsidiaries.
(f) "Disabled" means permanent and total disability, as
defined in Code Section 22(e)(3).
(g) "Exchange Act" means the Securities Exchange Act of 1934.
(h) "Fair Market Value" of Common Stock shall be determined in
accordance with the following rules.
(i) If the Common Stock is admitted to trading or
listed on a national securities exchange, the Fair Market
Value for any day shall be the last reported sale price
regular way, or if no such reported sale takes place on that
day, the average of the last reported bid and ask prices
regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to
trading or listed.
<PAGE> 2
(ii) If not listed or admitted to trading on any
national securities exchange, the Fair Market Value for any
day shall be the last sale price on that day of the Common
Stock reported on the Nasdaq National Market of the Nasdaq
Stock Market ("Nasdaq National Market") or, if no such
reported sale takes place on that day, the average of the
closing bid and ask prices on that day.
(iii) If not included in the Nasdaq National Market,
the Fair Market Value for any day shall be the average of the
closing bid and ask prices of the Common Stock on that day
reported by the Nasdaq Stock Market, or any comparable system
on that day.
(iv) If the Common Stock is not included in the
Nasdaq Stock Market or any comparable system, the Fair Market
Value for any day shall be the closing bid and ask prices on
that day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to
time by the Company for that purpose.
(i) "Insider" means a person who is subject to Section 16 of
the Exchange Act.
(j) "Non-Qualified Stock Option" or "Option" means any option
to purchase Common Stock.
(k) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company
if each of the corporations (other than the Company) owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain, as determined in accordance with the rules of Code Section
424(e).
(l) "Participant" means a person who was been granted an
Option or Restricted Stock.
(m) "Plan" means this IXC Communications, Inc. Special Stock
Plan, as it may be amended from time to time.
(n) "Restricted Stock" means shares of Common Stock issued
under Section 9 below that are subject to restrictions upon assignment
or alienation prior to vesting.
(o) "Severance" means, with respect to a Participant, the
termination of the Participant's provision of services to the Company
as an employee, director, or independent contractor (whichever is
relevant), whether by reason of death, disability, or any other reason.
However, a Participant will not be considered to
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<PAGE> 3
have incurred a Severance because of a transfer of employment between
the Company and a Subsidiary or Parent (or vice versa).
(p) "Subsidiary" means any corporation or entity in which the
Company, directly or indirectly, controls fifty percent (50%) or more
of the total voting power of all classes of its stock having voting
power, as determined in accordance with the rules of Code Section
424(f).
3. ADMINISTRATION.
(a) This Plan shall be administered by a Committee appointed
by the Board. The Board may remove members from, or add members to, the
Committee at any time. To the extent possible and advisable, the
Committee shall be composed of individuals that satisfy Rule 16b-3
under the Exchange Act and Code Section 162(m). Notwithstanding
anything herein to the contrary, any action which may be taken by the
Committee may also be taken by the Board.
(b) The Committee may conduct its meetings in person or by
telephone. A majority of the members of the Committee shall constitute
a quorum, and any action shall constitute the action of the Committee
if it is authorized by:
(i) A majority of the members present at any meeting
conducted in accordance with the Company's bylaws; or
(ii) The unanimous consent of all of the members in
writing without a meeting.
(c) The Committee is authorized to interpret this Plan and to
adopt rules and procedures relating to the administration of this Plan.
All actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties.
(d) Subject to the limitations of Sections 10 and 14 below,
the Committee is expressly authorized to make such modifications to
this Plan and to the grants of Options and Restricted Stock hereunder
as may be necessary to effectuate the intent of this Plan as a result
of any changes in the tax, accounting, or securities laws treatment of
Participants and the Plan.
(e) The Committee may delegate its responsibilities to others
under such conditions and limitations as it may prescribe, except that
the Committee may not delegate its authority with regard to the
granting of Options or Restricted Stock to Insiders.
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<PAGE> 4
4. DURATION OF PLAN.
(a) This Plan shall be effective as of July 7, 1996.
(b) This Plan shall terminate on July 6, 2006, except with
respect to Options and Restricted Stock then outstanding.
5. NUMBER OF SHARES.
(a) The aggregate number of shares of Common Stock which may
be issued pursuant to this Plan shall be 67,900. This aggregate number
may be adjusted from time to time as set forth in Section 13 below. The
maximum number of shares that may be issued to a single Participant is
sixty seven thousand nine hundred (67,900).
(b) Upon the expiration or termination of an outstanding
Option which shall not have been exercised in full, the shares of
Common Stock remaining unissued under the Option shall again become
available for use under the Plan.
(c) Upon the forfeiture of shares of Restricted Stock, the
forfeited shares of Common Stock shall again become available for use
under the Plan.
(d) The payment of part or all of the exercise price of an
Option in the form of surrendering Common Stock owned by the
Participant shall not be considered to reduce the number of shares
issuable upon the exercise of the Option for purposes of determining
the maximum number of shares that may be issued under the Plan.
6. ELIGIBILITY.
(a) Persons eligible for Options and/or Restricted Stock under
this Plan shall consist of employees, directors, and other persons
providing services to the Company.
(b) In the event that the Company acquires another entity, the
Committee may authorize the issuance of Options ("Substitute Options")
to the individuals performing services for the acquired entity in
substitution of stock options previously granted to those individuals
in connection with their performance of services for such entity upon
such terms and conditions as the Committee shall determine.
7. FORM OF OPTIONS.
(a) Options shall be granted under this Plan on such terms and
in such form as the Committee may approve, which shall not be
inconsistent with the
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<PAGE> 5
provisions of this Plan. However, in the event a grant of an Option by
the Committee would not be exempt under Section 16b-3 of the Exchange
Act, the Board may grant such Option under this Plan on such terms and
in such form as the Board may approve, which shall not be otherwise
inconsistent with the provisions of this Plan.
(b) The exercise price per share of Common Stock purchasable
under an Option shall be set forth in the Option.
8. EXERCISE OF OPTIONS.
(a) An Option shall be exercisable at such time or times and
be subject to such terms and conditions as may be set forth in the
Option.
(b) Options shall only be exercisable for whole numbers of
shares.
(c) Options are exercised by payment of the full amount of the
purchase price to the Company.
(i) The payment shall be in the form of cash or such
other forms of consideration as the Committee shall deem
acceptable, such as the surrender of outstanding shares of
Common Stock owned by the Participant or by withholding shares
that would otherwise be issued upon the exercise of the
Option.
(ii) If the payment is made by means of the surrender
of Restricted Stock, a number of shares issued upon the
exercise of the Option equal to the number of shares of
Restricted Stock surrendered shall be subject to the same
restrictions as the Restricted Stock that was surrendered.
(iii) After giving due considerations of the
consequences under Rule 16b-3 under the Exchange Act and under
the Code, the Committee may authorize the exercise of Options
by the delivery to the Company or its designated agent of an
irrevocable written notice of exercise form together with
irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the shares of Common Stock and to
deliver the sale or margin loan proceeds directly to the
Company to pay the exercise price of the Option.
9. RESTRICTED STOCK.
(a) The Committee may issue grants of Restricted Stock upon
such terms and conditions as it may deem appropriate, which need not be
the same for each such grant.
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<PAGE> 6
(b) Restricted Stock may not be sold to Participants for less
than Fair Market Value.
(c) A Participant shall not have a vested right to the shares
subject to the grant of Restricted Stock until satisfaction of the
vesting requirements specified in the grant. The Participant may not
assign or alienate the Participant's interest in the shares of
Restricted Stock prior to vesting.
(d) The following rules apply with respect to events that
occur prior to the date on which the Participant obtains a vested right
to the Restricted Stock.
(i) Stock dividends, shares resulting from stock
splits, etc. that are issued with respect to the shares
covered by a grant of Restricted Stock shall be treated as
additional shares received under the grant of Restricted
Stock.
(ii) Cash dividends issued with respect to the
Restricted Stock constitute taxable compensation to the
Participant that is deductible by the Company.
10. MODIFICATION OF GRANTS.
(a) The Committee may modify an existing Option, including the
right to:
(i) Accelerate the right to exercise it;
(ii) Extend or renew it; or
(iii) Cancel it and issue a new Option.
However, no modification may be made to an Option that would impair the
rights of the Participant holding the Option without the Participant's
consent. Similar modifications can be made to grants of Restricted
Stock.
(b) Whether a modification of an existing grant of Restricted
Stock or of an Option granted to an Insider will be treated as a new
grant will be determined in accordance with Rule 16b-3 under the
Exchange Act.
11. TERMINATION OF OPTIONS.
(a) Except to the extent the terms of an Option require its
prior termination, each Option shall terminate on the earliest of the
following dates.
(i) The date which is ten (10) years from the date on
which the Option is granted.
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<PAGE> 7
(ii) The date which is one (1) year from the date of
the Severance of the Participant to whom the Option was
granted, if the Participant was Disabled at the time of
Severance.
(iii) The date which is one (1) year from the date of
the Severance of the Participant to whom the Option was
granted, if the Participant's death occurs:
(A) While the Participant is employed by the
Company; or
(B) Within three (3) months following the
Participant's Severance.
(iv) In the case of any Severance other than one
described in Subparagraphs (ii) or (iii) above, the date that
is three (3) months from the date of the Participant's
Severance.
12. NON-TRANSFERABILITY OF GRANTS.
(a) No Option under this Plan shall be assignable or
transferable except by will or the laws of descent and distribution.
(b) Grants of Restricted Stock shall be subject to such
restrictions on transferability as may be imposed in such grants.
13. ADJUSTMENTS
(a) In the event of any change in the capitalization of the
Company affecting its Common Stock (e.g., a stock split, reverse stock
split, stock dividend, recapitalization, combination, or
reclassification), the Committee shall authorize such adjustments as it
may deem appropriate with respect to:
(i) The aggregate number of shares of Common Stock
that may be issued under this Plan;
(ii) The number of shares of Common Stock covered by
each outstanding Option or grant of Restricted Stock; and
(iii) The exercise price per share in respect of each
outstanding Option.
(b) The Committee may also make such adjustments in the event
of a spin-off or other distribution of Company assets to stockholders,
other than normal cash dividends.
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<PAGE> 8
14. AMENDMENT AND TERMINATION. The Board may at any time amend or
terminate this Plan. However, no modification may be made to the Plan that would
impair the rights of the Participant holding an Option or Restricted Stock
without the Participant's consent.
15. TAX WITHHOLDING.
(a) The Company shall have the right to take such actions as
may be necessary to satisfy its tax withholding obligations relating to
the operation of this Plan.
(b) If Common Stock that was surrendered by the Participant is
used to satisfy the Company's tax withholding obligations, the stock
shall be valued based on its Fair Market Value when the tax withholding
is required to be made.
16. NO ADDITIONAL RIGHTS.
(a) Neither the adoption of this Plan nor the granting (or
exercise) of any Option or Restricted Stock shall:
(i) Affect or restrict in any way the power of the
Company to undertake any corporate action otherwise permitted
under applicable law; or
(ii) Confer upon any Participant the right to
continue performing services for the Company, nor shall it
interfere in any way with the right of the Company to
terminate the services of any Participant at any time, with or
without cause.
(b) No Participant shall have any rights as a stockholder with
respect to any shares covered by an Option granted to the Participant
or subject to a grant of Restricted Stock until the date a certificate
for such shares has been issued to the Participant.
17. SECURITIES LAW RESTRICTIONS.
(a) No shares of Common Stock shall be issued under this Plan
unless the Committee shall be satisfied that the issuance will be in
compliance with applicable federal and state securities laws.
(b) The Committee may require certain investment (or other)
representations and undertakings by the Participant (or other person
exercising an Option or purchasing Restricted Stock by reason of the
death of the Participant) in order to comply with applicable law.
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<PAGE> 9
(c) Certificates for shares of Common Stock delivered under
this Plan may be subject to such restrictions as the Committee may deem
advisable. The Committee may cause a legend to be placed on the
certificates to refer to these restrictions.
18. INDEMNIFICATION. To the maximum extent permitted by law, the
Company shall indemnify each member of the Board, as well as any other employee
of the Company with duties under this Plan, against expenses (including any
amount paid in settlement) reasonably incurred by the individual in connection
with any claims against him or her by reason of the performance of the
individual's duties under this Plan, unless the losses are due to the
individual's gross negligence or lack of good faith.
19. GOVERNING LAW. This Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
IXC COMMUNICATIONS, INC.,
A DELAWARE CORPORATION
BY: /s/ John J. Willingham
--------------------------------
ITS: Senior Vice President and
Chief Financial Officer
DATE: October 29, 1996
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<PAGE> 1
EXHIBIT 10.17
STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER
This STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement")
is made and entered into as of this 17th day of January, 1997 (the "Execution
Date") by and among IXC Communications, Inc. ("IXC"), a Delaware corporation,
IXC Long Distance, Inc., a Delaware corporation ("IXC-LD"), IXC-One Acquisition
Corp. ("Acquisition Corp."), a California corporation, L.D. Services, Inc. ("LD
Services"), a California corporation, and the Shareholders listed on the
signature page hereof: Richard A. Bishop, individually and in his capacity as
Trustee of the Richard Allen Bishop & Teresa Anne Bishop 1996 Revocable Trust;
Judith Bolger; Elizabeth Currier, individually and in her capacity as Trustee
of the Currier Family Trust; Don Currier; Thomas Guy Eltringham; John Brent
McDaniel, individually and in his capacity as Trustee of the John Brent
McDaniel Revocable Trust; Donna J.S. Robinson; and Harold B. Robinson.
R E C I T A L S
A. LD Services owns and operates a long distance
telecommunications business (the "Business").
B. The Shareholders own 93.75% of the issued and outstanding
shares of common stock, no par value (the "LD Services Stock"), and the
remaining shareholders (the "Non-Control Shareholders") own 6.25% of issued and
outstanding shares of LD Services Stock which in the aggregate constitute all
of the outstanding capital stock of LD Services. The Non-Control Shareholders
have consented to sell their shares pursuant to Article II below pursuant to
the terms of a Waiver and Consent of even date herewith.
C. IXC-LD, a wholly owned subsidiary of IXC, desires to acquire
all of the capital stock of LD Services by consummating the following
transactions in the following order: (i) first, IXC shall cause Acquisition
Corp., a wholly owned subsidiary of IXC, to be merged with and into LD Services
(the "Merger") in accordance with this Agreement, such that after the Merger,
LD Services shall be the surviving corporation and a wholly owned subsidiary,
and Acquisition Corp. shall cease to exist; and (ii) second, immediately
following the completion of the Merger, IXC shall contribute all of the capital
stock of LD Services to IXC-LD.
D. In connection with the Merger, the LD Services' Stock shall be
converted into a number of shares of IXC Common Stock (defined below), upon the
terms and subject to conditions of this Agreement.
<PAGE> 2
A G R E E M E N T
In consideration of the foregoing recitals and the respective
covenants, agreements, representations and warranties contained herein, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement, the following
terms shall have the following meanings:
"Action" shall mean any action, claim, suit, litigation,
proceeding, arbitration, mediation or other dispute.
"Additional Purchase Price" shall mean the dollar amount equal
to the product of 150,000 and the Price Increase.
"Ancillary Agreement" shall mean each other agreement executed
in connection with this Agreement, including, without limitation, the
Employment Agreements, the Revised Independent Agent Agreements and the
Registration Rights Agreement (as defined below).
"Auditors" shall mean Ernst & Young LLP.
"Books and Records" shall mean all books, ledgers, files,
records, manuals and other materials (in any form or medium) related to the
Business, including, but not limited to, all correspondence, personnel records,
vendor lists, operation and quality control records and procedures, research
and development files, Intellectual Property disclosures and documentation,
accounting records and systems, litigation files, sales order files, purchase
order files, advertising materials, catalogs, product brochures, mailing lists,
customer lists, distribution lists, sales and promotional materials and all
other records utilized by LD Services in connection with the Business and all
computer hardware, software and data files necessary to access or review or
continue to compile or utilize any of the foregoing.
"Closing Share Price" shall mean the average closing price as
publicly reported by the Nasdaq Stock Market as of 4:00 p.m. Eastern Time of
IXC Common Stock over the last five trading days ending with (and not
including) the Actual Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Consideration" shall be the sum of (i) the number of shares
of IXC Common Stock (the "Initial Share Amount") which, when multiplied by the
Initial Share Price, equals the Initial Purchase Price plus (ii) the number of
shares of IXC Common Stock (the "Additional
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Share Amount") which, when multiplied by the Closing Share Price, equals the
Additional Purchase Price.
"Deemed Closing Date" shall mean the date which is the last
day of the month in which the conditions set forth in Section 7.7 and 8.5 have
been satisfied.
"Deemed Closing Date Audit" shall mean the financial audit
conducted by the Auditors of LD Services' balance sheet as of the Deemed
Closing Date.
"Employee Benefit Plan(s)" shall mean any deferred
compensation plan, bonus plan, profit sharing plan, stock option plan, employee
stock purchase plan and any other employee benefit plan, agreement, arrangement
or commitment (a) which LD Services sponsors or to which LD Services
contributes or is required to contribute, or under which LD Services may incur
any liability, and (b) which covers an employee or former employee of LD
Services.
"Encumbrances" shall mean any claim, lien, pledge, option,
charge, security interest, deed of trust, mortgage, restriction, encumbrance or
other right of third parties, of any kind or nature.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute, including the
rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect on the date of the Agreement.
"Independent Agents" shall mean those individuals listed as
Independent Agents on the Disclosure Schedule attached hereto, each of which
has been engaged by LD Services for the purpose of selling commercial long
distance telecommunications services under the terms and conditions of an
Independent Agent Agreement signed by such individual with LD Services.
"Initial Purchase Price" shall mean the dollar amount equal to
(i) 10.8 times $2.75 million; less (ii) the Net Liabilities as of the Deemed
Closing Date (which shall be based upon LD Services' audited balance sheet
produced from the Deemed Closing Date Audit); plus (iii) the Net Assets as of
Deemed Closing Date (which shall be based upon LD Services' audited balance
sheet produced from the Deemed Closing Date Audit).
"Initial Share Price" shall mean the average closing price as
publicly reported by the Nasdaq Stock Market as of 4:00 p.m. Eastern Time of
IXC Common Stock over the last twenty trading days ending with and including
the Execution Date.
"Intellectual Property" shall mean all of LD Services'
intellectual property rights including, without limitation, all of LD Services'
right, title and interest in and to any (a) trademarks, trademark registrations
and applications, service marks and trade names, copyrights,
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copyright registrations, trade secrets and business confidential information;
(b) computer software programs and systems and documentation relating to the
foregoing or used or useable in the Business; and (c) other proprietary
information owned, controlled, created or used or useable by or on behalf of LD
Services in connection with the conduct of the Business in which LD Services
has any interest whatsoever, whether or not registered, including rights or
obligations under any license agreement with any other person.
"IXC Affiliate" shall mean IXC, IXC-LD and any direct or
indirect subsidiary thereof.
"IXC Common Stock" shall mean shares of common stock, par
value $.01 per share, of IXC. The issuance of the IXC Common Stock under this
Agreement shall not be registered under the federal securities laws, and
therefore, shall be "restricted stock" under such laws; provided, however, that
such shares shall be covered by the terms of the Registration Rights Agreement.
"IXC Network" shall mean the long distance telecommunications
network of IXC and its subsidiaries.
"Laws" shall mean all federal, state or local statutes,
regulations, ordinances, orders, decrees, or any other laws, common law
theories or reported decisions of any state or federal court including, without
limitation, now or at any time hereafter in effect, including, without
limitation, any of the foregoing relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material.
"Net Assets" as of any date shall be zero except if Net
Liabilities are zero in which event "Net Assets" shall mean the difference
between (i) the total current assets of LD Services as of such date less (ii)
the total current liabilities (excluding shareholders' equity), determined in
accordance with GAAP on an accrual basis. For purposes of the foregoing, Net
Assets at the Deemed Closing Date shall reflect accrual for all legal and
accounting fees and expenses of LD Services relating to the transactions
contemplated hereby, regardless of whether such amounts have been billed to LD
Services prior to the Deemed Closing Date.
"Net Liabilities" as of any date shall mean the difference
between (i) the total current liabilities of LD Services as of such date
(excluding shareholders' equity) less (ii) the total current assets, determined
in accordance with GAAP on an accrual basis. In the event such total
liabilities are less than such total assets, Net Liabilities shall be zero.
For purposes of the foregoing, Net Liabilities at the Deemed Closing Date shall
reflect accrual for all legal and accounting fees and expenses of LD Services
relating to the transactions contemplated hereby, regardless of whether such
amounts have been billed to LD Services prior to the Deemed Closing Date.
"Per Share Consideration" shall equal the Consideration
divided by the Outstanding LD Services Shares.
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"Permits" shall mean all franchises, permits, licenses,
qualifications, rights-of-way, easements, municipal and other approvals,
authorizations, orders, consents and other rights from, and filings with, any
governmental authority of any jurisdiction worldwide relating to the conduct of
the Business.
"Price Increase" shall mean the excess, if any, of (i) the
Closing Share Price over (ii) the Initial Share Price.
"Purchase Price" shall mean the sum of the Initial Purchase
Price and the Additional Purchase Price.
"Regulatory Approvals" shall mean all necessary regulatory
approvals from the Federal Communications Commission and state public service
commissions, more fully described in Exhibit A attached hereto, required for
the transfer of ownership or control over LD Services.
"Representatives" shall mean any officer, director, principal,
shareholder, partner, attorney, accountant, advisor, agent, employee or other
representative of a party hereto.
"Tax(es)" shall mean all taxes, charges, fees, levies or other
assessments imposed by and required to be paid to any federal, state, local, or
foreign taxing authority, including, without limitation, income, excise,
property, sales, transfer, ad valorem, payroll and franchise taxes (including
any interest, penalties or additions attributable to or imposed on or with
respect to any such assessment) and any estimated payments or estimated Taxes.
"Tax Return" shall mean any return, report, information return
or other document (including any related or supporting information) filed or
required to be filed with any federal, state, local or foreign governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on a Shareholder) or
the administration of any Laws, regulations or administrative requirements
relating to any Tax.
ARTICLE 2
MERGER
2.1 Merger. On the terms and subject to the conditions of this
Agreement, on the Effective Date (defined below), Acquisition Corp. shall be
merged with and into LD Services in a statutory merger pursuant to the terms
and conditions of this Agreement, in accordance with the California General
Corporation Law ("CGCL"). On and after the Effective Date, the separate
existence and corporate organization of Acquisition Corp. shall cease, and LD
Services shall succeed to and possess all of the properties, rights, privileges
and powers and be subject to all of the liabilities and obligations of
Acquisition Corp., all without further act or deed.
2.2 Shareholder Approval. The Shareholders hereby approve this
Agreement and hereby consent to the Merger described in Section 2.1 above.
IXC, as the sole stockholder of
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Acquisition Corp., hereby approves this Agreement and hereby consents to the
Merger. Each of the Shareholders and IXC hereby waive any appraisal rights to
which it may be entitled under the CGCL, in accordance with the provisions of
the CGCL.
2.3 Effective Date of Merger. As soon as practicable following
the Actual Closing, LD Services and Acquisition Corp. shall cause an agreement
of merger with the required officers' certificates (the "Certificate of
Merger"), executed at the Actual Closing, to be filed with the Secretary of
State of the State of California in accordance with the CGCL. The Merger shall
become effective at the time of the filing of the Certificate of Merger. The
time and date on which the Merger shall become effective is referred to herein
as the "Effective Date."
2.4 Articles of Incorporation, Bylaws, Directors and Officers.
(i) Articles of Incorporation. The Articles of
Incorporation of LD Services as in effect at the Effective Date shall remain in
effect and will be the Articles of Incorporation of the surviving corporation,
until amended in accordance with the CGCL.
(ii) Bylaws. The Bylaws of LD Services, as in effect at
the Effective Date, shall remain in effect until amended in accordance with the
terms of such Bylaws.
(iii) Directors and Officers. The directors and officers
of LD Services immediately prior to the Effective Date shall be the directors
and officers, respectively, of LD Services, to serve until their respective
successors are duly elected and qualified.
2.5 Conversion. On the Effective Date and by virtue of the
Merger, (i) each outstanding share of common stock, no par value of Acquisition
Corp., outstanding as of the Effective Date shall be converted into one share
of common stock, no par value, of LD Services; and (ii) each outstanding share
of common stock, no par value of LD Services shall be automatically converted,
without any action on the part of the holder thereof, into and represent the
right to receive from IXC the Per Share Consideration in accordance with the
terms of this Agreement. The Per Share Consideration shall be paid by delivery
of one or more certificates of IXC Common Stock registered in the name of each
Shareholder on the dates and subject to the adjustments set forth below in
Section 2.5(a).
(a) Payment of Purchase Price. Subject to the conditions
set forth herein, IXC shall deliver to each Shareholder the Per Share
Consideration multiplied by the number of shares of LD Services Stock owned by
such Shareholder immediately prior to the Merger (with respect to each
Shareholder, the "Shareholder's IXC Shares"). For purposes of calculating the
number of shares contained in the Shareholder's IXC Shares, the numbers shall
be rounded to the nearest whole share as required to avoid issuance of
fractional shares.
(b) Adjustments Relating to Stock Splits and Other
Events. If after the first date that enters into the calculation of the
Initial Share Price and/or the Additional Share Price and before the date on
which the Initial Share Amount and/or the Additional Share Amount are
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actually issued and delivered to the Shareholders, the number of shares of IXC
Common Stock outstanding shall be increased due to a subdivision of shares, the
payment of a stock dividend, a stock split or any other change in
capitalization effective without receipt of consideration by IXC or with
receipt of consideration by IXC which is grossly inadequate (excluding grants
of stock options under any of IXC's stock plans then in effect), or if such
outstanding shares shall have been changed into or exchanged for a different
number or kind of shares or other securities through a reorganization,
recapitalization, reclassification, merger, consolidation, share exchange or
similar transaction, then a proportionate adjustment in the number and an
appropriate adjustment in the kind of securities issuable under Section 2.5(a)
above shall be made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND LD SERVICES
The Shareholders and LD Services hereby represent and warrant to IXC
and IXC-LD that the following statements are true and complete and not
misleading as of the date of this Agreement and the Shareholders and LD
Services hereby expressly acknowledge that IXC and IXC-LD, in agreeing to
consummate the transactions contemplated by this Agreement, have relied upon
the following representations and warranties with respect to the Business and
the LD Services Stock in its decision to enter into this Agreement:
3.1 Organization and Qualification of LD Services. LD Services is
a corporation duly organized, validly existing and in good standing under the
Laws of the State of California. LD Services has the requisite corporate power
and authority to own, lease and operate its assets and properties and to
conduct the Business in the manner in which it is presently conducted. LD
Services is duly qualified and licensed in each jurisdiction where the nature
of the business conducted by it requires such qualification, except where the
failure to so qualify would not have a material adverse effect upon LD
Services' financial condition or results of operations. LD Services has
delivered to IXC-LD true and complete copies of its Articles of Incorporation
and Bylaws. Except as set forth in the Disclosure Schedule, LD Services has no
subsidiaries or affiliated companies and does not otherwise own or control
directly or indirectly, any equity interest in any corporation, association or
business entity.
3.2 Capitalization of LD Services. The authorized capital stock
of LD Services consists solely of 1,000 shares of LD Services Stock. The
number of shares of the LD Services Stock issued and outstanding is set forth
on the Disclosure Schedule. Other than this Agreement, and except as set forth
on the Disclosure Schedule, there is not outstanding any subscription, option,
warrant, call, right or other agreement or commitment obligating LD Services or
any of the Shareholders to issue, sell, deliver or transfer (including any
right of conversion or exchange under any outstanding security or other
instrument) any shares of the LD Services Stock or any shares of any other
capital stock of LD Services.
3.3 Title to the LD Services Stock. Each Shareholder owns
beneficially and of record the number of shares of LD Services Stock as set
forth for him in the Disclosure Schedule, free
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and clear of all Encumbrances affecting his ability to transfer such shares to
LD Services for cancellation. All of the shares of the LD Services Stock are
duly and validly authorized, issued and outstanding, fully paid,
non-assessable.
3.4 Authorization. LD Services has the requisite corporate power
and authority to execute and deliver this Agreement and the Certificate of
Merger and to consummate the transactions contemplated hereby, and to perform
any of its obligations hereunder. Each of the Shareholders has the requisite
power and authority to execute and deliver this Agreement, and to consummate
the transactions contemplated hereby, and to perform all such Shareholder's
obligations hereunder. All actions and proceedings on the part of LD Services,
its officers, directors and shareholders necessary to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly taken or will be taken prior to
the Actual Closing Date.
3.5 Due Execution and Delivery; Binding Obligations. The
Ancillary Agreements have been duly executed and delivered by LD Services and
the Shareholders as the case may be. The Ancillary Agreements constitute the
legal, valid and binding agreement and obligation of LD Services and the
Shareholders, as the case may be, enforceable against them in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or conveyance or similar Laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability and except as rights of indemnity or contribution
may be limited by federal or state securities or other laws or the public
policy underlying such Laws.
3.6 Compliance with Other Instruments. LD Services is not in
violation of any term of its Articles of Incorporation or Bylaws, or in any
material respect of any term or provision of any mortgage, indebtedness,
indenture, contract, agreement, instrument, order, writ, injunction, judgment
or decree. LD Services is not in violation of any order, statute, rule or
regulation applicable to LD Services, its officers, directors and shareholders.
LD Services has all licenses, permits and certificates from governmental
agencies necessary for the conduct of its business as now conducted. No claim
has been made by any governmental authority to the effect that the business
conducted by LD Services fails to comply, in any respect (and no such claim is
anticipated by LD Services), with any Laws.
3.7 No Conflict or Violation. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will result in: (a) a violation of, or a conflict with, LD Services'
Articles of Incorporation, Bylaws or any subscription, shareholders' or similar
types of agreements or understandings to which LD Services or a Shareholder is
a party thereto; (b) a material breach of, or a material default (or an event
which, with notice or lapse of time or both would constitute a material
default) under or result in the termination of, or accelerate the performance
required by, or create a right of termination or acceleration under, any
material Contract, agreement, instrument, license, Encumbrance or Permit to
which LD Services is a party or by which LD Services or the Business is bound
or affected, other than LD Services' close corporation or S corporation status;
(c) the payment by, or the
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creation of any obligation (absolute or contingent) to pay on behalf of LD
Services or any of its current or former shareholders of any severance,
termination, "golden parachute" or other similar payments pursuant to any
employment or other agreements of LD Services or any of its current or former
officers, directors or employees; (d) a violation by LD Services or the
Shareholders of any Law, order, judgment, writ, injunction decree or award to
which LD Services or any of the Shareholders is a party or by which it is
bound; or (e) an imposition of any material Encumbrance on LD Services or its
assets.
3.8 Consents and Approvals. Except as set forth on the Disclosure
Schedule, the execution and delivery of this Agreement by LD Services and the
Shareholders, and the consummation of the transactions contemplated hereby, do
not and will not require LD Services or any Shareholder to obtain as of the
Actual Closing Date any authorization, registration or filing with, or consent
or approval of, any person or entity, including, without limitation, any
federal, state or other governmental authority or regulatory body (other than
the filing of the Certificate of Merger as contemplated by Section 2.3 above),
and any state and federal filings that may be required under applicable
securities Laws and the Regulatory Approvals. The Disclosure Schedule sets
forth a complete list of the states in which LD Services conducts business or
has customers.
3.9 Financial Statements. LD Services has furnished and/or will
furnish to IXC-LD copies of: (a) the balance sheets of LD Services as of
December 31, 1995 and 1994, and the related statements of income, shareholders'
equity and cash flows for the years then ended, together with the related notes
thereto (the "1994-1995 Financial Statements"), and (b) LD Services' audited
balance sheet (the "Balance Sheet") as of September 30, 1996 (the "Balance
Sheet Date"), and the unaudited related statement of income, cash flows and
shareholder's equity for the months ended September 30, 1996, together with the
related notes thereto (the "September 1996 Financial Statement"). The
1994-1995 Financial Statements are true, complete and correct. The September
1996 Financial Statements are true, correct and complete, have been prepared in
accordance with GAAP, applied on a consistent basis, and fairly present the
financial condition of LD Services as of September 30, 1996 and the results of
operations of LD Services for the period covered by the statements of income
contained therein.
3.10 Undisclosed Liabilities. Except as set forth on the
Disclosure Schedule, LD Services does not have any liabilities or obligations
(absolute, accrued, contingent or otherwise) related to the Business or the LD
Services Stock except (a) liabilities reflected on the Balance Sheet, and (b)
liabilities incurred since the Balance Sheet Date in the ordinary course of
conducting the Business.
3.11 Absence of Certain Changes or Events. Since the Balance Sheet
Date and except as set forth on the Disclosure Schedule there has not been:
(a) Any adverse change in the financial condition,
assets, liabilities, earnings, business or prospects of LD Services, which is
material to LD Services, taken as a whole ("Material Adverse Change");
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(b) Any destruction, damage to, or loss of any of LD
Services' material assets (whether or not covered by insurance) used or useable
in the Business;
(c) Any labor dispute or other event or condition of any
character which constitutes a Material Adverse Change;
(d) Any change in accounting methods or practices by LD
Services (including, without limitation, any change in depreciation,
amortization or valuation policies or rates) or revaluation of any of its
assets, liabilities or reserves reflected on the Balance Sheet, or any change
in any assumption underlying or methods of calculating any bad debt,
contingency or other reserves related to the Business other than the change of
LD Services from an S corporation to a C corporation for tax purposes and a
corresponding change from cash to accrual basis accounting, which should take
place at the Actual Closing;
(e) Except as has been expressly approved in writing by
IXC-LD, any of the following: an increase in the salary or other compensation
payable or to become payable by LD Services to any of its officers, directors,
independent contractors or employees; the declaration, payment, or commitment
or obligation of any kind for the payment, by LD Services, of a bonus or other
additional salary or compensation to any such person; the repayment by LD
Services of any loan from such person; or the payment by LD Services of any
accrued but unpaid salaries, dividends, distributions or any other payments,
whether in cash or property, to any such person;
(f) Other than in the ordinary course of business
consistent with past practice, any amendment or termination of any Contract,
Permit or other agreement related to LD Services' assets or the Business, or by
which LD Services or any of its assets or properties used or useable in
connection with the Business are subject;
(g) Other than in the ordinary course of business
consistent with past practice, any cancellation of indebtedness or waiver or
release of any material right or claim of LD Services related in any way to the
Business;
(h) Any declaration of or agreement to declare or make,
any payment or distribution of any assets used or useable in connection with
the Business of any kind whatsoever;
(i) Other than in the ordinary course of business
consistent with past practice, any sales, transfers, disposal of or agreements
to sell, transfer or otherwise dispose of any of the assets, properties or
rights of LD Services related to the Business;
(j) Other than in the ordinary course of business
consistent with past practice, any capital expenditure or incurring of any
obligation to make any capital expenditure in connection with the conduct of
the Business;
(k) Any making of any loan by LD Services to any person
or entity;
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(l) Any creation or assumption of any mortgage, pledge or
other Encumbrance on any asset of LD Services;
(m) Any failure to pay or satisfy when due any obligation
of LD Services except where such failure would not constitute a Material
Adverse Change;
(n) Other than in the ordinary course of business
consistent with past practice, any disposition or lapsing of any Intellectual
Property or any disclosure to any person (other than persons subject to
confidentiality agreements) of any Intellectual Property not theretofore a
matter of public knowledge;
(o) Any other event or condition of any character which
it is reasonable to expect will, individually or in the aggregate constitute a
Material Adverse Change; or
(p) Any agreement by LD Services or the Shareholders to
do or cause any of the things described in clauses (a) through (o), above.
3.12 Properties. The Disclosure Schedule sets forth a complete and
correct list of all assets owned by LD Services as of the Balance Sheet Date
which have been treated as capital assets. LD Services does not own any real
property. Except as set forth on the Disclosure Schedule, LD Services has
good, indefeasible and marketable title to, or a valid leasehold interest in,
or a valid license to use, all of the personal property used in and material to
the Business, in each case free and clear of all Encumbrances. All personal
property owned or leased by LD Services is in good order and operating
condition, ordinary wear and tear excepted, and free from any defects, except
for such minor defects which do not substantially interfere with the continued
use thereof in the conduct of normal operations in the manner and to the extent
such assets are presently being used.
3.13 Intellectual Property.
(a) Set forth in the Disclosure Schedule is a complete
and correct list of all of the Intellectual Property. Except as set forth on
the Disclosure Schedule, (i) the Intellectual Property is owned by LD Services
or LD Services has a valid license or other right to use the same, (ii) neither
LD Services nor the Shareholders have received any notice or claim disputing LD
Services' right to own or use any such Intellectual Property, and (iii) to the
best knowledge of the Shareholders, LD Services' right to own or use the
Intellectual Property is not disputed by any third party. Except as set forth
on the Disclosure Schedule, the Intellectual Property is owned by LD Services
free and clear of any Encumbrances. The Intellectual Property constitutes all
the proprietary rights necessary and sufficient for the lawful and efficient
operation of the Business as presently conducted. LD Services is not
infringing upon or otherwise acting adversely to any property owned by any
other person with respect to the Intellectual Property which has been received
and used by LD Services, nor is there any Action by any person pending or
threatened with respect thereto.
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(b) The Disclosure Schedule accurately discloses all
licenses, sublicenses or agreements by which LD Services holds or has given to
others the right to use the Intellectual Property. LD Services is not in
default and, to the Shareholder's knowledge, no third party is in default,
under any such license, sublicense or agreement.
(c) LD Services has provided IXC-LD with a copy of the
form or forms of agreements used by LD Services to protect its proprietary
information and trade secrets and otherwise to protect the Intellectual
Property, including without limitation, any non- solicitation agreements. The
Disclosure Schedule sets forth a complete and accurate description of such
agreements which have been entered into by and between LD Services and other
persons or entities.
3.14 Leases. The Disclosure Schedule sets forth a true, correct
and complete list and description of all leases, subleases, licenses and other
occupancy or lease agreements, together with all amendments, supplements and
nondisturbance agreements pertaining thereto, under which LD Services leases,
subleases, licenses, occupies or uses any real or personal property (the
"Leases"). All of the Leases are in good standing, legal, valid, binding and
in full force and effect, all rents and additional rents due to date under each
such Lease have been paid in full and there is not under any of such Leases any
existing default, violation or breach by LD Services or event or condition
which after notice or lapse of time or both would constitute a default,
violation or breach. The Shareholders have provided IXC-LD with true and
correct copies of all such Leases and none of such Leases have been or will
hereafter be terminated, amended or otherwise modified.
3.15 Receivables. All receivables of LD Services which are
reflected in the Balance Sheet, and all such receivable which have arisen since
the Balance Sheet Date shall, have arise only from bona fide transactions in
the ordinary course of business. To the Shareholder's knowledge, there are no
facts or circumstances which would result in any material increase in the
uncollectability of such receivables as a class in excess of the reserves
therefor set forth on the Balance Sheet.
3.16 Contracts.
(a) The Disclosure Schedule contains a complete and
correct list of all material agreements, contracts and commitments
(collectively, the "Contracts"), whether written or oral, (i) to which LD
Services is a party or by which it is bound, or (ii) by which any of the
assets, properties or the Business is bound, and in either case, which
constitute:
(i) Mortgages, indentures, security agreements,
and other agreements and instruments relating to the borrowing of money by or
from, or any extension or credit to or from, LD Services;
(ii) Sales agency or marketing agreement;
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(iii) Agreements or commitments for capital
expenditures;
(iv) Brokerage or finder's agreements;
(v) Partnership, joint venture or other
arrangements or agreements involving a sharing of profits or expenses;
(vi) Contracts or commitments to sell, lease or
otherwise dispose of any assets, properties or business other than in the
ordinary course of the Business;
(vii) Contracts or commitments limiting the freedom
of LD Services to compete in any line of business or in any geographic area or
with any person;
(viii) Other agreements, contracts and commitments
which in any case involve payments or receipts of more than $5,000 per annum;
and
(ix) Any other agreements, contracts and
commitments material to the Business, operations or financial condition of LD
Services.
(b) LD Services has delivered to IXC-LD or its
Representatives complete and correct copies of all written Contracts, together
with all amendments thereto, and accurate descriptions of all oral Contracts.
All of the Contracts are valid and in full force and effect and LD Services has
duly performed all of its obligations under each Contract to the extent those
obligations have accrued and no default, violation or breach by LD Services
under any Contract has occurred which affects the enforceability of such
Contract or any party's rights thereunder.
3.17 Customer Contracts. The Disclosure Schedule sets forth a
correct and complete list of the 100 largest customers (by sales volume) (the
"Major Customers") of the Business during December 1996 indicating the sales to
such Major Customers within such period. As of December 31, 1996, each
Shareholder and LD Services had no outstanding Contracts with customers
requiring payments or credits, except as described on the Disclosure Schedule.
There are no outstanding disputes with any Major Customer and no Major Customer
has refused to do business with LD Services or has stated its intention not to
continue to do business with or increase or reduce its purchases from LD
Services upon consummation of the transactions contemplated hereby.
3.18 Employment Matters; Employee Benefits.
(a) The Disclosure Schedule sets forth a complete and
correct list of all the names, current annual rates of salary, bonuses,
employee benefits, accrued vacation times, sick pay and other compensation of
all the present employees and agents (other than Independent Agents) of LD
Services who provide services in connection with the Business and whose current
annual cash compensation from LD Services (salary and bonus) is expected to
equal or exceed $2,000. No employee or agent of LD Services is in violation of
any term of any employment
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contract, confidentiality agreement or other contract or agreement relating to
the relationship of such employee with LD Services, or to the best of
Shareholders' knowledge, any other party, because of the nature of the business
now conducted or proposed to be conducted by LD Services. Except as disclosed
in the Disclosure Schedule, there are no employment or consulting contracts or
arrangements, including pensions, bonus or profit sharing plans, or other
severance or termination contracts or arrangements which constitute contractual
obligations of LD Services not terminable on 30 days' notice. No key employee
of LD Services terminated his or her relationship with LD Services since the
Balance Sheet Date, and no current key employee has indicated any present or
future intention to terminate his or her relationship with LD Services.
(b) The Disclosure Schedule contains a complete and
correct list of all Employee Benefit Plans. LD Services has delivered to
IXC-LD or its Representatives complete and correct copies of all written
Employee Benefit Plans, together with all amendments thereto. All such
Employee Benefit Plans comply with the provisions of and have been administered
in compliance with the provisions of the ERISA and LD Services is not in
default under or in violation of any of such Employee Benefit Plans.
(c) The Disclosure Schedule contains a list of all
Independent Agents of LD Services. The Independent Agent Agreements also
listed on the Disclosure Schedule represent valid and binding agreements and
obligations of each of the Independent Agents fully enforceable by LD Services.
No Independent Agent has terminated his or her relationship with LD Services
since the Balance Sheet Date, and, except as contemplated by this Agreement, no
Independent Agent has indicated any present or future intention to terminate
his or her relationship with LD Services.
3.19 Transactions with Affiliated Parties. Set forth in the
Disclosure Schedule is a true and complete list and description of all
transactions engaged in between LD Services and the Shareholders, or any
director, officer, employee, shareholder, partner or agent of LD Services, or
any of their respective spouses or children, any trust of which any such person
is the grantor, trustee or beneficiary, any corporation of which any such
person or party is a shareholder, employee, officer or director, or any
partnership or other person in which any such person or party owns an interest
(all such persons, trusts, corporations and partnerships being herein referred
to collectively as "Affiliated Parties" and individually as an "Affiliated
Party"). No Affiliated Party is a party to any agreement, contract or
commitment with LD Services except as set forth in the Disclosure Schedule.
3.20 Certain Payments. Neither the Shareholders', LD Services',
nor to the Shareholders' knowledge, any person or other entity has, directly or
indirectly, on behalf of or with respect to LD Services: (a) made an
unreported political contribution; (b) made or received any payment which was
not legal to make or receive; (c) engaged in any transaction or made or
received any payment which was not properly recorded in the Books and Records;
or (d) created or used any "off-book" bank or cash account or "slush fund."
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3.21 Taxes. Except as set forth in the Disclosure Schedule, all
Taxes which are due and payable by LD Services have been paid in full and any
Taxes that become due and owing by LD Services before the Actual Closing Date
(whether or not shown on any Tax Return) will be paid, other than Taxes which
are not delinquent and subject to a late payment; all Tax Returns required to
be filed in connection therewith have been accurately prepared and duly and
timely filed, or will be accurately prepared and duly and timely filed, and all
deposits required by Law to be made by LD Services with respect to any such
Taxes have been duly made. LD Services is not delinquent in the payment of any
Taxes nor does LD Services have any Tax deficiency or claim outstanding,
proposed or assessed against it, and there is no basis for any such deficiency
of claim. There is not now in force any extension of time with respect to the
date on which any Tax Return was or is due to be filed by or with respect to LD
Services, or any waiver or agreement by LD Services for the extension or the
assessment of any Tax. LD Services has withheld and paid all Taxes required to
be withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, shareholder or other third parties. There
are no liens on any of the assets of LD Services as a result of any Tax
liabilities except for Taxes not yet due and payable. LD Services has
delivered to IXC-LD complete and correct copies of all federal, state, local
and foreign income or franchise Tax Returns for the last three taxable periods
for which such Tax Returns have been filed and will deliver copies of Tax
Returns filed by LD Services after the date hereof and before the Actual
Closing Date. LD Services is not required to file a Tax Return in any state or
local jurisdiction for any tax period except in the jurisdiction in which it
has filed. LD Services has delivered to IXC-LD complete and correct copies of
all audit reports (or portions thereof) and statements of deficiencies assessed
against or agreed to by LD Services for any taxable period ending on or after
December 31, 1993.
3.22 Pending Litigation. Except as disclosed on the Disclosure
Schedule, there is no pending or, to the Shareholders' knowledge, threatened
Action or investigation, at Law or in equity or otherwise, in, for or by any
court or governmental board, commission, agency, department or office arising
from, relating to or affecting (a) the past, present or proposed operations of
the Business, (b) any alleged act or omission of LD Services, a Shareholder or
any of LD Services' officers, directors or employees, or (c) the consummation
of the transactions contemplated hereby.
3.23 Compliance with Laws. LD Services has complied with all
existing Law now or hereafter applicable to the Business, as presently
conducted, including, without limitation, (a) all Environmental Laws, and (b)
all provision of Law relating to labor relations, equal employment practices,
fair employment practices, entitlement, prohibited discrimination, terms and
conditions of employment, wages and hours, or other similar employment
practices or acts. Neither the Shareholders nor LD Services has received any
notice from or otherwise been advised that any governmental authority or other
person is claiming any violation or potential violation of any Law.
3.24 Permits. The Disclosure Schedule contains a complete and
correct list of all Permits which are necessary for the lawful and efficient
operation of the Business. All such
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Permits have been duly made or obtained and are in full force and effect, and
there are no proceedings pending or, to any Shareholder's knowledge, threatened
which may result in the revocation, cancellation or suspension, or any adverse
modification, of any such Permit.
3.25 Insurance. LD Services maintains insurance with respect to
its properties and the Business of such a nature, with such terms and in such
amounts as a prudent person would maintain with respect to similar properties
and a similar business and maintains insurance on all of its properties of a
character usually insured by persons engaged in the same or similar business
similarly situated against loss or damage or the kinds and in the amounts
customarily insured against, and carries, with such insurers and customary
amounts, such other insurance, including public liability insurance, as is
usually carried by persons engaged in the same or a similar business similarly
situated. The Disclosure Schedule contains a true and complete list of all
insurance maintained by LD Services with respect to the Business during the
past three years.
3.26 Brokers, Finders, etc.. All negotiations relating to this
Agreement and the transaction contemplated hereby have been carried on without
the intervention of any person acting on behalf of LD Services or any
Shareholder in such manner as to give rise to any claim against IXC-LD, IXC-LD,
Acquisition Corp., LD Services or any of their respective Representatives for
any brokerage of finders' commission, fee of similar compensation.
3.27 Books and Records. LD Services has made and kept (and given
IXC-LD's Representatives access to) the Books and Records, which, in reasonable
detail, accurately and fairly reflect the activities and transactions of LD
Services related to the Business, the dispositions of assets related to the
Business, and the financial condition of LD Services and the Business,
including, without limitation, the existence of any and all liabilities,
whether actual or contingent, that are required to be disclosed in a balance
sheet prepared in accordance with GAAP.
3.28 LOAs. LD Services has made available to IXC-LD, true and
complete copies of all customer letters of agency ("LOAs") as of September 30,
1996. All such LOAs were obtained in accordance with applicable law and were
valid as of that date.
3.29 Full Disclosure. No representation, warranty or other
statement of a Shareholder or LD Services contained in this Agreement, or any
other document, certificate or written statement furnished to IXC-LD in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a fact or omits to state a fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
known to the Shareholders or LD Services which adversely affects the prospects,
earnings, properties or condition, financial or otherwise, of the Business that
has not been disclosed herein or in such other documents, certificates and
statements furnished to IXC-LD for use in connection with the transactions
contemplated hereby.
3.30 Purchase for Own Account. Shareholders are acquiring IXC
Common Stock for investment and for their own account, and not with a view to
or for sale in connection with any distribution of any part thereof.
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3.31 Investment Experience. Each Shareholder has such knowledge
and experience in financial and business matters that they are capable of
evaluating the risks of their proposed investment in IXC Common Stock and are
able to bear the economic risk of their proposed investment.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF IXC, IXC-LD AND ACQUISITION CORP.
IXC, IXC-LD and Acquisition Corp. hereby, jointly and severally,
represent and warrant to the Shareholders as follows:
4.1 Organization. IXC and IXC-LD are corporations duly organized,
validly existing and in good standing under the Laws of the State of Delaware.
Acquisition Corp. is a corporation duly organized, validly existing and in good
standing under the Laws of the State of California. IXC, IXC-LD and
Acquisition Corp. each has the requisite corporate power and authority to own,
lease and operate its assets and to conduct its business in the manner in which
it is presently conducted.
4.2 Authorization. IXC, IXC-LD and Acquisition Corp. each has the
requisite corporate power and authority to execute and deliver this Agreement,
and to consummate the transactions contemplated hereby, and to perform any of
its obligations hereunder. All actions and proceedings on the part of IXC,
IXC-LD and Acquisition Corp. necessary to authorize the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly taken.
4.3 Valid Issuance of IXC Common Stock. Each of the shares of IXC
Common Stock when issued, sold and delivered in accordance with the terms
hereof, shall be duly and validly issued, fully paid and nonassessable. The
shares of IXC Common Stock shall not be registered under the Securities Act of
1933, as amended.
4.4 Due Execution and Delivery; Binding Obligations. This
Agreement has been duly executed and delivered by IXC, IXC-LD and Acquisition
Corp. This Agreement constitutes the legal, valid and binding agreement and
obligation of IXC, IXC-LD and Acquisition Corp. enforceable against IXC,
IXC-LD and Acquisition Corp. in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or conveyance or similar Laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability and except as rights of indemnity or contribution may be limited
by federal or state securities or other laws or the public policy underlying
such Laws.
4.5 No Conflict or Violation. Neither the execution and delivery
of this Agreement, nor IXC's, IXC-LD's or Acquisition Corp.'s consummation of
the transactions contemplated hereby, will result in: (a) a violation of, or a
conflict with, IXC's, IXC-LD's or Acquisition
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Corp.'s charter documents, or any subscription, stockholders' or similar types
of agreements or understandings; or (b) a violation by IXC, IXC- LD or
Acquisition Corp. of any Law, order, judgment, writ, injunction decree or award
to which any of them is a party or by which any of their assets are bound.
4.6 SEC Documents. None of the documents and reports filed by IXC
with the Securities and Exchange Commission contain any untrue statement of
material fact or omit to state any material fact necessary to make the
information contained therein, in light of the circumstances under which they
were made, misleading as of the date of such document or report.
ARTICLE 5
SHAREHOLDERS' AND LD SERVICES' OBLIGATIONS BEFORE CLOSING
LD Services and, with respect to Sections 5.3 and 5.4, the
Shareholders covenant that during the period from the date of this Agreement to
the Actual Closing Date:
5.1 Conduct of Business. Except as specifically contemplated by
this Agreement, LD Services will conduct the Business in the ordinary course of
business and consistent with past practice, and will use all reasonable effort
to preserve intact its advantageous business relationships, to keep available
the service of its employees and to maintain satisfactory relationships with
its contractors, distributors, customers and other persons sharing business
relationships with them. Without limiting the generality of the foregoing, LD
Services will not, without the prior written consent of IXC-LD, take or
undertake or incur or permit to exist any of the acts, transactions, events or
occurrences specified in Section 5.8, above, unless such actions are
specifically contemplated by this Agreement. LD Services shall give IXC-LD
prompt written notice of any change in any of the information contained in the
representations and warranties made in Article 3 referred to herein which
occurs prior to the Actual Closing Date.
5.2 Access to Information. IXC and its counsel, accountants and
other Representatives shall have full access during normal business hours to
all properties, Books and Records, Contracts, Permits and other documents of or
relating to LD Services and the Business so that IXC-LD may have full
opportunity to make such investigation as it shall desire to make of the
affairs of LD Services relating to the Business. LD Services shall furnish or
cause to be furnished to IXC-LD and its Representatives all data and
information concerning the Business, finances and properties that may
reasonably be requested. LD Services shall remain fully liable and responsible
for all of LD Services' representations, warranties, covenants, agreements and
conditions in this Agreement, notwithstanding any such investigation performed
or information received by IXC-LD.
5.3 Confidentiality. Each of the Shareholders and LD Services
will hold, and will cause each of LD Services' employees, officers, directors
and other Representatives to hold, in strict confidence, and to not use to the
detriment of IXC or Acquisition Corp., any information or data concerning IXC,
IXC-LD or Acquisition Corp. furnished to them in connection with the
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<PAGE> 19
transaction contemplated by this Agreement, except for information or data
generally known to the public; and if the transaction contemplated by this
Agreement is not consummated, such confidence shall be maintained and the
Shareholders and LD Services will return to IXC-LD all such information and
data as IXC-LD may request.
5.4 No Solicitation. Neither the Shareholders nor LD Services
will, directly or indirectly, through any officer, director, partner, agent or
otherwise, solicit, initiate or encourage submission of proposals or offers
from any person relating to any acquisition or purchase of any equity interest
in, or all or a substantial portion of the assets of, LD Services or any
business combination with LD Services, or participate in any negotiations
regarding or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing, except as provided for herein.
5.5 Consents; Regulatory Approvals; Reasonable Efforts. Each of
the Shareholders and LD Services agree to utilize their respective best efforts
and cooperate with each other in every way, to take, as promptly as possible,
or cause to be taken, all action and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement and each Shareholder and LD
Services, as the case may be, will use his or its best efforts to obtain the
Regulatory Approvals, all waivers, Permits, consents, other approvals,
authorizations and clearances and to effect all registrations, filings and
notices with or to third parties or governmental, regulatory or public bodies
or authorities which are in the opinion of IXC-LD necessary or desirable in
connection with the transactions contemplated by this Agreement. Until such
time as the Regulatory Approvals have been obtained, there shall be no change
in the ownership or management of LD Services and no transfer of control
whatsoever over LD Services' certificates of public convenience and necessity
and daily operations. Pending receipt of the Regulatory Approvals, LD
Services, its current shareholders, officers, directors and employees shall
remain directly and solely responsible for the operation of LD Services'
telecommunications services and for compliance with all applicable provisions
of federal telecommunications law, state public service commission laws and all
applicable regulations and policies thereunder. Further, pending receipt of
the Regulatory Approvals, LD Services, its current shareholders, officers,
directors and employees shall manage and operate LD Services'
telecommunications services in a manner that is fully consistent with the terms
and conditions of LD Services' certificates of public convenience and
necessity, the public interest and the best interest of LD Services'
shareholders.
5.6 Fulfillment of Conditions and Covenants. Neither the
Shareholders nor LD Services shall take any course of action inconsistent with
satisfaction of the requirements or conditions applicable to the Shareholders
and LD Services set forth in this Agreement. The Shareholders and LD Services
shall each promptly do all acts and take all measures as may be appropriate to
enable them to perform as early as possible the obligations herein provided to
be performed by them.
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<PAGE> 20
5.7 Compliance with Other Instruments. LD Services will not take
any action which would be in violation of any term of its Articles of
Incorporation or Bylaws, or in any material respect of any term or provision of
any mortgage, indebtedness, indenture, contract, agreement, instrument, order,
writ, injunction, judgment or decree. LD Services will not take any action
which would be in violation of any material order, statute, rule or regulation
applicable to LD Services, its officers, directors and shareholders. LD
Services will take all action necessary to obtain and to maintain in force all
licenses, Permits and certificates from governmental agencies necessary for the
conduct of its business as now conducted.
5.8 Conduct Prior to Closing. Other than as set forth in the
Disclosure Schedule or expressly approved in writing by IXC-LD, LD Services
shall conduct its business in the ordinary course and shall not take any action
which would cause any of the following:
(a) An increase in the salary or other compensation
payable or to become payable by LD Services to any of its officers, directors
or independent contractors; the declaration, payment, or commitment or
obligation of any kind for the payment, by LD Services, of a bonus or other
additional salary or compensation to any such person; the repayment by LD
Services of any loan from such person; or the payment by LD Services of any
accrued but unpaid salaries, dividends, distributions or any other payments,
whether in cash or property, to any such person;
(b) Other than in the ordinary course of business
consistent with past practice, any amendment or termination of any Contract,
Permit or other agreement related to LD Services' assets or the Business, or by
which LD Services or any of its assets or properties used or useable in
connection with the Business are subject;
(c) Any cancellation of indebtedness or waiver or release
of any material right or claim of LD Services related in any way to the
Business other than invoices from LD Services' customers;
(d) Any declaration of or agreement to declare or make,
any payment or distribution of any assets used or useable in connection with
the Business of any kind whatsoever;
(e) Any sales, transfers, disposal of or agreements to
sell, transfer or otherwise dispose of any of the assets, properties or rights
of LD Services related to the Business that, in the aggregate, exceed $50,000;
(f) Any making of any loan by LD Services to any person
or entity;
(g) Any creation or assumption of any mortgage, pledge or
other Encumbrance on any asset of LD Services that, in the aggregate, exceed
$50,000;
(h) Any failure to pay or satisfy when due any obligation
of LD Services except where such failure would not constitute a Material
Adverse Change;
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(i) Any disposition or lapsing of any Intellectual
Property or any disclosure to any person (other than persons subject to
confidentiality agreements) of any Intellectual Property not theretofore a
matter of public knowledge;
(j) The issuance of any shares of capital stock or any
options, warrants, convertible securities or other rights to acquire capital
stock without IXC-LD's consent; or
(k) LD Services to have less than 30 days of working
capital sufficient for its business operations on any date during such period.
5.9 Compliance with Laws. From and after the date of this
Agreement until the Actual Closing Date, LD Services shall comply with all
existing material Laws applicable to the Business, as presently conducted,
including, without limitation, (a) all Environmental Laws, and (b) all
provision of Law relating to labor relations, equal employment practices, fair
employment practices, entitlement, prohibited discrimination, terms and
conditions of employment, wages and hours, or other similar employment
practices or acts.
5.10 Material Contract. LD Services shall not enter into any
material contract, agreement or commitment other than in the ordinary course of
business without the written consent of IXC-LD.
5.11 Cash Maximum. LD Services shall not have more than $100,000
in cash or cash equivalents on the Deemed Closing Date. LD Services shall not
make or declare any distributions or dividends with respect to any of LD
Services' stock between the Deemed Closing Date and Actual Closing Date.
ARTICLE 6
IXC'S, IXC-LD'S AND ACQUISITION CORP.'S OBLIGATIONS BEFORE CLOSING
IXC, IXC-LD and Acquisition Corp. covenant that during the period from
the date of this Agreement to the Actual Closing Date:
6.1 Confidentiality. IXC, IXC-LD and Acquisition Corp. will hold,
and will cause each of their affiliates, employees, officers, directors and
other Representatives to hold, in strict confidence, and to not use to the
detriment of the Shareholders or LD Services, any information or data
concerning the Shareholders or LD Services furnished to them in connection with
the transaction contemplated by this Agreement, except for information or data
generally known to the public; and if the transaction contemplated by this
Agreement is not consummated, such confidence shall be maintained and IXC-LD
will return to the Shareholders and LD Services all such information and data
as the Shareholders and LD Services may request.
6.2 Fulfillment of Conditions and Covenants. IXC-LD and
Acquisition Corp. shall not take any course of action inconsistent with the
satisfaction of the requirements or conditions
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<PAGE> 22
applicable to it set forth in this Agreement. IXC-LD and Acquisition Corp.
shall promptly do all acts and take all measures as may be appropriate to
enable them to perform as early as possible the obligations herein provided to
be performed by them.
6.3 Consents; Regulatory Approvals; Reasonable Efforts. IXC-LD
agrees to utilize reasonable efforts to take, as promptly as possible, or cause
to be taken, all action and do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement and will use its reasonable efforts to assist LD
Services in obtaining the Regulatory Approvals, all waivers, Permits, consents,
other approvals, authorizations and clearances and to effect all registrations,
filings and notices with or to third parties or governmental, regulatory or
public bodies or authorities which are necessary in connection with the
transactions contemplated by this Agreement.
6.4 SEC Documents. Upon request, IXC shall make available to LD
Services its filings with the Securities and Exchange Commission.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF IXC, IXC-LD AND ACQUISITION CORP.
The obligations of IXC, IXC-LD and Acquisition Corp. to perform their
obligations under this Agreement are subject to the satisfaction, on or before
to the Actual Closing Date, of each of the following conditions, unless waived
in writing by IXC-LD:
7.1 Accuracy of Representations and Warranties. All
representations and warranties of the Shareholders and LD Services contained in
this Agreement or in any document delivered pursuant hereto shall be true and
correct in all material respects when made and on and as of the Actual Closing
Date as though made on and as of the Actual Closing Date; provided, however,
that the representations and warranties contained in Section 3.6, 3.10, 3.11,
3.15, 3.16, 3.17, 3.18, 3.22, 3.23, and 3.24 shall only be required to be true
and correct in all material respects when made.
7.2 Shareholders' and LD Services' Performance of Covenants. All
covenants, agreements and obligations required by the terms of this Agreement
to be performed, satisfied or complied with by the Shareholders or LD Services
at or before the Actual Closing Date shall have been duly and properly
performed in all material respects.
7.3 Shareholders' and LD Services' Officer's Certificate. IXC-LD
shall have received a certificate, dated the Actual Closing Date, signed and
verified by each of the Shareholders and the President of LD Services, and
certifying that the conditions specified in Sections 7.1 and 7.2, above, have
been fulfilled.
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<PAGE> 23
7.4 Employment of Key Employees. Richard A. Bishop and Elizabeth
Currier (each, a "Key Employee") shall each be employed by LD Services subject
to the death or disability of any Key Employee.
7.5 Opinion of Counsel. IXC-LD shall have received from Swidler &
Berlin, legal counsel for the Shareholders and LD Services, an opinion, dated
the Actual Closing Date, in a form reasonably satisfactory to IXC-LD.
7.6 Authorization of the Shareholders and LD Services. All
actions necessary to authorize the execution, delivery and performance of this
Agreement by each of the Shareholders and LD Services, and the consummation of
the transactions contemplated herein, shall have been duly and validly taken.
7.7 Consents and Regulatory Approvals. The Regulatory Approvals,
all licenses, Permits, authorizations, consents and approvals of and filings
with any governmental or regulatory agency required to be obtained or made in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly obtained or made by or on behalf of the
Shareholders or LD Services. All consents of other third-parties required to
have been obtained in connection with the consummation of such transactions
shall have been obtained by or on behalf of the Shareholders or LD Services.
7.8 Employment Agreements. IXC-LD shall have obtained fully
executed original counterparts of the employment agreements to be entered into
between LD Services and each of the Key Employees in the form of Exhibit B
attached hereto (the "Employment Agreements").
7.9 Revised Independent Agent Agreements. IXC-LD shall have
obtained fully executed agreements replacing all Independent Agent Agreements
listed in the Disclosure Schedule hereto, such agreements to be in the form of
Exhibit C, attached hereto (the "Revised Independent Agent Agreements").
7.10 Waiver and Consent. IXC-LD shall have obtained the Waiver and
Consent executed by each Non-Control Shareholder.
7.11 Certificate of Merger. IXC-LD shall have received
confirmation that the Certificate of Merger was executed by LD Services and is
ready for filing with the Secretary of State of the State of California.
7.12 Registration Rights Agreement. IXC-LD shall have obtained a
fully executed counterpart to a registration rights agreement from each of the
Shareholders in the form of Exhibit D, attached hereto (the "Registration
Rights Agreement").
7.13 Payment of Loans. IXC-LD shall have received confirmation in
a form satisfactory to IXC-LD that the loan obligations of Business Options,
Inc. to LD Services have been satisfied and paid in full.
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7.14 Working Capital. IXC-LD shall receive evidence satisfactory to
IXC-LD that LD Services has at least 30 days of working capital sufficient for
its business operations as of the Actual Closing Date.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS AND LD SERVICES
The obligations of the Shareholders and LD Services to perform their
respective obligations under this Agreement are subject to the satisfaction, on
or before to the Actual Closing Date, of each of the following conditions,
unless waived in writing by the Shareholders or LD Services:
8.1 Accuracy or Representations and Warranties. All
representations and warranties of IXC, IXC-LD and Acquisition Corp. contained
in this Agreement shall be true and correct in all material respects when made
and on and as of the Actual Closing Date as though made on and as of the Actual
Closing Date.
8.2 Performance of Covenants. All covenants, agreements and
obligations required by the terms of this Agreement to be performed, satisfied
or complied with by IXC, IXC-LD and Acquisition Corp. at or before the Actual
Closing Date shall have been duly and properly performed in all material
respects.
8.3 Officer's Certificate. The Shareholders shall have received a
certificate, dated the Actual Closing Date, signed and verified by the
President of IXC, IXC-LD and Acquisition Corp., certifying that the conditions
specified in Sections 8.1 and 8.2, above, have been fulfilled.
8.4 Authorization. All actions necessary to authorize the
execution, delivery and performance of this Agreement by IXC, IXC-LD and
Acquisition Corp., and the consummation of the transactions contemplated
herein, shall have been duly and validly taken.
8.5 Consents and Regulatory Approvals. The Regulatory Approvals,
all licenses, Permits, authorizations, consents and other approvals of and
filing with any governmental or regulatory agency required to be obtained or
made in connection with the consummation of the transactions contemplated by
this Agreement shall have been duly obtained or made by or on behalf of the
Shareholders or LD Services. All consents of other third-parties required to
have been obtained in connection with the consummation of such transactions
shall have been obtained by or on behalf of the Shareholders or LD Services.
8.6 Certificate of Merger. LD Services shall have executed and
obtained confirmation that the Certificate of Merger is ready for filing with
the Secretary of State of the State of California.
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8.7 Registration Rights Agreement. The Shareholders shall have
obtained a fully executed counterpart to the Registration Rights Agreement from
IXC.
ARTICLE 9
THE CLOSING
9.1 The Actual Closing. On the terms and subject to the
satisfaction of the conditions contained in this Agreement, the closing of the
sale and purchase of the LD Services Stock (the "Actual Closing") shall take
place 15 business days after the completion and delivery to IXC-LD of the
Deemed Closing Date Audit, in the offices of Riordan & McKinzie commencing at
9:00 a.m., or at such other place, time and date as may be mutually agreed to
by the parties. The date and time at which the Actual Closing actually occurs
is herein referred to as the "Actual Closing Date."
9.2 Deliveries by Shareholders. At the Actual Closing, the
Shareholders shall deliver the following:
(a) Evidence satisfactory to IXC-LD that all of the
shares of common stock, no par value of LD Services held by the Shareholders
have been cancelled and that such is reflected in the stock records of LD
Services;
(b) The certificates contemplated by Section 7.4, above;
(c) The legal opinion contemplated by Section 7.5, above;
(d) Evidence of having obtained consents required to be
obtained by the Shareholders pursuant to Section 7.7, above;
(e) The Employment Agreements referred to in Section 7.8,
above;
(f) The Registration Rights Agreement referred to in
Section 7.12 above; and
(g) All other agreements, documents, instruments and
writings required to be delivered by the Shareholders at the Actual Closing
pursuant to this Agreement.
9.3 Deliveries by LD Services. At the Actual Closing, LD Services
shall deliver the following:
(a) A stock certificate representing the number of shares
of common stock, no par value of LD Services issued in the name of IXC,
required to consummate the Merger;
(b) Confirmation that the Certificate of Merger has been
executed and is ready to be filed with the Secretary of State of the State of
California;
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(c) The certificates contemplated by Section 7.4, above;
(d) Evidence of having obtained consents required to be
obtained by LD Services pursuant to Section 7.7, above;
(e) The Revised Independent Agent Agreements referred to
in Section 7.9, above;
(f) The Waiver and Consent referred to in Section 7.10
above; and
(g) All other agreements, documents, instruments and
writings required to be delivered by LD Services at the Actual Closing pursuant
to this Agreement.
9.4 Deliveries by IXC, IXC-LD and Acquisition Corp. At the Actual
Closing, IXC, IXC-LD and Acquisition Corp. shall deliver the following:
(a) Stock certificates representing the number of shares
of IXC Common Stock required to be delivered pursuant to Section 2.5(a), above.
(b) The officer's certificate contemplated by Section
8.3, above;
(c) The Registration Rights Agreement completed by Section
8.7 above; and
(d) All other agreements, documents, instruments and
writings required to be delivered by IXC, IXC-LD and Acquisition Corp. at the
Actual Closing pursuant to this Agreement.
ARTICLE 10
POST CLOSING
10.1 Survival of Representations and Warranties. Regardless of any
investigation at any time made by or on behalf of any party, or of any
information any party may have in respect thereof, all representations and
warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Deemed Closing and the
Actual Closing for a period of one year from the Actual Closing, except all
representations and warranties with respect to tax matters shall survive three
years from the Actual Closing (each, a "Survival Date").
10.2 Indemnification by the Parties.
(a) Subject to the limitations set forth in Section 10.1
and Section 10.2(d), each of the Shareholders severally, with, responsibility
proportionate to such Shareholder's percentage interest in the common stock, no
par value of LD Services relative to that held by all the
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<PAGE> 27
Shareholders in the aggregate immediately prior to the Actual Closing Date and
with, in the case of subparagraphs (i) and (iii) below, 100% of responsibility,
shall indemnify, defend and hold harmless IXC, IXC-LD and any of their
affiliates and Representatives, and shall reimburse IXC, IXC-LD and any of
their affiliates and Representatives, on demand, for any claim, demand, loss,
liability, damage or expense (including without limitation, any claim for
breach of contract or for tort which would be allowable under applicable law if
this indemnity provision was not a provision of this Agreement), including
without limitation interest, penalties and reasonable attorneys', accountants'
and experts' fees and costs of investigation incurred as a result thereof
(collectively "Damages"), resulting from any of the following:
(i) Any breach or default in the performance by
such Shareholder of any covenant or agreement of such Shareholder contained
herein;
(ii) Any breach or default in the performance by
LD Services of any covenant or agreement of LD Services to be performed on or
prior to the Actual Closing;
(iii) Any breach of warranty or inaccurate or
erroneous representation made by such Shareholder severally herein, or pursuant
to any certificate delivered or to be delivered by or on behalf of the
Shareholders or LD Services pursuant hereto;
(iv) Any breach of warranty or inaccurate or
erroneous representation made by the Shareholders jointly and severally or LD
Services herein, or pursuant to any certificate delivered or to be delivered by
or on behalf of the Shareholders or LD Services pursuant hereto; or
(v) Any liability arising out of any and all
Actions, demands, judgments, costs and expenses incident to any of the
foregoing.
(b) IXC or IXC-LD shall indemnify, defend and hold
harmless the Shareholders and any of their affiliates and shall reimburse the
Shareholders and any of their affiliates on demand, for any Damages resulting
from (i) any breach or default in the performance by IXC, IXC-LD or Acquisition
Corp. of any covenant or agreement of IXC, IXC-LD or Acquisition Corp.
contained herein or (ii) any breach of warranty or inaccurate or erroneous
representation made by IXC, IXC-LD or Acquisition Corp. herein, or pursuant to
any certificate delivered or to be delivered by or on behalf of IXC, IXC-LD or
Acquisition Corp. pursuant hereto.
(c) A party entitled to indemnification hereunder
("Indemnitee") shall promptly notify the other party ("Indemnitor") of any such
liability, breach of warranty, inaccuracy, misrepresentation or any other claim
arising under the foregoing indemnification provision. Indemnitor may contest
and defend in good faith any claim of third parties covered by this Section at
their own expense; provided that within 30 days of the Indemnitor's receipt of
notice of such claim, Indemnitor notify Indemnitee of Indemnitor's desire to
defend and contest such claim.
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<PAGE> 28
(d) Notwithstanding the foregoing, in the absence of
fraud, the Shareholders shall have no obligation to indemnify, defend, hold
harmless or reimburse IXC, IXC-LD or any of their affiliates or Representatives
with respect to the matters described in Sections 10.2(a)(iii), (iv) or (v),
unless and until the aggregate amount of all Damages with respect to such
matters exceeds $500,000 (the "Basket"), in which event, such persons or
entities shall be entitled to indemnification for all amounts in excess of the
Basket. Notwithstanding the foregoing, each Shareholder's liability under this
Section 10.2 shall not exceed an amount equal to the Purchase Price divided by
the number of shares of LD Services Stock owned by such Shareholder immediately
prior to the Merger and this Section 10.2 shall be IXC's, IXC-LD's and any of
their affiliates' and Representative's sole remedy with respect to claim's with
respect to matters based on Sections 10.2(a)(iii), (iv) or (v).
10.3 Further Assurances. The Shareholders, at any time on or after
the Actual Closing, will execute, acknowledge and deliver any further
assignments and other assurances, documents and instruments of transfer,
reasonably requested by IXC-LD, and will take any other action that may be
requested by IXC-LD, for the purpose of assigning, transferring, granting,
conveying and confirming to IXC-LD, or reducing to possession, any or all of
the LD Services Stock to be conveyed and transferred by this Agreement.
10.4 Expenses. Each of the parties shall pay all costs and
expenses incurred by it or on its behalf in connection with this Agreement and
the transactions contemplated hereby, including, without limiting the
generality of the foregoing, fees and expenses of its own financial
consultants, accountants and counsel.
10.5 Resale of IXC Common Stock. Each of the Shareholders shall
comply with any applicable federal and state securities laws and any required
holding periods thereunder in connection with subsequent sales by each of the
Shareholders of the IXC Common Stock acquired hereunder. In addition, each
Shareholder agrees not to sell, dispose of, encumber, pledge or otherwise
transfer any shares of IXC Common Stock acquired hereunder until such time as
financial results covering at least 30 days of combined post-merger operations
have been publicly reported.
ARTICLE 11
COVENANT NOT TO COMPETE
11.1 Non-Compete Covenant.
(a) During the Applicable Period (as defined below) each
Shareholder will not, without the prior written consent of IXC- LD, directly or
indirectly, in the Territory (as defined below), Compete (as defined below)
with the Business or own any equity interest in, or be a stockholder, partner,
owner, officer, director or employee or agent of, or give financial assistance
to, any person or entity engaged in any business that Competes with the
Business; provided, however, that nothing herein shall prevent any Shareholder
from owning, directly or indirectly,
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<PAGE> 29
as a passive investor, in the aggregate not more than 5% of the outstanding
publicly traded stock of any corporation engaged in such competition.
(b) For purposes of this Article 11, the term "Applicable
Period" shall mean, in the case of a Shareholder, the period beginning on the
Actual Closing Date and ending on the date one year following the termination
of such Shareholder's employment with LD Services.
(c) For purposes of this Article 11, the term "Territory"
shall mean Alabama, Arizona, Alaska, California, Colorado, Delaware, Florida,
Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, New Jersey,
New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,
South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington,
West Virginia and Wisconsin.
11.2 Definition of Compete. For purposes of this Article 11, the
term "Competes" shall mean (a) calling on, soliciting or taking away, as a
client or customer, any individual, partnership, corporation or association
that is a client or customer of LD Services or was a client or customer of LD
Services during the 12 calendar month period immediately preceding any such act
for the purpose of competing with LD Services or IXC-LD; (b) hiring,
soliciting, taking away or attempting to hire, solicit or take away any
employee of LD Services or IXC-LD either on behalf of itself or any other
person or entity; or (c) hiring, soliciting, taking away or attempting to hire,
solicit or take away any independent sales representative that is engaged in
the solicitation of customers on LD Services's behalf or was engaged in the
solicitation of customers on LD Services's behalf during the 12 calendar month
period immediately preceding any such act for the purpose of competing with LD
Services or IXC-LD.
11.3 Direct or Indirect Competition. For purposes of this
Agreement, the words "directly or indirectly" as they modify the word
"Competes" shall mean (a) acting as an agent, representative, consultant,
officer, director, independent contractor or employee of any entity or
enterprise, which Competes (as defined in Section 11.2, above) with the
Business; (b) participating in any such competing entity or enterprise, or the
affiliate of such entity or enterprise, as a holder of an equity interest or as
an owner, partner, limited partner, joint venturer, creditor or stockholder; or
(c) communicating to any such competing entity or enterprise the names or
addresses or any other information concerning any past, present or identified
prospective client or customer of LD Services.
11.4 Confidential Data. The Shareholders agree that, during the
period set forth in Section 11.1, above, each of them will keep confidential
and not directly or indirectly divulge, furnish, make accessible to anyone, or
appropriate for their own use any confidential information of LD Services, and
that at no time will either of them divulge, furnish and make accessible to
anyone or appropriate for their own use any trade secrets of LD Services. Each
of the Shareholders and LD Services further acknowledge and agree that IXC-LD
has a legitimate interest in protecting proprietary customer information from
misappropriation or diversion by the Shareholders or any competitor. The
Shareholders hereby acknowledge and agree that the
- 29 -
<PAGE> 30
prohibitions against disclosure of confidential data recited herein are in
addition to, and not in lieu of, any rights or remedies which IXC-LD may have
available pursuant to the Laws of any jurisdiction or at common law to prevent
the disclosure of trade secrets and other confidential proprietary data, and
the enforcement by IXC-LD of its rights and remedies pursuant to this Agreement
shall not be construed as a waiver of any other rights or available remedies
which it may possess in Law or equity absent this Agreement.
11.5 Reasonableness of Restrictions. The Shareholders recognize
that the territorial and time limitations set forth in Section 11.1, above, are
reasonable, not burdensome and are properly required by Law for the adequate
protection of IXC-LD, and in the event that such territorial or time
limitations are deemed to be unreasonable by a court of competent jurisdiction,
then the Shareholders and IXC-LD agree and submit to the reduction of either
said territorial or time limitation, or both, to such an area or period as said
court shall deem reasonable.
11.6 Injunctive Relief. The Shareholders acknowledge that their
expertise in the Business is of a special, unique, unusual, extraordinary and
intellectual character, which gives said expertise a peculiar value, and that a
breach by either or all of them of the provisions of this Agreement cannot be
reasonably or adequately compensated in damages in an action at Law and that
such breach will cause IXC- LD and LD Services irreparable injury and damage.
The Shareholders further acknowledge that each of them possesses unique skills,
knowledge and ability that competition in violation of this Agreement would be
extremely detrimental to IXC-LD and LD Services. By reason thereof, the
Shareholders agree that IXC-LD and LD Services shall be entitled, in addition
to any other remedies each of them may have under this Agreement or otherwise,
to temporary, preliminary and/or permanent injunctive and other equitable
relief to prevent or curtail any breach of this Agreement, without proof of
actual damages that have been or may be caused to IXC-LD or LD Services by such
breach or threatened breach; provided, however, that no specification in this
Agreement of a specific legal or equitable remedy shall be construed as a
waiver or prohibition against the pursuing of other legal or equitable remedies
in the event of a breach, by either party.
ARTICLE 12
TERMINATION
12.1 Termination. This Agreement and the transactions contemplated
herein may be terminated at any time:
(a) Upon the written consent of each of the parties to
this Agreement; or
(b) By IXC-LD or LD Services upon written notice to the
other, without liability on account of such termination, if the Shareholders
and/or LD Services are unable to duly obtain any material regulatory approvals
required by Sections 7.7 and 8.7 after all appeals relating thereto have been
exhausted.
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<PAGE> 31
12.2 Effect on Obligations. Termination of this Agreement pursuant
to this Article 12 shall terminate all obligations and liability of the parties
hereunder and this Agreement shall become void and no party shall have any
obligation or liability thereunder, except for the obligations under Sections
5.3, 6.1. and 10.2.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 Entire Agreement. This Agreement, together with the Ancillary
Agreements, the Certificate of Merger and the Disclosure Schedule, set forth
the entire agreement between the parties with regard to the subject matter of
this Agreement.
13.2 Governing Law. The validity, construction and performance of
this Agreement, and any Action arising out of or relating to this Agreement or
any of the Ancillary Agreements, shall be governed by the Laws, without regard
to the Laws as to choice or conflict of Laws, of the State of Texas.
13.3 Interpretation. The language in all parts of this Agreement
and each of the other Ancillary Agreements shall be in all cases construed
simply according to its fair meaning and not strictly for or against any party.
Whenever the context requires, all words used in the singular will be construed
to have been used in the plural, and vice versa. The captions of the Sections
and Subsections of this Agreement are for convenience only and shall not affect
the construction or interpretation of any of the provisions of this Agreement.
13.4 Waiver and Amendment. This Agreement may be amended,
supplemented, modified and/or rescinded only through an express written
instrument signed by all parties or their respective successors and permitted
assigns. Any party may specifically and expressly waive in writing any portion
of this Agreement or any breach hereof, but only to the extent such provision
is for the benefit of the waiving party, and no such waiver shall constitute a
further or continuing waiver of any preceding or succeeding breach of the same
or any other provision. The consent by one party to any act for which such
consent was required shall not be deemed to imply consent or waiver of the
necessity of obtaining such consent for the same or similar acts in the future,
and no forbearance by a party to seek a remedy for noncompliance or breach by
another party shall be construed as a waiver of any right or remedy with
respect to such noncompliance or breach.
13.5 Assignment. Except as specifically provided otherwise in this
Agreement, neither this Agreement nor any interest herein shall be assignable
(voluntarily, involuntarily, by judicial process, operation of Law or
otherwise), in whole or in part, by either party without first obtaining the
prior written consent of the non-assigning party. Notwithstanding the
foregoing, this Agreement and any Ancillary Agreement may be assigned without
prior notice or consent to any IXC Affiliate or any entity which merges with or
into IXC or IXC-LD or acquires substantially all of the assets of IXC or
IXC-LD. Any voluntary attempt at such an assignment,
- 31 -
<PAGE> 32
except pursuant to this Section shall be void and, at the option of the
non-assigning party, shall be an incurable breach of this Agreement resulting
in the termination of this Agreement.
13.6 Successors and Assigns. Each of the terms, provisions and
obligations of this Agreement shall be binding upon, shall inure to the benefit
of, and shall be enforceable by the parties and their respective legal
representatives, successors and permitted assigns.
13.7 Notices. All notices, requests, demands and other
communications made under this Agreement shall be in writing, correctly
addressed to the recipient at the addresses set forth under such recipient's
signature on the signature page hereto and shall be deemed to have been duly
given; (i) upon delivery, if served personally on the party to whom notice is
to be given; or (ii) on the date or receipt, refusal or non-delivery indicated
on the receipt if mailed to the party to whom notice is to be given by first
class mail, registered or certified, postage prepaid, or by air courier. Any
party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner described at
such new address.
13.8 Severability. Each provision of this Agreement is intended to
be severable. Should any provision of this Agreement or the application
thereof be judicially declared to be or becomes illegal, invalid, unenforceable
or void, the remainder of this Agreement will continue in full force and effect
and the application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such illegal, void or unenforceable provision
of this Agreement with a valid and enforceable provision that will achieve, to
the extent possible, the economic, business and other purposes of such illegal,
void or unenforceable provision.
13.9 Warranty of Authority. Each of the individuals signing this
Agreement on behalf of a party hereto warrants and represents that such
individual is duly authorized and empowered to enter into this Agreement and
bind such party hereto.
13.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement.
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<PAGE> 33
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first set forth above.
L.D. SERVICES, INC., IXC COMMUNICATIONS, INC.,
a California corporation a Delaware corporation
By: /s/ Richard Allen Bishop By: /s/ James F. Guthrie
-------------------------------- --------------------------------
Richard Allen Bishop, President James F. Guthrie,
Executive Vice President
By: /s/ Judith Bolger
-------------------------------
Judith Bolger, Secretary Address: 5000 Plaza on the Lake
Suite 200
Austin, Texas 78746
Address: 13230 E. Firestone Blvd Phone No.: (512) 328-1112
Suite D2 Fax No.: (512) 328-0239
Santa Fe Springs, CA 90670
Phone No.: (310) 802-5884
Fax No.: (310) 404-2178
IXC-ONE ACQUISITION CORP.,
a California corporation
By: /s/ James F. Guthrie
-------------------------------
James F. Guthrie,
Executive Vice President
Address: 5000 Plaza on the Lake
Suite 200
Austin, Texas 78746
Phone No.: (512) 328-1112
Fax No.: (512) 328-0239
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<PAGE> 34
IXC LONG DISTANCE, INC.,
a Delaware corporation
By: /s/ James F. Guthrie
-------------------------------
James F. Guthrie,
Executive Vice President
Address: 98 San Jacinto, Suite 700
Austin, Texas 78701
Phone No.: (512) 433-3500
Fax No.: (512) 433-3510
THE "SHAREHOLDERS":
/s/ Richard Allen Bishop
------------------------------------------------
Richard Allen Bishop, individually and in his
capacity as Trustee of the Richard Allen Bishop
& Teresa Anne Bishop 1996 Revocable Trust
Address:
Phone No.:
Fax No.:
/s/ Judith Bolger
------------------------------------------------
Judith Bolger
Address:
Phone No.:
Fax No.:
/s/ Elizabeth Currier
------------------------------------------------
Elizabeth Currier, individually and in her
capacity as Trustee of the Currier Family Trust
Address:
Phone No.:
Fax No.:
-34-
<PAGE> 35
/s/ Don Currier
------------------------------------------------
Don Currier
Address:
Phone No.:
Fax No.:
/s/ Thomas Guy Eltringham
------------------------------------------------
Thomas Guy Eltringham
Address:
Phone No.:
Fax No.:
/s/ John Brent McDaniel
------------------------------------------------
John Brent McDaniel, individually and in his
capacity as Trustee of the John Brent McDaniel
Revocable Trust
Address:
Phone No.:
Fax No.:
/s/ Donna J.S. Robinson
-------------------------------------------------
Donna J.S. Robinson
Address:
Phone No.:
Fax No.:
-35-
<PAGE> 36
/s/ Harold B. Robinson
------------------------------------------------
Harold B. Robinson
Address:
Phone No.:
Fax No.:
Agreed and Accepted:
/s/ David Bolger
------------------------------------------------
David Bolger
/s/ Lydia Eltringham
------------------------------------------------
Lydia Eltringham
/s/ Dorda McDaniel
------------------------------------------------
Dorda McDaniel
/s/ Teresa A. Bishop
------------------------------------------------
Teresa A. Bishop
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<PAGE> 37
EXHIBIT A
Regulatory Approvals
Jurisdictions Requiring
Approval of Transfer of Control
Federal:
FCC -- International resale Section 214 authorization
States:
Arkansas
Delaware
Georgia
Indiana
Louisiana
Minnesota
Mississippi
Missouri
New York
North Carolina
Pennsylvania
Washington
West Virginia
Jurisdictions Requiring
Notification of Transfer of Control
States:
Alabama
Arizona
California
Florida
Idaho
Illinois
Kansas
Kentucky
Maryland
Massachusetts
Montana
New Mexico
North Dakota
Ohio
<PAGE> 38
Oklahoma
Oregon
South Carolina
South Dakota
Tennessee
Texas
Utah
Wisconsin
No Filings Required
Iowa
Michigan
New Jersey
Virginia
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<PAGE> 39
EXHIBIT B
Form of Employment Agreement
THIS AGREEMENT ("this Agreement"), made and entered into as of
_____________, 1997 by and between L.D. Services, Inc., a California
corporation ("LD Services"), and _____________ ("Employee");
W I T N E S S E T H
In consideration of the covenants and conditions herein contained, and
for good and valuable consideration, the parties hereto agree as follows:
1. Engagement. Employee hereby agrees to provide to LD Services
Employee's services as ______________________, and in such other capacities as
the Board of Directors of LD Services may reasonably require, and to perform
such other services in connection with the business operation, activities and
affairs of LD Services as LD Services may direct. Employee shall render all
services usually and customarily rendered by and required of persons engaged in
such capacity in the telecommunications industry.
2. Term. The term of this Agreement shall commence on
_____________ (the "Start Date") and shall continue until June 30, 1998 unless
otherwise terminated as set forth herein (the "Term").
3. Compensation. In full consideration for the undertakings of
and the services to be rendered by Employee to LD Services, LD Services agrees
to pay Employee, and Employee agrees to accept, the following:
(a) Salary: $_________ per year during the Term, payable
ratably on the regular paydays of LD Services.
(b) Stock Options: Employee shall be granted options to
purchase _________ (___) shares of common stock, $.01 par value, of IXC
Communications, Inc., the parent of LD Services, under the IXC Communications,
Inc. 1996 Stock Plan (the "Plan") pursuant to the terms of an option agreement
with IXC Communications, Inc. in the form of Exhibit ___ attached hereto.
4. Benefits. Employee will be entitled to all rights and
benefits for which Employee is otherwise eligible under any health, life and
disability insurance plans, vacation policies, sick leave policies, profit
sharing plans, automobile allowances and club dues reimbursements that LD
Services provides or during the Term of this Agreement may provide to its
employees or officers in comparable positions (collectively, "Additional
Benefits").
5. Reimbursement of Business Expenses. LD Services will, upon
submission of appropriate documentation, promptly reimburse employee for
reasonable and authorized expenses
<PAGE> 40
(including travel, entertainment, business meetings, telephone and similar
items) incurred by Employee during the term of this Agreement.
6. Freedom to Execute Agreement. Employee represents, warrants
and agrees that Employee is free to enter into this Agreement and to grant the
services and rights set forth herein, and that Employee has not made any grant
or assignment which will or might conflict with or impair the complete
enjoyment of the rights and privileges granted to LD Services hereunder.
7. Exclusivity. Employee shall devote Employee's full-time
attention, energies, skills, learning and best efforts to the business of LD
Services and, during the Term, shall not be engaged, directly or indirectly, in
any other business activity or render services of a business, professional or
commercial nature to any other person, firm or corporation, in direct
competition with LD Services.
8. Property. All results and proceeds of Employee's services
hereunder, and all inventions, improvements, systems, designs, ideas, business
plans, sales techniques and approaches which Employee made or conceived or
which Employee may make or conceive, at any time after the commencement of
Employee's employment with LD Services and until the termination thereof,
either individually or jointly with others, or which Employee utilizes in
carrying out Employee's duties hereunder (hereinafter "Property"), shall be the
exclusive property of LD Services as a "work for hire", and Employee hereby
assigns and agrees to assign to LD Services all of Employee's rights in and to
all such Property, and to all copyrights (statutory and common law), covering
any or all of the Property.
9. Trade Secrets. Since the work for which Employee is employed
and upon which Employee will be engaged will include knowledge and information
of a confidential nature to, and the secret property of, LD Services, or
persons, firms, entities or corporations with whom LD Services is affiliated,
or customers of LD Services or its affiliates (including but not limited to
inventions, improvements, designs systems, ideas, financial and technical data,
trade secrets, business plans, financing systems and techniques, sales
techniques and approaches, and customer and supplier information), Employee
shall receive all knowledge and information in confidence, and shall not at any
time (during or after employment with LD Services) except as required in the
conduct of LD Services business, or authorized in writing by LD Services,
publish, disclose or use or authorize anyone else to publish, disclose or make
use of any such information or knowledge unless and until such information or
knowledge shall have ceased to be secret or confidential as evidenced by
general public knowledge. In the event that Employee's employment with LD
Services shall cease, Employee authorizes LD Services to send a copy of this
Section 9, in its sole discretion, to any and all future employers which
Employee may have and to any and all persons, firms, entities and corporations
with whom Employee may become affiliated in a business or commercial
enterprise, and inform any and all such employers, persons, firms, entities or
corporations that LD Services intends to exercise its legal rights should
Employee breach the terms of this Agreement or should another party induce a
breach by Employee.
- 2 -
<PAGE> 41
10. Injunction; Confidential Materials. Employee hereby consents
and agrees that for any violation of any of the provisions of Sections 8, or 9
of this Agreement, a restraining order and/or an injunction may issue against
Employee in addition to any other rights LD Services may have at law or in
equity. Employee agrees that records containing secret or confidential
knowledge and information prepared by Employee or which come into Employee's
possession during Employee's employment by LD Services, are and remain the
property of LD Services, and if and when Employee's employment with LD Services
terminates, all such records and all copies thereof shall be left with LD
Services.
11. Remedies. Employee acknowledges and agrees that the services
to be rendered by Employee hereunder and the rights and privileges herein
granted to LD Services are by reason of Employee's skill and experience, of a
special, unique, unusual, extraordinary and intellectual character which gives
them a peculiar value, the loss of which cannot reasonably or adequately be
compensated in damages in an action at law, and that a breach by Employee of
any of the provisions contained herein will cause LD Services irreparable
injury and damage. Employee expressly agrees that LD Services shall be
entitled as a matter of right to injunctive or other equitable relief to
prevent a breach of this Agreement by Employee. Resort to such equitable
relief, however, shall not be construed as a waiver of any other rights or
remedies which LD Services may have for damages or otherwise hereunder.
Employee specifically agrees that LD Services may recover by appropriate action
the amount of the actual damage caused LD Services by any failure, refusal or
neglect of Employee to keep and perform all of the agreements and warranties
herein contained.
12. Termination.
(a) Termination of Employment. During the term of this
Agreement, should LD Services terminate the Employee's employment (a) upon the
disability of the Employee, (b) upon the death of the Employee, (c) for cause,
or (d) for any other reason, the following terms shall apply:
(i) Disability. For purposes of this Agreement,
"disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the services
required as an employee of LD Services and which does or may be
expected to continue for more than three months during any six month
period. The Board of Directors of LD Services and the Employee shall
determine the existence of a disability and the date upon which it
occurred. In the event of a dispute regarding whether or when a
disability occurred, the matter shall be referred to a medical doctor
selected by the Board of Directors of LD Services and the Employee.
In the event of their failure to agree upon such a medical doctor, the
Board of Directors and the Employee shall each select a medical doctor
who together shall select a third medical doctor who shall make the
determination. Such determination shall be conclusive and binding
upon the parties.
- 3 -
<PAGE> 42
(ii) Payments Upon Disability or Death. In the
event of termination for disability or death, Employee shall receive
as severance, payments of the Employee's salary to be made to the
Employee or Employee's estate, and the Employee and Employee's family
shall continue to receive health and medical insurance, until the
first to occur of (i) June 30, 1998 and (ii) the date six months after
the date of such termination.
[To be used for Rick]
(iii) Cause. For purposes of this Agreement,
"cause" shall mean (a) misconduct which is demonstrably and
substantially injurious to LD Services, or (b) failure to follow a
reasonable lawful directive of LD Services's Board of Directors or an
authorized LD Services officer, director or supervisor of Employee
following notice that such failure shall constitute grounds for
termination for cause. In the event LD Services seeks to terminate
the Employee's employment with LD Services for cause, LD Services
shall provide the Employee with a written notice stating the facts and
circumstances constituting the cause for such termination, and may in
such notice or otherwise prescribe the Employee's duties, if any, to
be performed until the date of termination.
[To be used for other Shareholders]
(iii) Cause. For purposes of this Agreement,
"cause" shall mean (a) the failure or inability of the Employee to
substantially perform Employee's duties, other than a failure
resulting from incapacity due to physical or mental illness (subject
to the Chief Executive Officer's approval), (b) misconduct which is
demonstrably and substantially injurious to LD Services, (c) violation
of any of LD Services' rules, policies, procedures or other standards
of conduct or performance (subject to the Chief Executive Officer's
approval) or (d) failure to follow a reasonable lawful directive of LD
Services's Board of Directors or an authorized LD Services officer,
director or supervisor of Employee following notice that such failure
shall constitute grounds for termination for cause. In the event LD
Services seeks to terminate the Employee's employment with LD Services
for cause, LD Services shall provide the Employee with a written
notice stating the facts and circumstances constituting the cause for
such termination, and may in such notice or otherwise prescribe the
Employee's duties, if any, to be performed until the date of
termination.
[To be used for Rick]
(iv) Termination For Other Reasons. Termination
of employment by the Employee's request shall be considered a
termination for cause for purposes of this Agreement except if such
request occurs within 30 days after (a) Employee's duties have been
materially changed by the Board of Directors of LD Services, and/or
(b) Employee has been asked to render services for LD Services outside
Los Angeles County or Orange County for either a continuous period in
excess of four weeks or an aggregate of 30 days
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<PAGE> 43
during the Term of this Agreement. In the event of termination for
cause, payments of salary pursuant to Section 3 shall be prorated to
the date of termination and Employee shall not receive any severance.
[For all other shareholders]
(iv) Termination For Other Reasons. Termination
of employment by the Employee's request shall be considered a
termination for cause for purposes of this Agreement except if such
request occurs within 30 days after (a) Employee's duties have been
materially changed by the Board of Directors of LD Services, without
approval of the Chief Executive Officer of LD Services, and/or (b)
Employee has been asked to render services for LD Services outside Los
Angeles County or Orange County for either a continuous period in
excess of four weeks or an aggregate of 30 days during the Term of
this Agreement. In the event of termination for cause, payments of
salary pursuant to Section 3 shall be prorated to the date of
termination and Employee shall not receive any severance.
(b) Termination Without Cause. If the Employee's
employment is terminated by LD Services for (a) any reason other than for
cause, disability or death, or (b) what LD Services believes is cause or
disability and it is ultimately determined that the Employee was wrongfully
terminated, the Employee shall have been terminated "without cause" and shall
receive as damages (i) Employee's salary, as set forth in Section 3, for six
months following such termination or until June 30, 1998, whichever is less
(such date is referred to as the "Severance Date") and (ii) fringe benefits, as
set forth in Section 5 until the Severance Date.
13. Headings. The headings contained in this Agreement are for
convenience only and shall not be referred to for the purpose of limiting or
construing this Agreement in any way.
14. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing, and if sent by regular,
first-class mail or by certified or registered mail or facsimile as follows:
To Employee:
_________________________________________________
_________________________________________________
Telecopy No._____________________________________
To LD Services:
_________________________________________________
_________________________________________________
_________________________________________________
Attention:_______________________________________
Telecopy No._____________________________________
or other such address as either party shall specify in a notice to the other.
Employee shall promptly notify LD Services in writing of any change of
Employee's address. Notice shall be
- 5 -
<PAGE> 44
deemed given on the earlier of the date of actual receipt by the party to whom
it is addressed or the date it is placed, postage prepaid, in a depository for
U.S. mail or delivered to toll prepaid to a telegraph office.
15. Successor of LD Services to Assume. LD Services will require
any successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or the assets of LD
Services, by agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that LD Services would be required to perform this Agreement if
no such succession had taken place. As used in this Section, "LD Services"
shall mean LD Services as hereinbefore defined and any successor to its
business and/or assets which executes and delivers this Agreement as provided
for in this Section, or which otherwise becomes bound by all of the terms and
provisions of this Agreement by operation of law.
16. Law Governing. This Agreement shall be deemed to be entered
into and performed in California, and shall, in all respects, be interpreted in
accordance with and governed by the laws of California and the parties agree
that they will be subject to the jurisdiction of the courts of California.
17. Waiver. The failure of either party to insist, in any one or
more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenant or condition.
18. Severability. In the event that any provision shall be held
to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable.
19. Entire Agreement. This instrument and the exhibits hereto
constitute the entire agreement between the Company and the Employee relating
to the Employee's employment by the Company and supersede any prior agreements,
promises and understandings.
20. Amendment. This Agreement may only be amended by an agreement
in writing signed by the LD Services and the Employee.
21. Attorneys' Fees. If any legal action or proceeding is brought
to enforce the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees in addition to any other relief to which that
party may be entitled.
23. Arbitration. All controversies, claims, disputes, and matters
in question arising out of, or relating to, this Agreement including, without
limitation, any asserted breach thereof, shall be decided by arbitration in
accordance with the provisions of this Section. The arbitration
- 6 -
<PAGE> 45
proceedings shall be conducted under the applicable rules of the American
Arbitration Association or its successor in effect at the time a demand for
arbitration under the rules is made. The arbitration board will consist of
three arbitrators, one chosen by LD Services, one chosen by Employee and the
third selected by the two arbitrators so chosen. The decision of the majority
of the arbitrators, including determination of amount of any damages suffered,
shall by conclusive, final, and binding on LD Services and on Employee, on all
respective heirs, legal representatives, successors, and assigns. The
arbitrators shall be bound to follow the applicable state law and case
precedent. The losing party shall pay to the successful party its expenses in
the arbitration for arbitration costs, including arbitrator's fees, attorneys
fees, fees for expert testimony, and for other expenses of presenting its case.
- 7 -
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date first above written.
L.D. Services, Inc.
By: _____________________________
Its: _____________________________
EMPLOYEE:
_____________________________________
- 8 -
<PAGE> 47
EXHIBIT C
Form of Revised Independent Agent Agreement
This is an agreement ("Agreement") entered into this ____ day of
________ 199_, by and between L.D. Services, Inc., (hereinafter, the
"Company"), and _____________________________, representing
__________________________, and other persons and principals acting on or for
its services or in the interests of any principal or their assigns,
(hereinafter, "Contractor").
WHEREAS, the Company is in the business of providing long distance
telecommunications services (the "Services") to commercial, non- residential
customers and residential customers;
WHEREAS, in order to increase sales of the Services, the Company has
determined that it is in its best interests to engage Contractor as an
independent contractor for the purpose of selling the Services on terms and
conditions hereinafter set forth; and
WHEREAS, Contractor wishes to become an independent contractor of the
Company for the purpose of selling the Services, and is willing to accept such
engagement and undertake the sale of the Services, all upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties agree as follows:
1. RELATIONSHIP OF THE PARTIES
The Company hereby appoints Contractor and Contractor hereby
accepts the appointment as a non-exclusive, authorized sales agent of the
Company in the area described in Exhibit A, attached hereto (the "Area"). In
its capacity as sales agent, Contractor shall solicit customers for the
Services in the Area (customers which Contractor obtains for the Company are
referred to as "Customers"), and except as set forth in paragraph 2 below, the
Company reserves the right to appoint other independent contractors to sell the
Services, and to locate such independent contractors in the geographic areas of
its choice. Contractor's relationship with the Company is solely that of an
independent contractor, and nothing herein shall be construed to constitute a
joint venture, partnership, employment, or franchise relationship between the
Company and Contractor.
2. TERMS AND CONDITIONS OF RELATIONSHIP
A. During the term hereof, the Services which Contractor
sells on behalf of the Company shall be sold by Contractor at agreed upon
rates, terms and conditions.
B. The Company shall determine and may periodically
modify rates for the Services, and shall notify Contractor of each modification
prior to such modifications taking effect. Contractor shall take no action
inconsistent with, and agrees to support the Company's
<PAGE> 48
efforts before regulatory authorities regarding any modification of the
Company's rates. Modification of rates may apply to both existing and future
Customers. Where Contractor establishes contracts with Customers that
guarantee rates for specific periods of time and Company agrees to same,
Company will not violate such contracts by changing rate plans for those
customers during the term.
C. Contractor shall not reveal, divulge, make known,
sell, exchange, give away, or transfer in any way any part or all of any list
of Customers during or after the term of this Agreement; provided however, that
Contractor shall be under no restriction regarding the use of such information
as long as such use is consistent with the terms of this Agreement and is in
the best interest of the Company.
D. Contractor shall have reviewed all oral or written
applications and letters of agency ("LOAs") for the Services submitted by
Customers to Contractor and shall reject those applications for LOAs which do
not meet the written standards of the Company.
E. All Customer applications and LOAs submitted by
Contractor to the Company and, if accepted such Customers will become the
Customers of the Company and not of Contractor. The Company will furnish to
Contractor written procedures to be followed by Contractor in processing
customer applications of LOAs. Company will "Ceasar/Geasar" (in applicable
LEC's), LEC bill and do customer service on all orders accepted by Customer.
Contractor shall not be responsible for any such billing services or for the
collection from any Customer of any unpaid charges owed to the Company. The
Company has the unfettered right, subject to applicable law and regulatory
review, if any, to reject the application or LOA of any Customer applications
or LOAs, including billing information to the Company via computer equipment
compatible with the Company's computer equipment.
E-1. At Company's discretion, it may agree to take over the
provisioning functions including "Ceasar/Geasar" with applicable LECs. If such
change in procedure occurs, compensation for same will be agreed upon by both
parties.
F. Contractor shall maintain regular customer contact
with all Customers solicited by Contractor whose monthly billings exceed $1,000
per month, and Contractor shall remain accessible to such Customers for
on-going customer support and customer inquires.
G. Contractor shall not use any written materials with
Company's name on it to advertise or to solicit Customer orders other than
those written materials provided or approved by the Company.
H. Other than its employees, Contractor shall neither
engage any other party to meet its duties or obligations hereunder nor shall it
contract in the name of or bind the Company in any manner whatsoever, without
the prior written approval of the Company.
- 2 -
<PAGE> 49
I. Contractor reserves the right to employ and discharge
such salespeople and other employees as it shall, in its sole judgment, deem
necessary, and such salespeople and other employees shall be employees of
Contractor and not of the Company.
J. Both the Company and Contractor shall faithfully,
honestly, and diligently perform their obligations hereunder.
3. COMPENSATION
A. Company shall pay Contractor as set forth in Exhibit
B within 5 business days of the date Company has been paid for Contractor's
billing.
B. Except as provided herein, compensation hereunder
shall survive the termination of this Agreement and continue until Customers no
longer use the Services.
C. All federal, state, local, and other taxes, which may
be payable as a result of compensation paid by the Company to Contractor, are
the sole responsibility of Contractor.
4. COMPLIANCE
Contractor shall comply with and abide by all federal, state,
and local laws governing the solicitation and sale of the Services which it
sells including, but not limited to, any licenses or permits that may be
required in order to perform its activities or meet its duties and obligations
under this Agreement.
5. FALSE AND MISLEADING STATEMENTS
A. Contractor shall not make any false or misleading
statements concerning the rates, terms and conditions, or any other aspect of
the Services. Contractor understands that any such statement is a breach of
this Agreement which, if continued for more than ten (10) days after notice of
such breach to Contractor, is cause for immediate termination hereof.
B. Neither Contractor nor the Company shall make any
false or misleading statements concerning the other party or the business
relationship between the parties.
C. Contractor shall not falsify any LOA. Contractor
shall comply with all applicable laws regarding LOAs from Customers.
6. LICENSE TO USE SERVICE MARKS OF THE COMPANY
A. The Company hereby grants Contractor a revokable
license to use certain trademarks, trade names, insignia, symbols or decorative
designs or the like, which the Company owns (collectively, the "Marks").
Periodically, the Company will publish a list of the Marks which Contractor is
licensed to use under this Agreement. Contractor agrees to use such Marks
- 3 -
<PAGE> 50
subject to any and all written restrictions, conditions, or limitations
delivered to Contractor from time to time by the Company. Upon termination of
this Agreement for any reason, Contractor shall immediately discontinue its use
of the Marks and shall return to the Company all property or material related
to such Marks provided to Contractor by the Company.
B. Contractor shall not use the Marks as part of its own
corporate or trade name or with any prefix, suffix, or other modifying words,
terms, designs, or symbols, to in any modified form, unless previously
authorized by the Company in writing. Contractor may not use any Mark in
connection with the sale or lease of any unauthorized product or service or any
other manner not expressly authorized by this Agreement or separately in
writing by the Company. Contractor shall cooperate with the Company in
securing any necessary trade or fictitious business names necessary to use the
Marks and shall be reimbursed by the Company for any reasonable expenses
incurred thereby.
C. The Company reserves the unfettered right to revoke
or modify the license granted hereunder at any time. Contractor shall
discontinue use of any Mark or substitute one or more additional trade or
service marks as prescribed by the Company as soon as practicable after written
notice is delivered by the Company. In such event the Company shall reimburse
Contractor for its reasonable out-of- pocket costs, if any, of complying with
this obligation.
D. Contractor shall not attack the title or any rights
of the Company in and to the Marks during the term of this Agreement. The
Company shall indemnify and hold Contractor harmless against any damages and
costs from claims or suit arising out of the use by Contractor of the Marks in
the manner authorized in this Agreement, provided that prompt notice is given
to the Company of any such claim or suit, and provided further, that the
Company shall have the option to undertake and conduct the defense of any suit
so brought. No settlement of any such claim or suit is to be made by
Contractor without the prior written consent of the Company.
E. Contractor agrees to assist the Company, and the
Company agrees to reimburse Contractor for all associated costs incurred by
Contractor, in the procurement any protection of the Company's rights to the
Marks. The Company, if it so desires, may commence or prosecute any claims or
suits for such purpose in its own name or may join Contractor as a party
thereto. When known, Contractor shall notify the Company in writing of any
infringements or imitations by others of the Marks which are the same as or
substantially similar to those covered by this Agreement. Contractor shall not
institute any suit or take any action on account of any such infringements or
imitations without first obtaining the written consent of the Company.
7. EXPENSES AND COSTS
Contractor is responsible for all expenses and costs related
to its activities, obligations, and duties hereunder including, but not limited
to, all fees, taxes, and assessments of any type or kind.
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<PAGE> 51
8. INDEMNIFICATION
Contractor shall indemnify and hold harmless the Company from
any and all claims, demands, losses, penalties, actions, and judgments for (i)
damages to personal property, (ii) personal injury or death suffered or
sustained by any third party, and (iii) any other claims which arise by reason
of the conduct of Contractor, its affiliates or employees, relative to the
performance of Contractor's activities, duties, or obligations hereunder. This
section and its provision shall survive the termination of this Agreement.
9. CONSEQUENTIAL DAMAGES
In no event, whether for breach of contract, warranty,
negligence, strict liability in tort, or otherwise, will either party by liable
to the other party for incidental, special or consequential damages including,
but not limited to, frustration of economic or business expectations, loss of
profits, cost of capital, cost of substitute products(s), facilities, or
services, or downtime cost, even if advised of the possibility of such damages.
10. ASSIGNMENT AND TRANSFER
This Agreement shall not be assigned or in any manner
transferred by Contractor without the prior written consent of the Company
which consent shall not be unreasonably withheld. This Agreement may be
assigned by the Company to any affiliate of the Company.
11. TERMINATION
A. This Agreement shall terminate two (2) years from the
date of its execution unless earlier terminated by its terms. However, the
Agreement shall be automatically renewed for additional one (1) year periods at
the expiration of any term, unless thirty (30) days prior to any such
expiration written notice is provided to the non-terminating party by the
terminating party that the Agreement is terminated.
B. If Contractor or the Company substantially fail to
perform or comply with any provision of this Agreement in a satisfactory
manner, and if such failure continues for more than ten (10) days after notice
of such breach by the other party, then the such party may, at its option,
immediately terminate this Agreement without any further obligation to the
other, except for the payment of commissions earned as per Section 3 of the
Agreement and Exhibit B, with the exception of violations of Section 12 as
specified in that section (in which case no further commissions would be paid).
12. COVENANT NOT TO COMPETE
Notwithstanding anything herein to the contrary, Contractor
shall not during the term of this Agreement and for a period of three years
after the termination of this Agreement
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<PAGE> 52
target or intentionally solicit and will not process any Customer with whom
Contractor had previous contact while engaged as an Independent contractor by
the Company to use the services of any provider of telecommunication services
other than the Company. Violation of this clause constitutes a breach of
contract and, in addition to the fact that no further commissions would be due
and owing to Contractor, Company would take full legal actions against
Contractor for an injunction against such violations of this Agreement.
13. CONFIDENTIALITY
A. Contractor shall not reveal any written or verbal
information which, by its nature and under the circumstances, is confidential
or proprietary, specifically, information regarding the Company, its directors,
officers, employees, or services; the terms and conditions of this Agreement,
or any customer information such as names and addresses of and Customers of the
Company; and any additional materials that shall be specified in writing as
confidential and proprietary. All such written information shall be returned
to the Company immediately upon termination hereof.
B. Upon and after the termination of this Agreement,
Contractor shall not use to its own advantage, or to the advantage of any other
person or entity, the above specified confidential or proprietary information.
14. NOTICES
Any and all notices or other communications required or
permitted by any provision of this Agreement shall be in writing and shall be
hand-delivered, or mailed by certified mail, return receipt requested, to the
addressee at the addressee's address noted on the signature page hereto.
15. MISCELLANEOUS
A. The failure of any party to enforce any provision of
this Agreement shall not be considered a waiver of such provision, but the same
shall nevertheless remain in full force and effect.
B. This Agreement and the Exhibits thereto, which may be
updated or amended from time to time, constitute and contain the entire
agreement of the parties hereto regarding the subject matter hereof and
supersede any and all related discussions, negotiations, correspondence,
understandings, and agreements among the between the parties.
C. This Agreement shall be construed in accordance with
and governed in all respects by the laws of the State of California.
D. In the event that any of the provisions of this
Agreement shall be held to be invalid or unenforceable, then all other
provisions shall nevertheless continue to be valid and
- 6 -
<PAGE> 53
enforceable as though the invalid or unenforceable parts had not been included
in this Agreement. In the event that any provision relating to the time period
or geographic area of any restriction imposed by this Agreement shall be
declared by a court of competent jurisdiction to be unreasonable and
unenforceable, then such restriction shall be automatically reduced to a time
period or geographic area which the court deems reasonable and will enforce.
E. This Agreement shall only be modified by the mutual, written
consent of both parties.
IN WITNESS HEREOF, the parties hereto state that they are
authorized to enter into this Agreement and, based upon such authority, have
executed this Agreement as of the day and year first written above.
THE "COMPANY" "CONTRACTOR"
By: ______________________ By:_________________________
[Name:___________________] [Name:_____________________]
Its:______________________ Its:________________________
Address: Address:
13230 E. Firestone Blvd. #D2
Santa Fe Springs, CA 90670
Phone: (310) 802-5884 Phone: ( )
Fax : (310) 404-2178 Fax : ( )
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<PAGE> 54
EXHIBIT D
Form of Registration Rights Agreement
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of this __th day of ______________________ 1997, by and between
IXC Communications, Inc., a Delaware corporation (the "Company"), and each of
the Shareholders listed on the signature page hereof: Richard A. Bishop,
individually and in his capacity as Trustee of the Richard Allen Bishop &
Teresa Anne Bishop 1996 Revocable Trust; Judith Bolger; Elizabeth Currier,
individually and in her capacity as Trustee of the Currier Family Trust; Don
Currier; Thomas Guy Eltringham; John Brent McDaniel, individually and in his
capacity as Trustee of the John Brent McDaniel Revocable Trust; Donna J.S.
Robinson; and Harold B. Robinson.
R E C I T A L S
A. The Company, IXC Long Distance, Inc., a Delaware corporation
("IXC-LD"), the Shareholders, L.D. Services, Inc., a California corporation
("LD Services"), and IXC-One Acquisition Corp., a California corporation, have
entered into a Stock Acquisition Agreement and Plan of Merger of even date
herewith (the "Acquisition Agreement") pursuant to which IXC-LD, a wholly owned
subsidiary of IXC, is acquiring from the Shareholders all of the issued and
outstanding shares of capital stock of LD Services (the "LD Services Stock").
B. Pursuant to the terms of the Acquisition Agreement, the
Company is obligated to issue to the Shareholders a number of shares of common
stock, $.01 par value, of the Company (the "IXC Shares") as part of the
consideration for the LD Services Stock purchased by the Company pursuant to
the Acquisition Agreement, and the terms of the Acquisition Agreement require
the Company to provide the Shareholders certain registration rights with
respect to the IXC Shares.
A G R E E M E N T
In consideration of the foregoing recitals and the mutual covenants
and conditions contained herein, the parties, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Defined Terms. For purposes of this Agreement, the
following terms shall have the following meanings:
"Act" shall mean the Securities Act of 1933, as amended.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Act.
<PAGE> 55
"Holder" shall mean the Shareholders and any person
beneficially owning Registerable Securities through permitted assignment
thereof in accordance with Article 6, below.
"Registerable Securities" shall mean the IXC Shares and any
shares of the Company's common stock issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of the IXC Shares,
excluding any Registerable Securities sold by a person in a transaction in
which its, his or her rights under this Agreement are not assigned; provided
further that shares which would otherwise constitute Registerable Securities
shall cease to be so once they have been sold to the public.
"Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of
such registration statement.
1.2 Other Defined Terms. The following capitalized terms shall
have the meanings given to them in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Advice 6.1
Indemnified Party 4.1
Indemnifying Party 4.1
Necessary Interruptions 6.2
Permitted Interruptions 6.2
Registration Expenses 3.2
Shelf Registration 2.1
</TABLE>
1.3 Other Defined Terms. All other capitalized terms
used herein but which are not otherwise defined shall have the meanings given
to them in the Acquisition Agreement.
ARTICLE 2
SHELF REGISTRATION
2.1 Shelf Registration. On or before July 31, 1997 or 30
days after the Actual Closing Date, whichever is later, (such date is referred
to as the "Initial Filing Date"), the Company shall prepare and file with the
Commission, a registration statement on any appropriate form under the Act for
an offering to be made on a continuous basis covering all of the Registerable
Securities (the "Shelf Registration"). The Company shall use commercially
reasonable efforts to cause the Shelf Registration to become effective under
the Act on or about the date 45 days following the Initial Filing Date and,
subject to Permitted Interruptions and/or Necessary Interruptions, the Company
shall use its best efforts to keep the Shelf Registration continuously
effective for the lesser of (a) a period of two years from the date on which
the Shelf
- 2 -
<PAGE> 56
Registration becomes effective under the Act (the "Two Year Period"), (b) a
period ending on the date upon which all Registerable Securities covered by the
Shelf Registration have been sold, (c) a period ending on the date after which
restrictions on sales of securities by persons other than affiliates pursuant
to Commission Rule 144 (or any successor provision) terminate, or (d) a period
ending on the date after which the Holders no longer own any of the
Registerable Securities. The Company shall also, subject to Permitted
Interruptions and/or Necessary Interruptions, supplement or make amendments to
the Shelf Registration if required by the rules, regulations or instructions
applicable to the registration form used by the Company or if otherwise
required by the Act. Each of the Holders agrees to provide the Company with at
least five business days notice prior to selling any Registrable Securities
into the public market while the Shelf Registration remains effective.
2.2 Limitations on Rights. The Company shall not be
required to prepare and file a registration statement pursuant to Section 2.1,
above, which is effected more than two years after the date of this Agreement.
ARTICLE 3
REGISTRATION PROCEDURES
3.1 General. If and when the Company is required by the
provisions of this Agreement to effect, or use its best efforts to effect, the
registration of shares of Registerable Securities, the Company shall:
(a) Subject to Permitted Interruptions and/or Necessary
Interruptions, prepare and file with the Commission, within the time period
specified herein, a registration statement with respect to such shares and use
its best efforts to cause such registration statement to become and remain
effective for the periods provided herein;
(b) Subject to Permitted Interruptions and/or Necessary
Interruptions, prepare and file with the Commission such amendments and
post-effective amendments to each registration statement as may be necessary to
keep such registration statement continuously effective for the applicable
period; and cause the related prospectus to be supplemented by any required
prospectus supplement;
(c) Use its best efforts to notify the Holders promptly
(i) when a prospectus or any prospectus supplement or post- effective amendment
related to such Registerable Securities has been filed, and, with respect to
Registerable Securities, when the same has become effective, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for amendments or supplements to a registration statement or related
prospectus or for additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of a registration
statement of the initiation of any proceeding for that purpose, (v) of the
receipt by the Company of any notification with respect to the suspension of
the
- 3 -
<PAGE> 57
qualification or exemption from qualification of any of the Registerable
Securities for sale in any jurisdiction of the United States of America or the
initiation or threatening of any proceeding for such purpose, (vii) of the
happening of any event (the nature and pendency of which need not be disclosed
during a Permitted Interruption and/or Necessary Interruption) which makes any
statement made in such registration statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
or which requires the making of changes in a registration statement or related
prospectus so that such documents will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (vii) of the Company's
reasonable determination that a post-effective amendment to a registration
statement would be appropriate;
(d) Use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification (or exemption from qualification) of any
of the Registerable Securities for sale in any jurisdiction of the United
States of America, at the earliest possible moment;
(e) If reasonably requested by any Holder of Registerable
Securities covered by a registration statement, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
Holder reasonably requests to be included therein or as may be required by
applicable law, (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as the Company has received notification
of the matters to be incorporated in such prospectus supplement or
post-effective amendment, and (iii) supplement or make amendments to any
registration statement if reasonably requested by any Holder of Registerable
Securities covered by such registrations statement or as may be required by
applicable law;
(f) Furnish to the Holders of Registerable Securities
covered by the registration statement, without charge, at least one signed copy
of the registration statement or statements and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those previously
furnished or incorporated by reference), at the earliest practicable time under
the circumstances after the filing of such document;
(g) Deliver to each Holder of Registerable Securities
covered by a registration statement, without charge, as many copies of the
prospectus or prospectuses (including each preliminary prospectus) and any
amendment or supplement thereto as such person may reasonably request; the
Company consents to the use of such prospectus or any amendment or supplement
thereto by each of such Holders in connection with the offering and sale of
Registerable Securities covered by such prospectus or any amendment or
supplement thereto;
(h) Prior to any public offering of Registerable
Securities, to use its best efforts to register or qualify or cooperate with
the Holders of Registerable Securities in connection with the registration or
qualification (or exemption from such registration or qualification) of such
- 4 -
<PAGE> 58
Registerable Securities for offer and sale under the securities or blue sky
laws of such state or local jurisdictions as any seller reasonably requests in
writing; subject to the provisions herein regarding Permitted Interruptions
and/or Necessary Interruptions, keep such registration or qualification (or
exemption therefrom) effective during the period such registration statement is
required to be kept effective and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdiction of the Registerable
Securities covered by the applicable registration statement; provided, however,
the Company shall not be required to (i) qualify generally to do business in
any jurisdiction where it is not then so qualified, (ii) take any action which
could subject it to general service of process in any such jurisdiction where
it is not then so subject, or (iii) subject itself to taxation in any such
jurisdiction;
(i) Cooperate with the selling Holders of Registerable
Securities to facilitate the timely preparation and delivery of certificates
representing Registerable Securities to be sold, which certificates shall not
bear any restrictive legends;
(j) Subject to Permitted Interruptions and/or Necessary
Interruptions, cause the Registerable Securities covered by the applicable
registration statement to be registered with or approved by such other federal,
state and local governmental regulatory agencies or authorities in the United
States as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Registerable Securities; and
(k) Subject to Permitted Interruptions and/or Necessary
Interruptions, upon the occurrence of any event contemplated by Section
3(c)(vi) or 3(c)(vii), above, as promptly as practicable thereafter, prepare
and file with the Commission a supplement or post-effective amendment to the
applicable registration statement or a supplement to the related prospectus of
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registerable
Securities being sold thereunder, such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.2 Registration Expenses. Except as provided below, all
of the expenses incurred by the Company in effecting any registration requested
pursuant to Section 2.1, above, including, without limitation, all registration
and filing fees, printing expenses, expenses of compliance with Blue Sky laws
(including, without limitation, fees and disbursements of underwriters counsel
relating thereto), fees and disbursements of counsel for the Company, and
expenses of any audits incidental to or required by any such registration
("Registration Expenses") shall be paid by the Company. In either event,
notwithstanding anything in this Section 3.2 to the contrary, the Company shall
have no obligation to pay or otherwise bear (a) any underwriting discounts or
brokerage fees or commissions relating to the sale of Registerable Securities
by the Holders, or (b) any Registration Expenses if the payment of such
expenses by the Company is prohibited by the laws of a state in which such
offering is qualified and only to the extent so prohibited, or (c) any expenses
of any compliance with Blue Sky laws which pertains only to an individual
Holder, or (d) any fees and disbursements of counsel for the Holders.
- 5 -
<PAGE> 59
ARTICLE 4
INDEMNIFICATION
4.1 Indemnification by the Company. The Company will
indemnify, hold harmless and defend each Holder, its officers, directors,
partners, legal counsel and accountants, and each person who controls a Holder
within the meaning of Section 15 of the Act, against any and all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereof, incident to any registration or qualification of the
Registrable Securities, or which arise out of or are based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Company of any rule or regulation promulgated under the Act or any state
securities laws applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such indemnified party for any legal and
any other expenses reasonably incurred by them in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action. The Company also shall indemnify any underwriter of the Registrable
Securities, their officers, directors, partners, members and agents and each
person who controls such underwriters on substantially the same basis as that
of the indemnification of the Holders provided in this Section 4.1.
The indemnity agreement contained in this Section 4.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage or
liability or any action in respect thereof if such settlement is effected
without the consent of the Company, which consent shall not be unreasonably
withheld, nor shall the Company be liable to any Holder or its officers,
directors, partners, members or agents in any such case for any loss, claim,
damage, liability or any action in respect thereof to the extent that it arises
solely from or is based solely upon and is in conformity with written
information relating to such Holder furnished expressly for use in connection
with such registration by such Holder or its agents, nor shall the Company be
liable to any Holder for any such loss, claim, damage or liability or any
action in respect thereof to the extent it arises solely from or is based
solely upon (a) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Holder after the Company had provided
written notice to such Holder that such registration statement or prospectus
contained such untrue statement or alleged untrue statement of a material fact,
(b) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
after the Company had provided written notice to such Holder that such
registration statement or prospectus contained such omission or alleged
omission, or (c) the failure of such Holder to deliver any preliminary or final
prospectus, or any amendments or supplements thereto, required under applicable
securities laws, including the Act, to be so delivered, provided that a
sufficient number of copies thereof had been timely provided by the Company to
such Holder.
- 6 -
<PAGE> 60
4.2 Indemnification by the Holders. Each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, and each of its officers, directors, legal counsel and
accountants, and each person who controls the Company within the meaning of
Section 15 of the Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Holder of any rule or regulation promulgated under the Act or
any state securities laws applicable to the Holder and relating to action or
inaction required by the Holder in connection with any such registration,
qualification or compliance, and will reimburse each such indemnified person
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such untrue statement
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed by
or on behalf of such Holder and stated to be specifically for use therein.
Each Holder shall also indemnify and hold harmless any underwriter of the
Registrable Securities, their officers, directors, partners, members and agents
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Company provided in this Section 4.2;
provided, however, that in no event shall any indemnity obligation under this
Section 4.2 exceed the dollar amount of the net proceeds actually received by
such Holder from the sale of Registrable Securities which gave rise to such
indemnification obligations under such registration statement or prospectus.
4.3 Indemnification Procedures. Each person to be
indemnified pursuant to this Article 4 (the "Indemnified Party") will, promptly
after its receipt of written notice of the commencement of any action against
such Indemnified Party in respect of which indemnity may be sought from an
indemnifying person under this Article 4 (the "Indemnifying Party") notify the
Indemnifying Party in writing of the commencement thereof, provided, however,
that the failure of any person to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement except
to the extent that such Indemnifying Party is actually materially and adversely
prejudiced by such failure to give notice. If any such action shall be brought
against any Indemnified Party and it shall notify an Indemnifying Party of the
commencement thereof, the Indemnifying Party will be entitled to participate
therein and, to the extent it may desire, jointly with any other Indemnifying
Party similarly notified, to assume the defense thereof with counsel
satisfactory to such Indemnified Party, and after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party will not be liable to such Indemnified Party
under this Article 4 for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation unless (a) the Indemnified Party shall have
employed counsel in an action in which the Indemnified Party and Indemnifying
Party are both defendants and there is a conflict of interest between such
parties that would prevent counsel
- 7 -
<PAGE> 61
from adequately representing both parties, (b) the Indemnifying Party shall not
have employed counsel satisfactory within the exercise of reasonable judgment
of the Indemnified Party to represent the Indemnified Party within a reasonable
time after the notice of the commencement of the action, or (c) the
Indemnifying Party has authorized the employment of counsel for the Indemnified
Party at the expense of the Indemnifying Party. The undertaking contained in
this Section 4.3 shall be in addition to any liabilities which the Indemnifying
Party may have pursuant to law.
4.4 Contribution Obligations. If the indemnification
provided for in this Article 4 is held by a court of competent jurisdiction to
be unavailable to an Indemnified Party with respect to any loss, liability,
claim, damage or expense referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements, actions or
omissions which resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Indemnifying Party or by the Indemnified Party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
ARTICLE 5
TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register securities granted to a
Holder under Articles 2, above, may be transferred or assigned by such Holder
to a transferee or assignee in connection with any transfer or assignment of
Registerable Securities, provided that: (a) such transfer or assignment may
otherwise be effected in accordance with applicable securities laws, (b) prompt
written notice of such transfer or assignment is given to the Company, and (c)
such transferee or assignee expressly agrees in a writing delivered to the
Company to be bound by the provisions of this Agreement.
ARTICLE 6
DISCONTINUANCE OF DISPOSITION OF REGISTERABLE SECURITIES
6.1 Certain Discontinuances. Each Holder of Registrable
Securities agrees by acquisition of such Registrable Securities that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(c)(vii),
above, or a Permitted Interruption and/or Necessary Interruption, such Holder
will forthwith discontinue disposition of any Registrable Securities covered by
a registration statement
- 8 -
<PAGE> 62
or prospectus until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(k), above, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated or deemed to be incorporated by
reference in such prospectus.
6.2 Permitted Interruptions and Necessary Interruptions.
Anything in this Agreement to the contrary notwithstanding, it is understood
and agreed that the Company shall not be required to prepare or file a
registration statement, amendment or post-effective amendment thereto or
prospectus supplement or to supplement or amend any registration statement or
otherwise facilitate the resale of Registrable Securities, and it shall be free
voluntarily to take or omit to take any other action that would result in the
impracticality of any such filing, supplement or amendment if such action is
taken or omitted to be taken by the Company in good faith and for valid
business reasons, including, without limitation, matters relating to
acquisitions or divestitures, so long as the Company shall, as promptly as
practicable thereafter, make such filing, supplement or amendment and, so long
as the Company shall as promptly as is practicable thereafter, comply with the
requirements of Section 3(k), above, if applicable (any period described in
this Section 6.2 (other than a Necessary Interruption (defined below)) during
which Holders of Registrable Securities are not able to sell such Registrable
Securities under a registration statement is herein called a "Permitted
Interruption"). The period between Permitted Interruptions shall not be less
than 30 days; provided, however, that if any event occurs which would make the
Registration Statement then in effect materially incorrect or misleading, the
Company shall not be required to keep the Registration Statement effective as
of such date and continuing for five business days thereafter and the Holders
of Registrable Securities shall not sell such securities during such period
(each such period is referred to as a "Necessary Interruption"). The Company
hereby agrees to notify each of the Holders of Registrable Securities of the
occurrence of, and the termination of, each Permitted Interruption and/or
Necessary Interruption (the nature and pendency of which need not be disclosed
during such Permitted Interruption and/or Necessary Interruption). Permitted
Interruptions shall not extend beyond 45 days during the first year of the Two
Year Period and 60 days during the second year of the Two Year Period.
Notwithstanding the foregoing, there shall be no Permitted Interruptions during
the 30-day period immediately following the date the Shelf Registration
initially becomes effective.
6.3 Standoff or Lock-Up Agreement. Each Holder of
Registerable Securities agrees in connection with any firmly underwritten
public offering of the Company's common stock that, upon request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, such Holder shall not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registerable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, during the 14
days prior to, and during the 90-day period (the "Lock-up Period") beginning
on, the effective date of the registration statement relating to such offering
(except as part of such registration statement). In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Registerable
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<PAGE> 63
Securities until the end of such period. In the event any of Ralph J. Swett,
John J. Willingham, Kenneth F. Hinther or John R. Fleming have entered into a
lock-up agreement with such underwriters relating to such offering with a
lock-up period longer than one day and shorter than 90 days, then such shorter
period shall be the Lock-up Period. The Company shall not be required to keep
any registration statement effective during any Lock-up Period.
ARTICLE 7
TERMINATION OF REGISTRATION RIGHTS
Notwithstanding any provision in this Agreement to the contrary, in no
event shall any Holder be entitled to request registration or inclusion in any
registration pursuant to Article 2, above, after the date on which all
Registrable Securities held by such Holder may be sold under Commission Rule
144 during any 90-day period.
ARTICLE 8
MISCELLANEOUS
8.1 Amendment. Any modification, amendment or waiver of
this Agreement or any provision hereof shall be effective only if in writing
and executed by the Holders of at least a majority of the Registrable
Securities and the Company.
8.2 Governing Law. This Agreement shall be governed in
all respects by the laws of the State of California without regard to its
conflicts of laws principles.
8.3 Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties hereto.
8.4 Notices. All notices and other communications
required or permitted hereunder shall be made in accordance with the
Acquisition Agreement.
8.5 Severability. If any provision of this Agreement
shall be judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
8.6 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof.
8.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
- 10 -
<PAGE> 64
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first set forth above.
IXC COMMUNICATIONS, INC.,
a Delaware corporation
By:_____________________________
Its:_________________________
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<PAGE> 65
THE "SHAREHOLDERS":
________________________________________________
Richard Allen Bishop, individually and in his
capacity as Trustee of the Richard Allen Bishop
& Teresa Anne Bishop 1996 Revocable Trust
Address:
Phone No.:
Fax No.:
________________________________________________
Judith Bolger
Address:
Phone No.:
Fax No.:
________________________________________________
Elizabeth Currier, individually and in her
capacity as Trustee of the Currier Family Trust
Address:
Phone No.:
Fax No.:
________________________________________________
Don Currier
Address:
Phone No.:
Fax No.:
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<PAGE> 66
________________________________________________
Thomas Guy Eltringham
Address:
Phone No.:
Fax No.:
________________________________________________
John Brent McDaniel, individually and in his
capacity as Trustee of the John Brent McDaniel
Revocable Trust
Address:
Phone No.:
Fax No.:
________________________________________________
Donna J.S. Robinson
Address:
Phone No.:
Fax No.:
________________________________________________
Harold B. Robinson
Address:
Phone No.:
Fax No.:
- 13 -
<PAGE> 1
EXHIBIT 11.1 -- COMPUTATION OF PER-SHARE EARNINGS
IXC COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
----------------------------------
<S> <C> <C> <C>
EARNINGS
Adjusted net income (loss) $ 7,315 $ (4,965) $(37,448)
Less: Dividends applicable to preferred stock (1,752) (1,843) (1,739)
--------------------------------
Net income (loss) applicable to common stockholders 5,563 (6,808) (39,187)
Extraordinary (gain) loss (2,298) 1,747 --
--------------------------------
Net income (loss) applicable to common
stockholders before extraordinary items $ 3,265 $(5,061) $(39,187)
================================
PRIMARY
Weighted average number of shares outstanding 24,310 24,335 27,525
Add: Effect for periods prior to the initial
public offering (IPO), of common stock
options issued within one year of the IPO 833 833 827
Add: Dilutive effect of outstanding stock
options 9 120 --
Less: Assumed repurchase of shares under
the treasury stock method (159) (180) (143)
--------------------------------
Number of shares used to compute earnings (loss)
applicable to common stockholders 24,993 25,108 28,209
================================
FULLY DILUTED
Weighted average number of shares outstanding 24,310 24,335 27,525
Add: Effect for periods prior to the initial
public offering (IPO), of common stock
options issued within one year of the IPO 833 833 827
Add: Dilutive effect of outstanding stock
options 9 120 --
Less: Assumed repurchase of shares under
the treasury stock method (159) (180) (143)
--------------------------------
Number of shares used to compute earnings (loss)
applicable to common stockholders 24,993 25,108 28,209
================================
PRIMARY INCOME (LOSS) PER COMMON SHARE
Before extraordinary item $0.13 $(0.20) $(1.39)
Extraordinary gain (loss) 0.09 (0.07) --
--------------------------------
Net income (loss) $0.22 $(0.27) $(1.39)
================================
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE
Before extraordinary item $0.13 $(0.20) $(1.39)
Extraordinary gain (loss) 0.09 (0.07) --
--------------------------------
Net income (loss) $0.22 $(0.27) $(1.39)
================================
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or Other
Jurisdiction of Other Names
Incorporation under which
or Subsidiary
Name of Subsidiary Organization does Business Type of Entity
- ------------------ --------------- ------------------------- ------------------
<S> <C> <C> <C>
Atlantic States Microwave Transmission Company Nevada None Corporation
Central States Microwave Transmission Company Ohio None Corporation
IXC Broadband Services, Inc. Delaware None Corporation
IXC Carrier, Inc. Nevada None Corporation
IXC Long Distance, Inc. Delaware HCC Long Distance Company Corporation
Link Net International, Inc. Delaware None Corporation
Marca-Tel S.A. de C.V. Mexico None Corporation
MSM Associates, Limited Partnership Delaware None Limited Partnership
Mutual Signal Holding Corporation Delaware None Corporation
Mutual Signal Corporation of Michigan New York None Corporation
Mutual Signal Corp. New York None Corporation
Progress International, L.L.C. Texas None Limited Liability Company
Rio Grande Transmission, Inc. Delaware None Corporation
Summer Street Communications, Inc. Delaware None Corporation
Switched Services Communications, L.L.C. Texas None Limited Liability Company
Telcom Engineering, Inc. Texas None Corporation
Tower Communication Systems Corp. Ohio None Corporation
U.S. Advantage Long Distance, Inc. Texas None Corporation
West Texas Microwave Company Texas None Corporation
Western States Microwave Transmission Company Nevada None Corporation
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 28, 1997, in the Registration Statement (Form
S-1 No. 333-20665) and related Prospectus of IXC Communications, Inc.
Ernst & Young LLP
Austin, Texas
March 6, 1997
