<PAGE> 1
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from to
Commission file number: 1-11966
ALLNET COMMUNICATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 36-3098226
(State of incorporation) (IRS Employer ID No.)
30300 Telegraph Road, Bingham Farms, Michigan 48025-4510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 647-6920
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of November 9, 1995, the registrant had 1,000 shares of Common Stock
outstanding.
OMISSION OF INFORMATION BY CERTAIN WHOLLY-OWNED SUBSIDIARIES
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE> 2
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30 December 31,
1995 1994
-------- --------
(Unaudited)
(In Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,126 $ 41,412
Accounts receivable, less allowance for doubtful accounts of
$5,691,000 and $4,192,000 134,208 81,214
Other current assets 20,256 7,121
-------- --------
Total Current Assets $162,590 $129,747
Fixed Assets:
Communication systems $107,014 $ 91,140
Building and other equipment 49,686 36,842
Construction in progress 28,300 8,690
-------- --------
$185,000 $136,672
Less accumulated depreciation and amortization 103,023 77,514
-------- --------
Total Fixed Assets $ 81,977 $ 59,158
Cost in excess of net assets acquired 87,800 47,267
Customer bases 34,664 30,444
Deferred income taxes 13,163 10,429
Other assets 10,881 7,680
-------- --------
Total Assets $391,075 $284,725
======== ========
</TABLE>
<PAGE> 3
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30 December 31,
1995 1994
-------- ---------
(Unaudited)
(In Thousands)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 10,494 $ 2,018
Accrued liabilities 35,177 20,864
Accrued network costs 72,956 51,672
Taxes other than income 12,058 13,425
Payable to Frontier Corporation 69,264
Capitalized leases and other long-term debt 6,138 232
-------- --------
Total Current Liabilities $206,087 $ 88,211
Long-term Liabilities:
Capitalized leases and other long-term debt $ 6,180 $3,048
Senior Subordinated Notes 3,216 79,418
-------- --------
Total Long-Term Liabilities $ 9,396 $ 82,466
-------- --------
Total Liabilities $215,483 $170,677
Stockholders' Equity:
Preferred Stock, par value $0.01; authorized -- 14,784,000
shares at December 31, 1994, 0 at September 30, 1995; issued
and outstanding -- none
Common Stock, par value $1.00 in 1995 and $0.01 in 1994;
authorized -- 100 shares and 200,000,000 shares; issued and
outstanding -- 100 shares and 33,712,000 shares $ 337
Capital in excess of par value $169,278 140,278
Paid-in capital -- Warrants 9,009 11,715
Accumulated deficit (2,695) (38,282)
-------- --------
Total Stockholders' Equity $175,592 $114,048
-------- --------
Total Liabilities and Stockholders' Equity $391,075 $284,725
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 4
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---------- -------- -------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Revenue $226,149 $149,054 $601,140 $414,751
Operating Expenses:
Cost of communication services
and equipment sales $127,335 $ 80,655 $338,450 $225,053
Sales, general and administrative 48,157 34,696 132,040 98,378
Depreciation and amortization 7,078 4,555 19,986 12,845
Costs incurred in connection with
merger with Frontier Corporation 37,271 37,271
-------- -------- -------- --------
Total Operating Expenses $219,841 $119,906 $527,747 $336,276
-------- -------- -------- --------
Operating Income $ 6,308 $ 29,148 $ 73,393 $ 78,475
Interest expense 1,723 1,380 4,617 4,621
-------- -------- -------- --------
Income Before Income Taxes and
Extraordinary Item $ 4,585 $ 27,768 $ 68,776 $ 73,854
Income taxes 3,350 10,175 27,350 26,775
-------- -------- -------- --------
Income Before Extraordinary Item $ 1,235 $ 17,593 $ 41,426 $ 47,079
Extraordinary Item --loss related to
early retirement of debt (net of
income tax benefit of $3,650,000) (5,839) (5,839)
-------- -------- -------- --------
Net Income (Loss) $ (4,604) $ 17,593 $ 35,587 $ 47,079
=====================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30,
1995 1994
----------- ---------
<S> <C> <C>
Operating Activities
Net income $ 35,587 $ 47,079
Adjustments to reconcile net income to net cash provided
by operating activities:
Reserve for merger related costs 25,892
Depreciation 12,041 8,359
Amortization of intangible assets and bond discount 8,698 4,575
Provision for deferred income taxes (8,712) (97)
Increase (decrease) in net payable to Frontier Corporation (5,964)
Loss on disposal of assets 11
Loss on retirement of debt, net of tax 5,839
Increase in accounts receivable and
other current assets (36,332) (23,722)
Increase in current liabilities 42,276 27,637
----------- ---------
Net Cash Provided by Operating Activities $ 79,336 $ 63,831
Financing Activities
Retirement of Senior Subordinated Notes $ (5,017)
Additions to long-term debt $ 201
Payments on long-term debt (483) (768)
Proceeds from issuance of stock 3,908 3,208
----------- ---------
Net Cash Used in Financing Activities $ 3,626 $ (2,577)
Investing Activities
Expenditures for fixed assets $ (34,126) $ (18,453)
Acquisition of ConferTech International, Inc. (64,054)
Change in other non-current assets (2,154) (3,746)
Purchase of customer bases (15,914) (10,384)
----------- ---------
Net Cash Used in Investing Activities $ (116,248) $ (32,583)
----------- ---------
Increase (Decrease) in Cash and Cash Equivalents $ (33,286) $ 28,671
Cash and cash equivalents at beginning of period 41,412 1,819
----------- ---------
Cash and cash equivalents at end of period $ 8,126 $ 30,490
=========== =========
Interest paid $ 6,638 $ 7,890
=========== =========
Income taxes paid $ 35,892 $ 17,253
=========== =========
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1995
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Paid-in capital
Common Stock Capital in -- Warrants
--------------- excess of ---------------- Accumulated
Shares Amount par value Shares Amount deficit Total
------ ------ --------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 33,712 $337 $140,278 3,852 $11,715 ($38,282) $114,048
Exercise of warrants prior to August 1995
merger with Frontier Corporation 585 6 2,258 (585) (623) 1,641
Exercise of stock options 315 3 2,265 2,268
Tax benefit from exercise of stock
options 10,710 10,710
Retirement of common stock in
connection with the August 1995 merger
with Frontier Corporation (34,612) (346) 346
Exercise of warrants subsequent to August
1995 merger with Frontier Corporation 2,083 (2,083) (2,083)
Capital contribution from
Frontier Corporation 11,338 11,338
Net income for the nine months
ended September 30, 1995 35,587 35,587
------ ----- -------- ------ ------ ------- --------
Balance September 30, 1995 0 $0 $169,278 1,184 $9,009 ($2,695) $175,592
====== ===== ======== ====== ====== ======= ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 7
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1995 and 1994
NOTE A -- MANAGEMENT'S REPRESENTATION
The consolidated financial statements included herein have been prepared by ALC
management, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. Certain prior year amounts have been reclassified to
conform to current year presentation. In the opinion of ALC management, all
adjustments considered necessary for a fair presentation have been included and
are of a normal recurring nature, and the accompanying consolidated financial
statements present fairly the financial position as of September 30, 1995 and
December 31, 1994, and the results of operations and cash flows for the three
and nine month periods ended September 30, 1995 and 1994.
The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and accompanying footnotes required by generally accepted accounting principles
for complete financial statements. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes included in the Company's Form 10-K for the fiscal year ended December
31, 1994.
NOTE B -- MERGER WITH FRONTIER CORPORATION
Effective August 16, 1995, ALC Communications Corporation merged with Frontier
Corporation ("Frontier"). The combined company operates under the name
Frontier Corporation. The combined company has total consolidated long
distance, local and cellular annual revenues approximating $2 billion.
Frontier Corporation had revenues of $985 million and net income of $103
million for the year ended December 31, 1994 and total assets of $1,761 million
at December 31, 1994. Under the terms of the merger agreement, shareholders of
ALC received 2.0 shares of Frontier for each share of ALC stock. In connection
with the merger, the Company retired all but 100 shares of its Common Stock
which are wholly-owned by Frontier Corporation. The merger qualifies as a
tax-free reorganization and a "pooling of interests" for accounting purposes.
During the third quarter of 1995, the Company recorded merger expenses totaling
$37.3 million. Included in this amount were the costs associated with the
consolidation of the Allnet and Frontier long distance networks as well as the
costs directly associated with effecting the merger. As part of the merger,
Frontier Corporation agreed to make a capital contribution of $11.3 million to
cover some of these costs. This capital contribution was received by ALC in
the form of a promissory note.
At the time of the merger, the Company had 3.9 million options outstanding and
3.3 million warrants outstanding for the purchase of an equal number of shares
of ALC Common Stock. After the merger, each of these options and warrants
continue to be exercisable for 2 shares of Frontier Corporation common stock.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- RETIREMENT OF SENIOR SUBORDINATED NOTES
In late September 1995, the Company acquired, through a tender offer, $76.8
million of its Senior Subordinated Notes for $83.5 million plus accrued
interest. This amount was paid by Frontier Corporation and is reflected within
the Payable to Frontier Corporation balance on ALC's financial statements. The
early retirement resulted in an extraordinary loss of $5.8 million, net of
applicable tax of $3.7 million.
NOTE D -- CONFERTECH ACQUISITION
During late February 1995, ALC completed a tender offer and, by mid-March 1995,
had acquired all the shares of ConferTech International, Inc. ("ConferTech").
The financial statements reflect the transaction effective March 1, 1995. ALC
financed the purchase price, $66.4 million or $8.00 per share, through cash
from operations as well as utilizing its line of credit. ConferTech is a
leading provider of teleconferencing services and audio bridge equipment. The
purchase price has been allocated between the value of the assets acquired and
the cost in excess of net assets acquired which is being amortized over 40
years.
The following unaudited proforma summary presents the Company's revenue and
income as if the transaction occurred at the beginning of the periods
presented. The proforma financial data is not necessarily indicative of the
results that actually would have occurred had the transaction taken place on
the dates presented and do not project the Company's results of operations.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenue $226,149 $159,891 $608,487 $445,897
Net income $ (4,603) $ 17,526 $ 35,651 $ 45,874
</TABLE>
NOTE E -- REVOLVING CREDIT FACILITY
In January 1995, the Company entered into a $105 million unsecured credit
facility with First Union National Bank of North Carolina and Bank One,
Columbus, NA as Co-Managing Agents. Under the facility, which was to expire
December 31, 1999, the Company was able to minimize interest expense by
structuring borrowings under either of two alternatives. Each alternative has
a varying interest rate associated with it. A 0.25% per annum commitment fee
was charged on the unused portion of the line. As of August 16, 1995, the
effective date of the merger, the Company terminated this facility.
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MERGER WITH FRONTIER CORPORATION
Effective August 16, 1995, ALC Communications Corporation merged with Frontier
Corporation. The combined company, operating under the name Frontier
Corporation, became the fifth largest long distance company in the United
States. The combined company has total consolidated long distance, local and
cellular annual revenues approximating $2 billion. Under the terms of the
merger agreement, shareholders of ALC received 2.0 shares of Frontier for each
share of ALC stock. The merger qualifies as a tax-free reorganization and a
"pooling of interests" for accounting purposes.
During the third quarter of 1995, the Company recorded merger expenses totaling
$37.3 million. Included in this amount were the costs associated with the
consolidation of the Allnet and Frontier long distance networks as well as the
costs directly associated with effecting the merger. As part of the merger,
Frontier Corporation agreed to make a capital contribution of $11.3 million to
cover some of these costs.
At the time of the merger, the Company had 3.9 million options outstanding and
3.3 million warrants outstanding for the purchase of an equal number of shares
of ALC Common Stock. After the merger, each of these options and warrants
continue to be exercisable for 2 shares of Frontier Corporation common stock.
RESULTS OF OPERATIONS
The Company reported net income of $35.6 million on revenue of $601.1 million
for the nine month period ended September 30, 1995. This compares to net
income of $47.1 million on revenue of $414.8 million for the same period in
1994. The Company's 1995 results include both a $37.3 million expense to
reflect the merger with Frontier Corporation ("Frontier") and an extraordinary
loss of $5.8 million related to the early retirement of approximately 96% of
the Company's Senior Subordinated Debentures. Excluding these items, the
Company would have reported income of $78.7 million, a 67.2% improvement over
net income in the first nine months of 1994. Gross margin, defined as revenue
less cost of communication services and equipment sales, as a percent of net
revenue decreased from 45.7% for the nine months ended September 30, 1994 to
43.7% for the nine months ended September 30, 1995 primarily due to the impact
of lower average revenue per minute. The improved operating results were due
primarily to an increase in long distance traffic and a reduction of sales,
general and administrative expenses as a percentage of revenue. The Company's
continued strong performance was reflected by the increase in operating income
(excluding merger costs) of $32.2 million for the nine months ended September
30, 1995 over the same period one year earlier.
<TABLE>
<CAPTION>
OPERATING RESULTS AS A PERCENT OF REVENUE
----------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
---------------
1995 1994
----- -----
<S> <C> <C>
Revenue 100.0% 100.0%
Cost of communication services and
equipment sales (56.3) (54.3)
----- -----
Gross Margin 43.7% 45.7%
Sales, general and administrative (22.0) (23.7)
Depreciation and amortization (3.3) (3.1)
----- -----
Operating Income excluding merger costs 18.4% 18.9%
</TABLE>
<PAGE> 10
Billable minutes have increased since the third quarter of 1990 when compared
to the same quarter in the prior year. Sequentially, billable minutes have
reached record levels for the eighth consecutive quarter. The increase results
from traffic growth generated by new customers, including strong growth in
reseller traffic, as well as the introduction of new products partially offset
by billable minutes lost through attrition of existing customers. The results
of operations for the nine months ended September 30, 1995 reflect a
continuation of the trend of strong financial performance as indicated by a
54.8% increase in income excluding costs incurred in connection with the August
1995 merger with Frontier Corporation from the comparable year to date period
of 1994.
During late February 1995, ALC completed a tender offer and, by mid-March 1995,
had acquired all the shares of ConferTech International, Inc. ("ConferTech").
The financial statements reflect the transaction effective March 1, 1995. ALC
financed the purchase price, $66.4 million or $8.00 per share, through cash
from operations as well as utilizing its line of credit. ConferTech is a
leading provider of teleconferencing services and audio bridge equipment.
Operating income for the nine months ended September 30, 1995 reflects
ConferTech results since March 1, 1995. The portion of operating income
relating to ConferTech totaled $3.1 million or approximately 2.8% of total
operating income.
REVENUE
Revenue increased by 44.9% for the nine months ended September 30, 1995 from
the comparable period of 1994. Billable minutes again reached the highest
level in the history of the Company, increasing by 64.8% for the three months
ended September 30, 1995 over the comparable period in 1994. The Company's
base revenue per minute of 14.7cents continues to be strong, though it has
decreased from the prior year quarter level of 17.0cents primarily due to
changes in the sales mix. Revenue from the ConferTech acquisition totaled
$31.7 million for the nine months ended September 30, 1995. Excluding the
impact of the ConferTech acquisition, revenue increased 37.3% for the nine
months ended September 30, 1995 from the comparable period in 1994.
Reseller revenue has continued to grow significantly from prior year periods
reaching over 35% of net revenue for the nine months ended September 30, 1995
compared to approximately 20% of net revenue for the same periods one year ago.
Although reseller revenue per minute (between 11cents and 12cents) is lower than
regular commercial traffic, the increased reseller traffic has a positive
impact on operating income due to low incremental sales, general and
administrative costs. Revenue growth was also positively impacted by a major
carrier customer whose revenue has increased substantially for the year and
represents 12.9 percent of long distance revenues for the quarter and 9.4
percent of the year to date revenues. It is the Company's understanding that
this customer may be installing long distance switching capacity which, as
completed, could result in a portion of this traffic gradually moving to the
customer's network. However, the customer has in turn entered into a three
year agreement with the Company effective April 1, 1995 and amended October 27,
1995. The Company will retain significant traffic volumes and has obtained
certain provisions regarding exclusivity and minimums.
The provision for uncollectible revenue was 1.5% of gross revenue for the nine
months ended September 30, 1995 and 1.7% for the same period of 1994. Strong
controls and procedures in the collection and credit risk detection processes
have enabled the Company to sustain a low bad debt rate.
<PAGE> 11
OPERATING EXPENSES
The Company's primary cost is for communication services, which represents the
costs of originating and terminating calls via local exchange carriers
(primarily Bell Operating Companies). Also included in communication services
are the costs of owning and leasing long-haul transmission capacity as well as
bridges and the cost of providing conferencing services.
The cost of communication services and equipment sales increased $113.4 million
during the nine month period ended September 30, 1995 compared to the same
period in 1994. This cost increased as a percent of net revenue for the
comparable periods, due in part to the significant concentration of reseller
traffic which has a lower rate per minute than regular commercial traffic.
However, by the use of high volume fixed price leased facilities to transmit
traffic and lower prevailing unit prices for such capacity, the Company has
reduced its long-haul transmission costs from 7.1% for the nine months ended
September 30, 1994 to less than 6% of revenue for the nine months ended
September 30, 1995.
Sales, general and administrative expense increased by 34.2% for the nine month
period ended September 30, 1995 from the same period one year earlier (but
decreased as a percent of revenue). The dollar increase reflects increased
salaries and other expenses related to a 25.8% increase in headcount for the
nine month period compared to the prior year to support the greater sales
activity as well as the costs incurred by ConferTech in 1995. Results for 1994
include a $1.2 million cost reduction, recorded in the first quarter of the
year, resulting from the favorable settlement of a state telecommunications
excise tax dispute.
Depreciation and amortization increased 55.6% for the nine months ended
September 30, 1995 compared to the same period in 1994. This increase is the
result of a $3.7 million increase in year to date depreciation due to newly
acquired fixed assets and a $3.5 million increase in year to date amortization
of intangible assets associated with the purchase of ConferTech and various
customer bases.
INTEREST EXPENSE
Net interest expense remained relatively constant for the nine months ended
September 30 compared to the same period in 1994 due to improved cash flow from
operations. These positive factors were somewhat offset by increased interest
expense due to borrowings made during late February and March under the
Revolving Credit Facility ("Facility") to finance the ConferTech acquisition.
The Company's interest expense will decrease during the fourth quarter of 1995
as compared to prior quarters as a result of the Company's retirement of $76.8
million of its Senior Subordinated Notes in late September 1995.
INCOME TAXES
The effective tax rate increased from 36.3% for the first nine months of 1994
to 39.8% for the first nine months of 1995, due to the increase in income
(which results in a decrease in the favorable impact of the Company's annual
available $10 million net operating loss carryforward on the effective tax
rate) and the impact of non-deductible merger related expenses.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1995 and 1994, the Company generated
positive cash flow from operations of $79.3 million and $63.8 million,
respectively. The positive cash flow reflects twenty-one consecutive quarters
of increased revenue and operating profits compared to prior year comparable
quarters.
<PAGE> 12
In late September 1995, the Company acquired, through a tender offer, $76.8
million of its Senior Subordinated Notes for $83.5 million plus accrued
interest. The early retirement resulted in an extraordinary loss of $5.8
million, net of applicable tax of $3.7 million.
Evidence of the Company's strong liquidity position was its ability to finance
the purchase of ConferTech during March of 1995. ALC paid an aggregate
purchase price of $66.4 million dollars, financing the purchase through cash
from operations as well as utilizing its Revolving Credit Facility.
Because the Company has chosen to lease rather than own its transmission
facilities, the Company's requirements for capital expenditures are modest.
Capital expenditures totaled $34.1 million for the first nine months of 1995.
Capital expenditures year to date 1995 included projects for enhanced
efficiency and technical advancement in the network. Additional investment
requirements for capital expenditures during 1995 relate primarily to the
consolidation of the Frontier network with the Allnet network as well as
traffic growth which necessitates the purchase of switching and related
equipment. In addition, a component of the future capital budget relates to
technological advancements as the Company continually updates its network
capabilities to offer enhanced products and services.
Management believes that the Company's cash flow from operations will provide
adequate sources of liquidity to meet the Company's anticipated short and long
term liquidity needs.
<PAGE> 13
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
EXHIBIT INDEX
[refer to definitions at end of Index]
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------ ------------ ---------- ------------- ------
<S> <C> <C> <C> <C>
4.1 First Supplemental X
Indenture, ALC,
Allnet, Star Bank, N.A.
Sept. 27, 1995
10.1 Employment X
Agrmt. (J.M. Zrno)
April 9, 1995
10.2 Employment X
Agrmt. (W.H. Oberlin)
April 9, 1995
10.3 Employment X
Agrmt. (M.C. Moses)
April 9, 1995
27.1 Financial Data Schedule X
DEFINITIONS: ALC: ALC Communications Corporation
ALLNET: Allnet Communication Services, Inc.
</TABLE>
The Registrant hereby agrees to furnish the Commission a copy of each of the
Indentures or other instruments defining the rights of security holders of the
long-term debt securities of the Registrant and any of its subsidiaries for
which consolidated or unconsolidated financial statements are required to be
filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of 1995.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ALLNET COMMUNICATION SERVICES, INC.
(Registrant)
By: /s/ Marvin C. Moses
-------------------
Marvin C. Moses
Executive Vice President
(and principal financial officer)
Dated: November 13, 1995
<PAGE> 15
EXHIBIT INDEX
[refer to definitions at end of Index]
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------ ------------ ---------- ------------- ------
<S> <C> <C> <C> <C>
4.1 First Supplemental X
Indenture, ALC,
Allnet, Star Bank, N.A.
Sept. 27, 1995
10.1 Employment X
Agrmt. (J.M. Zrno)
April 9, 1995
10.2 Employment X
Agrmt. (W.H. Oberlin)
April 9, 1995
10.3 Employment X
Agrmt. (M.C. Moses)
April 9, 1995
27.1 Financial Data Schedule X
DEFINITIONS: ALC: ALC Communications Corporation
ALLNET: Allnet Communication Services, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
================================================================================
ALLNET COMMUNICATION SERVICES, INC., as Issuer,
ALC COMMUNICATIONS CORPORATION, as Guarantor
and
STAR BANK, NATIONAL ASSOCIATION, as Trustee
____________________________________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 27, 1995
Under the
INDENTURE
Dated as of May 15, 1993
_____________________________________________
Supplementing and amending the Indenture dated as of May 15, 1993 among
Allnet Communication Services, Inc., as Issuer, ALC Communications
Corporation, as Guarantor, and Star Bank, National Association, as Trustee.
================================================================================
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of September 27, 1995, among ALLNET
COMMUNICATION SERVICES, INC., a corporation incorporated and existing under the
laws of the State of Michigan (the "Company"), ALC COMMUNICATIONS CORPORATION,
a corporation incorporated and existing under the laws of the State of Delaware
(the "Guarantor"), and STAR BANK, NATIONAL ASSOCIATION, a national banking
association, as trustee (the "Trustee"), under the Indenture dated as of May
15, 1993 (the "Indenture").
RECITALS
WHEREAS, the Board of Directors of the Company has duly authorized the
creation of and issued its 9% Senior Subordinated Notes due 2003 (the
"Securities"), duly authorized the execution and delivery of the Indenture and
has duly authorized the execution and delivery of this Supplemental Indenture
pursuant to Section 9.2 of the Indenture;
WHEREAS, the Board of Directors of the Guarantor has duly authorized the
execution and delivery of the Indenture and has duly authorized the execution
and delivery of this Supplemental Indenture; and
WHEREAS, the Trustee has duly authorized the execution and delivery of the
Indenture and has duly authorized the execution and delivery of this
Supplemental Indenture; and
WHEREAS, the Company and the Guarantor have received the written consent of
the holders of a majority in aggregate principal amount of the Securities to
the execution and delivery of this Supplemental Indenture pursuant to Section
9.2 of the Indenture;
NOW THEREFORE, it is agreed as follows:
ARTICLE ONE
SECTION 1.1 Amendments to Section 1.1.
Section 1.1 of the Indenture is hereby amended by:
(i) deleting therefrom the definitions of the terms "Consolidated Net
Worth" and "Consolidated Stockholders' Equity" in their entirety;
(ii) deleting therefrom the definition of the term "Payment Restriction"
in its entirety and substituting in lieu thereof the following:
"`Payment Restriction' means any encumbrance or restriction of any
kind on the ability of any of the Restricted Subsidiaries (a) to pay
dividends or make other distributions on or in respect of its Capital
<PAGE> 3
2
Stock or make payments on any indebtedness or other obligation owed to
ALC, the Company or any other Restricted Subsidiary; (b) to make loans or
advances to ALC, the Company or any other Restricted Subsidiary; (c) to
transfer any of its Property to ALC, the Company or any other Restricted
Subsidiary; or (d) to guarantee any Indebtedness of ALC, the Company or
any other Restricted Subsidiary.";
(iii) deleting the words "made in compliance with clause (y) of the
proviso to Section 4.14" from the final sentence of the definition of the
term "Permitted Investments"; and
(iv) inserting therein, in appropriate alphabetical order, the following
new definitions of terms:
"`Amendment Effective Date' means the first date on which this
Indenture shall be amended as provided in the First Supplemental
Indenture among the Company, ALC and the Trustee in accordance with
the terms thereof."
"`Consolidated Net Tangible Assets' of a Person at any date
means the excess over current liabilities of all assets, less good
will, trademarks, patents, other like intangibles and the minority
interests of others in Subsidiaries, of such Person and its
consolidated Subsidiaries, determined on a consolidated basis in
accordance with GAAP, as of the end of the most recently completed
accounting period of such Person for which financial information
has then been made publicly available."
"`Principal Property means any parcel of real property and
related fixtures or improvements owned by ALC, the Company or any
Restricted Subsidiary and located in the United States, the
aggregate book value of which, less accumulated depreciation, on
the date of determination exceeds $5,000,000, other than any such
real property and related fixtures or improvements which, as
determined in good faith by the Board of Directors of ALC, is not
of material importance to the total business conducted by ALC and
its Subsidiaries, taken as a whole."
SECTION 1.2 Amendments to Section 4.6.
Section 4.6 of the Indenture is hereby amended by:
(i) deleting the first sentence of Section 4.6(a) in its entirety
and substituting in lieu thereof the following:
"ALC and the Company will deliver to the Trustee within 120 days
after the end of the fiscal year of each of
<PAGE> 4
3
ALC and the Company, an Officers' Certificate stating whether or not the
signers know of any Default or Event of Default under this Indenture by
ALC or the Company that occurred during such fiscal period."; and
(ii) deleting Section 4.6(b) in its entirety and substituting in lieu
thereof the following:
"(b) [Intentionally omitted]".
SECTION 1.3 Amendments to Section 4.7.
Section 4.7 of the Indenture is hereby amended by:
(i) deleting the first sentence thereof in its entirety;
(ii) deleting the phrase "and mailed, no later than the date such
materials are mailed or made available to the stockholders of ALC or
the Company, as the case may be, to the Holders at their addresses as set
forth in the register of Securities maintained by the Registrar" from the
final sentence thereof; and
(iii) inserting immediately following the last sentence thereof the
following sentence:
"To the extent that at any time during which ALC or the Company is not
required to file annual reports and quarterly reports with the SEC
pursuant to Sections 13 and 15 of the Securities Exchange Act such
reports (or reports comparable to such reports) are required to be
furnished to Holders of Securities pursuant to Section 4.12 or 4.13,
then, solely for the purpose of complying with the provisions of Section
4.12 or 4.13, ALC or the Company shall prepare reports comparable to the
annual reports and quarterly reports required to be filed with the SEC
pursuant to Sections 13 and 15 of the Securities Exchange Act."; and
SECTION 1.4 Amendment to Section 4.8.
Section 4.8 of the Indenture is hereby amended by inserting the following
paragraph at the end of such Section:
"Notwithstanding any term or provision of this Section 4.8 to the
contrary, this Section 4.8 (other than this sentence) shall be of no
force or effect at any time after the Amendment Effective Date except
and only to the extent that any other terms or provisions of this
Indenture shall refer to this Section 4.8 for the purpose of any
determination pursuant to such other term or provision."
<PAGE> 5
4
SECTION 1.5 Amendment to Section 4.9.
Section 4.9 of the Indenture is hereby amended by inserting the following
paragraph at the end of such Section:
"Notwithstanding any term or provision of this Section 4.9 to the
contrary, this Section 4.9 (other than this sentence) shall be of no
force or effect at any time after the Amendment Effective Date except
and only to the extent that any other terms or provisions of this
Indenture shall refer to this Section 4.9 for the purpose of any
determination pursuant to such other term or provision."
SECTION 1.6 Amendment to Section 4.10.
Section 4.10 of the Indenture is hereby amended by deleting such
Section in its entirety and substituting in lieu thereof the following:
"Section 4.10 [Intentionally omitted]".
SECTION 1.7 Amendment to Section 4.11.
Section 4.11 of the Indenture is hereby amended by deleting the text
thereof in its entirety and substituting in lieu thereof the following:
"Neither ALC nor the Company will, or will permit any of the Restricted
Subsidiaries to, create or assume any Liens of any kind against
or upon any Principal Property or upon any Capital Stock of any
Subsidiary or any Indebtedness of any Subsidiary to ALC, the Company or
such Restricted Subsidiary, whether now owned or hereafter acquired,
without making effective provision whereby the Securities will be
secured by such Lien equally and ratably with any and all other
Indebtedness thereby secured, so long as any such Indebtedness shall be
so secured; provided, however, that the foregoing covenant shall not be
applicable to (a) Liens existing as of the Amendment Effective Date,
including, without limitation, Liens securing Senior Indebtedness under
the Credit Agreement; (b) any Liens which may be granted to secure the
Securities or any Guarantees; (c) Liens securing Senior Indebtedness of
the Company or Liens granted by a Guarantor to secure Senior
Indebtedness of a Guarantor; (d) Liens in favor of ALC, the Company or
any Subsidiary; (e) Permitted Liens; (f) Liens created for the sole
purpose of extending, renewing or refunding any Lien described in
subparagraphs 1.1.7, 1.1.9, 1.1.13, 1.1.14 or 1.1.15 of the definition
of "Permitted Liens"; provided, however, that the principal amount of
Indebtedness secured thereby shall not exceed the principal amount of
<PAGE> 6
5
Indebtedness so secured at the time of such extension, renewal or
refunding and that such extension, renewal or refunding Lien shall be
limited to all or any part of the same Property that secured the Lien
extended, renewed or refunded, or to other Property of ALC, the Company
or its Restricted Subsidiaries not subject to the limitations of this
provision; (g) Liens created after the date of this Indenture on any
Property leased to or purchased by ALC, the Company or a Restricted
Subsidiary after that date and securing, directly or indirectly,
obligations issued by a State, a territory or a possession of the United
States, or any political subdivision of any of the foregoing, or the
District of Columbia, to finance the cost of acquisition or cost of
construction of such Property, provided that the interest paid on such
obligations is entitled to be excluded from gross income of the
recipient pursuant to Section 103(a)(1) of the Internal Revenue Code of
1986, as amended (or any successor to such provision), as in effect on
the Amendment Effective Date; (h) other Liens similar to Permitted Liens
the existence of which does not, in the opinion of ALC or the Company,
materially impair the use by ALC, the Company or a Restricted Subsidiary
of the affected Property in the operation of the business of ALC, the
Company or a Restricted Subsidiary; and (i) Liens not otherwise
permitted under this Section 4.11; provided, however, that the aggregate
amount of Indebtedness secured by all such Liens under this clause (i)
shall not exceed 15% of Consolidated Net Tangible Assets of ALC as at
the end of ALC's most recently completed accounting period preceding the
creation or assumption of such Lien."
SECTION 1.8 Amendment to Section 4.14.
Section 4.14 of the Indenture is hereby amended by deleting such
Section in its entirety and substituting in lieu thereof the following:
"Section 4.14 [Intentionally omitted]".
SECTION 1.9 Amendment to Section 4.15.
Section 4.15 of the Indenture is hereby amended by deleting such
Section in its entirety and substituting in lieu thereof the following:
"Section 4.15 [Intentionally omitted]".
SECTION 1.10 Addition of Section 4.19.
A new Section 4.19 is hereby inserted in the Indenture following Section
4.19 thereof and shall read in its entirety as follows:
<PAGE> 7
6
"Section 4.19 Waiver of Certain Covenants.
ALC and the Company may omit in any particular instance to comply
with any term, provision or condition set forth in Sections 4.3, 4.11,
4.17 and 4.18 if before the time for such compliance the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding shall either waive such compliance in such instance or
generally waive compliance with such term, provision or condition, but
no such waiver shall extend to or affect such term, provision or
condition except to the extent expressly so waived, and, until such
waiver shall become effective, the obligations of ALC and the Company
and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect. It shall not be
necessary for Holders to approve the particular form of any proposed
waiver under this Section 4.19, but it shall be sufficient if the
requisite number of Holders approve the substance thereof."
SECTION 1.11 Amendment to Section 5.1.
Section 5.1 of the Indenture is hereby amended by deleting the first
paragraph thereof in its entirety and substituting in lieu thereof the
following paragraph:
"Neither ALC nor the Company will consolidate with or merge with or
into any other Person or convey, transfer or lease all or substantially
all of its Assets to any person, unless: (a) ALC or the Company
survives such merger or the Person formed by such consolidation or into
which ALC or the Company is merged or that acquires by conveyance or
transfer, or that leases, all or substantially all of the Assets of ALC
or the Company, is a corporation organized and existing under the laws
of the United States of America or any State thereof or the District of
Columbia and expressly assumes, by supplemental indenture, the due and
punctual payment of the principal of and premium, if any, and interest
on, all the Securities and the performance of every other covenant and
obligation of ALC and the Company under this Indenture; (b) on a pro
forma basis, immediately after giving effect to such transaction, no
Default or Event of Default shall exist; and (c) ALC and the Company
shall have delivered to the Trustee an Officers' Certificate that items
(a) and (b) of this paragraph have been satisfied and an Opinion of
Counsel that item (a) of this paragraph has been satisfied."
SECTION 1.12 Amendment to Section 6.1.
<PAGE> 8
7
Section 6.1 of the Indenture is hereby amended by deleting Section
6.1(e) in its entirety and substituting in lieu thereof the following:
(e) "[intentionally omitted]".
SECTION 1.13 Amendments to Section 8.2.
Section 8.2 of the Indenture is hereby amended by:
(i) deleting clause (ii) of Section 8.2(d) in its entirety and
substituting in lieu thereof the following:
"(ii) no Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of deposit
referred to in clause (i) or will occur by reason of such deposit and,
with respect to legal defeasance only, no Event of Default under
Section 6.1(g) or (h) or Default that after notice or passage of time
or both would be an Event of Default under Section 6.1(g) or (h) shall
have occurred and be continuing on the 91st day after such date;";
(ii) deleting clauses (vii), (viii) and (ix) of Section 8.2(d) in
their entirety and renumbering clauses (x), (xi) and (xii) thereof as
(vii), (viii) and (ix), respectively;
(iii) deleting the semicolon at the end of clause (ix) of Section
8.2(d), as renumbered pursuant to clause (ii) of this Section 1.13, and
substituting a period therefor; and
(iv) inserting the following sentence following clause (ix) of Section
8.2(d), as renumbered pursuant to clause (ii) of this Section 1.13:
"Notwithstanding the foregoing, if ALC or the Company exercises
under paragraph (a) the covenant defeasance option applicable to
paragraph (c) above and an Event of Default under Section 6.1(g) or (h)
or a Default that after notice or passage of time or both would be an
Event of Default under Section 6.1(g) or (h) shall have occurred and be
continuing on the 91st day after the date of the deposit referred to in
clause (i) above, the obligations of ALC and the Company referred to in
paragraph (c) with respect to the outstanding Securities shall be
reinstated in full."
SECTION 1.14 Amendment to Section 8.5.
Section 8.5 of the Indenture is hereby amended by deleting the text
thereof in its entirety and substituting in lieu thereof the following:
<PAGE> 9
8
"If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture, or if each
Holder is required to refund money to the Trustee or the Company, in
either case by reason of any legal proceeding or by reason of any order
or judgment of any court or governmental authority either (i) enjoining,
restraining or otherwise prohibiting or rendering the Trustee incapable
of making such application or (ii) requiring such refunds by the
Holders, then and only then the Company's and each Guarantor's, if any,
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had been made pursuant to this Indenture
until such time as either (i) the Trustee is permitted to apply all such
money or U.S. Government Obligations in accordance with this Indenture
or (ii) the Holders are allowed to retain or are permitted such money;
provided, however, that if the Company or any of the Guarantors, as the
case may be, has made any payment of principal of, premium, if any, or
interest on any Securities because of the reinstatement of its
obligations, the Company or the Guarantors, as the case may be, shall
be, subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held
by the Trustee or Paying Agent."
SECTION 1.15 Amendment to Section 11.2.
Section 11.2 of the Indenture is hereby amended by inserting the words
"or by facsimile" immediately following the phrase "delivered in Person" in
the first paragraph thereof.
ARTICLE TWO
Representations and Warranties
SECTION 2.1 Compliance with Conditions.
ALC and the Company hereby represent and warrant to the Trustee that
(a) the execution of this Supplemental Indenture is authorized or
permitted by Section 9.2 of the Indenture and (b) all conditions
precedent relating to the execution of this Supplemental Indenture
provided for in the Indenture, including (i) the approval by written
consent of the holders of a majority in aggregate principal amount of
the Securities and (ii) the deliverance to the Trustee of an Officers'
Certificate of ALC and the Company and an Opinion of Counsel pursuant to
Section 9.6 of the Indenture, have been complied with.
<PAGE> 10
9
ARTICLE THREE
Miscellaneous
SECTION 3.1 Definitions.
Terms defined in the Indenture and not otherwise defined herein are used
herein as therein defined.
SECTION 3.2 Condition to Effectiveness.
This Supplemental Indenture shall become effective on and as of the date
upon which counterparts hereof shall have been executed and delivered by all of
the parties hereto; provided that Article One of this Supplemental Indenture
shall not become operative until the Company (and/or one or more of its
Affiliates) has accepted for payment the Securities validly tendered pursuant
to the offer to purchase for cash all of the outstanding Securities commenced
by the Company on August 29, 1995.
SECTION 3.3 Notice to Securityholders.
The Company shall promptly mail to the Holders a notice briefly describing
the amendments to the Indenture effected by this Supplemental Indenture.
SECTION 3.4 Governing Law.
The laws of the State of New York shall govern this Supplemental Indenture
without regard to principles of conflict of laws.
SECTION 3.6 Duplicate Originals.
The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the
same instrument.
SECTION 3.7 Headings, Etc.
The headings of the Articles and Sections of this Supplemental Indenture
have been inserted for convenience of reference only, are not to be considered
a part hereof, and shall in no way modify or restrict any of the terms or
provisions hereof.
SECTION 3.8 Recitals.
The recitals herein are made by ALC and the Company. The Trustee shall have
no responsibility for such recitals.
<PAGE> 11
10
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
[SEAL] ALLNET COMMUNICATION SERVICES,
INC., as Issuer
Dated: September 27, 1995 By: JOSEPH ENIS
---------------------------
Name: Joseph Enis
Title: Treasurer
[SEAL] ALC COMMUNICATIONS
CORPORATION, as Guarantor
Dated: September 27, 1995 By: JOSEPH ENIS
---------------------------
Name: Joseph Enis
Title: Treasurer
[SEAL] STAR BANK, NATIONAL
ASSOCIATION, as Trustee
Dated: September 27, 1995 By: STEPHEN J. BLACKSTONE
---------------------------
Name: Stephen J. Blackstone
Title: Trust Officer
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, Frontier Corporation (the "Company") and John M. Zrno (the
"Employee") agree to the following terms of employment, which shall commence on
the Closing Date of the Merger of Frontier Subsidiary One, Inc. ("Sub")
into ALC Communications Corporation ("ALC") as contemplated by an Agreement and
Plan of Merger dated as of April 9, 1995 among the Company, Sub and ALC (the
"Merger Agreement"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Merger Agreement. The term "Company" used in
the Restated Employment Agreement shall of the Closing Date mean Frontier
Corporation and, as applicable, its subsidiaries.
1. This Agreement incorporates by reference all of the term and conditions set
forth in the Amended and Restated Employment Agreement dated as of January 7,
1994, as amended as of August 23, 1994 and October 21, 1994 between the
Employee and ALC (the "Restated Employment Agreement"), except as specifically
modified herein, it being the understanding of the parties that the terms set
forth below shall take precedence over any inconsistent provision in the
Restated Employment Agreement.
2. Notwithstanding any provision of the Restated Employment Agreement, as of
the Closing Date, the Employee's position with the Company shall be as its Vice
Chairman of the Board of Directors. The Employee's compensation shall be an
annual salary of $300,000. If the Employee has not retired or otherwise
voluntarily terminated his employment within six months following the Closing
Date, the Employee shall be provided grants of stock options and a bonus under
the Company's short term incentive compensation program as determined by the
Company's Board of Directors. In such event, the Employee shall also be
eligible to participate in the Company's retirement and pension plans currently
maintained by the Company for its executive employees on terms to be approved
by the Board of Directors.
3. Section 1.2(iii) of the Restated Employment Agreement is hereby deleted.
The Company and the Employee agree that the Employee shall be able to work from
an office in a location that is mutually agreeable to the Company and the
Employee, and the Company and the Employee shall determine together whether and
when relocation is appropriate. If the Company designates a work location
other than the current location of ALC's headquarters, the Employee agrees to
spend an amount of time reasonable under the circumstances working at such
designated work location.
4. The following shall be added to Section 5 of the Restated Employment
Agreement: For a period of 24 months following the Closing Date, the Employee
covenants and agrees that he shall not be a full time consultant, agent,
representative or employee of LCI Communications, Inc., LDDS Corporation or
Cable & Wireless, Inc. (the
- 1 -
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, Frontier Corporation (the "Company") and William H. Oberlin (the
"Employee") agree to the following terms of employment, which shall commence on
the Closing Date of the Merger of Frontier Subsidiary One, Inc. ("Sub") into
ALC Communications Corporation ("ALC") as contemplated by an Agreement and Plan
of Merger dated as of April 9, 1995 among the Company, Sub and ALC (the
"Merger Agreement"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Merger Agreement. The term "Company" used in
the Restated Employment Agreement shall as of the Closing Date mean Frontier
Corporation and, as applicable, its subsidiaries.
1. This Agreement incorporates by reference all of the term and conditions set
forth in the Amended and Restated Employment Agreement dated as of January 7,
1994, as amended as of August 23, 1994 and October 21, 1994 (the "Restated
Employment Agreement"), except as specifically modified herein, it being the
understanding of the parties that the terms set forth below shall take
precedence over any inconsistent provision in the Restated Employment
Agreement.
2. Notwithstanding any provision of the Restated Employment Agreement, as of
the Closing Date, the Employee's position with the Company shall be President
and Chief Operating Officer. The Employee shall also be a member of the
Company's Board of Directors and Management Executive Team.
3. The Employee shall receive annual Base Compensation, beginning on the
Closing Date and until December 31, 1996, of $350,000. Such annual Base
Compensation shall thereafter be adjusted consistent with the performance of
the Company and the Employee, but in no event less than $350,000. The Employee
shall participate in the Company's short term incentive compensation program,
with a bonus potential at Standard rating of 60% and at Premier rating of 105%
of the Employee's Base Salary for the calendar years 1995 (prorated from the
Closing Date) and 1996 based on the performance of the Company and the Employee
relative to certain Performance Goals established by the mutual agreement of
the Employee and the Chairman or the Board of Directors of the Company. The
Employee's short term incentive compensation for periods after 1995 shall be
established by the Board of Directors of the Company, consistent with the
performance of the Company and the Employee. The Employee shall be eligible to
participate in the retirement and pension plans currently maintained by the
Company for its executive employees (the "Plans"). The Employee's prior
employment in the telecommunications industry (the "Qualifying Service") shall
be bridged for all purposes under the Plans as follows: half of the Employee's
Qualifying
- 1 -
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, Frontier Corporation (the "Company") and Marvin C. Moses (the
"Employee") agree to the following terms of employment, which shall commence on
the Closing Date of the Merger of Frontier Subsidiary One, Inc. ("Sub") into
ALC Communications Corporation ("ALC") as contemplated by an Agreement and Plan
of Merger dated as of April 9, 1995 among the Company, Sub and ALC (the
"Merger Agreement"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Merger Agreement. The term "Company" used in
the Restated Employment Agreement shall as of the Closing Date mean Frontier
Corporation and, as applicable, its subsidiaries.
1. This Agreement incorporates by reference all of the term and conditions set
forth in the Amended and Restated Employment Agreement dated as of January 7,
1994, as amended as of August 23, 1994 and October 21, 1994 (the "Restated
Employment Agreement"), except as specifically modified herein, it being the
understanding of the parties that the terms set forth below shall take
precedence over any inconsistent provision in the Restated Employment
Agreement.
2. Notwithstanding any provision of the Restated Employment Agreement, as of
the Closing Date, the Employee's position with the Company shall be Executive
Vice President and Chief Financial Officer. He shall be a member of the
Company's Management Executive Team. Upon the retirement, resignation or other
termination of employment on the Company's Board of Directors by John M. Zrno
("Zrno"), the Employee shall be appointed to the Company's Board of Directors
as Zrno's successor. If Zrno's retirement, resignation or other termination of
employment on the Company's Board of Directors and appointment of the Employee
to the Company's Board of Directors do not occur within 12 months of the
Closing Date, within 12 months following the first anniversary of the Closing
Date, the Employee has the right to resign or otherwise voluntarily terminate
his employment with the Company and be eligible to receive such compensation
and benefits as he would have been entitled to under Section 7.4 of the
Restated Employment Agreement as if he had terminated his employment following
a Change of Control Event.
3. The Employee shall receive annual Base Compensation, beginning on the
Closing Date until December 31, 1996, of $300,000. Such annual Base
Compensation shall thereafter be adjusted consistent with the performance of
the Company and the Employee, but shall be in no event less than $300,000. The
Employee shall participate in the Company's short term incentive compensation
program, with a bonus potential at Standard rating of 50% and at Premier rating
of 87.5% of the Employee's Base Salary for the calendar years 1995 (prorated
from the Closing Date) and 1996 based on the performance of the Company and the
Employee relative to certain Performance Goals
- 1 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 8126
<SECURITIES> 0
<RECEIVABLES> 139,899
<ALLOWANCES> 5,691
<INVENTORY> 0
<CURRENT-ASSETS> 162,590
<PP&E> 185,000
<DEPRECIATION> 103,023
<TOTAL-ASSETS> 391,075
<CURRENT-LIABILITIES> 206,087
<BONDS> 3,216
<COMMON> 0
0
0
<OTHER-SE> 169,278
<TOTAL-LIABILITY-AND-EQUITY> 391,075
<SALES> 0
<TOTAL-REVENUES> 601,140
<CGS> 0
<TOTAL-COSTS> 338,450
<OTHER-EXPENSES> 189,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4617
<INCOME-PRETAX> 68,776
<INCOME-TAX> 27,350
<INCOME-CONTINUING> 41,426
<DISCONTINUED> 0
<EXTRAORDINARY> (5839)
<CHANGES> 0
<NET-INCOME> 35,587
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
