-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JJlNGAYqgDAt5EuBbA9wAy4XSt0XUsGGgVi1bCNjvJr+1ehRs5/Mv3NCLAqx2hBj wZwFXXCqh8V62KTj/ddV/w== 0000892569-97-002904.txt : 19971027 0000892569-97-002904.hdr.sgml : 19971027 ACCESSION NUMBER: 0000892569-97-002904 CONFORMED SUBMISSION TYPE: DEF 14C PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971024 FILED AS OF DATE: 19971024 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXC COMMUNICATIONS INC CENTRAL INDEX KEY: 0001009532 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 742644120 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14C SEC ACT: SEC FILE NUMBER: 000-20803 FILM NUMBER: 97699986 BUSINESS ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: STE 200 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 5123281112 MAIL ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 79746-1050 DEF 14C 1 DEFINITIVE INFORMATION STATEMENT 1 SCHEDULE 14C INFORMATION INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Check the appropriate box: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only [X] Definitive Information Statement (as permitted by Rule 14c-5(d)(2))
IXC COMMUNICATIONS, INC. - -------------------------------------------------------------------------------- (Name of Registrant As Specified in Charter) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 IXC COMMUNICATIONS, INC. 5000 PLAZA ON THE LAKE, SUITE 200 AUSTIN, TEXAS 78746 NOTICE OF ACTION BY WRITTEN CONSENT OF STOCKHOLDERS To the Stockholders of IXC Communications, Inc.: The Board of Directors of IXC Communications, Inc. (the "Company") has taken action to adopt and approve the Company's 1997 Special Executive Stock Plan (the "1997 Stock Plan"). The 1997 Stock Plan is more fully described in the attached Information Statement. A total of four stockholders holding an aggregate of approximately 58% of the issued and outstanding shares of the Company's Common Stock, $.01 par value (the "Common Stock") and the issued and outstanding shares of the Company's 10% Junior Series 3 Cumulative Redeemable Preferred Stock, $.01 par value (the "Series 3 Preferred Stock"), voting as a class, have also approved in writing the 1997 Stock Plan. The Series 3 Preferred Stock is not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). The adoption and approval by the stockholders of the Company shall not become effective until November 17, 1997, which date is at least twenty (20) days after the mailing of the enclosed Information Statement. Your consent to the adoption of the 1997 Stock Plan is not required and is not being solicited in connection with this action. Pursuant to Section 228 of the Delaware General Corporation Law, you are hereby being provided with notice of the approval by less than the unanimous written consent of the stockholders of the Company. Pursuant to the Securities Exchange Act of 1934 (the "1934 Act") with this letter you are being furnished with an Information Statement relating to this action. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. THE ATTACHED MATERIAL IS BEING SENT TO YOU FOR INFORMATION PURPOSES ONLY. By Order of the Board of Directors [SIG] Jeffrey C. Smith Secretary Austin, Texas October 24, 1997 3 IXC COMMUNICATIONS, INC. 5000 PLAZA ON THE LAKE, SUITE 200 AUSTIN, TEXAS 78746 INFORMATION STATEMENT RELATING TO THE APPROVAL OF 1997 SPECIAL EXECUTIVE STOCK PLAN WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY THE APPROXIMATE DATE OF MAILING OF THIS INFORMATION STATEMENT IS OCTOBER 24, 1997 This Information Statement is being furnished by IXC Communications, Inc., a Delaware corporation (the "Company" or "IXC Communications"), to the holders of the Company's Common Stock, $.01 par value (the "Common Stock") and the holders of the Company's 10% Junior Series 3 Cumulative Redeemable Preferred Stock, $.01 par value (the "Series 3 Preferred Stock"), in connection with the approval and adoption of the Company's 1997 Special Executive Stock Plan (the "1997 Stock Plan"). The Board of Directors of the Company has taken action to approve and adopt the 1997 Stock Plan which requires the approval by the affirmative vote of a majority of the outstanding shares of the Common Stock and of the Series 3 Preferred Stock, voting as a class, for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") (which imposes a $1 million compensation deduction limitation). A total of four stockholders holding approximately 58% of the issued and outstanding shares of the Company's Common Stock and of the Series 3 Preferred Stock consented in writing to the approval and adoption of the 1997 Stock Plan. The Series 3 Preferred Stock is not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Accordingly, all corporate actions necessary to approve and adopt the 1997 Stock Plan have already been taken. Pursuant to the regulations promulgated under the 1934 Act, the approval and adoption of the 1997 Stock Plan by the stockholders of the Company will not become effective until November 17, 1997, which date is at least twenty (20) days after the Company has mailed this Information Statement to the stockholders of the Company. The Company has asked brokers and other custodians as well as fiduciaries to forward this Information Statement to the beneficial owners of the Common Stock and of the Series 3 Preferred Stock held of record by such persons and will reimburse such persons for out-of-pocket expenses incurred in forwarding such materials. THE 1997 STOCK PLAN HAS BEEN APPROVED AND ADOPTED BY STOCKHOLDERS WHO HOLD SUFFICIENT VOTING SECURITIES TO APPROVE THE ACTION. THIS INFORMATION STATEMENT IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. The executive offices of the Company are located at 5000 Plaza on the Lake, Suite 200, Austin, Texas 78746. All holders of the Common Stock and of the Series 3 Preferred Stock of record at the close of business on September 19, 1997 will receive this Information Statement. VOTING SECURITIES The Board of Directors has fixed the close of business on September 19, 1997 as the record date (the "Record Date") for the determination of stockholders entitled to vote with respect to stockholder authorization of the 1997 Stock Plan. As of the Record Date, the outstanding voting securities of the Company were 30,922,440 shares of Common Stock and 12,550 shares of Series 3 Preferred Stock. Each stockholder was entitled to one vote for each share of Common Stock and one vote for each share of Series 3 Preferred Stock held on the Record Date. The consent of the holders of a majority of the outstanding shares of Common Stock and Series 3 Preferred Stock, voting as a class, was necessary to approve and adopt the 1997 Stock Plan. 2 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of September 1, 1997 regarding the beneficial ownership of: (i) each class of the Company's voting securities by each person who is known by the Company to be the beneficial owner of more than 5% of any class of the Company's voting securities, and (ii) each class of equity securities of the Company by (a) each director of the Company, (b) each of the Named Executive Officers (as defined below), and (c) all directors and executive officers of the Company as a group. Although the Company is not aware of any holders of more than five percent of the outstanding shares of the Company's 12 1/2% Junior Exchangeable Preferred Stock Due 2009 (the "Exchangeable Preferred Stock") the Company has only limited information concerning the beneficial ownership of the Exchangeable Preferred Stock because substantially all of the Exchangeable Preferred Stock is registered in the names of nominees. It is possible that one or more persons or groups owns more than five percent of the outstanding Exchangeable Preferred Stock.
CONVERTIBLE SERIES 3 PERCENT OF PREFERRED PERCENT OF PREFERRED STOCK SERIES 3 STOCK CONVERTIBLE COMMON STOCK PERCENT OF BENEFICIALLY PREFERRED BENEFICIALLY PREFERRED BENEFICIALLY COMMON NAME AND ADDRESS OWNED(1)(2) STOCK OWNED(3) STOCK OWNED OWNED(1) STOCK - -------------------------------- --------------- ---------- ------------ ----------- ------------ ---------- Ralph J. Swett(4)(5)............ 25.00 * 3,563 * 3,022,248 9.8% John R. Fleming(4).............. -- -- -- -- 1,353,739 4.4 James F. Guthrie(4)(6).......... -- -- 1,018 * 110,169 * David J. Thomas(4)(7)........... -- -- -- * 187,236 * Michael W. Vent(4)(8)........... -- -- -- -- 49,249 * Richard D. Irwin(9)............. 995.58 7.9% 6,108 * 6,914,913 22.4 c/o Grumman Hill Associates, Inc. 191 Elm Street New Canaan, CT 06840 Carl W. McKinzie(10)............ -- -- -- -- 231,917 * 300 S. Grand Avenue, 29th Floor Los Angeles, CA 90071 Wolfe H. Bragin................. -- -- -- -- 4,000 * 2029 Century Park East Suite 1230 Los Angeles, CA 90067 Phillip L. Williams(11)......... -- -- -- -- 144,150 * 633 West Fifth Street, Suite 4000 Los Angeles, CA 90071-2007 Joe C. Culp(12)................. -- -- -- -- 60,622 * #5 Hedge Lane Austin, TX 78746 Grumman Hill Investments, L.P.(13)...................... -- -- -- -- 4,636,990 15.0 191 Elm Street New Canaan, CT 06840 Grumman Hill Associates, Inc.... 915.42 7.3 -- -- -- -- 191 Elm Street New Canaan, CT 06840 Trustees of General Electric Pension Trust................. 6,725.00 53.6 305,438 30.0% 9,591,210(14) 31.0 3003 Summer Street Stamford, CT 06905 Putnam Investments, Inc.(15).... -- -- -- -- 2,532,799 8.2 One Post Office Square Boston, MA 02109 All directors and executive officers of IXC Communications as a group (11 persons)....... 1,020.58 8.1 10,689 1.1 12,078,243 38.7
3 5 - --------------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the "Commission") and generally includes voting or investment power with respect to securities. Shares of Common Stock relating to options currently exercisable or exercisable within 60 days of September 1, 1997, are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them. (2) The shares of Series 3 Preferred Stock vote together with the shares of Common Stock as a class, except where otherwise required by law. The holders of Series 3 Preferred Stock have the right to elect one member of the Board of Directors. (3) The shares of the Company's 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock") are nonvoting except upon the occurrence of certain events described in the Certificate of Designation of the Convertible Preferred Stock. Although the Company is not aware of any holders of more than five percent of the outstanding shares of Convertible Preferred Stock other than as set forth in the above table, the Company has only limited information concerning the beneficial ownership of the Convertible Preferred Stock because substantially all of the Convertible Preferred Stock is registered in the names of nominees. It is possible that one or more persons or groups (other than as set forth in the above table) owns more than five percent of the outstanding Convertible Preferred Stock. (4) The address of such person is c/o IXC Communications, Inc. 5000 Plaza on the Lake, Suite 200, Austin, Texas 78746. (5) Includes 484,980 shares held by Ralph J. Swett, Trustee of the EMS 1994 Trust and 484,980 shares held by Ralph J. Swett, Trustee of the RJS 1994 Trust. Also includes 15,187 shares of Common Stock issuable to Mr. Swett upon conversion of the Convertible Preferred Stock. (6) Represents 80,830 shares issuable with respect to the exercise of options. Also includes 4,339 shares of Common Stock issuable upon conversion of the Convertible Preferred Stock. (7) Represents shares issuable with respect to the exercise of options. (8) Represents shares issuable with respect to the exercise of options. (9) Includes 1,628,216 shares held by The Irwin Family Limited Partnership dated January 4, 1995, 341,341 shares held by The Irwin Family Limited Partnership #2, 150,148 shares held by The Irwin Family Limited Partnership #3 and 26,035 shares of Common Stock issuable upon conversion of 2,545 shares of the Convertible Preferred Stock held by an Individual Retirement Account established by Mr. Irwin and 3,563 shares of Convertible Preferred Stock held by the Virginia Irwin Charitable Remainder Unitrust Dtd 1/4/95. Also includes 21.16 shares of Series 3 Preferred Stock held by Richard D. Irwin Revocable Living Trust dated January 4, 1995, 915.42 shares of Series 3 Preferred Stock held by Grumman Hill Company, L.L.C. or its predecessor ("Grumman Hill") and 4,636,990 shares of Common Stock held by Grumman Hill Investments, L.P. ("GHI"). Mr. Irwin is President of Grumman Hill, and Mr. Irwin may be deemed a beneficial owner of the shares owned by such entity. (10) Such shares are held by Trust for the Riordan & McKinzie Profit Sharing and Savings Plan for the benefit of Carl W. McKinzie. (11) Such shares are held by Phillip L. Williams, as Trustee of the Phillip and Jane Williams Living Trust, UDT August 20, 1985. (12) Represents shares issuable with respect to the exercise of options. (13) The sole general partner of GHI is Grumman Hill, a Delaware limited liability company, of which Mr. Irwin, a director of the Company, is the general manager and a beneficial owner of a membership 4 6 interest. Mr. Irwin may be deemed to have voting and investment power with respect to the shares held of record by GHI. (14) Includes 1,301,952 shares of Common Stock issuable upon conversion of the Convertible Preferred Stock. (15) Represents 2,451,599 shares held by Putnam Investment Management, Inc. ("PIM") and 81,200 shares held by Putnam Advisory Company, Inc. ("PAC"). PIM and PAC are each registered investment advisors that are wholly owned by Putnam Investments, Inc. The share amounts for PIM and PAC are based upon information contained in a Schedule 13G filed with the Commission on January 30, 1997. The Commission's rules do not require a Schedule 13G to be updated if the stockholder's holdings change (except on an annual basis), so that there can be no assurance that the current holdings of PIM and PAC do not vary materially from those shown in the above table. 5 7 EXECUTIVE COMPENSATION DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of IXC Communications and their ages as of September 1, 1997 are as follows:
NAME AGE POSITION ----------------------------- --- --------------------------------------------- Ralph J. Swett............... 63 Chairman, President, Chief Executive Officer and Director Richard D. Irwin............. 62 Director Wolfe H. Bragin.............. 53 Director Carl W. McKinzie............. 57 Director Phillip L. Williams.......... 75 Director Joe C. Culp.................. 64 Director John R. Fleming.............. 43 Executive Vice President James F. Guthrie............. 53 Chief Financial Officer and Executive Vice President David J. Thomas.............. 46 Executive Vice President Michael W. Vent.............. 45 Executive Vice President
Each director holds office until his successor has been elected and qualified. Officers serve at the pleasure of the Board of Directors. Mr. Swett has served as Chairman of IXC Communications since its formation in July 1992 and as Chief Executive Officer and President of IXC Communications from July 1992 to October 1997. Prior to that, Mr. Swett served as Chairman of the Board and Chief Executive Officer of Communications Transmission, Inc. ("CTI") from 1986 to 1992. From 1969 to 1986, Mr. Swett served in increasingly senior positions (Vice President, President and Chairman) of Times Mirror Cable Television ("TMCT"), a subsidiary of The Times Mirror Company ("Times Mirror") and a previous owner of IXC Carrier, Inc., a subsidiary of the Company ("IXC Carrier"), and as a Vice President of Times Mirror from 1981 to 1986. Mr. Swett has served as Chairman of IXC Carrier since 1979, its Chief Executive Officer since 1986 and its President since 1991. Mr. Swett has managed communications businesses for the past 26 years. As described below, Mr. Swett ceased to serve as the President and Chief Executive Officer of IXC Communications on October 9, 1997 upon the beginning of the employment of Benjamin L. Scott. Mr. Swett will continue to serve as the Chairman of IXC Communications through its next annual meeting of stockholders. Mr. Irwin has served as a director of IXC Communications since its formation in July 1992. He has served as the President of Grumman Hill, a merchant banking firm, and the general partner of GHI, since 1985. Prior to the formation of Grumman Hill, Mr. Irwin was a Managing Director of Dillon, Read & Co. Inc., from 1983 to 1985. Prior to that, he served as Chief Executive Officer of Fotomat Corporation for 12 years. Mr. Irwin is also a member of the Board of Directors of PharmChem Laboratories, Inc. and was the Chairman of ALC Communications Corporation ("ALC") from August 1988 through August 1995. Mr. Bragin has served as a director of IXC Communications since May 1993. Mr. Bragin has served since 1985 as Vice President of General Electric Investment Corporation, a subsidiary of General Electric Company ("GEIC"), that acts as an investment advisor to General Electric Pension Trust ("GEPT"). Prior to joining GEIC in 1984, Mr. Bragin served in numerous equipment leasing, investment and portfolio management positions for GE Credit Corporation, now known as GE Capital Corporation. Mr. Bragin is a member of the Board of Directors of a number of private companies. Mr. McKinzie has served as a director of IXC Communications since May 1993. Mr. McKinzie has been a principal of Riordan & McKinzie, a Professional Law Corporation ("Riordan & McKinzie"), since 1980. Mr. Williams was elected a director of IXC Communications in June 1996. Mr. Williams has been a private investor and business advisor since May 1993. Prior to that, Mr. Williams served as Vice Chairman of 6 8 the Board of Times Mirror from 1987 to May 1993. Mr. Williams is a member of the Board of Directors of Tejon Ranch Company. Mr. Culp was elected a director of IXC Communications in June 1996. Mr. Culp has been President of Culp Communications Associates, a management and marketing consulting firm, since 1990. From 1989 to 1990, Mr. Culp served as Executive Vice President of CTI. Prior to that, Mr. Culp served as President and Chief Executive Officer of Lightnet, Inc. from 1988 to 1989 and as President of Rockwell International's Telecommunications Group from 1982 until 1988. Mr. Culp has over 40 years of experience in the communications industry. Mr. Fleming has served as Executive Vice President of IXC Communications since March 1996 and as Senior Vice President of IXC Communications from October 1994 through March 1996. He served as Vice President of Sales and Marketing of IXC Communications from its formation in July 1992 until October 1994. Prior to that, Mr. Fleming served as Director of Business Development and Director of Carrier Sales of CTI from 1986 to March 1990 and as Vice President -- Marketing and Sales of CTI from March 1990 to July 1992. Mr. Fleming was a Branch Manager for Satellite Business Systems from 1983 to 1986. Mr. Fleming has been employed with IXC Carrier since 1986 and a Vice President of IXC Carrier since 1990. Mr. Fleming has over 16 years of experience in the telecommunications industry. Mr. Guthrie has served as Chief Financial Officer of IXC Communications since July 1997, as Executive Vice President of IXC Communications since March 1996 and as Senior Vice President, Strategic Planning of IXC Communications from December 1995 through March 1996. Prior to that, Mr. Guthrie served as Vice President and Chief Financial Officer of Times Mirror from 1993 to 1995 and as the Chief Financial Officer of TMCT from 1982 to 1993. Mr. Thomas has served as Executive Vice President of IXC Communications since March 1996 and as Senior Vice President of IXC Communications from August 1995 through March 1996. He was employed with ALC from 1983 to 1995, serving as Vice President from 1991 to 1995 and as Treasurer from 1989 to 1995. Mr. Thomas has over 14 years of experience in the telecommunications industry. Mr. Vent was elected Executive Vice President of IXC Communications effective April 1, 1997 and has served as Senior Vice President -- Network Planning and Implementation from December 1996 through March 1997. Prior to that, Mr. Vent served as Vice President and General Manager of Broadband Services of IXC Communications from October 1995 through November 1996 and Vice President and General Manager of Switch Services of IXC Communications from October 1994 through September 1995. Mr. Vent served as Vice President of Management Information Systems and Network Services of WCT Communications, Inc. from September 1993 through August 1994, and Vice President and Chief Information Officer of Advanced Technologies of Progressive Communications Technology, Inc. from August 1992 through August 1993. He was employed by MCI from 1979 through July 1992, serving as Director of Network and Computer Operations from January 1990 through July 1992. Mr. Vent has over 22 years of experience in the telecommunications industry. NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER IXC Communications recently entered into an employment agreement with Benjamin L. Scott, 47, for a term of five years pursuant to which Mr. Scott became the President and Chief Executive Officer of IXC Communications and a member of the Board of Directors upon the commencement of his employment with IXC Communications which occurred on October 9, 1997 (the "Commencement Date"). It is anticipated that Mr. Scott will also become the Chairman of the Board of IXC Communications within 30 days following IXC Communications' 1998 annual meeting of stockholders. Mr. Scott served as President and Chief Executive Officer of PrimeCo Personal Communications L.P., a joint venture among Bell Atlantic Corporation ("Bell Atlantic"), U S WEST Media Group and Airtouch Communications, Inc., from 1995 until September 30, 1997. Prior to that, Mr. Scott served as an officer of Bell Atlantic from 1991 to 1995, including as President and Chief Executive Officer of Bell Atlantic International Wireless. Prior to that, Mr. Scott was employed by AT&T from 1971 through 1991, with his last position being President and Chief Executive Officer of AT&T Canada. 7 9 Pursuant to the terms of his employment agreement, Mr. Scott is entitled to an annual base salary of $350,000, subject to adjustment in accordance with IXC Communications' policies and procedures, and an annual bonus of $225,000 for his first year of service. Thereafter, annual bonuses, if approved by the Board of Directors, are anticipated to be one-half or more of his base salary if Mr. Scott achieves or exceeds certain performance goals. Mr. Scott's employment agreement also provides for a signing bonus of $650,000, $350,000 of which was paid to Mr. Scott on the Commencement Date and $300,000 of which will be paid to Mr. Scott on January 1, 1999. Mr. Scott was also granted an option to purchase 500,000 shares of Common Stock at a price of $27.50 per share vesting over a five-year period in connection with his employment agreement under 1997 Stock Plan. Mr. Scott's option will become fully vested if Mr. Scott is terminated without cause or if a change in control (as defined in his employment agreement) occurs pursuant to the terms of his employment agreement. Mr. Scott is also entitled to receive certain severance and relocation benefits as described in his employment agreement. EXECUTIVE COMPENSATION The following table sets forth all compensation awarded to, earned by or paid to the Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer (the "Named Executive Officers") for their services to the Company for the years ended December 31, 1995 and December 31, 1996.
LONG TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES --------------------------------------- UNDERLYING OTHER ANNUAL OPTION/- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) SARS(#) COMPENSATION(2) - ------------------------------- ---- -------- -------- --------------- ------------ --------------- Ralph J. Swett................. 1996 $299,712 $175,000 $10,000 -- $ 21,986(3) Chairman, President and Chief 1995 285,000 -- 10,000 -- 883,813(3) Executive Officer Kenneth F. Hinther+............ 1996 165,519 100,000 7,500 -- 14,207 Executive Vice President 1995 212,083(4) -- 7,500 -- 444,739(5) John R. Fleming................ 1996 165,519 100,000 7,500 -- 14,322 Executive Vice President 1995 212,083(4) -- 7,500 -- 444,739(5) John J. Willingham*............ 1996 143,519 100,000 7,500 -- 12,415 Senior Vice President 1995 183,417(6) -- 7,500 -- 442,871(5) James F. Guthrie............... 1996 200,000 -- 8,000 342,490 17,842 Executive Vice President 1995 -- -- -- -- --
- --------------- + Mr. Hinther retired as Executive Vice President of the Company effective April 1, 1997. * Mr. Willingham retired as Senior Vice President of the Company effective August 29, 1997. (1) These amounts represent automobile allowances paid to the Named Executive Officers in 1996 and 1995. (2) Includes payments in 1995 of $862,027 (with respect to Mr. Swett) and $431,014 (with respect to each of Mr. Hinther, Mr. Fleming and Mr. Willingham) made in connection with a prior incentive arrangement. The incentive payments were earned in 1993 but did not become payable until 1995. (3) Includes an employer contribution of $13,500 and $13,700 under the 401(k) Plan (as defined below) in 1995 and 1996, respectively, and payments of $8,286 for term life insurance premiums in 1995 and 1996. (4) Represents $153,750 in salary and an additional amount of $58,333 in compensation earned and deferred in prior years but paid in 1995. (5) Includes employer contributions of $13,725 and $14,207 for Mr. Hinther, $13,725 and $14,322 for Mr. Fleming and $11,858 and $12,415 for Mr. Willingham under the 401(k) Plan in 1995 and 1996, respectively. (6) Represents $131,750 in salary and an additional amount of $51,667 in compensation earned and deferred in prior years but paid in 1995. 8 10 EMPLOYMENT AGREEMENT Mr. Guthrie entered into an employment agreement with IXC Communications in December 1995 for a term of three years pursuant to which Mr. Guthrie is entitled to an annual base salary of $200,000, subject to adjustment in accordance with IXC Communications' policies and procedures, and an annual bonus of up to $75,000 if approved by the Board of Directors. Mr. Guthrie was also granted an option to purchase 242,490 shares of Common Stock pursuant to the terms of his employment agreement. Other than Mr. Guthrie, none of the Named Executive Officers have entered into employment agreements with the Company. See "-- New President and Chief Executive Officer." STOCK OPTIONS The following table sets forth information concerning each grant of stock options made during 1996 to each of the Named Executive Officers. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------------------------------------------ POTENTIAL REALIZABLE PERCENT OF VALUE AT ASSUMED ANNUAL NUMBER OF TOTAL RATES OF STOCK PRICE SHARES OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE TERM(1) OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------------- NAME GRANTED IN PERIOD SHARE DATE 5% 10% - ------------------------------ ---------- ---------- --------- ---------- ---------- ---------- Ralph J. Swett................ -- -- -- -- Kenneth F. Hinther............ -- -- -- -- John R. Fleming............... -- -- -- -- John J. Willingham............ -- -- -- -- James F. Guthrie(2)........... 242,490(3) 21.4% $ 3.01 1/08/06 $ 459,027 $1,163,265 100,000(4) 8.8% $ 22.25 10/28/06 $1,399,291 $3,546,077
- --------------- (1) The potential realizable value is calculated based on the term of the option (ten years) at its time of grant. It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term of the option. (2) All of Mr. Guthrie's options become immediately exercisable upon the sale of substantially all of the Company's assets, a successful tender offer for greater than fifty percent (50%) of the outstanding capital stock of the Company or a merger or consolidation in which the stockholders of the Company immediately preceding such merger or consolidation will not hold a majority of the outstanding capital stock of the surviving corporation immediately after such merger or consolidation. (3) The options become exercisable in three equal installments beginning on January 19, 1997 and, on the two successive annual anniversary dates thereafter. (4) The options become exercisable in four equal installments beginning on October 29, 1997, and on the three successive annual anniversary dates thereafter. 9 11 The following table sets forth the number and value as of December 31, 1996 of shares underlying unexercised options held by each of the Named Executive Officers. FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AS OF OPTIONS AS OF DECEMBER 31, 1996 DECEMBER 31, 1996(1) ----------------------------- ----------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------------------------- ----------- ------------- ----------- ------------- Ralph J. Swett............................... -- -- -- -- Kenneth F. Hinther........................... -- -- -- -- John R. Fleming.............................. -- -- -- -- John J. Willingham........................... -- -- -- -- James F. Guthrie............................. 0 342,490 $ 0 $ 7,576,673
- ------------------------ (1) Based on the fair market value (the closing price for the Company's Common Stock as reported on the Nasdaq National Market as of December 31, 1996, ($30.75 per share)), less the exercise price payable upon exercise of such options. 1996 STOCK PLAN In May 1996, IXC Communications adopted a stock incentive plan (the "1996 Stock Plan"), covering 2,121,787 shares of Common Stock of IXC Communications that may be awarded in order to attract, retain and reward employees, directors and other persons providing services to the Company. The Compensation Committee administers the 1996 Stock Plan subject to the authority delegated to the Chief Executive Officer as described below, except that certain grants in connection with Section 162(m) of the Code are made by the Administrative Committee and all grants of stock-based awards in 1996 were made by the entire Board of Directors. See "-- Director Compensation and Committees of the Board -- Administrative Committee." Any employee, director or other person providing services to the Company is eligible to receive awards under the 1996 Stock Plan, at the discretion of the Board of Directors. Subject to certain limitations, the Board of Directors, delegated its authority under the 1996 Stock Plan to the Chief Executive Officer of the Company with respect to grants of stock options to individuals not subject to Section 16 of the 1934 Act and to the Administrative Committee with respect to grants of stock options to senior executive officers of IXC Communications and other individuals who may be subject to Section 162(m) of the Code. Awards available under the 1996 Stock Plan include options to purchase Common Stock with exercise prices at least equal to the fair market value of the Common Stock on the date of grant. Mr. Guthrie was the only Named Executive Officer granted an option pursuant to the 1996 Stock Plan to acquire stock of IXC Communications in 1996. 1994 STOCK PLAN In November 1994, IXC Communications adopted a stock incentive plan (the "1994 Stock Plan") covering 1,212,450 shares of Common Stock of IXC Communications to attract, retain and reward employees, directors and other persons providing services to the Company. The Compensation Committee administers the 1994 Stock Plan subject to the authority delegated to the Chief Executive Officer as described below, except that certain grants in connection with Section 162(m) of the Code are made by the Administrative Committee and all grants of stock-based awards in 1996 were made by the entire Board of Directors. See "-- Director Compensation and Committees of the Board -- Administrative Committee." Subject to certain limitations, the Board of Directors delegated its authority under the 1994 Stock Plan to the Chief Executive Officer of the Company with respect to grants of stock options to individuals not subject to Section 16 of the 1934 Act and to the Administrative Committee with respect to grants of stock options to senior executive officers of IXC Communications and other individuals who may be subject to Section 162(m) of the Code. Awards available under the 1994 Stock Plan include options to purchase Common Stock. Mr. Culp is the only director who holds options to acquire stock. No options granted under the 1994 Stock Plan were granted in 10 12 1996 to Named Executive Officers under the 1994 Stock Plan. SPECIAL STOCK PLAN In October 1996, IXC Communications adopted a stock incentive plan (the "Special Stock Plan") covering 67,900 shares of Common Stock of IXC Communications to induce certain individuals to become employees of the Company and/or its subsidiaries. The Compensation Committee administers the Special Stock Plan. Awards available under the Special Stock Plan include options to purchase Common Stock. All available options to acquire stock under the Special Stock Plan were granted in 1996, none of which were granted to a Named Executive Officer of the Company. 1997 SPECIAL EXECUTIVE STOCK PLAN In September 1997, IXC Communications adopted the 1997 Stock Plan, a stock incentive plan covering 500,000 shares of Common Stock of IXC Communications to attract, retain and reward key executives. See "Approval of 1997 Special Executive Stock Plan" for a description of the 1997 Stock Plan. 401(k) PLAN The Company's 401(k) Plan (the "401(k) Plan") is a tax-qualified retirement plan. In general, all employees of the Company who have attained age 18 and completed one year of service are eligible to participate in the 401(k) Plan. Participants may make pre-tax contributions to the 401(k) Plan, in an amount currently not to exceed $9,500 per year. The Company may elect to make matching contributions each year, which are allocated among participants depending on the amount that they contribute to the 401(k) Plan. The Company may also elect to make profit-sharing contributions to the 401(k) Plan, which are allocated among participants as a percentage of compensation. INDEMNIFICATION AND EXCULPATION ARRANGEMENTS The Company's Restated Certificate of Incorporation, as amended, limits the liability of directors to IXC Communications or its stockholders to the fullest extent permitted by the Delaware General Corporation Law (the "DGCL"). Accordingly, pursuant to the provisions of the DGCL presently in effect, directors of IXC Communications will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or (iv) for any transaction from which the director derived an improper personal benefit. In addition, the bylaws of IXC Communications require IXC Communications to indemnify its directors and officers to the fullest extent permitted by the laws of the State of Delaware. DIRECTOR COMPENSATION AND COMMITTEES OF THE BOARD Non-employee directors currently receive annual compensation of $10,000 in cash and certain non-employee directors (Messrs. Bragin, Culp and Williams) receive an annual allocation under the Company's phantom stock plan (described below) for service to the Company as members of the Board of Directors. All compensation which would otherwise be payable to Mr. Bragin as a director of the Company is paid to GEPT. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the Board. Mr. Culp was granted an option in 1994 in connection with consulting services provided for the Company which is fully exercisable to purchase 60,622 shares of Common Stock at a purchase price of $3.01 per share. Mr. Swett receives no compensation for his services as a director. The Company adopted a phantom stock plan (the "Directors' Plan") in May 1996 for certain of its outside directors, pursuant to which $20,000 per director per year of their director's fees will be automatically deferred and treated as if it were invested in Common Stock. No stock will be actually purchased under the plan, and the participants will receive cash benefits equal to the value of the shares that they are deemed to have purchased under the plan, with such value to be determined on the date of distribution. The distribution 11 13 of the benefits generally will occur following the third annual meeting of the Company's stockholders that occurs after the deferral. The Directors' Plan is administered by Messrs. Swett, Irwin and McKinzie, none of whom are participants in the plan. Audit Committee. The Board of Directors established the Audit Committee in June 1996 to: (i) make recommendations concerning the engagement of independent public accountants; (ii) review with the independent public accountants the plans for, and scope of, the audit procedures to be utilized and results of the audit; (iii) approve the professional services provided by the independent public accountants; (iv) review the independence of the independent public accountants; and (v) review the adequacy and effectiveness of the Company's internal accounting controls. Mr. Williams, Mr. Culp and Mr. McKinzie are the members of the Audit Committee. Compensation Committee. The Board of Directors established the Compensation Committee in June 1996 consisting of Mr. Irwin, Mr. Bragin and Mr. McKinzie, none of whom are employees of the Company. The Compensation Committee will determine the compensation for the Company's executive officers and administer the 1996 Stock Plan, the 1994 Stock Plan and the Special Stock Plan, except that all grants of stock-based awards in 1996 were made by the entire Board of Directors. Subject to certain limitation, the Board of Directors recently delegated its authority under the 1996 Stock Plan and the 1994 Stock Plan to the Chief Executive Officer of the Company with respect to grants of stock options to individuals not subject to Section 16 of the Exchange Act and to the Administrative Committee with respect to grants of stock options to senior executive officers of the Corporation and other employees that may be subject to Section 162(m) of the Code. Administrative Committee. The Board of Directors established the Administrative Committee in September 1997 consisting of Mr. Bragin and Mr. Williams, none of whom are employees of the Company. The Administrative Committee administers the 1997 Stock Plan in all respects and administers the grants of stock options under the 1996 Stock Plan and the 1994 Stock Plan to senior executive officers of IXC Communications and other employees who may be subject to Section 162(m) of the Code. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to June 1996, the Company did not have a compensation committee or any other committee of the Board of Directors performing equivalent functions. All decisions regarding executive compensation were made by the Board of Directors of the Company prior to that date, none of whom, other than Mr. Swett, was an executive officer of the Company. Decisions with respect to Mr. Swett's compensation were approved by all members of the Board other than Mr. Swett. The Company's Compensation Committee, which was established in June 1996, consists of Messrs. Irwin, Bragin and McKinzie, none of whom was at any time during fiscal 1996 or at any other time an officer or employee of the Company. In September 1997 the Board established the Administrative Committee to administer the 1997 Stock Plan and certain grants under the 1996 Stock Plan and the 1994 Stock Plan in connection with Section 162(m) of the Code. See "-- Director Compensation and Committees of the Board -- Administrative Committee." There are no Compensation Committee (or Administrative Committee) interlocks between the Company and other entities involving the Company's executive officers and Board members who serve as executive officers or Board members of such other entities. APPROVAL OF 1997 SPECIAL EXECUTIVE STOCK PLAN On September 9, 1997, the Board adopted the 1997 Stock Plan. The holders of a majority of the outstanding shares of Common Stock and of the Series 3 Preferred Stock, voting as a class, approved the 1997 Stock Plan by means of written consent. Thus, the other stockholders are not required to vote on the approval of the 1997 Stock Plan. Rather, the following description of the 1997 Stock Plan is being provided for informational purposes only. This description is subject to and is qualified in its entirety by the full text of the 1997 Stock Plan, which is attached as Appendix A to this Information Statement. 12 14 SUMMARY OF THE 1997 STOCK PLAN Purposes. The purposes of the 1997 Stock Plan are (1) to promote the interests of the Company and its stockholders by enabling it to offer grants of stock to better attract, retain, and reward certain key executives and, (2) to strengthen the mutuality of interests between those executives and the Company's stockholders by providing those executives with a proprietary interest in pursuing the Company's long-term growth and financial success. Grants. Under the 1997 Stock Plan, employees of (or individuals who have accepted offers of employment with) the Company may be granted options to purchase Common Stock ("Options"). The 1997 Stock Plan permits the granting of Options that qualify for treatment as incentive stock options under Code Section 422 ("Incentive Stock Options") and Options that do not qualify as Incentive Stock Options ("Non-Qualified Stock Options"). Employees may also be granted rights to purchase Common Stock that are subject to repurchase rights on behalf of the Company ("Restricted Stock"). Maximum Number of Shares. The maximum number of shares that can be issued to all employees under the 1997 Stock Plan is 500,000. The maximum number of shares that may be issued to a single employee is also 500,000. In the event of certain changes in the Company's capitalization or structure, an appropriate adjustment will be made to the number, kind or exercise price of shares as to which Options and Restricted Stock may thereafter be granted and as to the number of shares covered by unexercised outstanding Options and rights to purchase Restricted Stock. Administration. The 1997 Stock Plan will be administered by the Administrative Committee. To the extent possible and advisable, the members of the Administrative Committee will qualify both as (1) "outside directors" under Code Section 162(m) (imposing a $1,000,000 deduction limitation on compensation paid to certain executives) and as (2) "non-employee directors" under Rule 16-3 adopted by the Commission (relating to "short-swing" profits) with respect to grants to individuals subject to those statutory provisions. The Administrative Committee is authorized to interpret the 1997 Stock Plan and to adopt rules and procedures relating to the administration of the 1997 Stock Plan. All actions of the Administrative Committee in connection with the interpretation and administration of the 1997 Stock Plan will be binding upon all parties. Terms of Options. The purchase price of shares of Common Stock subject to each Option which is intended to qualify as an Incentive Stock Option will be equal to the Fair Market Value of such shares (110% of Fair Market Value in the case of an owner of more than 10% of the Common Stock) on the date of the grant of such Incentive Stock Option. The purchase price of any Option which does not qualify as an Incentive Stock Option will be determined by the Administrative Committee, but will not be less than 100% of the Fair Market Value of the Common Stock on the date of the grant. The Fair Market Value of such shares for this purpose is the closing price of the Common Stock on the date of the grant. Options vest (i.e., become exercisable) as provided in the stock option agreement between the employee and the Company. In the case of certain events (e.g., the sale of the Company), the Options will automatically fully vest. Options granted under the 1997 Stock Plan may be exercised, to the extent that they are vested, by the payment of the full purchase price therefor in cash, by check, or by the surrender of outstanding shares of Common Stock. Options are not transferable during the individual's lifetime, and may be transferred in the event of death only by will or by the laws of descent and distribution. Restricted Stock may not be transferred until the restrictions lapse. Each Option will terminate no later than 10 years (five years in the case of an Incentive Stock Option issued to an owner of more than 10% of the Common Stock) from the date the Option is granted. Amendment and Termination. Unless earlier terminated by the Board, the 1997 Stock Plan will terminate on September 8, 2007. The Board may at any time amend the 1997 Stock Plan. However, no amendment or modification to the plan may be adopted without approval of an employee holding an Option or Restricted Stock that would diminish the employee's rights. Furthermore, without stockholder approval, no 13 15 amendment may be adopted that would (1) change the class of employees eligible to receive Incentive Stock Options, or (2) increase the maximum number of shares that may be issued under the 1997 Stock Plan. FEDERAL INCOME TAX CONSEQUENCES Based on current provisions of the Code and of the regulations issued thereunder, the anticipated federal income tax consequences with respect to Options and Restricted Stock granted under the 1997 Stock Plan are as described below. However, employees should consult with their own tax advisors with respect to the tax consequences (both state and federal) of participation in the 1997 Stock Plan. The 1997 Stock Plan is not a tax-qualified retirement plan under Code Section 401(a) nor is it subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). Incentive Stock Options. No taxable income is recognized by an employee upon the grant or exercise of the Incentive Stock Option. Correspondingly, the Company is not entitled to an income tax deduction as the result of the grant or exercise of an Incentive Stock Option. Any gain or loss resulting from the sale of shares of Common Stock acquired upon exercise of an Incentive Stock Option will be long-term capital gain or loss if the sale is made after the later of (1) two years from the date of its grant or (2) one year from the date of its exercise ("Exercise Date"). If the Common Stock is sold to another person prior to the expiration of the holding periods described in the above sentence ("Disqualifying Disposition"), the employee will generally recognize ordinary income in the year of the sale in an amount equal to the difference between (1) the exercise price of the option (the "Option Price"), and (2) the lesser of the fair market value of the shares of Common Stock on (a) the Exercise Date or (b) the date of the Disqualifying Disposition. The Company will be entitled to an income tax deduction equal to the amount taxable to the employee. Any excess gain recognized by the employee upon the Disqualifying Disposition would be taxable as a capital gain, either as long-term or short-term depending upon whether the shares of Common Stock have been held for more than one year prior to the Disqualifying Disposition. The amount by which the Fair Market Value of the Common Stock on the Exercise Date exceeds the Option Price constitutes an item of tax preference that may be subject to alternative minimum tax in the year that the Incentive Stock Option is exercised, depending on the facts and circumstances. Non-Qualified Stock Options. No taxable income will be recognized by the employee and the Company will not be entitled to a deduction at the time of the grant of a Non-Qualified Stock Option. Upon the exercise of a Non-Qualified Stock Option, the employee generally will recognize ordinary income and the Company will be entitled to an income tax deduction in the amount by which the fair market value of the shares of Common Stock issued to the employee at the time of the exercise exceeds the Option Price. This income constitutes "wages" with respect to which the Company is required to deduct and withhold federal income tax. Upon the subsequent disposition of shares of Common Stock acquired upon the exercise of a Non-Qualified Stock Option, the employee will recognize capital gain or loss in an amount equal to the difference between the proceeds received upon disposition and the fair market value of the shares on the Exercise Date. If the shares have been held for more than one year at the time of the disposition, the capital gain or loss will be long-term. Restricted Stock. An employee receiving Restricted Stock generally will recognize ordinary income equal to the fair market value of the Restricted Stock when it is no longer subject to forfeiture ("Vesting Date") over the amount (if any) the employee paid for the Common Stock. The Company is entitled to deduct the amount that is taxable to the employee. With respect to the sale of the shares, the holding period for determining whether the employee has long-term or short-term capital gain or loss generally begins on the Vesting Date and the employee's tax basis for the shares will generally be the fair market value of the shares on the Vesting Date. However, an employee may make an election under Code Section 83(b) ("Section 83(b) Election") within 30 days of the grant of the Restricted Stock to recognize ordinary income on the date of grant equal to 14 16 the excess of the fair market value of the shares of Restricted Stock (determined without regard to the restrictions) over the amount paid (if any) by the employee for the stock. If the employee makes a Section 83(b) Election, his or her holding period commences on the date of grant, and his or her tax basis in the stock is the fair market value of shares on the date of the grant. The Company will be entitled to deduct the amount that is taxable to the employee. However, if the Restricted Stock is forfeited, the employee will not be entitled to a deduction, refund, or loss for the amount previously included in income by reason of the Section 83(b) Election. Tax Rates. The current maximum tax rate for long-term capital gains is 28% (if the stock has been held for more than 12 months) or 20% (if the stock has been held for more than 18 months). The current marginal rate for ordinary income tax can be as much as 39.6%. Golden Parachute Payments. To the extent that the exercisability of an Option is accelerated because there is a change of control of the Company, it will be treated as a "parachute payment." To the extent that certain key executives receive payments in connection with the change in control that equal or exceed 300% of their average annual compensation, the amounts they receive in excess of 100% of their average annual compensation are "excess parachute payments." Excess parachute payments are not deductible by the Company, and the executives are subject to a 20% excise tax on their receipt of them. Million Dollar Compensation Deduction Limitation. Code Section 162(m) generally precludes a publicly held employer from deducting compensation in excess of $1,000,000 per year payable to a person who is one of its top five executives. This limitation generally does not apply, however, to income recognized by reason of the exercise of a stock option if (1) the option price is at least equal to the fair market value of the Common Stock on the date the Option was granted, (2) the option was granted by a committee exclusively composed of individuals who constitute "outside directors" under Code Section 162(m), and (3) the plan states the maximum number of shares that can be issued to a single individual. It is anticipated that the income that may be recognized under the 1997 Stock Plan will be exempt from Section 162(m). OPTIONS GRANTED UNDER THE 1997 STOCK PLAN A stock option covering 500,000 shares of Common Stock has been issued to Benjamin Scott in connection with the commencement of his employment as President and Chief Executive Officer of the Company. The exercise price under the option is $27.50 per share, the fair market value of the Common Stock on the date the option was granted. The option generally vests at the rate of 20 percent per year of service. By Order of the Board of Directors [SIG] JEFFREY C. SMITH Secretary Austin, Texas October 24, 1997 15 17 APPENDIX A IXC COMMUNICATIONS, INC. 1997 SPECIAL EXECUTIVE STOCK PLAN 1. Purpose. The purpose of this IXC Communications, Inc. 1997 Special Executive Stock Plan ("Plan") is to promote the interests of IXC Communications, Inc. ("Company") and its shareholders by enabling it to offer grants of stock to better attract, retain, and reward certain key executives and, accordingly, to strengthen the mutuality of interests between those executives and the Company's shareholders by providing those executives with a proprietary interest in pursuing the Company's long-term growth and financial success. 2. Definitions. For purposes of this Plan, the following terms shall have the meanings set forth below. (a) "Board" means the Board of Directors of IXC Communications, Inc. (b) "Code" means the Internal Revenue Code of 1986, as amended. Reference to any specific section of the Code shall be deemed to be a reference to any successor provision. (c) "Committee" means the administrative Committee of this Plan that is provided in Section 3 below. (d) "Common Stock" means the common stock of the Company or any security issued in substitution, exchange, or in lieu thereof. (e) "Company" means IXC Communications, Inc., a Delaware corporation, or any successor corporation. Except where the context indicates otherwise, the term "Company" shall include its Parent and Subsidiaries. (f) "Disabled" means permanent and total disability, as defined in Code Section 22(e)(3). (g) "Exchange Act" means the Securities Exchange Act of 1934. (h) "Fair Market Value" of Common Stock shall be determined in accordance with the following rules. (i) If the Common Stock is admitted to trading or listed on a national securities exchange, the closing price for any day shall be the last reported sale price regular way, or if no such reported sale takes place on that day, the average of the last reported bid and ask prices regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed. (ii) If not listed or admitted to trading on any national securities exchange, the last sale price on that day of the Common Stock reported on the Nasdaq National Market of the Nasdaq Stock Market ("Nasdaq National Market") or, if no such reported sale takes place on that day, the average of the closing bid and ask prices on that day. (iii) If not included in the Nasdaq National Market, the average of the closing bid and ask prices of the Common Stock on that day reported by the Nasdaq Stock Market, or any comparable system on that day. (iv) If the Common Stock is not included in the Nasdaq Stock Market or any comparable system, the closing bid and ask prices on that day as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. In the case of a day on which the stock markets are not open, Fair Market Value shall be determined as of the last preceding day on which the stock markets were open. In the case of an Incentive Stock Option, Fair Market Value shall be determined without reference to any restriction other than one that, by its terms, will never lapse. (i) "Incentive Stock Option" means an option to purchase Common Stock that is an incentive stock option within the meaning of Code Section 422. (j) "Insider" means a person who is subject to Section 16 of the Exchange Act. A-1 18 (k) "Non-Qualified Stock Option" means any option to purchase Common Stock that is not an Incentive Stock Option. (l) "Option" means an Incentive Stock Option or a Non-Qualified Stock Option. (m) "Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as determined in accordance with the rules of Code Section 424(e). (n) "Participant" means a person who was been granted an Option or Restricted Stock. (o) "Plan" means this IXC Communications, Inc. 1997 Special Executive Stock Plan, as it may be amended from time to time. (p) "Restricted Stock" means shares of Common Stock issued under Section 9 below that are subject to restrictions upon assignment or alienation prior to vesting. (q) "Severance" means, with respect to a Participant, the termination of the Participant's provision of services to the Company as an employee, whether by reason of death, disability, or any other reason. (i) For purposes of determining the exercisability of an Incentive Stock Option, a Participant who is on a leave of absence that exceeds ninety (90) days will be considered to have incurred a Severance on the ninety-first (91st) day of the leave of absence, unless the Participant's rights to reemployment are guaranteed by statute or contract. (ii) A Participant will not be considered to have incurred a Severance because of a transfer of employment between the Company and a Subsidiary or Parent (or vice versa). (r) "Subsidiary" means any corporation or entity in which the Company, directly or indirectly, controls fifty percent (50%) or more of the total voting power of all classes of its stock having voting power, as determined in accordance with the rules of Code Section 424(f). (s) "Ten Percent Shareholder" means any person who owns (after taking into account the constructive ownership rules of Section 424(d) of the Code) more than ten percent (10%) of the stock of the IXC Communications, Inc. or of any of its Parents or Subsidiaries. 3. Administration. (a) This Plan shall be administered by a Committee appointed by the Board. The Board may remove members from, or add members to, the Committee at any time. To the extent possible and advisable, the Committee shall be composed of individuals that satisfy Rule 16b-3 under the Exchange Act and Code Section 162(m). Notwithstanding anything herein to the contrary, any action which may be taken by the Committee may also be taken by the Board. (b) The Committee may conduct its meetings in person or by telephone. A majority of the members of the Committee shall constitute a quorum, and any action shall constitute the action of the Committee if it is authorized by: (i) A majority of the members present at any meeting; or (ii) The unanimous consent of all of the members in writing without a meeting. (c) The Committee is authorized to interpret this Plan and to adopt rules and procedures relating to the administration of this Plan. All actions of the Committee in connection with the interpretation and administration of this Plan shall be binding upon all parties. (d) Subject to the limitations of Sections 10 and 14 below, the Committee is expressly authorized to make such modifications to this Plan, and to the grants of Options and Restricted Stock hereunder as are necessary to effectuate the intent of this Plan as a result of any changes in the tax, accounting, or securities laws treatment of Participants and of the Plan. A-2 19 (e) The Committee may delegate its responsibilities to others under such conditions and limitations as it may prescribe, except that the Committee may not delegate its authority with regard to the granting of Options or Restricted Stock to Insiders. 4. Duration of Plan. (a) This Plan shall be effective as of September 9, 1997, provided it is approved by the majority of the Company's shareholders, in accordance with the provisions of Code Section 422, within twelve (12) months before or after the date of its adoption by the Board of Directors. (b) In the event that this Plan is not so approved, this Plan shall terminate and any Options granted under this Plan shall be void. (c) This Plan shall terminate on September 8, 2007, except with respect to Options then outstanding. 5. Number of Shares. (a) The maximum number of shares of Common Stock which may be issued under this Plan shall be five hundred thousand (500,000). This number may be adjusted from time to time as set forth in Section 13 below. The maximum number of shares that may be issued to a single Participant is five hundred thousand (500,000). (b) Upon the expiration or termination of an outstanding Option which shall not have been exercised in full, the shares of Common Stock remaining unissued under the Option shall again become available for use under the Plan. (c) Upon the forfeiture of shares of Restricted Stock, the forfeited shares of Common Stock shall again become available for use under the Plan. (d) The payment of part or all of the exercise price of an Option in the form of surrendering Common Stock owned by the Participant shall reduce the number of shares considered to have been issued upon the exercise of the Option (by the number of shares that were surrendered) for purposes of determining the maximum number of shares that may be issued under the Plan. 6. Eligibility. (a) Persons eligible for Options under this Plan shall consist of employees and individuals who have accepted offers of employment with the Company. (b) In the event that the Company acquires another entity, the Committee may authorize the issuance of Options ("Substitute Options") to the individuals performing services for the acquired entity in substitution of stock options previously granted to those individuals in connection with their performance of services for such entity upon such terms and conditions as the Committee shall determine, taking into account the limitations of Code Section 424(a) in the case of a Substitute Option that is intended to be an Incentive Stock Option. 7. Form of Options. (a) Options shall be granted under this Plan on such terms and in such form as the Committee may approve, which shall not be inconsistent with the provisions of this Plan. However, if a grant of an Option or of Restricted Stock would not be exempt under Rule 16b-3 of the Exchange Act if effected by the Committee, the Board may make such a grant. (b) The exercise price per share of Common Stock purchasable under an Option shall be set forth in the Option, which in all cases shall be at least equal to the Fair Market Value of the Common Stock on the date of the grant. (c) The exercise price of an Incentive Stock Option granted to a Ten Percent Shareholder shall be no less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of the grant. A-3 20 8. Exercise of Options. (a) An Option shall be exercisable at such time or times and be subject to such terms and conditions as may be set forth in the Option. (b) The aggregate Fair Market Value (determined as of the date of grant) of the number of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed one hundred thousand dollars ($100,000) or such other limit as may be required by Code Section 422. (c) Options shall only be exercisable for whole numbers of shares. (d) Options are exercised by payment of the full amount of the purchase price to the Company. (i) The payment shall be in the form of cash or such other forms of consideration as the Committee shall deem acceptable, such as the surrender of outstanding shares of Common Stock owned by the Participant or by withholding shares that would otherwise be issued upon the exercise of the Option. (ii) If the payment is made by means of the surrender of Restricted Stock, a number of shares issued upon the exercise of the Option equal to the number of shares of Restricted Stock surrendered shall be subject to the same restrictions as the Restricted Stock that was surrendered. (iii) After giving due considerations of the consequences under Rule 16b-3 under the Exchange Act and under the Code, the Committee may also authorize the exercise of Options by the delivery to the Company or its designated agent of an irrevocable written notice of exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares of Common Stock and to deliver the sale or margin loan proceeds directly to the Company to pay all or a portion of the exercise price of the Option. 9. Restricted Stock. (a) The Committee may issue grants of Restricted Stock upon such terms and conditions as it may deem appropriate, which need not be the same for each such grant. (b) Restricted Stock may not be sold to Participants for less than Fair Market Value. (c) A Participant shall not have a vested right to the shares subject to the grant of Restricted Stock until satisfaction of the vesting requirements specified in the grant. The Participant may not assign or alienate the Participant's interest in the shares of Restricted Stock prior to vesting. (d) The following rules apply with respect to events that occur prior to the date on which the Participant obtains a vested right to the Restricted Stock. (i) Stock dividends, shares resulting from stock splits, etc. that are issued with respect to the shares covered by a grant of Restricted Stock shall be treated as additional shares received under the grant of Restricted Stock. (ii) Cash dividends constitute taxable compensation to the Participant that is deductible by the Company. 10. Modification of Grants. (a) The Committee may modify an existing Option, including the right to: (i) Accelerate the right to exercise it; (ii) Extend or renew it; or (iii) Cancel it and issue a new Option. However, no modification may be made to an Option that would impair the rights of the Participant holding the Option without the Participant's consent. Modifications to grants of Restricted Stock are also subject to this restriction. A-4 21 (b) Whether a modification of an existing Incentive Stock Option will be treated as the issuance of a new Incentive Stock Option will be determined in accordance with the rules of Code Section 424(h). (c) Whether a modification of an existing grant of Restricted Stock or of an Option previously granted to an Insider will be treated as a new grant will be determined in accordance with Rule 16b-3 under the Exchange Act. 11. Termination of Options. (a) Except to the extent the terms of an Option require its prior termination, each Option shall terminate on the earliest of the following dates. (i) The date which is ten (10) years from the date on which the Option is granted or five (5) years in the case of an Incentive Stock Option granted to a Ten Percent Shareholder. (ii) The date which is one (1) year from the date of the Severance of the Participant to whom the Option was granted, if the Participant was Disabled at the time of Severance. (iii) The date which is one (1) year from the date of the Severance of the Participant to whom the Option was granted, if the Participant's death occurs: (A) While the Participant is employed by the Company; or (B) Within ninety (90) days following the Participant's Severance. (iv) In the case of any Severance other than those described in Subparagraphs (ii) or (iii) above, the date that is ninety (90) days from the date of the Participant's Severance. 12. Non-transferability of Grants. (a) No Option under this Plan shall be assignable or transferable except by will or by the laws of descent and distribution. (b) Grants of Restricted Stock shall be subject to such restrictions on transferability as may be imposed in such grants. 13. Adjustments (a) In the event of any change in the capitalization of the Company affecting its Common Stock (e.g., a stock split, reverse stock split, stock dividend, recapitalization, combination, or reclassification), the Committee shall authorize such adjustments as it may deem appropriate with respect to: (i) The aggregate number of shares of Common Stock that may be issued under this Plan; (ii) The number of shares of Common Stock covered by each outstanding Option; and (iii) The exercise price per share in respect of each outstanding Option. (b) The Committee may also make such adjustments in the event of a spin-off or other distribution of Company assets to shareholders, other than normal cash dividends. 14. Amendment and Termination. (a) The Board may at any time amend or terminate this Plan. However, no modification may be made to the Plan that would impair the rights of the Participant holding an Option or Restricted Stock without the Participant's consent. (b) Without the approval of the majority of the shareholders of the Company, the Board may not amend the provisions of this Plan regarding: (i) The class of individuals entitled to receive Incentive Stock Options; or (ii) The aggregate number of shares of Common Stock that may be issued under the Plan, except as adjusted pursuant to Section 13 above. A-5 22 15. Notice of Disqualifying Disposition. A Participant must notify the Company if the Participant disposes of stock acquired pursuant to the exercise of an Incentive Stock Option issued under the Plan prior to the expiration of the holding periods required to qualify for long-term capital gains treatment on the sale. 16. Tax Withholding. (a) The Company shall have the right to take such actions as may be necessary to satisfy its tax withholding obligations relating to the operation of this Plan. (b) If Common Stock that was surrendered by the Participant is used to satisfy the Company's tax withholding obligations, the stock shall be valued based on its Fair Market Value when the tax withholding is required to be made. 17. No Additional Rights. (a) Neither the adoption of this Plan nor the granting (or exercise) of any Option or Restricted Stock shall: (i) Affect or restrict in any way the power of the Company to undertake any corporate action otherwise permitted under applicable law; or (ii) Confer upon any Participant the right to continued employment with the Company, nor shall it interfere in any way with the right of the Company to terminate the employment of any Participant at any time, with or without cause. (b) No Participant shall have any rights as a shareholder with respect to any shares covered by an Option granted to the Participant or subject to a grant of Restricted Stock until the date a certificate for such shares has been issued to the Participant. 18. Securities Law Restrictions. (a) No shares of Common Stock shall be issued under this Plan unless the Committee shall be satisfied that the issuance will be in compliance with applicable federal and state securities laws. (b) The Committee may require certain investment (or other) representations and undertakings by the Participant (or other person exercising an Option or purchasing Restricted Stock by reason of the death of the Participant) in order to comply with applicable law. (c) Certificates for shares of Common Stock delivered under this Plan may be subject to such restrictions as the Committee may deem advisable. The Committee may cause a legend to be placed on the certificates to refer to these restrictions. 19. Indemnification. To the maximum extent permitted by law, the Company shall indemnify each member of the Board, as well as any other employee of the Company with duties under this Plan, against expenses (including any amount paid in settlement) reasonably incurred by the individual in connection with any claims against him or her by reason of the performance of the individual's duties under this Plan, unless the losses are due to the individual's gross negligence or lack of good faith. 20. Governing Law. This Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. A-6 -----END PRIVACY-ENHANCED MESSAGE-----