NOTE 4: SEVERANCE

On March 31, 2014, David J. Cuthbert was terminated as President and Chief Executive Officer of Alteva. The Company notified Mr. Cuthbert that his termination was for "cause" and, as such, Mr. Cuthbert was not entitled to any of the benefits provided for under his employment agreement dated March 5, 2013, including cash severance and the acceleration of vesting on any unvested equity instruments.

Mr. Cuthbert has disputed the Company's basis for termination and claimed that he is due his full severance benefits. The Company strongly believes the termination for "cause" was appropriate and intends to vigorously defend its position.

The maximum cash severance payments called for under Mr. Cuthbert's employment agreement in the case of a termination not for cause total $0.8 million. At the time of his termination, Mr. Cuthbert held outstanding unvested restricted stock awards and unvested stock options of 101,235 and 6,175, respectively, previously granted under the long-term incentive plan (see Note 9). These awards, which had unrecognized compensation cost of approximately $1.2 million, were cancelled as of his termination.

The Company accrued $100,000 during the six months ended June, 2014, in connection with the potential exposure for this matter based upon the current facts and circumstances. The Company will continually monitor the status of this matter to determine the potential impact and any required adjustment to the accrual.

On May 25, 2014, the Company continued to carry out its plan to contain costs by reducing its company-wide headcount by 7%. Total expense recognized in selling, general and administrative expense during the second quarter of 2014 related to this reduction was $0.2 million. The Company expects to payout its remaining accrual balance associated with this workforce reduction through December 2014.

On May 21, 2013, the Company announced a reduction in workforce of its Warwick, New York facility of approximately 17% due to the decline in work associated with the Telephone segment. Total expense recognized in selling, general and administrative expenses during the second quarter of 2013 related to this reduction was $0.3 million The Company expects to payout its remaining accrual balance associated with this workforce reduction through August 2014.

The Company reports severance accrual within other accrued expenses on its balance sheet. The following summarizes the movement in the accrual balance associated with its workforce reductions, excluding the accrual for Mr. Cuthbert, for the six months ended June 30, 2014:


($ in thousands)
Beginning balance - December 31, 2013	$	247
Additional accrual		307
Payments		(375	)
Ending balance - June 30, 2014	$	179