<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
ALLEGIANCE TELECOM, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
Not Applicable
----------------------
(Name of Persons(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
__________________________
(2) Aggregate number of securities to which transaction applies:
__________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_____________________________________________________________________
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:______________________________________________
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(4) Date Filed:__________________________________________________________
<PAGE> 2
ALLEGIANCE TELECOM, INC.
1950 STEMMONS FREEWAY
SUITE 3026
DALLAS, TEXAS 75207
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
DATE: MAY 12, 1999
11:00 A.M., LOCAL
TIME: TIME
PLACE: INFOMART
1950 STEMMONS FREEWAY
DALLAS, TEXAS 75207
</TABLE>
To Our Stockholders:
We invite you to attend our 1999 annual meeting of stockholders to consider
and vote upon the following:
1. The election of four Class I directors, each for a term of three
years;
2. The ratification of the appointment of Arthur Anderson LLP as our
independent public accountants for the 1999 fiscal year; and
3. Any other business that may properly be brought before the meeting.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
EACH OF THESE PROPOSALS. THE ABOVE ITEMS OF BUSINESS ARE DISCUSSED
IN MORE DETAIL IN THE PROXY STATEMENT ACCOMPANYING THIS NOTICE.
This notice of annual meeting of stockholders, the proxy statement, the
proxy card and Allegiance's 1998 Annual Report is being sent on or about April
21, 1999 to those persons who are entitled to vote at the 1999 annual meeting of
stockholders. If you were a stockholder of record at the close of business on
April 9, 1999, you may vote at the 1999 annual meeting of stockholders.
Whether or not you plan to attend the annual meeting in person, and
regardless of the number of shares you own, please complete, sign, date and
return the enclosed proxy card promptly in the enclosed envelope. This will
ensure that your shares are voted as you wish and that a quorum will be present.
Sincerely,
/s/ MARK B. TRESNOWSKI
Mark B. Tresnowski
Senior Vice President, General
Counsel
and Secretary
April 21, 1999
YOUR VOTE IS IMPORTANT! TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN, DATE
AND MAIL THE ENCLOSED PROXY CARD.
<PAGE> 3
ALLEGIANCE TELECOM, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1999
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT VOTING.......................... 1
Why did you send me this proxy statement?................. 1
How many votes do I have?................................. 1
How do I vote?............................................ 1
How do I vote by proxy?................................... 1
How do I vote in person?.................................. 1
If my shares are held in "street name" by my broker, will
my broker vote my shares for me?....................... 1
Can I change my vote or revoke my proxy after I have
mailed my signed proxy card?........................... 1
Will there by any matters voted upon at the Annual Meeting
other than those specified in the Notice of Annual
Meeting?............................................... 2
How are votes counted?.................................... 2
How are proxies being solicited and who pays for the
solicitation of proxies?............................... 2
Who can help answer my other questions?................... 2
INFORMATION ABOUT ALLEGIANCE'S DIRECTORS AND EXECUTIVE
OFFICERS.................................................. 3
Who are Allegiance's Directors and Executive Officers?.... 3
About the Board of Directors and its Committees........... 6
Compensation Committee Interlocks and Insider
Participation.......................................... 7
Compensation of Directors and Executive Officers.......... 7
Report on Executive Compensation.......................... 8
Common Stock Performance.................................. 11
Executive Agreements...................................... 12
Security Ownership of Certain Beneficial Owners and
Management............................................. 13
Certain Relationships and Related Transactions............ 15
Section 16(a) Beneficial Ownership Reporting Compliance... 16
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD............ 17
PROPOSAL 1: Election of Directors......................... 17
PROPOSAL 2: Ratification of Appointment of Independent
Public Accountants..................................... 17
Other Matters............................................. 18
INFORMATION ABOUT SUBMITTING STOCKHOLDER PROPOSALS.......... 18
OTHER INFORMATION........................................... 18
</TABLE>
<PAGE> 4
QUESTIONS AND ANSWERS ABOUT VOTING
Q: WHY DID YOU SEND ME THIS PROXY STATEMENT?
A: This proxy statement is being sent to you because Allegiance's board of
directors is soliciting your proxy to vote at the 1999 annual meeting of
stockholders (the "Annual Meeting"). This proxy statement provides
information that should be helpful to you in deciding how to vote
intelligently on the matters to be voted on at the Annual Meeting.
Stockholders of record as of the close of business on April 9, 1999 are
entitled to vote.
This proxy statement and the proxy card are being sent to stockholders on
or about April 21, 1999.
Q: HOW MANY VOTES DO I HAVE?
A: Each share of Allegiance common stock that you own on April 9, 1999
entitles you to one vote.
Q: HOW DO I VOTE?
A: You can vote on matters presented at the Annual Meeting in two ways:
1. You can vote by filling out, signing and dating your proxy card and
returning it in the enclosed envelope, or
2. You can attend the Annual Meeting and vote in person.
Q: HOW DO I VOTE BY PROXY?
A: If you properly fill out your proxy card and send it to us in time to vote,
your shares will be voted as you have directed. If you do not specify a
choice on your properly executed proxy card, the shares represented by your
proxy card will be voted for the election of all nominees to the board of
directors and for the ratification of the appointment of Arthur Andersen
LLP as Allegiance's independent public accountants for the 1999 fiscal
year.
Whether or not you plan to attend the Annual Meeting, we urge you to
complete, sign, date and return your proxy card in the enclosed envelope.
Returning the proxy card will not affect your right to attend the Annual
Meeting and vote in person.
Q: HOW DO I VOTE IN PERSON?
A: If you attend the Annual Meeting, we will give you a ballot when you
arrive.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares.
Q: CAN I CHANGE MY VOTE OR REVOKE MY PROXY AFTER I HAVE MAILED MY SIGNED PROXY
CARD?
A: You can change your vote at any time before your proxy is voted at the
Annual Meeting. You can do this in one of three ways:
1. You can send a written notice stating that you would like to revoke your
proxy to Allegiance's Secretary at the following address:
Allegiance Telecom, Inc.
4 Westbrook Corporate Center, Suite 400
Westchester, IL 60154
Attn: Mark B. Tresnowski
2. You can complete and submit a new proxy card.
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<PAGE> 5
3. You can attend the Annual Meeting and vote in person. Simply attending
this meeting, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the directions
you received from your broker to change your vote.
Q: WILL THERE BE ANY MATTERS VOTED UPON AT THE ANNUAL MEETING OTHER THAN THOSE
SPECIFIED IN THE NOTICE OF ANNUAL MEETING?
A: Allegiance's management does not know of any matters other than those
discussed in this proxy statement that will be presented at the Annual
Meeting.
Q: HOW ARE VOTES COUNTED?
A: Stockholders of record of Allegiance's common stock as of the close of
business on April 9, 1999, are entitled to vote at the Annual Meeting.
As of April 9, 1999, there were 50,383,471 shares of common stock issued
and outstanding. The presence in person or by proxy of a majority of the
shares of common stock outstanding will constitute a quorum for the
transaction of business.
Each share of common stock is entitled to one vote on each matter to come
before the Annual Meeting. There is no cumulative voting.
Under Delaware law, if you have returned a valid proxy or attend the
meeting in person, but abstain from voting, your stock will nevertheless be
treated as present and entitled to vote. Your stock therefore will be
counted in determining the existence of a quorum and, even though you have
abstained from voting, will have the effect of a vote against any matter
requiring the affirmative vote of a majority of the shares present and
entitled to vote at the Annual Meeting, such as the ratification of the
appointment of Arthur Andersen LLP as Allegiance's independent public
accountants for 1999.
Under Delaware law, broker "non-votes" are also counted for purposes of
determining whether a quorum is present, but are not counted in determining
whether a matter requiring a majority of the shares present and entitled to
vote has been approved or whether a plurality of the vote of the shares
present and entitled to vote has been cast.
Stockholders' votes will be tabulated by the First Chicago Trust Company of
New York, our transfer agent, who will act as inspectors of election for
the Annual Meeting.
Q: HOW ARE PROXIES BEING SOLICITED AND WHO PAYS FOR THE SOLICITATION OF
PROXIES?
A: Initially, Allegiance will solicit proxies by mail. Allegiance's directors,
officers and employees may also solicit proxies in person or by telephone
without additional compensation. Allegiance will pay all expenses of
solicitation of proxies.
In addition, arrangements will also be made with certain banking
institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries for forwarding solicitation materials and communicating with
the beneficial owners of shares held of record by such persons. Allegiance
will reimburse such persons for their reasonable expenses incurred relating
to such actions. Allegiance has also engaged Corporate Investor
Communications, Inc. to assist in communicating with these institutions.
Q: WHO CAN HELP ANSWER MY OTHER QUESTIONS?
A: If you have more questions about voting or wish to obtain another proxy
card, you should contact:
Cathy Harper
Strategic Resources Group, LLC
127 Peachtree Street, Suite 636
Atlanta, Georgia 30303
Phone: (404) 478-1001
Fax: (404) 524-7749
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<PAGE> 6
INFORMATION ABOUT ALLEGIANCE'S DIRECTORS AND EXECUTIVE OFFICERS
WHO ARE ALLEGIANCE'S DIRECTORS AND EXECUTIVE OFFICERS?
Royce J. Holland Age: 50
Mr. Holland, Allegiance's Chairman of the Board and Chief Executive Officer, has
more than 25 years of experience in the telecommunications, independent power
and engineering/construction industries. Prior to founding Allegiance in April
1997, Mr. Holland was one of several co-founders of MFS Communications, where he
served as President and Chief Operating Officer from April 1990 until September
1996 and as Vice Chairman from September 1996 to February 1997. In January 1993,
Mr. Holland was appointed by President George Bush to the National Security
Telecommunications Advisory Committee. Mr. Holland was recently named Chairman
of the Association for Local Telecommunications Services, the industry trade
organization for the competitive local telephone sector. Mr. Holland also
presently serves on the board of directors of CSG Systems, a publicly held
billing services company. Mr. Holland's brother, Stephen N. Holland, is employed
as Allegiance's Senior Vice President and Chief Information Officer.
C. Daniel Yost Age: 50
Mr. Yost, who joined Allegiance as President and Chief Operating Officer in
February 1998, was elected to Allegiance's board of directors in March 1998. Mr.
Yost has more than 26 years of experience in the telecommunications industry.
From July 1997 until he joined Allegiance, Mr. Yost was the President and Chief
Operating Officer for U.S. Operations of Netcom On-Line Communications Services,
Inc., a leading Internet service provider. Mr. Yost served as the President,
Southwest Region of AT&T Wireless Services, Inc. from June 1994 to July 1997.
Prior to that, from July 1991 to June 1994, Mr. Yost was the President,
Southwest Region of McCaw Cellular Communications/LIN Broadcasting.
Thomas M. Lord Age: 42
Mr. Lord, a co-founder and director of Allegiance and its Executive Vice
President of Corporate Development and Chief Financial Officer, is responsible
for overseeing Allegiance's mergers and acquisitions, corporate finance and
investor relations functions. Mr. Lord is an 18-year veteran in investment
banking, securities research and portfolio management, including serving as a
managing director of Bear, Stearns & Co. Inc. from January 1986 to December
1996. In the five-year period ending December 1996, Mr. Lord oversaw 43
different transactions valued in excess of $6.2 billion for the
telecommunications, information services and technology industries.
John J. Callahan Age: 49
Mr. Callahan, who joined Allegiance as Senior Vice President of Sales and
Marketing in December 1997, has more than 18 years of experience in the
telecommunications industry. Most recently, Mr. Callahan was President of the
Western Division for MFS Communications from December 1991 to November 1997,
where he was responsible for the company's sales and operations in Arizona,
California, Georgia, Florida, Illinois, Michigan, Missouri, Ohio, Oregon, Texas
and Washington. Prior to joining MFS Communications, Mr. Callahan was Vice
President and General Manager, Southwest Division for Sprint. Mr. Callahan also
held sales positions with Data Switch and North American Telecom. Mr. Callahan
was elected to Allegiance's board of directors in March 1998. Mr. Callahan is
one of the directors' nominees to the board.
Dana A. Crowne Age: 38
Mr. Crowne became Allegiance's Senior Vice President and Chief Engineer in
August 1997. Prior to joining Allegiance, Mr. Crowne held various management
positions at MFS Communications from the time of its founding in 1988, where his
responsibilities included providing engineering support and overseeing budgets
for the construction of MFS Communications' networks. Mr. Crowne ultimately
became Vice President, Network Optimization for MFS Communications from January
1996 to May 1997 and managed
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<PAGE> 7
the company's network expenses and planning and its domestic engineering
functions. Prior to joining MFS Communications, Mr. Crowne designed and
installed fiber optic transmission systems for Morrison-Knudsen and served as a
consultant on the construction of private telecommunications networks with JW
Reed and Associates.
Stephen N. Holland Age: 47
Mr. Holland joined Allegiance as its Senior Vice President and Chief
Information Officer in September 1997. Prior to that time, Mr. Holland held
several senior level positions involving management of or consulting on
information systems, accounting, taxation and finance. Mr. Holland's experience
includes serving as Practice Manager and Information Technology Consultant for
Oracle Corporation from June 1995 to September 1997, as Chief Financial Officer
of Petrosurance Casualty Co. from September 1992 to June 1995, as Manager of
Business Development for Electronic Data Systems, and as a partner of Price
Waterhouse. Mr. Holland's brother, Royce J. Holland, presently serves as
Allegiance's Chairman of the Board and Chief Executive Officer.
Patricia E. Koide Age: 50
Ms. Koide has been Allegiance's Senior Vice President of Human Resources,
Real Estate, Training, Facilities and Administration since August 1997. Before
then, Ms. Koide was Vice President of Corporate Services, Facilities and
Administration for WorldCom from March 1997 to August 1997. Ms. Koide also held
various management positions within MFS Communications and its subsidiaries
since 1989, including Senior Vice President of Facilities, Administration and
Purchasing for MFS Communications North America from 1996 to 1997, Senior Vice
President of Human Resources, Facilities and Administration for MFS
Communications Telecom from 1994 to 1996, and Vice President of Human Resources
and Administration for MFS Communications North America from 1989 to 1993. Prior
to MFS Communications, Ms. Koide was with Sprint for eight years where she
managed the company's human resources, real estate and facilities for the
Midwest.
Gregg A. Long Age: 45
Mr. Long, who became Allegiance's Senior Vice President of Regulatory and
Development in September 1997, spent 11 years at Destec Energy, Inc. as Project
Development Manager -- Partnership Vice President and Director. In that
position, he was responsible for the development of gas-fired power plants from
conceptual stages through project financing. Prior to joining Destec, Mr. Long
was Manager of Project Finance at Morrison-Knudsen, where he was responsible for
analyzing and arranging finance packages for various industrial, mining and
civil projects and also served as financial consultant and analyst.
Mark B. Tresnowski Age: 39
Mr. Tresnowski became Allegiance's Senior Vice President and General
Counsel in February 1999. Mr. Tresnowski has been Allegiance's Secretary since
September 1997. Mr. Tresnowski practiced law at Kirkland & Ellis for 13 years
and was a partner of that firm from October 1992 to January 1999. In private
practice, Mr. Tresnowski specialized in private and public financings, mergers
and acquisitions and securities law.
Anthony J. Parella Age: 39
Mr. Parella, who joined Allegiance as its Regional Vice
President -- Central Division in August 1997 and became its National Vice
President of Field Sales in August 1998, has more than 10 years of experience in
the telecommunications industry. Prior to joining Allegiance, Mr. Parella was
Vice President and General Manager for MFS Intelenet, Inc., an operating unit of
MFS Communications, from February 1994 to January 1997, where he was responsible
for the company's sales and operations in Texas. Mr. Parella also served as
Director of Commercial Sales for Sprint from 1991 to January 1994.
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Paul D. Carbery Age: 37
Mr. Carbery, who was elected to Allegiance's board of directors in August
1997, is a general partner of Frontenac Company, a Chicago-based private equity
investing firm, where he specializes in investing in companies in the
telecommunications and technology industries. Mr. Carbery also presently serves
on the boards of directors of Whittman Hart, Inc., a publicly traded information
services company. Mr. Carbery is one of the directors' nominees to the board.
James E. Crawford, III Age: 53
Mr. Crawford, who was elected to Allegiance's board of directors in August
1997, is a general partner of Frontenac Company, a Chicago-based private equity
investing firm, where he specializes in investing in companies in the
telecommunications and technology industries. Mr. Crawford also presently serves
on the boards of directors of Focal Communications Corporation, a privately held
CLEC that will compete with Allegiance, as well as of Optika Incorporated, a
publicly held imaging software document company, and Input Software
Incorporated, a publicly held document imaging software company.
John B. Ehrenkranz Age: 33
Mr. Ehrenkranz, who was elected to Allegiance's board of directors in March
1998, is a Principal of Morgan Stanley & Co. Incorporated where he has been
employed since 1987. Mr. Ehrenkranz also presently serves on the board of
directors of Choice One, a privately held CLEC that may compete with Allegiance.
Mr. Ehrenkranz is also a Principal of Morgan Stanley Capital Partners III, Inc.
Mr. Ehrenkranz is one of the directors' nominees to the board.
Paul J. Finnegan Age: 46
Mr. Finnegan, who was elected to Allegiance's board of directors in August
1997, is a managing director of Madison Dearborn Partners, Inc., a Chicago-based
private equity investing firm, where he specializes in investing in companies in
the telecommunications industry. Mr. Finnegan also presently serves on the
boards of directors of Focal Communications Corporation, a privately held CLEC
that competes with Allegiance in certain markets, and Omnipoint Corporation, a
publicly traded PCS provider. Mr. Finnegan is one of the directors' nominees to
the board.
Richard D. Frisbie Age: 49
Mr. Frisbie, who was elected to Allegiance's board of directors in August
1997, is a Managing Partner of Battery Partners IV, LLC which is the general
partner of Battery Venture IV, a Boston-based private equity investing firm,
where he specializes in investing in companies in the telecommunications
industry. Mr. Frisbie also presently serves on the board of directors of Focal
Communications Corporation, a privately held CLEC that competes with Allegiance
in certain markets.
Alan E. Goldberg Age: 44
Mr. Goldberg was elected to Allegiance's board of directors in March 1999.
Mr. Goldberg has been Chairman, CEO and Director of Morgan Stanley Dean Witter
Capital Partners III, Inc. since February 1998. Prior to that time, he was
co-head of MSDW Capital Partners. He has been a Managing Director of Morgan
Stanley & Co. Incorporated since January 1988. Mr. Goldberg also serves as a
director of Amerin Corporation, Catalytica, Inc., Smurfit-Stone Container
Corporation, Equant, N.V., a provider of international data network services,
and several private companies.
Reed E. Hundt Age: 51
Mr. Hundt was elected to Allegiance's board of directors in March 1998. Mr.
Hundt served as chairman of the Federal Communications Commission from 1993 to
1997. He currently serves as chairman of The Forum on Communications and Society
at The Aspen Institute, is a senior advisor on information industries to
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McKinsey & Company, a worldwide management consulting firm, and a special
advisor to Madison Dearborn Partners, Inc., a Chicago-based private equity
investing firm. Mr. Hundt is a venture partner at Benchmark Capital, a venture
capital firm and a principal of Charles Ross Partners, LLC, a consulting firm.
Mr. Hundt also presently serves on the boards of directors of Ascend
Communications, Inc., a publicly traded manufacturer of wide area networking
solutions, and Novell, Inc., a publicly traded network software and Internet
solutions provider, and NorthPoint Communications Holdings, Inc., a privately
held CLEC that competes with Allegiance in certain markets. Prior to joining the
FCC, Mr. Hundt was a partner at Latham & Watkins, an international law firm.
James N. Perry, Jr. Age: 38
Mr. Perry, who was elected to Allegiance's board of directors in August
1997, is a managing director of Madison Dearborn Partners, Inc., a Chicago-based
private equity investing firm, where he specializes in investing in companies in
the telecommunications industry. Mr. Perry also presently serves on the boards
of directors of Focal Communications Corporation, a privately held CLEC that
competes with Allegiance in certain markets, as well as Omnipoint Corporation, a
publicly traded PCS provider, and Clearnet Communications, a Canadian publicly
traded PCS and enhanced specialized mobile radio company.
Allegiance's officers are elected annually by the board of directors at its
first meeting held after each annual meeting of stockholders or as soon
thereafter as convenient.
ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES.
Board
Allegiance's by-laws provide that the number of directors shall be
determined by resolution of the board of directors. The board currently consists
of 12 directors. Allegiance's by-laws provide that its directors will be elected
by plurality vote of Allegiance's stockholders, without cumulative voting. No
director may be removed from office without cause and without the vote of the
holders of a majority of the outstanding voting stock.
The board of directors is divided into three classes, as nearly equal in
number as possible, with each director serving a three-year term and one class
being elected at each year's annual meeting of stockholders. Messrs. Callahan,
Carbery, Ehrenkranz and Finnegan are Class I directors whose term expires at the
Annual Meeting. Messrs. Crawford, Frisbie, Lord and Yost are Class II directors
whose term expires at the 2000 annual meeting of Allegiance's stockholders.
Messrs. Goldberg, Holland, Hundt and Perry are Class III directors whose term
expires at the 2001 annual meeting of Allegiance's stockholders. At each annual
meeting of Allegiance's stockholders, successors to the class of directors whose
term expires at such meeting will be elected to serve for three-year terms and
until their successors are elected and qualified.
During the fiscal year ended December 31, 1998, the board of directors met
11 times. During the fiscal year ended December 31, 1998, all of the directors
attended at least 75% of the total of all meetings of the board of directors and
any committee on which he served.
See also "Certain Relationships and Related Transactions" below for a
discussion of the voting agreement among certain of Allegiance's stockholders.
Board Committees
The board of directors currently has three committees:
- Executive Committee
- Audit Committee
- Compensation Committee
The Executive Committee is currently comprised of Messrs. Crawford,
Goldberg, Holland and Perry. The Executive Committee is authorized, subject to
certain limitations, to exercise all of the powers of the
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board of directors during periods between board meetings. During the fiscal year
ended December 31, 1998, the Executive Committee did not meet.
The Audit Committee is currently comprised of Messrs. Carbery, Ehrenkranz,
Finnegan, Hundt and Yost. The Audit Committee is responsible for making
recommendations to the board of directors regarding the selection of independent
auditors, reviewing the results and scope of the audit and other services
provided by Allegiance's independent accountants and reviewing and evaluating
Allegiance's audit and control functions and year 2000 issues. During the fiscal
year ended December 31, 1998, the Audit Committee met once.
The Compensation Committee is currently comprised of Messrs. Crawford,
Frisbie, Goldberg, Holland and Perry. The primary purpose and this Committee's
responsibilities are described in the "Report on Executive Compensation" section
in this proxy statement. During the fiscal year ended December 31, 1998, the
Compensation Committee met once.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Prior to April 1998, Allegiance did not have a Compensation Committee and
the compensation of executive officers and other key employees of Allegiance was
determined by its board of directors. Royce J. Holland, Allegiance's Chairman
and Chief Executive Officer, Thomas M. Lord, Allegiance's Executive Vice
President of Corporate Development and Chief Financial Officer, C. Daniel Yost,
Allegiance's President and Chief Operating Officer, and John J. Callahan,
Allegiance's Senior Vice President of Sales and Marketing, are all currently
members of Allegiance's board of directors. The board of directors has
established a Compensation Committee, which is responsible for decisions
regarding salaries, incentive compensation, stock option grants and other
matters regarding executive officers and key employees of Allegiance. Royce
Holland is the only member of the Compensation Committee who is also an employee
of Allegiance.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS.
Compensation of Directors
Allegiance reimburses the members of its board of directors for their
reasonable out-of-pocket expenses incurred in connection with attending board or
committee meetings. Additionally, Allegiance is obligated to maintain its
present level of directors' and officers' insurance. Members of Allegiance's
board of directors receive no other compensation for services provided as a
director or as a member of any board committee.
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Executive Compensation
The following table sets forth compensation paid to the Chief Executive
Officer and the four other executive officers of Allegiance who, based on salary
and bonus compensation from Allegiance, were the most highly compensated
officers of Allegiance for the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER ANNUAL ALL OTHER
COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(A) ($)
- --------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Royce J. Holland....................... 1998 $207,693 $150,000 $ -- $ --
Chairman of the Board and Chief 1997 $ 72,308 $ -- $ -- $ --
Executive Officer
C. Daniel Yost......................... 1998 $165,385 $100,000 $ -- $ --
President and Chief Operating Officer 1997 $ -- $ -- $ -- $ --
Thomas M. Lord......................... 1998 $181,731 $150,000 $ -- $ --
Executive Vice President of Corporate 1997 $ 63,942 $ -- $ -- $ --
Development and Chief Financial
Officer
John J. Callahan....................... 1998 $181,731 $ 70,000 $ -- $ --
Senior Vice President of Sales and 1997 $ 10,096 $ -- $ -- $ --
Marketing
Dana A. Crowne......................... 1998 $152,052 $ 51,058 $ -- $ --
Senior Vice President and Chief 1997 $ 45,192 $ -- $ -- $ --
Engineer
</TABLE>
- ---------------
(a) Includes perquisites and other benefits paid to the named executive officer
in excess of 10% of the total Annual salary and bonus received by the named
executive officer during the last fiscal year.
Prior to April 1998, the board did not have a Compensation Committee and
decisions concerning the compensation of executive officers and other key
employees of Allegiance were determined by Allegiance's board of directors. The
Board of Directors appointed the Compensation Committee in April 1998.
REPORT ON EXECUTIVE COMPENSATION.
Compensation Philosophy
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to Allegiance's executive
compensation and employee stock ownership policies and practices. The
Compensation Committee also advises and consults with the officers of Allegiance
as may be requested regarding managerial personnel policies. In addition, the
Compensation Committee determines the compensation to be paid to Allegiance's
Chief Executive Officer and each of its other executive officers. None of
Allegiance's executive officers has an employment agreement that provides for a
specified salary, bonus, severance or other cash payment. Thus, all of
Allegiance's executive compensation decisions are made solely in the discretion
of the Compensation Committee.
Allegiance seeks to become a leading telecommunications provider in its
target geographic and customer markets and it is pursuing an aggressive growth
strategy to achieve this goal. In light of this objective, Allegiance's approach
to executive compensation, as implemented by the Compensation Committee, has
been designed to provide a competitive compensation program that will enable
Allegiance to attract, motivate, reward and retain individuals who possess the
necessary level of skill, experience and dedication. Allegiance's compensation
policies are based on the principle that each executive's financial rewards
should be aligned with the financial interests of Allegiance's stockholders. The
Compensation Committee believes that the best way
8
<PAGE> 12
to ensure this alignment is to provide executive officers with the potential for
significant equity ownership. To implement this approach, the Compensation
Committee focuses on:
- annual base salary compensation,
- annual cash performance bonuses, and
- potential additional performance-based compensation consisting of stock.
Most of Allegiance's officers were founding investors in Allegiance and
therefore have significant equity ownership that remains subject to vesting
based on the executive's length of service with Allegiance. When setting annual
base and performance compensation, the Compensation Committee takes into account
this existing ownership and the incentives it provides.
Allegiance has not established a policy with regard to Section 162(m) of
the Internal Revenue Code. For fiscal 1998, the compensation paid to any one of
Allegiance's executive officers was well below $1 million. The Compensation
Committee intends to take into account the potential application of Section
162(m) of the Code with respect to incentive compensation awards and other
compensation decisions made by it in the future.
Annual Salaries
Base salaries for Allegiance's executive officers are determined by
evaluating the responsibilities associated with the position held and the
experience of the individual, and by reference to the competitive marketplace
for management talent, including a comparison of base salaries for comparable
positions at comparable companies within Allegiance's industry. Adjustments in
salary and performance-based bonuses in addition to base salary are determined
by evaluating:
- the competitive marketplace,
- Allegiance's performance,
- the performance of the executive officer, particularly with respect to
such officer's ability to manage Allegiance's growth, and
- any increased responsibilities assumed by the executive officer.
All base salary determinations take into account the level of each
executive's ownership of Allegiance stock and the incentive provided by such
ownership and the vesting associated with it.
Annual Bonuses
Allegiance considers the payment of cash bonuses as an important component
of the incentive compensation provided to each of its executive officers. Bonus
targets for each executive are set annually by the Compensation Committee at the
beginning of each year. One-half of any potential bonus is payable based upon
the level of Allegiance's achievement of its strategic and operating goals and
the other half based upon the level of personal achievement by the individual
executive officer.
Compensation of Chief Executive Officer
In the case of the Chief Executive Officer's cash compensation, the
Compensation Committee accepted the recommendation of Royce Holland. The
Compensation Committee and Mr. Holland acknowledged that his salary and bonus
compensation are substantially below that paid to chief executive officers of
many other companies in the telecommunications industry carrying on businesses
similar to those of Allegiance. The Compensation Committee believes that Mr.
Holland's stock ownership and the vesting requirements associated with it, as
well as Mr. Holland's personal commitment to lead Allegiance in the pursuit of
its growth strategy, provide Mr. Holland with significant incentive to remain
with Allegiance. The Compensation Committee, however, will evaluate Mr.
Holland's compensation and stock ownership incentives annually with a view
towards retaining his leadership.
9
<PAGE> 13
Founders' Stock and Allegiance Stock Plans
Allegiance's founding management team, consisting of 28 executives,
invested in Allegiance and today beneficially own in the aggregate 13,069,200
shares of common stock, or approximately 26% of the total shares outstanding as
of March 31, 1999. These shares are all subject to vesting based on length of
service. All of these shares were at least 50% vested as of March 31, 1999 and
will be 75% vested on or after August 13, 1999 and 100% vested on or after
August 13, 2000. This founders' stock, together with Allegiance's option plan,
stock incentive plan and employee stock discount purchase plan, contributes to
Allegiance's ability to attract and retain the best available personnel. It is
the philosophy of the Compensation Committee to tie a significant portion of an
executive's total opportunity for financial gain to increases in the value of
Allegiance's common stock. In the belief that employees who are owners of
Allegiance will focus on its long-term success and on building stockholder
value, the Compensation Committee uses the option and stock incentive plans and
the existence of the founders' stock as a basis to create a foundation for the
long-term growth of Allegiance by providing executive officers and key employees
with an opportunity to obtain and build a meaningful stake in Allegiance's
future.
All employees, including executive officers, of Allegiance and its
subsidiaries are eligible for grants of stock options. During each fiscal year,
the Compensation Committee authorizes the grant of stock options to employees,
including executive officers, who are recommended by management as being in a
position to continue to contribute to Allegiance's growth and profitability. The
number of options granted to a particular employee is based on management's
assessment of his or her performance and contribution.
Compensation Committee:
<TABLE>
<S> <C>
James N. Perry, Jr. James E. Crawford, III
Director and Committee Chairman Director
Richard D. Frisbie Royce J. Holland
Director Director and Chief Executive Officer
</TABLE>
10
<PAGE> 14
COMMON STOCK PERFORMANCE.
The graphs below shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent Allegiance specifically incorporates this information
by reference, and shall not be deemed filed under such Acts.
The graphs below set forth comparative information regarding Allegiance's
total stockholder return on its common stock since its initial public offering
completed in July 1998. Total stockholder return is measured by dividing total
dividends (assuming dividend reinvestment) plus share price change for a period
by the share price at the beginning of the measurement period. Allegiance's
total stockholder return based on an investment of $100 at July 1, 1998, when
its common stock was first traded on the Nasdaq Stock Market, at its closing
price of $13.75, is compared to the cumulative total return of the Nasdaq
Composite Index and an index of peer companies selected by Allegiance. Past
financial performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
<TABLE>
<CAPTION>
Nasdaq
Measurement Period Allegiance Peer Group Composite
(Fiscal Year Covered) Telecom, Inc. Index(1) Index
<S> <C> <C> <C>
07/01/98 100.00 100.00 100.00
08/31/98 55.45 62.15 78.35
09/30/98 60.91 60.05 88.49
10/31/98 83.18 71.57 92.33
11/30/98 97.27 68.50 101.41
12/31/98 88.18 70.09 113.86
</TABLE>
- ---------------
(1) The industry peer group consists of competitive local exchange carriers with
common stock registered under the Securities Exchange Act of 1934 and traded
on a U.S. stock exchange or quoted on the Nasdaq Stock Market, and consists
of: e.spire Communications, Inc.; GST Telecommunications, Inc.; ICG
Communications, Inc.; Intermedia Communications Inc.; McLeodUSA
Incorporated; NEXTLINK Communications, Inc.; Teligent, Inc.; US LEC Corp.;
and WinStar Communications, Inc.
11
<PAGE> 15
EXECUTIVE AGREEMENTS.
Royce J. Holland Executive Agreement
In August 1997, Allegiance, Allegiance Telecom, LLC, and Royce Holland
entered into an Executive Purchase Agreement, including, among others, the
following terms:
Vesting. The Allegiance Telecom, LLC securities purchased by Mr. Holland,
as well as any Allegiance securities distributed with respect to such Allegiance
Telecom, LLC securities are subject to vesting over a four-year period, with 20%
vesting on the date of grant and 20% vesting on each of the first four
anniversaries of the grant date. Vesting was accelerated by one year upon the
consummation of the initial public offering of common stock, and will be
accelerated 100% in the event of Mr. Holland's death or disability, and 100%
upon a sale of Allegiance where at least 50% of the consideration for such sale
is cash or marketable securities.
Repurchase of Securities. If Mr. Holland's employment is terminated for any
reason other than a termination by Allegiance without cause, Allegiance will
have the right to repurchase all unvested Holland executive securities at the
lesser of fair market value and original cost.
Restrictions on Transfer; Holdback and "Drag Along" Agreements. The Holland
executive securities are subject to various restrictions on transferability,
holdback periods in the event of a public offering of Allegiance's securities
and provisions requiring the holder of such shares to approve and, if requested
by Allegiance, sell its shares in any sale of Allegiance that is approved by the
board.
Terms of Employment. Mr. Holland is an "at will" employee of Allegiance
and, thus, may be terminated by Allegiance at any time and for any reason. Mr.
Holland is not entitled to receive any severance payments upon any such
termination, other than payments in consideration of the noncompetition and
nonsolicitation agreements discussed below.
Noncompetition and Nonsolicitation Agreements. During the noncompete period
defined below, Mr. Holland may not hire or attempt to induce any employee of
Allegiance to leave Allegiance's employ, nor attempt to induce any customer or
other business relation of Allegiance to cease doing business with Allegiance,
nor in any other way interfere with Allegiance's relationships with its
employees, customers, and other business relations. Also, during this noncompete
period, Mr. Holland may not participate in any business engaged in the provision
of telecommunications services in the markets specified below.
The noncompete period in this agreement is the period of employment and the
following additional period: (a) if Mr. Holland is terminated prior to August
13, 2000, the period ending on the later of August 13, 2001 and the second
anniversary of termination; (b) if Mr. Holland is terminated at any time on or
after August 13, 2000 but prior to August 13, 2001, the period ending on August
13, 2002; and (c) if Mr. Holland is terminated at any time on or after August
13, 2001, the one-year period following termination. Mr. Holland shall receive
as consideration for his noncompete, 100% of the base salary that he received as
compensation from Allegiance immediately prior to his termination, as well as a
continuation of his medical benefits. However, this noncompete period ends if at
any time Allegiance ceases to pay Mr. Holland his base salary and benefits in
existence at the time of termination.
The markets covered by this noncompete provision are:
- any market in which Allegiance is conducting business or preparing under
a business plan approved by the board of directors to conduct business;
- Dallas, New York City, Atlanta, Chicago, Los Angeles and 15 additional
markets; and
- any market for which Allegiance has prepared a business plan unless such
business plan has been rejected by the board of directors.
12
<PAGE> 16
C. Daniel Yost Executive Agreement
In January 1998, Allegiance, Allegiance Telecom, LLC, and Dan Yost entered
into an Executive Purchase Agreement, containing the same terms as those in
Royce Holland's executive agreement described above.
Thomas M. Lord Executive Agreement
In August 1997, Allegiance, Allegiance Telecom, LLC, and Thomas Lord
entered into an Executive Purchase Agreement, containing the same terms as those
in Royce Holland's executive agreement described above.
John J. Callahan and Dana A. Crowne Executive Agreements
In December 1997, Allegiance, Allegiance Telecom, LLC and Jack Callahan
entered into an Executive Purchase Agreement. In August 1997, Allegiance,
Allegiance Telecom, LLC and Dana Crowne entered into an Executive Purchase
Agreement. These agreements include, among others, the following terms:
Vesting. The Allegiance Telecom, LLC securities purchased by each of them,
as well as any securities distributed with respect to such Allegiance Telecom,
LLC securities are subject to vesting over a four-year period, with 25% vesting
on each of the first four anniversaries of the grant date. Vesting was
accelerated by one year upon the consummation of the initial public offering of
common stock, and will be accelerated 100% in the event of such executive's
death or disability, and 100% upon a sale of Allegiance where at least 50% of
the consideration for such sale is cash or marketable securities.
Repurchase of Securities. If such executive's employment is terminated for
any reason, Allegiance will have the right to repurchase all such executive's
unvested executive securities at the lesser of fair market value and original
cost.
Restrictions on Transfer; Holdback and "Drag Along" Agreements. The
executive securities are subject to various restrictions on transferability,
holdback periods in the event of a public offering of Allegiance's securities
and provisions requiring the holder of such shares to approve and, if requested
by Allegiance, sell its shares in any sale of Allegiance that is approved by the
board.
Terms of Employment. Each such executive is an "at will" employee of
Allegiance and, thus, may be terminated by Allegiance at any time and for any
reason. No such executive is entitled to receive any severance payments upon any
such termination.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the outstanding common stock of Allegiance as of March 31, 1999 by:
- each of the directors, Allegiance's Chief Executive Officer and each of
the four other most highly compensated executive officers of Allegiance
who were executive officers at December 31,1998,
- all directors and executive officers as a group, and
- each owner known by Allegiance to own beneficially more than 5% of the
outstanding common stock.
Beneficial ownership of less than one percent is indicated by an asterisk.
The percentages specified below are based on 50,360,866 shares of common stock
outstanding as of March 31, 1999. Shares subject to options exercisable within
60 days of March 31, 1999 are considered for the purpose of determining the
percent of the class held by the holder of such options, but not for the purpose
of computing the percentage held by others.
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<PAGE> 17
Unless otherwise noted, the address for each director and executive officer of
Allegiance is c/o Allegiance Telecom, Inc., 1950 Stemmons Freeway, Suite 3026,
Dallas, Texas 75207.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ---------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Royce J. Holland(1)......................................... 3,907,703 7.8%
C. Daniel Yost.............................................. 1,619,940 3.2
Thomas M. Lord(2)........................................... 1,822,432 3.6
John J. Callahan............................................ 608,477 1.2
Dana A. Crowne.............................................. 404,985 *
Paul D. Carbery(3).......................................... 4,262,999 8.5
James E. Crawford, III(3)(4)................................ 4,274,499 8.5
John B. Ehrenkranz.......................................... -- --
Paul J. Finnegan(5)......................................... -- --
Richard D. Frisbie(6)....................................... 2,131,499 4.2
Alan E. Goldberg(7)......................................... -- --
Reed E. Hundt(8)............................................ 101,246 *
James N. Perry, Jr.(5)...................................... -- --
All directors and executive officers as a group (13
persons).................................................. 14,870,761 29.6
5% OWNERS:
Madison Dearborn Capital Partners(9)........................ 10,302,247 20.5
Morgan Stanley Capital Partners(10)......................... 10,302,247 20.5
Frontenac Company(11)....................................... 4,262,999 8.5
</TABLE>
- ---------------
(1) Includes 1,940,552 shares of common stock owned by the Royce J. Holland
Family Limited Partnership, of which Royce J. Holland is the sole general
partner, 1,000 shares of common stock owned by Mr. Holland's wife, 2,600
shares of common stock held by Mr. Holland as custodian for his children,
as to which 2,600 shares Mr. Holland disclaims beneficial ownership.
3,881,105 of the shares of common stock owned by Mr. Holland and the Royce
J. Holland Family Limited Partnership are subject to vesting, with 20% of
such shares of common stock vested on August 13, 1997, 20% vested upon the
consummation of the initial public offering of common stock and an
additional 20% vesting on each of August 13, 1998, 1999 and 2000.
(2) Includes 911,216 shares of common stock owned by Mr. Lord's wife and
children, as to which Mr. Lord disclaims beneficial ownership. All of the
shares of common stock owned by Mr. Lord and his family are subject to
vesting with 20% of such shares of common stock vested on August 13, 1997,
20% vested upon the consummation of the initial public offering of common
stock and an additional 20% vesting on each of August 13, 1998, 1999 and
2000.
(3) 4,262,999 shares of common stock shown are owned by Frontenac VII Limited
Partnership and Frontenac Masters VII Limited Partnership. Messrs. Carbery
and Crawford are members of Frontenac Company, VII, L.L.C., the general
partner of Frontenac VII Limited Partnership and Frontenac Masters VII
Limited Partnership and their address is c/o Frontenac Company, 135 S.
LaSalle Street, Suite 3800, Chicago, IL 60603. They disclaim beneficial
ownership of these shares of common stock except to the extent of their
pecuniary interest.
(4) Includes 500 shares of common stock owned by Mr. Crawford's spouse, 100
shares of common stock owned by Mr. Crawford's son, and 600 shares held by
Mr. Crawford as custodian for his son, as to which 600 shares Mr. Crawford
disclaims beneficial ownership.
(5) Messrs. Finnegan and Perry are managing directors of Madison Dearborn
Partners, Inc., the general partner of the general partner of Madison
Dearborn Capital Partners II, L.P. and their address is c/o Madison
Dearborn Partners, Inc., Three First National Plaza, Suite 3800, Chicago,
IL 60602.
(6) All shares of common stock shown are owned by Battery Ventures IV, L.P. and
Battery Investment Partners IV, LLC. Mr. Frisbie is a member manager of
Battery Partners IV, LLC, the general partner
14
<PAGE> 18
of Battery Ventures IV, L.P. and is a member manager of Battery Investment
Partners IV, LLC and his address is c/o Battery Ventures, 20 William
Street, Wellesley, MA 02181. He disclaims beneficial ownership of these
shares of common stock except to the extent of their pecuniary interest.
(7) Mr. Goldberg is Chairman, CEO and Director of Morgan Stanley Capital
Partners III, Inc., the general partner of the general partner of the funds
described in footnote (10) below and their address is c/o Morgan Stanley
Capital Partners, 1221 Avenue of the Americas, New York, NY 10020.
(8) Mr. Hundt owns options to acquire 50,623 shares of common stock and Charles
Ross Partners, LLC, a Delaware limited liability company, of which Mr.
Hundt is a member, owns 50,623 shares of common stock.
(9) These shares of common stock are owned by Madison Dearborn Capital Partners
II, L.P.
(10) These shares of common stock are owned by Morgan Stanley Capital Partners
III, L.P., MSCP III 892 Investors, L.P. and Morgan Stanley Capital
Investors, L.P.
(11) These shares of common stock are owned by Frontenac VII Limited Partnership
and Frontenac Masters VII Limited Partnership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Limited Liability Company Agreement
On August 13, 1997, Allegiance's original fund and management investors
entered into a limited liability company agreement in order to govern the
affairs of Allegiance Telecom, LLC, which immediately prior to Allegiance's
initial public offering of its common stock, held the one outstanding share of
Allegiance's common stock and substantially all of the outstanding shares of
Allegiance's preferred stock.
Upon consummation of Allegiance's initial public offering of common stock,
Allegiance Telecom, LLC dissolved and its assets, which consisted almost
entirely of Allegiance stock, were distributed to these fund investors and
management investors in accordance with its limited liability company agreement.
Under the terms of this agreement, the equity allocation between the fund
investors and the management investors could range between 95.0%/5.0% and
66.7%/33.3% based upon the valuation of Allegiance's common stock implied by the
initial public offering of common stock. Based upon the valuation of
Allegiance's common stock implied by the initial public offering of common
stock, the equity allocation was 66.7% to the fund investors and 33.3% to the
management investors.
Securityholders Agreement
The fund investors, the management investors, and Allegiance are parties to
a Securityholders Agreement dated as of August 13, 1997. Under the terms of this
agreement, in the event of an approved sale of Allegiance, each of the fund
investors, management investors and their transferees agrees to approve and, if
requested, to sell its shares in such sale of Allegiance. Most of the other
provisions of this agreement, apart from certain provisions thereof, terminated
upon the consummation of Allegiance's initial public offering of common stock.
Registration Agreement
The fund investors, the management investors, and Allegiance are parties to
a Registration Agreement dated as of August 13, 1997. Each of Morgan Stanley
Capital Partners, Madison Dearborn Capital Partners, and Frontenac Company is
entitled to demand two long-form registrations, such as registration on Form
S-1, and unlimited short-form registrations, such as registration on Form S-3,
and Battery Ventures is entitled to demand one long-form registration and
unlimited short-form registrations. In addition, the fund investors and the
management investors may "piggyback" on primary or secondary registered public
offerings of Allegiance's securities. Allegiance has agreed to pay the
registration expenses in connection with these demand and "piggyback"
registrations. Each fund investor and management investor is subject to holdback
restrictions in the event of a public offering of Allegiance securities. The
parties to the Registration Agreement have
15
<PAGE> 19
agreed to permit the holders of redeemable warrants to "piggyback" on any
registrations under the Registration Agreement.
Allegiance, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, Bear
Stearns & Co. Inc. and Donaldson Lufkin & Jenrette Securities Corporation are
parties to a Warrant Registration Rights Agreement dated as of February 3, 1998.
Allegiance has filed a shelf registration statement with respect to the issuance
of the common stock issuable upon exercise of the redeemable warrants; such
shelf registration statement has been declared effective by the SEC. Allegiance
is required to maintain the effectiveness of such registration statement until
all redeemable warrants have expired or been exercised. Allegiance is required
to pay the expenses associated with such registration.
Voting Agreement
Certain of Allegiance's stockholders have each agreed to vote all of their
shares in such a manner as to elect the following persons to serve as directors:
Madison Dearborn Capital Partners, Morgan Stanley Capital Partners, and
Frontenac Company each have the right to designate two directors; Battery
Ventures has the right to designate one director; Allegiance's Chief Executive
Officer has the right to serve as a director; the management investors have the
right to designate three directors; and the final two directorships may be
filled by representatives designated by the fund investors and acceptable to the
management investors.
Grant of Options
In March 1998, prior to Reed E. Hundt joining the board of directors,
Allegiance issued:
- options to purchase 50,623 shares of common stock to Reed E. Hundt, and
- 50,623 shares of common stock to Charles Ross Partners, LLC, of which Mr.
Hundt is a member.
The options were issued with an exercise price of $2.47 per share. 33.33%
of such options vested on March 13, 1999, and an additional 8.34% of such
options will vest every three months after that date, until March 13, 2001, when
all such options become exercisable. These numbers take into account
Allegiance's initial public offering of common stock and related
426.2953905-for-one stock split.
Other
Morgan Stanley & Co. Incorporated, an affiliate of Morgan Stanley Capital
Partners, one of the fund investors, acted as a placement agent in connection
with Allegiance's offering of its 11 3/4% senior discount notes due 2008 and
redeemable warrants and received fees of approximately $4.4 million. In
addition, Morgan Stanley & Co. Incorporated was one of the underwriters in
Allegiance's initial public offering of common stock and 12 7/8% senior notes
due 2008 offering and received fees of approximately $6.9 million in connection
with such offerings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Allegiance's directors, executive officers and persons who own more than 10% of
its common stock, to file with the SEC initial reports of ownership and reports
of changes in ownership of common stock and other equity securities of
Allegiance. Such persons are also required by SEC regulations to furnish
Allegiance with copies of all Section 16(a) reports they file. Based on written
representations received from such persons, Allegiance believes that each of its
executive officers, directors and greater than 10% owners complied with all
Section 16(a) filing requirements applicable to them during 1998.
16
<PAGE> 20
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECTION OF DIRECTORS
The board has nominated the following four persons for election to the
board at the Annual Meeting:
<TABLE>
<S> <C>
John J. Callahan Paul D. Carbery
John B. Ehrenkranz Paul J. Finnegan
</TABLE>
Directors who are elected at the Annual Meeting will serve until the annual
meeting of stockholders to be held in 2002 or until their successors are elected
and qualified. The nominees have each indicated that they are willing to be
elected and to serve. In the event that any nominee is unable to serve or is
otherwise unavailable for election, which is not now contemplated, the current
board may or may not select a substitute nominee. If a substitute nominee is
selected, all proxies will be voted for the person selected. If a substitute
nominee is not selected, all proxies will be voted for the election of the
remaining nominees. Proxies will not be voted for a greater number of persons
than the number of nominees named.
Directors will be elected by a plurality of the shares present and voting
at the meeting. In other words, the four nominees receiving the largest number
of votes will be elected to the board of directors.
Unless it is specified in the proxy card, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the election as directors of Messrs. Callahan, Carbery,
Ehrenkranz and Finnegan.
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR ELECTION OF ALL NOMINEES AS DIRECTORS
- --------------------------------------------------------------------------------
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has audited the consolidated financial statements of
Allegiance each year since its inception in April 1997. Stockholder ratification
of this proposal is not required to be voted upon by the stockholders. However,
Allegiance's board is submitting this proposal to its stockholders for
ratification as a matter of good corporate practice. If the stockholders do not
ratify the selection of Arthur Andersen LLP by a majority vote, the board will
reconsider whether or not to retain Arthur Andersen LLP, although the board
would not be required to select different independent public accountants for
Allegiance. Even if this proposal is ratified, the board of directors in its
discretion may direct the appointment of a different independent accountant at
any time during the year if the board of directors determines that such a change
would be in the best interests of Allegiance and its stockholders.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
Approval of the proposal to ratify the appointment of Arthur Andersen LLP
requires the affirmative vote of a majority of the shares present and entitled
to vote at the Annual Meeting.
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS ALLEGIANCE'S INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
17
<PAGE> 21
OTHER MATTERS
It is not presently expected that any matters other than those discussed in
this proxy statement will be brought before the Annual Meeting. If any other
matters are properly presented at the Annual Meeting for consideration, the
persons named in the enclosed proxy card will have the discretion to vote on
those matters.
INFORMATION ABOUT SUBMITTING STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in proxy materials for Allegiance's
annual meeting of stockholders to be held in 2000 should be addressed to
Allegiance's Secretary at its offices at 1950 Stemmons Freeway, Suite 3026,
Dallas, Texas 75207. Such proposals must be received by Allegiance on or before
December 23, 1999.
If a stockholder, rather than placing a proposal in Allegiance's proxy as
discussed above, commences his or her own proxy solicitation for the 2000 annual
meeting of stockholders or seeks to nominate a candidate for election or
proposes business for consideration at such meeting, the stockholder must give
timely written notice to Allegiance's Secretary. To be timely, a stockholder's
notice must:
- be delivered to or mailed and received at Allegiance's principal
executive offices in Dallas, Texas,
- not less than 60 days nor more than 90 days prior to the meeting, and
- meet certain other requirements as set forth in Allegiance's by-laws.
However, in the event that less than 70 days' notice or prior public
announcement is given or made to stockholders, notice must be given by the
stockholder not later than the close of business on the tenth day following the
date which such notice was mailed or such public announcement was made.
Allegiance's proxy related to the annual meeting of stockholders to be held in
2000 will give discretionary voting authority to the proxy holders to vote with
respect to any such proposal that is received by Allegiance outside of these
dates. Any stockholder interested in making such a nomination or proposal should
obtain a copy of Allegiance's by-laws. Allegiance has filed these by-laws with
the SEC.
OTHER INFORMATION
Allegiance's 1998 Annual Report for the fiscal year ended December 31, 1998
was mailed to stockholders prior to or together with the mailing of this proxy
statement. Stockholders who did not receive a copy of the 1998 Annual Report
with their proxy statement may obtain a copy by writing to: Strategic Resources
Group, LLC, 127 Peachtree Street, Suite 636, Atlanta, Georgia 30303, telephone
number (404) 478-1001, facsimile number (404) 524-7749.
Allegiance is required to file an annual report on Form 10-K for the fiscal
year ended December 31, 1998 with the SEC. Stockholders may obtain, free of
charge, a copy of Allegiance's annual report on Form 10-K by writing to:
Strategic Resources Group, LLC, 127 Peachtree Street, Suite 636, Atlanta,
Georgia 30303, telephone number (404) 478-1001, facsimile number (404) 524-7749.
Allegiance will provide copies of the exhibits to the Form 10-K upon payment of
a reasonable fee.
A list of all stockholders entitled to vote at the Annual Meeting will be
open for examination by any stockholder for any purpose germane to the Annual
Meeting during ordinary business hours for a period of 10 days before the Annual
Meeting at Allegiance's offices located at: (a) 1950 Stemmons Freeway, Suite
3026, Dallas, Texas 75207 and (b) 4 Westbrook Corporate Center, Suite 400,
Westchester, Illinois 60154.
18
<PAGE> 22
PROXY
ALLEGIANCE TELECOM, INC.
PROXY CARD
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dennis M. Maunder, Mark B. Tresnowski and Annie
S. Terry, and each of them, with full power of substitution, as proxies to vote
all stock of Allegiance Telecom, Inc. which the undersigned is entitled to vote
at the annual meeting of stockholders to be held on May 12, 1999, at 11:00 a.m.,
local time, at the INFOMART, 1950 Stemmons Freeway, Dallas, Texas 75207, and
at any adjournment or postponement thereof, upon the proposals set forth on the
reverse side, and, in their discretion, upon any other matter as may properly be
brought before said annual meeting or any adjournment or postponement thereof.
IMPORTANT -- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
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SEE REVERSE
SIDE
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*FOLD AND DETACH HERE*
<PAGE> 23
<TABLE>
<S> <C> <C>
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Please mark your - 3339
votes as - - -
[X] in this example.
This proxy, when properly executed, will be voted as directed by the undersigned and in accordance with the best judgment of
the proxies as to other matters. If no direction is given, this proxy will be voted FOR proposals 1 and 2, and in accordance with
the best judgment of the proxies as to other matters.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.
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1. Election of FOR WITHHELD NOMINEES TERM EXPIRING 2. Ratification of Arthur FOR AGAINST ABSTAIN
Directors. John J. Callahan 2002 Andersen LLP as independent
[ ] [ ] Paul D. Carbery 2002 public accountants for the [ ] [ ] [ ]
John B. Ehrenkranz 2002 1999 fiscal year.
(Instruction: to withhold Paul J. Finnegan 2002
authority to vote for any
individual nominee, write that
nominee's name on the space
provided below.)
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Please date and sign here exactly as name appears
hereon. When signing as attorney, executor,
administrator, trustee, guardian or other fiduciary,
give full title. If stock is in the name of: (1) a
corporation, an authorized officer should sign; (2) a
partnership, an authorized person should sign in the
partnership name; (3) two or more persons, each should
sign.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED POSTAGE PREPAID ENVELOPE.
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SIGNATURE(S) DATE
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- FOLD AND DETACH HERE -
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