<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 1-4166
FRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0613330
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (Identification No.)
180 South Clinton Avenue, Rochester, NY 14646-0700
Address of principal executive offices) (Zip Code)
(716) 777-1000
(Registrant's telephone number, including area code)
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
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
$1.00 Par Value Common Stock 157,068,862 shares as of
October 31, 1995
<PAGE>
<PAGE>2
FRONTIER CORPORATION
Part I - Financial Information
Item 1 - Financial Statements
Presented on the following pages are the consolidated
financial statements of Frontier Corporation. In the
opinion of management, the consolidated financial
information reflects all adjustments necessary for a fair
presentation of the financial statements for the interim
periods included herein. There have been no adjustments
made in the interim financial statements which are not of
a normal recurring nature.
<PAGE>
<PAGE>3
<TABLE>
FRONTIER CORPORATION
Consolidated Statement of Income
(Unaudited)
In thousands, except 3 Months Ended September 30, 9 Months Ended September 30,
per share data 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and Sales $ 571,386 $ 421,503 $1,537,346 $1,237,724
- ---------------------------------------------------------------------------------------
Costs and Expenses
Operating expenses 406,915 282,785 1,072,668 829,914
Cost of goods sold 4,232 3,956 15,421 15,870
Depreciation and amortization 46,283 38,112 123,141 115,395
Taxes other than income taxes 12,148 12,093 35,963 36,335
Acquisition-related charges 109,489 - 114,239 -
- ---------------------------------------------------------------------------------------
Total Costs and Expenses 579,067 336,946 1,361,432 997,514
- ---------------------------------------------------------------------------------------
Operating Income (Loss) (7,681) 84,557 175,914 240,210
Interest expense 13,792 12,780 41,659 38,757
Other income and expense:
Allowance for funds used 245 274 782 831
during construction
Gain on sale of subsidiaries - - 4,826 12,933
Equity earnings from 1,311 1,723 2,870 2,206
unconsolidated wireless interests
Interest income 1,317 2,561 8,868 5,026
Other income (expense), net (1,051) (461) (2,623) (908)
- ---------------------------------------------------------------------------------------
Income (Loss) Before Taxes, Extraordinary
Items and Cumulative Effects of Change
in Accounting Principle (19,651) 75,874 148,978 221,541
Income taxes (1,203) 28,467 62,707 81,066
- ---------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary Items and Cumulative
Effects of Change in (18,448) 47,407 86,271 140,475
Accounting Principle
Extraordinary item-early (5,839) - (5,839) -
extinguishment of debt
Extraordinary item-discontin- (112,148) - (112,148) -
uance of regulatory accounting
Cumulative effect of change in (1,477) - (1,477) -
accounting principle-accounting
for contributions made
Cumulative effect of change in - - - (7,197)
accounting principle-accounting
for postemployment benefits
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>4
<TABLE>
<S> <C> <C> <C> <C>
Consolidated Net Income (Loss) (137,912) 47,407 (33,193) 133,278
Dividends on preferred stock 297 297 890 890
- ---------------------------------------------------------------------------------------
Income (Loss) Applicable to $(138,209) $ 47,110 $ (34,083) $ 132,388
Common Stock
=======================================================================================
Dividends declared on common $ 49,402 $ 14,818 $ 66,392 $ 44,448
stock
Average common shares out- 152,972 161,161 150,742 160,106
standing
Earnings (Loss) Per Common Share
Income (Loss) before extra- $ (.12) $ .29 $ .56 $ .87
ordinary items and cumulative
effects of change in
accounting principle
Extraordinary item-early (.04) - (.04) -
extinguishment of debt
Extraordinary item-discon- (.73) - (.74) -
tinuance of regulatory
accounting
Cumulative effect of change (.01) - (.01) -
in accounting principle-
accounting for
contributions made
Cumulative effect of change - - - (.04)
in accounting principle-
accounting for postemployment
benefits
- ---------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share$ (.90) $ .29 $ (.23) $ .83
=======================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>5
<TABLE> FRONTIER CORPORATION
Business Segment Information
(Unaudited)
3 Months Ended September 30, 9 Months Ended September 30,
Dollars in thousands 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long Distance Communications Services
Revenues $ 404,414 $ 263,502 $1,040,560 $ 742,266
Operating Income (Loss):
Operating Income Before $ 55,019 $ 43,313 $ 151,036 $ 117,927
Acquisition-Related Charges
Acquisition-Related Charges (86,698) - (91,448) -
- ---------------------------------------------------------------------------------------
Total Operating Income (Loss) $ (31,679) $ 43,313 $ 59,588 $ 117,927
Depreciation and Amortization $ 18,495 $ 9,966 $ 40,981 $ 29,841
Capital Expenditures $ 30,209 $ 9,659 $ 44,657 $ 34,792
Identifiable Assets $1,051,130 $ 458,633 $1,051,130 $ 458,633
- ---------------------------------------------------------------------------------------
Local Communications Services
Revenues:
Rochester, NY Operations $ 78,804 $ 76,796 $ 234,735 $ 229,255
Regional Operations 78,167 73,353 230,107 226,798
- ---------------------------------------------------------------------------------------
Total Revenues $ 156,971 $ 150,149 $ 464,842 $ 456,053
Operating Income:
Operating Income Before
Acquisition-Related Charges:
Rochester, NY Operations $ 18,899 $ 21,082 $ 59,871 $ 57,380
Regional Operations 30,030 23,907 86,052 75,269
Acquisition-Related Charges:
Rochester, NY Operations (1,589) - (1,589) -
Regional Operations (8,660) - (8,660) -
- ---------------------------------------------------------------------------------------
Total Operating Income $ 38,680 $ 44,989 $ 135,674 $ 132,649
Depreciation and Amortization:
Rochester, NY Operations $ 13,550 $ 14,764 $ 41,294 $ 44,250
Regional Operations 12,343 12,185 36,606 37,070
- ---------------------------------------------------------------------------------------
Total Depreciation and $ 25,893 $ 26,949 $ 77,900 $ 81,320
Amortization
Capital Expenditures $ 20,631 $ 15,748 $ 50,208 $ 41,746
Identifiable Assets $1,039,065 $1,256,058 $1,039,065 $1,256,058
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>6
<TABLE>
<S> <C> <C> <C> <C>
Wireless Communications Services
Revenues $ 3,503 $ 1,760 $ 8,949 $ 21,935
Operating Income (Loss) $ 84 $ (404) $ 1,201 $ 1,191
Depreciation and Amortization $ 665 $ 780 $ 1,685 $ 3,627
Capital Expenditures $ 684 $ 1,036 $ 1,325 $ 1,823
Identifiable Assets $ 101,262 $ 59,714 $ 101,262 $ 59,714
- ---------------------------------------------------------------------------------------
Corporate Operations and Other
Revenues $ 6,498 $ 6,092 $ 22,995 $ 17,470
Operating Income (Loss):
Operating Income (Loss) Before
Acquisition-Related Charges $ (2,224) $ (3,341) $ (8,007) $ (11,557)
Acquisition-Related Charges (12,542) - (12,542) -
- ----------------------------------------------------------------------------------------
Total Operating Income (Loss) $ (14,766) $ (3,341) $ (20,549) $ (11,557)
Depreciation and Amortization $ 1,230 417 $ 2,575 607
Capital Expenditures $ 4,846 $ 2,131 $ 11,686 $ 6,107
Identifiable Assets $ (88,802) $ 141,445 $ (88,802) $ 141,445
- ---------------------------------------------------------------------------------------
Consolidated
Revenues $ 571,386 $ 421,503 $1,537,346 $1,237,724
Operating Income (Loss):
Operating Income Before $ 101,808 $ 84,557 $ 290,153 $ 240,210
Acquisition-Related Charges
Acquisition-Related Charges (109,489) - (114,239) -
- ---------------------------------------------------------------------------------------
Total Operating Income (Loss) $ (7,681) $ 84,557 $ 175,914 $ 240,210
Depreciation and Amortization $ 46,283 $ 38,112 $ 123,141 $ 115,395
Capital Expenditures $ 56,370 $ 28,574 $ 107,876 $ 84,468
Identifiable Assets $2,102,655 $1,915,850 $2,102,655 $1,915,850
- ---------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>7
FRONTIER CORPORATION
Consolidated Balance Sheet
- ------------------------------------------------------------------------
September 30, December 31,
1995 1994
In thousands of dollars (Unaudited)
- ------------------------------------------------------------------------
[S] [C] [C]
ASSETS
Current Assets
Cash and cash equivalents $ 45,076 $ 359,309
Short-term investments - 9,047
Accounts receivable 377,851 263,815
Material and supplies 13,744 8,586
Prepayments and other 67,914 30,986
- ------------------------------------------------------------------------
Total Current Assets 504,585 671,743
- ------------------------------------------------------------------------
Property, Plant and Equipment
Total Property, Plant and Equipment 2,073,711 1,914,619
Less-Accumulated depreciation 1,172,785 880,177
- ------------------------------------------------------------------------
Net property, plant and equipment 900,926 1,034,442
Customer Base 65,477 34,720
Goodwill 473,944 187,722
Deferred and Other Assets 157,723 130,084
- ------------------------------------------------------------------------
Total Assets $2,102,655 $2,058,711
========================================================================
<PAGE>
<PAGE>8
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 425,988 $ 230,702
Dividends payable 32,706 15,487
Long-term debt due within one year 6,774 4,860
Taxes accrued 47,318 28,070
Interest accrued 11,165 13,502
Other current liabilities 8,927 12,825
- ------------------------------------------------------------------------
Total Current Liabilities 532,878 305,446
- ------------------------------------------------------------------------
Long-Term Debt 633,188 661,549
Deferred Income Taxes 6,439 96,134
Deferred Employee Obligations 55,265 46,001
Minority Interests 776 252
- ------------------------------------------------------------------------
Total Liabilities 1,228,546 1,109,382
- ------------------------------------------------------------------------
Shareowners' Equity
Common stock 156,209 149,294
Capital in excess of par value 365,746 379,402
Retained earnings 329,532 397,856
- ------------------------------------------------------------------------
851,487 926,552
Less-Treasury stock, at cost 147 -
- ------------------------------------------------------------------------
Common Shareowners' Equity 851,340 926,552
Preferred stock 22,769 22,777
- ------------------------------------------------------------------------
Total Shareowners' Equity 874,109 949,329
- ------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $2,102,655 $2,058,711
========================================================================
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>9
<TABLE>
FRONTIER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
- -----------------------------------------------------------------------------
9 Months Ended September 30,
In thousands of dollars 1995 1994
- -----------------------------------------------------------------------------
Cash Flows from Operating Activities
- -----------------------------------------------------------------------------
<S> <C> <C>
Net Income (Loss) $(33,193) $133,278
- -----------------------------------------------------------------------------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Extraordinary item-early extinguishment of debt 9,489 -
Extraordinary item-discontinuance of 180,488 -
regulatory accounting
Cumulative effect of change in accounting
principle - accounting for contributions made 2,272 -
Cumulative effect of change in accounting
principle - accounting for postemployment benefits 11,072
Acquisition-Related charges 114,239 -
Depreciation and amortization 123,141 115,395
Gain on sale of assets (4,826) (13,032)
Equity earnings from unconsolidated wireless (2,870) (2,206)
interests
Minority interests 531 365
Changes in operating assets and liabilities,
exclusive of impacts of purchase acquisitions:
(Increase) decrease in accounts receivable (69,713) (36,440)
(Increase) decrease in material and supplies (2,286) 1,336
(Increase) decrease in prepayments and other (28,531) 161
(Increase) decrease in deferred and other (32,905) (15,740)
assets
Increase (decrease) in accounts payable (18,687) 17,283
Increase (decrease) in advance billings (4,719) (12,802)
Increase (decrease) in accrued interest and (79,666) 1,328
taxes
Increase (decrease) in deferred income taxes 46,311 (3,261)
Increase (decrease) in deferred employee 9,021 5,677
obligations
- -----------------------------------------------------------------------------
Total Adjustments 241,289 69,136
- -----------------------------------------------------------------------------
Net Cash Provided by Operating Activities 208,096 202,414
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>10
<TABLE>
<S> <C> <C>
Cash Flows from Investing Activities
Expenditures for property, plant and equipment (87,838) (82,838)
Decrease (increase) in investment securities 8,259 (8,708)
Investment in cellular (12,539) (438)
Investment in nonaffiliated entities (5,675) -
Purchase of companies (312,761) (13,395)
Proceeds from sale of company - 55,827
Other investing activities (196) 744
- -----------------------------------------------------------------------------
Net Cash Used in Investing Activities (410,750) (48,808)
- -----------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in notes payable (164) (197)
Proceeds from long-term debt 138,138 9,647
Repayments of long-term debt (212,179) (28,795)
Dividends paid (50,063) (44,529)
(Purchases) issuance of treasury stock (10,041) 2,302
Issuance of common stock 25,026 106,919
Redemptions of preferred stock (8) (8)
Capital distribution to shareowners of pooled (2,290) (4,525)
company
- -----------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (111,581) 40,814
- -----------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (314,235) 194,420
Cash and Cash Equivalents at Beginning of Period 359,311 33,970
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 45,076 $ 228,390
=============================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>11
FRONTIER CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1: Consolidation
The consolidated financial information includes the
accounts of Frontier Corporation and its affiliates (the
"Company"). As of January 1995, the Company reports its
operations in four segments: Long Distance Communications
Services, Local Communications Services, Wireless
Communications Services and Corporate Operations and
Other. Prior to January 1995, the Company reported its
operations in only two segments, Telephone Operations and
Telecommunication Services. The change in the definition
of the Company's segments has been made to better reflect
the changing scope of the businesses in which the Company
operates. All historical data have been restated
accordingly to conform with the new presentation.
Certain prior year amounts have been reclassified to
conform to the current year presentation.
Note 2 : Merger with ALC Communications Corporation
On August 16, 1995, the shareowners of the Company and
ALC Communications Corporation (ALC) approved a merger of
the two companies, creating the fifth-largest long
distance company in the United States. ALC, through its
subsidiary Allnet Communications Services, Inc. (doing
business as Frontier Communications Services), provides
long distance products and services primarily to small and
medium-sized business customers nationwide. The Company
had revenues and net income of $698.6 million and $73.2
million, respectively in the 7 month period ended July 31,
1995. ALC had revenues and net income of $443.8 million
and $46.7 million, respectively, in the 7 month period
ended July 31, 1995. Under the terms of the merger
agreement, the Company exchanged two shares of its common
stock for each of ALC's common shares. The total shares
issued by the Company to effect the merger were 69.2
million. At the time of the merger, ALC had 3.9 million
stock options and 3.3 million stock warrants outstanding
providing on exercise for the purchase of an equal number
of its shares. After the merger, each of these options
and warrants continues to be exercisable for two shares of
the Company's stock. The transaction has been accounted
for as a pooling of interests and all historical data have
been restated accordingly.
In connection with the merger, the Company recorded a
one-time pre-tax acquisition related charge of $109.5
million in the third quarter of 1995 associated with the
integration of the Company's 1995 acquisitions, as well as
the costs directly associated with effecting the merger.
The integration of the acquired companies with existing
Frontier businesses resulted in instances of duplicative
or otherwise unnecessary facilities and staff.
Note 3: Other Acquisitions/Divestitures
Pooling of Interests Acquisition
On March 17, 1995, the Company finalized its acquisition
of American Sharecom, Inc. (ASI), a long distance company
headquartered in Minneapolis, Minnesota. ASI had been one
of the largest privately owned long distance companies in
the country. ASI's sales operations are concentrated in
the Midwest, Northwest and California. ASI had revenues
of $20.2 million and net income of $2.1 million,
in the two month period ended February 28, 1995.
The Company acquired all of the outstanding shares
of ASI in exchange for approximately 8.7 million shares of
Frontier common stock. The transaction has been accounted
for as a pooling of interests and all historical financial
data have been restated accordingly.
In conjunction with this acquisition, the Company
recorded one-time pre-tax acquisition related charges of
$4.8 million in the first quarter of 1995 related to
various transition and transaction costs of the newly
combined companies.
Purchase Acquisitions
On March 15, 1995, the Company, through ALC, completed
its acquisition of ConferTech International, Inc.
(ConferTech), a telecommunications company specializing in
teleconferencing services and audio bridge equipment. ALC
paid approximately $66 million in cash for ConferTech.
On March 29, 1995, the Company completed its purchase of
Minnesota Southern Cellular Telephone Company (MSCTC). A
total of approximately 867,000 shares of Frontier common
stock were reissued from treasury in exchange for all of
the shares of MSCTC. MSCTC is the non-wireline provider
of cellular service in Minnesota Rural Service Area #10
and serves a population of 227,000 in an area south of
Minneapolis.
On May 18, 1995, the Company completed its purchase of
WCT Communications, Inc. WCT is a facilities-based long
distance carrier providing service in 45 states. At the
time of the acquisition, WCT had switches in Los Angeles,
San Francisco, Chicago, Dallas, Philadelphia, Atlanta, and
Seattle. The Company paid approximately $80 million for
all of the outstanding shares of WCT.
On July 11, 1995, the Company completed its purchase of
Enhanced TeleManagement, Inc. (ETI), a privately-held
telecommunications company specializing in the integration
and resale of local, long distance, and ancillary
telephone services to small and medium-sized business
customers. ETI provides service in the Midwest and
Northwest states. Frontier paid approximately $29 million
in cash for ETI.
On August 8, 1995, Frontier completed its acquisition
of Schneider Communications, Inc. (SCI) and SCI's 80.8
percent interest in LinkUSA Corporation (LinkUSA), two
Midwest telecommunications companies. SCI serves
approximately 11,000 long distance customers in the upper
Midwest and LinkUSA provides wholesale enhanced services
for the long distance industry. Frontier paid cash of
approximately $130 million for SCI and its majority
ownership shares in LinkUSA.
Pro Forma Results of Purchase Acquisitions and Mergers
The following unaudited pro forma results of operations
for the three and nine month periods ended September 30,
1995 and 1994 present information as if the purchase
acquisitions had occurred at the beginning of the periods
presented. The pro forma results of operations are
provided for information purposes only. They are based
upon historical information which has been restated to
reflect the pooling of interests with ALC and ASI, and do
not necessarily reflect the actual results that would have
occurred nor are they necessarily indicative of future
results of operations of the combined companies.
In thousands of dollars, except per Common Share data
3 Months Ended 9 Months Ended
September 30, September 30,
1995 1994 1995 1994
- ---------------------------------------------------------------------
Revenues and Sales $ 574,451 $492,731 $1,665,613 $1,447,593
Income (Loss) before
extraordinary item and change
in accounting principle $ (22,160) $ 37,967 $ 69,330 $ 113,957
Net (Loss) Income $(141,624) $ 37,967 $ (50,134) $ 106,760
Earnings (Loss) Per Common Share:
Earnings (Loss) before extraordinary
items and cumulative effects
of changes in accounting
principle $(0.14) $0.24 $0.45 $0.70
Earnings (Loss) Per Common
Share $(0.92) $0.24 $(0.34) $0.66
Dispositions
On March 3, 1995, the Company completed the sale of
Ontonagon County Telephone Company in Michigan and its
subsidiary, Midway Telephone Company, to Mid-South
Communications. The sale resulted from the Company's
plans to expand in areas other than Michigan's Upper
Peninsula. Annual revenues for Ontonagon and Midway
amounted to $3.9 million in 1994, and net income was $.6
million. The sale resulted in a non-taxable gain of $4.8
million, which has been recorded in the "Other income and
expense" section of the Consolidated Statement of Income.
On May 16, 1994, the Company completed the sale of Minot
Telephone Company in Minot, North Dakota to a subsidiary
of the Souris River Telecommunications Cooperative. Minot
Telephone was the Company's only holding in North Dakota
and the Company had reassessed its prospects for expansion
in North Dakota. In 1993, annual revenues for Minot
amounted to $13.3 million and net income was $2.8 million.
Note 4: Early Extinguishment of Debt
In conjunction with the merger of Frontier and ALC, on
September 26, 1995, the Company completed its tender
offer for $80 million of outstanding 9% Allnet Senior
Subordinated Notes due May 15, 2003. Approximately $76.8
million was tendered by bondholders for $83.5 million plus
accrued interest. The early retirement resulted in an
extraordinary loss of $5.8 million, net of applicable
income taxes of $3.7 million, related to the redemption
premium, the write-off of the remaining initial discount,
and associated expenses of the transaction.
Note 5: Discontinuance of Regulatory Accounting
As of September 30, 1995, the Company discontinued the
application of Statement of Financial Accounting
Standards No. 71 (FAS 71), "Accounting for the Effects of
Certain Types of Regulation" for its local communications
companies. The Company discontinued the use of FAS 71
because of changes in regulation and increasingly rapid
advancements in telecommunications technology. The
discontinuance of regulatory accounting methods resulted
in a post-tax extraordinary charge of $112.1 million, net
of applicable income taxes of $68.3 million, primarily
caused by the reduction in the recorded value of long-
lived telephone plant assets.
Note 6: Accounting for Contributions
The Company adopted Statement of Financial Accounting
Standards No. 116 (FAS 116), "Accounting for Contributions
Received and Contributions Made" for all of its
consolidated subsidiaries effective September 30, 1995.
FAS 116 requires that the Company reflect in current
expenses an accrual for the cost of multi-year charitable
contributions. The net impact of adopting FAS 116
resulted in a post tax charge of $1.5 million.
Note 7: Postemployment Benefits
In January 1994, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS
112). FAS 112 requires that projected future costs of
providing postemployment, pre-retirement benefits, such as
disability, pre-pension leave (salary continuation) and
severance pay, be recognized as an expense as employees
render service rather than when the benefits are paid.
The Company recognized the obligation for postemployment
benefits through a cumulative effect charge to net income
of $7.2 million, net of taxes of $3.9 million. The
adoption of FAS 112 is not expected to impact
significantly future operating expense or the Company's
cash flow.
Note 8: Upstate Cellular Network
In July 1994, Frontier Corporation and NYNEX Corporation
combined certain of their respective cellular interests
and formed a 50/50 joint venture to operate a cellular
network in upstate New York. Financial results for the
joint venture have been reported on the equity method of
accounting, reflecting Frontier's proportionate share of
the joint venture's earnings in the "Other income and
expense" section of the Consolidated Statement of Income.
Previously, revenues and expenses for these New York State
wireless properties had been consolidated.
Note 9: Earnings Per Share
Average common shares outstanding excludes amounts for
common stock equivalents resulting from stock options and
warrants outstanding at September 30, 1995 and includes
amounts for common stock equivalents at September 30,
1994. The computation of loss per share for the three and
nine months ended September 30, 1995 was calculated
without the effect of stock options and warrants, as
mandated by Generally Accepted Accounting Principles
(GAAP) when a loss has been reported.
Note 10: Stock Split
In November 1993, the Board of Directors approved a
2-for-1 split of the Company's common stock effected in
the form of a 100 percent stock dividend with no change in
the $1.00 per share par value. The New York State Public
Service Commission (NYSPSC) approved the split in March of
1994. The record date for the split was April 15, 1994,
and distribution of certificates began on April 29, 1994.
Historical share and per share data have been
retroactively adjusted to reflect the split where
appropriate.
Note 11: Stock Offering
In February of 1994, the Company sold 5.4 million shares
of its common stock at $42 per share in a public offering.
As part of the offering, 2,549,000 new shares were issued
and sold directly by the Company and 2,885,000 shares were
sold by C FON Corporation, a wholly-owned subsidiary of
Centel Corporation, which is a wholly-owned subsidiary of
Sprint Corporation. All share and per share data referred
to in this Note are prior to the 2-for-1 stock split in
April of 1994.
Note 12: Cash Flows
For purposes of the Statement of Cash Flows, the Company
considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash
equivalents.
Actual interest paid was $44.0 million and $38.2
million for the nine month periods ended September 30,
1995, and September 30, 1994, respectively. In addition,
actual income taxes paid were $86.4 million for the nine
months ended September 30, 1995, and $81.4 million for the
nine months ended September 30, 1994.
Note 13: Open Market Plan and Corporate Restructuring
At its public meeting in October 1994, the New York
State Public Service Commission (NYSPSC) unanimously
approved the Company's Open Market Plan and Corporate
Restructuring (Open Market Plan) and subsequently issued a
written order in November 1994. This landmark decision
resulted in opening up the Rochester, New York local
exchange market to competition and simultaneously allowed
the Company to form a holding company. The Open Market
Plan, including the change of the Registrant's name from
Rochester Telephone Corporation to Frontier Corporation,
was approved by shareowners in December 1994 and became
operational on January 1, 1995.
As a result of the Open Market Plan, two new companies
have been formed from the operating assets of the former
Rochester operating telephone company. One company
(Frontier Communications of Rochester, Inc.) is a lightly
regulated telecommunications company which provides an
array of services on a retail basis in the Rochester
marketplace. This company has the flexibility to price
and introduce services as necessary to compete. The second
company (Rochester Telephone Corp.) is a network company
which is more heavily regulated and provides services directly
to the new competitive subsidiary company and all other
telecommunications providers on a nondiscriminatory basis.
The network company also continues to provide services to
individual retail customers. This configuration has been
established to better meet the current and emerging
competition in the marketplace.
For the seven-year period of the Open Market Plan,
Rochester Telephone Corp. will no longer be subject to
rate of return regulation. In its place, the company will
be subject to price regulation. The local market for
telephone service in Rochester is being opened to full
competition. Over the course of the seven year Open
Market Plan period, rate reductions of $21 million will be
implemented for Rochester area consumers.
The Open Market Plan temporarily resolves certain
financial questions that are linked to a royalty
proceeding. On October 31, 1995, the New York Court of
Appeals, in general, confirmed the Commission's authority
to utilize a royalty as a ratemaking adjustment in certain
defined circumstances. The NYSPSC has agreed that a
royalty will not be imposed by the NYSPSC against the
Company or Rochester Telephone Corp. during the seven year
period of the Plan, subject to limited exceptions.
However, the NYSPSC is not precluded after the end of the
Plan period from seeking royalties pursuant to the Royalty
Order under circumstances then prevailing.
The Company has reorganized into a holding company
structure as allowed under the Open Market Plan Agreement.
This structure provides additional flexibility for the
Company and allows it to be more responsive with respect
to the acquisition and diversification efforts necessary
for the long-term growth of the business. In conjunction
with this restructuring, certain corporate expenses that
had previously been reported in the "Other income and
expense" section of the Consolidated Statement of Income
have been reclassified as costs and expenses above the
"Operating Income" line. In order to be consistent with
this change, historical data have also been reclassified.
Note 14: Commitments and Contingencies
It is anticipated that the Company will expend
approximately $163.0 million for additions to property,
plant, and equipment during 1995. In connection with this
capital program, the Company has made certain commitments
for the purchase of material and equipment.
During October 1995, the Company made commitments to
call the remaining $62.8 million of outstanding 9%
Debentures maturing in 2020. The Company is expected to
record an extraordinary loss of approximately $3.3
million, net of applicable income taxes of $1.7 million,
relating to the call premium, the write-off of the
remaining initial discount and associated expenses of the
transaction. It is expected that the debentures will be
redeemed in the fourth quarter of 1995.
<PAGE>
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended September 30, 1995 and 1994
DESCRIPTION OF BUSINESS
Frontier Corporation, formerly Rochester Telephone
Corporation, (the "Company") is a diversified
telecommunications service company, serving more than 2
million customers throughout the United States. Frontier
Corporation's principal lines of business include Long
Distance Communications Services, Local Communications
Services (comprised of 34 local telephone companies
providing service to over 940,000 access lines in the
Northeast, Midwest, and South), cellular and paging
operations, and telecommunications equipment sales.
On August 16, 1995, Frontier Corporation and ALC
Communications Corporation (ALC) completed a merger,
creating the fifth largest long distance company in the
nation. Under the terms of the merger agreement, the
Company exchanged two shares of its common stock for each
of ALC's common shares. The total number of shares issued
by the Company to effect the merger were 69.2 million.
The transaction was accounted for using the pooling of
interests method of accounting. All historical and per
share data have been restated to reflect this transaction.
See Note 2 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
Consolidated
The operating results for the third quarter of 1995 were
affected by a number of nonrecurring items. The
nonrecurring items caused the Company to incur a net loss
for the quarter of $137.9 million or $.90 per share. Net
income for the quarter, normalized for nonrecurring
charges and share equivalents can be summarized as
follows:
(All dollars,
except per share 3 Months Ended September 30,
amounts, are
in thousands) 1995 1994
Dollars Per share Dollars Per share
- --------------------------------------------------------------------
Earnings available for common,
as stated $(138,209) $ (.85) $ 47,110 $.29
- --------------------------------------------------------------------
Acquisition related
charges, net
of tax benefit $ 75,656 $ .46
Early extinguishment
of debt, net of
tax benefit 5,839 .04
Discontinuance of
regulatory
accounting, net of
tax benefit 112,148 .69
Adoption of FAS 116,
contributions
made, net of
tax benefit 1,477 .01
- --------------------------------------------------------------------
Total adjustments $ 195,120 $1.20
- --------------------------------------------------------------------
Normalized earnings $ 56,911 $ .35 $ 47,110 $ .29
- --------------------------------------------------------------------
The non-recurring charges and share equivalents are
described in more detail below.
Consolidated revenues and sales for the second quarter
of 1995 were $571.4 million, up $149.9 million, or 35.6
percent, over the comparable period in 1994. Operating
income excluding the one-time integration charge discussed
below, was $101.8 million for the three months ended June
30, 1995, up $17.3 million, or 20.4 percent, from the same
three months in 1994.
Excluding the impact of the one time charges, net income
amounted to $57.2 million, a $9.8 million increase, or
20.7 percent, over the comparable period in 1994.
Earnings per share were $.35 in 1995 versus $.29 in 1994.
The strong improvement in revenues, operating income and
net income reflects both acquisitions and internal growth
in the long distance business (now comprising 71 percent
of the Company's revenues), as well as increased demand
for services in the local telephone operations.
The Company redefined its business segments in the
beginning of 1995 to better distinguish its primary lines
of business. The Company is now reporting its operating
results in four segments: Long Distance Communications
Services, Local Communications Services, Wireless
Communications Services, and Corporate Operations and
Other. This classification replaces the previous manner
of reporting which reflected only two groups, Telephone
Operations and Telecommunications Services.
Nonrecurring Charges And Common Share Equivalents
Certain one-time events have taken place in the third
quarter of 1995 that have impacted the comparability of
the financial results. These events include the
following:
1. In conjunction with the merger and other
acquisitions, the Company recorded an acquisition
related charge of $75.7 million net of an income tax
benefit of $33.8 million. The acquisition related
charge is associated with the integration of the
Company's recent acquisitions as well as the merger
related transaction costs. The integration of the
acquired companies resulted in instances of redundant
facilities and staffing.
2. The Company acquired, through a tender offer, $76.8
million of Allnet's 9% Senior Subordinated Notes for
$83.5 million plus accrued interest. The early
retirement resulted in an extraordinary loss of $5.8
million net of applicable income taxes of $3.7 million.
3. As a result of changes in regulation and increasing
competition in the telecommunications industry, the
Company discontinued the use of regulatory accounting,
FAS 71, "Accounting for the Effects of Certain Types of
Regulation" as of September 30, 1995 for its local
communications companies. This non-cash, extraordinary
write-off totaled $112.1 million, net of applicable
income taxes of $68.3 million. It was primarily caused
by the reduction in the recorded values of long lived
telephone plant assets.
4. The Company adopted FAS 116, " Accounting for
Contributions Received and Made" effective September 30,
1995. FAS 116 requires that the Company reflect in
current expenses an accrual for the cost of multi-year
charitable contributions. The cumulative effect of
adopting FAS 116 was a charge of $2.3 million, net of
applicable income taxes of .8 million.
5. Earnings per share for 1995 were calculated without
the effect of common share equivalents (stock options
and stock warrants) as mandated by Accounting Principles
Board Opinion No. 15 (APB 15), "Earnings Per Share" when
a Company reports a net loss. Average common share and
share equivalents for the quarter total 162.0 million or
equivalents of 9.0 million shares.
The nonrecurring charges are not expected to significantly
impact future earnings or liquidity.
Long Distance Communications Services
Long Distance Communications Services results include
the Company's long distance subsidiaries, including ALC
and American Sharecom, Inc. (ASI) for all periods
presented, Schneider Communications (SCI) after August 8,
1995, Enhanced TeleManagement (ETI) after July 11, 1995,
WCT Communications, Inc. (WCT) after May 18, 1995 and
ConferTech International, Inc. (ConferTech) after March
15, 1995. See Note 2 and Note 3 to the Consolidated
Financial Statements for further details on the merger and
other acquisitions.
Long distance revenues totaled $404.4 million in the
third quarter of 1995, a $140.9 million increase, or 53.5
percent, over the same quarter in 1994. Adjusting for the
impact of 1995 purchase acquisitions, consolidated
revenues grew 22.5 percent in the quarter. Revenue mix for
the quarter consists of carrier revenue of 32.9 percent
and business and residential revenue of 67.1 percent. The
Company introduced a product set for all of its long
distance subsidiaries, called Clear Value, in the third
quarter of 1995, offering options for service that would
include local, long distance and cellular services.
Introduction did not have a significant impact on
revenues in the third quarter. Carrier revenue continues
to grow as a percent of the overall revenue mix. Billable
minutes of use, excluding 1995 purchase acquisitions,
increased by 42 percent over the prior year.
Revenue growth was also positively impacted by a major
carrier customer whose revenue has increased substantially
for the year and represents 13.4 percent of long distance
revenues for the quarter and 11.4 percent of the year to
date segment revenues. It is the Company's understanding
that this customer may be installing long distance
switching capacity which, as completed, could result in a
portion of this traffic gradually moving to the customer's
network. However, the customer has in turn entered into a
three year agreement with the Company effective April 1,
1995 and amended October 27, 1995. The Company will
retain significant traffic volumes and has obtained
provisions regarding exclusivity and minimums that it
views as desirable.
Costs and expenses for long distance operations
increased $129.2 million in 1995 excluding nonrecurring
charges. This increase is the primarily the result of
increased traffic volumes due to internal growth, purchase
acquisitions and a higher concentration of carrier revenue
as explained above. Operating costs excluding purchase
acquisitions increased by $59.7 million. Cost of access
was 59 percent for the third quarter of 1995, a three
percent increase over the prior quarter. Selling and
marketing expenses accounted for $15.1 million of
increased operating costs.
Operating income for long distance, excluding
nonrecurring charges, rose 27.0 percent to $55.0 million
for the three months ended September 30, 1995. Operating
margin as a percent of revenue decreased from 16.4 percent
in the prior quarter to 13.6 percent for the current
quarter. The WCT purchase acquisition, while not
separately measurable due to network integration efforts,
had a negative impact on margin. As the network is
integrated, the Company expects that operating margin will
improve, however, this cannot be assured given competitive
conditions.
Local Communications Services
Local Communications Services is comprised of the
Company's local telephone operations, consisting of the
Rochester, New York operation and the regional telephone
operations, which are made up of 33 other telephone
operating subsidiaries in 13 states. In addition, the
local service revenues and associated expenses generated
from the efforts of Frontier Communications of Rochester,
the newly formed competitive telecommunications company
that provides an array of services on a retail basis in
the Rochester marketplace, are included with the
Rochester, New York operation. The non-local service
revenues and expenses resulting from the sales efforts of
Frontier Communications of Rochester, such as those
associated with long distance and wireless services, are
reported in other segments as appropriate. Consequently,
the Local Communications Services segment includes both
wholesale and retail local service associated with the
Rochester market.
Revenues for Local Communications Services were $157.0
million in the three month period ended September 30,
1995, an increase of $6.8 million, or 4.5 percent. This
segment accounted for 27 percent of consolidated revenues
in the third quarter of 1995. Excluding the revenue for
Ontonagon County Telephone and its subsidiary, Midway
Telephone, which were sold in March 1995, revenues for
Local Communications Services rose 5.2 percent in the
third quarter of 1995. These revenues were driven by a
4.1 percent increase in access lines, a 7.4 percent
increase in minutes of use and ongoing sales of enhanced
features and services. The Rochester market maintained
its strong growth over its third quarter of local
competition, with a 2.6 percent increase in revenues over
the prior year. This was attributable to a higher demand
for services in the open market environment.
Excluding non-recurring charges, costs and expenses in
the third quarter 1995 for Local Communications Services
were $108.0 million, an increase of $2.9 million, or 2.7
percent over 1994. The increase was the result of
increased costs to compete in the marketplace, offset by
the disposition of Ontonagon County Telephone and ongoing
cost controls.
Normalized operating income for the third quarter 1995
was $48.9 million, an increase of $3.9 million, or 8.8
percent over 1994. Operating margins for the three month
period improved from 30.0 percent in 1994 to 31.2 percent
in 1995, driven by improvements in the Regional
Operations, whose operating margin increased to 38.4
percent for the quarter.
Wireless Communications Services
Wireless Communications Services is comprised of the
Company's greater than 50 percent ownership interest in
wireless operations. As of September 30, 1995, this
segment included the Alabama RSAs #4 and #6, in which the
Company has a 70 percent interest, and Minnesota RSA #10,
in which the Company acquired a 100 percent interest in
late March 1995. This latter acquisition was accounted
for as a purchase transaction.
The Company's minority interests in wireless operations
and its 50 percent interest in the joint venture with
NYNEX in upstate New York, that was formed in July 1994,
are accounted for on the equity method. This method of
accounting results in the Company's proportionate share of
earnings (losses) being reflected in a single line item
below operating income. Prior to the formation of the
wireless joint venture with NYNEX in July 1994, the
revenues and expenses of the wireless operations in
upstate New York had been consolidated.
Revenues for Wireless Communications were $3.5 million
for the third quarter of 1995, up $1.7 million, or 99.0
percent, from the comparable period in 1994. The 1995
results include the operations of the Minnesota cellular
property acquired on March 29, 1995. Total costs and
expenses were $3.4 million in the three months ended
September 30, 1995, an increase of 58.0 percent from 1994.
Operating income for the third quarter of 1995 was $.08
million, an increase of $.5 million from 1994.
Corporate Operations and Other
Corporate Operations is comprised of the expenses
traditionally associated with a holding company,
including executive and board of directors expenses,
corporate finance and treasury, investor relations,
corporate planning, legal services, and business development.
The Other category is comprised primarily of Frontier
Network Systems ("FNS"), external sales associated with
the Company's information technologies operation, Frontier
Information Technologies, and intersegment eliminations.
Revenues in the third quarter of 1995 were $6.5 million,
an increase of $.4 million over 1994. Essentially all of
these revenues pertain to FNS. Total costs and expenses,
excluding nonrecurring charges, for this segment amounted
to $8.7 million, a $.7 million decrease over 1994.
Expenses at FNS rose in relation to the increase in sales,
while Corporate Operations expenses decreased due to lower
corporate structure costs.
Other Income Statement Items
Interest Expense
Interest expense was $13.8 million in the third quarter
of 1995, a $1.0 million increase over 1994. This increase
is the result of higher balances of long-term debt
outstanding, primarily as a result of the long distance
acquisition program, which expended over $300 million to
fund the acquisitions of ConferTech, WCT, ETI and SCI
during 1995.
Equity Earnings from Unconsolidated Wireless Interests
Equity earnings from the Company's interests in wireless
partnerships in the second quarter of 1995 were $1.3
million, a decrease of $.4 million over 1994. This
decrease is the result of equity earnings associated with
the Company's joint venture with NYNEX.
Interest Income
Interest income in the second quarter of 1995 amounted
to $1.3 million, a decrease of $1.2 million over 1994's
third quarter. This decrease is due to lower cash
balances because of the Company's long distance
acquisition program as discussed above.
Other Income (Expense), Net
Other expense in the third quarter of 1995 amounted to
$1.1 million, a $.6 million higher expense when compared
with the same period in 1994. This change was due to
higher amortization expense related to the change in
accounting for the wireless joint venture with NYNEX.
Income Taxes
The effective income tax rate for the third quarter of
1995, excluding the income tax benefit for nonrecurring
charges, was 38.8 percent versus an effective income tax
rate of 38.9 percent in the third quarter of 1994.
Nine Months Ended September 30, 1995 and 1994
RESULTS OF OPERATIONS
Consolidated
The operating results for the nine months ended
September 30, 1995 were adversely impacted by the
nonrecurring charges recorded in the quarter ended
September 30, 1995, as previously discussed, and several
other one-time adjustments. These nonrecurring items
caused the Company to report a net loss of $33.2 million
or $.23 per share. Net income for the nine months ended
September 30, 1995 and 1994, normalized for one-time
adjustments and share equivalents can be summarized as
follows:
(All dollars,
except per share 9 Months Ended September 30,
amounts, are in
thousands) 1995 1994
Dollars Per share Dollars Per share
- ---------------------------------------------------------------------
Earnings available for common,
as stated $ (34,083) $(.21) $132,388 $ .83
- --------------------------------------------------------------------
Third quarter adjustments
(previously discussed) $ 195,120 $1.21
ASI Acquisition related
charges, net of
tax benefit 3,108 .02
Gain on sale of subsidiaries,
net of tax expense (4,826) (.03) $10,474) $(.06)
Adoption of FAS 112, postemployment
benefits, net of
tax benefit 7,197 .04
- --------------------------------------------------------------------
Total adjustments $193,402 $1.20 $(3,277) $(.02)
- --------------------------------------------------------------------
Normalized earnings $159,319 $ .99 $129,111 $ .81
- --------------------------------------------------------------------
The one-time adjustments and share equivalents adjustment
detailed above are described in more detail below.
Consolidated revenues and sales for the nine month
period ended September 30, 1995 were $1.5 billion, up
$299.6 million, or 24.2 percent, over the comparable
period in 1994. Operating income excluding the one-time
adjustments discussed below, was $290.2 million for the
nine months in 1995, up $49.9 million, or 20.8 percent,
from the same nine months in 1994.
Excluding the impact of the one-time charges, net income
totaled $160.2 million, a $30.2 million increase, or 23.2
percent, over the comparable period in 1994. Earnings per
share were $.99 for the nine months ended 1995, an
increase of $.18, or 22.5 percent, over 1994.
The strong improvement in revenues, operating income and
net income reflects both acquisitions and internal growth
in the long distance business, as well as increased demand
for services in the local telephone operations.
Nonrecurring Charges And Common Share Equivalents
In addition to nonrecurring charges that were recorded
in the third quarter of 1995, the Company incurred other
one-time events during the nine months ended September 30,
1995 and 1994, that effect the comparability of the
financial results. These events are as follows:
1. As previously discussed, during March 1995, the
Company acquired ASI, a long distance company
headquartered in Minneapolis, Minnesota. The Company
issued approximately 8.7 million new shares of its
common stock in exchange for all of the outstanding
shares of ASI. The transaction has been accounted for
as a pooling of interests and, accordingly, all
historical results have been restated to reflect the
results of operations of ASI.
In March 1995, the Company recorded a $4.8 million
charge ($3.1 million after taxes) associated with the
acquisition of ASI. This one-time charge related to
various transition and transaction costs associated with
the assimilation of the newly combined companies,
including a provision for redundant equipment, bank and
legal fees and projected integration expenses.
2. The Company also sold two local communication
companies, resulting in a $4.8 million non-taxable gain
on the sale of Ontonagon County Telephone in March 1995,
and a $12.9 million pre-tax gain ($10.5 million after
tax) from the sale of Minot Telephone in May 1994.
3. The results in 1994 included a $7.2 million after-
tax charge for the adoption of FAS 112, "Employers'
Accounting for Postemployment Benefits," related to the
accounting for certain employee benefits costs.
4. Earnings per share for the nine months ended
September 30, 1995 were calculated without the effect of
common share equivalents (stock options and stock
warrants) as mandated by APB 15, "Earnings Per Share"
when a Company reports a net loss. Average common share
and share equivalents for the nine month period total
161.3 million or equivalents of 10.6 million shares.
The nonrecurring charges are not expected to significantly
impact future earnings or liquidity.
Long Distance Communications Services
Long distance revenues totaled $1.0 billion in the first
nine months of 1995, a $298.3 million increase, or 40.2
percent, over the same period in 1994. Adjusting for the
impact of 1995 purchase acquisitions, consolidated
revenues grew 23.7 percent for the nine months ended
September 30, 1995. Normalized revenue mix for 1995 was
31 percent in carrier and 69 percent in business and
residential revenue. Carrier revenue minutes continue to
grow as a percent of the revenue mix. Billable minutes of
use excluding 1995 purchase acquisitions increased by 39
percent over the prior year.
Costs and expenses for long distance operations
increased $265.2 million, excluding the $86.7 million
acquisition related charge in the third quarter of 1995
and the $4.8 million acquisition related charge for ASI in
the first quarter of 1995. This increase is the result of
additional costs associated with purchase acquisitions
($102.6 million), increases in access costs related to
higher sales and gross margin mix ($123.0 million), and
higher sales expenses ($19.1 million). Access costs as a
percentage of revenues were approximately 58 percent in
1995 as compared with 56 percent in 1994.
Operating income for long distance, excluding
nonrecurring charges, rose 28.1 percent to $151.0 million
for the nine months ended September 30, 1995. Operating
margin as a percent of revenue decreased from 15.9 percent
in the prior year to 14.5 percent for the period. The WCT
purchase acquisition, while not separately measurable due
to network integration efforts, had a negative impact
on margin. As the network is integrated, the Company
expects that operating margin will improve; however, this
cannot be assured given competitive conditions.
Local Communications Services
Revenues for Local Communications Services were $464.8
million in the nine month period ended June 30, 1995, an
increase of $8.8 million, or 1.9 percent. Excluding the
impact from the dispositions of the Minot and Ontonagon
County Telephone Companies, revenues rose 3.7 percent.
Total access lines (adjusted for the dispositions)
increased at an annualized rate of 4.3 percent during the
first nine months of 1995.
Costs and expenses, excluding one-time acquisition
charges, in the first half of 1995 for Local
Communications Services were $318.9 million, a decrease of
$4.5 million, or 1.4 percent from 1994. This decrease was
the result of the telephone company dispositions in the
Regional Operations ($5.5 million) and ongoing cost
controls, offset by increased selling and marketing costs
to compete. Employees per 10,000 access lines, a common
measure of efficiency for telephone companies, was 31 as
of September 30, 1995, versus 35 a year earlier.
Normalized operating income was $145.9 million, an
increase of $13.3 million, or 10.0 percent over 1994.
Operating margins improved from 29.1 percent in 1994 to
31.4 percent in 1995, driven by improvements in both the
Rochester Operations and the Regional Operations.
Wireless Communications Services
Revenues for Wireless Communications were $8.9 million
for the first nine months of 1995, down $13.0 million, or
59.2 percent, from the comparable period in 1994. The
1995 results reflect the operations of the Alabama and
Minnesota cellular properties, whereas the 1994 results
reflect the operations associated with the Alabama
cellular properties as well as the upstate New York
wireless properties that are no longer consolidated as a
result of the joint venture in July 1994. The Minnesota
cellular property was acquired at the end of March 1995
and accounted for as a purchase transaction. Total costs
and expenses were $7.7 million in the nine months ended
September 30, 1995, a decrease of 62.6 percent from 1994.
This decrease is consistent with the corresponding
decrease in revenues. Operating income for the period was
$1.2 million, which was consistent with the prior year.
Corporate Operations and Other
Revenues for the first nine months of 1995 were $23.0
million, an increase of $5.5 million, or 31.6 percent,
over 1994. Essentially all of these revenues pertain to
FNS. The increase is due to higher system installation
and maintenance revenue.
Total costs and expenses, prior to one-time charges, for
this segment amounted to $31.0 million, a $2.0 million
increase, or 6.8 percent, over 1994. Expenses at FNS rose
at a lower rate than sales, while Corporate Operations
expenses decreased $.3 million from the prior year as a
result of lower corporate structure costs.
Other Income Statement Items
Interest Expense
Interest expense was $41.7 million for the nine months
ended September 30,1995, a $2.9 million increase over
1994. This increase is the result of higher balances of
long-term debt outstanding related to debt issued as part
of the implementation of the Open Market Plan and funding
for the long distance acquisition program in 1995 .
Gain on Sale of Subsidiaries
The $4.8 million gain on sale of subsidiaries in 1995
resulted from the sale of Ontonagon County Telephone
Company and its subsidiary, Midway Telephone, due to the
Company's plans to expand in areas other than Michigan's
Upper Peninsula. The Company acquired shares of its own
common stock in the transaction, in exchange for all the
shares of Ontonagon and Midway. The gain of $4.8 million
was non-taxable.
The $12.9 million gain on sale in 1994 resulted from the
sale for cash of Minot Telephone Company.
Equity Earnings from Unconsolidated Wireless Interests
Equity earnings from the Company's interests in wireless
partnerships in the first nine months of 1995 were $2.9
million, an increase of $.7 million over 1994. This
increase is mainly the result of equity earnings from the
Company's wireless joint venture with NYNEX that began
operations in July 1994.
Interest Income
Interest income in the first nine months of 1995
amounted to $8.9 million, an increase of $3.8 million over
1994. This increase is primarily the result of higher
cash balances and higher interest rates in the first half
of the year. Interest income in the fourth quarter of
1995 is expected to decline substantially due to the use
of cash for acquisitions.
Other Income (Expense), Net
Other expense in the first half of 1995 amounted to $2.6
million, a $1.7 million higher expense when compared with
the same period in 1994. This change was due to higher
amortization expense related to the change in accounting
for the wireless joint venture with NYNEX.
Income Taxes
The effective income tax rate for the nine months ended
September 30, 1995, excluding the income tax benefit for
nonrecurring charges, was 39.4 percent versus 39.0 percent
in 1994.
FINANCIAL CONDITION
Cash and Cash Equivalents
At September 30, 1995, the Company had $45.1 million in
cash and cash equivalents compared with $228.4 million at
September 30, 1994, a decrease of $183.3 million. Cash
generated from operations amounted to $208.1 million for
the nine months ended September 30, 1995. Offsetting this
was a $410.8 million outflow for investing activities
(mainly capital expenditures of $87.8 million and purchase
acquisitions of $312.8 million) and a $111.6 million
outflow for financing activities including debt
retirements ($74.0 million, net of proceeds) and dividend
payments ($50.1 million). See the Consolidated Statement
of Cash Flows for additional information. Also, see Note
3 to the Consolidated Financial Statements for cash spent
on acquisitions during 1995.
Debt
As a result of the Company's acquisition of ALC in
August 1995, Standard & Poor's, Moody's and Fitch
downgraded the Company's long-term credit ratings to "A",
"A3" and "A", respectively. The remaining rating agency,
Duff & Phelps, promptly affirmed the Company's "A" rating
following the announcement of the merger. In spite of the
combined entity's strengthened financial position, the
rating agencies cited concern with the dramatic shift in
the Company's business risk associated with an increasing
dependence on the more competitive long-distance business.
In addition, despite expected near term improvements in
the Company's debt protection measures, Moody's also
downgraded the Company's commercial paper rating from "P-
1" to "P-2". Moody's is the only rating agency to have
downgraded the Company's short-term credit rating.
At September 30, 1995, the Company's total debt amounted
to $639.9 million, a decrease of $26.4 million from
December 31, 1994. This decrease is mainly the result of
a $76.0 million reduction in long-term revolving bank
debt, the retirement of $7.0 million of the Company's 9%
2020 debentures, and the repayment of $6.5 million of
Rural Utilities Service (RUS) and Rural Telephone Bank
(RTB) debt, offset, in part, by the issuance of $40.0
million of medium-term notes. The Company also retired
early $76.8 million of Allnet's 9% Senior Subordinated
Notes for $83.5 million plus accrued interest. This
transaction, which resulted in an extraordinary charge of
$5.8 million, net of applicable taxes, was financed
through the additional issuance of commercial paper.
Planned early retirement of debt
During October 1995, the Company made a commitment to
refinance its outstanding 9% Debentures scheduled to
mature in 2020. The Company is expected to record an
extraordinary loss of approximately $3.3 million, net of
applicable income taxes of $1.7 million to retire the
remaining $62.8 million of Debentures. The retirement
will be financed through other borrowings. It is expected
that this transaction will be consummated in the fourth
quarter of 1995.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percent of
total capitalization) was 42.3 percent at June 30, 1995,
as compared with 41.2 percent at December 31, 1994. Pre-
tax interest coverage, excluding nonrecurring charges, was
7.3 times for the nine months ended September 30, 1995, as
compared with 6.7 times for the same period in 1994.
Capital Spending
Through September 1995, gross capital expenditures
amounted to $107.9 million. The Company plans to spend a
total of approximately $163.0 million on its capital
program during the full year in 1995. The total capital
program represents an increase of $49.3 million over 1994.
The increase is largely driven by capital requirements
associated with the growth of the long distance and
wireless operations and the integration of long distance
acquisitions.
Dividends
On September 18, 1995, the Board of Directors declared
the third quarter 1995 dividend of 20.75 cents per share
on the Company's common stock, payable November 1, 1995 to
shareowners of record on October 13, 1995.
Benefit Plans
As part of its integration efforts, the Company has merged
its benefit plans, where possible, to provide common
benefits to employees. As part of this integration,
effective January 1, 1996, the Company standardized the
401(k) plan benefits, froze the pension plan benefits
earned subsequent to December 31, 1996, provided certain
plan amendments to the pension plan, provided additional
401(k) baseline company contributions to replace future
pension contributions, capped company contributions to the
retiree health care premiums at the 1995 level and
eliminated telephone discount benefits to future retirees.
The plan amendments enhance the pension plan benefits to
ease the transition from a defined benefit plan to a
defined contribution savings plan for employees.
The benefit changes described above will not have a
material impact on operations in 1995 and 1996.
Subsequent to 1996, benefit costs will be more closely
tied to the Company's performance.
OTHER ITEMS
Regulatory Matters
During the seven year period of the Open Market Plan
Agreement which became effective on January 1, 1995,
Rochester Telephone Corp. (the operating telephone company
in Rochester, New York) will no longer be regulated by the
monopoly standard of rate-of-return regulation, but
instead by pure price cap regulation. The local market
for telephone service in Rochester was opened up to full
competition. Over the course of the seven year period of
the Open Market Plan, rate reductions of $21 million will
be implemented for Rochester area consumers.
Certain Considerations Related to the Open Market Plan
Management believes there are significant market and
business opportunities associated with the Company's Open
Market Plan, described in Note 13 to the Consolidated
Financial Statements. However, there are also
uncertainties associated with the Plan and the corporate
restructuring. In the Company's opinion, the most
significant issues relate to increased competition in the
Rochester, New York market, the risk inherent in the Rate
Stabilization Plan incorporated in the Open Market Plan
Agreement and the potential diversification risk.
Additional details about these risks can be found in
Management's Discussion of Results of Operations and
Analysis of Financial Condition in Exhibit No. 13 to the
Company's Form 10-K filed for the fiscal year ended
December 31, 1994.
Part II - Other Information
Item 1 - Legal Proceedings
On June 11, 1992, a group of corporate plaintiffs
consisting of Cooper Industries, Inc., Keystone
Consolidated Industries, Inc., The Monarch Machine Tool
Company, Niagara Mohawk Power Corporation, and Overhead
Door Corporation commenced an action in the United States
District Court for the Northern District of New York
seeking contribution from Rotelcom Inc., a wholly-owned
subsidiary of the registrant held through intervening
subsidiaries (now named Frontier Network Systems Inc. or
"FNS") and fourteen other corporate defendants for
environmental "response costs" in the approximate amount
of $1.5 million incurred by the plaintiffs pursuant to a
decree entered into by plaintiffs with the United States
Environmental Protection Agency (the "EPA"). Two
additional defendants were named in 1994. In addition to
FNS, the current defendants are: Agway, Inc., BMC
Industries, Inc.; Borg-Warner Corporation; Elf Atochem
North America, Inc.; Mack Trucks, Inc.; Motor
Transportation Services, Inc.; Pall Trinity Micro
Corporation; The Raymond Corporation; Redding-Hunter,
Inc.; Smith Corona Corporation; Sola Basic Industries,
Inc.; Wilson Sporting Goods Company; Philip A. Rosen;
Harvey M. Rosen; City of Cortland; and New York State
Electric & Gas Corporation.
The consent decree concerned the clean-up of an
environmental Superfund site located in Cortland, New
York. It is alleged that the corporate defendants
disposed of hazardous substances at the site and are
therefore liable under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The
Company anticipates that a final Record of Decision
("ROD") will be issued by the EPA which will prescribe the
remediation requirements for the site. The aggregate
amount of remediation costs to be incurred by the
plaintiffs will be based on the requirements of the ROD.
The total cost of remediation at the site is uncertain,
although estimates have recently ranged from $25 million
and $100 million. There has been no allocation of
liability as among or between the plaintiffs or
defendants. The extent to which plaintiffs can recover
any of these costs from the defendants, including FNS,
will be determined at a trial. FNS has been vigorously
defending this lawsuit. Discovery proceedings against FNS
have now been completed and a possible motion for summary
judgment is being evaluated by FNS counsel. The Company
believes that it will ultimately be successful, but it is
unable to predict the outcome with any certainty at this
time.
In its Opinion and Order in Case 87-C-8959, issued July
6, 1993, the NYSPSC, by a three-to-two vote, imposed a
royalty upon the Company in the amount of two percent of
the total capitalization of the Company's unregulated
operations. The NYSPSC justified the royalty on two
grounds: first, that ratepayers are entitled to
protection from the potential for cost misallocations and
increased risk that accompany diversification of the
Company's basic telephone business; and second, that the
Company's unregulated operations benefit from their use of
the Rochester name and reputation. The NYSPSC rejected
the Company's statutory and constitutional defenses and
concluded that it possessed the authority under the Public
Service Law to impose a royalty and that its imposition is
not unconstitutional. The Company estimates that its
potential effect is in the range of $2 million per year.
The royalty, if implemented, would be an imputation
against the Rochester, New York operating company's
revenue requirement from regulated intrastate operations.
The NYSPSC ordered the Rochester, New York operating
company to file, by August 5, 1993, an accounting plan to
account for the royalty amount, together with a plan for
returning such amount to ratepayers. The NYSPSC denied a
request for waiver and, on August 5, 1993, the Rochester,
New York operating company filed its plan.
On August 6, 1993, the Rochester, New York operating
company filed with Supreme Court, Albany County, its
petition seeking judicial review of the NYSPSC's Opinion
and Order. By order dated October 7, 1993, this
proceeding was transferred to the Appellate Division,
Third Department. On June 30, 1994, the Appellate
Division unanimously upheld the Commission's Order. On
July 29, 1994, the Company filed a Notice of Appeal and a
Motion for Leave To Appeal with the New York Court of
Appeals. On December 8, 1994, the Court of Appeals
accepted the Company's appeal and denied the Motion for
Leave To Appeal as unnecessary. Briefs were filed between
February and April 1995. On February 27, 1995, the NYSPSC
moved to dismiss the appeal as moot as a result of the
Open Market Plan Settlement. The Company filed its
opposition to that motion on March 13, 1995. On October
31, 1995, the Court of Appeals affirmed the determination
of the Appellate Division. Although the Court concluded
that the specific application of the royalty to Rochester
Telephone was rendered moot by the Open Market Plan
settlement, it held that the Commission has the general
authority to utilize the royalty as a ratemaking tool.
The Court further held that the specific application of
the royalty to any companies, including Rochester
Telephone, in the future would need to be reviewed in the
context of a company-specific proceeding. This
royalty issue has been settled for the Rochester, New York
operating company for the duration of the Rate Period of
the Rate Stabilization Plan, which is part of the Open
Market Plan.
Prior to the Company's acquisition of American Sharecom,
Inc. (ASI) in March 1995, an appraisal proceeding entitled
American Sharecom, Inc. v. LDB International et al,
Minnesota Court of Appeals File No. C9-94-2419 was
commenced in connection with a merger which occurred in
1992. In this proceeding, former holders of 57 shares of
ASI Common Stock (dissenters) exercised their rights under
Minnesota law to challenge the amount they received for
their shares in the merger. In November 1994, a Minnesota
District Court directed ASI to pay an additional $4.6
million to the dissenters, plus interest and legal fees.
ASI recorded a $5.3 million contingent liability during
the fourth quarter of 1994. The Minnesota Court of
Appeals affirmed the trial court and on August 1, 1995,
the Minnesota Supreme Court refused to grant an appeal
from that judgment. The Company has paid the judgement,
forgoing its opportunity to appeal.
There are nine suits in Hennepin County (Minnesota)
District Court in which, variously, ASI, its former
principal shareholders, Steven Simon and James Weinert,
Frontier and other associated parties, including ASI's
legal counsel, are named as defendants. One of the cases
has been pending since May of 1994, and was served (but
not filed) in connection with the dissenters rights which
were the subject of the appraisal proceeding described
above. The other actions were filed over the period
beginning in February 1994 and ending in October 1995.
The plaintiffs are former ASI shareholders. One of the
complaints asserts class action allegations on behalf of
all former shareholders, and a motion has been filed in
another case to amend the complaint to add class claims.
No class has yet been certified.
The causes of action asserted are common law fraud,
breach of fiduciary duty and violations of certain
provisions of the Minnesota Business Corporation Act,
which require shareholders in a closely held corporation
to act fairly to one another and to refrain from corporate
waste and misappropriation. Finally, some of the
complaints assert shareholder derivative rights.
The suits allege, generally, that Simon and Weinert,
with and through ASI, embarked upon a scheme, by giving
the former ASI shareholders false and insufficient
information to gain control of ASI and ultimately acquire
for inadequate consideration all the stock of ASI. The
one complaint that names the Company as a defendant
alleges that the Company holds the ASI stock and controls
the Frontier stock issued to Messrs. Simon and Weinert in
its acquisition of ASI in trust for the benefit of the
plaintiffs.
Although it is too early to determine the outcome of
these suits, Frontier, ASI and the other defendants
believe they have valid defenses and intend to contest
vigorously the claims asserted in these suits. A
conference of all parties was held on November 10, 1995,
in an attempt to settle the claims of the various
plaintiffs. However, no settlement was reached at this
conference.
On April 10 and 11, 1995, three lawsuits were commenced
against ALC Communications Corporation as a result of its
announced merger with the Company. In two of those
actions, each filed in the Court of Chancery of the State
of Delaware, in and for New Castle County by Martin Mayers
and Mordecai Cohen, respectively, Frontier Corporation was
named as a defendant, although it has not yet been served
with process. The lawsuits purport to be class actions
brought on behalf of all ALC stockholders against ALC and
its directors. Among other things, the complaints sought
to enjoin the business combination and/or to obtain an
award of damages. On June 9, 1995, the Delaware Court
entered an order consolidating the three cases for all
purposes. Under the terms of that order, Mayers v. Irwin,
et al., C.A. No. 14196 is designated as the consolidated
complaint and the defendants are required to respond to
the consolidated complaint. On July 10, 1995, ALC and its
directors answered the consolidated complaint. The
Company believes these actions to be without merit and
will defend vigorously the claims asserted in the
consolidated suit.
On July 12, 1995, a Complaint was filed by Christopher
E. Edgecomb, a former officer, director and employee of
WCT Communications, Inc. ("WCT") against Frontier, WCT,
WCT's then current President, Michael Coghill, and fifty
unidentified additional defendants, in the California
Superior Court for Santa Barbara. Edgecomb has alleged
that Frontier and WCT violated the terms of a non-compete
agreement, executed by Edgecomb, by failing to make
payments to Edgecomb in accordance with the agreement.
Edgecomb has also alleged that the defendants violated an
implied duty of good faith and fair dealing in the
agreement and engaged in unfair competition in violation
of California law. In addition, the complaint alleges
that the defendants slandered Edgecomb. The complaint
seeks rescission of the non-compete agreement,
compensatory damages in excess of $80 million, punitive
damages, injunctive relief restraining further unfair
competition, court costs and attorneys' fees. Although it
is too early to determine the outcome of this matter,
Frontier believes the allegations in the complaint to be
without merit and will defend the litigation vigorously.
The Regulatory Matters discussion in Management's
Discussion and Analysis of Financial Condition and Results
of Operations in Part I, Item 2 of this document is
incorporated herein by reference.
Item 4 - Submission of Matters to a Vote of Security
Holders
A Special Meeting of Shareowners was held on August
16, 1995, to consider and vote upon a proposal to approve
the issuance of shares of Common Stock necessary for
Frontier Corporation to meet its obligations under the
merger agreement with ALC Communications Corporation.
Such proposal was approved with the following vote:
Broker
For Against Abstain Non-Votes
---- --------- ---------- -------------
64,288,812 911,140 689,619 11,219,745
(a) Exhibits
10-39 Form of Employment Agreements including
change of control provisions with
(a) certain executive officers, (b) certain senior
management employees of subsidiaries and (c) other
senior management
10-40 Copy of Employees' Retirement Savings Plan
10-41 Copy of Amendment No. 8 to the Supplemental
Management Pension Plan
10-42 Employment agreements with certain ALC executive
officers.
11 Statement re: Computation of Earnings per Share
of Common Stock on a
Fully Diluted Basis (Unaudited)
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter:
August 16, 1995 - The following event was reported:
Item 5. Frontier Corporation ("Frontier") announced on
August 16, 1995, that the shareholders of ALC
Communications Corporation ("ALC") approved ALC's merger
with Frontier and that Frontier's shareowners approved the
issuance of stock to effect that merger.
The following financial statements were filed with this
report: None
August 18, 1995 - The following event was reported:
Item 2. The Registrant and ALC Communications
Corporation completed the closing of the merger on August 16, 1995.
The following financial statements were filed with this
report:
Unaudited Pro Forma Combined Financial Information
Frontier Corporation, Enhanced TeleManagement, Inc.,
Schneider Communications, Inc. and ALC Communications
Corporation
- Unaudited Pro Forma Combined Balance Sheet: As of
June 30, 1995
Frontier Corporation, WCT Communications, Inc., Enhanced
TeleManagement, Inc. and Schneider Communications, Inc.
- Unaudited Pro Forma Combined Statement of Income:
For the Six Months Ended June 30, 1995 and 1994
Frontier Corporation, WCT Communications, Inc., Enhanced
TeleManagement, Inc. and Schneider Communications, Inc.
- Unaudited Pro Forma Combined Statement of Income:
For the Year Ended December 31, 1994
Frontier Corporation Pro Forma and ALC Communications
Corporation
- Unaudited Pro Forma Combined Statement of Income:
For the Six Months Ended June 30, 1995 and 1994
Frontier Corporation Pro Forma and ALC Communications
Corporation
- Unaudited Pro Forma Combined Statement of Income:
For the Year Ended December 31, 1994
Frontier Corporation and ALC Communications Corporation
- Unaudited Pro Forma Combined Statement of Income:
For the Years Ended December 31, 1993 and 1992
Frontier Corporation - Notes to Unaudited Pro Forma
Combined Financial Statements
October 5, 1995 - The following event was reported:
Item 5. Frontier Corporation announced the adoption of
competitive accounting rules for its local communications
companies, and the discontinuance of prior accounting
principle Statement of Financial Accounting Standards
(SFAS 71) effective September 30, 1995. Also, Frontier
expects to take an acquisition related, post-tax charge
totaling $75-85 million in the third quarter of 1995
associated with the integration of a number of companies
over the last year.
The following financial statements were filed with this
report: None
November 14, 1995 - The following events were reported:
Item 2. On August 16, 1995, the Registrant and ALC
Communications Corporation ("ALC") completed the closing
of the merger of Frontier Subsidiary One, Inc., a wholly-
owned subsidiary of the Registrant, with and into ALC,
creating the fifth largest long distance carrier in the
U.S.
Item 7. The Registrant hereby files its 1994 Restated
Supplementary Consolidated Financial Statements and
Supplementary Management's Discussion and Analysis. These
Supplementary Consolidated Financial Statements and
Supplementary Management's Discussion and Analysis have
been restated to account for the merger with ALC
Communications Corporation using "pooling of interests"
accounting treatment.
The following financial statements were filed with this
report:
Frontier Corporation
Supplementary Management's Discussion of Results of
Operations and Analysis of Financial Condition
Supplementary Report of Independent Accountants
Supplementary Business Segment Information
Supplementary Consolidated Statement of Income
Supplementary Consolidated Balance Sheet
Supplementary Consolidated Statement of Cash Flows
Supplementary Consolidated Statement of Shareowners'Equity
Supplementary Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
FRONTIER CORPORATION
-------------------------------
(Registrant)
Dated: November 14, 1995 By/s/Richard A. Smith
--------------------------------
Richard A. Smith
Corporate Controller
(and principal accounting officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- --------------------------------------------------------------------
10-39 Form of Employment Agreements Filed herewith
change of control provisions
(a) certain executive officers,
(b) certain senior management employees of
subsidiaries and (c) other senior management
10-40 Copy of Employees' Retirement Savings Filed herewith
Plan
10-41 Copy of Amendment No. 8 to the Filed herewith
Supplemental Management Pension Plan
10-42 Employment agreements with certain Incorporated by
ALC executive officers. reference to
Exhibits
10.1, 10.2 and
10.3 to ALC
Communications
Corporation's
Form 10-Q for the
quarter ended
September 30, 1995
11 Statement re: Computation of Earnings Filed herewith
per Share of Common Stock on a
Fully Diluted Basis (Unaudited)
27 Financial Data Schedule Filed herewith
<PAGE> 1
Exhibit 10-39
Form of Employment Agreement for certain Executive Officers
and certain senior management
[Date]
[Addressee]
Dear [Addressee]:
The Board of Directors (the "Board") of Frontier Corporation, on
behalf of Frontier and its subsidiaries and affiliates (together,
the "Company") has determined that it is in the best interests of
the Company and its shareowners to be able to avail itself of
your continued dedication and service to the Company in the
immediate future and in case of Change of Control, as defined
later in this letter agreement ("Agreement"). It is therefore
the intent of this Agreement to encourage your complete
dedication to the Company by providing you with compensation and
benefits arrangements while you fulfill your duties now and
during the pendency of a Change of Control, should such an event
occur, which provide you with a measure of security commensurate
with your importance to the Company.
Therefore, upon your signature on a counterpart of this
Agreement, the following terms and conditions shall become
effective as of August 16, 1995 and shall supersede any prior
agreements between the Company and you related to the subject
matter hereof. However, this Agreement does not supersede any
stock option agreements, restricted stock grant agreements or
agreements related to the bridging of your prior service with
other employers for pension service credit purposes which may
exist as of August 16, 1995 between the Company and you, all of
which shall remain in full force and effect.
1. Employment.
1.1 Term. The Company shall employ you in a senior
executive management capacity as the Company, with your consent,
may from time to time designate. This Agreement shall become
effective as of August 16, 1995 and shall continue until December
31, 1998, unless earlier terminated or extended in accordance
with its terms. Beginning on January 1, 1998 and on each
<PAGE>
<PAGE> 2
anniversary of that date thereafter, the term of this Agreement
(the "Term") shall automatically be extended for one additional
year unless either the Company or you has given written notice to
the other no later than September 30 of the preceding year that
the giver of the notice does not elect to extend the Term. Even
if the Company has given you such a notice, if a Change of
Control has occurred during the Term and you have met your
obligations in the next paragraph of this Section 1.1, the Term
will be automatically extended and this Agreement will remain in
full force and effect until the last day of the 36th month
following the month in which the Change of Control occurs. You
acknowledge that, except as set forth in this Agreement, your
employment is "at will".
If, during the Term, a person (as that term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) commences any action that, if
consummated, would result in a Change of Control of the Company,
or if any person publicly announces an intention or proposal to
commence any such action, you agree that you will not leave the
Company's employ (other than as a result of death, Disability or
Retirement) and will render the services contemplated in this
Agreement for the reasonable duration of the Company's defense
against such action and until such action has been abandoned or
terminated or a Change in Control has occurred.
Any termination of your employment during the Term for
reasons other than your death shall be evidenced by a written
Notice of Termination, which shall specify the provision of this
Agreement relied upon for such termination and describe with
reasonable detail the facts and circumstances claimed by the
sender of such Notice of Termination to provide the basis for
termination. Any such Notice of Termination shall also specify
the effective date of termination (the "Termination Date"). If
you die during the Term the Termination Date shall be the date of
your death.
1.2 Duties. You shall perform all duties incidental to
your position with the Company, or as may be assigned to you by
the Chief Executive Officer of the Company or the Board. You
<PAGE>
<PAGE> 3
agree to use your best efforts in the business of the Company and
to devote your full time attention and energy to the business of
the Company. You agree not to work, either on a part-time or
independent contracting or consulting basis, with or without
compensation, for any other business or enterprise during the
Term without the Company's prior consent. Such consent shall not
be unreasonably withheld in the case of service on the boards of
directors of other corporations and community organizations.
1.3 Base Compensation. The Company shall pay you as base
compensation an annual salary of $ , in installments in
accordance with the Company's policies from time to time in
effect, until January 1, 1996. Thereafter, your annual salary
may be adjusted by the Company consistent with the Company's
results and your performance during the prior year. However,
unless the annual salaries of all senior executives of the
Company are reduced across-the-board, your annual salary in any
year shall not be less than your annual salary during the prior
year.
1.4 Incentive Compensation. The Company shall establish
and review with you from time to time the performance goals
("Performance Goals") for the Company and you individually, and a
methodology for calculating the amount of incentive compensation
to be paid upon achievement of such Performance Goals. Incentive
compensation shall be payable to you at such time or times as are
established under the Company's policies (including the Company's
Executive Compensation Program) in effect from time to time.
1.5 Benefits; Perquisites. You shall be entitled to
receive the retirement and welfare benefits and perquisites
provided by the Company under its Executive Compensation program
in effect from time to time for executives at the
Senior Vice President level.
1.6 Expenses. You shall be reimbursed for any reasonable
expenses you incur in connection with your employment during the
Term, upon presentation to the Company of an itemized account and
receipts of such expenses as required by the Company's policies
from time to time in effect.
<PAGE>
<PAGE> 4
2. Developments and Intellectual Property. You acknowledge
that all developments, including but not limited to trade secrets
(including strategies, business plans and customer lists),
discoveries, improvements, ideas and writings which either
directly or indirectly relate to or may be useful in the business
of the Company (the "Developments") which you, either alone or in
conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Term
are the sole and exclusive property of the Company. You will
cooperate with the Company's reasonable requests to obtain or
maintain rights or protections under United States or foreign law
with respect to all Developments. The Company will reimburse you
for all reasonable expenses incurred by you in order to comply
with this provision of this Agreement, regardless of when such
expenses may be incurred.
3. Confidential Information. You acknowledge that by reason
of your employment by the Company, especially as a senior
executive thereof, you will in the future have (and you have had
prior to August 16, 1995), access to information of the Company
that the Company deems to be confidential and/or proprietary,
including but not limited to, information about the Company's
strategies, plans, products and services, methods of operation,
employees, sales, profits, expenses, customer lists and the
relationships between the Company and its customers, suppliers
and others who have business dealings with the Company. You
covenant and agree that during the Term and thereafter, you will
not disclose any such information to any person without the prior
written authorization of the Chief Executive Officer of the
Company or the Board.
4. Non-Competition.
4.1 Covenant. In consideration of the benefits provided
to you under this Agreement, which you acknowledge are
independent consideration, you covenant and agree that during the
Restricted Period (as defined below), you will not, directly or
indirectly, without the Company's prior consent: (i) own, manage,
operate, finance, join, control or participate in the ownership
or control of, or be associated as an officer, director,
<PAGE>
<PAGE> 5
executive, partner or principal, agent, representative,
consultant or otherwise with, or use or permit your name to be
used in connection with, any enterprise that directly or
indirectly competes (as defined below) with the business of the
Company in a Restricted Area (as defined below); or (ii) offer or
provide employment to, or solicit, interfere with or attempt to
entice away from the Company any individual who either is
employed by the Company at the time of such offer, employment,
solicitation, interference or enticement or has been so employed
by the Company within 12 months prior to such offer, employment,
solicitation, interference or enticement. This Section shall not
be construed to prohibit the ownership by you of not more than 1%
of any class of securities of any corporation which competes with
the Company and which has a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4.2 Definitions.
4.2.1 "Competes" means the production, marketing or
selling of any product or service of any person or entity
other than the Company which resembles or competes with a
product or service produced, marketed or sold by the Company
(or to your knowledge was under development by the Company)
during the period of your employment by the Company (whether
under this Agreement or otherwise).
4.2.2 "Restricted Area" means:
(a) The Standard Metropolitan Statistical Area (or
the equivalent) in which any office, place of
employment, business address or POP maintained by the
Company is located; or
(b) Any state of the United States, any province of
Canada or any foreign country from which the Company or
any of its material subsidiaries or affiliates derives
5% or more of its annual net income.
<PAGE>
<PAGE> 6
4.2.3 "Restricted Period" means:
(a) The period of your employment by the Company
(whether under this Agreement or otherwise), if your
employment is terminated because of your death or
Disability;
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated
because of your Retirement, or by the Company for Cause
or without Cause;
(c) The period of your employment by the Company
(whether under this Agreement or otherwise) and, if
this Agreement is still in effect at the Termination
Date, the number of months remaining in the Term at the
Termination Date or 12 months, whichever is longer (but
in no event more than 24 months), if you terminate your
employment voluntarily (and not for Good Reason); or
(d) The period of your employment by the Company
under this Agreement, if your employment is terminated
by you for Good Reason.
4.3 Savings Clause. If any of the provisions of this
Section 4 are ever determined by a court to exceed the time,
geographic scope or other limitations permitted by applicable law
in any jurisdiction, then such excessive provisions shall be
deemed reduced, in such jurisdiction only, to the maximum time,
geographic scope or other limitation permitted in such
jurisdiction.
5. Equitable Relief. You acknowledge that the restrictions
contained in Sections 2, 3 and 4 of this Agreement 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. You also
acknowledge that the Company shall be entitled to preliminary and
<PAGE>
<PAGE> 7
permanent injunctive relief, without the necessity of proving
actual damages, and to an equitable accounting of all earnings,
profits and other benefits arising from such violation. These
rights shall be cumulative and in addition to any other rights or
remedies to which the Company may be entitled. You agree to
submit to the jurisdiction of any New York State court located in
Monroe County or the United States District Court for the Western
District of New York or of the state court or the federal court
located in or presiding over the county in which the Company has
its corporate headquarters at the applicable time in any action,
suit or proceeding brought by the Company to enforce its rights
under Sections 2, 3 and/or 4 of this Agreement.
6. Company's Obligations upon Termination. The sole
obligations of the Company upon the termination of your
employment prior to the failure of either you or the Company to
extend the Term in accordance with Section 1.1 of this Agreement
are as set forth in this Section 6. Any and all amounts to be
paid to you in connection with your termination shall be paid in
a lump sum promptly after the Termination Date, but not more than
30 days thereafter.
6.1 Termination upon Disability or Death. If your
employment with the Company ends by reason of your death or
Disability (as defined later in this Agreement), the Company
shall pay you all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date,
including:
6.1.1 Base compensation;
6.1.2 Reimbursement for reasonable and necessary expenses
incurred by you on behalf of the Company during the Term;
6.1.3 Pay for earned but unused vacation and floating
holidays;
6.1.4 All compensation you previously deferred (if any) to
the extent not yet paid; and
<PAGE>
<PAGE> 8
6.1.5 An amount equal to your "Pro Rata Bonus". Your Pro
Rata Bonus shall be determined by multiplying the "Bonus
Amount" (as defined below) by a fraction, the numerator of
which is the number of days in the fiscal year through the
Termination Date and the denominator of which is 365. The
term "Bonus Amount" means: (i) a bonus calculated using the
performance metrics of the Company's results and your
individual performance for the fiscal year ended prior to
the year in which the Termination Date occurs, applied to
the payouts set forth under the incentive compensation
program in effect for the year in which the Termination Date
occurs; or (ii) if the Termination Date occurs after the end
of a fiscal year but before any bonus related thereto was
paid, the bonus you would have received for that fiscal
year.
The amounts described in Sections 6.1.1 through 6.1.4,
inclusive, are called elsewhere in this Agreement, collectively,
the "Accrued Compensation".
Except as otherwise provided in this Section 6.1, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.2 Termination Without Cause. If the Company terminates
your employment without Cause (as defined later in this
Agreement), the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
6.2.3 Severance ("Severance") equal to: (a) twice the sum
of (i) the annual base compensation you would have received
for the entire fiscal year in which the Termination Date
occurs plus (ii) the Bonus Amount plus (iii) $ (being
the agreed cash equivalent of the annual value of the
perquisites provided to you under the Company's Executive
<PAGE>
<PAGE> 9
Compensation Program) plus (iv) the Company contributions
which would have been made on your behalf to the 401(k)
retirement savings plan maintained by the Company (b)
reduced by the present value (determined as provided in
Section 280G(d)(4) of the Internal Revenue Code of 1986 as
amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation to be received by
you upon termination of your employment under any severance
plan, policy or arrangement of the Company.
In addition, the Company shall continue to provide to you
and your family at the Company's expense, for 24 months following
the Termination Date, the life insurance, disability, medical,
dental, vision and hospitalization benefits provided to you and
your family immediately prior to the Termination Date.
Lastly, the Company shall credit you with an additional 24
months of service and age for the purposes of determining the
level of your retirement benefits under any qualified or
nonqualified defined benefit pension, supplemental or excess
retirement plan maintained by the Company in which you are a
covered employee (the "Retirement Plans").
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.3 Termination for Cause or Voluntary Termination. If
your employment is terminated for Cause (as defined later in this
Agreement), or if you voluntarily terminate your employment other
than for Good Reason, the Company shall pay you all Accrued
Compensation. Except as otherwise provided in this Section 6.3,
your entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.4 Termination for Good Reason or by Company Following
Change of Control. If you terminate your employment for Good
Reason or the Company terminates your employment following a
Change of Control, the Company shall pay you:
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<PAGE> 10
6.4.1 All Accrued Compensation;
6.4.2 A Pro Rata Bonus;
6.4.3 Severance equal to: (a) three times the sum of (i)
the annual base compensation you would have received for the
entire fiscal year in which the Termination Date occurs plus
(ii) the Bonus Amount plus (iii) $ (being the agreed
cash equivalent of the annual value of the perquisites
provided to you under the Company's Executive Compensation
Program) plus (iv) the Company contributions which would
have been made on your behalf to the 401(k) retirement
savings plan maintained by the Company (b) reduced by the
present value (determined as provided in Section 280G(d)(4)
of the Code of any other amount of severance relating to
salary or bonus continuation to be received by you upon
termination of your employment under any severance plan,
policy or arrangement of the Company;
6.4.4 An amount equal to your "Supplemental Retirement
Amount". Your Supplemental Retirement Amount shall be equal
to the difference between (a) the benefit payable under the
Retirement Plans which you would have received had your
employment continued for 36 months following the Termination
Date and (b) your actual benefit paid or payable, if any,
under the Retirement Plans. Your Supplemental Retirement
Amount will be determined in accordance with the procedures
set forth in an Addendum to this Agreement, which is made a
part hereof (the "Addendum"); and
6.4.5 An amount equal to your "SERP Payment". Your SERP
Payment shall satisfy the Company's obligations to you under
the supplemental or excess retirement plan or plans
maintained by the Company for its executive employees (the
"SERP") and shall be the actuarial equivalent (using the
Actuarial Assumptions, as defined in the Addendum) of your
benefit accrued under the SERP through the Termination Date.
If all or a part of the SERP Payment is funded through a
trust of which you are a beneficiary, the SERP Payment shall
be paid from such trust to the extent of such funding.
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<PAGE> 11
In addition, the Company shall continue to provide to you
and your family at the Company's expense, for 36 months following
the Termination Date, the life insurance, disability, medical,
dental, vision and hospitalization benefits provided to you and
your family immediately prior to the Termination Date.
The Company shall reimburse you for all reasonable legal
fees and expenses which you may incur following a Change of
Control as a result of the Company's attempts to contest the
validity or enforceability of this Agreement or your attempts to
obtain or enforce any right or benefit provided to you under this
Agreement, unless a court determines your actions to be
frivolous.
Lastly, the Company shall credit you with an additional 36
months of service and age for the purposes of determining the
level of your retirement benefits under the Retirement Plans.
Except as otherwise provided in this Section 6.4, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
7. Gross-Up Payment. Notwithstanding anything else in this
Agreement, if it is found that any or all of the payments made by
the Company to you or for your benefit (other than any additional
payments required under this Section 7) (the "Payments") would be
subject to the excise tax imposed by Section 4999 of the Code or
you incur any interest or penalties with respect to such excise
tax (such excise tax, together with any such interest and
penalties, collectively the "Excise Tax"), then you are entitled
to receive an additional payment (a "Gross-Up Payment") in an
amount such that, after you pay all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, you will retain an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. The procedures for the calculation and contesting of
any claim that such Excise Tax is due are set forth in the
Addendum.
<PAGE>
<PAGE> 12
8. No Obligation to Mitigate Damages. You are not require to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and the
amounts to be paid to you under Section 6 of this Agreement shall
not be reduced by any compensation you may earn from other
sources. However, if, during any period that you would otherwise
be entitled to receive any payments or benefits under this
Agreement, you breach your obligations under Section 2, 3 or 4 of
this Agreement, the Company may immediately terminate any and all
payments and the provision of benefits (to the extent permitted
by law and the terms of the benefit plans maintained by the
Company from time to time) hereunder.
9. Successor to Company. The Company will require any
successor or assignee to all or substantially all of the business
and/or assets of the Company, whether by merger, sale of assets
or otherwise, by agreement in form and substance reasonably
satisfactory to you, to assume and agree to perform the Company's
obligations under this Agreement in the same manner and to the
same extent that the Company would be required to perform them if
such succession or assignment had not taken place. Such
agreement of assumption must be express, absolute and
unconditional. If the Company fails to obtain such an agreement
within three business days prior to the effective date of such
succession or assignment, you shall be entitled to terminate your
employment under this Agreement for Good Reason.
10. Survival. Notwithstanding the expiration or termination of
this Agreement, except as otherwise specifically provided
herein, your obligations under Sections 2, 3 and 4 of this
Agreement and the obligations of the Company under this Agreement
shall survive and remain in full force and effect.
This Agreement shall inure to the benefit of, and be
enforceable by, your personal and legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you die while any amounts are still
payable to you, all such amounts, unless otherwise provided in
this Agreement, shall be paid in accordance with the terms of
this Agreement to your devisee(s), legatee(s) or other
<PAGE>
<PAGE> 13
designee(s) or, if there is no such designee(s), to your estate.
11. Definitions. Whenever used in this Agreement, the
following terms shall have the meanings below:
11.1 "Cause" means:
11.1.1 You have willfully and continually failed to
substantially perform your duties (other than due to an
incapacity resulting from physical or mental illness or due
to any actual or anticipated failure after you have given a
Notice of Termination for Good Reason) after a written
demand for substantial performance is delivered to you by
the Chief Executive Officer or the Board which specifically
identifies the manner in which it is believed that you have
not substantially performed your duties; or
11.1.2 You have willfully engaged in conduct which is
demonstrably and materially injurious to the Company
(monetarily or otherwise); or
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of Ethics; or
11.1.4 You have been convicted of a felony; or
11.1.5 You have violated the provisions of Section 2
and/or Section 3 and/or Section 4 of this Agreement
and, in any of the events described in Sections 11.1.1 through
11.1.5 above, the Board adopts a resolution finding that in the
good faith opinion of the Board you were culpable for the conduct
set forth in any of Sections 11.1.1 through 11.1.5 and specifying
the particulars thereof in detail. For the purposes of this
Agreement, no act or failure to act on your part shall be
considered willful unless done, or omitted to be done, by you not
in good faith and without reasonable belief that your action or
omission was in the best interests of the Company. Any such
resolution of the Board must receive the affirmative vote of not
less than three-quarters of the entire membership of the Board at
<PAGE>
<PAGE> 14
a meeting of the Board called and held for the purpose of
considering the issue, and you must receive reasonable notice of
the meeting and have an opportunity, with your counsel, to
present your case to the Board.
11.2 "Change of Control" means:
11.2.1 The consummation of a consolidation or merger of
the Company in which the Company is not the continuing or
surviving corporation or pursuant to which the shares of the
Company's common, voting equity are to be converted into
cash, securities or other property. For the purposes of
this Agreement, a consolidation or merger with a corporation
which was a wholly-owned direct or indirect subsidiary of
the Company immediately before the consolidation or merger
is not a Change of Control; or
11.2.2 The sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the Company's assets; or
11.2.3 The approval by the Company's shareowners of any
plan or proposal for the liquidation or dissolution of the
Company; or
11.2.4 Any person, as that term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities of the Company
under an employee benefit plan of the Company, a direct or
indirect wholly-owned subsidiary of the Company or any other
company owned, directly or indirectly, by the shareowners of
the Company in substantially the same proportions as their
ownership of the Company's common, voting equity), is or
becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of
30% or more of the Company's then outstanding common, voting
equity; or
11.2.5 During any period of two consecutive years,
individuals who at the beginning of such period constitute
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<PAGE> 15
the Board, including for this purpose any new director
(other than a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in this Section 11.2.5) whose election
or nomination for election by the Company's shareowners was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
the period or whose election or nomination for election was
previously so approved (the "Incumbent Board"), cease for
any reason to constitute a majority of the Board.
11.3 "Disability" means:
11.3.1 Your absence from your duties with the Company on a
full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness; or
11.3.2 A physical or mental condition which prevents you
from satisfactorily performing your duties with the Company
and such incapacity or condition is determined to be total and
permanent by a physician selected by the Company or its insurers
and reasonably acceptable to you and/or your legal
representative.
11.4 "Good Reason" means:
11.4.1 Without your express written consent, after a
Change of Control, the assignment to you of duties with the
Company or with a person, as that term is used in Section
13(d) and 14(d) of the Exchange Act, in control of the
Company materially diminished from the duties assigned to
you immediately prior to a Change of Control; or
11.4.2 Without your express written consent, after a
Change of Control, any reduction by the Company or any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company in your annual
base compensation or annual bonus at Standard (or
equivalent) rating from the amounts of such compensation
<PAGE>
<PAGE> 16
and/or bonus in effect immediately before and during the
fiscal year in which the Change of Control occurred (except
that this Section 11.4.2 shall not apply to across-the-board
salary or bonus reductions similarly affecting all
executives of the Company and all executives of any person
in control of the Company); or
11.4.3 Without your express written consent, after a
Change of Control, the failure by the Company or any person,
as that term is used in Section 13(d) and 14(d) of the
Exchange Act, in control of the Company to increase your
annual base compensation or annual bonus at Standard (or
equivalent) rating at the times and in comparable amounts as
they are increased for similarly situated senior executive
officers of the Company and of any person, as that term is
used in Section 13(d) and 14(d) of the Exchange Act, in
control of the Company; or
11.4.4 Without your express written consent, after a
Change of Control, the failure by the Company or by any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company to continue in
effect any benefit or incentive plan or arrangement (except
any benefit plan or arrangement which expires by its own
terms then in effect upon the occurrence of a Change of
Control) in which you are participating at the time of the
Change of Control, unless a replacement plan or arrangement
with at least substantially similar terms is provided to
you; or
11.4.5 Without your express written consent, after a
Change of Control, the taking of any action by the Company
or by any person, as that term is used in Section 13(d) and
14(d) of the Exchange Act, in control of the Company which
would adversely affect your participation in or materially
reduce your benefits under any benefit plan or arrangement
or deprive you of any other material benefit (including any
miscellaneous benefit which is not represented and protected
by a written plan document or trust) enjoyed by you at the
time of a Change of Control; or
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<PAGE> 17
11.4.6 You terminate your employment (other than because
of your death, Disability or Retirement) by giving the
Company a Notice of Termination with a Termination Date not
later than the first anniversary of the Change of Control;
or
11.4.7 Any failure by the Company to comply with any of
its material obligations under this Agreement, after you
have given notice of such failure to the Company and the
Company has not cured such failure promptly after its
receipt of such notice.
11.5 "Retirement" means a voluntary or involuntary
termination of your employment after age 65 or any voluntary
termination at age 65 or earlier that entitles you to receive a
normal or early retirement service pension under the Retirement
Plans (or any successor or substitute plan or plans the Company
puts into effect prior to a Change in Control).
12. Notice. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed given when mailed by certified mail, return receipt
requested, or by nationally recognized overnight courier, receipt
requested, when addressed to you at your official business
address when employed by the Company or at your home address as
reflected in the Company's records from time to time and when
addressed to the Company at its corporate headquarters, to the
attention of the Board, with a required copy to the Company's
Corporate Counsel.
13. Amendment and Assignment. This Agreement cannot be
changed, modified or terminated except in a writing. You may not
assign your duties with the Company to any other person.
14. Severability. If any provision of this Agreement or the
application of this Agreement to anyone or under any
circumstances is determined by a court 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 effective without the
<PAGE>
<PAGE> 18
invalid or unenforceable provision or application, and such
invalidity or unenforceability shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Remedies Cumulative; No Waiver. No remedy conferred on you
or on the Company by this Agreement is intended to be exclusive
of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to any other remedy given
under this Agreement or now or later existing at law or in
equity. No delay or omission by you or by the Company in
exercising any right, remedy or power under this Agreement or
existing at law or inequity shall be construed as a waiver of
such right, remedy or power, and any such right, remedy or power
may be exercised by you or the Company from time to time and as
often as is expedient or necessary.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to any applicable conflicts of laws.
17. Counterparts. This Agreement may be signed by you and on
behalf of the Company in one or more counterparts, each of which
shall be one original but all of which together will constitute
one and the same instrument.
If this Agreement correctly sets forth our agreement on its
subject matter, please sign and return to me the enclosed copy of
this Agreement. Please keep the other copy for your records.
Sincerely,
FRONTIER CORPORATION
By: ---------------------------------------
Ronald L. Bittner
Chairman & CEO
Agreed to on , 1995
- -------------------------------------------
[Signature of Addressee]
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<PAGE> 19
ADDENDUM TO LETTER AGREEMENT DATED AUGUST 16, 1995
The following provisions shall apply to the determination of
the Supplemental Retirement Amount in accordance with Section
6.4.4 of the Agreement.
1. The Supplemental Retirement Amount shall be determined
using the actuarial equivalent of the benefit payable under the
Retirement Plans which you would have received had your
employment continued for 36 months following the Termination Date
and, using the Actuarial Assumptions (as defined below) of your
actual benefit paid or payable, if any, under the Retirement
Plans. The actuarial equivalent shall be determined by using the
actuarial assumptions applied by the Company during the 90 day
period immediately prior to a Change of Control in connection
with the Retirement Plans (the "Actuarial Assumptions").
2. The calculation of your Supplemental Retirement Amount
shall also be based on the assumptions that your annual base and
incentive compensation would have remained the same over those 36
months, all accrued benefits under the Retirement Plans are fully
vested and the benefit accrual formulas are those provided for in
the Retirement Plans during the 90 day period immediately prior
to a Change of Control.
3. If all or a part of your Supplemental Retirement Amount
is derived under a supplemental or excess retirement plan
maintained by the Company for its executive employees (a "SERP"),
then the amount of your Supplemental Retirement Amount which is
derived from the SERP shall be paid from any trust of which you
are a beneficiary to the extent of funding actuarially available
in that trust to pay your Supplemental Retirement Amount.
The following provisions shall apply to the calculation and
procedures relating to the Gross-Up Payment in accordance with
Section 7 of the Agreement.
1. The Company's independent auditors in the fiscal year
in which the Change of Control occurs (the "Accounting Firm")
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<PAGE> 20
shall determine whether and when a Gross-Up Payment is required,
the amount of such Gross-Up Payment and the assumptions to be
used in making such determination. The Accounting Firm shall
provide detailed supporting calculations, together with a written
opinion with respect to the accuracy of such calculations, to you
and the Company within 15 business days of the receipt of a
written request from either you or the Company. If the
Accounting Firm is serving (or has served within the three years
preceding the Change in Control) as accountant or auditor for the
person in control of the Company following the Change of Control
or any affiliate thereof, you may appoint another nationally
recognized accounting firm to make the determinations required in
connection with the Gross-Up Payment and the substitute
accounting firm shall then be referred to as the Accounting
Firm). The Company shall pay you any Gross-Up Payment,
determined in accordance with this Addendum, within five days of
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that you will not be liable for any
Excise Tax, it shall furnish you with a written opinion that your
failure to report the Excise Tax on the applicable federal income
tax return would not result in the imposition of a negligence or
similar penalty. Any determination by the Accounting Firm shall
be binding upon you and the Company.
2. If there is uncertainty about how Section 4999 is to be
applied when the Accounting Firm makes its initial determination,
and as a result the Gross-Up Payment made to you by the Company
is determined (after following the procedures set forth in this
Addendum) to be less than it should have been made (an
"Underpayment"), and you are thereafter required to pay any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment and any such Underpayment shall be promptly paid by
the Company to you or for your benefit.
3. You shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require
the Company to pay you the Gross-Up Payment. Your notice shall
be given as soon as practicable but no later than ten business
days after you have been informed in writing of such claim and
shall apprise the Company of the nature of such claim and the
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<PAGE> 21
date on which such claim is requested to be paid. You shall not
pay such claim prior to the expiration of the 30 day period
following the date on which you gave such notice to the Company
(or any shorter period, if the taxes claimed are due sooner). If
the Company notifies you in writing prior to the expiration of
such period that it desires to contest such claim, you shall:
(a) give the Company any information reasonably requested by it
relating to such claim, (b) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company, (c) cooperate with
the Company in good faith in order effectively to contest such
claim, and (d) permit the Company to participate in any
proceedings relating to such claim.
4. The Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in connection
with the claim and may, at its sole option, either direct you to
pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and you agree to prosecute the contest to
a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts as the
Company shall determine.
5. Any extension by the Company of the statute of
limitations relating to payment of taxes for the taxable year for
which such contested amount is claimed to be due shall be limited
solely to such contested amount. The Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable under this Agreement and you
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
6. If the Company directs you to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to you, on an interest-free basis, and shall indemnify
<PAGE>
<PAGE> 22
and hold you harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance.
7. If you receive a refund of any amount advanced to you
by the Company, you will promptly pay to the Company the amount
of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If the Company advanced
to you any amounts and a determination is made that you will not
be entitled to any refund with respect to such claim and the
Company does not notify you in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and you
will not be required to be repay it. The amount of such advance
shall offset the amount of the Gross-Up Payment required to be
paid.
8. The Company shall pay all fees and expenses of the
Accounting Firm. The Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold you harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment
of costs and expenses.
<PAGE>
<PAGE> 23
SUMMARY OF PROPOSED EXECUTIVE CONTRACTS
o Effective Date of Agreements - August 16, 1995
o Term of Agreements
- Expire December 31, 1998
- Automatic one year renewals committed at January 1 of
then expiring year for next year, beginning January 1,
1998
- Notice of non-renewal (given by either Executive or
Company) must be given by September 30 of preceding year,
beginning September 30, 1997
o Termination/Compensation Provisions
- Death or Disability
- accrued compensation
- pro rata bonus
- Voluntary Termination or Cause (defined as willful and
continual failure to perform duties, willful conduct
materially injurious to Company, willful illegal or
unethical conduct, conviction of felony or violation of
non-compete or confidentiality provisions of Agreement)
- accrued compensation
- Without Cause
- accrued compensation
- pro rata bonus
- severance of 2 years total compensation and Company
contributions to 401(k)
- benefits continuation for 24 months
- 24 months age and service credit toward pension
<PAGE>
<PAGE> 24
- For Good Reason (defined as, after Change of Control:
reduction in duties, reduction in compensation,
discriminatory treatment in compensation increases,
reduction in benefits; also, Executive's termination
within 12 months after Change of Control or upon
Company's failure to comply with Agreement)
- accrued compensation
- pro rata bonus
- severance of 3 years total compensation and Company
contributions to 401(k)
- benefits continuation for 36 months
- 36 months age and service credit toward pension
- lump sum "make whole" pension payment
- lump sum payout of benefits under "top hat" pension
plan
- gross up for excise taxes
o Non-Compete Provisions
- Non-compete continues after termination of employment,
including on retirement
- Does not apply if employment terminates for Good Reason
- Runs for 24 months if Executive retires or is terminated
for Cause or without Cause
- Runs for balance of term of Agreement or 12 months,
whichever is longer, if Executive leaves voluntarily
- Executive also agrees not to solicit Company's employees
- Note: In addition, "inimical" provision of Supplemental
Management Pension Plan permits Company to
terminate benefits under plan if Executive
competes within five years after retirement
o Other Provisions
- Company agrees to cause successor entity to assume
Company's obligations under Agreement
- Executive entitled to reimbursement for legal expenses if
he has to enforce his rights under Agreement
- Provides for initial base salary, guaranteed not to
decrease from year to year (unless there is across-the-board
salary reduction for executives)
- Incentive compensation, benefits and perquisites per
Executive Compensation Program
<PAGE>
<PAGE> 25
- Executive acknowledges Company ownership of Executive's
developments
- Executive agrees to protect Company confidential
information
EXHIBIT 10-40
FRONTIER GROUP
EMPLOYEES' RETIREMENT SAVINGS PLAN
<PAGE>
TABLE OF CONTENTS Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . 2
ARTICLE II - Eligibility . . . . . . . . . . . . . . . . . . 9
ARTICLE III - Participation and Participant
Contributions . . . . . . . . . . . . . . . . . 10
ARTICLE IV - Participating Company Contributions . . . . . . 15
ARTICLE V - Investment of Contributions . . . . . . . . . . 26
ARTICLE VI - Participant Accounts. . . . . . . . . . . . . . 28
ARTICLE VII - Retirement or Other Termination
of Employment . . . . . . . . . . . . . . . . 30
ARTICLE VIII - Death . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX - Payment of Benefits . . . . . . . . . . . . . . 33
ARTICLE X - Withdrawals and Loans During
Employment. . . . . . . . . . . . . . . . . . . 38
ARTICLE XI - Plan Administration . . . . . . . . . . . . . . 43
ARTICLE XII - Amendment and Termination . . . . . . . . . . . 47
ARTICLE XIII - Top-Heavy Provisions. . . . . . . . . . . . . . 48
ARTICLE XIV - General Provisions. . . . . . . . . . . . . . . 51
Appendix A - Participating Companies
Appendix B - Plan Features Unique to Participating
Companies
<PAGE>
<PAGE>
INTRODUCTION
This Employees' Retirement Savings Plan was
established, effective as of March 1, 1994, by the merger of
several defined contribution plans within the Frontier Group of
companies. Since March 1, 1994, several other plans have been
merged into the Plan and it is anticipated that in the future
other Frontier Group defined contribution plans will be merged
into this Plan.
The Plan is hereby amended, continued and restated
effective January 1, 1996 to achieve the following objectives:
to make the terms of the Plan as uniform as possible with respect
to all Plan Participants, to simplify the Plan's terms, to
provide easier administration and to provide the foundation for
this Plan becoming the basic retirement plan in effect for the
entire Frontier Group of companies.
All Participants in this Plan are subject to
identical terms and conditions of participation except as set
forth in Appendix B, with respect to each Participating Company.
The merger of any plan into this Plan shall not
reduce any Participant's accrued benefit in effect immediately
preceding the merger.
This Plan is intended to qualify as a profit
sharing plan pursuant to the provisions of Code sections 401(a)
and 401(k).
ARTICLE I
Definitions
l.1 "Affiliated Company" means Frontier Corporation (the
"Company") and
(a) any other company which is included within a
"controlled group of corporations" within which
the Company is also included, as determined under
section l563 of the Code without regard to
subsections (a)(4) and (e)(3)(C) of said
section l563; or
(b) any other trades or businesses (whether or not
incorporated) with which the Company is affiliated
which, based on principles similar to those
defining a "controlled group of corporations" for
the purposes of (a) above, are under common
control; or
(c) any other entities required to be aggregated with
the Company pursuant to Code section 414.
l.2 "Basic Contributions" means a Participant's
contributions to the Plan in accordance with
Section 3.2 in any whole percentage of Compensation up
to a maximum of 3 percent of Compensation.
1.3 "Beneficiary" means the Participant's surviving spouse
or, in the event there is no surviving spouse or the
surviving spouse elects in writing not to receive any
death benefits under the Plan, the person or persons
(including a trust) designated by a Participant to
receive any death benefit which shall be payable under
this Plan.
l.4 "Board" means the Board of Directors of the Company or
any committee of the Board of Directors authorized to
act on behalf of the Board. Any such Board committee
shall be composed of at least three members of the
Board of Directors. As used in this Plan the term
"Board-appointed committee" means the Committee and any
other committee appointed by the Board which need not
be comprised of at least three Board members but may
include or consist entirely of management personnel who
are not members of the Board.
1.5 "Code" means the Internal Revenue Code of 1986, as
amended.
l.6 "Committee" means the Employees' Benefit Committee
appointed pursuant to Article XI to administer the
Plan.
l.7 "Company" means Frontier Corporation, a New York
corporation, its predecessor or its successor.
1.8 "Company Discretionary Contributions" means any
contribution made by a Participating Company in
addition to Company Fixed Contributions and Company
Matching Contributions, as specified in Section 4.1(c).
Discretionary contributions may or may not be
contingent on contributions made by a Participant.
1.9 "Company Fixed Contributions" means a contribution by a
Participating Company as specified in Section 4.1(a).
These contributions are not contingent on the level of
Participant contributions.
1.10 "Company Matching Contributions" means the
contributions of a Participating Company that are
contingent upon a Participant's Basic Contributions in
an amount specified in Section 4.1(b).
1.11 "Company Stock" means Frontier Corporation common
stock.
l.12 "Compensation" means a Participant's total compensation
as defined in Code section 415(c)(3) including salary,
bonuses, commissions, premium pay, Pre-Tax
Contributions to this Plan pursuant to Section 3.7 and
salary reduction contributions to any cafeteria plan
under Code Section 125, but excluding deferred
compensation and all annual remuneration in excess of
$150,000 (adjusted for cost of living increases as
permitted under the Code). For any Participant
receiving disability pay (which term does not include
disability pension or workers' compensation benefits)
from a Participating Company during a payroll period,
the term "Compensation" means such disability pay.
In determining the $150,000 compensation limit of
any Participant who is a five percent owner or one of
the ten most highly compensated Highly Compensated
Employees of a Participating Company, the Participant,
the Participant's spouse and the Participant's lineal
descendants who have not attained age 19 before the
close of the Plan Year (the "family unit") shall be
treated as a single employee. If the actual aggregate
compensation of all members of this family unit equals
or exceeds $150,000 (as adjusted for cost of living
increases) in a Plan Year, the $150,000 shall be
allocated pro rata among all members of the family unit
as their Compensation for the Plan Year.
l.13 "Effective Date" means March 1, 1994, provided that
provisions having other effective dates shall be
effective as may be expressly provided by such
provisions. The effective date of this restatement is
January 1, 1996.
1.14 "Election Period" means the period of time during which
a Participant can elect, with the consent of his
spouse, to waive the Qualified Joint and Survivor
Annuity or the Qualified Pre-Retirement Survivor
Annuity or can elect to revoke such a waiver. In the
case of a Qualified Joint and Survivor Annuity, the
Election Period is the 90 day period preceding the
annuity starting date. In the case of a Qualified
Pre-Retirement Survivor Annuity, the Election Period
begins on the first day of the Plan Year in which a
Participant attains age 35 and ends on the date of the
Participant's death, provided that if a Participant
terminates employment prior to age 35, his Election
Period shall begin on his termination date.
1.15 "Employee" means any individual who is employed by a
Participating Company.
1.16 "ERISA" means the Employee Retirement Income Security
Act of l974, as amended from time to time, and any
regulations issued pursuant thereto.
1.17 "Highly Compensated Employee" means an Employee who is
highly compensated as defined in Code section 414(q).
Subject to the special limitations and definitions
contained in section 414(q), a Highly Compensated
Employee is any Employee who during the current or
preceding Plan Year:
(a) was a five percent owner of a Participating
Company;
(b) received compensation from a Participating Company
in excess of $75,000;
(c) received compensation from a Participating Company
in excess of $50,000 and is in the top 20 percent
of the Participating Company's employees ranked on
the basis of compensation; or
(d) was at any time an officer of a Participating
Company and received compensation in excess of 50%
of the defined benefit dollar limitation for the
Plan Year under Code section 415(b)(1)(A).
In making this determination, an employee who does not
satisfy (b), (c) or (d) in the preceding Plan Year
shall not be considered as satisfying (b), (c) or (d)
for the current Plan Year unless he meets the
requirements of those subsections for the current year
and is among the top 100 employees paid the greatest
compensation during the current Plan Year. For
purposes of the Highly Compensated Employee definition,
the term Participating Company includes any Affiliated
Company whether or not such Affiliated Company has
adopted this Plan. This Section's dollar amounts shall
be adjusted for cost of living increases as provided
under the Code.
1.18 "Investment Manager" means any individual or
corporation selected by the Board or by any
Board-appointed committee having the authority to
select such person who (i) is registered as an
investment adviser under the Investment Advisers Act of
1940; or (ii) is a bank, as defined in that Act; or
(iii) is an insurance company qualified to manage,
acquire or dispose of plan assets under the laws of
more than one state and each individual or corporation
acknowledges in writing that he or the corporation, as
the case may be, is a fiduciary with respect to the
Plan.
1.19 "Leased Employee" means any person who is not otherwise
an Employee and who, pursuant to an agreement between a
Participating Company and any other person or
organization, has performed services for the
Participating Company, or for the Participating Company
and related persons (determined in accordance with
section 414(n)(6) of the Code), on a basis whereby if
such person were an Employee, such person would have
become an eligible Employee hereunder either in the
initial eligibility computation period or any Plan Year
thereafter, and such services are of a type
historically performed by employees in the business
field of the Participating Company, provided that a
person shall not be treated as a Leased Employee for
any Plan Year if, during such Plan Year: (i) such
person is covered by a money purchase pension plan
described in section 414(n)(5)(B) of the Code, and (ii)
not more than 20% of the Employees who are not Highly
Compensated Employees are Leased Employees. Once a
person is classified as a Leased Employee, such person
shall remain a Leased Employee for every Plan Year for
which the person completes at least 1000 Hours of
Service.
1.20 "Non-Highly Compensated Employee" means an Employee who
is not a Highly Compensated Employee.
1.21 "Normal Retirement Age" means age 65.
1.22 "Participant" means an Employee who meets the
eligibility requirements set forth in Section 2.l and
Appendix B and who elects to participate in the Plan.
1.23 "Participant Account" means, as of any Valuation Date,
the then amount of a Participant's contributions and
the Participating Company's contributions allocated on
behalf of the Participant adjusted to reflect any
investment earnings and losses attributable to such
contributions, withdrawals and distributions, at the
then market value of the Trust. Where appropriate a
Participant Account shall have the following
subaccounts: a Restricted Company Contribution Account
to record Company Contributions that must be invested
in Company Stock, an Unrestricted Company Contribution
Account to record Company Contributions which are no
longer restricted to investment in Company Stock, a
Participant Pre-Tax Contribution Account to record Pre-Tax
Contributions, a Participant Post-Tax Contribution
Account to record Post-Tax Contributions and a Rollover
Account to record rollover contributions. Earnings
associated with each type of contribution shall be
allocated to the account to which the associated
contributions are allocated.
1.24 "Participating Company" means the Company and each
Affiliated Company that has adopted this Plan for the
benefit of its eligible Employees. Participating
Companies are listed in Appendix A.
1.25 "Plan" means this Frontier Group Employees' Retirement
Savings Plan as set forth herein and as it may be
amended from time to time.
1.26 "Plan Year" means the calendar year. The Plan Year
shall be the limitation year as this term is used in
ERISA.
1.27 "Post-Tax Contributions" means a Participant's
contributions which are non-deductible for income tax
purposes at the time they are made.
1.28 "Predecessor Company" means any organization which was
acquired by the Company or an Affiliated Company.
1.29 "Pre-Tax Contributions" means a Participant's
contributions which are not included in his income for
income tax purposes at the time they are made.
1.30 "Qualified Joint and Survivor Annuity" means an annuity
for the life of the Participant with a survivor annuity
for the life of the Participant's spouse which is 50
percent of the amount which is payable during the joint
lives of the Participant and the Participant's spouse
and which is purchased from an insurance company with
the Participant's account balance.
1.31 "Qualified Pre-Retirement Survivor Annuity" means a
life annuity payable to the surviving spouse of a
deceased Participant which is purchased from an
insurance company with the Participant's account
balance.
1.32 "Restricted Stock" means Company Stock that has been
allocated to a Participant's Restricted Company
Contribution Account and may not be invested in any
other investment fund until the investment restrictions
have been lifted in accordance with Section 5.2.
1.33 "Supplemental Contributions" means a Participant's
contributions to the Plan in excess of his Basic
Contributions in accordance with Section 3.2.
1.34 "Trust" or "Trust Fund" means the amounts held in trust
in accordance with this Plan and consists of such
investment options as from time to time may be
designated by a Board-appointed Committee.
1.35 "Trust Agreement" means any agreement entered into
between the Company and any Trustee to carry out the
purposes of the Plan, which agreement shall constitute
a part of this Plan.
1.36 "Trustee" means any bank or trust company selected by
the Board or a Board committee to serve as Trustee
pursuant to the provisions of the Trust Agreement.
1.37 "Valuation Date" means the last day the Trust may have
been valued provided that the Trust shall be valued no
less frequently than on the last day of each calendar
quarter.
ARTICLE II
Eligibility
2.1 Eligibility Requirements. An Employee who fits within
the eligible class set forth in Appendix B for his
Participating Company and who is not excluded pursuant
to the following sentence is eligible to become a
Participant on the first day of the month on or after
the day which is 30 days after the Employee's date of
hire with a Participating Company. An Employee is not
eligible to participate in this Plan if (1) the
Employee is in a unit of employees covered by a
collective bargaining agreement in which retirement
benefits were the subject of good faith bargaining
unless such collective bargaining agreement expressly
provides for participation in this Plan; (2) the
Employee is a temporary or summer employee; or (3) the
Employee is a Leased Employee.
In the discretion of the Committee, an eligible
Employee of a Participating Company that has adopted
this Plan who is transferred to an Affiliated Company
that has not adopted this Plan may participate in the
Plan under such arrangements as the Committee may
prescribe.
2.2 Reemployment. If an Employee terminates employment and
is subsequently reemployed by a Participating Company,
he will be eligible to begin participation in this Plan
the first day of the month following completion of one
month of service measured from his reemployment date.
ARTICLE III
Participation and Participant Contributions
3.l Participation. An eligible Employee may become a
Participant by filing a written application with the
Committee. The application shall indicate the amount
of his initial Basic and Supplemental Contributions and
whether he intends to have such Contributions made as
Post-Tax Contributions or as Pre-Tax Contributions.
Except as the Committee in its discretion may otherwise
determine, participation will commence with the first
payroll period as is administratively practicable to
meet following the date such written election is
received by the Committee. Participation shall
thereafter continue until all amounts in the
Participant's Account have been distributed even though
current contributions may be suspended.
3.2 Amount of Contributions. Contributions may be made by
any Participant who has enough Compensation during any
payroll period to make a contribution by payroll
deduction. Each Participant may contribute, at his
option, Basic Contributions in any whole percentage of
his Compensation during a payroll period with a minimum
contribution of 1 percent of Compensation and a maximum
contribution of 3 percent of Compensation. If a
Participant is making Basic Contributions at the
maximum rate of 3 percent of his Compensation, he may
also elect to make Supplemental Contributions of any
whole percentage of his Compensation during a payroll
period up to the limits outlined in Section 4.4. All
Participant contributions will be in cash in the form
of Employee-authorized payroll deductions on either a
post-tax basis or, pursuant to Section 3.7, on a pre-tax basis.
3.3 Change in Amount of Contributions. The percentage, or
percentages if more than one, of Compensation
designated by the Participant as his contribution rate
will continue in effect, notwithstanding any change in
his Compensation, until he elects to change such
percentage. A Participant, by filing a written
election form furnished by the Committee, may change
his percentage of contributions as frequently during
the Plan Year and pursuant to such rules as the
Committee may prescribe. Any such change will become
effective on the first payroll period as is
administratively practicable to meet after the date
such written election is received by the Committee. If
a Participant's total contribution rate is in excess of
3 percent of his Compensation, any such change will
first be applied to adjust the amount of his
Supplemental Contributions and then, if necessary, to
adjust the amount of his Basic Contributions. If a
Participant's total contribution rate is less than
3 percent of his Compensation, any such change will
first be applied to adjust the amount of his Basic
Contributions and then, if necessary, to provide for
Supplemental Contributions.
3.4 Suspension of Participant Contributions. A
Participant, by filing a written election with the
Committee, may elect to suspend either his Basic or his
Supplemental Contributions, or both, at any time. Any
such suspension will become effective with the first
payroll period as is administratively practicable to
meet after the date such written election is received
by the Committee. A suspension of all Basic
Contributions will automatically suspend all
Supplemental Contributions. In order to resume making
contributions, the Participant must follow the
procedure outlined in Section 3.l as though he were a
new Participant. A Participant will not be permitted
to make up suspended contributions. Participant
contributions will be suspended automatically for any
payroll period in which the Participant is not in
receipt of Compensation. Such automatic suspension
shall be lifted beginning with the next payroll period
that the Participant receives Compensation. The
suspension of Supplemental Contributions, in the
absence of an election to the contrary, will not affect
Basic Contributions.
3.5 Remittance of Participant Contributions to the Trustee.
Participant contributions will be remitted as soon as
administratively practicable to the Trustee.
3.6 Termination of Participant Contributions. A
Participant's contributions will terminate effective
with the payroll period that ends or includes the date
the Participant terminates employment for any reason,
including retirement or death.
3.7 Pre-Tax Contributions Option. A Participant shall have
the option of having his Basic and Supplemental
Contributions to the Plan made on a tax-deferred basis
pursuant to the terms of this Section. Basic and
Supplemental Pre-Tax Contributions may be made solely
pursuant to a salary reduction agreement between an
individual Participant and his employer. Under this
agreement the Participant agrees to reduce his
Compensation by a specified percentage (as outlined in
Section 3.2) and the Participating Company agrees to
contribute to the Plan the identical amount on behalf
of the Participant. The agreement shall be in such
form and subject to such rules as the Committee may
prescribe. The Committee, in its sole discretion, may
limit the number of salary reduction agreements a
Participant may make during a Plan Year, except that an
agreement may be terminated at any time, in which event
the Participant shall specify whether all of his
contributions shall cease or continue to be made as
Post-Tax Contributions.
3.8 Lump Sum Contributions. Notwithstanding the foregoing
provisions, in accordance with such rules as the
Committee may prescribe on a non-discriminatory basis,
a Participant may make lump sum Post-Tax or Pre-Tax
Contributions at such times and in accordance with such
rules as the Committee may prescribe. Such lump sum
contributions may be made in addition to or as an
alternative to any salary deduction contributions made
pursuant to other provisions of this Plan. A lump sum
Post-Tax Contribution may be made by any method
approved by the Committee, including payroll deduction
or direct contribution. A lump sum Pre-Tax
Contribution can be made only pursuant to a salary
reduction agreement between the Participant and a
Participating Company. A Participant may make such
lump sum contributions in any dollar amount or in any
percentage of Compensation that the Participant may
designate, provided that (1) all such contributions are
subject to the ERISA limitations set forth in Section
4.4 of the Plan; and (2) a lump sum Pre-Tax
Contribution cannot exceed the Participant's
Compensation for the period covered by the salary
reduction agreement.
3.9 Rollovers to This Plan. Notwithstanding the
limitations on contributions set forth in the preceding
Sections of this Article III, a Participant may make
rollover contributions (as defined in sections
402(c)(4), 403(a)(4) and 408(d)(3) of the Code) to the
extent the Committee in its discretion may permit and
in accordance with rules it shall establish. In
addition, the Committee in its sole discretion may
arrange for a Participant's account in any other tax-qualified
plan to be transferred directly to this Plan.
No rollover contribution or transfer shall be permitted
if it could adversely affect the tax qualification of
this Plan. All rollovers and transfers to this Plan
shall be credited to a Participant's Rollover Account.
3.10 Coordination with the Company's Supplemental Retirement
Savings Plan ("SRSP"). Notwithstanding the other
contribution provisions of this Article III, in order
to satisfy statutory contribution limits and
antidiscrimination tests while permitting Highly
Compensated Employees to maximize their contributions
to this Plan, the Committee may prescribe certain IRS-required
contribution rules that shall apply to all or
to a Committee-specified portion of Highly Compensated
Employees. Under such rules, the affected Highly
Compensated Employees will be required to make their
contribution elections to this Plan and to the
Supplemental Retirement Savings Plan prior to the
beginning of each calendar year. There shall be two
such elections and both shall be irrevocable. The
first shall be an election of the aggregate
contributions that the Highly Compensated Employee
wishes to make to both plans in the aggregate (maximum
of 20 percent of Compensation without regard to the
$150,000 salary cap). During the Plan Year all such
contributions shall be made to SRSP and none to this
Plan. All Company Matching Contributions related to
the Participant's contributions shall also be
contributed to SRSP.
The second election an affected Highly Compensated
Employee shall make prior to the beginning of the Plan
Year is whether the maximum amounts that can be
contributed to this Plan for the Plan Year will be
transferred from SRSP to this Plan or paid out to the
employee in cash. If contributions initially made to
SRSP will be transferred to this Plan, the amount to be
transferred shall be the lesser of the amounts actually
contributed to SRSP for the Plan Year or the maximum
amount permitted in accordance with all applicable
contribution limits and antidiscrimination rules.
As soon after the end of the Plan Year as is
administratively practicable, but no latter than the
January 31, following the close of the Plan Year, the
Committee shall determine the maximum contribution that
each affected Highly Compensated Employee can
contribute to the Plan. By the March 31 following the
end of the Plan Year the Committee shall cause this
amount to be either transferred to this Plan or paid in
cash in accordance with the Participant's second
election. If amounts are transferred to this Plan, all
related Participating Company matching contributions
shall also be transferred to the Plan by the March 31
date. All other contributions and all earnings on all
contributions shall remain in SRSP and be subject to
rules of that plan.
ARTICLE IV
Participating Company Contributions
4.l Company Contributions. Subject to the limitations of
Section 4.4, each Participating Company shall
contribute to the Plan as follows:
(a) Company Fixed Contributions. Each payroll period
a Participating Company shall contribute one-half
of one percent (0.5%) of the payroll period
Compensation for each of its employees who is a
Participant in the Plan.
(b) Company Matching Contributions. Each payroll
period a Participating Company shall contribute
100 percent of the amount contributed by each of
its Employees who is a Participant in the Plan up
to a maximum equal to the lesser of (1) 3 percent
of the Participants' Compensation during the
payroll period or (2) a dollar amount that shall
be determined each year in the sole discretion of
the Company taking into account such factors as it
deems appropriate. Any dollar limitation shall be
determined prior to the beginning of the Plan Year
and communicated to Participants. Notwithstanding
the foregoing, no Company Matching Contributions
will be made with respect to lump sum
contributions made under Section 3.8.
(c) Company Discretionary Contributions. Each Plan
Year a Participating Company may make a
discretionary contribution in addition to the
amounts it contributes under subsections (a) and
(b) above. Any such contribution shall be made in
such amount, if any, under such conditions as may
be specified in the sole discretion of the
Committee. Discretionary contributions shall be
allocated to Participant Accounts pro rata in the
proportion that each Participant's Compensation
for the Plan Year bears to the total Participant
Compensation of all Participants for the Plan
Year.
All Participating Company contributions will be
made in cash or in Company Common Stock.
4.2 Remittance of Company Contributions. Company Fixed and
Matching Contributions shall be remitted to the Trustee
on a regular and periodic basis as soon as
administratively practicable following the payroll
period to which they relate but in no event shall they
be made less frequently than quarterly. Company
Discretionary Contributions for a Plan Year shall be
remitted to the Trustee by a Participating Company no
later than the date the Participating Company's tax
return is due for the year within which ends the Plan
Year to which the contributions relate.
4.3 Effect of Suspension of Participant Contributions on
Company Contributions. During any period in which a
Participant's Basic Contributions are suspended,
Company Matching Contributions on his behalf will also
be suspended. Company Fixed Contributions and Company
Discretionary Contributions shall continue to be made
regardless of any suspension in Participant
contributions.
4.4 Maximum Contributions. Notwithstanding the
contribution levels specified in Article III and the
preceding Sections of this Article IV, no contributions
will be permitted in excess of the limits set forth
below:
1. Code Section 402(g) Limits. A Participant's Pre-Tax
Contributions to this Plan and any tax-deferred
contributions under any other 401(k) plan in which he
may participate shall not exceed $9,240 (adjusted for
cost of living increases for years after 1995 as
provided under the Code) in any taxable year of the
Participant. To meet this limit, no contribution to
this Plan in excess of $9,240 (as adjusted) shall be
accepted on behalf of any Participant during a calendar
year. If a Participant participates in more than one
plan, he shall notify the Committee of any excess
contribution in a calendar year by March 1 of the
following year. The Committee shall then cause the
portion of such excess allocated to this Plan to be
returned to the Participant by April 15 following the
calendar year to which the excess contribution relates.
2. Code Section 401(k) Limits. The Actual Deferral
Percentage, or ADP, for Participants who are Highly
Compensated Employees for each Plan Year and the ADP
for Participants who are Non-highly Compensated
Employees for the same Plan Year must satisfy one of
the following tests:
(a) The ADP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ADP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by 1.25; or
(b) The ADP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ADP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the ADP for
Participants who are Highly Compensated Employees
does not exceed the ADP for Participants who are
Non-highly Compensated Employees by more than two
percentage points.
The ADP for any Participant who is a Highly
Compensated Employee for the Plan Year and who is
eligible to have elective deferrals (and qualified
non-elective contributions, if treated as elective
deferrals for purposes of the ADP test) allocated to
his accounts under two or more arrangements described
in section 401(k) of the Code, that are maintained by
the Company, shall be determined as if such elective
deferrals (and, if applicable, such qualified
non-elective contributions) were made under a single
arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred
arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
For purposes of the ADP test, compensation means
compensation as defined in section 414(s) of the Code.
The period during which compensation is determined for
a Plan Year shall be either the Plan Year or the
calendar year ending with or within the Plan Year as
determined by the Committee. The period selected shall
be applied uniformly to all eligible employees.
In the event that this Plan satisfies the
requirements of sections 401(k), 401(a)(4), or 410(b)
of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the
requirements of such sections of the Code only if
aggregated with this Plan, then this Section shall be
applied by determining the ADP of employees as if all
such plans were a single plan. For Plan Years
beginning after December 31, 1989, plans may be
aggregated in order to satisfy section 401(k) of the
Code only if they have the same Plan Year.
For purposes of determining the ADP of a
Participant who is a five percent owner or one of the
ten most highly-paid Highly Compensated Employees, the
elective deferrals (and qualified non-elective
Contributions, if treated as elective deferrals for
purposes of the ADP test) and compensation of such
Participant shall include the elective deferrals (and,
if applicable, qualified non-elective contributions)
and compensation for the Plan Year of family members
(as defined in section 414(q)(6) of the Code). Family
members, with respect to such Highly Compensated
Employees, shall be disregarded as separate employees
in determining the ADP both for Participants who are
Non-highly Compensated Employees and for Participants
who are Highly Compensated Employees.
For purposes of determining the ADP test, elective
deferrals and qualified non-elective contributions must
be made before the last day of the twelve-month period
immediately following the Plan Year to which the
contributions relate.
The Company shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount
of qualified non-elective contributions used in such
test.
The determination and treatment of the ADP amounts
of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of
the Treasury.
3. Code Section 401(m) Limits. The Average
Contribution Percentage, or ACP, for
Participants who are Highly Compensated Employees
for each Plan Year and the ACP for Participants
who are Non-highly Compensated Employees for the same
Plan Year must satisfy one of the following tests:
(a) The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ACP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by 1.25; or
(b) The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ACP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by two, provided that the ACP for
Participants who are Highly Compensated Employees
does not exceed the ACP for Participants who are
Non-highly Compensated Employees by more than two
percentage points.
If one or more Highly Compensated Employees
participate in both a cash or deferred arrangement as
defined in section 401(k) of the Code and a plan
subject to the ACP test maintained by the Company and
the sum of the ADP and ACP of those Highly Compensated
Employees subject to either or both tests exceeds the
aggregate limit, then the ADP of those Highly
Compensated Employees who also participate in the plan
subject to the ACP test will be reduced (beginning with
the Highly Compensated Employee whose ADP is the
highest) so that the limit is not exceeded. The amount
by which each Highly Compensated Employee's Actual
Deferral Percentage is reduced shall be treated as an
excess contribution. If reduction of the ADPs of
Highly Compensated Employees fails to result in the
Plan's satisfying the aggregate limit, then the ACP of
those Highly Compensated Employees who also participate
in the cash or deferred arrangement will next be
reduced (beginning with the Highly Compensated Employee
whose ACP is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated
Employee's contribution percentage amounts is reduced
shall be treated as an excess aggregate contribution.
The ADP and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the
ADP and ACP tests. Multiple use does not occur if both
the ADP and ACP of the Highly Compensated Employees
does not exceed 1.25 multiplied by the ADP and ACP of
the Non-highly Compensated Employees.
For purposes of this Section, the contribution
percentage for any Participant who is a Highly
Compensated Employee and who is eligible to have
contribution percentage amounts allocated to his
account under two or more plans described in section
401(a) of the Code, or arrangements described in
section 401(k) of the Code that are maintained by the
Employer, shall be determined as if the total of such
contribution percentage amounts was made under each
plan. If a Highly Compensated Employee participates in
two or more cash or deferred arrangements that have
different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be
treated as a single arrangement.
In the event that this Plan satisfies the
requirements of sections 401(m), 401(a)(4) or 410(b) of
the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the
requirements of such sections of the Code only if
aggregated with this Plan, then this Section shall be
applied by determining the contribution percentages of
Employees as if all such plans were a single plan. For
Plan Years beginning after December 31, 1989, plans may
be aggregated in order to satisfy section 401(m) of the
Code only if they have the same Plan Year.
For purposes of determining the contribution
percentage of a Participant who is a five percent owner
or one of the ten most highly-paid Highly Compensated
Employees, the contribution percentage amount and
Compensation of such Participant shall include the
contribution percentage amounts and compensation for
the Plan Year of family members (as defined in section
414(g)(6) of the Code). Family members, with respect
to Highly Compensated Employees, shall be disregarded
as separate employees in determining the contribution
percentages both for Participants who are Non-highly
Compensated Employees and for Participants who are
Highly Compensated Employees.
For purposes of determining the contribution
percentage test, Company Matching Contributions and
qualified non-elective contributions will be considered
made for a Plan Year if made no later than the end of
the twelve-month period beginning on the day after the
close of the Plan Year.
The Company shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount
of qualified non-elective contributions used in such
test.
The Committee shall have the responsibility for
monitoring compliance with this test and shall have the
power to take any steps it deems appropriate to ensure
compliance, including requiring Highly Compensated
Employees to coordinate contributions with SRSP as
outlined in Section 3.10, limiting the amount of salary
reduction permitted by the Highly Compensated Employees
or requiring that the contributions for the Highly
Compensated Employees be delayed or held in escrow
before being paid over to the Trustee until such time
as the Committee determines that contributions can be
made on behalf of the Highly Compensated Employees
without violating the requirements of Code
section 401(k). Within two and one-half months
following the end of a Plan Year the Committee shall
distribute such contributions (and earnings
attributable thereto) as may be in excess of the
amounts required to satisfy the special
nondiscrimination test under this Section, or shall
make such additional contributions under Sections 3.4
and 3.5 as are necessary to satisfy the test.
The determination and treatment of the
contribution percentage of any Participant shall
satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
4. Distribution of Excess Contributions. Notwithstanding any
other provision of this Plan, excess contributions, plus
any income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to
participants to whose accounts such excess contributions were
allocated for the preceding Plan Year. If such excess amounts
are distributed more than 2 1/2 months after the last day of
the Plan Year in which such excess amounts arose, a ten percent
excise tax will be imposed on the Company with respect to
such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions
of the excess contributions attributable to each of such
Employees. Excess contributions of Participants who are
subject to the family member aggregation rules of section
414(q)(6) of the Code shall be allocated among the family
members in proportion to the elective deferrals (and amounts
treated as elective deferrals) of each family member that is
combined to determine the combined ADP.
Excess contributions shall be adjusted for any
income or loss up to the date of distribution. The
income or loss allocable to excess contributions is the
sum of: (1) income or loss allocable to the
Participant's elective deferral account (and, if
applicable, the qualified non-elective contribution
account) for the Plan Year multiplied by a fraction,
the numerator of which is such Participant's excess
contributions for the Year and the denominator of which
is the Participant's account balance attributable to
elective deferrals (and qualified non-elective
contributions, if any of such contributions are
included in the ADP test) without regard to any income
or loss occurring during such Plan Year; and (2) ten
percent of the amount determined under (1) multiplied
by the number of whole calendar months between the end
of the Plan Year and the date of distribution, counting
the month of distribution if distribution occurs after
the 15th of such month.
Excess contributions shall be distributed from the
Participant's elective deferral account (if applicable)
in proportion to the Participant's elective deferrals
(to the extent used in the ADP test) for the Plan Year.
excess contributions shall be distributed from the
Participant's qualified non-elective contribution
account only to the extent that such excess
contributions exceed the balance in the Participant's
elective deferral account.
5. Distribution of Excess Aggregate Contributions.
Notwithstanding any other provision of this Plan,
excess aggregate contributions, plus any income and
minus any loss allocable thereto, shall be forfeited,
if forfeitable, or if not forfeitable, distributed, no
later than the last day of each Plan Year to
Participants to whose accounts such excess aggregate
Contributions were allocated for the preceding Plan
Year. Excess aggregate contributions shall be
allocated to Participants who are subject to the family
member aggregation rules of section 414(q)(6) of the
Code in the manner prescribed by the regulations. If
such excess aggregate contributions are distributed
more than 2 1/2 months after the last day of the Plan
Year in which such excess amounts arose, a ten percent
excise tax will be imposed on the Company with respect
to those amounts. Excess aggregate contributions shall
be treated as annual additions under the Plan.
Excess aggregate contributions shall be adjusted
for any income or loss up to the date of distribution.
The income or loss allocable to excess aggregate
contributions is the sum of: (1) income or loss
allocable to the Participant's matching contribution
account (if any, and if all amounts therein are not
used in the ADP test) and, if applicable, qualified
non-elective contribution account and elective deferral
account for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's excess
aggregate contributions for the Year and the
denominator of which is the Participant's account
balance attributable to contribution percentage amounts
without regard to any income or loss occurring during
such Plan Year; and (2) ten percent of the amount
determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and
the date of distribution, counting the month of
distribution if distribution occurs after the 15th of
such month.
Forfeitures of excess aggregate contributions
shall be reallocated to the accounts of Non-highly
Compensated Employees.
Excess aggregate contributions shall be forfeited,
if forfeitable or distributed on a pro-rata basis from
the Participant's matching contribution account (and,
if applicable, the Participant's qualified non-elective
contribution account or elective deferral account, or
both).
6. Code Section 415 Limits. Pursuant to Code section
415, the total of the Employee and Participating
Company contributions on behalf of a Participant for
each Plan Year (his "annual additions") shall not
exceed the lesser of $30,000 (or such larger amounts as
reflect cost of living increases pursuant to
section 415 of the Code) or 25 percent of the
Participant's total compensation for such Plan Year.
For purposes of this Section, the term "annual
additions" means the total each Plan Year of a
Participating Company's contributions and the
Employee's contributions. Rollover contributions and
loan repayments are not annual additions for this
purpose. For purposes of applying these limitations,
the term "compensation" shall have the meaning ascribed
to it in regulations under Code section 415. In
general, these regulations define compensation to mean
an Employee's W-2 compensation from a Participating
Company but excluding income derived from the exercise
of stock options, from the disqualification of an
incentive stock option, from restricted stock or from
income imputed from the payment of life insurance
premiums.
In addition to the amounts calculated under this
Plan, annual additions shall include such amounts,
similarly calculated, that are contributed with respect
to the Participant to any other defined contribution
plan maintained by a Participating Company or by any
Affiliated Company and Participating Company
contributions to an individual medical account as
described in Code sections 415(1) and 419A(d)(2). In
determining whether a corporation is an Affiliated
Company for this purpose only, the percentage control
test set forth in section 1563(a) of the Code shall be
a 50 percent test in place of the 80 percent test each
place the 80 percent test appears in said Code section.
If Plan contributions exceed the limits of this
Section, first the Participant's contributions shall be
reduced, as necessary, to eliminate the excess, in the
following order of priority: Post-Tax Supplemental
Contributions; Post-Tax Basic Contributions; Pre-Tax
Supplemental Contributions; and Pre-Tax Basic
Contributions. Post-Tax and Pre-Tax Contributions by a
Participant which cause the excess, plus the earnings
attributable to such contributions may be returned to
the Participant in the event the excess is caused by a
reasonable error in estimating a Participant's annual
compensation or any other cause which is acceptable
under Treasury Regulation section 1.415-6(b)(6). Any
such excess shall be returned to the Participant by
March 1 following the end of the Plan Year to which the
excess relates. If an excess still exists, the
Participating Company's contribution shall be reduced
as necessary.
If a person participates at any time in both a
defined benefit plan and a defined contribution plan
maintained by a Participating Company or an Affiliated
Company, the sum of the defined benefit plan fraction
and the defined contribution plan fraction for any Plan
Year may not exceed l.0. For purposes of this Section,
the defined contribution plan fraction for any Plan
Year is a fraction the numerator of which is the
person's annual additions in such Plan Year and all
prior years of employment, as determined above, and the
denominator of which is the lesser of the following
amounts for such Year and for each prior Year:
(a) l.25 times the dollar limitation of Code section
4l5(c)(l)(A) for the pertinent Year or (b) l.4 times
the amount that could be taken into account under the
limitation of Code section 4l5(c)(l)(B) for the
Participant. The defined benefit plan fraction for any
Plan Year is a fraction the numerator of which is the
Participant's projected annual benefit under all plans
maintained by a Participating Company or an Affiliated
Company and the denominator of which is the lesser of
the following amounts for such Year: (a) l.25 times
the dollar limitation of Code section 4l5(b)(l)(A) for
such Year or (b) l.4 times the amount that could be
taken into account under the percentage limitation of
Code section 4l5(b)(l)(B) for the Participant for such
Year.
The Committee shall monitor the contributions and
benefits with respect to each Participant under all
plans maintained by a Participating Company and any
Affiliated Company. The Committee, in its sole
discretion, shall reduce any such contributions or
benefits to prevent the combined fractions from
exceeding 1.0.
ARTICLE V
Investment of Contributions
5.1 Investment Funds. The Trustee shall establish a
Company Stock fund and such other investment funds as
shall be designated from time to time by any Board-appointed
committee authorized to select investment
funds.
5.2 Investment of Company Contributions. All Participating
Company contributions and the earnings thereon shall be
invested initially in Company Stock. All amounts
required to be invested initially in Company Stock
shall remain in the Company Stock fund until the fifth
calendar year following the year of investment or, if
earlier, the Participant's termination of employment
from the Frontier Group (the "Restricted Period"). At
the earlier of (a) termination of employment or (b) the
expiration of the five year period, the Restricted
Stock, including the reinvested earnings on the initial
contributions, in a Participant's Account shall lose
its investment restriction and may, as of the next
following window period, be invested by the
Participant, pursuant to Section 5.5 and any rules
established thereunder by the Committee, in any other
fund option or left in the Company Stock fund. To
implement the reinvestment of assets no longer subject
to restriction, the Committee shall in its sole
discretion establish one or more window periods during
a Plan Year when Company Stock no longer subject to
restriction may be liquidated and the proceeds
reinvested in other funds.
5.3 Investment of Participant Contributions. Each
Participant will direct, at the time he elects to
become a Participant under the Plan, that his
Participant contributions be invested in one or more
available fund options in accordance with any rules the
Committee in its discretion may establish. In the
event no election is made, all contributions will be
invested in a fixed income fund option designated by
the Committee for this purpose.
5.4 Changing the Current Investment Election. A
Participant's investment election for his Participant
contributions will continue in effect until changed by
the Participant. A Participant may change his current
investment election as to his future Participant
contributions effective no later than the first payroll
period as is administratively practicable after the
date such election to change is received by the
Committee or its designee. Such changes may be made
only as frequently as the Committee in its sole
discretion may permit and in accordance with any rules
the Committee in its discretion may establish.
5.5 Changing the Investment of Accumulated Contributions.
A Participant may change his investment election as to
some or all of his entire Participant Account balance
except for the Restricted Stock. Such changes may be
elected only as frequently as the Committee in its sole
discretion may permit and in accordance with any rules
the Committee in its discretion may establish.
5.6 Voting Rights with Respect to Company Stock. Each
Participant shall have the right to vote all shares of
Company Stock held in the Participant's Account. Each
Participant shall also have the right to direct the
Trustee whether to tender such shares of Company Stock
in the event an offer is made by any person other than
the Company to purchase such shares. The Committee
shall make any such arrangements with the Trustee as
may be appropriate to pass such voting or tender offer
rights through to a Participant. In the event a
Participant fails to vote his shares or fails to
indicate his preference with respect to a tender offer,
the Trustee shall vote the Participant's shares or
tender his shares in the same proportions as those Plan
Participants who did respond, cast their votes or
tendered their shares.
ARTICLE VI
Participant Accounts
6.l Individual Accounts. The Committee shall create
and maintain (or direct to be created and maintained)
individual accounts as records for disclosing the
interest in the Trust of each Participant, former
Participant and Beneficiary. Such accounts shall
record credits and charges in the manner herein
described. When appropriate, a Participant shall have
five separate accounts, a Restricted Company
Contribution Account, an Unrestricted Company
Contribution Account, a Participant Pre-Tax
Contribution Account, a Participant Post-Tax
Contribution Account and a Rollover Account. The
maintenance of individual accounts is only for
accounting purposes, and a segregation of the assets of
the Trust to each account shall not be required.
6.2 Account Adjustments. Participant Accounts shall be
adjusted as follows:
(a) Earnings: The earnings (including losses as well
as gains) of the Trust shall be allocated to the
Participant Accounts of Participants who have
balances in their Accounts on each Valuation Date.
The allocation shall be made in the proportion
that the amounts in each Participant Account bear
to the total amounts in all of the Participant
Accounts similarly invested. In determining the
value of Plan assets, each valuation shall be
based on the fair market value of assets in the
Trust on the Valuation Date.
Notwithstanding the foregoing paragraph or any
other provision of the Plan, to the extent that
Participants' Accounts are invested in mutual
funds or other assets for which daily pricing is
available ("Daily Pricing Media"), all amounts
contributed to the Trust Fund will be invested at
the time of their actual receipt by the Daily
Pricing Media, and the balance of each Account
shall reflect the results of such daily pricing
from the time of actual receipt until the time of
distribution. Investment elections and changes
pursuant to Article V shall be effective upon
receipt by the Daily Pricing Media. References
elsewhere in the Plan to the investment of
contributions "as of" a date other than that
described in this Section 6.2(a) shall apply only
to the extent, if any, that assets of the Trust
Fund are not invested in Daily Pricing Media.
(b) Participating Company contributions: If Daily
Pricing Media is in effect as described in Section
6.2(a) Company Fixed, Matching and Discretionary
Contributions will be invested at the time of
actual receipt by the Daily Pricing Media. If
Daily Pricing Media is not in effect, as of the
end of each month the Company Fixed, Matching and
Discretionary Contributions on behalf of a
Participant during the month shall be allocated to
the Participant's Restricted Company Contribution
Account.
(c) Participant contributions: If Daily Pricing Media
is in effect as described in Section 6.2(a), a
Participant's contributions will be invested at
the time of actual receipt by the Daily Pricing
Media. If Daily Pricing Media is not in effect, a
Participant's contributions made during a month
shall be allocated to his Pre-Tax or Post-Tax
Contribution Account, as the case may be, as of
the end of each month.
(d) Distributions and withdrawals: Distributions and
withdrawals from a Participant's Account shall be
charged to the Account as of the date paid.
6.3 Statements to Participants. On a periodic basis, but
no less frequently than once during each Plan Year, the
Committee (or its designee) will provide each
Participant with a statement showing his interests in
the Plan's various investment funds. The statement may
show a Participant's interest in the Company Stock fund
in terms of the number of shares of Company Stock,
their dollar value, or both. As an alternative to
showing the dollar or stock value of each Account, the
Committee in its discretion may express each
Participant's interest in terms of units.
ARTICLE VII
Retirement or Other Termination of Employment
All Participant Accounts under this Plan, whether
derived from Participant or Participating Company contributions,
are 100 percent vested at all times. If a Participant's
employment with a Participating Company is terminated for any
reason, he shall be entitled to receive the entire balance of
such accounts in accordance with the provisions of Article IX.
ARTICLE VIII
Death
8.l Death While Actively Employed. If a Participant dies
while actively employed, the Participant's Beneficiary
will be entitled to receive l00 percent of the value of
his Participant Account. This amount shall consist of
the Account's value as of the distribution date.
8.2 Death After Retirement. If a Participant dies after
retirement, any benefit payable to the Participant's
Beneficiary will depend upon the method that has been
employed to distribute the value of his Participant
Account in accordance with Article IX.
8.3 Beneficiary. If a Participant is married, his
Beneficiary shall be his spouse who shall be entitled
to receive his remaining account balance, upon the
Participant's death. Upon the written election of the
Participant, with his spouse's written consent, a
Participant may designate another Beneficiary. This
election and spousal consent must either be notarized
or be witnessed by a Plan representative and returned
to the Committee. If such election has been made or if
the Participant is not married, the Participant will
designate the Beneficiary (along with alternate
Beneficiaries) to whom, in the event of his death, any
benefit is payable hereunder. Each Participant has the
right, subject to the spousal consent requirement noted
above, to change any designation of Beneficiary. A
designation or change of Beneficiary must be in writing
on forms supplied by the Committee and any change of
Beneficiary will not become effective until such change
of Beneficiary is filed with the Committee, whether or
not the Participant is alive at the time of such
filing; provided, however, that any such change will
not be effective with respect to any payments made by
the Trustee in accordance with the Participant's last
designation and prior to the time such change was
received by the Committee. The interest of any
Beneficiary who dies before the Participant will
terminate unless otherwise provided. If a Beneficiary
is not validly designated, or is not living or cannot
be found at the date of payment, any amount payable
pursuant to this Plan will be paid to the spouse of the
Participant if living at the time of payment, otherwise
in equal shares to such children of the Participant as
may be living at the time of payment; provided,
however, that if there is no surviving spouse or child
at the time of payment, such payment will be made to
the estate of the Participant.
ARTICLE IX
Payment of Benefits
9.1 Form of Payment. Except as may be restricted by
Sections 9.2 and 9.3, any Participant or, if the choice
is his, any Beneficiary who is entitled to receive
benefits under Articles VII or VIII may elect to
receive the amount in the Participant Account in
accordance with one of the following elections, all of
which shall be actuarial equivalents:
OPTION A: A lump sum.
OPTION B: Periodic payments of substantially
equal amounts for a specified number of years not
in excess of twenty. Such periodic payments shall
be made at least annually. In the event periodic
payments are elected, the Participant shall direct
how the remaining balance of his account is to be
invested.
OPTION C: For any amounts transferred to this
Plan from another plan containing payment options
in addition to Options A & B, any option available
under the other plan as set forth in Appendix B.
Payments under this Option C shall be available
only with respect to the transferred funds.
Amounts allocated to a Participant Account after
the transfer date shall be paid out only under
Option A or Option B.
9.2 Option C Requirements for Married Participants. If a
married Participant elects an annuity under Option C,
unless he makes a written election, as outlined below,
to the contrary his form of benefit shall be a
Qualified Joint and Survivor Annuity. If benefits
become payable on account of the death of a married
Participant to whom an annuity option is available
under Option C, the normal form of benefit shall be a
Qualified Pre-Retirement Survivor Annuity. These
benefits shall become automatically payable unless the
Participant or his spouse, as the case may be, makes a
written election within the Election Period to receive
one of the alternate forms of benefits specified in
Section 9.1 or Appendix B. An election by the
Participant must be consented to by his spouse in
writing. The spouse's consent shall acknowledge the
effect of the election and shall be either notarized or
witnessed by a Plan representative. Failure to obtain
the spouse's consent or the revocation of a previously
designated optional method of payment shall result in
payment of benefits in the form of a Qualified Joint
and Survivor Annuity or a Qualified Pre-Retirement
Survivor Annuity, as the case may be, unless another
election is made. To assist the Participant and his
spouse in making any election with respect to waiving
the Qualified Joint and Survivor Annuity, the Committee
shall provide the Participant, not less than 30 nor
more than 90 days before the annuity starting date a
retirement application form describing the normal and
optional forms of benefit payments, including their
relative financial effects in terms of dollars per
annuity payment on the Participant and his spouse.
This form shall provide a place for the Participant to
indicate his annuity starting date and the form of
benefit he desires. In the case of a Qualified
Pre-Retirement Survivor Annuity, a substantially
similar notice shall be provided to the Participant
during the period beginning on the first day of the
Plan Year in which the Participant attains age 32 and
ending on the last day of the Plan Year preceding the
Plan Year in which the Participant attains age 35.
9.3 Payments from Company Stock Fund. If a recipient
elects a lump sum payment under Option A of Section 9.l
or installment payments under Option B of Section 9.l,
payment from the Participant's Company Stock fund
account may be made either in cash or in Company Stock.
If a person elects, or pursuant to Section 9.2 is
required, to receive any annuity option under Section
9.2 or Option C, the amounts in his Company Stock fund
shall be liquidated and combined with his amounts in
all other investment funds to purchase an annuity
contract pursuant to which only cash benefits will be
paid.
9.4 Time of Payment. A Participant or Beneficiary who
becomes entitled to receive a benefit at any time when
the Participant Account is $3,500 or less will be
cashed out in a lump sum for the full amount of the
account balance as soon as administratively
practicable. If the account balance is in excess of
$3,500 it shall be paid prior to Normal Retirement Age
only with the written consent of the Participant and,
if married, with the consent of the Participant's
spouse in a writing which acknowledges the effect of
such consent and which is witnessed by a Plan
representative or is notarized. In the case of death,
the written consent of the Participant's Beneficiary
shall be required for amounts in excess of $3,500.
Benefit payments shall normally begin not later than
the April l following the calendar year during which
the event giving rise to the eligibility for payment
shall have occurred. In no event shall benefits begin
later than sixty days after the close of the Plan Year
in which the latest of the following occurs: (1) the
Participant's attainment of age 65; (2) the 10th
anniversary of the year in which the Participant
commenced participation in this Plan; (3) the
termination of the Participant's service with a
Participating Company; or (4) the date specified in
writing to the Committee by the Participant (but not
later than the year in which he attains age 70 1/2).
In no event, however, shall benefit payments commence
later than the April 1 following the calendar year in
which a Participant attains age 70 1/2 even if he
continues in employment with a Participating Company.
Notwithstanding any direction by the Participant to the
contrary, all payments must be payable pursuant to a
schedule whereby the entire amount in the Participant's
Account is paid over a period that does not extend
beyond the life of the Participant or over the joint
lives of the Participant and any individual he has
designated as his Beneficiary (or over the joint life
expectancies of the Participant and his designated
individual Beneficiary). In addition, unless the
benefit is payable as a Qualified Joint and Survivor
Annuity, the payment method selected must provide that
more than 50 percent of the present value of the
payments projected to be paid to the Participant and
his Beneficiary will be paid to the Participant during
his life expectancy.
In the event of the death of a Participant, former
Participant or Beneficiary while benefits are being
paid under a schedule which meets the requirements of
the preceding paragraph, payments shall continue
pursuant to a schedule which is at least as rapid as
the period selected. In the event of the death of a
Participant or former Participant before benefit
payments have commenced, any death benefit shall be
distributed within five years of death unless the
following conditions are met:
(i) payments are made to an individual Beneficiary
designated by the Participant;
(ii) payments are made for the life of such individual
Beneficiary or over a period not extending beyond
his life expectancy; and
(iii)payments commence within one year of death.
If the designated Beneficiary is the Participant's
spouse, payments will be paid within a reasonable
period of time after the Participant's death, but may
be delayed until the date the Participant would have
attained age 70 1/2, if the Beneficiary so elects. If
the spouse dies before payments begin, the rules of
this paragraph shall be applied as if the spouse were
the Participant. Notwithstanding the provisions of
this Section, the distribution requirements of Code
section 401(a)(9) and the regulations thereunder are
hereby incorporated by this reference and shall
supersede any conflicting Plan provisions.
9.5 Death of Participant Prior to Receiving Full
Distribution. Except as provided in Section 8.2, if a
Participant dies after having terminated employment and
prior to receiving a distribution of his Participant
Account, then the payments that would otherwise have
been made to the Participant will be made to his
Beneficiary.
9.6 QDROs. Benefits shall be payable under this Plan to an
alternate payee pursuant to the terms of any qualified
domestic relations order. The Committee has the
responsibility for determining if a domestic relations
order is qualified and whether its payment terms are
consistent with the terms of the Plan. If appropriate,
the amounts subject to a QDRO may be segregated from
the Participant's Account and placed in a separate
account for the benefit of the alternate payee who
shall thereupon be treated for Plan purposes as a
Participant. Any amounts payable to an alternate payee
may, at the alternate payee's request, be paid from the
Plan immediately pursuant to the terms of the QDRO and
this Plan.
9.7 Direct Rollovers from this Plan. Notwithstanding any
provision of the Plan to the contrary that would
otherwise limit a Participant's election under this
Section, a Participant may elect, at the time and in
the manner prescribed by the Committee, to have any
portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by
the Participant in a direct rollover. An eligible
rollover distribution is any distribution of all or any
portion of the balance to the credit of the Participant
except that an eligible rollover distribution does not
include any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and the
Participant's designated Beneficiary, or for a
specified period of ten years or more; any distribution
to the extent such distribution is required under
section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net
unrealized appreciation with respect to Company
securities).
An eligible retirement plan is an individual retirement
account described in section 408(a) of the Code, an
individual retirement annuity described in section
408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts
the Participant's eligible rollover distribution.
However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or
individual retirement annuity.
For these purposes, a Participant includes an Employee
or former Employee who has an account balance in the
Plan. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are Participants
with respect the interest of the spouse or former
spouse. A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the
Participant.
ARTICLE X
Withdrawals and Loans During Employment
10.1 Age 59 1/2 Withdrawals. A Participant who has reached age
59 1/2 but who has not yet terminated employment may
withdraw all or a portion of his accumulated account
balance under the Plan subject to the limitations
specified in Section 10.4.
10.2 Participant Post-Tax Contributions. A Participant may,
by filing a written request with the Committee, signed
by the Participant and the Participant's spouse, elect
to withdraw amounts in his Participant Post-Tax
Contribution Account as follows:
(a) Contributions. A withdrawal of up to l00 percent
of Participant Post-Tax Contributions or, if less,
l00 percent of the then value of such
contributions may be made from the Plan.
(b) Earnings. A withdrawal of up to l00 percent of
the earnings on Post-Tax Contributions may be made
by a Participant from the Plan.
10.3 Participant Pre-Tax Contributions. No earnings in a
Participant's Pre-Tax Contribution Account may be
withdrawn prior to age 59 1/2. A Participant may withdraw
his Pre-Tax Contributions from his Participant Pre-Tax
Contribution Account prior to age 59 1/2 only if the
withdrawal is made on account of an immediate and heavy
financial need of the Participant that cannot be
satisfied from other resources available to the
Participant. For purposes of this Section an immediate
and heavy financial need shall mean (1) expenses
incurred for medical care or necessary to obtain
medical care for a Participant, a Participant's spouse
or a Participant's dependent; (2) the purchase of a
Participant's principal residence; (3) tuition and
related educational fees for post-secondary education
but only for the next 12 months for a Participant, a
Participant's spouse or a Participant's dependent, or
remedial school tuition; (4) prevention of eviction or
mortgage foreclosure; (5) expenses arising from the
death of a spouse or dependent; (6) financial loss due
to a sudden catastrophe; (7) extraordinary legal
expenses; (8) adoption expenses; or (9) any other need
recognized by the IRS in documents of general
applicability. A Participant will be deemed to lack
other resources if all of the following conditions are
satisfied: (1) the Participant must have obtained all
distributions (except hardship) and all nontaxable
loans available from all plans of any Participating
Company; (2) the Participant may not make any
contributions to any plan of any Participating Company
for at least 12 months following the hardship
withdrawal and (3) the dollar limit on pre-tax
contributions ($9,240 as indexed for inflation after
1995) for the calendar year following the hardship
shall be reduced by the amount of the hardship
withdrawal. If the foregoing conditions are not
satisfied, the Committee may reasonably rely on
statements and representations made by the Participant
with respect to his lack of other financial resources.
The amount of the withdrawal cannot exceed the amount
required to relieve the financial need (including any
amounts necessary to pay federal, state or local income
taxes or penalties reasonably anticipated to result
from the distribution).
l0.4 Limitations on In-Service Withdrawals.
(a) No more than two in-service withdrawals are
permitted in any one Plan Year.
(b) No withdrawal will be permitted under this Article
unless the amount to be withdrawn is at least $500
or l00% of the aggregate value of the
Participant's relevant account from which
withdrawals are being requested if such value is
less than $500.
(c) Unless otherwise specified by the Participant, any
withdrawal of Participant contributions from his
Participant Post-Tax Contribution Account will be
satisfied first by a withdrawal of his pre-1987
contributions, if any, and then by a withdrawal of
his post-1986 contributions and/or earnings on
contributions.
(d) The withdrawal of any amounts from the Company
Stock fund by a Participant who is an "officer,"
"director" or the "beneficial owner of more than
10 percent of any class of equity security" of the
Company within the meaning of these terms under
section 16 of the Securities Exchange Act of 1934
shall result in such Participant's automatic
suspension from making Plan contributions into the
Company Stock fund for a period of six months from
the date of the withdrawal.
(e) Any withdrawal from a Participant's Post-Tax
Contribution Account will result in an automatic
suspension of the Participant's right to make
future Plan contributions for a period of six
months from the date of the withdrawal. During
the period of suspension, Company Matching
Contributions will also be suspended. Finally,
after the Participant resumes making contributions
to the Plan, no make-up contributions will be
permitted for the period of the suspension.
10.5 Fund to be Charged with Withdrawal. A Participant may
specify the investment fund or combination of funds to
which a withdrawal is to be charged. If the
Participant fails to make any designation, a
distribution will be made out of the Participant's
interest in each of the funds in proportion to the
Participant's share in these funds.
10.6 Loans to Participants. The Trustee shall, if the
Committee directs, make a loan to a Participant from
any or all of the Participant's accounts subject to
such rules as the Committee may prescribe and subject
to the following conditions:
(a) An application for a loan by a Participant shall
be made in writing to the Committee;
(b) Loans will be granted only to active Participants;
(c) A loan must be for a minimum of $500, only two
loans (only one for the purchase of a principal
residence) may be outstanding at any one time, and
no loan refinancings will be permitted;
(d) No loan shall be made to the extent that such loan
when added to all other loans to the Participant
would exceed the lesser of (1) 50 percent of the
amounts in all of the Participant's accounts under
the Plan or (2) $50,000 reduced by the excess, if
any, of the highest outstanding balance of loans
during the one year period ending on the day
before the loan is made over the outstanding
balance of loans to the Participant on the date
the loan is made. In determining whether the
foregoing loan limits are satisfied all loans from
all plans of a Participating Company and of any
Affiliated Company shall be aggregated.
(e) The period of repayment for any loan shall be
arrived at by mutual agreement between the
Committee and the borrower, but such period in no
event shall exceed five years except that a loan
may be granted for a period not to exceed 25 years
if the proceeds are used to purchase the
Participant's principal residence;
(f) All loans must be repaid under a substantially
level amortization period with payments being made
at least quarterly;
(g) Each loan shall be made against collateral being
the assignment of 50 percent of the borrower's
entire right, title and interest in and to the
Trust Fund, supported by the borrower's collateral
promissory note for the amount of the loan,
including interest, payable to the order of the
Trustee and/or such other collateral as the
Committee may require;
(h) Each loan shall bear interest at a rate fixed by
the Committee. The rate shall be commensurate
with the rates charged by persons in the business
of lending money for loans which would be made
under similar circumstances. Interest rates
granted at different times and to Participants in
differing circumstances may vary depending on such
differences;
(i) A loan shall be treated as a directed investment
by the borrower with respect to his accounts. The
interest paid on the loan shall be credited to the
borrower's accounts and he shall not share in the
earnings of the Plan's assets with respect to the
amounts borrowed and not yet repaid;
(j) A loan to a married Participant requires the
written, notarized consent of the Participant's
spouse;
(k) No distribution shall be made to any Participant,
former Participant or Beneficiary unless and until
all unpaid loans, including accrued interest
thereon, have been liquidated or offset against
the account; and
(l) A loan from the Company Stock fund account of a
Participant who is an "officer," "director" or the
"beneficial owner of more than 10 percent of any
class of equity security" of the Company within
the meaning of these terms under section 16 of the
Securities Exchange Act of 1934 shall result in
such Participant's automatic suspension from
making Plan contributions into the Company Stock
fund for a period of six months from the date of
the loan. In addition, no repayment of any such
loan shall be credited to a Participant's Company
Stock fund.
ARTICLE XI
Plan Administration
11.1 Appointment of Committee. The Board shall appoint an
Employees' Benefit Committee to administer the Plan.
Any person, including an officer or other employee of a
Participating Company, is eligible for appointment as a
member of the Committee. Such members shall serve at
the pleasure of the Board. Any member may resign by
delivering his written resignation to the Board.
Vacancies in the Committee shall be filled by the
Board.
11.2 Named Fiduciary and Plan Administrator. The Committee
shall be the Named Fiduciary and Plan Administrator as
these terms are used in ERISA. The Committee shall
appoint a Secretary who shall also be the agent for the
service of legal process.
11.3 Powers and Duties of Committee. The Committee shall
administer the Plan in accordance with its terms and
shall have all powers necessary to carry out the
provisions of the Plan, except such powers as are
specifically reserved to the Board or some other
person. The Committee's powers include the power to
make and publish such rules and regulations as it may
deem necessary to carry out the provisions of the Plan.
The Committee shall interpret the Plan and shall
determine all questions arising in the administration,
interpretation, and application of the Plan.
The Committee shall notify the Trustee of the liquidity
and other requirements of the Plan from time to time.
11.4 Operation of Committee. The Committee shall act by a
majority of its members at the time in office, and such
action may be taken either by a vote at a meeting or
without a meeting. Any action taken without a meeting
shall be reflected in a written instrument signed by a
majority of the members of the Committee. A member of
the Committee who is also a Participant shall not vote
on any question relating specifically to himself. Any
such question shall be decided by the majority of the
remaining members of the Committee. The Committee may
authorize any one or more of its members to execute any
document on behalf of the Committee, in which event the
Committee shall notify the Trustee in writing of such
action and the name or names of its member or members
so designated. The Trustee thereafter shall accept and
rely upon any document executed by such member or
members as representing action by the Committee until
the Committee shall file with the Trustee a written
revocation of such designation. The Committee may
adopt such by-laws or regulations as it deems desirable
for the conduct of its affairs.
The Committee shall keep a record of all its
proceedings and acts and shall keep all such books of
account, records, and other data as may be necessary
for the proper administration of the Plan.
11.5 Power to Appoint Advisers. The Committee may appoint
such actuaries, accountants, attorneys, consultants,
other specialists and such other persons as it deems
necessary or desirable in connection with the
administration of this Plan. Such persons may, but
need not, be performing services for a Participating
Company. The Committee shall be entitled to rely upon
any opinions or reports which shall be furnished to it
by any such actuary, accountant, attorney, consultant
or other specialist.
11.6 Expenses of Plan Administration. The members of the
Committee shall serve without compensation for their
services as such, but their reasonable expenses shall
be paid by the Company. To the extent not paid from
Fund assets, as determined from time to time by any
Board-appointed committee, all reasonable expenses of
administering the Plan shall be paid by the Company,
including, but not limited to, fees of the Trustee,
accountants, attorneys, consultants, and other
specialists.
11.7 Duties of Fiduciaries. All fiduciaries under the Plan
and Trust shall act solely in the interests of the
Participants and their Beneficiaries and in accordance
with the terms and provisions of the Plan and Trust
Agreement insofar as such documents are consistent with
ERISA, and with the care, skill, prudence, and
diligence under the circumstances then prevailing that
a prudent person acting in a like capacity and familiar
with such matters would use in the conduct of an
enterprise of like character and with like aims. Any
person may serve in more than one fiduciary capacity
with respect to the Plan and Trust.
11.8 Liability of Members. No member of the Committee shall
incur any liability for any action or failure to act,
excepting only liability for his own breach of
fiduciary duty. To the extent not covered by
insurance, the Company shall indemnify each member of
the Committee and any Board-appointed committee and any
employee acting on their behalf against any and all
claims, loss, damages, expense and liability arising
from any action or failure to act.
11.9 Allocation of Responsibility. The Board, Trustee,
Investment Manager and the committees established to
administer the Plan possess certain specified powers,
duties, responsibilities and obligations under the Plan
and Trust. It is intended under this Plan that each be
solely responsible for the proper exercise of its own
functions and that each shall not be responsible for
any act or failure to act of another, unless otherwise
responsible as a breach of its own fiduciary duty.
a. Generally, the Board shall be responsible for
appointing the members of the committees it
may establish to administer this Plan. If
this Plan shall at any time permit employees
to invest any portion of Plan assets in
Company securities, the Board shall have sole
authority to terminate this Plan and to make
any discretionary amendments, while any
Board-appointed committee given such
authority shall have authority for making
non-discretionary amendments and for
recommending to the Board any other Plan
amendments it deems appropriate.
b. The Board-appointed committees so authorized
shall have the responsibilities of making
Plan amendments not specifically reserved to
the Board in the preceding subsection,
including sole discretion to amend the Plan
if employees are not authorized to invest
Plan assets in Company securities, to select
Investment Managers, to direct the Trustee
and the Investment Managers with respect to
all matters relating to the investment of
Plan assets, to review and report to the
Board on the investment policy and
performance of Plan assets and generally to
administer the Plan according to its terms.
c. The Trustee or the Investment Manager, as the
case may be, is responsible for the
management and control of the Plan's assets
as specifically provided in the Trust
Agreement or investment manager agreement.
d. The Board may dissolve any committee it
appoints or reserve to itself any of its
powers previously delegated to a
Board-appointed committee. In addition, the
Board may reorganize the committees it
establishes from time to time and reallocate
their responsibilities among them or assign
them to other persons or committees provided
that the Employees' Benefit Committee shall
at all times continue as plan administrator
and named fiduciary as these terms are
defined in ERISA unless the Board formally
amends the Plan to reallocate these
responsibilities. The Board and the various
committees may designate persons, including
committees, other than named fiduciaries to
carry out their responsibilities (other than
trustee responsibilities) under the Plan.
11.10 Claims Review Procedure. The Committee shall maintain
a procedure under which any Participant or Beneficiary
may assert a claim for benefits under the Plan. Any
such claim shall be submitted in writing to the
Committee within such reasonable period as the rules of
the Committee may provide. The Committee shall take
action on the claim within 60 days following its
receipt and if it is denied shall at such time give the
claimant written notice which clearly sets forth the
specific reason or reasons for such denial, the
specific Plan provision or provisions on which the
denial is based, any additional information necessary
for the claimant to perfect the claim, if possible, an
explanation of why such additional information is
needed, and an explanation of the Plan's claims review
procedure. The review procedure shall allow a claimant
at least 60 days after receipt of the written notice of
denial to request a review of such denied claim, and
the Committee shall make its decision based on such
review within 60 days (l20 days if special
circumstances require more time) of its receipt of the
request for review. The decision on review shall be in
writing and shall clearly describe the reasons for the
Committee's decision.
ARTICLE XII
Amendment and Termination
12.1 Right to Amend or Terminate. Any amendment may be made
to this Plan which does not cause any part of the
Plan's assets to be used for, or diverted to, any
purpose other than the exclusive benefit of
Participants, former Participants, or Beneficiaries,
provided however, that any amendment may be made, with
or without retroactive effect, if such amendment is
necessary or desirable to comply with applicable law.
Except in the case where approved by the Secretary of
Labor because of substantial business hardship, as
provided in section 412(c)(8) of the Code, no amendment
shall be made to the Plan if it would decrease the
accrued benefit of any Participant, eliminate or reduce
an early retirement benefit or eliminate an optional
form of benefit as may be provided in regulations under
Code section 411(d)(6). If any provisions of this Plan
relating to the percentage of a Participant's accrued
benefit that is vested are changed, any Participant
with at least three years of service may elect, by
filing a written request with the Committee within
60 days after the later of (1) the date the amendment
was adopted, (2) the date the amendment was effective,
or (3) the date the Participant received written notice
of such amendment, to have his vested interest computed
under the provisions of this Plan as in effect
immediately prior to such amendment.
12.2 Full Vesting Upon Termination of Plan. Upon full or
partial termination of the Plan or upon complete
discontinuance of Participating Company contributions,
each affected Participant will remain l00 percent
vested in the value of his Participant Account as of
the Valuation Date next following such termination or
discontinuance.
ARTICLE XIII
Top-Heavy Provisions
13.1 Rules to Apply if Plan is Top-Heavy. Notwithstanding
any other relevant provision of this Plan to the
contrary, the following rules will apply for any Plan
Year that the Plan becomes "top-heavy" (as defined in
Section 13.2):
(a) Vesting. Vesting will remain 100 percent at all
times.
(b) Minimum Contributions. For each top-heavy Plan
Year the minimum contribution allocated to the
Participant Account of each non-key employee shall
be equal to or greater than the lesser of the
following amounts:
(i) 3 percent of such non-key employee's
compensation; or
(ii) the highest percentage-of-compensation
allocation made to the Participant Account of
any key employee.
If the highest rate allocated to a key employee is
less than 3% of compensation, amounts contributed
as a result of a salary reduction agreement shall
be included in determining the rate of
contribution on behalf of key employees. For
purposes of this subsection, "compensation" shall
have the same meaning as in Section 4.4. Minimum
contributions will be made to Participant's
Account without regard to his level of
compensation or his hours of service during a Plan
Year.
(c) Limitation on Benefits. In applying the dollar
limitations under section 415(e) of the Code, the
1.25 limitation shall be supplanted by a 1.0
limitation for each year during which the Plan is
top-heavy.
(d) Maximum Compensation. The maximum annual
compensation of each employee that may be taken
into account under the Plan shall not exceed
$150,000 (or such larger amount based on cost of
living adjustments as may be permitted under the
Code).
13.2 Top-Heavy Definition. For purposes of this Section,
the Plan will be considered "top-heavy" if on any given
determination date (the last day of the preceding Plan
Year or, in the case of the Plan's first year, the last
day of such Year) the sum of the account balances for
key employees is more than 60 percent of the sum of the
account balances of all employees, excluding former key
employees. The account balances shall include
distributions made during any given Plan Year
containing the determination date and the preceding
four Plan Years but shall not include the account
balances for any person who has not received any
compensation from any Participating Company at any time
during the five-year period ending on the determination
date. The method of determining the top-heavy ratio
shall be made in accordance with Code section 4l6.
In making the top-heavy calculation, (a) all the
Company's plans in which a key employee participates
shall be aggregated with all other Participating
Company plans which enable a plan in which a key
employee participates to satisfy the Code's
non-discrimination requirements; and (b) all
Participating Company plans not included in
subparagraph (a), above, may be aggregated with the
Participating Company's plans included in subparagraph
(a), above, if all of the aggregated plans would be
comparable and satisfy the Code's non-discrimination
requirements.
13.3 Key Employee Definition. A key employee will be, for
the purpose of this Article, any employee or former
employee who at any time during the Plan Year
containing the determination date or the four preceding
Plan Years is such within the meaning of Code
section 416. As of the effective date, the term key
employee includes the following individuals:
(i) an officer (but not more than 50 persons or, if
lesser, the greater of 3 or 10 percent of
employees) having an annual compensation greater
than 50 percent of the dollar limit for benefits
payable from a defined benefit plan under Code
section 415(b)(1)(A);
(ii) one of 10 employees who has annual compensation
from the Participating Company of more than the
amount in effect under Code section 415(c)(1)(A)
owning the largest interests of the Participating
Company. The employee having the greater annual
compensation from the Participating Company shall
be considered to own the larger interest in the
Participating Company if two or more employees had
the same ownership interest in the Participating
Company;
(iii) a five-percent owner of the Participating Company;
and
(iv) a one-percent owner of the Participating Company
whose annual compensation from the Participating
Company exceeds $l50,000.
13.4 Relationship of the Normal and the Top-Heavy Vesting
Schedules. If the Plan's top-heavy status changes and
this change alters the Plan's normal vesting schedule,
no Participant's vested accrued benefit immediately
prior to such change in status shall be diminished on
account of the change in the vesting schedule. In
addition, the vesting for each Participant in the Plan
at the time of the change in status shall be determined
under whichever schedule provides the greatest vested
benefit at any particular point in time.
13.5 Participation in Other Plans. A non-key employee who
participates in both a defined contribution plan and a
defined benefit plan of the Participating Company shall
not be entitled to receive minimum benefits and/or
minimum contributions under all such plans. Instead,
the employee shall receive a minimum benefit equal to
the lesser of 20 percent of such non-key employee's
average compensation or 2 percent of his average
compensation multiplied by his number of Years of
Service, as set forth in such defined benefit plan.
ARTICLE XIV
General Provisions
14.1 Employment Relationship. Nothing contained herein will
be deemed to give any Employee the right to be retained
in the service of a Participating Company or to
interfere with the rights of a Participating Company to
discharge any Employee at any time.
14.2 Non-Alienation of Benefits. Except as provided in
Section 10.6, benefits payable under this Plan shall
not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of
any kind, either voluntary or involuntary, including
any such liability which arises from the Participant's
bankruptcy, prior to actually being received by the
person entitled to the benefit under the terms of the
Plan; and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise
dispose of any right to benefits payable hereunder,
shall be void. The Trust shall not in any manner be
liable for, or subject to the debts, contracts,
liabilities, engagements or torts of any person
entitled to benefits hereunder. Nothing in this
Section shall preclude payment of Plan benefits
pursuant to a qualified domestic relations order
pursuant to Section 9.6.
14.3 Use of Masculine and Feminine; Singular and Plural.
Wherever used in this Plan, the masculine gender will
include the feminine gender and the singular will
include the plural, unless the context indicates
otherwise.
14.4 Plan for Exclusive Benefit of Employees. No part of
the corpus or income of the Trust will be used for, or
diverted to, purposes other than the exclusive benefit
of Participants and their Beneficiaries. Anything in
the foregoing to the contrary notwithstanding, the Plan
and Trust are established on the express condition that
they will be considered, by the Internal Revenue
Service, as initially qualifying under the provisions
of the Internal Revenue Code. In the event that the
Internal Revenue Service issues an unfavorable
determination with respect to a timely request for a
determination that the amended and restated Plan and
Trust qualify under the Internal Revenue Code, the Plan
and Trust will be of no effect and the value of all
contributions made by a Participating Company and
Participants since the amendment and restatement will
be returned to the Participating Company and
Participants, respectively, within one year from the
date of the denial of the determination request.
Furthermore, if, or to the extent that, a Participating
Company's tax deduction for contributions made to the
Plan is disallowed, the Participating Company will have
the right to obtain the return of any such
contributions (to the extent disallowed) for a period
of one year from the date of disallowance. All
Participating Company contributions to this Plan are
contingent upon their deductibility under the Code.
Finally, if a Participating Company's contribution to
the Plan is made by a mistake in fact, the
Participating Company will have the right to obtain the
return of such contribution for a period of one year
from the date the contribution was made.
14.5 Merger or Consolidation of Plan. There will be no
merger or consolidation with, or transfer of any assets
or liabilities to, any other plan, unless each
Participant will be entitled to receive a benefit
immediately after such merger, consolidation, or
transfer as if this Plan were then terminated which is
at least equal to the benefit he would have been
entitled to receive immediately before such merger,
consolidation, or transfer as if this Plan had been
terminated.
14.6 Payments to Minors and Incompetents. If a Participant
or Beneficiary entitled to receive any benefits
hereunder is a minor or is deemed by the Committee, or
is adjudged to be, legally incapable of giving valid
receipt and discharge for such benefits, they will be
paid to such persons as the Committee might designate
or to the duly appointed guardian.
14.7 Governing Law. To the extent that New York law has not
been preempted by ERISA, the provisions of the Plan
will be construed in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this Plan document on its behalf
this 18th day of September, 1995.
FRONTIER CORPORATION
/s/Josephine S. Trubek
By: -----------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
<PAGE>
APPENDIX A
Participating Companies
Effective Date of
Participation (for
Name of Company post-1994 adoptions)
Frontier Communications of Alabama 10/1/94
Frontier Communications of AuSable Valley, Inc. 3/1/94
Frontier Communications of Breezewood, Inc. 3/1/94
Frontier Communications of Canton, Inc. 3/1/94
Frontier Communications of DePue, Inc. 1/1/95
Frontier Communications of Fairmount, Inc. 3/1/94
Frontier Communications of Georgia, Inc. 1/1/96
Frontier Communications of Illinois, Inc. 3/1/94
Frontier Communications of Indiana, Inc. 3/1/94
Frontier Communications International Inc. 3/1/94
Frontier Communications of Iowa, Inc. 3/1/94
Frontier Communications - Lakeshore, Inc. 3/1/94
Frontier Communications of Lakeside, Inc. 1/1/95
Frontier Communications of Lakewood, Inc. 3/1/94
Frontier Communications of Lamar County, Inc. 3/1/94
Frontier Communications of the Mid Atlantic, Inc. 3/1/94
Frontier Communications of Michigan, Inc. 7/1/95
Frontier Communications - Midland, Inc. 1/1/95
Frontier Communications of Minnesota, Inc. 3/1/94
Frontier Communications of Mississippi, Inc. 3/1/94
Frontier Communications of Mondovi, Inc. 1/1/96
Frontier Communications of Mt. Pulaski, Inc. 1/1/95
Frontier Communications of New England, Inc. 3/1/94
Frontier Communications of New York, Inc. 3/1/94
Frontier Communications of Orion, Inc. 1/1/95
Frontier Communications of Oswayo River, Inc. 3/1/94
Frontier Communications of Pennsylvania, Inc. 3/1/94
Frontier Communications - Prairie, Inc. 1/1/95
Frontier Communications of Rochester, Inc. 1/1/95
Frontier Communications of Schuyler 1/1/96
Frontier Communications of Seneca-Gorham, Inc. 3/1/94
Frontier Communications of the South, Inc. 1/1/95
Frontier Communications - St. Croix, Inc. 3/1/94
Frontier Communications of Sylvan Lake, Inc. 3/1/94
Frontier Communications of Thorntown, Inc. 3/1/94
Frontier Communications of Viroqua, Inc. 3/1/94
Frontier Communications of Wisconsin, Inc. 3/1/94
Frontier Corporation 3/1/94
Frontier Information Technologies Inc. 3/1/94
Frontier Network Systems Inc. 3/1/94
Rochester Telephone Corp. 1/1/95
Frontier Communications of the
Great Lakes, Inc. (Schneider) 10/1/95
Allnet Communication Services, Inc. 1/1/96
Enhanced Telemanagement, Inc. 1/1/96
Frontier Communications - N. Central Region, Inc. (ASI) 8/1/95
ConferTech International, Inc. 1/1/96
Frontier Communications of the West, Inc. (WCT) 1/1/96
<PAGE>
<PAGE>
APPENDIX B
Plan Features Unique to Participating Companies
Class of Eligible Payment
Employees Option C
Name of Company (Sec. 2.1) (Sec. 9.1)
- ---------------- -------- ---------
Fron. Alabama All Employees None
Fron. AuSable Management See Fn 1
Fron. Breezewood Management See Fn 1
Fron. Breezewood Nonmanagement Straight
Life Annuity
Fron. Canton Management See Fn 1
Fron. Canton Nonmanagement Straight
Life Annuity/2
Fron. Corp. All Employees See Fn 1
Fron. DePue All Employees See Fn 3
Fron. Fairmount All Employees Straight
Life Annuity/4
Fron. Georgia All Employees None
Fron. Illinois Management See Fn 4
Fron. Indiana Management See Fn 1
Fron. Indiana Nonmanagement Straight
Life Annuity/4
Fron. Info. Tech. All Employees See Fn 1
Fron. International Management See Fn 1
Fron. International Nonmanagement None
Fron. Iowa Management None
Fron. Lakeshore All Employees Straight
Life Annuity/4
Fron. Lakeside Management See Fn 4
Fron. Lakewood Management See Fn 1
Fron. Lakewood Nonmanagement Straight
Life Annuity/4
Fron. Lamar All Employees Straight
Life Annuity/4
Fron. Michigan Management None
Fron. Mid Atlantic All Employees None
Fron. Midland Management See Fn 4
Fron. Minnesota Management None
Fron. Mississippi All Employees Straight
Life Annuity/4
Fron. Mondovi All Employees None
Fron. Mt. Pulaski Management See Fn 4
Fron. New England All Employees None
Fron. Network Sys. Management See Fn 1
Fron. Network Sys. Nonmanagement None
Fron. New York Management See Fn 1
Fron. Orion Management See Fn 3
Fron. Oswayo Management See Fn 1
Fron. Oswayo Nonmanagement Straight
Life Annuity/4
Fron. Pennsylvania Management See Fn 1
Fron. Pennsylvania Nonmanagement Straight
Life Annuity/4
Fron. Prairie Management See Fn 4
Fron. Comm.
of Rochester Management See Fn 1
Fron. Schuyler All Employee None
Fron. Seneca-Gorham Management See Fn 1
Fron. Seneca-Gorham Nonmanagement Straight
Life Annuity/4
Fron. of the South All Employees See Fn 5
Fron. St. Croix All Employees Straight
Life Annuity/3
Fron. Sylvan Lake Management See Fn 1
Fron. Thorntown Management See Fn 1
Fron. Thorntown Nonmanagement None
Fron. Viroqua All Employees Straight
Life Annuity/3
Fron. Wisconsin All Employees Straight
Life
Annuity/3
Rochester Corp. Management See Fn 1
FC-Great Lakes All Employees None
Allnet Communication
Services All Employees None
ETI All Employees See Fn 6
FC-N. Central Region All Employees See Fn 7
ConferTech All Employees See Fn 8
Fron. West All Employees None
1/ The following additional payment options are available to a
Participant under Option C:
- A straight life annuity.
- A reduced retirement income payable monthly during his
life with the provision that in the event of his death
prior to receiving one hundred twenty (l20) monthly
installments, the remainder thereof shall be paid to his
beneficiary.
- A reduced retirement income, payable during his life, with
the provision that after his death such reduced income
shall be continued during the life of, and shall be paid
to, a contingent annuitant.
- A reduced retirement income, payable during his life, with
the provision that after his death an income at 3/4 the
rate of his reduced income shall be continued during the
life of, and shall be paid to, a contingent annuitant.
- A reduced retirement income payable during his life with
the provision that after his death an income at l/2 the
rate of his reduced income shall be continued during the
life of, and shall be paid to, a contingent annuitant.
2/ A straight life annuity on the life of the Participant is the only
Option C benefit available.
3/ The following additional options apply to account balances as of
December 31, 1994:
- Installments over any period up to the joint life
expectancies of the Participant and any designated
beneficiary.
- A straight life annuity.
- A qualified joint and 50% survivor annuity for married
Participants with the Participant's spouse as the
contingent annuitant.
- A joint and survivor annuity with any designated
beneficiary.
4/ The following additional options apply to account balances as of
December 31, 1994:
- Installments over any period up to the joint life
expectancies of the Participant and any designated
beneficiary.
- A straight life annuity for unmarried Participants.
- A qualified joint and 50% survivor annuity for married
Participants with the Participant's spouse as the
contingent annuitant.
5/ The following additional options apply to account balances as of
December 31, 1988:
- A straight life annuity.
- A reduced retirement income payable monthly during the
life of the Participant with the provision that in the
event of his death prior to receiving one hundred twenty
(l20) monthly installments, the remainder thereof shall be
paid to his beneficiary.
- A reduced retirement income, payable during the life of
the Participant, with the provision that after his death
such reduced income shall be continued during the life of,
and shall be paid to, a contingent annuitant.
- Any combination of a lump sum amount or any of the options
listed in the foregoing bullets.
6/ The following additional options apply to account balances as of
December 31, 1995:
- Installment payments over any period up to the joint life
expectancies of the Participant and any designated
beneficiary.
7/ The following additional options apply to account balances as of
July 31, 1995:
- Installments over any period up to the joint life
expectancies of the Participant and any designated
beneficiary.
- A straight life annuity.
- A qualified joint and 50% survivor annuity for married
Participants with the Participant's spouse as the
contingent annuitant.
- A joint and survivor annuity with any designated
beneficiary.
8/ The following additional options apply to account balances as of
December 31, 1995:
- Installments over any period to your life expectancy.
- A straight life annuity.
- A straight life annuity with a term certain guarantee.
- A joint and 100%, 75%, 66 2/3% or 50% survivor annuity.
Exhibit 10-41
FRONTIER CORPORATION
SUPPLEMENTAL MANAGEMENT PENSION PLAN
Amendment No. 8 to September 1, 1989 Restatement
Pursuant to Article Six, the Plan is amended, effective
January 1, 1995, by adding the following new Article Four A
immediately following current Article Four:
ARTICLE FOUR A
Other Benefits
The Committee on Management may approve, individually or on
a group basis, benefits that are in addition to the benefits
provided in Article Four, including benefits to an employee of
the Company or of an affiliated company even though such employee
is not otherwise eligible to receive benefits under Article Four.
In all such instances, however, the employee must be within a
"select group of management or highly-compensated employees" as
this phrase is used in Title I of ERISA. In the event such other
benefits are provided, the following information with respect to
such benefits shall be listed on Schedule A attached hereto:
- the name of the employee or the class of employees to
whom such other benefits will be paid
- the amount of such benefits or the formula by which the
benefit amounts may be determined and their frequency
(e.g., benefits that are payable each month, year or
other payment period)
- the form of benefit (e.g., a life annuity, a joint and
survivor annuity, or installment payments)
- the date or the employee's age when benefits commence
- any ancillary benefits that may be payable, e.g.,
death, disability or early retirement benefits)
- any other terms and conditions that reflect the
obligation to pay benefits as approved by the Committee
on Management.
The provisions of this Plan, other than Articles Three and
Four, shall apply to the benefits payable under this Article Four
A unless the context suggests otherwise or the Committee on
Management, in its sole discretion, provides otherwise.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
18th day of September, 1995.
FRONTIER CORPORATION
/s/ Josephine S. Trubek
By --------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
<TABLE>
Exhibit 11
Frontier Corporation
Computation of Earnings per Share of Common Stock
on a Fully Diluted Basis (Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30,
(In thousands, except per share data) 1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income applicable to common stock $(138,209) $47,110 $(34,083) $132,388
Add: Interest on convertible
debentures 139 139 416 416
- ------------------------------------------------------------------------------
(138,070) 47,249 (33,667) 132,804
Less: Increase in related federal
income taxes 49 48 146 145
- -------------------------------------------------------------------------------
Adjusted income applicable to $(138,119) $47,201 (38,813) $132,659
common stock
===============================================================================
Average Common Shares Outstanding 152,972 149,090 150,742 147,798
(excluding common stock
equivalents)
Adjustments for:
Convertible Debentures (1) - 503 - 503
Stock Options (1) - 12,071 - 12,308
- ------------------------------------------------------------------------------
Adjusted common shares assuming
conversion of outstanding Convertible
Debentures and Stock Options
at beginning of each period 152,972 161,664 150,742 160,609
===============================================================================
Earnings per share of common stock
on a fully diluted basis $ (.90) $ .29 $ (.23) $ .83
(1) Convertible debentures and common stock equivalents are not
applicable to the calculation when earnings are negative.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 45,076
<SECURITIES> 0
<RECEIVABLES> 377,851
<ALLOWANCES> 0
<INVENTORY> 13,744
<CURRENT-ASSETS> 504,585
<PP&E> 2,073,711
<DEPRECIATION> 1,172,785
<TOTAL-ASSETS> 2,102,655
<CURRENT-LIABILITIES> 532,878
<BONDS> 633,188
<COMMON> 156,209
0
22,769
<OTHER-SE> 695,278
<TOTAL-LIABILITY-AND-EQUITY> 2,102,655
<SALES> 0
<TOTAL-REVENUES> 1,537,346
<CGS> 15,421
<TOTAL-COSTS> 1,361,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,659
<INCOME-PRETAX> 148,978
<INCOME-TAX> 62,707
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (117,987)
<CHANGES> (1,477)
<NET-INCOME> (33,193)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
