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SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only
[ ] Definitive Information Statement (as permitted by Rule 14c-5(d)(2))
</TABLE>
IXC COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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IXC COMMUNICATIONS, INC.
1122 CAPITAL OF TEXAS HIGHWAY SOUTH
AUSTIN, TEXAS 78746
------------------------
NOTICE OF ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
TO THE STOCKHOLDERS OF IXC COMMUNICATIONS, INC.:
The Board of Directors of IXC Communications, Inc. (the "Company") has
taken action to adopt and approve the Company's 1998 Stock Plan (the "1998 Stock
Plan"). The 1998 Stock Plan is more fully described in the attached Information
Statement.
Stockholders holding an aggregate of over 50% of the issued and outstanding
shares of the Company's Common Stock, $.01 par value (the "Common Stock") have
also approved in writing the 1998 Stock Plan. The adoption and approval by the
stockholders of the Company shall not become effective until , 1998,
which date is at least twenty (20) days after the mailing of the enclosed
Information Statement. The 1998 Stock Plan has been approved by written consent
without the need for any action to be taken by you.
Your consent to the adoption of the 1998 Stock Plan is not required and is
not being solicited in connection with this action. Pursuant to Section 228 of
the Delaware General Corporation Law, you are hereby being provided with notice
of the approval by less than the unanimous written consent of the stockholders
of the Company. Pursuant to the Securities Exchange Act of 1934, with this
letter you are being furnished with an Information Statement relating to this
action.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. THE ATTACHED INFORMATION IS BEING SENT TO YOU FOR INFORMATION PURPOSES
ONLY.
By Order of the Board of Directors
/s/ Jeffrey C. Smith
Secretary
Austin, Texas
[ ], 1998
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IXC COMMUNICATIONS, INC.
1122 CAPITAL OF TEXAS HIGHWAY SOUTH
AUSTIN, TEXAS 78746
------------------------
INFORMATION STATEMENT RELATING TO THE
APPROVAL OF THE 1998 STOCK PLAN
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
THE APPROXIMATE DATE OF MAILING OF THIS INFORMATION STATEMENT IS [ ],
1998
This Information Statement is being furnished by IXC Communications, Inc.,
a Delaware corporation (the "Company" or "IXC Communications"), to the holders
of the Company's Common Stock, $.01 par value (the "Common Stock"), in
connection with the approval and adoption of the Company's 1998 Stock Plan (the
"1998 Stock Plan").
The Board of Directors of the Company has taken action to approve the 1998
Stock Plan which requires the approval by the affirmative vote of a majority of
the outstanding shares of Common Stock. Stockholders holding an aggregate of
over 50% of the issued and outstanding shares of the Common Stock have consented
in writing to the approval and adoption of the 1998 Stock Plan.
Accordingly, all corporate action necessary to approve and adopt the 1998
Stock Plan has already been taken. Pursuant to the regulations promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act"), the approval and
adoption of the 1998 Stock Plan by the stockholders of the Company will not
become effective until , 1998, which date is at least twenty (20)
days after the Company has mailed this Information Statement to the stockholders
of the Company.
The Company has asked brokers and other custodians and fiduciaries to
forward this Information Statement to the beneficial owners of the Common Stock
held of record by such persons and will reimburse such persons for out-of-pocket
expenses incurred in forwarding such materials.
THE 1998 STOCK PLAN HAS BEEN APPROVED BY THE STOCKHOLDERS WHO HOLD
SUFFICIENT VOTING SECURITIES TO APPROVE THE ACTION. THIS INFORMATION STATEMENT
IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION. WE ARE NOT ASKING YOU FOR
A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The executive offices of the Company are located at 1122 Capital of Texas
Highway South, Austin, Texas 78746. All holders of Common Stock of record at the
close of business on August 5, 1998 will receive this Information Statement.
VOTING SECURITIES
The close of business on August 5, 1998 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to vote with
respect to stockholder authorization of the 1998 Stock Plan. As of the Record
Date, the outstanding voting securities of the Company entitled to vote on the
approval of the 1998 Stock Plan were 36,147,074 shares of Common Stock. Each
stockholder was entitled to one vote for each share of Common Stock held on the
Record Date. The consent of the holders of a majority of the outstanding shares
of Common Stock was necessary to approve and adopt the 1998 Stock Plan.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 1, 1998, to
the extent known by the Company, regarding the beneficial ownership of: (i) each
class of the Company's voting securities by each person who is known by the
Company to be the beneficial owner of more than 5% of any class of the Company's
voting securities, and (ii) each class of equity securities of the Company by
(a) each director of the Company, (b) each of the Named Executive Officers (as
defined below), and (c) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
CUMULATIVE PERCENT OF CONVERTIBLE PERCENT OF COMMON PERCENT
PREFERRED STOCK CUMULATIVE PREFERRED STOCK CONVERTIBLE STOCK OF
BENEFICIALLY PREFERRED STOCK BENEFICIALLY PREFERRED STOCK BENEFICIALLY COMMON
NAME AND ADDRESS OWNED(1)(2)(3) OWNED OWNED(2)(3) OWNED OWNED(2)(3) STOCK
---------------- --------------- --------------- --------------- --------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Ralph J. Swett(4)............... -- -- 3,761 * 2,756,338(5) 7.6%
Benjamin L. Scott(4)............ -- -- -- -- 100,000(6) *
John R. Fleming(4).............. -- -- -- -- 1,153,739 3.2
David J. Thomas(4).............. -- -- -- -- 268,353(6) *
James F. Guthrie(4)............. -- -- 1,074 * 203,738(7) *
Michael W. Vent(4).............. -- -- -- -- 48,875(6) *
Richard D. Irwin................ -- -- 6,442 * 3,295,931(8) 9.1
c/o Grumman Hill Associates,
Inc.
191 Elm Street
New Canaan, CT 06840
Carl W. McKinzie................ -- -- -- -- 211,917(9) *
300 S. Grand Avenue, 29th
Floor
Los Angeles, CA 90071
Wolfe H. Bragin................. -- -- -- -- 4,000 *
2029 Century Park East, Suite
1230
Los Angeles, CA 90067
Phillip L. Williams............. -- -- -- -- 144,150(10) *
633 West Fifth Street, Suite
4000
Los Angeles, CA 90071-2007
Joe C. Culp..................... -- -- -- -- 35,622(6) *
#5 Hedge Lane
Austin, TX 78746
Trustees of General............. -- -- 322,349 30.0% 9,998,553(11) 26.6
Electric Pension Trust
3003 Summer Street
Stamford, CT 06905
West Highland Capital, Inc...... -- -- -- -- 2,000,000(12) 5.5
300 Drakes Landing Road, Suite
290
Greenbrae, CA 94904
FMR Corp........................ 1,039,600 33.5% 139,493 13.0 3,335,064(13) 9.0
82 Devonshire Street
Boston, MA 02109
All directors and executive
officers of IXC Communications
as a group (15 persons)....... -- -- 11,277 1.0% 8,244,663 21.6%
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares of the Company's 6 3/4% Cumulative Preferred Stock
(the "Cumulative Preferred Stock") shown as being beneficially owned
reflects the number of Depositary Shares beneficially owned as of July 1,
1998. Each Depositary Share represents 1/20 of a share of Cumulative
Preferred Stock. The Company does not believe that there is any trading
market for the Cumulative Preferred Stock except as Depositary Shares.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Shares of
Common Stock relating to options currently exercisable or exercisable
within 60 days of August 1, 1998, 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.
(3) The shares of the Company's 7 1/4% Junior Convertible Preferred Stock Due
2007 (the "Convertible Preferred Stock") the Company's 12 1/2% Series B
Junior Exchangeable Preferred Stock Due 2009 (the
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"Exchangeable Preferred Stock") and the Company's Cumulative Preferred
Stock are nonvoting except upon the occurrence of certain events described
in the Certificate of Designation with respect to the Convertible Preferred
Stock, the Exchangeable Preferred Stock and the Cumulative Preferred Stock,
respectively. The Company has only limited information concerning the
beneficial ownership of the Convertible Preferred Stock, the Cumulative
Preferred Stock and the Exchangeable Preferred Stock because substantially
all of the Convertible Preferred Stock, the Cumulative Preferred Stock and
the Exchangeable Preferred Stock is registered in the names of nominees.
(4) The address of such person is c/o IXC Communications, Inc., 1122 Capital of
Texas Highway South, Austin, Texas 78746.
(5) Includes 472,480 shares held by Ralph J. Swett, Trustee of the EMS 1994
Trust and 472,480 shares held by Ralph J. Swett, Trustee of the RJS 1994
Trust. Also includes 16,031 shares of Common Stock issuable to Mr. Swett
upon conversion of the Convertible Preferred Stock.
(6) Represents shares of Common Stock issuable with respect to the exercise of
options.
(7) Represents 199,160 shares of Common Stock issuable with respect to the
exercise of options. Also includes 4,578 shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock.
(8) 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, 350,444 shares held by The Irwin Family Limited Partnership
#3 and 27,459 shares of Common Stock issuable upon conversion of 2,683
shares of the Convertible Preferred Stock held by an Individual Retirement
Account established by Mr. Irwin and 3,759 shares of Convertible Preferred
Stock held by the Virginia Irwin Charitable Remainder Unitrust Dtd 1/4/95.
Also includes 636,990 shares of Common Stock held by Grumman Hill
Investments, L.P. ("GHI") and 107,094 shares held by Grumman Hill
Associates, Inc. ("GHA"). Mr. Irwin is President of GHA, and Mr. Irwin may
be deemed a beneficial owner of the shares owned by such entity. The sole
general partner of GHI is Grumman Hill Company, LLC, of which Mr. Irwin is
the general manager and a beneficial owner of a membership interest and may
be deemed to have voting and investment power with respect to such shares.
(9) Such shares are held by Trust for the Riordan & McKinzie Profit Sharing and
Savings Plan for the benefit of Carl W. McKinzie.
(10) Such shares are held by Phillip L. Williams, as Trustee of the Phillip and
Jane Williams Living Trust, UDT August 20, 1985.
(11) Includes 1,374,036 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock.
(12) Based on a Schedule 13D/A filed with the Commission on December 31, 1997,
and reflecting ownership of Common Stock as of December 24, 1997. The
following information is taken from that filing. The Schedule 13D/A was
filed by Lang H. Gerhard ("Gerhard"); West Highland Capital, Inc. ("WHC");
Estero Partners, LLC ("LLC"); West Highland Partners, L.P. ("WHP"); and
Buttonwood Partners, L.P. ("BP"). Gerhard is the sole director and occupies
all the executive offices of WHC, which is an investment adviser. Gerhard
is the sole manager of LLC. WHC, LLC and Gerhard are the general partners
of WHP and BP. WHC reported shared voting and dispositive power over
2,000,000 shares. Gerhard and LLC reported shared voting and dispositive
power over 1,642,594 of such shares. WHP reported shared voting and
dispositive power over 1,359,418 of such shares. BP reported shared voting
and dispositive power over 283,176 of such shares. The Commission's rules
do not require a Schedule 13D to be updated unless such stockholder's
beneficial holdings increase or decrease by a material amount (as
determined by the Commission's rules), so that there can be no assurance
that the current beneficial holdings of WHC, WHP and BP do not vary from
those shown in the above table.
(13) Based on a Schedule 13G filed with the Commission on May 8, 1998, and
reflecting ownership of Common Stock as of April 30, 1998. The following
information is taken from that filing. The Schedule 13G was filed by FMR
Corp. ("FMR"). FMR and members of the Edward C. Johnson 3d family and
trusts for their benefit, who may be deemed to form a controlling group
(the "FMR Group")
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with respect to FMR under the Investment Company Act of 1940, reported
deemed sole voting power over 318,691 shares of Common Stock and deemed
sole dispositive power over 3,335,064 shares of Common Stock. Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of
FMR, reported sole voting and dispositive power over 3,022,400 of such
shares of Common Stock. This amount includes 621,941 shares of Common Stock
issuable upon conversion of 905,300 Depositary Shares and 594,599 shares of
Common Stock issuable upon conversion of 139,493 shares of the Convertible
Preferred Stock. Fidelity Management Trust Company, a wholly-owned
subsidiary of FMR, reported sole voting power over 288,891 shares of Common
Stock, and sole dispositive power over 300,364 shares of Common Stock.
These amounts include 92,264 shares of Common Stock issuable upon
conversion of 134,300 Deposit Shares. The Common Stock and Cumulative
Preferred Stock held by Fidelity Management Trust Company are separate from
those held by Fidelity but included in the shares for which the FMR Group
has sole dispositive power. Fidelity International Limited ("FIL") is
deemed to be a member of the FMR Group, and reported sole voting and
dispositive power over 29,800 shares of Common Stock, 17,500 of which are
also included in the total beneficially owned by Fidelity.
EXECUTIVE COMPENSATION
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
August 1, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Benjamin L. Scott................. 48 Chairman of the Board, President, Chief Executive
Officer and Director
Wolfe H. Bragin................... 53 Director
Joe C. Culp....................... 65 Director
Richard D. Irwin.................. 63 Director
Carl W. McKinzie.................. 58 Director
Ralph J. Swett.................... 64 Director
Phillip L. Williams............... 75 Director
John R. Fleming................... 43 President of Emerging Markets
David L. Hughart.................. 52 President, Retail Business Division
Leo W. Welsh...................... 51 President, Wholesale
James F. Guthrie.................. 54 Executive Vice President and Chief Financial
Officer
Michael W. Vent................... 46 Executive Vice President
Dominick DeAngelo................. 54 Senior Vice President, Marketing, Data Products and
Services
Jeffrey C. Smith.................. 47 Senior Vice President, General Counsel and
Secretary
Valerie Walden.................... 41 Senior Vice President, Switched and Private Line
</TABLE>
Each director holds office until his successor has been elected and
qualified. Officers serve at the pleasure of the Board of Directors.
Mr. Scott has served as the Chairman of the Board of the Company since
April 1998 and as the President and Chief Executive Officer of the Company and a
member of the Board of Directors since October 1997. Prior to that, Mr. Scott
served as President and Chief Executive Officer of PrimeCo Personal
Communications, L.P., a joint venture among Bell Atlantic Corporation ("Bell
Atlantic"), US West Media Group and Airtouch Communications, Inc., from 1995
until September 30, 1997. Prior to that, Mr. Scott served as an officer of Bell
Atlantic from 1991 to 1995, including as President and Chief Executive Officer
of Bell Atlantic International Wireless. Prior to that, Mr. Scott was employed
by AT&T Corp. ("AT&T") from 1971 through 1991, with his last position being
President and Chief Executive Officer of AT&T Canada.
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Mr. Bragin has served as a director of the Company since May 1993. Mr.
Bragin has served since 1985 as Vice President of General Electric Investment
Corporation ("GEIC"), a subsidiary of General Electric Company that acts as an
investment advisor to Trustees of General Electric Pension Trust ("GEPT"). Prior
to joining GEIC in 1984, Mr. Bragin served in numerous equipment leasing,
investment and portfolio management positions for GE Credit Corporation, now
known as GE Capital Communication Services Corporation. Mr. Bragin is a member
of the Board of Directors of a number of private companies.
Mr. Culp was elected a director of the Company 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 Communications Transmission, Inc. ("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 Corp.'s Telecommunications Group
from 1982 until 1988. Mr. Culp has over 40 years of experience in the
communications industry. Mr. Culp is a director of Multimedia Access Corporation
and Crosskeys System Corporation.
Mr. Irwin has served as a director of the Company 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 13 years. Mr.
Irwin is also a member of the Board of Directors of PharmChem Laboratories, Inc.
and was the Chairman of ALC Communications Corporation ("ALC") (which was
acquired by Frontier Corporation in 1995), from August 1988 through August 1995.
Mr. McKinzie has served as a director of the Company since May 1993. Mr.
McKinzie has been a principal of Riordan & McKinzie, a Professional Law
Corporation ("Riordan & McKinzie"), since 1980.
Mr. Swett has served as a member of the Board of Directors of the Company
since its formation in July 1992, as the Chairman of the Board of the Company
from July 1992 to April 1998 and as the Chief Executive Officer and President of
the Company from July 1992 to October 1997. Prior to that, Mr. Swett served as
Chairman of the Board and Chief Executive Officer of 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 The Times Mirror Company ("Times Mirror") and as a Vice President of Times
Mirror from 1981 to 1986. Mr. Swett has over 27 years of experience in the
telecommunications industry. Mr. Swett is a member of the Board of Directors of
PSINet, Inc.
Mr. Williams has served as a director of the Company 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.
Mr. Fleming has served as President of Emerging Markets of the Company
since December 1997, as Executive Vice President of the Company from March 1996
through November 1997 and as Senior Vice President of the Company from October
1994 through March 1996. He served as Vice President of Sales and Marketing of
the Company 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 17 years of experience in the telecommunications industry.
Mr. Hughart has served as President, Retail Business Division of the
Company since July 1998. Prior to that, Mr. Hughart was employed by AT&T since
1984 with his most recent positions being Vice President of Marketing for AT&T's
Business Markets Division from December 1996 to June 1998, Vice President of
Marketing of AT&T Network Commerce Services from September 1994 to December 1996
and Director of AT&T EasyLink Services from August 1992 to September 1994.
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Mr. Welsh has served as President, Wholesale of the Company since April
1998. Prior to that, Mr. Welsh was employed by Sprint Corporation ("Sprint")
since 1986 with his most recent positions being Vice President/General
Manager -- Wholesale Services Group from 1995 to March 1998 and Vice President/
General Manager -- Northeast Area from 1991 through 1994.
Mr. Guthrie has served as Chief Financial Officer of the Company since July
1997, as Executive Vice President of the Company since March 1996 and as Senior
Vice President, Strategic Planning of the Company 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.
Mr. Vent has served as Executive Vice President of the Company effective
April 1, 1997 and has served as Senior Vice President -- Network Planning and
Implementation of the Company from December 1996 through March 1997. Prior to
that, Mr. Vent served as Vice President and General Manager of Broadband
Services of the Company from October 1995 through November 1996 and Vice
President and General Manager of Switch Services of the Company from October
1994 through September 1995. Mr. Vent served as Vice President of Management
Information Systems and Network Services of WCT Communications, Inc. from
September 1993 through August 1994, and Vice President and Chief Information
Officer of Advanced Technologies of Progressive Communications Technology, Inc.
from August 1992 through August 1993. He was employed by MCI Communications
Corporation from 1979 through July 1992, serving as Director of Network and
Computer Operations from January 1990 through July 1992. Mr. Vent has over 23
years of experience in the telecommunications industry.
Mr. De Angelo has served as Senior Vice President, Marketing, Data Products
and Services of the Company since July 1998. Prior to that, Mr. DeAngelo was
employed by Sprint as Vice President, Internet Services from January 1997 to May
1998, as Vice President, Data Voice Product Management from December 1995 to
January 1997 and as Assistant Vice President, Data Service from January 1993 to
December 1995.
Mr. Smith has served as Senior Vice President of the Company since
September 1997 and as General Counsel and Secretary of the Company since January
1997. He served as Vice President of the Company from January 1997 until
September 1997. Prior to that, Mr. Smith served as Vice President Planning and
Development for Times Mirror Training, a subsidiary of Times Mirror, from August
1994 to December 1996. Prior to that, Mr. Smith was employed by Times Mirror
from 1985 through August 1994, and served in a variety of legal capacities,
including five years as General Counsel to the Baltimore Sun newspaper, with his
last position being Associate General Counsel and Assistant Secretary. Prior to
1985, Mr. Smith was employed for seven years in private law practice as a trial
and business attorney.
Ms. Walden has served as Senior Vice President, Switched and Private Line
of the Company since January 1998. Prior to that, Ms. Walden served as Vice
President, Sales and Marketing for AT&T Wireless (a subsidiary of AT&T Corp.),
and its predecessors, including McCaw Communications, Inc. since September 1989.
She has over 15 years of telecommunications and management experience in
marketing, sales, product development and customer care management.
DIRECTOR COMPENSATION AND COMMITTEES
Beginning August 1, 1998 the annual cash retainer for all non-employee
directors was increased from $10,000 to $15,000 (prorated for 1998). Beginning
in 1999, all non-employee directors will receive an annual allocation under the
Company's phantom stock plan (described below) and beginning August 1, 1998,
will receive $1,000 for attending regular meetings and $300 for attending
special meetings. In addition, beginning in 1998, all non-employee directors
receive an annual grant of options to purchase 1,500 shares of Common Stock each
year which are exercisable in four equal installments beginning on the date of
the 1999 Annual Meeting of Stockholders and continuing on each of the three
following Annual Meeting of Stockholders at which each such director is
reelected. All compensation which would otherwise be payable to Mr. Bragin as a
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director of the Company is paid to GEPT. All directors receive reimbursement of
reasonable out-of-pocket expenses incurred in connection with meetings of the
Board. Mr. Scott does not receive compensation for services rendered as a
director.
The Company adopted a phantom stock plan (the "Directors' Plan") in May
1996 initially for certain of its non-employee directors (Messrs. Bragin, Culp
and Williams), pursuant to which $20,000 per participating director per year was
automatically deferred and treated as if it were invested in Common Stock.
Beginning in 1999, all non-employee directors will participate in the Directors'
Plan. No stock will be actually purchased under the Directors' Plan, 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; provided that for amounts credited to
a participant's account beginning in 1999, participants may elect that such
benefits be paid in the form of Common Stock or a combination of cash and Common
Stock. The distribution of the benefits generally will occur following the third
Annual Meeting of Stockholders that occurs after the amounts are credited to the
individual's account in the Directors' Plan. The Directors' Plan is currently
administered by Mr. Scott.
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
until November 1, 1997, none of whom are or have ever been employees of the
Company. Effective November 1, 1997, Mr. Swett replaced Mr. McKinzie as a member
of the Compensation Committee. The Compensation Committee determines the
compensation for the Company's executive officers and administers the 1996 Stock
Plan, the 1994 Stock Plan and the Special Stock Plan (each as defined below),
except that all grants of stock-based awards in 1997 were made by the
Administrative Committee or the Chief Executive Officer pursuant to the
authority delegated to him by the Board of Directors as described in the
following sentence. Subject to certain limitations, in January 1997, the Board
of Directors delegated its authority under the 1996 Stock Plan and the 1994
Stock Plan to the Chief Executive Officer of the Company with respect to grants
of stock options to individuals not subject to Section 16 of the Exchange Act
and to the Administrative Committee with respect to grants of stock options to
senior executive officers of the Company and other individuals who may be
subject to Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Compensation Committee will administer the 1998 Stock Plan, subject
to the authority delegated by the Board of Directors under the 1998 Stock Plan
to the Chief Executive Officer of the Company with respect to grants of stock
options to individuals not subject to Section 16 of the Exchange Act and to the
Administrative Committee with respect to grants of stock options to senior
executive officers of the Company and other individuals who may be subject to
Section 162(m) of the Code.
Administrative Committee. The Board of Directors established the
Administrative Committee in September 1997 consisting of Mr. Bragin and Mr.
Williams, none of whom are or have ever been employees of the Company. The
Administrative Committee administers the 1997 Stock Plan in all respects and
administers the grants of stock options under the 1998 Stock Plan, 1996 Stock
Plan and the 1994 Stock Plan to senior executive officers of the Company and
other individuals who may be subject to Section 162(m) of the Code.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, which was established in June 1996, consisted
of Messrs. Irwin, Bragin and McKinzie until November 1, 1997, none of whom are
or have ever been at any time an officer or employee of the Company. Effective
November 1, 1997, Mr. Swett, an employee of the Company, replaced Mr. McKinzie
as a member of the Compensation Committee. All decisions regarding Mr. Swett's
compensation in 1997 were made by the Compensation Committee prior to when Mr.
Swett became a member thereof. In September 1997 the Board established the
Administrative Committee which administers the 1997 Stock Plan and makes certain
grants under the 1998 Stock Plan, 1996 Stock Plan and the 1994 Stock Plan to
individuals who are subject to Section 162(m) of the Code. There are no
Compensation Committee (or Administrative 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: (i) each person that served as the Chief Executive Officer in fiscal
1997, (ii) the four most highly compensated executive officers in fiscal 1997
other than the persons serving as Chief Executive Officer and (iii) a former
executive who retired during fiscal 1997 (collectively, the "Named Executive
Officers") for their services to the Company for the years ended December 31,
1997, December 31, 1996 and December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
-------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SARS(#) COMPENSATION(2)
------------------ ---- -------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Benjamin L. Scott..... 1997 $ 69,000 $350,000 $ 3,000 500,000 $ 3,234(3)
President and Chief 1996 -- -- -- -- --
Executive Officer 1995 -- -- -- -- --
Ralph J. Swett........ 1997 338,923 250,000 10,000 -- 22,636(4)
Chairman 1996 299,712 175,000 10,000 -- 21,986(4)
1995 285,000 -- 10,000 -- 883,813(4)
John R. Fleming....... 1997 198,911 150,000 8,000 -- 14,350(6)
President of 1996 165,519 100,000 7,500 -- 14,322(6)
Emerging Markets 1995 212,083(5) -- 7,500 -- 444,739(6)
David J. Thomas+...... 1997 200,033 150,000 8,000 -- 14,350(7)
President, Retail 1996 165,834 26,250 8,000 100,000 51,116(7)
Business Division 1995 52,308 -- 2,667 243,353 9,917(7)
James F. Guthrie...... 1997 222,204 125,000 8,000 50,000 182,062(8)
Executive Vice 1996 200,000 -- 8,000 342,490 17,842(8)
President 1995 -- -- -- -- --
Michael W. Vent....... 1997 192,377 80,000 8,000 50,000 14,350(9)
Executive Vice 1996 137,500 -- 7,200 100,000 12,375(9)
President 1995 126,202 40,000 7,200 -- 5,924(3)
John J. Willingham*... 1997 132,261 150,000 5,333 -- --
Former Senior Vice 1996 143,519 100,000 7,500 -- 12,415(10)
President 1995 183,417(11) -- 7,500 -- 442,871(10)
</TABLE>
- ---------------
(1) These amounts represent automobile allowances paid to the Named Executive
Officers in 1997, 1996 and 1995.
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(2) Includes payments in 1995 of $862,027 (with respect to Mr. Swett) and
$431,014 (with respect to 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) Represents reimbursed relocation expenses.
(4) Includes an employer contribution of $13,500, $13,700 and $14,350 under the
401(k) Plan (as defined below) in 1995, 1996 and 1997, respectively, and
payments of $8,286 for term life insurance premiums in 1995, 1996 and 1997.
(5) Represents $153,750 in salary and an additional amount of $58,333 in
compensation earned and deferred in prior years but paid in 1995.
(6) Includes an employer contribution of $13,725, $14,322 and $14,350 under the
401(k) Plan in 1995, 1996 and 1997, respectively.
(7) Includes an employer contribution of $3,060 and $14,350 under the 401(k)
Plan in 1996 and 1997 and reimbursed relocation expenses of $9,917 and
$48,056 in 1995 and 1996, respectively.
(8) Includes an employer contribution of $17,842 and $14,350 under the 401(k)
Plan in 1996 and 1997, respectively, and $167,712 in reimbursed relocation
expenses in 1997.
(9) Represents an employer contribution under the 401(k) Plan.
(10) Includes an employer contribution of $11,858 and $12,415 under the 401(k)
Plan in 1995 and 1996, respectively.
(11) Represents $131,750 in salary and an additional amount of $51,667 in
compensation earned and deferred in prior years but paid in 1995.
+ Mr. Thomas retired as President, Retail Business Division of the Company
effective July 31, 1998.
* Mr. Willingham retired as Senior Vice President of the Company effective
August 29, 1997.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Benjamin L. Scott for
a term of five years beginning October 9, 1997 (the "Commencement Date")
pursuant to which Mr. Scott serves as Chairman of the Board, President and Chief
Executive Officer of the Company. Mr. Scott also became a member of the Board of
Directors on the Commencement Date. Pursuant to the terms of his employment
agreement, Mr. Scott is entitled to an annual base salary of $350,000, subject
to adjustment in accordance with the Company's policies and procedures, and an
annual bonus of $225,000 for his first year of service. Thereafter, annual
bonuses, if approved by the Board of Directors, are anticipated to be one-half
or more of his base salary if Mr. Scott achieves or exceeds certain performance
goals. Mr. Scott's employment agreement also provides for a signing bonus of
$650,000, $350,000 of which was paid to Mr. Scott on the Commencement Date and
$300,000 of which will be paid on January 1, 1999. Mr. Scott was also granted an
option to purchase 500,000 shares of Common Stock at a price of $27.50 per share
(the fair market value of the Common Stock on the date of grant), vesting over a
five-year period in connection with his employment agreement under the 1997
Stock Plan which was adopted in September 1997. See "-- Fiscal Year-End Option
Values". Mr. Scott is also entitled to receive certain severance and relocation
benefits as described in his employment agreement.
Mr. Guthrie entered into an employment agreement with the Company 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 the Company's policies and procedures, and has an annual bonus
goal of $75,000, subject to approval by the Board of Directors. Mr. Guthrie was
also granted an option to purchase 242,490 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 the Company as set
forth in his employment agreement and stock option agreement. Additionally, Mr.
Guthrie receives an annual automobile allowance of $8,000 and received
reimbursement of certain relocation costs. Since this initial grant,
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Mr. Guthrie was granted additional stock options. See "-- Fiscal Year-End Option
Values" for the total number of options held by Mr. Guthrie.
STOCK OPTIONS
The following table sets forth information concerning each grant of stock
options made during 1997 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
---------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED(2) IN PERIOD PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Benjamin L. Scott.... 500,000(3) 40% $27.50 09/08/07 $8,647,301 $21,913,959
Ralph J. Swett....... -- -- -- -- -- --
John R. Fleming...... -- -- -- -- -- --
James F. Guthrie..... 50,000(4) 4% 27.50 09/08/07 864,730 2,191,396
David J. Thomas...... -- -- -- -- -- --
Michael W. Vent...... 50,000(4) 4% 27.50 09/08/07 864,730 2,191,396
John J. Willingham... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
(ten years) at its time of grant. 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 the options become immediately exercisable upon the sale of
substantially all of the Company's assets, a successful tender offer for
greater than fifty percent (forty-five percent in the case of Mr. Scott's
options) 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. In addition, all of the options granted to Mr. Scott become
immediately exercisable if Mr. Scott is terminated without cause (as defined
in his employment agreement).
(3) The options become exercisable in five equal installments beginning on
October 9, 1998, and on the four successive annual anniversary dates
thereafter.
(4) The options become exercisable in four equal installments beginning on
September 9, 1998, and on the three successive annual anniversary dates
thereafter.
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The following table sets forth the number and value as of December 31, 1997
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, 1997 DECEMBER 31, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Benjamin L. Scott................. -- 500,000 $ -- $1,937,500
Ralph J. Swett.................... -- -- -- --
John R. Fleming................... -- -- -- --
James F. Guthrie.................. 105,830 286,660 2,520,868 5,463,611
David J. Thomas................... 187,236 156,117 4,829,949 2,985,259
Michael W. Vent................... 61,375 137,123 1,259,902 1,221,994
John J. Willingham................ -- -- -- --
</TABLE>
- ---------------
(1) Based on the fair market value (the closing price for the Common Stock as
reported on the Nasdaq National Market ("NNM") as of December 31, 1997,
($31 3/8 per share)), less the exercise price payable upon exercise of such
options.
1996 STOCK PLAN
In May 1996, the Company adopted a stock incentive plan (the "1996 Stock
Plan"), covering 2,121,787 shares of Common Stock 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, subject to the authority delegated to the Chief Executive Officer as
described below, except that certain grants made to individuals who are subject
to Section 162(m) of the Code are made by the Administrative Committee. All
grants of stock-based awards in 1997 were made by the Chief Executive Officer or
by the Administrative Committee. 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. Subject to certain
limitations, in January 1997 the Board of Directors delegated its authority
under the 1996 Stock Plan to the Chief Executive Officer of the Company with
respect to grants of stock options to individuals not subject to Section 16 of
the Exchange Act and to the Administrative Committee with respect to grants of
stock options to senior executive officers of the Company and other individuals
who may be subject to Section 162(m) of the Code. Awards available under the
1996 Stock Plan include options to purchase Common Stock with exercise prices at
least equal to the fair market value of the Common Stock on the date of grant.
1994 STOCK PLAN
In November 1994, the Company adopted a stock incentive plan (the "1994
Stock Plan") covering 1,212,450 shares of Common Stock to attract, retain and
reward employees, directors and other persons providing services to the Company.
The Compensation Committee administers the 1994 Stock Plan, subject to the
authority delegated to the Chief Executive Officer as described below, except
that certain grants made to individuals who are subject to Section 162(m) of the
Code are made by the Administrative Committee. Subject to certain limitations,
in January 1997 the Board of Directors delegated its authority under the 1994
Stock Plan to the Chief Executive Officer of the Company with respect to grants
of stock options to individuals not subject to Section 16 of the Exchange Act
and to the Administrative Committee with respect to grants of stock options to
senior executive officers of the Company and other individuals who may be
subject to Section 162(m) of the Code. Awards available under the 1994 Stock
Plan include options to purchase Common Stock with exercise prices at least
equal to the fair market value of the Common Stock on
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the date of grant. Mr. Culp is the only director who holds options to acquire
stock. No options granted under the 1994 Stock Plan were granted in 1997 to
Named Executive Officers under the 1994 Stock Plan.
SPECIAL STOCK PLAN
In October 1996, the Company adopted a stock incentive plan (the "Special
Stock Plan") covering 67,900 shares of Common Stock to induce certain
individuals to become employees of the Company and/or its subsidiaries. The
Compensation Committee administers the Special Stock Plan. Awards available
under the Special Stock Plan include options to purchase Common Stock. All
available options to acquire stock under the Special Stock Plan were granted in
1996, none of which were granted to a Named Executive Officer of the Company.
1997 SPECIAL EXECUTIVE STOCK PLAN
In September 1997, the Company adopted a stock incentive plan (the "1997
Stock Plan") covering 500,000 shares of Common Stock that may be awarded in
order to attract, retain and reward certain key executives. Grants under the
Plan are made by the Administrative Committee. Awards available under the 1997
Stock Plan include options to purchase Common Stock with exercise prices at
least equal to the fair market value of the Common Stock on the date of grant.
Mr. Scott was the only Named Executive Officer granted an option pursuant to the
1997 Stock Plan to acquire stock of IXC Communications in 1997.
1998 STOCK PLAN
In July 1998, the Company adopted the 1998 Stock Plan, a stock incentive
plan covering 3,150,000 shares of Common Stock that may be awarded in order to
attract, retain and reward employees, directors and other persons providing
services to the Company. See "Approval of 1998 Stock Plan" for a description of
the 1998 Stock Plan.
401(k) PLAN
The Company's 401(k) Plan (the "401(k) Plan") is a tax-qualified retirement
plan. In general, all employees of the Company who have attained age 18 and
completed one year of service (six months of service effective April 1, 1998)
are eligible to participate in the 401(k) Plan. Participants may make pre-tax
contributions to the 401(k) Plan in an amount not to exceed $10,000 per year for
1998. The Company 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. The Company 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 Company's Restated Certificate of Incorporation, as amended, limits the
liability of directors to the Company 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 the
Company 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 the Company require the
Company to indemnify its directors and officers to the fullest extent permitted
by the laws of the State of Delaware.
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APPROVAL OF 1998 STOCK PLAN
In July 1998, the Board adopted the 1998 Stock Plan. The holders of a
majority of the outstanding shares of Common Stock approved the 1998 Stock Plan
by means of written consent. Thus, the other stockholders are not required to
vote on the approval of the 1998 Stock Plan. Rather, the following description
of the 1998 Stock Plan is being provided for informational purposes only. This
description is subject to and is qualified in its entirety by the full text of
the 1998 Stock Plan, which is attached as Appendix A to this Information
Statement.
SUMMARY OF THE 1998 STOCK PLAN
Purposes. The purposes of the 1998 Stock Plan are (1) to promote the
interests of the Company and its stockholders 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, (2) to strengthen the mutuality of
interests between those executives and the Company's stockholders by providing
those persons with a proprietary interest in pursuing the Company's long-term
growth and financial success.
Grants. Under the 1998 Stock Plan, employees, directors and other persons
providing services to the Company may be granted options to purchase Common
Stock ("Options"). The 1998 Stock Plan permits the granting of Options that
qualify for treatment as incentive stock options under Code Section 422
("Incentive Stock Options") and Options that do not qualify as Incentive Stock
Options ("Non-Qualified Stock Options"). Employees may also be granted rights to
purchase Common Stock that are subject to repurchase rights on behalf of the
Company ("Restricted Stock"). The Common Stock is traded on the NNM. On August
21, 1998, the reported closing price of the Common Stock on the NNM was $39 3/8
per share.
Maximum Number of Shares. The maximum number of shares that can be issued
to all employees under the 1998 Stock Plan is 3,150,000. The maximum number of
shares that may be issued to a single employee is 200,000. In the event of
certain changes in the Company's capitalization or structure, an appropriate
adjustment will be made to the number, kind or exercise price of shares as to
which Options and Restricted Stock may thereafter be granted and as to the
number of shares covered by unexercised outstanding Options and rights to
purchase Restricted Stock.
Administration. The 1998 Stock Plan will be administered by the
Compensation Committee or by the Board in certain instances subject to the
authority delegated by the Board to the Chief Executive Officer of the Company
and the Administrative Committee. See "Executive Compensation -- Director
Compensation and Committees -- Compensation Committee". To the extent possible
and advisable, the members of the committee administering the 1998 Stock Plan
shall be composed of (1) "outside directors" under Section 162(m) of the Code
(imposing a $1,000,000 deduction limitation on compensation paid to certain
executives) and as (2) "non-employee directors" under Rule 16-3 under the
Exchange Act (relating to "short-swing" profits) with respect to grants to
individuals subject to those statutory provisions.
The Compensation Committee is authorized to interpret the 1998 Stock Plan
and to adopt rules and procedures relating to the administration of the 1998
Stock Plan. All actions of the Compensation Committee in connection with the
interpretation and administration of the 1998 Stock Plan will be binding upon
all parties.
Terms of Options. The purchase price of shares of Common Stock subject to
each Option which is intended to qualify as an Incentive Stock Option will be
equal to the Fair Market Value (as defined in the 1998 Stock Plan) of such
shares (110% of Fair Market Value in the case of an owner of more than 10% of
the Common Stock) on the date of the grant of such Incentive Stock Option. The
purchase price of any Option which does not qualify as an Incentive Stock Option
will be determined by the Administrative Committee, but will not be less than
100% of the Fair Market Value of the Common Stock on the date of the grant. The
Fair Market Value of such shares for this purpose is the closing price of the
Common Stock on the date of the grant.
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Unless otherwise determined by the Board or the Compensation Committee,
Options vest (i.e., become exercisable) in four equal annual installments
beginning in most instances with the date an individual's employment with the
Company commences and be subject to such other terms and conditions as may be
set forth in the Option.
Options granted under the 1998 Stock Plan may be exercised, to the extent
that they are vested, by the payment of the full purchase price therefor in
cash, by check, or by the surrender of outstanding shares of Common Stock.
Options are not transferable during the individual's lifetime, and may be
transferred in the event of death only by will or by the laws of descent and
distribution. Restricted Stock may not be transferred until the restrictions
lapse.
Each Option will terminate no later than 10 years (five years in the case
of an Incentive Stock Option issued to an owner of more than 10% of the Common
Stock) from the date the Option is granted.
Amendment and Termination. Unless earlier terminated by the Board, the 1998
Stock Plan will terminate on July 29, 2008. The Board may at any time amend the
1998 Stock Plan. However, no amendment or modification to the plan may be
adopted without approval of an employee holding an Option or Restricted Stock
that would diminish the employee's rights. Furthermore, without stockholder
approval, no amendment may be adopted that would (1) change the class of
employees eligible to receive Incentive Stock Options, or (2) increase the
maximum number of shares that may be issued under the 1998 Stock Plan.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code and of the regulations issued
thereunder, the anticipated federal income tax consequences with respect to
Options and Restricted Stock granted under the 1998 Stock Plan are as described
below. However, employees should consult with their own tax advisors with
respect to the tax consequences (both state and federal) of participation in the
1998 Stock Plan.
The 1998 Stock Plan is not a tax-qualified retirement plan under Code
Section 401(a) nor is it subject to the Employee Retirement Income Security Act
of 1974 ("ERISA").
Incentive Stock Options. No taxable income is recognized by an employee
upon the grant or exercise of the Incentive Stock Option. Correspondingly, the
Company is not entitled to an income tax deduction as the result of the grant or
exercise of an Incentive Stock Option. Any gain or loss resulting from the sale
of shares of Common Stock acquired upon exercise of an Incentive Stock Option
will be long-term capital gain or loss if the sale is made after the later of
(1) two years from the date of its grant or (2) one year from the date of its
exercise ("Exercise Date").
If the Common Stock is sold to another person prior to the expiration of
the holding periods described in the above sentence ("Disqualifying
Disposition"), the employee will generally recognize ordinary income in the year
of the sale in an amount equal to the difference between (1) the exercise price
of the option (the "Option Price"), and (2) the lesser of the fair market value
of the shares of Common Stock on (a) the Exercise Date or (b) the date of the
Disqualifying Disposition. The Company will be entitled to an income tax
deduction equal to the amount taxable to the employee. Any excess gain
recognized by the employee upon the Disqualifying Disposition would be taxable
as a capital gain, either as long-term or short-term depending upon whether the
shares of Common Stock have been held for more than one year prior to the
Disqualifying Disposition.
The amount by which the Fair Market Value of the Common Stock on the
Exercise Date exceeds the Option Price constitutes an item of tax preference
that may be subject to alternative minimum tax in the year that the Incentive
Stock Option is exercised, depending on the facts and circumstances.
Non-Qualified Stock Options. No taxable income will be recognized by the
employee and the Company will not be entitled to a deduction at the time of the
grant of a Non-Qualified Stock Option. Upon the exercise of a Non-Qualified
Stock Option, the employee generally will recognize ordinary income and the
Company will be entitled to an income tax deduction in the amount by which the
fair market value of the shares of
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Common Stock issued to the employee at the time of the exercise exceeds the
Option Price. This income constitutes "wages" with respect to which the Company
is required to deduct and withhold federal income tax.
Upon the subsequent disposition of shares of Common Stock acquired upon the
exercise of a Non-Qualified Stock Option, the employee will recognize capital
gain or loss in an amount equal to the difference between the proceeds received
upon disposition and the fair market value of the shares on the Exercise Date.
If the shares have been held for more than one year at the time of the
disposition, the capital gain or loss will be long-term.
Restricted Stock. An employee receiving Restricted Stock generally will
recognize ordinary income equal to the fair market value of the Restricted Stock
when it is no longer subject to forfeiture ("Vesting Date") over the amount the
employee paid for the Common Stock. The Company is entitled to deduct the amount
that is taxable to the employee. With respect to the sale of the shares, the
holding period for determining whether the employee has long-term or short-term
capital gain or loss generally begins on the Vesting Date and the employee's tax
basis for the shares will generally be the fair market value of the shares on
the Vesting Date.
However, an employee may make an election under Code Section 83(b)
("Section 83(b) Election") within 30 days of the grant of the Restricted Stock
to recognize ordinary income on the date of grant equal to the excess of the
fair market value of the shares of Restricted Stock (determined without regard
to the restrictions) over the amount paid (if any) by the employee for the
stock. If the employee makes a Section 83(b) Election, his or her holding period
commences on the date of grant, and his or her tax basis in the stock is the
fair market value of shares on the date of the grant. The Company will be
entitled to deduct the amount that is taxable to the employee. However, if the
Restricted Stock is forfeited, the employee will not be entitled to a deduction,
refund, or loss for the amount previously included in income by reason of the
Section 83(b) Election.
Tax Rates. The current maximum federal tax rate for long-term capital gains
is 20%. The current marginal rate for ordinary federal income tax can be as much
as 39.6%.
Golden Parachute Payments. To the extent that the exercisability of an
Option is accelerated because there is a change of control of the Company, it
will be treated as a "parachute payment." To the extent that certain key
executives receive payments in connection with the change in control that equal
or exceed 300% of their average annual compensation, the amounts they receive in
excess of 100% of their average annual compensation are "excess parachute
payments." Excess parachute payments are not deductible by the Company, and the
executives are subject to a 20% excise tax on their receipt of them.
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Million Dollar Compensation Deduction Limitation. Code Section 162(m)
generally precludes a publicly held employer from deducting compensation in
excess of $1,000,000 per year payable to a person who is one of its top five
executives. This limitation generally does not apply, however, to income
recognized by reason of the exercise of a stock option if (1) the option price
is at least equal to the fair market value of the Common Stock on the date the
Option was granted, (2) the option was granted by a committee exclusively
composed of individuals who constitute "outside directors" under Code Section
162(m), and (3) the plan states the maximum number of shares that can be issued
to a single individual. It is anticipated that the income that may be recognized
under the 1998 Stock Plan by reason of the exercise of stock options will be
exempt from Section 162(m). However, this exemption will not apply with respect
to income related to Restricted Stock.
By Order of the Board of Directors
/s/ Jeffrey C. Smith
Secretary
[ ], 1998
Austin, Texas
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APPENDIX A
IXC COMMUNICATIONS, INC.
1998 STOCK PLAN
1. Purpose. The purpose of the IXC Communications, Inc. 1998 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. 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 of this Plan.
(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 for any day 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 last reported sale price on that day regular way,
or if no such reported sale takes place on that day, the average of the
last reported bid and ask prices on that day regular way, in either case on
the principal national securities exchange on which the Common Stock is
admitted to trading or listed.
(ii) If not listed or admitted to trading on any national securities
exchange, the last sale price regular way on that day reported on the
Nasdaq National Market ("Nasdaq National Market") of the Nasdaq Stock
Market ("NSM") or, if no such reported sale takes place on that day, the
average of the closing bid and ask prices regular way on that day.
(iii) If not traded or listed on a national securities exchange or
included in the Nasdaq National Market, the last reported sale price on
that day regular way, or if no such reported sale takes place on that day,
the average of the closing bid and ask prices regular way on that day
reported by the NSM, or any comparable system on that day.
(iv) If the Common Stock is not included in (i), (ii) or (iii) above,
the last reported sale price on that day regular way, or if no such
reported sale takes place on that day, the closing bid and ask prices
regular way on that day as furnished by any member of the National
Association of Securities Dealers, Inc. ("NASD") selected from time to time
by the Company for that purpose.
If the national securities exchange, Nasdaq National Market, NSM, or NASD
as applicable, are closed on such date, the "Fair Market Value" shall be
determined as of the last preceding day on which the Common Stock was traded or
for which bid and ask prices are available. In the case of an Incentive Stock
Option, "Fair
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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 Code Section 422.
(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 IXC Communications,
Inc.) in an unbroken chain of corporations ending with IXC Communications, Inc.
if each of the corporations (other than IXC Communications, Inc.) 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 under the Plan.
(o) "Plan" means this IXC Communications, Inc. 1998 Stock Plan, as it may
be amended from time to time.
(p) "Restricted Stock" means shares of Common Stock issued under Section 9
of this Plan 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 IXC
Communications, Inc., 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 Code Section 424(d)) 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;
provided, however, that the Board may administer the Plan for any grants to
Participants who are not subject to Code Section 162(m). 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.
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(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 of this Plan, 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, the Company 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 if that would cause such grants to fail to satisfy Rule 16b-3
under the Exchange Act or Code Section 162(m).
4. Duration of Plan.
(a) This Plan shall be effective as of July 30, 1998, 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.
(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 July 29, 2008, 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 Three Million One Hundred Fifty Thousand
(3,150,000) (which does not give effect to the two-for-one stock split (the
"Stock Split") declared by the Board in July 1998 and anticipated to be
effective in September 1998). The maximum number of shares that may be issued to
a single Participant is Two Hundred Thousand (200,000) (which does not give
effect to the Stock Split).
(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.
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) Notwithstanding anything in this Plan to the contrary, in the event
that the Company acquires another entity, the Committee may authorize the
issuance of Options ("Substitute Options") to individuals or entities in
substitution of stock options previously granted to those individuals or
entities in connection with their performance of services for such acquired
entity upon such terms and conditions as the Committee shall determine but which
shall not be contrary to applicable law, 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.
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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; 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 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.
(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) Unless otherwise determined by the Board or the Committee, each Option
shall be exercisable in four equal annual installments to begin in most
instances with the start date of a Participant's employment with the Company and
be subject to such other terms and conditions as may be set forth in the Option.
Any Option shall be exercisable following the date of the Participant's
Severance only to the extent (if at all) such Option was exercisable on the date
of Severance.
(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. To the extent this limit is
exceeded, the surplus shares shall be treated as acquired upon the exercise of a
Non-Qualified Stock Option. For this purpose, the shares will be taken into
account in the order in which the underlying Options were granted.
(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.
(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 (that have
been held a sufficient period of time (if any) to avoid adverse accounting
treatment) 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.
(ii) After giving due considerations to 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.
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(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.
(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 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.
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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 maximum 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;
(iii) The exercise price per share in respect of each outstanding
Option; and
(iv) The maximum number of shares that may be issued to a single
individual.
(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 maximum number of shares of Common Stock that may be issued
under the Plan, except as provided in Section 13 of this Plan.
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 disposition.
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.
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18. 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.
(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.
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