SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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FRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
New York 4813 16-0613330
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
180 South Clinton Avenue
Rochester, New York 14646-0700
(716) 777-1000
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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Josephine S. Trubek, Esq.
Corporate Secretary
Frontier Corporation
180 Clinton Avenue
Rochester, New York 14646-0700
(716) 777-6713
- -----------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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<PAGE>
Copies to:
Robert E. Spatt, Esq. Connie R. Gale, Vice Robert Quaintance,
Simpson Thacher & Bartlett President, General Esq.
425 Lexington Avenue Counsel and Secretary Debevoise & Plimpton
New York, NY 10017-3954 ALC Communications 875 Third Avenue
Corporation New York, NY 10022
30300 Telegraph Road
Bingham Farms, MI
48025-4510
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after this Registration
Statement is declared effective and upon consummation of the transactions
described in the enclosed Joint Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /
If any of the securities being registered on this Form are being
offered on a continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate
Title of Securities Amount to be Price Per Offering Amount of
Being Registered (1) Registered (2) Unit Price Registration Fee (3)
<S> <C> <C> <C> <C>
Common Stock,
par value 80,039,248
$1.00 shares Not applicable Not applicable $325,102
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of Common Stock, par value $.01 per share ("ALC
Common Stock"), of ALC Communications Corporation, a Delaware
corporation ("ALC"), in the proposed merger of a wholly owned
subsidiary of the Registrant with and into ALC (the "Merger") and to
holders of certain stock options and warrants of ALC not issued in
connection with employee benefit plans which, following the Merger,
will constitute options and warrants to purchase shares of Frontier
Common Stock under the Merger Agreement and the terms of such stock
options and warrants. The securities being registered above include
associated Frontier Rights. See "Description of Capital Stock of
Frontier".
(2) The amount of Common Stock, par value $1.00 per share ("Frontier
Common Stock"), of the Registrant to be registered has been determined
on the basis of the exchange ratio in the Merger (two shares of
Frontier Common Stock for each outstanding share of ALC Common Stock)
and (i) the maximum aggregate number of shares of ALC Common Stock to
be exchanged in the Merger for shares of Frontier Common Stock and
(ii) the maximum aggregate number of stock options and warrants of ALC
not issued in connection with employee benefit plans remaining
following the Merger, assuming solely for the purpose of calculating
the registration fee that all outstanding options and warrants for ALC
Common Stock that are, or prior to the effective time will be,
exercisable are exercised prior to the effective time of the Merger.
(3) The registration fee was calculated pursuant to Rule 457(f), as one
twenty-ninth of one percent of the product of $47.5625, the average of
the high and low prices per share of ALC Common Stock as quoted on the
AMEX Composite Tape on July 12, 1995, multiplied by 40,019,624, the
maximum number of shares of ALC Common Stock which may be exchanged
for shares of Frontier Common Stock in the Merger and maximum number
of warrants and options remaining after the Effective Time as
<PAGE>
3
set forth above. Pursuant to Rule 457(b), the required fee is reduced
by the $331,255.26 filing fee previously paid at the time of filing of
preliminary proxy materials in connection with this transaction on May
26, 1995.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
FRONTIER CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE><CAPTION>
Form S-4 Item Number and Heading Location in Prospectus
-------------------------------- ----------------------
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information . . . . . . . . . . Summary; Risk Factors; The Merger;
Regulatory Approvals
4. Terms of the Transaction . . . . . Summary; The Merger; Certain
Provisions of the Merger Agreement
5. Pro Forma Financial Information . Summary; Unaudited Pro Forma
Consolidated Condensed Financial Statements
6. Material Contacts with the Company
Being Acquired . . . . . . . . . The Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters . . . *
8. Interests of Named Experts and
Counsel . . . . . . . . . . . . Legal Opinions
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . *
10. Information with Respect to S-3 Outside Front Cover Page; Summary; The Companies;
Registrants . . . . . . . . . . The Merger; Stock Ownership of Frontier Management,
Directors and Certain Beneficial Owners; Unaudited
Pro Forma Consolidated Condensed Financial Statements;
Management and Dividend Policy After the Merger;
Description of Common Stock of Frontier; Comparison of
Rights of Holders of ALC Common Stock and Frontier Common Stock
11. Incorporation of Certain
Information by Reference . . . . Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or
S-3 Registrants . . . . . . . . *
13. Incorporation of Certain
Information by Reference . . . . *
14. Information with Respect to
Registrants Other Than S-2 or S-3
Registrants . . . . . . . . . . *
15. Information with Respect to S-3 Summary; The Companies; The Merger; Unaudited Pro Forma Consolidated
Companies . . . . . . . . . . . Condensed Financial Statements; Management and Dividend Policy After
the Merger; Description of Common Stock of ALC; Comparison of Rights of
Holders of ALC Common Stock and Frontier Common Stock; Financial
Statements
16. Information with Respect to S-2 or
S-3 Companies . . . . . . . . . *
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies . . . . . . . . . . . *
</TABLE>
<PAGE>
<TABLE><CAPTION>
Form S-4 Item Number and Heading Location in Prospectus
-------------------------------- ----------------------
<S> <C> <C>
18. Information if Proxies, Consents or
Authorizations are to be
Solicited . . . . . . . . . . . Summary; The Special Meetings; The
Merger; Management and Dividend Policy
After the Merger; Stock Ownership of
Frontier Management, Directors and
Certain Beneficial Owners
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer *
</TABLE>
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* Not Applicable
<PAGE>
FRONTIER CORPORATION
FRONTIER CENTER
180 SOUTH CLINTON AVENUE
ROCHESTER, NEW YORK 14646-0700
July 17, 1995
Dear Shareowners:
You are cordially invited to attend a Special Meeting of Shareowners of
Frontier Corporation ("Frontier"), which will be held at the Four Seasons
Hotel--Philadelphia, One Logan Square, Philadelphia, Pennsylvania 19103, at
11:00 a.m. on Wednesday, August 16, 1995.
At the Special Meeting, you will be asked to approve a matter related to the
proposed merger (the "Merger") of a wholly owned subsidiary of Frontier with ALC
Communications Corporation ("ALC"). As a result of the Merger, ALC will become a
wholly owned subsidiary of Frontier.
Specifically, you will be asked to approve the issuance of sufficient shares
of Frontier Common Stock necessary (on the basis of two shares of Frontier
Common Stock for each share of ALC Common Stock) for Frontier to carry out its
obligations under the merger agreement, including the issuance of shares of
Common Stock in the Merger and the reservation of shares of Common Stock which
will be issued upon exercise of certain stock options and warrants of ALC. After
the Merger, these stock options and warrants will constitute options and
warrants to purchase shares of Frontier Common Stock.
Your approval will enable Frontier to complete the Merger with ALC. The
Merger is described in the accompanying Joint Proxy Statement/Prospectus, which
includes a summary of the terms of the Merger and certain other information
relating to the proposed transaction.
The Board of Directors of Frontier has determined that the merger is fair to
and in the best interests of the Frontier shareowners. Accordingly, the Board
has, by unanimous vote of the directors present, approved the Merger Agreement
and recommends that you vote in favor of the related proposal to be considered
at the Special Meeting.
Neither Frontier shareowners nor shareholders of ALC are entitled to
appraisal rights in connection with the Merger.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information about the Merger and related transactions
accompany this letter. I urge you to read this material carefully.
Although you do not need to attend the Special Meeting, your vote is very
important. Please mark, date, sign and return the enclosed proxy card in the
envelope provided, whether or not you plan to attend the meeting. If you plan to
attend the meeting, you must return the proxy card in order to receive an
admission card for the meeting. If you have any questions regarding the proposed
transaction, please call Georgeson & Company Inc., our proxy solicitation agent,
toll free at (800) 223-2064 or collect at (212) 440-9800, or our Shareowner
Relations department, toll free at (800) 836-0342.
If you plan to attend the Special Meeting, please check the box on the back
of the proxy card.
Thank you for your continuing support.
Sincerely,
/s/ RONALD L. BITTNER
RONALD L. BITTNER
Chairman, President & Chief Executive
Officer
<PAGE>
FRONTIER CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON AUGUST 16, 1995
Dear Shareowners:
A Special Meeting of Shareowners of Frontier Corporation (the "Company")
will be held at the Four Seasons Hotel--Philadelphia, One Logan Square,
Philadelphia, Pennsylvania 19103, at 11:00 a.m. on Wednesday, August 16, 1995 to
consider the following in connection with the Agreement and Plan of Merger dated
as of April 9, 1995 (the "Merger Agreement"), which appears as Annex I to the
accompanying Joint Proxy Statement/Prospectus, providing for the merger (the
"Merger") of Frontier Subsidiary One, Inc., a wholly owned subsidiary of the
Company, with and into ALC Communications Corporation ("ALC"):
. To consider and act upon a proposal to approve the issuance of shares of
the Company's Common Stock necessary (on the basis of two shares of
Frontier Common Stock for each share of ALC Common Stock) for the Company
to meet its obligations under the Merger Agreement, including the issuance
of shares of Frontier Common Stock in the Merger and the reservation of
shares of Frontier Common Stock for issuance upon exercise of certain
stock options and warrants of ALC which, following the Merger, will
constitute options and warrants to purchase shares of the Company's Common
Stock under the Merger Agreement and the terms of such stock options and
warrants and certain stock options which will be granted in connection
with the Merger; and
. To transact such other business, if any, as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 10, 1995, as
the record date for the determination of shareowners entitled to notice of and
to vote at the meeting.
Approval of the issuance of shares requires the approval of a majority of
the votes cast on the proposal, provided that the total votes cast on the
proposal represent a majority of the outstanding shares of Common Stock entitled
to vote thereon.
Neither Frontier shareowners nor shareholders of ALC are entitled to
appraisal rights in connection with the Merger.
YOUR VOTE IS VERY IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING. IF YOU SIGN AND RETURN YOUR PROXY CARD WITHOUT
SPECIFYING YOUR CHOICES, IT WILL BE UNDERSTOOD THAT YOU WISH TO HAVE YOUR SHARES
VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. YOU MAY REVOKE
YOUR PROXY AND VOTE IN PERSON IF YOU DECIDE TO ATTEND THE MEETING.
AN ADMISSION CARD WILL BE REQUIRED IN ORDER TO GAIN ENTRY TO THE MEETING.
SO, IF YOU ARE PLANNING TO ATTEND THE SPECIAL MEETING, PLEASE CHECK THE BOX ON
THE BACK OF THE PROXY CARD. WE WILL THEN SEND YOU AN ADMISSION CARD WHICH WILL
INCLUDE A MAP WITH DIRECTIONS TO THE MEETING PLACE.
By Action of the Board of Directors,
JOSEPHINE S. TRUBEK
Corporate Secretary
Rochester, New York
July 17, 1995
<PAGE>
ALC COMMUNICATIONS CORPORATION
30300 TELEGRAPH ROAD
BINGHAM FARMS, MI 48025-4510
July 17, 1995
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of ALC
Communications Corporation ("ALC"), which will be held at 10:00 a.m., Eastern
Daylight Time, on Wednesday, August 16, 1995 at The Townsend Hotel, 100 Townsend
Street, Birmingham, Michigan 48009.
At the Special Meeting, the Shareholders will be asked to approve and adopt
the Agreement and Plan of Merger dated as of April 9, 1995 (the "Merger
Agreement"), among ALC, Frontier Corporation and Frontier Subsidiary One, Inc.,
a wholly owned subsidiary of Frontier Corporation, providing for the merger of
Frontier Subsidiary One, Inc., with and into ALC.
The proposed merger is described in the accompanying Joint Proxy
Statement/Prospectus, the forepart of which includes a summary of the terms of
the merger and certain other information relating to the proposed transaction.
If, after the approval and adoption by ALC Shareholders of the Merger Agreement,
the proposed merger is consummated, then each outstanding share of ALC common
stock will be converted into two shares of Frontier common stock and ALC
Shareholders will become shareholders of Frontier Corporation.
ALC's Board of Directors has determined that the merger is in the best
interests of ALC and ALC Shareholders. Accordingly, the Board has, by unanimous
vote, approved the Merger Agreement and the related transactions and recommends
that ALC Shareholders vote in favor of the related proposal to be considered at
the Special Meeting.
The formal Notice of the Special Meeting and a Joint Proxy
Statement/Prospectus setting forth in detail the matters to come before the
meeting are attached, and a form of Proxy is enclosed for your use.
Neither ALC Shareholders nor shareholders of Frontier Corporation are
entitled to appraisal rights in connection with the merger.
Whether or not you expect to attend the meeting, it is very important that
your shares be represented, and it would therefore be helpful if you would
return your signed and dated proxies promptly. If you have any questions
regarding the proposed transaction, please call Morrow & Co., our proxy
solicitation agent, toll free at (800) 662-5200 or collect at (212) 754-8000.
Thank you and I look forward to seeing you at the meeting.
Sincerely,
/s/ RICHARD D. IRWIN
RICHARD D. IRWIN
Chairman of the Board
<PAGE>
ALC COMMUNICATIONS CORPORATION
30300 TELEGRAPH ROAD
BINGHAM FARMS, MI 48025-4510
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of ALC
Communications Corporation (the "Company") will be held at The Townsend Hotel,
100 Townsend Street, Birmingham, Michigan 48009, on Wednesday, August 16, 1995
at 10:00 a.m., Eastern Daylight Time, for the following purposes:
1. To consider the approval and adoption of the Agreement and Plan of
Merger dated as of April 9, 1995 (the "Merger Agreement"), attached as Annex
I to the accompanying Joint Proxy Statement/Prospectus, providing for the
merger (the "Merger") of Frontier Subsidiary One, Inc., a wholly owned
subsidiary of Frontier Corporation, with and into the Company and other
transactions contemplated thereby. Under the Merger Agreement, each
outstanding share of ALC common stock will be converted into two shares of
Frontier common stock; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The By-Laws of the Company provide that the presence of holders of a
majority of the outstanding shares of each class of stock entitled to vote at
the meeting, in person or represented by proxy, constitutes a quorum for the
transaction of business.
Adoption of the Merger Agreement requires the affirmative vote of a majority
of the outstanding shares of the Company's Common Stock entitled to vote
thereon.
Shareholders of the Company are not entitled to appraisal rights in
connection with the Merger. In addition, shareholders of Frontier Corporation
are not entitled to appraisal rights in connection with the Merger.
THE ENCLOSED PROXY CARD WILL ENABLE YOU TO VOTE YOUR SHARES ON THE MATTERS
TO BE CONSIDERED AT THE SPECIAL MEETING. ALL YOU NEED TO DO IS MARK THE PROXY
CARD TO INDICATE YOUR VOTE, DATE AND SIGN THE PROXY CARD, AND THEN RETURN IT
PROMPTLY IN THE SELF-ADDRESSED STAMPED ENVELOPE PROVIDED. IF YOU SIGN AND RETURN
YOUR PROXY CARD WITHOUT SPECIFYING YOUR CHOICES, IT WILL BE UNDERSTOOD THAT YOU
WISH TO HAVE YOUR SHARES VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS. THE GIVING OF THE PROXY WILL NOT AFFECT YOUR RIGHT TO ATTEND
THE MEETING, NOR, IF YOU CHOOSE TO REVOKE THE PROXY, YOUR RIGHT TO VOTE IN
PERSON.
The Board of Directors has fixed the close of business on Monday, July 10,
1995 as the record date for determination of shareholders entitled to notice of
and to vote at the Special Meeting.
By Order of the Board of Directors
CONNIE R. GALE
Secretary
July 17, 1995
<PAGE>
FRONTIER CORPORATION
AND
ALC COMMUNICATIONS CORPORATION
JOINT PROXY STATEMENT
-------------------
FRONTIER CORPORATION
PROSPECTUS
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement/Prospectus")
is being furnished to shareholders of Frontier Corporation, a New York
corporation ("Frontier"), and shareholders of ALC Communications Corporation, a
Delaware corporation ("ALC"), in connection with the solicitation of proxies by
the Board of Directors of each corporation for use at the Special Meeting of
Shareowners of Frontier (the "Frontier Special Meeting") or the Special Meeting
of Shareholders of ALC (the "ALC Special Meeting" and, together with the
Frontier Special Meeting, the "Special Meetings"), in each case, including any
adjournments or postponements thereof, scheduled to be held on Wednesday, August
16, 1995. This Joint Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of Frontier Subsidiary One, Inc., a Delaware corporation and a
wholly owned subsidiary of Frontier ("Sub"), with and into ALC pursuant to the
Agreement and Plan of Merger dated as of April 9, 1995 (the "Merger Agreement"),
among Frontier, Sub and ALC. Neither shareholders of ALC nor shareholders of
Frontier are entitled to appraisal rights under the terms of the Merger.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Frontier with respect to up to 80,039,248 shares of Common Stock, par value
$1.00 per share, of Frontier ("Frontier Common Stock") issuable to ALC
shareholders (on the basis of two shares of Frontier Common Stock for each share
of Common Stock of ALC) in the Merger pursuant to the Merger Agreement or upon
exercise of certain stock options and warrants of ALC not issued pursuant to
employee benefit plans, which following the Merger will constitute options and
warrants to purchase shares of Frontier Common Stock under the Merger Agreement
and the terms of such stock options and warrants. The Frontier Common Stock is
listed for trading on the New York Stock Exchange ("NYSE"). On July 13,
1995, the last sale price of Frontier Common Stock as reported on the NYSE
Composite Transactions Tape was $24 1/2. For a description of the Frontier
Common Stock, see "DESCRIPTION OF FRONTIER COMMON STOCK" and "COMPARISON OF
RIGHTS OF HOLDERS OF ALC COMMON STOCK AND FRONTIER COMMON STOCK".
This Joint Proxy Statement/Prospectus, the accompanying forms of proxy and
the other enclosed documents are first being mailed to shareholders of Frontier
and ALC on or about July 17, 1995.
SHAREHOLDERS OF ALC AND FRONTIER AND HOLDERS OF ALC STOCK OPTIONS AND WARRANTS
SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IN PARTICULAR, THE FACTORS DISCUSSED UNDER THE HEADING
"RISK FACTORS" BEGINNING ON PAGE 13.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Joint Proxy Statement/Prospectus is July 14, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 1
SUMMARY............................................................................... 3
The Special Meetings................................................................ 3
The Merger.......................................................................... 4
The Companies....................................................................... 6
RISK FACTORS.......................................................................... 13
INTRODUCTION.......................................................................... 15
THE COMPANIES......................................................................... 16
Frontier Corporation................................................................ 16
ALC Communications Corporation...................................................... 18
THE SPECIAL MEETINGS.................................................................. 19
Matters To Be Considered at Special Meetings........................................ 19
Votes Required...................................................................... 20
Voting of Proxies................................................................... 20
Revocability of Proxies............................................................. 21
Record Dates; Stock Entitled To Vote; Quorum........................................ 21
Appraisal Rights.................................................................... 21
Solicitation of Proxies............................................................. 22
THE MERGER............................................................................ 23
General............................................................................. 23
Background of the Merger............................................................ 23
Recommendations of the Boards of Directors; Reasons for the Merger.................. 26
Opinions of Financial Advisors...................................................... 29
ALC Financial Forecast Data......................................................... 38
Merger Consideration................................................................ 39
Effective Time of the Merger........................................................ 40
Conversions of Shares; Procedures for Exchange of Certificates...................... 40
Fractional Shares................................................................... 41
Conduct of Business Pending Merger.................................................. 41
Conditions to the Consummation of the Merger........................................ 41
Certain Federal Income Tax Consequences............................................. 42
Anticipated Accounting Treatment.................................................... 42
Effect on Options, Warrants and Employee Benefit Plans.............................. 43
Interests of Certain Persons in the Merger.......................................... 44
Stock Exchange Listing.............................................................. 45
Resale of Frontier Common Stock..................................................... 45
MANAGEMENT AND DIVIDEND POLICY AFTER THE MERGER....................................... 46
Directors After the Merger.......................................................... 46
Management After the Merger......................................................... 48
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Post-Merger Dividend Policy......................................................... 48
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 49
STOCK OWNERSHIP OF FRONTIER MANAGEMENT, DIRECTORS AND CERTAIN BENEFICIAL OWNERS....... 62
DESCRIPTION OF CAPITAL STOCK OF FRONTIER.............................................. 65
Dividend Rights..................................................................... 65
Voting Rights....................................................................... 65
Liquidation Rights.................................................................. 66
Preemptive Rights................................................................... 66
Transfer Agent and Registrar........................................................ 66
The Frontier Rights Agreement....................................................... 66
DESCRIPTION OF CAPITAL STOCK OF ALC................................................... 68
Dividend Rights..................................................................... 68
Voting Rights....................................................................... 68
Liquidation Rights.................................................................. 68
Preemptive Rights................................................................... 69
Transfer Agent and Registrar........................................................ 69
The ALC Rights Agreement............................................................ 69
COMPARISON OF RIGHTS OF HOLDERS OF
ALC COMMON STOCK AND FRONTIER COMMON STOCK.......................................... 71
General............................................................................. 71
Voting Rights....................................................................... 71
Amendments to Certificate of Incorporation.......................................... 72
Special Meetings.................................................................... 72
Shareholders' Action without a Meeting.............................................. 73
Preemptive Rights................................................................... 73
Dividends........................................................................... 73
Stock Repurchases................................................................... 74
Issuance of Rights or Options to Purchase Shares to
Directors, Officers and Employees................................................. 74
Loans to Directors.................................................................. 74
Classification of the Board of Directors............................................ 75
Duties of Directors................................................................. 75
Interested Director Transactions.................................................... 75
Limitations on Directors' Liability................................................. 76
Indemnification of Directors and Officers........................................... 76
Removal of Directors................................................................ 77
Newly Created Directorships and Vacancies........................................... 78
Dissenters' Rights of Appraisal..................................................... 78
Business Combination Statutes....................................................... 78
"Anti-Greenmail".................................................................... 79
Listing............................................................................. 79
CERTAIN PROVISIONS OF THE MERGER AGREEMENT............................................ 80
The Merger.......................................................................... 80
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Representations and Warranties...................................................... 80
Certain Pre-Closing Covenants....................................................... 81
No Solicitation of Transactions..................................................... 82
Board of Directors and Officers of Surviving Corporation............................ 83
Options, Warrants and Employee Benefit Plans........................................ 83
Conditions to the Consummation of the Merger........................................ 83
Termination......................................................................... 84
Amendment and Waiver................................................................ 85
Expenses, Expense Reimbursement and Termination Fee................................. 85
REGULATORY APPROVALS.................................................................. 86
CERTAIN LITIGATION.................................................................... 87
EXPERTS............................................................................... 88
LEGAL OPINIONS........................................................................ 88
OTHER INFORMATION AND SHAREHOLDER PROPOSALS........................................... 89
Annex I Agreement and Plan of Merger
Annex II Opinion of Salomon Brothers Inc
Annex III Opinion of Lazard Freres & Co.
</TABLE>
iii
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING OF SECURITIES MADE HEREBY
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY FRONTIER OR ALC. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION TO OR FROM ANY PERSON TO
WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FRONTIER
OR ALC SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Frontier and ALC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Frontier and ALC with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, material filed by Frontier can be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005,
and material filed by ALC can be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
Frontier has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Frontier Common Stock to
be issued in the Merger pursuant to the Merger Agreement or upon exercise of
certain stock options and warrants of ALC not issued in connection with employee
benefit plans which, following the Merger, will constitute options and warrants
to purchase shares of Frontier Common Stock under the Merger Agreement and the
terms of such stock options and warrants. This Joint Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits thereto. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Joint Proxy Statement/Prospectus or in any document incorporated in this Joint
Proxy Statement/Prospectus by reference as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Frontier (File No.
1-4166) and ALC (File No. 1-10831) pursuant to the Exchange Act are incorporated
by reference in this Joint Proxy Statement/Prospectus:
1. Frontier's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (which incorporates by reference certain information from
Frontier's Proxy Statement relating to the Annual Meeting of Shareowners
held on April 26, 1995), as amended by Amendment No. 1 on Form 10-K/A;
2. Frontier's Quarterly Report on Form 10-Q for the three months ended
March 31, 1995, as amended by Amendment No. 1 on Form 10-Q/A;
<PAGE>
3. Frontier's Current Reports on Form 8-K dated February 13, 1995;
February 21, 1995; February 27, 1995; March 17, 1995; April 9, 1995; April
10, 1995 (two); April 12, 1995; April 27, 1995; May 11, 1995; May 17, 1995;
and June 6, 1995;
4. ALC's Annual Report on Form 10-K for the year ended December 31,
1994;
5. ALC's Quarterly Report on Form 10-Q for the three months ended March
31, 1995, as amended by Amendment No. 1 on Form 10-Q/A;
6. ALC's Current Reports on Form 8-K dated January 24, 1995, February
23, 1995 and April 10, 1995; and
7. The description of the Common Stock, par value $.01 per share, of ALC
set forth in ALC's Registration Statement on Form 8-A dated August 15, 1991
and any amendment or report filed for the purpose of updating any such
description.
All documents and reports filed by Frontier and ALC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the termination of the offering of securities
made hereby shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, IN THE CASE OF DOCUMENTS
RELATING TO FRONTIER, TO FRONTIER CORPORATION, 180 SOUTH CLINTON AVENUE,
ROCHESTER, NEW YORK 14646-0700 (TELEPHONE NUMBER (800) 836-0342), ATTENTION:
CORPORATE SECRETARY; OR, IN THE CASE OF DOCUMENTS RELATING TO ALC, TO ALC
COMMUNICATIONS CORPORATION, 30300 TELEGRAPH ROAD, BINGHAM FARMS, MICHIGAN
48025-4510 (TELEPHONE NUMBER (810) 647-4060), ATTENTION: SECRETARY. IN ORDER TO
ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE APPLICABLE SPECIAL MEETING,
REQUESTS SHOULD BE RECEIVED BY AUGUST 9, 1995.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Frontier or Sub has been supplied by Frontier,
and all such information relating to ALC has been supplied by ALC.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained or
incorporated by reference in this Joint Proxy Statement/Prospectus and the
Annexes hereto. As used herein, unless the context otherwise requires,
"Frontier" means Frontier Corporation and its consolidated subsidiaries, and
"ALC" means ALC Communications Corporation and its consolidated subsidiaries.
Shareholders of Frontier and ALC are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
THE SPECIAL MEETINGS
Time and Place. The Special Meeting of Shareholders of ALC (including any
adjournments or postponements thereof, the "ALC Special Meeting") will be held
at 10:00 a.m., Eastern Daylight Time, on Wednesday, August 16, 1995, at The
Townsend Hotel, 100 Townsend Street, Birmingham, Michigan 48009.
The Special Meeting of Shareowners of Frontier (including any adjournments
or postponements thereof, the "Frontier Special Meeting" and, together with the
ALC Special Meeting, the "Special Meetings") will be held at 11:00 a.m., Eastern
Daylight Time, on Wednesday, August 16, 1995, at the Four Seasons
Hotel--Philadelphia, One Logan Square, Philadelphia, Pennsylvania 19103.
Matters to Be Considered at the Special Meetings. ALC Special Meeting. At
the ALC Special Meeting, holders of shares of Common Stock, par value $.01 per
share, of ALC ("ALC Common Stock") will consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger dated as of April 9, 1995, as
the same may be amended from time to time (the "Merger Agreement"), among
Frontier, Frontier Subsidiary One, Inc., a Delaware corporation and a wholly
owned subsidiary of Frontier ("Sub"), and ALC, a conformed copy of which appears
as Annex I to this Joint Proxy Statement/Prospectus, providing for the merger of
Sub with and into ALC (the "Merger"). Holders of shares of ALC Common Stock
entitled to vote will also consider and vote upon any other matter that may
properly come before the ALC Special Meeting.
Frontier Special Meeting. At the Frontier Special Meeting, holders of shares
of Common Stock, par value $1.00 per share, of Frontier ("Frontier Common
Stock") will consider and vote upon a proposal to approve the issuance of shares
of Frontier Common Stock necessary for Frontier to meet its obligations under
the Merger Agreement, including the issuance of shares of Frontier Common Stock
in the Merger and the reservation of shares of Frontier Common Stock for
issuance upon exercise of certain stock options and warrants of ALC, which
following the Merger will constitute options and warrants to purchase shares of
Frontier Common Stock under the Merger Agreement and the terms of such stock
options and warrants, and certain stock options which will be granted in
connection with the Merger. Frontier estimates that up to 83,465,892 shares of
Frontier Common Stock may be issuable in connection with such obligations under
the Merger Agreement. See "THE MERGER--Merger Consideration". Holders of shares
of Frontier Common Stock entitled to vote will also consider and vote upon any
other matter that may properly come before the Frontier Special Meeting.
Votes Required. ALC. The adoption of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of ALC Common Stock
entitled to vote thereon. See "THE SPECIAL MEETINGS -- Votes Required -- ALC".
Frontier. The approval of the issuance of shares of Frontier Common Stock
necessary for Frontier to meet its obligations under the Merger Agreement
requires the approval of a majority of the votes cast on the proposal, provided
that the total votes cast on the proposal represent a majority of the
3
<PAGE>
outstanding shares of Frontier Common Stock entitled to vote thereon. See "THE
SPECIAL MEETINGS -- Votes Required -- Frontier".
Record Dates. The record date for each of the Special Meetings is July 10,
1995.
Security Ownership of Management. As of April 7, 1995, directors and
executive officers of ALC and their affiliates were beneficial owners of an
aggregate of 2,594,669 shares, including shares that such persons have the right
to acquire within the following 60 days pursuant to options or other rights,
(approximately 7.1%) of the outstanding shares of ALC Common Stock. As of May
31, 1995, directors and executive officers of Frontier and their affiliates were
beneficial owners of an aggregate of 443,479 shares, including shares that such
persons have the right to acquire within the following 60 days pursuant to
options or other rights, (approximately 0.5%) of the outstanding shares of
Frontier Common Stock and of 1,000 shares of ALC Common Stock.
THE MERGER
Effect of Merger. At the effective time of the Merger (the "Effective
Time"), Sub will be merged with and into ALC, which will be the surviving
corporation in the Merger (the "Surviving Corporation"). As a result of the
Merger, the Surviving Corporation will become a wholly owned subsidiary of
Frontier. Subject to certain provisions as described herein with respect to
shares owned by ALC or any of its subsidiaries, or by Frontier, Sub or any other
subsidiary of Frontier and with respect to fractional shares, each issued and
outstanding share of ALC Common Stock will be converted in the Merger into the
right to receive from Frontier two fully paid and nonassessable shares of
Frontier Common Stock (the "Exchange Ratio").
Recommendations of the Boards of Directors. The boards of directors of ALC
and Frontier believe that the terms of the Merger are in the best interests of
their respective shareholders and have, by unanimous vote of the directors
present, approved the Merger Agreement, the Merger and the other related
transactions. The Board of Directors of ALC unanimously recommends that the
holders of ALC Common Stock approve and adopt the Merger and the Merger
Agreement. The Board of Directors of Frontier, by unanimous vote of the
directors present, recommends that the holders of Frontier Common Stock approve
the issuance of shares of Frontier Common Stock necessary for Frontier to meet
its obligations under the Merger Agreement. See "THE MERGER -- Recommendations
of the Boards of Directors; Reasons for the Merger".
Opinions of Financial Advisors. Salomon Brothers Inc ("Salomon") has
delivered its written opinion, dated April 9, 1995, to the Board of Directors of
ALC to the effect that, based upon and subject to various considerations set
forth in such opinion, as of that date, the Exchange Ratio was fair to the
holders of ALC Common Stock from a financial point of view.
Lazard Freres & Co. ("Lazard") has delivered its written opinion, dated
April 9, 1995, to the Board of Directors of Frontier to the effect that, based
upon and subject to various considerations set forth in such opinion, as of that
date, the Exchange Ratio was fair to the holders of Frontier Common Stock from a
financial point of view.
For information on the assumptions made, matters considered and limits of
the reviews by Salomon and Lazard, see "THE MERGER -- Opinions of Financial
Advisors". Holders of ALC Common Stock and Frontier Common Stock are urged to
read carefully and in their entirety the opinions of Salomon and Lazard, each
dated April 9, 1995, copies of which appear as Annexes II and III, respectively,
to this Joint Proxy Statement/Prospectus.
Interests of Certain Persons in the Merger. Shares of ALC Common Stock held
by executive officers and directors of ALC or Frontier will be converted into
the right to receive the same
4
<PAGE>
consideration as shares of ALC Common Stock held by other shareholders, and
options to acquire shares of ALC Common Stock held by such persons will be
adjusted in the manner all options are adjusted pursuant to the Merger Agreement
as described below in "Treatment of ALC Stock Options and Warrants". In
connection with the Merger Agreement, Frontier has entered into amended and
restated employment agreements with certain executive officers of ALC under
which employment would commence on the closing date of the Merger. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "-- Effect on Options,
Warrants and Employee Benefit Plans".
Treatment of ALC Stock Options and Warrants. At the Effective Time,
outstanding options to purchase shares of ALC Common Stock ("ALC Stock Options")
and warrants to purchase ALC Common Stock ("ALC Warrants") will be assumed by
Frontier. Under ALC's employee stock option plans, the vesting of all previously
unvested ALC Stock Options theretofore granted thereunder will be accelerated as
a result of the Merger. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT --
Effect on Options, Warrants and Employee Benefit Plans".
Conditions to the Merger. The obligations of Frontier, Sub and ALC to
consummate the Merger are subject to various conditions, including obtaining
requisite shareholder approval, the authorization for listing on the New York
Stock Exchange ("NYSE") of the shares of Frontier Common Stock issuable to ALC
shareholders pursuant to the Merger Agreement, obtaining regulatory approvals
necessary for the consummation of the Merger, the filing and effectiveness of
the Registration Statement, the receipt of letters of independent accountants to
Frontier and ALC that the Merger qualifies for "pooling of interests" accounting
treatment, the absence of any order or other legal restraint or prohibition
preventing the consummation of the Merger, a requirement that the opinions of
counsel in respect of certain federal income tax consequences of the Merger be
received and not be withdrawn or modified in any material respect, and a
requirement that the opinions of Salomon and Lazard not be withdrawn. See "THE
MERGER -- Opinions of Financial Advisors" and
"-- Conditions to the Consummation of the Merger" and "REGULATORY APPROVALS
REQUIRED".
Regulatory Approvals. Early termination of the required waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), applicable to the consummation of the Merger was granted on May 30, 1995.
Applications for prior approval of the Merger have been filed with the Federal
Communications Commission (the "FCC") and appropriate state regulatory
authorities. See "REGULATORY APPROVALS".
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time of the Merger (i) by mutual consent of
Frontier and ALC, (ii) by either Frontier or ALC (a) if any court or other
governmental entity shall have issued a final and nonappealable order, decree or
ruling or taken any other final and nonappealable action permanently enjoining
or otherwise prohibiting the Merger, (b) if the Merger shall not have been
consummated on or before December 31, 1995 (other than due to the failure of the
party seeking to terminate the Merger Agreement to perform its obligations under
the Merger Agreement required to be performed at or prior to the Effective Time
of the Merger) or (c) if, under certain circumstances, the required shareholder
approval is not obtained, and (iii) by Frontier or ALC in certain other
situations. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Termination". The
Merger Agreement provides that in the event of a termination in certain
situations in which there is a competing transaction with respect to a party or
a party enters into a business combination with another person within a certain
period of time following termination, then the other party will receive a fee of
$45 million, plus expenses not to exceed $5 million. The Merger Agreement also
provides that in the event of a
5
<PAGE>
termination in certain situations, even in the absence of a competing
transaction or business combination, then the other party will receive its
expenses not to exceed $5 million. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Expenses, Expense Reimbursement and Termination Fee".
Shareholders' Rights of Appraisal. Neither shareholders of ALC nor
shareholders of Frontier are entitled to appraisal rights under the terms of the
Merger. See "THE SPECIAL MEETINGS -- Appraisal Rights".
Certain Federal Income Tax Consequences. Consummation of the Merger is
conditioned upon counsel for ALC not withdrawing or modifying in any material
respect a previously delivered opinion to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and counsel to Frontier not
withdrawing or modifying in any material respect a previously delivered opinion
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. THE OPINIONS THAT THE MERGER CONSTITUTES
A REORGANIZATION ARE BASED UPON CERTAIN ASSUMPTIONS AS WELL AS UPON
REPRESENTATIONS RECEIVED FROM ALC AND FRONTIER. NO RULINGS HAVE BEEN OR WILL BE
REQUESTED FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO ANY TAX MATTERS. If
the Merger constitutes a reorganization within the meaning of the Code, no gain
or loss will generally be recognized by ALC shareholders as a result of their
exchange of ALC Common Stock for Frontier Common Stock pursuant to the Merger,
except to the extent of cash received in lieu of fractional shares of Frontier
Common Stock. See "THE MERGER -- Certain Federal Income Tax Consequences".
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT IS RECOMMENDED THAT ALC
SHAREHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE,
LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Comparison of Rights. See "COMPARISON OF RIGHTS OF HOLDERS OF ALC COMMON
STOCK AND FRONTIER COMMON STOCK" for a summary of certain differences between
the rights of holders of ALC Common Stock and Frontier Common Stock.
Risk Factors. Shareholders of ALC and Frontier and holders of ALC Stock
Options and ALC Warrants are urged to read the section appearing immediately
following this Summary entitled "RISK FACTORS" for a discussion of the principal
risk factors relating to the Merger and Frontier Common Stock.
THE COMPANIES
Frontier Corporation. Frontier, a New York business corporation, has its
principal executive offices at 180 South Clinton Avenue, Rochester, New York
14646-0700. Its telephone number is (716) 777-1000.
Frontier, formerly known as Rochester Telephone Corporation, is a major U.S.
diversified telecommunications firm. Frontier has grown from its roots as a
local exchange telephone company in Rochester, New York to a company that
operates 34 local exchange companies in 13 states, a major regional long
distance company and several wireless properties. The long distance company,
Frontier Communications International Inc. ("Frontier Communications
International"), has expanded since its founding in the early 1980's to become
the seventh largest long distance company in the country. During 1995, Frontier
has acquired or announced the acquisitions of several additional long distance
companies. Frontier manages cellular and paging communications services in New
York State,
6
<PAGE>
Alabama and Minnesota. Frontier also markets and services a wide range of
telecommunications and data equipment.
For a more complete description of the business of Frontier, see "THE
COMPANIES -- Frontier Corporation".
ALC Communications Corporation. ALC, a Delaware corporation, has its
principal executive offices at 30300 Telegraph Road, Bingham Farms, Michigan
48025-4510. Its telephone number is (810) 647-4060.
ALC Communications Corporation is the holding company of Allnet
Communication Services Inc. ("Allnet") and other subsidiaries and conducts no
other business. Allnet provides long distance telecommunications services
primarily to commercial and, to a lesser extent, residential subscribers in the
majority of the United States and completes subscriber calls to all directly
dialable locations worldwide. Allnet is one of the few nationwide providers of
long distance services and in 1994 carried in excess of 1.1 billion calls over
its network. ConferTech International, Inc. ("ConferTech") was acquired by ALC
in early 1995 pursuant to a tender offer and subsequent statutory merger.
ConferTech provides teleconferencing services and audio bridge equipment.
For a more complete description of the business of ALC, see "THE COMPANIES
- -- ALC".
Selected Consolidated Financial Data, Selected Pro Forma Combined Financial
Data and Other Data. Set forth on the following pages are certain selected
consolidated financial data, selected pro forma combined financial data and
other data relating to Frontier and ALC and the Merger. The pro forma combined
financial data should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements, including the notes thereto, appearing elsewhere
in this Joint Proxy Statement/Prospectus.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF FRONTIER CORPORATION
The following table sets forth selected consolidated historical financial
data of Frontier and has been derived from and should be read in conjunction
with the audited consolidated financial statements of Frontier for each of the
five years ended December 31, 1994 and the unaudited interim consolidated
financial statements of Frontier for the three months ended March 31, 1995 and
March 31, 1994, including the respective notes thereto, in each case as restated
to reflect the acquisition of American Sharecom, Inc. under the pooling of
interests method of accounting. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE". In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included in the unaudited interim data. Interim
results for the three months ended March 31, 1995, are not necessarily
indicative of results which may be expected for future periods, including the
year ending December 31, 1995.
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (DERIVED FROM AUDITED FINANCIAL STATEMENTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data:
Revenue and sales....... $ 283,418 $ 272,103 $1,108,109 $1,007,394 $ 880,141 $ 773,502 $ 652,801
Income before taxes,
extraordinary items
and accounting
changes.................. 50,479 40,876 195,427 144,091 117,894 128,925 87,074
Income before
extraordinary items
and accounting
changes.................. 31,675 25,513 122,924 89,333 73,827 79,156 54,489
Income per share before
extraordinary items
and accounting changes
(a)...................... .38 .32 1.50 1.16 .96 1.07 .78
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (DERIVED FROM AUDITED FINANCIAL STATEMENTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $1,792,891 $1,634,780 $1,786,498 $1,536,512 $1,536,477 $1,520,173 $1,210,322
Long-term debt.......... 567,090 482,456 579,083 494,108 528,494 593,178 363,169
Shareowners' equity..... 843,390 796,755 832,592 685,501 623,749 605,839 487,244
Book value per common
share (a)................ 10.02 9.46 9.89 8.65 7.98 7.74 6.69
Cash dividends declared
per common share
(a)...................... .21 .20 .82 .80 .78 .76 .74
</TABLE>
- ------------
(a) Frontier Corporation historical per share data restated to reflect a 2-for-1
split of the Frontier Common Stock effected in the form of a 100% stock
dividend which was distributed during April 1994.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF ALC COMMUNICATIONS CORPORATION
The following table sets forth selected consolidated historical financial
data of ALC and has been derived from and should be read in conjunction with the
audited consolidated financial statements of ALC for each of the five years
ended December 31, 1994 and the unaudited interim consolidated financial
statements of ALC for the three months ended March 31, 1995 and March 31, 1994,
including the respective notes thereto. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered necessary
for a fair presentation have been included in the unaudited interim data.
Interim results for the three months ended March 31, 1995, are not necessarily
indicative of results which may be expected for future periods, including the
year ending December 31, 1995.
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------- ----------
(UNAUDITED) (DERIVED FROM AUDITED FINANCIAL STATEMENTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data:
Revenue and sales.............. $177,753 $129,789 $567,824 $436,432 $376,064 $ 346,873 $ 326,004
Income (loss) before taxes,
extraordinary items and
accounting changes.............. 31,850 22,895 100,904 58,426 23,526 5,722 (19,643)
Income (loss) before
extraordinary items and
accounting changes.............. 19,975 14,645 64,329 39,676 13,826 2,717 (19,643)
Income (loss) per share before
extraordinary items and
accounting changes.............. .52 .38 1.68 1.07 .43 (.17) (2.29)
<CAPTION>
MARCH 31, DECEMBER 31,
------------------ ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------- ----------
(UNAUDITED) (DERIVED FROM AUDITED FINANCIAL STATEMENTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................... $340,872 $225,437 $284,725 $193,541 $143,266 $ 140,846 $ 149,375
Long-term debt................. 88,514 87,934 82,466 87,598 74,291 42,921 123,684
Shareholders' equity
(deficit)....................... 134,132 60,208 114,048 42,225 (20,871) (102,300) (102,070)
Redeemable preferred stock..... 0 0 0 0 9,659 63,452 57,766
Book value per common share.... 3.98 1.81 3.38 1.28 (0.88) (5.94) (5.96)
Cash dividends declared per
common share.................... .00 .00 .00 .00 .00 .00 .00
</TABLE>
9
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
OF FRONTIER CORPORATION
The following table sets forth selected unaudited pro forma combined
financial data of Frontier giving effect to the completed and proposed
acquisitions of WCT Communications, Inc., Enhanced TeleManagement, Inc. and
Schneider Communications, Inc. and its approximately 81% majority owned
subsidiary, LinkUSA Corporation, under the purchase method of accounting and to
the Merger with ALC under the pooling of interests method of accounting and
reflecting certain assumptions on the basis described in the notes to the
unaudited pro forma combined condensed financial statements. See "THE MERGER --
Anticipated Accounting Treatment". The pro forma combined financial data is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
Merger had been consummated on the dates indicated, nor is it necessarily
indicative of future operating results or financial position. This pro forma
combined financial data has been derived from and should be read in conjunction
with the unaudited Pro Forma Combined Financial Statements, including the notes
thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus. THE
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS DO NOT REFLECT ANY SYNERGIES
ANTICIPATED BY FRONTIER'S MANAGEMENT AS A RESULT OF THE MERGER. See "UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS".
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------
1995 1994 1994 1993 1992
---------- -------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA:
Revenue and sales............... $ 531,280 $454,509 $1,912,496 $1,443,826 $1,256,205
Income before taxes,
extraordinary items and
accounting changes................ 75,279 58,251 265,649 202,517 141,420
Income before extraordinary
items and accounting
changes........................... 45,935 35,852 162,755 129,009 87,653
Income per share before
extraordinary items and
accounting changes................ .28 .22 1.01 .82 .53
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1995
----------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................. $2,255,213
Long-term debt............................................................... 682,867
Shareowners' equity.......................................................... 977,522
Redeemable preferred stock................................................... 0
Book value per common share.................................................. 5.94
Cash dividends declared per common share..................................... .21
</TABLE>
10
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
OF FRONTIER CORPORATION AND
ALC COMMUNICATIONS CORPORATION
The following table sets forth income before extraordinary items and
accounting changes, cash dividends declared and book value per common share of
Frontier and ALC on a historical basis, for Frontier on a pro forma basis and
for ALC on a pro forma equivalent basis. Pro forma information gives effect to
the Merger under the pooling of interests method of accounting and reflects
certain assumptions on the basis described in the notes to the unaudited Pro
Forma Combined Financial Statements. The data set forth below should be read in
conjunction with the audited and unaudited restated consolidated historical
financial statements of Frontier and the audited and unaudited consolidated
historical financial statements of ALC, including the respective notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
and the unaudited Pro Forma Combined Financial Statements, including the notes
thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus. THE
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS DO NOT REFLECT ANY SYNERGIES
ANTICIPATED BY FRONTIER'S MANAGEMENT AS A RESULT OF THE MERGER. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, ------------------------
1995 1994 1993 1992
--------------- ------ ----- -----
<S> <C> <C> <C> <C>
INCOME BEFORE EXTRAORDINARY ITEMS AND ACCOUNTING
CHANGES PER COMMON SHARE:
Frontier historical................................... $ .38 $1.50 $1.16 $ .96
ALC historical........................................ .52 1.68 1.07 .43
Frontier pro forma.................................... .28 1.01 .82 .53
ALC equivalent pro forma.............................. .56 2.02 1.64 1.06
CASH DIVIDENDS DECLARED PER COMMON SHARE:
Frontier historical................................... $ .21 $.82 $ .80 $ .78
ALC historical........................................ .00 .00 .00 .00
ALC equivalent pro forma.............................. .42 1.64 1.60 1.56
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------------- ------------
<S> <C> <C> <C> <C>
BOOK VALUE PER COMMON SHARE:
Frontier historical............................ $ 10.02 $ 9.89
ALC historical................................. 3.98 3.38
Frontier pro forma............................. 5.94 5.75
ALC equivalent pro forma....................... 11.88 11.50
</TABLE>
11
<PAGE>
COMPARATIVE STOCK PRICES
Frontier Common Stock is listed and traded on the NYSE. ALC Common Stock is
listed and traded on the American Stock Exchange ("AMEX"). The following table
sets forth, for the periods indicated, the high and low sales prices per share
of Frontier Common Stock and ALC Common Stock as reported on the NYSE Composite
Transactions Tape and AMEX Composite Tape, respectively. Sales prices per share
of Frontier Common Stock for periods through March 1994 have been adjusted to
reflect a 2-for-1 split of the Frontier Common Stock effected in the form of a
100% stock dividend which was distributed during April 1994.
<TABLE>
<CAPTION>
FRONTIER COMMON STOCK ALC COMMON STOCK
-------------------- -----------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993
First Quarter......................... $19 7/16 $17 5/16 $17 1/4 $12
Second Quarter........................ 21 3/4 18 1/4 20 3/8 14 5/8
Third Quarter......................... 24 3/8 20 1/2 28 1/4 19 5/8
Fourth Quarter........................ 25 1/8 21 11/16 31 1/2 23 3/4
1994
First Quarter......................... 22 7/16 20 1/4 37 27 7/8
Second Quarter........................ 23 20 7/8 37 27
Third Quarter......................... 24 3/4 21 5/8 36 5/8 29 1/8
Fourth Quarter........................ 24 5/8 20 1/2 38 1/4 27
1995
First Quarter......................... 23 3/8 19 1/4 34 7/8 26 1/8
Second Quarter........................ 24 1/8 19 5/8 45 3/8 32 1/2
Third Quarter......................... 24 7/8 23 3/4 48 45 1/8
(through July 13, 1995)
</TABLE>
On April 7, 1995, the last trading day before public announcement of
execution of the Merger Agreement, the last sale price of Frontier Common Stock
as reported on the NYSE Composite Transactions Tape and the last sale price of
ALC Common Stock as reported on the AMEX Composite Tape were $22 3/4 per share
and $33 1/4 per share, respectively.
On July 13, 1995 the most recent practicable date prior to the printing of
this Joint Proxy Statement/Prospectus, the last sale price of Frontier Stock as
reported on the NYSE Composite Transactions Tape and last sale price of ALC
Common Stock as reported on the AMEX Composite Tape were $24 1/2 per share and
$48 per share, respectively.
Frontier and ALC shareholders should obtain current market quotations for
the Frontier Common Stock and the ALC Common Stock.
12
<PAGE>
RISK FACTORS
SHAREHOLDERS OF ALC AND FRONTIER AND HOLDERS OF ALC STOCK OPTIONS AND ALC
WARRANTS SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING:
Merger Consideration. In determining whether to approve the transactions
pursuant to the Merger Agreement, ALC and Frontier shareholders should consider
that the price of the Frontier Common Stock at the Effective Time as well as the
prices at the date of this Joint Proxy Statement/ Prospectus and at the date of
the Special Meetings may vary as a result of changes in the business, operations
or prospects of Frontier, market assessments of the likelihood that the Merger
will be consummated and the time thereof, general market and economic conditions
and other factors. Because the Effective Time may occur at a later date than the
date of the Special Meetings, there can be no assurance that the sales price of
Frontier Common Stock on the date of the Special Meetings will be indicative of
the sales price of Frontier Common Stock at or after the Effective Time.
Shareholders of ALC should also consider that the Exchange Ratio is fixed
pursuant to the Merger Agreement. Changes in the price of Frontier Common Stock
or ALC Common Stock will not result in an adjustment to the Exchange Ratio and
any such changes will not, in and of themselves, constitute a basis for either
party to terminate the Merger Agreement.
THERE CAN BE NO ASSURANCE WITH RESPECT TO ANY MARKET PRICE OF THE FRONTIER
COMMON STOCK. BROAD MARKET FLUCTUATIONS, AS WELL AS GENERAL ECONOMIC OR
POLITICAL CONDITIONS, MAY ADVERSELY AFFECT THE MARKET PRICE OF THE FRONTIER
COMMON STOCK, REGARDLESS OF THE ACTUAL PERFORMANCE OF FRONTIER OR OF THE
COMBINED ENTITY.
Effects of the Merger. The shares of Frontier Common Stock issued to
shareholders of ALC pursuant to the Merger Agreement will comprise approximately
49% of the total number of shares of Frontier Common Stock issued and
outstanding after the Merger on a fully diluted basis. Based on the present
number of outstanding shares of Frontier Common Stock, there will be
approximately 82 million shares of Frontier Common Stock issued and outstanding
immediately prior to the Effective Time. Following the Effective Time, and
assuming the maximum number of shares of Frontier Common Stock are issued in the
Merger based on the exercise prior to the Effective Time of all ALC Stock
Options and ALC Warrants that are, or will become, exercisable prior to the
Effective Time, there would be up to approximately 162 million shares of
Frontier Common Stock issued and outstanding.
ALC shareholders and Frontier shareholders should also consider that, as a
result of the Merger and Frontier's recent and pending acquisitions of long
distance companies, approximately 70% of Frontier's revenues will be derived
from long distance operations, as compared with approximately 42% before giving
effect to such transactions. While Frontier's management believes that greater
involvement in the long distance segment of the telecommunications market has
the potential to provide significant enhancements to shareholder value, there
are competitive risks associated with long distance operations. Legislation is
now being considered by Congress which, if passed and signed into law by
President Clinton, may permit the entry of the regional Bell telephone operating
companies ("RBOCs") into long distance operations outside the regions served by
their local exchange operations immediately upon enactment, and thereafter
within their regions upon action by the FCC. Each one of the RBOCs has assets
and revenues in excess of the combined assets and revenues of ALC and Frontier
and they are therefore expected to be significant participants in the long
distance market.
The long distance market today is dominated by three major carriers, AT&T
Corp. ("AT&T"), MCI Communications Corporation ("MCI") and Sprint Corporation
("Sprint"), all of which, as well as the fourth largest carrier, LDDS
Communications, Inc. ("LDDS"), own national switching and transmission networks.
While ALC and Frontier own switching facilities in many places across the
country, their owned transmission facilities (fiber optic and digital microwave
networks) tend to be
13
<PAGE>
regional in nature. Thus, the companies' ability to compete is dependent on the
willingness of their larger competitors and others to make available to the
companies on favorable terms long term leases and/or purchases of transmission
capacity.
In addition, recently adopted and proposed regulatory changes in the pending
federal legislation and in many of the states in which Frontier's local exchange
companies operate make it clear that the local exchange business is or will soon
be open to intensifying competition. Such competition is a key assumption
underlying Frontier's "Open Market Plan" approved by the New York State Public
Service Commission ("NYPSC") and Frontier's shareholders in December 1994. See
"THE COMPANIES -- Frontier Corporation". In many areas, the incumbent local
exchange company may be required to continue as the "provider of last resort"
subject to stricter rules than those applying to newer entrants into the same
local market. Frontier's strategy is to provide integrated communications
solutions for its customers which can include bundled long distance, wireless,
local and other services, rather than continue the company's historic reliance
on the local exchange business for the bulk of the company's revenues and
profits. ALC shareholders, however, should consider that Frontier will retain a
significant proportion of its business operations in such local exchange
companies after the Merger.
Restrictions on Payment of Dividends; Holding Company Structure. Although it
is the current intention of the Board of Directors of Frontier to continue to
declare and pay regular quarterly dividends on the Frontier Common Stock in
accordance with past dividend practice, it should be noted that the payment or
amount of any future dividends cannot be assured and will be determined by
Frontier's Board of Directors in light of the earnings and financial condition
of Frontier and its subsidiaries and other factors. Shareholders of ALC should
also consider that Frontier, like ALC, is a holding company and does not
directly own any material assets other than its interest in the capital stock of
its subsidiaries, which, after the Effective Time, would include the Surviving
Corporation. Accordingly, Frontier's cash flow and consequent ability to pay
dividends are substantially dependent upon the earnings and available cash flow
of its subsidiaries and the availability of such earnings to Frontier by way of
dividends, distributions, loans and other advances. Certain agreements to which
ALC is a party currently contain restrictions on the payment of dividends and
distributions by ALC to its shareholders which, after the Merger, could affect
Frontier's ability to pay dividends. In addition, a significant subsidiary of
Frontier, Rochester Telephone Corp. ("Rochester Tel"), remains a regulated
telephone operating company and, under various provisions of the "Open Market
Plan", Frontier's ability to control the management and operations of Rochester
Tel is restricted, including restrictions relating to the composition of the
Board of Directors of Rochester Tel, the compensation of Rochester Tel's
officers and employees, prohibitions on dividend payments from Rochester Tel to
Frontier in specified circumstances, limitations on the amount of Frontier's
stock that may be owned by Rochester Tel's officers and senior management
employees, prohibitions on the use of Rochester Tel's assets to secure the
indebtedness of Frontier or any affiliate, and restrictions on pricing and on
transactions between Rochester Tel and its affiliates. See "DESCRIPTION OF
CAPITAL STOCK OF FRONTIER -- Dividend Rights" and "DESCRIPTION OF CAPITAL STOCK
OF ALC -- Dividend Rights".
14
<PAGE>
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
ALC in connection with the solicitation of proxies by the ALC Board of Directors
for use at the ALC Special Meeting to be held at The Townsend Hotel, 100
Townsend Street, Birmingham, Michigan 48009, on Wednesday, August 16, 1995, at
10:00 a.m., Eastern Daylight Time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to
shareholders of Frontier in connection with the solicitation of proxies by the
Frontier Board of Directors for use at the Frontier Special Meeting to be held
at the Four Seasons Hotel-Philadelphia, One Logan Square, Philadelphia,
Pennsylvania 19103, on Wednesday, August 16, 1995, at 11:00 a.m., Eastern
Daylight Time, and at any adjournment or postponement thereof.
At the ALC Special Meeting, shareholders of ALC will be asked to approve and
adopt the Merger Agreement. At the Frontier Special Meeting, shareholders of
Frontier will be asked to approve the issuance of shares of Frontier Common
Stock necessary for Frontier to meet its obligations under the Merger Agreement
as described below under "THE SPECIAL MEETINGS -- Matters to Be Considered at
Special Meetings -- Frontier Special Meeting". A conformed copy of the Merger
Agreement appears as Annex I to this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Frontier with respect to up to 80,039,248 shares of Frontier Common Stock
issuable to ALC shareholders in the Merger pursuant to the Merger Agreement or
upon exercise of certain stock options and warrants of ALC not issued pursuant
to employee benefit plans, which following the Merger will constitute options
and warrants to purchase shares of Frontier Common Stock under the Merger
Agreement and the terms of such stock options and warrants.
This Joint Proxy Statement/Prospectus, the accompanying forms of proxy and
the other enclosed documents are first being mailed to shareholders of Frontier
and ALC on or about July 17, 1995.
15
<PAGE>
THE COMPANIES
FRONTIER CORPORATION
Frontier, a New York business corporation and the issuer of the Frontier
Common Stock covered by this Joint Proxy Statement/Prospectus, has its principal
executive offices at 180 South Clinton Avenue, Rochester, New York 14646-0700.
Its telephone number is (716) 777-1000.
Frontier, formerly known as Rochester Telephone Corporation, is a major U.S.
diversified telecommunications firm. Frontier has grown from its roots as a
local exchange telephone company in Rochester, New York to a company that
operates 34 local exchange companies in 13 states, a major regional long
distance company and several wireless properties. The long distance company,
Frontier Communications International, has expanded since its founding in the
early 1980's to become the seventh largest long distance company in the country.
Frontier manages cellular and paging communications services in New York State,
Alabama and Minnesota. Frontier also markets and services a wide range of
telecommunications and data equipment.
Frontier was incorporated in 1920 under the laws of New York State to take
over and unify the properties of a predecessor company and certain properties of
the New York Telephone Company which were located in the same general territory.
On January 1, 1995, Frontier reorganized into an unregulated holding company,
following the approval by its shareholders and the NYPSC of its ground breaking
Open Market Plan. Under the Open Market Plan, the Rochester local exchange
telephone market was opened to competition, in exchange for reduced regulation
of Frontier's local exchange telephone operations in that market, including
price cap regulation.
Currently, Frontier's principal lines of business are a major regional long
distance company, wireless communication services, equipment sales and local
telephone operations.
In 1982, Frontier made the strategic decision to enter the long distance
business. Frontier provides long distance services primarily through a
subsidiary, Frontier Communications International, which offers a full range of
long distance voice, video and data communications services for over 787,000
business and residential customers. It provides connections throughout the
United States and to 200 countries. In 1994, Frontier Communications
International carried in excess of 1.3 billion calls over its network and the
number of minutes of use per average business day billed by Frontier
Communications International exceeded 8.5 million. Frontier Communications
International routes long distance traffic over its state-of-the-art network and
resells services obtained from other suppliers to route calls to areas where it
does not currently have its own facilities. Frontier's subsidiaries own and
operate switching centers in 16 metropolitan markets. Its network is 100%
digital and substantial portions of the network incorporate fiber optic and SS7
technology. Over 89% of Frontier's domestic traffic is carried on its own or
leased facilities.
Frontier Communications International's switched services include basic long
distance or measured toll service which is accessible through "1 + dialing", 800
services, a variety of long distance products targeted at specific consumer and
business segments, and value-added services such as travel cards, prepaid
calling cards and information services. Frontier's prepaid calling card product
has expanded the markets for such products through its use of innovative
technology and, among its many features, offers enhanced audio-text services to
users. In addition, Frontier Communications International provides flexible
billing services such as multi-location billing, customized accounting codes and
electronic billing features.
Frontier Communications International has previously focused its marketing
efforts in New York State, New England and the Mid-Atlantic, Southeast and
Midwest regions. In these regions, Frontier Communications International markets
its products through a direct sales force, direct marketing campaigns, sales
agents and affiliated local exchange carriers. The majority of Frontier
Communications International's revenues are derived from small to medium-sized
business customers. Frontier
16
<PAGE>
Communications International has introduced a number of programs designed to
attract new long distance customers, including, for example, the "Budget Call"
feature which enables any telephone user, business or consumer, to dial an
access code and complete a call through Frontier's long distance network and be
invoiced by the customer's local telephone company. At December 31, 1994,
"Budget Call" was available in 19 states and is anticipated to continue
expanding through 1995. The majority of "Budget Call" customers are residential
customers.
As part of Frontier's overall service integration strategy, Frontier
Communications International has significantly increased residential usage
through its "Visions Long Distance" program in which Frontier's long distance
services are marketed through Frontier-owned as well as non-affiliated local
exchange service providers. Through this program, Frontier has achieved
substantial penetrations in several markets as a result of customer preference
for unified billing and service. Because residential long distance calling
volumes peak in the evenings, on weekends and on holidays, when commercial
traffic tends to be lowest, expanding the residential business generates
revenues with virtually no need to increase existing switching and transmission
facilities.
Frontier first began providing cellular communications services in the
Rochester, New York metropolitan area in 1985. Those operations have been
profitable since their first full year of service. In 1994, those operations
were combined with the operations of NYNEX Mobile in the Syracuse, Buffalo and
Watertown areas and the Utica-Rome area served jointly by Frontier and NYNEX
Mobile into a cellular supersystem operating under the name Upstate Cellular
Network. Frontier is the manager of the 50/50 partnership. The territory served
by the partnership, including operations in Western New York in which Frontier
acquired an additional interest in June 1995, includes approximately 4.2 million
potential customers, of which Frontier's proportionate share is approximately
2.1 million. The cellular supersystem provides cellular telephone customers with
expanded geographic coverage and enhanced networking solutions. Virtually all
cellular sites in the supersystem are digital-ready. Frontier also manages
cellular properties in Alabama and Minnesota which serve territories populated
by another approximately 480,000 potential customers. Frontier is a member of
MobiLink, a consortium of various large United States cellular companies.
Frontier's business systems subsidiary designs, installs and maintains
integrated business communications systems for mid- to large-size business
customers. The product line marketed by Frontier currently includes private
branch exchanges, data communications equipment and videoconferencing equipment
produced by some of the world's leading manufacturers.
Prior to 1988, Frontier's Telephone Operations were heavily concentrated in
New York State. Since 1988, Frontier has acquired 29 local telephone companies
and has significantly diversified its geographic base. Frontier's largest
telephone operation is in Rochester, New York and serves approximately 508,000
access lines. Frontier refers to the 33 telephone companies outside of
Rochester, New York as "Regional Telephone Operations". The latter group
includes approximately 416,000 access lines with an aggregate revenue level
nearly equal to that of the Rochester, New York operating company. Three of the
regional companies operate cable television franchises. The networks of
Frontier's Telephone Operations are virtually 100% digital, and deploy 24,000
miles of fiber optic cable and SS7, ISDN and LASS technologies. Frontier has
achieved substantial cost reductions and operating efficiency in its Telephone
Operations business through the elimination of duplicative services and
procedures and the consolidation of administrative functions. Frontier has
reduced the number of employees per 10,000 access lines by over 27% since 1990
and intends to continue to increase its operating efficiency to improve its
competitive position.
Expansion through strategic acquisition and business alliances remains a key
growth vehicle for Frontier. Until the 1970's, Frontier was only a local
exchange telephone company serving the Rochester, New York metropolitan area. In
the mid-1970's, Frontier began a program of acquiring local exchange telephone
companies, first in New York State, then in states in the Mid-Atlantic, Midwest
and
17
<PAGE>
Southeastern United States. Frontier has acquired several long distance
companies with operations in New England and the Mid-Atlantic region. On March
17, 1995, Frontier completed the acquisition of American Sharecom, Inc.
("American Sharecom"), then one of the largest privately-held long distance
companies in the country. American Sharecom's operations are concentrated in the
Midwest, California and the Northwest. On May 18, 1995, Frontier completed the
acquisition of WCT Communications, Inc. ("WCT"), which, through its subsidiary
West Coast Telecommunications, Inc., provides long distance services throughout
the country primarily from operations in California and the western United
States. On July 11, 1995, Frontier completed the acquisition of Enhanced
TeleManagement, Inc., a provider of integrated local and long distance
telecommunications services in Minnesota, Ohio, Washington, Oregon and Illinois.
On May 11, 1995, Frontier announced the acquisitions of Schneider
Communications, Inc., a privately owned long distance company whose operations
are concentrated primarily in Wisconsin, and its affiliate LinkUSA Corporation,
a provider of enhanced services to local and long distance companies.
Frontier's strategic focus is on providing integrated communications
solutions for its customers. These integrated services can include long distance
and local telephone service as well as selected other products and services such
as wireless services and enhanced services that Frontier will market to
customers as a single source provider. Frontier is committed to growth through
expansion of its existing businesses, the development of value-added products
and services, and selected acquisitions.
ALC COMMUNICATIONS CORPORATION
ALC, a Delaware corporation, has its principal executive offices at 30300
Telegraph Road, Bingham Farms, Michigan 48025-4510. Its telephone number is
(810) 647-4060.
ALC was incorporated in Delaware on August 26, 1985. ALC commenced business
on December 19, 1985, the date of the affiliation of two long distance telephone
companies, Allnet and Lexitel Corporation ("Lexitel"). Allnet, a wholly-owned
subsidiary of ALC, now includes the former businesses and operations of both
Allnet and Lexitel.
ALC Communications Corporation is the holding company of Allnet and other
subsidiaries and conducts no other business. ALC operates in one industry
segment. All significant revenues relate to sales of telecommunication services
to the general public. ALC provides long distance telecommunications services
primarily to commercial and, to a lesser extent, residential subscribers in the
majority of the United States and completes subscriber calls to all directly
dialable locations worldwide. Allnet is one of the few nationwide providers of
long distance services and in 1994 carried in excess of 1.1 billion calls over
its network. Allnet operates its own switches, develops and implements its own
products, monitors and deploys its transmission facilities and prepares and
designs its own billing and reporting systems. ALC focuses on a highly
profitable segment of the long distance industry with high industry operating
margins, specifically, commercial accounts, whose calling volume consists
primarily of calls made during regular business hours which command peak-hour
pricing.
ALC provides a variety of long distance telephone products and services to
commercial and residential subscribers nationwide. ALC derives the bulk of its
revenue from outbound and inbound long distance services, which are all marketed
under the Allnet(R) trademark. Many of ALC's products, however, differ from
those of certain of its competitors due to the level of value-added services ALC
offers, the flexibility of product pricing to maintain competitiveness and its
broader geographic reach. ALC categorizes the variety of products it offers
based upon certain primary characteristics: pricing, value-added services,
reporting and 800 services.
ALC endeavors to have sufficient switching capacity, local access circuits
and long-distance circuits at and between its network switching centers to
permit subscribers to obtain access to the switching centers and its long
distance circuits on a basis that exceeds industry standards regarding clarity,
busy signals or delays. ALC's network utilizes fiber optic and digital microwave
transmission
18
<PAGE>
circuits to complete long distance calls. With the exception of a digital
microwave system located in California for which Allnet holds the radio
licenses, such facilities are leased on a fixed price basis under both short and
long term contracts. The California microwave facilities are located on leased
real estate and are subject to zoning and other land use restrictions. In recent
years abundant availability and declining prices have dictated a strategy of
generally obtaining new capacity for terms between six months and one year. ALC
also has two long term contracts which have annual "mark-to-market" clauses.
These provisions function to keep the price ALC pays at or near current market
rates. An important aspect of ALC's operation is planning the mix of the types
of circuits and transmission capacity to be leased or used for each network
switching center so that calls are completed on a basis that is cost effective
for ALC without compromising prompt service and high quality to subscribers.
Over 99% of ALC's domestic traffic is carried on its owned or leased facilities.
As of December 31, 1994, approximately 60% of ALC's employees were engaged
in sales, marketing or customer services. ALC markets its services and products
through personal contacts with an emphasis on customer service, network quality,
value-added services, reporting, rating and promotional discounts. ALC currently
operates a sales network with 54 offices in the United States. As of that date,
ALC employed approximately 1,050 sales, marketing and customer service
individuals. Field sales representatives focus on making initial sales to
commercial users. They solicit business through face-to-face meetings with
small- to medium-sized businesses. Each field sales representative earns a
commission dependent on the customer's usage and value-added services. ALC's
sales strategy is to make frequent personal contact with existing and potential
customers.
ALC services more than 325,000 customers. Of these customers, approximately
120,000 are commercial accounts, with the remainder being residential accounts.
During the past two years, ALC has become more geographically diversified,
adding new markets as necessary. ALC is currently focusing on expanding
distribution channels to increase customer acquisition in specific target
markets. Reseller revenue has continued to grow significantly; as of March 31,
1995 the revenue from one reseller has grown to approximately 16% of total
revenue. It is ALC's understanding that this reseller, through a joint venture
with a subsidiary of IXC Communications, Inc., will be installing long distance
switching capacity during 1995 which, as completed, would result in over half of
this traffic gradually moving to the joint venture network. However, the joint
venture has in turn entered into a three year contract with Allnet, effective as
of April 1, 1995. Allnet will terminate the joint venture traffic that cannot be
terminated on the venture's own network. Allnet also obtained provisions
regarding exclusivity and minimum purchase requirements.
ConferTech was acquired in early 1995 pursuant to a tender offer and
subsequent statutory merger. ConferTech provides teleconferencing services and
audio bridge equipment. ConferTech also designs, develops and markets advanced
equipment and services for the audio teleconferencing market, principally in
North America, through both telemarketing and its own direct sales force
operating from eight automatic conferencing services, called ConferCall(R), to
customers throughout North America. ConferTech's principal equipment systems are
the Tempo(R) and Allegro(R), which are bridges that integrate customized
microprocessor-based hardware and proprietary software in a single call-linking
system in order to enhance and distribute standard telephone signals so that
numerous conferees can be connected in an audio "electronic meeting".
THE SPECIAL MEETINGS
MATTERS TO BE CONSIDERED AT SPECIAL MEETINGS
ALC Special Meeting. At the ALC Special Meeting, holders of shares of ALC
Common Stock will consider and vote upon a proposal to approve and adopt the
Merger Agreement. Holders of shares of ALC Common Stock entitled to vote will
also consider and vote upon any other matter that may properly come before the
ALC Special Meeting.
19
<PAGE>
THE BOARD OF DIRECTORS OF ALC HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
IN THE BEST INTERESTS OF ALC AND ITS SHAREHOLDERS, APPROVED THE MERGER
AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, AND
RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Frontier Special Meeting. At the Frontier Special Meeting, holders of shares
of Frontier Common Stock will consider and vote upon a proposal to approve the
issuance of shares of Frontier Common Stock necessary for Frontier to meet its
obligations under the Merger Agreement, including the issuance of shares of
Frontier Common Stock in the Merger and the reservation of shares of Frontier
Common Stock for issuance upon exercise of certain stock options and warrants of
ALC, which following the Merger will constitute options and warrants to purchase
shares of Frontier Common Stock under the Merger Agreement and the terms of such
stock options and warrants, and of certain stock options which will be granted
in connection with the Merger. Frontier estimates that up to 83,465,892 shares
of Frontier Common Stock may be issuable in connection with such obligations
under the Merger Agreement. Holders of shares of Frontier Common Stock entitled
to vote will also consider and vote upon any other matter that may properly come
before the Frontier Special Meeting.
THE BOARD OF DIRECTORS OF FRONTIER HAS, BY UNANIMOUS VOTE OF THE DIRECTORS
PRESENT, DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
HOLDERS OF FRONTIER COMMON STOCK, APPROVED THE MERGER AGREEMENT, THE MERGER AND
THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS A VOTE FOR THE
APPROVAL OF THE ISSUANCE OF SHARES OF FRONTIER COMMON STOCK NECESSARY FOR
FRONTIER TO MEET ITS OBLIGATIONS UNDER THE MERGER AGREEMENT.
VOTES REQUIRED
ALC. The Merger Agreement must be adopted by the affirmative vote of a
majority of the outstanding shares of ALC Common Stock entitled to vote thereon.
Abstentions and "street name" shares as to which authority to vote is
withheld by the broker ("broker non-votes") will have the effect of votes
against the adoption of the Merger Agreement.
As of April 7, 1995, directors and executive officers of ALC and their
affiliates were beneficial owners of an aggregate of 2,594,669 shares, including
shares that such persons have the right to acquire within the following 60 days
pursuant to options or other rights, (approximately 7.1%) of the outstanding
shares of ALC Common Stock.
Frontier. The issuance of shares of Frontier Common Stock necessary for
Frontier to meet its obligations under the Merger Agreement requires the
approval of a majority of the votes cast on the proposal, provided that the
total votes cast on the proposal represent a majority of the outstanding shares
of Frontier Common Stock entitled to vote thereon.
Abstentions and broker non-votes will not affect the outcome of the vote on
the proposal being considered at the Frontier Special Meeting except to the
extent that abstentions and broker non-votes cause the total votes cast to be
less than a majority of the outstanding shares of Frontier Common Stock entitled
to vote thereon.
As of May 31, 1995, directors and executive officers of Frontier and their
affiliates were beneficial owners of an aggregate of approximately 443,479
shares, including shares that such persons have the right to acquire within the
following 60 days pursuant to options or other rights, (approximately 0.5%) of
the outstanding shares of Frontier Common Stock and of 1,000 shares of ALC
Common Stock.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for the
Special Meetings will be voted at such meetings in the manner specified by the
holders thereof. Properly executed proxies
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which do not contain an instruction to vote for or against or to abstain from
voting on a particular matter described in the proxy will be voted in favor of
such matter.
It is not expected that any matter other than those referred to herein will
be brought before either of the Special Meetings. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters, unless authority to do so is
withheld in the proxy.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Frontier or ALC form of proxy does not
preclude a shareholder from voting in person. A shareholder may revoke a proxy
at any time prior to its exercise by filing with the Corporate Secretary of
Frontier (in the case of a Frontier shareholder) or the Secretary of ALC (in the
case of an ALC shareholder) a duly executed revocation or proxy bearing a later
date or by voting in person at the meeting. Attendance at the relevant Special
Meeting will not of itself constitute a revocation of a proxy.
RECORD DATES; STOCK ENTITLED TO VOTE; QUORUM
ALC. Only holders of record of ALC Common Stock at the close of business on
July 10, 1995 (the "ALC Record Date"), will be entitled to receive notice of and
to vote at the ALC Special Meeting. On the ALC Record Date, ALC had issued and
outstanding 34,440,214 shares of ALC Common Stock. The holders of a majority of
the outstanding shares of ALC Common Stock entitled to vote must be present in
person or by proxy at the ALC Special Meeting in order for a quorum to be
present. Abstentions and broker non-votes will be counted as shares present for
purposes of determining whether a quorum is present at the ALC Special Meeting.
Frontier. Only holders of record of Frontier Common Stock at the close of
business on July 10, 1995 (the "Frontier Record Date") will be entitled to
receive notice of and to vote at the Frontier Special Meeting. On the Frontier
Record Date, Frontier had issued and outstanding 81,873,596 shares of Frontier
Common Stock. For purposes of the Frontier shareholder vote with respect to the
approval of the issuance of shares of Frontier Common Stock necessary for
Frontier to meet its obligations under the Merger Agreement, the holders of a
majority of the shares entitled to vote must be present in person or by proxy at
the Frontier Special Meeting in order for a quorum to be present. Shares of
Frontier Common Stock represented by proxies which are marked "abstain" or which
are not marked as to any particular matter or matters will be counted as shares
present for purposes of determining the presence of a quorum on all matters.
Proxies relating to "street name" shares that are voted by brokers will be
counted as shares present for purposes of determining the presence of a quorum
on all matters, but will not be treated as shares having voted at the Frontier
Special Meeting as to any proposal as to which authority to vote is withheld by
the broker.
APPRAISAL RIGHTS
Holders of ALC Common Stock, regardless of whether or not they vote for the
Merger, will not be entitled to appraisal rights under Delaware law if the
Merger is approved. The Delaware General Corporation Law (the "DGCL") generally
entitles a shareholder to exercise its appraisal rights upon a merger or
consolidation of the corporation effected pursuant to the DGCL if the holder
complies with the requirements of Section 262 thereof. Appraisal rights are
available under Section 262 of the DGCL if holders of shares in a constituent
company, which shares are listed on a national securities exchange (as the ALC
Common Stock is), are required by the terms of the merger to accept
consideration other than shares of stock of the surviving corporation, shares of
stock of any corporation listed on a national securities exchange, designated as
a national market system security by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 shareholders, or cash in lieu
of fractional
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shares. As holders of ALC Common Stock are entitled to receive only Frontier
Common Stock, which is listed on the NYSE, and cash in lieu of fractional shares
under the terms of the Merger Agreement, they are not entitled to appraisal
rights under the DGCL.
Holders of Frontier Common Stock, regardless of whether or not they vote for
the issuance of shares of Frontier Common Stock necessary for Frontier to meet
its obligations under the Merger Agreement, will not be entitled to appraisal
rights under New York law if such issuance is approved and the Merger is
subsequently consummated. The New York Business Corporation Law (the "NYBCL")
generally allows a shareholder who is entitled to vote and does not assent to
approval of a plan of merger to exercise appraisal rights. However, because
Frontier is not a "constituent corporation" (as defined in the NYBCL) in the
Merger, holders of Frontier Common Stock are not entitled under the NYBCL to
vote on the Merger Agreement. Moreover, even if Frontier's shareholders were
deemed to be entitled to vote on the Merger because of their entitlement to vote
on the issuance of shares of Frontier Common Stock in the Merger, Frontier
shareholders would not be entitled to appraisal rights, because shareholders of
a surviving corporation are not entitled to such rights unless a merger effects
certain specified changes in rights of the shares held by such shareholders,
none of which changes occur in the Merger.
SOLICITATION OF PROXIES
Subject to the Merger Agreement, each of Frontier and ALC will bear the cost
of the solicitation of proxies from its own shareholders, except that Frontier
and ALC will share equally the cost of printing and mailing this Joint Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of each corporation and its subsidiaries may solicit
proxies from shareholders of such corporation by telephone or telegram or in
person. Such directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses in connection therewith. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of shares held of record by such
persons, and Frontier and ALC will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
Georgeson & Company, Inc. will assist in the solicitation of proxies by
Frontier for fees of $6,500, plus reasonable out-of-pocket expenses. Morrow &
Co. will assist in the solicitation of proxies by ALC for fees of $6,500, plus
reasonable out-of-pocket expenses.
HOLDERS OF FRONTIER COMMON STOCK AND ALC COMMON STOCK SHOULD
NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
GENERAL
Frontier, Sub and ALC have entered into the Merger Agreement, which provides
that, subject to the satisfaction or waiver of the conditions set forth therein
(see "-- Conditions to the Consummation of the Merger"), Sub will be merged with
and into ALC and ALC will be the Surviving Corporation in the Merger. As soon as
practicable after the closing under the Merger Agreement, the Certificate of
Merger will be filed with the Secretary of State of the State of Delaware, and
the time of such filing will be the Effective Time unless otherwise provided in
the Certificate of Merger. Subject to certain provisions as described herein
with respect to shares owned by ALC or any of its subsidiaries, or by Frontier,
Sub, or any other subsidiary of Frontier and with respect to fractional shares,
each issued and outstanding share of ALC Common Stock will be converted in the
Merger into the right to receive from Frontier two fully paid and nonassessable
shares of Frontier Common Stock.
THE DESCRIPTION OF THE MERGER AGREEMENT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS DESCRIBES THE MATERIAL TERMS OF THE MERGER AGREEMENT BUT
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE MERGER AGREEMENT, A COPY OF WHICH IS INCLUDED AS APPENDIX I TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
BACKGROUND OF THE MERGER
The recent history of the long distance business has been one of
consolidation, as carriers have recognized the need to increase their economies
of scale and scope. In recent years, there have been numerous significant
mergers or acquisitions within the business.
As a part of their respective strategies in light of the changing
telecommunications industry, each of Frontier and ALC has reviewed a wide range
of strategic options, including the possibilities of various strategic alliances
and combinations, acquisitions of other companies or assets, and continued
internal growth. Initially, the discussions between Frontier and ALC were in the
context of exploring all strategic alternatives available to each company, but
later discussions began to focus on a proposal that ultimately resulted in the
execution of the Merger Agreement.
ALC and Frontier have been, together with others, joint venturers in
telecommunications endeavors. Effective July 1, 1992, Frontier Communications
International (then named RCI Network Services, Inc.) joined Allnet, Metromedia
Communications Corporation and Cable & Wireless plc ("C&W") as an additional
partner in the International Carrier Group Joint Venture. The purpose of the
Joint Venture is to have the carrier partners pool their international traffic
so that better rates and discounts could be obtained from international carriers
based on the call traffic volume of the Joint Venture. Allnet, Frontier
Communications International and C&W continue to be part of the Joint Venture.
In an Intercarrier Agreement between the Joint Venture, the individual partners
and MCI dated December 29, 1994, MCI has agreed to transport each carrier's
international traffic based on volumes generated by all three carriers. In
addition, in July 1993, Allnet and Frontier Communications International entered
into a Services Agreement pursuant to which the parties provide transport
services to one another for certain telecommunications traffic in designated
areas. The Agreement was modified in 1995 and is still in effect with Allnet
providing the transport services at this time.
Following a dinner on November 17, 1993 during which Ronald L. Bittner,
Chairman of the Board, President and Chief Executive Officer of Frontier, and
John M. Zrno, President and Chief Executive Officer of ALC, first raised the
possibility of a strategic transaction between Frontier and ALC, the initial
tentative explorations by management of ALC and Frontier took place at a meeting
held on November 30, 1993 attended by Mr. Bittner, Louis L. Massaro, Corporate
Vice President-Finance of Frontier, Mr. Zrno and Marvin C. Moses, Executive Vice
President and Chief Financial Officer of ALC. The executives exchanged, orally,
information providing an overview of the industry, the operations of their
respective companies and some of the available strategic alternatives being
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explored by each company in light of the changing industry. At this meeting, the
executives of ALC told Frontier's executives that, because the transfer of ALC
Common Stock, Class B Preferred and Class C Preferred by Communications
Transmission, Inc., the company's former parent, to certain banks on August 18,
1992 resulted in an ownership change for purposes of the pooling rules, ALC
would not be able to participate in a transaction to be accounted for as a
pooling of interests until after August 18, 1994.
Between December 1993 and February 1994 there were a number of meetings and
other contacts between senior executive officers of Frontier and ALC at which
there were general discussions regarding possible revenue enhancements, cost
savings and other synergies that might be available if a strategic alliance
between Frontier and ALC were to occur. Discussions between the two companies
trailed off because volatility in the relative performance of Frontier Common
Stock and ALC Common Stock during this period made valuation more difficult.
Several months later, Mr. Massaro initiated a meeting with Mr. Moses, which
occurred on May 6, 1994, to reestablish the relationship and dialogue between
the two companies and to inquire into ALC's interest in the possibility of a
strategic transaction between the companies. At the meeting, Mr. Massaro
presented Mr. Moses with additional general information about Frontier and
information on how the financial statements of the two companies might appear on
a pro forma basis if there were a strategic alliance between them. The
executives discussed the future of the telecommunications industry in light of
the many recently announced merger and acquisition transactions, continued
deregulation, technology convergences, service integration and the need to
deploy sophisticated information systems.
During May and June 1994, there were several additional meetings between
representatives of the two companies.
The representatives of the companies did not discuss any specific terms of
any prospective transaction at any of the foregoing meetings. Beginning in June
1994, the Board of Directors of Frontier and the Executive Committee thereof
began periodically to review information about ALC among other alternative
strategic options and to receive reports on the progress of discussions with
representatives of ALC. The Board of Directors of ALC began to include
discussions regarding Frontier in its periodic reviews of possible strategic
alliances.
In September 1994, Salomon, which had been engaged by ALC to assist ALC in
evaluating its strategic options, contacted Frontier at ALC's request, due to
the history of periodic discussions between executives of the two companies. On
September 28, 1994, representatives of Salomon went to Rochester to meet with
senior executives of Frontier and Frontier's investment bankers, Lazard. At this
meeting, there was discussion of a wide range of strategic alliances between the
companies, but Frontier's representatives were particularly interested in the
discussion of a possible strategic merger of equals between Frontier and ALC.
Frontier's attention during this period, however, was directed largely on the
Open Market Plan, which was then pending before the NYPSC.
On November 16, 1994, Mr. Bittner, Mr. Massaro and certain other senior
executives of Frontier and Mr. Zrno, Mr. Moses and William H. Oberlin, Executive
Vice President and Chief Operating Officer of ALC, together with representatives
of their respective investment bankers, met at Lazard's offices in New York to
review in more detail Frontier's strategy for growing through integrated service
offerings and how acquisitions in the long distance segment could enhance that
strategy, the historic performance of both companies and how a strategic merger
might assist both companies in addressing the vastly more competitive future of
the industry.
In early January 1995, Messrs. Bittner, Massaro, Zrno and Moses met with
representatives of their respective investment bankers to renew discussions
about the possibility of a strategic merger involving the companies. At this
meeting, the parties discussed the desirability of maintaining Frontier's
dividend policy and generally discussed ranges of exchange ratios of Frontier
Common Stock for ALC Common Stock, some organizational issues and the relative
size and type of any "break-up" fees that would be
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provided for in a definitive agreement. ALC's executives agreed that they would
be willing to begin a tightly controlled due diligence investigative process,
through intensive discussions among a very small select number of senior
executives of the companies, to determine whether a strategic transaction might
be possible. The executives of the companies emphasized that no transaction
could be considered unless they were comfortable that it would enhance
shareholder value. The due diligence investigations were conducted on January 12
and 13, 1995, when the senior executive officers of the two companies for
finance and operations, together with representatives of their respective
investment bankers, met to exchange detailed financial projections and operating
plans and results of their respective companies, subject to previously executed
confidentiality agreements.
At a meeting of the Frontier Board of Directors held on January 16, 1995,
the Board reviewed information about ALC and a possible strategic merger between
the companies.
Following several meetings between representatives of the two companies
during January and February 1995, contacts between the two companies ceased as a
result of market considerations.
In March 1995, Mr. Moses and Mr. Massaro met to reconsider the companies'
situation and to determine whether or not to reopen discussions between the
companies regarding a strategic merger. The two chief financial officers
discussed recent developments, business plans and the expected first quarter
1995 results of each company, as well as Frontier's estimate, based on
discussions with ALC, of possible synergies available to a combined entity. Mr.
Massaro indicated that Frontier would be willing to consider a higher exchange
ratio than the parties had previously discussed because of ALC's continuing
improvements in operating results and if Frontier could conclude that greater
synergies from a business combination were available than previously projected.
During the first half of the week of April 3, 1995, Messrs. Bittner and Zrno
spoke several times on the telephone about whether, due to ALC's continued
improvement in financial results as well as an enhanced judgment as to available
synergies, Frontier could offer an exchange ratio acceptable to ALC. During one
such conversation, Mr. Zrno told Mr. Bittner that, after consultation with
Salomon, which had discussed with Lazard the factors relevant to the
determination of an appropriate exchange ratio, ALC had concluded that an
exchange ratio of 2:1 should be the benchmark. Mr. Bittner responded that
Frontier might consider a 2:1 ratio but only if Frontier's economic analysis of
the transaction could substantiate an enhancement to Frontier's shareholder
value and all other issues in connection with a merger were satisfactorily
resolved. Late in the day on April 5, 1995, they agreed that the parties should
meet in New York City, beginning on April 7, to see if they could reach a
definitive agreement for a merger involving their companies.
Beginning on Friday, April 7, 1995 and continuing through the weekend,
representatives of the two companies and their respective investment bankers and
lawyers met to negotiate the definitive terms of a merger agreement pursuant to
which a subsidiary of Frontier would be merged with and into ALC, resulting in
ALC becoming a wholly owned subsidiary of Frontier. Finally, in the early
afternoon of Sunday, April 9, the parties reached an agreement in principle on a
merger pursuant to a form of merger agreement that became the Merger Agreement.
At a special meeting held on April 9, 1995, and after extensive
presentations by management and legal and financial advisors on the background
and reasons for the proposed transaction, the details of the transaction
structure, the anticipated financial impact to Frontier of the transaction and
the terms of the Merger Agreement (including the analyses and opinion of Lazard
described below as to the fairness of the Exchange Ratio, see "--Opinions of
Financial Advisors--Frontier"), the Board of Directors of Frontier, by unanimous
consent of the directors present (one director being absent), determined that
the Merger was fair to and in the best interests of the holders of shares of
Frontier Common Stock, approved the Merger Agreement, the Merger and the other
transactions contemplated thereby and unanimously recommended that the holders
of shares of Frontier Common Stock vote in favor of a proposal to approve the
issuance of shares of Frontier Common Stock necessary for Frontier to meet its
obligations under the Merger Agreement. By written consent of the directors
dated April 9,
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1995 in lieu of a meeting, the Board of Directors of Sub unanimously approved
the Merger Agreement, the Merger and the other transactions contemplated
thereby, and by written consent dated April 9, 1995 in lieu of a meeting,
Frontier, as the sole shareholder of Sub, approved and adopted the Merger
Agreement.
Prior to meeting as a Board of Directors to consider the advisability of the
Merger, on April 9, 1995 the outside directors of ALC met together at a meeting
attended only by such directors and outside counsel to ALC. During the meeting,
the outside directors discussed in detail the background of the Merger and the
advisability from a business perspective of the Merger and the salient terms of
the Merger Agreement, among other things, and received legal advice on such
topics. The directors also reviewed with counsel their fiduciary duties under
Delaware law.
Immediately following the meeting of outside directors of ALC, at a special
meeting held on April 9, 1995, the Board of Directors of ALC, after extensive
presentations by legal advisors concerning the salient terms of the Merger
Agreement and the fiduciary duties of the directors under Delaware law and by
financial advisors concerning the fairness, from a financial point of view, of
the Exchange Ratio under the Merger Agreement (as described under "Opinions of
Financial Advisors--ALC"), unanimously determined that it was advisable and in
the best interests of ALC to enter into the Merger Agreement, unanimously
approved the terms and provisions of the Merger Agreement, unanimously voted to
submit the Merger Agreement and the Merger to ALC shareholders for approval and
adoption at a Special Meeting of shareholders and unanimously voted to recommend
to the shareholders of ALC that they approve and adopt the Merger Agreement.
In the evening of April 9, 1995, following the special meetings of their
respective boards of directors, Frontier and ALC entered into the Merger
Agreement.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
Recommendation of the ALC Board of Directors; Reasons for the Merger.
The Board of Directors of ALC has unanimously determined that it was
advisable and in the best interests of ALC to enter into the Merger Agreement,
unanimously approved the terms and provisions of the Merger Agreement,
unanimously voted to submit the Merger Agreement and the Merger to ALC
shareholders for approval and adoption at a special meeting of shareholders and
unanimously voted to recommend to the shareholders of ALC that they approve and
adopt the Merger Agreement.
In reaching its decision to approve and adopt the Merger Agreement and to
recommend that the ALC shareholders vote to approve and adopt the Merger
Agreement, the ALC Board of Directors considered, among other things, the
following factors: (i) its knowledge of the business, operations, assets,
financial condition and operating results of ALC, (ii) prior presentations by
ALC's management as well as presentations by Salomon with respect to ALC and
Frontier, (iii) the opinion of Salomon described below as to the fairness of the
consideration to be received by shareholders of ALC in the Merger (see "--
Opinions of Financial Advisors -- ALC"), (iv) the terms of the Merger Agreement,
which were the product of extensive arms' length negotiations and a sustained
Board involvement and review, (v) the historical trading prices and dividend
rates for Frontier Common Stock, (vi) the compatibility of the respective
business philosophies of ALC and Frontier and (vii) the opportunity for ALC
shareholders to participate as holders of Frontier Common Stock, in a larger,
more diversified company of which ALC would be a significant part, and to do so
by means of a transaction that is designed to be tax-free to ALC's common
stockholders.
The ALC Board of Directors, through a lengthy process which involved
extensive exploration of other strategic alternatives, including the possibility
of various strategic alliances and combinations, acquisitions of other companies
or assets and continued internal growth, and detailed input on several occasions
from outside advisors to the Board, considered the financial analyses described
under "--
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Opinions of Financial Advisors -- ALC", its knowledge of ALC's businesses and
its views concerning the business, financial condition and prospects of
Frontier. The analyses and opinion of ALC's financial advisor were important
elements of the ALC Board's evaluation of the financial terms of the proposed
transaction and its conclusion that those terms were in the best interests of
ALC shareholders.
The ALC Board of Directors, with the assistance of ALC's financial advisor,
also considered recent and current market prices of the Frontier Common Stock
and concluded that Frontier Common Stock was trading in a reasonable range prior
to announcement of the transaction. Additional potential for increased value of
Frontier was seen in the strengthening and diversification of the combined
Frontier/ ALC businesses, as compared to those of either Frontier or ALC alone.
The merger of equals would allow the combined company to achieve critical size
and scope, two strategic elements which the ALC Board believes are necessary for
long-term success in the long distance telephone industry. The combination would
allow the possibility of synergies, efficiencies in and cost savings to the
combined Frontier/ALC operations from the Merger. The ALC Board of Directors
additionally considered that the Merger would generally be tax-free to ALC
shareholders for federal income tax purposes (other than in respect of cash
received in lieu of fractional shares) and a "pooling of interests" for
accounting and financial purposes.
The ALC Board's recommendation was also favorably influenced by the proposed
inclusion on the Frontier Board of Directors and in Frontier senior management
after the Merger of representatives familiar with ALC's business and operations.
Similarly, the ALC Board of Directors took account of the terms and conditions
of the Merger Agreement as well as the ALC Board's belief that the interests of
ALC's customers, suppliers, employees and the community in which ALC has
operated will be well served by Frontier after the consummation of the Merger.
For over a year ALC has engaged in an extensive process to assess its
strategy in the telecommunications industry. As part of this process, ALC
reviewed the possibilities of various strategic alliances and combinations, the
acquisition of other entities and/or assets, or simply continuing to grow
internally. ALC did not receive any other substantive proposals other than the
proposal submitted by Frontier. Therefore, the decision of whether or not ALC
should enter into the Merger Agreement and the related transactions was not
taken to the exclusion of any other specific opportunity. Rather, the decision
was analyzed initially in the context of such other general strategic
alternatives available to ALC and finally with respect to the analysis of this
particular proposal.
The foregoing discussion of the information and factors considered and given
weight by the ALC Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the ALC Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the ALC Board
of Directors may have given different weights to different factors. For a
discussion of the interests of certain members of ALC's management and ALC's
Board of Directors in the Merger, see "-- Interests of Certain Persons in the
Merger".
THE ALC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ALC
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Recommendation of the Frontier Board of Directors; Reasons for the Merger.
At a meeting held on April 9, 1995, the Board of Directors of Frontier by
unanimous consent of the directors present (one director being absent),
determined that the Merger is fair to and in the best interests of the holders
of shares of Frontier Common Stock, approved the Merger Agreement, the Merger
and the other transactions contemplated thereby and recommended that the holders
of shares of Frontier Common Stock vote in favor of a proposal to approve the
issuance of shares of Frontier Common Stock necessary for Frontier to meet its
obligations under the Merger Agreement.
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In reaching these conclusions, the Frontier Board of Directors considered,
with the assistance of management and legal and financial advisors, among other
things, (i) the strategic factors discussed below, (ii) information concerning
the financial performance and condition, business operations, assets,
liabilities and prospects of ALC and its projected future values and prospects
as a separate entity and on a combined basis with Frontier, (iii) projected
operating synergies expected at this time to include the consolidation of
operating facilities and information systems and technology, utilization of
ALC's national network capability to reduce costs and incremental revenue from
bundling or otherwise jointly marketing value-added services, (iv) current
industry, economic and market conditions, (v) the structure of the transaction,
(vi) the terms of the Merger Agreement and other documents executed in
connection with the Merger, (vii) the analyses and opinion of Lazard described
below as to the fairness of the Exchange Ratio (see "-- Opinions of Financial
Advisors -- Frontier"), (viii) the ability of the combined entity to compete in
relevant markets, (ix) regulatory approval requirements, (x) possible future
changes in the legal environment for long distance and local telephone services,
(xi) legal considerations for the Board in applying its fiduciary
responsibilities to the proposed transaction, (xii) the support of the principal
executive officers of ALC for the proposed transaction and their willingness to
enter into the Employment Agreements (as hereinafter defined) to assure
continuity of successful management of the combined entity and (xiii) the impact
of the Merger on employees, customers and communities served. In reaching its
conclusions, the Frontier Board of Directors specifically considered the facts
that pro forma combined financial statements with respect to certain past fiscal
periods, including the unaudited pro forma combined financial statements to be
presented in this Joint Proxy Statement/Prospectus, would reflect a negative
impact on income per share and book value per common share as a result of the
Merger and that the Merger was projected to have a dilutive effect on Frontier's
earnings per share through 1996, becoming accretive to Frontier's earnings per
share in 1997. The Frontier Board of Directors also considered the possibility
that the announcement of the execution of the Merger Agreement would cause
rating agencies to place Frontier's senior unsecured debt under review for
potential downgrade in response to the Merger, but the Board nevertheless
considered the Merger to be in the best interests of the shareholders in light
of the overall circumstances.
The telecommunications industry is undergoing profound changes as a result
of competition, deregulation and technological advances. While AT&T remains a
dominant force in the industry, with an estimated 60% market share in long
distance and an estimated 65% of the potential customers in the U.S. in wireless
through its recent purchase of McCaw Cellular Communications, Inc. ("McCaw") and
the recent FCC auctions of licenses for personal communications systems, other
carriers such as MCI, Sprint and LDDS have grown significantly by eroding AT&T's
market share and making acquisitions of smaller retail and wholesale providers.
Within the last year, AT&T has purchased McCaw, the nation's largest
wireless service provider and has successfully bid on a number of licenses in
the personal communications service that is expected to be a substitute for
cellular service. The RBOCs have been barred since January 1, 1984 from the long
distance market, but judicial action on April 28, 1995 has removed part of that
remaining barrier with respect to wireless services and prospective
Congressional legislation may reduce or remove the barrier in the near term. One
of the RBOCs, Ameritech Corp., has petitioned the federal court to permit
Ameritech's entry into the interLATA market in Chicago and Grand Rapids,
Michigan in exchange for opening these local markets to competition. As a
consequence, in May 1995 AT&T filed applications with the state regulatory
authorities to enter the local exchange markets in Chicago and Grand Rapids.
Frontier and ALC have both recognized the need to grow to be able to compete
effectively in the changing telecommunications industry and to avail themselves
of greater economies of scale and scope in both their transport and local access
requirements and back office operations. For this reason, Frontier began a
number of years ago to acquire, first, local exchange companies, then wireless
and long distance companies, to complement its operations centered in New York
State.
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Because Frontier has not been part of the Bell system, it was able to enter
the long distance business and was one of the first telephone companies to
establish a long distance subsidiary. Because New York State was one of the
first states to deregulate the telephone equipment sale and installation
business, Frontier experienced early on the benefits of integrating service
offerings in the equipment and long distance markets. As regulatory conditions
permitted and Frontier's local exchange operations expanded into other states,
Frontier increasingly used its experience in serving end user customers to sell
a variety of telecommunications products and services.
Frontier's scope was not national, however. Frontier therefore undertook the
search for merger partners or acquisitions that could provide geographic reach,
shared Frontier's vision of integrated telecommunication services offerings and
whose culture and values, including a strong focus on customer satisfaction and
service, were similar to Frontier's. Frontier also recognized that the ability
to provide integrated solutions requires sophisticated information systems to
capture data and to perform billing.
Frontier believes that ALC has demonstrated success in the long distance
business, including the development of a flexible and dependable billing system.
ALC is just now entering the cellular market through resale operations. Frontier
believes that its own experience and success in the local exchange, cellular and
long distance markets are excellent complements to ALC's recognized strengths.
Thus, the Board of Directors of Frontier believes that the Merger will
result in a stronger combined entity with the financial and management resources
to compete effectively in the rapidly changing marketplace for
telecommunications services and to take advantage of opportunities that may not
be available to either company on its own. Frontier management believes that the
size of this transaction allows Frontier to expand substantially in a single
strategic move. Size alone is expected to bring several benefits. The combined
companies should be able to become a more significant competitor in the
telecommunications industry, with an expanded capital base and increased
operating efficiencies.
The foregoing discussion of the information and factors considered and given
weight by the Frontier Board of Directors is not intended to be exhaustive. In
view of the variety of factors considered in connection with its evaluation of
the Merger, the Frontier Board of Directors did not find it practicable to and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Frontier Board of Directors may have given different weights to different
factors. For a discussion of the interests of certain members of Frontier
management and the Frontier Board of Directors in the Merger, see "-- Interests
of Certain Persons in the Merger".
THE FRONTIER BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF FRONTIER
COMMON STOCK VOTE FOR APPROVAL OF THE ISSUANCE OF SHARES OF FRONTIER COMMON
STOCK NECESSARY FOR FRONTIER TO MEET ITS OBLIGATIONS UNDER THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
ALC. Salomon has delivered its written opinion, dated April 9, 1995, to the
Board of Directors of ALC to the effect that, based upon and subject to various
considerations set forth in such opinion, as of that date, the Exchange Ratio in
the Merger was fair to the holders of ALC Common Stock from a financial point of
view.
THE FULL TEXT OF SALOMON'S OPINION, DATED APRIL 9, 1995, WHICH SETS FORTH
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY
SALOMON, IS ATTACHED AS APPENDIX II TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND
IS INCORPORATED HEREIN BY REFERENCE. ALC SHAREHOLDERS ARE URGED TO READ
CAREFULLY SUCH OPINION IN ITS ENTIRETY. SALOMON'S OPINION IS DIRECTED ONLY TO
THE EXCHANGE RATIO IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
ALC SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE ALC MEETING. THE
SUMMARY OF THE SALOMON OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
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In arriving at its opinion, Salomon (i) reviewed the proposed Merger
Agreement (including the exhibits thereto), (ii) reviewed certain publicly
available business, financial and trading information relating to each of ALC
and Frontier, (iii) reviewed certain other information, including financial
forecasts for each of ALC and Frontier, provided to Salomon by ALC and Frontier,
respectively, and information regarding anticipated synergies provided to
Salomon by ALC and Frontier and (iv) discussed the past and current operations,
financial condition and prospects of ALC and Frontier with their respective
senior managements and discussed with both companies' senior managements the
combined companies' prospects following the Merger. Salomon also considered such
other information, studies, analyses, investigations and financial, economic,
market and trading criteria as it deemed relevant.
In arriving at its opinion, and in its April 9, 1995 presentation to the ALC
Board of Directors referred to below, Salomon did not assume any obligations to
verify any of the foregoing information and relied on such information being
complete and accurate in all material respects. With respect to the financial
forecasts, Salomon assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of ALC's and
Frontier's managements as to the future financial performance of ALC and
Frontier, respectively, and Salomon expressed no opinion with respect to such
projections (or the assumptions upon which they were based). Salomon did not
make an independent evaluation or appraisal of the assets of ALC or of Frontier,
nor was it furnished with any such appraisal. In addition, Salomon assumed that
(i) the Merger would be accounted for as a pooling of interests transaction in
accordance with generally accepted accounting principles and (ii) the Merger
would qualify as a reorganization under the provisions of Section 368 of the
Code. Salomon's opinion was necessarily based upon business, market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of its opinion. Salomon's opinion related solely to the fairness, from a
financial point of view, of the Exchange Ratio and did not address ALC's
underlying business decision to effect the Merger.
In connection with its opinion, Salomon made a presentation to the ALC Board
of Directors on April 9, 1995 with respect to certain analyses performed by
Salomon in arriving at its opinion and other considerations. The following is a
brief summary of such Salomon presentation.
Transaction Valuation Summary. Salomon noted that, based solely on the
Frontier Common Stock closing market price of $22.75 on April 7, 1995 (although
Salomon noted that such market price might not be indicative of what Frontier
Common Stock's market price would be following announcement or consummation of
the Merger or at any other time), the Exchange Ratio of two shares of Frontier
Common Stock for each one share of ALC Common Stock, approximately 39.6 million
fully diluted shares of ALC Common Stock and net ALC debt of $41 million, the
proposed Merger would represent a firm value for ALC of $1,841 million. This
firm value represented a multiple of 3.24x ALC's revenues for the last twelve
months for which information was publicly available ("LTM"), 14.85x ALC's LTM
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
17.37x ALC's LTM earnings before interest and taxes ("EBIT"). For a discussion
of these multiples of value relating to comparable acquisition transactions
involving other long distance carriers, see "Private Market Valuation."
Contribution Analysis. Salomon analyzed the pro forma contributions from
each of Frontier and ALC to the combined company upon consummation of the
Merger. Salomon analyzed, among other things, the effect on actual results for
1994 and projected results for 1995 and 1996 (based on projections provided by
management of ALC and Frontier with respect to their respective companies
(adjusted, in the case of Frontier, for the American Sharecom acquisition)), the
relative contributions of each of Frontier and ALC to the combined company's
revenues, EBITDA, EBIT and net income. This portion of Salomon's analysis did
not take into account any synergies or cost savings that might be available as a
result of the Merger. The relative contribution analysis showed that ALC would
have contributed, on a pro-forma basis for 1994, 37% of revenues, 27% of EBITDA,
33% of EBIT and 39% of
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net income and slightly larger percentages for 1995 and 1996. Salomon noted that
at the Exchange Ratio (and assuming the exercise of all outstanding ALC Stock
Options and ALC Warrants with the exercise price used to repurchase ALC Common
Stock at $45.50 per share), former ALC shareholders would own approximately 49%
(as adjusted for Frontier's acquisition of American Sharecom) of the outstanding
shares of Frontier on a fully diluted basis immediately following the Merger,
and accordingly 1994 and projected 1995 and 1996 pro forma revenue, EBITDA, EBIT
and net income per share of ALC Common Stock would be correspondingly increased.
Analysis of ALC. Salomon reviewed the historical operating results for ALC
for 1990 through 1994. For 1990 to 1994 the compounded annual growth rate
("CAGR") of revenues was 14.9% and of EBITDA was 85.1%. The CAGRs for 1991 to
1994 (EBIT and net income being negative in 1990) for EBIT and net income were
64.6% and 120.6%, respectively. Salomon also reviewed ALC management projections
for 1995 and 1996.
Stock Trading History and Exchange Ratio Analysis. Salomon reviewed the
history of the trading prices of the ALC Common Stock and the Frontier Common
Stock in relation to each other and the relationship between price movements of
such common stocks. Salomon compared the historical ratios of the closing price
of ALC Common Stock to the closing price of Frontier Common Stock during the
one-year period from and including April 1, 1994 through and including April 5,
1995. The high, low, and average ratios for such periods were approximately
1.72, 1.16 and 1.44, respectively. On April 5, 1995, the ratio of the closing
price of ALC Common Stock to that of Frontier Common Stock was 1.46. By
comparison, the Exchange Ratio is 2.0 shares of Frontier Common Stock for each
share of ALC Common Stock.
Public Market Valuation. Salomon reviewed certain publicly available
financial information and stock market performance data of selected publicly
traded companies in the U.S. long distance industry with the financial and stock
market performance of ALC. The publicly traded companies reviewed by Salomon in
this analysis were the three first-tier long distance companies (AT&T, MCI and
Sprint), and two second-tier long distance companies (LCI International, Inc.
("LCI") and LDDS (such second-tier companies, together with MCI, the "Selected
Companies")). Salomon reviewed the price/earnings ratios: for LTM (which ranged
from 13.0x to 21.1x for the five companies and as to which the mean
price/earnings ratio for the Selected Companies was 19.1x); for composite
analysts' estimates for 1995 (which ranged from 12.1x to 20.5x for the five
companies and as to which the mean price/earnings ratios for the Selected
Companies was 17.2x); and for composite analyst's estimates for 1996 (which
ranged from 11.3x to 16.0x for the five companies, and as to which the mean
price/earnings ratio for the Selected Companies was 14.1x). By comparison, the
LTM, 1995 composite estimate and 1996 composite estimate price/earnings ratios
for ALC were 19.7x, 16.3x and 13.3x, respectively. Salomon also reviewed
multiples of firm value of the five companies (defined as equity market value
plus total debt and preferred stock less cash and marketable securities) to: LTM
revenues (which ranged from 1.1x to 2.5x and as to which the mean multiple of
firm value to LTM revenues for the Selected Companies was 2.0x); EBITDA (which
ranged from 4.9x to 12.0x and as to which the mean multiple of firm value to LTM
EBITDA for the Selected Companies was 9.6x) and EBIT (which ranged from 9.0x to
20.1x and as to which the mean multiple of firm value to LTM EBIT for the
Selected Companies was 16.8x). By comparison, the multiples of ALC's firm value
(based on the ALC Common Stock April 5, 1995 closing market price of $33.00 per
share) to LTM revenues, EBITDA and EBIT were 2.3x, 10.6x and 12.1x respectively.
Applying the Selected Companies' mean LTM and 1995 composite estimated
price/earnings ratios to ALC's LTM earnings per share and 1995 composite
estimated earnings per share ($1.67 and $2.14, respectively) implied values per
share of ALC Common Stock of $31.90 and $36.81, respectively. Applying the
Selected Companies' mean ratios of firm value to LTM revenue and LTM EBITDA to
ALC's LTM revenue and LTM EBITDA implied values per share of ALC Common Stock of
$27.65 and $29.03, respectively. The median of these four implied values per
share of ALC Common Stock was
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$30.47. By comparison, Salomon noted that the ALC Common Stock during the prior
twelve months had ranged from $27.50 to $38.13 and that the value of the shares
of Frontier Common Stock to be received for each share of ALC Common Stock was
$45.50 based solely on the April 7, 1995 closing price for Frontier Common
Stock, although Salomon noted that such market price was not necessarily
indicative of what the Frontier Common Stock market price would be following
announcement or consummation of the Merger or at any other time.
Private Market Valuation. Salomon also reviewed the long distance carrier
private merger and acquisition environment and, with respect to certain
announced and/or completed acquisitions of such carriers since June 1992, the
transaction value, premium to market value, the ratios of firm value to LTM
revenue, EBITDA and EBIT, and the ratio of the acquisition price to earnings per
share. The transactions reviewed were American Sharecom's acquisition by
Frontier, WCT's acquisition by Frontier, WilTel Network Services' acquisition by
LDDS, ACC Corporation's proposed (but terminated) acquisition by LDDS, Resurgens
Communications Corp.'s acquisition by Metromedia Corporation, Resurgens
Communications Corp.'s subsequent acquisition by LDDS, and Advanced
Telecommunications Corp.'s acquisition by LDDS. The premium to market value for
the three publicly traded companies acquired or proposed to be acquired ranged
from 16.8% to 39.0% with a median of 31.3%. The ratios of firm value to LTM
revenues, EBITDA and EBIT for the companies acquired or proposed to be acquired
as to which meaningful information was available, ranged from 0.9x to 3.1x (with
a median of 2.1x), 11.7x to 21.2x (with a median of 13.0x) and 19.8x to 23.0x
(with a median of 20.8x), respectively. The ratio of the acquisition price to
LTM earnings per share for the one acquisition as to which meaningful
information was available was 29.2x. Applying the median of the ratios of firm
value to LTM revenue and EBITDA from such transactions to ALC's LTM revenues
($568 million) and EBITDA ($124 million), respectively, implied a value per
share of ALC Common Stock of $29.09 and $39.67 respectively. Meaningful
information with respect to the ratio of the acquisition price to earnings per
share was available only for one of the transactions reviewed; applying the
ratio of the acquisition price to earnings per share for this one transaction to
ALC's LTM earnings per share implied a value of $48.76 per share of ALC Common
Stock.
Analysis of Frontier. Salomon derived firm value for Frontier of $2,278
million, based on Frontier Common Stock's closing price of $22.75 on April 7,
1995. The multiple of firm value to: Frontier's LTM revenues was 2.3x; LTM
EBITDA was 6.7x; and LTM EBIT was 10.4x. The price/earnings ratio of Frontier
Common Stock was 16.1 based on historical 1994 results. Salomon noted that
Frontier's current dividend yield was 3.6%. Salomon also reviewed Frontier
management projections for 1995 and 1996.
Salomon reviewed certain publicly available financial information and stock
market performance data of selected publicly traded companies in the U.S. local
telephone service industry with the financial and stock market performance of
Frontier. The publicly traded companies reviewed by Salomon in this analysis
were ALLTEL Corporation ("ALLTEL"), Cincinnati Bell Inc. and Southern New
England Telecommunications Corporation ("SNET"). With respect to these companies
Salomon reviewed the price/earnings ratios: for LTM (which ranged from 12.1x to
18.0x and as to which the mean price/earnings ratio was 16.4x); for composite
analysts' estimates for 1995 (which ranged from 12.1x to 17.4x and as to which
the mean price/earnings ratio was 15.1x); and for composite analysts' estimates
for 1996 (which ranged from 11.6x to 14.6x and as to which the mean
price/earnings ratio was 13.4x). By comparison, the LTM, 1995 composite estimate
and 1996 composite estimate price/earnings ratios for Frontier were 16.1x, 14.4x
and 12.6x, respectively. Salomon also reviewed multiples of firm value of the
three companies to: LTM revenues (which ranged from 1.6x to 2.5x and as to which
the mean was 2.0x); EBITDA (which ranged from 4.5x to 7.4x and as to which the
mean was 6.0x); and EBIT (which ranged from 8.4x to 11.9x and as to which the
mean was 10.6x). By comparison, the multiples of Frontier's firm value to LTM
revenues, EBITDA and EBIT were 2.3x, 6.7x and 10.4x, respectively.
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Salomon reviewed certain publicly available financial information of
selected companies and, in the case of Frontier, certain information provided by
Frontier's management in the various business segments in which Frontier
operates to derive an implied public market valuation based on business
segments. For the local telephone business segment, Salomon applied both the
average and the median multiples for the telephone operations of ALLTEL,
Cincinnati Bell Inc., Lincoln Telecommunications Corporation and SNET of firm
value to: revenues (each 2.1x), EBITDA (4.8x and 4.7x, respectively), EBIT (8.3x
and 7.2x, respectively), net income (each 11.5x) and number of access lines
($1,424 and $1,381, respectively) to reach an implied range of the firm value of
Frontier's local telephone business of $1.271 billion to $1.506 billion. For the
long distance segment, Salomon applied the mean of the multiples for ALC, LCI
and LDDS of firm value to revenues (2.4x), EBIT (17.3x) and net income (20.4x)
to reach an implied range of firm values for Frontier's long distance business
(excluding American Sharecom which was acquired in March 1995) of $388 million
to $763 million, to which it added the $200 million purchase price paid by
Frontier for American Sharecom to reach an implied firm value range for the long
distance segment of $588 million to $963 million. For the cellular business
segment, Salomon applied the average of the multiples of firm values for United
States Cellular Corporation and Vanguard Cellular Systems Inc. to numbers of
POPs (the net number of U.S. persons represented by the interests owned) ($147),
revenues (8.4x) and EBITDA (36.2x) to reach an implied firm value range for
Frontier's cellular business segment of $302 million to $311 million. For
Frontier Network Systems Inc., Frontier's equipment sales and marketing
business, Salomon obtained a firm value range of $21 million to $28 million by
applying multiples of 6.0x and 8.0x to EBITDA and multiples of 12.0x and 15.0x
to net income. By adding the segments' ranges of firm values Salomon derived an
implied net value per Frontier share of $21.58 to $29.22, compared with the
April 7, 1995 closing market price of $22.75.
Other Factors. Salomon noted other qualitative factors and industry trends
in its presentation, including ALC's financial turnaround in recent years and
its growth and margin improvement, the ongoing consolidation of the second tier
long-distance providers, Frontier's goals of expanding beyond the region in
which it currently operates, the increased future liquidity of a combined
company through a diversified and larger shareholder base and potential tax
efficiencies. Salomon also noted that Frontier Common Stock currently paid a
cash dividend while ALC Common Stock did not.
General. In preparing its opinion to the Board of Directors of ALC, Salomon
performed a variety of financial analyses, the material portions of which are
summarized above. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. Each methodology utilized by Salomon that
resulted in an implied range of value for ALC supported Salomon's opinion that
the Exchange Ratio was fair to the holders of ALC Common Stock from a financial
point of view. However, in arriving at its opinion Salomon did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each. Salomon
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes underlying Salomon's opinion. The projections
prepared by the management of each of ALC and Frontier underlying Salomon's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such projections. With regard to
the comparable public company analysis and the comparable transaction analysis
summarized above, Salomon selected comparable public companies on the basis of
various factors, including the size of the public company and similarity of the
line of business; however, no public company utilized as a comparison is
identical to ALC, Frontier or the business segment for which a comparison was
made. Accordingly, an analysis of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the acquisition or public trading value of the
comparable companies to which ALC, Frontier or their respective business
segments are being compared. Estimates
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of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities actually may be sold. As noted
under the caption "-- Recommendation of the ALC Board of Directors; Reasons for
the Merger", the fairness opinion of Salomon was only one of many factors
considered by the ALC Board of Directors in determining to approve the Merger
Agreement.
Salomon is an internationally recognized investment banking firm
continuously engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions, and for corporate and other purposes. Salomon
has in the past provided investment banking services to Frontier, for which it
has received customary compensation. In the ordinary course of business, Salomon
has traded the equity securities of ALC and the debt and equity securities of
Frontier for its own account and the accounts of its customers and, accordingly,
at any time may hold a long or short position in such securities.
Pursuant to a letter agreement dated September 14, 1994, Salomon was engaged
to act as financial advisor to assist ALC in evaluating its strategic options,
including a review of various business combinations and other strategic
transactions. ALC agreed to pay Salomon a cash fee based on the market value, as
of the date of consummation of the Merger, of the Frontier Common Stock used as
consideration in the Merger. Based on the closing price of Frontier Common Stock
of $22.75 as of April 7, 1995, such fee would amount to $8.52 million. Amounts
of $150,000 and $500,000 payable by ALC initially and upon the execution of the
Merger Agreement, respectively, will be credited against such fee. The remainder
is payable upon consummation of the Merger. ALC has also agreed to reimburse
Salomon for its out-of-pocket expenses, including reasonable fees and
disbursements of counsel. ALC has agreed to indemnify Salomon and certain
related persons against certain liabilities, including certain liabilities under
the federal securities laws, relating to or arising out of its engagement.
FRONTIER. Lazard has delivered to the Frontier Board of Directors the
written opinion of Lazard to the effect that, based upon and subject to various
considerations set forth in such opinion, as of April 9, 1995, the Exchange
Ratio was fair to the holders of Frontier Common Stock from a financial point of
view. No limitations were imposed by the Frontier Board of Directors upon Lazard
with respect to the investigations made or the procedures followed by Lazard in
rendering its opinion.
THE FULL TEXT OF THE OPINION OF LAZARD DATED APRIL 9, 1995, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX III TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. FRONTIER SHAREHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY. LAZARD'S OPINION IS DIRECTED ONLY TO THE
EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY FRONTIER
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE. THE SUMMARY OF THE OPINION
OF LAZARD SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with its opinion, Lazard (i) analyzed certain historical
business and financial information relating to Frontier and ALC; (ii) reviewed
certain financial forecasts and other data provided to Lazard by Frontier and
ALC relating to their respective businesses; (iii) held discussions with members
of the senior management of Frontier and ALC with respect to the businesses of
Frontier and ALC, respectively, and the possible benefits that might be realized
following the Merger; (iv) reviewed public information with respect to certain
other companies in lines of businesses Lazard believed to be comparable to the
businesses of Frontier and ALC; (v) reviewed the financial terms of certain
recent business combinations involving companies in lines of businesses Lazard
believed to be comparable to those of Frontier and ALC; (vi) reviewed the
historical stock prices and trading volumes of Frontier's and ALC's common
stock; and (vii) conducted such other financial studies, analyses and
investigations as Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the financial and other
information that was reviewed by Lazard, and did not assume any responsibility
for the independent verification of such
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information or any independent valuation or appraisal of any of the assets or
liabilities of Frontier or ALC, nor was Lazard provided with any such
appraisals. With respect to the financial forecasts referred to above, Lazard
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of Frontier and ALC as to the future financial
performance of their business. Lazard assumed no responsibility for and
expressed no view as to such forecasts or the assumptions on which they were
based. Lazard's opinion was necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to it as
of, the date of its opinion.
In rendering its opinion, Lazard assumed that the Merger would be
consummated on the terms described in the Merger Agreement, without any waiver
of any terms or conditions by Frontier, and that obtaining the necessary
regulatory approvals for the Merger would not have a material adverse effect on
Frontier or the projected benefits of the Merger to Frontier.
In arriving at its opinion and making its presentation to the Frontier Board
of Directors at the April 9, 1995 meeting of such Board, Lazard considered and
discussed certain financial analyses and other factors. In connection with its
presentation on April 9, 1995, Lazard provided the Frontier Board of Directors
with a summary of results obtained by using several different valuation methods
as well as other materials concerning the common stock and businesses of
Frontier and ALC (such summary and other materials collectively referred to as
the "Lazard Presentation").
The following paragraphs summarize the Lazard Presentation.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
methodology, Lazard estimated the present value of future free cash flows of ALC
if ALC were to perform in accordance with projections developed by Frontier
management based on operating forecasts of ALC management for 1995 and 1996 and
extrapolations thereof. The DCF analysis also assumed that the synergies
projected by Frontier management would be realized in the Merger. Free cash flow
represents the amount of cash generated and available for principal, interest
and dividend payments after providing for ongoing business operations. Lazard
aggregated (x) the present value of the projected free cash flow over the six-
year period from 1995 to 2000 with (y) the present value of the range of
terminal values described below. The range of terminal values was calculated by
applying multiples of 9.0x to 11.0x to ALC's EBIT. This range of terminal values
represented ALC's value beyond 2000. As part of the DCF analysis, Lazard used
discount rates of 12%, 14% and 16%. Based on the DCF analysis, Lazard determined
a range for a total value (excluding net indebtedness) of ALC of $2.1 billion to
$2.5 billion.
Comparable Public Company Analysis. Lazard compared certain publicly
available financial, operating and stock market performance data of selected
publicly traded companies in the U.S. long distance industry with the financial,
operating and stock market performance of ALC and the pro forma combined
Frontier/ALC entity. The publicly traded companies reviewed by Lazard in this
analysis were the following second-tier long distance companies: LCI, LDDS and
U.S. Long Distance Corp.; and the long distance segments of the following
first-tier long distance companies: AT&T, MCI and Sprint. For these comparable
companies, Lazard examined, among other things and in each case based on
projected 1995 results, multiples of closing stock prices at April 7, 1995 to
earnings (which ranged from 13.5x to 20.6x) and multiples of market
capitalization (defined as market value of common equity plus net indebtedness,
preferred stock and minority interests) to revenue (which ranged from 1.1x to
2.2x), market capitalization to EBITDA (which ranged from 5.9x to 9.2x) and
market capitalization to EBIT (which ranged from 9.6x to 14.4x). The projected
results were derived from published research reports of certain analysts
covering the selected companies. Lazard compared these multiples for the
selected companies to the multiples (the "Transaction Multiples") implied by the
Exchange Ratio for ALC (assuming realization of the synergies projected by
Frontier management). The corresponding Transaction Multiples for ALC, based on
projected 1995 results as provided by Frontier management, were slightly below
the high end of the range of multiples of the closing stock price at April 7,
1995 to
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earnings for the comparable companies, exceeded the high end of the range of
multiples of market capitalization to revenue and market capitalization to
EBITDA for the comparable companies and slightly exceeded the mid-point of the
range of multiples of market capitalization to EBIT of the comparable companies.
Lazard noted that the Transaction Multiples were at the high end of the range of
multiples for the second-tier long distance companies, which have business
profiles similar to that of ALC, but above the range of multiples for the
first-tier long distance companies, which trade at lower valuations than
second-tier companies because of lower growth expectations, among other reasons.
Comparable Transaction Analysis. Lazard also reviewed the consideration paid
or proposed to be paid in other acquisitions of long distance companies.
Specifically, Lazard reviewed the following acquiror/acquiree transactions:
Frontier/American Sharecom, Inc. (1994); Frontier/WCT (1994); LDDS/Williams
Telecommunications Group, Inc. (WilTel) (1994); British Telecommunications
plc/MCI (1993); and LDDS/Resurgens Communications Group, Inc. (1993). The
analysis considered the multiples of the aggregate value of each such
transaction to latest twelve-month EBIT (which ranged from 8.9x to 23.0x), to
latest twelve-month EBITDA (which ranged from 7.3x to 13.0x) and to latest
twelve-month sales (which ranged from 1.0x to 2.9x) (prior to the announcement
thereof). Lazard compared these multiples to the Transaction Multiples implied
by the Exchange Ratio for ALC, assuming the Merger closed on June 30, 1995. The
corresponding Transaction Multiples for ALC, based on projected results for the
twelve months ending June 30, 1995 provided by Frontier management, were
slightly below the mid-point of the range of multiples of value to EBIT and
slightly below the high end of the range of multiples of value to EBITDA and
sales.
Dilution Analysis. Lazard analyzed the dilution or accretion to Frontier's
earnings per share upon consummation of the Merger, based on information
provided by Frontier management and assuming realization of the synergies
projected by Frontier management. Utilizing projections provided by Frontier
management for ALC operating performance in 1995 and 1996, Lazard calculated
that the Merger would dilute Frontier's earnings per share by greater than 10%
in 1995, diminishing to less than 5% in 1996, and would result in accretion to
Frontier's earnings per share beginning in 1997.
Contribution Analysis. Lazard analyzed the pro forma contributions from each
of Frontier and ALC to the combined company, assuming the Merger is consummated
as set forth in the Merger Agreement. Lazard analyzed, among other things, in
each case for the actual results in 1994 and for the estimated results in 1995
and 1996 (based on projections provided by Frontier management), the relative
contribution to the combined company from each of Frontier's and ALC's sales,
EBITDA, EBIT, free cash flow (defined as net income plus depreciation and
amortization less capital expenditures), net income and book value. This portion
of Lazard's analysis did not assume the realization of any synergies. The
relative contribution analysis showed that, for 1995, Frontier would contribute
62% of sales, 72% of EBITDA, 65% of EBIT, 60% of free cash flow and 61% of net
income, with ALC contributing the remainder in each case. For 1994, the relative
contribution analysis showed that Frontier would have contributed 66% of sales,
74% of EBITDA, 68% of EBIT, 73% of free cash flow and 62% of net income, with
ALC contributing the remainder in each case. The analysis also showed that
Frontier and ALC contribute 88% and 12% of book value, respectively. Upon
consummation of the Merger, holders of Frontier Common Stock will own
approximately 51% of the combined company on a fully diluted basis and former
holders of ALC Common Stock will own the remaining approximately 49%.
Other Considerations. Lazard also considered in its analysis certain
qualitative factors and industry trends. These included, among others, the
operations, services, markets and potential therefor of ALC, Frontier and the
combined entity after giving effect to the Merger. Lazard reviewed the strategic
rationale for the Merger presented by Frontier management, including the
synergies expected to be realized in the Merger, that the increased size and
scale of Frontier's operations would allow Frontier to compete more effectively
in the rapidly consolidating telecommunications industry and that the Merger
would increase the percentage of Frontier's overall business represented by the
higher-
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growth and value-added long distance services. Lazard noted that long distance
companies typically trade at higher multiples than local telephone companies.
Lazard also noted that while the Merger strengthens Frontier's projected credit
ratios, the combined company has greater exposure to the long distance market
than Frontier had prior to the Merger and is, accordingly, less diversified
among different business segments (because long distance sales would represent
69% of projected 1995 sales for the combined company compared to 51% of
projected 1995 sales for Frontier on a stand-alone basis) and more subject to
changes and competition in the long-distance market.
As described in detail above, each of the methodologies utilized by Lazard
did determine a range of value for ALC that supported Lazard's conclusion in its
opinion that the Exchange Ratio was fair to the holders of Frontier Common Stock
from a financial point of view.
In arriving at its opinion and in preparing the Lazard Presentation, Lazard
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a complete
description of the analyses performed by Lazard. In addition, Lazard believes
that its analyses must be considered as a whole and that selecting portions of
such analyses and the factors considered by it, without considering all of such
analyses and factors, could create an incomplete view of the process underlying
its analyses set forth in the opinion and the Lazard Presentation. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. With regard to the
comparable public company analysis and the comparable transaction analysis
summarized above, Lazard selected comparable public companies on the basis of
various factors, including the size of the public company and similarity of the
line of business; however, no public company utilized as a comparison is
identical to Frontier, ALC or the business segment for which a comparison is
being made. Accordingly, an analysis of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the acquisition or public trading value of the
comparable companies to which Frontier, ALC or their respective business
segments are being compared.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond Frontier's or ALC's control. Any estimates
contained in such analyses are not necessarily indicative of actual past or
future results or values, which may be significantly more or less than such
estimates. Estimates of values of companies or parts of companies do not purport
to be appraisals or necessarily to reflect the price at which such companies or
parts may actually be sold, and such estimates are inherently subject to
uncertainty.
Lazard is an internationally recognized investment banking firm that
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions. The Frontier Board of Directors
selected Lazard to act as its financial advisor on the basis of Lazard's
international reputation, Frontier's prior relationship with Lazard and Lazard's
familiarity with Frontier. Lazard has in the past and is currently providing
investment banking services to Frontier, for which it has received or will
receive customary fees. On May 1, 1995, Lazard statutorily converted from a
limited partnership to a limited liability company.
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Pursuant to a letter agreement dated January 13, 1995 between Frontier and
Lazard, Lazard agreed to act as financial advisor to Frontier in connection with
the Merger. Frontier agreed to pay Lazard a cash fee equal to $4.5 million, of
which $1.5 million was paid upon execution of the Merger Agreement, with the
remainder payable upon closing of the Merger. Frontier also agreed to indemnify
Lazard and certain related persons against certain liabilities, including
liabilities under the federal securities laws, relating to, or arising out of,
its engagement.
As noted under the caption "-- Recommendation of the Frontier Board of
Directors; Reasons for the Merger", the fairness opinion of Lazard was only one
of many factors considered by the Frontier Board of Directors in determining to
approve the Merger Agreement.
ALC FINANCIAL FORECAST DATA
ALC DOES NOT AS A MATTER OF COURSE PUBLICLY DISCLOSE FORECASTS AS TO ITS
FUTURE REVENUES, EARNINGS OR OTHER FINANCIAL INFORMATION. CERTAIN FORECASTS FOR
THE YEARS 1995 AND 1996 WERE PREPARED BY MANAGEMENT OF ALC AND FURNISHED TO
FRONTIER IN CONNECTION WITH THE NEGOTIATION OF THE TERMS OF THE MERGER. SUCH
FORECASTS ARE BEING SUMMARIZED BELOW SOLELY BECAUSE THEY WERE SO FURNISHED TO
FRONTIER, AND THE SUMMARY BELOW SHOULD NOT BE INTERPRETED AS SUGGESTING THAT
FRONTIER RELIED SOLELY UPON SUCH FORECASTS IN EVALUATING A TRANSACTION WITH ALC.
THESE FORECASTS ARE NOT INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ORDER TO INDUCE ANY SHAREHOLDER TO VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT OR FOR THE ISSUANCE OF SHARES OF FRONTIER
COMMON STOCK NECESSARY FOR FRONTIER TO MEET ITS OBLIGATIONS UNDER THE MERGER
AGREEMENT OR TO ACQUIRE SECURITIES OF FRONTIER. NONE OF ALC, FRONTIER OR ANY OR
THEIR FINANCIAL ADVISORS OR ANY OF THEIR RESPECTIVE DIRECTORS OR OFFICERS
ASSUMES ANY RESPONSIBILITY AS A RESULT OF THEIR INCLUSION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS FOR THE ACCURACY OF SUCH FORECASTS. THE 1995 AND 1996
FORECASTS WERE BASED UPON A VARIETY OF ASSUMPTIONS, INCLUDING THOSE SET FORTH
BELOW. SUCH ASSUMPTIONS INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS,
FUTURE ECONOMIC, COMPETITIVE AND REGULATORY CONDITIONS, FINANCIAL MARKET
CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF
ALC. WHILE ALC BELIEVES THAT THE ASSUMPTIONS UNDERLYING THESE FORECASTS ARE
REASONABLE, THERE CAN BE NO ASSURANCE THAT THE FORECASTS WILL PROVE TO BE
ACCURATE. ACCORDINGLY, IT IS EXPECTED THAT THERE WILL BE DIFFERENCES BETWEEN
ACTUAL AND PROJECTED RESULTS, AND ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR
LOWER THAN THOSE SHOWN. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN
FORECASTS OF ANY KIND, THE INCLUSION OF FORECASTS HEREIN SHOULD NOT BE REGARDED
AS A REPRESENTATION BY ALC, FRONTIER OR ANY OTHER PERSON THAT THE FORECASTS WILL
BE ACHIEVED. INVESTORS ARE CAUTIONED THAT THE FORECASTS ARE NOT TO BE REGARDED
AS FACTS AND SHOULD NOT BE RELIED UPON AS AN ACCURATE REPRESENTATION OF FUTURE
RESULTS.
THE FORECASTS BELOW WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION REGARDING FORECASTS,
NOR WERE THEY PREPARED IN ACCORDANCE WITH THE GUIDELINES ESTABLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FOR PREPARATION AND
PRESENTATION OF FINANCIAL FORECASTS. IN ADDITION, THE FORECASTS DO NOT PURPORT
TO PRESENT OPERATIONS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND HAVE NOT BEEN AUDITED, COMPILED OR OTHERWISE EXAMINED BY ERNST &
YOUNG LLP, ALC'S INDEPENDENT ACCOUNTANTS, OR BY ANY OTHER INDEPENDENT
ACCOUNTANTS. ACCORDINGLY, NEITHER ERNST & YOUNG LLP, NOR ANY OTHER INDEPENDENT
ACCOUNTANTS ASSUME ANY RESPONSIBILITY FOR THE FORECASTS PRESENTED BELOW.
NEITHER ALC NOR FRONTIER INTENDS PUBLICLY TO UPDATE OR OTHERWISE PUBLICLY TO
REVISE THE FORECASTS TO REFLECT CIRCUMSTANCES EXISTING AFTER APRIL 7, 1995, OR
TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IF EXPERIENCE OR FUTURE
CHANGES IN ASSUMED CONDITIONS MAKE IT CLEAR THAT THE FORECASTS ARE INACCURATE.
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Material assumptions on which the forecasts presented below are based
include the following:
1. An increase in revenue from 1994 to 1995 of 39.5%, based on
increasing traffic growth and the effect of the acquisition of ConferTech,
and from 1995 to 1996 of 21.3%, based on increasing traffic growth.
2. An increase in cost of services, expressed as a percentage of
revenues, from the 1994 level of 53.7% to 56.6% in 1995, declining slightly
to 56.2% in 1996. The increase is based on the assumption that, despite the
increase in traffic growth, there will be a decline in the revenue-per-
minute figure due to changes in ALC's customer mix.
3. A decrease in sales and general administrative expense, as a
percentage of revenues, from 25.5% in 1994 to 22.2% in 1995 and 21.6% in
1996, due to the relatively faster growth in revenue than in variable costs
over the period.
In general, the overall industry pricing of long distance services has been
assumed to remain generally stable from 1994 to 1996 notwithstanding anticipated
significant competition in the long-distance market. See "SUMMARY -- Other
Significant Considerations".
ALC SELECTED FINANCIAL FORECAST DATA
(DOLLARS IN THOUSANDS)
1995 1996
-------- --------
Revenues.............................................. $792,200 $960,600
EBITDA................................................ 168,100 213,600
EBIT.................................................. 140,600 180,600
Net Income............................................ 82,600 108,800
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to shares
owned by ALC, Frontier or any subsidiary of ALC or Frontier, and with respect to
fractional shares, each issued and outstanding share of ALC Common Stock will be
converted into the right to receive from Frontier two fully paid and
nonassessable shares of Frontier Common Stock.
Fractional shares of Frontier Common Stock will not be issued in the Merger.
Holders of ALC Common Stock otherwise entitled to a fractional share of Frontier
Common Stock will be paid cash in lieu of such fractional share determined and
paid as described in "--Fractional Shares" below.
The Exchange Ratio was determined through negotiations between Frontier and
ALC, each of whom was advised with respect to such negotiations by its
respective financial advisor. Based on the number of shares of ALC Common Stock
and the number of ALC stock options and warrants outstanding on the ALC Record
Date, a maximum of 80,039,248 shares of Frontier Common Stock may be issued in
respect of shares of ALC Common Stock in the Merger, assuming that all ALC stock
options and warrants that are, or prior to the anticipated Effective Time will
be, exercisable are exercised prior to the Effective Time, and 3,426,644
additional shares would be reserved for issuance upon exercise of options and
warrants assumed by Frontier pursuant to the Merger Agreement.
Any shares of ALC Common Stock owned by ALC or any of its subsidiaries or by
Frontier, Sub or any other subsidiary of Frontier will automatically be
cancelled at the Effective Time and will cease to exist.
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EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing and acceptance of the
Certificate of Merger with the Secretary of State of the State of Delaware or
such later date as is specified in such Certificate. The filing of the
Certificate of Merger will occur as soon as practicable following the
satisfaction or waiver of the conditions set forth in the Merger Agreement. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the Consummation of
the Merger".
THE MERGER AGREEMENT PROVIDES THAT, SUBJECT TO CERTAIN LIMITATIONS, THE
MERGER AGREEMENT MAY BE TERMINATED BY ONE OR ALL PARTIES AT ANY TIME PRIOR TO
THE FILING OF THE CERTIFICATE OF MERGER WITH THE DELAWARE SECRETARY OF STATE IF,
AMONG OTHER REASONS, THE MERGER HAS NOT BEEN CONSUMMATED ON OR BEFORE DECEMBER
31, 1995, NOTWITHSTANDING APPROVAL OF THE MERGER AGREEMENT BY THE SHAREHOLDERS
OF ALL OR ANY OF THE CONSTITUENT CORPORATIONS IN THE MERGER. SEE "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- TERMINATION".
CONVERSIONS OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of ALC Common Stock into the right to receive Frontier Common
Stock will occur at the Effective Time of the Merger.
As soon as reasonably practicable after the Effective Time, The First
National Bank of Boston, as Exchange Agent (the "Exchange Agent"), will send a
transmittal form (the "Letter of Transmittal") to each holder of ALC Common
Stock. The Letter of Transmittal will contain instructions with respect to the
surrender of certificates representing ALC Common Stock in exchange for
certificates representing the shares of Frontier Common Stock or the amount of
cash in lieu of a fractional interest in a share of Frontier Common Stock for
which the shares represented by the certificates so surrendered are exchangeable
pursuant to the Merger Agreement.
ALC SHAREHOLDERS SHOULD NOT FORWARD ALC STOCK CERTIFICATES
TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates which prior thereto represented shares
of ALC Common Stock will, upon surrender to the Exchange Agent of such
certificate or certificates and acceptance thereof by the Exchange Agent, be
entitled to a certificate or certificates representing the number of full shares
of Frontier Common Stock and the amount of cash, if any, into which the
aggregate number of shares of ALC Common Stock previously represented by such
certificate or certificates surrendered will have been converted. The Exchange
Agent will accept such certificates upon compliance with such reasonable terms
and conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. After the Effective Time,
there will be no further transfer on the records of ALC or its transfer agent of
certificates representing shares of ALC Common Stock and if such certificates
are presented for transfer, they will be cancelled against delivery of
certificates for Frontier Common Stock (and cash, if any, in lieu of fractional
shares of Frontier Common Stock) pursuant to the Merger Agreement. Until
surrendered in accordance with the Merger Agreement, each certificate for shares
of ALC Common Stock will be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the consideration
contemplated by the Merger Agreement. No interest will be paid or will accrue on
any cash payable in lieu of any fractional shares of Frontier Common Stock.
No dividends or other distributions declared or made after the Effective
Time with respect to Frontier Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered certificate for
shares of ALC Common Stock with respect to the shares of Frontier Common Stock
represented thereby, and no cash payment in lieu of fractional shares will be
paid to any
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such holder, until the surrender of such certificate in accordance with the
Merger Agreement. Subject to the effect of applicable laws, following surrender
of any such certificate, there will be paid to the holder of such certificate a
certificate or certificates representing whole shares of Frontier Common Stock
issued in exchange therefor, without interest, (i) at the time of such surrender
or as promptly thereafter as practicable, the amount of any cash payable with
respect to a fractional share of Frontier Common Stock to which such holder is
entitled pursuant to the Merger Agreement and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Frontier Common Stock and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such whole shares of
Frontier Common Stock.
No dividends or other distributions with respect to Frontier Common Stock
with a record date prior to the Effective Time will be paid to holders of shares
of ALC Common Stock, notwithstanding that such dividends or other distributions
may be made after the Effective Time.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Frontier Common
Stock will be issued upon surrender for exchange of certificates formerly
representing shares of ALC Common Stock, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a shareholder of
Frontier. In lieu of any such fractional shares, each holder of ALC Common Stock
upon surrender of a certificate for exchange pursuant to the Merger Agreement
will be paid an amount in cash (without interest), rounded to the nearest cent,
equal to the product obtained by multiplying the fractional share interest to
which such holder would otherwise be entitled (after taking into account all
shares of ALC Common Stock then held by such holder) by the closing price for a
share of Frontier Common Stock on the NYSE Composite Transactions Tape on the
first business day immediately preceding the Effective Time. For this purpose,
shares of any holder represented by two or more certificates may be aggregated,
and in no event will any holder be paid any amount in respect of more than one
share of Frontier Common Stock.
Frontier and ALC do not presently anticipate that the Merger will result in
any fractional share interests in Frontier Common Stock.
CONDUCT OF BUSINESS PENDING MERGER
Pursuant to the Merger Agreement, each of Frontier and ALC has agreed to
carry on its respective businesses and those of its subsidiaries prior to the
Effective Time of the Merger in the usual, regular and ordinary course in
substantially the same manner as previously conducted and to be subject to
certain other restrictions. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT --
Certain Pre-Closing Covenants".
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of Frontier, Sub and ALC to consummate the Merger are
subject to various conditions, including, without limitation, obtaining
requisite shareholder approval, the authorization for listing on the NYSE of the
shares of Frontier Common Stock issuable to ALC shareholders pursuant to the
Merger Agreement, obtaining all necessary regulatory approvals, the filing and
effectiveness of the Registration Statement, the receipt of letters of
independent accountants to Frontier and ALC that the Merger qualifies for
"pooling of interests" accounting treatment, the absence of any injunction or
other legal restraint or prohibition preventing the consummation of the Merger
and the receipt of opinions of counsel in respect of certain federal income tax
consequences of the Merger. See "CERTAIN
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PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the Consummation of the
Merger" and "REGULATORY APPROVALS".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences associated with the Merger under the Code, assuming that the Merger
is consummated as contemplated herein. Because the following discussion does not
describe all the potentially relevant tax considerations, each holder of ALC
Common Stock should consult its own tax advisor regarding the tax consequences
of the Merger in light of such holder's own situation, including the application
and effect of any state, local or foreign income and other tax laws. In
particular, the discussion set forth below does not discuss the federal income
tax considerations relevant to certain persons, including holders of ALC Stock
Options or ALC Warrants, and may not apply to certain holders subject to special
tax rules including, without limitation, foreign persons, dealers in securities,
tax-exempt entities and holders that acquired their ALC Common Stock pursuant to
the exercise of employee stock options or otherwise as compensation. No rulings
have been or will be requested from the Internal Revenue Service or any other
taxing authority with respect to any of the matters discussed herein. The
discussion is based upon the federal income tax laws as in effect on the date
hereof, and there can be no assurance that future legislation, regulations,
administrative rulings or court decisions will not adversely affect the accuracy
of the statements contained herein.
A. In General. Debevoise & Plimpton, counsel for ALC, and Simpson Thacher &
Bartlett (a partnership which includes professional corporations), counsel for
Frontier, are each of the opinion that the Merger will constitute a
reorganization under Section 368(a) of the Code. THESE OPINIONS ARE BASED ON
CERTAIN ASSUMPTIONS AS WELL AS ON REPRESENTATIONS RECEIVED FROM ALC AND
FRONTIER. THE FOLLOWING DISCUSSION ASSUMES THE MERGER WILL QUALIFY AS A
REORGANIZATION.
B. Tax Treatment of Holders of ALC Common Stock. Exchanges of ALC Common
Stock pursuant to the Merger will have the federal income tax consequences
described below. The discussion below assumes that the ALC Common Stock
exchanged by each holder in the Merger is held as a capital asset.
1. Exchange of ALC Common Stock Solely for Frontier Common Stock. A holder
that exchanges all of its ALC Common Stock solely for Frontier Common Stock in
the Merger will not recognize gain or loss on the exchange. The aggregate
adjusted tax basis of the Frontier Common Stock received will be equal to the
aggregate adjusted tax basis of the ALC Common Stock exchanged (reduced by the
basis allocated to fractional shares, if any), and the holding period of the
Frontier Common Stock received will include the holding period of the ALC Common
Stock exchanged.
2. Cash Received in Lieu of Fractional Shares of Frontier Common Stock. No
fractional shares of Frontier Common Stock will be issued in the Merger. A
holder that receives cash in lieu of a fractional share of Frontier Common Stock
will be treated as having received such fractional share of Frontier Common
Stock and having sold it to Frontier. The holder generally will recognize
capital gain or loss equal to the difference between the basis for the
fractional share of Frontier Common Stock and the cash received in the deemed
sale to Frontier of such share.
C. Tax Treatment of Frontier, Sub and ALC. No gain or loss will be
recognized by Frontier, Sub or ALC as a result of the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Sub and ALC will be
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carried forward to the combined corporation at their recorded amounts; income of
the combined corporation will include income of Sub and ALC for the entire
fiscal year in which the combination occurs; and the reported income of the
separate corporations for prior periods will be combined and restated as income
of the combined corporation.
The Merger Agreement provides that a condition to the consummation of the
Merger is the receipt of letters from the independent accountants of each of
Frontier and ALC to the effect that the Merger qualifies for "pooling of
interests" accounting treatment. In the event such condition is not met, the
Merger would not be consummated unless the condition were waived by each party
to the Merger Agreement.
EFFECT ON OPTIONS, WARRANTS AND EMPLOYEE BENEFIT PLANS
At the Effective Time, outstanding ALC Stock Options and ALC Warrants will
be assumed by Frontier. Each ALC Stock Option shall be deemed to constitute an
option to acquire, and each ALC Warrant shall be deemed to constitute a warrant
to acquire, on the same terms and conditions as were applicable under such ALC
Stock Option or such ALC Warrant, as the case may be, the same number of shares
of Frontier Common Stock as the holder of such ALC Stock Option or such ALC
Warrant, as the case may be, would have been entitled to receive pursuant to the
Merger had such holder exercised such ALC Stock Option or ALC Warrant in full
immediately prior to the Effective Time, at a price per share equal to (y) the
aggregate exercise price for the shares of ALC Common Stock otherwise
purchasable pursuant to such ALC Stock Option or ALC Warrant divided by (z) the
number of full shares of Frontier Common Stock deemed purchasable pursuant to
such ALC Stock Option or ALC Warrant; provided, however, that in the case of any
ALC Stock Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code ("qualified stock options"), the
option price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option will be determined in order to
comply with Section 424(a) of the Code.
Under the terms of the Merger Agreement, ALC has agreed that its Board of
Directors (and/or the appropriate committee thereof) will take all other actions
necessary in order to effectuate the foregoing.
Under ALC's employee stock option plans, the vesting of all previously
unvested ALC Stock Options theretofore granted thereunder will be accelerated as
a result of the Merger.
The Merger Agreement provides that Frontier, following the Effective Time,
will establish, or maintain, in good faith, benefit plans for the Surviving
Corporation and its subsidiaries effective as of the Effective Time. Frontier
and ALC have agreed that, except for ALC Stock Options which are provided for as
described above, in the case of employee benefit plans of ALC under which the
employee's interests are based upon ALC Common Stock, such interests will be
based on Frontier Common Stock in an equitable manner.
The Merger Agreement also provides that Frontier will take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Frontier Common Stock for delivery upon exercise of the ALC Stock Options and
the ALC Warrants, and further that Frontier will, as soon as practicable after
the Effective Time, file one or more registration statements on appropriate
forms with respect to such reserved shares of Frontier Stock, and will use its
best efforts to maintain the effectiveness of such registration statement or
statements for so long as such options and warrants, as applicable, remain
outstanding.
The Merger will not constitute a "change of control" as that term is defined
in Frontier's employee stock option and stock incentive plans and thus there
will be no acceleration of vesting of any stock options or restricted stock
grants previously awarded under Frontier's plans.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In addition to (i) shares of ALC Common Stock held by certain executive
officers and directors of ALC or Frontier, for which they will receive the same
consideration as other shareholders, and (ii) ALC Stock Options held by such
persons, which will be adjusted pursuant to the Merger Agreement as described
above in "-- Effect on Options, Warrants and Employee Benefit Plans", Frontier
has entered into written employment agreements (each an "Employment Agreement")
with John M. Zrno, William H. Oberlin and Marvin C. Moses, currently senior
executive officers of ALC, under which employment would commence on the closing
date of the Merger.
The Employment Agreements with Mr. Zrno, Mr. Oberlin and Mr. Moses
incorporate all the terms and conditions set forth in their current respective
Amended and Restated Employment Agreements with ALC subject to the modifications
provided in the Employment Agreements.
Mr. Zrno's Employment Agreement provides that his position with Frontier
will be Vice Chairman of the Board of Directors. Mr. Zrno's compensation will be
an annual salary of $300,000. No assurances can be given on how long a period
Mr. Zrno will serve in this capacity. The agreement provides that if he has not
retired or otherwise voluntarily terminated his employment within six months of
the Effective Time he will be provided grants of stock options and a bonus under
Frontier's short term incentive program and will be eligible to participate in
Frontier's retirement and pension plans. The agreement also includes certain
non-competition provisions.
Mr. Oberlin's Employment Agreement provides that his position with Frontier
will be President and Chief Operating Officer, as well as being nominated as a
member of Frontier's Board of Directors and serving as a member of the
Management Executive Team. The term of employment will be extended until January
1, 2000. Mr. Oberlin will receive annual base compensation of $350,000 until
December 31, 1996 and annual base compensation of at least $350,000 thereafter
and will participate in Frontier's short term incentive program. Mr. Oberlin
also will be able to participate in retirement and pension plans maintained by
Frontier for its executive employees. In addition, Mr. Oberlin will be granted
or have the right to earn, options in Frontier Common Stock under Frontier's
Restated Management Stock Incentive Plan if certain performance goals are met
and if he remains employed by Frontier. The agreement also includes certain
non-competition provisions.
Mr. Moses' Employment Agreement provides that his position with Frontier
will be Executive Vice President and Chief Financial Officer, as well as serving
as a member of the Management Executive Team. In addition, subject to certain
conditions, he would be nominated, upon Mr. Zrno's retirement, as Mr. Zrno's
successor as a member of the Board of Directors. Mr. Moses will receive annual
base compensation of $300,000 until December 31, 1996 and annual base
compensation of at least $300,000 thereafter. The other terms of Mr. Moses'
Employment Agreement are substantially identical to Mr. Oberlin's Employment
Agreement.
The Merger will constitute a "Change of Control Event" under the current
respective Amended and Restated Employment Agreements of Mr. Zrno, Mr. Oberlin
and Mr. Moses, and accordingly, each such officer will be entitled to terminate
voluntarily his employment at any time within 12 months after the Effective Time
and receive the same severance package as if his employment were terminated
without cause (for a period of two years, the salary and benefits to which such
officer would have been entitled had his employment not terminated plus
compensation equivalent to the sum of such officer's incentive compensation
awards for the immediately preceding two fiscal years). In addition, any ALC
Stock Options previously granted to such officer would fully vest and remain
exercisable for shares of Frontier Common Stock for at least the succeeding 12
months. Mr. Moses' Employment Agreement additionally provides that if Mr. Moses
has not succeeded Mr. Zrno on the Frontier Board of Directors within 12 months
after the Effective Time, the period during which Mr. Moses may voluntarily
terminate his employment and receive the above-described compensation and
benefits is extended for an additional year.
44
<PAGE>
In addition, Frontier intends after the Effective Time of the Merger to
grant options to purchase shares of Frontier Common Stock under its Restated
Management Stock Incentive Plan in accordance with its regular business
practices to certain other key employees of the Surviving Corporation.
For a period of seven years after the Effective Time, Frontier has agreed to
maintain in effect the current policies of directors' and officers' liability
insurance maintained by ALC (or similarly advantageous policies) with respect to
claims arising from facts or events that occurred before the Effective Time.
Frontier will not, however, be obligated to make any annual premium payments for
such insurance to the extent such premiums exceed 200% of the premiums paid by
ALC as of the date of the Merger Agreement.
Frontier also agrees under the Merger Agreement to indemnify, or cause the
Surviving Corporation to indemnify, each person who prior to the Effective Time
has served as an officer, director or employee of ALC or any of its subsidiaries
against (i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the approval of Frontier
(not to be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding, or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of ALC or any subsidiary of ALC, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities")
and (ii) all Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to the Merger Agreement and the
transactions contemplated thereby, in each case to the full extent ALC would
have been permitted under Delaware law and its Certificate of Incorporation and
bylaws to indemnify such person.
Additional information relating to executive compensation and various
benefit arrangements of ALC is set forth in and incorporated herein by reference
to ALC's Annual Report on Form 10-K. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
Information relating to executive compensation and various benefit
arrangements of Frontier is set forth in and incorporated herein by reference to
Frontier's Annual Report on Form 10-K. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
STOCK EXCHANGE LISTING
It is a condition to the parties' obligations under the Merger Agreement
that the shares of Frontier Common Stock issuable pursuant to the Merger
Agreement have been approved for listing on the NYSE, subject to official notice
of issuance.
RESALE OF FRONTIER COMMON STOCK
The Frontier Common Stock to be issued pursuant to the Merger will be freely
transferable, except that shares issued to any ALC shareholder that may be
deemed to be an "affiliate" (used in this paragraph as defined under the
Securities Act of 1933, as amended (the "Securities Act"), and generally
including, without limitation, directors, certain executive officers and
beneficial owners of 10% or more of a class of capital stock) of ALC for
purposes of Rule 145 under the Securities Act will not be transferable except in
compliance with the Securities Act. This Joint Proxy Statement/Prospectus does
not cover resales of Frontier Common Stock received by any person that may be
deemed to be an affiliate of ALC. ALC has agreed in the Merger Agreement to use
all reasonable efforts to procure written agreements from persons identified by
ALC as affiliates of ALC containing appropriate representations and covenants
intended to ensure compliance with the Securities Act, as well as to preserve
the ability to account for the Merger as a "pooling of interests".
45
<PAGE>
MANAGEMENT AND DIVIDEND POLICY AFTER THE MERGER
DIRECTORS AFTER THE MERGER
As provided in the Merger Agreement, as of the Effective Time or as soon
thereafter as practicable, the Board of Directors of Frontier will take action
to amend Frontier's By-Laws to increase the size of the Board by four directors
and to elect four named current members of the Board of Directors of ALC to the
newly created vacancies.
The Frontier Board of Directors has recently taken action to amend
Frontier's By-Laws effective as of June 1, 1995 to increase the number of
directors of Frontier by one to a total of ten directors, and has elected Robert
Holland, Jr. to fill the newly created vacancy, effective the same date.
Set forth below is certain information about each person who currently is to
be a member of the Board of Directors of Frontier following the Effective Time.
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF FRONTIER (F) PRINCIPAL OCCUPATION
NAME OR ALC (A), AS APPLICABLE AGE DURING THE PAST FIVE YEARS
- ----------------------------- ------------------------- --- ----------------------------------
<S> <C> <C> <C>
Patricia C. Barron........... 1990(F) 52 President, Xerox Engineering
Systems, Xerox Corporation since
1994. From 1992 to 1994 President,
Office Documents Products
Division, Xerox Corporation and
prior to 1992 a Vice President of
Xerox. Director of Quaker Chemical
Corporation and Reynolds Metals
Company.
Ronald L. Bittner............ 1989(F) 53 Chairman, President and CEO of
Frontier since 1993, President and
CEO from 1992 to 1993 and
Executive Vice President and
President--Telecommunications
Group from 1988 to 1992. Director
of Dynatech, Inc.
Raul E. Cesan................ 1995(F) 47 Executive Vice President and
President, Pharmaceuticals,
Schering-Plough Corporation since
1994. President, Schering-Plough
Laboratories--U.S. Pharmaceuticals
Operations from 1992 to 1994 and
from 1988 to 1992 President,
Schering-Plough International.
Brenda E. Edgerton........... 1993(F) 46 Vice President, Finance--U.S.
Soup, Campbell Soup Company since
1994 and from 1989 to 1994 Vice
President and Treasurer, Campbell
Soup Company.
Jairo A. Estrada............. 1989(F) 47 Chairman of the Board and CEO,
Garden Way Incorporated. Director
of Garden Way Incorporated and The
Chase Manhattan Corporation.
Michael E. Faherty........... 1992(A) 60 Business Consultant and Contract
Executive. Since 1994 Chairman and
CEO of ECCS, Inc. Director of
Biomagnetic Technologies, Inc.,
Banctec, Inc. and ECCS, Inc.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF FRONTIER (F) PRINCIPAL OCCUPATION
NAME OR ALC (A), AS APPLICABLE AGE DURING THE PAST FIVE YEARS
- ----------------------------- ------------------------- --- ----------------------------------
<S> <C> <C> <C>
Daniel E. Gill............... 1981(F) 59 Chairman and CEO of Bausch & Lomb
Incorporated. Director of Bausch &
Lomb and Reebok International,
Ltd.
Alan C. Hasselwander......... 1984(F) 61 Past Chairman of the Board of
Frontier; from 1984 to 1992
President and CEO.
Robert Holland, Jr........... 1995(F) 55 President and CEO, Ben & Jerry's
Homemade, Inc. since February
1995. From 1991 to 1995 Chairman
and Chief Executive, Rokher-J,
Inc. and from 1990 to 1991
Chairman, Gilreath Manufacturing,
Inc. Director of Middlesex Mutual
Assurance Company, Mutual Life
Insurance Company of New York,
Trumark Inc. and UNC Ventures,
Inc..
Douglas H. McCorkindale...... 1980(F) 56 Vice Chairman and Chief Financial
and Administrative Officer,
Gannett Co., Inc. Director of
Gannett Co., Inc., Continental
Airlines and seven mutual funds in
the Prudential Mutual Fund complex
of funds.
William H. Oberlin........... 1993(A) 50 Chief Operating Officer of ALC
since 1990 and Executive Vice
President of ALC since 1988.
Dr. Leo J. Thomas............ 1984(F) 58 Executive Vice President, Eastman
Kodak Company since 1995; from
1994 to 1995 Executive Vice
President and President, Imaging;
from 1991 to 1994 Group Vice
President and President, Imaging
and from 1989 to 1991 Group Vice
President and General Manager,
Health Group. Director of Eastman
Kodak Company and John Wiley &
Sons, Inc.
Richard J. Uhl............... 1991(A) 54 President and Director, Chicago
Holdings, Inc. CEO and Director,
Hurrah Stores, Inc. President,
Steiner Financial Corporation.
Director of Dealers Alliance
Credit Corp. and First Merchants
Acceptance Corporation.
John M. Zrno................. 1988(A) 56 President and CEO of ALC since
1988.
</TABLE>
Additional information about such persons, other than Mr. Holland, is
contained, respectively, in Frontier's Proxy Statement relating to its Annual
Meeting of Shareowners held on April 26, 1995, relevant portions of which are
incorporated herein by reference to Frontier's Annual Report on Form 10-K for
the year ended December 31, 1994 and in ALC's Annual Report on Form 10-K for the
year ended December 31, 1994, which is also incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION".
47
<PAGE>
MANAGEMENT AFTER THE MERGER
At this time it is expected that, in connection with the Merger, the Board
of Directors of Frontier will take appropriate action such that, as of the
Effective Time, the following persons will hold the offices, or executive
offices having the functions, set forth below of Frontier.
<TABLE>
<CAPTION>
NAME OFFICE
- ----------------------------- ---------------------------------------------------
<S> <C>
Ronald L. Bittner............ Chairman of the Board and Chief Executive Officer
John M. Zrno................. Vice Chairman of the Board
William H. Oberlin........... President and Chief Operating Officer
Marvin C. Moses.............. Executive Vice President and Chief Financial
Officer
Louis L. Massaro............. Executive Vice President and Chief Administrative
Officer
Dale M. Gregory.............. President, Long Distance
Jeremiah T. Carr............. President, Telephone
James E. Whelehan............ President, Wireless
</TABLE>
Additional information about such persons, other than Mr. Whelehan, is
contained, respectively, in Frontier's Proxy Statement relating to its Annual
Meeting of Shareowners held on April 26, 1995, relevant portions of which are
incorporated herein by reference to Frontier's Annual Report on Form 10-K for
the year ended December 31, 1994 and in ALC's Annual Report on Form 10-K for the
year ended December 31, 1994, which is also incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION".
Frontier is a company that intends to continue to grow and evolve. Its
organization may change from time to time to accommodate the needs of its
business, the development of more precise marketing information or
concentrations on specific market segments and sales channels. Consequently,
there can be no assurance that the foregoing persons will hold the offices, or
executive offices having the functions, set forth above after the Effective Time
or that such persons will hold such offices for any particular period of time.
Neither Frontier nor ALC is aware of any material relationship between
Frontier or its directors or executive officers and ALC or its directors or
executive officers, except as contemplated by the Merger Agreement or as
described herein. In the ordinary course of business, Frontier and ALC do
business with one another and are, together with others, joint venturers in
telecommunications endeavors. See "THE MERGER -- Background of the Merger".
POST-MERGER DIVIDEND POLICY
It is the current intention of the Board of Directors of Frontier to
continue to declare and pay regular quarterly dividends on the Frontier Common
Stock in accordance with past dividend practice. It should be noted that the
payment or amount of any future dividends cannot be assured and will be
determined by Frontier's Board of Directors in light of the earnings and
financial condition of Frontier and its subsidiaries and other factors. In that
regard, it should also be noted that Frontier is a holding company and its
ability to pay dividends is substantially dependent upon the earnings and
available cash flow of its subsidiaries and the availability of such earnings to
Frontier by way of dividends, distributions, loans and other advances. There are
restrictions on the payment of dividends to Frontier in specified circumstances
from Rochester Tel and, following the Effective Time unless eliminated by action
on behalf of ALC or Frontier as contemplated in the Merger Agreement, the
Surviving Corporation and certain of its subsidiaries. See "DESCRIPTION OF
CAPITAL STOCK OF FRONTIER -- Dividend Rights" and "DESCRIPTION OF CAPITAL STOCK
OF ALC -- Dividend Rights".
No dividends or other distributions with respect to Frontier Common Stock
with a record date prior to the Effective Time will be paid to holders of shares
of ALC Common Stock, notwithstanding that such dividends or other distributions
may be made after the Effective Time. Also see "THE MERGER--Conversions of
Shares; Procedures for Exchange of Certificates".
48
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the exchange of two shares of Frontier Common Stock for each share of ALC
Common Stock pursuant to the Merger Agreement which appears as Annex I to this
Joint Proxy Statement/Prospectus. This transaction will be accounted for as a
pooling of interests. In addition to ALC, the unaudited pro forma combined
financial statements also give effect to the following completed and proposed
transactions by Frontier:
-- The acquisition of WCT at a purchase price of approximately $85.3
million, including acquisition costs and $2.5 million for various
non-compete agreements. The transaction is accounted for using the
purchase method of accounting. This transaction closed on May 18, 1995.
-- The acquisition of Enhanced TeleManagement, Inc. ("ETI") at a purchase
price of approximately $29 million, including acquisition costs. The
transaction is accounted for using the purchase method of accounting.
This transaction closed on July 11, 1995.
-- The acquisition of Schneider Communications, Inc. and its approximately
81% majority owned subsidiary, LinkUSA Corporation (collectively, "SCI"),
at a purchase price of approximately $132.2 million, including
acquisition costs and $3.3 million for various non-compete agreements.
The transaction will be accounted for using the purchase method of
accounting. This transaction is pending.
With respect to Frontier, the unaudited pro forma combined financial
statements are based on the restated financial statements incorporated by
reference herein to Frontier's Current Report on Form 8-K dated April 12, 1995,
which reflect the acquisition on March 17, 1995 of American Sharecom under the
pooling of interests method of accounting, and Frontier's Quarterly Report on
Form 10-Q for the three months ended March 31, 1995.
Frontier has completed a business acquisition and disposition and has
pending other business acquisitions expected to be consummated in 1995 which
individually and in the aggregate are not significant. As such, pro forma data
on these transactions are not presented.
The unaudited pro forma combined balance sheet presents the financial
position of Frontier as of March 31, 1995, assuming that the completed and
proposed acquisitions of WCT, ETI and SCI and the proposed Merger with ALC
occurred as of March 31, 1995. Such pro forma information is based on the
historical balance sheets of Frontier, WCT, ETI, SCI and ALC as of that date.
The unaudited pro forma combined statements of income reflect the
acquisitions by Frontier of WCT, ETI and SCI and the Merger of Frontier and ALC.
As required by Rule 11-02 of Regulation S-X, the unaudited pro forma combined
statements of income first assume the combination of WCT, ETI and SCI, which are
to be accounted for under the purchase method of accounting, as of the beginning
of the most recent fiscal year ended December 31, 1994 and the three months
ended March 31, 1995 and March 31, 1994. With respect to WCT and ETI, the
unaudited pro forma combined statements of income reflect their respective
results of operations for the most recent 12 month period ended December 31,
1994 and for the three months ended March 31, 1995 and March 31, 1994. With
respect to SCI, the unaudited pro forma combined statements of income reflect
its historical results of operations for the year ended December 31, 1994 and
for the three months ended March 31, 1995 and March 31, 1994. These pro forma
results then assume the Merger with ALC, which is to be accounted for using the
pooling of interests method, as of the beginning of the three most recent fiscal
years ended December 31, 1994, December 31, 1993 and December 31, 1992, and the
three months ended March 31, 1995 and March 31, 1994 to arrive at the unaudited
pro forma combined statements of income for Frontier. The unaudited pro forma
combined statements of income reflect
49
<PAGE>
results of operations of ALC for the most recent fiscal years ended December 31,
1994, December 31, 1993 and December 31, 1992 and for the three months ended
March 31, 1995 and March 31, 1994.
The unaudited pro forma combined financial statements give effect only to
the pro forma adjustments, which reflect certain assumptions on the bases
described in the notes to these pro forma financial statements. Nonrecurring
charges, including legal fees, investment banker fees of approximately $13
million and other professional fees directly attributable to the Merger with
ALC, are not included in the unaudited pro forma combined financial statements.
In addition, there will be certain other nonrecurring charges that will result
from combining operations of the completed and pending acquisitions and the
Merger. These other charges, which are not included in the unaudited pro forma
combined financial statements, are anticipated to consist primarily of equipment
write-offs resulting from duplicative switching and transmission facilities,
relocation costs (including lease termination fees), and displaced employee
costs. Management is presently studying the integration of operations after the
Merger, but other than identifying generally the categories of items that will
likely result in such nonrecurring charges, it is too early in the process to
make any representation of the amount of such charges with respect to any such
category. It is possible that the aggregate amount of such charges may be
material. As the nonrecurring charges are incurred, they will be included in
the expenses of the combined operations.
THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS DO NOT REFLECT ANY
SYNERGIES ANTICIPATED BY FRONTIER'S MANAGEMENT AS A RESULT OF ANY OR ALL OF
THESE COMBINATIONS.
The unaudited pro forma data is presented for informational purposes only
and is not necessarily indicative of the results of operations or financial
position which would have been achieved had the transactions been completed as
of the beginning of the earliest period presented, nor is it necessarily
indicative of Frontier's future results of operations or financial position.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements of Frontier (as restated to
reflect the acquisition of American Sharecom under the pooling of interests
method of accounting and reported on Frontier's Current Report on Form 8-K dated
April 12, 1995) and of ALC, which are incorporated by reference in this Joint
Proxy Statement/Prospectus, and in conjunction with the combined historical and
other pro forma financial data, including the notes thereto, appearing elsewhere
in this Joint Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". The historical financial
statements of WCT, ETI and SCI are not required to be presented in this document
under Rule 3-05 of Regulation S-X as WCT, ETI and SCI do not qualify as a
significant subsidiary as defined in Rule 1-02(w) of Regulation S-X.
50
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1995
UNAUDITED
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRONTIER WCT ETI SCI ALC PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents............. $ 316,363 $ 812 $3,258 $ 470 $ 3,016 $ (243,813)(b)(c)(d)
Short-term investments................ 297
Accounts receivable................... 182,108 31,472 3,826 10,018 103,791 (7,372)(b)(d)
Material and supplies................. 9,276 28 392 2,741
Prepayments and other................. 29,490 5,782 187 3,200 10,371 (110)(b)
---------- ---------- ----- ---------- ---------- -----------
Total Current Assets................ 537,534 38,066 7,299 14,080 119,919 (251,295)
---------- ---------- ----- ---------- ---------- -----------
Property, Plant and Equipment:
Total property, plant and equipment... 1,773,831 42,011 1,174 11,596 154,180 2,828(b)
Less--Accumulated depreciation........ 812,068 81,003
---------- ---------- ----- ---------- ---------- -----------
Net Property, Plant and Equipment... 961,763 42,011 1,174 11,596 73,177 2,828
---------- ---------- ----- ---------- ---------- -----------
Goodwill............................... 157,586 1,574 2,194 89,092 216,698(b)(c)(d)
Deferred and Other Assets.............. 136,008 10,449 180 3,819 58,684 20,777(b)(c)(d)
---------- ---------- ----- ---------- ---------- -----------
Total Assets........................ $1,792,891 $ 92,100 $8,653 $ 31,689 $ 340,872 $ (10,992)
---------- ---------- ----- ---------- ---------- -----------
---------- ---------- ----- ---------- ---------- -----------
LIABILITIES AND SHAREOWNERS' EQUITY:
Current Liabilities:
Accounts payable...................... $ 146,087 $ 40,702 $3,366 $ 11,948 $ 104,003 $ 15,926(b)(c)(d)
Notes payable......................... 58 13,878 37
Advance billings...................... 11,614 735 185
Dividends payable..................... 17,041
Long-term debt due within one year.... 4,404 6,078 237
Taxes accrued......................... 33,426 57 3,588 13,986 (3,588)(d)
Interest accrued...................... 11,613
---------- ---------- ----- ---------- ---------- -----------
Total Current Liabilities........... 224,243 60,658 4,195 15,721 118,226 12,338
---------- ---------- ----- ---------- ---------- -----------
Long-Term Debt......................... 567,090 19,652 104 4,596 88,514 2,911(b)
Deferred Income Taxes.................. 108,497 19 (978) 1,970(c)(d)
Deferred Employee Benefit
Obligations............................ 49,320 249 15(b)
Minority Interests..................... 351
Shareowners' Equity:
Common Stock.......................... 81,871 23,744 2,142 1 337 52,513(a)(b)(c)(d)
Capital in excess of par value........ 258,438 1,000 152,102 (79,400)(a)(b)(c)(d)
Retained earnings (Accumulated
deficit)............................... 480,451 (12,203) 2,193 11,349 (18,307) (1,339)(a)(b)(c)(d)
---------- ---------- ----- ---------- ---------- -----------
820,760 11,541 4,335 12,350 134,132 (28,226)
Less--Treasury stock at cost........... 147
---------- ---------- ----- ---------- ---------- -----------
Common Shareowner's Equity............. 820,613 11,541 4,335 12,350 134,132 (28,226)
Preferred Stock........................ 22,777
---------- ---------- ----- ---------- ---------- -----------
Total Shareowners' Equity.............. 843,390 11,541 4,335 12,350 134,132 (28,226)
---------- ---------- ----- ---------- ---------- -----------
Total Liabilities and Shareowners'
Equity................................. $1,792,891 $ 92,100 $8,653 $ 31,689 $ 340,872 $ (10,992)
---------- ---------- ----- ---------- ---------- -----------
---------- ---------- ----- ---------- ---------- -----------
<CAPTION>
PRO FORMA
COMBINED
----------
<S> <C>
ASSETS:
Current Assets:
Cash and cash equivalents............. $ 80,106
Short-term investments................ 297
Accounts receivable................... 323,843
Material and supplies................. 12,437
Prepayments and other................. 48,920
----------
Total Current Assets................ 465,603
----------
Property, Plant and Equipment:
Total property, plant and equipment... 1,985,620
Less--Accumulated depreciation........ 893,071
----------
Net Property, Plant and Equipment... 1,092,549
----------
Goodwill............................... 467,144
Deferred and Other Assets.............. 229,917
----------
Total Assets........................ $2,255,213
----------
----------
LIABILITIES AND SHAREOWNERS' EQUITY:
Current Liabilities:
Accounts payable...................... $ 322,032
Notes payable......................... 13,973
Advance billings...................... 12,534
Dividends payable..................... 17,041
Long-term debt due within one year.... 10,719
Taxes accrued......................... 47,469
Interest accrued...................... 11,613
----------
Total Current Liabilities........... 435,381
----------
Long-Term Debt......................... 682,867
Deferred Income Taxes.................. 109,508
Deferred Employee Benefit
Obligations............................ 49,584
Minority Interests..................... 351
Shareowners' Equity:
Common Stock.......................... 160,608
Capital in excess of par value........ 332,140
Retained earnings (Accumulated
deficit)............................... 462,144
----------
954,892
Less--Treasury stock at cost........... 147
----------
Common Shareowner's Equity............. 954,745
Preferred Stock........................ 22,777
----------
Total Shareowners' Equity.............. 977,522
----------
Total Liabilities and Shareowners'
Equity................................. $2,255,213
----------
----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
51
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRONTIER/WCT/
ETI/SCI
FRONTIER WCT ETI SCI PRO FORMA PRO FORMA ALC PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL ADJUSTMENTS
---------- ---------- ---------- ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and Sales.... $1,108,109 $ 131,197 $ 28,751 $ 76,615 $ 1,344,672 $ 567,824
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
Costs and Expenses:
Operating expenses... 677,856 132,267 28,204 62,021 $ 13,148(b)(c)(d) 913,496 448,272
Cost of goods sold... 18,850 194 19,044
Depreciation......... 119,252 3,966 252 3,802 127,272 11,426
Taxes other than
income taxes....... 47,050 367 74 2,430 49,921 1,453
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
Total Costs and
Expenses.............. 863,008 136,600 28,724 68,253 13,148 1,109,733 461,151
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
Operating Income
(Loss)................ 245,101 (5,403) 27 8,362 (13,148) 234,939 106,673
Interest expense...... 43,741 4,134 12 1,038 17,066(b)(c)(d) 65,991 7,570
Other income and
expense:
Allowance for funds
used during
construction.......... 1,096 1,096
Gain on sale of
assets/subsidiaries... 10,063 1,076 11,139 13
Equity earnings from
unconsolidated
interests in
wireless interests.... 3,185 3,185
Other income
(expense), net........ (20,277) 194 223 237 (19,623) 1,788
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
Income (Loss) Before
Taxes................. 195,427 (9,343) 238 8,637 (30,214) 164,745 100,904
Income taxes
(benefit)............. 72,503 (1,694) 121 3,961 (8,572)(b)(c)(d) 66,319 36,575
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
Consolidated Income
(Loss) From
Continuing
Operations............ 122,924 (7,649) 117 4,676 (21,642) 98,426 64,329
Dividends on preferred
stock................. 1,186 1,186
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
Income (Loss)
Applicable to Common
Stock................. $ 121,738 $ (7,649) $ 117 $ 4,676 $ (21,642) $ 97,240 $ 64,329
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
---------- ---------- ---------- ---------- ----------- ------------- ---------- --
EARNINGS PER COMMON
SHARE
<CAPTION>
FRONTIER/WCT/
ETI/SCI
FRONTIER PRO FORMA
HISTORICAL COMBINED
---------- -------------
<S> <C> <C>
Primary:
Income applicable to
common stock.......... $ 121,738 $ 97,240
Average common shares
outstanding........... 81,285 81,285
---------- -------------
Earnings Per Common
Share--Primary........ $ 1.50 $ 1.20
---------- -------------
---------- -------------
Fully Diluted:
Adjusted income
applicable to
common stock.......... $ 122,098 $ 97,600
Adjusted average
common shares
outstanding........... 81,783 81,783
---------- -------------
Earnings Per Common
Share--Fully
Diluted............... $ 1.49 $ 1.19
---------- -------------
---------- -------------
<CAPTION>
PRO FORMA
COMBINED
----------
<S> <C>
Revenues and Sales.... $1,912,496
----------
Costs and Expenses:
Operating expenses... 1,361,768
Cost of goods sold... 19,044
Depreciation......... 138,698
Taxes other than
income taxes....... 51,374
----------
Total Costs and
Expenses.............. 1,570,884
----------
Operating Income
(Loss)................ 341,612
Interest expense...... 73,561
Other income and
expense:
Allowance for funds
used during
construction.......... 1,096
Gain on sale of
assets/subsidiaries... 11,152
Equity earnings from
unconsolidated
interests in
wireless interests.... 3,185
Other income
(expense), net........ (17,835)
----------
Income (Loss) Before
Taxes................. 265,649
Income taxes
(benefit)............. 102,894
----------
Consolidated Income
(Loss) From
Continuing
Operations............ 162,755
Dividends on preferred
stock................. 1,186
----------
Income (Loss)
Applicable to Common
Stock................. $ 161,569
----------
----------
EARNINGS PER COMMON
SHARE
PRO FORMA
COMBINED
----------
<S> <C>
Primary:
Income applicable to
common stock.......... $ 161,569
Average common shares
outstanding........... 160,022
----------
Earnings Per Common
Share--Primary........ $ 1.01
----------
----------
Fully Diluted:
Adjusted income
applicable to
common stock.......... $ 161,929
Adjusted average
common shares
outstanding........... 160,520
----------
Earnings Per Common
Share--Fully
Diluted............... $ 1.01
----------
----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
52
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRONTIER ALC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues and Sales........................... $1,007,394 $ 436,432 $1,443,826
---------- ---------- -- ----------
Costs and Expenses:
Operating expenses......................... 613,988 354,563 968,551
Cost of goods sold......................... 20,819 20,819
Depreciation............................... 116,491 9,776 126,267
Taxes other than income taxes.............. 47,476 2,862 50,338
Software write-off......................... 3,300 3,300
---------- ---------- -- ----------
Total Costs and Expenses................. 802,074 367,201 1,169,275
---------- ---------- -- ----------
Operating Income............................. 205,320 69,231 274,551
Interest expense............................. 46,648 11,026 57,674
Other income and expense:
Allowance for funds used during
construction................................. 1,330 1,330
Gain (loss) on sale of
assets/subsidiaries.......................... 4,449 (27) 4,422
Equity earnings from unconsolidated
interests in wireless interests.......... 1,296 1,296
Other income (expense), net.................. (21,656) 248 (21,408)
---------- ---------- -- ----------
Income Before Taxes.......................... 144,091 58,426 202,517
Income taxes................................. 54,758 18,750 73,508
---------- ---------- -- ----------
Consolidated Income From Continuing
Operations................................... 89,333 39,676 129,009
Dividends/accretion of discount/accretion of
contract payment on preferred stock.......... 1,187 817 2,004
---------- ---------- -- ----------
Income Applicable to Common Stock............ $ 88,146 $ 38,859 $ 127,005
---------- ---------- -- ----------
---------- ---------- -- ----------
EARNINGS PER COMMON SHARE
<CAPTION>
FRONTIER PRO FORMA
HISTORICAL COMBINED
---------- ----------
<S> <C> <C>
Primary:
Income applicable to common stock.......... $ 88,146 $ 127,005
Average common shares outstanding.......... 76,163 154,900
---------- ----------
Earnings Per Common Share--Primary........... $ 1.16 $ .82
---------- ----------
---------- ----------
Fully Diluted:
Adjusted income applicable to common
stock........................................ $ 88,505 $ 127,364
Adjusted average common shares
outstanding.................................. 76,682 155,419
---------- ----------
Earnings Per Common Share--Fully Diluted $ 1.15 $ .82
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
53
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRONTIER ALC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues and Sales............................. $880,141 $376,064 $1,256,205
---------- ---------- -- ----------
Costs and Expenses:
Operating expenses........................... 516,891 325,100 841,991
Cost of goods sold........................... 21,634 21,634
Depreciation................................. 115,682 9,372 125,054
Taxes other than income taxes................ 44,947 608 45,555
---------- ---------- -- ----------
Total Costs and Expenses................... 699,154 335,080 1,034,234
---------- ---------- -- ----------
Operating Income............................... 180,987 40,984 221,971
Interest expense............................... 50,217 17,088 67,305
Other income and expense:
Allowance for funds used during
construction................................... 1,309 1,309
Gain (loss) on sale of assets/subsidiaries... (699) (699)
Equity loss from unconsolidated interests in
wireless interests............................. (661) (661)
Other income (expense), net.................... (13,524) 329 (13,195)
---------- ---------- -- ----------
Income Before Taxes............................ 117,894 23,526 141,420
Income taxes................................... 44,067 9,700 53,767
---------- ---------- -- ----------
Consolidated Income From Continuing
Operations..................................... 73,827 13,826 87,653
Dividends/accretion of discount/accretion of
contract payment on preferred stock............ 1,188 4,382 5,570
---------- ---------- -- ----------
Income Applicable to Common Stock.............. $ 72,639 $ 9,444 $ 82,083
---------- ---------- -- ----------
---------- ---------- -- ----------
EARNINGS PER COMMON SHARE
<CAPTION>
FRONTIER PRO FORMA
HISTORICAL COMBINED
---------- ----------
<S> <C> <C>
Primary:
Income applicable to common stock............ $ 72,639 $ 82,083
Average common shares outstanding............ 75,348 154,085
---------- ----------
Earnings Per Common Share--Primary............. $ .96 $ .53
---------- ----------
---------- ----------
Fully Diluted:
Adjusted income applicable to common stock... $ 73,009 $ 82,453
Adjusted average common shares outstanding... 75,876 154,613
---------- ----------
Earnings Per Common Share--Fully Diluted $ .96 $ .53
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
54
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995
UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRONTIER/WCT/
ETI/SCI
FRONTIER WCT ETI SCI PRO FORMA PRO FORMA ALC
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
---------- ---------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues and Sales....... $ 283,418 $ 40,443 $ 8,020 $ 21,646 $ 353,527 $ 177,753
---------- ---------- ---------- ---------- ----- ------ ----------
Costs and Expenses:
Operating expenses...... 179,309 38,396 7,539 17,224 $ 3,287(b)(c)(d) 245,755 140,005
Cost of goods sold...... 4,133 85 4,218
Depreciation............ 29,911 1,495 74 1,095 32,575 3,486
Taxes other than income
taxes.................... 10,628 144 15 620 11,407 963
Acquisition related
charges.................. 4,750 4,750
---------- ---------- ---------- ---------- ----- ------ ----------
Total Costs and
Expenses................. 228,731 40,035 7,713 18,939 3,287 298,705 144,454
---------- ---------- ---------- ---------- ----- ------ ----------
Operating Income
(Loss)................... 54,687 408 307 2,707 (3,287) 54,822 33,299
Interest expense......... 11,704 1,665 4 304 5,333(b)(c)(d) 19,010 2,162
Other income and expense:
Allowance for funds used
during construction... 326 326
Gain (loss) on sale of
assets/subsidiaries...... 4,826 (13) 4,813 (1)
Equity earnings from
unconsolidated
interests in wireless
interests................ 396 396
Other income (expense),
net...................... 1,948 73 67 (6) 2,082 714
---------- ---------- ---------- ---------- ----- ------ ----------
Income (Loss) Before
Taxes.................... 50,479 (1,184) 370 2,384 (8,620) 43,429 31,850
Income taxes (benefit)... 18,804 143 1,038 (2,516)(b)(c)(d) 17,469 11,875
---------- ---------- ---------- ---------- ----- ------ ----------
Consolidated Income
(Loss) From Continuing
Operations............... 31,675 (1,184) 227 1,346 (6,104) 25,960 19,975
Dividends on preferred
stock.................... 297 297
---------- ---------- ---------- ---------- ----- ------ ----------
Income (Loss) Applicable
to Common Stock......... $ 31,378 $ (1,184) $ 227 $ 1,346 $(6,104) $ 25,663 $ 19,975
---------- ---------- ---------- ---------- ----- ------ ----------
---------- ---------- ---------- ---------- ----- ------ ----------
EARNINGS PER COMMON SHARE
<CAPTION>
FRONTIER/WCT/
ETI/SCI
FRONTIER PRO FORMA
HISTORICAL COMBINED
---------- -------------
<S> <C> <C>
Primary:
Income applicable to
common stock............. $ 31,378 $ 25,663
Average common shares
outstanding.............. 81,932 81,932
---------- ------
Earnings Per Common
Share-- Primary......... $ .38 $ .31
---------- ------
---------- ------
Fully Diluted:
Adjusted income
applicable to common
stock.................... $ 31,468 $ 25,753
Adjusted average common
shares outstanding.... 82,465 82,465
---------- ------
Earnings Per Common
Share--Fully Diluted $ .38 $ .31
---------- ------
---------- ------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------ ---------
<S> <C> <C>
Revenues and Sales....... $531,280
-- ---------
Costs and Expenses:
Operating expenses...... 385,760
Cost of goods sold...... 4,218
Depreciation............ 36,061
Taxes other than income
taxes.................... 12,370
Acquisition related
charges.................. 4,750
-- ---------
Total Costs and
Expenses................. 443,159
-- ---------
Operating Income
(Loss)................... 88,121
Interest expense......... 21,172
Other income and expense:
Allowance for funds used
during construction... 326
Gain (loss) on sale of
assets/subsidiaries...... 4,812
Equity earnings from
unconsolidated
interests in wireless
interests................ 396
Other income (expense),
net...................... 2,796
-- ---------
Income (Loss) Before
Taxes.................... 75,279
Income taxes (benefit)... 29,344
-- ---------
Consolidated Income
(Loss) From Continuing
Operations............... 45,935
Dividends on preferred
stock.................... 297
-- ---------
Income (Loss) Applicable
to Common Stock......... $ 45,638
-- ---------
-- ---------
EARNINGS PER COMMON SHARE
PRO FORMA
COMBINED
---------
<S> <C>
Primary:
Income applicable to
common stock............. $ 45,638
Average common shares
outstanding.............. 160,669
---------
Earnings Per Common
Share-- Primary......... $ .28
---------
---------
Fully Diluted:
Adjusted income
applicable to common
stock.................... $ 45,728
Adjusted average common
shares outstanding.... 161,202
---------
Earnings Per Common
Share--Fully Diluted $ .28
---------
---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
55
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1994
UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRONTIER/WCT/
ETI/SCI
FRONTIER WCT ETI SCI PRO FORMA PRO FORMA ALC PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL ADJUSTMENTS
---------- ---------- ---------- ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and Sales..... $ 272,103 $ 27,035 $6,685 $ 18,897 $ 324,720 $ 129,789
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
Costs and Expenses:
Operating expenses.... 171,877 25,676 6,736 16,208 $ 3,287(b)(c)(d) 223,784 103,288
Cost of goods sold.... 6,381 25 6,406
Depreciation.......... 29,539 547 56 866 31,008 2,668
Taxes other than
income taxes........ 12,086 89 12 582 12,769 (780)
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
Total Costs and
Expenses............... 219,883 26,312 6,829 17,656 3,287 273,967 105,176
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
Operating Income
(Loss)................. 52,220 723 (144) 1,241 (3,287) 50,753 24,613
Interest expense....... 10,980 736 303 4,266(b)(c)(d) 16,285 2,045
Other income and
expense:
Allowance for funds
used during
construction........... 276 276
Gain on sale of
assets/subsidiaries.... 1,038 1,038 98
Equity earnings from
unconsolidated
interests in
wireless interests..... 197 197
Other income (expense),
net.................... (837) 24 48 142 (623) 229
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
Income (Loss) Before
Taxes.................. 40,876 11 (96) 2,118 (7,553) 35,356 22,895
Income taxes
(benefit).............. 15,363 4 (30) 954 (2,142)(b)(c)(d) 14,149 8,250
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
Consolidated Income
(Loss) From Continuing
Operations............. 25,513 7 (66) 1,164 (5,411) 21,207 14,645
Dividends on preferred
stock.................. 297 297
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
Income (Loss)
Applicable to Common
Stock.................. $ 25,216 $ 7 $ (66) $ 1,164 $(5,411) $ 20,910 $ 14,645
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
---------- ---------- ----- ---------- ----------- ------------- ---------- -----------
EARNINGS PER COMMON SHARE
<CAPTION>
FRONTIER/WCT/
ETI/SCI
FRONTIER PRO FORMA
HISTORICAL COMBINED
---------- -------------
<S> <C> <C>
Primary:
Income applicable to
common stock........... $ 25,216 $ 20,910
Average common shares
outstanding............ 79,303 79,303
---------- -------------
Earnings Per Common
Share--Primary......... $ .32 $ .26
---------- -------------
---------- -------------
Fully Diluted:
Adjusted income
applicable to common
stock.................. $ 25,306 $ 21,000
Adjusted average
common shares
outstanding............ 79,809 79,809
---------- -------------
Earnings Per Common
Share--Fully Diluted $ .32 $ .26
---------- -------------
---------- -------------
<CAPTION>
PRO FORMA
COMBINED
-------------
<S> <C>
Revenues and Sales..... $ 454,509
-------------
Costs and Expenses:
Operating expenses.... 327,072
Cost of goods sold.... 6,406
Depreciation.......... 33,676
Taxes other than
income taxes........ 11,989
-------------
Total Costs and
Expenses............... 379,143
-------------
Operating Income
(Loss)................. 75,366
Interest expense....... 18,330
Other income and
expense:
Allowance for funds
used during
construction........... 276
Gain on sale of
assets/subsidiaries.... 1,136
Equity earnings from
unconsolidated
interests in
wireless interests..... 197
Other income (expense),
net.................... (394)
-------------
Income (Loss) Before
Taxes.................. 58,251
Income taxes
(benefit).............. 22,399
-------------
Consolidated Income
(Loss) From Continuing
Operations............. 35,852
Dividends on preferred
stock.................. 297
-------------
Income (Loss)
Applicable to Common
Stock.................. $ 35,555
-------------
-------------
EARNINGS PER COMMON SHA
PRO FORMA
COMBINED
-------------
<S> <C>
Primary:
Income applicable to
common stock........... $ 35,555
Average common shares
outstanding............ 158,040
-------------
Earnings Per Common
Share--Primary......... $ .22
-------------
-------------
Fully Diluted:
Adjusted income
applicable to common
stock.................. $ 35,645
Adjusted average
common shares
outstanding............ 158,546
-------------
Earnings Per Common
Share--Fully Diluted $ .22
-------------
-------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The unaudited pro forma combined statements of income and balance sheet
reflect Frontier's completed and proposed acquisitions of WCT, ETI and SCI and
the Merger with ALC. As required by Rule 11-02 of Regulation S-X, the unaudited
pro forma combined statements of income first assume the combination of WCT, ETI
and SCI which are to be accounted for under the purchase method of accounting,
as of the beginning of the most recent fiscal year ended December 31, 1994 and
the three months ended March 31, 1995 and March 31, 1994. With respect to WCT
and ETI, the unaudited pro forma combined statements of income reflect their
respective most recent 12 month period ended December 31, 1994 and for the three
months ended March 31, 1995 and March 31, 1994. With respect to SCI, the
unaudited pro forma combined statements of income reflect its historical results
of operations for the year ended December 31, 1994 and for the three months
ended March 31, 1995 and March 31, 1994. These pro forma results then assume the
Merger with ALC, which is to be accounted for using the pooling of interests
method, as of the beginning of the three most recent fiscal years ended December
31, 1994, December 31, 1993 and December 31, 1992, and the three months ended
March 31, 1995 and March 31, 1994 to arrive at the unaudited pro forma combined
statements of income for Frontier. The unaudited pro forma combined statements
of income reflect results of operations of ALC for the most recent fiscal years
ended December 31, 1994, December 31, 1993 and December 31, 1992 and for the
three months ended March 31, 1995 and March 31, 1994.
The unaudited pro forma combined balance sheet presents the financial
position of Frontier as of March 31, 1995, assuming that the completed and
proposed acquisitions of WCT, ETI and SCI and the proposed Merger with ALC
occurred as of March 31, 1995. Such pro forma information is based on the
historical balance sheets of Frontier, WCT, ETI, SCI and ALC as of that date.
Frontier's management believes that the assumptions used in preparing the
unaudited pro forma combined financial statements provide a reasonable basis for
presenting all of the significant effects of its transactions (other than any
synergies anticipated by Frontier's management, nonrecurring charges directly
attributable to the Merger with ALC and nonrecurring charges that will result
from combining operations), that the pro forma adjustments give appropriate
effect to those assumptions and that the pro forma adjustments are properly
applied in the unaudited pro forma combined financial statements.
Certain reclassifications have been made to WCT's, ETI's, SCI's and ALC's
historical financial statements to conform to Frontier's financial statement
presentation.
NOTE 2 - PRO FORMA ADJUSTMENTS:
Unaudited pro forma adjustments consist of the following:
a. Merger with ALC
The pro forma adjustment to the balance sheet reflects the issuance
by Frontier of an estimated 78.7 million additional shares of Frontier
Common Stock in the Merger, based on the assumption that all outstanding
ALC Stock Options and ALC Warrants (other than one series of ALC Warrants
which are substantially "out of the money") are exercised for shares of
ALC Common Stock prior to the Effective Time and using the "treasury
stock" method with respect to the use of the proceeds from such
exercises. The pro forma adjustment to the balance sheet reflects the
issuance of these shares. The pro forma earnings per share calculation
for all periods in which ALC is presented include the 78.7 million
additional shares of Frontier Common Stock as outstanding for the entire
period.
57
<PAGE>
b. Acquisition of WCT Communications, Inc.:
Frontier exchanged approximately $82.8 million in cash, including
acquisition costs, in return for the stock of WCT. In addition, an
obligation in the amount of $2.5 million for various non-compete
agreements will be paid subsequent to the closing. The transaction is
accounted for using the purchase method of accounting.
The purchase price is allocated to the net assets acquired using the
assumption that the net book basis of the long term assets is reflective
of their fair value. The fair value of the purchased customer base ($6.7
million) is calculated using a discounted cash flow of estimated revenues
and expenses based on historical data from WCT and current industry
projections. The purchased customer base is amortized over five years. As
part of the agreement, non-compete agreements ($2.5 million) were
negotiated and are amortized over four to five years. Goodwill ($87.1
million) is calculated as the difference between the purchase price and
the fair value of the net assets acquired and is amortized over 25 years.
The pro forma adjustment to operating expenses in the statement of
income for the year ended December 31, 1994 and for the three months
ended March 31, 1995 and March 31, 1994, represents the amortization of
purchased customer base, non-compete agreements and goodwill. As Frontier
did not have enough cash and cash equivalents as of January 1, 1994 to
complete the transaction without incurring additional debt, the pro forma
adjustment to interest expense in the statement of income for the year
ended December 31, 1994 and for the three months ended March 31, 1994
reflects the assumed issuance of approximately $82.8 million in debt
securities at Frontier's effective borrowing rate of 7% as of January 1,
1994. Frontier's effective borrowing rate of 8.75% as of January 1, 1995
is used to calculate the pro forma adjustment to interest expense for the
three months ended March 31, 1995.
Frontier's statutory tax rate of 35% is used to calculate the tax
effect of the unaudited pro forma combined statement of income
adjustments, excluding the impact of nondeductible goodwill.
c. Acquisition of Enhanced TeleManagement, Inc.:
Frontier exchanged approximately $29 million in cash, including
acquisition costs, in return for the stock of ETI. The transaction is
accounted for using the purchase method of accounting.
The purchase price is allocated to the net assets acquired using the
assumption that the net book basis of the long term assets is reflective
of their fair value. The fair value of the purchased customer base ($1.8
million) is calculated using a discounted cash flow of estimated revenues
and expenses based on historical data from ETI and current industry
projections. The purchased customer base is amortized over five years.
Goodwill ($24 million) is calculated as the difference between the
purchase price and the fair value of the net assets acquired and is
amortized over 25 years.
The pro forma adjustment to operating expenses in the statement of
income for the year ended December 31, 1994 and for the three months
ended March 31, 1995 and March 31, 1994, represents the amortization of
purchased customer base and goodwill. As Frontier did not have enough
cash and cash equivalents as of January 1, 1994 to complete the
transaction without incurring additional debt, the pro forma adjustment
to interest expense in the statement of income for the year ended
December 31, 1994 and for the three months ended March 31, 1994 reflects
the assumed issuance of approximately $29 million in debt securities at
Frontier's effective borrowing rate of 7% as of January 1, 1994.
Frontier's effective
58
<PAGE>
borrowing rate of 8.75% as of January 1, 1995 is used to calculate the
pro forma adjustment to interest expense for the three months ended March
31, 1995.
Frontier's statutory tax rate of 35% is used to calculate the tax
effect of the unaudited pro forma combined statement of income
adjustments, excluding the impact of nondeductible goodwill.
d. Acquisition of Schneider Communications, Inc. and LinkUSA Corporation:
Frontier will exchange approximately $132 million in cash, including
acquisition costs, in return for the stock of Schneider Communications,
Inc. and its approximately 81% majority owned subsidiary, LinkUSA
Corporation. In addition, an obligation in the amount of $.2 million for
a non-compete agreement will be paid subsequent to the closing. The
transaction will be accounted for using the purchase method of
accounting.
The purchase price is allocated to the net assets acquired using the
assumption that the net book basis of the long term assets is reflective
of their fair value. The fair value of the purchased customer base ($7.4
million) is calculated using a discounted cash flow of estimated revenues
and expenses based on historical data from SCI and current industry
projections. The purchased customer base is amortized over five years. As
part of the agreement, non-compete agreements ($3.3 million) were
negotiated and are amortized over five years. Goodwill ($105.6 million)
is calculated as the difference between the purchase price and the fair
value of the net assets acquired and is amortized over 25 years.
The pro forma adjustment to operating expenses in the statement of
income for the year ended December 31, 1994 and for the three months
ended March 31, 1995 and March 31, 1994, represents the amortization of
purchased customer base, non-compete agreements and goodwill. As Frontier
did not have enough cash and cash equivalents as of January 1, 1994 to
complete the transaction without incurring additional debt, the pro forma
adjustment to interest expense in the statement of income for the year
ended December 31, 1994 and for the three months ended March 31, 1994
reflects the assumed issuance of approximately $132 million in debt
securities at Frontier's effective borrowing rate of 7% as of January 1,
1994. Frontier's effective borrowing rate of 8.75% as of January 1, 1995
is used to calculate the pro forma adjustment to interest expense for the
three months ended March 31, 1995.
Frontier's statutory tax rate of 35% is used to calculate the tax
effect of the unaudited pro forma combined statement of income
adjustments, excluding the impact of deductible purchased customer base,
non-compete agreements and goodwill which are tax effected at SCI's
effective tax rate of 40%.
59
<PAGE>
e. Summary of Pro Forma Adjustments:
The following table summarizes the pro forma adjustments reflected on the
unaudited pro forma combined balance sheet for the completed and proposed
transactions outlined above:
<TABLE>
<CAPTION>
MARCH 31, 1995
----------------------------------------------------
WCT ETI SCI ALC TOTAL
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash:
Paid at closing................................. $82,800 $28,958 $132,037 $ 243,795
Other........................................... 18 18
------- ------- -------- ---------
82,818 28,958 132,037 243,813
Goodwill: 87,060 24,045 105,593 216,698
Deferred and other assets:
Non-compete agreements.......................... 2,500 3,300 5,800
Customer base................................... 6,745 1,796 7,410 15,951
Other........................................... (974) (974)
------- ------- -------- ---------
8,271 1,796 10,710 20,777
Accounts payable:
Non-compete agreements.......................... 2,500 200 2,700
Payables not assumed............................ (1,249) (1,249)
Other........................................... 13,975 500 14,475
------- ------- -------- ---------
16,475 500 (1,049) 15,926
Taxes accrued:
Liabilities not assumed......................... (3,588) (3,588)
Deferred income taxes:
Associated with customer base................... 718 718
Assets not acquired............................. 1,252 1,252
------- -------- ---------
718 1,252 1,970
Other purchase accounting adjustments:
Accounts receivable............................. (7,371) (1) (7,372)
Prepayments and other........................... (110) (110)
Total property, plant and equipment............. 2,828 2,828
Long-term debt.................................. 2,911 2,911
Deferred employee benefit obligations........... 15 15
Common stock:
Cancelled....................................... (23,744) (2,142) (1) (337) (26,224)
Issued.......................................... 78,737 78,737
------- ------- -------- --------- ---------
(23,744) (2,142) (1) 78,400 52,513
Capital in excess of par value:
Cancelled....................................... (1,000) (152,102) (153,102)
Issued.......................................... 73,702 73,702
-------- --------- ---------
(1,000) (78,400) (79,400)
Retained earnings (Accumulated deficit):
Eliminated...................................... 12,203 (2,193) (11,349) (1,339)
</TABLE>
60
<PAGE>
The following table summarizes the pro forma adjustments reflected on the
unaudited pro forma combined statements of income for the completed and proposed
transactions outlined above:
<TABLE>
<CAPTION>
WCT ETI SCI ALC TOTAL
------ ----- ------ -------- ------
THREE MONTHS ENDED 3/31/95
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Amortization....................................... 1,351 330 1,606 3,287
Interest........................................... 1,811 633 2,889 5,333
Income taxes....................................... (634) (221) (1,661) (2,516)
<CAPTION>
THREE MONTHS ENDED 3/31/94
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Amortization....................................... 1,351 330 1,606 3,287
Interest........................................... 1,449 507 2,310 4,266
Income taxes....................................... (507) (177) (1,458) (2,142)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 12/31/94
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Amortization....................................... 5,404 1,320 6,424 13,148
Interest........................................... 5,796 2,027 9,243 17,066
Income taxes....................................... (2,029) (709) (5,834) (8,572)
</TABLE>
61
<PAGE>
STOCK OWNERSHIP OF FRONTIER MANAGEMENT,
DIRECTORS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the number of shares of Frontier Common Stock
beneficially owned by each Frontier director and each person chosen to become a
director, by each of the named executive officers, and by directors and
executive officers of Frontier as a group and the number of shares of Frontier
Common Stock that would be beneficially owned by such persons after the Merger
is consummated, in each case based upon information as of May 31, 1995, except
as otherwise noted below. Except as otherwise noted, the persons named in the
table below have sole voting and investment power with respect to all shares
shown as beneficially owned by them. No director, person chosen to become a
director or executive officer beneficially owns more than 1% of the issued and
outstanding shares of Frontier Common Stock. As a group, such persons' aggregate
beneficial ownership is less than 1% of the issued and outstanding shares of
Frontier Common Stock prior to the Merger and would be approximately 3.1% of the
issued and outstanding shares of Frontier Common Stock immediately after the
Merger.
MANAGEMENT AND DIRECTORS STOCK OWNERSHIP TABLE
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO MERGER AFTER MERGER(1)
---------------------------------- ----------------------------------
TOTAL TOTAL
COMMON STOCK BENEFICIAL COMMON STOCK BENEFICIAL
STOCK(2) OPTIONS(3) OWNERSHIP STOCK(2) OPTIONS(3) OWNERSHIP
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Directors and Prospective Directors:
Patricia C. Barron.................... 3,303 3,996 7,299 3,303 3,996 7,299
Ronald L. Bittner(4).................. 46,746 70,930 117,676 46,746 70,930 117,676
Raul E. Cesan......................... 2,063 0 2,063 2,063 0 2,063
Brenda E. Edgerton.................... 3,900 2,964 6,864 3,900 2,964 6,864
Jairo A. Estrada...................... 14,214 3,996 18,210 14,214 3,996 18,210
Michael E. Faherty.................... 0 0 0 0 80,000 80,000
Daniel E. Gill........................ 4,709 3,996 8,705 4,709 3,996 8,705
Alan C. Hasselwander(5)............... 36,058 1,964 38,022 36,058 1,964 38,022
Robert Holland, Jr.(6)................ 1,458 0 1,458 1,458 0 1,458
Douglas H. McCorkindale............... 4,500 3,996 8,496 4,500 3,996 8,496
William H. Oberlin.................... 0 0 0 0 1,569,200 1,569,200
Dr. Leo J. Thomas..................... 21,967 3,996 25,963 21,967 3,996 25,963
Richard J. Uhl........................ 0 0 0 400 80,000 80,400
John M. Zrno.......................... 0 0 0 0 1,600,000 1,600,000
Named Executive Officers:
Ronald L. Bittner(4).................. 46,746 70,930 117,676 46,746 70,930 117,676
Jeremiah T. Carr...................... 7,629 18,932 26,561 7,629 18,932 26,561
Dale M. Gregory....................... 17,390 21,198 38,588 19,390 21,198 40,588
Louis L. Massaro...................... 11,891 16,932 28,823 11,891 16,932 28,823
John K. Purcell....................... 8,692 19,998 28,690 8,692 19,998 28,690
Directors and Executive Officers as a
Group................................. 239,371 205,566 444,937 243,229 4,522,934 4,766,163
</TABLE>
- ------------
(1) In the Merger, it is assumed that each share of ALC Common Stock
beneficially owned by Messrs. Faherty, Oberlin, Uhl and Zrno and Marvin C.
Moses who is also chosen to be an executive officer of Frontier, as well as
the 1,000 shares of ALC Common Stock currently beneficially owned by Mr.
Gregory, will be exchanged for shares of Frontier Common Stock and that no
ALC Stock Options
(Footnotes continued on following page)
62
<PAGE>
(Footnotes continued from preceding page)
or ALC Warrants will be exercised prior to the Effective Time. Information
concerning the aggregate number of shares of ALC Common Stock is based on
information as of April 7, 1995 and information concerning the beneficial
ownership of ALC Common Stock, ALC Stock Options and ALC Warrants is based
on information as of April 7, 1995.
(2) Includes all shares that each director, person chosen to become a director
or executive officer, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares the
power to vote or to direct the voting of such shares or to dispose or to
direct the disposition of such shares. However, these amounts do not include
shares that each such person has the right to acquire pursuant to options or
other rights.
(3) Includes all shares that such persons have the right to acquire within the
following 60 days pursuant to options or other rights. These amounts do not
include shares that such persons have the right to acquire more than sixty
days in the future.
(4) Includes 126 shares owned by the parents of Mr. Bittner's spouse. Mr.
Bittner disclaims beneficial ownership of these shares.
(5) Includes 1,400 shares owned by Mr. Hasselwander's spouse. Mr. Hasselwander
disclaims beneficial ownership of these shares.
(6) As of June 1, 1995.
Set forth below is the name, address and stock ownership of each person or
group of persons known by Frontier to own beneficially more than 5% of the
outstanding shares of Frontier Common Stock.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO MERGER AFTER MERGER(1)
-------------------- ---------------------
PERCENT PERCENT
NAME AND ADDRESS OF COMMON OF COMMON OF
BENEFICIAL OWNER STOCK CLASS STOCK CLASS
- ----------------------------------------------------- --------- ------- ---------- -------
<S> <C> <C> <C> <C>
FMR Corp.(2)......................................... 5,610,260 6.9% 12,145,860 8.1%
82 Devonshire Street
Boston, Massachusetts 02109
Steven C. Simon(3)................................... 5,226,000 6.4% 5,226,000 3.4%
1300 Nicollet Mall
Minneapolis, Minnesota 55403
James J. Weinert(3).................................. 3,484,000 4.3% 3,484,000 2.3%
1300 Nicollet Mall
Minneapolis, Minnesota 55403
</TABLE>
- ------------
(1) In the Merger, it is assumed that no ALC Stock Options or ALC Warrants will
be exercised prior to the Effective Time.
(2) FMR Corp. ("FMR") filed with the Commission a Schedule 13G, dated February
13, 1995, stating that it beneficially owned in the aggregate 5,610,260
shares, or approximately 7.67% of Frontier Common Stock outstanding as of
December 31, 1994. Of that amount, 4,356,820 shares were beneficially owned
by FMR's wholly-owned subsidiary Fidelity Management & Research Company
("Fidelity") (acting as investment advisor) and 1,253,440 shares were
beneficially owned by FMR's wholly-owned subsidiary Fidelity Management
Trust Company ("Fidelity Trust") (acting as investment manager). All these
shares are also deemed beneficially owned by Edward C. Johnson 3d, who is
FMR's Chairman and who is also a member of a controlling group with respect
to FMR. In its Schedule 13G filing, FMR also disclosed that with respect to
the shares it beneficially owns, it has sole voting power with respect to
783,710 shares, sole investment power
(Footnotes continued on following page)
63
<PAGE>
(Footnotes continued from preceding page)
with respect to 5,610,260 shares, and no shared voting or shared investment
power with respect to any shares.
FMR filed with the Commission a Schedule 13G, dated February 9, 1995,
stating that it beneficially owned in the aggregate 3,267,000 shares, or
approximately 11.22% of ALC Common Stock outstanding as of December 31,
1994. Of that amount, 3,191,500 shares were beneficially owned by FMR's
wholly-owned subsidiary Fidelity (acting as investment advisor) and 76,300
shares were beneficially owned by FMR'S wholly-owned subsidiary Fidelity
Trust (acting as investment manager). All these shares are also deemed
beneficially owned by Edward C. Johnson 3d, who is FMR's Chairman and who
is also a member of a controlling group with respect to FMR. In its Schedule
13G filing, FMR also disclosed that with respect to the shares it
beneficially owns, it has sole voting power with respect to 15,600 shares,
sole investment power with respect to 3,267,800 shares, and no shared voting
or shared investment power with respect to any shares. It is assumed that
these shares would be exchanged for shares of Frontier Common Stock in the
Merger.
(3) Steven C. Simon and James J. Weinert, who have expressly affirmed that they
together comprise a group in a Schedule 13D, dated March 17, 1995, filed
with the Commission, beneficially own approximately 10.6% of the shares of
issued and outstanding Frontier Common Stock as a result of Frontier's
acquisition of American Sharecom on March 17, 1995 and would beneficially
own approximately 5.8% of the shares of Frontier Common Stock outstanding
immediately after the Merger under the assumptions set forth in note 1
above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF FRONTIER
The following statements are brief summaries of certain provisions relating
to Frontier's capital stock and are qualified in their entirety by reference to
the provisions of Frontier's Restated Certificate of Incorporation, as amended
(the "Frontier Charter"), and By-Laws (the "Frontier Bylaws"), which are
incorporated by reference as an exhibit to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part.
Frontier's authorized capitalization presently consists of (i) 300,000,000
shares of Frontier Common Stock, of which 81,864,958 shares were issued and
outstanding as of the close of business on April 6, 1995, (ii) 850,000 shares of
Cumulative Preferred Stock, par value $100.00 per share ("Frontier Cumulative
Preferred Stock"), issuable in series, of which a total of 200,000 shares,
constituting four series, were issued and outstanding as of the close of
business on April 6, 1995, and (iii) 4,000,000 shares of Class A Preferred
Stock, par value $100.00 per share ("Class A Preferred Stock"), which, when
issued, will rank junior to the Cumulative Preferred Stock as to dividends or
distributions, and upon the liquidation, dissolution and winding up of Frontier.
As of the date of this Joint Proxy Statement/Prospectus, no shares of Class A
Preferred Stock are issued and outstanding; however, a series of 300,000 shares
of Class A Preferred Stock has been established in connection with the Frontier
Rights Agreement. See "The Frontier Rights Agreement".
DIVIDEND RIGHTS
Subject to the terms of any contractual restriction on the declaration or
payment of dividends, dividends may be declared and paid on the Frontier Common
Stock out of legally available surplus. However, no dividends may be paid on the
Frontier Common Stock until accrued and unpaid dividends on the outstanding
series of Frontier Cumulative Preferred Stock have been paid or declared and
funds set aside for their payment.
Frontier's ability to pay dividends is substantially dependent upon the
earnings and available cash flow of it subsidiaries and the availability of such
earnings to Frontier by way of dividends, distributions, loans and other
advances. The provisions of the Open Market Plan include the prohibition of
dividend payments from Rochester Tel to Frontier in specified circumstances. In
addition, unless eliminated by action on behalf of ALC or Frontier as
contemplated in the Merger Agreement, after the Effective Time any restrictions
on the payment by ALC or any of its subsidiaries of dividends or distributions
to its respective shareholders will be applicable to the Surviving Corporation
or its subsidiaries, as the case may be. See "DESCRIPTION OF CAPITAL STOCK OF
ALC--Dividend Rights".
VOTING RIGHTS
The holders of Frontier Common Stock have exclusive voting rights of one
vote for each share held, subject to the voting rights of the outstanding
Frontier Cumulative Preferred Stock described below. The holders of the Frontier
Common Stock are not entitled to cumulative voting in the election of directors.
When four or more quarterly dividends on the Frontier Cumulative Preferred
Stock are in arrears, and until such arrearages at full dividend rates have been
paid or declared and set apart for payment, the holders of the Cumulative
Preferred Stock as a class have the right to elect a majority of the Board of
Directors. In such event, the holders of the Frontier Common Stock have the
right to elect only the remaining directors.
In addition, the affirmative vote of various proportions of the Frontier
Cumulative Preferred Stock is required to (1) increase the authorized amount of
the Frontier Cumulative Preferred Stock; (2) create shares having preferential
rights equal or superior to the Frontier Cumulative Preferred Stock; (3) issue
65
<PAGE>
any shares of Cumulative Preferred Stock or any shares having preferential
rights equal or superior to the Frontier Cumulative Preferred Stock without
compliance with certain requirements as to earnings; and (4) create, alter or
abolish any voting rights or preferential rights or redemption provisions
affecting the Frontier Cumulative Preferred Stock adversely.
The Board of Directors of Frontier determines the respective rights of the
holders of one or more series of the Class A Preferred Stock, which might
include: (i) restrictions on dividends on Frontier Common Stock if dividends on
the Class A Preferred Stock are in arrears; (ii) dilution of the voting power of
the Frontier Common Stock; and (iii) the holders of Frontier Common Stock not
being entitled to share in Frontier's assets upon liquidation until satisfaction
of any liquidation preference granted to the Class A Preferred Stock.
LIQUIDATION RIGHTS
On any liquidation of Frontier, the holders of the Frontier Cumulative
Preferred Stock are entitled to their full value per share plus accumulated
dividends. After satisfaction of outstanding liabilities and of the preferential
liquidation rights of the Frontier Cumulative Preferred Stock, the holders of
Frontier Common Stock are entitled to share ratably in the distribution of all
remaining assets.
PREEMPTIVE RIGHTS
Holders of Frontier Common Stock have no preemptive rights to purchase any
stock issued by Frontier, any securities convertible into such stock, or any
rights or options to acquire such stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Frontier Common Stock is The First
National Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021.
THE FRONTIER RIGHTS AGREEMENT
On April 9, 1995, the Board of Directors of Frontier declared a dividend of
one preferred share purchase right (a "Frontier Right") for each outstanding
share of Frontier Common Stock. The dividend was payable on April 24, 1995 to
the shareholders of record on that date. Each Frontier Right entitles the
registered holder to purchase from Frontier one one-hundredth of a share of
Series A Junior Participating Class A Preferred Stock, par value $100 per share
(the "Frontier Rights Preferred Stock"), of Frontier at a price of $80 per one
one-hundredth of a share of Frontier Rights Preferred Stock, subject to
adjustment. The description and terms of the Frontier Rights are set forth in a
Rights Agreement dated as of April 9, 1995, as the same may be amended from time
to time (the "Frontier Rights Agreement"), between Frontier and The First
National Bank of Boston, as Rights Agent.
The Frontier Rights are not exercisable until the earlier to occur of (i)
ten days following the first date of a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the outstanding shares of Frontier Common
Stock or such earlier date as a majority of the Board of Directors shall have
become aware of the existence of an Acquiring Person, or (ii) ten business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 20% or more of the
outstanding shares of Frontier Common Stock. The Frontier Rights will expire on
April 24, 2005, unless such date is extended or unless the Frontier Rights are
earlier redeemed or exchanged by Frontier, in each case as described below.
66
<PAGE>
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Frontier Right, other than
Frontier Rights beneficially owned by the Acquiring Person (which will thereupon
become void), will thereafter have the right to receive upon exercise of a
Frontier Right at the then current exercise price of the Frontier Right, that
number of shares of Frontier Common Stock having a market value of two times the
exercise price of the Frontier Right.
In the event that, after a person or group has become an Acquiring Person,
Frontier is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Frontier Right (other than
Frontier Rights beneficially owned by an Acquiring Person which will have become
void) will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Frontier Right, that number of shares of
common stock of the person with whom Frontier has engaged in the foregoing
transaction (or its parent), which number of shares at the time of such
transaction will have a market value of two times the exercise price of the
Frontier Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Frontier Common Stock, the Board of Directors of Frontier may exchange
the Frontier Rights (other than Frontier Rights owned by such person or group
which will have become void), in whole or in part, at an exchange ratio of one
share of Frontier Common Stock, or one one-hundredth of a share of Frontier
Rights Preferred Stock (or of a share of a class or series of Frontier's
preferred stock having equivalent rights, preferences and privileges), per
Frontier Right (subject to adjustment).
At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of Frontier may redeem the Frontier Rights in whole, but not in part,
at a price of $.01 per Frontier Right, subject to adjustment.
For so long as the Frontier Rights are then redeemable, Frontier may, except
with respect to the redemption price, amend the Frontier Rights in any manner.
After the Frontier Rights are no longer redeemable, Frontier may, except with
respect to the redemption price, amend the Frontier Rights in any manner that
does not adversely affect the interests of holders of the Frontier Rights.
This summary description of the Frontier Rights summarizes the material
terms of the Frontier Rights but does not purport to be complete and is
qualified in its entirety by reference to the Frontier Rights Agreement, which
is incorporated by reference as an exhibit to the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part.
67
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF ALC
The following is a brief description of the capital stock of ALC and is
qualified in its entirety by reference to the provisions of ALC's Restated
Certificate of Incorporation, as amended (the "ALC Charter"), and Amended and
Restated Bylaws (the "ALC Bylaws"), which are incorporated by reference as
exhibits to ALC's Annual Report on Form 10-K. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". For a discussion of certain
aspects of Delaware law applicable to ALC capital stock, see "COMPARISON OF
RIGHTS OF HOLDERS OF ALC COMMON STOCK AND FRONTIER COMMON STOCK".
ALC's authorized capitalization presently consists of (i) 200,000,000 shares
of ALC Common Stock, of which 33,719,441 shares were issued and outstanding as
of the close of business on April 7, 1995 and (ii) 14,783,800 shares of
Preferred Stock, par value of $.01 per share, issuable in series (the "ALC
Preferred Stock"). As of the date of this Joint Proxy Statement/Prospectus, no
shares of ALC Preferred Stock are issued and outstanding, however, the ALC Board
of Directors has designated a series of ALC Preferred Stock consisting of
500,000 shares in connection with the ALC Rights Agreement. See "The ALC Rights
Agreement".
DIVIDEND RIGHTS
Subject to the terms of any contractual restriction or the declaration of
payment of dividends, dividends may be declared and paid on the ALC Common Stock
out of surplus as defined by Delaware law or, in certain circumstances, out of
net profits.
ALC, as guarantor, is a party to Allnet's $105 million unsecured credit
facility with a group of banks (the "Allnet Credit Agreement"). Among other
things, the Allnet Credit Agreement restricts the amount of dividends or
distributions that ALC or any of its subsidiaries may make to its respective
shareholders. In addition, unless the required consent is received, the Allnet
Credit Agreement would prohibit the consummation of the Merger. It is the
current intention of ALC and Frontier to seek to amend the terms of or terminate
the Allnet Credit Agreement prior to the Effective Time.
ALC, as guarantor, is also a party to the Indenture relating to Allnet's 9%
Senior Subordinated Notes Due May 15, 2003 (the "Allnet Indenture"). Among other
things, the Allnet Indenture restricts the amount of dividends or distributions
that ALC, Allnet or certain other subsidiaries of ALC may make to its respective
shareholders. Under the terms of the Merger Agreement, ALC and Frontier have
agreed to make all reasonable efforts to eliminate the application, after the
Effective Time, of this and certain other restrictive covenants contained in the
Allnet Indenture by such means as may be mutually agreeable.
VOTING RIGHTS
The holders of ALC Common Stock have the right to one vote for each share
held and are not entitled to cumulative voting in the election of directors. The
Board of Directors of ALC has the authority to determine the voting rights of
any class or series of ALC Preferred Stock.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of ALC, the
holders of ALC Common Stock, after the payment of preferential amounts to
holders of any outstanding capital stock having preference over the Common Stock
(as authorized by the Board of Directors), are entitled to share ratably in the
remaining assets of ALC available for distribution.
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<PAGE>
PREEMPTIVE RIGHTS
Holders of ALC Common Stock have no preemptive rights to purchase any stock
issued by ALC, any securities convertible into such stock, or any rights or
options to acquire such stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the ALC Common Stock is Mellon
Securities Trust Company, 111 Founders Plaza, 11th Floor, East Hartford,
Connecticut 06108.
THE ALC RIGHTS AGREEMENT
On January 12, 1995, the Board of Directors of ALC declared a dividend of
one preferred share purchase right (an "ALC Right") for each outstanding share
of ALC Common Stock. Each ALC Right entitles the registered holder to purchase
from ALC one one-hundredth of a share of Series E Participating Preferred Stock,
par value $.01 per share (the "ALC Rights Preferred Stock") of ALC at a price of
$120 per one one-hundredth of a share of ALC Rights Preferred Stock, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, dated as of January 12, 1995, as the same may be amended from time to
time (the "ALC Rights Agreement"), between ALC and Mellon Bank, N.A., as Rights
Agent (the "ALC Rights Agent").
The ALC Rights are not exercisable until the earlier to occur of (i) ten
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
20% or more of the outstanding shares of ALC Common Stock or (ii) ten business
days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
the outstanding shares of ALC Common Stock. The ALC Rights will expire on
January 12, 2005, unless such date is extended or unless the ALC Rights are
earlier redeemed or exchanged by ALC, in each case as described below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of an ALC Right, other than ALC Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of an ALC Right at the
then-current exercise price of the ALC Right, that number of shares of ALC
Common Stock having a market value of two times the exercise price of the ALC
Right.
In the event that, after a person or group has become an Acquiring Person,
ALC is acquired in a merger or other business combination transaction or 50% or
more of its consolidated assets or earning power are sold, proper provisions
will be made so that each holder of an ALC Right (other than ALC Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the ALC Right, that number of shares of common
stock of the person with whom ALC has engaged in the foregoing transaction (or
its parent), which number of shares at the time of such transaction will have a
market value of two times the exercise price of the ALC Right.
At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or the
acquisition by such person or group of 50% or more of the outstanding shares of
ALC Common stock, the Board of Directors of ALC may exchange the ALC Rights
(other than ALC Rights owned by such person or group which will have become
void), in whole or in part, for shares of ALC Common Stock, or one
one-hundredths of a share of ALC Rights Preferred Stock (or shares of a class or
series of ALC's preferred stock having equivalent rights, preferences and
privileges), having a value per ALC Right equal to the difference between the
market
69
<PAGE>
value of the shares of ALC Common Stock receivable upon exercise of the ALC
Right and the exercise price of the ALC Rights.
At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of ALC may redeem the ALC Rights in whole, but not in part, at a price
of $.01 per ALC Right.
For so long as the ALC Rights are redeemable, ALC may, except with respect
to the redemption price, amend the ALC Rights in any manner. After the ALC
Rights are no longer redeemable, ALC may, except with respect to the redemption
price, amend the ALC Rights in any manner that does not adversely affect the
interests of holders of the ALC Rights.
ALC and the ALC Rights Agent have executed and delivered an Amendment, dated
as of April 9, 1995, to the ALC Rights Agreement (the "Amendment"). The
Amendment provides that (i) neither Frontier nor Sub shall be deemed to be an
Acquiring Person solely by virtue of the approval, execution or delivery of the
Merger Agreement or by the consummation of the Merger pursuant to the Merger
Agreement, (ii) neither the approval, execution or delivery of the Merger
Agreement nor the consummation of the Merger pursuant to the Merger Agreement
shall be deemed to cause a "Distribution Date", a "Stock Acquisition Date" or a
"Triggering Event" (as such items are defined in the ALC Rights Agreement), and
(iii) upon consummation of the Merger, the ALC Rights shall expire.
This summary description of the ALC Rights summarizes the material terms of
the ALC Rights but does not purport to be complete and is qualified in its
entirety by reference to the ALC Rights Agreement and the Amendment, which are
incorporated herein by reference to ALC's Current Reports on Form 8-K dated
January 24, 1995 and April 10, 1995. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
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<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF
ALC COMMON STOCK AND FRONTIER COMMON STOCK
GENERAL
As a result of the Merger, holders of ALC Common Stock will become
shareholders of Frontier, and the rights of such former ALC shareholders will
thereafter be governed by the Frontier Charter and the Frontier Bylaws and the
laws of New York. The rights of the holders of ALC Common Stock are presently
governed by the ALC Charter and the ALC Bylaws and the laws of Delaware. The
following summary, which does not purport to be a complete statement of the
differences between the rights of the shareholders of Frontier and the
shareholders of ALC, sets forth certain differences between the Frontier Charter
and the ALC Charter, the Frontier Bylaws and the ALC Bylaws and New York and
Delaware law. This summary is qualified in its entirety by reference to the full
text of each of such documents and the applicable state statutes. For
information as to how such documents may be obtained, see "AVAILABLE
INFORMATION".
Reference is also made to the description herein of the Frontier Rights
Agreement and the ALC Rights Agreement, which contain, among other things,
provisions regarding the election of directors and the voting of Frontier Common
Stock and ALC Common Stock. See "DESCRIPTION OF CAPITAL STOCK OF FRONTIER -- The
Frontier Rights Agreement" and "DESCRIPTION OF CAPITAL STOCK OF ALC -- The ALC
Rights Agreement".
VOTING RIGHTS
Generally
Each holder of ALC Common Stock is entitled to one vote for each share held
by such holder on all matters upon which holders of ALC Common Stock are
entitled or afforded the opportunity to vote. Except where the DGCL prescribes a
higher vote, to be effective, corporate action taken by vote of shareholders of
a Delaware corporation must be authorized by the vote of the holders of a
majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at the meeting.
Each shareholder of record of Frontier Common Stock is entitled to one vote
for every share of such stock, subject only to the voting rights granted to the
holders of Frontier Cumulative Preferred Stock upon default in dividends
thereon. See "DESCRIPTION OF FRONTIER CAPITAL STOCK -- Voting Rights". Except as
otherwise provided by law or the NYSE rules, whenever any corporate action other
than the election of directors is to be taken by vote of the shareholders of
Frontier, it must be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
Election of Directors
The ALC Charter provides that the number of directors shall be fixed in the
ALC Bylaws but that the number cannot be less than one or greater than
twenty-one. The number of directors of ALC is currently fixed at seven, although
only six individuals currently serve as directors and one vacancy exists on the
Board. Directors are elected at a meeting of shareholders by the vote of the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at the meeting.
The Frontier Charter mandates that Frontier have not less than nine
directors. The Frontier Bylaws have provided for nine directors, but have
recently been amended, effective as of June 1, 1995, to increase the number of
directors to ten. The Merger Agreement provides that, as of the Effective Time
or as soon thereafter as practicable, the Board of Directors of Frontier will
take action to amend the
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Frontier Bylaws to increase the size of the Board by four directors and to elect
four named current members of the Board of Directors of ALC to the newly created
vacancies. The Frontier Bylaws provide that no person is eligible for election
or reelection to the Frontier Board of Directors after reaching 70 years of age,
or in the case of a retired Chairman of the Board of Directors or a retired
President of Frontier, after reaching 67 years of age. In addition, the Frontier
Bylaws provide that the term of any director who is an officer of Frontier or
any of its subsidiaries, other than the Chairman of the Board or the President
of Frontier, ends on the date of termination from active employment and such
officer is thereafter ineligible for reelection to the Board of Directors.
Directors are elected by a plurality of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote in the election.
Approval of Certain Transactions
The DGCL generally requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon for the approval of any merger or
consolidation. Unless required by the certificate of incorporation, no
shareholder approval is required for certain mergers in which (i) there is no
amendment to the certificate of incorporation of a corporation, (ii) each share
of stock of such corporation is to be an identical outstanding or treasury share
of the surviving corporation after the effective date of the merger and (iii)
either no shares of common stock or no shares, securities or obligations
convertible into such stock, will be issued or delivered in connection with the
merger or the unissued shares or treasury shares of stock to be issued or
delivered in connection with the merger plus those initially issuable upon any
conversion of any other shares, securities or obligations to be issued or
delivered under such plan do not exceed 20% of the shares of common stock of
such corporation outstanding immediately prior to the effective date of the
merger.
The New York Business Corporation Law (the "NYBCL") requires the affirmative
vote of two-thirds of all outstanding shares entitled to vote thereon to effect
a merger, a consolidation, a share exchange or the sale, lease or disposition of
all or substantially all of a corporation's assets. Notwithstanding any
provision in the certificate of incorporation, the holders of shares of a class
or series are entitled to vote as a class if the proposed transaction contains
any provision which, if contained in an amendment to the certificate of
incorporation, would entitle the holder of shares of such class or series to
vote as a class thereon; in such a case, in addition to the required two-thirds
vote of all outstanding shares, the merger must be authorized by a vote of the
holders of a majority of all outstanding shares of each such class or series.
The NYBCL does not contain a provision for mergers (other than those between a
corporation and its 90% or more owned subsidiary) without the approval of
shareholders similar to that in the DGCL.
Because the Merger is structured as a merger of two Delaware corporations,
the two-thirds affirmative vote requirement and the other procedures under New
York law described in the preceding paragraph do not apply to Frontier in
connection with the Merger.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under both Delaware and New York law, amendments to a certificate of
incorporation may be authorized by the vote of the holders of a majority of all
outstanding shares entitled to vote thereon. Both states also provide for
approval by vote of the holders of a majority of outstanding shares of a
particular class of stock in certain circumstances.
SPECIAL MEETINGS
Under both Delaware and New York law, special meetings of shareholders may
be called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or bylaws.
In addition, Delaware law provides that, if an annual meeting is
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not held within 30 days of the date designated for such a meeting, or is not
held for a period of 13 months after the last annual meeting, the Delaware Court
of Chancery may summarily order a meeting to be held upon the application of any
stockholder or director. Under New York law, if there is a failure to elect a
sufficient number of directors to conduct the business of the corporation for a
period of one month after the date fixed by or under the bylaws for the annual
meeting of shareholders or for a period of 13 months after the last annual
meeting, the board of directors will call a special meeting for the election of
directors. If the board fails to do so within 14 days of the expiration of such
period or if it is so called but such directors are not elected within two
months, holders of 10% of the shares entitled to vote in an election of
directors may demand the call of a special meeting for an election of directors.
The ALC Bylaws provide that special meetings of the shareholders of ALC may
be called at any time for any purpose by the Chairman of the Board or the
President, each with the consent of a simple majority of the directors, or by a
simple majority of the directors. Special meetings of the shareholders of
Frontier may be called by the Board of Directors. Such meeting shall be held at
such time as may be fixed in the notice of meeting. Under both Delaware and New
York law, only business related to the purpose or purposes stated in the notice
to shareholders may be transacted at a special meeting.
SHAREHOLDERS' ACTION WITHOUT A MEETING
The DGCL provides that shareholders may take any action without a meeting by
written consent signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, unless otherwise provided in the certificate of incorporation. The
ALC Charter contains no provision limiting the right to act by written consent.
Prompt notice of the taking of any action by less than unanimous consent must be
given to shareholders who did not consent to such action. The NYBCL, however,
provides that shareholders may take any action without a meeting by written
consent only if such consent is signed by the holders of all outstanding shares
entitled to vote thereon, unless otherwise provided in the certificate of
incorporation. The Frontier Charter contains no provision altering the
provisions of the statute.
PREEMPTIVE RIGHTS
The DGCL allows for, but does not require, the grant of preemptive rights in
a company's certificate of incorporation. Neither the ALC Charter nor the ALC
Bylaws provide preemptive rights to the holders of capital stock. The NYBCL
provides, subject to certain exceptions, preemptive rights to shareholders upon
an issuance of securities which would adversely affect certain specified
interests of such shareholders, provided that the certificate of incorporation
may provide otherwise. The Frontier Charter states that no holders of shares of
Frontier of any class or series, now or hereafter authorized, shall have any
preemptive rights.
DIVIDENDS
Subject to any restrictions in a corporation's certificate of incorporation
(which the ALC Charter does not include), the DGCL generally provides that the
directors of a corporation may declare and pay dividends out of surplus (defined
as the excess, if any, of the net assets over capital (defined as the aggregate
par value of the outstanding stock, if par value stock, plus or minus any
amounts added or subtracted by resolution of the board, but in no event less
than the aggregate par value)) or, when no surplus exists, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. Dividends may not be paid out of net profits if the capital of the
corporation is less than the aggregate amount of capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets.
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Under the NYBCL, a corporation may declare and pay dividends on its
outstanding shares except when currently the corporation is insolvent or would
thereby be made insolvent, or when the declaration, payment or distribution
would be contrary to any restrictions contained in the certificate of
incorporation. In general, dividends may be declared or paid out of surplus
only. When any dividend is paid or any other distribution is made, in whole or
in part, from sources other than earned surplus, it must be accompanied by a
written notice disclosing the amounts by which such dividend or distribution
affects stated capital, capital surplus and earned surplus, or, if such amounts
are not yet determinable, disclosing the approximate effect of such dividend on
stated capital, capital surplus and earned surplus and stating that such amounts
are not yet determinable.
STOCK REPURCHASES
The DGCL permits a corporation to repurchase or redeem its shares, except
that a corporation may not do so when the capital of the corporation is impaired
or when such purchase or redemption would cause any impairment of the capital of
the corporation. A purchase or redemption out of capital of shares which are
entitled upon any distribution of the corporation's assets, whether by dividend
or liquidation, to a preference over another class or series of its stock, is
permitted if such shares will be retired upon their acquisition and the capital
of the corporation reduced in accordance with Delaware law.
Under the NYBCL, a corporation may, subject to restrictions imposed by law
or its certificate of incorporation, repurchase or redeem its shares out of
surplus except when the corporation is insolvent or would thereby be made
insolvent. A corporation may repurchase its shares out of stated capital (with
the foregoing exception) if the purchase is made for the purpose of (i)
eliminating fractions of shares, (ii) collecting or compromising indebtedness of
the corporation or (iii) paying shareholders the fair value of their shares in
connection with the exercise of statutory appraisal rights.
As permitted by the NYBCL, the Frontier Charter provides that outstanding
shares of Frontier Common Stock held by persons or entities not possessing
prescribed qualifications are always subject to redemption by Frontier to the
extent necessary, in the judgment of its Board of Directors, to prevent the loss
or secure the renewal or reinstatement of any license or franchise from any
governmental agency held by Frontier or any of its subsidiaries to conduct any
portion of the business of Frontier or any of its subsidiaries, which license or
franchise is conditioned upon some or all of the holders of Frontier's stock
possessing such prescribed qualifications.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
The DGCL permits any corporation, either in its certificate of incorporation
or by resolution of the board of directors, to create rights or options
entitling the holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes. In the absence of actual fraud in the
transaction, the judgment of the directors as to the consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive. The NYBCL requires that the issuance to officers, directors or
employees of rights or options to purchase shares must be authorized by a
majority of all outstanding shares entitled to vote thereon, or authorized by
and consistent with a plan adopted by such vote of shareholders. In the absence
of preemptive rights, such authorization is not required in New York for the
issuance of rights or options in substitution for or upon the assumption of
rights or options of a corporation with which the issuing corporation is merging
or consolidating.
LOANS TO DIRECTORS
The DGCL permits any corporation to lend money to, or guarantee an
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
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directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. Under New York law, any loan made by the corporation to
any director must be authorized by a vote of the shareholders. For purposes of
this authorization, the shares held by the director who would be the borrower
are not entitled to vote.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Both DGCL and the NYBCL provide that a corporation's board of directors may
be divided into classes with staggered terms of offices. Neither the ALC Charter
or the ALC Bylaws nor the Frontier Charter or the Frontier Bylaws provide for a
classified board.
DUTIES OF DIRECTORS
The NYBCL specifically permits a board of directors to consider
constituencies other than the holders of a corporation's capital stock and to
consider both the long-term and short-term interests of the corporation and such
constituencies when taking any action, including action taken in connection with
a change or potential change in the control of the corporation. The NYBCL
permits directors to consider the effect that a corporation's actions may have
in the short-term and the long-term upon (i) potential growth, development,
productivity and profitability of the corporation; (ii) current employees; (iii)
retired employees and other beneficiaries receiving or entitled to receive
retirement, welfare or similar benefits from the corporation; (iv) the
corporation's customers and creditors; and (v) the ability of the corporation to
provide continuously goods, services, employment opportunities and employment
benefits and make other contributions to the communities in which it does
business. The DGCL contains no similar provision; however, Delaware case law has
established that, in circumstances involving a potential change of control,
directors may consider, among various other proper factors, the impact of both
the bid and the potential acquisition on constituencies other than stockholders.
INTERESTED DIRECTOR TRANSACTIONS
Under the DGCL, no contract or transaction between a corporation and one or
more of its directors or officers, or between a corporation and any other
corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers, or have a financial
interest, is void or voidable solely for that reason or solely because the
director or officer is present at or participates in the meeting of the board or
committee which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, provided that (i) the material facts
concerning the individual's interest and the transaction are disclosed and the
transaction is approved by a majority of the disinterested directors of the
board or a committee of the board, or (ii) the material facts concerning the
individual's interest and the transaction are disclosed and the transaction is
approved in good faith by vote of the shareholders or (iii) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the board of directors, a committee thereof or the
shareholders.
The NYBCL provides that no transaction between a corporation and one or more
of its directors or an entity in which one or more of its directors are
directors or officers or have a financial interest shall be void or voidable
solely for that reason. In addition, no such transaction shall be void or
voidable solely because the director is present at or votes at the meeting of
the board of directors or committee which authorizes the transaction. In order
to avoid such a transaction being void or voidable, it must, after disclosure of
material facts (unless such facts were known), (i) be approved by the
disinterested directors or a committee of disinterested directors by a vote
sufficient for such purpose without counting the vote of any interested director
(or, if the vote of disinterested directors is insufficient to constitute an act
of the board under New York law, by the unanimous vote of the disinterested
directors) or (ii) be approved by a vote of the shareholders. Alternatively, the
transaction will not be void or voidable if it is
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shown to have been fair to the corporation at the time it was approved by the
board of directors, a committee thereof or the shareholders.
LIMITATIONS ON DIRECTORS' LIABILITY
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for damages for breach of the director's
fiduciary duty subject to certain limitations. The ALC Charter includes such a
provision limiting the liability of directors, as set forth below, subject to
limitations substantially identical to those contained in the DGCL.
The ALC Charter provides that a director will not be personally liable to
the corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful
payments of dividends, stock purchases or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
While these provisions provide directors with protection from liability for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on directors'
breach of the duty of care. The provisions described above apply to an officer
of the corporation only if he or she is a director of the corporation and is
acting in his or her capacity as director, and do not apply to officers of the
corporation who are not directors.
The NYBCL permits a corporation to limit or eliminate a director's personal
liability to the corporation or the holders of its capital stock for breach of
duty. This limitation is generally unavailable for acts or omissions by a
director which were (i) in bad faith, (ii) involved intentional misconduct or a
knowing violation of law or (iii) involved a financial profit or other advantage
to which such director was not legally entitled. The NYBCL also prohibits
limitations on director liability for acts or omissions which resulted in a
violation of a statute prohibiting certain dividend declarations, certain
payments to shareholders after dissolution and particular types of loans.
The Frontier Charter provides for limitations on directors' liability as
permitted by New York law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL also provides that a corporation may advance
expenses of defense (upon receipt of a written undertaking to reimburse the
corporation if it is ultimately determined that such individual is not entitled
to indemnification) and must reimburse a successful defendant for expenses,
including attorney's fees, actually and reasonably incurred, and permit a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL further provides that indemnification may not be made for any
claim, issue or matter as to which a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation, except only to the extent a court determines that the person
is entitled to indemnity for such expenses that such court deems proper.
The ALC Charter provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of ALC or is or was serving at the request
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of ALC as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended,
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, subject to a right to sue
ALC for failure to indemnify, the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors. The indemnification rights conferred by
the ALC Charter are not exclusive of any other right to which a person seeking
indemnification may be entitled under any law, by-law, agreement, vote of
stockholders or disinterested directors or otherwise. ALC is authorized to
purchase and maintain, and ALC does maintain, insurance on behalf of its
directors, officers, employees and agents.
Under the NYBCL, indemnification of directors and officers may be provided
to whatever extent shall be authorized by a corporation's certificate of
incorporation or a bylaw or vote adopted by the shareholders. However, the NYBCL
does not permit indemnification with respect to any matter as to which the
director or officer has been adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation.
The NYBCL provides that no indemnification of directors in shareholder
derivative suits may be made in respect of (i) a threatened action, or a pending
action which is settled or otherwise disposed of, or (ii) any claim, issue or
matter as to which the director or officer has been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought or, if no action is brought, any court of competent jurisdiction,
determines upon application that, in view of the circumstances of the case, the
director or officer is fairly and reasonably entitled to indemnity for such
portion of the settlement amount and expenses as the court deems proper. The
statutory provisions for indemnification and advancement of expenses are not
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled independently of the applicable
statutory provision.
The Frontier Bylaws currently provide for indemnification of directors and
officers and advancement of indemnified expenses to the full extent now or
hereafter permitted by the NYBCL.
REMOVAL OF DIRECTORS
As permitted under the DGCL, directors of ALC may be removed, with or
without cause, by the vote of the holders of a majority of the outstanding
shares of all classes of stock entitled to vote present at a meeting of
shareholders. The DGCL imposes additional restrictions on the removal of
directors for corporations with a classified board, cumulative voting or
directors elected by the holders of a specific class or series of shares.
The NYBCL provides that any or all of the directors of a corporation may be
removed for cause by a vote of the shareholders and that the certificate of
incorporation or bylaws may provide for removal without cause by vote of the
shareholders. Frontier's Charter and Bylaws contain no such provision. The NYBCL
also imposes additional restrictions on the removal of directors of corporations
with cumulative voting or directors elected by the holders of a specific class
or series of shares.
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NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Delaware law provides that, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly created directorships may be filled
by majority vote of the directors then in office, even if the number of
directors then in office is less than a quorum. If, at the time of filling any
vacancy or newly created directorship, the directors then in office constitute
less than a majority of the whole board, the Court of Chancery has the
authority, upon application of shareholders holding at least 10% of the shares
outstanding at the time and entitled to vote, to order an election to be held to
fill any such vacancies or new directorships, or to replace the directors chosen
by the directors then in office.
New York law provides that newly created directorships and vacancies
occurring for any reason other than removal without cause (and the Frontier
Charter does not presently permit removal without cause), may be filled by vote
of the board of directors. If the number of directors then in office is less
than a quorum, such newly created directorships and vacancies may be filled by
vote of a majority of the directors then in office. Under the Frontier Bylaws, a
director elected to fill a vacancy will hold office for the unexpired term of
such director's predecessor.
DISSENTERS' RIGHTS OF APPRAISAL
Section 262 of the DGCL generally entitles a shareholder to exercise its
appraisal rights upon a merger or consolidation of the corporation effected
pursuant to the DGCL if the holder complies with the requirements of Section 262
thereof. Appraisal rights are available under Section 262 of the DGCL if holders
of shares in a constituent company which shares are listed on a national
securities exchange (as the ALC Common Stock is) are required by the terms of
the merger to accept consideration other than shares of stock of the surviving
corporation, shares of stock of any corporation listed on a national securities
exchange, designated as a national market system security by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
stockholders or cash in lieu of fractional shares.
Shareholders of ALC are not entitled to appraisal rights under the DGCL in
connection with the Merger because ALC Common Stock is listed on the AMEX and
Frontier Common Stock is listed on the NYSE and holders of ALC Common Stock are
not required upon consummation of the Merger to exchange such shares for any
consideration other than Frontier Common Stock or cash in lieu of fractional
shares. See "THE MERGER -- Dissenters' Appraisal Rights."
The NYBCL grants dissenters' rights to shareholders (i.e., the right to cash
payment of the fair value of one's shares determined by judicial appraisal) in
the case of a merger or consolidation, a sale of all or substantially all of the
corporation's assets, and (in the case of a shareholder whose shares are
adversely affected thereby) certain amendments to the certificate of
incorporation, as the case may be. The NYBCL, in determining the "fair value"
for payment of shares, mandates that the court consider the nature of the
transaction and its effect on the corporation and its shareholders, and the
concepts and methods of valuation then customary in the relevant financial and
securities markets.
BUSINESS COMBINATION STATUTES
In 1988, Delaware enacted a statute designed to provide Delaware
corporations with limited protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the DGCL ("Section 203"), is
intended to discourage certain takeover practices by impeding the ability of a
hostile acquiror to engage in certain transactions with the target company.
In general, Section 203 provides that a person or entity that owns 15% or
more of the outstanding voting stock of a Delaware corporation (an "Interested
Shareholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such person or entity became an Interested Shareholder,
unless an exemption
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described below is applicable. The term "business combination" is defined
broadly to cover a wide range of corporate transactions including mergers, sales
of assets, issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Shareholder, the board of directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder, (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he or she became an Interested Shareholder, with the number of shares
outstanding calculated without regard to those shares owned by the corporation's
directors who are also officers or by certain employee stock plans, (iii) any
business combination with an Interested Shareholder that is approved by the
board of directors and by a two-thirds vote of the outstanding voting stock not
owned by the Interested Shareholder, and (iv) certain business combinations that
are proposed after the corporation had received other acquisition proposals and
that are approved or not opposed by a majority of certain continuing members of
the board of directors. The ALC Charter does not contain an election, as
permitted by Delaware law, to be exempt from the requirements of Section 203.
Under the NYBCL, a corporation is generally prohibited from engaging in
certain business combinations (as defined by the statute to include certain
mergers and consolidations, dispositions of assets and issuances of securities,
as well as certain other transactions) with an interested shareholder (as
defined by the statute generally to include holders of 20% or more of the
outstanding stock of the corporation) for a period of five years following the
date that such shareholder became an interested shareholder, unless the business
combination or the purchase of stock by means of which the interested
shareholder became such is approved by the corporation's board of directors in
advance of such stock purchase, or unless the interested shareholder was the
beneficial owner of 5% or more of the corporation's outstanding voting stock on
October 30, 1985, and remains so until becoming an interested shareholder.
"ANTI-GREENMAIL"
The NYBCL provides that no domestic corporation may purchase more than 10%
of its stock from a shareholder who has held the shares for less than two years
at any price which is higher than the market price unless such transaction is
approved by both the corporation's board of directors and a majority of the
shares entitled to vote or the corporation offers to purchase shares from all
the holders on the same terms. The DGCL contains no similar provision.
LISTING
ALC Common Stock is listed on the AMEX. Frontier Common Stock is listed on
the NYSE.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, which appears as Annex I to this Joint Proxy Statement/Prospectus and
is incorporated herein by reference. Such summary does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the holders of ALC Common Stock and the approval of
certain related matters by the holders of Frontier Common Stock and the
satisfaction or waiver of the other conditions to the Merger, Sub will be merged
with and into ALC, and ALC will continue as the Surviving Corporation.
If the conditions to the Merger are satisfied or waived, the parties will
file with the Secretary of State of the State of Delaware a duly executed
Certificate of Merger, and the Merger will become effective upon the filing and
acceptance thereof or at such date thereafter as is provided in the Certificate
of Merger.
Shares of ALC Common Stock outstanding at the Effective Time will be
converted into shares of Frontier Common Stock, as described under "THE MERGER
- -- Merger Consideration". With regard to the treatment of fractional share
interests, see "THE MERGER -- Fractional Shares".
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
ALC relating, with respect to ALC and its subsidiaries, to, among other things,
(a) organization, standing and similar corporate matters; (b) ALC's capital
structure; (c) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (d) documents filed
by ALC with the Commission and the accuracy of information contained therein and
the absence of undisclosed liabilities; (e) the accuracy of information supplied
by ALC in connection with this Joint Proxy Statement/Prospectus; (f) compliance
with law and the absence of pending or threatened litigation; (g) filing of tax
returns and payment of taxes; (h) certain agreements of ALC; (i) benefit plans
and other matters relating to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and employment matters; (j) subsidiaries; (k) the
absence of certain changes or events since the date of the most recent audited
financial statements filed with the Commission, including material adverse
changes with respect to ALC; (l) the inapplicability of the restrictions of
Section 203 of the DGCL, relating to business combinations with Interested
Shareholders, to the Merger Agreement and related agreements and transactions;
(m) the required vote of ALC's shareholders; (n) no action having been taken
that would prevent using the "pooling of interests" method to account for the
Merger; (o) the ALC Rights Agreement; (p) good title to properties and assets,
free of liens; (q) ownership of Frontier Common Stock; (r) ownership of patents,
trademarks, trade names, copyrights and other technology necessary to the
conduct of its business; (s) absence of undisclosed material liabilities; (t)
environmental matters; and (u) the receipt of an opinion from ALC's financial
advisor in connection with the Merger.
The Merger Agreement also contains similar customary representations and
warranties of Frontier and Sub relating, with respect to Frontier and its
subsidiaries, to, among other things, (a) organization, standing and similar
corporate matters; (b) Frontier's capital structure; (c) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (d) documents filed by Frontier with the Commission and the
accuracy of information contained therein and the absence of undisclosed
liabilities; (e) the accuracy of information supplied by Frontier in connection
with the Registration Statement and this Joint Proxy Statement/Prospectus; (f)
compliance
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with laws; (g) the absence of pending or threatened litigation; (h) filing of
tax returns and payment of taxes; (i) certain agreements of Frontier; (j)
benefit plans and other matters relating to ERISA and employment matters; (k)
subsidiaries; (l) the absence of certain changes or events since the most recent
financial statements filed with the Commission, including material adverse
changes with respect to Frontier; (m) the inapplicability of Section 912 of the
NYBCL to the Merger Agreement and related agreements and transactions; (n) the
required vote of Frontier's shareholders; (o) no action having been taken that
would prevent using the "pooling of interests" method to account for the Merger;
(p) the Frontier Rights Agreement; (q) good title to properties and assets, free
of liens; (r) ownership of ALC Common Stock; (s) ownership of patents,
trademarks, trade names, copyrights and other technology necessary to the
conduct of its business; (t) absence of undisclosed material liabilities; (u)
environmental matters; and (v) the receipt of an opinion from Frontier's
financial advisor in connection with the Merger.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, ALC and Frontier have each agreed, until
the Effective Time (except as otherwise specifically required by the terms of
the Merger Agreement), that it will, and it will cause its subsidiaries to, act
and carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as previously conducted and use all
reasonable best efforts to preserve intact their present business organizations,
(maintain their rights and franchises) and preserve their relationships with
customers, suppliers, and others having business dealings with them to the end
that their goodwill and ongoing businesses shall not be impaired in any material
respect at the Effective Time. Without limiting the generality of the foregoing,
Frontier and ALC have each agreed that neither it nor any of its subsidiaries
will at any time prior to the Effective Time among other things: (a) enter into
any new material line of business, or incur or commit to any capital
expenditures or any obligations or liabilities in connection therewith, except
in the ordinary course of business consistent with past practice or as
contemplated by business plans or budgets provided, or otherwise disclosed in
writing, to the other party prior to the date of the Merger Agreement; (b)
except in connection with the declaration and issuance of Frontier Rights by
Frontier, (i) declare or pay any dividends on shares of capital stock or make
other distributions in respect of any of its capital stock or make other
distributions in respect of any of its capital stock other than (x) regular
quarterly cash dividends not in excess of $.2075 per share of Frontier Common
Stock and regular quarterly cash dividends as provided by and in accordance with
the terms of the Frontier Cumulative Preferred Stock, and (y) dividends by a
wholly owned subsidiary, (ii) split, combine or reclassify any of its capital
stock or issue or authorize issuance of any other securities in respect of or in
substitution for shares of its capital stock, or (iii) repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities convertible
into or exercisable for any shares of its capital stock (except as permitted
with regard to Frontier in Schedule 3.2(b) to the Merger Agreement); (c) issue,
deliver or sell any shares of capital stock, any voting debt (i.e., bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any matters on
which shareholders may vote) or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such shares of voting
debt, other than upon the exercise of outstanding stock options or other rights
or pursuant to existing stock plans of Frontier or ALC, issuances by a
wholly-owned subsidiary of its capital stock to its parent, or, pursuant to the
Frontier Rights Agreement or the ALC Rights Agreement; (d) amend its certificate
of incorporation or bylaws (except as contemplated in the Merger Agreement and
except that Sub's certificate of incorporation may be amended to increase the
number of its authorized shares or to change the par value thereof); (e) amend
the Frontier Rights Agreement and the ALC Rights Agreement, respectively, in any
way adverse to the other party or its ability to consummate the Merger; (f) make
any acquisition or enter into any merger except as disclosed prior to the date
of the Merger Agreement or pursuant to certain other limited exceptions; (g)
dispose of any material assets other than as disclosed prior to the date of the
Merger Agreement, as required by law or in the ordinary course of business; (h)
incur any long term indebtedness other than in connection with the refinancing
of existing
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debt or in the ordinary course of business or as otherwise permitted under the
Merger Agreement; (i) take any action reasonably expected to result in any of
its representations and warranties being or becoming materially false, or any of
the conditions to the Merger not being satisfied; (j) change its method of
accounting or its fiscal year; (k) take any actions which would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a tax-free
"reorganization" for tax purposes; (l) without the written consent of the other
party, enter into, adopt, renew, amend or terminate any employee benefit plan or
enter into or renew any employment agreements which terms are contingent upon
transactions contemplated by the Merger Agreement (except for the Employment
Agreements); or (m) without the written consent of the other party make any
material tax election or settle any material tax liability except in the
ordinary course of business. ALC has further agreed not to amend certain stock
options and warrant agreements and not to grant any stock options, stock
appreciation rights, restricted stock units or performance units or shares other
than as required by existing agreements with individual employees.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that Frontier and ALC and their respective
subsidiaries will not, except as described below, directly or indirectly,
through any officer, director, agent or otherwise, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate, any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction, or agree to or endorse any Competing Transaction, or
participate in any discussions or negotiations, or provide third parties with
any nonpublic information, relating to any such inquiry or proposal. The Merger
Agreement provides that each party shall promptly advise the other (orally and
in writing) of any such inquiry or proposal. As used in this paragraph and under
"Expenses, Expense Reimbursement and Termination Fee" below "Competing
Transaction" means (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 20% or more of the assets of
such party and its subsidiaries, taken as a whole, in a single transaction or
series of transactions; (iii) any tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of such party or the filing of a
registration statement under the Securities Act in connection therewith; (iv)
any person or group having acquired beneficial ownership of 20% or more of the
outstanding shares of capital stock of such party; or (v) any proposal, plan or
intention to do any of the foregoing other than the transactions contemplated by
the Merger Agreement. Nothing in the provision of the Merger Agreement described
in the foregoing sentence prohibits the board of directors of ALC or Frontier,
as the case may be, from (i) (x) furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
written, bona fide proposal to acquire the company receiving such a proposal, or
(y) withdrawing or modifying its recommendation to shareholders with respect to
the Merger following the occurrence of a Competing Transaction, if, in any such
case, the board of directors of the company receiving such a proposal determines
in good faith, based upon advice of independent legal counsel, that its
fiduciary duties to shareholders require it to take such action, or (ii)
complying with Rule 14e-2 of the Exchange Act. If the board of directors of a
party determines it must furnish information to or enter into discussions with
an entity making such a proposal to comply with its fiduciary duties to
shareholders, such party must provide reasonable notice to the other party and
cause such other party to enter into a confidentiality agreement on terms not
more favorable than the terms contained in the existing confidentiality
agreement between ALC and Frontier. The Merger Agreement also contains
provisions relating to the exchange of information between the parties relating
to third party acquisition proposals.
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BOARD OF DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The Merger Agreement provides that the directors of Sub at the Effective
Time will be the directors of the Surviving Corporation and that the officers of
ALC at the Effective Time will be officers of the Surviving Corporation.
OPTIONS, WARRANTS AND EMPLOYEE BENEFIT PLANS
At the Effective Time, outstanding ALC Stock Options and ALC Warrants will
be deemed to constitute an option or warrant, respectively, to acquire Frontier
Common Stock in accordance with the Merger Agreement, as described in "THE
MERGER -- Effect on Options, Warrants and Employee Benefit Plans". The treatment
in the Merger of the other benefit plans of ALC under the Merger Agreement will
be as described in "THE MERGER -- Effect on Options, Warrants and Employee
Benefit Plans".
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to various
conditions which include, in addition to certain other customary closing
conditions, the following: (a) the Merger Agreement will have been approved and
adopted by the affirmative vote of holders of a majority of the outstanding
shares of ALC Common Stock entitled to vote thereon; (b) the issuance of shares
of Frontier Common Stock necessary for Frontier to meet its obligations under
the Merger Agreement will have been approved by a majority of the votes cast
thereon by the holders of shares of Frontier Common Stock, provided that the
total votes cast shall represent a majority of the outstanding shares of
Frontier Common Stock entitled to vote thereon; (c) the shares of Frontier
Common Stock issuable to ALC shareholders pursuant to the Merger Agreement will
have been approved for listing on the NYSE, subject to official notice of
issuance; (d) All authorizations, consents or approvals of, or declarations or
filings with, and all expirations of waiting periods imposed by, any
governmental entity which are necessary for consummation of the Merger shall
have been filed, occurred or been obtained; and any "blue sky" and other state
securities laws authorizations necessary for the issuance of the Frontier Common
Stock and to consummate the Merger will have been complied with; (e) the
Registration Statement will have become effective under the Securities Act and
will not be the subject of any stop order or proceedings seeking a stop order;
(f) there will not be any injunction or restraining order preventing the
consummation of the Merger in effect nor will any proceeding by a governmental
entity seeking the same be pending nor will the Merger be illegal under any
applicable law; (g) Frontier and ALC will have received letters from Price
Waterhouse LLP and Ernst & Young LLP to the effect that the Merger qualifies for
"pooling of interests" accounting treatment; and (h) in approving the Merger, no
governmental authority will have imposed a burdensome condition or restriction
upon Frontier or its subsidiaries which would so materially adversely impact the
economic or business benefits of the transactions contemplated by the Merger
Agreement as to render the Merger inadvisable.
Frontier's and Sub's obligation to effect the Merger is subject to the
following additional conditions: (a) Frontier will have received the opinion,
dated on or about the date that is two business days prior to the date this
Joint Proxy Statement/Prospectus is first mailed to Frontier and ALC
shareholders, of Simpson Thacher & Bartlett, counsel to Frontier, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
Frontier, Sub and ALC will each be a party to that reorganization, which opinion
shall not have been withdrawn or modified in any material respect; (b) no
governmental entity will impose, in connection with its approval of the Merger,
a requirement upon Frontier or its subsidiaries to dispose of any "material
asset" (as defined in the Merger Agreement), provided that Frontier shall have
contested in good faith the imposition of any such requirement; (c) Each of the
Employment Agreements will be in full force and effect, and each ALC employee
subject to such an agreement shall have performed in
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all material respects all obligations under such agreement; and (d) Lazard will
not have withdrawn its opinion to the Board of Directors of Frontier concerning
the fairness of the Exchange Ratio.
ALC's obligation to effect the Merger is subject to the following additional
conditions: (a) ALC will have received the opinion, dated on or about the date
that is two business days prior to the date this Joint Proxy
Statement/Prospectus is first mailed to Frontier and ALC shareholders, of
Debevoise & Plimpton, counsel to ALC, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code, and that Frontier, Sub and ALC will each be a
party to that reorganization, which opinion shall not have been withdrawn or
modified in any material respect; (b) no governmental entity will impose, in
connection with its approval of the Merger, a requirement upon ALC or its
subsidiaries to dispose of any "material asset" (as defined in the Merger
Agreement), provided that ALC shall have contested in good faith the imposition
of any such requirement; and (c) Salomon will not have withdrawn its opinion to
the Board of Directors of ALC concerning the fairness of the Merger.
Also see "REGULATORY APPROVALS".
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of ALC or Frontier: (a) by mutual consent of
Frontier and ALC in a written instrument; (b) by either Frontier or ALC upon a
wilful breach of any material representation, warranty, covenant or agreement in
the Merger Agreement on the part of the other party or a representation or
warranty of the other party having become untrue, which in each case is
incapable of cure by December 31, 1995; (c) by either Frontier or ALC, if any
permanent injunction or action by any governmental entity preventing the
consummation of the Merger has become final and nonappealable, unless the party
seeking to terminate failed to make reasonable efforts to contest the imposition
of such injunction or action which failure materially contributed to such
imposition; (d) by either Frontier or ALC if the Merger has not been consummated
on or prior to December 31, 1995; (e) by either Frontier or ALC if any approval
of the shareholders of ALC or of Frontier required for the consummation of the
Merger has not been obtained by reason of the failure to obtain the required
vote at a duly held meeting of shareholders or at any adjournment thereof; (f)
by either Frontier or ALC if (i) the board of directors of the other party has
withdrawn, modified or changed its approval or recommendation of the Merger, the
Merger Agreement or the matter to be voted upon by shareholders in connection
with the Merger, in any manner which is adverse to the party seeking to
terminate, or (ii) the board of directors of the other party has approved or
recommended a Competing Transaction or has resolved to do so; or (iii) a tender
offer or exchange offer for 20% or more of the outstanding shares of the other
party is commenced, and the board of directors of the other party recommends
that the shareholders tender their shares in such tender offer or exchange offer
within ten business days of the commencement thereof, or (iv) any person
(including the other party) or group (other than the party seeking to terminate)
has acquired 20% or more of the other party's common stock; or (g) either party
if its board of directors either fails to make, withdraws, or modifies its
recommendation of the Merger Agreement, Merger or the matter to be voted upon in
connection with the Merger and there is a written, bona fide proposal by a third
party to acquire such party, or recommends to its shareholders approval or
acceptance of such other proposal after a good faith determination after
consultation with and based upon the advice of independent legal counsel that
such recommendation is required to comply with its fiduciary duties to
shareholders.
In the event of termination of the Merger Agreement by either Frontier or
ALC, the Merger Agreement will become void and there will be no liability or
obligation on the part of Frontier, Sub or ALC, or their respective officers or
directors other than under certain specified provisions of the Merger Agreement
relating to confidentiality agreements and brokers' fees, liabilities or damages
incurred by a party as a result of the wilful breach by the other party of any
of its representations, warranties,
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covenants or other agreements set forth in the Merger Agreement. The Merger
Agreement provides that in the event of a termination in certain situations in
which there is a competing transaction with respect to a party, or a party
enters into a business combination with another person within a certain period
of time following termination, then the other party will receive a specified
fee, as well as expenses as described below. See "Expenses, Expense
Reimbursement and Termination Fee".
As permitted by the DGCL, the Merger Agreement states that, prior to the
Effective Time and in accordance with the above-described termination
provisions, the Merger Agreement may be terminated by the board of directors of
the constituent corporations notwithstanding approval of the agreement by the
shareholders of all or any of the constituent corporations.
AMENDMENT AND WAIVER
As permitted under the DGCL, the Merger Agreement may be amended by the
parties at any time before or after any required approval of matters presented
in connection with the Merger by the shareholders of ALC or of Frontier;
provided, that after any such approval, there can be made no amendment that by
law requires further approval by such holders without the further approval of
such holders. The DGCL provides that an amendment made subsequent to the
adoption of the Merger Agreement by the shareholders of either constituent
corporation in the Merger may not (1) alter or change the amount or kind of
consideration to be received in the Merger in exchange for or upon conversion of
any of the shares of such constituent corporation, (2) alter or change any term
of the certificate of incorporation of the Surviving Corporation or (3) alter or
change any of the terms and conditions of the Merger Agreement if such
alteration or change would adversely affect the holders of any class, or series
thereof, of stock of such constituent corporation. At any time prior to the
Effective Time of the Merger, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties or (c) subject to
any approval of shareholders required by law, waive compliance with any of the
agreements or conditions contained in the Merger Agreement.
EXPENSES, EXPENSE REIMBURSEMENT AND TERMINATION FEE
Except as set forth below, all costs and expenses incurred in connection
with the Merger Agreement, and the transactions contemplated thereby will be
paid by the party incurring such expenses, except that the expenses in
connection with printing, filing and mailing this Joint Proxy Statement/
Prospectus and the related Registration Statement shall be shared equally by
Frontier and ALC. In recognition of the considerable time and expense each party
has invested in the transactions contemplated by the Merger Agreement, Frontier
and ALC have agreed that under specified circumstances, one party will be
obligated to pay the other a fee of $45 million (the "Termination Fee") plus
expenses not to exceed $5 million. A party will be obligated to pay the other
party the Termination Fee and expenses if (i) the Merger Agreement is terminated
as a result of the wilful breach of any material covenant, agreement,
representation or warranty contained in the Merger Agreement by such party and
at any time from the date of the Merger Agreement until twelve months after its
termination a Business Combination (as defined below) involving such party has
occurred or such party has entered into a definitive agreement for a Business
Combination; (ii) the Merger Agreement is terminated for failure to consummate
it by December 31, 1995 and (x) there exists a Competing Transaction with
respect to such party, (y) at any time from the date of the Merger Agreement
until twelve months after its termination a Business Combination involving such
party that is at least as favorable to such party and its shareholders from a
financial point of view as such Competing Transaction has occurred or such party
has entered into a definitive agreement providing for such a Business
Combination and (z) if such termination is by the other party, such party has
offered to extend the deadline for consummation of the Merger until at least
March 31, 1996; (iii) the Merger Agreement is terminated for failure to receive
the required vote for approval from shareholders of such party at a meeting of
shareholders of such
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party and at the time of such meeting there exists a Competing Transaction with
respect to such party; (iv) the Merger Agreement is terminated due to the board
of directors of such party withdrawing, modifying or changing or resolving to
withdraw, modify or change its approval or recommendation of the Merger
Agreement and at the time of the withdrawal, modification or change (or
resolution to do so) of such board's recommendation there exists a Competing
Transaction with respect to such party; (v) the Merger Agreement is terminated
by the other party because (x) the board of directors of the non-terminating
party has approved or recommended to its shareholders a Competing Transaction
(or resolved to do the foregoing), (y) a tender offer or exchange offer for 20%
or more of the outstanding shares of common stock of the non-terminating party
has been commenced and such party's board recommends its shareholders tender
their shares or fails to recommend that shareholders reject such offer within
ten days of the commencement thereof or (z) any person (including the
non-terminating party) or any group (other than the other party) shall have
acquired beneficial ownership of 20% or more of the outstanding shares of a
party; or (vi) if the Merger Agreement is terminated by such party because its
board of directors (x) has failed to make or has withdrawn or modified its
recommendation of the Merger Agreement or the Merger and there exists at such
time a tender offer or exchange offer or a written, bona fide proposal by a
third party to acquire such party pursuant to a merger, consolidation, share
exchange, business combination, tender or exchange offer or similar transaction
or (y) has recommended to its shareholders approval or acceptance of any such
transaction, in each case if the board of directors, after consultation with and
based upon the advice of independent legal counsel, determines in good faith
that such action is required for such board to fulfill its fiduciary duties to
shareholders. As used in this and the next succeeding paragraph, a "Business
Combination" means any of the following: (1) any merger, consolidation share
exchange, business combination or similar transaction; (2) any sale, lease,
exchange, transfer or other disposition of 20% or more of the assets of such
party and its subsidiaries, taken as a whole, in a single transaction or series
of transactions; or (3) the acquisition by a person or any group of beneficial
ownership of 20% or more of the capital stock of such party whether by tender
offer or exchange offer or otherwise.
The parties have further agreed that a party will be obligated to pay the
other's expenses in connection with the merger up to a maximum of $5 million,
even in the absence of a Competing Transaction or a Business Combination, if the
Merger Agreement is terminated due to (i) any approval of shareholders of a
party required for the consummation of the Merger not being obtained by reason
of the failure to obtain the required vote at a duly held meeting of
shareholders or an adjournment thereof, (ii) a wilful breach of any material
representation, warrant, covenant or agreement on the part of such party, or if
any such representation or warranty of such party has become untrue, in each
case such that the closing conditions are incapable of being satisfied
(following notice and a reasonable opportunity to cure) by December 31, 1995, or
(iii) such party's board of directors has withdrawn, modified or changed its
approval or recommendation of the Merger Agreement or the Merger in any manner
adverse to the other party (or shall have resolved to do the foregoing).
The Merger Agreement provides that (with certain exceptions) payment of a
Termination Fee and/or the other party's expenses will be made contemporaneously
with the termination of the Merger Agreement, and termination by any party
required to make such a payment will not be effective until such payment is
made.
REGULATORY APPROVALS
The Merger is subject to the expiration of or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where Frontier and ALC currently
operate.
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Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated. On
May 15, 1995 and May 18, 1995, respectively, Frontier and ALC filed notification
and report forms under the HSR Act with the FTC and the Antitrust Division. In
their notification and report forms, Frontier and ALC requested early
termination of the waiting period under the HSR Act. Pursuant to such requests,
early termination of the required waiting period was granted on May 30, 1995. At
any time before or after consummation of the Merger, notwithstanding the
satisfaction of the HSR Act requirements, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of Frontier or ALC.
At any time before or after the Effective Time, and notwithstanding the
satisfaction of the HSR Act requirements, any state could take such action under
the antitrust laws as it deems necessary or desirable in the public interest.
Such action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Frontier or ALC. Private parties
may also seek to take legal action under the antitrust laws under certain
circumstances.
Based on information available to them, Frontier and ALC believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Frontier and ALC would prevail or would not be required to accept certain
adverse conditions in order to consummate the Merger.
Telecommunications. For the purposes of telecommunications regulatory law,
the Merger is considered a transfer of control of ALC and its operating
subsidiaries under the Communications Act of 1934, as amended. Such transfers
are regulated by the FCC. Many states also regulate the transfer of control of
carriers who provide telecommunications services. Applications for prior
approval of the Merger have been filed with the FCC and with the appropriate
regulatory authorities in approximately 19 states. In approximately 17 states,
notices or advice letters of the Merger are required to be filed prior to the
Merger. The parties have requested that any required prior approvals be granted
by no later than August 1, 1995.
CERTAIN LITIGATION
Immediately following the announcement of the Merger, three individuals who
are alleged to be shareholders of ALC filed separate purported class action
complaints in the Court of Chancery, in and for New Castle County, Delaware.
These actions, styled Mayers v. Irwin, et al., C.A. No. 14196; Cohen v. Irwin,
et al., C.A. No. 14197, and Tovar v. Irwin, et al., C.A. No. 14216, all name as
defendants ALC and each member of the Board of Directors of ALC. In addition,
both the Mayers and Cohen actions name Frontier as a defendant.
Each of the three actions is substantially similar, and each asserts, among
other things, that the consideration to be paid to shareholders of ALC in the
Merger is grossly inadequate and unfair, is not the result of a fully informed
deliberative process by the Board of Directors of ALC and constitutes a breach
of duty by each individual defendant, which, according to the complaints, was
motivated by the desire of the three officer directors of ALC to protect their
compensation and positions with ALC. In addition, the Tovar action complains
that ALC's shareholder rights plan is being used to thwart a possible
acquisition of ALC by any other potential acquiror, and the Mayers and Cohen
actions also allege that Frontier has aided and abetted the alleged breach of
fiduciary duty by the ALC directors.
All three actions seek, among other things, an injunction to prohibit the
consummation of the Merger, rescission of the Merger if completed, damages and
attorney's fees. In addition, the Mayers
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complaint also seeks an order requiring the Board of Directors of ALC "to place
the Company up for auction and/or to conduct a market-check".
On June 9, 1995, the Delaware court entered an order consolidating the three
cases for all purposes. Under the terms of that order, the complaint in the
Mayers action 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. Discovery in the case is
underway.
The Board of Directors of ALC believes it has complied with its fiduciary
duties and intends to defend against the actions vigorously. As to claims
against Frontier, which has not yet been served with process in the actions that
name Frontier as a defendant, Frontier's management believes such actions to be
without merit and intends to defend against them vigorously if and when Frontier
is served with process.
EXPERTS
The consolidated financial statements of Frontier as of December 31, 1993
and 1994 and for each of the three years in the period ended December 31, 1994,
incorporated herein by reference to Frontier's Annual Report on Form 10-K, and
the restated consolidated financial statements of Frontier which give
retroactive effect to Frontier's acquisition of American Sharecom, incorporated
herein by reference to Frontier's Current Report on Form 8-K dated April 12,
1995, have been audited by Price Waterhouse LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of ALC as of December 31, 1994 and
December 31, 1993 and for each of the three years in the period ended December
31, 1994, incorporated herein by reference to ALC's Annual Report on Form 10-K
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Representatives of Price Waterhouse LLP are expected to be present at the
Frontier Special Meeting and representatives of Ernst & Young LLP are expected
to be present at the ALC Special Meeting, where they will have the opportunity
to make a statement if they desire to do so and will be available to respond to
appropriate questions.
LEGAL OPINIONS
The legality of the Frontier Common Stock being offered hereby is being
passed upon for Frontier by Helen A. Zamboni, Corporate Counsel of Frontier. Ms.
Zamboni owns shares and options to purchase shares of Frontier Common Stock
which in the aggregate represent less than 0.01% of the currently outstanding
shares of Frontier Common Stock.
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), counsel for Frontier, and Debevoise & Plimpton, counsel for ALC,
have delivered opinions concerning certain federal income tax consequences of
the Merger. See "THE MERGER -- Certain Federal Income Tax Consequences".
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OTHER INFORMATION AND SHAREHOLDER PROPOSALS
All information contained in this Joint Proxy Statement/Prospectus
concerning Frontier and its subsidiaries has been furnished by Frontier. All
information contained in this Joint Proxy Statement/ Prospectus concerning ALC
and its subsidiaries has been furnished by ALC. No person has been authorized to
give any information or make any representations other than those in this Joint
Proxy Statement, and, if given, such information or representation must not be
relied upon as having been authorized. Neither the delivery of this Joint Proxy
Statement/Prospectus at any time, nor any solicitation made hereunder, shall
under any circumstances imply that the information contained herein is correct
as of any time subsequent to the date of this Joint Proxy Statement/Prospectus.
As of the date of this Joint Proxy Statement/Prospectus, Frontier management
and ALC management know of no other matters that may properly be, or which are
likely to be, brought before the Frontier Special Meeting or the ALC Special
Meeting, respectively. However, if any other matters are properly brought before
such Special Meetings, the persons named in the enclosed proxy or their
substitutes will vote the proxies in accordance with the recommendations of the
respective board of directors.
In order to be considered for inclusion in the proxy statement for the next
annual meeting, if any, of shareholders of ALC, any shareholder proposal
intended to be presented at the meeting must have been received by ALC on or
before December 7, 1995.
In order to be considered for inclusion in the proxy statement for the next
annual meeting of shareholders of Frontier to be held on April 24, 1996, any
shareholder proposal intended to be presented at the meeting must have been
received by Frontier on or before November 22, 1995.
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ANNEX I
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 9, 1995,
AMONG
FRONTIER CORPORATION,
FRONTIER SUBSIDIARY ONE, INC.
AND
ALC COMMUNICATIONS CORPORATION
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TABLE OF CONTENTS
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ARTICLE I THE MERGER
1.1 The Merger.............................................................. 7
1.2 Closing................................................................. 7
1.3 Effective Time of the Merger............................................ 7
1.4 Effects of the Merger................................................... 7
1.5 Certificate of Incorporation and By-Laws................................ 7
1.6 Directors; Officers..................................................... 8
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock................................................. 8
(a) Common Stock of Sub............................................... 8
(b) Cancellation of Treasury Stock and Frontier-Owned Stock........... 8
(c) Conversion of ALC Common Stock.................................... 8
2.2 Exchange of Certificates................................................ 8
(a) Exchange Agent.................................................... 8
(b) Exchange Procedures............................................... 9
(c) Distributions with Respect to Unexchanged Shares.................. 9
(d) No Further Ownership Rights in ALC Common Stock................... 9
(e) No Fractional Shares.............................................. 9
(f) Termination of Exchange Fund...................................... 10
(g) No Liability...................................................... 10
(h) Withholding Rights................................................ 10
ARTICLE III REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of ALC................................... 10
(a) Organization, Standing and Power.................................. 10
(b) Capital Structure................................................. 11
(c) Authority......................................................... 12
(d) SEC Documents..................................................... 13
(e) Information Supplied.............................................. 13
(f) Compliance with Applicable Laws................................... 14
(g) Litigation........................................................ 14
(h) Taxes............................................................. 14
(i) Certain Agreements................................................ 15
(j) Benefit Plans..................................................... 15
(k) Subsidiaries...................................................... 16
(l) Absence of Certain Changes or Events.............................. 16
(m) Section 203 of the DGCL Not Applicable............................ 16
(n) Vote Required..................................................... 16
(o) Accounting Matters................................................ 16
(p) ALC Rights Agreement.............................................. 16
(q) Properties........................................................ 16
(r) Ownership of Frontier Common Stock................................ 17
(s) Intellectual Property............................................. 17
(t) Undisclosed Liabilities........................................... 17
(u) Environmental Matters............................................. 17
(v) Opinion of Financial Advisor...................................... 17
3.2 Representations and Warranties of Frontier and Sub...................... 18
(a) Organization, Standing and Power.................................. 18
(b) Capital Structure................................................. 18
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(c) Authority......................................................... 19
(d) SEC Documents..................................................... 20
(e) Information Supplied.............................................. 20
(f) Compliance with Applicable Laws................................... 20
(g) Litigation........................................................ 21
(h) Taxes............................................................. 21
(i) Certain Agreements................................................ 21
(j) Benefit Plans..................................................... 22
(k) Subsidiaries...................................................... 22
(l) Absence of Certain Changes or Events.............................. 22
(m) Section 912 of the NYBCL Not Applicable........................... 22
(n) Vote Required..................................................... 22
(o) Accounting Matters................................................ 22
(p) Frontier Rights Agreement......................................... 23
(q) Properties........................................................ 23
(r) Ownership of ALC Common Stock..................................... 23
(s) Intellectual Property............................................. 23
(t) Undisclosed Liabilities........................................... 24
(u) Environmental Matters............................................. 24
(v) Opinion of Financial Advisor...................................... 24
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of ALC and Frontier........................................... 24
(a) Ordinary Course................................................... 24
(b) Dividends; Changes in Stock....................................... 24
(c) Issuance of Securities............................................ 25
(d) Governing Documents............................................... 25
(e) No Solicitations.................................................. 25
(f) No Acquisitions................................................... 26
(g) No Dispositions................................................... 27
(h) Indebtedness...................................................... 27
(i) Other Actions..................................................... 27
(j) Advice of Changes; Government Filings............................. 27
(k) Accounting Methods................................................ 27
(l) Pooling and Tax-Free Reorganization Treatment..................... 28
(m) Benefit Plans..................................................... 28
(n) Tax Elections..................................................... 28
(o) Network Transition................................................ 28
ARTICLE V ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Proxy Statement.............................. 28
5.2 Letter of ALC's Accountants............................................. 29
5.3 Letter of Frontier's Accountants........................................ 29
5.4 Access to Information................................................... 29
5.5 Stockholder Meetings.................................................... 29
5.6 Legal Conditions to Merger.............................................. 29
5.7 Affiliates.............................................................. 30
5.8 Stock Exchange Listing.................................................. 30
5.9 Employee Benefit Plans.................................................. 30
5.10 Stock Options and Warrants.............................................. 30
5.11 Brokers or Finders...................................................... 31
5.12 Governance.............................................................. 31
5.13 Indemnification; Directors' and Officers' Insurance..................... 31
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5.14 Elimination of Certain Restrictions..................................... 32
5.15 Financial Reporting..................................................... 32
5.16 Additional Agreements................................................... 32
ARTICLE VI CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Effect the Merger.............. 33
(a) Stockholder Approval.............................................. 33
(b) NYSE Listing...................................................... 33
(c) Other Approvals................................................... 33
(d) S-4............................................................... 33
(e) No Injunctions or Restraints; Illegality.......................... 33
(f) Pooling........................................................... 33
(g) Burdensome Condition.............................................. 33
6.2 Conditions to Obligations of Frontier and Sub........................... 34
(a) Representations and Warranties.................................... 34
(b) Performance of Obligations of ALC................................. 34
(c) Consents Under Agreements......................................... 34
(d) Tax Opinion....................................................... 34
(e) Burdensome Condition.............................................. 34
(f) Employment Agreements............................................. 34
(g) Opinion of Financial Advisor...................................... 35
6.3 Conditions to Obligations of ALC........................................ 35
(a) Representations and Warranties.................................... 35
(b) Performance of Obligations of Frontier and Sub.................... 35
(c) Consents Under Agreements......................................... 35
(d) Tax Opinion....................................................... 35
(e) Burdensome Condition.............................................. 35
(f) Opinion of Financial Advisor...................................... 35
ARTICLE VII TERMINATION AND AMENDMENT
7.1 Termination............................................................. 36
7.2 Effect of Termination................................................... 37
7.3 Fees, Expenses and Other Payments....................................... 37
7.4 Amendment............................................................... 39
7.5 Extension; Waiver....................................................... 40
ARTICLE VIII GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements............... 40
8.2 Notices................................................................. 40
8.3 Certain Definitions..................................................... 41
8.4 Interpretation.......................................................... 41
8.5 Counterparts............................................................ 42
8.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership..... 42
8.7 Governing Law........................................................... 42
8.8 Severability; Limitations on Remedies................................... 42
8.9 Publicity............................................................... 42
8.10 Assignment.............................................................. 42
EXHIBIT 3.1(i) Form of Amended and Restated Employment Agreement
EXHIBIT 5.7 Form of Affiliate Letter
EXHIBIT 5.12 Officers
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INDEX OF DEFINED TERMS
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affiliates............................................................................ 30
Agreement............................................................................. 7
ALC................................................................................... 7
ALC Benefit Plans..................................................................... 15
ALC Common Stock...................................................................... 8
ALC Permits........................................................................... 14
ALC Rights............................................................................ 11
ALC Rights Agreement.................................................................. 11
ALC SAR............................................................................... 11
ALC SEC Documents..................................................................... 13
ALC Series E Preferred................................................................ 11
ALC Stock Option...................................................................... 11
ALC Stock Plan........................................................................ 12
ALC Warrants.......................................................................... 11
AMEX.................................................................................. 13
beneficial ownership.................................................................. 41
beneficially own...................................................................... 41
Benefit Plans......................................................................... 15
Business Combination.................................................................. 39
Certificate of Merger................................................................. 7
Certificates.......................................................................... 8
Closing............................................................................... 7
Closing Date.......................................................................... 7
Code.................................................................................. 7
Communications Act.................................................................... 13
Competing Transaction................................................................. 26
Confidentiality Agreement............................................................. 26
Consents.............................................................................. 33
Conversion Number..................................................................... 8
DGCL.................................................................................. 7
Distribution Date..................................................................... 16
Effective Time........................................................................ 7
Employment Agreements................................................................. 15
Environmental Laws.................................................................... 17
Environmental Liabilities............................................................. 17
ERISA................................................................................. 15
Exchange Act.......................................................................... 13
Exchange Agent........................................................................ 8
Exchange Fund......................................................................... 8
Expenses.............................................................................. 37
Frontier.............................................................................. 7
Frontier Benefit Plans................................................................ 22
Frontier Class A Preferred Stock...................................................... 18
Frontier Common Stock................................................................. 8
Frontier Convertible Debentures....................................................... 18
Frontier Cumulative Preferred Stock................................................... 18
Frontier Permits...................................................................... 20
Frontier Rights....................................................................... 18
Frontier Rights Agreement............................................................. 18
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Frontier SEC Documents................................................................ 20
Frontier Series A Preferred........................................................... 25
Frontier Vote Matter.................................................................. 19
Governmental Entity................................................................... 13
group................................................................................. 41
Grumman Hill Associates............................................................... 11
Grumman Hill Investments.............................................................. 11
Hazardous Materials................................................................... 17
HSR Act............................................................................... 13
Indemnified Liabilities............................................................... 32
Indemnified Parties................................................................... 31
Injunction............................................................................ 33
material.............................................................................. 10
material adverse effect............................................................... 11
Merger................................................................................ 7
NYBCL................................................................................. 22
person................................................................................ 41
Proxy Statement....................................................................... 13
qualified stock options............................................................... 30
Requisite Regulatory Approvals........................................................ 33
S-4................................................................................... 13
SEC................................................................................... 10
Securities Act........................................................................ 13
Significant Subsidiary................................................................ 10
Sub................................................................................... 7
Surviving Corporation................................................................. 7
tax................................................................................... 14
Tax return............................................................................ 15
Violation............................................................................. 12
Voting Debt........................................................................... 12
Warrant Agreements.................................................................... 11
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AGREEMENT AND PLAN OF MERGER dated as of April 9, 1995 (this "Agreement"),
among FRONTIER CORPORATION, a New York corporation ("Frontier"), FRONTIER
SUBSIDIARY ONE, INC., a Delaware corporation and a wholly-owned subsidiary of
Frontier ("Sub"), and ALC COMMUNICATIONS CORPORATION, a Delaware corporation
("ALC").
WHEREAS, the Boards of Directors of Frontier, Sub and ALC have approved, and
deem it advisable and in the best interests of their respective stockholders to
consummate, the business combination transaction provided for herein in which
Sub would merge with and into ALC (the "Merger");
WHEREAS, Frontier and ALC desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe various
conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests";
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into ALC at the Effective Time (as defined
in Section 1.3 below). Upon the Effective Time, the separate existence of Sub
shall cease, and ALC shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue under the name "ALC Communications
Corporation".
1.2 Closing. Unless this Agreement shall have been terminated pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "Closing") will take place
as promptly as practicable (and in any event within two business days) following
satisfaction or waiver of the conditions set forth in Article VI (the "Closing
Date"), at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York 10017, unless another date, time or place is agreed to in writing
by the parties hereto.
1.3 Effective Time of the Merger. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the Surviving
Corporation shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the Secretary of State of the State of Delaware, or at such other time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
1.5 Certificate of Incorporation and By-Laws. At the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be amended in
accordance with the DGCL such that, at the Effective Time, the Certificate of
Incorporation of the Surviving Corporation shall consist of the provisions set
forth in the Certificate of Incorporation of Sub, as in effect immediately prior
to the Effective Time, except that Article I of the Certificate of Incorporation
of the Surviving Corporation
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shall read in its entirety as follows: "The name of this Corporation is 'ALC
Communications Corporation'." At the Effective Time, the By Laws of Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation.
1.6 Directors; Officers. (a) The directors of Sub at the Effective Time
shall be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
(b) The officers of ALC at the Effective Time shall be the officers of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Common
Stock, par value $.01 per share of ALC (the "ALC Common Stock"), or any shares
of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
one share of Common Stock, par value $.01 per share, of the Surviving
Corporation and shall be the issued and outstanding capital stock of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Frontier-Owned Stock. Each share
of ALC Common Stock that is owned by ALC or by any subsidiary of ALC, and
each share of ALC Common Stock that is owned by Frontier, Sub or any other
subsidiary of Frontier shall automatically be cancelled and retired and
shall cease to exist, and no stock of Frontier or other consideration shall
be delivered or deliverable in exchange therefor.
(c) Conversion of ALC Common Stock. Subject to Section 2.2(e), each
issued and outstanding share of ALC Common Stock (other than shares to be
cancelled in accordance with Section 2.1(b)) shall be converted into 2.0
(the "Conversion Number") fully paid and nonassessable shares of Common
Stock, par value $1.00 per share of Frontier (the "Frontier Common Stock").
All such shares of ALC Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter
represent the shares of Frontier Common Stock into which such ALC Common
Stock has been converted. Certificates previously representing shares of ALC
Common Stock shall be exchanged for certificates representing whole shares
of Frontier Common Stock issued in consideration therefor upon the surrender
of such certificates in accordance with Section 2.2, without interest.
2.2 Exchange of Certificates. (a) Exchange Agent. As of the Effective Time,
Frontier shall deposit, or shall cause to be deposited, with a bank or trust
company designated by Frontier (and reasonably acceptable to ALC) (the "Exchange
Agent"), for the benefit of the holders of shares of ALC Common Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates representing the shares of Frontier Common Stock (such certificates
for shares of Frontier Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.1 in exchange for outstanding
shares of ALC Common Stock.
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(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Frontier shall instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of ALC Common Stock (the
"Certificates"), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Frontier and ALC may reasonably
specify) and (ii) instructions to effect the surrender of the Certificates in
exchange for certificates representing shares of Frontier Common Stock. Upon
surrender of one or more Certificates for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such other
customary or other reasonable documents as may be required pursuant to such
instructions, the holder of such Certificates shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Frontier Common Stock which such holder has the right to receive in respect of
the Certificates surrendered pursuant to the provisions of this Article II, and
the Certificates so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of ALC Common Stock which is not registered in the
transfer records of ALC, a certificate representing the proper number of shares
of Frontier Common Stock may be issued to a transferee if the Certificate
representing such ALC Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender a certificate representing shares of Frontier Common
Stock and cash in lieu of any fractional shares of Frontier Common Stock as
contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Frontier
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Frontier
Common Stock represented thereby, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(e) until the
holder of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificates representing whole shares of
Frontier Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender or as promptly thereafter as practicable, the amount of
any cash payable with respect to a fractional share of Frontier Common Stock to
which such holder is entitled pursuant to Section 2.2(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Frontier Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Frontier Common Stock.
(d) No Further Ownership Rights in ALC Common Stock. All shares of Frontier
Common Stock issued upon conversion of shares of ALC Common Stock in accordance
with the terms hereof (including any cash paid pursuant to Section 2.2(c) or
2.2(e)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of ALC Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of ALC Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be cancelled
and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of Frontier Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Frontier. In lieu of any
such fractional shares, each holder of ALC Common Stock upon surrender of a
Certificate
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for exchange pursuant to this Section shall be paid an amount in cash (without
interest), rounded to the nearest cent, equal to the product obtained by
multiplying the fractional share interest to which such holder would otherwise
be entitled (after taking into account all shares of ALC Common Stock then held
by such holder) by the closing price for a share of Frontier Common Stock on the
NYSE Composite Transaction Tape on the first business day immediately preceding
the Effective Time. For this purpose, shares of any holder represented by two or
more certificates may be aggregated, and in no event shall any holder be paid
any amount in respect of more than one share of Frontier Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of ALC for six months after the
Effective Time shall be delivered to Frontier upon demand, and any stockholders
of ALC who have not theretofore complied with this Article II shall thereafter
look only to Frontier for payment of their claim for Frontier Common Stock, any
cash in lieu of fractional shares of Frontier Common Stock and any dividends or
distributions with respect to Frontier Common Stock.
(g) No Liability. Neither Frontier nor ALC shall be liable to any holder of
shares of ALC Common Stock or Frontier Common Stock, as the case may be, for
such shares (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Withholding Rights. Frontier or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of ALC Common Stock such amounts as Frontier
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law, or any court order. To the extent that amounts are so withheld
by Frontier or the Exchange Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the shares
of ALC Common Stock in respect of which such deduction and withholding was made
by Frontier or the Exchange Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of ALC. ALC represents and warrants to
Frontier and Sub as follows:
(a) Organization, Standing and Power. Each of ALC and its Significant
Subsidiaries (as defined below) is a corporation, partnership or other legal
entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization, has all requisite
power and authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification necessary other than in such
jurisdictions where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals or so
to qualify would not, individually or in the aggregate, have a material
adverse effect on ALC. As used in this Agreement, (i) a "Significant
Subsidiary" means any subsidiary of ALC or Frontier, as the case may be,
that would constitute a Significant Subsidiary of such party within the
meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC"), (ii) any reference to any event, change or effect
being "material" with respect to any entity means an event, change or effect
which is material in relation to the condition (financial or otherwise),
prospects, properties, assets, liabilities, businesses or operations of such
entity and its subsidiaries taken as a whole and (iii) the term
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"material adverse effect" means, with respect to ALC or Frontier, a material
adverse effect on the business, assets, prospects, results of operations or
financial condition of such party and its subsidiaries taken as a whole or
on the ability of such party (and, with respect to Frontier, of Sub) to
perform its obligations hereunder.
(b) Capital Structure. (i) As of the date hereof, the authorized capital
stock of ALC consists of 200,000,000 shares of ALC Common Stock and
15,500,000 shares of Preferred Stock, par value of $.01 per share, of which
500,000 shares have been designated as Series E Participating Preferred
Stock (the "ALC Series E Preferred"). At the close of business on April 7,
1995, (A) 33,719,441 shares of ALC Common Stock were outstanding; (B)
3,851,968 shares of ALC Common Stock were reserved for issuance upon
exercise of outstanding warrants, consisting solely of (1) 660,000 shares
reserved for issuance upon exercise of outstanding warrants issued pursuant
to the Warrant Agreement dated as of December 15, 1985 between ALC and
Continental Illinois National Bank and Trust Company of Chicago, as Warrant
Agent, (2) 329,300 shares reserved for issuance upon exercise of outstanding
warrants issued pursuant to the Amended and Restated Stock Subscription
Warrant to Subscribe for 329,300 Shares of Common Stock dated June 4, 1992
issued by ALC to Grumman Hill Investments, L.P. ("Grumman Hill
Investments"), (3) 98,790 shares reserved for issuance upon exercise of
outstanding warrants issued pursuant to the Amended and Restated Stock
Subscription Warrant to Subscribe for 98,790 Shares of Common Stock dated
June 4, 1992 issued by ALC to Grumman Hill Associates, Inc. ("Grumman Hill
Associates") and (4) 2,763,878 shares reserved for issuance upon exercise of
outstanding warrants issued pursuant to the Warrant Agreement dated July 1,
1992 between ALC and Star Bank, National Association (the warrants
referenced in this clause (B), collectively, the "ALC Warrants", and the
agreements referenced in this clause (B), collectively, the "Warrant
Agreements"); (C)(1) 153,163 shares of ALC Common Stock were reserved for
issuance upon exercise of outstanding stock options granted pursuant to the
Advisory Agreement with Stock Option dated September 7, 1988, as amended on
June 6, 1990, May 2, 1994 and May 12, 1994, between ALC and Grumman Hill
Associates and Grumman Hill Investments, and (2) 14,000 shares of ALC Common
Stock were reserved for issuance upon exercise of outstanding stock options
granted pursuant to the Stock Option dated as of May 12, 1994 between ALC
and Grumman Hill Associates (the options and agreements referenced in this
clause (C), collectively, the "Grumman Hill Options"); (D) 3,914,374 shares
were reserved for issuance upon exercise of outstanding options granted
pursuant to ALC's 1986 Stock Option Plan, as amended and restated as of May
12, 1994, ALC's 1990 Stock Option Plan, as amended and restated as of May
12, 1994, and ALC's 1994 Non-Employee Director Stock Option Plan; (E)
2,185,626 shares of ALC Common Stock were reserved for issuance upon
exercise of authorized but unissued stock options pursuant to the plans
referenced in clause (D) above; (F) 80,000 shares of ALC Common Stock were
reserved for issuance upon exercise of outstanding options granted to
certain directors of ALC not pursuant to ALC's 1994 Non-Employee Director
Stock Option Plan; (G) no shares of ALC Common Stock were held by ALC in its
treasury or by its subsidiaries; (H) no shares of ALC Preferred Stock were
issued or outstanding; and (I) 500,000 shares of ALC Series E Preferred were
reserved for issuance upon exercise of the rights (the "ALC Rights") issued
to holders of ALC Common Stock pursuant to the Rights Agreement dated as of
January 12, 1995 between ALC and Mellon Bank, N.A., as Rights Agent (the
"ALC Rights Agreement"). Except as set forth above, no shares of capital
stock of ALC were issued, reserved for issuance or outstanding as of April
7, 1995.
(ii) At the close of business on April 7, 1995, no stock appreciation
rights (each an "ALC SAR") or other grants, other than to the extent
specified in the foregoing clause (i), with respect to shares of ALC Common
Stock were outstanding, whether or not issued pursuant to any plan or
arrangement providing for the granting of ALC SARs or such other grants. The
options listed in clauses (C), (D) and (F) of the foregoing clause (i) (each
an "ALC Stock Option") constitute all of the options to purchase shares of
ALC Common Stock which were outstanding as of April 7, 1995,
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whether or not issued pursuant to any plan or arrangement (any such plan or
arrangement, together with any plan or arrangement referred to in the
preceding sentence, an "ALC Stock Plan").
(iii) As of the date hereof, no bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or exercisable
for securities having the right to vote) on any matters on which
stockholders may vote ("Voting Debt") of ALC were issued or outstanding. All
outstanding shares of ALC capital stock are validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(iv) As of the date hereof, except for this Agreement, the ALC Stock
Options, the ALC Warrants and the ALC Rights, there are no options,
warrants, calls, rights, commitments or agreements of any character to which
ALC or any subsidiary of ALC is a party or by which it is bound obligating
ALC or any subsidiary of ALC to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or any Voting
Debt of ALC or of any subsidiary of ALC or obligating ALC or any subsidiary
of ALC to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. After the Effective Time, there will be no option,
warrant, call, right or agreement obligating ALC or any subsidiary of ALC to
issue, deliver or sell, or cause to be issued, delivered or sold, any shares
of capital stock or any Voting Debt of ALC or any subsidiary of ALC, or
obligating ALC or any subsidiary of ALC to grant, extend or enter into any
such option, warrant, call, right or agreement. As of the date hereof, there
are no outstanding contractual obligations or any understandings of ALC or
any of its subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of ALC or any of its subsidiaries. True and complete
copies of the Warrant Agreements have been provided to Frontier.
(v) Except in connection with the declaration of a dividend of one ALC
Right for each outstanding share of ALC Common Stock, since December 31,
1994, ALC has not (A) issued or permitted to be issued any shares of capital
stock, or any rights, options or warrants to acquire any capital stock, or
securities exercisable for or convertible into shares of capital stock, of
ALC or any of its Significant Subsidiaries, other than pursuant to and as
required by the terms of any ALC Stock Options or ALC Warrants that were
issued and outstanding on such date; (B) repurchased, redeemed or otherwise
acquired, directly or indirectly through one or more subsidiaries of ALC,
any shares of capital stock of ALC or any of its Significant Subsidiaries;
or (C) declared, set aside, made or paid to the stockholders of ALC
dividends or other distributions on the outstanding shares of capital stock
of ALC. For purposes of clause (B) of this clause (iv), ALC shall be deemed
to include any affiliate or associate (as defined in the Exchange Act) of
ALC or any person that ALC has caused or requested to purchase or acquire
such shares.
(c) Authority. (i) ALC has all requisite corporate power and authority
to enter into this Agreement and, subject to approval of this Agreement by
the stockholders of ALC, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of ALC, subject to approval of this Agreement
by the stockholders of ALC. This Agreement has been duly executed and
delivered by ALC and constitutes a valid and binding obligation of ALC
enforceable in accordance with its terms.
(ii) Except as set forth on Schedule 3.1(c), the execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of,
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any
such conflict, violation, default, right of termination, cancellation,
acceleration, loss or creation, a "Violation") pursuant to, any provision of
the Certificate of Incorporation or By-laws of ALC or any subsidiary of ALC,
any provision of the Warrant Agreements, any provision of the
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ALC Stock Plans or any provision of any agreement or understanding governing
the outstanding ALC Stock Options or ALC SARs, or, subject to obtaining or
making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, result in any
Violation of any loan or credit agreement, note, mortgage, indenture, lease,
Benefit Plan (as defined in Section 3.1(j)) or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to ALC or any
subsidiary of ALC or their respective properties or assets which Violation
would have a material adverse effect on ALC.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission,
or entity created by rule, regulation or order of any commission or other
governmental authority or other governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity"), is required by or with
respect to ALC or any subsidiary of ALC in connection with the execution and
delivery of this Agreement by ALC or the consummation by ALC of the
transactions contemplated hereby, the failure to obtain which would have a
material adverse effect on ALC, except for (A) the filing with the SEC of
(1) a joint proxy statement in definitive form relating to the meetings of
ALC's and Frontier's stockholders to be held in connection with the Merger
(the "Proxy Statement") and (2) such other filings under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the transactions contemplated hereby and
the obtaining from the SEC of such orders as may be required in connection
therewith, (B) the filing of the Certificate of Merger as contemplated by
Section 1.3 and appropriate documents with the relevant authorities of
states in which ALC is qualified to do business, (C) filings pursuant to the
rules of the American Stock Exchange (the "AMEX"), (D) notices under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (E) filings under the Communications Act of 1934, as amended (the
"Communications Act"), and under state or foreign utility or
telecommunication regulatory laws.
(d) SEC Documents. ALC has made available to Frontier a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by ALC with the SEC since January 1, 1992
(as such documents have since the time of their filing been amended, the
"ALC SEC Documents"), which are all the documents (other than preliminary
material) that ALC was required to file with the SEC since such date. As of
their respective dates, the ALC SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such ALC SEC
Documents, and none of the ALC SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of ALC included in the ALC SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly present the consolidated
financial position of ALC and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended. All material agreements, contracts and other
documents required to be filed as exhibits to any of the ALC SEC Documents
have been so filed.
(e) Information Supplied. None of the information supplied or to be
supplied by ALC for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Frontier in
connection with the issuance of shares of Frontier Common Stock in the
Merger (the "S-4") will, at the time the S-4 is filed with the SEC and at
the time it becomes
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effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the Proxy
Statement will, at the date of mailing to stockholders and at the times of
the meetings of stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Proxy Statement (except for such portions thereof
that relate only to Frontier) will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
(f) Compliance with Applicable Laws. ALC and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses
of ALC and its subsidiaries, taken as a whole (the "ALC Permits"), except to
the extent the failure to hold the ALC Permits will not have a material
adverse effect on ALC. ALC and its subsidiaries are in compliance with the
terms of the ALC Permits and all applicable laws and regulations, except
where the failure so to comply would not have a material adverse effect on
ALC. Except as disclosed in the ALC SEC Documents filed prior to the date of
this Agreement, the businesses of ALC and its subsidiaries are not being
conducted in violation of any law, order, ordinance or regulation of any
Governmental Entity, except for possible violations which individually or in
the aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a material adverse effect on ALC. As of the date of
this Agreement, to the knowledge of ALC, no investigation by any
Governmental Entity with respect to ALC or any of its subsidiaries is
pending or threatened, other than, in each case, those the outcome of which,
as far as reasonably can be foreseen, will not have a material adverse
effect on ALC.
(g) Litigation. As of the date of this Agreement, except as disclosed in
the ALC SEC Documents filed prior to the date of this Agreement, there is no
suit, action or proceeding pending or, to the knowledge of ALC, threatened,
against or affecting ALC or any subsidiary of ALC as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have a material adverse
effect on ALC, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator outstanding against ALC or any
subsidiary of ALC or which, insofar as reasonably can be foreseen, in the
future could have, any such effect.
(h) Taxes. ALC and each of its subsidiaries (and any consolidated,
combined, unitary or aggregate group for tax purposes of which ALC or any of
its subsidiaries is or has been a member) have timely filed all tax returns
required to be filed by any of them and have paid (or ALC has paid on their
behalf), or have set up an adequate reserve for the payment of, all taxes
required to be paid as shown on such returns, and the most recent financial
statements contained in the ALC SEC Documents reflect an adequate reserve
for all taxes payable by ALC and its subsidiaries (whether or not shown on
such returns) accrued through the date of such financial statements. Except
as set forth on Schedule 3.1(h), no material deficiencies for any taxes have
been proposed, asserted or assessed against ALC or any of its subsidiaries
that are not adequately reserved for, no audit of any tax return of ALC or
any of its subsidiaries is being conducted by a tax authority, and no
extension of the statute of limitations on the assessment of any taxes has
been granted to ALC or any of its subsidiaries and is currently in effect.
For the purpose of this Agreement, the term "tax" (including, with
correlative meaning, the terms "taxes" and "taxable") shall include, except
where the context otherwise requires, all federal, state, local and foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise, occupancy and other taxes, duties or
assessments (including assessments against telecommunications providers for
universal service support, disabled access, emergency communications (911)
and other purposes mandated
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by law, regulation or order of any Governmental Entity) of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts, and the term "tax return" shall mean any return,
report or statement required to be filed with any governmental authority
with respect to taxes.
(i) Certain Agreements. Except as disclosed in the ALC SEC Documents
filed prior to the date of this Agreement, except as set forth on Schedule
3.1(i) hereto and except for this Agreement, as of the date of this
Agreement, neither ALC nor any of its subsidiaries is a party to any oral or
written (i) consulting agreement involving the payment of more than $250,000
per annum, or union, guild or collective bargaining agreement which
agreement covers any employees, (ii) agreement with any executive officer or
other key employee of ALC or any subsidiary of ALC the benefits of which are
contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving ALC or any subsidiary of ALC of the
nature contemplated by this Agreement and which provides for the payment of
in excess of $250,000, (iii) agreement with respect to any executive officer
of A or any subsidiary of ALC providing any term of employment or
compensation guarantee extending for a period longer than one year and for
the payment of in excess of $250,000 per annum or (iv) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement. Except as set forth
on Schedule 3.1(i) hereto and except for this Agreement, neither ALC nor any
of its subsidiaries is a party to any agreement restricting (i) the
declaration or payment of any dividends upon any of the capital stock of
ALC, (ii) the purchase, redemption, retirement or other acquisition of any
shares of capital stock of ALC, (iii) the distribution of cash, property or
assets among the holders of capital stock of ALC or (iv) the making of any
change in the capital structure of ALC. As of the date hereof, the executive
officers of ALC listed on Schedule 3.1(i) hereto have executed amended and
restated employment agreements effective as of the Effective Time (the
"Employment Agreements") substantially in the form attached hereto as
Exhibit 3.1(i).
(j) Benefit Plans. (i) With respect to each employee benefit plan
(including, without limitation, any "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (all the foregoing being herein called "Benefit Plans"),
maintained or contributed to by ALC or any member of its controlled group
within the meaning of Section 414 of the Code (the "ALC Benefit Plans"), ALC
has made available to Frontier, to the extent applicable, a true and correct
copy of (A) the most recent annual report (Form 5500) filed with the IRS,
(B) such ALC Benefit Plan (or where no formal plan exists, a written
description thereof), (C) each trust agreement relating to such ALC Benefit
Plan, (D) the most recent summary plan description for each ALC Benefit Plan
for which a summary plan description is required, (E) the most recent
actuarial report or valuation relating to an ALC Benefit Plan subject to
Title IV of ERISA and (F) the most recent determination letter issued by the
IRS with respect to any ALC Benefit Plan qualified under Section 401 (a) of
the Code.
(ii) With respect to the ALC Benefit Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of ALC, there exists
no condition or set of circumstances, in connection with which ALC or any
members of its controlled group could be subject to any liability that is
reasonably likely to have a material adverse effect on ALC (except liability
for benefits claims and funding obligations payable in the ordinary course)
under ERISA, the Code or any other applicable law.
(iii) True and complete copies of the ALC Stock Plans as in effect on
the date hereof have been provided to Frontier.
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(k) Subsidiaries. Schedule 3.1(k) hereto lists all of the Significant
Subsidiaries of ALC as of the date hereof, each of which is wholly-owned by
ALC. All of the shares of capital stock of each of the subsidiaries held by
ALC or by another subsidiary of ALC are fully paid and nonassessable and are
owned by ALC or a subsidiary of ALC free and clear of any claim, lien or
encumbrance.
(l) Absence of Certain Changes or Events. Except as disclosed in the ALC
SEC Documents filed prior to the date of this Agreement, since December 31,
1994, ALC and its subsidiaries have not incurred any material liability,
except in the ordinary course of their business consistent with their past
practices, nor has there been any change, or any event involving a
prospective change, in the business, prospects, financial condition or
results of operations of ALC or any of its subsidiaries which has had, or is
reasonably likely to have, a material adverse effect on ALC (other than as a
result of changes in laws or regulations of general applicability or
interpretations thereof).
(m) Section 203 of the DGCL Not Applicable. The restrictions of Section
203 of the DGCL will not, prior to the termination of this Agreement,
assuming the accuracy of the representations contained in Section 3.2(r)
(without giving effect to the knowledge qualification thereof), apply to
this Agreement, the Merger or the transactions contemplated hereby.
(n) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of ALC Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of ALC capital stock or
other securities necessary to approve this Agreement and the transactions
contemplated hereby (assuming for purposes of this representation the
accuracy of the representations contained in Section 3.2(r), without giving
effect to the knowledge qualification thereof).
(o) Accounting Matters. Neither ALC nor, to its best knowledge, any of
its affiliates, has through the date of this Agreement, taken or agreed to
take any action that would prevent Frontier from accounting for the business
combination to be effected by the Merger as a "pooling of interests".
(p) ALC Rights Agreement. Concurrently with the execution and delivery
of this Agreement, ALC has amended the ALC Rights Agreement, to provide that
(i) none of the approval, execution or delivery of this Agreement or the
consummation of the Merger will cause (1) the ALC Rights to become
exercisable under the ALC Rights Agreement, (2) Frontier or any of its
subsidiaries to be deemed an "Acquiring Person" (as defined in the ALC
Rights Agreement), or (3) the "Stock Acquisition Date" (as defined in the
ALC Rights Agreement) to occur upon any such event and (ii) the "Expiration
Date" (as defined in the ALC Rights Agreement) of the ALC Rights shall occur
immediately prior to the Effective Time. The "Distribution Date" (as defined
in the ALC Rights Agreement) has not occurred.
(q) Properties. Except as disclosed in the ALC SEC Documents filed prior
to the date of this Agreement, ALC or one of its subsidiaries (i) has good,
clear and marketable title to all the properties and assets reflected in the
latest audited balance sheet included in such ALC SEC Documents as being
owned by ALC or one of its subsidiaries or acquired after the date thereof
which are material to ALC's business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), free and clear of all claims, liens, charges,
security interests or encumbrances of any nature whatsoever except (A)
statutory liens securing payments not yet due and (B) such imperfections or
irregularities of title, claims, liens, charges, security interests or
encumbrances as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties and (ii) is the lessee of all leasehold
estates reflected in the latest audited financial statements included in
such ALC SEC Documents or acquired after the date thereof which are material
to its business on a consolidated basis (except for leases that have expired
by their terms since the date thereof) and is in possession of the
properties purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to ALC's knowledge, the lessor.
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(r) Ownership of Frontier Common Stock. As of the date hereof, neither
ALC nor, to its best knowledge, any of its affiliates or associates (as
defined under the Exchange Act), (i) beneficially own, directly or
indirectly, or (ii) are parties to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of,
any shares of Frontier Common Stock, except for shares which may be held by
ALC Benefit Plans which shares do not, in the aggregate, represent 1% or
more of the outstanding shares of Frontier Common Stock.
(s) Intellectual Property. ALC and its Significant Subsidiaries own or
possess adequate licenses or other valid rights to use all material computer
software and firmware, patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, brand names, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, know-how
and other proprietary rights and information used or held for use in
connection with the business of ALC and its Significant Subsidiaries as
currently conducted or as contemplated to be conducted, and ALC is unaware
of any assertion or claim challenging the validity of any of the foregoing
which, individually or in the aggregate, would have a material adverse
effect. To the best knowledge of ALC, except as disclosed on Schedule 3.1(s)
hereto, the conduct of the business of ALC and its Significant Subsidiaries
as currently conducted does not conflict in any way with any patent, patent
right, license, trademark, trademark right, trade name, trade name right,
service mark or copyright of any third party that, individually or in the
aggregate, would have a material adverse effect. To the best knowledge of
ALC, there are no infringements of any proprietary rights owned by or
licensed by or to ALC or any of its Significant Subsidiaries which,
individually or in the aggregate, would have a material adverse effect.
(t) Undisclosed Liabilities. Except as disclosed in the ALC SEC
Documents filed prior to the date of this Agreement, neither ALC nor any of
its Significant Subsidiaries has incurred any liabilities or obligations
(absolute, accrued, contingent or otherwise) other than liabilities or
obligations which would not, individually or in the aggregate, have a
material adverse effect.
(u) Environmental Matters. (i) Except as disclosed in the ALC SEC
Documents filed prior to the date of this Agreement, there are no
Environmental Liabilities (as defined below) of ALC or any of its
Significant Subsidiaries which would, individually or in the aggregate, have
a material adverse effect.
(ii) As used in this Agreement, "Environmental Laws" means any and all
federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decisions, injunctions, orders, decrees,
requirements of any Governmental Entity, any and all common law
requirements, rules and bases of liability regulating, relating to or
imposing liability or standards of conduct concerning pollution, Hazardous
Materials or protection of human health or the environment, as now or may at
any time hereafter be in effect. "Environmental Liabilities" with respect to
any person means any and all liabilities of or relating to such person or
any of its Significant Subsidiaries (including any entity which is, in whole
or in part, a predecessor of such person or any of such Subsidiaries),
whether vested or unvested, contingent or fixed, actual or potential, known
or unknown, which (i) arise under or relate to matters covered by
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Closing Date. "Hazardous Materials" means any
hazardous or toxic substances, materials or wastes, defined, listed,
classified or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, petroleum or petroleum products
(including gasoline, crude oil or any fraction thereof), polychlorinated
biphenyls, and urea-formaldehyde insulation.
(v) Opinion of Financial Advisor. ALC has received the opinion of
Salomon Brothers Inc dated April 9, 1995 to the effect that, as of such
date, the exchange ratio reflected in the
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Conversion Number is fair to the stockholders of ALC from a financial point
of view, a copy of which opinion has been delivered to Frontier.
3.2 Representations and Warranties of Frontier and Sub. Frontier and Sub
jointly and severally represent and warrant to ALC as follows:
(a) Organization, Standing and Power. Each of Frontier and its
Significant Subsidiaries and Sub is a corporation, partnership or other
legal entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, has all
requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is
now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary
other than in such jurisdictions where the failure to be so organized,
existing or in good standing or to have such power, authority and
governmental approvals or so to qualify would not, individually or in the
aggregate, have a material adverse effect on Frontier.
(b) Capital Structure. (i) As of the date hereof, the authorized capital
stock of Frontier consists of 300,000,000 shares of Frontier Common Stock,
4,000,000 shares of Class A Preferred Stock, par value $100.00 per share, of
Frontier ("Frontier Class A Preferred Stock"), and 850,000 shares of
Cumulative Preferred Stock, $100.00 par value per share, of Frontier
("Frontier Cumulative Preferred Stock"). As of the close of business on
April 6, 1995, (A) 81,864,958 shares of Frontier Common Stock were
outstanding; (B) 1,030,619 shares of Frontier Common Stock were reserved for
issuance upon exercise of outstanding stock options granted pursuant to the
Directors Stock Option Plan of Frontier and the Restated Executive Stock
Option Plan of Frontier; (C) 1,869,516 shares of Frontier Common Stock were
reserved for issuance upon exercise of authorized but unissued stock options
pursuant to the plans referenced in clause (B) above or in connection with
Frontier's dividend reinvestment and employee stock purchase plans (such
plans, together with the plans referenced in clause (B) above, the "Frontier
Stock Plans"); (D) 251,483 shares of Frontier Common Stock were reserved for
issuance upon conversion of $5,300,000 in principal amount of 10.46%
Convertible Debentures due 2008 (the "Frontier Convertible Debentures"); (E)
6,375 shares of Frontier Common Stock were held by Frontier in its treasury
or by its subsidiaries; (F) no shares of Frontier Class A Preferred Stock
were issued or outstanding; and (G) 200,000 shares of Frontier Cumulative
Preferred Stock were outstanding, consisting solely of 60,000 shares of
Cumulative Preferred Stock, 5% Series, 40,000 shares of Cumulative Preferred
Stock, Second 5% Series, 50,000 shares of Cumulative Preferred Stock, 5.65%
Series, and 50,000 shares of Cumulative Preferred Stock, 4.60% Series.
Except as set forth above, no shares of capital stock of Frontier were
issued, reserved for issuance or outstanding as of April 6, 1995.
(ii) As of the date hereof, no Voting Debt of Frontier was issued or
outstanding. All outstanding shares of Frontier capital stock are, and the
shares of Frontier Common Stock (A) to be issued pursuant to or as
specifically contemplated by this Agreement, and (B) when issued in
accordance with this Agreement upon exercise of the ALC Stock Options and
the ALC Warrants, as the case may be, will be, validly issued, fully paid
and nonassessable and not subject to preemptive rights.
(iii) As of the date hereof, except for this Agreement, the Frontier
Stock Plans, the Frontier Convertible Debentures and the rights (the
"Frontier Rights") to be issued to holders of Frontier Common Stock pursuant
to the Rights Agreement between Frontier and The First National Bank of
Boston, as Rights Agent (the "Frontier Rights Agreement"), substantially in
the form previously provided to ALC, there are no options, warrants, calls,
rights, commitments or agreements of any character to which Frontier or any
subsidiary of Frontier is a party or by which it is bound
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obligating Frontier or any subsidiary of Frontier to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock
or any Voting Debt of Frontier or of any subsidiary of Frontier or
obligating Frontier or any subsidiary of Frontier to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement. As of
the date hereof, there are no outstanding contractual obligations or any
understandings of Frontier or any of its subsidiaries to repurchase, redeem
or otherwise acquire any shares of capital stock of Frontier or any of its
subsidiaries.
(iv) Except in connection with the declaration of a dividend of one
Frontier Right for each outstanding share of Frontier Common Stock, since
December 31, 1994, Frontier has not (A) issued or permitted to be issued any
shares of capital stock, or securities exercisable for or convertible into
shares of capital stock, of Frontier or any of its Significant Subsidiaries
or Sub, other than pursuant to and as required by the terms of Frontier's
dividend reinvestment and employee stock purchase plans, and any employee
stock options that were issued and outstanding on such date; (B)
repurchased, redeemed or otherwise acquired, directly or indirectly through
one or more subsidiaries of Frontier, any shares of capital stock of
Frontier or any of its Significant Subsidiaries or Sub; or (C) declared, set
aside, made or paid to the stockholders of Frontier dividends or other
distributions on the outstanding shares of capital stock of Frontier, other
than regular quarterly cash dividends at a rate not in excess of the regular
quarterly cash dividends most recently declared by Frontier prior to the
date of this Agreement, or as required by the terms of the Frontier
Preferred Stock as in effect on the date hereof. For purposes of clause (B)
of this clause (iv), Frontier shall be deemed to include any affiliate or
associate (as defined in the Exchange Act) of Frontier or any person that
Frontier has caused or requested to purchase or acquire such shares.
(v) As of the date hereof, the authorized capital stock of Sub consists
of 100 shares of Common Stock, par value $1.00 per share, all of which are
validly issued, fully paid and nonassessable and are owned by Frontier.
(c) Authority. (i) Frontier and Sub have all requisite corporate power
and authority to enter into this Agreement and, subject to approval by the
stockholders of Frontier of the issuance of Frontier Common Stock pursuant
to the Merger (the "Frontier Vote Matter"), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Frontier and
Sub, subject to approval of the Frontier Vote Matter by the stockholders of
Frontier. This Agreement has been duly executed and delivered by Frontier
and Sub and constitutes a valid and binding obligation of Frontier and Sub,
enforceable in accordance with its terms.
(ii) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, result in any
Violation pursuant to any provision of the Certificate of Incorporation or
By-laws of Frontier, Sub, or any other subsidiary of Frontier or, except as
disclosed in writing to the other party prior to the date hereof and subject
to obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below, result in any Violation of any loan or credit agreement, note,
mortgage, indenture, lease, Benefit Plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Frontier, Sub, or
any other subsidiary of Frontier or their respective properties or assets
which Violation would have a material adverse effect on Frontier.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Frontier, Sub, or any other subsidiary of Frontier in connection
with the execution and delivery of this Agreement by Frontier or Sub or the
consummation by Frontier or Sub of the transactions contemplated hereby, the
failure to obtain
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which would have a material adverse effect on Frontier, except for (A) the
filing with the SEC of (1) the S-4, (2) the Pro Statement and (3) such other
filings under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby and the obtaining from
the SEC of such orders as may be required in connection therewith, (B) such
filings and approvals as are required to be made or obtained under the
securities or blue sky laws of various states in connection with the
transactions contemplated by this Agreement, (C) the filing of the
Certificate of Merger as contemplated by Section 1.3 and appropriate
documents with the relevant authorities of states in which Frontier is
qualified to do business, (D) filings pursuant to the rules of the NYSE, (E)
notices under the HSR Act and (F) filings under the Communications Act and
under state or foreign utility or telecommunication regulatory laws.
(d) SEC Documents. Frontier has made available to ALC a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Frontier with the SEC since January 1,
1992 (as such documents have since the time of their filing been amended,
the "Frontier SEC Documents"), which are all the documents (other than
preliminary material) that Frontier was required to file with the SEC since
such date. As of their respective dates, the Frontier SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Frontier SEC Documents, and none of the
Frontier SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of Frontier
included in the Frontier SEC Documents comply as to form in all material
respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted
by Form 10-Q of the SEC) and fairly present the consolidated financial
position of Frontier and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended. All material agreements, contracts and other
documents required to be filed as exhibits to any of the Frontier SEC
Documents have been so filed.
(e) Information Supplied. None of the information supplied or to be
supplied by Frontier or Sub for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the SEC and at the time
it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) the Proxy
Statement will, at the date of mailing to stockholders and at the times of
the meetings of stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Proxy Statement, except for such portions thereof
that relate only to ALC, will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder, and the S-4, except for such portions thereof that relate only
to ALC, will comply as to form in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder.
(f) Compliance with Applicable Laws. Frontier and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses
of Frontier and its subsidiaries, taken as a whole (the "Frontier Permits"),
except to the extent the failure to hold the Frontier Permits would not have
a material adverse effect on Frontier. Frontier and its subsidiaries are in
compliance with the terms
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of the Frontier Permits and all applicable laws and regulations, except
where the failure so to comply would not have a material adverse effect on
Frontier. Except as disclosed in the Frontier SEC Documents filed prior to
the date of this Agreement, the businesses of Frontier and its subsidiaries
are not being conducted in violation of any law, order, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a material adverse effect on
Frontier. As of the date of this Agreement, to the knowledge of Frontier, no
investigation by any Government Entity with respect to Frontier or any of
its subsidiaries is pending or threatened, other than, in each case, those
the outcome of which, as far as reasonably can be foreseen, will not have a
material adverse effect on Frontier.
(g) Litigation. As of the date of this Agreement, except as disclosed in
the Frontier SEC Documents filed prior to the date of this Agreement, there
is no suit, action or proceeding pending or, to the knowledge of Frontier,
threatened, against or affecting Frontier or any subsidiary of Frontier as
to which there is a reasonable possibility of an adverse determination and
which, if adversely determined, would, individually or in the aggregate,
have a material adverse effect on Frontier, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Frontier or any subsidiary of Frontier having, or which,
insofar as reasonably can be foreseen, in the future could have, any such
effect.
(h) Taxes. Frontier and each of its subsidiaries (and any consolidated,
combined, unitary or aggregate group for tax purposes of which Frontier or
any of its subsidiaries is or has been a member) have timely filed all tax
returns required to be filed by any of them and have paid (or Frontier has
paid on their behalf), or have set up an adequate reserve for the payment
of, all taxes required to be paid as shown on such returns, and the most
recent financial statements contained in the Frontier SEC Documents reflect
an adequate reserve for all taxes payable by Frontier and its subsidiaries
(whether not shown on such returns) accrued through the date of such
financial statements. Except as disclosed on Schedule 3.2(h), (i) no
material deficiencies for any taxes have been proposed, asserted or assessed
against Frontier or any of its subsidiaries that are not adequately reserved
for, (ii) no audit of any tax return of Frontier or any of its subsidiaries
is being conducted by a tax authority, and (iii) no extension of the statute
of limitations on the assessment of any taxes has been granted to Frontier
or any of its subsidiaries and is currently in effect.
(i) Certain Agreements. Except as disclosed in the Frontier SEC
Documents filed prior to the date of this Agreement, except as set forth on
Schedule 3.2(i) hereto and except for this Agreement, as of the date of this
Agreement, neither Frontier nor any of its subsidiaries is a party to any
oral or written (i) consulting agreement involving the payment of more than
$250,000 per annum, or union, guild or collective bargaining agreement which
agreement covers any employees, (ii) agreement with any executive officer or
other key employee of Frontier or any subsidiary of Frontier the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Frontier or any subsidiary of Frontier
of the nature contemplated by this Agreement and which provides for the
payment of in excess of $250,000, (iii) agreement with respect to any
executive officer of Frontier or any subsidiary of Frontier providing any
term of employment or compensation guarantee extending for a period longer
than one year and for the payment of in excess of $250,000 per annum or (iv)
agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
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(j) Benefit Plans. (i) With respect to each Benefit Plan maintained or
contributed to by Frontier or any member of its controlled group within the
meaning of Section 414 of the Code (the "Frontier Benefit Plans"), Frontier
has made available to ALC, to the extent applicable, a true and correct copy
of (A) the most recent annual report (Form 5500) filed with the IRS, (B)
such Frontier Benefit Plan (or where no formal plan exists, a written
description thereof), (C) each trust agreement relating to such Frontier
Benefit Plan, (D) the most recent summary plan description for each Frontier
Benefit Plan for which a summary plan description is required, (E) the most
recent actuarial report or valuation relating to a Frontier Benefit Plan
subject to Title IV of ERISA and (F) the most recent determination letter
issued by the IRS with respect to any Frontier Benefit Plan qualified under
Section 401(a) of the Code.
(ii) With respect to the Frontier Benefit Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of Frontier, there
exists no condition or set of circumstances in connection with which
Frontier or any member of its controlled group could be subject to any
liability that is reasonably likely to have a material adverse effect upon
Frontier (except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any other
applicable law.
(iii) True and complete copies of the Frontier Stock Plans as in effect
on the date hereof have been provided to A.
(k) Subsidiaries. Schedule 3.2(k) hereto lists all of the Significant
Subsidiaries of Frontier as of the date hereof, each of which is
wholly-owned by Frontier. All of the shares of capital stock of each of the
subsidiaries held by Frontier or by another subsidiary of Frontier are fully
paid and nonassessable and are owned by Frontier or a subsidiary of Frontier
free and clear of any claim, lien or encumbrance.
(l) Absence of Certain Changes or Events. Except as disclosed in the
Frontier SEC Documents filed prior to the date of this Agreement, since
December 31, 1994, Frontier and its subsidiaries have not incurred any
material liability, except in the ordinary course of their business
consistent with their past practices, nor has there been any change, or any
event involving a prospective change, in the business, prospects, financial
condition or results of operations of Frontier or any of its subsidiaries
which has had, or is reasonably likely to have, a material adverse effect on
Frontier (other than as a result of changes in laws or regulations of
general applicability or interpretations thereof).
(m) Section 912 of the NYBCL Not Applicable. The provisions of Section
912 of the New York Business Corporation Law (the "NYBCL") will not, prior
to the termination of this Agreement, assuming the accuracy of the
representations contained in Section 3.1(r) (without giving effect to the
knowledge qualification thereof), apply to this Agreement, the Merger or the
transactions contemplated hereby.
(n) Vote Required. The affirmative vote of the holders of shares of
Frontier Common Stock representing a majority of the total votes cast by the
holders of all outstanding shares of Frontier Common Stock is the only vote
of the holders of any class or series of Frontier capital stock necessary to
approve the Frontier Vote Matter and the transactions contemplated hereby,
provided that the total votes cast by such holders represent a majority of
the outstanding shares of Frontier Common Stock entitled to vote on the
Frontier Vote Matter (assuming for purposes of this representation
(including the proviso) the accuracy of the representations contained in
Section 3.1(r) without giving effect to the knowledge qualification
thereof).
(o) Accounting Matters. Neither Frontier nor, to its best knowledge, any
of its affiliates, has through the date of this Agreement taken or agreed to
take any action that would prevent Frontier
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from accounting for the business combination to be effected by the Merger as
a "pooling of interests".
(p) Frontier Rights Agreement. Under the Frontier Rights Agreement,
which will be executed as promptly as practicable following the date hereof,
and assuming that no stockholder of ALC would constitute an "Acquiring
Person" after giving effect to the Merger, (i) none of the approval,
execution or delivery of this Agreement or the consummation of the Merger
will cause (1) the Frontier Rights to become exercisable, (2) ALC or any of
its subsidiaries to be deemed an "Acquiring Person" (as defined in the
Frontier Rights Agreement), or (3) the "Stock Acquisition Date" (as defined
in the Frontier Rights Agreement) to occur upon any such event. The
"Distribution Date" (as defined in the Frontier Rights Agreement) has not
occurred.
(q) Properties. Except as disclosed in the Frontier SEC Documents filed
prior to the date of this Agreement or as disclosed in Schedule 3.2(q)
hereto, Frontier or one of subsidiaries (i) has good, clear and marketable
title to all the properties and assets reflected in the latest audited
balance sheet included in such Frontier SEC Documents as being owned by
Frontier or one of its subsidiaries or acquired after the date thereof which
are material to Frontier's business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), free and clear of all claims, liens, charges,
security interests or encumbrances of any nature whatsoever except (A)
statutory liens securing payments not yet due and (B) such imperfections or
irregularities of title, claims, liens, charges, security interests or
encumbrances as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties and (ii) is the lessee of all leasehold
estates reflected in the latest audited financial statements included in
such Frontier SEC Documents or acquired after the date thereof which are
material to its business on a consolidated basis (except for leases that
have expired by their terms since the date thereof) and is in possession of
the properties purported to be leased thereunder and each such lease is
valid without default thereunder by the lessee or, to Frontier's knowledge,
the lessor.
(r) Ownership of ALC Common Stock. As of the date hereof, neither
Frontier nor, to its best knowledge, any of its affiliates or associates (as
defined under the Exchange Act), (i) beneficially own, directly or
indirectly, or (ii) are parties to any agret, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, any shares of
ALC Common Stock, except for shares which may be held by Frontier Benefit
Plans which shares do not, in the aggregate, represent 1% or more of the
outstanding shares of ALC Common Stock.
(s) Intellectual Property. Frontier and its Significant Subsidiaries own
or possess adequate licenses or other valid rights to use all material
computer software and firmware, patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, brand names, copyrights,
service marks, trade secrets, applications for trademarks and for service
marks, know-how and other proprietary rights and information used or held
for use in connection with the business of Frontier and its Significant
Subsidiaries as currently conducted or as contemplated to be conducted, and
Frontier is unaware of any assertion or claim challenging the validity of
any of the foregoing which, individually or in the aggregate, would have a
material adverse effect. To the best knowledge of Frontier, the conduct of
the business of Frontier and its Significant Subsidiaries as currently
conducted does not conflict in any way with any patent, patent right,
license, trademark, trademark right, trade name, trade name right, service
mark or copyright of any third party that, individually or in the aggregate,
would have a material adverse effect. To the best knowledge of Frontier,
there are no infringements of any proprietary rights owned by or licensed by
or to Frontier or any of its Significant Subsidiaries which, individually or
in the aggregate, would have a material adverse effect.
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(t) Undisclosed Liabilities. Except as disclosed in the Frontier SEC
Documents filed prior to the date of this Agreement, neither Frontier nor
any of its Significant Subsidiaries has incurred any liabilities or
obligations (absolute, accrued, contingent or otherwise) other than
liabilities or obligations which would not, individually or in the
aggregate, have a material adverse effect.
(u) Environmental Matters. Except as disclosed in the Frontier SEC
Documents filed prior to the date of this Agreement, there are no
Environmental Liabilities of Frontier or any of its Significant Subsidiaries
which would, individually or in the aggregate, have a material adverse
effect.
(v) Opinion of Financial Advisor. Frontier has received the opinion of
Lazard Freres & Co. dated April 9, 1995, to the effect that, as of such
date, the exchange ratio reflected in the Conversion Number is fair to the
stockholders of Frontier from a financial point of view, a copy of which
opinion has been delivered to ALC.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of ALC and Frontier. During the period from the date of this
Agreement and continuing until the Effective Time, ALC and Frontier each agrees
as to itself and its subsidiaries that (except as expressly contemplated or
permitted by this Agreement or to the extent that the other party shall
otherwise consent in writing):
(a) Ordinary Course. Such party and its subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use all reasonable
efforts to preserve intact their present business organizations, maintain
their rights and franchises and preserve their relationships with customers,
suppliers and others having business dealings with them to the end that
their goodwill and ongoing businesses shall not be impaired in any material
respect at the Effective Time. No party shall, or shall permit any of its
subsidiaries to, (i) enter into any new material line of business or (ii)
incur or commit to any capital expenditures or any obligations or
liabilities in connection therewith other than capital expenditures and
obligations or liabilities incurred or committed to in the ordinary course
of business consistent with past practice or as contemplated by business
plans or budgets provided, or otherwise disclosed in writing, to the other
party prior to the date hereof.
(b) Dividends; Changes in Stock. Except in connection with the
declaration and issuance of the Frontier Rights by Frontier, no party shall,
or shall permit any of its Significant Subsidiaries to, or shall propose to,
(i) declare or pay any dividends on or make other distributions in respect
of any of its capital stock, except (A) Frontier may continue the
declaration and payment of regular quarterly cash dividends not in excess of
$.2075 per share of Frontier Common Stock and regular quarterly cash
dividends as provided by and in accordance with the terms of the Frontier
Cumulative Preferred Stock, in each case with usual record and payment dates
for such dividends in accordance with Frontier's past dividend practice, and
(B) for dividends by a wholly-owned subsidiary of such party, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) repurchase, redeem or
otherwise acquire, or permit any subsidiary to purchase or otherwise acquire
any shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock, except in the case of
Frontier, as described on Schedule 3.2(b).
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(c) Issuance of Securities. No party shall, or shall permit any of its
subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class,
any Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants or options to acquire, any such shares or Voting Debt,
or enter into any agreement with respect to any of the foregoing, other than
(i) the issuance of Frontier Common Stock or ALC Common Stock, as the case
may be, upon the exercise of the stock options and warrants referred to in
this Agreement, in each case outstanding on the date of this Agreement, or
pursuant to Frontier Stock Plans or ALC Stock Plans, in each case in
accordance with their present terms, (ii) in the case of Frontier, grants of
options to purchase shares of Frontier Common Stock pursuant to the Frontier
Stock Plans, (iii) issuances by a wholly-owned subsidiary of its capital
stock to its parent, (iv) in the case of Frontier, the issuance of Frontier
Rights and shares of Series A Junior Participating Class A Preferred Stock
of Frontier the ("Frontier Series A Preferred") upon exercise of the
Frontier Rights, in each case in accordance with the terms of the Frontier
Rights Agreement, and the reservation for issuance of shares of Frontier
Series A Preferred and (v) in the case of ALC, the issuance of ALC Rights
and shares of ALC Series E Preferred upon exercise of ALC Rights, in each
case in accordance with the terms of the ALC Rights Agreement (as amended as
described in Section 3.1(p)), and the reservation for issuance of shares of
ALC Series E Preferred.
(d) Governing Documents. No party shall amend or propose to amend, or
shall permit any of its Significant Subsidiaries to amend, the Certificate
of Incorporation or By-laws of such party or any of its Significant
Subsidiaries (or, in the case of Frontier, of Sub), except as contemplated
by Section 5.12; provided, however, the foregoing shall not prevent the
amendment of Sub's Certificate of Incorporation to increase the number of
authorized shares of its common stock or to change the par value thereof.
Frontier shall not amend the Frontier Rights Agreement in any way adverse to
ALC or its ability to consummate the transactions contemplated hereby and
ALC shall not amend the ALC Rights Agreement (as amended as described in
Section 3.1(p)) in any way adverse to Frontier or its ability to consummate
the transactions contemplated hereby. ALC shall not amend the Warrant
Agreements or the Grumman Hill Options.
(e) No Solicitations. No party shall, or shall permit any of its
subsidiaries to, directly or indirectly, through any officer, director,
agent or otherwise, initiate, solicit or knowingly encourage (including by
way of furnishing non-public information or assistance), or take any other
action to facilitate knowingly, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Competing
Transaction (as defined below), or enter into or maintain or continue
discussions or negotiate with any person in furtherance of such inquiries or
to obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or
employees of such party or any of its subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by
such party or any of such party's subsidiaries to take any such action, and
each party shall notify the other party hereto orally (within twelve hours)
and in writing (as promptly as practicable), in reasonable detail, as to any
inquiries and proposals which it or any of such party's subsidiaries or any
such officer, director, employee, investment banker, financial advisor,
attorney, accountant or other representative may receive and if such inquiry
or proposal is in writing, such party shall deliver to the other party a
copy of such inquiry or proposal; provided, however, that nothing contained
in this Section 4.1(e) shall prohibit the Board of Directors of Frontier or
ALC, as the case may be, from (i) furnishing information to, or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited written, bona fide proposal to acquire such party pursuant to a
merger, consolidation, share exchange, business combination, sale of assets,
tender or exchange offer or other similar transaction, if, and only to the
extent that, (A) the Board of Directors of such party, after consultation
with and based upon the advice of independent legal counsel (who may be such
party's regularly engaged independent legal counsel), determines in
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good faith that such action is required for the Board of Directors of such
party to comply with its fiduciary duties to stockholders under applicable
law and (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person, such party (x) provides
reasonable notice (no less than one business day) to the other party to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person and (y) receives from such person an executed
confidentiality agreement in reasonably customary form on terms not more
favorable to such person than the terms contained in the letter dated
September 27, 1994 between ALC and Frontier (the "Confidentiality
Agreement"); provided further, that the party furnishing to any such person
or entity any material, non-public information not previously delivered to
the other party shall deliver to the other party copies of all such
information (provided that the party furnishing to any such person any such
material, non-public information of which copies are not delivered to the
other party pursuant to the foregoing shall deliver to the other party a
list of all such information so provided), (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer
or (iii) failing to make or withdrawing or modifying its recommendation
referred to in Section 5.5 following the occurrence of a Competing
Transaction if the Board of Directors of such party, after consultation with
and based upon the advice of independent legal counsel (who may be such
party's regularly engaged independent legal counsel), determines in good
faith that such action is required for the Board of Directors of such party
to comply with its fiduciary duties to stockholders under applicable law. As
used in this Agreement, "Competing Transaction" shall mean any of the
following (other than the transactions contemplated or permitted by this
Agreement) involving a party hereto or any of its Significant Subsidiaries:
(i) any merger, consolidation, share exchange, business combination, or
other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 20% or more of the assets of such party and
its subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 20% or more of
the outstanding shares of capital stock of such party or the filing of a
registration statement under the Securities Act in connection therewith;
(iv) any person or group having acquired beneficial ownership of 20% or more
of the outstanding shares of capital stock of such party; or (v) any
proposal, plan or intention to do any of the foregoing either publicly
announced or otherwise communicated to ALC or Frontier, as the case may be,
or any agreement to engage in any of the foregoing. This Section 4.1(e)
shall not prohibit accurate disclosure by a party that is required in any
ALC SEC Document or Frontier SEC Document (including the Proxy Statement and
the S-4) or otherwise under applicable law in the opinion of the Board of
Directors of such party, after consultation with and based upon the advice
of independent legal counsel (who may be such party's regularly engaged
legal counsel), as of the date of such ALC SEC Document or Frontier SEC
Document or such other required disclosure as to the transactions
contemplated hereby or as to any Competing Transaction.
(f) No Acquisitions. Other than (i) acquisitions disclosed in the ALC
SEC Documents or the Frontier SEC Documents, as the case may be, (ii)
acquisitions for which a party has entered into a definitive agreement prior
to the date hereof, (iii) acquisitions for which a party has an outstanding
bona fide offer as of the date hereof and (iv) if there shall have occurred
after the date hereof a Competing Transaction with respect to either ALC or
Frontier, acquisitions in connection with which the total fair market value
of the consideration paid by the acquiror shall not exceed an aggregate of
$100,000,000, no party shall, or shall permit any of its subsidiaries to,
without the prior written consent of the other party (which shall not be
unreasonably withheld), acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets in
each case which are material, individually or in the aggregate, to such
party and its subsidiaries taken as a whole; provided, however, that the
foregoing shall not prohibit (i) internal reorganizations or consolidations
involving existing subsidiaries or (ii) the creation of new subsidiaries
organized to conduct or continue activities otherwise permitted by this
Agreement.
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(g) No Dispositions. Other than (i) dispositions referred to in ALC SEC
Documents or Frontier SEC Documents filed prior to the date of this
Agreement or as previously disclosed in writing by a party to the other
party, or (ii) as may be required by law to consummate the transactions
contemplated hereby, no party shall, or shall permit any of its subsidiaries
to, sell, e, encumber or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of any of its assets (including capital stock
of subsidiaries), except, subject to Section 4.1(l), for dispositions in the
ordinary course of business consistent with past practice or which,
individually do not exceed $10,000,000 or which, in the aggregate, do not
exceed $25,000,000.
(h) Indebtedness. No party shall, or shall permit any of its
subsidiaries to, incur any long-term indebtedness for borrowed money or
guarantee any such long-term indebtedness or issue or sell any long-term
debt securities or warrants or rights to acquire any long-term debt
securities of such party or any of its subsidiaries or guarantee any
long-term debt securities of others (other than such party or any of its
wholly owned subsidiaries) or enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing, other than
(i) in replacement for existing or maturing debt, (ii) indebtedness of any
subsidiary of a party to such party or another subsidiary of such party,
(iii) borrowings under existing lines of credit or under commercial paper
programs in the ordinary course of business consistent with prior practice,
(iv) borrowings by Rochester Telephone Corp. to the extent that the
aggregate long-term indebtedness of Rochester Telephone Corp. does not
exceed $200,000,000, (v) borrowings by either party under its lines of
credit existing on the date hereof, (vi) indebtedness assumed or
indebtedness of any person or entity acquired pursuant to any acquisitions
referred to in Section 4.1(f) or (vii) other borrowings which, in the
aggregate, do not exceed $10,000,000.
(i) Other Actions. No party shall, or shall permit any of its
subsidiaries to, take any action that would or reasonably might be expected
to, result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of the
conditions to the Merger set forth in Article VI not being satisfied, or
(unless such action is required by applicable law) which would adversely
affect the ability of any of them to obtain any of the Requisite Regulatory
Approvals without imposition of a condition or restriction of the type
referred to in Sections 6.1(g), 6.2(e) or 6.3(e).
(j) Advice of Changes; Government Filings. Each party shall confer on a
regular and frequent basis with the other, report on operational matters and
promptly advise the other, orally and in writing of any change or event
having, or which, insofar as can reasonably be foreseen, could have, a
material adverse effect on such party or which would cause or constitute a
material breach of any of the representations, warrants or covenants of such
party contained herein. Frontier and ALC shall file all reports required to
be filed by each of them with the SEC between the date of this Agreement and
the Effective Time and shall deliver to the other party copies of all such
reports promptly after the same are filed. Frontier and ALC shall cooperate
with each other in determining whether any filings are required to be made
with or consents required to be obtained from, any third party or
Governmental Entity prior to the Effective Time in connection with this
Agreement or the transactions contemplated hereby, and shall cooperate in
making any such filings promptly and in seeking to obtain timely any such
consents. Each party shall promptly provide the other (or its counsel) with
copies of all other filings made by such party with any state or federal
Governmental Entity in connection with this Agreement or the transactions
contemplated hereby.
(k) Accounting Methods. Neither Frontier nor ALC shall change its
methods of accounting in effect at December 31, 1994, except as required by
changes in generally accepted accounting principles as concurred in by such
party's independent auditors. Neither Frontier nor ALC will change its
fiscal year.
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(l) Pooling and Tax-Free Reorganization Treatment. Neither Frontier nor
ALC shall intentionally take or cause to be taken any action, whether before
or after the Effective Time, which would disqualify the Merger as a "pooling
of interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code.
(m) Benefit Plans. During the period from the date of this Agreement and
continuing until the Effective Time, each of Frontier and ALC agrees as to
itself and its subsidiaries that it will not, without the prior written
consent of the other party, (i) enter into, adopt, amend (except as may be
required by law), renew or terminate any Frontier Benefit Plan or ALC
Benefit Plan, as the case may be, or any other employee benefit plan or any
agreement, arrangement, plan or policy between such party and one or more of
its directors or officers, (ii) except for normal increases in the ordinary
course of business consistent with past practice that, in the aggregate, do
not result in a material increase in benefits or compensation expense to
such party, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
plan and arrangement as in effect as of the date hereof, (iii) in the case
of ALC, grant any stock options, stock appreciation rights, restricted
stock, restricted stock units or performance units or shares other than as
required by existing agreements with individual employees, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing or
(iv) except for the Employment Agreements, enter into or renew any contract,
agreement, commitment or arrangement providing for the payment to any
director, officer or employee of such party of compensation or benefits
contingent, or the terms of which are materially altered, upon the
occurrence of any of the transactions contemplated by this Agreement.
(n) Tax Elections. Except in the ordinary course of business and
consistent with past practice, without the prior written consent of the
other, neither Frontier nor ALC shall make any material tax election or
settle or compromise any material federal, state, local or foreign income
tax liability.
(o) Network Transition. Promptly following the date hereof, Frontier and
ALC shall consider and discuss the manner in which they may, to the extent
not violative of any contracts, arrangements or agreements, written or oral,
to which any party hereto or any of its subsidiaries or affiliates is a
party, cause their respective long distance subsidiaries (the "Long Distance
Subs") to take the actions reasonably necessary to begin to transition their
respective switched long distance traffic of each other for termination and
obtain the maximum network optimization and other synergies as necessary for
the Long Distance Subs' future business plans, including but not limited to
joint purchasing of transmission capacity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Proxy Statement. Frontier and ALC shall
promptly prepare and file with the SEC the Proxy Statement and Frontier shall
prepare and file with the SEC the S-4, in which the Proxy Statement will be
included as a prospectus. Each of Frontier and ALC shall use all reasonable
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing. Frontier shall also take any action (other
than qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Frontier Common Stock in the Merger and Frontier
Common Stock upon the exercise of the ALC Stock Options and the ALC Warrants,
and ALC shall furnish all information concerning ALC and the holders of ALC
Common Stock, ALC Stock Options and ALC Warrants as may be reasonably requested
in connection with any such action.
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5.2 Letter of ALC's Accountants. ALC shall use its reasonable best efforts
to cause to be delivered to Frontier a letter of Ernst & Young, ALC's
independent auditors, dated a date within two business days before the date on
which the S-4 shall become effective and addressed to Frontier, in form and
substance reasonably satisfactory to Frontier and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
5.3 Letter of Frontier's Accountants. Frontier shall use its reasonable best
efforts to cause to be delivered to ALC a letter of Price Waterhouse, Frontier's
independent auditors, dated a date within two business days before the date on
which the S-4 shall become effective and addressed to ALC, in form and substance
reasonably satisfactory to ALC and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
5.4 Access to Information. Upon reasonable notice, ALC and Frontier shall
each (and shall cause each of their respective subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, each of ALC and Frontier shall (and shall cause each of
their respective subsidiaries to) make available to the other (a) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws
and (b) all other information concerning its business, properties and personnel
as such other party may reasonably request. The parties will hold any such
information which is nonpublic in confidence to the extent required by, and in
accordance with, the provisions of the Confidentiality Agreement. No
investigation by either Frontier or ALC shall affect the representations and
warranties of the other, except to the extent such representations and
warranties are by their terms qualified by disclosures made to such first party.
5.5 Stockholder Meetings. ALC and Frontier each shall call a meeting of its
respective stockholders to be held as promptly as practicable for the purpose of
voting upon the approval of this Agreement in the case of ALC and the Frontier
Vote Matter in the case of Frontier. ALC and Frontier will, through their
respective Boards of Directors, recommend to their respective stockholders
approval of such matters, unless otherwise required under the applicable
fiduciary duties of the respective directors of ALC and Frontier, as determined
by such directors in good faith after consultation with and based upon the
advice of independent legal counsel (who may be such party's regularly engaged
independent legal counsel). ALC and Frontier shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day and as soon as practicable after the date on which
the S-4 becomes effective. This Section 5.5 shall not prohibit accurate
disclosure by a party that is required in any ALC SEC Document or Frontier SEC
Document (including the Proxy Statement and the S-4) or otherwise under
applicable law of the opinion of the Board of Directors of such party as of the
date of such SEC Document or such other required disclosure as to the
transactions contemplated hereby or as to any takeover proposal.
5.6 Legal Conditions to Merger. Each of ALC and Frontier shall, and shall
cause its subsidiaries to, use all reasonable efforts (i) to take, or cause to
be taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party or its subsidiaries with respect to the
Merger and to consummate the transactions contemplated by this Agreement,
subject to the appropriate vote of stockholders of ALC and Frontier described in
Section 6.1(a), and (ii) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and or any other public or private third party which is
required to be obtained or made by such party or any of its subsidiaries in
connection with the Merger and the transactions contemplated by this Agreement;
provided, however, that a party shall not be obligated to
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take any action pursuant to the foregoing if the taking of such action or such
compliance or the obtaining of such consent, authorization, order, approval or
exemption is likely, in such party's reasonable opinion, (x) to be materially
burdensome to such party and its subsidiaries taken as a whole or to impact in a
materially adverse manner the economic or business benefits of the transactions
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger or (y) to result in the imposition of a condition or restriction on
such party or on the Surviving Corporation of the type referred to in Sections
6.1(g), 6.2(e) or 6.3(e). Each of ALC and Frontier will promptly cooperate with
and furnish information to the other in connection with any such burden suffered
by, or requirement imposed upon, any of them or any of their subsidiaries in
connection with the foregoing.
5.7 Affiliates. At least 40 days prior to the Closing Date, ALC shall
deliver to Frontier a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of ALC, "affiliates" of
ALC for purposes of Rule 145 under the Securities Act. ALC shall use all
reasonable efforts to cause each person named on the letter delivered by it to
deliver to Frontier at least 30 days prior to the Closing Date a written
agreement, substantially in the form attached as Exhibit 5.7.
5.8 Stock Exchange Listing. Frontier shall use all reasonable efforts to
cause the shares of Frontier Common Stock to be issued in the Merger and the
shares of Frontier Common Stock to be reserved for issuance upon exercise of ALC
Stock Options and ALC Warrants to be approved for listing on the NYSE, subject
to official notice of issuance, prior to the Closing Date.
5.9 Employee Benefit Plans. Following the Effective Time, Frontier shall
establish, or maintain, in good faith, Benefit Plans for the Surviving
Corporation and its subsidiaries effective as of the Effective Time. Except as
otherwise provided in Section 5.10, in the case of ALC Benefit Plans under which
the employees' interests are based upon ALC Common Stock, Frontier and ALC agree
that such interests shall be based on Frontier Common Stock in an equitable
manner.
5.10 Stock Options and Warrants. (a) At the Effective Time, each outstanding
ALC Stock Option and ALC SAR, in each case whether vested or unvested, and ALC
Warrant shall be assumed by Frontier. Each ALC Stock Option shall be deemed to
constitute an option to acquire, and each ALC Warrant shall be deemed to
constitute a warrant to acquire, on the same terms and conditions as were
applicable under such ALC Stock Option or such ALC Warrant, as the case may be,
the same number of shares of Frontier Common Stock as the holder of such ALC
Stock Option or such ALC Warrant, as the case may be, would have been entitled
to receive pursuant to the Merger had such holder exercised such Stock Option or
ALC Warrant in full immediately prior to the Effective Time, at a price per
share equal to (y) the aggregate exercise price for the shares of ALC Common
Stock otherwise purchasable pursuant to such ALC Stock Option or ALC Warrant
divided by (z) the number of full shares of Frontier Common Stock deemed
purchasable pursuant to such ALC Stock Option or ALC Warrant; provided, however,
that in the case of any option to which section 421 of the Code applies by
reason of its qualification under section 422 of the Code ("qualified stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with section 424(a) of the Code. Each holder of an
ALC SAR shall be entitled to that number of stock appreciation rights of
Frontier determined in the same manner as set forth above with respect to ALC
Stock Options assumed by Frontier. As soon as practicable following the date of
this Agreement, the Board of Directors of ALC (and/or the appropriate committee
thereof) shall take all other actions necessary in order to effectuate the
foregoing and to ensure that following the Effective Time no holder of an ALC
Stock Option, ALC SAR or ALC Warrant nor any participant in any ALC Benefit Plan
shall have any right thereunder to acquire equity securities of ALC or the
Surviving Corporation.
(b) ALC shall deliver to the holders of the Warrants appropriate notices
setting forth such holders' rights in connection with the Merger in accordance
with the provisions of the respective Warrant Agreements. As soon as practicable
after the Effective Time, Frontier shall deliver to the holders of
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ALC Stock Options and ALC SARs appropriate notices setting forth such holders'
rights pursuant to the ALC Stock Plans in connection with the Merger. The
agreements evidencing the grants of ALC Stock Options, ALC SARs or ALC Warrants,
as the case may be, shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 5.10 after giving effect to
the Merger and the assumption by Frontier as set forth above). If necessary,
Frontier shall use its reasonable best efforts to comply with the terms of the
ALC Stock Plans and to ensure, to the extent required by, and subject to the
provisions of, the ALC Stock Plans, that ALC Stock Options which qualified as
qualified stock options prior to the Effective Time continue to qualify as
qualified stock options of Frontier after the Effective Time.
(c) Frontier shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Frontier Common Stock for delivery
upon exercise of ALC Stock Options and ALC Warrants assumed by it in accordance
with this Section 5.10. As soon as practicable after the Effective Time,
Frontier shall file one or more registration statements on appropriate forms
with respect to the shares of Frontier Common Stock subject to such ALC Stock
Options and, to the extent required by the respective Warrant Agreements, with
respect to the shares of Frontier Common Stock subject to such ALC Warrants, and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements for so long as such options or warrants, as
applicable, remain outstanding.
5.11 Brokers or Finders. Except as disclosed to the other party prior to the
date hereof, each of Frontier and ALC represents, as to itself, its subsidiaries
and its affiliates, that no agent, broker, investment banker, financial advisor
or other firm or person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement, except Salomon Brothers Inc, whose
fees and expenses will be paid by ALC in accordance with ALC's agreement with
such firm (a copy of which has been delivered by ALC to Frontier prior to the
date of this Agreement), and Lazard Freres & Co., whose fees and expenses will
be paid by Frontier in accordance with Frontier's agreement with such firm (a
copy of which has been delivered by Frontier to ALC prior to the date of this
Agreement), and each party agrees to indemnify the other party and hold the
other party harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such first party or its affiliate.
5.12 Governance. (a) Frontier's Board of Directors shall take action to
cause John M. Zrno, William H. Oberlin, Richard J. Uhl and Michael E. Faherty to
be elected to Frontier's Board of Directors as of the Effective Time or as soon
thereafter as practical. Frontier's Board of Directors shall amend Frontier's
By-laws to increase the size of the Frontier Board of Directors to the extent
necessary to comply with this Section. Frontier's Board of Directors shall also
take action to cause the persons set forth on Exhibit 5.12 to be elected to the
offices specified in such Exhibit effective as of the Effective Time.
(b) ALC shall use its reasonable best efforts to obtain the resignation of
each director of ALC effective as of the Effective Time.
5.13 Indemnification; Directors' and Officers' Insurance. (a) From and after
the Effective Time, Frontier shall, or shall cause the Surviving Corporation to,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer, director or employee of ALC or any of its subsidiaries (the
"Indemnified Parties") against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement with the
approval of Frontier (which approval shall not be unreasonably withheld) of or
in connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of ALC or any subsidiary of
ALC, whether pertaining to any matter existing or occurring at or prior to the
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Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, or
pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent ALC would have been permitted under Delaware law and its
Certificate of Incorporation and By-laws to indemnify such person, consistent
with applicable law (and Frontier shall pay expenses (including attorneys' fees)
in advance of the final disposition of any such action or proceeding to each
Indemnified Party to the full extent permitted by law upon receipt of any
undertaking required by applicable law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Party (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time shall be reasonably satisfactory to Frontier and (ii) after
the Effective Time, Frontier will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that Frontier shall not be liable
for any settlement of any claim effected without its written consent, which
consent, however, shall not be unreasonably withheld. Any Indemnified Party
wishing to claim indemnification under this Section 5.13, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify Frontier
(but the failure so to notify Frontier shall not relieve it from any liability
which it may have under this Section 5.13 except to the extent such failure
materially prejudices Frontier), and shall deliver to Frontier any undertaking
required by applicable law. The Indemnified Parties as a group may retain only
one law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(b) For a period of seven years after the Effective Time, Frontier shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by ALC (provided that Frontier may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events which occurred before the Effective Time;
provided, however, that Frontier shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 200% of the
premiums paid as of the date hereof by ALC for such insurance. Notwithstanding
anything to the contrary contained elsewhere herein, Frontier's agreement set
forth above shall be limited to cover claims only to the extent that those
claims are not covered under ALC's directors' and officers' insurance policies
(or any substitute policies permitted by this Section 5.13(b)).
(c) The provisions of this Section 5.13 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, and his or her heirs
and representatives.
5.14 Elimination of Certain Restrictions. The parties shall make all
reasonable efforts to eliminate the application, after the Effective Time, of
certain restrictive covenants contained in the Indenture dated as of May 15,
1993 among Allnet Communication Services, Inc., ALC and Star Bank, National
Association, as Trustee, relating to ALC's 9% Senior Subordinated Notes due May
15, 2003, by such means, including without limitation, consent, amendment or
defeasance, as may be mutually agreeable.
5.15 Financial Reporting. If the Effective Time shall have occurred in
either the first or last month of a fiscal quarter of Frontier, Frontier shall
seek to accelerate the release of 30 days of combined earnings of Frontier and
the Surviving Corporation to the fullest extent reasonably practicable, taking
into account the best interests of Frontier.
5.16 Additional Agreements. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either Sub
or ALC, the proper officers and directors of each party to this Agreement shall
take all such necessary action.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of ALC Common Stock entitled to vote thereon, and the
Frontier Vote Matter shall have been approved by a majority of the votes
cast thereon by the holders of shares of Frontier Common Stock, provided
that the total votes cast by such holders shall represent a majority of the
outstanding shares of Frontier Common Stock entitled to vote thereon.
(b) NYSE Listing. The shares of Frontier Common Stock issuable to ALC
stockholders pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been
authorized for listing on the NYSE upon official notice of issuance.
(c) Other Approvals. Other than the filing contemplated by Section 1.3,
all authorizations, consents, orders or approvals of, or declarations or
filings with, and all expirations of waiting periods imposed by, any
Governmental Entity (all the foregoing, "Consents") which are necessary for
the consummation of the Merger, other than immaterial Consents the failure
to obtain which would have no material adverse effect on the consummation of
the Merger or on Frontier and its subsidiaries (after giving effect to the
Merger), taken as a whole, shall have been filed, occurred or been obtained
(all such permits, approvals, filings and consents and the lapse of all such
waiting periods being referred to as the "Requisite Regulatory Approvals")
and all such Requisite Regulatory Approvals shall be in full force and
effect. Frontier shall have received all state securities or blue sky
permits and other authorizations necessary to issue the Frontier Common
Stock in exchange for ALC Common Stock and to consummate the Merger.
(d) S-4. The S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect,
nor shall any proceeding by any Governmental Entity seeking any of the
foregoing be pending. There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal.
(f) Pooling. Frontier and ALC shall have received letters from Price
Waterhouse and from Ernst & Young to the effect that the Merger qualifies
for "pooling of interests" accounting treatment if consummated in accordance
with this Agreement.
(g) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any federal or state Governmental Entity which,
in connection with the grant of a Requisite Regulatory Approval, imposes any
condition or restriction upon Frontier or its subsidiaries (after giving
effect to the Merger) which would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement as to render inadvisable the consummation of the
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Merger, provided that the parties shall have contested in good faith the
imposition of any such condition or restriction.
6.2 Conditions to Obligations of Frontier and Sub. The obligations of
Frontier and Sub to effect the Merger are subject to the satisfaction of the
following conditions unless waived by Frontier and Sub:
(a) Representations and Warranties. The representations and warranties
of ALC set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement, and Frontier shall have received a
certificate signed on behalf of ALC by the President and Chief Executive
Officer of ALC or the Executive Vice President and Chief Operating Officer
of ALC, and by the Executive Vice President and Chief Financial Officer of
ALC to such effect.
(b) Performance of Obligations of ALC. ALC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Frontier shall have received
a certificate signed on behalf of ALC by the President and Chief Executive
Officer of ALC or the Executive Vice President and Chief Operating Officer
of ALC, and by the Executive Vice President and Chief Financial Officer of
ALC to such effect.
(c) Consents Under Agreements. ALC shall have obtained the consent or
approval of each person (other than the Governmental Entities referred to in
Section 6.1(c)) whose consent or approval shall be required, and filed or
delivered all certificates or other documents required (other than filings
with or deliveries to the Governmental Entities referred to in Section
6.1(c)), in order to permit the succession by the Surviving Corporation
pursuant to the Merger to any obligation, right or interest of ALC or any
subsidiary of ALC under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument, except those for
which failure to obtain such consents and approvals, or to make such filings
or deliveries, would not, in the reasonable opinion of Frontier,
individually or in the aggregate, have a material adverse effect on Frontier
and its subsidiaries (after giving effect to the Merger), taken as a whole,
or upon the consummation of the transactions contemplated hereby.
(d) Tax Opinion. Frontier shall have received the opinion of Simpson
Thacher & Bartlett, counsel to Frontier, dated on or about the date that is
two business days prior to the date the Proxy Statement is first mailed to
stockholders of Frontier and ALC, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that Frontier, Sub and ALC will
each be a party to that reorganization within the meaning of Section 368(b)
of the Code, which opinion shall not have been withdrawn or modified in any
material respect.
(e) Burdensome Condition. Prior to the Effective Time, there shall not
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, by any Governmental
Entity which, in connection with the grant of a Requisite Regulatory
Approval, imposes any requirement upon Frontier or its subsidiaries (after
giving effect to the Merger) to dispose of any asset which would be deemed
to constitute a significant amount of assets to Frontier under Instruction 4
of Item 2 of Form 8-K, provided that Frontier shall have contested in good
faith the imposition of any such requirement.
(f) Employment Agreements. Each of the Employment Agreements shall be in
full force and effect, and each of the employees of ALC who is a party to an
Employment Agreement shall have
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performed in all material respects all obligations required to be performed
by such employee under his or her respective Employment Agreement.
(g) Opinion of Financial Advisor. Lazard Freres & Co. shall not have
withdrawn its opinion referred to in Section 3.2(v).
6.3 Conditions to Obligations of ALC. The obligation of ALC to effect the
Merger is subject to the satisfaction of the following conditions unless waived
by ALC:
(a) Representations and Warranties. The representations and warranties
of Frontier and Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement, and ALC shall have received a
certificate signed on behalf of Frontier by the Chairman, President and
Chief Executive Officer of Frontier or a Corporate Vice President of
Frontier, and by the Corporate Vice President-Finance of Frontier to such
effect.
(b) Performance of Obligations of Frontier and Sub. Frontier and Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
ALC shall have received a certificate signed on behalf of Frontier by the
Chairman, President and Chief Executive Officer of Frontier or a Corporate
Vice President of Frontier, and by the Corporate Vice President-Finance of
Frontier to such effect.
(c) Consents Under Agreements. Frontier shall have obtained the consent
or approval of each person (other than the Governmental Entities referred to
in Section 6.1(c)) whose consent or approval shall be required, and filed or
delivered all certificates or other documents required (other than filings
with or deliveries to the Governmental Entities referred to in Section
6.1(c)), in connection with the transactions contemplated hereby under any
loan or credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument, except those for which failure to obtain such
consents and approvals, or to make such filings or deliveries, would not, in
the reasonable opinion of ALC, individually or in the aggregate, have a
material adverse effect on Frontier and its subsidiaries (after giving
effect to the Merger), taken as a whole, or upon the consummation of the
transactions contemplated hereby.
(d) Tax Opinion. ALC shall have received the opinion of Debevoise &
Plimpton, counsel to ALC dated on or about the date that is two business
days prior to the date the Proxy Statement is first mailed to stockholders
of Frontier and ALC, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, and that Frontier, Sub and ALC will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code, which opinion shall not have been withdrawn or modified in any
material respect.
(e) Burdensome Condition. Prior to the Effective Time, there shall not
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, by any Governmental
Entity which, in connection with the grant of a Requisite Regulatory
Approval, imposes any requirement upon ALC or its subsidiaries to dispose of
any asset which would be deemed to constitute a significant amount of assets
to Frontier (after giving effect to the Merger) under Instruction 4 of Item
2 of Form 8-K, provided that ALC shall have contested in good faith the
imposition of any such requirement.
(f) Opinion of Financial Advisor. Salomon Brothers Inc shall not have
withdrawn its opinion referred to in Section 3.1(v).
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ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of ALC or Frontier:
(a) by mutual consent of Frontier and ALC in a written instrument;
(b) by Frontier, upon a wilful breach of any material representation,
warranty, covenant or agreement on the part of ALC set forth in this
Agreement, or if any such representation or warranty of ALC shall have
become untrue, in each case such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would be incapable of being
satisfied (following notice and a reasonable opportunity to cure) by
December 31, 1995;
(c) by ALC, upon a wilful breach of any material representation,
warranty, covenant or agreement on the part of Frontier set forth in this
Agreement, or if any such representation or warranty of Frontier shall have
become untrue, in each case such that the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would be incapable of being
satisfied (following notice and a reasonable opportunity to cure) by
December 31, 1995;
(d) by either Frontier or ALC, if any permanent injunction or action by
any Governmental Entity preventing the consummation of the Merger shall have
become final and nonappealable; provided that such right of termination
shall not be available to any party if such party shall have failed to make
reasonable efforts to contest the imposition of such injunction or action
and such failure materially contributed to such imposition;
(e) by either Frontier or ALC, if the Merger shall not have been
consummated on or prior to December 31, 1995;
(f) by either Frontier or ALC, if any approval of the stockholders of
ALC or of Frontier required for the consummation of the Merger shall not
have been obtained by reason of the failure to obtain the required vote at a
duly held meeting of stockholders or at any adjournment thereof;
(g) by Frontier, if (i) the Board of Directors of ALC shall have
withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger in any manner which is adverse to Frontier or Sub or
shall have resolved to do the foregoing; or (ii) the Board of Directors of
ALC shall have approved or have recommended to the stockholders of ALC a
Competing Transaction or shall have resolved to do the foregoing; or (iii) a
tender offer or exchange offer for 20% or more of the outstanding shares of
ALC Common Stock is commenced (other than by Frontier or any of its
subsidiaries or affiliates), and the Board of Directors of ALC recommends
that the stockholders of ALC tender their shares in such tender or exchange
offer or otherwise fails to recommend that such stockholders reject such
tender offer or exchange offer within ten business days of the commencement
thereof; or (iv) any person (including ALC or any of its subsidiaries or
affiliates) or group (other than Frontier or any of its subsidiaries or
affiliates) shall have acquired beneficial ownership of 20% or more of the
outstanding shares of ALC Common Stock;
(h) by ALC, if the Board of Directors of ALC (i) shall fail to make or
shall withdraw or modify its recommendation of this Agreement or the Merger
if there shall exist at such time a tender offer or exchange offer or a
written, bona fide proposal by a third party to acquire ALC pursuant to a
merger, consolidation, share exchange, business combination, tender or
exchange offer or other similar transaction or (ii) recommends to ALC's
stockholders approval or acceptance of any such transaction, in each case
only if the Board of Directors of ALC, after consultation with
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and based upon the advice of independent legal counsel (who may be such
party's regularly engaged independent legal counsel), determines in good
faith that such action is required for the Board of Directors of ALC to
comply with its fiduciary duties to stockholders under applicable law;
(i) by ALC, if (i) the Board of Directors of Frontier shall have
withdrawn, modified or changed its recommendation of the Frontier Vote
Matter in any manner which is adverse to ALC or shall have resolved to do
the foregoing; or (ii) the Board of Directors of Frontier shall have
approved or recommended to the stockholders of Frontier a Competing
Transaction or shall have resolved to do the foregoing; or (iii) a tender
offer or exchange offer for 20% or more of the outstanding shares of
Frontier Common Stock is commenced, and the Board of Directors of Frontier
recommends that the stockholders of Frontier tender their shares in such
tender or exchange offer or otherwise fails to recommend that such
stockholders reject such tender offer or exchange offer within ten business
days of the commencement thereof; or (iv) any person (including Frontier or
any of its subsidiaries or affiliates) or group (other than ALC or any of
its subsidiaries or affiliates) shall have acquired beneficial ownership of
20% or more of the outstanding share of Frontier Common Stock; and
(j) by Frontier, if the Board of Directors of Frontier (i) shall fail to
make or shall withdraw or modify its recommendation of the Frontier Vote
Matter if there shall exist at such time a tender offer or exchange offer or
a written, bona fide proposal by a third party to acquire Frontier pursuant
to a merger, consolidation, share exchange, business combination, tender or
exchange offer or other similar transaction or (ii) recommends to Frontier's
stockholders approval or acceptance of any of the foregoing, in each case
only if the Board of Directors of Frontier, after consultation with and
based upon the advice of independent legal counsel (who may be such party's
regularly engaged independent legal counsel), determines in good faith that
such action is required for the Board of Directors of Frontier to comply
with its fiduciary duties to stockholders under applicable law. The right of
any party hereto to terminate this Agreement pursuant to this Section 7.1
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
7.2 Effect of Termination. In the event of termination of this Agreement by
either ALC or Frontier as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Frontier, Sub or ALC or their respective officers or directors except (i)
with respect to the penultimate sentence of Section 5.4, and Sections 5.11 and
7.3 and (ii) with respect to any liabilities or damages incurred or suffered by
a party as a result of the wilful breach by the other party of any of its
representations, warranties, covenants or agreements set forth in this Agreement
except as provided in Section 8.8; provided that, if this Agreement shall be
terminated under circumstances that would require a payment to be made pursuant
to Section 7.3(b) or Section 7.3(c) contemporaneously with such termination,
then such termination by any party required to make such payment shall not be
effective until such payment shall have been made pursuant to Section 7.3(f).
7.3 Fees, Expenses and Other Payments. (a) Except as otherwise provided in
this Section 7.3, whether or not the Merger is consummated, all out-of-pocket
costs and expenses actually incurred in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, fees and
disbursements of counsel, financial advisors and accountants) shall be borne
solely and entirely by the party which has incurred such costs and expenses
(with respect to such party, its "Expenses"), except that expenses related to
printing, filing and mailing the Proxy Statement and the S-4 shall be shared
equally by Frontier and ALC.
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(b) ALC agrees that if this Agreement shall be terminated pursuant to:
(i) Section 7.1(b) and (x) such termination is the result of wilful
breach of any material covenant, agreement, representation or warranty
contained herein and (y) at any time during the period commencing on the
date hereof and ending twelve umonths after the date of termination of
this Agreement, a Business Combination (as defined in Section 7.3(g)
below) involving ALC shall have occurred or ALC shall have entered into a
definitive agreement providing for such a Business Combination;
(ii) Section 7.1(e) and (x) there shall exist a Competing Transaction
with respect to ALC, (y) at any time during the period commencing on the
date hereof and ending twelve months after the date of termination of
this Agreement, a Business Combination involving ALC that is at least as
favorable to ALC and its stockholders from a financial point of view as
such Competing Transaction shall have occurred or ALC shall have entered
into a definitive agreement providing for such a Business Combination and
(z) if such termination is by Frontier, Frontier shall have offered to
extend the date set forth in Section 7.1(e) until at least March 31,
1996;
(iii) Section 7.1(f) because the Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the
stockholders of ALC at a meeting of stockholders of ALC called to vote
thereon and at the time of such meeting there shall exist a Competing
Transaction with respect to ALC;
(iv) Section 7.1(g)(i) and at the time of the withdrawal,
modification or change (or resolution to do so) of its recommendation by
the Board of Directors of ALC, there shall exist a Competing Transaction
with respect to ALC; or
(v) Sections 7.1(g)(ii), (iii) or (iv), or Section 7.1(h); then ALC
shall pay to Frontier an amount equal to $45,000,000, plus all of
Frontier's Expenses, not to exceed $5,000,000.
(c) Frontier agrees that if this Agreement shall be terminated pursuant
to:
(i) Section 7.1(c) and (x) such termination is the result of wilful
breach of any material covenant, agreement, representation or warranty
contained herein and (y) at any time during the period commencing on the
date hereof and ending twelve months after the date of termination of
this Agreement, a Business Combination involving Frontier shall have
occurred or Frontier shall have entered into a definitive agreement
providing for such a Business Combination;
(ii) Section 7.1(e) and (x) there shall exist a Competing Transaction
with respect to Frontier, (y) at any time during the period commencing on
the date hereof and ending twelve months after the date of termination of
this Agreement, a Business Combination involving Frontier that is at
least as favorable to Frontier and its stockholders from a financial
point of view as such Competing Transaction shall have occurred or
Frontier shall have entered into a definitive agreement providing for
such a Business Combination and (z) if such termination is by ALC, ALC
shall have offered to extend the date set forth in Section 7.1(e) until
at least March 31, 1996;
(iii) Section 7.1(f) because the Frontier Vote Matter shall fail to
receive the requisite vote for approval by the stockholders of Frontier
at the meeting of the stockholders of Frontier called to vote thereon and
at the time of such meeting there shall exist a Competing Transaction
with respect to Frontier;
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(iv) Section 7.1(i)(i) and at the time of the withdrawal,
modification or change (or resolution to do so) of its recommendation by
the Board of Directors of Frontier, there shall exist a Competing
Transaction with respect to Frontier; or
(v) Sections 7.1(i)(ii), (iii) or (iv), or Section 7.1(j); then
Frontier shall pay to ALC an amount equal to $45,000,000, plus all of
ALC's Expenses, not to exceed $5,000,000.
(d) ALC agrees that if this Agreement shall be terminated pursuant to
Section 7.1(f) because the Agreement and the Merger shall fail to receive
the requisite vote for approval and adoption by the stockholders of ALC at a
meeting of stockholders of ALC called to vote thereon, or pursuant to
Section 7.1(b) or Section 7.1(g)(i), then, in any such event, ALC shall pay
to Frontier an amount equal to Frontier's Expenses, not to exceed
$5,000,000, provided that ALC shall not be obligated to make any payment
pursuant to this Section 7.3(d) if ALC shall be obligated to make a payment
to Frontier pursuant to Section 7.3(b).
(e) Frontier agrees that if this Agreement shall be terminated pursuant
to Section 7.1(f) because the Frontier Vote Matter shall fail to receive the
requisite vote for approval by the stockholders of Frontier at a meeting of
stockholders of Frontier called to vote thereon, or pursuant to Section
7.1(c) or Section 7.1(i)(i), then, in any such event, Frontier shall pay to
ALC an amount equal to ALC's Expenses, not to exceed $5,000,000, provided
that Frontier shall not be obligated to make any payment pursuant to this
Section 7.3(e) if Frontier shall be obligated to make a payment to ALC
pursuant to Section 7.3(c).
(f) Any payment required to be made pursuant to Section 7.3(b) through
Section 7.3(e), inclusive, shall be made contemporaneously with the
termination of this Agreement and shall be made by wire transfer of
immediately available funds to an account designated by the recipient of
such payment, and termination by any party required to make such payment
contemporaneously therewith shall not be effective until such payment shall
have been made pursuant hereto, except that any payment to be made as the
result of an event described in Section 7.3(b)(i) or Section 7.3(c)(i) shall
be made as promptly as practicable but not later than five business days
after the occurrence of the Business Combination or the execution of the
definitive agreement providing for a Business Combination. Any payment made
pursuant to Sections 7.3(b) through 7.3(e), inclusive, shall not preclude
the recipient of such payment from seeking monetary damages from the other
party as described in clause (ii) of Section 7.2.
(g) For purposes of this Section 7.3, the term "Business Combination"
shall mean any of the following involving a party hereto: (i) any merger,
consolidation, share exchange, business combination or similar transaction;
(ii) any sale, lease, exchange, transfer or other disposition of 20% or more
of the assets of such party and its subsidiaries, taken as a whole, in a
single transaction or series of transactions; or (iii) the acquisition by a
person or any group of beneficial ownership of 20% or more of the capital
stock of such party whether by tender offer or exchange offer or otherwise.
(h) If the Merger is consummated, ALC agrees to pay, or cause to be
paid, any and all property or transfer taxes imposed on ALC or its
subsidiaries and any real property transfer or gains taxes imposed on any
holder of shares of ALC Common Stock resulting from the Merger.
7.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of ALC or of Frontier, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
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7.5 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Sections 2.1, 2.2, 4.1(l), 5.9
through 5.16, 7.3, the last sentence of Section 7.4 and Article VIII, and the
agreements of the "affiliates" of ALC delivered pursuant to Section 5.7.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Frontier or Sub, to
Louis L. Massaro
Corporate Vice President-Treasurer
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Telecopy No. (716) 546-7823
with copies to
Martin T. McCue, Esq.
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Telecopy No. (716) 546-7823
Helen A. Zamboni, Esq.
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Telecopy No. (716) 546-7823
Richard I. Beattie, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy No. (212) 455-2502
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<PAGE>
and
(b) if to ALC, to
Marvin C. Moses
Executive Vice President and Chief Financial Officer
ALC Communications Corporation
30300 Telegraph Road
Bingham Farms, Michigan 48025
Telecopy No.
with copies to
Connie R. Gale, Esq.
ALC Communications Corporation
30300 Telegraph Road
Bingham Farms, Michigan 48025
Telecopy No.
Christopher Smeall, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy No. (212) 909-6386
8.3 Certain Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "beneficially own" or "beneficial ownership" with respect to any
securities, means having "beneficial ownership" of such securities in
accordance with the provisions of Rule 13d-3 under the Exchange Act. Without
duplicative counting of the same securities by the same holder, securities
beneficially owned by a person include securities beneficially owned by all
other persons with whom such person would constitute a group.
(c) "group" means two or more persons acting together for the purpose of
acquiring, holding, voting or disposing of any securities, which persons
would be required to file a Schedule 13D or Schedule 13G with the SEC as a
"person" within the meaning of Section 13(d)(3) of the Exchange Act if such
persons beneficially owned a sufficient amount of such securities to require
such a filing under the Exchange Act.
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(e) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors
or other governing body (or, if there are no such voting interests, 50% or
more of the equity interests of which) is owned directly or indirectly by
such first person.
8.4 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit to
this Agreement or a Schedule delivered by a party in connection with its
delivery of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or
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"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof" and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to April 9, 1995.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, provided that the Confidentiality
Agreement shall survive the execution and delivery of this Agreement and (b)
except as provided in Section 5.13, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder. The parties
hereby acknowledge that, except as hereinafter agreed to in writing, no party
shall have the right to acquire or shall be deemed to have acquired shares of
common stock of the other party pursuant to the Merger until consummation
thereof.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, except to the extent Delaware
law shall govern the Merger, without regard to any applicable conflicts of law.
8.8 Severability; Limitations on Remedies. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction or
a federal or state regulatory agency to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. Each party agrees that, should any such court or agency make
such a holding, or should any such court or agency order any party to take any
action inconsistent herewith or not to take any action required herein, the
other party shall not be entitled to specific performance of such provision or
part hereof or to any other remedy, including but not limited to money damages,
for breach hereof or of any other provision of this Agreement or part hereof as
a result of such holding or order. This provision is not intended to render null
or unenforceable any obligation hereunder that would blid and enforceable if
this provision were not in this Agreement.
8.9 Publicity. Except as otherwise required by law or the rules of the NYSE
or the AMEX, so long as this Agreement is in effect, neither ALC nor Frontier
shall, or shall permit any of its subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
8.10 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
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IN WITNESS WHEREOF, Frontier, Sub and ALC have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of April
9, 1995.
FRONTIER CORPORATION
By /s/ RONALD L. BITTNER
...................................
Name: Ronald L. Bittner
Title: Chairman, President &
Chief Executive Officer
Attest:
/s/ JOSEPHINE S. TRUBEK
.....................................
Name: Josephine S. Trubek
Title: Corporate Secretary
FRONTIER SUBSIDIARY ONE, INC.
By /s/ RONALD L. BITTNER
...................................
Name: Ronald L. Bittner
Title: President
Attest:
/s/ JOSEPHINE S. TRUBEK
.....................................
Name: Josephine S. Trubek
Title: Secretary
ALC COMMUNICATIONS CORPORATION
By /s/ JOHN M. ZRNO
...................................
Name: John M. Zrno
Title: President and Chief
Executive Officer
Attest:
/s/ CONNIE R. GALE
.....................................
Name: Connie R. Gale
Title: Vice President, General Counsel
and Secretary
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<PAGE>
ANNEX II
SALOMON BROTHERS
April 9, 1995
Board of Directors
ALC Communications Corporation
30300 Telegraph Road
Bingham Farms, MI 48025-4510
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of the outstanding shares of
Common Stock, par value $0.01 per share (the "Company Common Stock"), of ALC
Communications Corporation (the "Company"), of the exchange ratio (the "Exchange
Ratio") of 2.0 shares of Common Stock, par value $1.00 per share ("Frontier
Common Stock"), of Frontier Corporation ("Frontier") for each share of Company
Common Stock, pursuant to the proposed Agreement and Plan of Merger dated as of
April 9, 1995 by and among Frontier, Frontier Subsidiary One, Inc., a wholly
owned subsidiary of Frontier ("Sub") and the Company (the "Agreement"). The
Agreement provides for the merger (the "Merger") of Sub with and into the
Company pursuant to which, among other things, the Company will become a
wholly-owned subsidiary of Frontier and each outstanding share of Company Common
Stock (other than shares owned by the Company or any subsidiary of the Company
or Frontier or any subsidiary of Frontier) will be exchanged for shares of
Frontier Common Stock at the Exchange Ratio except that cash will be paid in
lieu of fractional shares).
In arriving at our opinion, we have (i) reviewed the proposed Agreement
(including the exhibits thereto), (ii) reviewed certain publicly available
business, financial and trading information relating to each of the Company and
Frontier, (iii) reviewed certain other information, including financial
forecasts for each of the Company and Frontier, provided to us by the Company
and Frontier, respectively and information regarding anticipated synergies
provided to us by the Company and Frontier and (iv) discussed the past and
current operations, financial condition and prospects of the Company and
Frontier with their respective senior managements and discussed with both
companies' senior managements the combined companies' prospects following the
Merger. We have also considered such other information, studies, analyses,
investigations and financial, economic, market and trading criteria as we deemed
relevant.
We have not assumed any obligations to verify any of the foregoing
information and have relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's and Frontier's managements as
to the future financial performance of the Company and Frontier, respectively,
and we express no opinion with respect to such projections (or the assumptions
on which they are based). We have not made an independent evaluation or
appraisal of the assets of the Company or of Frontier, nor have we been
II-1
<PAGE>
furnished with any such appraisals. In addition, in rendering our opinion we
have assumed that (i) the Merger will be accounted for as a pooling-of-interests
transaction in accordance with generally accepted accounting principles, and
(ii) the Merger shall qualify as a reorganization under the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended. Our opinion is
necessarily based upon business, market, economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter. Our opinion
relates solely to the fairness, from a financial point of view, of the Exchange
Ratio and does not address the Company's underlying business decision to effect
the Merger. Our opinion is delivered solely for your use and consideration and
does not constitute a recommendation to any stockholder of the Company as to how
to vote with respect to the approval of the Merger.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, significant portions of which
are payable upon the execution of the Agreement and upon consummation of the
Merger. As you are aware, we have also previously rendered certain investment
banking and financial advisory services to Frontier for which we have received
customary compensation. In the ordinary course of our business, we actively
trade the securities of each of the Company and of Frontier for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that the Exchange
Ratio is fair, from a financial point of view, to the Stockholders of the
Company.
Very truly yours,
Salomon Brothers Inc
II-2
<PAGE>
ANNEX III
LAZARD FRERES & CO.
One Rockefeller Plaza
New York, N.Y. 10020
- -------------------
Telephone (212) 632-6000
Facsimile (212) 632-6060
April 9, 1995
The Board of Directors
Frontier Corporation
180 South Clinton Avenue
Rochester, NY 14646
Dear Members of the Board:
We understand that Frontier Corporation (the "Company"), Frontier Subsidiary
One, Inc., a wholly owned subsidiary of the Company ("Sub"), and ALC
Communications Corporation ("ALC") have entered into an Agreement and Plan of
Merger dated as of April 9, 1995 (the "Agreement"), pursuant to which, among
other things, Sub shall be merged with and into ALC, with ALC becoming a wholly
owned subsidiary of the Company (the "Merger"). Under the Agreement, upon
consummation of the Merger, each share of Common Stock, par value $.01 per share
(the "ALC Common Stock"), of ALC outstanding immediately prior to the effective
time of the Merger (subject to certain exceptions), shall be converted into 2.00
shares of Common Stock, par value $1.00 per share (the "Company Common Stock"),
of the Company (the "Exchange Ratio"). The terms and conditions of the Merger
are more fully set forth in the Agreement. We understand that the Merger is
intended to be accounted for as a pooling-of-interests in accordance with
generally accepted accounting principles as described in Accounting Principles
Board Opinion Number 16.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the Company Common Stock of the Exchange Ratio.
In connection with this opinion, we have:
(i) analyzed certain historical business and financial information
relating to the Company and ALC;
(ii) reviewed certain financial forecasts and other data provided to us
by the Company and ALC relating to their respective businesses;
(iii) held discussions with members of the senior management of the
Company and ALC with respect to the businesses of the Company and
ALC, respectively, and the possible benefits which might be
realized following the Merger;
(iv) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to
the businesses of the Company and ALC;
(v) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe
to be comparable to those of the Company and ALC;
(vi) reviewed the historical stock prices and trading volumes of the
Company Common Stock and ALC Common Stock; and
(vii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
III-1
<PAGE>
We have relied upon the accuracy and completeness of the financial and other
information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or ALC, nor have we been provided with any such appraisals. With respect
to the financial forecasts referred to above, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the Company and ALC as
to the future financial performance of their businesses. We assume no
responsibility for and express no view as to such forecasts or the assumptions
on which they are based. Further, our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement, without any waiver of any
terms or conditions by the Company, and that obtaining the necessary regulatory
approvals for the Merger will not have a material adverse effect on the Company
or the projected benefits of the Merger to the Company.
Lazard Freres & Co. has acted as financial advisor to the Company in
connection with this transaction and will receive a fee for our services, a
substantial portion of which is contingent upon the closing of the transaction.
Lazard Freres & Co. has in the past provided and is currently providing
investment banking services to the Company, for which it has received customary
fees.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors. It is understood that, except for inclusion in
full in a proxy statement relating to the Merger, this letter may not be
disclosed or otherwise referred to without our prior written consent, which will
not unreasonably be withheld, except as may otherwise be required by law or by a
court of competent jurisdiction.
Based on and subject to the foregoing and such other factors as we deem
relevant, we are of the opinion that, as of the date hereof, the Exchange Ratio
is fair to the holders of the Company Common Stock from a financial point of
view.
Very truly yours,
LAZARD FRERES & CO.
III-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
- ----------------------------------------------------
Under the NYBCL, indemnification of directors and officers
generally may be provided to whatever extent is authorized by a
corporation's certificate of incorporation or a bylaw or vote adopted by
the shareholders. However, the NYBCL does not permit indemnification with
respect to any matter as to which the director or officer has been
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the corporation.
The NYBCL also provides that no indemnification of directors in
shareholder derivative suits may be made in respect of (i) a threatened
action, or a pending action which is settled or otherwise disposed of, or
(ii) any claim, issue or matter as to which the director or officer has
been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action was brought or, if no action is
brought, any court of competent jurisdiction, determines upon application
that, in view of the circumstances of the case, the director or officer is
fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper. The statutory
provisions for indemnification and advancement of expenses are not
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled independently of the applicable
statutory provision.
The Frontier Bylaws currently provide for indemnification of
directors and officers and advancement of indemnified expenses to the full
extent now or hereafter permitted by the NYBCL.
Frontier maintains directors' and officers' liability insurance
which insures against liabilities that directors or officers of Frontier
may incur in such capacity.
II-1
<PAGE>
2
Item 21. List of Exhibits
- --------------------------
Exhibit
Number Description
------- -----------
2 Agreement and Plan of Merger, dated as of April 9,
l995 by and among Frontier, ALC and Sub (included
as Annex I to the Joint Proxy
Statement/Prospectus).
As permitted by Item 601(b)(2) of Regulation S-K,
the schedules and exhibits to the agreement have been
omitted. A list of the schedules is incorporated by
reference to Exhibit 2 of Frontier's Form 8-K
dated April 10, 1995. Upon the request of the
Commission, Frontier agrees to furnish a copy of
such schedules and exhibits.
3.1 Restated Certificate of Incorporation of Rochester
Telephone Corporation ("RTC") as amended, is
incorporated by reference to Exhibit 3 to Form
10-Q for the quarter ended September 30, 1980
(File No. 1-4166).
3.2 Certificate of Amendment to Restated Certificate
of Incorporation of RTC is incorporated by
reference to Exhibit 3-2 to Form 10-K for the year
ended December 31, 1984 (File No. 1-4166).
3.3 Certificate of Change to Restated Certificate of
Incorporation of RTC is incorporated by reference
to Exhibit 3-4 to Form 10-K for the year ended
December 31, 1988 (File No. 1-4166).
3.4 Certificates of Amendment to Restated Certificate
of Incorporation of RTC is incorporated by
reference to Exhibit 3-5 to Form 10-K for the year
ended December 31, 1990 (File No. 1-4166).
3.5 Certificate of Amendment to Restated Certificate
of Incorporation of Frontier is incorporated by
reference to Exhibit 3-2 to Form 8-K dated
February 13, 1995 (File No. 1-4166).
3.6 Certificate of Amendment to Restated Certificate
of Incorporation of Frontier is incorporated by
reference to Exhibit 3-3 to Form 8-K dated
February 13, 1995 (File No. 1-4166).
3.7 By-laws of Frontier are incorporated by reference
to Exhibit 3.2 to Form 10-K for the year ended
December 31, 1994 (File No. 1-4166).
II-2
<PAGE>
3
Exhibit
Number Description
------- -----------
5 Opinion of Helen A. Zamboni, Corporate Counsel of
Frontier, regarding the legality of securities
being issued.
8.1 Opinion of Simpson Thacher & Bartlett as to
certain tax matters.
8.2 Opinion of Debevoise & Plimpton as to certain tax
matters.
21 Subsidiaries of Frontier.
23.1 Consent of Price Waterhouse LLP with respect to
consolidated financial statements of Frontier.
23.2 Consent of Ernst & Young LLP with respect to
consolidated financial statements of ALC.
23.3 Consent of Helen A. Zamboni (included in
Exhibit 5).
23.4 Consent of Simpson Thacher & Bartlett (included in
Exhibit 8.l).
23.5 Consent of Debevoise & Plimpton (included in
Exhibit 8.2).
23.6 Consent of Lazard Freres & Co.
23.7 Consent of Salomon Brothers Inc.
24 Power of Attorney.
99.1 Restated Certificate of Incorporation of ALC
is incorporated by reference to Exhibit 3.1 to
ALC's Form 10-K for the year ended December 31, 1994
(File No. 1-10831).
99.2 Amended and Restated Bylaws of ALC are incorporated
by reference to Exhibit 3.2 to ALC's Form 10-K for the
year ended December 31, 1994 (File No. 1-10831).
Item 22. Undertakings
- ---------------------
(a) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to
II-3
<PAGE>
4
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section l5(b) of the Securities Exchange Act of l934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referred
to in Item 20 of this registration statement, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(d) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
(e) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
II-4
<PAGE>
5
underwriters, in addition to the information called for by the other Items
of the applicable form.
(f) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (e) above, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(g) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) To include any material information with respect
to a plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
II-5
<PAGE>
6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Frontier Corporation has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rochester, State of New York, on the 14th day of July, 1995.
FRONTIER CORPORATION
By: /s/ Louis L. Massaro
-------------------------
Louis L. Massaro
Corporate Vice President-
Finance
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 14th day of July, 1995.
Signature Title
--------- -----
* President and Chief Executive
- ----------------------
Ronald L. Bittner Officer (Principal Executive
Officer)
/s/ Louis L. Massaro Corporate Vice President
- ----------------------
Louis L. Massaro (and Principal Financial Officer)
/s/ Richard A. Smith Corporate Controller
- ----------------------
Richard A. Smith (and Principal Accounting Officer)
* Director
- ----------------------
Patricia C. Barron
* Director
- ----------------------
Ronald L. Bittner
Director
- ----------------------
Raul E. Cesan
II-6
<PAGE>
7
Director
- ----------------------
Brenda E. Edgerton
* Director
- ----------------------
Jairo A. Estrada
* Director
- ----------------------
Daniel E. Gill
* Director
- ----------------------
Alan C. Hasselwander
Director
- ----------------------
Robert Holland, Jr.
* Director
- ----------------------
Douglas H. McCorkindale
Director
- ----------------------
Dr. Leo J. Thomas
* By: /s/ Louis L. Massaro
--------------------
Louis L. Massaro
(Attorney-in-Fact)
II-7
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description No.
------- ----------- ----
2 Agreement and Plan of Merger, dated
as of April 9, l995, by and among
Frontier, ALC and Sub(included as
Annex I to the Joint Proxy
Statement/Prospectus.
As permitted by Item 601(b)(2) of
Regulation S-K, the schedules and exhibits
to the agreement have been omitted. A
list of the schedules is
incorporated by reference to
Exhibit 2 of Frontier's Form 8-K
dated April 10, 1995. Upon the
request of the Commission, Frontier
agrees to furnish a copy of such
schedules and exhibits.
3.1 Restated Certificate of
Incorporation of Rochester
Telephone Corporation ("RTC") as
amended, is incorporated by
reference to Exhibit 3 to Form 10-Q
for the quarter ended September 30,
1980 (File No. 1-4166).
3.2 Certificate of Amendment to
Restated Certificate of
Incorporation of RTC is
incorporated by reference to
Exhibit 3-2 to Form 10-K for the
year ended December 31, 1984 (File
No. 1-4166).
3.3 Certificate of Change to Restated
Certificate of Incorporation of RTC
is incorporated by reference to
Exhibit 3-4 to Form 10-K for the
year ended December 31, 1988 (File
No. 1-4166).
3.4 Certificates of Amendment to
Restated Certificate of
Incorporation of RTC is
incorporated by reference to
Exhibit 3-5 to Form 10-K for the
year ended December 31, 1990 (File
No. 1-4166).
3.5 Certificate of Amendment to
Restated Certificate of
Incorporation of Frontier is
<PAGE>
2
Exhibit Page
Number Description No.
------- ----------- ----
incorporated by reference to
Exhibit 3-2 to Form 8-K dated
February 13, 1995 (File No.
1-4166).
3.6 Certificate of Amendment to
Restated Certificate of
Incorporation of Frontier is
incorporated by reference to
Exhibit 3-3 to Form 8-K dated
February 13, 1995 (File No.
1-4166).
3.7 By-laws of Frontier are
incorporated by reference to
Exhibit 3.2 to Form 10-K for the
year ended December 31, 1994.
5 Opinion of Helen A. Zamboni,
Corporate Counsel of Frontier,
regarding the legality of
securities being issued.
8.1 Opinion of Simpson Thacher &
Bartlett as to certain tax matters.
8.2 Opinion of Debevoise & Plimpton as
to certain tax matters.
21 Subsidiaries of Frontier.
23.1 Consent of Price Waterhouse LLP
with respect to consolidated
financial statements of Frontier.
23.2 Consent of Ernst & Young LLP with
respect to consolidated financial
statements of ALC.
23.3 Consent of Helen A. Zamboni
(included in Exhibit 5).
23.4 Consent of Simpson Thacher &
Bartlett (included in Exhibit 8.l).
23.5 Consent of Debevoise & Plimpton
(included in Exhibit 8.2).
23.6 Consent of Lazard Freres & Co.
<PAGE>
3
Exhibit Page
Number Description No.
------- ----------- ----
23.7 Consent of Salomon Brothers Inc.
24 Power of Attorney.
99.1 Restated Certificate of Incorporation
of ALC is incorporated by reference
to Exhibit 3.1 to ALC's Form 10-K
for the year ended December 31, 1994
(File No. 1-10831).
99.2 Amended and Restated Bylaws of ALC
are incorporated by reference to
Exhibit 3.2 to ALC's Form 10-K for
the year ended December 31, 1994
(File No. 1-10831).
Exhibit 5
July 13, 1995
To: Persons Acquiring Shares of $1.00 Par Value Frontier Corporation
Common Stock in Connection with that Certain Agreement and Plan of
Merger dated as of April 9, 1995, among Frontier Corporation, Frontier
Subsidiary One, Inc. and ALC Communications Corporation Pursuant to a
Certain Registration Statement on Form S-4 dated July 13, 1995.
I am the Corporate Counsel of Frontier Corporation, the registrant pursuant
to the above-referenced registration statement. In my opinion, the shares
of Common Stock are, and when issued and sold as described in such
registration statement will be, legally issued, fully paid and non-
assessable shares of Common Stock, par value $1.00, of Frontier
Corporation.
I hereby consent to the inclusion of this opinion as an Exhibit to the
Registration Statement on Form S-4 of Frontier Corporation referred to
above.
Sincerely yours,
/s/ Helen A. Zamboni
Helen A. Zamboni
Corporate Counsel
Exhibit 8.1
[Letterhead of Simpson Thacher & Bartlett]
July 12, 1995
Agreement and Plan of Merger
dated as of April 9, 1995
among Frontier Corporation,
Frontier Subsidiary One, Inc. and
ALC Communications Corporation
------------------------------
Frontier Corporation
Frontier Center
180 South Clinton Avenue
Rochester, New York 14646-0700
Ladies and Gentlemen:
We have acted as counsel to Frontier Corporation, a New York
corporation ("Frontier"), in connection with the proposed merger (the
"Merger") of Frontier Subsidiary One, Inc., a Delaware corporation ("Sub")
and wholly owned subsidiary of Frontier, with and into ALC Communications
Corporation, a Delaware corporation ("ALC"), pursuant to the Agreement and
Plan of Merger dated as of April 9, 1995 (the "Merger Agreement"), among
Frontier, Sub and ALC.
In so acting, we have participated in the preparation of the
Merger Agreement and the preparation and filing with the Securities and
Exchange Commission of a Joint Proxy Statement of Frontier and ALC and
Prospectus of Frontier
<PAGE>
Frontier Corporation -2- July 12, 1995
relating to the proposed Merger and to the shares of common
stock, par value $1.00 per share, of Frontier to be issued to ALC
shareholders in the Merger pursuant to the Merger Agreement (the "Joint
Proxy Statement').
As required by Section 6.2(d) of the Merger Agreement, you have
requested that we render the opinion set forth below. In rendering such
opinion, we have examined and relied upon the accuracy as of the date
hereof and as of the date of the closing of the Merger of the
representations and warranties as to factual matters set forth in the
documents referred to above and the Letters of Representation, dated as of
the date hereof, that ALC and Frontier have provided to us and to Debevoise
& Plimpton, counsel to ALC, copies of which are attached hereto. We have
also examined the originals, or copies certified or otherwise identified to
our satisfaction, of such records, documents, certificates or other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinions set forth below. We have not, however, undertaken any
independent investigation of any factual matter set forth in any of the
foregoing.
Subject to the foregoing and to the qualifications and limitations
set forth herein, and assuming that the Merger is consummated in accordance
with the Merger Agreement and as described in the Joint Proxy Statement, we
are of the following opinion:
1. The Merger will be treated for United States federal
income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Frontier, Sub and ALC will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
<PAGE>
Frontier Corporation -3- July 12, 1995
This opinion is limited solely to the federal law of the United
States as in effect on the date hereof and the relevant facts that exist as
of the date hereof. No assurance can be given that the law or facts will
not change, and we have not undertaken to advise you or any other person
with respect to any event subsequent to the date hereof.
We are delivering this opinion to you and, without our prior
written consent, no other persons are entitled to rely on this opinion. We
hereby consent to the filing of this opinion as an exhibit to the Joint
Proxy Statement and to the use of our name under the captions "The Merger -
Certain Federal Income Tax Consequences" and "Legal Opinions" in the Joint
Proxy Statement. In giving such consent, we do not thereby concede that we
are within the category of persons whose consent is required under Section
7 of the Securities Act of 1933 or the Rules and Regulations of the Securities
and Exchange Commission thereunder.
Very truly yours,
SIMPSON THACHER & BARTLETT
Exhibit 8.2
[Letterhead of Debevoise & Plimpton]
July 12, 1995
ALC Communications Corporation
30300 Telegraph Road
Bingham Farms, Michigan 48025
Agreement and Plan of Merger
dated as of April 9, 1995
among Frontier Corporation,
Frontier Subsidiary One, Inc. and
ALC Communications Corporation
------------------------------
Ladies and Gentlemen:
We have acted as counsel to ALC Communications Corporation, a Delaware
corporation ("ALC"), in connection with the proposed merger (the "Merger") of
Frontier Subsidiary One, Inc., a Delaware corporation ("Sub"), a wholly owned
subsidiary of Frontier Corporation, a New York corporation ("Frontier"), with
and into ALC pursuant to the Agreement and Plan of Merger dated as of April 9,
1995 (the "Merger Agreement"), among Frontier, Sub and ALC.
In so acting, we have participated in the preparation of the Merger
Agreement and the preparation and filing with the Securities and Exchange
Commission of a Joint Proxy Statement of Frontier and ALC and Prospectus of
Frontier relating to the proposed Merger and to the shares of common stock,
par value $1.00 per
<PAGE>
ALC Communications 2 July 12, 1995
Corporation
share, of Frontier to be issued to ALC shareholders in the Merger pursuant to
the Merger Agreement (the "Joint Proxy Statement").
As required by Section 6.3(d) of the Merger Agreement, you have requested
that we render an opinion set forth below. In rendering such opinion, we have
examined and relied upon the accuracy as of the date hereof and as of the date
of the closing of the Merger of the representations and warranties as to factual
matters set forth in the documents referred to above and the Letters of
Representation, dated as of the date hereof, that ALC and Frontier have provided
to us and to Simpson, Thacher and Bartlett, counsel to Frontier, copies of which
are attached hereto. We have also examined the originals, or copies certified or
otherwise identified to our satisfaction, of such records, documents
certificates or other instruments as in our judgement are necessary or
appropriate to enable us to render the opinions set forth below. We have not,
however, undertaken any independent investigation or any factual matter set
forth in any of the foregoing.
Subject to the foregoing and to the qualifications and limitations set
forth herein, and assuming that the Merger is consummated in accordance with the
Merger Agreement and as described in the Joint Proxy Statement, we are of the
following opinion:
1. The Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 386(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Frontier, Sub and ALC will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
This opinion is limited solely to the federal law of the United States as
in effect on the date hereof and the relevant facts that exist as of the date
hereof. No assurance can be given that the law or facts will not change, and we
have not undertaken to advise you or any other person with respect to any event
subsequent to the date hereof.
<PAGE>
ALC Communications 3 July 12, 1995
Corporation
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Joint Proxy Statement
and to the use of our name under the captions "The Merger - Certain Federal
Income Tax Consequences" and "Legal Opinions" in the Joint Proxy Statement. In
giving such consent, we do not hereby concede that we are within the category of
persons who consent is required under Section 7 of the Securities Act of 1933
or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
DEBEVOISE & PLIMPTON
EXHIBIT 21
SUBSIDIARIES OF FRONTIER CORPORATION
AS OF July 13, 1995
<TABLE><CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Communications of AL Monroeville Telephone
Alabama, Inc. Company, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of AL Lamar County Telephone
Lamar County, Inc. Company, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of AL Southland Telephone
the South, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Montel Communications, Inc. AL Montel Communications,
(A subsidiary of Frontier Inc.
Communications of Alabama, Inc.)
Southland Rural Cellular AL Southland Rural
Company, Inc. Cellular Company, Inc.
(A subsidiary of Frontier
Communications of the South, Inc.)
Business Telemanagement, Inc. CA BTI
(A subsidiary of Ameritel
Management, Inc.)
Computer Calling Technologies, CA CCT
Inc.
(A subsidiary of West Coast
Telecommunications, Inc.)
SB Communications, Inc. CA SB Communications
(A subsidiary of West Coast
Telecommunications, Inc.)
<PAGE>
<CAPTION>
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STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
WCT Communications, Inc. CA WCT
(A subsidiary of Frontier
Telecommunications Inc.)
West Coast Telecommunications, CA West Coast
Inc. Telecommunications
(A subsidiary of WCT Communications,
Inc.)
Binghamton MSA Corp. DE Binghamton MSA Corp.
(A subsidiary of
Frontier Cellular Holding Inc.)
Budget Call Long Distance, DE Budget Call Long
Inc. Distance, Inc.
(A subsidiary of Frontier
Communications International Inc.)
Frontier Cellular DE Rochester Tel Cellular
Holding Inc. Holding Corporation;
(A subsidiary of Frontier RTCHC; FCHI
Telecommunications Holding Inc.)
Frontier Communications DE RCI Long Distance,
International Inc. Inc.; Budget Call;
(A subsidiary of Mid Atlantic
Frontier Telecommunications Inc.) Telecom; Frontier
Frontier Communications of DE RCI Long Distance New
New England, Inc. England, Inc.; Long
(A subsidiary of Distance North; LDN;
Frontier Telecommunications Inc.) Mid Atlantic Telecom;
Frontier
Frontier Communications of DE Frontier Communications
Rochester, Inc. F-Com
(A subsidiary of Frontier
Corporation)
<PAGE>
<CAPTION>
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STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Information DE Distributed Solutions;
Technologies, Inc. DSI; FIT
(A subsidiary of Frontier
Corporation)
Frontier InfoServices Inc. DE Visions Publishing
(A subsidiary of Inc.; Visions Inc.;
Frontier Subsidiary Telco Inc.) Frontier InfoServices
Frontier Long Distance of DE Visions Long Distance
America, Inc. America Inc; Breezewood
(A subsidiary of Tel Long Distance;
Frontier Subsidiary Telco Inc.) Canton Tel Long
Distance; Vista Tel
Long Distance; C,C&S
Tel Long Distance;
St. Croix Tel Long
Distance; Statesboro
Tel Long Distance;
Frontier
Frontier Network Systems Inc. DE Rotelcom Inc.; Anixter-
(A subsidiary of Rotelcom; Rotelcom
Frontier Telecommunications Inc.) Network Systems; SGT
Business Systems;
Frontier
Frontier Subsidiary DE Rochester Tel
Telco Inc. Subsidiary Telco, Inc.;
(A subsidiary of
Frontier Corporation) RTSTI; FSTI
Frontier Telecommunications DE Rochester Tel
Inc. Telecommunications
(A subsidiary of Frontier Corporation; RTTC; FTI
Telecommunications Holding Inc.)
Frontier Telecommunications DE Rochester Tel
Holding Inc. Telecommunications
(A subsidiary of Frontier Holding Corporation;
Corporation) RTTHC; FTHI
<PAGE>
<CAPTION>
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STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
NY RSA 4 Inc. DE NY RSA 4 Inc.
(A subsidiary of
Frontier Cellular Holding Inc.)
RTC Main Street, Inc. DE RTC Main Street, Inc.
(A subsidiary of
Frontier Corporation)
RTMC Holding, Inc. DE RTMC Holding, Inc.
(A subsidiary of
Frontier Cellular Holding Inc.)
Rochester Holding Corporation DE Rochester Holding
(A subsidiary of Corporation
Frontier Corporation)
Rochester Tel Mobile RSA 2, DE Rochester Tel Mobile
Inc. RSA 2, Inc.
(A subsidiary of
Frontier Cellular Holding Inc.)
Rochester Telephone DE RTMC, Inc.
Mobile Communications, Inc.
(A subsidiary of
Frontier Cellular Holding Inc.)
Rochester Tel Subsidiary DE Rochester Tel
Capital Services Inc. Subsidiary Capital
(A subsidiary of Services Inc.
Frontier Corporation)
Dowdy Minnesota 10, Inc. FL Dowdy, Minnesota 10
(A subsidiary of Frontier Inc.
Telecommunications Holding Inc.)
MLD Minnesota 10, Inc. FL MLD, Minnesota 10
(A subsidiary of Frontier
Telecommunications Holding Inc.)
<PAGE>
<CAPTION>
Page 5 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Fairmount Cellular Inc. GA Fairmount Cellular Inc.
(A subsidiary of Frontier
Communications of Fairmount,Inc.)
Frontier Communications of GA Fairmount Telephone
Fairmount, Inc. Company, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of GA Statesboro Telephone
Georgia, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Telecommunications IA Vista Telephone of
Iowa, Inc. Company of Iowa;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
DePue Communications, Inc. IL DePue Communications,
(A subsidiary of Frontier Inc.
Communications of DePue, Inc.)
Frontier Communications - IL Midland Telephone
Midland, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications - IL Prairie Telephone
Prairie, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications - IL Schuyler Telephone
Schuyler, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
<PAGE>
<CAPTION>
Page 6 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Communications of IL DePue Telephone Company
DePue, Inc. Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of IL Inland Telephone
Illinois, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of IL Lakeside Telephone
Lakeside, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of IL Mt. Pulaski Telephone
Mt. Pulaski, Inc. and Electric Company;
(A subsidiary of Mt. Pulaski Telephone
Frontier Subsidiary Telco Inc.) Company; Frontier
Frontier Communications of IL Orion Telephone
Orion, Inc. Exchange Association;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
O. T. Cellular Telephone IL O. T. Cellular
Company Telephone Company
(A subsidiary of
Frontier Communications of
Orion, Inc.)
Schuyler Cellular, Inc. IL Schuyler Cellular, Inc.
(A subsidiary of Frontier
Communications - Schuyler, Inc.)
Frontier Communications of IN Citizens Telephone
Indiana, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
<PAGE>
<CAPTION>
Page 7 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Communications of IN Thorntown Telephone
Thorntown, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
TDCI, Ltd. IN Thorntown Development
(A subsidiary of Company, Inc.; TDCI,
Frontier Communications of Ltd.
Thorntown, Inc.)
C, C & S Service Corp. MI C, C & S Service Corp.
(A subsidiary of
C, C & S Systems, Inc.)
C, C & S Systems, Inc. MI C, C & S Systems, Inc.
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of MI C, C & S Telco, Inc.;
Michigan, Inc. Frontier
(A subsidiary of
C, C, & S Systems, Inc.)
American Sharecom, Inc. MN American Sharecom, ASI
(A subsidiary of
Frontier Telecommunications
Holding Inc.)
Enhanced TeleManagement, MN Enhanced
Inc. TeleManagement, ETI
(A subsidiary of Frontier
Telecommunications Inc.)
Frontier Communications MN Vista Telephone Company
of Minnesota, Inc. of Minnesota; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Telemanagement Inc. MN Visions Telemanagement
(A subsidiary of Services, Inc.;
Frontier Subsidiary Telco Inc.) Frontier Telemanagement
<PAGE>
<CAPTION>
Page 8 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Communications of MS Mid-South Telephone
Mississippi, Inc. Company, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Mid-South Cablevision MS Mid-South Cablevision
Company, Inc. Company, Inc.
(A subsidiary of
Frontier Subsidiary Telco Inc.)
West Coast Telecommunications NV West Coast
of Nevada, Inc. Telecommunications of
(A subsidiary of West Coast Nevada
Telecommunications, Inc.)
Frontier Communications of NY AuSable Valley
AuSable Valley, Inc. Telephone Company;
(A subsidiary of Frontier
Frontier Corporation)
Frontier Communications of NY Highland Telephone
New York, Inc. Company; Frontier
(A subsidiary of
Frontier Corporation)
Frontier Communications of NY Seneca-Gorham Telephone
Seneca-Gorham, Inc. Corporation; Frontier
(A subsidiary of
Frontier Corporation)
Frontier Communications of NY Sylvan Lake Telephone
Sylvan Lake, Inc. Company, Inc.; Frontier
(A subsidiary of
Frontier Corporation)
Frontier Long Distance of NY Visions Long Distance
New York, Inc. New York Inc.;
(A subsidiary of Highland Tel Long
Frontier Subsidiary Telco Inc.) Distance; Sylvan Lake
Tel Long Distance
<PAGE>
<CAPTION>
Page 9 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
New York Independent Cellular NY NYICS
Systems, Inc. (Part of Utica-Rome
(A subsidiary of Cellular Partnership)
Frontier Cellular Holding Inc.)
Oneida County Cellular NY Oneida County Cellular
Systems, Inc. (Part of Utica-Rome
(A subsidiary of Cellular Partnership)
Frontier Cellular Holding Inc.)
Phoncom Inc. NY Phoncom Inc.
(A subsidiary of (Part of Utica-Rome
Frontier Cellular Holding Inc.) Cellular Partnership)
Rochester Telephone Corp. NY Rochester Telephone
(A subsidiary of Corp.; RTC
Frontier Corporation)
Taconic Long Distance NY Taconic Long Distance
Service Corp. Service Corp.
(A subsidiary of
Frontier Telecommunications Inc.)
Vernon Cellular Inc. NY Vernon Cellular Inc.
(A subsidiary of Part of the Utica-Rome
Frontier Cellular Holding Inc.) Cellular Partnership
Enterprise Marketing Services PA Enterprise Marketing
Inc. Services Inc.
(A subsidiary of Frontier
Communications of Pennsylvania, Inc.)
Frontier Communications of PA Breezewood Telephone
Breezewood, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
<PAGE>
<CAPTION>
Page 10 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Communications of PA Canton Telephone
Canton, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of PA Lakewood Rural
Lakewood, Inc. Telephone Company;
(A subsidiary of Lakewood Telephone
Frontier Subsidiary Telco Inc.) Company; Frontier
Frontier Communications of PA Oswayo River Telephone
Oswayo River, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of PA Enterprise Telephone
Pennsylvania, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
West Coast Telecommunications SD West Coast
of South Dakota, Inc. Telecommunications of
(A subsidiary of West Coast South Dakota
Telecommunications, Inc.)
Frontier Communications of VA Mid Atlantic Telecom,
the Mid Atlantic, Inc. Inc.; Frontier
(A subsidiary of Frontier
Telecommunications Inc.)
Frontier Communications - WI Lakeshore Telephone
Lakeshore, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications - WI St. Croix Telephone
St. Croix, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
<PAGE>
<CAPTION>
Page 11 of 11
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------ ------------- -------------------
<S> <C> <C>
Frontier Communications of WI Mondovi Telephone
Mondovi, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of WI Viroqua Telephone
Viroqua, Inc. Company; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of WI Urban Telephone
Wisconsin, Inc. Corporation; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
New Richmond Cable WI New Richmond Cable
Company, Inc. Company, Inc.
(A subsidiary of Frontier
Communications - St. Croix, Inc.)
Ameritel Management, Inc. British Ameritel
(A subsidiary of West Coast Columbia,
Telecommunications, Inc.) Canada
RCI Long Distance Ontario, RCI Long Distance
Canada Ltd. Canada Canada Ltd.
(A subsidiary of
Frontier Telecommunications Inc.)
West Coast Telecommunications NH West Coast
of New Hampshire, Inc. Telecommunications of
(A subsidiary of West Coast New Hampshire
Telecommunications, Inc.)
</TABLE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Frontier
Corporation of our report dated January 16, 1995, which appears on page 28
of the 1994 Proxy Statement - Financial Review of Frontier Corporation,
which is incorporated by reference in its Annual Report on Form 10-K
and Form 10-K/A for the year ended December 31, 1994. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears on page 36 of such Annual Report on Form 10-K.
We also consent to the incorporation by reference to our report on the
supplementary consolidated financial statements which give retroactive
effect to the acquisition by Frontier Corporation of American Sharecom,
Inc. which constitutes part of the Frontier Corporation Current Report on
Form 8-K dated April 12, 1995. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Rochester, New York
July 13, 1995
Exhibit 23.2
Consent of Independent Accountants
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 25, 1995 incorporated by reference in
the Proxy Statements of Frontier Corporation and ALC Communications
Corporation which are made a part of the Registration Statement (Form S-4
No. 33-_____) and Prospectus of Frontier Corporation for the registration
of 80,039,248 shares of its common stock.
Ernst & Young LLP
Detroit, Michigan
July 13, 1995
Exhibit 23.6
CONSENT OF LAZARD FRERES & CO. LLC
We hereby consent to the use of our name and to the description of our
opinion letter dated April 9, 1995 under the caption "THE MERGER - Opinions
of Financial Advisors - Frontier" in, and to the inclusion of such opinion
letter as Annex III to, the Joint Proxy Statement-Prospectus of Frontier
Corporation and ALC Communications Corporation, which Joint Proxy
Statement-Prospectus is part of the Registration Statement on Form S-4 of
Frontier Corporation. By giving such consent we do not thereby admit that
we are experts with respect to any part of such Registration Statement
within the meaning of the term "expert" as used in, or that we come within
the category of persons whose consent is required under, The Securities Act
of 1933 or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Lazard Freres & Co, LLC
By: /s/ Michael J. Price
---------------------
Michael J. Price
Managing Director
New York, New York
July 13, 1995
Exhibit 23.7
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letter dated April 9, 1995 under the caption "THE MERGER - Opinions
of Financial Advisors - ALC" in, and to the inclusion of such opinion
letter as Annex II to, the Joint Proxy Statement-Prospectus of Frontier
Corporation and ALC Communications Corporation, which Joint Proxy
Statement-Prospectus is part of the Registration Statement on Form S-4 of
Frontier Corporation. By giving such consent we do not thereby admit that
we are experts with respect to any part of such Registration Statement
within the meaning of the term "expert" as used in, or that we come within
the category of persons whose consent is required under, The Securities Act
of 1933 or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Salomon Brothers Inc
By: /s/ Larry Ingeneri
------------------------
Larry Ingeneri
Vice President
New York, New York
July 13, 1995
Exhibit 24
POWER OF ATTORNEY
Each of the undersigned directors and/or officers of Frontier
Corporation, a New York business corporation (the "Company"), hereby
constitutes and appoints Ronald L. Bittner, Louis L. Massaro and Josephine
S. Trubek, and each of them with full power to act without the others, true
and lawful attorneys and agents, to do any and all acts and things and to
execute any and all instruments which any of said attorneys and agents may
deem necessary or advisable to enable the Company to comply with the
Securities Act of l933, as amended, and with any regulations, rules or
requirements of the Securities and Exchange Commission ("Commission")
thereunder in connection with the Registration Statement filed under said
Act relating to the merger of ALC Communications Corporation with and into
a wholly owned subsidiary of the Company, and any and all amendments or
supplements to the foregoing, including specifically, but without limiting
the generality of the foregoing, full power and authority to sign the names
of the undersigned to the Registration Statement on Form S-4 or other
applicable form filed with the Commission under said Act in such
connection, and any amendment or amendments thereto, the undersigned hereby
ratifying and confirming all that said attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this instrument having been signed and
delivered these presence as of this 6th day of July, l995.
/s/ Patricia C. Barron
_________________________
Patricia C. Barron
/s/ Ronald L. Bittner
_________________________
Ronald L. Bittner
_________________________
Raul E. Cesan
_________________________
Brenda Evans Edgerton
/s/ Jairo A. Estrada
_________________________
Jairo A. Estrada
/s/ Daniel E. Gill
_________________________
Daniel E. Gill
<PAGE>
2
/s/ Alan C. Hasselwander
_________________________
Alan C. Hasselwander
_________________________
Robert Holland, Jr.
_________________________
Louis L. Massaro
/s/ Douglas H. McCorkindale
___________________________
Douglas H. McCorkindale
_________________________
Richard A. Smith
_________________________
Dr. Leo J. Thomas
