<PAGE>
[LOGO OF MCI APPEARS HERE]
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
TIME:
THURSDAY, APRIL 25, 1996
AT 12:00 noon
PLACE:
SHERATON UPTOWN ALBUQUERQUE HOTEL
6815 MENAUL STREET, N.E.
ALBUQUERQUE, NEW MEXICO
MCI COMMUNICATIONS CORPORATION
<PAGE>
[LETTERHEAD OF MCI COMMUNICATIONS CORPORATION APPEARS HERE]
March 15, 1996
Dear Stockholder:
This year's annual meeting of stockholders will be held at the Sheraton
Uptown Albuquerque Hotel, 6815 Menaul Street, N.E., Albuquerque, New Mexico,
on Thursday, April 25, 1996, at 12:00 noon (M.D.T.) You are cordially invited
to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, covering
the formal business to be conducted at the annual meeting, follow this letter.
In addition to the election of directors and the approval of the board's
selection of independent accountants, the stockholders will also consider
approval of the Company's Senior Executive Incentive Compensation Plan and
approval of amendments to the Company's Stock Option Plan, 1990 Stock Purchase
Plan and 1988 Directors' Stock Option Plan.
Regardless of the number of shares you own, it is important that you
carefully consider and vote on these proposals and such other business as may
come before the annual meeting.
In order to ensure that your shares will be voted at the annual meeting,
please complete, date and sign the accompanying proxy card and return it in
the enclosed envelope, which requires no postage if mailed in the United
States.
Very truly yours,
/s/ Bert C. Roberts, Jr.
Bert C. Roberts, Jr.
Chairman of the Board of Directors
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders of MCI COMMUNICATIONS CORPORATION ("MCI"
or the "Company") will be held at the Sheraton Uptown Albuquerque Hotel, 6815
Menaul Street, N.E., Albuquerque, New Mexico, on Thursday, April 25, 1996, at
12:00 noon (M.D.T.), for the following purposes:
(1) election of three directors by the holders of Common Stock, each to
serve for a term of three years;
(2) election of three Class A directors by the holder of Class A Common
Stock, each to serve for a term of one year;
(3) approval of the Company's Senior Executive Incentive Compensation
Plan;
(4) approval of an amendment to the Company's Stock Option Plan;
(5) approval of an amendment to the Company's 1990 Stock Purchase Plan;
(6) approval of an amendment to the Company's 1988 Directors' Stock
Option Plan;
(7) approval of the appointment by the board of directors of Price
Waterhouse LLP as independent accountants for the year ending December 31,
1996; and
(8) transaction of such other business as may properly come before the
annual meeting and any adjournment thereof.
Only stockholders of record at the close of business on February 26, 1996,
are entitled to notice of and to vote at the annual meeting or any adjournment
thereof. A complete list of stockholders entitled to vote will be available
for inspection at the MCI office located at Del Norte Center, 7120 Wyoming
Boulevard, N.E., Albuquerque, New Mexico for a period of ten days prior to the
annual meeting.
Dated: March 15, 1996
By order of the board of directors,
/s/ C. Bolton-Smith, Jr.
C. Bolton-Smith, Jr.
Secretary
<PAGE>
MCI COMMUNICATIONS CORPORATION
1801 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
PROXY STATEMENT
PROXY SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the board of directors of MCI COMMUNICATIONS CORPORATION for use at
the annual meeting of stockholders to be held on Thursday, April 25, 1996, at
12:00 noon (M.D.T.), at the Sheraton Uptown Albuquerque Hotel, 6815 Menaul
Street, N.E., Albuquerque, New Mexico, or at any adjournment thereof, for the
purposes set forth in the Notice of Annual Meeting of Stockholders. The
Company's 1995 Annual Report, which contains financial statements for the year
ended December 31, 1995, this Proxy Statement and a form of proxy are being
mailed on or about March 15, 1996, to stockholders of record at the close of
business on February 26, 1996, the record date for the annual meeting.
The cost of soliciting proxies, which will be borne by the Company, consists
of expenses of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees and fiduciaries in forwarding documents
to beneficial owners. Solicitation may also be made by the Company's officers,
directors or regular employees, personally or by telephone. The firm of
Georgeson & Co. Inc., New York, New York, has been retained to assist in the
solicitation of proxies for the annual meeting at an estimated fee of $18,000
plus direct out-of-pocket expenses.
REVOCABILITY OF PROXY
Execution of a proxy will not affect your right to attend the annual meeting
and to vote in person. You may revoke your proxy at any time before it is
voted, by either giving another proxy bearing a later date, notifying the
Secretary of the Company in writing of your revocation or attending and voting
in person at the annual meeting. Attendance at the annual meeting will not in
and of itself constitute a revocation of a proxy.
RECORD DATE, VOTING RIGHTS AND VOTING PROCEDURE
Only stockholders of record at the close of business on February 26, 1996,
are entitled to notice of and to vote at the annual meeting or any adjournment
thereof. On the record date, the Company had two outstanding classes of
capital stock: Common Stock, par value $.10 per share ("Common Stock"); and
Class A Common Stock, par value $.10 per share ("Class A Common Stock"). On
the record date, there were 555,135,701 shares of Common Stock and 135,998,932
shares of Class A Common Stock outstanding and entitled to vote at the annual
meeting.
The holders of Common Stock and Class A Common Stock vote as a single class
on all matters, except the election of directors, to be acted upon at the
annual meeting. Holders of Common Stock will vote as a class on the election
of directors (except Class A directors). Holders of Class A Common Stock will
vote as a class on the election of the Class A directors. Unless otherwise
noted, when used in this Proxy Statement, the term director(s) shall include
the Class A directors. At this annual meeting, stockholders will elect
directors and vote on the following proposals: approval of the Company's
Senior Executive Incentive Compensation Plan ("Proposal 1"); approval of an
amendment to the Company's Stock Option Plan ("Proposal 2"); approval of an
amendment to the Company's 1990 Stock Purchase Plan ("Proposal 3"); approval
of an amendment to the Company's 1988 Directors' Stock Option Plan ("Proposal
4"); and approval of the appointment of the Company's independent accountants
for the year ending December 31, 1996 ("Proposal 5").
<PAGE>
In the election of directors, voting is cumulative. This means that each
stockholder has the right to cast as many votes in the aggregate as equals the
number of votes to which that stockholder is entitled on other matters
multiplied by the number of directors to be elected by such stockholder's
class (three directors by the holders of Common Stock and three Class A
directors by the holders of Class A Common Stock at this annual meeting). Each
stockholder may cast the whole number of votes so computed for one candidate,
or may distribute them among the candidates, as such stockholder chooses.
Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the annual meeting and entitled to vote
on the election of directors. An abstention from voting for directors will be
tabulated as a vote withheld in the election of directors and will have no
influence on the voting results.
Approval of each Proposal or any other issue to be voted upon at the annual
meeting requires the affirmative vote of a majority of the shares present in
person or by proxy at the annual meeting and entitled to be voted. An
abstention from voting on a Proposal voted upon at the annual meeting will
have the same effect as votes cast against such Proposal. An abstention will
be included in computing the number of shares present for purposes of
determining the presence of a quorum at the annual meeting.
Brokers holding shares in street name for beneficial owners must vote those
shares according to instructions, if any, they receive from the owners. Under
applicable rules, if instructions are not received, brokers do have authority
to vote the shares in their discretion in the election of directors and on
each of the Proposals to be voted upon at the annual meeting. Therefore,
failure of stockholders to provide instructions to their brokers will not
prevent votes from being cast by the brokers in their discretion with respect
to the election of directors and on each of the Proposals.
At the annual meeting, votes will be tabulated by inspectors of election
appointed by the Company's Chairman of the Board. The Company's by-laws
provide that a majority of the votes entitled to be cast by the holders of all
shares of the Company's capital stock issued and outstanding and entitled to
vote, present in person or by proxy, shall constitute a quorum at an annual
meeting of the stockholders.
Each proxy returned to the Company will be voted in accordance with the
instructions the holder of record indicates on the proxy form. If no specific
instructions are provided and the proxy is signed by the holder, proxies will
be voted as follows: FOR the approval of (i) the Company's Senior Executive
Incentive Compensation Plan, (ii) the amendment to the Company's Stock Option
Plan, (iii) the amendment to the Company's 1990 Stock Purchase Plan, (iv) the
amendment to the Company's 1988 Directors' Stock Option Plan and (v) the
appointment of Price Waterhouse LLP as independent accountants for the year
ending December 31, 1996. Unless otherwise instructed, proxies for Common
Stock will be voted FOR the election as directors of the three nominees to be
elected by the holders of Common Stock, and proxies for the Class A Common
Stock will be voted FOR the election as Class A directors of the three
nominees to be elected by the holder of Class A Common Stock. Fractional
shares held in participants' accounts in the Company's employee stock
ownership and 401(k) plans will be combined into the largest number of whole
shares and voted by the trustee to the extent possible to reflect the voting
direction given by the participants who provided instructions for voting on
their proxies.
Voting will be held in confidence when required by applicable law. Unless
instructed otherwise, the persons named as proxies may distribute cumulative
votes unequally among those nominees for whom the stockholder has indicated
the shares are to be voted.
The Company knows of no reason why any nominee for election as a director
would be unable to serve. Nevertheless, should one or more nominees become
unable to serve, all proxies, except where a contrary instruction has been
given, will be voted in accordance with the best judgment of the persons named
as proxies. The board of directors knows of no matter to be presented at the
annual meeting other than those discussed in this Proxy Statement. If,
however, any other matter properly comes before the annual meeting or any
adjournment thereof, all proxies will be voted on such matter by the named
proxies in accordance with their best judgment.
2
<PAGE>
ELECTION OF DIRECTORS
The Company's by-laws provide that the number of directors shall not be less
than three nor more than sixteen, as determined by the board of directors from
time to time. The board of directors currently consists of fourteen members,
divided into four classes: one class of three directors, two classes of four
directors each and one class of three Class A directors. The holders of the
Company's Common Stock elected all current directors, except Mr. Taylor, who
was elected by the board at its September 1994 meeting and who is standing for
election at this annual meeting, and Mr. Murdoch, who was elected by the board
at its November 1995 meeting. The by-laws also provide that directors elected
by the holders of Common Stock shall be elected for three-year terms and that
one class of such directors shall be elected at each annual meeting of
stockholders. At this annual meeting, the class of directors whose terms then
expire are to be elected for terms expiring at the annual meeting in 1999.
Two Class A directors, Messrs. Hepher and Mockett, were elected by British
Telecommunications plc ("BT"), the holder of all outstanding shares of Class A
Common Stock, at the Company's 1995 annual meeting. In May 1995, BT appointed
Dr. Rudge as the third Class A director. Upon the resignation of Mr. Hepher in
January 1996, the remaining Class A directors elected Sir Bonfield to fill the
vacancy as a Class A director until the next annual meeting. The Class A
directors are to be elected for a one-year term at each annual meeting.
The table below sets forth certain information with respect to the six
candidates for election as directors at this annual meeting and the remaining
eight directors of the Company whose terms do not expire this year.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF
COMMON STOCK
DIRECTOR AS OF
NAME, AGE AND PRINCIPAL OCCUPATION SINCE DECEMBER 31, 1995 (1)
- ---------------------------------- -------- ---------------------
<S> <C> <C>
Directors Whose Terms Expire in 1996 and Who are
Nominees for Terms Expiring in 1999
Judith Areen (51)(A)(C)......................... 1992 30,000(2)
Executive Vice President for Law Center Affairs
and Dean of the Law Center, Georgetown
University, since 1989; Professor of Law, Law
Center, Georgetown University, since 1976.
Gerald H. Taylor (54)........................... 1994 652,671(3)
President and Chief Operating Officer of MCI
since July 1994; Vice Chairman of MCI
Telecommunications Corporation ("MCIT") since
July 1995; President and Chief Operating Officer
of MCIT from April 1994 to July 1995; Executive
Vice President and Group Executive of MCIT from
1993 to April 1994; Executive Vice President of
MCIT from 1990 to 1993.
Judith Whittaker (57)(B)........................ 1985 46,000(4)
Vice President--Legal of Hallmark Cards,
Incorporated, a greeting card and gift
manufacturing company, since 1992; Associate
General Counsel of Hallmark Cards, Incorporated,
for more than five years prior thereto; Vice
President and General Counsel of Univision
Holdings, Inc., a subsidiary of Hallmark Cards,
Incorporated, from 1988 to 1992; a director of
Harmon Industries, Inc.
Class A Directors Whose Terms Expire Annually
and Who are Candidates for Election(5)
Sir Peter L. Bonfield (51)...................... 1996 0
Chief Executive of BT, a worldwide
telecommunications company, since January 1996;
Chairman and Chief Executive of ICL plc from
1985 to 1995; non-executive Chairman of ICL plc
since 1981; non-executive Director of BICC PLC;
non-executive Director of ZENECA Group PLC;
Chairman of DESC Ltd.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF
COMMON STOCK
DIRECTOR AS OF
NAME, AGE AND PRINCIPAL OCCUPATION SINCE DECEMBER 31, 1995(1)
- ---------------------------------- -------- --------------------
<S> <C> <C>
Alfred T. Mockett (47)........................... 1994 10,000(6)
Managing Director, Global Communications of BT
since April 1994; Managing Director, Business
Communications of BT from October 1992 to April
1994; Managing Director, Special Business, of BT
from July 1991 to October 1992; Managing Director
of Memorex Telex NV from June 1988 to July 1991.
Dr. Alan W. Rudge (58)........................... 1995 0
Deputy Chief Executive of BT since January 1996;
Deputy Group Managing Director of BT from January
1995 to January 1996; Managing Director,
Development and Procurement of BT from April 1990
to January 1995; Director of BT, since 1989.
Directors Whose Terms Expire in 1997
Clifford L. Alexander, Jr. (62)(A)(C)............ 1982 26,000(7)
President of Alexander & Associates, Inc.,
management consultants, since 1981; a director of
Dreyfus 3rd Century Fund, Dreyfus General Family
of Funds, Mutual of America Life Insurance
Company, Dun & Bradstreet Corporation and
American Home Products Corporation.
Richard M. Jones (69)(B)......................... 1988 40,000(8)
A director of Applied Power Inc., Illinois Tool
Works Inc., Baker-Fentress & Company and Guaranty
Federal Savings Bank.
K. Rupert Murdoch (64)........................... 1995 0
Chairman and Chief Executive of The News
Corporation Limited, a diversified international
communications company for more than 5 years; a
director of The Phillip Morris Companies and
British Sky Broadcasting Group plc.
John R. Worthington (65)......................... 1968 635,853(9)
General Counsel of MCI from 1971 to 1995; Senior
Vice President of MCI from 1979 to March 1996; a
consultant since March 1996.
Directors Whose Terms Expire in 1998
Michael H. Bader (66)(A)......................... 1968 408,874(10)
Member of the law firm of Haley Bader & Potts
P.L.C.; Chairman of radio stations WGLL and WCBG
from 1983 to 1993; Chairman of radio station WTHU
from 1988 to 1993; Vice President of Bach 'n Roll
Radio of Brandon, Inc. since 1989.
Gordon S. Macklin (67)(A)........................ 1988 44,000(11)
Chairman of White River Corporation, an
information services company, since 1993;
Chairman of Hambrecht & Quist from 1987 to 1992;
a director of Fund American Enterprises Holdings,
Inc., MedImmune Inc., Fusion Systems Corporation,
InfoVest Corporation and Source One Mortgage
Services Corporation; and director, trustee or
managing general partner of 53 of the investment
companies in the Franklin and Templeton Groups of
Funds.
Bert C. Roberts, Jr. (53)(C)..................... 1985 1,563,785(12)
Chairman of the Board of MCI since 1992; Chief
Executive Officer of MCI since 1991; President
and Chief Operating Officer of MCI from 1985 to
1992.
Richard B. Sayford (65)(B)....................... 1980 40,990(13)
President and Chief Executive Officer of
Strategic Enterprises, Inc., a management
consulting firm, since 1986; a director of Laser
Technologies, Inc. and Visx, Inc.
</TABLE>
- --------
(A) Member of the Audit Committee.
(B) Member of the Compensation Committee.
(C) Member of the Nominating Committee.
4
<PAGE>
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the securities reported, except with respect
to shares of Common Stock allocated to accounts under the Company's Employee
Stock Ownership and 401(k) Plan ("ESOP"), with respect to which shares such
person has sole voting power only. Where indicated, the data also includes
shares which each person had the right to acquire upon exercise of stock
options within sixty days of December 31, 1995 and also shares issued as
awards of restricted stock. As of December 31, 1995, no individual officer or
director beneficially owned more than 1% of the outstanding shares of the
Company's capital stock.
(2) Includes 26,000 shares of Common Stock Ms. Areen has the right to
acquire pursuant to the exercise of stock options.
(3) Includes 30,847 shares of Common Stock allocated to Mr. Taylor's ESOP
account, 435,690 shares of Common Stock he has the right to acquire pursuant
to the exercise of stock options and 143,400 shares of Common Stock issued as
restricted stock awards.
(4) Includes 20,000 shares of Common Stock Ms. Whittaker has the right to
acquire pursuant to the exercise of stock options.
(5) All of the Class A directors are executive officers of BT, the holder of
all the outstanding shares of Class A Common Stock of the Company.
(6) Includes 10,000 shares of Common Stock Mr. Mockett has the right to
acquire pursuant to the exercise of stock options.
(7) Includes 20,000 shares of Common Stock Mr. Alexander has the right to
acquire pursuant to the exercise of stock options. Mr. Alexander shares voting
and investment power with respect to all shares other than those which he has
the right to acquire pursuant to the exercise of such stock options.
(8) Includes 20,000 shares of Common Stock Mr. Jones has the right to
acquire pursuant to the exercise of stock options.
(9) Includes 30,426 shares of Common Stock allocated to Mr. Worthington's
ESOP account and 341,620 shares of Common Stock he has the right to acquire
pursuant to the exercise of stock options. Does not include 147,890 shares of
Common Stock owned solely by Mr. Worthington's wife, in which shares he
disclaims beneficial ownership.
(10) Includes 20,000 shares of Common Stock Mr. Bader has the right to
acquire pursuant to the exercise of stock options. Mr. Bader shares voting and
investment power with respect to all shares other than those which he has the
right to acquire pursuant to the exercise of such stock options. Mr. Bader is
one of seven trustees for the William G. McGowan Charitable Fund, Inc.; he
does not, however, have voting or investment power over any of the shares of
Common Stock held by such Fund.
(11) Includes 20,000 shares of Common Stock Mr. Macklin has the right to
acquire pursuant to the exercise of stock options. Does not include 3,200
shares of Common Stock owned solely by Mr. Macklin's wife, in which shares he
disclaims beneficial ownership.
(12) Includes 45,547 shares of Common Stock allocated to Mr. Roberts' ESOP
account, 1,048,300 shares of Common Stock he has the right to acquire pursuant
to the exercise of stock options, 175,336 shares of Common Stock issued as
restricted stock awards and 116,250 shares of Common Stock owned by a limited
partnership in which Mr. Roberts is a general partner. Does not include 12,000
shares of Common Stock held by Mr. Roberts' wife as custodian for the benefit
of their minor child, in which shares Mr. Roberts disclaims beneficial
ownership.
(13) Includes 20,000 shares of Common Stock Mr. Sayford has the right to
acquire pursuant to the exercise of stock options. Does not include 800 shares
of Common Stock owned solely by Mr. Sayford's wife, in which shares he
disclaims beneficial ownership.
5
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MCI, since its inception, has retained the law firm of Haley Bader & Potts
P.L.C., in which firm Michael H. Bader is a partner, as special counsel for
communications law matters. Legal fees and expenses paid by the Company to
this law firm for the year ended December 31, 1995, totaled approximately
$121,243. It is anticipated that the Company will pay Haley Bader & Potts
P.L.C. an amount in excess of $60,000 in 1996 in respect of services rendered
and to be rendered to the Company and its subsidiaries during that year.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The share ownership of the Chief Executive Officer, Bert C. Roberts, Jr.,
and of Gerald H. Taylor and of all other directors is set forth in the table
appearing previously in this Proxy Statement under the caption "Election of
Directors." The following table sets forth the number of shares beneficially
owned by each of the other three executive officers named in the compensation
tables set forth elsewhere in this Proxy Statement and by all executive
officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
OF COMMON STOCK AS OF
NAME, AGE AND PRINCIPAL OCCUPATION DECEMBER 31, 1995 (1)
- ---------------------------------- -----------------------
<S> <C>
Timothy F. Price (42).................................. 246,564(2)
President and Chief Operating Officer of MCIT
Michael J. Rowny (45).................................. 101,680(3)
Executive Vice President of MCI
Douglas L. Maine (47).................................. 352,130(4)
Executive Vice President and Chief Financial Officer of
MCI
All executive officers and directors as a group (5).... 5,173,917(6)
</TABLE>
- --------
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the securities reported, except with respect
to shares of Common Stock allocated to accounts under the Company's ESOP,
which includes a 401(k) Plan, with respect to which shares such person has
sole voting power only. Where indicated, the data also includes shares which
each person had the right to acquire upon exercise of stock options within
sixty days of December 31, 1995, and also shares issued as awards of
restricted stock.
(2) Includes 7,014 shares of Common Stock allocated to Mr. Price's ESOP
account, 141,850 shares of Common Stock he has the right to acquire pursuant
to the exercise of stock options and 96,700 shares of Common Stock issued as
restricted stock awards. Does not include 1,000 shares of Common Stock held by
Mr. Price's wife as custodian for the benefit of their minor children, in
which shares Mr. Price disclaims beneficial ownership.
(3) Includes 454 shares of Common Stock allocated to Mr. Rowny's ESOP
account, 49,500 shares of Common Stock he has the right to acquire pursuant to
the exercise of stock options and 50,000 shares of Common Stock issued as
restricted stock awards.
(4) Includes 14,231 shares of Common Stock allocated to Mr. Maine's ESOP
account, 289,040 shares of Common Stock he has the right to acquire pursuant
to the exercise of stock options and 36,700 shares of Common Stock issued as
restricted stock awards.
(5) This group includes the Company's executive officers, as such term is
defined in Rule 3b-7 of the Securities Exchange Act of 1934 (the "Exchange
Act"), and its directors, a total of 22 persons.
(6) Includes 149,742 shares of Common Stock allocated to officers' accounts
under the ESOP, 3,140,810 shares of Common Stock that officers and directors
have the right to acquire pursuant to the exercise of stock options and
675,536 shares issued to officers pursuant to restricted stock awards.
Officers and directors have shared voting and investment power with respect to
394,874 of these shares of Common Stock.
6
<PAGE>
The following table sets forth the number of shares beneficially owned by
holders of 5% or more of the Company's capital stock outstanding as of
December 31, 1995, based solely on the statements on Schedules 13G and 13D
received by the Company.
<TABLE>
<CAPTION>
NAME AND AMOUNT AND
TITLE OF ADDRESS OF NATURE OF PERCENT OF
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- -------- ---------------- -------------------- ----------
<S> <C> <C> <C>
Common Stock... Mellon Bank Corporation 28,798,000 shares(1) 5.3%
One Mellon Bank Center
Pittsburgh, Pennsylvania
Class A Common British Telecommunications plc 135,998,932 shares(2) 100%
Stock......... 81 Newgate Street
London U.K.
</TABLE>
(1) Mellon Bank Corporation has (i) sole voting power with respect to
5,193,000 of these shares, (ii) shared voting power with respect to 174,000 of
these shares, (iii) sole investment power with respect to 5,485,000 of these
shares and (iv) shared investment power with respect to 3,394,000 of these
shares.
(2) BT has sole voting and investment power with respect to all these
shares.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon review of Forms 3, 4 and 5 (and amendments thereto)
furnished to the Company during or in respect of the fiscal year ended
December 31, 1995, the Company is not aware of any director or executive
officer who has not timely filed reports required by Section 16(a) of the
Exchange Act during or in respect of such fiscal year.
BOARD OF DIRECTORS' COMMITTEES, MEETINGS AND FEES
To assist the board of directors in managing the Company's business and
affairs, the Company's board has constituted from among its members a number
of committees, including an Audit Committee, a Compensation Committee and a
Nominating Committee. The functions of the Audit Committee include review,
with the independent accountants and the internal auditors, of the audit plan
and results of their audit, review of any significant consulting services
provided by the independent accountants, consideration of the range of audit
and non-audit fees and review of the adequacy of the Company's system of
internal accounting controls. The functions of the Compensation Committee
include determination of the salary and incentive compensation of the Chief
Executive Officer and the Chief Operating Officer, review of the Company's
executive compensation and administration of the Company's Stock Option Plans,
Executive Incentive Compensation Plan, 1990 Stock Purchase Plan and, if
approved, the Senior Executive Incentive Compensation Plan. The Nominating
Committee considers potential nominees for election to the board of directors
and administers the 1988 Directors' Stock Option Plan and the Board of
Directors' Deferred Compensation Plan. The Nominating Committee will consider
recommendations by stockholders for nominees for election as directors at the
1997 annual meeting submitted by November 15, 1996. Recommendations should be
sent to the Company's Secretary at the Company's headquarters, identifying the
nominee by name and providing pertinent information concerning the nominee's
background, experience and qualifications.
During the year ended December 31, 1995, the board of directors had ten
regular meetings. The Audit Committee met three times, the Compensation
Committee met seven times and the Nominating Committee met two times. Each of
the Company's directors attended at least 75% of the total of (1) the number
of meetings of the board of directors during the period for which such
director was a director and (2) the number of meetings held by all committees
of the board on which such director served during the period for which such
director was a member of such committee(s).
During 1995, directors of the Company who were not officers were entitled to
receive a retainer of $2,250 per month and an additional $1,500 for each
meeting of the board of directors which they attended and for each meeting of
the Audit or Compensation Committee they attended that was not held on a day
or the preceding day on which a meeting of the board of directors was held. In
addition, the Chairman of each of the Audit and
7
<PAGE>
Compensation Committees received an additional retainer of $300 per month, and
each member of the Audit and Compensation Committees who attended an Audit or
Compensation Committee meeting on the same or preceding day on which a board
of directors meeting was held was paid an additional $700 for each such
meeting attended. Directors also were reimbursed for actual out-of-pocket
travel expenses incurred in connection with attendance at board and/or
committee meetings. Effective July 1, 1994, the Company's board has in effect
a deferred compensation plan which allows non-employee directors to elect to
defer receipt of monthly retainer and meeting fees that would otherwise be
paid to them. Deferred amounts are invested in mutual funds in accordance with
each participating director's preference. When the elected deferral period
expires, the director receives the deferred amount adjusted for investment
performance. At this time only two directors have made deferral elections.
In 1989, the Company's stockholders approved the 1988 Directors' Stock
Option Plan (the "Directors' Plan") and reserved 1,000,000 shares of Common
Stock for issuance pursuant to such plan. Under the Directors' Plan, each non-
employee director is automatically granted, upon election to the board, a
five-year option to purchase 40,000 shares of Common Stock at the closing
price of the Common Stock on the date of grant. Options become exercisable
after the first anniversary of the date of grant in cumulative installments of
25% for each year outstanding. The option price is payable upon exercise of
the option either in cash, by surrender of shares of Common Stock having a
fair market value on the date of receipt by the Company equal to the option
price or by such other means as the Nominating Committee may prescribe. The
Directors' Plan provides for automatic grants of similar options to all new
non-employee directors elected to the board. Upon the fifth anniversary of the
date of grant of options, any unexercised portion of the grant is canceled,
and a new option for 40,000 shares is automatically granted.
Neither the board of directors nor the Nominating Committee has authority to
change the number of shares granted to directors, change the pricing formula
or vesting schedule or selectively determine which non-employee directors
shall receive options pursuant to the Directors' Plan. Options are
transferable only by will or under the laws of descent and distribution. With
certain exceptions, each option may be exercised only by the optionee and only
if the optionee is a director of the Company.
As of December 31, 1995, options to purchase 880,000 shares of Common Stock
have been granted pursuant to the Directors' Plan, which options have an
average per share exercise price of $25.6891. During the year ended December
31, 1995, no options were exercised by participating directors.
REMUNERATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
----------------------
ANNUAL
COMPENSATION RESTRICTED SECURITIES
----------------- OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION(1) AWARD(S)(2) OPTIONS COMPENSATION(3)
POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------ ---- ------- --------- --------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bert C. Roberts, Jr..... 1995 890,000 1,300,000 231,703 0 150,000 6,030
Chairman and 1994 850,000 900,000 69,460 896,000 180,000 49,011
Chief Executive Officer 1993 800,000 900,000 459,869 2,059,500 180,000 41,534
Gerald H. Taylor........ 1995 525,000 800,000 76,914 0 100,000 6,030
President and Chief 1994 457,885 500,000 12,387 560,000 112,000 36,480
Operating Officer 1993 307,800 220,175 106,883 2,874,187 90,000 31,056
Timothy F. Price ....... 1995 400,000 600,000 28,607 0 115,000 136,849
President and Chief 1994 330,385 270,250 6,181 560,000 110,000 21,991
Operating Officer of 1993 245,000 130,000 0 1,753,187 51,000 16,703
MCIT
Michael J. Rowny(4)..... 1995 270,000 300,000 0 597,500 70,000 8,788
Executive Vice President 1994 134,615 94,675 0 560,000 80,000 1,024
of
MCI 1993 0 0 0 0 0 0
Douglas L. Maine........ 1995 260,000 265,000 26,077 478,000 70,000 6,030
Executive Vice President 1994 245,000 182,000 4,132 0 67,000 25,320
and
Chief Financial Officer 1993 226,000 124,675 14,927 235,625 51,000 18,689
</TABLE>
8
<PAGE>
- --------
(1) Represents the annuity premium and taxes paid on behalf of the executive
as the result of the purchase of an annuity to discharge the Supplemental
Pension Plan's obligation to the executive. These amounts reduce dollar for
dollar the actual amount of pension to be paid to the executive upon
retirement.
(2) Values indicated above are based on the market price on date of grant.
As of December 31, 1995, these executive officers held the following
restricted shares in the aggregate, valued based on the market price on
December 31, 1995: Mr. Roberts, 175,336 shares, valued at $4,567,886; Mr.
Taylor, 143,400 shares, valued at $3,733,405; Mr. Price, 96,700 shares, valued
at $2,517,703; Mr. Rowny, 50,000 shares, valued at $1,301,250; and Mr. Maine,
36,700 shares, valued at $955,953. Dividends on the restricted shares are held
by the Company until the restrictions are removed.
(3) Consists of the following: (a) contributions by the Company to the
executives' accounts under the MCI ESOP and 401(k); and for Mr. Rowny (b)
premiums paid by the Company for executive life insurance during the year; and
for Mr. Price (b) relocation expenses paid by the Company including taxes
related to the expenses. The values of the applicable components for each
executive officer are: Mr. Roberts (a) $6,030; Mr. Taylor (a) $6,030; Mr.
Price (a) $6,030 and (b) $130,819; Mr. Rowny (a) $5,355 and (b) $ 3,433; and
Mr. Maine (a) $6,030.
(4) Mr. Rowny was hired by the Company in June 1994.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO EXERCISE ASSUMED ANNUAL RATES OF STOCK PRICE
OPTIONS EMPLOYEES OR BASE APPRECIATION FOR OPTION TERM (2)
GRANTED IN FISCAL PRICE EXPIRATION --------------------------------------------
NAME (#)(3) YEAR ($/SH)(4) DATE(5) 0% ($)(6) 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bert C. Roberts, Jr..... 150,000 0.597% 18.3750 1/31/05 0 1,733,415 4,392,795
Gerald H. Taylor........ 100,000 0.398% 18.3750 1/31/05 0 1,155,610 2,928,530
0
Timothy F. Price........ 115,000 0.456% 18.3750 1/31/05 0 1,328,952 3,367,810
0
0
Michael J. Rowny........ 70,000 0.279% 18.3750 1/31/05 0 808,927 2,049,971
Douglas L. Maine........ 70,000 0.279% 18.3750 1/31/05 0 808,927 2,049,971
0
---------------------------------------------------------------------------------------
All Optionees(7)........ 25,121,231 100.00% 18.9904 various 0 300,020,350 760,311,641
All Stockholders........ N/A N/A N/A N/A 0 11,264,651,723(8) 28,546,602,036(8)
</TABLE>
- --------
(1) The Company did not grant any stock appreciation rights during the last
or any prior fiscal year.
(2) The potential realizable value uses the hypothetical rates specified by
the SEC and is not intended to forecast future appreciation, if any, of the
Company's stock price. The Company did not use an alternative formula for this
valuation as the Company is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile
factors. In fact, the Company disavows the ability of this or any other
valuation model to predict or estimate the Company's future stock price or to
place a reasonably accurate present value on the options because all models
depend on assumptions about the stock's future price movement, which is simply
unknown. The value indicated is a net amount, as the aggregate exercise price
has been deducted from the final appreciated value. An annual appreciation of
5% and 10% from the exercise price of $18.375 would result in per share prices
of approximately $29.93 and $47.66, respectively, as of January 31, 2005.
(3) Grants become exercisable to the extent of one-third of the shares
covered thereby on each of the first, second and third anniversary of the
grant. Vesting may be accelerated upon a reorganization event or upon a tender
offer for 30% or more of the Company's voting stock by a third party in
accordance with plan provisions.
(4) The exercise price of the options is equal to the fair market value of
the underlying stock on the date of grant.
9
<PAGE>
(5) All options granted in 1995 expire ten years from the date of grant.
(6) Unless the stock price increases, which will benefit all stockholders
commensurately, an optionee will realize no gain.
(7) Options were granted to 5,290 employees in 1995. The potential
realizable value uses a 10-year option term and base price of $18.375.
(8) Values were calculated using the total shares outstanding (including
Class A Common Stock which is convertible into Common Stock) as of December
31, 1995 (685,614,834 shares) and using a base price of $26.125. Appreciation
of 5% and 10% would result in per share prices of approximately $42.55 and
$67.76, respectively, at December 31, 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS AT FY-END
ACQUIRED OPTIONS AT FY-END (#) ($) (1)
ON EXERCISE VALUE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Bert C. Roberts, Jr..... 0 0 878,200/331,800 9,495,025/1,479,975
Gerald H. Taylor........ 10,064 128,316 348,530/205,640 3,423,706/ 935,313
Timothy F. Price........ 48,660 419,731 63,460/206,040 221,428/ 1,115,201
Michael J. Rowny........ 0 0 26,400/123,600 85,800/ 716,700
Douglas L. Maine........ 0 0 231,770/132,230 2,411,631/ 661,931
</TABLE>
- --------
(1) Options are "in-the-money" if, on December 31, 1995, the market price of
the Common Stock ($26.125) exceeded the exercise price of such options. The
value of such options is calculated by determining the difference between the
aggregate market price of the Common Stock covered by the options on December
31, 1995 and the aggregate exercise price of such options.
PENSION PLANS
The Company sponsors a tax-qualified defined benefit plan ("Qualified Plan")
and a supplemental non- qualified defined benefit plan ("Supplemental Plan"
and, together with the Qualified Plan, the "Pension Plans"). The Qualified
Plan covers all employees of the Company, including executive officers, who
work at least 1,000 hours in a year. The Supplemental Plan covers only the
Company's key executives, including the executive officers, who work at least
1,000 hours in a year. No employee contributions are required for
participation in the Pension Plans. Retirement benefits are based upon the
employee's compensation during the employee's employment with the Company or a
participating subsidiary.
Compensation used to calculate benefits includes bonuses but does not
include compensation related to fringe benefits, stock options or restricted
stock. During 1995, compensation for the purposes of calculating pension
benefits for the Qualified Plan was limited by section 401(a)(17) of the
Internal Revenue Code of 1986, as amended (the "Code"), to $150,000. The
Supplemental Plan pays the incremental benefit attributable to that part of
the employee's compensation which exceeds the Code limitation in any plan
year.
Employees are fully vested upon the earlier of five years of service or upon
reaching age 65 while employed by the Company or a participating subsidiary.
There is no partial vesting. Normal retirement age is 65, but an employee may
elect to receive an actuarially-reduced pension at or after age 55 with five
years of service with the Company or a participating subsidiary. In addition,
the Supplemental Plan permits the Company to grant additional service and
additional pension amounts to selected employees.
For employees employed after January 1, 1989, the Pension Plans provide a
normal retirement benefit for each year of credited service equal to 1% of the
compensation earned by the employee during that year up to the Social Security
"covered compensation" level plus an additional 1.5% of compensation earned
over that level.
10
<PAGE>
However, employees employed on or before January 1, 1993 were credited with an
updated past service benefit which provides a benefit of 1% of the employee's
average annual compensation (for the years 1990, 1991 and 1992) up to $21,000
and 1.5% of such compensation over $21,000 for such years multiplied by the
employee's service through December 31, 1992. For employees employed on or
after January 1, 1994, the Pension Plans provide a future service benefit for
each subsequent year of credited service equal to a flat 1.8% of the
employee's eligible compensation. Effective January 1, 1996, the Company
adopted a Part II to the Qualified Plan ("Part II") which changed the manner
in which pension benefits will be determined. Part II is a defined benefit
pension plan. Under Part II an initial account balance will be established for
each participant equal to the actuarial equivalent of the participant's prior
accruals under the Qualified Plan. Participants employed on or after January
1, 1996 receive compensation credits and interest credits to their accounts.
Compensation credits are a designated percent of pay, based on the
participant's age, according to the following schedule: employees younger than
age 25, 2.0%; age 25-29, 2.5%; age 30-34, 3.0%; age 35-39, 4.0%; age 40-44,
5.0%; age 45-54, 6.0%; and age 55 or older, 6.5%. Part II guarantees a minimum
interest credit of 4% per year on the prior year's account balance. For 1996,
the guaranteed interest credit is 6.06%. Part II participants who are age 50
or older with 5 years of service will receive accruals under Part I for the
next five years.
Benefits payable from tax qualified plans are further limited by section 415
of the Code; in 1995, the annual maximum benefit from the Qualified Plan was
limited to $120,000. When the pension formula would result in an executive
receiving a benefit above the applicable limit, the Supplemental Plan assumes
an obligation to pay the incremental portion above such limit.
As of December 31, 1995, Messrs. Roberts, Taylor, Price, Rowny(1) and Maine,
upon normal retirement, would be entitled to annual retirement benefits from
the Pension Plans of approximately $764,984; $379,152; $334,368; $140,270 and
$221,778, respectively.
(1) Mr. Rowny will not vest under the plans until June 1998. Should Mr. Rowny
leave the Company before he vests, he will receive no pension benefit from the
Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION POLICIES AND OBJECTIVES
The Compensation Committee of the board of directors evaluates and sets the
base salary and incentive compensation for the Chief Executive Officer ("CEO")
and the Chief Operating Officer ("COO") of the Company and administers the
Company's Stock Option Plans and the Executive Incentive Compensation Plan
(the "EICP"), including establishing the target awards and performance goals
for the CEO and COO under the EICP and, if approved, the Senior Executive
Incentive Compensation Plan (the "SEICP"). The Compensation Committee reviews,
but does not evaluate, determine or approve, the compensation of the Company's
other executives, which is determined by the CEO and/or COO with the
assistance of the Company's human resources staff.
The Compensation Committee consists solely of non-employee directors who are
not eligible to participate in the compensation plans which they administer.
The Compensation Committee's executive compensation objectives are (1) to
ensure competitive levels of compensation that enable the Company to attract,
retain and motivate executives of outstanding ability and character to lead
the Company successfully in its highly competitive industry characterized by
rapid technological change, innovation and significant capital investment
requirements; (2) to tie a meaningful portion of compensation to the
achievement of improved long term stockholder value and other business
objectives through the EICP and, if approved, the SEICP; and (3) to provide
stock-based long term incentives that directly link the compensation of
executives to appreciation in the Common Stock. The Compensation Committee
accomplishes these objectives by periodically reviewing surveys of executive
compensation and by establishing an annual EICP. Through annual grants of
options and, at times, awards of restricted stock, the Compensation Committee
strives to align the financial interests of the executives with those of the
Company's stockholders.
11
<PAGE>
EXECUTIVE OFFICER COMPENSATION AND COMPANY PERFORMANCE
The Company has standard salary ranges for all executive positions below the
level of CEO and COO. These salary ranges are developed by the Company's human
resources staff from surveys conducted by compensation consultants using
competitive market data from similarly sized companies in the
telecommunications industry, as well as other industries. This group of
companies includes all companies that comprise the Company's peer group used
in constructing the Company's performance graph. (See the section of this
Proxy Statement entitled, "Five-Year Performance Comparison," below.) Salary
ranges are targeted to be at approximately the median of the survey data for
companies of similar size and complexity. An executive's salary within these
salary ranges depends upon the executive's experience and capabilities, the
executive's unique talents and strengths and the executive's contribution to
the Company. The CEO and/or the COO annually review each executive's salary
and performance. In this review, the CEO and/or the COO consider individual
contribution, attainment of individual and business unit performance
objectives and level within the salary range; however, there is no specific
weight given to each criterion. The Compensation Committee reviews, but does
not approve, the decisions regarding executives' salaries.
The purpose of the EICP is to encourage consistent growth in stockholder
value by creating a motivational environment in which compensation is
contingent upon the performance of the Company; the business unit, where
applicable; and the individual. All executive officers participate in the
EICP.
At the beginning of the 1995 fiscal year, the Compensation Committee
established a 1995 EICP. As provided by the EICP, target awards were
established for each executive based on competitive norms and the position
level of the executive. Target awards represent a specified percent of the
midpoint of the executive's salary range and are designed to provide a level
of total cash compensation, including salary, between the 50th and 75th
percentiles for similar companies, including those in the Company's peer
group, if performance goals are achieved. In order to tie the executive's
incentive award more closely to such executive's performance objectives for
the year, the 1995 EICP provided the business units with more discretion in
determining individual performance measurements for each executive and
resulting awards than was the case in prior years. Prior to the end of the
first quarter of 1995, the senior management of the business units established
the weighted performance criteria for the executives in their respective
business units. The performance criteria were based on each executive's
individual performance objectives, and, as appropriate, business unit, as well
as the Company's, performance objectives. The performance criteria for the
senior management of the business units were established by the COO and CEO
and were based on the Company's business plan with consideration for business
unit performance and individual contribution.
The Compensation Committee also proposed a new plan to comport with the
requirements of section 162(m) of the Code. Section 162(m) denies a tax
deduction for executive compensation in excess of $1 million per year paid by
publicly-traded corporations to the chief executive officer and the four other
most highly compensated officers unless certain requirements are met. The
Internal Revenue Service issued final regulations on section 162(m) on
December 20, 1995. On January 31, 1996, the Compensation Committee recommended
and the board of directors adopted the SEICP, which was designed to meet the
requirements of section 162(m). In order for the Company to be entitled to
deduct for tax purposes amounts awarded pursuant to the SEICP, the SEICP must
be approved by the Company's stockholders and is being presented to
stockholders for their consideration and approval at this annual meeting. The
Compensation Committee intends to use the SEICP as the basis for the structure
of incentive compensation to the CEO and COO for 1996. The SEICP is discussed
in further detail on page 15 of this Proxy Statement and a complete copy of
the SEICP is attached as Appendix A to this Proxy Statement.
The Company has a long history of encouraging employee ownership of the
Company's Common Stock. In the belief that employees who have a proprietary
interest in the Company will focus on its long term success and on building
stockholder wealth, the Compensation Committee uses the Company's Stock Option
Plan as a basis to create a foundation for the long term growth of the Company
and increased stockholder value by providing executives and key employees with
an opportunity to obtain and build a meaningful stake in the Company's
12
<PAGE>
future. At the beginning of each fiscal year, the Compensation Committee
grants stock options to executives and key employees who are recommended by
management as being in a position to continue to contribute to the Company's
profitability. Option awards are intended to encourage contribution to
profitability over a longer term than the EICP. Therefore, options become
exercisable based on continued employment with the Company and generally
remain exercisable for a period of ten years. To provide the desired level of
potential stock ownership, the number of stock options granted to Company
executives is targeted to be above average in comparison to executives in
similar companies, including those in the Company's peer group. The number of
options granted to a particular executive is based on the grade level of the
executive and management's assessment of the executive's performance and
contribution. Stock options have been granted to key employees at all levels
of the Company's management. The ultimate value of the options, if any,
depends on the extent to which the Company's Common Stock appreciates in
market value.
After consideration of recommendations by the CEO (not including
recommendations for grants for the CEO), the Compensation Committee may award
shares of restricted stock to a limited number of key executives. This
component of the Stock Option Plan not only fosters the same goals as the
stock option program but also provides an additional means to retain and
motivate the key executives who constitute the core of the Company's
management team. Grants are made based on management's assessment of the
executive's expected future contributions and strategic importance to the
Company, as well as past performance. Restrictions on shares are generally
removed ratably on the third, fourth and fifth anniversary of the date of the
grant, provided the executive remains employed by the Company. If the
executive's employment terminates before the lapse of the restrictions, any
remaining restricted shares are forfeited.
OTHER EXECUTIVE COMPENSATION PLANS
The Company sponsors other employee benefit plans for both executives and
non-management employees. In addition to the Supplemental Plan relating to
executive retirement benefits, the Company has an executive life insurance
program for executives. The Compensation Committee neither administers nor
makes any determinations with respect to any such plan or program, with the
exception of the Company's 1990 Stock Purchase Plan.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER AND
COMPANY PERFORMANCE
The CEO and Chairman of the Board, Bert C. Roberts, Jr., and the COO and
President, Gerald H. Taylor, participate in the EICP. Under the EICP, the
Compensation Committee has sole discretion to evaluate and establish their
compensation. The Compensation Committee also establishes Mr. Roberts' and Mr.
Taylor's salaries.
The Compensation Committee conducts an annual evaluation of the
competitiveness of Mr. Roberts' and Mr. Taylor's total compensation relative
to the compensation of the CEOs and COOs of other similar-sized companies in
the telecommunications industry as well as in other industries. The
Compensation Committee considers compensation data available for the companies
in the Company's peer group, as well as data available from other similar-
sized companies not in the peer group because it considers the market for Mr.
Roberts' and Mr. Taylor's skills and strengths much broader than the
telecommunications industry. As part of this evaluation, the Compensation
Committee requests a nationally known compensation consulting firm to perform
a market analysis of compensation levels and to furnish other information as
needed. Salaries are targeted to be approximately at the median of companies
of similar size, complexity and performance. Based on a review of corporate
performance relative to the Company's business plan, Mr. Roberts' and Mr.
Taylor's individual performance, information supplied by the consultant, the
expected challenges for Mr. Roberts and Mr. Taylor in the coming year and
other factors that the Compensation Committee in its discretion may deem
relevant at that time, the Compensation Committee establishes the salaries for
the new fiscal year.
Under the EICP, the Compensation Committee periodically develops special
criteria for determining Mr. Roberts' and Mr. Taylor's annual incentive award.
For 1995, the Compensation Committee established that
13
<PAGE>
of each of Mr. Roberts' and Mr. Taylor's incentive award, a specified
percentage would be based on the Company's achievement of established
measurable financial performance goals. The balance of the incentive award
would be based on achievement of personal performance goals. Additionally, the
Compensation Committee established minimum levels of Company performance below
which no performance award would be made and maximum levels above which the
executives would not earn additional amounts. The 1995 personal goals for Mr.
Roberts' annual incentive award were: (1) development of future strategies for
the Company, (2) implementation of strategic plans, (3) enhancement of the
Company's organization and management capabilities, and (4) enhancement of the
image of the Company. The personal goals for Mr. Taylor's annual incentive
award were: (1) execution of the business plan, (2) development and growth of
the core business, and (3) development of the Company's capability to
successfully pursue strategic opportunities outside the core business. The
Compensation Committee did not assign specific weights to these personal
goals, but rather reviews them in the context of Mr. Roberts' and Mr. Taylor's
accomplishments.
In January 1996, the Compensation Committee awarded an incentive award of
$1.3 million to Mr. Roberts and $800,000 to Mr. Taylor based on the fact that
MCI's revenue increased 14.4% from $13.3 billion to $15.3 billion and income
from operations increased 16.7% from $1.6 billion to $1.9 billion from 1994 to
1995, excluding special charges in each year, and on each executive's
achievement of his personal goals.
In preparation for making any decision regarding the grant of stock options
and/or restricted stock, the Compensation Committee evaluated Mr. Roberts' and
Mr. Taylor's performances relative to the guidelines described above, the
Company's achievements during the year (discussed above), the awards made to
them in prior years, their differing yet critical leadership roles in the
Company's future success and noted the degree to which other companies have
linked their CEO's and COO's long term compensation to stockholder return. The
Compensation Committee also used subjective criteria it deemed relevant in its
reasonable business discretion, such as its opinions about the business
environment and the particular challenges for the Company as well as the
potential market for Mr. Roberts' and Mr. Taylor's services. In addition, the
Compensation Committee considers awards under the Stock Option Plan as a means
to align the financial interest of the CEO and COO with that of the Company's
stockholders.
Richard M. Jones
Richard B. Sayford
Judith Whittaker
Members of the Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, no member of the Compensation Committee of the Company's board
of directors was a current or former officer or employee of the Company or any
of its subsidiaries.
14
<PAGE>
FIVE-YEAR PERFORMANCE COMPARISON
Set forth below is a graphical presentation comparing the Company's
cumulative, five-year stockholder returns on an indexed basis with the
Standard & Poor's 500 Stock Index and an index of peer companies selected by
the Company. The Company has selected a peer group generally consisting of the
major providers of telecommunications services. The members of the peer group
are the following: AT&T Corp., Sprint Corporation, NYNEX Corporation, Bell
Atlantic Corporation, BellSouth Corporation, Ameritech Corporation, SBC
Communications, Inc., US West, Inc., Pacific Telesis Group and GTE
Corporation. For the purpose of calculating the peer group average, the
returns of each company have been weighted according to its stock market
capitalization. The measurements are indexed to a value of $100 at December
31, 1989, and assume that all dividends are reinvested.
MCI COMMUNICATIONS CORPORATION
Five-Year Cumulative Total Return
for MCI, Peer Group and S&P 500
[GRAPH APPEARS HERE]
PROPOSAL 1
APPROVAL OF
THE SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
DESCRIPTION OF THE PLAN
At this annual meeting, the Company's stockholders are being asked to
approve a performance-based incentive compensation plan for the Company's
senior executive officers. The plan, entitled the MCI Communications
Corporation Senior Executive Incentive Compensation Plan, was adopted by the
Company's board of directors on January 31, 1996. The SEICP is intended to
provide certain of the Company's senior executive officers with financial
incentives (cash and restricted stock) to meet and exceed the Company's
financial and strategic objectives using objective performance-based goals
comprised of factors such as: revenue;
15
<PAGE>
operating income; earnings before interest expense, taxes, depreciation,
amortization and other non-cash items; return on equity; return on assets; and
economic value added. This Proposal solicits the approval of the Company's
stockholders for the purpose of qualifying awards under the SEICP as allowable
deductions in computing the Company's federal income tax. If the SEICP is
approved by stockholders, the Company will be entitled to deduct for tax
purposes compensation paid under the SEICP to its Chief Executive Officer and
the other participating officers notwithstanding the $1 million limitation
under section 162(m) of the Code. The SEICP is designed to replace the MCI
Communications Corporation Executive Incentive Compensation Plan for such
officers.
Section 162(m) to the Code (adopted in 1993), disallows deductions for
compensation in excess of $1 million for certain executive officers of
publicly-held corporations, unless such compensation meets the requirements of
section 162(m) as performance-based compensation. In December of 1995, the
Internal Revenue Service finalized the regulations under section 162(m). Upon
the finalization of these regulations, the board of directors, with
management's assistance, prepared and adopted the SEICP. In order to meet the
requirements of section 162(m), the Company's stockholders must approve the
material terms under which the compensation is payable. The following summary
description of the SEICP is qualified in its entirety by reference to the full
text thereof, a copy of which is attached as Appendix A to this Proxy
Statement.
Under the SEICP, eligible employees are the Chief Executive Officer and any
other Company employee who in the opinion of the Compensation Committee will
have compensation for the plan year sufficient to result in the employee being
listed in the Summary Compensation Table as one of the four most highly
compensated executive officers as required by Item 402(a)(3)(i) and (ii) of
Regulation S-K under the Securities Act of 1933. In addition, the Compensation
Committee retains discretion to name as a participant an employee hired or
promoted after the first 90 days of the year. If this SEICP had been in effect
in 1995, the participants in the SEICP would have been Bert C. Roberts, Jr.
and Gerald H. Taylor. For 1996, the Compensation Committee has designated Bert
C. Roberts, Jr. and Gerald H. Taylor as participants in the SEICP.
During the first 90 days of each year, the Compensation Committee will
specify which employees will be participants in the SEICP for that year and
set performance goals and performance awards for each participant for the year
using one or a combination of the following factors: revenue, operating
income, earnings before interest expense, taxes, depreciation, amortization
and other non-cash items; return on equity; return on assets; and economic
value added; or performance of a subsidiary as measured by such items,
provided that such participant is a senior executive officer of such
subsidiary.
The Compensation Committee will also establish threshold, target and maximum
performance objectives and corresponding awards, with benefit awards
increasing as performance increases, subject to the SEICP's maximum
performance award. After the end of the year, the Compensation Committee will
review the Company's or relevant subsidiary's financial results and certify
the level of performance achieved. Participants are eligible to receive an
award only based on achievement of the performance objectives. If the
Compensation Committee, in its sole discretion, believes that an award is in
excess of what should be awarded for the performance, the Compensation
Committee has the discretion to reduce awards earned under the SEICP. In
addition, under no circumstances can a participant receive, under the SEICP,
an award that is in excess of the maximum cash award plus the maximum
restricted stock award. These amounts are $4 million and 100,000 shares of
Common Stock, respectively, in any year.
The Company's board of directors may amend or terminate the SEICP at any
time; however, it is intended that the SEICP will be operated and interpreted
so that performance awards remain tax deductible by the Company. The
Compensation Committee reserves the right, however, to establish alternate
compensation arrangements for SEICP participants if it determines, in its
discretion, that it would be in the best interests of the Company and its
stockholders to do so, even if the result is the loss of deductibility for
certain compensation payments. If a participant is terminated prior to the end
of the plan year, the Compensation Committee shall determine whether the
participant shall receive an award for the year and the amount of the award.
Upon a change in control a participant shall be deemed to have fully earned
the performance award for the year.
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<PAGE>
As the SEICP was recently adopted by the board of directors and the future
performance of the Company on which awards will be based cannot be predicted,
it is not possible to determine the amount of cash and restricted stock which
will be awarded under the SEICP in any year.
VOTING ON THE PROPOSAL
Approval of the SEICP requires the affirmative vote of a majority of the
shares present at the annual meeting in person or by proxy and entitled to
vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 2
APPROVAL OF THE AMENDMENT TO THE
STOCK OPTION PLAN
In 1989, the Company's board of directors adopted and the stockholders
approved a Stock Option Plan for officers and executive, managerial,
administrative and professional employees ("key employees") of MCI and its
subsidiaries and reserved for issuance 25,000,000 shares of Common Stock. The
Stock Option Plan also authorizes the board annually to increase the number of
shares reserved as of January 1, 1993 and each January 1 thereafter by up to
5% of the number of shares of Common Stock outstanding at each such date. No
more than 17,000,000 shares of Common Stock may be issued pursuant to
incentive stock options.
DESCRIPTION OF THE STOCK OPTION PLAN AMENDMENT
On January 31, 1996, the board of directors adopted, subject to and
effective upon stockholder approval, an amendment to the Stock Option Plan
("Stock Option Plan Amendment"). The following description of the amendment is
qualified in its entirety by reference to the full text thereof, a copy of
which is attached as Appendix B to this Proxy Statement. The amendment: (1)
gives the Company authority to grant stock options to individuals who are not
employees, specifically, advisors and consultants to the Company; (2) allows
retirees to exercise their options for up to one year after retirement rather
than the current 90 days, changes retirement age from age 65 to age 62 with at
least 5 years of service and accelerates the vesting of options of retirees
with at least 5 years of service at age 62; (3) provides for the maximum
number of shares of Common Stock with respect to which options may be granted
to any individual in any calendar year to be 400,000 shares; (4) provides the
Compensation Committee with flexibility to determine that a termination of
employment has not occurred when a participant transfers to a joint venture or
minority subsidiary; and (5) eliminates the provision which limits the use of
Common Stock to pay the exercise price of a stock option to once every 90
days.
DISCUSSION OF THE CHANGES
The Company has overseas advisors and consultants who have significantly
contributed to the Company's success in building alliances abroad. However,
the Stock Option Plan does not permit granting of options to non-employees. As
these individuals are not Company employees, no program exists to align their
financial rewards to the Company's stock performance. Therefore, the board of
directors recommends approval of this amendment to the Stock Option Plan to
enable the Company to offer this financial incentive. Although the Company has
advisors and consultants in the U.S., at this time the Company does not
anticipate granting stock options to its U.S. advisors and consultants.
However, the amendment would enable the Company to grant options to advisors
and consultants in the U.S. should the Company deem it advisable to do so.
The board of directors also recommends a change to the retirement provisions
of the Stock Option Plan. By extending the period for exercise of options
post-retirement from three months to one year, the Stock Option Plan will
afford its retired optionees a longer period of time in which to plan for
their exercise and to plan for
17
<PAGE>
the associated taxable income. The acceleration of vesting upon retirement
will enable the retirees to benefit from options granted to them in their last
year of employment. The Stock Option Plan in its current form does not permit
the vesting of any options until the first anniversary of the grant date,
therefore eliminating any benefit of options granted in the last year of
employment before retirement and based, in part, on their performance in the
prior year.
The maximum grant provision in the amendment is intended to comply with
section 162(m) of the Code which limits deductions for compensation in excess
of $1 million for the most highly paid executive officers of public
corporations. In order to qualify compensation generated as a result of the
exercise of an option under the Stock Option Plan as performance-based
compensation, and therefore fully deductible under section 162(m), the Stock
Option Plan must specify a maximum number of shares that can be awarded to any
individual. The amendment also adds a requirement that, to the extent
necessary for compliance with section 162(m), the Compensation Committee will
be made up of "outside directors."
The provision authorizing the Compensation Committee greater discretion to
determine when a termination of employment has occurred provides greater
flexibility in coordinating benefits of employees whom the Company transfers
to ventures and alliances in which the Company has invested. The amendment
enables the Compensation Committee to allow such individuals to continue to
hold and vest in the stock options which had been granted to them in prior
years.
The provision which limits the use of Common Stock to pay the exercise price
of a stock option to once every 90 days has been removed to enable optionees
to use shares of Common Stock held for more than 6 months as frequently as
they wish to exercise their stock options. The 6 month holding requirement of
Common Stock used in such transactions was implemented to prevent options from
being treated as stock appreciation rights under accounting rules.
SUMMARY OF THE STOCK OPTION PLAN
The Stock Option Plan is administered by the Compensation Committee of the
board of directors, which is comprised of three or more of MCI's directors who
are not eligible to receive awards under the Stock Option Plan. The
Compensation Committee considers management recommendations and selects the
key employees to whom awards will be granted and determines the number and,
subject to the terms of the Stock Option Plan, other terms and provisions of
such awards. Under the Stock Option Plan, stock options, stock appreciation
rights, restricted stock and performance shares are available for grant.
Stock options are exercisable during the period fixed by the Compensation
Committee for each option, except no incentive stock option shall be
exercisable more that ten years after the date of grant.
The exercise price of an option shall be no less than 100% of the closing
price of Common Stock on the date of grant and is payable upon exercise of the
option in cash, or by the surrender of shares of Common Stock, or by such
other means as the Compensation Committee may in its discretion prescribe.
Shares covered by options which are exercised shall not be available for the
grant of additional awards under the Stock Option Plan.
Stock appreciation rights may be granted in connection with all or any part
of any stock option granted under the Stock Option Plan either at the time of
grant or any time thereafter. The grantee of a stock appreciation right has
the right to surrender all or a portion of the related option and to receive
instead a payment equal to the appreciation in the fair market value of the
shares subject to the surrendered option (or portion thereof) from the date of
grant to the date on which the stock appreciation right is exercised. At the
discretion of the Compensation Committee, payment may be made in Common Stock
and/or cash.
Options and stock appreciation rights are transferable only by will or under
the laws of descent and distribution. With certain exceptions, each option or
stock appreciation right will be exercisable only by the optionee and only if
the optionee has been in the employ of MCI since the date of grant of the
option.
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<PAGE>
The Compensation Committee may grant either incentive stock options under
section 422 of the Code or nonqualified stock options which do not qualify for
the tax treatment afforded incentive stock options. Neither the grant of an
incentive stock option nor the grant of a nonqualified stock option will be
treated as compensation to the optionee for federal income tax purposes, and
neither will result in a deduction for tax purposes for MCI. Similarly, the
grant of a stock appreciation right will not result in income to the optionee
or a deduction for tax purposes for MCI at the time of grant.
On exercise of an incentive stock option, the optionee will not recognize
any compensation income, and MCI will not be entitled to a deduction for tax
purposes, although exercise of an incentive stock option may give rise to
liability under the alternative minimum tax provisions of the Code. Generally,
if the optionee disposes of shares acquired upon exercise of an incentive
stock option within one year of the date of exercise, the optionee will
recognize compensation income, and MCI will be entitled to a deduction for tax
purposes, in the amount of the excess of the fair market value of the shares
of Common Stock on the date of exercise over the option price (or the gain on
sale, if less). Otherwise, MCI will not be entitled to any deduction for tax
purposes upon disposition of such shares and the entire gain for the optionee
will be treated as a capital gain. On exercise of a nonqualified stock option,
the amount by which the fair market value of the Common Stock on the date of
exercise exceeds the option price will generally be taxable to the optionee as
compensation income and deductible for tax purposes by MCI. Upon exercise of a
stock appreciation right, the amount of the cash and/or the value of the stock
received will be treated as income to the employee and deductible for tax
purposes by MCI.
The Compensation Committee may grant restricted shares of Common Stock for a
purchase price at least equal to their par value, subject to such conditions
and restrictions as the Compensation Committee may determine at the time of
grant. The Compensation Committee may at any time waive any such restrictions.
The recipient shall have all the rights of a stockholder, including voting and
dividend rights, subject to the restrictions and conditions contained in the
participant's restricted stock agreement. Restricted stock awards are
nontransferable, and, if a participant who holds a restricted stock award
terminates employment for any reason (including death) prior to the lapse of
the restriction, the Company shall have the right to repurchase the restricted
shares for their original purchase price.
The Compensation Committee may grant a nontransferable performance share
award entitling the recipient to receive cash or shares of Common Stock if
performance goals or other requirements are attained. Except as otherwise
determined by the Compensation Committee, rights under a performance share
award will terminate upon a participant's termination of employment. Any
restriction or condition of an award may be waived or modified by the
Compensation Committee at any time prior to the termination of employment.
Shares which are not transferred pursuant to an award, or which are
transferred and subsequently forfeited due to termination of the recipient's
employment or failure to satisfy the applicable restrictions and conditions,
shall again become available for issuance pursuant to awards under the Stock
Option Plan.
In general, the recipient of a restricted stock award or a performance share
award will recognize ordinary income in the amount of any cash received plus
the market value of the shares on the date when the shares are no longer
subject to a substantial risk of forfeiture (as such term is defined in the
Code) less any amount paid for the shares, and the Company will be entitled to
a deduction for tax purposes in the same amount. If the recipient of a
restricted stock award elects to have the tax liability determined at the time
of the grant rather than when the restrictions lapse, the recipient will
recognize income and the Company shall be entitled to a deduction at that
time. However, if such shares are subsequently forfeited the participant is
not entitled to an offsetting tax deduction.
No current directors who are not executive officers will receive any benefit
as a result of this proposed amendment. The benefits that will be received as
a result of this amendment by the current executive officers and by all
eligible employees are not currently determinable.
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<PAGE>
VOTING ON THE PROPOSAL
Approval of the amendment to the Stock Option Plan requires the affirmative
vote of a majority of the shares present at the annual meeting in person or by
proxy and entitled to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 3
APPROVAL OF THE AMENDMENT TO THE
1990 STOCK PURCHASE PLAN
In 1989, the board of directors adopted and the stockholders approved a
stock purchase plan for the Company and participating subsidiaries ("1990
Stock Purchase Plan") and authorized 25,000,000 shares of Common Stock to be
issued under the 1990 Stock Purchase Plan. In 1994, the board of directors
adopted and the stockholders approved the reservation of 20,000,000 additional
shares of the Company's Common Stock to be issued under the 1990 Stock
Purchase Plan. As of December 31, 1995, 12,453,284 of the allocated shares had
not yet been issued and remain available for issuance under the 1990 Stock
Purchase Plan.
DESCRIPTION OF THE STOCK PURCHASE PLAN AMENDMENT
On January 31, 1996, the board of directors adopted, subject to and
effective upon stockholder approval, an amendment to the 1990 Stock Purchase
Plan ("Stock Purchase Plan Amendment"). The following description of the
amendment is qualified in its entirety by reference to the full text thereof,
a copy of which is attached as Appendix C to this Proxy Statement. The
amendment: reserves an additional 11,000,000 shares of Common Stock for
issuance under the 1990 Stock Purchase Plan; changes the method of calculation
of the Base Option Price (as described below) to set a minimum price at the
beginning of an offer, so that employees who commence participation during the
offer period will not benefit to a greater extent than those entering the 1990
Stock Purchase Plan at an earlier date; and eliminates the requirement to
revalue the Base Option Price at the midpoint of an offer if the offer has a
term of more than 15 months. The board of directors continues to believe that
the opportunity to acquire Common Stock serves as a valuable incentive to
improve the job performance of Company employees and facilitates the Company's
efforts to secure and retain valuable employees.
SUMMARY OF THE 1990 STOCK PURCHASE PLAN
Under the 1990 Stock Purchase Plan, eligible employees of the Company and
any subsidiary which adopts the 1990 Stock Purchase Plan with the Company's
consent may purchase shares of Common Stock through one or more offers made on
behalf of the Company by the Compensation Committee. An offer under the 1990
Stock Purchase Plan may not be for longer than a term of 27 months. Holders of
5% or more of the voting power of MCI's outstanding capital stock and
directors who are not otherwise employed by the Company are ineligible to
participate in such offerings. As of December 31, 1995, all active employees
(including officers) of the Company and its eligible subsidiaries were
eligible to participate in the 1990 Stock Purchase Plan, provided they met the
3-month continuous service requirement for participation. As of December 31,
1995, approximately 48,351 employees were eligible to participate in the 1990
Stock Purchase Plan. Since its inception, approximately 70% of eligible
employees have participated in the 1990 Stock Purchase Plan.
The Compensation Committee may amend or modify the 1990 Stock Purchase Plan,
but may not make any change which does not comply with the requirements of
section 423(b) of the Code or with regulations promulgated under Section 16(b)
of the Exchange Act.
Eligible employees are entitled to purchase shares of Common Stock (subject
to the maximum limitations set forth in the 1990 Stock Purchase Plan) through
biweekly payroll deductions of up to the maximum percentage set by the board
of directors at the beginning of each offer, which percentage may not exceed
15% of eligible
20
<PAGE>
compensation. Purchases are made monthly. Under the 1990 Stock Purchase Plan,
the purchase price for such shares of Common Stock is equal to the lesser of
(a) 85% of the fair market value of a share of Common Stock on the date of
grant of the option ("Base Option Price") and (b) 85% of the fair market value
of a share of Common Stock on the date of purchase. If the Stock Purchase Plan
Amendment is approved by stockholders, the Base Option Price for employees who
become eligible for the 1990 Stock Purchase Plan after the offer date would be
the higher of the Base Option Price at the inception of the offer or 85% of
the fair market value of a share of Common Stock on the date the employee
became eligible to participate. Currently, each new employee is assigned a
Base Option Price which is equal to 85% of the fair market value of a share of
Common Stock on the employee's eligibility date.
Options under the 1990 Stock Purchase Plan are not transferrable other than
by will or under the laws of descent and distribution. An employee may request
certificates representing shares purchased during an offer and may at any time
and for any reason withdraw from further participation in an offer and receive
the number of shares of Common Stock previously purchased pursuant to the
offer. In the event of retirement, death or termination of employment, the
number of shares of Common Stock previously purchased pursuant to the offer
will be delivered to the employee or the employee's representative.
The 1990 Stock Purchase Plan is not subject to the requirements of the
Employee Retirement Income Security Act of 1974. It is intended to qualify as
an "employee stock purchase plan," as defined in section 423 of the Code.
Under section 423, an employee must report as compensation in the year of
disposition of shares purchased under the 1990 Stock Purchase Plan (or at
death) the lesser of (a) the excess of the fair market value at the time of
disposition (or death) over the purchase price and (b) the excess of the fair
market value of the shares at the time the option was granted over the initial
Base Option Price. Any excess of appreciated value is considered a capital
gain. In order to qualify for long-term capital gain tax treatment, the
employee must hold the shares to a date that is more than two years from the
date of option grant and one year from the date of purchase. If these holding
requirements are met, the Company is not entitled to any deduction for tax
purposes. On the other hand, if the employee does not meet the holding period
requirements, the employee realizes at the time of disposition ordinary income
to the extent of the difference between the price paid for the shares and fair
market value on the purchase date, and an amount equal to such ordinary income
is deductible by MCI. The employee will recognize a capital gain or loss for
the difference between the fair market value on the purchase date and the
price at which the employee disposed of the shares.
The 1990 Stock Purchase Plan and all rights of participating employees
pursuant to the 1990 Stock Purchase Plan terminate (a) on the day on which all
shares then subject to the 1990 Stock Purchase Plan have been purchased, or
(b) at any time, at the discretion of the Compensation Committee.
No current directors who are not executive officers will receive any benefit
as a result of this proposed amendment. The benefits that will be received as
a result of this amendment by the current executive officers and by all
eligible employees are not currently determinable.
VOTING ON THE PROPOSAL
Approval of the amendment to the 1990 Stock Purchase Plan requires the
affirmative vote of a majority of the shares present either in person or by
proxy at the annual meeting and entitled to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
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<PAGE>
PROPOSAL 4
APPROVAL OF THE AMENDMENT TO THE
1988 DIRECTORS' STOCK OPTION PLAN
DESCRIPTION OF THE DIRECTORS' STOCK OPTION PLAN AMENDMENT
In 1988, the board of directors adopted and the stockholders approved in
1989, a stock option plan for non-employee directors of the Company ("1988
Directors' Stock Option Plan") and authorized 1,000,000 shares of the
Company's Common Stock to be issued pursuant to the 1988 Directors' Stock
Option Plan. As of January 31, 1996, all but 160,000 of the allocated shares
had been issued or were contingently issuable upon the exercise of outstanding
options. In January 1996, the board of directors adopted, subject to, and
effective upon, stockholder approval, an amendment to the 1988 Directors'
Stock Option Plan, attached hereto as Appendix D to this Proxy Statement. The
amendment: reserves an additional 1,000,000 shares of Common Stock for
issuance under the 1988 Directors' Stock Option Plan, extends the termination
date of the 1988 Directors' Stock Option Plan to April 25, 2006, 10 years from
the date of this annual meeting, and eliminates the provision which limits the
use of Common Stock to pay the exercise price of a stock option to once every
90 days.
SUMMARY OF THE 1988 DIRECTORS' STOCK OPTION PLAN
The 1988 Directors' Stock Option Plan provides for automatic grant of an
option to purchase 40,000 shares of Common Stock at the closing price on the
date of grant to each new director elected to the board. Only directors who
are not employees of the Company or its subsidiaries are eligible to
participate in the 1988 Directors' Stock Option Plan.
The 1988 Directors' Stock Option Plan is administered by the Nominating
Committee of the board of directors. The board of directors has delegated to
the Nominating Committee the authority to interpret and implement the 1988
Directors' Stock Option Plan, to prescribe, amend and rescind the rules, to
make all determinations necessary and to supply any omission, correct any
defects and reconcile inconsistencies in the 1988 Directors' Stock Option
Plan.
Neither the board of directors nor the Nominating Committee has authority to
change the number of shares granted to non-employee directors, alter the
vesting schedule, or to determine selectively which of the non-employee
directors shall receive options pursuant to the 1988 Directors' Stock Option
Plan. All grants are automatic to assure that directors serving on the
Compensation Committee, which administers the Company's Stock Option Plan for
employees, shall be "disinterested persons" as required by Rule 16b-3
promulgated under the Exchange Act.
The 1988 Directors' Stock Option Plan provides that each option granted
shall be a nonqualified option. All options shall become exercisable in
cumulative installments of 25% per year beginning on the first anniversary of
the date of the grant. No options may be granted after the 1988 Directors'
Stock Option Plan expiration on June 27, 1998. If approved by stockholders at
this annual meeting, the expiration date would be April 25, 2006. The option
price must be at least 100% of the Common Stock's closing price on the date of
grant and is payable upon exercise of the option either in cash, by the
surrender of shares of Common Stock having a fair market value on the date of
receipt by the Company equal to the purchase price or by such other means as
the Nominating Committee may prescribe. The provision which limits the use of
Common Stock to pay the exercise price of a stock option to once every 90 days
has been removed to enable directors to use shares of Common Stock held for
more than 6 months as frequently as they wish to exercise their stock options.
The 6 month holding requirement of Common Stock used in such transactions was
implemented to prevent options from being treated as stock appreciation rights
under accounting rules. Upon the fifth anniversary of the date of a grant of
options, the unexercised portion of the grant shall be canceled and a new
option for 40,000 shares of Common Stock shall automatically be granted.
Shares which are not transferred pursuant to an award, or which are
transferred and subsequently forfeited due to termination or expiration of an
option, shall again become available for issuance pursuant to awards under the
1988 Directors' Stock Option Plan.
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Options are transferable only by will or under the laws of descent and
distribution. With certain exceptions, each option may be exercised only by
the optionee and only if the optionee is a director of the Company.
The grant of an option is not treated as compensation for the optionee for
federal income tax purposes; nor will the grant result in a deduction for tax
purposes for the Company. On the exercise of an option, the optionee will
recognize income for tax purposes in the amount by which the fair market value
of the shares of Common Stock on the date of exercise exceeds the option
price. Such amount will be deductible for tax purposes by the Company.
VOTING ON THE PROPOSAL
Approval of the amendment to the 1988 Directors' Stock Option Plan requires
the affirmative vote of a majority of the shares present at the annual meeting
in person or by proxy and entitled to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
NEW PLAN BENEFITS
The SEICP and the 1988 Directors' Stock Option Plan are not included in the
New Plan Benefits Table for the following reasons: (1) awards under the SEICP
are not determinable since awards are based on future Company performance and
(2) only non-employee directors of the Company are eligible to participate in
the 1988 Directors' Stock Option Plan, and the Company has no present
intention to elect any additional non-employee directors at this time.
NEW PLAN BENEFITS(1)
<TABLE>
<CAPTION>
STOCK OPTION PLAN(2) STOCK PURCHASE PLAN(3)
--------------------------- --------------------------
NUMBER OF NUMBER OF
NAME AND POSITION DOLLAR VALUE ($) UNITS DOLLAR VALUE ($) UNITS
- ----------------- ---------------- ---------- ---------------- ---------
<S> <C> <C> <C> <C>
Bert C. Roberts, Jr..... N/D 150,000 0 0
Chairman and Chief
Executive Officer
Gerald H. Taylor........ N/D 100,000 N/D 917
President and Chief
Operating Officer
Timothy F. Price ....... N/D 115,000 N/D 917
President and Chief
Operating Officer of
MCIT
Michael J. Rowny ....... N/D 70,000 N/D 980
Executive Vice President
of MCI
Douglas L. Maine ....... N/D 70,000 N/D 135
Executive Vice President
and Chief Financial
Officer
Executive Group(4)...... N/D 850,000 N/D 5,725
Non-Executive Director N/A N/A N/A N/A
Group(5)...............
Non-Executive Officer N/D 24,271,231 N/D 5,358,484
Employee Group(6)......
</TABLE>
- --------
(1) For all plans, Number of Units represents options to purchase shares of
Common Stock. N/A means that the individual or group is not eligible to
participate in the plan. N/D means that the amount is not determinable.
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<PAGE>
(2) As benefits are not determinable pursuant to Instruction 3 of Item 10 of
Reg. Sec. 240.14a-101 of the Exchange Act, benefits stated are the number of
shares covered by options granted to each of the groups of employees under the
Stock Option Plan in 1995. The future value, if any, is not determinable.
Options become exercisable to the extent of one-third of the shares covered
thereby on each of the first, second and third anniversaries of the grant.
(3) An employee's level of participation in the 1990 Stock Purchase Plan and
the price at which the stock is purchased are variable. The information
provided is based on the actual participation level of the Company's employees
during 1995.
(4) Includes all current executive officers, 11 people.
(5) Includes all current directors who are not executive officers, 11
people.
(6) Includes all employees, including all current officers who are not
executive officers.
PROPOSAL 5
APPROVAL OF
INDEPENDENT ACCOUNTANTS
The Company's board of directors, subject to stockholder approval, has
selected Price Waterhouse LLP to serve as independent accountants for the
Company's fiscal year ending December 31, 1996.
A representative of Price Waterhouse LLP is expected to be present at the
annual meeting. The representative will be given an opportunity to make a
statement if he so desires and is expected to be available to respond to
appropriate questions.
VOTING ON THE PROPOSAL
The approval of the appointment of Price Waterhouse LLP as independent
accountants requires the affirmative vote of a majority of the shares present
at the annual meeting in person or by proxy and entitled to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
STOCKHOLDER PROPOSALS
Proposals submitted by stockholders for presentation at the 1997 annual
meeting must be received by the Company no later than November 15, 1996 for
inclusion, if appropriate, in the Company's proxy statement and form of proxy
relating to that annual meeting.
By order of the board of directors,
/s/ C. Bolton-Smith, Jr.
C. Bolton-Smith, Jr.
Secretary
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APPENDIX A
MCI COMMUNICATIONS CORPORATION
SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
January 1996
Section 1. Purpose and Scope.
The purpose of the MCI Communications Corporation Senior Executive Incentive
Compensation Plan is as follows: (i) to provide certain senior executives with
performance-based compensation as an incentive for their efforts to achieve
MCI's financial and strategic objectives; and (ii) to qualify compensation
paid under the Plan as "performance-based compensation" within the meaning of
Section 162(m) of the Code.
Section 2. Definitions.
(a) "Board": the Board of Directors of the Company.
(b) "Change in Control": the completion of a tender offer under the
Securities Exchange Act of 1934 and the rules and regulations thereunder for
more than 30% of the Company's voting stock by a third party business entity
or by a related group of entities.
(c) "Chief Executive Officer": the chief executive officer of the Company.
(d) "Code": the Internal Revenue Code of 1986, as amended.
(e) "Committee": the Compensation Committee of the Board.
(f) "Company": MCI Communications Corporation and any subsidiary thereof
designated for Plan participation with the approval of the Committee.
(g) "Dismissal for Cause": termination of employment for (i) theft or
embezzlement of the property of the Company or any of its subsidiaries; (ii)
fraud or other wrongdoing against the Company or any of its subsidiaries;
(iii) conviction of a crime of moral turpitude; (iv) receipt of consideration
or acceptance of benefits from, or the participation in business activities
with, persons doing business with the Company or any of its subsidiaries or an
affiliate, in violation of the business ethics policy of the Company; (v)
malicious destruction of the property of the Company or any of its
subsidiaries; (vi) improper disclosure of trade secrets of the Company or any
of its subsidiaries; (vii) actively engaging in or working for a business in
direct competition with the Company or any of its subsidiaries while employed
by the Company or one of its subsidiaries; or (viii) such other reason as the
Committee may determine.
(h) "Eligible Employee": the Chief Executive Officer and any other Company
employee who, in the opinion of the Committee, (i) will have compensation for
the Plan Year sufficient to result in the employee being listed in the Summary
Compensation Table as required by Item 402(a)(3) of Regulation S-K under the
Securities Act of 1933, as amended; or (ii) otherwise qualifies as a key
executive of the Company.
(i) "Maximum Cash Award": an amount not greater than $4 million with respect
to an award of a bonus.
(j) "Maximum Performance Award": the sum of the Maximum Cash Award and the
Maximum Restricted Stock Award.
(k) "Maximum Restricted Stock Award": a number of shares of the Common Stock
of the Company not to exceed 100,000 shares.
(l) "Outside Directors": members of the Board who qualify as outside
directors, as that term is defined in Section 162(m) of the Code and the
regulations proposed or adopted thereunder.
(m) "Participant": an Eligible Employee designated by the Committee under
Section 3 to participate in the Plan.
(n) "Performance Award": the bonus and/or restricted stock awarded to a
Participant under the terms of the Plan.
A-1
<PAGE>
(o) "Performance Goals": the goals established by the Committee which, if
satisfied, will result in a Performance Award.
(p) "Plan": the MCI Communications Corporation Senior Executive Incentive
Plan, as amended from time to time.
(q) "Plan Year": the twelve month period which is the same as the Company's
fiscal year; the fiscal year of the Company is currently the calendar year.
(r) "Summary Compensation Table": the summary compensation table appearing
in the Company's proxy statement distributed to stockholders in the calendar
year following the Plan Year.
Section 3. Participation.
As soon as possible following the commencement of each Plan Year, the
Committee shall specify by name or position the Participants. The Committee
shall retain discretion to name as a Participant an employee hired or promoted
after the commencement of the Plan Year.
Section 4. Establishment of Performance Goals and Performance Awards.
4.1 Specification by Committee. No later than ninety days after the
commencement of the Plan Year, the Committee shall specify in writing the
Performance Goals and Performance Awards which are to apply for that Plan
Year. Performance Awards may vary among Participants and from Plan Year to
Plan Year; provided, however, that no Performance Award shall exceed the
Maximum Performance Award. Performance Goals may vary as well among
Participants and from Plan Year to Plan Year; provided, however, that the
Performance Goals established in any Plan Year shall be based upon one or more
of the following financial factors: revenue; operating income; earnings before
interest expense, taxes, depreciation, amortization and other non-cash items
("EBITDA"); return on equity; return on assets; and economic value added; or
performance of a subsidiary or other business unit of the Company on such
items, provided that such Participant is a senior executive officer of such
subsidiary or other business unit. These factors will not be altered or
replaced by any other criteria without ratification by the stockholders of the
Company if failure to obtain such approval would result in jeopardizing the
tax deductibility of Performance Awards to Participants.
4.2 Calculation of Financial Factors. Revenue, operating income, EBITDA,
return on equity, return on assets and economic value added may be calculated
for purposes of the Plan without regard to (i) losses from discontinued
operations; (ii) extraordinary gains or losses (as defined by generally
accepted accounting principles); and (iii) the cumulative effect of changes in
accounting principles.
Section 5. Determination of Amount of Performance Awards.
5.1 Committee Certification Regarding Performance Goals. As soon as possible
following the end of each Plan Year, the Committee shall certify for each
Participant whether the Performance Goals for that Plan Year have been met. If
such goals have been met, the Committee will award such Participant the
Performance Award established under Section 4.1 hereof, subject to the
discretion reserved in Section 5.3 to reduce such awards, but with no
discretion to increase the Performance Award.
5.2 Maximum Award. No Performance Award to a Participant for a Plan Year may
exceed the Maximum Performance Award.
5.3 Reduction of Award Amount. The Committee in its sole discretion may
award to a Participant less than the Performance Award regardless of the fact
that the Performance Goals for the Plan Year have been met.
Section 6. Payment of Awards.
Performance Awards for a given Plan Year shall be paid as soon as
practicable following the close of that Plan Year to the extent such awards
consist of cash bonuses. To the extent the Committee specifies Performance
A-2
<PAGE>
Awards will be paid in restricted stock, such awards shall be paid under those
provisions of the MCI Communications Corporation Stock Option Plan applicable
to restricted stock.
Section 7. Restricted Stock with Performance-Based Vesting.
Notwithstanding the foregoing provisions of this Plan, the Committee may
make an award to a Participant under this Plan of restricted stock that is not
contingent upon prior satisfaction of Performance Goals, as described in
Section 4; provided, however, that, in such event, the nonforfeitability of
the restricted stock shall be contingent upon satisfaction of one or more
Performance Goals, as described in Section 4, under the terms and conditions
specified by the Committee in writing at or prior to the time the award of
restricted stock is made. In no event shall any restricted shares awarded
under this Section 7, together with any restricted stock awarded under Section
5.1 in the same Plan Year, exceed the Maximum Restricted Stock Award.
Section 8. Plan Administration.
8.1 Administration by Committee. The Plan shall be administered by the
Committee. If the Committee is not comprised solely of Outside Directors, then
any responsibilities of the Committee in connection with operation of this
Plan shall be carried out by a subcommittee of the Committee. This
subcommittee shall consist solely of two or more Outside Directors.
8.2 Interpretation of Plan Provisions. The Committee shall construe and
interpret the Plan and may adopt rules and regulations governing
administration of the Plan. The Committee may consult with the management of
the Company but shall retain responsibility for administration of the Plan.
The Committee's decisions, actions and interpretations regarding the Plan
shall be final and binding upon all Participants.
Section 9. Compliance with Section 162(m) of the Code.
The Company intends that Performance Awards under this Plan satisfy the
applicable requirements of Section 162(m) of the Code so that this Code
section does not deny the Company a tax deduction for such Performance Awards.
It is intended that the Plan shall be operated and interpreted such that
Performance Awards remain tax deductible by the Company, except to the extent
set forth in Section 12.
Section 10. Termination of Employment.
If a Participant's employment with the Company terminates prior to the end
of a Plan Year, the Committee shall determine whether the Participant shall
receive any Performance Award for such Plan Year, and the amount of any such
award. No Performance Award shall be distributed to a Participant whose
employment is terminated by reason of Dismissal for Cause.
Section 11. Nonassignability.
No Performance Award granted to a Participant under the Plan shall be
assignable or transferable, except by will or by the laws of descent and
distribution.
Section 12. Change in Control.
Upon the occurrence of a Change in Control, any Participant who is a
employee on the date of such change shall be deemed to have fully earned his
or her Performance Award for the Plan Year, unless the Committee determines
otherwise, and subject to any applicable contractual arrangements between the
Company and the Participant. Performance Awards payable under this Section 12
shall be paid in cash to the Participant as soon as practicable following the
effective date of the Change in Control.
Section 13. Effective Date and Term of Plan.
The Plan shall be effective as of January 1, 1996, subject to approval by
the stockholders of the Company of a majority of the votes cast on the issue.
Abstentions will not be counted as voting unless otherwise required by
applicable state law. The Plan shall continue from year to year until
terminated by the Board.
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<PAGE>
Section 14. Amendment of the Plan.
The Board may amend, modify or terminate the Plan at any time and from time
to time. Notwithstanding the foregoing, no such amendment, modification or
termination shall affect the payment of a Performance Award for a Plan Year
already ended.
Section 15. General Provisions.
15.1 Unfunded Plan. The Plan shall be an unfunded incentive compensation
arrangement for a select group of key management employees of the Company.
Nothing contained in the Plan, and no action taken pursuant to the Plan, shall
create or be construed to create a trust of any kind. A Participant's right to
receive a Performance Award shall be no greater than the right of an unsecured
general creditor of the Company. All Performance Awards shall be paid from the
general funds of the Company, and no segregation of assets shall be made to
ensure payment of Performance Awards.
15.2 Governing Law. The Plan shall be interpreted, construed and
administered in accordance with the laws of the state of New York, without
giving effect to principles of conflict of laws.
15.3 Section Headings. The section headings contained in the Plan are for
purposes of convenience only and are not intended to define or limit the
contents of the Plan's sections.
15.4 Effect on Employment. Nothing contained in the Plan shall affect or be
construed as affecting the terms of employment of any Eligible Employee except
as expressly provided in the Plan. Nothing in the Plan shall affect or be
construed as affecting the right of the Company to terminate the employment of
an Eligible Employee at any time for any reason, with or without cause.
15.5 Successors. All obligations of the Company with respect to Performance
Awards granted under the Plan shall be binding upon any successor to the
Company, whether such successor is the result of an acquisition of stock or
assets of the Company, a merger, a consolidation or otherwise.
15.6 Withholding of Taxes. The Company shall deduct from each Performance
Award the amount of any taxes required to be withheld by any governmental
authority.
15.7 Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Common Stock of the Company by reason of a stock dividend,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Committee shall appropriately adjust the number of
shares of Common Stock awardable as restricted stock under Section 4.1 hereof
and the maximum number of shares of Common Stock specified in Section 2(k)
hereof.
In Witness Whereof, MCI Communications Corporation has caused this Plan to
be executed this day of , 199 .
MCI Communications Corporation
_____________________________________
Bert C. Roberts, Jr.
Chairman
Attest
_____________________________________
C. Bolton-Smith, Jr.
Secretary
A-4
<PAGE>
APPENDIX B
AMENDMENT NO. 2
TO THE MCI COMMUNICATIONS CORPORATION
STOCK OPTION PLAN
The MCI Communications Corporation Stock Option Plan is hereby amended in
the following respects:
1. Section 1.1 is restated in its entirety to read as follows:
"1.1 Purpose
The purpose of this Stock Option Plan (the "Plan") is (a) to provide for the
officers and key employees of MCI Communications Corporation (the "Company")
and its subsidiaries an incentive (i) to join and remain in the employ of the
Company and its subsidiaries and (ii) to enhance the Company's long-term
performance, and (b) to provide certain outside consultants or advisors to the
Company and its subsidiaries with an opportunity to acquire a proprietary
interest in the Company in order to align their financial interests with those
of the stockholders of the Company."
2. Section 1.2(a)(ii) is restated in its entirety to read as follows:
"(ii) To the extent required for transactions under the Plan to qualify for
the exemptions available under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"), each member of the Committee
shall be a "disinterested person" within the meaning of Rule 16b-3. To the
extent required for compensation realized from awards under the Plan to be
deductible by the Company pursuant to section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), the members of the Committee shall be
"outside directors" within the meaning of section 162(m)."
3. Section 1.3 is restated in its entirety to read as follows:
"1.3 Eligibility for Awards
Awards under the Plan may be made to such officers and executive,
managerial, administrative or professional employees ("key employees") of the
Company or its subsidiaries (including members of the board of directors who
are also key employees of the Company or its subsidiaries) and to such natural
persons who are consultants or advisors to the Company or its subsidiaries
("eligible non-employees") (collectively, together with key employees,
"grantees") as the Committee shall in its sole discretion select; provided,
however, that members of the Company's board of directors who are not
employees shall not be eligible for awards under this Plan."
4. Section 1.6(d) is restated in its entirety to read as follows:
"(d) The term "optionee" means any grantee who has been granted an award
under the Plan."
5. A new Section 1.6(g) is added to read as follows:
"(g) The term "termination of employment" means (i) with respect to a key
employee, that the employment of such person by the Company and its
subsidiaries has terminated for any reason (including death), and (ii) with
respect to an eligible non-employee (other than one hired as an employee
coincident with the termination of his consulting or advisory services), that
such person no longer provides consulting or advisory services to the Company
or any of its subsidiaries and that there is no contract or agreement in
effect for the provision of such services. The Committee in its discretion may
determine (x) whether any leave of absence constitutes a termination of
employment for purposes of the Plan, (y) whether a termination of employment
has not occurred upon a grantee's transfer to employment with a joint venture
or subsidiary of the Company in which the Company's ownership is less than the
share described in Section 1.6(e), and (z) the impact, if any, of such a leave
of absence, transfer or other temporary interruption in employment on awards
theretofore made under the Plan."
6. Section 2.1(d) is restated in its entirety to read as follows:
"(d) The maximum number of shares of Common Stock with respect to which
options may be granted to any individual grantee in any calendar year shall be
400,000."
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<PAGE>
7. Section 2.4(c) is restated in its entirety to read as follows:
"(c) Any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased. Payment may
be made (i) by cashier's or certified check payable to the Company, or (ii) by
delivery of certificate(s), duly endorsed to the Company, representing shares
of Common Stock with a fair market value on the date of receipt by the Company
of the notice of exercise equal to part or all of the purchase price, together
with a cashier's or certified check for any balance due to the Company, or
(iii) at the discretion of the Committee and to the extent permitted by law,
by such other provision, as the Committee may from time to time prescribe. The
Company shall deliver to the optionee certificate(s) for shares of Common
Stock issuable upon exercise of an option as soon as practicable after receipt
of payment for such shares; provided, that if the method of payment employed
by the optionee so requires, the optionee may direct the Company to deliver
the certificates to the optionee's stockbroker. In addition, if an optionee's
transactions are not subject to Section 16b of the Act, upon exercise of
nonqualified stock options, the optionee may direct the Company to issue
shares of Common Stock to family members, trusts or charities."
8. Section 2.4 is amended by adding a Section 2.4(d) to read as follows:
"(d) No option shall be exercisable after its expiration date."
9. Section 2.5(a) is amended by changing the word "Company" in the first
sentence thereof to read "Committee."
10. Sections 2.8(a), (c) and (d) are restated in their entirety to read as
follows:
"(a) Except as otherwise provided in this Section 2.8, all awards granted to
a grantee shall terminate upon his termination of employment for any reason
(including death).
(c) If a key employee retires after attaining age 65, or before age 65 but
after attaining age 62 and having been credited with at least five years of
service with the Company and its subsidiaries ("retirement"), and provided
that no event has occurred which could give rise to a Dismissal for Cause,
such key employee's options shall become fully exercisable and may be
exercised, in whole or in part, until the first anniversary of the key
employee's retirement. However, to the extent required for compliance with the
rules under Section 16 of the Act, such an option shall not become exercisable
until outstanding for six months.
(d) If a grantee's employment terminates for any reason other than death,
disability or retirement, any award that he is entitled to exercise under the
terms of paragraph (b) above must be exercised within three months following
termination of employment. In the event that a grantee dies while employed by
the Company or a subsidiary, or during the three months after his employment
terminates for any reason other than Dismissal for Cause, any award granted to
him under the Plan which is exercisable pursuant to (b) above may be exercised
within one year after his death by the administrators or executors of his
estate or by the person or persons to whom his rights under the award shall
have passed by will or by the applicable laws of descent or distribution. If a
grantee terminates due to disability within the meaning of section 22(e)(3) of
the Code, such award may be exercised within one year of his termination of
employment. Any such exercise following disability may be made only by the
grantee or his personal representative."
11. Section 3.1 (iv) is restated in its entirety to read as follows:
"(iv) permit any option to be exercisable less than one year after the date
of grant, except in the case of a key employee's retirement as described in
Section 2.8(c)."
12. Every Section of the Plan in which the term "employee" or "key employee"
appears, other than Section 2.1(b), Section 3.6 and the Sections amended by
the foregoing provisions of this Amendment No. 2, is amended by replacing such
term with the term "grantee."
13. Every Section of the Plan in which a reference to Internal Revenue Code
section 422A appears is amended by replacing such reference with a reference
to Internal Revenue Code section 422.
B-2
<PAGE>
In Witness Whereof, MCI COMMUNICATIONS CORPORATION has caused this Amendment
No. 2 to be executed and attested by its duly authorized officers and its
corporate seal to be affixed hereto this day of , 1996.
MCI Communications Corporation
_____________________________________
Bert C. Roberts, Jr.
Chairman
Attest
_____________________________________
C. Bolton-Smith, Jr.
Secretary
B-3
<PAGE>
APPENDIX C
AMENDMENT NO. 2
TO THE MCI COMMUNICATIONS CORPORATION
1990 STOCK PURCHASE PLAN
The MCI Communications Corporation 1990 Stock Purchase Plan is hereby
amended as follows:
1. Paragraph 7 is hereby restated in its entirety to read:
"7. Option Price. A Base Option Price shall be established for all
participants as follows: Subject to the provision set forth in paragraph 8 to
the effect that only full shares of Common Stock may be purchased, and subject
also to the provisions of paragraph 11 with regard to recommencement of
participation, the Base Option Price for (i) an eligible employee on the
effective date of an Offer shall be 85% of the fair market value of a share of
Common Stock on the effective date of the Offer, (ii) an employee who becomes
eligible to participate in the Plan during the term of the Offer shall be the
greater of (a) the Base Option Price applicable on the effective date of the
Offer (calculated as provided in (i) above), or (b) 85% of the fair market
value of a share of Common Stock on the date such employee becomes eligible
under the Plan. The option price at which shares of Common Stock may be
purchased under any option granted under the Plan is the lesser of (x) the
applicable Base Option Price, or (y) 85% of the fair market value of a share
of Common Stock on the date Common Stock is purchased pursuant to options
granted under the Plan (the "Alternative Option Price")."
2. Paragraph 9 is hereby restated in its entirety to read:
"9. Number of Shares Offered. The maximum number of shares of Common Stock
that may be purchased under the Plan is 56,000,000. Such shares may be
treasury shares or authorized and unissued shares as the Committee may
determine in its discretion."
In Witness Whereof, MCI COMMUNICATIONS CORPORATION has caused this Amendment
No. 2 to be executed and attested by its duly authorized officers and its
corporate seal to be affixed hereto as of this day of , 199 .
MCI Communications Corporation
_____________________________________
Bert C. Roberts, Jr.
Chairman
Attest
_____________________________________
C. Bolton-Smith, Jr.
Secretary
C-1
<PAGE>
APPENDIX D
AMENDMENT NO. 1
TO THE MCI COMMUNICATIONS CORPORATION
1988 DIRECTORS' STOCK OPTION PLAN
The MCI Communications Corporation 1988 Directors' Stock Option Plan is
hereby amended as follows:
1. Section 1.4(b)(i) is hereby restated in its entirety to read:
"Subject to Section 3.4, the aggregate number of shares of Common Stock
which may be issued pursuant to options under the Plan shall not exceed
2,000,000."
2. Section 2.2(b) is hereby restated in its entirety to read:
"(b) Any written notice of exercise of an option shall be accompanied by
payment of the full option exercise price for the shares being purchased.
Payment may be made (i) by cashier's or certified check payable to the
Company, (ii) by delivery of certificate(s), duly endorsed to the Company,
representing shares of Common Stock with a fair market value on the date of
receipt by the Company of the notice of exercise, equal to or less than the
option exercise price, together with a cashier's or certified check for any
balance due to the Company, or (iii) at the discretion of the Committee and to
the extent permitted by law, by such other provision, consistent with the
terms of the Plan, as the Committee may from time to time prescribe. The
Company shall deliver to the optionee certificate(s) for shares of Common
Stock issuable upon exercise of an option as soon as practicable after receipt
of such payment for such shares."
3. Section 3.10(b) is hereby restated in its entirety to read:
"(b) The Plan shall terminate on April 25, 2006, and no awards shall
thereafter be made under the Plan, unless the Plan is approved for renewal by
the Company's stockholders. Notwithstanding the foregoing, all awards made
under the Plan prior to such date shall remain in effect until such awards
have been exercised or terminated in accordance with the terms and provisions
of the Plan."
In Witness Whereof, MCI COMMUNICATIONS CORPORATION has caused this Amendment
No. 1 to be executed and attested by its duly authorized officers and its
corporate seal to be affixed hereto as of this day of , 199 .
MCI Communications Corporation
_____________________________________
Bert C. Roberts, Jr.
Chairman
Attest
_____________________________________
C. Bolton-Smith, Jr.
Secretary
D-1
<PAGE>
MCI COMMUNICATIONS CORPORATION
STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 Purpose
-------
The purpose of this Stock Option Plan (the "Plan") is to provide for the
officers and key employees of MCI Communications Corporation (the "Company") and
its subsidiaries an incentive (i) to join and remain in the employ of the
Company and its subsidiaries and (ii) to enhance the Company's long-term
performance.
1.2 Administration
--------------
(a)(i) The Plan shall be administered by the Compensation Committee, which
shall consist of not less than three directors of the Company (the "Committee").
The members of the Committee shall be appointed by, and may be changed from time
to time in the discretion of, the board of directors of the Company.
(ii) Each person who shall serve as a member of the Committee shall be a
"disinterested person" within the meaning of Rule 16b-(3)(d)(3) promulgated
under the Securities Exchange Act of 1934 (the "Act"), as amended.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan agreement executed pursuant to Section 2.7, (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (iv) to
make all determinations necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan, (vi) to amend the Plan to reflect changes in applicable law or to adopt
additional rules, procedures or methods of exercise as permitted by law and
deemed
<PAGE>
necessary or convenient to the administration of the Plan, and (vii) to
otherwise administer the Plan in any manner consistent with the rules,
regulations and other pronouncements issued from time to time under Section 16
of the Act.
(c) The determination of the Committee on all matters relating to the Plan
or any Plan agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
1.3 Employees Eligible for Awards
-----------------------------
Awards under the Plan may be made to such officers and executive,
managerial, administrative or professional employees ("key employees") of the
Company or its subsidiaries (including directors who are also key employees of
the Company or its subsidiaries) as the Committee shall in its sole discretion
select.
1.4 Types of Awards Under the Plan
------------------------------
Awards may be made under the Plan in the form of stock options
("options"), stock appreciation rights, restricted stock, and performance
shares, and other awards as may be permitted under the Plan from time to time,
all as more fully set forth in Article II.
1.5 Shares Available for Awards
---------------------------
(a) Shares of stock that shall be issuable pursuant to awards under the
Plan shall be authorized and unissued or treasury shares of the Common Stock of
the Company as constituted on the effective date of the Plan ("Common Stock"),
and any other shares into which such Common Stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(b)(i) Subject to Section 3.5, the total number of shares of Common Stock
which may be issued pursuant to awards under the Plan shall not exceed an amount
equal to 25,000,000 plus an increase as of January 1, 1993 and each January 1
thereafter up
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<PAGE>
to 5% of the number of shares of Common Stock outstanding at each such date, as
may be specifically reserved by the board of directors annually. No more than
17,000,000 shares of Common Stock shall be issued pursuant to incentive stock
options.
(ii) As of the date of the termination, cancellation or expiration of any
option or other award under the Plan, or as of the date of the exercise of such
award, any shares of Common Stock subject thereto which shall not have been
issued pursuant to such option or award, shall again become available for the
purposes of the Plan. In addition, if payment upon the exercise of a stock
option is made in whole or in part by the tender of shares, such tendered shares
shall become available for issuance under the Plan.
(iii) For the purposes of Section 1.5(b)(i), in addition to shares of
Common Stock actually issued pursuant to options, there shall be deemed to have
been issued pursuant to options a number of shares of Common Stock equal to the
number of shares of Common Stock in respect of which stock appreciation rights
shall have been exercised.
1.6 Definitions of Certain Terms
----------------------------
(a) The term "affiliate" means any person or entity which, at the time of
reference, directly, or indirectly through one or more intermediaries, (i)
controls the Company or (ii) is controlled by or is under common control with
the Company.
(b) The term "award(s)" means incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock awards, performance shares
and any other stock based awards permitted by the Plan.
(c) The term "fair market value" as of any date and in respect of any
share of Common Stock means the closing price of the Common Stock as reported by
the National Association of Securities Dealers through its Automated Quotation
System on such date, or, if the Common Stock is quoted on a national securities
exchange, the last sales price regular way in the consolidated trading system
for securities listed or admitted to trading on such national securities
exchange on the relevant date, or, if no quotations shall have been made on such
relevant date, on the
3
<PAGE>
next preceding day on which there were quotations; provided, that if no such
quotations shall have been made within the 10 business days preceding such
relevant date, or if deemed appropriate by the Committee for any other reason,
the fair market value of shares of Common Stock shall be as determined by the
Committee. In no event shall the fair market value of any share of Common Stock
be less than its par value.
(d) The term "optionee" means any key employee who has been granted an
option under the Plan.
(e) The term "subsidiary" as used herein means any corporation of which,
at the time of reference, 50% or more of the shares entitled to vote generally
in an election of directors are owned directly or indirectly by the Company or
any subsidiary.
(f) The term "incentive stock option" means an option that is intended to
qualify for special Federal income tax treatment pursuant to Sections 421 and
422A of the Internal Revenue Code of 1986, as amended (the "Code"), and which is
thus designated in the applicable Plan agreement. Any option that is not
designated in the applicable Plan agreement as an incentive stock option shall
under no circumstances be considered an incentive stock option. Any option that
is not an incentive stock option is referred to herein as a "nonqualified stock
option."
ARTICLE II
STOCK OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AND PERFORMANCE SHARES
2.1 Grant of Stock Options
----------------------
(a) The Committee may grant options under the Plan to purchase shares of
Common Stock to such key employees, and in such amounts and subject to such
terms and conditions, as the Committee shall from time to time determine in its
sole discretion, subject to the provisions of this Plan. The Committee may
award options which are incentive stock options or nonqualified stock options.
4
<PAGE>
(b) Subject to the limitation of Section 1.5(b)(i), the Committee may
grant one or more incentive stock options to any key employee, provided, to the
extent that the aggregate fair market value (determined as of the time the
option is granted) of the stock with respect to which incentive stock options
are first exercisable by an employee during any calendar year shall exceed
$100,000, or such other limit as may be established from time to time under
Section 422A of the Code, such options shall be treated as options which are not
incentive stock options.
(c) In applying the provisions of Section 2.1(b), there shall be taken
into account solely incentive stock options granted after December 31, 1986 to
the optionee under this Plan and under all other stock option plans of the
Company and any subsidiary corporation thereof.
(d) Subject to the limitation of Section 1.5(b)(i), no annual limit shall
apply to the number or value of shares with respect to which the Committee may
grant nonqualified stock options.
2.2 Grant of Stock Appreciation Rights
----------------------------------
(a) The Committee may grant a stock appreciation right in connection with
all or any part of an option granted under the Plan, either at the time the
related option is granted or at any time thereafter prior to the exercise,
termination or cancellation of such option, on such terms and conditions as the
Committee shall from time to time determine. The grantee of a stock
appreciation right shall, subject to the terms and conditions of the Plan and
the applicable Plan agreement, have the right to seek to exercise such stock
appreciation right by surrender to the Company for cancellation all or a portion
of the related option granted under the Plan, but only to the extent that such
option is then exercisable. The grantee shall be paid therefor an amount equal
to all or a portion of the excess (if any) of (i) the aggregate fair market
value of the shares of Common Stock subject to the option or portion thereof
surrendered (determined as of the date of exercise of such stock appreciation
right) over (ii) the aggregate option exercise price of the shares subject to
the option or portion thereof surrendered. Payment due upon exercise of a stock
appreciation right shall be made (i) in cash, (ii) in Common Stock (valued at
the fair market
5
<PAGE>
value thereof as of the date of exercise), or (iii) partly in cash and partly in
Common Stock, all as determined by the Committee in its sole discretion. In the
event that the Committee shall determine to make such payment, in whole or in
part, in Common Stock, no fractional shares of Common Stock shall be issued and
no payments shall be made in lieu of fractional shares.
(b) Upon exercise of a stock appreciation right, the number of shares
subject to the related option shall be reduced by an amount equal to the number
of shares of Common Stock in respect of which the stock appreciation right has
been exercised.
2.3 Term of Options and Stock Appreciation Rights
(a) Each Plan agreement with respect to an option shall set forth the
period during which the option evidenced thereby shall be exercisable, whether
in whole or in part, such periods to be determined by the Committee in its
discretion; provided, that notwithstanding the foregoing or any other provision
of the Plan other than Section 3.11, no option shall be exercisable prior to the
first anniversary of the date of grant, nor shall an incentive stock option be
exercisable more than 10 years after the date of grant.
(b) Subject to the terms and conditions of the Plan and any restrictions
imposed by the applicable Plan agreement, a stock appreciation right shall be
exercisable at any time during the period in which the related option may be
exercised.
2.4 Exercise of Options and Stock Appreciation Rights
(a) Subject to the provisions of Section 3.4, an option or stock
appreciation right granted under the Plan may be exercised from time to time as
to all or part of the shares as to which such option or stock appreciation right
shall then be exercisable; provided that-
(i) the Committee may at any time and from time to time, whether before
or after the exercise or purported exercise of any stock appreciation right,
determine in its sole discretion that the election to exercise such stock
appreciation right may be
6
<PAGE>
made only during such period(s), if any, as the Committee may determine; and
(ii) during the 60 day period following the exercise or purported
exercise of any stock appreciation right, the Committee shall, in its sole
discretion, either (A) consent in writing to the election to exercise such stock
appreciation right (in which event such stock appreciation right shall be deemed
to have been validly exercised as of the date such election was made), or (B)
disapprove of such election (in which event the purported exercise of such stock
appreciation right shall be void and of no effect). The Committee shall be
deemed to have disapproved of any such election if it shall not have consented
thereto as of the end of the said 60 day period.
(b) An option or stock appreciation right shall be exercised by the filing
of a written notice of exercise with the Company, on such form and in such a
manner as the Committee shall in its sole discretion prescribe.
(c) Any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased. Payment may
be made (i) by cashier's or certified check payable to the Company, or (ii) if
the terms of the applicable Plan agreement so provide, by delivery of
certificate(s), duly endorsed to the Company, representing shares of Common
Stock with a fair market value on the date of receipt by the Company of the
notice of exercise equal to part or all of the purchase price, together with a
cashier's or certified check for any balance due to the Company, or (iii) at the
discretion of the Committee and to the extent permitted by law, by such other
provision, as the Committee may from time to time prescribe. The Company shall
deliver to the optionee certificate(s) for shares of Common Stock issuable upon
exercise of an option as soon as practicable after receipt of payment for such
shares; provided, that if the method of payment employed by the optionee so
requires, the optionee may direct the Company to deliver the certificate to the
optionee's stockbroker. In addition, if an optionee's transactions are not
subject to Section 16b of the Act, upon exercise of nonqualified stock options,
the optionee may direct the Company to issue shares of Common Stock to family
members, trusts or charities. Notwithstanding any other provision of this
subsection (c), no optionee shall be permitted
7
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to make payment by delivery of shares more frequently than once in any 90 day
period.
2.5 Grant of Restricted Stock
-------------------------
(a) The Committee may grant a restricted stock award entitling the
recipient to acquire shares of the Company's Common Stock for a purchase price
determined by the Company, but at least equal to its par value, subject to such
conditions, as the Committee may determine at the time of grant. Restricted
stock awards may be made independently or in connection with any other award
under the Plan. A key employee who is granted a restricted stock award shall
have no rights with respect to such award unless the key employee shall have
accepted the award within 60 days (or such shorter period as the Committee may
specify) following the award date by making payment to the Company by cashier's
or certified check in an amount equal to the specified purchase price of the
shares covered by the award and by executing a Plan agreement in such form as
the Committee shall determine.
(b) As soon as practicable after an employee accepts a restricted stock
award, the Company shall issue a certificate for the shares of Common Stock
subject thereto, and the recipient shall thereupon have all the rights of a
stockholder with respect to the restricted stock including voting and dividend
rights, subject to the nontransferability restrictions and Company repurchase
rights described in (c) below, and subject to any other conditions contained in
the applicable Plan agreement. Unless the Committee shall otherwise determine,
certificates evidencing shares of restricted stock shall remain in the
possession of the Company until such shares are free of any restrictions
specified under the applicable Plan agreement.
(c) Shares of restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein. In the event of the termination of the holder's employment by the
Company and its subsidiaries for any reason, such shares shall be offered for
resale to the Company at their purchase price, except as set forth below.
8
<PAGE>
(i) The Committee at the time of grant shall specify the date or dates
(which may depend upon or be related to the attainment of performance goals and
other conditions) on which the nontransferability of the restricted stock and
the obligation to offer such shares for resale to the Company shall lapse. The
Committee at any time may accelerate such date or dates and otherwise waive or
amend any conditions of the award.
(ii) Except as may otherwise be provided in the applicable Plan
agreement, the Company's right of repurchase shall expire not later than one
hundred and twenty (120) days following the termination of employment of the
holder of the restricted stock.
2.6 Performance Shares
------------------
(a) The Committee may grant a performance share award entitling the
recipient to acquire cash or shares of Common Stock, or a combination of cash
and Common Stock, upon the attainment of specified performance requirements.
The Committee in its sole discretion shall determine whether and to whom
performance share awards shall be made, the performance requirements applicable
under each such award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the award. Performance
shares may be awarded independently of or in connection with the granting of any
other award under the Plan. A key employee shall have no rights with respect to
a performance share award unless the key employee shall have accepted the award
by executing and delivering to the Company a Plan agreement at such time and in
such form as the Committee shall determine.
(b) The recipient of a performance share award will have the rights of a
stockholder only as to shares for which a certificate has been issued pursuant
to the award and not with respect to any other shares subject to the award. A
key employee shall be entitled to receive a certificate evidencing shares of
Common Stock under a performance share award only upon satisfaction of all
conditions therefor specified in the applicable Plan agreement and in any
amendments thereto pursuant to (e) below.
9
<PAGE>
(c) Except as may otherwise be provided by the Committee at any time prior
to termination of employment, the rights of a recipient under a performance
share award shall automatically terminate upon the recipient's termination of
employment by the Company and its subsidiaries for any reason (including death).
(d) At any time prior to the key employee's termination of employment by
the Company and its subsidiaries, the Committee may in its sole discretion amend
any Plan agreement to accelerate, waive, or amend any or all of the goals,
restrictions or conditions imposed under any performance share award.
(e) At the discretion of the Committee, the applicable Plan agreement may
set out the procedures to be followed in exercising a performance share award or
it may provide that payment under a performance share shall be made, upon
satisfaction of the applicable performance goals, without exercise by the key
employee. Except as otherwise specified by the Committee, (i) a performance
share award granted in tandem with a stock option may be exercised only while
the stock option is exercisable, and (ii) the exercise of a performance share
award granted in tandem with any award shall reduce the number of shares subject
to the related award in the manner specified in the Plan agreement.
2.7 Agreements Evidencing Awards under the Plan
-------------------------------------------
(a) Awards granted under the Plan shall be evidenced by written agreements
("Plan agreements") which shall contain such provisions as the Committee may in
its sole discretion deem necessary or desirable.
10
<PAGE>
2.8 Termination of Employment or Death or Disability
------------------------------------------------
(a) All awards granted to a key employee shall terminate upon his
termination of employment for any reason (including death). A key employee
shall be deemed to have terminated employment when he ceases to be employed by
the Company or any of its subsidiaries. The Committee may in its discretion
determine (i) whether any leave of absence constitutes a termination of
employment within the meaning of the Plan, and (ii) the impact, if any, of any
such leave of absence on awards theretofore made under the Plan.
(b) If a key employee's employment terminates for any reason other than
Dismissal for Cause as set forth in paragraph (e) below, or retirement as set
forth in paragraph (e) below, such key employee may exercise, during the period
set forth in paragraph (d) any award granted to him under the Plan, to the
extent that he was entitled to exercise such award on the date his employment
terminated. If any portion of an option is not then exercisable, the key
employee may exercise that portion of the option scheduled to become exercisable
upon the next anniversary of the date of grant multiplied by a fraction, the
numerator of which is equal to the number of full calendar months from the prior
anniversary of the date of grant to the date of termination of employment, and
the denominator of which is twelve. No option shall be exercisable prior to the
first anniversary of the date of grant.
(c) If a key employee retires at age 65 or any later age, and provided
that no event has occurred which could give rise to a Dismissal for Cause, each
of such key employee's options which have been outstanding at least one year
shall become fully exercisable, in whole or in part, to the extent not
previously exercised.
(d) If a key employee's employment terminates for any reason, other than
death or disability, any award that he is entitled to exercise under the terms
of paragraph (b) and (c) above must be exercised within three months following
termination of employment. In the event that a key employee dies while employed
by the Company or a subsidiary, or during the three months after his employment
terminates for any reason other than Dismissal for Cause, any award granted to
such key employee
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<PAGE>
under the Plan which is exercisable pursuant to (b) and (c) above, may be
exercised within one year after his death by the administrators or executors of
his estate or by the person or persons to whom the key employee's rights under
the award shall have passed by will or by the applicable laws of descent or
distribution. If a key employee's employment terminates due to disability within
the meaning of Section 22(e)(3) of the Code, such award may be exercised within
one year of his termination of employment. Any such exercise following
disability may be made only by such key employee or his personal representative.
(e) Notwithstanding any other provision of this Plan, in the event a key
employee's employment is terminated by reason of Dismissal for Cause, all awards
granted to him under the Plan shall expire on the day immediately preceding the
date of termination of employment, and shall as of such day no longer be
exercisable to any extent whatsoever. "Dismissal for Cause" means termination
of employment for (a) theft or embezzlement of the property of the Company or
any of its subsidiaries; (b) fraud or other wrongdoing against the Company or
any of its subsidiaries; (c) a conviction of a crime of moral turpitude; (d)
receipt of consideration or acceptance of benefits from, or the participation in
business activities with, persons doing business with the Company or any of its
subsidiaries or an affiliate, in violation of the business ethics policy of the
Company; (e) malicious destruction of the property of the Company or any of its
subsidiaries; (f) improper disclosure of trade secrets of the Company or any of
its subsidiaries; (g) actively engaging in or working for a business in direct
competition with the Company or any of its subsidiaries while employed by the
Company or one of its subsidiaries; or (h) such other reason as the Committee
may determine. The Company shall determine whether a termination of employment
has occurred by reason of Dismissal for Cause, and shall notify the Committee of
such a determination.
(f) The provisions of this Section 2.8 shall not supersede or modify any
provisions to the contrary in the key employee's Plan agreement, or any of the
provisions of Sections 2.5 and 2.6.
2.9 Compensation in Lieu of Exercise
--------------------------------
(a) Upon written application of an optionee who is an officer subject to
Section 16(b) of the Act and if such
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<PAGE>
application is made during a "window period," the Company may, with the approval
of the Committee, substitute for the exercise of an option, compensation to the
optionee not in excess of the difference between the option price and average
closing market value, as defined in paragraph (b) below, of the shares covered
by such written application. Such compensation may be in cash, in Common Stock
or both, all as the Committee shall determine in its sole discretion. In the
event compensation is substituted pursuant to this Section 2.9 for the exercise,
in whole or in part, of an option, the number of shares subject to the option
shall be reduced by the number of shares for which such compensation is
substituted.
(b) The "average closing market value" of the Company's Common Stock shall
be the average of the daily closing prices as listed by the NASDAQ-NMS during
the "window period" in which the petition pursuant to paragraph (a) is made.
The "window period" is the 10 business days beginning on the third day following
release of the Company's quarterly or annual summary statement of earnings, as
set forth in Rule 16b-3 promulgated under the Act.
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards
---------------------------------------------
(a) The board of directors of the Company may from time to time suspend or
discontinue the Plan or revise or amend it in any respect whatsoever, except
that no such amendment shall materially impair any rights or increase any
obligations under any award theretofore made under the Plan without the consent
of the person to whom such award was made (or, if the such person has died, the
person or persons to whom his rights under the award have passed pursuant to
Section 3.3). Furthermore, except as and to the extent otherwise permitted by
Section 3.5 or 3.11, no such amendment shall without shareholder approval:
(i) increase, beyond the amounts set forth in Section 1.5, the number of
shares which may be issued pursuant to awards;
(ii) change the designation in Section 1.3 of the class of persons
eligible to receive awards under the Plan;
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<PAGE>
(iii) provide for the grant of options having an option exercise price
per share less than the fair market value of a share of Common Stock on the date
of grant;
(iv) permit any option to be exercisable less than one year after the
date of grant.
(b) The Committee may, in its sole discretion, offer to a key employee (or
the person or persons to whom his rights under the award have passed pursuant to
Section 3.3) an opportunity to surrender an award for cancellation in exchange
for the grant of a new award under the Plan, subject to the terms and conditions
of the Plan.
3.2 Restrictions
------------
(a) If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Committee. Without limiting the generality of the foregoing, in the event
that (i) the Committee shall be entitled under the Plan to make any payment in
cash, Common Stock or both and (ii) the Committee shall determine that a Consent
is necessary or desirable as a condition of, or in connection with, payment in
any one or more of such forms, then the Committee shall be entitled to determine
not to make any payment whatsoever until such Consent shall have been obtained
in the manner aforesaid.
(b) The term "Consent" as used herein with respect to any Plan Action
means (i) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (ii) any and all written agreements and representations by
the optionee or grantee with respect to the disposition of shares of Common
Stock, or with respect to any other matter, which the Committee shall deem
necessary or desirable to comply with the terms of any such listing,
registration or qualification or to
14
<PAGE>
obtain an exemption from the requirement that any such listing, qualification or
registration be made and (iii) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory bodies.
3.3 Nonassignability
----------------
No award or right granted to any key employee under the Plan or under any
Plan agreement shall be assignable or transferable, except by will or by the
laws of descent and distribution. During the life of the key employee, all
rights granted to the key employee under the Plan or under any Plan agreement
shall be exercisable only by him or by his guardian or legal representative.
3.4 Withholding Taxes
-----------------
Whenever under the Plan shares of Common Stock are to be transferred or
payment is to be made to a key employee, the Company shall be entitled to
require as a condition of transfer or payment that the key employee remit an
amount sufficient in the Company's opinion, to satisfy all FICA, federal and
other withholding tax requirements related thereto. The Company shall be
entitled to deduct such amount from any cash payment. With the approval of the
Committee, which shall be given in its sole discretion, the key employee may
satisfy the foregoing condition by electing to have the Company withhold shares
having a value equal to the amount of tax to be withheld. Such shares shall be
valued at their fair market value on the date as of which the amount of tax to
be withheld is determined (the "Tax Date"), except that shares received pursuant
to Section 2.9 shall be valued as set forth therein. Fractional share amounts
shall be settled in cash. Such a withholding election may be made with respect
to all or any portion of the shares for which an award may be made. Such an
election by a key employee whose transactions in the Common Stock of the Company
are subject to Section 16(b) of the Act, shall to the extent required
thereunder, (i) be irrevocable, (ii) be made no sooner than six months after the
grant of the award with respect to which the election is made (except that this
limitation will not apply in the event of the key employee's disability during
such six-month period), and (iii) be made at least six months prior to the Tax
Date, or be made prior to the Tax Date in a "window period". If
15
<PAGE>
the Tax Date of such a key employee making such an election is deferred for six
months after the date of exercise of the award, the full number of shares for
which the exercise is made shall be delivered to him, but he shall be
unconditionally obligated to surrender to the Company the number of shares
necessary to satisfy the income tax withholding obligation on the Tax Date.
3.5 Adjustments Upon Changes in Capitalization
------------------------------------------
In the event of any change in the outstanding Common Stock by reason of a
stock dividend, recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like, the Committee shall appropriately adjust the
number of shares of Common Stock which may be issued pursuant to awards under
the Plan, the number of shares of Common Stock subject to awards theretofore
granted under the Plan (including restricted stock), the exercise price of
awards theretofore granted under the Plan, and any and all other matters deemed
appropriate by the Committee.
3.6 Right of Discharge Reserved
---------------------------
Nothing in the Plan or in any Plan agreement shall confer upon any officer
or employee the right to continue in the employment of the Company or any of its
subsidiaries or affect any right which the Company or any of its subsidiaries
may have to terminate the employment of such officer or employee.
3.7 No Rights as a Stockholder
--------------------------
No person shall have any of the rights of a stockholder of the Company
with respect to shares subject to an award until the issuance of a stock
certificate for such shares in his name. Except as provided in Sections 2.5 (b)
and 2.6(b), no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.
3.8 Nature of Payments
------------------
(a) Any and all payments of shares of Common Stock or cash hereunder shall
be granted, issued or paid in consideration of
16
<PAGE>
services performed for the Company or for its subsidiaries by the key employee.
(b) All such grants, issuances and payments shall constitute a special
incentive payment to the key employee and shall not, unless otherwise determined
by the Committee, be taken into account in computing the amount of salary or
regular compensation of the optionee for the purposes of determining any
pension, retirement, death or other benefits under (i) any pension, retirement,
life insurance or other benefit plan of the Company or any subsidiary or (ii)
any agreement between the Company or any subsidiary and the key employee.
3.9 Non-Uniform Determinations
--------------------------
The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Plan agreements, as to (i) the
officers and key employees to receive awards under the Plan, (ii) the terms and
provisions of awards under the Plan, (iii) the grant or the withholding by the
Committee of its consent to the exercise of stock appreciation rights (pursuant
to Section 2.4(a)), and (iv) the treatment of leaves of absence (pursuant to
Section 2.8(a)).
3.10 Other Payments or Awards
------------------------
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company, any subsidiary or the Committee from making any award or
payment to any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
3.11 Reorganization
--------------
(a) In the event that the Company is merged or consolidated with another
corporation and (i) the Company is not the surviving corporation or (ii) the
Company is the surviving corporation and there is any change in the shares of
Common Stock by reason of
17
<PAGE>
such merger or consolidation, or in the event of the reorganization or
liquidation of the Company (each such event being hereinafter referred to as a
"Reorganization Event"), or in the event that the board of directors of the
Company shall propose that the Company enter into a Reorganization Event, then
the Committee may in its discretion take any or all of the following actions:
(i) by written notice to each key employee, provide that awards will be
terminated unless exercised within 30 days (or such longer period as the
Committee shall determine in its sole discretion) after the date of such notice;
and
(ii) advance the dates upon which any or all outstanding awards shall be
exercisable.
(b) Notwithstanding the provisions of paragraph (a) above and Section
2.3(a), upon commencement of tender offer under the Act and the rules and
regulations promulgated thereunder for more than 30% of the Company's voting
stock by a third party business entity or by a related group of entities,
vesting of awards shall be automatically accelerated such that any outstanding
awards shall become 100% vested.
(c) Wherever deemed appropriate by the Committee, any action referred to
in Section 3.11(a) or (b) may be made conditional upon the consummation of the
applicable event.
(d) The Committee may grant awards under the Plan in substitution for
stock and stock based awards held by employees of another corporation who become
employees of the Company or a subsidiary as the result of a merger or
consolidation of the employing corporation with the Company or a subsidiary or
the acquisition by the Company or a subsidiary of property or stock of the
employing corporation. The Committee shall direct that the substitute awards be
granted on such terms and conditions as the Committee considers appropriate
under the circumstances.
3.12 Section Headings
----------------
The Section headings contained herein are for purposes of convenience only
and are not intended to define or limit the contents of said Sections.
18
<PAGE>
3.13 Effective Date and Term of Plan
-------------------------------
The Plan and any amendment thereto described in Section 3.1(a) shall
become effective upon the approval thereof by the affirmative vote of the
holders of a majority of the shares of stock of the Company present (in person
or by proxy) and entitled to vote at the annual meeting of the stockholders of
the Company next following the adoption of the Plan or any such amendment by the
board of directors of the Company, or any adjournment of such meeting.
3.14 Governing Law
-------------
The Plan shall be interpreted, construed and administered in accordance
with the laws of New York, without giving effect to principles of conflict of
laws.
19
<PAGE>
MCI COMMUNICATIONS CORPORATION
1990 STOCK PURCHASE PLAN
1. Purpose of Plan. The purpose of this plan (the "Plan") is to provide
eligible employees who wish to become stockholders of MCI Communications
Corporation (the "Company"), or wish to increase their stockholdings in the
Company, with a method of doing so which is both convenient and on a basis more
favorable than would otherwise be available. It is believed that employee
participation in ownership of the Company on this basis will be to the mutual
benefit of both the employees and the Company. It is intended that the Plan
constitute an "employee stock ownership plan" within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended (the "Code").
2. Employees Eligible to Participate. Any employee who has been employed
three months or more by the Company or any subsidiary of the Company which
adopts the Plan with the consent of the Company (an "Employing Corporation"), is
eligible to participate in the Plan. Notwithstanding the foregoing and to the
extent permitted by Section 423 of the Code and any rules or regulations
promulgated thereunder, if an employee is employed to render services primarily
within the jurisdiction of a union and his compensation, hours of work, or
conditions of employment are determined by collective bargaining with such
union, he shall be deemed an employee for purposes of the Plan, only if the
applicable collective bargaining agreement expressly so provides and only to the
extent and on the terms and conditions specified in such collective bargaining
agreement. An employee shall enter the Plan on the first trading day of the
first month following the employee's third month anniversary of employment.
Upon reemployment of a former participant whose employment with the Company or a
participating subsidiary is terminated, the former participant will be required
to fulfill the eligibility requirements set forth in this paragraph anew. The
term "employee" shall not include a non-employee member of the board of
directors of an Employing Corporation.
3. Eligible Compensation. Compensation eligible for payroll deductions
shall be base salary and commissions (if any) paid in each payroll period.
Eligible compensation does not include overtime, bonuses, severance pay,
incentive pay, shift premium differentials, pay in lieu of vacation, imputed
income for income tax purposes, patent and award fees, awards and prizes, back
pay
<PAGE>
awards, reimbursement of expenses and living allowances, educational allowances,
expense allowances, disability benefits under any insurance program, fringe
benefits, deferred compensation, compensation under the Company's stock plans,
amounts paid for services as an independent contractor, or any other com
pensation excluded by the board of directors in its discretion. Compensation
shall be determined before giving effect to any salary reduction agreement
pursuant to a qualified cash or deferred arrangement within the meaning of
Section 401(k) of the Code or to any similar reduction agreement pursuant to any
cafeteria plan (within the meaning of Section 125 of the Code).
4. Offer Date. The Compensation Committee (the "Committee") of the
Company's board of directors shall determine the date or dates upon which one or
more offers ("Offer"/"Offers") shall be made under the Plan. No option granted
pursuant to an Offer shall have a term of more than 27 months. In order to
participate in an Offer, an eligible employee must sign and forward to the
Company a payroll deduction authorization form authorizing regular payroll
deductions, which may not exceed the maximum percentage of the employee's
eligible compensation per pay period, to be applied toward the purchase of
Common Stock pursuant to the Offer. The "maximum percentage" means the percent
of eligible compensation available for payroll deductions which shall be
specified by the Committee at the beginning of the term of each Offer, which
shall not exceed 15%.
5. Participation. On the effective date of an Offer, each then eligible
employee will be granted an option to purchase, through payroll deductions, as
many full shares of Common Stock, subject to the limitation hereinafter set
forth, as he may with up to the maximum percentage of eligible compensation to
be received by him during the term of the Offer. Each employee not then
eligible but who becomes eligible to participate in the Plan during the term of
the Offer will, as of the first trading day of the month next following the
month in which such employee becomes eligible, or as of such date if it is the
first trading day of a month, be granted an option to purchase, through payroll
deductions, as many full shares of Common Stock, subject to the limitation
hereinafter set forth, as he may with up to the maximum percentage of eligible
compensation to be received by him during the remainder of the term of the
Offer. For purposes of the Plan, a "trading day" is a day on which shares of
Common Stock are traded
2
<PAGE>
in the over-the-counter market or, if the Common Stock is then listed or
admitted to trading on a national securities exchange, on the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading. Any employee who does not elect to participate within the period for
initial enrollment determined by the Committee may subsequently elect to
participate, but such an employee shall have a Base Option Price determined as
if he had elected to participate within the initial enrollment period, withdrawn
from participation, and then elected to recommence participation pursuant to
paragraph 11. Each participant in an Offer shall agree to notify the Company of
any disposition of shares of Common Stock purchased pursuant to the Plan prior
to the expiration of the holding periods set forth in Section 423(a) of the
Code. All employees granted options under the Plan shall have the same rights
and privileges under the Plan except that the number of shares each participant
may purchase will depend upon his compensation and the percentage payroll
deduction he authorizes.
6. Participation Limitations. The maximum number of shares which an
employee will be permitted to purchase pursuant to any one Offer will be that
number of shares determined by multiplying (i) the amount of the employee's
monthly eligible compensation on the date he is first granted an option pursuant
to that Offer by (ii) the number of months from such date to the end of the term
of the Offer, and by dividing the product of such multiplication by the closing
price of a share of Common Stock on the NASDAQ National Market System on such
or, if no reported sales take place on the applicable date, the average of the
high bid and low asked price of Common Stock on such date, or if no such
quotation is made on such date, on the next preceding day on which there were
quotations, provided that such quotations shall have been made within the ten
(10) trading days preceding the applicable date (the "fair market value") of
Common Stock on such date. When the foregoing partic ipation limitation is
reached, payroll deductions shall cease, and any amount of excess funds as of
the date that the participation limitation has been reached shall be returned to
the employee. Notwithstanding anything herein to the contrary, no employee shall
be permitted to purchase any shares under the Plan if the employee, immediately
after the purchase, owns or would own shares (including all shares which may be
purchased under outstanding options under the Plan) possessing 5% or more of the
total combined voting power or value of all classes of shares of capital stock
of the Employing
3
<PAGE>
Corporation or of its parent or subsidiary corporations. For purposes of the
foregoing limitation, the rules of Section 425(d) (relating to attribution of
stock ownership) of the Code shall apply in determining share ownership, and
stock which the employee may purchase under outstanding options shall be treated
as stock owned by such employee. Further, if pursuant to the terms of the Plan,
an employee would be granted an option that violates Section 423(b)(8) of the
Code, such option shall not be granted and in its place the employee shall be
granted an option to purchase shares which permits his rights to purchase shares
under all stock purchase plans of the Employing Corporation and its parent and
subsidiary corporations to accrue at a rate which does not exceed $25,000 of the
fair market value of such shares (determined at the time such right to purchase
is granted) for each calendar year in which such option is outstanding at any
time.
7. Option Price. Subject to the provision set forth in paragraph 8 to the
effect that only full shares of Common Stock may be purchased, and subject also
to the provisions of paragraph 11 with regard to recommencement of
participation, the option price at which shares of Common Stock may be purchased
under any option granted under the Plan is the lesser of (i) 85% of the fair
market value of a share of Common Stock on the date of grant of the option (the
"Base Option Price"), or (ii) 85% of the fair market value of a share of Common
Stock on the date Common Stock is purchased pursuant to options granted under
the Plan (the "Alternative Option Price"). In the event that an Offer shall
have a term of more than 15 months, the Base Option Price shall be subject to
adjustment on the date (the "Revaluation Date") which falls at the midpoint of
the interval between the date of the Offer and the end of the term of the Offer.
If 85% of the average of the fair market value of a share of Common Stock during
a period of twenty trading days ending one month before the Revaluation Date is
an option price, then the applicable Base Option Price amount different than the
then applicable Base Option Price shall be adjusted to such different amount
which shall be and continue to be the then applicable Base Option Price;
provided, however, that if such adjustment would result in the adjusted Base
Option Price being lower than the initial Base Option Price for any participant,
that participant's initial Base Option Price shall remain unchanged.
8. Exercise of Options. At the end of each payroll period, each
participant shall have deducted from his pay the amount
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<PAGE>
authorized. This amount shall be held for the credit of the participant by the
Company as part of its general funds and shall not accrue any interest. On the
last trading day of each month during the term of the Offer a participant will
be deemed to have exercised his option to purchase, at the lower of the then
applicable Base Option Price or the Alternative Option Price, that number of
full shares of Common Stock which may be purchased with the amount deducted from
the participant's compensation during that month and excess funds from the
preceding month, if any. The custodian shall receive from the Company, at the
applicable option price, as many full shares of Common Stock as may be purchased
with the funds received from each participant for that month. The excess of
funds not expended in the purchase of whole shares on any particular purchase
date will, for each participant, be retained by the custodian and carried
forward and applied to the purchase of shares on the next subsequent purchase
date. Any excess of funds not expended on the last purchase date will be
returned to participants. Upon receipt of the Common Stock so purchased, the
custodian will allocate to the credit of each participant the number of full
shares of Common Stock, and the amount of such excess funds, to which that
participant is entitled. Subject to limitations imposed by the Committee from
time to time, a certificate representing the number of shares of Common Stock to
which a participant is entitled will be issued to the participant upon written
request. Unless otherwise requested, Common Stock purchased under the Plan will
be held by and in the name of, or in the name of a nominee of, the custodian for
the benefit of each participant, who shall thereafter be a beneficial
stockholder of the Company. A participant's rights as a stockholder of record of
the Company begin when a stock certificate, evidencing shares of Common Stock
registered in his name, is issued.
9. Number of Shares to be Offered. The maximum number of shares of Common
Stock that may be purchased under the Plan is 12,500,000. Such shares may be
treasury shares or authorized and unissued shares as the Committee may determine
in its discretion.
10. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than three directors and shall be
appointed from time to time by and shall serve at the pleasure of the Company's
board of directors. The Committee may prescribe rules and regulations from time
to time for the administration of the Plan and may make decisions relating
5
<PAGE>
to questions which may arise with respect to its interpretation or application.
The Committee may amend or modify the Plan and may determine the terms and
conditions of Offers under the Plan. The Committee may not, however, make any
alterations which would materially and adversely affect an option previously
granted without the consent of the optionee. Furthermore, the Committee may not
increase the maximum number of shares which may be purchased under the Plan
either in the aggregate or by an individual employee, or reduce the applicable
option price per share, or otherwise make any change or addition which would
cause the Plan not to meet the requirements of Section 423(b) of the Code as
presently in effect or hereafter amended, or be in compliance with regulations
promulgated by the Securities Exchange Commission under Section 16b of the
Securities Exchange Act of 1934. The Company reserves the right to modify and/or
terminate this Plan at any time.
11. Withdrawal from Participation. A participant may, at any time and for
any reason, by giving written notice of his desire in this regard to the
Committee or its designee, elect to withdraw from any further participation in
an Offer. The participant withdrawing will, as soon as practicable, but only
after stockholder approval of the Plan, receive a certificate representing the
number of full shares of Common Stock credited to the participant's account as
of the date of withdrawal and a check for any funds credited to his account and
not applied toward the purchase of shares as of that date. During the remainder
of the term of an Offer, but only once, the employee may recommence his
participation in that Offer by executing and delivering to the Company a new
payroll deduction authorization form. Recommencement shall begin on the first
trading day of the month next following the date on which the Company receives
the payroll deduction authorization form, or, if received on the first trading
day of a month, that day. The Base Option Price applicable to a recommencing
participant shall be the greater of (i) the Base Option Price applicable to that
participant had he not withdrawn from participation or (ii) 85% of the fair
market value of a share of Common Stock on the recommencement date.
12. Rights not Transferable. Except for transfers by will or under the
laws of descent and distribution, or unless otherwise provided by law, no
employee shall have the right to sell, assign, transfer, pledge or otherwise
dispose of or encumber either his
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<PAGE>
right to participate in the Plan or his interest in the shares of Common Stock
or excess funds accumulated for his benefit and held by the custodian, and such
right and interest shall not be liable for or subject to the debts, contracts or
liabilities of the employee. If any action is taken by the employee contrary to
the provisions of this paragraph 12, or any claim asserted by another party in
respect of such right and interest, that action or claim will be treated as
notice of withdrawal, and, except as may otherwise be required by law, the
provisions of paragraph 11 will apply.
13. Termination of Employment. In the event of a participant's
retirement, death or other termination of employment, no payroll deductions will
be made from any compensation then due and owing to such employee at such time,
and a certificate representing the number of full shares of Common Stock then
credited to the participant's account, and a check for any amount of excess
funds contributed as of that date (and not eligible for the purchase of shares)
will be issued and delivered to the employee or his representative. Nothing in
this Plan shall confer any greater employment rights to any employee of the
Company or a subsidiary, and the Employing Corporation hereby reserves the right
to terminate any employee's employment with or without notice or cause.
14. Reorganization. In the event of a reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger, consolidation,
offering of rights or any other change in the structure of Common Stock, the
Company's board of directors may make such adjustments, if any, as it may deem
appropriate in the number, kind and price of shares available for purchase under
the Plan, and in the minimum and maximum number of shares which a participant is
entitled to purchase.
15. Approval of Stockholders. The Plan was adopted by the board of
directors of the Company on February 21, 1989. Shares of Common Stock of the
Company will be available for purchase under this Plan in June 1990 or after the
expiration of the 1986 Stock Purchase Plan or at such date designated by the
board of directors as the commencement date. No shares of Common Stock will be
issued pursuant to the Plan prior to the approval of the Company's stockholders.
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<PAGE>
16. Termination of Plan. The Plan and all rights of participants will
terminate (a) on the date as of which participants have exercised options to
purchase a number of shares equal to or greater than the number of shares then
subject to the Plan, or (b) if earlier, the date as of which the Committee or
the board of directors of the Company terminates the Plan. Upon termination,
all payroll deductions shall cease and all amounts credited to participants'
accounts shall be equitably applied to the purchase of the shares then available
under the Plan and all funds accumulated under the Plan not utilized to purchase
Common Stock will be refunded.
17. Required Governmental Approvals. The Plan, and all options granted
under and other rights inherent in the Plan, are subject to stockholder approval
as provided in paragraph 15 and to receipt by the Company of all necessary
approvals or consents of governmental agencies which the Company, in its sole
discretion, shall deem necessary or advisable. Notwithstanding any other
provision of the Plan, all options granted under the Plan and all other rights
inherent in the Plan are subject to such termination and/or modification as may
be required or advisable in order to obtain any such approval or consent or
which, as a result of consequences attaching to any such approval or consent,
may be required or advisable in the judgment of the Company's board of directors
in order to avoid adverse impact on the Company's overall wage and salary
policy.
18. Gender. Pronouns shall be deemed to include both the masculine and
feminine gender and words used in the singular shall be deemed to include both
the singular and the plural, unless the context indicates otherwise.
19. Expenses. Expenses of administering the Plan, including any expenses
incurred in connection with the purchase by the Company of shares for sale to
participating employees, shall be borne by the Employing Corporations.
20. Governing Law. All rights and obligations under the Plan shall be
construed and interpreted in accordance with the laws of the State of New York,
without giving effect to principles of conflict of laws.
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MCI COMMUNICATIONS CORPORATION
1988 DIRECTORS' STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 Purpose
The purpose of this 1988 Directors' Stock Option Plan (the "Plan") is to
encourage stock ownership by the non-employee directors of MCI Communications
Corporation (the "Company") and to provide such directors an incentive (i) to
join and remain on the board of directors of the Company, (ii) to maintain and
enhance the Company's long-term performance record.
1.2 Administration
(a)(i) The Plan shall be administered by the board of directors and the
Nominating Committee (the "Committee"). The members of the Committee shall be
appointed by, and may be changed from time to time in the discretion of, the
board of directors of the Company.
(ii) As required by the Securities Exchange Act of 1934, as amended, no
person shall serve as a member of the Committee who is not a "disinterested
person" as such term is defined under Rule 16b-3(d)(3) thereto.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan agreements executed pursuant to Section 2. 1, (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (iv) to
make all determinations necessary or advisable in administering the Plan, and
(v) to correct any defect, supply any omission and reconcile any inconsistency
in the Plan.
(c) The determination of the Committee on all matters relating to the Plan
or any Option Agreement shall be conclusive.
<PAGE>
(d) No member of the Committee shall be liable for any action, inaction or
determination made in good faith with respect to the Plan or any award
thereunder.
1.3 Directors Eligible for Awards
Awards under the Plan may be made to persons who are directors on the date
of grant and whoare not eligible to participate under any other Company stock-
related plan ("Eligible Director").
1.4 Shares Available for Awards Under Plan
(a) Shares of stock ("Common Stock") that shall be issuable pursuant to
stock options ("options") under the Plan shall be authorized and unissued or
treasury shares of the Common Stock of the Company as constituted on the
effective date of the Plan, and any other shares into which such Common Stock
shall thereafter be changed by reason of recapitalization, merger,
consolidation, splitup, combination, exchange of shares or the like.
(b)(i) Subject to Section 3.4, the aggregate number of shares of Common
Stock which may be issued pursuant to options under the Plan shall not exceed
500,000.
(ii) In the event that, as of the date of the termination or expiration of
any option, any shares of Common Stock subject thereto shall not have been
issued pursuant to such option, then such shares shall again become available
for the purposes of the Plan.
ARTICLE II
STOCK OPTIONS
2.1 Grant of Stock Options; Option Exercise Price and Term of Stock Options
(a) An option to purchase 20,000 shares of Common Stock (subject to any
adjustment pursuant to Section 3.4) shall be granted to each Eligible Director
upon the later of (i) adoption of the Plan, or (ii) his becoming an Eligible
Director (hereinafter, "initial grant"). Such options shall be nonqualified
options subject to the provisions of Section 83 of the Internal Revenue
2
<PAGE>
Code of 1986, as amended (the "Code"). Upon the fifth anniversary of the date of
the initial grant, options to purchase an additional 20,000 shares of Common
Stock shall be granted to such optionee irrespective of whether the initial
options have expired or have been exercised.
(b) The option exercise price per share of the Common Stock under each
option shall be 100% of the last sale price on the date of grant as reported by
the National Association of Securities Dealers through their Automated Quotation
System, or if no quotations shall have been made on such relevant date, on the
next preceding day on which there were quotations. In no event shall the option
exercise price of any share of Common Stock under each option be less than its
par value.
(c) Each option granted under the Plan shall have a term of five years and
shall be exercisable cumulatively to the extent of 25% of the shares covered
thereby on each of the first, second, third and fourth anniversaries of the date
of grant.
(d) Each option granted under the Plan shall be evidenced by an option
agreement ("Option Agreement") which shall not be inconsistent with the terms
and provisions of the Plan.
(e) Each Option Agreement shall be similar in form to the agreement
attached hereto as Appendix A.
2.2 Exercise of Options
(a) An option shall be exercised by the filing of a written notice of
exercise with the Company, on such form and in such a manner as the Committee
shall in its sole discretion prescribe.
(b) Any written notice of exercise of an option shall be accompanied by
payment of the full option exercise price for the shares being purchased.
Payment may be made (i) by cashier's or certified check payable to the Company,
(ii) by delivery of certificate(s), duly endorsed to the Company, representing
shares of Common Stock with a fair market value on the date of receipt by the
Company of the notice of exercise, equal to or less than the option exercise
price, together with a cashier's or certified check for any balance due to the
Company, or (iii) at the discretion of the Committee and to the extent permitted
by law, by such other
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<PAGE>
provision, consistent with the terms of the Plan, as the Committee may from time
to time prescribe. The Company shall deliver to the optionee certificate(s) for
shares of Common Stock issuable upon exercise of an option as soon as
practicable after receipt of such payment for such shares. No optionee shall be
permitted to make payment by such delivery of shares more frequently than once
in any 90 day period.
2.3 Termination of Employment or Death or Disability
(a) Except to the extent provided in Section 2.3(b) or (c), all options
granted to an optionee (and not theretofore exercised) shall terminate upon his
termination as a director for any reason (including death). An optionee shall
be deemed to have terminated as a director upon the expiration of his term if he
is not re-elected, his resignation, removal or death.
(b) If an optionee terminates his directorship for any reason and no
Revocation of Options (as set forth in paragraph (e) below) has occurred, such
optionee (or, if the optionee has died, the administrator or executor) may
exercise any option granted to him under the Plan to the extent that he was
entitled to exercise such option on the date his directorship terminated, and,
if any portion of the option is not then exercisable, that portion of the option
to become exercisable upon the next anniversary of the date of grant multiplied
by a fraction, the numerator of which is equal to the number of full calendar
months from the prior anniversary of the date of grant to the date of
termination of the directorship, and the denominator of which is twelve. No
option shall be exercisable prior to the first anniversary of the date of grant.
(c) If an optionee's directorship terminates for any reason other than
death or disability and no Revocation of Options has occurred, any option that
he is entitied to exercise under the terms of paragraph (b) above must be
exercised within the three-month period following termination of the
directorship. In the event that an optionee dies while serving as a director,
or during the three-month period after termination of his directorship, and if
no Revocation of Options has occurred, any option that he is entitled to
exercise under the terms of paragraph (b) above must be exercised within one
year after his death by the administrators or executors of his estate or by the
person or persons to whom the optionee's rights under the option shall have
4
<PAGE>
passed by will or by the applicable laws of descent or distribution. If an
optionee's directorship terminates due to the optionee's disability within the
meaning of Section 22(e)(3) of the Code, any option granted to such optionee
under the Plan may be exercised within one year of the termination of his
directorship. Any such exercise following the optionee's disability may be made
only by such optionee or his personal representative.
(d) Notwithstanding any other provision of this Plan, if a Revocation of
Options has occurred, any option granted to the optionee under the Plan shall
expire as of the date of the act or event which gives rise to the Revocation of
Options and shall as of such date no longer be exercisable to any extent
whatsoever. Revocation of Options will occur if a director is found to have
stolen or embezzled the Company's property, commited a fraud or other
defalcation against the Company, or if a director is actively engaged in or
worked for a business in direct competition with the Company while serving as a
director of the Company. The board of directors shall determine whether an
optionee has committed an act which gives rise to a Revocation of Options.
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards
(a) The board of directors of the Company may from time to time suspend or
discontinue the Plan or revise or amend it in any respect whatsoever, except
that no such amendment shall alter or impair any rights or obligations under any
award theretofore made under the Plan without the consent of the person to whom
such award was made (or, if the optionee has died, the person or persons to whom
his rights under the award have passed pursuant to Section 3.3), nor except as
and to the extent permitted by Section 3.4 shall any such amendment without
stockholder approval:
(i) increase, beyond the amounts set forth in Section 1.4, the number of
shares which may be issued pursuant to options;
(ii) increase, beyond the amount set forth in Section 2.1(a), the number of
shares subject to the option granted to
5
<PAGE>
each Eligible Director or alter the term or vesting schedule set forth in
Section 2.1(c);
(iii) provide for the grant of options having an option exercise price per
share less than 100% of the last sale price, as set forth in Section 2. 1 (b),
of a share of Common Stock on the date of grant;
(iv) change the designation in Section 1.3 of the class of persons eligible
to receive awards under the Plan; or
(v) extend the term of the Plan beyond the period set forth in Section
3.10(b).
3.2 Restrictions
The Committee shall take whatever action is necessary or desirable to
comply with state or local law, rule or regulation.
3.3 Nonassignability
No right granted to any optionee under the Plan or under any Option
Agreement shall be assignable or transferable, except by will or by the laws of
descent and distribution. During the life of the optionee, all rights granted
to the optionee under the Plan or under any Option Agreement shall be
exercisable only by him or by his guardian or legal representative.
3.4 Adjustments Upon Changes in Capitalization
In the event of any change in the outstanding Common Stock by reason of a
stock dividend, recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like ("change in capitalization"), the Committee shall
appropriately adjust the number of shares of Common Stock which may be issued
pursuant to options under the Plan, the number of shares of Common Stock subject
to options theretofore granted under the Plan, the option exercise price, and
any and all other matters deemed appropriate by the Committee, pursuant to such
change in capitalization.
3.5 No Rights as a Stockholder
6
<PAGE>
No optionee or other person exercising an option shall have any of the
rights of a stockholder of the Company with respect to shares subject to an
option until the issuance of a stock certificate to him for such shares. No
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities or other property)
for which the record date is prior to the date such stock certificate is issued.
3.6 Nature of Payments
(a) Any and all issuances of shares of Common Stock or cash hereunder shall
be granted or issued in consideration of services performed for the Company or
for its subsidiaries by the optionee.
(b) All such grants, issuances and payments shall constitute a special
incentive payment to the optionee and shall not, unless otherwise determined by
the Committee, be taken into account in computing the amount of director's fees
owed to the optionee.
3.7 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company, any subsidiary or the Committee from making any award or
payment to any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
3.8 Section Heading
The Section headings contained herein are for purposes of convenience only
and are not intended to define or limit the contents of said Sections.
3.9 Usage
Whenever applicable, the masculine gender, when used in this Plan, shall
include the feminine gender, and the singular shall include the plural.
3.10 Effective Date and Term of Plan
7
<PAGE>
(a) The Plan and any amendment thereto shall become effective upon adoption
by the board of directors provided that, approval thereof shall be given by the
affirmative vote of the holders of a majority of the shares of stock of the
Company present (in person or by proxy) and entitled to vote at the next annual
meeting of the stockholders of the Company, next following the adoption of the
Plan or any such amendment by the board of directors of the Company.
(b) The Plan shall terminate 10 years after the date on which it becomes
effective, and no awards shall thereafter be made under the Plan.
Notwithstanding the foregoing, all awards made under the Plan prior to such date
shall remain in effect until such awards have been exercised or terminated in
accordance with the terms and provisions of the Plan.
8
<PAGE>
PROXY [LOGO OF MCI APPEARS HERE]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MCI
COMMUNICATIONS CORPORATION FOR THE ANNUAL MEETING
TO BE HELD APRIL 25, 1996
Clifford L. Alexander, Jr., Bert C. Roberts, Jr., and John R. Worthington, or
any of them with full power of substitution, are hereby authorized to represent
and to vote, as designated on the reverse side, all of the undersigned's shares
of Common Stock at the annual meeting of stockholders of MCI COMMUNICATIONS
CORPORATION to be held on April 25, 1996 at 12:00 p.m. at the Sheraton Uptown
Albuquerque Hotel, 6815 Menaul Street, N.E., Albuquerque, New Mexico, and at any
adjournment thereof, in the election of directors, upon the proposals set forth
on the reverse side as described in the Proxy Statement, and in their discretion
with respect to such other matters as may properly be brought before the meeting
or any adjournment thereof.
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the board of directors' recommendations. The above named proxies cannot
vote your shares unless you sign and return this proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES FOR DIRECTORS SET FORTH IN PROPOSAL NO. 1 AND FOR PROPOSALS NOS. 2
THROUGH 6 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER
MATTERS AS MAY PROPERLY BE BROUGHT BEFORE THE ANNAL MEETING AND AT ANY
ADJOURNMENT THEREOF, FOR SHARES HELD IN THE COMPANY'S ESOP AND 401(K) PLANS, IF
NO DIRECTION IS MADE, THE TRUSTEE WILL VOTE SHARES PURSUANT TO THE TERMS OF THE
TRUST AGREEMENT.
(Continued on reverse side)
(Please type or print clearly)
NAME:
----------------------------------------
SOCIAL SECURITY NUMBER:
----------------------------------------
NAME & ADDRESS OF FINANCIAL INSTITUTION:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
ACCOUNT NUMBER:
----------------------------------------
SIGNATURE:
----------------------------------------
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE Please mark [X]
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER, your votes as
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR indicated in
PROPOSALS 1 THROUGH 6. this example
1. Election of Directors NOMINEES: JUDITH AREEN, GERALD H. TAYLOR,
JUDITH WHITTAKER
FOR WITHHELD FOR ALL NOMINEES LISTED, except vote withheld
[_] [_] from the following nominee(s).
_______________________________________________
2. Approval of the Company's Senior Executive Incentive Compensation Plan;
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of an amendment to the Company's Stock Option Plan;
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Approval of an amendment to the Company's 1990 Stock Purchase Plan;
FOR AGAINST ABSTAIN
[_] [_] [_]
5. Approval of an amendment to the Company's 1988 Directors' Stock Option Plan;
FOR AGAINST ABSTAIN
[_] [_] [_]
6. Approval of the appointment by the board of directors of Price Waterhouse
LLP as independent accountants for the year ending December 31, 1996; and
FOR AGAINST ABSTAIN
[_] [_] [_]
The signer revokes all proxies heretofore given by the signer to vote at said
meeting or any adjournment thereof. The signer hereby acknowledges receipt of
the notice of the annual meeting and proxy statement.
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Dated: ___________________________________________________________________, 1996
________________________________________________________________________________
(Signature)
________________________________________________________________________________
(Signature if held jointly)
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
MCI Communications Corporation
[LOGO OF MCI Investor Relations Department Phone 202-887-2028
APPEARS HERE] 1801 Pennsylvania Avenue, N.W. Toll-free 800-765-2115
Washington, D.C. 20006 Fax: 202-887-2967
Dear Investor:
In our continuing effort to provide valuable services to you, we want to remind
you of our dividend check deposit program. You may have your MCI dividend
check(s) mailed directly to your bank or other financial institution for deposit
in your account.
To take advantage of this service, please fill in the form on the back of this
card. This authorizes Chemical Mellon Shareholder Services, MCI's transfer
agent, to send your dividend check(s) directly to your financial institution.
You may either return the card with your proxy, or you may send the card to:
Chemical Mellon Shareholder Services
PO Box 471
Washington Bridge Station
New York, NY 10033
Attn: Shareholder Relations
If you have any questions about this service, dividend payments, or issues
regarding your stock certificates, or if you have an address change, you may
contact Chemical Mellon Shareholder Services at 800-934-8242.
For questions about your investment in MCI, please contact MCI Investor
Relations at the address and phone numbers listed at the top of this notice.
Sincerely,
Ray Alleri
Vice President Investor Relations
