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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 1-10831
ALC COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2643582
(State of incorporation) (IRS Employer ID No.)
30300 Telegraph Road, Bingham Farms, Michigan 48025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 647-4060
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
CLASS A PREFERRED STOCK, $.01 par value *
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. []
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 February 21, 1994, the aggregate market value of the voting stock held
by non-affiliates of the registrant based on the last reported sales price of
the registrant's Common Stock on the American Stock Exchange for that date was
$1,119,379,106.
As of February 21, 1994, the registrant had 33,101,601 shares of Common Stock
outstanding.
* The Class A Preferred Stock was redeemed by the registrant on December 31,
1993 and is no longer registered pursuant to Section 12(g) of the Act.
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
ALC Communications Corporation was incorporated in
Delaware on August 26, 1985 ("ALC" or the "Registrant"). ALC commenced business
on December 19, 1985, the date of the affiliation of two long distance
telephone companies, Allnet Communication Services, Inc. ("Allnet") and Lexitel
Corporation ("Lexitel"). Allnet, a wholly owned subsidiary of ALC, now has the
former businesses and operations of both Allnet and Lexitel. ALC conducts no
business other than its position as a holding company for its subsidiary,
Allnet.
Unless the context otherwise requires, the term
"Company" includes ALC, its wholly owned subsidiary, Allnet, and all of the
wholly owned subsidiaries of Allnet. The principal executive offices of ALC
are located at 30300 Telegraph Road, Bingham Farms, Michigan 48025
(810/647-4060).
In the summer of 1990 the Company had begun an
overall refinancing (the "Refinancing") of substantially all of its funded debt
and in 1992 concluded the second phase of the Refinancing by substantially
deferring or reducing the debt service obligations of the Company.
In August 1992, the Company's then majority
shareholder, Communications Transmission, Inc. ("CTI") conveyed the ALC Common
Stock (the "Common Stock" or "ALC Stock"), Class B Preferred Stock (the "Class
B Preferred") and Class C Preferred Stock (the "Class C Preferred") it owned to
NationsBank of Texas, N.A., The First National Bank of Chicago, National
Westminster Bank USA, CoreStates Bank, N.A. and First Union National Bank of
North Carolina (the "Banks") pro-rata in exchange for the release of certain
portions of CTI's obligations to each of the Banks. The Banks, in the
aggregate, acquired all of the outstanding Class B Preferred and Class C
Preferred, as well as 14,324,000 shares of Common Stock. In October 1992, the
Company completed a stock offering (the "1992 Equity Offering") for 9,863,600
shares of Common Stock, a portion of which resulted from the exchange of the
Class A Preferred Stock (the "Class A Preferred") held by individual
stockholders and the remainder of which was due to Common Stock held by other
entities, including the Banks. The Banks sold, in the aggregate, 3,000,000
shares of Common Stock in the 1992 Equity Offering.
In January 1993, the Company filed a registration
statement (the "shelf registration") under the Securities Act of 1933, as
amended (the "Securities Act") to permit the sale, from time to time, of up to
19,500,909 shares of Common
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Stock held by certain stockholders, including the Banks, or issuable upon
exercise of certain outstanding warrants or conversion of outstanding Class B
Preferred and Class C Preferred. Pursuant to the shelf registration, in March
1993, the Company completed a stock offering (the "March 1993 Equity Offering")
whereby the Banks and the Prudential Insurance Company of America
("Prudential") sold an aggregate of 10,350,000 shares of Common Stock to the
public. As part of the March 1993 Equity Offering, the Banks converted all
outstanding shares of Class B Preferred and Class C Preferred to Common Stock.
The Class B Preferred and Class C Preferred were retired effective March 25,
1993. The Banks subsequently reduced their ownership interest in the Company
to a minimal position through subsequent sales and the transfer of other shares
to Prudential by four of the five Banks. In February 1994 the one remaining
Bank, First Union National Bank of North Carolina, sold shares in a series of
brokerage transactions, then transferred the remaining balance of shares to or
as directed by Prudential.
In May 1993, the Company completed an offering of
$85.0 million principal amount 9% Senior Subordinated Notes ("1993 Notes") and
in June 1993 redeemed all of the 11-7/8% Subordinated Notes then outstanding,
which were issued as part of the note exchange offer which occurred during the
1992 phase of the Refinancing.
As of June 30, 1993, the Company executed an
agreement for a $40.0 million line of credit (the "Revolving Credit Facility"),
replacing the Company's prior revolving credit facility.
Effective December 31, 1993, the Company redeemed
the issued and outstanding Class A Preferred Stock (the "Class A Preferred").
Following such redemption, the Class A Preferred was retired effective January
4, 1994. For more detailed information regarding stock ownership in the
Company, reference is hereby made to "Item 13. Certain Relationships and
Related Transactions."
In July 1993, the Company acquired the specialized
800 customer base of Call Home America, Inc. Call Home America, Inc. had
approximately 50,000 customers, including parents of college students and
frequent travelers, who continue to receive services under the Call Home
America(R) name. These customers, who were then generating annualized revenue
of approximately $20 million, are also able to utilize a wide range of other
telecommunications services from the Company.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment. All
significant revenues relate to sales of telecommunication services to the
general public.
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(C) NARRATIVE DESCRIPTION OF BUSINESS
ALC is the holding company for Allnet and conducts
no other business. Allnet provides long distance telecommunications services
primarily to commercial and, to a lesser extent, residential subscribers in the
majority of the United States and completes subscriber calls to all directly
dialable locations worldwide. Allnet is one of the few nationwide carriers of
long distance services and in 1993 carried in excess of 800 million calls over
its network.
The Company operates its own switches, develops and
implements its own products, monitors and deploys its transmission facilities
and prepares and designs its own billing and reporting systems. The Company
focuses on a highly profitable segment of the long distance industry with high
operating margins, specifically, commercial accounts, whose calling volume
consists primarily of calls made during regular business hours which command
peak-hour pricing.
Commercial subscribers tend to make most of their
calls on weekdays during normal business hours, while the Company's residential
subscribers tend to make most of their calls in the evening and on weekends,
when business usage is lowest. Neither commercial nor residential subscribers'
access to the Company's service is limited as to the time of day or day of
week.
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SEASONALITY
The Company experiences certain limited seasonality
in the use of its services due to periods where commercial subscribers
experience higher levels of time-off by their employees, such as during
national holidays and vacation periods. Fewer business days during a calendar
month will also impact usage. The Company will experience decreased commercial
usage resulting from these factors. Seasonality in usage from residential
subscribers tends to vary with the return of students to college and national
holidays. The Company will experience increased residential usage resulting
from these factors.
PRODUCTS AND SERVICES
The Company provides a variety of long distance
telephone products and services to commercial and residential subscribers
nationwide. The bulk of the Company's revenue is derived from outbound and
inbound long distance services which are all under the "Allnet(R)" trademark.
Many of the Company's products, however, differ from those of certain of its
competitors due to the level of value-added services the Company offers, the
flexibility of product pricing to maintain competitiveness and its broader
geographic reach.
The variety of products offered are categorized by
the Company based upon certain primary characteristics: pricing, value-added
services, reporting and 800 Services.
Pricing. All of the Company's customers are
identified by their telephone number, dedicated trunk or validated access code,
and have a rating which is used to determine the price per minute that they pay
on their outbound or inbound long distance calls. Rates typically vary by the
volume of usage, the distance of the calls, the time of day that calls are
made, the region that originates the call, and whether or not the product is
being provided on a promotional basis. The outbound commercial product line is
broken into three major types of services.
Regional: Rates vary by area code or region and
subscribers pay a flat rate for all long distance
calls within these area codes or regions. Rates are
determined by competitive positioning and vary
according to the regions which the Company
currently services. These products are priced at
the area code level, and rates offered on these
products are the primary method used to compete with
small and more regionalized carriers.
Nationwide: Rates are by mileage bands set at a
distance around the call initiating point.
Long Haul: Rates are designed for users who tend to
make substantial bicoastal and international calls.
These products offer distance-insensitive
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domestic pricing and two time-of-day period rates,
along with aggressive international pricing options.
The Company's outbound residential product line is
made up of Allnet "Dial 1" Service which also has two special discount options
to service employees of commercial accounts ("EBP") and members of associations
("ABP").
Different rates are applied to inbound telephone
services than to outbound telephone services. The inbound product line is
provided for commercial accounts which use 800 telephone numbers to receive and
pay for calls from customers and potential prospects and for residential
accounts wishing similar type services.
Value-added Services. When customers subscribe to
value-added services on the Company's network, their calls are charged a fee
based on the services provided. Customers access value-added services through
Allnet Access(R), which is an interactive voice response system that allows
subscribers to interact with the phone system by pressing numbers on the
telephone. Allnet Access(R) is a customized platform or menu from which
customers select the desired services to which they have subscribed. For
example, a customer who would like to deliver a prerecorded message would dial
an Allnet Access(R) 800 number or through a new streamlined dialing method
known as "00 Platform" from an Allnet presubscribed Touch Tone(R) telephone and
select "call delivery" from the voice menu. If the customer had subscribed to
other services, these services would be offered on the menu as well. Once the
customer makes a selection, the call is routed and charged accordingly.
The Company's value-added services are aimed
primarily at the business subscriber, although the Company also offers
products for residential customers. Value-added services include: Allnet Call
Delivery(R), a message delivery service which enables a customer to send a
prerecorded message to a number; VoiceQuote, an interactive stock quotation
service; Allnet InfoReach(R), numerous audio/text programs such as news and
weather; a voice mail service; Option USA(R), a service to provide calls to the
U.S. from selected international locations on Allnet Access(R); and three
different teleconferencing services.
During 1992 the Company launched a full spectrum of
facsimile services including Allnet Broadcast FAX(R), which allows the customer
to send or fax documents to multiple locations at the same time; fax on demand,
which allows the customer to make a fax document available to people who call
an 800 number; fax mail, which allows a customer to receive facsimile messages
in a fax mailbox and pick them up at a later date; PC software, which allows
the customer to manage his facsimile lists and documents from a PC; and special
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international pricing to accommodate short duration facsimile traffic.
During 1993 the Company began to focus on mobile
products and services, offering MobileLine, the resale of cellular service
provided by the regional Bell Operating Companies ("BOCs"), along with
consolidated billing. In addition, the Company currently plans to introduce
PageLine, a nationwide paging resale and consolidated billing product, in the
second quarter of 1994.
Reporting. The Company offers its customers a
variety of billing options and media (two sizes of paper invoices [8-1/2X11 or
4X7 inches], diskette, and magnetic tape) aimed primarily at business
customers. When a new commercial account is opened, the customer is offered
the opportunity to custom design the format of its reports. For example, the
Company can include company accounting codes or internal auditing codes for
each call made with each billing statement. If a customer would like to change
a particular reference code for a telephone line, the code can be changed
automatically. The Company's primary product in this area is Allnet ESP(R) or
Executive Summary Profile. A typical Allnet ESP(R) statement breaks out calls
in a number of ways: by initiating caller number, by terminating number, by
ranking, by department, by frequently dialed number/area/country or by time of
day. Allnet customers pay a fixed monthly fee for these custom-tailored
billing services. In late 1992, Allnet ESP(R) II was launched which gives
customers graphic reports of traffic patterns on a nationwide basis by state,
within state by area of dominant influence ("ADI") and within ADI by zip code.
The Company believes this will be useful to certain customers for direct
response and customer service applications.
In mid-1992, the Company also launched its
proprietary personal computer reporting service Allnet Invoice Manager(sm)
("AIM") which allows customers to design their own reports, prepare separate
itemized bills, do mark-up reporting and generate numerous other customized
reports.
800 Services. The Company greatly expanded its 800
product offerings, capitalizing on opportunities resulting from FCC mandated
portability in May 1993 (which allows customers to select a different long
distance carrier without changing their 800 number). These new offerings
include area code blocking and routing; time of day routing; Home
Connection 800(sm) , fractional 800 service which allows residential customers
to acquire 800 service utilizing a 4 digit security Personal Identification
Number ("PIN"); Multi-Point(sm) 800 services, which allow the customer to use
accounting codes on an 800 number or route a single 800 number to numerous
locations simultaneously; Follow-Me 800, which allows a customer to change his
routing from a Touch Tone(R) telephone; and TargetLine(sm) 800, which routes
calls to the closest location and provides custom prompts based
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upon a customer specific database. To supplement the Company's internal growth
in this market, the Company also will evaluate strategic external growth
opportunities. For example, in July 1993, the Company acquired the specialized
800 customer base of Call Home America, Inc. These customers, who were then
generating annualized revenue of approximately $20 million, are also able to
utilize a wide range of other telecommunications services from the Company.
TRANSMISSION
The Company endeavors to have sufficient switching
capacity, local access circuits and long distance circuits at and between its
network switching centers to permit subscribers to obtain access to the
switching centers and its long distance circuits on a basis which exceeds
industry standards regarding clarity, busy signals or delays.
The network utilizes fiber optic and digital
microwave transmission circuits to complete long distance calls. With the
exception of a digital microwave system located in California for which Allnet
holds the Federal Communications Commission ("FCC") licenses, such facilities
are leased on a fixed price basis under both short and long term contracts.
The California microwave facilities are on leased real estate and are subject
to zoning and other land use restrictions. In recent years abundant
availability and declining prices have dictated a strategy of generally
obtaining new capacity for terms between six months and one year. While the
Company has several long term contracts, these contracts have either annual
"mark-to-market" clauses or, in one case, a "most favored nation" clause.
These provisions function to keep the price the Company pays at or near current
market rates. An important aspect of the Company's operation is planning the
mix of the types of circuits and transmission capacity to be leased or used for
each network switching center so that calls are completed on a basis which is
cost effective for the Company without compromising prompt service and high
quality to subscribers. Over 99% of the Company's domestic traffic is carried
on owned or leased facilities ("on-net").
In establishing a network switching center, the
Company can select equipment with varying capacities in order to meet the
anticipated needs of the service origination region(s) served by the center.
The equipment used by the Company is, for the most part, designed to permit
expansion to its capacity by the addition of standard components. If the
maximum capacity of the equipment in any center is reached, the Company
replaces it with higher capacity switching equipment and attempts to move the
replaced unit to a network switching center in a different service origination
region. The Company is dependent upon the local telephone company for
installing local access circuits and providing related service when
establishing a network switching center. As of December 31, 1993, the Company
had 16 network switching centers which originate traffic in all Local Access
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Transport Areas ("LATAs") in the United States. International service is
provided through participation in the International Carrier Group ("ICG") with
three other major long distance companies. The ICG in turn contracts with other
long distance companies and foreign entities to provide high quality
international service at competitive rates.
MARKETING
Approximately 60% of the Company's employees are
engaged in sales, marketing or customer services. The Company markets its
services and products through personal contacts with an emphasis on customer
service, network quality, value-added services, reporting, rating and
promotional discounts. Allnet currently operates a sales network with 48
offices in the United States. The Company employs 866 sales, marketing and
customer service individuals. Field sales representatives focus on making
initial sales to commercial users. They solicit business through face-to-face
meetings with small- to medium-sized businesses. Each field sales
representative earns a commission dependent on the customer's usage and
value-added services. The Company's sales strategy is to make frequent
personal contact with existing and potential customers.
The prices and promotions offered for the Company's
services are designed to be competitive with other long distance carriers.
Prices will vary as to interstate or intrastate calls as well as with the
distance, duration and time-of-day of a call. In addition, the Company may
offer promotional discounts based upon duration of commitment to purchase
services, incremental increases in service or "free" trial use of the many
value-added and reporting services. Volume discounts are also offered based
upon amount of monthly usage in the day, evening and night periods or based
solely on total volume of usage.
The Company has three groups which provide ongoing
customer service designed to maximize customer satisfaction and increase usage.
First, customer service personnel located in Southfield, Michigan are available
telephonically free of charge 24 hours a day, seven days a week. Second, a
customer service center in Columbus, Ohio processes calls from customers with
significant usage levels who have been enrolled in the Company's "Select
Service" programs. Third, communications specialists located at the sales
offices provide personal service to large commercial accounts.
The Company services more than 295,000 customers.
Of these customers, approximately 137,000 are commercial accounts, with the
remainder being residential accounts. During the past two years, the Company
has become more geographically diversified, adding new markets as necessary.
The Company is currently focusing on an agent program to increase customer
acquisition in specific target markets.
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COMPETITION AND GOVERNMENT REGULATION
Competition is based upon pricing, customer service,
network quality and value-added services. The Company views the long distance
industry as a three tiered industry which is dominated on a volume basis by the
nation's three largest long distance providers: American Telephone and
Telegraph Company ("AT&T"), MCI Telecommunications Corporation ("MCI") and
Sprint Communications, Inc. ("Sprint"). AT&T, MCI and Sprint, which generate
an aggregate of approximately 88% of the nation's long distance revenue of $65
billion, comprise the first tier. Allnet is positioned in the second tier with
four other companies with annual revenues of $250 million to $1.5 billion each.
The third tier consists of more than 300 companies with annual revenues of less
than $250 million each, the majority below $50 million each. Allnet targets
small- and medium-sized commercial customers ($100 to $50,000 in monthly long
distance volume) with the same focus and attention to customer service that
AT&T, MCI and Sprint offer to large commercial customers. Allnet is one of the
few long distance companies with the ability to offer high quality value-added
services to small- and medium-sized commercial customers on a nationwide basis.
A number of the Company's competitors are primarily regional in nature, limited
by the size of their transmission systems or dependent on third parties for
their billing services and product offerings.
Generally, the current trend is toward lessened
regulation for both the Company and its competitors. Regulatory trends have
had, and may have in the future, both positive and negative effects upon
Allnet. For example, more markets are opening up to Allnet, as state
regulators allow Allnet to compete in markets from which it was previously
barred. On the other hand, the largest competitor, AT&T, has gained increased
pricing flexibility over the years, allowing it to price its services more
aggressively.
As a nondominant Interexchange Carrier ("IXC"), the
Company is not required to maintain a certificate of public convenience and
necessity with the FCC other than with respect to international calls, although
the FCC retains general regulatory jurisdiction over the sale of interstate
long distance services by IXCs, including the requirement that calls be charged
on a nondiscriminatory, just and reasonable basis. Although the FCC had
previously ruled that nondominant carriers, such as Allnet, do not need to file
tariffs for their interstate service offerings, a recent Court of Appeals
decision has vacated that FCC ruling. The impact of the Court of Appeals
decision on Allnet was minimal and primarily administrative in nature. Allnet
has already taken any necessary steps to comply with that decision, including
filing an interstate tariff with the FCC. The FCC has since adopted reduced
requirements regarding the filing of tariffs for non-dominant carriers,
including Allnet. The Company believes that it has operated and continues to
operate in compliance with all applicable tariffing and
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related requirements of the Communications Act of 1934, as amended.
In the FCC decision implementing certain provisions
of the Telephone Operator Consumer Services Improvement Act ("TOCSIA"), Allnet
was designated subject to the payment of charges by "private payphone owners."
Allnet presently is challenging that designation with the FCC and in the
courts, as it does not believe that it is engaged in the sort of activity
intended to be regulated under TOCSIA.
In addition, by virtue of its ownership of
interstate microwave facilities located in California (as described in
"Transmission"), Allnet is subject to the FCC's common carrier radio service
regulations.
In 1984, pursuant to the AT&T Divestiture Decree,
AT&T divested its 22 Bell Operating Companies ("BOCs"). In 1987, as part of
the triennial review of the AT&T Divestiture Decree, the U.S. District Court
for the District of Columbia denied the BOCs' petition to enter, among other
things, the long distance ("inter-LATA") telecommunications market. The
District Court's ruling was appealed to the United States Court of Appeals for
the District of Columbia which, in 1990, affirmed the District Court's decision
to retain the inter-LATA prohibition for the BOCs.
Currently pending before Congress is legislation
that would allow the BOCs into the inter-LATA business in competition with long
distance carriers, such as Allnet. The recently introduced "Brooks-Dingell
Bill" (in the House of Representatives, H.R. 3626) and the "Hollings Bill" (in
the Senate, S. 1822) set forth various time frames and certain entry
requirements for the BOCs to enter certain markets, including the long distance
market, from which the BOCs are currently barred under the AT&T Divestiture
Decree. As initially proposed, the Brooks-Dingell Bill would allow entry into
various segments of the long distance business when various combinations of
conditions and timing requirements have been satisfied. Some entry
requirements may be successfully applied almost immediately upon the passage of
the bill, while others may not be applied until 18 months or 60 months have
passed. In contrast, as initially proposed, the Hollings Bill would require
that long distance only be offered by a BOC through a separate subsidiary, but
only after the FCC, after consultation with the Attorney General, finds that
the BOCs have met certain entry requirements. Under the Hollings Bill, there
is one set of entry tests for "out-of-market" services, and another for
"in-market" services. To allow a BOC to provide long distance service outside
of its market area through a separate subsidiary, the FCC must find there is no
substantial possibility that the BOC could use its market power to impede
competition in the long distance market that the BOC seeks to enter. To allow
a BOC to provide long distance service in its local market (i.e., where it
provides telephone exchange or exchange access services), the FCC must make
additional findings that
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the BOC has opened up its local network to competitors, and that it faces
actual and demonstrable competition based on objective standards of competitive
penetration set forth in the Hollings Bill. It cannot be determined at this
time whether these or other bills will be adopted or the timing of such
adoption or, if adopted, whether the final legislation will be similar to
either of these proposed bills. To the extent final legislation, if any,
results in the BOCs being permitted to provide inter-LATA long distance
telecommunications services and to compete in the long distance market,
existing IXCs, including the Company, would likely face substantial additional
competition from local BOC monopolies.
As part of the AT&T Divestiture Decree, the divested
BOCs were required to charge AT&T and all other carriers (including Allnet)
equal per minute rates for "local transport" service (the transmission of
switched long distance traffic between the BOCs' central offices and the IXCs'
points of presence). BOC and other local exchange company ("LEC") tariffs for
local transport service have been based upon these "equal per unit" rules since
1984, pursuant to the AT&T Divestiture Decree and the FCC's waiver of certain
local transport pricing rules. Although the portion of the AT&T Divestiture
Decree containing this rule ceased to be effective by its terms on September 1,
1991, the FCC had extended its effect until it concluded the rulemaking
proceeding in which it considered whether to retain or modify the "equal per
unit" local transport pricing structure. On September 17, 1992, the FCC voted
to maintain the existing "equal per unit" pricing rules until late 1993. A two
year interim would then begin. Based on the interim plan rates that have now
taken effect as of January 1, 1994, Allnet does not anticipate a material
impact during 1994 and 1995. To moderate IXC costs, the FCC has ordered that
non-recurring charges for reconfiguring a carrier's access lines should be
waived until May 1994, to accommodate the change in access pricing structure.
The FCC has left open the access rate structure
issue for the post 1995 period. The FCC issued a Further Notice of Proposed
Rulemaking for consideration of a permanent rate structure to take effect
beginning no earlier than late 1995. The FCC has also recently voted to allow
expanding competition for monopoly local access through expanded local switched
access interconnection. This could ultimately provide Allnet with alternatives
to purchasing its local access from the monopoly local exchange carriers.
The FCC has issued orders stating that carriers,
such as Allnet, were entitled to refunds for overcharges paid to a number of
local exchange carriers during the 1985-1986 and 1987-1988 periods. These
awards have, in most cases, been paid to Allnet. Although these awards are in
the aggregate significant, they are not a material portion of the Company's
total access costs. Some local exchange carriers have appealed the orders and
some of the awards which were
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paid are conditioned on the outcome of the appeals. In addition Allnet has
pending claims for overcharges during the 1989-1990 period. Two of the four
claims have been settled. At this time, Allnet is not aware of any pending
rulings on the remaining claims.
The intrastate long distance telecommunications
operations of the Company are also subject to various state laws and
regulations, including certification requirements. Generally, the Company must
obtain and maintain certificates of public convenience and necessity as well as
tariffs from regulatory authorities in most states in which it offers
intrastate long distance services, and in most of these jurisdictions, must
also file and obtain prior regulatory approval of tariffs for its intrastate
offerings. At the present time, the Company can provide originating services
to customers in all 50 states and the District of Columbia. Those services may
terminate in any state in the United States, and may also terminate to
countries abroad. Only 31 states have public utility commissions that actively
assert regulatory oversight over the services currently offered by the Company.
Like the FCC, many of these regulating jurisdictions are relaxing the
regulatory restrictions currently imposed on telecommunication carriers for
intrastate service. While some of these states restrict the offering of
intra-LATA services by the Company and other IXCs, the general trend is toward
opening up these markets to the Company and other IXCs. Those states that do
permit the offering of intra-LATA services by IXCs generally require that end
users desiring to access these services dial special access codes which place
the Company and other IXCs at a disadvantage as compared to LEC intra-LATA toll
service which generally requires no access code.
PATENTS
In December 1992, MCI filed a lawsuit in the United
States District Court for the District of Columbia against AT&T. The complaint
seeks, among other things, a declaration that certain AT&T patents relating to
basic long distance services, toll free "800" service, and other telephone
services are invalid or unenforceable against MCI (and other similarly situated
telecommunications providers). AT&T counterclaimed against MCI for patent
infringement. Contemporaneously with the filing of its declaratory judgment
action, MCI requested the court in the AT&T Divestiture Decree case to rule
that AT&T should be barred from asserting its pre-divestiture patents to impede
competition in the interexchange telecommunications market. Both of the
foregoing actions are currently pending.
AT&T has generally indicated that it believes that
long distance telecommunications companies may be infringing on certain AT&T
patents and has offered to license such patents. AT&T has numerous patents,
some of which may pertain to the provision of services similar to those
currently provided or to be provided by the Company or to
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equipment similar to that used or to be used by the Company. If it were
ultimately determined that the Company has infringed on any AT&T patents and
the Company is required to license such patents and pay damages for
infringement, such costs could have an adverse effect on the Company.
EMPLOYEES
As of December 31, 1993, the Company employed 1,488
employees in the United States, none of whom were subject to any collective
bargaining agreements.
ITEM 2. PROPERTIES
On December 31, 1993, the Company had under lease
approximately 113,000 square feet of office space in Bingham Farms, Michigan
for executive and administrative functions and approximately 43,000 square feet
in Southfield, Michigan for customer service, collections, and data processing.
The Company also leases approximately 290,000 square feet in the aggregate for
sales and administrative offices, network switching centers and unmanned
microwave sites in 90 other locations in the continental United States.
Most of the leased premises are for an initial term
of five-to-ten years with, in many cases, options to renew. All properties
presently being used for operations of the Company are suitable, well
maintained and equipped for the purposes for which they are used.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
Executive Officers Of The Registrant
The following table sets forth as of February 14, 1994 the
executive officers of ALC as designated by the Company or otherwise required by
law to be so designated. Executives are elected annually and serve at the
pleasure of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John M. Zrno 55 President, Chief Executive Officer
and Director
Marvin C. Moses 49 Executive Vice President, Chief
Financial Officer, Assistant
Secretary and Director
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C> <C>
William H. Oberlin 49 Chief Operating Officer, Executive
Vice President and Director
Gregory M. Jones 43 Senior Vice President
Connie R. Gale 47 Vice President, General Counsel
and Secretary
</TABLE>
John M. Zrno has held his positions since August 1988. From
December 1981 until joining the Company, Mr. Zrno held a number of executive
positions with Cable & Wireless North America, Inc., the most recent of which
was President and Chief Executive Officer. Between 1972 and 1981, Mr. Zrno
first served as an officer of MCI Telecommunications Corporation, a long
distance provider, then as an officer of American Satellite Corporation, a
satellite common carrier, and finally as an officer of F/S Communications
Corporation, an independent telephone interconnect company.
Marvin C. Moses has held his officer positions since October
1988, and director since September 1989. From February 1982 through September
1988, Mr. Moses held a number of executive positions with Cable & Wireless
North America, Inc., the most recent of which was Chief Financial Officer and
Senior Vice President. From 1980 through February 1982, Mr. Moses worked with
Atlantic Research Corporation, where he was involved in obtaining project
financing for an alternative energy product. From 1975 to 1980, Mr. Moses was
Vice President - Finance and Chief Financial Officer of GTE Telenet, a data
communications company now part of Sprint.
William H. Oberlin has held the position of Chief Operating
Officer since July 1990, the position of Executive Vice President since October
1988 and director since July 1993. From November 1983 through September 1988,
Mr. Oberlin held a number of executive positions with Cable & Wireless North
America, Inc., the most recent of which was Senior Vice President - Sales and
Marketing. During 1983, Mr. Oberlin was founder and principal shareholder of
Electronic Express, Inc., a facsimile-based priority mail and delivery system.
From April 1982 through March 1983, Mr. Oberlin was Chief Executive Officer of
DHL Business Systems, Inc., a worldwide manufacturer and distributor of word
processing terminals. From 1974 through April 1982, Mr. Oberlin was employed
by Sprint. From September 1979 through April 1982, Mr. Oberlin was President
of Southern Pacific/Distributed Message Systems, Inc., distributors of
facsimile machines and electronic mail services.
Gregory M. Jones has held the position of Senior Vice
President since December 1990 and had formerly served as Vice President -
Marketing since January 1989. Mr. Jones was previously director of Sure Check
and Retail Services, Inc., a wholly owned subsidiary of Comp-U-Check, Inc.
From July 1979 to June 1987 Mr. Jones held various positions with MCI
Telecommunications Corporation including director of
14
<PAGE> 16
marketing for MCI Midwest in Chicago, senior manager of telemarketing, and
senior manager of customer service.
Connie R. Gale has held the position of Vice President since
January 1991 and has held the positions of General Counsel and Secretary since
October 1988, commencing her employment with the Company December 1986 as
Associate General Counsel and Assistant Secretary. Ms. Gale previously served
as corporate counsel for Chrysler Corporation from July 1973 to February 1980
and for American Natural Resources, Inc. from February 1980 to March 1981. Ms.
Gale was Associate General Counsel at Federal-Mogul Corporation from April 1981
to November 1986.
_____________________________
References to "Sprint" include its former designations: Southern Pacific
Communications Co., GTE Sprint and U.S. Sprint.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock, $.01 par value, has been traded on
the AMEX since September 4, 1991 and is listed under the symbol ALC. The table
below sets forth the ranges of high and low closing sales prices of the Common
Stock as reported on the AMEX composite tape for calendar years 1992 and 1993.
<TABLE>
<CAPTION>
1992 1993
---- ----
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1st quarter $ 7.00 $ 4.25 $16.63 $12.50
2nd quarter $ 6.00 $ 4.25 $20.00 $15.50
3rd quarter $ 6.38 $ 5.00 $28.25 $19.75
4th quarter $14.13 $ 5.13 $30.75 $23.88
</TABLE>
As of February 21, 1994, there were 2,079 holders of
record of the Common Stock. The high and low sales price per share of the
Common Stock for the period from January 1, 1994 to February 21, 1994, as
reported by AMEX, were $33.63 and $28.13, respectively.
Since its inception, ALC has not declared or paid
any dividends on its Common Stock. While any Preferred Stock was outstanding,
dividends could not be paid on Common Stock if any dividends were due on, or
ALC had any past-due obligation to redeem, Preferred Stock. The Company is
allowed to pay dividends by the terms of its Revolving Credit Facility as long
as (a) the sum of such dividend distribution does not exceed at any one time an
amount equal to 30 percent of cumulative Net Adjusted Income (calculated after
January 1, 1993) and (b) no default in payment of any Obligations or Event of
Default exists at the time such distribution is made, or would be created by
any such distribution (capitalized terms not otherwise defined herein are
defined in the Revolving Credit Facility).
ALC paid $1.5 million in cash dividends to the Class
A Preferred holders in 1988. On July 22, 1993 and on October 21, 1993, the
Board of Directors of ALC declared current quarterly dividends of $0.32 per
share on each of the 355,956 issued and outstanding shares of Class A
Preferred. On December 10, 1993, the ALC Board of Directors announced the
redemption of the 355,956 issued and outstanding shares of Class A Preferred on
December 31, 1993 to stockholders of record at the close of business December
13, 1993. The redemption price was $20.00 per share plus all accrued dividends
(including the dividend which was declared on October 21, 1993) in the total
amount of $10,361,879. Following the redemption, the Class A Preferred was
retired as of January 4, 1994.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth for the indicated
fiscal years and periods ended, selected historical financial information for
the Company. Such information is derived from financial statements presented
in Part IV, Item 14. of this Annual Report on Form 10-K and should be read in
conjunction with such financial statements and related notes thereto.
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
Selected Financial Data
<TABLE>
<CAPTION>
As of and for the years ended December 31,
-----------------------------------------------------------------
1993 1992 1991 1990 1989
-----------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue $436,432 $376,064 $346,873 $326,004 $333,765
Income (loss) before extraordinary items
and Cumulative Effect of Accounting Change $ 39,676 $ 13,826 $ 2,717 ($19,643) ($22,689)
Income (loss) per common share before extraordinary items
and Cumulative Effect of Accounting Change (1) $ 1.07 $ 0.43 ($0.17) ($2.29) ($10.43)
Net income (loss) $ 45,686 $ 20,826 $ 5,347 ($19,643) ($21,324)
Net income (loss) per common share (1) $ 1.23 $ 0.74 ($0.02) ($2.29) ($9.93)
Balance Sheet Data:
Total assets $193,541 $143,266 $140,846 $149,375 $161,015
Long term obligations (2) $ 87,598 $ 83,950 $105,355 $181,450 $ 77,655
</TABLE>
- -------------
(1) 1989 and 1990 have been restated to reflect the 1:5 reverse stock split.
(2) 1989 through 1992 include Class A Preferred Stock.
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
By 1993, ALC had completed a multi-year series of refinancing
transactions which provided for the simplification and improvement of the debt
and capital structure of the Company. ALC was successfully transformed from a
Company that in 1990 was owned by a controlling interest stockholder,
Communications Transmission, Inc. ("CTI"), and had an equity structure that
included three issues of preferred stock. In addition, at December 31, 1990
the Company had a debt structure which required principal and interest payments
of as much as $79 million in 1992, a level which could not be met from
operating cash flow and therefore required significant refinancing actions.
Accordingly, during 1992, the Company completed the Refinancing which
included the rescheduling of substantially all debt, resulting in significantly
reduced or deferred debt service obligations. In 1992, the Company's major
debt instrument represented by the Company's Original Debentures, Replacement
Debentures, PIK Debentures and accrued interest was replaced by 11 7/8%
Subordinated Notes of Allnet ("1992 Notes"). As part of the restructuring of
the Debentures, 3,400,000 ALC Common Stock warrants were issued representing
10.2% of the fully-diluted equity of ALC. These debentures were replaced in
May 1993 with 9% Senior Subordinated Notes ("1993 Notes") which do not mature
until May 2003. Additional debt including the $20.0 million Restructured
Promissory Note and the approximately $8.0 million balance on the 1990 Note
Agreements was paid in full. As a result, at December 31, 1993 ALC has a
single debt instrument outstanding, $85.0 million of 9% Senior Subordinated
Notes.
During 1992, the Refinancing also included the restructuring and
simplification of the equity of ALC. In August 1992, the equity interest of
CTI represented by 14,324,000 shares of ALC Common Stock, and the ALC Class B
and Class C Convertible Preferred Stock ("Preferred Stock") was transferred to
a group of five banks ("Banks"). Subsequently such Preferred Stock was
converted into 3,796,000 shares of ALC Common Stock.
A series of stock offerings in 1992 and 1993 was used to facilitate the
sale of substantially all of the shares held by the Banks. As part of the
stock offering in October 1992, the Company also completed an Exchange
Agreement which provided for the exchange of 2,144,044 Class A Preferred Shares
for 6,399,227 shares of ALC Common Stock at an effective 40% discount.
18
<PAGE> 20
During 1992 and continuing throughout 1993, the Company achieved both
the successful completion of the Refinancing and a significant financial
turnaround which included twelve consecutive quarters of income through the
quarter ended December 31, 1993. Net income grew from a level of $3.3 million
for the first quarter of 1992 to $12.4 million for the fourth quarter of 1993.
Net income for the year ended 1993 increased approximately 90% over the
previous year (excluding the effect of the extraordinary item and cumulative
effect of the accounting change in 1993). The results of operations for 1992
and 1993 reflect increases in both billable minutes and revenue and a
significant reduction in operating expenses as a percent of revenue.
RESULTS OF OPERATIONS
The Company reported net income of $45.7 million for the year ended
December 31, 1993. This includes the impact of both the $13.5 million
cumulative effect of a change in method of accounting for income taxes and the
$7.5 million net loss related to early retirement of debt. Excluding these
items, income for the year ended December 31, 1993 totalled $39.7 million on
revenue of $436.4 million. This compares to net income of $20.8 million on
revenue of $376.1 million and $5.3 million on revenue of $346.9 million for the
years ended December 31, 1992 and 1991, respectively.
Operating income increased from $23.9 million for the year ended
December 31, 1991 to $40.7 million in 1992 to $68.9 million in 1993. This
improvement is primarily the result of increased revenue from increased
billable minutes and improved gross margin.
<TABLE>
<CAPTION>
Operating Results as a Percent of Revenue
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Communication services (53.8) (57.7) (61.3)
------ ------ ------
Gross Margin 46.2 42.3 38.7
Sales, general & admin. (27.5) (28.5) (28.2)
Depreciation & amort. (2.9) (3.0) (3.6)
------ ------ ------
Operating Income 15.8% 10.8% 6.9%
------ ------ ------
------ ------ ------
</TABLE>
19
<PAGE> 21
REVENUE
Revenue increased 16.1% to $436.4 million from 1992 to 1993 resulting
from an 18.9% increase in billable minutes offset somewhat by a decrease in the
revenue per minute. Revenue per minute decreased from 1992 to 1993 resulting
from certain changes in the sales mix which were more than offset by additional
efficiencies in network costs. Billable minutes have continued to increase
since the third quarter of 1990 when compared to the same quarter in the prior
year. Most importantly, billable minutes reached their highest level in 1993.
The increase in billable minutes results from traffic generated by new customers
and increased minutes per customer.
Beginning in May 1993, the Company benefited from new traffic growth
generated from the availability of 800 portability. Beginning in July 1993, the
Company had additional revenue from the acquisition of the customer base of Call
Home America, Inc. ("CHA") which represented 2.5% of the increase in revenue for
the year ended December 31, 1993 compared to 1992. In addition, resellers
contributed an additional $20.0 million to revenue during 1993.
Revenue increased from $346.9 million in 1991 to $376.1 million in
1992. The 8.4% increase in revenue represents a 9.6% increase in billable
minutes offset by a modest decrease in the revenue per minute. Revenue per
minute decreased slightly from 1991 to 1992 resulting from lower unit prices
which were more than offset by the impact of reduced cost of communication
services as a percent of revenue.
The revenue generated from customers' first full month of service in
1993 was 30.7% higher than in 1992 and 7.5% higher in 1992 than in 1991. The
increased revenue from new sales along with revenue from existing customers is
outpacing revenue lost from customer attrition. Attrition improved from 2.0% in
1991 to 1.8% in 1992. Attrition increased in 1993 to 2.4%, reflecting the
change to the portability of 800 numbers from carrier to carrier.
The provision for uncollectible revenue, which is deducted from gross
revenue to arrive at reported revenue, was 1.9% for the year ended December 31,
1993, 3.0% for the year ended December 31, 1992, and 3.4% for the year ended
December 31, 1991. During the last three years, procedures were implemented to
improve the collection process and provide earlier detection of credit risks.
Procedures include an expanded system for initial credit review and screening,
monitoring of early usage levels on new accounts, modification of dunning and
collection methods and timing, and improved collection processes on past due
accounts.
20
<PAGE> 22
COST OF COMMUNICATION SERVICES
The cost of communication services increased from $212.7 million and
$216.9 million to $234.8 million for the years 1991, 1992, and 1993,
respectively. The increase in cost of communication services is due to the 18.9%
and 9.6% increase in billable minutes in 1993 and 1992. These increases were
offset by unit cost reductions for transmission capacity experienced in 1992 and
further efficiencies gained during 1993.
The cost of communication services decreased, however, as a percent of
revenue from 61.3% for 1991 to 53.8% in 1993, the lowest rate in the Company's
history. Switched access costs per hour as a percent of revenue declined 3.5%
reflecting lower tariffed rates. A combination of the use of high volume, fixed
price leased facilities to transmit traffic and reduced international costs
through contractual agreements have contributed to this percentage decline. In
addition, the Company has continued to reconfigure its network to optimize
utilization.
The Company's use of high volume, fixed price transmission capacity is
significantly more cost effective than the use of measured services. By
utilizing fixed price leased facilities to transmit traffic, the Company has
successfully decreased its network costs without the capital expenditures
associated with construction of its own fiber optic or digital microwave
network. Over 99% of traffic traverses low cost "on-net" digital facilities.
OTHER EXPENSES
Sales, general and administrative expense was $98.0 million, $107.3
million and $119.8 million for the years 1991, 1992 and 1993, respectively.
Sales, general and administrative expense for 1993 increased $12.5
million or 11.7% compared to 1992. The increase reflects increased commissions,
taxes other than income, and other expenses related to sales. Sales, general
and administrative expense, however, declined as a percent of revenue which
reflects management's continuing focus on cost containment. Procedures
implemented to improve efficiencies and contain expenses included improved
budgeting techniques, continued review of actual expenses against budgeted
levels, incentive programs tied directly to achievement of budget objectives,
and detailed review of general expense programs.
21
<PAGE> 23
Sales, general and administrative expense for 1992 increased $9.3
million or 9.5% compared to 1991. Sales expense increased 19.6% from 1991 which
resulted from increased advertising and marketing expenses as well as increased
commissions reflecting higher first full month revenue as well as enhancements
to the commission plan to encourage customer retention. General and
administrative expenses continued to decrease as a percent of net revenue.
The increase in depreciation and amortization from $11.2 million in 1992
to $12.8 million in 1993 is primarily the result of depreciation on newly
capitalized fixed assets and intangible assets reflecting the increase in
capital expenditures in 1992 and 1993 and the purchase of CHA. The decrease
from 1991 to 1992 reflected the termination of depreciation on analog multiplex
and switch equipment, for which the Company provided a reserve, and the
termination of depreciation as assets reach the end of their useful lives. These
reductions in depreciation were partially offset by depreciation on assets
capitalized during the period.
INTEREST EXPENSE
Interest expense has dramatically decreased from $18.1 million in 1991
and $17.2 million in 1992 to $10.5 million in 1993. This resulted from reduced
interest related to the replacement of the 11 7/8% Subordinated Notes, which
had an effective interest rate of 13.6%, with the 9% Senior Subordinated Notes.
In connection with the Refinancing, the Restructured Promissory Note and the
1990 Note Agreement were paid in full in 1993 and 1992, respectively. Interest
expense also declined due to lower average balances on the Revolving Credit
Facility, as well as lower interest rate charged under the new Revolving Credit
Facility.
INCOME TAXES
Effective January 1, 1993, the required implementation date, the Company
adopted the Financial Accounting Standards Board Statement 109 "Accounting for
Income Taxes" ("Statement 109"). Application of the new rules resulted in the
recording of a net deferred tax asset and additional income of $13.5 million as
of January 1, 1993, related primarily to the future tax benefits which are
expected to be realized upon utilization of a portion of the Company's tax net
operating loss carryforwards ("NOLs"). Statement 109 requires that the tax
benefit of NOLs be recorded as an asset to the extent that management assesses
that the realization of such NOLs is "more likely than not". Management
believes that realization of the benefit of the NOLs beyond a three-year period
is difficult to predict and therefore has recorded a valuation allowance which
has the effect of limiting the recognition of future NOL benefits to those
expected to be realized within the three year period. The Company has not
applied Statement 109
22
<PAGE> 24
retroactively and thus did not restate prior year financial statements to
reflect adoption of the new rules.
Prior to January 1, 1993, the Company accounted for income taxes in
accordance with Accounting Principles Board Opinion No. 11. The tax provisions
for the years ended December 31, 1992 and 1991 included an amount that would
have been payable except for the availability of NOLs. The tax benefits of the
loss carryforwards utilized were reported as an extraordinary item for the years
ended 1992 and 1991. With the adoption of Statement 109, the income tax expense
for 1993 includes the benefit of utilizing net operating losses. In 1992 and
1993 the Company was subject to regular tax and due to a Code Section 382
"ownership change", the utilization of net operating losses was limited. In
1991, the Company was subject to alternative minimum tax and the operating
losses were utilized to offset 90% of the taxable income.
SECTION 382 LIMITATION
Section 382 (in conjunction with Sections 383 and 384) of the Code
provides rules governing the utilization of certain tax attributes, including a
corporation's NOLs, "built-in-losses," capital loss carryforwards, unused
investment tax credits ("ITCs") and other unused credits, following significant
changes in ownership of a corporation's stock. Generally, Section 382 provides
that if an ownership change occurs, the taxable income of a corporation
available for offset by these tax attributes will be subject to an annual
limitation ("382 Limitation").
The transfer of ALC Common Stock, Class B Preferred and Class C
Preferred by CTI to the Banks in August 1992 resulted in an ownership change
with a 382 Limitation of approximately $10 million per annum. As a result of
this annual limitation, along with the 15 year carryforward limitation, the
maximum cumulative NOLs and ITCs which can be utilized for federal income tax
purposes in 1994 and future years are limited to approximately $120 million,
assuming no future ownership change or built-in gain recognition. The Company
is also subject to numerous state and local income tax laws which limit the
utilization of NOLs after an ownership change.
Future events beyond the control of the Company could reduce or
eliminate the Company's ability to utilize the tax benefit of its NOLs and
ITCs. Any future ownership change under Section 382 would require a new
computation of the 382 Limitation based on the value of the Company and the
long term tax-exempt rate in effect at that time. Furthermore, the tax benefit
of NOLs would be reduced to zero if the Company fails to satisfy the continuity
of business enterprise requirement for the two-year period following an
ownership change. Under the continuity of business requirement, the Company
must either continue its historic business or use a significant portion of its
pre-ownership change assets in a business.
23
<PAGE> 25
SEASONALITY
The Company's long distance revenue is subject to certain limited
seasonal variations. Because most of the Company's revenue is generated by
commercial customers, the Company traditionally experiences decreases in long
distance usage and revenue in those periods with holidays. In past years the
Company's long distance traffic has declined slightly during fourth quarters
from previous quarters due to the holiday periods. However, in 1993 and 1992
the impact of this trend was more than offset by strong year over year traffic
growth, which was up 26.0% and 12.3% from the fourth quarter of 1992 and 1991,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended December 31, 1993, 1992 and 1991, the Company
generated positive cash flow from operations of $59.4 million, $30.4 million and
$27.3 million, respectively, reflecting the strong trend of profitability. The
positive cash flow reflects fourteen consecutive quarters of increased revenue
and operating profits as of December 31, 1993 versus prior year comparable
quarters.
The positive cash flow from operations resulted in working capital of
$1.4 million at December 31, 1993 compared to negative $31.7 million at
December 31, 1992. The increase in working capital is largely attributable to:
(a) the pay down of the Revolving Credit Facility which was classified at
December 31, 1992 as a short term liability, (b) the increase in accounts
receivable due to the increase in revenue, and (c) the reduced balance in the
current portion of notes payable due to the payoff of the Restructured
Promissory Notes and payments made on capital leases.
In addition to the positive cash flow from operations, the Company's
short term liquidity position is further strengthened by the unused availability
under the Revolving Credit Facility. As of June 30, 1993 the Company executed
an agreement for a $40.0 million line of credit, replacing the previous
Facility. The new Revolving Credit Facility expires June 30, 1995. Under this
Revolving Credit Facility, the Company is able to minimize interest expense by
structuring the borrowings under three alternatives. Each alternative has a
varying interest rate calculation associated with it. The effective rate under
the Facility during 1993 approximated 5.8%. The agreement includes financial
covenants which allow the Company to further reduce interest expense on
outstanding borrowings beginning in July 1994. A .375% per annum charge is made
on the unused portion of the line. Advances under the Revolving Credit Facility
are made based on the level of receivables. As of December 31, 1993, the
Company had availability of $39.8 million under the line and no balance
outstanding.
24
<PAGE> 26
Further evidence of the Company's stronger liquidity position was the
Company's ability to finance the cash needs of $19.6 million for the CHA
customer base acquisition and $10.4 million for the redemption including accrued
dividends of Class A Preferred Stock from cash flow from operations.
Because the Company has chosen to lease rather than own its transmission
facilities, the Company's requirements for capital expenditures are modest.
Capital expenditures totalled $16.2 million in 1993. Capital expenditures
during the year ended December 31, 1993 included projects for enhanced
efficiency and technical advancement in the network, information systems and
customer service. The future investment requirements for capital expenditures
relate directly to traffic growth which necessitates the purchase of switching
and related equipment. In addition, a major component of the capital budget
relates to technological advancements as the Company continually updates its
network capabilities to offer enhanced products and services. The level of
capital expenditures for 1994 is expected to be $20 - $25 million.
In March 1993, an equity offering was completed in which an aggregate of
10,350,000 shares of ALC Common Stock were sold by certain stockholders of ALC
at $14.25 per share. ALC did not receive any of the proceeds from the sale of
these shares, although it did receive $1.9 million upon exercise of 963,684
warrants.
In May 1993, the Company completed an offering of $85.0 million of 9%
Senior Subordinated Notes. Interest on the 1993 Notes is payable semiannually
commencing November 15, 1993. The 1993 Notes will mature on May 15, 2003 but
are redeemable at the option of the Company on or after May 15, 1998. Management
used the $84.3 million of proceeds of this offering to repay the outstanding
1992 Notes aggregating $72.4 million, and to reduce the amount outstanding under
the Revolving Credit Facility. The 1993 Notes provide additional benefits on
both short and long term liquidity by reducing interest expense as well as
deferring redemption requirements.
In September 1993, an equity offering was completed in which an
aggregate of 7,763,391 shares of ALC Common Stock were sold by certain
shareholders at $25.50 per share. This offering included the exercise of
3,240,025 warrants. In October 1993, an additional 177,100 warrants were
exercised, and the shares subsequently sold to the public. ALC did not receive
any proceeds from the sale of any of these shares but did receive $6.9 million
from the exercise of warrants.
In December 1993, the Company redeemed the remaining 355,956 shares of
Class A Preferred for $10.4 million including $3.2 million of accrued dividends.
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.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data
required by this Item 8. are set forth in Part IV, Item 14. of this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date of this Annual Report on Form 10-K,
the Board of Directors of ALC consists of seven positions, all elected by the
holders of Common Stock. Six of the seven positions are presently filled.
The following list identifies (i) the persons who
are Directors of the Company; and (ii) each Director's principal occupation for
the past five years.
RICHARD D. IRWIN has held the position of Chairman
of the Board of Directors since August 1988. He is the President of Grumman
Hill Associates, Inc. ("Grumman Hill"), a merchant banking firm, having held
that position since its formation in 1985. Prior to the formation of Grumman
Hill, Mr. Irwin was a Managing Director of Dillon, Read & Co. Inc. from 1983
through 1985. Mr. Irwin is also a member of the Board of Directors of Caire,
Inc. and Pharm Chem Laboratories, Inc.
JOHN M. ZRNO has held the positions of President,
Chief Executive Officer and Director since August 1988. From December 1981
until joining Allnet, Mr. Zrno held a number of executive positions with Cable
& Wireless North America, Inc., the most recent of which was President and
Chief Executive Officer. Between 1972 and 1981, Mr. Zrno first served as an
officer of MCI, then as an officer of American Satellite Corporation, a
satellite common carrier, and finally as an officer of F/S Communications
Corporation, an independent telephone interconnect company.
MARVIN C. MOSES has held the positions of Executive
Vice President, Chief Financial Officer and Assistant Secretary since October
1988. Mr. Moses was elected as a Director in September 1989. From February
1982 through September 1988, Mr. Moses held a number of executive positions
with Cable & Wireless North America, Inc., the most recent of which was Chief
Financial Officer and Senior Vice President. From 1980 through February 1982,
Mr. Moses worked with Atlantic Research Corporation, where he was involved in
obtaining project financing for an alternative energy
26
<PAGE> 28
product. From 1975 to 1980, Mr. Moses was Vice President - Finance and Chief
Financial Officer of GTE Telenet, a data communications company now part of
Sprint.
WILLIAM H. OBERLIN has held the position of Director
since July 22, 1993, and has held the position of Chief Operating Officer since
July 1990 and the position of Executive Vice President since October 1988.
From November 1983 through September 1988, Mr. Oberlin held a number of
executive positions with Cable & Wireless North America, Inc., the most recent
of which was Senior Vice President - Sales and Marketing. During 1983, Mr.
Oberlin was founder and principal stockholder of Electronic Express, Inc., a
facsimile-based priority mail and delivery system. From April 1982 through
March 1983, Mr. Oberlin was Chief Executive Officer of DHL Business Systems,
Inc., a worldwide manufacturer and distributor of word processing terminals.
From 1974 through April 1982, Mr. Oberlin was employed by Sprint. From
September 1979 through April 1982, Mr. Oberlin was President of Southern
Pacific/Distributed Message Systems, Inc., distributors of facsimile machines
and electronic mail services.
RICHARD J. UHL has held the position of Director
since September 3, 1991. Mr. Uhl is the President and a member of the Board of
Directors of Chicago Holdings, Inc. ("CHI"), having held those positions since
1985. CHI is a privately owned company which manages several lease portfolios
owned by it and its subsidiaries. Since November 1990 he has also been the
Chief Executive Officer and a member of the Board of Directors of Hurrah
Stores, Inc. ("Hurrah"), a subsidiary of CHI. Mr. Uhl has also been President
of Steiner Financial Corporation, another subsidiary of CHI, since December
1987. Mr. Uhl currently serves on the Boards of Directors of Dealers Alliance
Credit Corp. (as Chairman of the Board, since October 1993) and of First
Merchants Acceptance Corporation, since March 1991, which are both
privately-owned companies in which CHI has a significant equity investment.
Prior to 1991, Mr. Uhl served in a number of executive capacities as well as on
the Boards of Directors of certain finance organizations as well as a
distributor of personal computer equipment, and a manufacturer of automotive
products.
MICHAEL E. FAHERTY has held the position of Director
since June 23, 1992. Mr. Faherty primarily works (since 1977) as a business
consultant and in the contract executive business, in connection with which Mr.
Faherty formerly served in a number of executive positions, including Chairman
of the Board and President, with Shared Financial Systems, Inc. from January
1992 through January 1994. As part of his duties as a contract executive, he
has worked for Digital Sound Corporation, Systeme Corporation, Advanced
Business Communications, Inc., BancTec, Inc. and Intec Corporation. Mr.
Faherty is also a member of the Board of Directors of BancTec, Inc.,
Biomagnetic Technologies, Inc. and Davox Corporation.
27
<PAGE> 29
The Board of Directors held eight regularly
scheduled and special meetings in the aggregate during the fiscal year from
January 1, 1993 through December 31, 1993.
Several important functions of the Board of
Directors of ALC have been performed by committees comprised of members of the
Board of Directors. The Amended and Restated Bylaws of ALC (the "Bylaws")
prescribe the functions and the standards for membership on the Audit
Committee. Subject to those standards, the Board of Directors acting as a body
appoints the members of the Audit Committee at the meeting of the Board of
Directors coincident with the annual meeting of stockholders. However, the
Board of Directors has the power at any time to change the authority or
responsibility delegated to the committee or the members serving on the
committee. Under the Bylaws, the Audit Committee performs the following
functions: (i) recommends to the Board of Directors annually a firm of
independent public accountants to act as auditors of the Company; (ii) reviews
with the auditors the scope of the annual audit; (iii) reviews accounting and
reporting principles, policies and practices; (iv) reviews with the auditors
the results of their audit and the adequacy of accounting, financial and
operating controls; and (v) performs such other duties as are delegated to it
by the Board of Directors. The members of the Audit Committee during the 1993
fiscal year were Richard D. Irwin, Richard J. Uhl and Michael E. Faherty.
During 1993, the Audit Committee met four times.
The Board, pursuant to the Bylaws, also established
a Compensation Committee. The Compensation Committee has the authority to:
(i) establish the compensation (including salaries and bonuses) of the
officers; (ii) establish incentive compensation plans for the officers; (iii)
administer the stock option plans and grants of options under those plans; and
(iv) perform such other duties as are from time to time delegated to the
Compensation Committee by the Board of Directors. The members of the
Compensation Committee during fiscal 1993 were Richard D. Irwin, Richard J. Uhl
and Michael E. Faherty. During 1993, the Compensation Committee met five
times.
The Board of Directors does not have a standing
committee responsible for nominating individuals to become directors.
Section 16(a) of the Securities Exchange Act
requires the Company's officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission and the American Stock Exchange. In
addition, officers, directors and greater than ten percent shareholders are
required to furnish the Company with copies of all Forms 3, 4 and 5 they file.
28
<PAGE> 30
Based solely on the Company's review of the copies
of such forms it has received and written representations from certain
reporting persons that they were not required to file Forms 5 for specified
fiscal years, the Company believes that all of its officers, directors, and
greater than ten percent shareholders complied with all filing requirements
applicable to them with respect to transactions during fiscal 1993 except that
the Company has been informed as follows:
Saulene M. Richer, a former director elected by
holders of the Company's Class A Preferred Stock (redeemed in 1993) and also a
ten percent shareholder of Class A Preferred, failed to timely file one
required report relating to one transaction in ALC Stock.
A series of five related transactions, although
reported on a timely basis by NationsBank of Texas, N.A., was not reported on a
timely basis by NationsBank Corporation (the parent corporation of NationsBank
of Texas, N.A.) due to its late filing of a required report (which transactions
were otherwise properly disclosed in the Company's reports filed under the
Exchange Act).
The Trustees of General Electric Pension Trust
("General Electric") failed to timely file three required reports relating to
seventeen transactions in ALC Stock. General Electric subsequently filed three
late Forms 4 regarding such transactions.
Reference is made to the Item captioned "Executive
Officers of the Registrant" in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
For 1992 and 1993, and to be continued for 1994,
Richard J. Uhl and Michael E. Faherty received or will receive remuneration of
up to $20,000 per year for their services as Board members. Of that fee,
$8,000 is dependent upon per meeting attendance at the four regularly scheduled
Board meetings. Richard D. Irwin waived his right to fees throughout his term
of service on the Board. On September 3, 1991, ALC granted Richard J. Uhl an
option to purchase 40,000 shares of Common Stock at $4.25 per share, the market
price at date of grant. Mr. Uhl is entitled to exercise the option in full; it
expires on the earlier of 60 days subsequent to Mr. Uhl's death, resignation or
removal as a director and September 3, 1998. On June 23, 1992, ALC granted
Michael E. Faherty an option to purchase 40,000 shares of Common Stock at $4.63
per share, the market price at date of grant. Mr. Faherty is entitled to
exercise the option in full; it expires on the earlier of 60 days subsequent to
Mr. Faherty's death, resignation or removal as a director and June 23, 1998.
It is anticipated that the Common Stock issuable upon the exercise of the
options held by Messrs. Uhl and Faherty will be registered under the Securities
Act. In addition,
29
<PAGE> 31
Grumman Hill, of which Richard D. Irwin is President, entered into an Advisory
Agreement with Stock Option dated September 7, 1988 (the "Advisory Agreement")
with the Company. Pursuant to the terms of the Advisory Agreement, Grumman
Hill performs certain advisory services with respect to the management,
operation and business development activities of the Company. In exchange for
such services, Grumman Hill was initially granted a stock option to purchase at
a price of $11.25 per share 153,163 shares of Common Stock and receives an
annual fee of $100,000. In conjunction with the 1990 phase of the Refinancing,
the option was regranted at an exercise price of $3.50 per share. The option
was subsequently assigned to Grumman Hill Investments, L.P. ("Grumman Hill,
L.P.") (of which Mr. Irwin is the General Partner). Grumman Hill, L.P. is
entitled to exercise the option in full. It is anticipated that the Common
Stock issuable upon the exercise of the option will be registered under the
Securities Act. The option will expire on September 7, 1998.
30
<PAGE> 32
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the total compensation paid to the Chief
Executive Officer and the four most highly compensated executive officers at the
end of calendar year 1993 for each of the past three fiscal years during which
the named executive acted as an executive officer.
<TABLE>
<CAPTION> LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------------------
OTHER
ANNUAL OPTIONS/ ALL OTHER
COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#)(2) ($)(3)
- ------------------------------- ---- -------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
John M. Zrno................... 1993 $319,041 $273,000 $ 2,650(4) 300,000 $600
President, Chief Executive 1992 307,755 175,000 284,983 500
Officer, Director 1991 292,025 105,000
Marvin C. Moses................ 1993 $245,417 $210,000 240,000 $600
Executive Vice President, 1992 234,998 135,000 217,398 500
Chief Financial Officer, 1991 223,256 81,000
Assistant Secretary, Director
William H. Oberlin............. 1993 $245,417 $210,000 240,000 $600
Executive Vice President, 1992 234,893 135,000 217,398 500
Chief Operating Officer, 1991 223,172 81,000
Director
Gregory M. Jones............... 1993 $142,706 $ 37,948 60,000 $600
Senior Vice President 1992 135,090 49,708 $ 860(4) 55,092 500
1991 128,260 25,425
Connie R. Gale................. 1993 $138,000 $ 46,309 51,000 $600
Vice President, General 1992 130,250 48,280 47,385 500
Counsel and Secretary 1991 122,000 28,750 10,000
</TABLE>
- -------------------------
(1) Total perquisites for each officer were less than either $50,000 or 10% of
total salary and bonus.
(2) Options granted in 1992 include options granted in 1990 and amended in 1992
(the exercise price was not changed).
(3) Consists of Company contributions to defined contribution plan during 1993
and 1992 in the amounts of $600 and $500, respectively, for each officer.
(4) Represents gross up for income taxes relating to a perquisite.
31
<PAGE> 33
STOCK OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth information about stock option awards
granted to the Chief Executive Officer and the four most highly compensated
executive officers during 1993.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- --------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SAR'S PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM*
OPTIONS/SAR'S EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1)(2) FISCAL YEAR ($/SH) DATE(3) 5%($) 10%($)
- -------------------- ---------------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John M. Zrno........ 300,000 18.40% $25.06 11/22/2003 $4,728,030 $11,981,756
Marvin C. Moses..... 240,000 14.72% $25.06 11/22/2003 $3,782,424 $ 9,585,405
William H. Oberlin.. 240,000 14.72% $25.06 11/22/2003 $3,782,424 $ 9,585,405
Gregory M. Jones.... 60,000 3.68% $25.06 11/22/2003 $ 945,606 $ 2,396,351
Connie R. Gale...... 51,000 3.13% $25.06 11/22/2003 $ 803,765 $ 2,036,898
</TABLE>
- -------------------------
* These amounts represent assumed rates of appreciation which may not
necessarily be achieved. The actual gains, if any, are dependent on the
market value of the Company's Common Stock at a future date as well as the
option holder's continued employment throughout the vesting period.
Appreciation reported is net of exercise price.
(1) All options were granted at market value on date of grant. The 1990 Stock
Option Plan allows the exercise price and tax withholding obligations to be
paid by delivery of already owned shares or with shares purchased pursuant
to the exercise, subject to certain conditions. Vesting may be accelerated
in the event of certain situations resulting in a change of ownership of
the Company. The Compensation Committee, as administrator of the Company's
stock option plans, has discretion to modify the terms of outstanding
options, subject to certain limitations set forth in the plans.
(2) One third of each grant will vest one third November 22, 1994, November 22,
1995 and November 22, 1996. The second third shall vest one third November
22, 1995, November 22, 1996 and November 22, 1997. The final third shall
vest one third November 22, 1996, November 22, 1997 and November 22, 1998.
(3) Unless earlier terminated due to such events as termination of employment or
death.
Note: No matter what theoretical value is placed on a stock option on the date
of grant, its ultimate value will be dependent on the market value of the
Company's Common Stock at a future date.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY END(#) FY END($)(1)
SHARES ------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
John M. Zrno.................................. 155,000 $2,705,863 445,344 $ 11,286,522
484,655 5,681,455
Marvin C. Moses............................... 103,000 2,085,213 383,062 9,719,382
381,938 4,418,924
William H. Oberlin............................ 63,400 1,081,000 422,662 10,729,182
381,938 4,418,924
Gregory M. Jones.............................. 77,326 1,220,063 0 0
93,766 1,041,577
Connie R. Gale................................ 0 0 61,543 1,542,396
81,842 933,563
</TABLE>
- -------------------------
(1) Values are calculated by determining the difference between the fair market
value of the Common Stock at December 31, 1993 and the exercise price of
the options.
32
<PAGE> 34
EMPLOYMENT CONTRACTS AND TERMINATION OR CHANGE IN CONTROL ARRANGEMENTS
In late 1988, ALC entered into employment agreements with John M. Zrno,
Marvin C. Moses and William H. Oberlin. These arrangements had initial four
year terms and were amended in 1991 to extend for an additional two years. In
January 1994, ALC and Allnet jointly entered into amended and restated
employment agreements with John M. Zrno, Marvin C. Moses and William H.
Oberlin. These agreements provide for a base salary of $319,041, $245,417 and
$245,417, respectively, for Messrs. Zrno, Moses and Oberlin for service
provided in 1993 through 1994, beginning and ending with the month of each
officer's respective anniversary of hire.
Each of these agreements has an initial three year term and contains a
provision that, in the event the officer's employment is terminated for any
reason except death, disability, voluntary resignation or cause, such officer
will continue to receive his current salary from twelve to twenty-four months.
Should the officer be terminated without cause, the stock options granted in
the agreement would fully vest and remain exercisable for the succeeding twelve
months.
According to the employment agreements with Messrs. Zrno, Moses and
Oberlin, each officer may receive incentive compensation as determined by the
Board of Directors, based on the Board's determination of the officer's
individual achievements.
Officers below the level of Executive Vice President entered into
severance agreements wherein the Company agreed to provide salary continuation
and certain employee benefits for a period of twelve months (formerly, from
six-to-twelve months) should an officer be terminated from employment prior to
December 31, 1995. These agreements, originally effective February 1990, were
renewed in February 1991, August 1992, July 1993 and January 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1993 were
Richard D. Irwin, Richard J. Uhl and Michael E. Faherty. Richard D. Irwin,
Chairman of the Board of Directors since August 1988 and a member of the
Compensation Committee, is a former officer of the Company because, prior to
March 1991, the position of Chairman of the Board was an officer position under
the Company's Bylaws.
Grumman Hill, of which Richard D. Irwin is President, entered into the
Advisory Agreement with the Company in 1988. Pursuant to the terms of the
Advisory Agreement, Grumman Hill performs certain advisory services with
respect to the management, operation and business development activities of the
Company. In exchange for such services, Grumman Hill was initially granted a
stock option to purchase 153,163 shares of Common Stock at a price of $11.25
per share and receives an annual fee of $100,000. In
33
<PAGE> 35
conjunction with the 1990 phase of the Refinancing, the option was
regranted at an exercise price of $3.50 per share. The option was subsequently
assigned to Grumman Hill, L.P. (of which Mr. Irwin is the General Partner).
Grumman Hill, L.P. is entitled to exercise the option in full. It is
anticipated that the Common Stock issuable upon the exercise of the option will
be registered under the Securities Act. The option will expire on September 7,
1998.
Prior to the Note Exchange Offer (as defined in "Certain Relationships
and Related Transactions - Banks Stock Ownership in the Company"), Grumman
Hill, L.P., the Grumman Hill Associates Pension Plan, Mr. Irwin and Mr. Irwin's
Individual Retirement Account held approximately $2.5 million, $75,000,
$339,000 and $188,000, respectively, in principal amount of 11 7/8% Senior
Subordinated Debentures of ALC due December 31, 1995 (the "Replacement
Debentures") (exclusive of PIK Debentures issued or issuable in respect of
certain interest payments on the Replacement Debentures). As a consequence of
the Note Exchange Offer, prior to January 28, 1993 Mr. Irwin and Grumman Hill,
L.P. and affiliates owned $4.1 million in principal amount of 1992 Notes and
owned 194,393 1992 Warrants (capitalized terms as defined in "Certain
Relationships and Related Transactions - Banks Stock Ownership in the
Company"). Mr. Irwin subsequently purchased 40,000 shares of Common Stock in
the 1992 Equity Offering, which, together with other options and warrants, give
these entities the right to purchase in the aggregate up to 815,646 shares of
Common Stock. Grumman Hill, L.P. subsequently sold $3.3 million in principal
amount of 1992 Notes. In June 1993, the 1992 Notes, including the remaining
$800,000 in principal amount held by Mr. Irwin and affiliates, were paid in
full.
As of January 1994, Mr. Irwin, Mr. Faherty (as general partner of a
family-owned partnership), Mr. Uhl, Mr. Zrno and Mr. Moses own $533,000,
$600,000, $200,000, $100,000 and $100,000, respectively, in principal amount of
1993 Notes which they acquired either in the 1993 Note Offering or in
open-market transactions.
34
<PAGE> 36
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of the stock of ALC as of February 21, 1994 by each person known by ALC to be
the beneficial owner of more than 5.0% of any class of stock, each director of
ALC and all executive officers and directors of ALC as a group. The figures
presented are based upon information available to ALC.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF PERCENTAGE
SHARES OF OF
COMMON STOCK VOTING POWER
NAME AND ADDRESS OF (% OF OF ALL
BENEFICIAL OWNER CLASS)* STOCK*
-------------------- ------------ ------------
<S> <C> <C>
FMR Corp.(1)................................................................... 2,442,830(2) 7.4%
82 Devonshire Street (7.4%)
Boston, MA 02109
Montgomery Asset Management(3)................................................. 1,736,634 5.2%
600 Montgomery St. (5.2%)
San Francisco, CA 94111
Trustees of General Electric Pension Trust..................................... 1,714,845(4) 5.0%
c/o G.E. Investments Corp. (5.0%)
3003 Summer Street
Stamford, CT 06904
Richard D. Irwin............................................................... 815,646(5) 2.4%
15 Ketchum Street (2.4%)
Westport, CT 06880
Grumman Hill Investments, L.P. ................................................ 639,155(6) 1.9%
15 Ketchum Street (1.9%)
Westport, CT 06880
Grumman Hill Associates, Inc. ................................................. 103,490(**)(7) **
15 Ketchum Street
Westport, CT 06880
John M. Zrno................................................................... 395,908(8) 1.2%
Suite 350 (1.2%)
30300 Telegraph Road
Bingham Farms, MI 48025
Marvin C. Moses................................................................ 395,066(9) 1.2%
Suite 350 (1.2%)
30300 Telegraph Road
Bingham Farms, MI 48025
Richard J. Uhl................................................................. 40,200(**)(10) **
One Thousand RIDC Plaza
Pittsburgh, PA 15238
Michael E. Faherty............................................................. 40,000(**)(11) **
15301 Dallas Parkway, Suite 600
Dallas, TX 75248
William H. Oberlin............................................................. 420,706(12) 1.3%
Suite 350 (1.3%)
30300 Telegraph Road
Bingham Farms, MI 48025
Gregory M. Jones............................................................... 942(**) **
Suite 350
30300 Telegraph Road
Bingham Farms, MI 48025
Connie R. Gale................................................................. 65,148(**)(13) **
Suite 350
30300 Telegraph Road
Bingham Farms, MI 48025
All current executive officers and directors as group (17 persons)............. 2,350,042(14) 6.6%
(6.6%)
</TABLE>
- -------------------------
* Percentage calculation based on 33,101,601 shares of Common Stock, issued
and outstanding on February 21, 1994, plus shares of Common Stock which may
be acquired pursuant to warrants and options exercisable within sixty days
by such individual or group listed.
** Less than one percent.
(1) Based on information set forth in a Schedule 13G, dated February 14, 1994,
filed with the Securities and Exchange Commission.
35
<PAGE> 37
(2) Includes all shares held by Fidelity Management & Research Company (acting
as investment adviser) and by Fidelity Management Trust Company (acting as
investment manager), which are wholly-owned subsidiaries of FMR Corp. These
shares are deemed to be beneficially owned by Edward Johnson 3d; Mr.
Johnson is the Chairman of the Board and a member of a controlling group
with respect to FMR Corp.
(3) Based on information set forth in a Schedule 13G, dated February 2, 1994,
filed with the Securities and Exchange Commission.
(4) Includes 1,494,845 shares of ALC Stock which may be acquired pursuant to
the exercise of outstanding warrants.
(5) Includes 153,163 shares of ALC Stock which may be acquired pursuant to the
exercise of outstanding stock options held by Grumman Hill, L.P. and
622,483 shares of ALC Stock which may be acquired pursuant to the exercise
of outstanding warrants held individually and by Grumman Hill and Grumman
Hill, L.P. These Grumman Hill and Grumman Hill, L.P. shares are deemed to
be beneficially owned by Mr. Irwin, as President and Director of Grumman
Hill and as General Partner of Grumman Hill, L.P.
(6) Includes 485,992 shares of ALC Stock which may be acquired pursuant to the
exercise of outstanding warrants and 153,163 shares of ALC Stock which may
be acquired pursuant to the exercise of outstanding stock options.
(7) These shares of ALC Stock may be acquired pursuant to the exercise of
outstanding warrants.
(8) Includes 395,108 shares of ALC Stock which Mr. Zrno has the right to
acquire pursuant to the exercise of outstanding stock options, and 800
shares of ALC Stock which Mr. Zrno's wife and mother-in-law own jointly
(Mr. Zrno disclaims beneficial interest as to these shares).
(9) Includes 386,060 shares of ALC Stock which Mr. Moses has the right to
acquire pursuant to the exercise of outstanding stock options, 3,000 shares
of ALC Stock which Mr. Moses owns as custodian for his children under UGMA
and 1,000 shares of ALC Stock which Mr. Moses' daughter owns (Mr. Moses
disclaims beneficial interest as to the latter 1,000 shares).
(10) Includes 40,000 shares of ALC Stock which Mr. Uhl has the right to acquire
pursuant to the exercise of outstanding stock options.
(11) Shares of ALC Stock which Mr. Faherty has the right to acquire pursuant to
the exercise of outstanding stock options.
(12) Includes 420,666 shares of ALC Stock which Mr. Oberlin has the right to
acquire pursuant to the exercise of outstanding stock options.
(13) Includes 61,542 shares of ALC Stock which Ms. Gale has the right to acquire
pursuant to the exercise of outstanding stock options.
(14) Includes 1,663,483 shares of ALC Stock which executive officers and
directors of ALC have the right to acquire pursuant to the exercise of
outstanding stock options and 622,483 shares of ALC Stock which Mr. Irwin
has the right to acquire or is deemed to have the right to acquire pursuant
to the exercise of outstanding stock warrants held individually and by
Grumman Hill and Grumman Hill, L.P.
36
<PAGE> 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BANKS STOCK OWNERSHIP IN THE COMPANY
In August 1992, the Company's then majority stockholder, CTI conveyed
the Common Stock, Class B Preferred and Class C Preferred it owned to the Banks
pro-rata in exchange for the release of certain portions of CTI's obligations
to each of the Banks. The Banks, in the aggregate, acquired all of the Class B
Preferred and Class C Preferred, as well as 14,324,000 shares of Common Stock.
Pursuant to a Registration Rights Agreement dated June 4, 1990, the
Banks, Prudential, General Electric and Grumman Hill and Grumman Hill, L.P.
(and their transferees of securities covered by such agreement) (the
"Registration Rights Agreement") each had the right to require ALC to register
the 1990 Warrants issued in connection with the 1990 phase of the Refinancing
(the "1990 Warrants"), shares of Common Stock issuable upon exercise of such
1990 Warrants, shares of Common Stock issuable upon conversion of the Class B
Preferred and Class C Preferred, and the shares of Common Stock previously
held by the Banks, in each case held by such party, to permit a public sale of
such shares under the Securities Act and applicable state securities laws.
The parties could demand, in the aggregate, six such registrations, and may
join in an unlimited number of ALC initiated registrations. Pursuant to the
Registration Rights Agreement and an Assignment of Rights Agreement dated
August 6, 1992 among the Banks and ALC (the "Assignment of Rights"), ALC
registered and otherwise accommodated the 1992 Equity Offering and the 1993
Equity Offering through a "shelf registration." Also in the Assignment of
Rights, ALC gave the Banks the right to participate on a preemptive basis in
certain future private issuances of Common Stock by ALC.
In October 1992, the Company completed the 1992 Equity Offering for
9,863,600 shares of Common Stock, a portion of which resulted from the exchange
of the Class A Preferred held by individual stockholders and the remainder of
which was due to Common Stock held by other entities, including the Banks. The
Banks sold, in the aggregate, 3,000,000 shares of Common Stock in the 1992
Equity Offering. In the 1993 Equity Offering (which term includes all
secondary public offerings pursuant to the shelf registration in 1993), the
Banks sold 8,386,216 shares of Common Stock, of which 3,796,000 were received
upon conversion of all outstanding shares of Class B Preferred and Class C
Preferred. After the 1993 Equity Offering, the Banks held an aggregate of
4,321,784 shares of Common Stock, representing 15.0% of the then total voting
power of ALC capital stock (10.9% assuming the exercise of certain warrants and
options).
Also pursuant to the shelf registration, in September 1993, the Company
completed a stock offering whereby General Electric, Prudential and a major
lessor sold an aggregate of 7,763,391 shares of Common Stock to the public. As
a result of the 1993 Equity Offering and subsequent transfers pursuant to an
escrow agreement, Prudential no longer holds a significant number of shares of
Common Stock.
Prudential agreed with a group of equipment lessors of Communications
Transmission Group, Inc. ("CTGI") to allow
37
<PAGE> 39
them to share in up to half of the shares of ALC capital stock acquired
by Prudential pursuant to a Residual Option or received from the Banks, in
each case under certain circumstances. Further, in August 1992 the Banks
agreed under certain circumstances to transfer to Prudential 10% of the shares
subject to the Residual Option upon disposition of any shares of ALC capital
stock owned by them. In addition, each Bank agreed that after each Bank had
received its pro rata portion of an amount calculated by the formula used to
determine the aggregate exercise price for the Residual Option, plus interest
thereon at 10% per annum from August 6, 1992 to the date of determination, each
Bank would pay Prudential any additional proceeds received by it from the
disposition of any shares of the ALC capital stock owned by it as a result of
the August 1992 transactions and to deliver to Prudential any remaining shares
of such ALC capital stock. In accordance with an agreement entered into in
August 1992, the Banks paid Prudential 10% of their net proceeds from the 1992
Equity Offering, and transferred 1,412,000 shares of Common Stock to Prudential
as a consequence of the 1993 Equity Offering. Subsequently, by March 1994, all
of the Banks disposed of a sufficient number of shares to result in such Banks
receiving their respective pro rata portions of the amount of debt of CTI
released by the Banks on August 18, 1992 (plus interest), and such Banks
tranferred all of their remaining shares of Common Stock to or as directed by
Prudential.
In October 1993, Electra Communications Holding Corporation ("ECHC")
acquired rights from certain of CTGI's equipment lessors, including the right
to share in 30.77% of the shares of ALC Stock subsequently acquired by
Prudential from the Banks. ECHC further agreed to pledge any such shares it
might receive to Sanwa as pledge agent for Nissho Iwai American Corporation
("NIAC"), one of CTGI's other equipment lessors. Prudential retained 282,035
shares of the 407,388 shares of ALC Stock it received from the Banks in March
1994 and transferred the remaining 125,353 shares to ECHC, subject to ECHC's
pledge to NIAC.
Pursuant to a certain escrow agreement (the "Escrow Agreement") among
Prudential, Nissho Iwai American Corporation, as administrative lessor for
certain of CTGI's equipment lessors, and Sanwa Bank & Trust Company of New York
("Sanwa"), as Escrow Agent, on August 27, 1993, Prudential deposited 1,555,683
shares of Common Stock (the "Escrow Shares") with the Escrow Agent. Under the
terms of the Escrow Agreement, subject to contractual restrictions to
38
<PAGE> 40
which Prudential was subject contained in one or more underwriting agreements
relating to ALC Stock, the Escrow Agent had the power to sell the Escrow Shares
under certain circumstances. These Escrow Shares were subsequently sold in the
1993 Equity Offering and the Escrow Agreement terminated in October 1993.
In August 1992, ALC had agreed with the Banks that
it would not issue in excess of 8,000,000 shares of Common Stock prior to the
earlier of (a) August 6, 1994 or (b) the date on which the Banks collectively
held less than 8,000,000 shares of Common Stock or Common Stock equivalents.
As a result of the 1993 Equity Offering, this restriction on ALC terminated.
In addition, ALC agreed with Prudential that it would not issue in excess of
8,000,000 shares of Common Stock prior to the earlier of (a) March 31, 1994, or
(b) the expiration of the Residual Option. As a result of the 1993 Equity
Offering, this restriction on ALC also terminated.
Also in August 1992, the Banks entered into a Stock
Option Agreement (the "Stock Option") and a Residual Stock Option Agreement
(the "Residual Option" and, together with the Stock Option, the "Options") with
Prudential. By exercise of the Options, Prudential had the ability to acquire
all of the shares of Class B Preferred, Class C Preferred and Common Stock
owned by the Banks. The Stock Option covered 1,000,000 shares of Common Stock
owned by the Banks. As part of the 1993 Equity Offering, Prudential exercised
the Stock Option and sold the 1,000,000 shares of Common Stock acquired
thereby.
The Residual Option covered all of the shares of
Class B Preferred and Class C Preferred, and all shares of Common Stock (other
than the shares covered by the Stock Option), owned by the Banks. The exercise
price for the Residual Option was an amount calculated by a formula that
equaled the amount of the debt of CTI released by the Banks on August 18, 1992
as adjusted according to a formula. Upon the sale by the Banks of shares of
Common Stock in the 1993 Equity Offering, the Residual Option terminated.
TRANSACTIONS WITH GENERAL ELECTRIC AND PRUDENTIAL
General Electric and Prudential participated in the
cash financing as part of the 1990 phase of the Refinancing. As a result,
General Electric held a note issued in 1990 (the "1990 Note") in the original
principal amount of $3.5 million and was issued 1990 Warrants to purchase up
to 2,305,105 shares of the Common Stock. In addition, prior to a note exchange
offer (the "Note Exchange Offer") pursuant to which ALC and Allnet exchanged
11 7/8% debentures previously issued by ALC (the "Debentures") for note-warrant
units (the "Units") consisting of 11 7/8% Subordinated Notes of Allnet due
June 30, 1999 (the "1992 Notes") and warrants to purchase shares of Common
Stock (the "1992 Warrants"), General Electric held $23.8 million in
39
<PAGE> 41
principal amount of the outstanding Original Debentures and Replacement
Debentures (exclusive of PIK Debentures issued or issuable in respect of
certain interest payments due on certain Debentures), which constituted 43% of
the total outstanding amount of those Debentures. As a consequence of the Note
Exchange Offer, General Electric owns 1,494,845 1992 Warrants. Also as a
consequence of the Note Exchange Offer, General Electric owned $31.8 million in
principal amount of 1992 Notes (which the Company has been informed were
subsequently sold by General Electric).
General Electric purchased 500,000 shares of Common
Stock in the 1992 Equity Offering; the Company has been informed 400,000 shares
were subsequently sold in the open market. General Electric is also deemed to
be the beneficial owner of 120,000 shares of Common Stock which are held of
record by its investment manager. General Electric sold the 2,305,105 shares
of Common Stock issued pursuant to its 1990 Warrants in the 1993 Equity
Offering and in subsequent brokerage transactions.
Pursuant to the 1990 Note Agreement between ALC and
General Electric, as amended in August 1992, General Electric also had the
right to nominate one person for election to the Board of Directors of ALC.
There was no such nominee proposed by General Electric for election at the most
recent Annual Meeting of Shareholders and, following its participation in the
1993 Equity Offering, General Electric no longer has equity ownership
sufficient to maintain this right. The General Electric 1990 Note was amended
and replaced in August 1992. Such amended and restated 1990 Note in the
principal amount of $3,908,700 was paid in full as of December 1992.
Prudential was the holder of a 1990 Note in the
original principal amount of $3.0 million which was paid in full as of August
1992. Prudential retained the right to purchase up to 1,975,804 shares of
Common Stock pursuant to warrants for same. These warrants were exercised and
the related shares were sold in the 1993 Equity Offering.
FINANCIAL SERVICES
Richard D. Irwin has been a director of CTGI since
June 1986 and is President of Grumman Hill. See also "Compensation Committee
Interlocks and Insider Participation."
TRANSACTIONS WITH MANAGEMENT AND OTHERS
As of January 1994, Mr. Irwin, Mr. Faherty (as
general partner of a family-owned partnership), Mr. Uhl, Mr. Zrno and Mr. Moses
own $533,000, $600,000, $200,000, $100,000 and $100,000, respectively, in
principal amount of 1993 Notes which they acquired either in the 1993 Note
Offering or in open-market transactions.
40
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Documents filed as a part of this report
1. Financial Statements. The following consolidated
financial statements of ALC and its subsidiary required by Part II, Item 8. are
included in Part IV of this Report:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Ernst & Young F-1
Consolidated Balance Sheets as of December F-2
31, 1993 and December 31, 1992
Consolidated Statements of Operations for F-4
the years ended December 31, 1993, 1992
and 1991
Consolidated Statements of Cash Flows F-5
for the years ended December 31, 1993,
1992 and 1991
Consolidated Statements of Preferred Stock F-6
and Stockholders' Equity for the years
ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements F-8
2. Financial Statement Schedules Page
Schedule V Property and Equipment F-21
Schedule VI Accumulated Depreciation
on Property and Equipment F-22
Schedule VIII Valuation and Qualifying
Accounts and Reserves F-23
Schedule IX Short-Term Borrowings F-24
</TABLE>
41
<PAGE> 43
3. 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>
2.1 Asset Purchase Exhibit 2.1 to
Agreement among July 3, 1993 Form
Call Home America, 8-K
Inc., Steve R.
Dutton, William A.
Freed and Jeffrey T.
Schlesinger and Allnet
June 30, 1993
3.1 ALC Restated X
Certificate of
Incorporation
January 7, 1994
3.2 Amended and Restated Exhibit 3.2 to
Bylaws of ALC Third Quarter
August 5, 1988 1991 Form 10-Q
as amended Jan. 20,
1989, May 4, 1989,
March 19, 1991,
September 3, 1991
3.3 ALC Certificate of X
Retirement of Class
A Preferred Stock
4.1 Indenture, ALC, Allnet Exhibit 4.1 to
Star Bank, N.A. Second Quarter
May 15, 1993 1993 Form 10-Q
4.2 Warrant Agreement Exhibit 4.2 to
ALC and Star Bank, N.A. Second Quarter
July 1, 1992 1992 Form 10-Q
4.3 Form of Warrant Exhibit 4.3 to
Certificate to be Second Quarter
granted pursuant to 1992 Form 10-Q
Warrant Agreement
4.4 Warrant Agreement be- Exhibit 4.3 to
tween ALC and Registration No.
Continental National 33-1882
Bank and Trust Co.
of Chicago
December 15, 1985
- ------------------------------
</TABLE>
* Except as otherwise indicated, all references to "Forms" are to those
of ALC.
42
<PAGE> 44
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------- ----------- -------- --------------- ------
<S> <C> <C> <C> <C>
4.5 Form of Note and Warrant Exhibit 4.3 to
Agreement, as amended June 7, 1990 Form 8-K
June 4, 1990 Exhibit 10.1 to Second
Quarter 1991 Form 10-Q
Exhibits 4.4 and 4.5
to Second Quarter 1992
Form 10-Q
4.6 Form of Stock Subscription Exhibit 28.1 to
Warrant, as amended June 7, 1990 Form 8-K
June 4, 1990 Exhibit 10.2 to Second
Quarter 1991 Form 10-Q
4.7 Form of Amended/Restated Exhibit 4.6 to Second
Stock Subscribtion Warrant Quarter 1992 Form 10-Q
June 4, 1992
4.8 Registration Rights Exhibit 4.4 to
Agreement ALC, CTI, June 7, 1990
GE Trust, Grumman Hill, Form 8-K
Grumman Hill LP and
Prudential June 4, 1990
4.9 Assignment of Rights Exhibit 4.18 to
Agreement CTI, ALC, Registration
Banks August 6, 1992 No. 33-57146
4.10 Exchange Agreement Exhibit 10.71 to
between ALC and Registration No.
Class A Preferred 33-51796
Stockholders
September 8, 1992
4.11 Exchange Agreement Exhibit 4.1 to
Banks, CTI, ALC September 1, 1992
August 6, 1992 Form 8-K
4.12 Sharing Agreement Exhibit 4.2 to
ALC, Allnet, Banks, September 1, 1992
Prudential Form 8-K
August 6, 1992
4.13 Stock Option Agreement Exhibit 4.3 to
Banks, ALC and Prudential September 1, 1992
August 6, 1992 Form 8-K
4.14 Residual Stock Option Exhibit 4.4 to
Banks, Prudential, ALC, September 1, 1992
August 6, 1992 Form 8-K
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------- ----------- -------- --------------- ------
<S> <C> <C> <C> <C>
4.15 Intercreditor Agr. Exhibit 4.5 to
CTI Creditors, CTI September 1, 1992
CTGI August 6, 1992 Form 8-K
4.16 Side Letter Agreement Exhibit 4.6 to
with Banks and ALC September 1, 1992
August 6, 1992 Form 8-K
4.17 Side Letter Agreement Exhibit 4.7 to
with Prudential and ALC September 1, 1992
August 6, 1992 Form 8-K
10.1** ALC 1986 Option X
Plan, as amended
10.2** Amended and Restated X
1990 Stock Option
Plan
10.3** Stock Option Exhibit 10.2 to
Agreement for Third Quarter
Richard J. Uhl 1991 Form 10-Q
September 3, 1991
10.4** Stock Option Exhibit 10.8 to
Agreement for Registration No.
Michael E. Faherty 33-47857
June 23, 1992
10.5** Form of Amendment Exhibit 10.1 to
to Stock Options of First Quarter
Richard J. Uhl and 1993 Form 10-Q
Michael E. Faherty
January 27, 1993
10.6** Advisory Agr. with X
Stock Option between
ALC and Grumman Hill
Sept. 7, 1988,
as amended
10.7** Officer Perquisites X
10.8** Short Term Incentive X
Program
</TABLE>
_______________
** Management contract or compensation plan or arrangement
required to be identified by Item 14(a)(3) of this report
44
<PAGE> 46
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------- ----------- -------- --------------- ------
<S> <C> <C> <C> <C>
10.9** Form Severance X
Agreement, amended,
restated Jan. 7, 1994
10.10** Form of Amended and Re- X
stated Employment Agree-
ments with ALC, Allnet
and John M. Zrno, Marvin
C. Moses, William
H. Oberlin, Jan. 7, 1994
10.11** Form of Director Exhibit 10.4 to
Indemnification Agr. Second Quarter
1992 Form 10-Q
10.12 Master Lease Agreement Exhibit 10.1 to
Meridian Leasing Corp., Second Quarter
Allnet Dec. 19, 1985 1989 Form 10-Q
10.13 Mastergroup Route Exhibit 10.8 to
Facilities Lease Agr. Registration No.
Allnet, Times 33-1578
Mirror Microwave
Communications Co.
June 14, 1983
10.14 Transmission Capacity Exhibit 10.14 to
Lease: Times Mirror Registration No.
Microwave Communications 33-1578
Co., Lexitel Corp.,
October 8, 1985
10.15 Fiber Optic Lease Agree- Exhibit 10.3 to
ment; Mutual Signal First Quarter
Corporation, Lexitel 1991 Form 10-Q
Corporation Nov. 5, 1985
10.16 Amendment No. 4, Option Exhibit 10.1 to
Agreement and Consent: Third Quarter
Allnet, MSM Associates, 1992 Form 10-Q
GECLC August 7, 1992
10.17 Master Service Agreement Exhibit 10.2
Allnet, Western to Third Quarter
Tele-Communications 1992 Form 10-Q
Inc. May 5, 1992 CONFIDENTIAL
TREATMENT GRANTED
</TABLE>
_______________
** Management contract or compensation plan or arrangement
required to be identified by Item 14(a)(3) of this report
45
<PAGE> 47
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------- ----------- -------- --------------- ------
<S> <C> <C> <C> <C>
10.18 Termination Agreement Exhibit 10.39 to
Allnet, Western 1992 Form 10-K
Tele-Communications,
Inc. Feb. 19, 1993
10.19 Digital Service Exhibit 10.2 to
Agreement CTI, First Quarter 1993
Allnet, as amended Form 10-Q
February 10, 1989 Exhibit 28.4 to
June 7, 1990
Form 8-K
Exhibit 10.6 to
Third Quarter
1991 Form 10-Q
10.20 Digital Service Exhibit 10.5 to
Agreement, ALC, Second Quarter 1992
CTGI June 4, 1992 Form 10-Q
10.21 Second Amended and Exhibit 10.9 to
Restated Loan Agree- Second Quarter 1992
ment Allnet, ALC, Form 10-Q
Banks, August 6, 1992
10.22 Form of 1992 Note Exhibit 10.10 to
ALC, Star Bank, N.A. Second Quarter
July 1, 1992 1992 Form 10-Q
10.23 Revolving Credit and Exhibit 10.3 to
Security Agreement Second Quarter
Bank One, Columbus, NA, 1993 Form 10-Q
Star Bank, NA, Allnet, CONFIDENTIAL
ALC June 30, 1993 TREATMENT GRANTED
10.24 Amended and Restated Exhibit 28.2 to
General Loan and June 7, 1990
Security Agreement Form 8-K
Allnet, Foothill Exhibits 10.11,
June 1, 1990, 10.12 and 10.13 to
as amended Second Quarter
1992 Form 10-Q
10.25 Real Estate Lease, Exhibit 10.45 to
Allnet, Balcor Allnet Second Quarter
Equity Pension 1992 Form 10-Q
Investors, Ltd. Exhibit 10.6 to
March 26, 1987, Second Quarter
as amended 1991 Form 10-Q
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
Incorporated Page
Exhibit Filed Herein by Number
Number Description Herewith Reference to: Herein
- ------- ----------- -------- --------------- ------
<S> <C> <C> <C> <C>
10.26 Real Estate Lease, Exhibit 10.47 to
ALC, Kirco-Oak Allnet Second Quarter
Hollow-Limited 1992 Form 10-Q
Partnership Exhibit 10.5 to
Feb. 25, 1987, Second Quarter
as amended 1991 Form 10-Q
11.1 Computation of Per X
Share Earnings
21.1 Subsidiary List X
23.1 Consent of X
Ernst & Young
</TABLE>
<TABLE>
<S> <C>
DEFINITIONS: ALLNET: Allnet Communication Services, Inc.
ALC: ALC Communications Corporation
BANKS: NationsBank of Texas, N.A.; First National Bank of Chicago; First Union National Bank of North
Carolina; CoreStates Bank, N.A.; and National Westminster Bank USA
CTGI: Communications Transmission Group, Inc.
CTI: Communications Transmission, Inc.
CTI CREDITORS: Nissho Iwai American Corporation; MNC
Leasing; Societe Generale Financial Corporation (f/k/a Sogelease
Corporation); General Electric Capital Corporation; Ford Equipment Leasing Company; ALC; and
Prudential
FOOTHILL: Foothill Capital Corporation
FORM OF NOTE AND WARRANT AGREEMENT:
Form of Note and Warrant Purchase
Agreement among ALC, Allnet and (i)
GE Trust ($3,500,000), (ii) Prudential
($3,000,000), (iii) Grumman Hill and
Grumman Hill LP ($650,000)
FORM OF STOCK SUBSCRIPTION WARRANT:
Form of Stock Subscription Warrant
granted to: (i) GE Trust (2,305,105
shares); (ii) Prudential (1,975,804
shares); (iii) Grumman Hill (98,790
shares) and (iv) Grumman Hill LP
(329,300 shares)
FORM OF AMENDED/RESTATED STOCK SUBSCRIPTION WARRANT:
Form of Stock Subscription Warrant
granted to: (i) GE Trust (2,305,105
shares); (ii) Prudential (1,975,804
shares); (iii) Grumman Hill (98,790
shares) and (iv) Grumman Hill LP
(329,300 shares)
GECLC: General Electric Credit and Leasing
Corporation
</TABLE>
47
<PAGE> 49
<TABLE>
<S> <C>
GE TRUST: Trustees of General Electric Pension
Trust
GRUMMAN HILL: Grumman Hill Associates, Inc.
GRUMMAN HILL LP: Grumman Hill Investments, L.P.
MSM ASSOCIATES: MSM Associates, Limited Partnership
PRUDENTIAL: The Prudential Insurance Company of
America
</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
A report on Form 8-K was filed by the Company on December 29, 1993 to describe
the redemption of the Class A Preferred Stock on December 31, 1993 and to
summarize the contents of the letter of resignation dated December 28, 1993 of
Saulene M. Richer, the former Director elected by holders of the Class A
Preferred.
(c) Refer to Item 14(a)(3) above for Exhibits required by Item 601
of Regulation S-K.
(d) Schedules other than those set forth in response to Item
14(a)(2) above for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
48
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the duly authorized, undersigned individual on the 29th
day of March, 1994.
ALC Communications Corporation
Registrant
By: /s/ John M. Zrno
John M. Zrno, Director,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Annual Report on Form 10-K has been signed below by the following
persons in their respective capacities on behalf of the registrant as of the
29th day of March, 1994.
Signature Title
--------- -----
/s/ John M. Zrno President, Chief Executive
- ---------------------------- Officer, Director
John M. Zrno
/s/ Richard D. Irwin Chairman of the Board,
- ---------------------------- Director
Richard D. Irwin
/s/ Marvin C. Moses Executive Vice President and
- ---------------------------- Chief Financial Officer,
Marvin C. Moses Director
(Principal Financial Officer)
/s/ Marilyn M. Lesnau Vice President, Controller
- ---------------------------
Marilyn M. Lesnau
(Principal Accounting Officer)
/s/ William H. Oberlin Executive Vice President and
- --------------------------- Chief Operating Officer,
William H. Oberlin Director
/s/ Richard J. Uhl Director
- ---------------------------
Richard J. Uhl
/s/ Michael E. Faherty Director
- ---------------------------
Michael E. Faherty
49
<PAGE> 51
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
ALC COMMUNICATIONS CORPORATION
We have audited the accompanying consolidated balance sheets of ALC
Communications Corporation and subsidiary as of December 31,1993 and 1992, and
the related consolidated statements of operations, cash flows, and preferred
stock and stockholders' equity for each of the three years in the period ended
December 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ALC Communications Corporation and subsidiary at December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects
the information set forth therein.
/s/ ERNST & YOUNG
Ernst & Young
Detroit, Michigan
January 25, 1994
F-1
<PAGE> 52
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1993 1992
------------ ------------
(In Thousands)
<S> <C> <C>
Current Assets:
Cash $ 1,819 $ 112
Accounts receivable, less allowance for doubtful accounts of
$3,974,000 and $3,334,000 (Note D) 58,761 45,327
Other current assets 4,543 3,000
------------ ------------
Total Current Assets $ 65,123 $ 48,439
Fixed Assets (Notes A, D & H):
Communication systems $ 81,752 $ 74,002
Other equipment and leasehold improvements 29,785 28,371
Construction in progress 6,722 3,443
------------ ------------
$118,259 $105,816
Less accumulated depreciation and amortization 69,918 63,872
------------ ------------
Total Fixed Assets $ 48,341 $ 41,944
Cost in excess of net assets acquired less accumulated
amortization of $12,198,000 and $10,673,000 (Note A) 48,792 50,317
Deferred income taxes (Note F) 10,240
Intangibles and other assets (Note A) 21,045 2,566
------------ ------------
Total Assets $193,541 $143,266
------------ ------------
------------ ------------
</TABLE>
F-2
<PAGE> 53
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES, CLASS A PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, December 31,
1993 1992
------------ ------------
(In Thousands)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,397 $ 3,508
Accrued liabilities 16,855 11,895
Accrued network costs 33,482 28,676
Taxes other than income 11,592 9,889
Revolving Credit Facility (Note B) 14,802
Notes payable, capitalized leases and other long-term debt
(Notes B, D, H, & I) 392 11,417
----------- -----------
Total Current Liabilities $ 63,718 $ 80,187
Notes payable,capitalized leases and other long-term debt
(Notes B, D, H & I) 3,263 12,308
Subordinated Notes (Notes B & D) 84,335
Senior Subordinated Debentures (Note B) 61,983
Class A Preferred Stock, $0.01 par value; authorized, issued and
outstanding -- 356,000 shares in 1992, aggregate redemption value
of $7,119,000 less discount of $364,000 plus accrued
but undeclared dividends of $2,904,000 (Notes B & E) 9,659
Stockholders' Equity:
Class B Preferred Stock, $0.01 par value; authorized, issued
and outstanding -- 1,000,000 shares in 1992 (Note I) $ 10
Class C Preferred Stock, $0.01 par value; authorized, issued
and outstanding -- 1,000,000 shares in 1992 (Note I) 10
Preferred Stock, $0.01 par value; authorized -- 14,784,000
shares; issued and outstanding -- none
Common Stock, par value $0.01; authorized -- 200,000,000
shares; issued and outstanding -- 32,948,000 and 23,794,000
shares (Notes B & E) $ 329 238
Capital in excess of par value 132,378 110,146
Paid-in capital--Warrants (Notes G & I) 12,129 17,022
Accumulated deficit (102,611) (148,297)
------------ ------------
Total Stockholders' Equity $ 42,225 $(20,871)
------------ ------------
Total Liabilities, Class A Preferred Stock and
Stockholders' Equity $193,541 $143,266
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 54
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1992 1991
---------- ---------- -----------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Revenue $436,432 $376,064 $346,873
Operating Expenses:
Cost of communication services, including amounts
with related parties of $16,004,000 in 1992
and $18,000,000 in 1991 (Note I) $234,849 $216,889 $212,716
Sales, general and administrative 119,841 107,294 97,964
Depreciation and amortization 12,840 11,197 12,343
---------- ---------- -----------
Total Operating Expenses $367,530 $335,380 $323,023
---------- ---------- -----------
Operating Income $ 68,902 $ 40,684 $ 23,850
Interest expense including amounts with
related parties of $5,000,000 in 1992
and $4,640,000 in 1991 10,476 17,158 18,128
---------- ---------- -----------
Income Before Income Taxes, Extraordinary Items and
Cumulative Effect of Accounting Change $ 58,426 $ 23,526 $ 5,722
Income taxes (Note F) 18,750 9,700 3,005
---------- ---------- -----------
Income Before Extraordinary Items and
Cumulative Effect of Accounting Change $ 39,676 $ 13,826 $ 2,717
Extraordinary Items:
Loss related to early retirement of debt (net of
income tax benefit of $4,000,000) (Note B) (7,490)
Utilization of operating loss carryforward 7,000 2,630
Cumulative effect of change in method of accounting
for income taxes (Note F) 13,500
---------- ---------- -----------
Net Income $ 45,686 $ 20,826 $ 5,347
---------- ---------- -----------
---------- ---------- -----------
Earnings per common and common equivalent share (Note G):
Income (loss) before extraordinary items and cumulative
effect of accounting change $ 1.07 $ 0.43 $ (0.17)
Extraordinary Items:
Loss related to early retirement of debt $ (0.21)
Utilization of operating loss carryforward $ 0.31 $ 0.15
Cumulative effect of change in method of accounting
for income taxes $ 0.37
---------- ---------- -----------
Net Income (Loss) $ 1.23 $ 0.74 $ (0.02)
---------- ---------- -----------
---------- ---------- -----------
Weighted average common and common
equivalent shares 36,348 22,141 17,216
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 55
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1992 1991
---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C>
Operating Activities
Net income $ 45,686 $ 20,826 $ 5,347
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 9,810 10,094 10,603
Amortization of intangible assets and bond discount 3,858 4,415 3,520
Provision for deferred income taxes (Note F) (11,838)
Accrued interest converted to debentures 7,998
Loss (gain) on retirement of debt, net of tax 7,490 (59)
(Increase) decrease in accounts receivable and
other current assets (13,680) (3,371) 2,558
Increase (decrease) in current liabilities 18,033 (1,523) (2,774)
---------- ---------- -----------
Net Cash Provided by Operating Activities $ 59,359 $ 30,382 $ 27,252
Financing Activities
Proceeds from (payments on) Revolving Credit Facility
(Note B) $(14,802) $ 5,400 $ (9,896)
Proceeds from subordinated notes (Notes B & D) 84,335 1,321
Payments on long-term debt (19,602) (22,818) (12,562)
Proceeds from issuance of stock (Note B) 12,776 607 109
Payment to Preferred A Stockholders (1,286)
Redemption of Class A Preferred Stock (7,119)
Payment of dividends on Class A Preferred Stock (3,357)
Payment of stock issuance costs (620)
Retirement of debentures (Note B) (947)
Retirement of senior subordinated notes (Notes B & D) (72,380)
---------- ---------- -----------
Net Cash Used in Financing Activities $(20,149) $(19,664) $(21,028)
Investing Activities
Expenditures for fixed assets $(16,207) $(10,233) $ (6,276)
Increase in other non-current assets (1,686) (596) (67)
Purchase of Customer Base (Note C) (19,610)
---------- ---------- -----------
Net Cash Used in Investing Activities $(37,503) $(10,829) $ (6,343)
---------- ---------- -----------
Increase (Decrease) in Cash During Year $ 1,707 $ (111) $ (119)
Cash at beginning of year 112 223 342
---------- ---------- -----------
Cash at end of year $ 1,819 $ 112 $ 223
---------- ---------- -----------
---------- ---------- -----------
Interest paid $ 9,686 $ 15,572 $ 9,945
---------- ---------- -----------
---------- ---------- -----------
Income taxes paid $ 7,464 $ 1,862 $ 225
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 56
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CLASS A PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1993, 1992 and 1991
(In Thousands)
Stockholders' Equity
------------------------------------------
Class A Preferred Class B Preferred Class C Preferred
-------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 2,500 $57,766 1,000 $10 1,000 $10
Accretion of discount on Class A
Preferred Stock 1,043
Employee Stock Purchase
Accrued undeclared dividends on Class A
Preferred Stock (Note E) 4,000
Accretion of contract payment to certain
Class A Preferred Stockholders 643
Exercise of Stock Options (Note G)
Net income for the year ended
December 31, 1991
------ ------- ------- ------ ------- ------
Balance, December 31, 1991 2,500 $63,452 1,000 $10 1,000 $10
Accretion of discount on Class A
Preferred Stock 860
Accrued undeclared dividends on Class A
Preferred Stock (Note E) 3,254
Accretion of contract payment to certain
Class A Preferred Stockholders 268
Contract payment to certain Class A
Preferred Stockholders (1,286)
Exercise of Stock Options (Note G)
Issuance of warrants
Repricing of warrants
Conversion of Class A Preferred Stock
to Common Stock (Notes B & E) (2,144) (56,889)
Issuance of Common Stock (Notes B & G)
Stock Issuance costs
Net income for the year ended
December 31, 1992
------ ------- ------- ------ ------- ------
Balance, December 31, 1992 356 $ 9,659 1,000 $10 1,000 $10
<CAPTION>
Stockholders' Equity
-------------------------------------------------------------------------------------
Common Stock Capital in excess Paid-in Capital Warrants Accumlated
--------------- ------------------------
Shares Amount of par value Shares Amount Deficit Total
------ ------ ------------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 17,141 $171 $ 63,296 5,469 $ 8,913 ($174,470) ($102,070)
Accretion of discount on Class A
Preferred Stock (1,043) (1,043)
Employee Stock Purchase 71 1 79 80
Accrued undeclared dividends on Class A
Preferred Stock (Note E) (4,000) (4,000)
Accretion of contract payment to certain
Class A Preferred Stockholders (643) (643)
Exercise of Stock Options (Note G) 9 29 29
Net income for the year ended
December 31, 1991 5,347 5,347
------ ------ ------------ ------ ------ --------- --------
Balance, December 31, 1991 17,221 $172 $ 57,718 5,469 $ 8,913 ($169,123) ($102,300)
Accretion of discount on Class A
Preferred Stock (860) (860)
Accrued undeclared dividends on Class A
Preferred Stock (Note E) (3,254) (3,254)
Accretion of contract payment to certain
Class A Preferred Stockholders (268) (268)
Contract payment to certain Class A
Preferred Stockholders
Exercise of Stock Options (Note G) 174 2 605 607
Issuance of warrants 3,400 3,400 3,400
Repricing of warrants 4,709 4,709
Conversion of Class A Preferred Stock
to Common Stock (Notes B & E) 56,825 56,825
Issuance of Common Stock (Notes B & G) 6,399 64 64
Stock Issuance costs (620) (620)
Net income for the year ended
December 31, 1992 20,826 20,826
------ ------ ------------ ------ ------ --------- --------
Balance, December 31, 1992 23,794 $238 $110,146 8,869 $17,022 ($148,297) $(20,871)
</TABLE>
F-6
<PAGE> 57
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CLASS A PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
(In Thousands)
<TABLE>
<CAPTION>
Stockholders' Equity
----------------------------------------------------
Class A Preferrd Stock Class B Preferred Stock Class C Preferred Stock
---------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
--------- ------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 356 $9,659 1,000 $10 1,000 $10
Accretion of discount on Class A
Preferred Stock 364
Accrued dividends on Class A Preferred
Stock (Note E) 453
Dividends paid (3,357)
Conversion of Class B Preferred to
Common Stock (Notes B & G) (1,000) (10)
Conversion of Class C Preferred to
Common Stock (Notes B & G) (1,000) (10)
Exercise of Stock Options (Note G)
Tax benefit from exercise of stock
options (Note F)
Exercise of Warrants
Redemption of Class A Preferred
Stock (Notes B & E) (356) (7,119)
Net income for the year ended
December 31, 1993
---- ------ ---- ------ ------- -----
Balance, December 31, 1993 0 $ 0 0 $ 0 0 $ 0
---- ------ ---- ------ ------- -----
---- ------ ---- ------ ------- -----
<CAPTION>
Stockholders' Equity
---------------------------------------------------------------------------------------
Common Stock Capital in excess Paid-in Capital Warrants
------------------- of par value ------------------------- Accumulated
Shares Amount Shares Amount Deficit Total
------ ------- ----------------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 23,794 $238 $110,146 8,869 $17,022 $(148,297) $(20,871)
Accretion of discount on Class A
Preferred Stock (364) (364)
Accrued dividends on Class A
Preferred Stock (Note E) (453) (453)
Dividends paid
Conversion of Class B Preferred to
Common Stock (Notes B & G) 1,898 19 (9) 0
Conversion of Class C Preferred to
Common Stock (Notes B & G) 1,898 19 (9) 0
Exercise of Stock Options (Note F) 755 7 2,796 2,803
Tax benefit from exercise of stock
options (Note F) 5,452 5,452
Exercise of Warrants 4,603 46 14,819 (4,603) (4,893) 9,972
Redemption of Class A Preferred
Stock (Notes B & E)
Net income for the year ended
December 31, 1993 45,686 45,686
------ ------ --------- ------- ---------- ---------- --------
Balance, December 31, 1993 32,948 $329 $132,378 4,266 $12,129 $(102,611) $ 42,225
------ ------ --------- ------- ---------- ---------- --------
------ ------ --------- ------- ---------- ---------- --------
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE> 58
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
Note A -- Summary of Significant Accounting Policies
Description of Business
Allnet Communication Services, Inc. ("Allnet"), the operating
subsidiary of ALC Communications Corporation ("ALC" or the "Company"), provides
long distance telecommunications services primarily to commercial and, to a
lesser extent, residential subscribers in a majority of the United States and
completes subscriber calls to all directly dialable locations worldwide. The
Company transmits long distance telephone calls through its network facilities
over transmission lines which are leased from other long haul transmission
providers. All of the transmission facilities utilized by the Company are
digital.
Basis of Consolidation
The consolidated financial statements include the accounts of ALC and
its wholly-owned subsidiary, Allnet Communication Services, Inc. Intercompany
transactions have been eliminated.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives or lease terms of the
assets. Maintenance and repairs are charged to operations as incurred.
Intangible Assets
The cost in excess of net assets acquired of $61.0 million, resulting
from the acquisition of Lexitel is being amortized on a straight line basis
over 40 years.
In July 1993, the Company acquired the customer base of Call Home
America, Inc. ("CHA") (Note C). The purchase price has been allocated between
the value of the customer base acquired and the covenant not to compete which
are being amortized over seven years and 42 months, respectively.
Additionally, the Company is amortizing over five years the costs incurred
under a marketing agreement with CHA. Amortization expense related to the
acquisition and marketing agreement totaled $1.2 million in 1993.
F-8
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amortization expense, including amortization of cost in excess of net
assets acquired and cost associated with the issuance of debentures and the
Revolving Credit Facility as well as amortization associated with CHA,
totaled $3.1 million, $1.8 million and $1.8 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
Revenue Recognition
Customers are billed as of monthly cycle dates. Revenue is recognized
as service is provided and unbilled usage is accrued.
Accrued Facility Costs
In the normal course of business, the Company estimates its accrual for
facility costs. Subsequently, the accrual is adjusted based on invoices
received from local exchange carriers.
Income Taxes
The Company adopted Statement of Financial Standards No. 109
"Accounting for Income Taxes" as of January 1, 1993, the required
implementation date (Note F). Prior to January 1, 1993, income taxes were
accounted for in accordance with Accounting Principles Board Opinion No. 11
("APB 11").
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE B -- Refinancing Events
During 1992, the Company completed a comprehensive refinancing plan
("Refinancing") which included the rescheduling of substantially all debt and
resulted in significantly reduced or deferred debt service obligations. The
Refinancing resulted in a simplified equity structure and a revised redemption
and maturity schedule. The Company anticipates it will be able to meet these
obligations from expected cash flow from operations. Highlights of the
Refinancing include the following:
* A Note Exchange Offer was completed in August 1992 whereby the Company's
Original Debentures, Replacement Debentures, PIK Debentures, and accrued
interest on the
F-9
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
nonconsenting Debentures totalling $73.3 million were replaced by 11
7/8% Subordinated Notes of Allnet ("1992 Notes"). As part of the Note
Exchange Offer, 3,400,000 Common Stock warrants ("1992 Warrants") were
issued representing 10.2% of the fully diluted equity of ALC at an
exercise price of $5.00 per share of Common Stock.
* In August 1992, the Restructured Promissory Note was restated and extended
to June 30, 1995 and a $5.0 million principal prepayment was made. The
note was subsequently paid in full in May 1993.
* In August 1992, 14,324,000 shares of ALC Common Stock and the ALC Class B
and Class C Preferred Stock ("Preferred Stock") held by Communications
Transmission Inc. ("CTI") were transferred to a group of five banks
("Banks"). Subsequently, the Preferred Stock was converted into 3,796,000
shares of Common Stock.
* In October 1992 an equity offering for 9,863,600 shares of ALC Common
Stock at $5.50 per share was completed. A portion of the 1992 equity
offering relating to 3,464,373 shares was to facilitate the sale of shares
for existing major holders.
* The remaining 6,399,227 shares of the equity offering were issued in
conjunction with an Exchange Agreement with the major holders of the Class
A Preferred Stock ("Class A Preferred"). The major holders of the Class A
Preferred agreed to exchange the 2,144,044 shares of Class A Preferred
with an aggregate redemption value of $58.7 million, including all accrued
and unpaid dividends, for shares of ALC Common Stock at an effective 40%
discount.
* The 1990 Note Agreements with a principal balance of approximately $8.0
million were paid in full by December 1992.
Financing activities in 1993 included:
* In March 1993, an equity offering was completed in which an aggregate of
10,350,000 shares of ALC Common Stock were sold at $14.25 per share. ALC
did not receive the proceeds from the sale of these shares by existing
major holders, although it did receive $1.9 million upon exercise of
963,784 warrants.
* In May 1993, the Company completed an offering of $85.0 million 9%
Senior Subordinated Notes ("1993 Notes").
F-10
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net proceeds of $84.3 million were used to repay the outstanding 11
7/8% Senior Subordinated Notes of Allnet aggregating $72.4 million and to
reduce the amount outstanding under the short term Revolving Credit
Facility. The early retirement of the 1992 Notes resulted in an
extraordinary loss of $7.5 million, net of the related tax effect of $4.0
million.
* As of June 30, 1993, the Company executed an agreement for a $40.0 million
long term line of credit, replacing the previous Revolving Credit
Facility.
* In September 1993, an equity offering was completed in which an aggregate
of 7,763,391 shares of ALC Common Stock were sold at $25.50 per share.
This offering included the exercise of 3,240,025 warrants. ALC did not
receive any proceeds from the sale of these shares by existing major
holders, but did receive $6.9 million from the exercise of warrants.
* As of December 31, 1993, the Company redeemed the remaining 355,956
shares of Class A Preferred for a total of $10.4 million including $3.2
million of accrued dividends.
Note C - Purchase of Customer Base
During July 1993, the Company acquired the specialized 800 customer
base of Call Home America, Inc. for $15.5 million plus a future payment to be
made based on certain average monthly revenue generated by the customers in
April, May and June 1994.
The Company is also acquiring additional customers from CHA under a
marketing agreement from August 1993 through 1994. Under this agreement, an
additional $4.1 million has been allocated to the purchase price for customers
acquired during 1993.
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 transactions taken
place on the dates presented and do not project the Company's results of
operations.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1993 1992
---------- ----------
(in thousands except per share amounts)
<S> <C> <C>
Revenue $447,077 $385,591
</TABLE>
F-11
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C>
Income Before Extraordinary Items
and Cumulative Effect of
Accounting Change 41,457 13,655
Net Income 47,467 20,655
Earnings Per Common and Common
Equivalent Share:
Income before extraordinary
items and cumulative effect
of accounting change $1.12 $0.42
Net Income $1.28 $0.73
</TABLE>
NOTE D - Long Term Debt and Other Financing
Long-term debt, including amounts due within one year, consists of:
<TABLE>
<CAPTION>
December 31,
------------------------------
1993 1992
--------- --------
(In Thousands)
<S> <C> <C>
Restructured Promissory Note $ 12,566
11 7/8% Subordinated Notes of Allnet
due 1999 - face value of $72,380,000
less discount of $10,397,000 61,983
9% Senior Subordinated Notes
due 2003 - face value of $85,000,000
less discount of $665,000 $ 84,335
Capitalized lease obligations (Note H) 541 8,851
Other long-term debt 3,114 2,308
-------- -------
$ 87,990 $ 85,708
Due within one year 392 11,417
-------- -------
$ 87,598 $ 74,291
-------- --------
-------- --------
</TABLE>
Revolving Credit Facility
The Company has a $40.0 million Revolving Credit Facility which
expires on June 30, 1995. Under this Facility, the Company is able to minimize
interest expense by structuring borrowings under three alternatives. Each
alternative has a varying interest rate calculation associated with it. The
effective rate under the Facility during 1993 approximated 5.8%. The agreement
includes financial covenants which allow the Company to further reduce interest
expense on outstanding borrowings beginning in July 1994.
F-12
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A .375% per annum charge is made on the unused portion of the line.
Availability under the Facility is based on the level of
eligible accounts receivable. As of December 31, 1993, the Company had $39.8
million of availability under the line. Borrowings under the facility (none at
December 31, 1993) are collateralized by accounts receivable.
9% Senior Subordinated Notes
In May 1993, the Company issued the 1993 Notes with a face value of
$85.0 million. Interest on the 1993 Notes is payable semi-annually commencing
November 15, 1993. The Notes will mature on May 15, 2003, but are redeemable
at the option of the Company, in whole or in part, on or after May 15, 1998.
In the event of an ownership change, the holders have the right to require the
Company to purchase all or part of the 1993 Notes. The 1993 Notes contain
restrictive covenants which could limit additional indebtedness and restrict the
payment of dividends.
Other Long-Term Debt
Other long-term debt represents deferred liabilities relating to
certain operating leases.
Future Maturities
The future maturities of long-term debt at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31:
<S> <C>
1994 $ 392
1995 1,449
1996 808
1997 716
1998 108
1999 and thereafter 85,182
-------
$88,655
Less discount on 1993 Notes 665
-------
$87,990
-------
-------
</TABLE>
NOTE E - Redeemable Preferred Stock
As of December 31, 1991, the Company had 2,500,000 shares of Class A
Preferred outstanding with a redemption value of $48.9 million plus accrued
dividends. In October 1992, pursuant to the
F-13
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Exchange Agreement with the major holders of the Class A Preferred the Company
exchanged 2,144,044 shares of Class A Preferred for 6,399,227 shares of ALC
Common Stock at an effective 40% discount.
In September 1992, ALC paid approximately $1.3 million to certain
major holders of the Class A Preferred in connection with a concession
agreement entered into in June 1990.
In July 1993, a dividend of $0.32 per share was declared which was
subsequently paid September 30, 1993. In December 1993, the Company redeemed
the remaining 355,956 shares of Class A Preferred for $10.4 million including
$3.2 million of accrued dividends.
NOTE F - Taxes on Income
Effective as of January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when those differences are expected to
reverse.
As permitted by Statement 109, the Company has elected not to restate
the financial statements of any prior years. The cumulative effect of the
change resulted in recording net deferred tax assets and increasing net income
in 1993 by $13.5 million.
Income tax expense and the extraordinary item as shown in the
Consolidated Statement of Operations are composed of the following:
<TABLE>
<CAPTION>
Statement 109 APB 11
------------- -------------------------------
1993 1992 1991
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Federal
- -------
Income tax expense $16,150 $8,075 $2,240
Extraordinary item $6,445 $2,095
State
- -----
Income tax expense $ 2,600 $1,625 $ 765
Extraordinary item $ 555 $ 535
</TABLE>
Due to the change of ownership which occurred in August 1992 and the
resulting limitation on the utilization of net operating loss carryforwards
("NOLs"), the Company is subject to the regular tax, resulting in federal taxes
currently payable of $6.7 million
F-14
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for 1993 and $1.6 million for 1992. In 1991, the Company was subject to
alternative minimum tax which was imposed at a 20% rate on the Company's
alternative minimum taxable income. NOLs were used to offset 90% of the
taxable income resulting in federal taxes currently payable of $100,000 for
1991.
The provisions for state and local income taxes reflect the effect of
filing separate company state and local income tax returns for members of the
consolidated group. This amount is reduced, where appropriate, by the
availability to utilize state and local portions of operating loss
carryforwards. State and local income taxes currently payable were $1.2
million, $1.1 million, and $200,000 in 1993, 1992, and 1991, respectively.
The $5.5 million tax benefit realized from the exercise of stock
options in 1993 was added to capital in excess of par value and is not
reflected in operations.
A reconciliation between the statutory federal and the effective
income tax rates follows:
<TABLE>
<CAPTION>
Percentage of pre-tax income
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Income tax at statutory rate 35.0% 34.0% 34.0%
Goodwill amortization 0.9 2.2 9.1
State taxes
(net of federal benefit) 2.8 4.6 8.9
Utilization of operating loss
carryforwards under Stmt. 109 (5.9)
Other ( .7) .4 .5
----- ----- -----
Income tax expense 32.1% 41.2% 52.5%
Extraordinary item, utilization
of operating loss carryforwards
under APB 11 (29.8) (46.0)
------ ------- ------
Income tax expense, net of
extraordinary item 32.1% 11.4% 6.5%
------ ------- ------
------ ------- ------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes. Significant components of the
Company's deferred taxes as of December 31, 1993 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liability:
Prepaid expenses $ (1,500)
Deferred tax assets:
Future tax benefit of NOL
carryforward $ 44,700
Bad debt expense 1,500
</TABLE>
F-15
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
Compensation 900
Depreciation and other 1,138
--------
$ 48,238
Valuation allowance for
deferred tax assets (34,900)
---------
Total deferred tax assets $ 13,338
---------
Net deferred tax assets $ 11,838
---------
---------
</TABLE>
The Company has tax net operating loss, alternative tax net operating
loss and investment tax credit ("ITC") carryforwards which can be utilized
annually to offset future taxable income. Because of the "ownership changes"
which occurred in 1989 and 1992 under provisions of Internal Revenue Code
Section 382, the utilization of carryforwards is presently limited to
approximately $10 million per year through 2005. This annual limitation,
coupled with the 15 year carryforward limitation, results in a maximum
cumulative NOL and ITC carryforward which may be utilized of approximately $120
million as of December 31, 1993. Because it is difficult to predict the
realization of the NOL benefit beyond a period of three years, the Company has
established a valuation allowance of $34.9 million as of December 31, 1993.
NOTE G - Earnings Per Share and Stockholders' Equity
Earnings per share
Earnings per share are computed using weighted average shares
outstanding, adjusted for the one for five reverse stock split in 1991, and
common stock equivalents. To arrive at income available for common
stockholders, the Company's net income is adjusted by amounts relating to the
accretion of discount and dividends accrued on Class A Preferred, and in 1992
and 1991, the accretion of a contract payment to certain major holders of the
Class A Preferred. Anti-dilutive securities for 1992 were warrants and options
and for 1991 also included Class B and Class C Preferred Stock. Earnings per
share for the third and fourth quarters of 1992 and for all of 1993 include the
impact of the exercise of outstanding stock options and warrants utilizing the
Treasury Stock Method.
Common Stock Warrants
As of December 31, 1993, warrants for the purchase of 428,090 shares of
Common Stock at $2.00 per share, 3,177,856 shares at $5.00 per share and 660,000
shares at $63.75 per share were outstanding. The warrants expire in June 2005,
June 1997 and December 1995, respectively. The $2.00 and $5.00 warrants were
issued in connection with the Company's refinancings and the difference between
the exercise price and the fair value of the warrants at
F-16
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the time of issuance was recorded as a discount on the related notes and an
increase to Paid-in-capital - warrants.
Employee Stock Options
The Company has two Employee Stock Option Plans. The maximum number
of shares for which options may be granted under both plans is 6,000,000
(adjusted for certain events such as a recapitalization). The plans provide
for the granting of stock options and stock appreciation rights to key
employees.
Shares under option are summarized below:
<TABLE>
<CAPTION>
Number Option Price
of ----------------
Shares Per Share Total
------ --------- ------
(Totals in thousands)
<S> <C> <C> <C>
Shares under option
December 31, 1990 2,999,353 $ 3.50 - $48.75 $13,455
Options Terminated (294,799) $ 3.50 - $48.75 (3,986)
Options Granted 106,000 $ 3.50 - $ 4.40 448
Options Exercised (8,838) $ 3.50 (31)
---------- ---------------- --------
Shares under option
December 31, 1991 2,801,716 $ 3.50 - $ 4.40 $ 9,886
Options Terminated (72,219) $ 3.50 - $ 5.88 (297)
Options Granted 1,080,876 $ 4.38 - $ 7.69 5,796
Options Exercised (173,345) $ 3.50 (607)
--------- ---------------- --------
Shares under option
December 31, 1992 3,637,028 $ 3.50 - $ 7.69 $14,778
Options Terminated (17,318) $ 3.50 - $ 5.88 (90)
Options Granted 1,630,500 $25.06 - $26.25 40,973
Options Exercised (755,265) $ 3.50 - $ 7.69 (2,803)
--------- --------------- --------
Shares under option
December 31, 1993 4,494,945 $ 3.50 - $26.25 $52,858
---------- --------------- --------
---------- --------------- --------
Options exercisable,
December 31, 1991 1,009,002 $ 3.50 $ 3,532
---------- --------------- --------
---------- --------------- --------
Options exercisable,
December 31, 1992 2,012,566 $ 3.50 - $ 4.68 $ 7,131
---------- --------
---------- --------
Options exercisable,
December 31, 1993 1,893,888 $ 3.50 - $ 5.88 $ 7,078
---------- --------------- --------
---------- --------------- --------
</TABLE>
NOTE H - Leases
F-17
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum rental payments under non-cancelable operating leases
with initial or remaining terms of one or more years are $36.4 million, $24.8
million, $20.2 million, $14.7 million, $11.6 million and $15.0 million for
1994, 1995, 1996, 1997, 1998 and 1999 and thereafter, respectively.
The Company's lease arrangements frequently include renewal options
and/or bargain purchase or fair market value purchase options, and for leases
relating to office space, rent increases based on the Consumer Price Index or
similar indices.
Non-cancelable operating leases relate primarily to intercity
transmission facilities, building and office space, and office equipment.
Rental expense was $49.9 million, $52.3 million, and $56.9 million for the
years ended December 31, 1993, 1992 and 1991, respectively.
Fixed assets include amounts financed by capital leases of $600,000 net
of $400,000 of accumulated depreciation, and $11.4 million, net of $9.4 million
of accumulated depreciation as of December 31, 1993 and 1992, respectively.
NOTE I - Transactions with Related Parties
The Company leases transmission capacity, multiplexing and various
other technical equipment on both capital and operating leases from an
affiliate of CTI, a major shareholder through August 1992. Amounts paid under
the leases were $17.7 million and $19.7 million for the years ended December
31, 1992 and 1991, respectively.
In June 1992, the Company paid $2.0 million to CTI for the purchase of
certain assets including an $800,000 note from a major holder of Class A
Preferred which was paid in full upon closing of the 1992 equity offering.
Consideration for the transaction also included $1.2 million of prepaid
transmission capacity to be utilized over a 37 month period.
During August 1992, CTI conveyed 14,324,000 shares of ALC Common Stock,
1,000,000 shares of Class B Preferred Stock and 1,000,000 shares of Class C
Preferred Stock to the Banks in exchange for the release of certain
obligations of CTI. This exchange effected a transfer of controlling interest
in the Company from CTI to the Banks. Pursuant to this transfer, The
Prudential Insurance Company of America ("Prudential") became a related party
through beneficial ownership of options on the stock held by the Banks. During
1992, Prudential held $3.4 million of 1990 Notes which were paid in full in
August 1992. As of December 31, 1992, Prudential owned 1990 Warrants to
purchase
F-18
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1,975,804 shares of ALC Common Stock. During the March 1993 equity offering
Prudential sold 1,963,784 shares of which 963,784 represented the exercise of a
portion of their warrants. Prudential exercised their remaining 1,012,020
warrants during the September 1993 equity offering and as a result of these
sales, no longer has a substantial equity position in ALC.
The transfer of stock during August 1992 from CTI to the Banks gave
NationsBank of Texas, N.A. and The First National Bank of Chicago related party
status through their ownership of Common, Class B Preferred Stock and Class C
Preferred Stock. The March 1993 equity offering facilitated the sale by the
Banks of 8,386,216 shares of which 3,796,000 were received upon the conversion
of all the Class B and Class C Preferred Stock. The Banks further reduced
their ownership interest in the Company to a minimal position through
subsequent sales and the transfer of other shares to Prudential. The Banks
held the Restructured Promissory Note which was paid in full in May 1993.
As of December 31, 1993, Grumman Hill Associates, Inc. and Grumman
Hill Investments L.P., of which Richard D. Irwin (the Chairman of the Board of
Directors of the Company) is the General Partner, held an aggregate of 622,486
warrants to purchase shares of Common Stock. Additionally, Grumman Hill
Investments, L.P. holds options to purchase 153,163 shares of Common Stock.
F-19
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
March 31, June 30, Sept. 30, Dec.31,
1993 1993 1993 1993
--------- --------- --------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenue $101,844 $104,233 $113,098 $117,257
Gross Margin $ 46,377 $ 47,409 $ 52,537 $ 55,260
Income before
extraordinary item
and cumulative
effect of accounting
change $ 8,004 $ 8,392 $ 10,854 $ 12,426
Net income $ 21,504 $ 902 $ 10,854 $ 12,426
Income per common and
common equivalent
share before
extraordinary item
and cumulative
effect of accounting
change $ 0.23 $ 0.23 $ 0.29 $ 0.32
Net income per
common and common
equivalent share $ 0.61 $ 0.02 $ 0.29 $ 0.32
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
March 31, June 30, Sept. 30, Dec.31,
1992 1992 1992 1992
--------- --------- --------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenue $ 92,043 $ 92,659 $ 95,673 $ 95,689
Gross Margin $ 35,993 $ 37,423 $ 42,943 $ 42,816
Income before
extraordinary item $ 1,941 $ 2,712 $ 4,190 $ 4,983
Net income $ 3,267 $ 4,434 $ 5,882 $ 7,243
Income per common and
common equivalent
share before
extraordinary item $ 0.03 $ 0.07 $ 0.15 $ 0.16
Net income per
common and common
equivalent share $ 0.09 $ 0.15 $ 0.20 $ 0.23
</TABLE>
F-20
<PAGE> 71
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY SCHEDULE V
Property and Equipment
<TABLE>
<CAPTION>
Balance at
beginning of Balance at
Description period Additions Retirements end of period
- ------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Furniture & fixtures $ 6,662,000 $ 414,000 ($1,261,000) $ 5,815,000
Office equipment 18,695,000 3,907,000 (1,929,000) 20,673,000
Leasehold improvements 7,100,000 333,000 (379,000) 7,054,000
Switch equipment 34,444,000 5,679,000 35,000 40,158,000
Ancillary equipment 18,578,000 597,000 (198,000) 18,977,000
Transmission systems 16,589,000 1,834,000 (19,000) 18,404,000
Construction in progress 3,443,000 3,279,000 6,722,000
Transportation equipment 305,000 164,000 (13,000) 456,000
------------- ------------ ------------ -------------
$105,816,000 $16,207,000 ($3,764,000) $118,259,000
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Year ended December 31, 1992
Furniture & fixtures $ 6,748,000 $ 190,000 ($ 276,000) $ 6,662,000
Office equipment 17,753,000 2,339,000 (1,397,000) 18,695,000
Leasehold improvements 7,518,000 41,000 (459,000) 7,100,000
Switch equipment 32,171,000 3,158,000 (885,000) 34,444,000
Ancillary equipment 18,009,000 1,168,000 (599,000) 18,578,000
Transmission systems 15,713,000 1,313,000 (437,000) 16,589,000
Construction in progress 1,349,000 2,094,000 3,443,000
Transportation equipment 167,000 138,000 305,000
------------- ------------ ------------ -------------
$ 99,428,000 $10,441,000 ($4,053,000) $105,816,000
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Year ended December 31, 1991
Furniture & fixtures $ 7,322,000 $ 176,000 ($ 750,000) $ 6,748,000
Office equipment 18,353,000 1,730,000 (2,330,000) 17,753,000
Leasehold improvements 8,037,000 52,000 (571,000) 7,518,000
Switch equipment 32,027,000 2,400,000 (2,256,000) 32,171,000
Ancillary equipment 18,975,000 976,000 (1,942,000) 18,009,000
Transmission systems 14,293,000 918,000 502,000 15,713,000
Construction in progress 728,000 621,000 1,349,000
Transportation equipment 167,000 167,000
------------- ------------ ------------ -------------
$ 99,735,000 $ 7,040,000 ($7,347,000) $ 99,428,000
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Depreciable lives used are as
follows:
Years
-------------
Furniture & fixtures 10
Office equipment 3 - 5
Leasehold improvements 1 - 10
Switch equipment 10
Ancillary equipment 10
Transmission systems 10
Transportation equipment 3
</TABLE>
F-21
<PAGE> 72
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY SCHEDULE VI
Accumulated Depreciation on Property and Equipment
<TABLE>
<CAPTION>
Balance at Additions Retirements
beginning of charged to and Balance at
Descriptions period expense transfers end of period
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Furniture & Fixtures $4,701,000 $ 495,000 ($1,287,000) $ 3,909,000
Office Equipment 14,133,000 2,244,000 (1,898,000) 14,479,000
Leashold Improvements 6,522,000 228,000 (377,000) 6,373,000
Switch Equipment 15,245,000 3,640,000 16,000 18,901,000
Ancillary Equipment 13,045,000 1,527,000 (195,000) 14,377,000
Transmission Systems 10,128,000 1,532,000 (16,000) 11,644,000
Transportation Equipment 98,000 144,000 (7,000) 235,000
------------ ------------ ------------ --------------
$63,872,000 $9,810,000 ($3,764,000) $69,918,000
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------
Year ended December 31, 1992
Furniture & Fixtures $ 4,427,000 $ 503,000 ($ 229,000) $ 4,701,000
Office Equipment 13,875,000 1,653,000 (1,395,000) 14,133,000
Leashold Improvements 6,592,000 351,000 (421,000) 6,522,000
Switch Equipment 12,464,000 3,409,000 (628,000) 15,245,000
Ancillary Equipment 11,442,000 1,982,000 (379,000) 13,045,000
Transmission Systems 8,950,000 1,437,000 (259,000) 10,128,000
Transportation Equipment 11,000 87,000 98,000
------------ ------------ ------------ --------------
$57,761,000 $9,422,000 ($3,311,000) $63,872,000
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------
Year ended December 31, 1991
Furniture & Fixtures $ 4,404,000 $ 746,000 ($ 723,000) $ 4,427,000
Office Equipment 14,231,000 1,849,000 (2,205,000) 13,875,000
Leashold Improvements 6,688,000 442,000 (538,000) 6,592,000
Switch Equipment 11,001,000 3,291,000 (1,828,000) 12,464,000
Ancillary Equipment 10,733,000 2,616,000 (1,907,000) 11,442,000
Transmission Systems 6,924,000 1,949,000 77,000 8,950,000
Transportation Equipment 11,000 11,000
------------ ------------ ------------ --------------
$53,981,000 $10,904,000 ($7,124,000) $57,761,000
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------
</TABLE>
F-22
<PAGE> 73
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY SCHEDULE VIII
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Additions Additions
Balance at charged to charged to Balance at
beginning cost and other end of
Description of period expenses accounts Deductions (3) period
------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts $3,334,000 $12,638,000 (1) $11,998,000 $ 3,974,000
------------ ------------- ------------ ------------- ------------
------------ ------------- ------------ ------------- ------------
Deferred tax asset $ 0 $37,000,000 (2) $ 2,100,000 $34,900,000
------------ ------------- ------------ ------------- ------------
------------ ------------- ------------ ------------- ------------
Year ended December 31, 1992
Allowance for doubtful accounts $3,676,000 $14,551,000 (1) $14,893,000 $ 3,334,000
------------ ------------- ------------ ------------- ------------
------------ ------------- ------------ ------------- ------------
Year ended December 31, 1991
Allowance for doubtful accounts $3,229,000 $14,649,000 (1) $14,202,000 $ 3,676,000
------------ ------------- ------------ ------------- ------------
------------ ------------- ------------ ------------- ------------
</TABLE>
- -----------------------
(1) Amounts accounted for as a reduction of revenue.
(2) In connection with the Company's adoption of Statement of Financial
Standards No. 109, "Accounting for Income Taxes", a valuation allowance
for deferred tax assets of $37,000,000 was recorded January 1, 1993. (See
Note F to the Consolidated Financial Statements).
(3) Uncollectible accounts written off, net of recoveries.
F-23
<PAGE> 74
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY SCHEDULE IX
Short-term Borrowings
<TABLE>
<CAPTION>
Weighted
Maximum Average average
Weighted amount amount interest
Balance at average outstanding outstanding rate
Category of aggregate end of interest during during during
short-term borrowings (4) period rate the period the period the period
------------ ------------ ------------ ------------ -------------
(1) (2)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Notes payable $ 0 $12,500,000 $ 3,899,653 12.30%
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Line of Credit (3) $ 0 $22,633,000 $11,637,000 13.20%
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Year ended December 31, 1992:
Notes payable $12,500,000 $27,985,000 $19,801,364 10.19%
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Line of Credit $14,802,000 $21,791,000 $12,077,000 12.36%
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Year ended December 31, 1991:
Notes payable $27,985,000 $27,985,000 $16,325,000 8.00%
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Line of Credit $ 9,402,000 $19,298,000 $14,114,000 14.11%
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>
(1) Based on month end amounts outstanding during the period
(2) Based on total interest expense for the period and average amount
outstanding during the period
(3) Line of Credit was classified as short-term through May 1993, upon
refinancing the line in June 1993, the balance was transfered to
long-term.
F-24
<PAGE> 1
PAGE 1 Exhibit 3.1
State of Delaware
Office of the Secretary of State
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RESTATED CERTIFICATE OF INCORPORATION OF "ALC COMMUNICATIONS CORPORATION" FILED
IN THIS OFFICE ON THE ELEVENTH DAY OF JANUARY, A.D. 1994, AT 12 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO KENT COUNTY
RECORDER OF DEEDS ON THE ELEVENTH DAY OF JANUARY, A.D. 1994 FOR RECORDING.
* * * * * * * * *
[LOGO] /s/ WILLIAM T. QUILLEN
William T. Quillen, Secretary of State
AUTHENTICATION: *4237400
DATE: 01/11/1994
940115156
<PAGE> 2
RESTATED CERTIFICATE OF
INCORPORATION OF ALC COMMUNICATIONS CORPORATION
ALC Communications Corporation, a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is ALC Communications
Corporation. ALC Communications Corporation was originally incorporated under
the name Alex Corporation, and the original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware on
August 26, 1985 as amended on November 19, 1985, December 13, 1985, June 1,
1987, August 5, 1988, October 12, 1990, September 3, 1991 and March 25, 1993.
2. Pursuant to Section 245(b) of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation only
restates and integrates and does not further amend, the provisions of the
Certificate of Incorporation of this corporation as heretofore amended and
supplemented, and there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation.
3. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated to read in its entirety
as follows:
ARTICLE FIRST
The name of the corporation is ALC COMMUNICATIONS CORPORATION (the
"Corporation").
ARTICLE SECOND
The registered office of the Corporation in the State of
Delaware is located at 32 Loockerman Square, Suite L-100 in the City of Dover,
County of Kent. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE THIRD
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the Delaware General Corporation Law.
ARTICLE FOURTH
Chapter 1. Authorized Capital Stock
The Corporation shall have authority to issue 215-1/2 million
shares of its capital stock, which shall consist of (a) 200 million shares
designated "Common Stock," having a par value of $0.01 per share ("Common
Stock"); and (b) 15-1/2 million shares designated "Preferred Stock," having a
par value of $0.01 per share ("Preferred Stock"). The voting powers,
designations, preferences and relative,
<PAGE> 3
participating, optional or other special rights of, and the qualifications,
limitations or restrictions on, each class and series of capital stock of the
Corporation shall be as set forth in this Article Fourth and as provided by
law.
Chapter 2. No Pre-Emptive Rights
No holder of any capital stock, or holder of any security or
obligation convertible into or entitling any person to purchase any capital
stock, shall be entitled as a matter of right, to purchase or subscribe for any
unissued capital stock of the Corporation of any class or series now or
hereafter authorized or any security or obligation convertible into such stock,
and such stock, securities and obligations may be issued for such consideration
and to such persons as the Board of Directors may determine and as permitted by
law without causing the holders of any such stock or convertible securities or
obligations to have any purchase rights or other rights of any kind.
Chapter 3. Classes and Series
The Board of Directors shall have the authority to fix by
resolution or resolutions the voting powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions of any class or classes of stock of
the Corporation, and shall have the authority to specify the number of shares
of any series of a class so authorized.
Chapter 4. Common Stock
Each holder of Common Stock shall be entitled to one vote for
each Common Share held by such holder on all matters upon which holders of
Common Stock shall be entitled or afforded the opportunity to vote (whether at
a meeting or by written consent).
Every share of Common Stock shall have the same relative rights
as and be identical in all respects with every other share of Common Stock.
In the event of any liquidation, dissolution or winding up of
the Corporation, after there shall have been paid to or set aside for the
holders of any capital stock having preference over the Common Stock in the
event of liquidation, dissolution or winding up the full preferential amounts
to which they are respectively entitled, the holders of the Common Stock and of
any class or series of stock entitled to participate therewith, in whole or in
part, as to distribution of assets, shall be entitled to receive the remaining
assets of the Corporation available for distribution, in cash or in kind pro
rata based on the number of such shares outstanding.
-2-
<PAGE> 4
Chapter 5. Preferred Stock
Preferred Stock may be issued, from time to time, in one or more
classes and series, and each such class and series shall be known and
designated by such designations as may be stated and expressed in a resolution
or resolutions adopted by the Board of Directors and as shall be set forth in a
certificate made, executed, acknowledged, filed and recorded in the manner
required by the General Corporation Law of the State of Delaware in order to
make such certificate effective.
Each such class and series shall consist of such number of
shares as shall be stated and expressed in such resolution or resolutions
providing for the issue of the stock of such class or series together with such
additional number of shares as the Board of Directors by resolution or
resolutions may from time to time determine to issue as a part of such class or
series.
All shares of any one class or series shall be identical to each
other in all respects, except that shares of any one class or series issued at
different times may differ as to the dates from which dividends thereon, if
cumulative, shall be cumulative and except that any class may be subdivided
into series and each series may vary from any other series in such class in
such manner as shall be specified in the terms governing such series.
The Board of Directors shall have the power and authority to
state and determine, in the resolution or resolutions providing for the issue
of each class or series of Preferred Stock, the following attributes:
(a) The voting powers, if any, of the shares of such
class or series;
(b) The dividend rights, if any, of the shares of
such class or series (including the rates at which, the
conditions upon which, and the times at which dividends are
payable on such shares), the dividend preferences, if any, as
between such class or series and any other class or series of
stock, whether and the extent to which dividends on such class
or series shall be cumulative, and any limitations, restrictions
or conditions on the payment of such dividends;
(c) The consideration for which, the time or times
during which the price or prices or the rate or rates at which,
the manner in which, and any other terms or conditions upon
which the shares of such class or series may be redeemed, if
redeemable;
(d) The rights of such class or series upon the
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation.
(e) The terms, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for,
shares of stock of any other class or classes or of any other
series of the same or any other class or classes, including the
price or prices or the rate or rates of conversion or exchange
and provisions of readjustments if any; and
-3-
<PAGE> 5
(f) All other designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof so far as
they are not inconsistent with any provision of this Amended and
Restated Certificate of Incorporation (the "Certificate of
Incorporation") and to the full extent now, or hereafter
permitted by the General Corporation Law of the State of
Delaware.
The foregoing provisions of this Chapter 5 with respect to the creation or
issuance of classes and series of Preferred Stock shall be subject to any
additional conditions with respect thereto which may be contained in any
resolutions then in effect which shall have previously been adopted in
accordance with the foregoing provisions of this Chapter 5 with respect to any
then outstanding class or series of Preferred Stock.
ARTICLE FIFTH
The number of directors of the Corporation shall be fixed by or
as prescribed in the bylaws and may be altered from time to time as provided
therein, but in no event shall the number of directors of the Corporation be
less than one nor more than 21. Election of directors need not be by ballot
unless the bylaws so provide. The bylaws of the Corporation may be adopted,
amended or repealed by the affirmative vote of the holders of at least a
majority of the voting power of the Corporation's stock outstanding at the
record date for such vote. The bylaws may also be amended by the Board of
Directors by the affirmative vote of such number of the members of the Board as
constituted at the time such vote shall be taken as shall be prescribed by the
bylaws as constituted at the time such vote shall be taken. The bylaws may
contain any provision for the regulation and management of the affairs of the
Corporation and the rights or powers of its stockholders, directors, officers
or employees not inconsistent with Delaware General Corporation Law or this
Certificate of Incorporation.
ARTICLE SIXTH
The Corporation is to have perpetual existence.
ARTICLE SEVENTH
Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the Corporation may be
kept outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in or pursuant to the bylaws of
the Corporation.
ARTICLE EIGHTH
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation in
any manner now or hereafter prescribed herein and by the laws of the State of
Delaware, and all rights conferred upon stockholders herein are granted subject
to this reservation.
-4-
<PAGE> 6
ARTICLE NINTH
(a) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director except for liability: (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
(b) Each person who was or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer, of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (c) of this Article Ninth, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors.
The right to indemnification conferred in this Article Ninth shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article Ninth
or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(c) If a claim under paragraph (b) of this Article Ninth is
not paid in full by the Corporation within 30 days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required
-5-
<PAGE> 7
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(d) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Article Ninth shall not be exclusive of any right which any
person may have or hereafter acquire under any statute, provision of the
Certificate or Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
(e) The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE TENTH
This Certificate of Incorporation supersedes and takes the place
of the heretofore existing Certificate of Incorporation and all amendments
thereto.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be executed and attested and its corporate seal
to be affixed hereto this 7th day of January, 1994.
ATTEST: ALC COMMUNICATIONS CORPORATION
/s/ CONNIE R. GALE By: /s/ JOHN M. ZRNO
Connie R. Gale
Secretary
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<PAGE> 1
EXHIBIT 3.3
Page 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-----------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RETIREMENT OF STOCK OF "ALC COMMUNICATIONS CORPORATION" FILED IN THIS OFFICE ON
THE FOURTH DAY OF JANUARY, A.D. 1994, AT 3:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO KENT COUNTY
RECORDER OF DEEDS ON THE FOURTH DAY OF JANUARY, A.D. 1994 FOR RECORDING.
[SEAL] /s/ WILLIAM T. QUILLEN
------------------
William T. Quillen,
Secretary of State
Authentication: *4228064
Date: 01/04/1994
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:30 PM 01/04/1994
940045244-2069840
CERTIFICATE OF RETIREMENT OF THE
CLASS A PREFERRED STOCK
OF ALC COMMUNICATIONS CORPORATION
Pursuant to Section 243(b)
of the General Corporation Law
of the State of Delaware
ALC Communications Corporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. On December 10, 1993, the Board of Directors of the Corporation duly
adopted resolutions providing for the redemption of all outstanding shares of
the Corporation's Class A Preferred Stock, par value $0.01 per share ("Class A
Stock") on December 31, 1993.
2. The Class A Stock was redeemed on December 31, 1993.
3. The Restated Certificate of Incorporation of the Corporation prohibits
the reissuance of any shares of the Class A Stock and requires that all such
shares shall be cancelled or retired.
4. Accordingly, pursuant to the provisions of Section 243(b) of the General
Corporation Law of the State of Delaware, upon the filing of this Certificate
of Retirement, the Restated Certificate of Incorporation of the Corporation
shall be amended so as to eliminate all reference to the Class A Stock, thereby
reducing the total number of shares that the Corporation is authorized to issue
by 2-1/2 million.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Retirement to be executed and attested and its corporate seal to be affixed
hereto this 3rd day of January, 1994.
ALC COMMUNICATIONS CORPORATION
Attest: /s/ CONNIE R. GALE
---------------
Connie R. Gale,
Secretary
By: /s/ MARVIN C. MOSES
----------------------------
Marvin C. Moses,
Executive Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.1
ALC COMMUNICATIONS CORPORATION
1986 OPTION PLAN
PART 1: IDENTIFICATION OF THE PLAN
Section 1.1 Title. The Plan described herein shall be known as the "ALC
Communications Corporation 1986 Option Plan" and is referred to herein as this
"Plan".
Section 1.2 Purpose. The purpose of this Plan is (i) to provide certain
key employees of the Company and its subsidiaries with an additional incentive
to promote the Company's financial success and (ii) to provide an incentive
which the Company may use to induce able persons to enter into or remain in the
employment of the Company or a subsidiary.
Section 1.3 Adoption of this Plan. This Plan was initially approved by
the Company's Board of Directors on December 5, 1986. Options may be granted
under this Plan before it is approved by the Company's stockholders but no
option granted under this Plan may be exercised until and unless this Plan
shall be approved by the Company's stockholders. This Plan and all options
granted under this Plan shall automatically terminate and expire on December 5,
1987 unless this Plan shall be approved by the Company's stockholders not later
than December 5, 1987.
Section 1.4 Defined Terms. Certain terms used in this Plan have the
meaning indicated for such terms in Section 11.1 of this Plan.
<PAGE> 2
PART 2: ADMINISTRATION OF THE PLAN
Section 2.1 Committee's Powers. This Plan shall be administered by a
committee (herein called the "Committee") composed of persons appointed by the
Company's Board of Directors in accordance with the provisions of Section 2.2.
The Committee shall have full power and authority to prescribe, amend and
rescind rules and procedures governing administration of this Plan. Each
action of the Committee which shall be within the scope of the authority
delegated to the Committee by this Plan or by the Company's Board of Directors
shall be binding on all persons.
Section 2.2 Committee Membership. The Board of Directors shall have the
power to determine the number of members which the Committee shall have and to
change the number of membership positions on the Committee from time to time.
The Board of Directors shall appoint all members of the Committee. The Board
of Directors may from time to time appoint members to the Committee in
substitution for, or in addition to, members previously appointed and may fill
vacancies, however caused, on the Committee. Any member of the Committee may
be removed from the Committee by the Board of Directors at any time without
cause. No person may be appointed to the Committee who is not a director of
the Company at the time of such appointment or who shall not be disinterested
at the time of such appointment. For the purpose of this Plan, a person shall
be deemed to be "disinterested" at any given time if at all times during the
period of one year
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<PAGE> 3
preceding the given time such person shall not have been eligible to be granted
any option under this Plan or to be granted or allocated any stock or option
under any other plan of the Company or any of its affiliates entitling the
participants therein to acquire stock, stock purchase options, or stock
appreciation options relating to the stock of the Company or any affiliate of
the Company. A person's membership on the Committee shall automatically cease
when such person ceases to be a director of the Company or ceases to be
disinterested. At any time at which no special Committee shall have been
constituted by the Board especially for the purposes of this Plan, all
disinterested members of the Compensation Committee established pursuant to the
Company's By-Laws shall have all powers and rights delegated to the "Committee"
under this Plan.
Section 2.3 Committee Procedures. The Committee shall hold its meetings
at such times and places as it may determine. The Committee may make such
rules and regulations for the conduct of its business as it shall deem
advisable. Unless the Board or the Committee shall expressly decide to the
contrary, a majority of the members of the Committee shall constitute a quorum
and any action taken by a majority of the Committee members at a meeting at
which a quorum of committee members shall be present shall be deemed an act of
the Committee.
Section 2.4 Indemnification. No member of the Committee shall be liable,
in the absence of bad faith, for any act or omission with respect to his
service on the Committee relating to
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<PAGE> 4
this Plan. Service on the Committee shall constitute service as a director of
the Company so that the members of the Committee shall be entitled to
indemnification and reimbursement as directors of the Company for any action or
any failure to act in connection with service on the Committee to the full
extent at any time provided for or permitted by the Company's Certificate of
Incorporation or By-Laws or by any insurance policy or other agreement intended
for the benefit of the Company's directors or by any applicable law.
PART 3: PERSONS ELIGIBLE TO RECEIVE OPTIONS
A person shall be eligible to be granted an option under this Plan only if
on the proposed Granting Date for such option or at some time between the
Granting Date of such option and the exercise of such option, such person
either holds an officership position with the Company expressly provided for in
the Company's By-Laws as then constituted or meets the following standards:
(i) such person is employed by the Company or a subsidiary, (ii) such person
has managerial, supervisory or similar responsibilities, and (iii) such person
is not covered by any collective bargaining agreement binding on such person's
employer. A person eligible to be granted an option under this Plan is herein
called a "key employee". A director of the Company or a subsidiary who is not
also such an employee of the Company or a subsidiary shall not be eligible to
receive options under this Plan. Options may not be granted to any person
under this Plan at a time when such person is serving as a member of the
Committee.
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<PAGE> 5
PART 4: PURCHASE OPTIONS
Section 4.1 Power to Grant Purchase Options. The Committee shall have
the right and the power to grant at any time to any key employee an option
entitling such person to purchase Common Stock from the Company in such
quantity, at such price, on such terms and subject to such conditions
consistent with the provisions of this Plan as may be established by the
Committee on or prior to the Granting Date for such option. Each option to
purchase Common Stock which shall be granted by the Committee pursuant to the
provisions of this Part 4 is herein called a "purchase option."
Section 4.2 Purchase Price. Except as otherwise provided in Part 9, the
price at which each share may be purchased upon exercise of any stock purchase
option granted under this Plan may not be less than 80% of the per share market
value on the Granting Date for such option, provided that if a replaceable
option held by a key employee (whether or not granted under this Plan) shall be
surrendered to the Company or otherwise be terminated or expire, then an option
may be granted under this Plan not later than seven months after such
surrender, termination or expiration covering a number of shares not greater
than the shares subject to the surrendered, terminated or expired option which
shall not have been purchased by means of such option at an initial purchase
price per share equal to the purchase price per share prescribed by the
surrendered, terminated or expired option at the time of the surrender,
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<PAGE> 6
termination or expiration. For purposes of this Plan, an option
shall be deemed "replaceable" if: (i) it shall have been granted under this
Plan, under the ALC Communications Corporation 1982 Incentive Stock Option
Plan, the ALC Communications Corporation 1983 Incentive Stock Option Plan, the
ALC Communications Corporation 1984 Incentive Stock Option Plan, the ALC
Communications Corporation Employee Stock Option Plan, the ALC Communications
Corporation Non-Qualified Stock Option Plan, the ALC Communications
Corporation Employee Stock Purchase Plan or any other plan or program hereafter
or previously approved by the Company's stockholders; or (ii) the option shall
have been granted in the manner prescribed in this Section 4.2 to substitute
for a replaceable option; or (iii) the option shall have been originally
granted under a plan or arrangement that prohibited the grant of options for an
exercise price of less than 80% of the fair market value of the stock subject
to such option (determined as prescribed in such plan or arrangement); or (iv)
the board of directors of the corporation which shall have granted such option,
a committee of such board or the Committee existing under this Plan shall have
concluded in good faith that at the time such option was originally granted the
exercise price of such option was not less than 80% of the fair market value at
the time of such original grant of the shares subject to such option.
Section 4.3 Purchase Option Terms. The Committee shall have the power to
determine the key employees to whom purchase
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<PAGE> 7
options shall be granted under this Plan, the number of shares to be subject to
each purchase option granted under this Plan, the number of purchase options to
be awarded to each key employee and the time at which each purchase option under
this Plan shall be granted. Except as otherwise expressly provided in this
Plan, the Committee shall also have the power to determine, at the time of the
grant of each purchase option, all terms and conditions governing the rights
and obligations of the holder with respect to such option, including but not
limited to: (a) the exercise price per share or the method by which the
exercise price per shall shall be determined; (b) the length of the period
during which the option may be exercised and any limitations on the number of
shares purchasable with the option at any given time during such period; (c)
the times at which the option may be exercised; (d) any conditions precedent to
be satisfied before the option may be exercised; (e) any restrictions on resale
of any shares purchased upon exercise of the option; and (f) whether the option
will or will not constitute an incentive stock option under Section 422A of the
Internal Revenue Code.
Section 4.4 ISO Share Limitation. No person may be granted incentive
stock options under this Plan in any year entitling such person to purchase a
number of shares greater than the maximum number permitted by Section 422A of
the Internal Revenue Code as in effect on the date of grant. This Section 4.4
shall not be deemed to limit the quantity of shares which the Company may grant
the right to purchase in any year under options granted
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<PAGE> 8
under this Plan which are not intended to be incentive stock options.
Section 4.5 Other ISO Terms. Whenever possible, each provision in this
Plan and in every option at any time granted under this Plan which is evidenced
by an option agreement which expressly states such option is intended to
constitute an incentive stock option under Section 422A of the Internal Revenue
Code (herein called an "intended ISO") shall be interpreted in such manner as
to entitle such intended ISO to the tax treatment afforded by such Code to
options which do constitute incentive stock options under Section 422A of such
Code, but if any provision of this Plan or any intended ISO at any time granted
under this Plan shall be held to be contrary to the requirements necessary
to entitle such intended ISO to the tax treatment afforded by such Code to
options which do constitute incentive stock options under Section 422A of such
Code, then (i) such provision shall be deemed to have contained from the outset
such language as shall be necessary to entitle such intended ISO to the tax
treatment afforded by the Code to options which do constitute incentive stock
options under Section 422A of such Code, and (ii) all other provisions of this
Plan and such intended ISO shall remain in full force and effect. If any
agreement covering an intended ISO granted under this Plan shall not explicitly
include any terms required to entitle such intended ISO to the tax treatment
afforded by such Code to options which do constitute incentive stock options
under Section 422A of such
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<PAGE> 9
Code, then all such terms shall be deemed implicit in the intention to afford
such treatment to such option and such option shall be deemed to have been
granted subject to all such terms.
PART 5: APPRECIATION OPTIONS
Section 5.1 Power to Grant Appreciation Options. The Committee shall
have the right and the power to grant to any key employee at any time an option
having such terms consistent with the provisions of this Plan as the Committee
shall establish on the Granting Date for such option permitting the holder of
such option to elect to receive with respect to any share subject to such
option a payment from the Company payable as provided in Section 5.5 in an
amount (herein called such share's "incremental value") equal to the remainder
derived by subtracting (i) the "exercise price" established for such share in
accordance with the provisions of this Plan from (ii) the per share market
value on the date such option shall be exercised by its holder with respect to
such share. Each option which shall be granted by the Committee pursuant to
the provisions of this Part 5 is herein called an "appreciation option."
Section 5.2 Tandem Options. The Committee is hereby authorized to grant
to any key employee at any time an appreciation option consistent with the
provisions of this Plan covering any share which is at the time of such grant
also covered by a purchase option granted to the same employee either prior to
or simultaneously with the grant to such employee of the appreciation option
in such share, provided: (i) any purchase option
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<PAGE> 10
covering any share shall expire and not be exercisable after the exercise of
any related appreciation option with respect to the same share; (ii) any
appreciation option covering any share shall not be exercisable after the
exercise of any related purchase option with respect to the same share; and
(iii) a purchase option and an appreciation option covering the same share may
not be exercised simultaneously. The Committee is also authorized to grant at
any time to any key employee an appreciation option consistent with the
provisions of this Plan covering shares not simultaneously covered by a
purchase option.
Section 5.3 Appreciation Option Terms. The Committee shall have the
right and power to determine the key employees to whom appreciation options
shall be granted under this Plan, the number of shares to be subject to each
appreciation option granted under this Plan, the number of appreciation options
to be granted to each key employee, and the time at which each appreciation
option under this Plan shall be granted. Except as otherwise expressly
provided in this Plan, the Committee shall also have the right and power to
determine, at or prior to the time of the grant of each appreciation option,
all terms and conditions governing the rights and obligations of the holder
with respect to such option, including but not limited to: (a) the exercise
price for the shares covered by such option or the method by which such
exercise price shall be determined; (b) the length of the period during which
such option may be exercised and any limitations on the number of shares with
respect to which such option shall be
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<PAGE> 11
exercisable at any given time during such period; (c) any conditions precedent
which must be satisfied before the option may be exercised; and (d) the mix of
cash and Common Stock, or other consideration, to be used to make any payment
of incremental value which shall become due under such option.
Section 5.4 Exercise Price.
(a) Except as otherwise provided in paragraph (b) of this Section 5.4 or
in Part 9, the exercise price established under any appreciation option granted
under this Plan shall not be less than 80% of the per share market value on the
Granting Date of such appreciation option. If no exercise price shall be
established under the terms of the agreement granting any appreciation option,
then the exercise price for each share covered by such option shall be equal to
the per share market value on the Granting Date of such option.
(b) Except as otherwise provided in Part 9, the exercise price
established under any appreciation option granted to any key employee covering
any share which shall also be subject to a purchase option which shall have
been granted to the same employee earlier than the grant of such appreciation
option shall not be less than the lower of (i) the per share purchase price in
effect under such option at the time such appreciation option shall be granted
or (ii) 80% of the per share market value on the Granting Date of such
appreciation option.
Section 5.5 Payment of Incremental Value. Any payment of incremental
value which may become due from the Company by reason
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of any exercise of any appreciation option may be paid (i) all in cash, (ii)
all in Common Stock, (iii) in any combination of cash and Common Stock, or (iv)
in such other consideration as the Committee may approve. In the event any
Common Stock shall be delivered to satisfy all or any part of the incremental
value obligation arising by reason of any exercise of any appreciation option,
the dollar amount of such obligation deemed to have been satisfied by such
delivery of Common Stock shall be equal to the product derived by multiplying
the per share market value as of the date of exercise times the number of
shares delivered. The Committee may determine at the time each appreciation
option is granted the mix of cash and stock, or other consideration, to be used
to make any payment of incremental value which may become due by reason of any
exercise of any option, but in the absence of any such express determination by
the Committee to the contrary at the time of the grant of any given
appreciation option, the incremental value shall be payable entirely in cash.
No fractional share of Common Stock shall be issued to make any payment of
incremental value, and the mix of cash and stock payable in each case shall be
adjusted in such manner as shall be prescribed by the Committee to avoid the
issuance of any fractional share.
PART 6. TERMS APPLICABLE TO ALL OPTIONS GRANTED UNDER THE PLAN
Section 6.1 Plan Provisions Control Option Terms. The terms of this Plan
shall govern all options granted under this
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Plan, and in no event shall the Committee have the power to grant any option
under this Plan which is contrary to any of the provisions of this Plan. In
the event any provision of any option granted under this Plan shall conflict
with any term in this Plan as constituted on the Granting Date of such option,
the term in this Plan as constituted on the Granting Date of such option shall
control. Except as provided in Part 9, the terms of any option granted under
this Plan may not be changed after the Granting Date of such option without the
express approval of the option holder.
Section 6.2 Granting Date. An option shall be deemed to have been granted
under this Plan on the date (herein called the "Granting Date") designated by
the Committee at the time it shall approve such option as the Granting Date of
such option, provided that the Committee may not designate a Granting Date with
respect to any option which shall be earlier than the date on which the
granting of such option shall have been approved by the Committee.
Section 6.3 Option Agreement. No person shall have any rights under any
option granted under this Plan unless and until the Company and the person to
whom such option shall have been granted shall have executed and delivered an
agreement expressly granting the option to such person and containing
provisions setting forth the terms of the option.
Section 6.4 Ten Year Maximum Term. No option may be granted under this
Plan which may be exercised more than ten
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years after the Granting Date of such option; provided that if an appreciation
option shall be granted with respect to any share subject to a purchase option
and if pursuant to paragraph (b) of Section 5.4 the exercise price for such
share shall be set lower than the per share market value on the date of grant
of such appreciation option, then the expiration date of such appreciation
option shall be set not later than the expiration date for the related purchase
option.
Section 6.5. Modification of Option After Grant. Each option granted
under this Plan may be modified after the date of its grant by express written
agreement between the Company and its holder provided that any such change (i)
shall not be inconsistent with the terms of this Plan and (ii) shall be
approved by the Committee.
Section 6.6 Limitations on Transfer. No option granted under this Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and any option granted under this Plan may be exercised during
the lifetime of the person to whom the option shall initially have been granted
only by such person or by such person's guardian or legal representative. For
purposes of this Plan, the "holder" of any option granted under this Plan shall
during the life of the person to whom such option shall originally have been
granted be deemed to be such person or any guardian or legal representative for
such person to whom the right to exercise such option shall pass during such
person's lifetime and after the death of such
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<PAGE> 15
original grantee shall be deemed to be the person to whom the original
grantee's rights shall pass by reason of the original grantee's death.
Section 6.7 Taxes. The Company shall be entitled, if the Committee deems
it necessary or desirable, to withhold (or secure payment from the option
holder in lieu of withholding) the amount of any withholding or other tax due
from the Company with respect to any amount payable and/or shares issuable
under such holder's option, or with respect to any income recognized upon a
disqualifying disposition of shares received pursuant to the exercise of an
incentive stock option, and the Company may defer such payment or issuance
unless indemnified to its satisfaction against any liability for any such tax.
Section 6.8 No Right to Employment Conferred. Nothing in this Plan (or
in the absence of any express provision to the contrary) in any option granted
pursuant to this Plan, shall confer on any person any right to continue in the
employment of the Company or any subsidiary or interfere in any way with the
right of the Company or any subsidiary to terminate such person's employment at
any time.
PART 7: PROVISIONS GOVERNING OPTION EXERCISE
Section 7.1 Normal Option Term. Except as otherwise provided in Section
7.3 or Section 7.5, the right to exercise any option granted under this Plan
shall terminate at whichever of the following times shall earlier occur: (i)
the date which shall occur three months after the employment termination date
of
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<PAGE> 16
the holder of the option, or (ii) the expiration date of the option.
Section 7.2 Acceleration of Exercise Time. The Committee in its sole
discretion shall have the right (but shall not in any case be obligated) (i) to
permit purchase of shares under any purchase option prior to the time such
shares shall be purchasable under the terms of the agreement granting such
option, and (ii) to permit exercise of an appreciation option prior to the time
such option shall be exercisable under the terms of the agreement granting such
option.
Section 7.3 Extension of Exercise Time. The Committee in its sole
discretion shall have the right (but shall not in any case be obligated) to
permit any option granted under this Plan to be exercised more than three
months after the employment termination of the holder of such option, provided
that the Committee shall not have the right to permit exercise of any option
after its expiration date.
Section 7.4 Exercise Procedures. Each option granted under this Plan
shall be exercised by written notice to the Company. An option holder shall
not have any rights as a stockholder with respect to shares issuable under any
option granted under this plan until the exercise of that option with respect
to those shares. The purchase price of shares purchased upon the exercise of a
purchase option granted under this Plan shall be paid in full in cash by the
option's holder at the time of the delivery of such shares provided that the
Committee (or any Company
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<PAGE> 17
officer to whom the Committee shall delegate the authority) may (but need not)
permit payment to be made by delivery to the Company of either (i) shares of
Common Stock, (ii) any combination of cash and shares of Common Stock permitted
by the Committee (or any such officer), or (iii) such other consideration
permitted by the Committee. In the event any Common Stock shall be transferred
to the Company to satisfy all or any part of the exercise price, the part of
the exercise price deemed to have been satisfied by such transfer of Common
Stock shall be equal to the product derived by multiplying the per share market
value as of the date of exercise times the number of shares transferred. The
option holder may not transfer to the Company in satisfaction of the exercise
price (i) a number of shares which when multiplied times the per share market
value as of the date of exercise would result in a product greater than the
exercise price or (ii) any fractional share of Common Stock. Any part of the
exercise price paid in cash upon the exercise of any option granted under this
Plan shall be added to the general funds of the Company and may be used for any
proper corporate purpose. Unless the Board of Directors shall otherwise
determine, any Common Stock transferred to the Company as payment of all or
part of the purchase price upon the exercise of any option granted under this
Plan shall be utilized as soon as possible to supply the Common Stock
deliverable by reason of the subsequent exercise of options under this Plan and
until such use shall be held as treasury shares.
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Section 7.5 Death of Option Holder.
(a) Upon the death of the holder of an option granted under this Plan who
shall have been an employee of the Company or one or more subsidiaries of the
Company at the date of such holder's death, the right to exercise all unexpired
installments of such option shall be accelerated and shall accrue as of the
date of death, and the person or persons to whom such holder's rights under the
option shall pass by reason of such person's death may exercise the option with
respect to any or all of the shares subject to such option until the earlier of
(i) one year after the original holder's death or (ii) the expiration date of
the option.
(b) If the holder of an option granted under this Plan shall die after
such holder's employment termination date and if such option shall still have
been exercisable at the time of such holder's death, then the person or persons
to whom such holder's rights under such option shall pass by reason of such
holder's death, may, until one year after such holder's death or the
expiration date of the option, whichever is earlier, exercise such option to
the extent it would have been exercisable if such holder had exercised the
option immediately prior to such holder's death or to such greater extent as
may be permitted by the Committee. Any restrictions placed on the exercise of
an option which is intended to constitute an incentive stock option in order to
comply with the requirements of Section 422A(b)(7) of the Internal Revenue Code
prior to amendment by the Tax Reform
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<PAGE> 19
Act of 1986 shall be disregarded in determining the extent to which an option
could have been exercised immediately prior to the option holder's death but
shall apply to govern the required sequence of the exercise of the deceased
holder's options after such holder's death.
Section 7.6 Option Surrender. Any purchase option granted under this
Plan may be surrendered to the Company on such terms as the Committee and
holder of such option approve, including, but not limited to, terms which
provide that upon such surrender the Company will pay to such holder cash or
Common Stock issued by the Company, or a combination of cash and Common Stock
having a value equal to the amount by which the the product derived by
multiplying the number of shares (herein called the "number of unexercised
shares") subject to the option on the date (herein called the "Surrender Date")
as of which such option shall be surrendered times the per share market value
on the Surrender Date shall exceed the product derived by multiplying the
number of unexercised shares times the purchase price per share prescribed by
the surrendered option.
PART 8: SHARES SUBJECT TO THIS PLAN
Except as otherwise provided in Part 9, the options granted under this
Plan shall be limited so that the sum of the following shall never exceed
5,000,000 shares: (i) all shares which shall be purchased after 1986 upon the
exercise of purchase options at any time granted under ALC Communications
Corporation 1982 Incentive Stock Option Plan, the ALC Communications
Corporation
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1983 Incentive Stock Option Plan, the ALC Communications Corporation 1984
Incentive Stock Option Plan, the ALC Communications Corporation Employee Stock
Option Plan, the ALC Communications Corporation Non-Qualified Stock Option
Plan or the ALC, Communications Corporation Employee Stock Purchase Plan.
(ii) all shares which shall be purchased upon the exercise of purchase
options at any time granted under this Plan, (iii) all shares for which payment
of incremental value shall be made by reason of the exercise of appreciation
options at any time granted under this Plan, and (iv) the number of shares
determined by dividing the value of the cash or other consideration issued by
the Company pursuant to Section 7.6 of this Plan by reason of the surrender of
any option by the per share market value on the surrender date (provided that
if a new option shall be substituted for the surrendered option, the new option
shall (regardless of the exercise price prescribed therein) be deemed to have a
value of zero for purposes of this clause (iv)). In the event any option at
any time granted under this Plan shall be surrendered to the Company, be
terminated or expire before it shall have been fully exercised, then (except as
otherwise provided in clause (iv) in the first sentence in this paragraph) all
shares formerly subject to such option as to which such option shall not have
been exercised shall be available for any option subsequently granted in
accordance with the provisions of this Plan.
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<PAGE> 21
PART 9: ADJUSTMENTS TO REFLECT CAPITAL CHANGES
The number and kind of shares subject to outstanding options, the price
for which shares may be purchased upon the exercise of outstanding purchase
options, the exercise price for shares covered by outstanding appreciation
options and the number and kind of shares available for options, subsequently
granted under this Plan shall be appropriately adjusted to reflect any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in capitalization determined by the Board of
Directors to be similar to any of the changes expressly indicated in this
sentence in its substantive effect upon this Plan or the options granted under
this Plan. The Committee shall have the power to determine the amount of the
adjustment to be made in each case, but no adjustment approved by the Committee
shall be effective until and unless it is approved by the Company's Board of
Directors.
PART 10: AMENDMENT AND TERMINATION OF THIS PLAN
Section 10.1 Amendment. Except as provided in the following sentence,
the Board of Directors shall have complete power and authority to amend this
Plan at any time and no approval by the Company's stockholders or by any other
person, committee or other entity of any kind shall be required to make any
amendment approved by the Company's Board of Directors effective. The Board
shall not, however, do any of the following without the affirmative approval of
the Company's stockholders: (i) increase the maximum number of shares
available for options granted under
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this Plan except as provided in Part 9; or (ii) lower the minimum purchase
price permitted by this Plan for any option granted under this Plan; or (iii)
amend the requirements of this Plan as to the class of persons eligible to
receive options. No termination or amendment of this Plan may, without the
consent of the individual to whom any option shall theretofore have been
granted under this Plan, adversely affect the rights of such individual under
such option. For the purposes of this Section 10.1, an amendment to this Plan
shall be deemed to have the affirmative approval of the Company's stockholders
if such amendment shall have been submitted for vote by the Company's
stockholders at a duly called and constituted meeting of such stockholders at
which a quorum is present and a majority of the votes cast with respect to
such amendment at such meeting shall have been cast in favor of such amendment.
Section 10.2 Termination. The Board of Directors shall have the right
and the power to terminate this Plan at any time. If this Plan is not earlier
terminated, this Plan shall terminate on December 5, 1996. No options shall be
granted under this Plan after termination of this Plan, but the termination of
this Plan shall not have any other effect and any option outstanding at the
time of the termination of this Plan may be exercised after termination of
this Plan at any time prior to the expiration date of such option to the same
extent such option would have been exercisable had this Plan not terminated.
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<PAGE> 23
PART 11: INTERPRETATION OF THIS PLAN
Section 11.1 Definitions. Each term defined in this Section 11.1 has the
meaning indicated in this Section 11.1 whenever such term is used in this
Plan:
Appreciation Option - The term "appreciation option" has the meaning
such term is given in Section 5.1 of this Plan.
Board of Directors - The term "Board of Directors" and the term "Board"
each means the Company's Board of Directors as constituted at the time
as of which term shall be applied.
Committee - The term "Committee" has the meaning such term is given in
Section 2.1 of this Plan.
Common Stock - The term "Common Stock" means common stock issued or
issuable by the Company.
Company - The term "Company" as applied as of any given time means ALC
Communications Corporation except that if prior to the given time any
corporation or other entity shall have acquired (directly or by means of a
subsidiary) all or a substantial part of the assets of the "Company" (as
herein defined), and shall have agreed to assume the obligations of the
"Company" under this Plan, then such corporation or other entity shall be
deemed to be the "Company" at the given time.
Employment Termination Date - The term "employment termination date"
as applied to the holder of any option
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<PAGE> 24
granted under this Plan means the first date on which such option
holder shall not be employed by either the Company or any subsidiary for
any reason (including but not limited to voluntary termination of
employment, involuntary termination of employment, retirement, disability
or death). The Committee may specify in the original terms of any option
granted under this Plan, or if not so specified, shall determine whether
an authorized leave of absence or absence on military or government
service or absence for any other reason shall constitute a termination of
employment for the purposes of this Plan.
Exercise Price - The term "exercise price" as applied to any purchase
option granted under this Plan means the price at which stock may be
purchased upon exercise of such option established as prescribed in this
Plan. The term "exercise price" as applied to any appreciation option
granted under this Plan means the "exercise price" established for such
option under or pursuant to the provisions of Section 5.3, Section 5.4,
and Part 9 of this Plan as of the given time.
Expiration Date - The term "expiration date" as applied to any option
granted under this Plan means the date specified in the option agreement
between the Company and the holder as the expiration date of such option.
If no expiration date shall be specified in the option agreement relating
to any option, then the expiration date of such option
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<PAGE> 25
shall be the day prior to the tenth anniversary of the Granting Date of
such option.
Granting Date - The term "Granting Date" has the meaning given such
term in Section 6.2 of this Plan.
Incremental Value - The term "incremental value" has the meaning such
term is given in Section 5.1 of this Plan.
Key Employee - The term "key employee" has the meaning such term is
given in Part 3 of this Plan.
Option - The term "option" means any purchase option or appreciation
option granted under this Plan.
Per Share Market Value - The term "per share market value" on any
given date shall be the fair market value of one share of Common Stock on
the given date determined in such manner as shall be prescribed by the
Committee, provided that in the absence of any specific instructions from
the Committee to the contrary, the "per share market value" on any given
date shall be equal to the last per share sales price reported for the
Common Stock for the given date in the Wall Street Journal (if sales for
the Common Stock shall be reported for the given date in the Wall Street
Journal) or (if no sales of the Common Stock shall be reported for the
given date in the Wall Street Journal) for the first date prior to the
given date for which sales of the Common Stock shall be reported in the
Wall Street Journal.
Purchase Option - The term "purchase option" has the meaning such term
is given in Section 4.1 of this Plan.
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<PAGE> 26
Share - The term "share" means a share of Common Stock.
Subsidiary - Any corporation shall be deemed to be a "subsidiary" if
(i) securities issued by such corporation entitling the owner thereof to
elect a majority of the corporation's board of directors are owned and
controlled directly or indirectly by the Company and (ii) the ownership
requirements of Section 425(f) of the Internal Revenue Code are satisfied.
Section 11.2 Board Action. For the purposes of this Plan, the Board of
Directors shall be deemed to have approved any amendment to or termination of
this Plan or to have taken any other action with the Board is authorized to
take with respect to this Plan or any option granted under this Plan if such
amendment, termination or other action is approved (i) by a majority of the
directors present at a duly called and constituted meeting of the Board of
Directors at which a quorum is present, or (ii) by written consent executed by
all persons who are members of the Board of Directors at the time of the
execution of such consent, or (iii) in any other manner which at the time the
Board's actions shall be taken shall be sufficient under applicable law to
constitute approval by the Board of routine matters.
Section 11.3 Captions. The captions (i.e. all underlined words) used in
this Plan are for convenience only, do not constitute a part of this Plan, and
shall not be deemed to limit, characterize or affect in any way any provisions
of this Plan,
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<PAGE> 27
and all provisions of this Plan shall be construed as if no captions had been
used in this Plan.
Section 11.4 Severability. Whenever possible, each provision in this
Plan and every option at any time granted under this Plan shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Plan or any option at any time granted under this Plan shall
be held to be prohibited by or invalid under applicable law, then (i) such
provision shall be deemed amended to accomplish the objectives of the provision
as original written to the fullest extent permitted by law and (ii) all other
provisions of this Plan and every other option at any time granted under this
Plan shall remain in full force and effect.
Section 11.5 No Strict Construction. No rule of strict construction
shall be implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of this Plan, any option granted under this
Plan or any rule or procedure established by the Committee.
Section 11.6. Choice of Law. Every option at any time granted under this
Plan shall be deemed to be a contract made under the laws of the State of
Illinois. For all purposes, both this Plan and every option granted under this
Plan shall be construed in accordance with and governed by the laws of the
State of Illinois.
Section 11.7 Committee's Interpretations Conclusive. The Committee shall
have full power and authority to interpret the
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<PAGE> 28
terms of this Plan, the terms of options granted under this Plan, and the rules
and procedures established by the Committee. Any determination made by the
Committee as to the meaning of or requirements imposed by or rights of any
persons under this Plan, any option granted under this Plan, or any rule or
procedure established by the Committee shall be binding upon all persons
concerned.
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<PAGE> 29
AMENDMENT TO ALC COMMUNICATIONS CORPORATION
1986 OPTION PLAN
(approved by the shareholders at the Annual Meeting
of Shareholders, October 20, 1988)
The number 5,000,000 was substituted for the number 2,046,450 in the following
section of the Company's 1986 Option Plan:
PART 8: SHARES SUBJECT TO THIS PLAN
"Except as otherwise provided in Part 9, the options granted
under this Plan shall be limited so that the sum of the
following shall never exceed 5,000,000 shares."
<PAGE> 30
AMENDMENT TO THE 1986 OPTION PLAN ADOPTED BY THE BOARD OF DIRECTORS OF ALC
COMMUNICATIONS CORPORATION JUNE 29, 1990
SECTION 11.1 - ADD THE FOLLOWING DEFINITION
"Change of Control Event - The term, "Change of Control Event" means the sale
or transfer of all or a portion of the equity ownership by the majority
stockholder of the Company, as a result of which the majority stockholder no
longer controls more than 50% of the outstanding equity securities of the
Company and the power to elect a majority of the Board of Directors of the
Company; and"
SECTION 6.9 - ADD AS A NEW SECTION
"Change of Control Event. Unless otherwise specified by the Committee at the
time of grant of each option, and subject to such terms and conditions as the
Committee may establish at the time of grant, upon the occurrence of a Change
of Control Event, irrespective of whether or not an option is then exercisable,
the holder shall have the right to exercise any unexpired option in full to the
extent not theretofore exercised or terminated."
<PAGE> 1
EXHIBIT 10.2
ALC COMMUNICATIONS CORPORATION
1990 STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF OCTOBER 21, 1993
ARTICLE I
PURPOSE AND ADOPTION OF THE PLAN
1.01 PURPOSE. The purpose of the ALC Communications Corporation 1990
Stock Option Plan is to provide certain key employees of ALC and its
Subsidiaries with an additional incentive to promote the financial success of
ALC and to provide an incentive which ALC may use to induce able persons to
enter into or remain in the employment of ALC or a Subsidiary.
1.02 ADOPTION AND TERM. The Plan became effective as of May 10, 1990
following approval by stockholders of ALC. The Plan as amended and restated
herein is effective as of October 21, 1993 and will remain in effect until
December 31, 2000 unless earlier terminated or abandoned by action of the
Board; provided, however, that no Incentive Stock Option may be granted after
May 9, 2000.
ARTICLE II
DEFINITIONS
2.01 ADMINISTRATOR means the group of persons having authority to
administer the Plan pursuant to Section 3.01.
2.02 ALC means ALC Communications Corporation, a Delaware corporation.
2.03 AWARD means any one or combination of Non-Qualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, or any other award made
under the terms of the Plan.
2.04 AWARD AGREEMENT means a written agreement between ALC and
Participant or a written acknowledgment from ALC specifically setting forth the
terms and conditions of an Award granted under the Plan.
2.05 AWARD PERIOD means, with respect to an Award, the period of time
set forth in the Award Agreement during which specified conditions set forth in
the Award Agreement must be satisfied.
2.06 BENEFICIARY means (a) an individual, trust or estate who or which,
by will or by operation of the laws of descent and distribution, succeeds to
the rights and obligations of the Participant under the Plan and Award
Agreement upon the Participant's death; or (b) an individual, who by
designation of the Participant, succeeds to the rights and obligations of the
Participant under the Plan and Award Agreement upon the Participant's death.
<PAGE> 2
2.07 BOARD means the Board of Directors of ALC.
2.08 CHANGE OF CONTROL EVENT means (a) an event or series of events by
which any Person or other entity or group (as such term is used in Section
13(d) and 14(d) of the Exchange Act) of Persons or other entities acting in
concert as a partnership or other group (a "Group of Persons") (other than
Persons who are, or Groups of Persons entirely made up of, (i) management
personnel of ALC or its wholly-owned Subsidiary, Allnet Communication Services,
Inc. ("Allnet") or (ii) any affiliates of any such management personnel) shall,
as a result of a tender or exchange offer or offers, an open market purchase or
purchases, a privately negotiated purchase or purchases or otherwise, become
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 40% or more of the combined voting power of the then outstanding
voting stock of ALC or Allnet; (b) ALC or Allnet consolidates with, or merges
with or into, another Person (other than ALC or Allnet), or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person (other than ALC or Allnet), or any Person (other than
ALC or Allnet) consolidates with, or merges with or into, ALC or Allnet, in any
such event pursuant to a transaction in which the outstanding voting stock of
ALC or Allnet is converted into or exchanged for cash, securities or other
Property; (c) during any consecutive two-year period, individuals who at the
beginning of such period constituted either the Board or (if ALC does not own
all of the voting stock of Allnet) the Board of Directors of Allnet (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of ALC or Allnet, as the case may
be, was approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board or the Board of Directors of Allnet then in
office; or (d) any liquidation or dissolution of ALC or Allnet (other than a
liquidation of Allnet into ALC that is not otherwise a Change of Control
Event).
2.09 CODE means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes that section.
2.10 COMPANY COMMON STOCK means the Common Stock of ALC, par value $.01
per share.
2.11 DATE OF GRANT means the date designated by the Administrator as the
date as of which it grants an Award, which shall not be earlier than the date
on which the Administrator approves the granting of such Award.
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<PAGE> 3
2.12 DIRECTOR means a member of the Board of Directors of ALC or its
Subsidiaries.
2.13 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
2.14 EXERCISE PRICE means, with respect to a Stock Appreciation Right,
the amount established by the Administrator, in accordance with Section 7.03
hereunder, and set forth in the Award Agreement, which is to be subtracted from
the Fair Market Value on the date of exercise in order to determine the amount
of the Incremental Value to be paid to the Participant.
2.15 EXPIRATION DATE means the date specified in an Award Agreement as
the expiration date of such Award.
2.16 FAIR MARKET VALUE means, on any given date, the average of the
highest and lowest selling price for the Company Common Stock as quoted on
NASDAQ/NMS or NASDAQ (whichever is applicable) for the given date or (if no
sales of the Company Common Stock shall be reported for the given date) for the
first date prior to the given date for which sales of the Company Common Stock
shall be quoted; if the Company Common Stock is not eligible for quotation on
NASDAQ/NMS or NASDAQ at the time of any Award hereunder, the Fair Market Value
shall be the quoted selling price for the Company Common Stock available for
the most recent given date in "The Pink Sheets." Notwithstanding the
foregoing, if the Company Common Stock is, on the given date, listed on a
national securities exchange, the Fair Market Value shall be the average of the
highest and lowest selling price for the given date, or the most recent date
upon which a sale occurred.
2.17 INCENTIVE STOCK OPTION means a stock option described in Section
422 of the Code.
2.18 INCREMENTAL VALUE has the meaning given such term in Section 7.01
of the Plan.
2.19 INTERESTED ADMINISTRATOR has the meaning given such term in Section
3.01 of the Plan.
2.20 NON-QUALIFIED STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.21 OFFICER means a president, vice president, treasurer, secretary,
controller, and any other person who performs functions corresponding to the
foregoing officers for ALC, any member of the Board or the board of directors
of a Subsidiary of ALC or any person performing similar functions with respect
to ALC, and any other participant who is deemed to be an officer or director of
ALC or a Subsidiary of ALC for purposes of
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<PAGE> 4
Section 16 of the Exchange Act and the rules thereunder, as currently in effect
or as amended from time to time.
2.22 OPTIONS means all Non-Qualified Stock Options and Incentive Stock
Options granted at any time under the Plan.
2.23 PARTICIPANT shall have the meaning set forth in Section 5.01.
2.24 PLAN means the ALC Communications Corporation 1990 Stock Option
Plan, as described herein and as may be amended from time to time.
2.25 PURCHASE PRICE, with respect to options, shall have the meaning set
forth in Section 6.02.
2.26 RULE 16B-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as currently in
effect and as it may be amended from time to time, and any successor rule.
2.27 STOCK APPRECIATION RIGHT means an Award granted in accordance with
Article VII.
2.28 SUBSIDIARY shall have the meaning set forth in Section 424(f) of
the Code.
2.29 TERMINATION OF EMPLOYMENT means the voluntary or involuntary
termination of a Participant's employment with ALC or a Subsidiary for any
reason, including death, disability, retirement or as the result of the
divestiture of the Participant's employer or any other similar transaction in
which the Participant's employer ceases to be ALC or one of the Subsidiaries of
ALC. Whether an authorized leave of absence or absence on military or
government service, absence due to disability, or absence for any other reason
shall constitute Termination of Employment shall be determined in each case by
the Administrator in its sole discretion.
ARTICLE III
ADMINISTRATION
3.01 ADMINISTRATION. The Administrator of the Plan shall be either: (i)
the Board or (ii) a committee of three or more Directors with authority to act
as provided in Rule 16b-3 elected or appointed by the Board. If the
Administrator (either the Board or the committee described above) does not
meet the "disinterested person" requirements of Rule 16b-3(b) and 16b-3(d)(3),
the Administrator also may be referred to herein as the "Interested
Administrator". The Administrator shall administer the Plan in accordance with
this provision and shall have the sole discretionary authority to interpret the
Plan, to establish and modify administrative rules for the Plan, to impose such
conditions and restrictions on Awards as it determines appropriate, to cancel
Awards (including those
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<PAGE> 5
made pursuant to other plans of ALC) and to substitute new options (including
options granted under other plans of ALC) with the consent of the recipient,
and to take such steps in connection with the Plan and Awards granted
thereunder as it may deem necessary or advisable. The Administrator may, with
respect to Participants who are not Officers, delegate such of its powers and
authority under the Plan as it deems appropriate to designated officers or
employees of ALC.
3.02 INDEMNIFICATION. Members of the Administrator shall be entitled to
indemnification and reimbursement from ALC for any action or any failure to act
in connection with service as Administrator to the full extent provided for or
permitted by the certificate of incorporation or bylaws of ALC or by any
insurance policy or other agreement intended for the benefit of officers,
directors or employees of ALC or by any applicable law.
ARTICLE IV
COMPANY COMMON STOCK ISSUABLE PURSUANT TO THE PLAN
4.01 SHARES ISSUABLE. Shares to be issued under the Plan may be
authorized and unissued shares or issued shares which have been reacquired by
ALC. Except as provided in Section 4.03, the Awards granted under the Plan
shall be limited so that the sum of the following shall never exceed 5,000,000
shares of Company Common Stock: (i) all shares which shall be issued upon the
exercise of outstanding Options or other Awards granted under the Plan, (ii)
all shares for which payment of Incremental Value shall be made by reason of
the exercise of Stock Appreciation Rights at any time granted under the Plan,
and (iii) the number of shares otherwise issuable under an Award which are
applied by ALC to payment of the withholding or tax liability discussed in
Section 8.11. In addition, up to 822,884 shares remaining available for grant
as of June 6, 1990 (including shares presently subject to outstanding options,
in the event such options terminate without being exercised) under the terms of
the ALC Communications 1986 Option Plan shall be available for issuance under
this Plan.
4.02 SHARES SUBJECT TO TERMINATED AWARDS. In the event that any Award
at any time granted under the Plan shall be surrendered to ALC, be terminated
or expire before it shall have been fully exercised, then all shares formerly
subject to such Award as to which such Award shall not have been exercised
shall be available for any Award subsequently granted in accordance with the
Plan. Shares of Company Common Stock subject to Options, or portions thereof,
which have been surrendered in connection with the exercise of tandem Stock
Appreciation Rights shall not be available for subsequent Awards under the
Plan, and shares of Company Common Stock issued in payment of such Stock
Appreciation Rights shall be charged against the number of shares of Company
Common Stock available for the grant of Awards. Any shares of Company Common
Stock issued by ALC pursuant to its assumption or substitution of outstanding
grants from acquired companies shall not reduce the number of shares available
for Awards under this Plan unless issued under this Plan.
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<PAGE> 6
4.03 ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Awards, the Purchase Price or Exercise Price for such
shares, and the number and kind of shares available for Awards
subsequently granted under the Plan shall be appropriately adjusted to
reflect any stock dividend, stock split combination or exchange of
shares, merger, consolidation or other change in capitalization with a
similar substantive effect upon the Plan or the Awards granted under the
Plan. The Administrator shall have the power to determine the amount of
the adjustment to be made in each case.
(b) SALE OR REORGANIZATION. After any reorganization, merger or
consolidation in which ALC is a surviving corporation, each Participant
shall, at no additional cost, be entitled upon exercise of an Award to
receive (subject to any required action by stockholders), in lieu of the
number of shares of Company Common Stock receivable or exercisable
pursuant to such Award, a number and class of shares of stock or other
securities to which such Participant would have been entitled pursuant
to the terms of the reorganization, merger or consolidation if, at the
time of such reorganization, merger or consolidation, such Participant
had been the holder of record of a number of shares of stock equal to
the number of shares receivable or exercisable pursuant to such Award.
Comparable rights shall accrue to each Participant in the event of
successive reorganizations, mergers or consolidations of the character
described above.
(c) DISSOLUTION OR CONSOLIDATION. Unless otherwise stated in the
Award Agreement and subject to such other terms and conditions as the
Administrator may establish in the Award Agreement, in the event of the
dissolution or liquidation of ALC, or any merger or consolidation in
which ALC is not the surviving corporation, irrespective of whether or
not an Award is then exercisable, the Participant shall have the right,
immediately prior to such dissolution, liquidation or consolidation, to
exercise in full any unexpired Award to the extent not theretofore
exercised or terminated, provided, however, that any Stock Appreciation
Right so exercised must have a Date of Grant at least six months prior
to the date of exercise. All Options and Stock Appreciation Rights
shall terminate upon the dissolution, liquidation, merger or
consolidation.
(d) OPTIONS TO PURCHASE STOCK OF ACQUIRED COMPANIES. After any
reorganization, merger or consolidation in which ALC or a Subsidiary of
ALC shall be a surviving corporation, the Administrator may grant
substituted Options under the provisions of the Plan, pursuant to
Section 424 of the Code, replacing old options granted under a plan of
another party to the reorganization, merger or consolidation, where such
party's stock may no longer be issued following such merger or
consolidation. The foregoing adjustments and manner of application of
the foregoing provisions shall be determined by the Administrator in its
sole
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<PAGE> 7
discretion. Any adjustments may provide for the elimination of any
fractional shares which might otherwise have become subject to any
Awards.
ARTICLE V
PARTICIPATION
5.01 Participants in the Plan shall be the Officers who are employees of
ALC or a Subsidiary of ALC and other employees of ALC or a Subsidiary of ALC
having managerial, supervisory or similar responsibilities or who are key
administrative employees or sales managers, and who are not covered by any
collective bargaining agreement binding on such persons' employer, as the
Administrator, in its sole discretion, may designate from time to time. The
Administrator's designation of a Participant in any year shall not require the
Administrator to designate such person to receive Awards in any other year.
The Administrator shall consider such factors as it deems pertinent in
selecting Participants and in determining the type and amount of their
respective Awards.
5.02 Notwithstanding the foregoing, while there is an Interested
Administrator, the number of shares subject to Awards to be made to all
Officers shall not exceed 2,700,000; of such amount, the number of shares
subject to Awards to be made to all Directors shall not exceed 1,600,000.
ARTICLE VI
OPTION AWARDS
6.01 POWER TO GRANT OPTIONS. The Administrator may grant, to such
Participants as the Administrator may select, Options entitling the Participant
to purchase Company Common Stock from ALC in such quantity, at such price, and
on such terms and subject to such conditions, not inconsistent with the terms
of this Plan, as may be established by the Administrator. The terms of any
Option granted under this Plan shall be set forth in an Award Agreement.
Notwithstanding the foregoing, while there is an Interested Administrator,
Options granted to Directors shall not be exercisable for a period of at least
six months from the Date of Grant, except that Options which are granted to
Directors which are replacements for existing options previously granted under
this Plan or another plan of ALC may become exercisable in accordance with the
terms of the previously granted option.
6.02 PURCHASE PRICE OF OPTIONS. The Purchase Price of each share of
Company Common Stock which may be purchased upon exercise of any Option granted
under the Plan shall be determined by the Administrator, provided that such
Purchase Price shall not be less than the Fair Market Value on the Date of
Grant, and provided further that the Purchase Price for shares of Company
Common Stock purchased pursuant to Stock Options designated by the
Administrator as Incentive Stock Options shall be equal to or greater than the
Fair Market Value on the Date of Grant as required under Section 422 of the
Code.
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<PAGE> 8
6.03 DESIGNATION OF INCENTIVE STOCK OPTIONS. Except as otherwise
expressly provided in the Plan, the Administrator may designate, at the Date of
Grant of each Option, that the Option is an Incentive Stock Option under
Section 422 of the Code.
(a) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant may
be granted Incentive Stock Options under the Plan (or any other plans of
ALC) which would result in stock with an aggregate Fair Market Value
(measured on the Date of Grant) of more than $100,000 first becoming
exercisable in any one calendar year, or which would entitle such
Participant to purchase a number of shares greater than the maximum
number permitted by Section 422 of the Code as in effect on the Date of
Grant.
(b) OTHER INCENTIVE STOCK OPTION TERMS. Whenever possible, each
provision in the Plan and in every Option granted under this Plan which
is designated by the Administrator as an Incentive Stock Option shall be
interpreted in such a manner as to entitle the Option to the tax
treatment afforded by Section 422 of the Code. If any provision of this
Plan or any Option designated by the Administrator as an Incentive Stock
Option shall be held not to comply with requirements necessary to
entitle such Option to such tax treatment, then (i) such provision shall
be deemed to have contained from the outset such language as shall be
necessary to entitle the Option to the tax treatment afforded under
Section 422 of the Code, and (ii) all other provisions of this Plan and
the Award Agreement shall remain in full force and effect. If any
agreement covering an Option designated by the Administrator to be an
Incentive Stock Option under this Plan shall not explicitly include any
terms required to entitle such Incentive Stock Option to the tax
treatment afforded by Section 422 of the Code, all such terms shall be
deemed implicit in the designation of such Option and the Option shall
be deemed to have been granted subject to all such terms.
6.04 RIGHTS AS A STOCKHOLDER. The Participant or any transferee of an
Option pursuant to Section 8.04 shall have no rights as a stockholder with
respect to any shares of Company Common Stock covered by an Option until the
Participant or transferee shall have become the holder of record of any such
shares, and no adjustment shall be made for dividends and cash or other
property or distributions or other rights with respect to any such shares of
Company Common Stock for which the record date is prior to the date on which
the Participant or a transferee of the Option shall have become the holder of
record of any such shares covered by the Option.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.01 POWER TO GRANT STOCK APPRECIATION RIGHTS. The Administrator is
authorized to grant to any Participant, on such terms established by the
Administrator on or prior to the Date of Grant and subject to and not
inconsistent with the provisions of this
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Plan, the right to receive the payment from ALC, payable as provided in Section
7.04, of an amount equal to the Incremental Value of the Stock Appreciation
Rights, which shall be an amount equal to the remainder derived from
subtracting (i) the Exercise Price for the right established in the Award
Agreement from (ii) the Fair Market Value of a share of Company Common Stock on
the date of exercise. The terms of any Stock Appreciation Right granted under
the Plan shall be set forth in an Award Agreement.
7.02 TANDEM STOCK APPRECIATION RIGHTS. The Administrator may grant to
any Participant a Stock Appreciation Right consistent with the provisions of
this Plan covering any share of Company Common Stock which is, at the Date of
Grant of the Stock Appreciation Right, also covered by an Option granted to the
same Participant, either prior to or simultaneously with the grant to such
Participant of the Stock Appreciation Right, provided: (i) any Option covering
any share of Company Common Stock shall expire and not be exercisable upon the
exercise of any Stock Appreciation Right with respect to the same share; (ii)
any Stock Appreciation Right covering any share of Company Common Stock shall
not be exercisable upon the exercise of any related Option with respect to the
same share; and (iii) an Option and Stock Appreciation Right covering the same
share of Company Common Stock may not be exercised simultaneously.
7.03 EXERCISE PRICE. The Exercise Price established under any Stock
Appreciation Right granted under this Plan shall be determined by the
Administrator and shall not be less than the lower of (i) the Purchase Price of
the related Option, in the case of a tandem Stock Appreciation Right or (ii)
the Fair Market Value on the Date of Grant of the Stock Appreciation Right.
Upon exercise of the Stock Appreciation Rights, the number of shares subject to
exercise under a related Option shall automatically be reduced by the number of
shares of Company Common Stock represented by the Option or portion thereof
which is surrendered as a result of the exercise of such Stock Appreciation
Rights.
7.04 PAYMENT OF INCREMENTAL VALUE. Any payment which may become due
from ALC by reason of Participant's exercise of a Stock Appreciation Right may
be paid to the Participant as determined by the Administrator (i) all in cash,
(ii) all in Company Common Stock, or (iii) in any combination of cash and
Company Common Stock. In the event that all or a portion of the payment is
made in Company Common Stock, the number of shares of the Company Common Stock
delivered in satisfaction of such payment shall be determined by dividing the
amount of the payment by the Fair Market Value on the date of exercise. The
Administrator may determine whether payment upon exercise of a Stock
Appreciation Right will be made in cash or in stock, or a combination thereof,
upon or at any time prior to the exercise of such Stock Appreciation Right. No
fractional share of Company Common Stock shall be issued to make any payment;
if any fractional shares would be issuable, the mix of cash and Company Common
Stock payable to the Participant shall be adjusted as directed by the
Administrator to avoid the issuance of any fractional share. Payment may be
made in cash to Officers only if the
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<PAGE> 10
Stock Appreciation Right is exercised during the "window period" required under
Rule 16b-3(e)(3)(iii) and otherwise in accordance with Rule 16b-3.
Notwithstanding the foregoing, while there is an Interested Administrator,
payment of Incremental Value to Officers shall be made only in Company Common
Stock, and any fractional shares payable to Officers shall be rounded off to
the nearest whole share and shall not be payable in cash.
ARTICLE VIII
TERMS OF OPTIONS AND STOCK APPRECIATION RIGHTS
8.01 AWARD AGREEMENT. No person shall have any rights under any Award
granted under the Plan unless and until the Administrator has adopted a
resolution granting the Award. The grant and the terms and conditions of the
Award shall be set forth in an Award Agreement between the Company and the
Participant. In the event of the loss or destruction of the Award Agreement,
or any inconsistency between the Award Agreement and the resolution of the
Administrator documenting the grant of the Award, the resolution of the
Administrator shall control.
8.02 PLAN PROVISIONS CONTROL AWARD TERMS. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the
Administrator have the power to grant any Award under the Plan which is
contrary to any of the provisions of the Plan. In the event any provision of
any Award granted under the Plan shall conflict with any term in the Plan as
constituted on the Date of Grant of such Award, the term in the Plan as
constituted on the Date of Grant of such Award shall control. Except as
provided in Section 4.03, (i) the terms of any Award granted under the Plan may
not be changed after the granting of such Award without the express approval of
the Participant and (ii) no modification may be made to an Award granted to an
Officer except in compliance with Rule 16b-3.
8.03 DURATION OF OPTIONS AND STOCK APPRECIATION RIGHTS. Options and
Stock Appreciation Rights shall terminate after the first to occur of the
following events:
(a) Expiration Date of the Award as provided in the Award
Agreement; or
(b) Termination of the Award as provided in Section 8.04; or
(c) In the case of an Incentive Stock Option, ten years from the
Date of Grant; or
(d) Solely in the case of tandem Stock Appreciation Rights, upon
the Expiration Date of the related Option.
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<PAGE> 11
Except as provided in Section 8.04, while there is an Interested
Administrator, all Awards granted under this Plan to Directors must
provide that the Awards terminate no later than ten (10) years after the
Date of Grant.
8.04 EXERCISE ON DEATH OR TERMINATION OF EMPLOYMENT.
(a) Unless otherwise provided in the Award Agreement, in the event
of the death of a Participant while an employee of ALC or a Subsidiary,
the right to exercise all unexpired Awards shall be accelerated and
shall accrue as of the date of death, and the Participant's Awards may
be exercised by his Beneficiary at any time within one year after the
date of the Participant's death.
(b) Unless otherwise provided in the Award Agreement, in the event
of Participant's Termination of Employment at any time for any reason
other than death (including disability or retirement), an Award may be
exercised, but only to the extent it was otherwise exercisable, on the
date of Termination of Employment, within ninety days after the date of
Termination of Employment. In the event of the death of the Participant
within the ninety-day period following Termination of Employment, his
Award may be exercised by his Beneficiary within one year after the date
of the Participant's death.
(c) With respect to an Award which is intended to constitute an
Incentive Stock Option, upon Termination of Employment, such Award shall
be exercisable as provided in Section 422 of the Code.
8.05 ACCELERATION OF EXERCISE TIME. The Administrator, in its sole
discretion, shall have the right (but shall not in any case be obligated) to
permit purchase of shares under any Award prior to the time such Award would
otherwise become exercisable under the terms of the Award Agreement, except for
Awards held by Directors while there is an Interested Administrator.
8.06 EXTENSION OF EXERCISE TIME. The Administrator, in its sole
discretion, shall have the right (but shall not in any case be obligated) to
permit any Award granted under this Plan (except for Awards held by Directors
while there is an Interested Administrator) to be exercised after its
Expiration Date or after the ninety day period following Termination of
Employment, subject, however, to the limitations described in Section 8.03 (c)
and (d).
8.07 MODIFICATION OF AWARD AFTER GRANT. Each Award granted under the
Plan to a Participant other than an Officer may be modified after the date of
its grant by express written agreement between ALC and the Participant,
provided that such change (i) shall not be inconsistent with the terms of the
Plan and (ii) shall be approved by the Administrator. No modifications may be
made to any Awards granted to an Officer except in compliance with Rule 16b-3.
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<PAGE> 12
8.08 CONDITIONS FOR EXERCISE. An Award Agreement may contain such
waiting periods, exercise dates and restrictions on exercise (including, but
not limited to, periodic installments which may be cumulative) as may be
determined by the Administrator at the Date of Grant. Where payment is to be
made in whole or in part in cash, no Stock Appreciation Right may be exercised
prior to six months from the Date of Grant.
8.09 CHANGE OF CONTROL EVENT. Unless otherwise provided in the Award
Agreement, and subject to such other terms and conditions as the Administrator
may establish in the Award Agreement, upon the occurrence of a Change of
Control Event, irrespective of whether or not an Award is then exercisable, the
Participant shall have the right to exercise in full any unexpired Award to the
extent not theretofore exercised or terminated, provided, however, that any
Stock Appreciation Right so exercised must have a Date of Grant at least six
months prior to the date of exercise.
8.10 EXERCISE PROCEDURES. Each Option and Stock Appreciation Right
granted under the Plan shall be exercised by written notice to ALC which must
be received by the representative of ALC designated in the Award Agreement on
or before the Expiration Date of the Award. The Purchase Price of shares
purchased upon exercise of an Option granted under the Plan shall be paid in
full in cash by the Participant pursuant to the Award Agreement; provided,
however, that the Administrator may (but need not) permit payment to be made by
delivery to ALC of either (a) shares of Company Common Stock (including shares
issuable to the Participant pursuant to the exercise of the Option provided
that Officers may elect to make payment with such shares only within the
"window period" required under Rule 16b-3(e)(iii) and otherwise in accordance
with Rule 16b-3, and provided further that while there is an Interested
Administrator, Officers may deliver only shares owned by such Officer for at
least six months prior to exercise) or (b) any combination of cash and shares
of Company Common Stock, or (c) such other consideration as the Administrator
deems appropriate and in compliance with applicable law (including payment in
accordance with a cashless exercise program under which, if so instructed by
the Participant, shares of Company Common Stock may be issued directly to the
Participant's broker or dealer upon receipt of the Purchase Price in cash from
the broker or dealer.) In the event that any Company Common Stock shall be
transferred to ALC to satisfy all or any part of the Purchase Price, the part
of the Purchase Price deemed to have been satisfied by such transfer of Company
Common Stock shall be equal to the product derived by multiplying the Fair
Market Value as of the date of exercise times the number of shares transferred.
The Participant may not transfer to ALC in satisfaction of the Purchase Price
(y) a number of shares which when multiplied times the Fair Market Value as of
the date of exercise would result in a product greater than the Purchase Price
or (z) any fractional share of Company Common Stock. Any part of the Purchase
Price paid in cash upon the exercise of any Option shall be added to the
general funds of ALC and used for any proper corporate purpose. Unless the
Administrator shall otherwise determine, any Company Common Stock transferred
to ALC as payment of all or part of the Purchase Price upon the exercise of any
Option shall be held as treasury shares.
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<PAGE> 13
8.11 TAXES. ALC shall be entitled, if the Administrator deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by ALC with respect to any amount payable and/or shares
issuable under such Participant's Award, or with respect to any income
recognized upon a disqualifying disposition of shares received pursuant to the
exercise of an Incentive Stock Option, and ALC may defer payment or issuance of
the cash or stock upon exercise or vesting of an Award unless indemnified to
its satisfaction against any liability for such tax. The amount of such
withholding or tax payment shall be determined by the Administrator and, unless
otherwise provided by the Administrator, shall be payable by the Participant at
the time of issuance or payment in accordance with the following rules:
(a) A Participant, other than an Officer, shall have the right to
elect to meet his or her withholding requirement by: (1) having ALC
withhold from such Award the appropriate number of shares of Company
Common Stock, rounded out to the next whole number, whose Fair Market
Value is equal to such amount, or, in the case of the cash payment, the
amount of cash, as is determined by ALC to be sufficient to satisfy
applicable tax withholding requirements; or (2) direct payment to ALC in
cash of the amount of any taxes required to be withheld with respect to
such Award.
(b) Except when there is a Interested Administrator, an Officer
shall have the right to elect to meet his or her withholding requirement
by: (1) making an election within the "window period" required under
Rule 16b-3(e)(3)(iii) to have ALC withhold from such Award the
appropriate number of shares of Company Common Stock, rounded out to the
next whole number, whose Fair Market Value is equal to such amount, or,
in the case of the cash payment, the amount of cash, as is determined by
ALC to be sufficient to satisfy applicable tax withholding requirements;
or (2) direct payment to ALC in cash of the amount of any taxes required
to be withheld with respect to such Award. With respect to this
section, any options exercised by Officers must be held for at least six
months after the Date of Grant.
(c) Notwithstanding anything to the contrary contained in this
Section 8.11, while there is an Interested Administrator, an Officer
shall meet his or her withholding requirement by direct payment to ALC
in cash of the amount of any taxes required to be withheld with respect
to such Award.
(d) In the event that an Award or property received upon exercise
of an Award has already been transferred to the Participant on the date
upon which withholding requirements apply, the Participant shall pay
directly to ALC the cash amount determined by ALC to be sufficient to
satisfy applicable federal, state or local withholding requirements.
The Participant shall provide to ALC such
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<PAGE> 14
information as ALC shall require to determine the amounts to be withheld
and the time such withholding requirements become applicable.
(e) ELECTION TO BE TAXED UNDER SECTION 83(B) OF THE CODE. If
permitted under applicable federal income tax laws, a Participant may
elect to be taxed in the year in which an Award is exercised or
received, even if it would not otherwise have become taxable to the
Participant. If the Participant makes such an election, the Participant
shall promptly notify ALC in writing and shall provide ALC with a copy
of the executed election form as filed with the Internal Revenue Service
no later than thirty days from the date of exercise or receipt.
Promptly following such notification, the Participant shall pay directly
to ALC the cash amount determined by ALC to be sufficient to satisfy
applicable federal, state or local withholding tax requirements.
8.12 LIMITATIONS ON TRANSFER. A Participant's rights and interest under
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, and during the lifetime of a Participant only the
Participant personally (or the Participant's personal representative) may
exercise the Participant's rights under the Plan. The Participant's
Beneficiary may exercise a Participant's rights to the extent they are
exercisable under the Plan following the death of the Participant.
8.13 SURRENDER OF AWARDS. Any Award granted under the Plan may be
surrendered to ALC for cancellation on such terms as the Administrator and
Participant approve, including, but not limited to, terms which provide that
upon such surrender ALC will pay to the Participant cash or Company Common
Stock, or a combination of cash and Company Common Stock. Notwithstanding the
foregoing, while there is an Interested Administrator, Awards held by Directors
may not be surrendered or cancelled for consideration other than the granting
of replacement options or awards granted under this Plan or another plan of ALC
for a lower exercise price or purchase price and/or subject to an extended
expiration date (within the limits set forth under Sections 6.02, 7.03 and 8.03
of this Plan).
ARTICLE IX
OTHER STOCK BASED AWARDS
9.01 GRANT OF OTHER AWARDS. Other Awards of Company Common Stock or
other securities of ALC and other Awards that are valued in whole or in part by
reference to, or are otherwise based on, Company Common Stock ("Other Awards")
may be granted either alone or in addition to or in conjunction with Options or
Stock Appreciation Rights under the Plan; provided, however, that Company
Common Stock (including Company Common Stock upon conversion, exchange or
otherwise) shall be issued either as a bonus award, free or at a price no
greater than its par value, or for a price equal to at least its fair market
value on the Date of Grant or issuance date as specified in the Award
Agreement. Subject to the provisions of the Plan, the Administrator shall
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<PAGE> 15
have the sole and complete authority to determine the persons to whom and the
time or times at which Other Awards shall be made, the number of shares of
Company Common Stock or other securities, if any, to be granted pursuant to
such Other Awards, and all other conditions of such Other Awards.
Notwithstanding the foregoing, while there is an Interested Administrator,
there shall be no grants of Other Awards made to Directors. Any Other Award
shall be confirmed by an Award Agreement executed by the Administrator and the
Participant, which agreement shall contain such provisions as the Administrator
determines to be necessary or appropriate to carry out the intent of this Plan
with respect to the Other Award.
9.02 TERMS OF OTHER AWARDS. In addition to the terms and conditions
specified in the Award Agreement, Other Awards made pursuant to this Article IX
shall be subject to the following:
(a) Any shares of Company Common Stock subject to such Other
Awards may not be sold, assigned, transferred or otherwise encumbered
prior to the date on which the shares are issued, or, if later, the date
on which any applicable restriction, performance or deferral period
lapses; and
(b) As specified by the Administrator and the Award Agreement, the
recipient of an Other Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or dividend equivalents with
respect to the Company Common Stock or other securities covered by the
Other Award; and
(c) The Award Agreement with respect to any Other Award shall
contain provisions providing for the disposition of such Other Award in
the event of Termination of Employment prior to the exercise,
realization or payment of such Other Award, with such provisions to take
account of the specific nature and purpose of the Other Award.
ARTICLE X
GENERAL PROVISIONS
10.1 AMENDMENT AND TERMINATION OF PLAN.
(a) AMENDMENT. The Board shall have complete power and authority
to amend the Plan at any time and to add any other stock based Award or
other incentive compensation programs to the Plan as it deems necessary
or appropriate and no approval by the stockholders of ALC or by any
other person, committee or entity of any kind shall be required to make
any amendment; provided, however, that the Board shall not, without the
requisite affirmative approval of stockholders of ALC, make any
amendment which requires stockholder approval under any applicable law,
including Rule 16b-3 or the Code, unless such compliance, if
discretionary, is no longer desired. No termination or amendment of the
Plan may,
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<PAGE> 16
without the consent of the Participant to whom any Award shall
theretofore have been granted under the Plan, adversely affect the right
of such individual under such Award. For the purposes of this section,
an amendment to the Plan shall be deemed to have the affirmative
approval of the stockholders of ALC if such amendment shall have been
submitted for a vote by the stockholders at a duly called meeting of
such stockholders at which a quorum was present and the majority of
votes cast with respect to such amendment at such meeting shall have
been cast in favor of such amendment, or if the holders of outstanding
stock having not less than a majority of the outstanding shares consent
to such amendment in writing in the manner provided under the bylaws of
ALC.
(b) TERMINATION. The Board shall have the right and the power to
terminate the Plan at any time. If the Plan is not earlier terminated,
the Plan shall terminate on December 31, 2000. No Award shall be
granted under the Plan after the termination of the Plan, but the
termination of the Plan shall not have any other effect and any Award
outstanding at the time of the termination of the Plan may be exercised
after termination of the Plan at any time prior to the expiration date
of such Award to the same extent such Award would have been exercisable
if the Plan had not been terminated.
10.02 NO RIGHT TO EMPLOYMENT. No employee or other person shall have any
claim or right to be granted an Award under this Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee any right
to be retained in the employ of ALC or any of its Subsidiaries.
10.03 COMPLIANCE WITH RULE 16B-3. It is intended that the Plan be
applied and administered in compliance with Rule 16b-3. If any provision of
the Plan would be in violation of Rule 16b-3 if applied as written, such
provision shall not have effect as written and shall be given effect so as to
comply with Rule 16b-3, as determined by the Administrator. The Board is
authorized to amend the Plan and to make any such modifications to Award
Agreements to comply with Rule 16b-3, as it may be amended from time to time,
and to make any other such amendments or modifications as it deems necessary or
appropriate to better accomplish the purposes of the Plan in light of any
amendments made to Rule 16b-3.
10.04 SECURITIES LAW RESTRICTIONS. The shares of Company Common Stock
issuable upon the exercise of any Awards granted under the Plan may not be
issued by ALC without registration or qualification of such shares under the
Securities Act of 1933, as amended, or under various state securities laws or
without an exemption from such registration requirements. Unless the shares to
be issued under the Plan have been registered and/or qualified as appropriate,
ALC shall be under no obligation to issue shares of Company Common Stock upon
exercise of an Award unless and until such time as there is an appropriate
exemption available from the registration or qualification requirements of
federal or state law as determined by the Administrator in its sole
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<PAGE> 17
discretion. The Administrator may require any person who is granted an award
hereunder to agree with ALC to represent and agree in writing that if such
shares are issuable under an exemption from registration requirements, the
shares will be "restricted" securities which may be resold only in compliance
with applicable securities laws, and that such person is acquiring the shares
issued upon exercise of the Award for investment, and not with the view toward
distribution.
10.05 CAPTIONS. The captions (i.e., all section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
10.06 SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
10.07 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against ALC, the Administrator, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the
Plan or any rule or procedure established by the Administrator.
10.08 CHOICE OF LAW. All determinations made and actions taken pursuant
to the Plan shall be governed by the laws of the State of Michigan and
construed in accordance therewith.
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<PAGE> 1
EXHIBIT 10.6
ADVISORY AGREEMENT
WITH STOCK OPTION
Advisory Agreement with Stock Option made this 7th day of September 1988 by and
between ALC Communications Corporation, a Delaware corporation with principal
offices at 30300 Telegraph Road, Suite 350, Birmingham, Michigan 48010 ("ALC")
and Grumman Hill Associates, Inc., 264 Riverside Avenue, Westport, Connecticut
06880 ("Grumman Hill").
WHEREAS, the Board of Directors of ALC intends to call upon the services of
Grumman Hill from time to time relating to the corporate affairs of ALC; and
WHEREAS, Grumman Hill desires to provide the aforementioned services to ALC on
the terms hereinafter set forth.
NOW THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, the parties agree as follows:
1. Duties. During the term of the Advisory Agreement, Grumman Hill may be
called upon to perform such advisory services with respect to the management,
operations and business development activities of ALC and its wholly-owned
subsidiary, Allnet Communication Services, Inc., an Illinois corporation
("Allnet") as shall be requested from time to time by the Board of Directors of
ALC or Allnet. Such advisory services shall be provided at times convenient to
the parties.
When rendering advisory services pursuant to this Advisory Agreement,
Grumman Hill shall not be deemed to be an agent of either ALC or Allnet (nor
shall any Grumman Hill employees be deemed to be an employee of either ALC or
Allnet) or to have any power or authority to bind either ALC or Allnet, but
shall rather be deemed an independent contractor acting solely for the account
of Grumman Hill. The advisory services performed by any individual associated
with Grumman Hill shall be in addition to and not a part of any duties and
services rendered by such individual as a Director of either ALC or Allnet.
Any compensation or reimbursement of expenses which such individual might
receive by virtue of such individual's position as a Director or Officer of
either ALC or Allnet shall be in addition to, and not in lieu of, the
compensation and reimbursement of expenses to be paid to Grumman Hill pursuant
to this Advisory Agreement. Notwithstanding anything to the contrary herein,
Richard D. Irwin, Director of ALC and Allnet, hereby expressly waives
compensation for his services as Chairman of the Board of ALC and Director of
ALC and Allnet for the duration of this Advisory Agreement.
<PAGE> 2
Page two
Advisory Agreement
2. Compensation and Expenses. As compensation for the advisory services
rendered hereunder, ALC hereby agrees to pay Grumman Hill $100,000 per annum
and to grant a stock option in ALC's common stock. The monetary compensation
shall be paid in quarterly installments in arrears commencing November 30, 1988
or in such other manner as may be mutually agreed. The stock option shall be
in accordance with the terms of Section 3. herein.
ALC hereby agrees (upon submission of reasonable documentation) to
reimburse Grumman Hill for any reasonable and necessary out-of-pocket expenses
incurred by Grumman Hill in connection with the performance of Grumman Hill's
advisory services under this Advisory Agreement.
3. Stock Option. Effective on the date hereof, ALC hereby grants to Grumman
Hill a nontransferable option (other than to a successor or assign in its
entirety of Grumman Hill) to purchase, at a price of $2.25 per share, a number
of shares of the ALC common stock equal to the sum of (i) 340,325 shares
(equal to approximately 2.5% of the total number of such shares now issued and
outstanding) plus (ii) a number of shares equal to 2.5% of ALC's common stock
issuable upon conversion of all shares of ALC's Class B and Class C Preferred
Stock that are issued and outstanding as of December 31, 1988. Grumman Hill
shall be entitled to exercise the option granted herein to the extent of 68,065
shares of ALC common stock subject therto on and after the date hereof, and as
of September 8, 1989, 1990, 1991 and 1992, respectively, Grumman Hill shall be
entitled to exercise such option to the extent of an additional 25% of the
remainder of such stock. Notwithstanding anything to the contrary herein, upon
any purported termination of this Advisory Agreement by ALC during its initial
five-year term (whether lawful or otherwise, and whether upon a merger, sale of
assets, change of control or reorganization involving ALC or otherwise), the
option granted hereby shall be accelerated to the extent necessary to become
fully vested. The option shall expire at the close of business on September 7,
1998.
The option, to the extent then vested, may be exercised by Grumman Hill by
giving written notice of exercise accompanied by payment for the shares being
purchased. Upon exercise, ALC shall promptly issue certificates to Grumman
Hill representing the shares acquired upon such exercise.
The ALC common stock issuable on exercise of the option will not be
registered under the Securities Act of 1933 (the "Act"), and Grumman Hill
agrees that it will make no disposition of any of such stock in violation of
the Act. If ALC shall require, the certificate or certificates representing
such stock shall bear an appropriate legend concerning the restrictions on sale
or transfer under the Act.
<PAGE> 3
Page three
Advisory Agreement
In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization, the number or kind of
shares that are subject to the option and the option price per share
immediately prior to such event shall be proportionately and appropriately
adjusted, without increase or decrease in the aggregate option price to be paid
upon exercise of the option. The determination of the Board of Directors of
ALC as to the terms of any such adjustment shall be binding and conclusive on
Grumman Hill and any other person or persons who are at any time entitled to
exercise the option.
4. Term. The term of this Advisory Agreement shall commence on and as of the
date hereof and shall continue until midnight on the fifth anniversary of the
date hereof, except that the options granted herein may continue to be
exercised until September 7, 1998. This Advisory Agreement shall be
automatically renewed after the expiration of the initial term for subsequent
one year periods unless either party provides written notice of termination to
the other party at least 30 days prior to the expiration of the initial term or
any subsequent one year term.
5. Confidential Information. Grumman Hill will not, without the express
written consent of the Company, communicate or divulge to, or use for its own
benefit or for the benefit of any other person, firm, association or
corporation, any of ALC's or its subsidiaries' trade secrets or proprietary
information which were communicated to or otherwise learned of or acquired by
Grumman Hill during the term of this Advisory Agreement, except that Grumman
Hill may disclose such information to the extent that (a) disclosure is
required in the course of performing services pursuant to this Advisory
Agreement or by a court or other governmental agency of competent jurisdiction
or (b) such information is of general knowledge in the industry. Grumman Hill
further agrees to the best of its ability to have any individuals associated
with Grumman Hill agree to comply with the terms herein.
6. Miscellaneous. This Advisory Agreement shall be binding upon and
enforceable by the successors and assigns of the parties. The failure of any
of the parties to insist in any one or more instances upon the performance of
any term, convenant or condition of this Advisory Agreement shall not be
construed as a waiver of further performance of that or any other term,
convenant or condition hereof, and the obligations of the parties concerning
the performance hereof shall continue in full force and effect in all respects.
This Advisory Agreement shall not be changed, modified or amended
<PAGE> 4
Page four
Advisory Agreement
in any respect except by written instrument signed by both parties. This
Advisory Agreement shall be governed by and construed in accordance with the
internal laws of the State of Michigan. If any term, convenant, restriction or
provision of this Advisory Agreement is determined to be void, invalid or
unenforceable, the remainder of the terms, covenants, restrictions and
provisions hereof shall remain in full force and effect and shall in no way be
affected, impaired or restricted, and this Advisory Agreement shall be
enforceable to the fullest extent permitted by applicable law.
In Witness Whereof, the parties have entered into this Advisory Agreement as of
the day and year first above written by their duly authorized representatives
in two copies, each of which shall be deemed an original without production of
the other copy.
ALC Communications Corporation Allnet Communication
Services, Inc.
By: /s/ JOHN M. ZRNO By: /s/ JOHN M. ZRNO
------------------- ---------------------
John M. Zrno, President John M. Zrno, President
and Chief Executive Officer and Chief Executive Officer
Grumman Hill Associates, Inc.
By: /s/ RICHARD D. IRWIN
------------------------
Richard D. Irwin
Executing solely for purposes of the
waiver specified in Section 1 of this
Advisory Agreement
/s/ RICHARD D. IRWIN
--------------------
Richard D. Irwin
<PAGE> 5
AMENDMENT ONE TO ADVISORY AGREEMENT WITH STOCK OPTION DATED
SEPTEMBER 7, 1988
Amendment made as of the 6th day of June, 1990 to the Advisory Agreement with
Stock Option dated September 7, 1988 between ALC Communications Corporation
("ALC") and Grumman Hill Associates, Inc. ("Grumman Hill").
WHEREAS, ALC entered into a series of agreements with various parties including
Grumman Hill for the purpose of achieving a financial restructuring of ALC (the
"Restructuring"); and
WHEREAS, as part of the Restructuring, the Company agreed that the Advisory
Agreement with Stock Option dated September 7, 1988 (the "Agreement") would be
amended to reduce the exercise price of the Stock Option granted pursuant to
that Agreement and to provide for additional compensation to Grumman Hill; and
WHEREAS, the parties agreed to set as the exercise price for the Stock Option
granted pursuant to that Agreement, the same exercise price granted for stock
options to ALC Management this date, June 6, 1990; and
WHEREAS, the exercise price granted for the above-referenced stock options to
ALC Management was established at $0.70 per share.
NOW THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, the parties agree to the following amendments to the
Agreement:
1. Section 1. is amended by inserting the following sentence at the end of
the second paragraph:
"Notwithstanding anything to the contrary herein, ALC had paid to Grumman Hill
$150,000 as additional consulting fees for its services in connection with the
financial restructuring of ALC during fiscal year 1990."
2. Section 3. is amended by substituting the price of $0.70 for the price of
$2.25 set forth in the fourth line of Section 3.
3. Section 3. is amended by adding the following paragraph:
"Grumman Hill may assign this Stock Option to Grumman Hill Investments, L.P.
with written notice to ALC of the effective date of same."
<PAGE> 6
Page two
Amendment to
Advisory Agreement
In Witness Whereof, the parties have entered into this Amendment on the day and
year first above written by their duly authorized representatives in three
copies, each of which shall be deemed an original without production of the
other copies.
ALC Communications Corporation Allnet Communication
Services, Inc.
By: /s/ JOHN M. ZRNO By: /s/ JOHN M. ZRNO
---------------------------- ----------------------------
John M. Zrno, President John M. Zrno, President
and Chief Executive Officer and Chief Executive Officer
Grumman Hill Associates, Inc.
By: /s/ RICHARD D. IRWIN
----------------------------
Richard D. Irwin
<PAGE> 1
EXHIBIT 10.7
ADMINISTRATION
ELIGIBILITY
The Allnet(R) Executive Perquisite program applies to executives of the
Company who are assigned to eligible positions. Eligible positions include
the President and Chief Executive Officer, Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents designated as "officers" of the Company.
Certain other positions may be designated as eligible by the President and
Chief Executive Officer.
TERM OF PROGRAM
The effective date of the program is January 1, 1994. Each calendar
year is a program year. The program is automatically renewable on January 1,
1995 and each year after unless it is terminated by the President and Chief
Executive Officer. As with all Allnet(R) benefit plans, the Company expects and
intends to continue this program indefinitely, but reserves the right to end or
amend it. If this program is terminated by the Company, any eligible requests
for reimbursement received by the program administrator prior to termination of
the program will be paid.
ALLOWANCE
The allowance is an annual sum you can apply to the cost of approved
menu items. (The approved "menu" section is attached at the end of this
document.) The Company will reimburse you for items or services from the menu,
up to your allowance maximum.
Any portion of the allowance not utilized in a program year will not
be carried forward or used for any other purpose.
The annual amount of the allowance varies according to your position
level as follows:
<TABLE>
<CAPTION>
POSITION LEVEL ANNUAL ALLOWANCE
--------------- ----------------
<S> <C> <C>
President and CEO $16,000
Executive Vice President $12,500
Senior Vice Presidents, Vice Presidents $ 8,000
Any other eligible employee As determined by CEO
</TABLE>
ALLNET(R) EXECUTIVE PERQUISITE PROGRAM ADMINISTRATIVE GUIDELINES
P. 1
<PAGE> 2
REIMBURSEMENT PROCEDURE (WITH EXCEPTION OF AUTOMOBILE ALLOWANCE)
STEP 1. You purchase an item, or pay a fee for a service, that appears on your
menu.
STEP 2. You staple the bill and proof of payment (canceled personal check or
credit card receipt) to a completed Reimbursement Authorization Form. This is
mailed or delivered to Vicki Hobson-Adams in Human Resources.
STEP 3. Your allowance will be debited the gross cost of an approved menu item
for which you submit documentation, up to the balance of your annual maximum as
coordinated with any expenses reimbursed under the reimbursement procedure for
the automobile allowance.
STEP 4. You will receive reimbursement, less applicable withholding taxes.
REIMBURSEMENT PROCEDURE (AUTOMOBILE ALLOWANCE ONLY)
STEP 1. You can submit documentation along with a completed Reimbursement
Authorization Form to Vicki Hobson-Adams in Human Resources indicating the
average monthly cost of your leasing agreement, purchase agreement and
automobile insurance. You will receive an automatic monthly allowance to
reimburse you for your automobile costs.
STEP 2. Your annual allowance will be debited the average monthly automobile
allowance each month automatically for the remainder of the year, up to the
balance of your annual maximum. This will be coordinated with any expenses
reimbursed under the reimbursement procedure for non automobile expenses.
STEP 3. You will receive reimbursement monthly, less applicable withholding
taxes.
NEW PARTICIPANTS
Employees who become eligible to enter the Allnet(R) Executive Perquisite
program during a program year will participate on the following schedule:
Entry any time during the first calendar quarter - The full allowance is
available for the program year.
Entry any time during the second or third calendar quarter - The allowance
is pro rated for the number of COMPLETE months in the program.
ALLNET(R) EXECUTIVE PERQUISITE PROGRAM ADMINISTRATIVE GUIDELINES
P. 2
<PAGE> 3
Entry during the fourth calendar quarter - Eligible employees will
enter the program on January 1 of the next program year.
PROMOTION
Current participants promoted to a position eligible for a higher level
of program participation will enter the new level on the same schedule as
described above for new participants.
TERMINATION
Your executive perquisite allowance will cease on the date of
termination.
FOR MORE INFORMATION
The Allnet(R) Executive Perquisite program is administered and
interpreted by Human Resources. Questions pertaining to the program should be
directed to Bill Norris, (313) 433-4996.
TAX CONSIDERATIONS
There are income tax considerations associated with executive
perquisites and benefits.
It is important to note that the gross reimbursement from this program
will be included in your W-2 for the year in which the reimbursement is made.
As such, it will be taxed as regular income for federal, state and local income
tax purposes as well as for FICA.
Note: Certain amounts may be deductible on your income tax return for
the year in which you pay them. You should consult your personal tax advisor
concerning the tax impact of your perquisite benefits.
ALLNET(R) EXECUTIVE PERQUISITE PROGRAM ADMINISTRATIVE GUIDELINES
P. 3
<PAGE> 4
MENU OF EXECUTIVE PERQUISITES
This portion of the Allnet(R) Executive Perquisite program is designed
to afford you optimal flexibility in creating your own, personalized plan. As a
participant of the program, you have an annual allowance to apply to the cost
of certain perquisites. The program specifies a list, or menu, of items and
services from which you may build the program most valuable to you and your
family.
The program is effective for a one year period beginning January 1,
1994 and is automatically renewable on each January 1st after that. Your
annual allowance under the program varies depending upon your level as an
officer of the Company. In the case of Vice President and Senior Vice
President level employees, the annual allowance is $8,000.00; in the case of
Executive Vice Presidents, the annual allowance is $12,500.00 and in the case
of the President and Chief Executive Officer, the annual allowance is
$16,000.00.
Following is your approved menu:
TENNIS CLUB, ATHLETIC CLUB OR FITNESS CENTER ANNUAL DUES
This includes annual dues for athletic clubs or fitness center memberships
including tennis, swimming, squash or racquetball clubs or local YMCA-YWCAs.
Related annual fees, such as a locker fee or seasonal court rental, are also
included. Incidental costs are your personal responsibility.
BUSINESS ASSOCIATION OR UNIVERSITY CLUB
This includes annual dues for luncheon clubs sponsored by, or affiliated with,
professional or alumni organizations. Incidental costs are your personal
responsibility.
PERSONAL EXCESS LIABILITY INSURANCE
This insurance, also referred to as "umbrella" or "catastrophic" insurance,
supplements your normal coverage. You can puchase excess liability insurance
to meet your personal needs.
ALLNET(R) EXECUTIVE PERQUISITE PROGRAM ADMINISTRATIVE GUIDELINES
P. 4
<PAGE> 5
SUPPLEMENTAL LIFE INSURANCE
You can purchase additional life insurance, beyond that provided by the
Company, for yourself and/or purchase life insurance for your dependents.
TAX PREPARATION FEES
This includes a reputable firm's or professional's annual fees for preparing
your federal, state and local income tax returns. The Company will not
recognize statements for services rendered from employees of the Company, nor
from relatives of the participating executive.
HOME COMPUTER AND ACCESSORIES
You can purchase a home computer, additional hardware or software and
accessories for a new or existing home computer.
SOCIAL CLUB INITIATION FEE AND ANNUAL DUES
You can apply a portion or all of your annual allowance towards membership in a
social club. The allowance can be used to pay non equity initiation fees,
annual dues and related annual fees, such as fees for a locker or golf club
storage. Incidental costs are your personal responsibility.
LEGAL OR FINANCIAL COUNSELING
This includes counseling from a reputable firm or individual pertaining to
financial, estate or legal matters. The Company will not recognize statements
for services rendered from employees of the Company, nor from relatives of the
participating executive. Of course, this service is not available to pay fees
incurred in any action in which your interest is inimical to the Company's.
MOBILE PHONE
This includes the purchase, installation, repair and monthly fee for a mobile
telephone in your automobile.
ALLNET(R) EXECUTIVE PERQUISITE PROGRAM ADMINISTRATIVE GUIDELINES
P. 5
<PAGE> 6
ANNUAL PHYSICAL EXAMINATION
The Company is concerned about you maintaining your good health and therefore
covers an annual comprehensive physical examination to help you detect, and
correct early, medical conditions. Results are confidential and solely for
your benefit.
AUTOMOBILE ALLOWANCE
You can apply a portion or all of your annual allowance toward the costs of
your primary automobile. Automobile expenses directly related to leasing
agreements, purchase agreements and insurance are covered. Fuel and
maintenance expenses are your own responsibility.
ALLNET(R) EXECUTIVE PERQUISITE PROGRAM ADMINISTRATIVE GUIDELINES
P. 6
<PAGE> 1
EXHIBIT 10.8
ALLNET COMMUNICATION SERVICES, INC.
1994 SHORT TERM INCENTIVE PROGRAM
FOR DIRECTORS AND OFFICERS
Subject to Board of Directors approval, the Short Term Incentive (STI) program
for Directors and Vice Presidents shall be renewed. The target awards are a
percentage of base salary. The percentage of base salary varies according to
the participant's level and whether or not he or she is separately compensated
based upon a sales compensation plan. Applicable target awards, shown as
percentages of base salary, are displayed in the table below:
<TABLE>
<CAPTION>
Target Award
as % of
STI Participant's Level and Category Base Pay
------------------------------------ ------------
<S> <C>
Directors and non-officer level Vice Presidents,
not covered by a Sales Compensation Plan 18%
Directors and non-officer level Vice Presidents,
covered by a Sales Compensation Plan 9%
Officers, not covered by a Sales Compensation
Plan 30%
Officers, covered by a Sales Compensation
Plan 15%
</TABLE>
Target awards will be prorated to the nearest full month for participants hired
or promoted after January 1, 1994 and on or before October 1, 1994. Any
Director, Vice President or Senior Vice President hired or promoted into an
eligible position for the first time after the beginning of the fourth calendar
quarter (on or after October 2, 1994) will not be eligible for the 1994 STI
bonus.
Participants are also required to continue active employment with Allnet(R)
through the time of the STI bonus payout which will likely be in February or
March of 1995 (provided STI goals are achieved). To the extent that special
circumstances need to be taken into consideration (such as periods of extended
leave, job changes and so forth), eligibility for
1994 SHORT TERM INCENTIVE PLAN
P. 1
<PAGE> 2
the STI program must be specifically negotiated with the Chief Executive
Officer. Participation will be subject to the CEO's approval, at his sole
discretion.
TARGET AWARD DOLLARS WILL BE DISTRIBUTED BETWEEN THREE CATEGORIES - ONE BASED
UPON INDIVIDUAL PERFORMANCE, ONE BASED UPON TEAM PERFORMANCE AND A THIRD BASED
UPON COMPANY PERFORMANCE.
The first category - based upon individual performance - is weighted most
heavily. One half (50%) of each participant's target award will be based upon
his or her performance relative to three to five strategic or programmatic
objectives. The second and third categories are each weighted at 25% of a
participant's target award. For the second category, participants will be
assigned to "teams" consisting of an officer-level Vice President and his or
her subordinates. Performance in this category will be measured based upon the
team's contribution to the Company's 1994 Quality Plan. The third category
will be based upon Company performance as measured by the Customer
Satisfaction Survey index.
Additionally, once bonus awards have been calculated, actual payouts (if any)
will be based upon a multiplier determined by the Company's financial
performance. The financial multiplier may serve to increase, decrease or
eliminate actual STI payouts.
CATEGORY 1: STRATEGIC AND PROGRAMMATIC OBJECTIVES
(ONE HALF (50%) OF TARGET AWARD)
This category is based upon individual performance relative to three to five
individual strategic or programmatic objectives. In as much as possible,
individual strategic or programmatic objectives should be designed to further
the organization's strategic plan for success through quality. The objectives
should improve quality of service or products, take advantage of
economies-of-scale or in some other way directly impact Company performance.
In addition, individual objectives must directly support the Company's 1994
Quality Plan. This goal will be accomplished by linking individual objectives
to specific requirements under section 5.0 ("The Management of Process
Quality") of the Company's 1994 Quality Plan. Section 5.0 requires each Vice
President to document and improve at least one key process in addition to the
four key processes selected by the Corporate Quality Council for documentation
and improvement. (The four key processes selected by the Quality Council
include: Sales Acquisition, Order Fulfillment, New Product Development or
Customer Service.) If the Vice President is not involved with any of the four
key processes selected by the Quality Council, the Vice President must select
at least two key processes for documentation and improvement.
1994 SHORT TERM INCENTIVE PLAN
P. 2
<PAGE> 3
Vice President-level STI participants must develop at least one strategic or
programmatic objective directly related to each of the key processes selected
for documentation and improvement in conformance with section 5.0 of the
Company's 1994 Quality Plan. In the case of Director-level STI participants,
at least one strategic or programmatic objective must be developed to support
each key process selected by the Director's Vice President that relates to the
Director's functional responsibilities.
STI PARTICIPANTS ARE ALSO ENCOURAGED TO DEVELOP STRATEGIC CROSS FUNCTIONAL
PARTNERSHIPS IN SUPPORT OF INDIVIDUAL STI OBJECTIVES. SUCH PARTNERSHIPS CAN
AND SHOULD INCLUDE JOINT OR COMMON STRATEGIC AND PROGRAMMATIC OBJECTIVES.
Further, strategic and/or programmatic objectives should be "stretch"
objectives. That is, they should represent efforts that go beyond baseline job
responsibilities. Objectives should be quantitative to facilitate evaluation
of the participant's performance. Qualitative measures, however, should be
used if they make more sense. The objective should be phrased so that a naive
reader can understand what the key performance indicator happens to be.
Participants and their first-level reviews must agree on the participant's 1994
strategic or programmatic objectives and determine what weight should be
attached to each objective. These objectives must be submitted to Bill
Norris, Director of Human Resources Planning and Organizational Development, no
later than the close of business March 15, 1994. Bill will review the
objectives for consistency, "stretch" and measurability and will submit a
summary to Senior Management. In addition, the STI summary will be submitted to
the Quality Council. The Quality Council will review the objectives to ensure
linkages between STI objectives and Section 5.0 of the Company's 1994 Quality
Plan.
IF CHANGING BUSINESS CONDITIONS OR OTHER EXIGENCIES NECESSITATE A MID-YEAR
RECONSIDERATION OF INDIVIDUAL PRIORITIES, STI OBJECTIVES MAY BE MODIFIED. THE
MODIFICATION MUST HAVE THE APPROVAL OF TWO LEVELS OF MANAGEMENT AND A COPY OF
THE MODIFICATION SHOULD BE FORWARDED TO BILL NORRIS IN HUMAN RESOURCES.
During the first quarter of 1995, performance relative to individual objectives
will be evaluated by each participant's first level review based upon a scale
of "0.00" to "1.50" with "1.0" indicating that an individual achieved his or
her objectives. Second level approval of the evaluation will be required.
Senior Management and Human Resources will then check each evaluation for
consistency and validity.
The individual performance rating of outstanding performers should average
about 1.00, although some participants may score as high as 1.50 or as low as
0.00 on certain individual objectives. The guidelines shown in the following
table should be used in determining scores, but evaluators are free to
interpolate between levels as appropriate.
1994 SHORT TERM INCENTIVE PLAN
P. 3
<PAGE> 4
<TABLE>
<CAPTION>
INDIVIDUAL PERFORMANCE LEVEL RATING
---------------------------- ------
<S> <C>
Missed objective, performance unacceptable 0.00
Missed objective, performance acceptable 0.50
Largely achieved objective, minor shortfall 0.75
Achieved objective 1.00
Exceeded objective 1.25
Significantly exceeded objective 1.50
</TABLE>
Once each objective has been rated based upon this scale, the objectives will
be weighted and an overall rating based upon the scale will be calculated.
STI bonuses for this portion of the program will be determined by multiplying a
participant's total target award by .5 (the portion of the target award
assigned to the strategic and/or programmatic objectives category) and then
multiplying that product by the participant's overall individual performance
rating.
CATEGORY 2: "TEAM" CONTRIBUTION TO COMPANY'S 1994 QUALITY PLAN
(ONE QUARTER (25%) OF TARGET AWARD)
Each Officer-level Vice President and his or her subordinate non-Officer level
Vice Presidents and/or Directors will be considered a "team" responsible for
making a contribution to the Company's 1994 Quality Plan.
STI program participants will only be eigible for this portion of the Target
Award if they achieve an overall rating of at least .50 on the first component
of the STI program. That is, participants who do not achieve overall
"acceptable performance" on the individual strategic and/or programmatic
objectives component will not be eligible for the "Team Contribution to
Company's 1994 Quality Plan" component of the STI program.
Each Officer's "team" must submit a "1994 Quality Plan Assessment Report"
outlining the team's contributions relative to the Company's 1994 Quality Plan
by January 16, 1995. The Assessment Report must indicate the team's approach,
deployment and results with regards to each of the seven sections of the 1994
Quality Plan. "Team" scores will be determined based upon the Assessment
Reports and the team's score will apply individually to each STI participant on
the Officer's team.
1994 SHORT TERM INCENTIVE PLAN
P. 4
<PAGE> 5
The Quality Council will review each of the Assessment Reports in a three stage
process:
o The first stage will consist of an independent review by individual
Quality Council members of the written documentation submitted by each
Officer's "team."
o The second stage will consist of a group discussion of
each Assessment Report. The "team leader" (normally the involved Vice
President) will be invited to this discussion. This will provide
Quality Council members with an opportunity to ask the team leader
clarifying questions. In addition, the team leader will have an
opportunity to present additional information during this group
discussion.
o The third stage will be a Quality Council meeting during which
group consensus will result in assigning final ratings to each team's
performance. Quality Council members will not participate in group
consensus discussions when their own team is being evaluated.
The seven sections of the 1994 Quality Plan will be weighted as shown in the
table below:
<TABLE>
<CAPTION>
SECTION CATEGORY WEIGHT
------- -------- -----
<S> <C> <C>
1.0 Leadership 20%
2.0 Information and Analysis 10%
3.0 Strategic Quality Planning 5%
4.0 Human Resource Development and Management 20%
5.0 The Management of Process Quality 25%
6.0 Quality Results 10%
7.0 Customer Focus and Satisfaction 10%
</TABLE>
Ratings will be based upon a 0.00 to 1.50 scale similar to the one used to
evaluate individual performance. Teams will not be compared to each other;
instead Quality Council members will be looking for progress and commitment.
The Quality Council will generally follow the guidelines shown in the following
rating scale, but may interpolate between levels as appropriate.
1994 SHORT TERM INCENTIVE PLAN
P. 5
<PAGE> 6
<TABLE>
<CAPTION>
TEAM PERFORMANCE LEVEL RATING
- ---------------------- ------
<S> <C>
Missed requirements, team performance unacceptable 0.00
Missed requirements, team performance acceptable 0.50
Largely achieved requirements, minor shortfall 0.75
Achieved requirements 1.00
Exceeded requirements 1.25
Significantly exceeded requirements 1.50
</TABLE>
Once each section has been rated based upon this scale, an overall rating based
upon the preceding "weight" scale will be calculated.
STI bonuses for this portion of the program will be determined by multiplying
individual total target awards by .25 (the portion of the target award assigned
to this category) and then multiplying that product by the team's overall
Quality Contribution rating. As previously noted, the team's overall rating
will apply individually to each member of each Officer's "team" of subordinate
non-Officer level Vice Presidents and/or Directors. THAT IS, INDIVIDUAL SCORES
ON THIS SECTION WILL BE SAME FOR EVERYONE ON THE "TEAM." TEAM MEMBERS WILL
THUS BE ENCOURAGED TO WORK TOGETHER TO ENSURE A SIGNIFICANT CONTRIBUTION TO THE
COMPANY'S 1994 QUALITY PLAN.
CATEGORY 3: CUSTOMER SATISFACTION SURVEY GOALS
(ONE QUARTER (25%) OF TARGET AWARD)
This category is based upon Company performances measured by the Customer
Satisfaction Survey conducted by the Service Quality Department.
STI program participants will only be eligible for this portion of the Target
Award if they achieve an overall rating of at least .50 on the first component
of the STI program. That is, participants who do not achieve overall
"acceptable performance" on the individual strategic and/or programmatic
objectives component will not be eligible for the "Customer Satisfaction Survey
Goals" component of the STI program.
Customer satisfaction is measured on a monthly basis via the Customer
Satisfaction Survey. In 1994, customer satisfaction is being measured based
upon a "one tailed test" for significance at the 95% confidence level. In
1993, this method produced an overall customer satisfaction score of 83.9.
1994 SHORT TERM INCENTIVE PLAN
P. 6
<PAGE> 7
Based upon the Company goal of continuous improvement, the 1994 payouts for
this portion of the Short Term Incentive program will be as shown in the
following table:
<TABLE>
<CAPTION>
CUSTOMER SATISFACTION 1994 SURVEY RESULTS PERCENTAGE OF
---------------------
SURVEY GOAL FROM... ...TO DOLLARS AWARDED
- ---------------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Major unfavorable change 80.9% or less 0% (No payout)
Unfavorable change 81.0% 82.9% 50%
No material change 83.0% 84.4% 75%
Favorable change 84.5% 86.9% 100%
Major favorable change 87.0% 88.9% 125%
Outstanding favorable change 89.0% or higher 150%
</TABLE>
STI bonuses for this portion of the program will be determined by multiplying a
participant's total target award by .25 (the portion of the target award
assigned to the Customer Satisfaction Survey category) and then multiplying
that product by the percentage corresponding to the Company's actual 1994
performance as measured by the Customer Satisfaction Survey.
FINANCIAL MULTIPLIER
The STI Bonus amount based upon a combination of Category 1, 2 and 3
performance will be paid out according to a financial multiplier. The
financial multiplier will be based upon the Company's actual 1994 operating
income relative to operating income goals.
This financial multiplier could double an individual's STI bonus or could
result in the elimination of the bonus depending on the results.
The Board of Directors will determine the 1994 operating income goal or goals
to be used in the financial multiplier and the performance levels that will
result in increased or decreased STI bonuses. The specifics will be
communicated to individual STI participants in a memorandum from the President
shortly after the Board of Directors makes its determination.
1994 SHORT TERM INCENTIVE PLAN
P. 7
<PAGE> 1
EXHIBIT 10.9
JANUARY 7, 1994
[Name]
Allnet Communication Services, Inc.
30300 Telegraph Road, Suite 350
Bingham Farms, MI 48025-4510
Dear [Name]:
The purpose of this letter ("Agreement") is to state the terms and conditions
applicable to the continuation and termination of your employment by Allnet
Communication Services, Inc., ("Allnet"). Accordingly, in consideration of
services to be rendered by you in the future, we propose the following:
1) Applicability. The terms and conditions set forth in the subsequent
sections of this Agreement shall become applicable to your employment and the
termination of such employment, should such occur, during the period commencing
with January 1, 1994 and ending December 31, 1995 (the "Term").
2) Employment. Subject to the provisions of Section 4 hereof, during the
Term, Allnet will continue to employ you, and you will continue to serve
Allnet, either in your current capacity or in such other capacity as Allnet
shall determine from time to time.
3) Compensation.
(a) Salary and Bonus or Incentive Compensation. For your services under
this Agreement, during the Term your compensation, including both salary and
bonus or incentive compensation, shall be fixed from time to time by Allnet,
but the salary portion thereof shall not be less than in effect as of the date
of this Agreement. You will be afforded the opportunity to earn salary
increases and an annual bonus or incentive compensation on a basis consistent
with that afforded to other employees of similar stature at Allnet.
(b) Benefits. For your services under this Agreement, during the Term you
will continue to participate in all employee benefits or perquisites as may be
made applicable to employees of similar stature by Allnet.
<PAGE> 2
Page two
January 7, 1994
4) Termination.
If your employment is terminated within the Term, the following
conditions apply:
(a) Death. In the event of your death, this Agreement shall terminate
as of the date of your death, provided, however, that if your death occurs
subsequent to a termination pursuant to Section 4(d), the obligations of Allnet
set forth in Section 4(d) shall remain in full force and effect.
(b) Termination by Allnet for Cause. Allnet may terminate this
Agreement and your employment for cause immediately upon notice to you if it is
established that there has been continued and willful neglect or material
breach of your duties under this Agreement; willful misconduct by you
including, without limitation, misappropriation of funds or property of Allnet
or its affiliates, or material violation by you of Allnet policies; or if you
are convicted of a felony.
(c) Voluntary Termination. You may terminate this Agreement and your
employment at any time upon at least thirty days written notice to Allnet.
After giving such notice and until the effective date of the termination
specified in such notice, you will render reasonable assistance in training a
replacement and in concluding your business affairs at Allnet.
(d) Other Terminations. Allnet may terminate this Agreement or your
employment at any time with or without cause. If Allnet terminates this
Agreement or your employment other than for cause as stated in Section 4(b), or
if you terminate your employment with Allnet as a result of either (a) a breach
by Allnet of this Agreement or (b) as a result of Allnet or any of its
affiliates offering you employment but requiring relocation or a substantial
decrease in your then current compensation, then Allnet agrees, for a period of
TWELVE months following the date of such termination:
(i) To continue to pay your basic salary to you or to your estate
at the rate in effect at the time of such termination, and in no event less
than that in effect as of the date of this Agreement and to pay you the amount
of any
<PAGE> 3
Page three
January 7, 1994
bonuses which you have an unconditional right to receive pursuant to any bonus
plan or incentive plan in effect at the time of such termination.
(ii) Except as specifically set forth in Section 5 hereof, to
continue to provide you with all employee benefits to which you were entitled
prior to such termination, other than any officer perquisites, and upon
substantially the same terms and conditions including, but not limited to, Life
and Health insurance coverage; provided, however, that if you obtain full-time
employment prior to the expiration of the applicable TWELVE-month period, the
provision of these benefits shall terminate.
If you become entitled to the benefits of this Section 4(d), then such benefits
shall be in lieu of any benefits to which you would otherwise be entitled under
any policy of Allnet providing for separation payments or benefits.
5. Other Employee Benefits. If your employment is terminated pursuant to
Section 4, you shall cease to be an employee for all purposes including, but
not limited to: (1) your participation in the 401(K) plan; (2) your right to
exercise stock options beyond the (a) vesting schedule and (b) the term allowed
in the option for exercise, upon termination of employment; and (3) your right
to continue to participate in any ALC option or stock purchase plans,
notwithstanding the fact that other rights granted to you in this Agreement may
continue past the date on which your employment terminates.
6. Waiver of Claims. In consideration of this Agreement, you agree to waive
the claims and otherwise hold Allnet harmless as set forth in Schedule 6,
attached hereto and made a part hereof.
7. Other Agreements. During such period as you continue to receive
payments from or through Allnet pursuant to Section 4(d)(i) or 4(d)(ii) hereof,
you agree to refrain from directly soliciting any of Allnet and its affiliates'
customers or from suggesting, persuading or inducing any other employeee of
Allnet and its affiliates to leave Allnet or its affiliates' employ. Any other
agreements between Allnet or its affiliates and you relating to confidentiality
shall remain in effect.
8. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and, in your case, to your personal
representatives and, in the case of Allnet, to its affiliates, successors and
assigns including, but not limited to, any successor in interest by
<PAGE> 4
Page four
January 7, 1994
merger or any person, firm or corporation which acquires substantially all of
the assets of Allnet.
9. Governing Law. This Agreement shall be governed by the law of the State of
Michigan.
If the foregoing is entirely satisfactory to you, please execute one copy
of this letter in the place provided for your signature and return it to us
whereupon this letter shall constitute an agreement between us as of the date
first above written.
Very truly yours,
By:___________________
Accepted and Agreed to this ____ day of _____________, 1994.
______________________
<PAGE> 5
Schedule 6
WAIVER AND COMPLETE RELEASE OF ALL CLAIMS
I accept the terms and conditions of the attached letter from Allnet
Communication Services, Inc. (the "Company") to which this Waiver and Complete
Release of All Claims is attached (the "Offer"), and hereby do release the
Company, and its affiliated Companies and their current and former directors,
officers, agents and employees from and waive any claims relating to or based
in any way upon my employment with, or termination of employment from, the
Company, including but not limited to any claim or claims in contract or tort
or public policy or under any federal or state or local law dealing with
discrimination in employment including but not limited to the 1964 Civil Rights
Act, the Employee Retirement Income Security Act, the Elliott-Larson Civil
Rights Act, and the Age Discrimination in Employment Act, except claims for any
vested pension benefits to which I am entitled, if any. I understand that in
return for the promises made to me by the Company in this Offer, I am waiving
all discrimination in employment claims on the bases of race, sex, age,
national origin, religion, height, weight, pregnancy, disability, handicap, and
marital status which I have or may have against the Company and any right I
have or may have to any relief to which I might otherwise be entitled as a
result of any proceedings that are or might be instituted by the Equal
Employment Opportunity Commission or any other similar enforcement authority.
I understand that this is a binding legal document. My release and waiver is
for any relief, no matter how denominated, including but not limited to back
pay, front pay, severance pay, compensatory damages, exemplary damages,
punitive damages, and damages for pain and suffering.
I have carefully reviewed the contents of the Offer and, with a full and
complete understanding of its terms, voluntarily accept all of the terms and
conditions described. I further declare that I have been given a full and fair
opportunity to discuss this matter with any attorney or advisor of my choice
and that no promise not written in this letter has been made to me and that
this letter contains the entire agreement between me and the Company.
As a material provision of this agreement, I agree not to divulge the terms of
this agreement and its above-referenced payment to anyone except my immediate
family and, or, legal counsel or advisor of my choice. I understand and agree
that the Company may enforce this agreement and, or, stop or recover payments
or benefits provided to me because of this agreement if I do not honor my
obligations as described above.
<PAGE> 6
Page two
Waiver and Complete Release of All Claims
Notice: Various state and federal laws prohibit employment discrimination
based on age, sex, race, color, national origin, religion, handicap or veteran
status. These laws are enforced through the Equal Employment Opportunity
Commission, Department of Labor and State Human Rights Agencies. You may also
want to discuss this Waiver and Complete Release of All Claims with your
lawyer. In any event, you should thoroughly review and understand the effect
of this Agreement and Complete Release before acting on it. Therefore, please
take this Agreement and Complete Release home and consider it for at least five
(5) working days before you decide to sign it.
Agreed: ___________________________________ date:___________________
Notary Public_______________________________ date:__________________
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AND OPTION AGREEMENT dated as of January 7,
1994 by and between ALC Communications Corporation, a Delaware corporation,
Allnet Communication Services, Inc., a Michigan corporation (collectively
referred to as the "Company"), and [Employee name], an individual currently
residing in [city/state] (the "Employee"). This AMENDED AND RESTATED
EMPLOYMENT AGREEMENT ("Agreement") amends and restates the Employment and Option
Agreement dated as of [original agreement date], as amended, entered into by
and between ALC Communications Corporation and [Employee name].
WITNESSETH:
WHEREAS, both the Employee and the Company desire to state the terms
and conditions of the Employee's employment in a written agreement which will
supersede all prior agreements of employment, either written or oral;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
1. Employment
1.1 Employment Term. The Company hereby employs the Employee as
[Employee title] of the Company or in such other senior executive capacity as
the Company, with the Employee's consent, may from time to time designate. The
term of such employment (the "Employment Term") shall commence on January 7,
1994 and shall continue until December 31, 1996 unless earlier terminated in
accordance with Section 7. After the Employment Term, the Company shall
continue the employment of Employee from year to year on the terms hereof
unless the Company gives 60 days' written notice to the Employee that such
employment is terminated.
1.2 Duties and Responsibilities. The Employee shall perform all
duties incidental to his position with the Company, or as may be assigned to
him by the [Board of Directors/President] of the Company, and shall cooperate
fully with the executive officers of the Company. Notwithstanding the
foregoing or anything else contained in this Agreement to the contrary, (i)
Employee may from time to time devote such time as he may determine reasonable
to various charitable and other community activities, (ii) Employee may from
time to time devote a portion of his time to his own, personal investments and
projects (for which he may or may not receive compensation), provided the
amount of time he devotes does not materially affect his duties under this
Agreement, (iii) Employee shall not be obligated to move his residence from the
Metropolitan Detroit, Michigan area in order to perform his duties under this
Employment Agreement,
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<PAGE> 2
and (iv) all duties and responsibilities to be performed by Employee shall be
consistent with his position with the Company.
1.3 Extent of Service. The Employee agrees to use his best efforts in
the business of the Company and to devote his full time, attention and energy
to the business of the Company. The Employee shall not work, including on
either a part-time or independent contracting basis, for any other business or
enterprise during the Employment Term without the Company's prior written
consent.
1.4 Base Compensation. For all services rendered by the Employee
hereunder as an employee of the Company, the Company shall pay the Employee (i)
a salary, in installments at such times as the Company customarily pays its
employees holding comparable positions (but not less often than monthly), at an
annual rate from [anniversary month] 1, 1993 through [anniversary month] 1,
1994 of [salary] and at an annual rate thereafter as shall be determined each
year by the Compensation Committee and/or the Board of Directors of the Company
after review of the performance of the Company and the Employee during the
prior year provided that such annual rate for any year shall be not less than
the prior year's annual rate plus 5% of the annual rate paid the Employee in
the immediately preceding year, plus (ii) incentive compensation in the amount
specified in Section 1.5, less (iii) withholding required by law or agreed to
by the Employee. In addition, the Employee shall be entitled to an annual paid
vacation in accordance with the Company's policy in effect from time to time
and such fringe benefits of the Company offered to employees holding
comparable positions. The Employee shall not be entitled to any additional
compensation from the Company.
1.5 Incentive Compensation. The Compensation Committee and/or the
Board of Directors of the Company shall establish and review with the Employee
from time to time performance goals ("Performance Goals") for the Company which
shall be a range of performance objectives mutually agreed to by the Employee
and the Company with a specific level of objectives to be the targeted
Performance Goal. The Performance Goals shall include levels of objectives
above and below the targeted Performance Goal and the amount of the incentive
compensation payable to the Employee in lieu of the targeted Performance Goal
upon meeting those objectives. Incentive compensation shall be payable to the
Employee by the Company as soon as practicable after the preparation of the
Company's audited annual financial statements, but no later than March 15 of
the following calendar year.
2. Expenses. The Company shall reimburse the Employee for the
reasonable expenses incurred by him in connection with his performance of
services hereunder during the Employment Term upon presentation to the Company
of an itemized account and written proof of such expenses.
-2-
<PAGE> 3
3 . Developments. All developments, including trade secrets,
discoveries, improvements, ideas and writings which either directly or
indirectly relate to or may be useful in the business of the Company or any
subsidiary of the Company (the "Developments") which the Employee, either by
himself or in conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Employment Term,
shall become and remain the sole and exclusive property of the Company. The
Employee hereby assigns, transfers and conveys, and agrees to so assign,
transfer and convey, all of his right, title and interest in and to any and all
such Developments and to disclose fully as soon as practicable, in writing, all
Developments to the Board of Directors of the Company. At any time and from
time to time, upon the request of the Company, the Employee will execute and
deliver to the Company any and all instruments, documents and papers, give
evidence and do any and all other acts which, in the opinion of counsel for the
Company, are or may be necessary or desirable to document such transfer or to
enable the Company to file and prosecute applications for and to acquire,
maintain and enforce any and all patents, trademark registrations or copyrights
under United States or foreign law with respect to any such Developments or to
obtain any extension, validation, reissue, continuance or renewal of any such
patent, trademark or copyright. The Company will be responsible for the
preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Employee for all
reasonable expenses incurred by him in compliance with the provisions of this
Section 3.
4. Confidential Information. The Employee acknowledges that by
reason of his employment by and service to the Company he will have access to
confidential information of the Company and its subsidiaries including, without
limitation, information and knowledge pertaining to products and services,
methods of operation, sales and profit figures, customer lists and
relationships between the Company and its customers, suppliers and others who
have business dealings with it. The Employee covenants that, either during or
after the Employment Term, he will not disclose any such information to any
person without the prior written authorization of the Board of Directors of the
Company.
5. Non-Competition. During the Employment Term the Employee shall
not, unless acting pursuant hereto or with the prior written consent of the
Board of Directors of the Company, directly or indirectly, (i) own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing or control of, or be associated as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise
with, or use or permit his name to be used in connection with, any business or
enterprise that is engaged in any business that is competitive with the
business conducted during the Employment Term by the Company or any of its
subsidiaries, or, during the Employment Term and for six
-3-
<PAGE> 4
months thereafter, (ii) offer or provide employment (whether such employment is
with the Employee or any other business or enterprise), either on a full-time
or part-time or consulting basis, to any person who then currently is, or who
within three months prior thereto had been, employed by the Company or any of
its subsidiaries; provided, however, that this provision shall not be
construed to prohibit the ownership by the Employee of not more than 1% of any
class of securities of any corporation which is engaged in a business
competitive with the Company and has a class of securities registered pursuant
to the Securities Exchange Act of 1934. In the event that the provisions of
this Section 5 should ever be adjudicated to exceed the time, geographic, or
other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic or other limitations permitted by applicable law.
6. Indemnification
A. ALC Communications Corporation and Employee agree to bind
themselves to the provisions of the Amended and Restated Bylaws of ALC
Communications Corporation, attached hereto and made a part hereof as Exhibit
6.A., as a contractual agreement between them.
B. Allnet Communication Services, Inc. and Employee agree to bind
themselves to the provisions of the Amended and Restated Bylaws of Allnet
Communication Services, Inc., attached hereto and made a part hereof as Exhibit
6.B., as a contractual agreement between them.
7. Termination
7.1 Disability or Death. In the event that the Employee shall die
or is unable to perform his duties and responsibilities hereunder to the full
extent required by the Board of Directors of the Company by reason of illness,
injury or incapacity for six consecutive months, during which time he shall
continue to be compensated hereunder, the Employee's employment hereunder shall
be terminated and the Company shall have no further liability or obligation to
the Employee, or to his executors, administrators, heirs, assigns or any other
person claiming under or through him hereunder, except for unpaid salary,
incentive compensation (including for partial periods) and benefits as well as
unreimbursed expenses accrued to the date of termination. The Employee agrees,
in the event of any dispute under this Section 7.1 regarding his health, to
submit to a physical examination by a licensed physician selected by the
Company, the cost of such examination to be borne by the Company.
7.2 Cause. With or without cause, the Employee may terminate his
employment hereunder at any time upon 60 days' prior written notice to the
Company; in such event, the Company shall pay the Employee his salary through
the effective date of termination, and if the Employee terminated
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<PAGE> 5
his employment due to cause against the Company, the Company shall also pay
incentive compensation in respect of periods (including partial periods) prior
to termination. The Employee's employment hereunder may be terminated by the
Board of Directors of the Company at any time for "cause." "Cause" shall mean
the failure of the Employee to observe or perform (other than by reason of
illness, injury or incapacity) any of the terms or provisions of this
Agreement, dishonesty, willful misconduct, conviction of a felony or other
crime involving moral turpitude, misappropriation of funds, habitual
insobriety, use of controlled substances (other than under the supervision of a
licensed physician), or other proper cause. Except as otherwise specified, the
Company shall have no liability or obligation to the Employee hereunder upon
termination under this Section 7.2 except for (i) unpaid salary, (ii) incentive
compensation in respect of full annual, but not partial, periods ended prior to
the date of termination, and (iii) benefits accrued to the date of termination
and which are payable upon termination.
7.3 Failure to Meet Goals. The Board of Directors of the Company may
terminate the Employee's employment hereunder at any time for material failure
to meet the Performance Goals. The Company shall have no liability or
obligation to the Employee hereunder upon termination under this Section 7.3
except for (i) unpaid salary, (ii) incentive compensation in respect of periods
(including partial periods) ended prior to the date of termination, (iii)
benefits accrued to the date of termination and which are payable upon
termination, and (iv) the salary to which the Employee would have been
entitlted for the succeeding twelve months, payable in installments at the
times the same would have become due but for the termination, as well as during
such time period all employee benefits to which Employee was entitled prior to
such termination, other than any officer perquisites, and upon substantially
the same terms and conditions including, but not limited to, Life, Health and
Long-Term Disability Insurance coverage; provided, however, that if Employee
obtains full-time employment prior to the expiration of the twelve-month
period, the provision of these benefits shall terminate although the salary
shall continue for the remainder of the period.
7.4 Without Cause. The Company may terminate the Employee's
employment hereunder at any time, without cause, after which termination the
Company shall not have any liability or obligation to the Employee hereunder
except for (i) unpaid salary, (ii) incentive compensation in respect of periods
(including partial periods) prior to termination, (iii) benefits accrued to the
date of termination and which are payable upon termination, and (iv) the salary
to which the Employee would have been entitled for the succeeding twenty-four
months, payable in installments at the time the same would have become due but
for the termination, as well as during such time period all employee benefits
to which Employee was entitled prior to such termination, other than any
officer perquisites, and upon substantially the same
-5-
<PAGE> 6
terms and conditions including, but not limited to, Life, Health and Long-Term
Disability Insurance coverage; provided, however, that if Employee obtains
full-time employment prior to the expiration of the applicable period, the
provision of these benefits shall terminate, although the salary shall continue
for the remainder of the period. Upon termination under this Section 7.4 any
stock options previously granted to Employee and not yet exercised shall be
accelerated to the extent necessary to become fully vested and the Employee
shall be entitled to exercise the same in full for twelve months following the
date of termination of employment hereunder or under the terms of the Company's
1990 Stock Option Plan, whichever is longer.
7.5 Survival. Notwithstanding the expiration or termination of the
Agreement, the obligations of the Company with respect to payment of
compensation (Section 1.4), incentive compensation (Section 1.5) and expenses
(Section 2.) earned or otherwise owed to Employee prior to the expiration of
the Agreement as well as salary and benefit continuation with respect to the
applicable periods set forth in this Section 7 of the Agreement shall survive
and remain in full force and effect. Notwithstanding either the expiration or
termination of the Agreement, or the termination of the Employee's employment
under this Section 7, the obligations of the Employee under Sections 3, 4 and 5
shall survive and remain in full force and effect, and the Company shall be
entitled to equitable relief against the Employee pursuant to the provisions of
Section 8. Further, upon termination of the Employee's employment under this
Section 7, Employee shall have no restriction hereunder from owning, managing,
operating, financing, joining, controlling or participating in the ownership,
management, operation, financing or control of, or be associated as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, or use or permit his name to be used in connection with any
business or enteprise that is engaged in any business that is competitive with
the business conducted during the Employment Term by the Company or any of its
subsidiaries. The liability of the Company, if any, for payments to the
Employee by virtue of any wrongful termination of the Employee's employment
hereunder shall not exceed the amount that would be payable to the Employee if
the termination had been made under Section 7.4.
8. Equitable Relief. The Employee acknowledges that the restrictions
contained in Sections 3, 4 and 5 are, in view of the nature of the business, of
the Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of the provisions of those Sections will result
in irreparable injury to the Company. The Employee also acknowledges that the
Company shall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving actual damages, and to an equitable
accounting of all earnings, profits and other benefits arising from any such
violation, which rights shall
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<PAGE> 7
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. The Employee hereby agrees that in the event of any
such violation the Company shall be entitled to commence an action for any such
preliminary and permanent injunctive relief and other equitable relief in any
court of competent jurisdiction and further irrevocably submits, for himself
and in respect of his property, generally and unconditionally, to the
jurisdiction of any Michigan state court located in Wayne or Oakland Counties
or the United States court for the Eastern District of Michigan over any suit,
action or proceeding arising out of or relating to this Section 8. The
Employee hereby waives, to the fullest extent permitted by law, any objection
that he may now or hereafter have to such jurisdiction or to the venue of any
such suit, action or proceeding brought in such a court and any claim that such
suit, action or proceeding has been brought in an inconvenient forum. The
Employee agrees that effective service of process may be made upon him by mail
under the notice provisions contained in Section 11.
9. Litigation Expenses. In the event of a lawsuit by either party to
enforce the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable costs, expenses and attorneys' fees from the
other party.
10. Life Insurance. The Company agrees to insure the life of the
Employee, and to pay the entire premium, under a term life insurance policy
continuing during the duration of the Employment Term in an amount of at least
$500,000, with the Employee having the sole right to designate one or more
beneficiaries under such insurance policy.
11. Notice. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be deemed to have been given when mailed by registered or
certified mail, return receipt requested, as follows (provided that notice of
change of address shall be deemed given only when received):
If to the Company, to:
ALC Communications Corporation
Allnet Communication Services, Inc.
30300 Telegraph Road, Suite 350
Bingham Farms, Michigan 48025
Attention: [Chairman of the Board/
President]
If to the Employee, to his residence
as shown from time to time on the
records of the Company
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<PAGE> 8
or to such other name or address as the Company or the Employee, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section.
12. Contents of Agreement, Amendment and Assignment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and cannot be changed, modified or terminated except
upon written amendment. All of the terms and provisions of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties
hereto, except that the duties and responsibilities of the Employee hereunder
are of a personal nature and shall not be assignable in whole or in part by the
Employee; provided, however, that in the event that the Company effects a
merger with any corporation, or in the event that the business of the Company
is otherwise combined with the business of any corporation or entity, then,
notwithstanding anything herein to the contrary, the provisions of Section 1
hereof shall be applicable only with respect to the division or other unit of
the Company or of such other corporation or entity that conducts the business
previously conducted by the Company.
13. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect any other provisions or applications of this Agreement which can be
given effect without the invalid or unenforceable provision or application and
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
14. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Agreement is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder or now or hereafter existing at law or in equity.
No delay or omission by the Company in exercising any right, remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company
from time to time and as often as may be deemed expedient or necessary by the
Company in its sole discretion.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
_______________________________
[Employee Name], "Employee"
[Corporate Seal] ALC COMMUNICATIONS CORPORATION
BY:____________________________
John M. Zrno, President and
Chief Executive Officer
[Corporate Seal] ALLNET COMMUNICATION SERVICES, INC.
BY:____________________________
John M. Zrno, President and
Chief Executive Officer
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<PAGE> 1
<TABLE>
<CAPTION>
ALC COMMUNICATIONS CORPORATION AND SUBSIDIARY Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Year ended December 31,
------------------------------------------
1993 1992 1991
---------- ----------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C>
Earnings Per Share
Income before extraordinary items and cumulative effect of
accounting change $39,676 $13,826 $ 2,717
Accretion of discount on Class A Preferred Stock (364) (860) (1,043)
Accrued dividends on Class A Preferred Stock (453) (3,254) (4,000)
Accretion of payment to certain Class A Preferred Stockholders (268) (643)
---------- ----------- ----------
Income before extraordinary items and cumulative effect of accounting
change available for Common Stockholders $38,859 $ 9,444 $ (2,969)
Extraordinary items:
Loss related to early retirement of debt (7,490)
Utilization of operating loss carryforward 7,000 2,630
Cumulative effect of change in method of accounting for income taxes 13,500
---------- ----------- ----------
Net Income (Loss) Available for Common Stockholders $44,869 $16,444 $ (339)
---------- ----------- ----------
---------- ----------- ----------
Weighted average common shares outstanding during the period 28,864 18,603 17,216
---------- ----------- ----------
---------- ----------- ----------
Earnings per common and common equivalent share:
Income (loss) before extraordinary items and cumulative effect of
accounting change $ 1.35 $ 0.51 $ (0.17)
Extraordinary items:
Loss related to early retirement of debt (0.26)
Utilization of operating loss carryforward 0.37 0.15
Cumulative effect of change in method of accounting for income taxes 0.47
---------- ----------- ----------
Net Income (Loss) $ 1.56 $ 0.88 $ (0.02)
---------- ----------- ----------
---------- ----------- ----------
Primary Earnings Per Share
Income before extraordinary items and cumulative effect of
accounting change $39,676 $13,826 $ 2,717
Accretion of discount on Class A Preferred Stock (364) (860) (1,043)
Accrued dividends on Class A Preferred Stock (453) (3,254) (4,000)
Accretion of payment to certain Class A Preferred Stockholders (268) (643)
---------- ----------- ----------
Income before extraordinary items and cumulative effect of accounting
change available for Common Stockholders $38,859 $ 9,444 $ (2,969)
Extraordinary items:
Loss related to early retirement of debt (7,490)
Utilization of operating loss carryforward 7,000 2,630
Cumulative effect of change in method of accounting for income taxes 13,500
---------- ----------- ----------
Net Income (Loss) Available for Common Stockholders $44,869 $16,444 $ (339)
---------- ----------- ----------
---------- ----------- ----------
Weighted average common shares outstanding during the period 28,864 18,603 17,216
Common Stock Equivalents:
Average amount of Class B and Class C Preferred prior
to conversion to Common Stock 875 3,538 3,404
---------- ----------- ----------
Weighted Average Common and Common Equivalent Shares 29,739 22,141 20,620
---------- ----------- ----------
---------- ----------- ----------
Earnings per common and common equivalent share:
Income (loss) before extraordinary items and cumulative effect of
accounting change $ 1.31 $ 0.43 $ (0.14)
Extraordinary items:
Loss related to early retirement of debt (0.25)
Utilization of operating loss carryforward 0.31 0.12
Cumulative effect of change in method of accounting for income taxes 0.45
---------- ----------- ----------
Net Income (Loss) $ 1.51 $ 0.74 $ (0.02)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
1993 1992(1) 1991(1)
--------- --------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C>
Primary Earnings Per Share -- Modified Treasury Stock Method
Income before extraordinary items and cumulative effect of accounting change $39,676 $13,826 $2,717
Accretion of discount on Class A Preferred Stock (364) (860) (1,043)
Accrued dividends on Class A Preferred Stock (453) (3,254) (4,000)
Accretion of payment to certain Class A Preferred Stockholders (268) (643)
Effect of Modified Treasury Stock Method:
Reduction in interest (net of tax) 4,404 7,431
--------- --------- ---------
Income before extraordinary items and cumulative effect of accounting
change available for Common Stockholders $38,859 $13,848 $4,462
Extraordinary items:
Loss related to early retirement of debt (7,490)
Utilization of operating loss carryforward 8,569 4,315
Cumulative effect of change in method of accounting for income taxes 13,500
--------- --------- ---------
Net Income Available for Common Stockholders $44,869 $22,417 $8,777
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding during the period 28,864 18,603 17,216
Common Stock Equivalents:
Average amount of Class B and Class C Preferred prior
to conversion to Common Stock 875 3,538 3,404
Effect of Modified Treasury Stock Method:
Assumed exercise of all option and warrants 10,581 10,162 8,107
Assumed repurchase of up to 20% of Common Stock outstanding (3,972) (3,721) (3,443)
--------- --------- ---------
Weighted Average Common and Common Equivalent Shares 36,348 28,582 25,284
--------- --------- ---------
--------- --------- ---------
Earnings per common and common eqivalent share:
Income before extraordinary items and cumulative effect of accounting change $ 1.07 $ 0.48 $ 0.18
Extraordinary items:
Loss related to early retirement of debt (0.21)
Utilization of operating loss carryforward 0.30 0.17
Cumulative effect of change in method of accounting for income taxes 0.37
--------- --------- ---------
Net Income $ 1.23 $ 0.78 $ 0.35
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31, 1993
-----------------
<S> <C>
Fully Diluted Earnings Per Share (2)
Weighted average common shares outstanding during the period 28,864
Common Stock Equivalents:
Average amount of Class B and Class C Preferred prior
to conversion to Common Stock 875
Effect of Modified Treasury Stock Method:
Assumed exercise of all option and warrants 10,581
Assumed repurchase of up to 20% of Common Stock outstanding (2,878)
---------
Weighted Average Common and Common Equivalent Shares 37,442
---------
---------
Income before extraordinary items and cumulative effect of accounting change $ 1.04
Extraordinary items:
Loss related to early retirement of debt (0.20)
Utilization of operating loss carryforward
Cumulative effect of change in method of accounting for income taxes 0.36
---------
Net Income $ 1.20
---------
---------
</TABLE>
(1) Modified Treasury Stock Method is not used because the net effect is
anti-dilutive.
(2) This calculation is submitted in accordance with regulation S-K item
601(b)(11), although it is contrary to paragraph 40 of APB Opinion No. 15,
because it results in dilution of less than 3%. The fully diluted earnings
per share for 1992 and 1991 do not differ from the primary earnings per
share.
Shading denotes reported earnings per share.
<PAGE> 1
EXHIBIT 21.1
The following is the only significant subsidiary (as such term is defined in
Rule 1-02(v) of SEC Regulation S-X) of ALC Communications Corporation as of
December 31, 1993 and is wholly owned by ALC.
Allnet Communication Services, Inc. incorporated in Michigan
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-8 No. 33-39649) pertaining to the 1990
Stock Option Plan of ALC Communications Corporation and to the incorporation by
reference in that Registration Statement and in the Registration Statements,
(Form S-8 No. 33-13624) pertaining to the 1986 Option Plan and (Form S-8 No.
33-25737) pertaining to the Amendment to the 1986 Option Plan of ALC
Communications Corporation and in the related Prospectuses of our report dated
January 25, 1994, with respect to the consolidated financial statements and
schedules of ALC Communications Corporation included in the Annual Report (Form
10-K) for the year ended December 31,1993.
Detroit, Michigan
March 29, 1994
