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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 1-4166
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FRONTIER CORPORATION
(Previously Rochester Telephone Corporation)
(Exact name of Registrant as specified in its charter)
New York 16-0613330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 South Clinton Avenue Rochester, New York 14646-0700
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 777-1000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
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Common Stock, par value
$1.00 per share New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 6, 1996 is $4,914,645,050.
The number of shares outstanding of Frontier Corporation's common
stock (Par Value $1.00 per share) as of the close of March 6, 1996
is 162,195,487 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's 1995 Annual Report to
Shareowners including MD&A, Consolidated Financial Statements and
Notes to Financial Statements, as presented in Exhibit No. 13 of
this Form 10-K, are incorporated by reference in Parts II and IV
hereof.
(2) Portions of the Notice of Annual Meeting and Proxy Statement
issued by the registrant in connection with its Annual Meeting of
Shareowners to be held April 24, 1996, as presented in Exhibit No.
99 of this Form 10-K, are incorporated by reference in Parts II,
III and IV hereof.
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PART I
ITEM 1. BUSINESS
Frontier Corporation, formerly known as Rochester
Telephone Corporation, ("Frontier" or the "Company") is a
diversified telecommunications firm with headquarters in
Rochester, New York. The Company 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. The Company's principal lines of
business are Long Distance Communications Services, Local
Communications Services, Wireless Communications Services
and Corporate Operations and Other. Long Distance
Communications Services consists primarily of long distance
telecommunications services provided to customers throughout
nearly all of the United States and in Great Britain. Local
Communications Services consists of 34 local telephone
companies which serve, as of December 31, 1995,
approximately 951,000 access lines in thirteen states.
Wireless Communications Services is comprised of the
Company's interests in Alabama and Minnesota. Corporate
Operations and Other is comprised of expenses traditionally
associated with a holding company, an information services
subsidiary (Frontier Information Technologies) and Frontier
Network Systems which markets and installs
telecommunications systems and equipment. Effective January
1, 1995, Frontier reorganized into a holding company
structure.
Prior to 1995, Local Communications Services provided
the majority of the Company's revenues and income. In 1982,
the Company made the strategic decision to enter the long
distance business. It now provides long distance voice,
video and data communication services throughout the United
States and in 1995, commenced operations in Great Britain.
The geographic reach of the Company's long distance
operations is nationwide as a result of acquisitions such as
American Sharecom, Inc. ("ASI"), WCT Communications, Inc.
("WCT"), Schneider Communications, Inc. ("SCI"), and a
merger with ALC Communications Corporation ("ALC"). Due to
the merger with ALC, other long distance acquisitions and
internal growth by sales to additional customers, the long
distance segment represented 69% of the Company's revenue in
1995 and 53% of operating income before acquisition related
charges. Expansion through strategic acquisition and
business alliances remains a key growth vehicle for the
Company.
Prior to 1988, the Company's Local Communications
Services were heavily concentrated in New York State. Since
1988, the Company has acquired 29 local telephone companies
and has significantly diversified its geographic base. The
Company's largest telephone operation is in Rochester, New
York and serves approximately 525,000 access lines. The
Company refers to the 33 telephone companies outside of
Rochester, New York as "Regional Telephone Operations". The
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latter group includes approximately 426,000 access lines
with an aggregate revenue level nearly equal to that of the
Rochester, New York operating company. As part of the
Company's reorganization into a holding company on January
1, 1995, the assets and businesses of the Rochester, New
York operating telephone company were divided between two
new subsidiaries, Frontier Communications of Rochester, Inc.
("FCR") and Rochester Telephone Corp. ("RTC").
A key growth strategy for the Company is to provide
integrated communications services for its customers. These
integrated services include long distance, wireless, and
local telephone service as well as selected products and
services that the Company will remarket 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. Certain financial data relating to
the Company's business segments is presented under "Business
Segment Information" in Exhibit 13 to this Form 10-K.
The Company merged with ALC on August 16, 1995. ALC
provided national long distance telecommunications services
primarily to commercial users. Under the terms of the
merger agreement, the Company exchanged two shares of its
common stock for each of ALC's common shares. The Company
issued approximately 69.2 million shares to effect the
merger, which was accounted for as a pooling of interests.
On March 1, 1995, prior to the merger with Frontier,
ALC acquired ConferTech International, Inc. ("ConferTech"),
a telecommunications company specializing in
teleconferencing services and the provision of audio bridge
equipment. ALC paid approximately $66 million in cash for
ConferTech.
On March 17, 1995, the Company acquired ASI, a long
distance company headquartered in Minneapolis, Minnesota.
The Company acquired all of the outstanding shares of ASI in
exchange for approximately 8.7 million shares of Frontier
common stock. The transaction has been accounted for as a
pooling of interests.
On March 29, 1995, the Company acquired Minnesota
Southern Cellular Telephone Company ("MSCTC"). A total of
approximately 867,000 shares of Frontier common stock were
reissued from treasury in exchange for all of the shares of
MSCTC. MSCTC is the non-wireline provider of cellular
service in Minnesota Rural Service Area #10.
On May 18, 1995, the Company purchased WCT for
approximately $80 million in cash. WCT is a long distance
carrier headquartered in Santa Barbara, California.
On July 11, 1995, the Company completed its purchase of
Enhanced TeleManagement, Inc. ("ETI"), a privately-held
telecommunications company specializing in the integration
and resale of local, long distance, and ancillary telephone
services to small and medium-sized business customers.
Frontier paid approximately $29 million in cash for ETI.
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On August 8, 1995, Frontier acquired SCI and SCI's
80.8% interest in LinkUSA Corporation ("LinkUSA") for $130
million in cash. SCI provides telecommunications services
in the Midwest. LinkUSA develops software applications for
telecommunications firms. On February 2, 1996 the Company
acquired the remaining 19.2% interest in LinkUSA for $2.3
million.
On November 22, 1995, the Company completed its
acquisition of Link-VTC, Inc. ("Link-VTC"), a Boulder,
Colorado based telecommunications company specializing in
videoconferencing services. The Company will pay a total
cash purchase price in the range of approximately $12.4
million to $17.9 million, depending on the 1996 financial
performance of Link-VTC.
In 1995, the Company acquired, through a tender offer,
$76.8 million of ALC's 9% Senior Subordinated Notes for
$83.5 million plus accrued interest. The early retirement
resulted in an extraordinary loss of $5.8 million, net of
applicable income taxes of $3.7 million, including a debt
issue cost write-off of $2.8 million. In 1995, the Company
also retired early its outstanding 9% debentures scheduled
to mature in 2020. The Company recorded an extraordinary
loss of $3.2 million, net of applicable income taxes of $1.7
million.
On November 15, 1995, the Company filed a $500 million
universal shelf registration with the Securities and
Exchange Commission which became effective on January 30,
1996. The shelf registration will allow the Company to
issue and register a combination of debt securities, common
stock, preferred stock or warrant securities. Proceeds will
be used for general corporate purposes including, but not
limited to, financing growth activities.
The principal executive offices of the Company are
located at 180 South Clinton Avenue, Rochester, New York
14646-0700. The telephone number is (716) 777-1000.
Long Distance Communications Services
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General
Frontier 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. Frontier is one of the few nationwide
carriers of long distance services and in 1995 commenced
operations in Great Britain.
The Company operates its own switches, develops and
implements its own products, monitors and deploys its
transmission facilities and prepares and designs its own
billing and reporting systems. The Company focuses on a
segment of the long distance industry that offers
comparatively high operating margins, specifically,
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commercial accounts. In this segment, calling volume
consists primarily of calls made during regular business
hours, which command peak-hour pricing.
Commercial subscribers tend to make most of their calls
on weekdays during normal business hours, while the
Company's residential subscribers tend to make most of their
calls in the evening and on weekends, when business usage is
lowest. Neither commercial nor residential subscribers'
access to the Company's service is limited as to the time of
day or day of week.
Products and Services
The Company provides a variety of long distance
products and services to commercial and residential
subscribers nationwide. The bulk of the Company's revenue
is derived from outbound and inbound long distance services
which are generally marketed under the Frontier name. Many
of the Company's products, however, differ from those of
certain competitors due to the level of value-added services
the Company offers and the flexibility of product pricing to
maintain competitiveness.
The variety of products offered are categorized by the
Company based upon certain primary characteristics: pricing,
value-added services, reporting and 800 services.
Pricing-All of the Company's customers are identified
by their telephone number, dedicated trunk or validated
access code, and have a rating which is used to determine
the price per minute that they pay on their outbound or
inbound long distance calls. Rates typically vary by the
volume of usage, the distance of the calls, the time of day
that calls are made, the region that originates the call,
and whether or not the product is being provided on a
promotional basis.
Value-added Services-The Company's value-added services
are aimed primarily at the business subscriber, although the
Company also offers products for residential customers.
Value-added services include: Call Delivery, a message
delivery service which enables a customer to send a
prerecorded message to a number; VoiceQuote, an interactive
stock quotation service; InfoReach, numerous audio/text
programs such as news and weather; a voice mail service;
Option USA, a service to provide calls to the U.S. from
selected international locations; and three different
teleconferencing services.
The Company provides a full spectrum of facsimile
services including Broadcast FAX, which allows the customer
to send or fax documents to multiple locations at the same
time; fax on demand, which allows the customer to make a fax
document available to people who call an 800 number; fax
mail, which allows a customer to receive facsimile messages
in a fax mailbox and pick them up at a later date; PC
software, which allows the customer to manage his facsimile
lists and documents from a PC; and special international
pricing to accommodate short duration facsimile traffic.
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Reporting Services-The Company offers a variety of
billing options and media aimed primarily at business
customers. When a new commercial account is opened, the
customer is offered the opportunity to custom design the
format of its reports. The Company also offers customers
graphic reports of traffic patterns on a nationwide basis by
state, within state by area of dominant influence ("ADI")
and within ADI by zip code. The Company believes this
service is useful to certain customers for direct response
and customer service applications. The Company also offers
its proprietary personal computer reporting service which
allows customers to design their own reports, prepare
separate itemized bills, do mark-up reporting and generate
numerous other customer reports.
800 Services-The Company greatly expanded its 800
product offerings, capitalizing on opportunities resulting
from Federal Communications Commission ("FCC") mandated
number portability in May 1993 (which allows customers to
select a different long distance carrier without changing
their 800 number). These new offerings include area code
blocking and routing; time of day routing; Home Connection
800, fractional 800 service which allows residential
customers to access 800 service utilizing a 4 digit security
Personal Identification Number ("PIN"); Multi-Point 800
services, which allows customers to use accounting codes on
an 800 number or route a single 800 number to numerous
locations simultaneously; Follow-Me 800, which allows
customers to change call routing from a Touch Tone (R)
telephone; and TargetLine 800, which routes calls to the
closest location a customer identifies and provides custom
prompts based upon a customer specific database.
Transmission
The Company endeavors to have sufficient switching
capacity, local access circuits and long distance circuits
at and between its network switching centers to permit
subscribers to obtain access to the switching centers and
its long distance circuits on a basis which exceeds industry
standards regarding clarity, busy signals or delays.
The network utilizes fiber optic and digital microwave
transmission circuits to complete long distance calls. With
the exception of digital microwave systems located in
California, New York and Pennsylvania for which the Company
holds FCC licenses and several short fiber optic systems,
such facilities are leased on a fixed price basis under both
short and long- term contracts. In recent years, abundant
availability and declining prices have dictated a strategy
of obtaining new capacity generally for terms between six
months and one year. While the Company has several long
term contracts, these contracts have annual "mark-to-market"
clauses. These provisions function to keep the price the
Company pays at or near current market rates. An important
aspect of the Company's operation is planning the mix of the
types of circuits and transmission capacity to be leased or
used for each network switching center so that calls are
completed on a basis which is cost effective for the Company
without compromising prompt service and high quality to
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subscribers.
The Company's network switching centers house equipment
with varying capacities in order to meet the anticipated
needs of the service origination region(s) served by the
center. The equipment used by the Company is, for the most
part, designed to permit expansion to its capacity by the
addition of standard components. If the maximum capacity of
the equipment in any center is reached, the Company replaces
it with higher capacity switching equipment and attempts to
move the replaced unit to a network switching center in a
different service origination region. The Company is
dependent upon local telephone companies for installing
local access circuits and providing related service when
establishing a network switching center. International
service is provided through participation in the
International Carrier Group ("ICG") with another major long
distance company. The ICG in turn contracts with other long
distance companies and foreign entities to provide high
quality international service at competitive rates.
The rapid growth of the Company has required it to
assess the merits of owning additional transport facilities
as a means to assure circuit availability either in areas
where capacity on a resale basis is comparatively expensive,
or to meet long-term strategic objectives. The Company
continues to monitor the relative merits of owning capacity
in comparison to leasing it in different parts of the
country.
Marketing
The Company markets its services and products through a
direct sales force, direct marketing campaigns, sales agents
and affiliated local exchange carriers. Field sales
representatives focus on making initial sales to commercial
users. They solicit business through face-to-face meetings
with small to medium sized businesses. Each field sales
representative earns a commission dependent on the
customer's usage and value-added services. The Company's
sales strategy is to make frequent personal contact with
existing and potential customers.
The prices and promotions offered for the Company's
services are designed to be competitive with other long
distance carriers. Prices will vary as to interstate or
intrastate calls as well as with the distance, duration and
time-of-day of a call. In addition, the Company may offer
promotional discounts based upon the duration of commitment
to purchase services, an incremental increase in service or
"free" trial use of the many value-added and reporting
services. Volume discounts are also offered based upon the
amount of monthly usage in the day, evening and night
periods or based solely on total volume of usage.
The Long Distance Communications Services' growth has
been positively impacted by a major carrier customer whose
revenue has increased substantially during the past year and
represents approximately 14% of the segment's revenue in
1995. It is the Company's understanding that this customer
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may be installing long distance switching capacity, which,
as completed, could result in a portion of this traffic
gradually moving to the customer's network. However, the
customer has entered into a three year agreement with the
Company effective April 1, 1995 and amended October 27,
1995. Under the agreement, the Company will retain
significant traffic volumes and has obtained provisions
regarding exclusivity and minimums that it views as
favorable.
Local Communications Services
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As of December 31, 1995, RTC and the Company's 33 other
local exchange companies together served 950,875 access
lines in 13 states. The local exchange carriers provide
local, toll, access and resale services; sell, install and
maintain customer premises equipment; and provide directory
services.
Effective January 1, 1995, the Company reorganized into
a holding company structure. The assets of the former
Rochester local exchange company were transferred to two
wholly-owned subsidiary companies, RTC and FCR. RTC is a
regulated telephone and network transportation company which
offers retail services to existing customers as well as
sells and markets wholesale network services and other
services to retailers of telecommunications services in the
Rochester, New York market. Its rates are subject to price
cap regulation. FCR is a lightly regulated provider of
telecommunications services to residential and business
customers located in the Rochester, New York market.
As of September 30, 1995, the Company discontinued the
application of Statement of Financial Accounting Standards
No. 71 (FAS 71), "Accounting for the Effects of Certain
Types of Regulation" for its local communications companies.
The Company discontinued the use of FAS 71 based upon
changes in regulation and increasingly rapid advancements in
telecommunications technology and other factors increasing
the level of competitors in markets served by the Company.
The discontinuance of regulatory accounting methods resulted
in a non-cash post-tax extraordinary charge of $112.1
million, net of applicable income taxes of $68.4 million,
primarily caused by the reduction in the recorded value of
long-lived telephone plant assets.
Since the beginning of 1988, the Company has invested
over $690 million in upgrading its Local Communications
Services' business and over $480 million for the acquisition
of independent telephone companies. Over this period, the
Company installed advanced digital switching platforms
throughout much of its switching network. The Company's
network in Rochester, New York is fully digital, making
Rochester one of the largest cities in the United States to
be served by an all-digital network. In aggregate, the 29
local exchange companies outside of New York have over 97.9
percent digital capability. This is illustrated in the
"Access Line Table" located on the next page.
Frontier has achieved substantial cost reductions
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through the elimination of duplicative services and
procedures and the consolidation of administrative
functions. As of December 31, 1995, Local Communications
Services had 31 employees per ten thousand access lines.
The Company has reduced the number of telephone employees
per ten thousand access lines by over 34 percent since 1990.
The Company believes that additional reductions in employee
levels are possible. These reductions will be partially
driven by technological changes and will be necessary to
further improve the competitive position of its Local
Communications Services' business. The Company intends to
vigorously pursue additional gains in productivity through
reengineering while simultaneously improving customer
service.
In May 1994, the Company sold its Minot Telephone
Company property located in Minot, North Dakota. In March
1995, the Company sold the Ontonagon County Telephone
Company and the Midway Telephone Company, both located in
the Upper Peninsula of Michigan. In each case, the
telephone properties no longer fit the strategic purposes of
the Company.
Access Line Table
The Table below sets forth certain information with
respect to access lines as of December 31, 1995:
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<CAPTION>
Percent of Total
Company Access
Telephone Properties Access Lines at Percent
at December 31, 1995 Lines December 31, 1995 Digital
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<S> <C> <C> <C>
Rochester, NY.......... 524,630 55.2% 100.0%
Other NY Companies..... 90,078 9.5% 100.0%
Total New York......... 614,708 64.7% 100.0%
Alabama(1)............. 28,899 3.0% 100.0%
Georgia................ 23,640 2.5% 100.0%
Illinois(1)............ 18,111 1.9% 100.0%
Indiana................ 4,803 0.5% 100.0%
Iowa................... 53,316 5.6% 94.0%
Michigan(1)............ 21,902 2.3% 100.0%
Minnesota.............. 106,725 11.2% 96.4%
Mississippi............ 5,481 0.6% 100.0%
Pennsylvania........... 35,947 3.8% 100.0%
Wisconsin.............. 37,343 3.9% 100.0%
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Total Other States..... 336,167 35.3% 97.9%
Consolidated
Access Lines........ 950,875 100.0% 99.3%
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(1) Companies in these states also have properties located
in another state. (An Alabama company has access lines in
Florida, an Illinois company has access lines in Iowa, and
the Michigan company has access lines in Ohio).
The Company operates 71 central office and remote
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switching centers in Rochester, New York, and a total of 266
central office and remote switching centers in its other
telephone territories. Of the 950,875 access lines in
service on December 31, 1995, 674,841 were residential lines
and 276,034 were business lines. Long distance network
service to and from points outside of the telephone
companies' operating territories is provided by
interconnection with the facilities of interexchange
carriers.
As part of the Company's continuing strategy to provide
a greater selection of value-added products, the Rochester,
New York operating company has introduced advanced services
such as Caller ID, Caller ID with Name, distinctive ringing,
directory-assisted call completion, and an enhanced voice
mail platform. This is particularly attractive for the
Company in Rochester because of the presence of pure price
regulation. The Company is introducing similar advanced
services, where appropriate, at its other telephone
properties.
Frontier is pursuing several alternatives to provide
expanded broadband capabilities to its customers. To date,
the Company has installed over 10,000 miles of fiber optic
facilities (over 500 sheath miles) in the Rochester, New
York area to provide its customers with enhanced capacity
and to position for new products. Throughout its Local
Communications Services' operations, Frontier has over
24,000 miles of fiber optic facilities in place. The
Company provides expanded broadband services to select
customers, including video-distance learning arrangements
for educational institutions.
In connection with its integration strategy, the
Company has developed a program known as "Frontier Long
Distance", where its local exchange companies resell
Frontier's long distance services. The Company believes
that many customers prefer the convenience of obtaining
their long distance service through their local telephone
company and receiving a single bill. Frontier Long Distance
is currently offered in the product lines at fifteen of the
Company's local telephone exchange companies. The results
of Frontier Long Distance operations are included as part of
the Long Distance Communications Services' segment.
Technological innovation and regulatory change are
accelerating the pace of competition for both local exchange
and long distance services. New competitors now have the
ability to provide basic local telephone service in some
markets, including Rochester, New York. To benefit from
these technological advances and broaden the scope and
quality of its own product and service offerings, the
Company has increased fiber and digital switching capacity
throughout its networks and has pursued regulatory
alternatives such as the Open Market Plan, which is
described in more detail below. Currently, the Company
continues to be the primary provider of basic local
telephone service in Rochester, New York and may be
considered the only provider of basic local exchange service
in most of the other geographic areas where it has telephone
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properties.
Open Market Plan
On February 3, 1993, the Company filed its Open Market
Plan with the New York State Public Service Commission
("NYSPSC"). The plan was approved by an Order of the New
York State Public Service Commission dated November 10,
1994, was approved by the Company's shareowners on December
19, 1994, and was implemented effective January 1, 1995.
The Open Market Plan has formally opened the Rochester, New
York local exchange market to competition. Frontier was the
first communications company in the nation to propose and
implement a plan for full local competition. The Open
Market Plan enables customers to choose their local
telephone service provider and to select from a broad array
of products, services and prices. It also gives Frontier
the flexibility to broaden the scope and quality of its own
competitive service offerings.
As a result of the Open Market Plan, two new companies
were formed from the Rochester, New York local exchange
operations. RTC is a provider of basic network services.
The second company, FCR, is a retail provider of
telecommunications services. RTC and FCR are subsidiaries
of the Company, which became an unregulated parent holding
company. This configuration has been established to better
meet the current and emerging competition in the
marketplace. The holding company structure also provides
the flexibility for the Company to continue the acquisition
and diversification efforts that are necessary for its long-
term growth.
FCR is a lightly regulated, full service
telecommunications company which provides a broad array of
integrated services including local, long distance, cellular
and equipment. In addition, FCR is able to package the
network elements purchased from RTC and others with services
such as flat rate local, measured rate, Centrex and ISDN.
FCR has the flexibility to price and introduce new services
as necessary to compete.
RTC is the more heavily regulated company which sells
basic network services such as access to the network and
transport between switching offices. These services are
sold to FCR and all other telecommunications providers on a
nondiscriminatory basis. These other telecommunications
providers may then package services for resale to local
customers. RTC also continues to provide retail services
directly to individual customers, except for Centrex and
high capacity private lines which it offers only on a
wholesale basis.
Management believes there are significant market and
business opportunities associated with the Company's Open
Market Plan. However, there are also uncertainties
associated with the Plan. In the Company's opinion, the
most significant issues relate to increased competition in
the Rochester, New York market, the risk inherent in the
Rate Stabilization Plan incorporated in the Open Market Plan
<PAGE>
Agreement and the potential diversification risk.
Additional details about these risks can be found in
Management's Discussion of Results of Operations and
Analysis of Financial Condition in Exhibit No. 13.
On October 3, 1995, AT&T Communications of New York
filed a formal complaint with the NYSPSC requesting changes
to the Open Market Plan. AT&T asked the NYSPSC to reduce
RTC's wholesale rates to resellers by increasing the
"wholesale discount" (the margin between wholesale and
retail rates) for most services from 5% to 35%. AT&T also
complained about other rates and about the terms and
conditions of the provisioning of service to resellers.
This is believed to be similar to AT&T's initiatives in
other states. The NYSPSC considered AT&T's petition in
December, 1995. The NYSPSC's comments indicated a desire for
RTC and AT&T to meet first to discuss their differences,
with a formal proceeding to follow. On February 2, 1996,
the NYSPSC issued an order reconvening the parties to the
Open Market Plan, to consider access to electronic systems,
the existing wholesale/retail rate differential, the usage
surcharge for residential service and information
availability. Rochester Telephone filed a response in early
March addressing each of the claims made by AT&T.
Management cannot now predict the ultimate result.
Wireless Communications Services
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From 1985 to mid 1994, the Company provided cellular
service in the Rochester Metropolitan Statistical Area
("MSA"), which has a population of approximately one
million, in a partnership with ALLTEL Corporation. Frontier
had an 85 percent interest in this partnership. In July
1994, the Company and Bell Atlantic/NYNEX Mobile formed a
50/50 joint venture and the Rochester MSA was contributed to
the Upstate Cellular Network ("UCN" or the "Supersystem").
A Frontier subsidiary is the managing partner of that
cellular "Supersystem" which provides service in much of
upstate New York. The Supersystem provides the Company a
larger geographic footprint than it would otherwise have.
The greater concentration of customers resulting from the
Supersystem's formation enables the Company to take
advantage of the efficiencies normally inherent with
increased economies of scale. The UCN provides seamless
cellular service to a population of approximately 5 million
potential subscribers in upstate New York. Since the
formation of the joint venture the results of the UCN are
reported under the equity method of accounting and the
Company's share of the joint venture earnings are reported
in the Other Income category. The Company also manages a
cellular system in Alabama, in which it has a 70% interest,
with over 260,000 potential subscribers, and in Minnesota,
in which the Company acquired a 100% interest in late March
1995, which has over 227,000 potential subscribers. In
addition, the Company has investments in wireless properties
elsewhere in New York State and in Georgia, Illinois, Iowa,
and Wisconsin.
Despite intense price competition throughout its
operation, the Company's cellular business has remained
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profitable since its first full year of service. This
business has consistently increased its subscriber base
while maintaining an efficient cost structure. With the
formation of the Supersystem and the corresponding increase
in the geographic scope of the Company's cellular reach, the
Company's wireless business has remained profitable.
Nevertheless, price competition remains strong within all
the Company's operating areas.
Cellular companies compete principally on the basis of
network quality, customer service, price and coverage area.
Each market currently has at least two cellular providers,
and the Company's chief competition in each market is from
the other cellular licensee in that market. In some markets
additional entities resell cellular service and compete with
the holders of cellular licenses. The Company believes that
its technological expertise, emphasis on customer service
and development of new products and services make it a
strong competitor.
Several recent FCC initiatives indicate that the
Company is likely to face more wireless competition in the
future. The FCC has licensed specialized mobile radio
("SMR") system operators to construct digital mobile
communications systems on existing SMR frequencies in many
metropolitan areas throughout the United States. In
addition, the FCC has allocated radio frequency spectrum for
Personal Communication Services ("PCS"). The FCC's decision
has resulted in six additional wireless licenses in each
market: three 30 Mhz blocks and three 10 Mhz blocks. (By
comparison, the two cellular carriers in each market
currently have 25 Mhz of spectrum each.) The first two
30Mhz licenses were awarded in March 1995 through an
auction. The third 30 Mhz license is now being auctioned.
Dates have not been announced for the auction of the
remaining three 10 Mhz licenses. The Company continues to
evaluate the merits of additional involvement in wireless
communications, but has elected, thus far, not to
participate in the bidding for PCS licenses.
Cellular Property Ownership Table
The Company owned or was under contract to purchase the
following cellular properties as of December 31, 1995:
<TABLE>
<CAPTION>
1995 Pending Pending
Estimated Ownership Adjusted Ownership Adjusted
Market Population Interest Population Interest Population
- ------ ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
New York
Buffalo 1,205,000 50.00% 603,000 50.00% 603,000
Rochester 1,033,000 42.50% 439,000 42.50% 439,000
Syracuse 687,000 27.50% 189,000 27.50% 189,000
Utica-Rome 323,000 50.00% 162,000 50.00% 162,000
NY RSA #1 259,000 20.00% 52,000 20.00% 52,000
NY RSA #2 237,000 21.43% 51,000 21.43% 51,000
NY RSA #3 492,000 22.50% 111,000 77.50% 381,000
NY RSA #4 364,000 27.00% 98,000 27.00% 98,000
Binghamton 309,000 24.00% 74,000 32.50% 100,000
Elmira 96,000 0.00% 0 50.00% 48,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
---------- --------- ---------
Total UCN
Markets 5,005,000 1,779,000 2,123,000
--------- --------- ---------
Pennsylvania
PA RSA #3, B2 58,000 0.00% 0 13.89% 8,000
PA RSA #4, B2 65,000 0.00% 0 16.67% 11,000
Alabama
AL RSA #4 141,000 69.54% 98,000 69.54% 98,000
AL RSA #6 119,000 69.54% 83,000 69.54% 83,000
Minnesota
Minnesota
RSA #10 227,000 100.0% 227,000 100.00% 227,000
Minority Interests
Orange County,
NY MSA 322,000 15.00% 48,000 15.00% 48,000
Poughkeepsie,
NY MSA 265,000 15.00% 40,000 15.00% 40,000
Des Moines,
IA MSA 413,000 4.00% 17,000 4.00% 17,000
GA RSA #3 207,000 25.00% 52,000 25.00% 52,000
IL RSA #2 256,000 6.67% 17,000 6.67% 17,000
IL RSA #3 204,000 6.38% 13,000 6.38% 13,000
Wisconsin
RSA #8 228,000 2.00% 5,000 2.00% 5,000
--------- --------- ---------
Total...... 7,510,000 2,379,000 2,742,000
</TABLE>
For each market listed above, the number in the "Adjusted Population"
column represents an estimate of the Company's proportionate share
of the number of potential cellular customers in such market
as of December 31, 1995 and is calculated by multiplying the
1995 estimated population of such market by the Company's
ownership interest in the cellular system serving that
market as of such date. Similarly, the number in the
"Pending Adjusted Population" column represents an estimate
of the Company's proportionate share of the number of
potential cellular customers in each such market as of
December 31, 1995, and is calculated by multiplying the 1995
estimated population of such market by the Company's
ownership interest in the cellular system serving that
market, assuming completion of proposed or pending
transactions.
Corporate Operations and Other
- ------------------------------
Corporate Operations comprise the expenses
traditionally associated with a holding company, including
executive and board of directors expenses, corporate finance
and treasury, investor relations, corporate communications,
corporate planning, legal services and business development.
The Other category is comprised primarily of Frontier
Network Systems ("FNS") and the Company's information
services subsidiary ("Frontier Information Technologies")
which services much of the Company's operations.
FNS (previously Rotelcom Inc.), was established in
<PAGE>
1978. It markets and services a wide range of
telecommunications and data equipment for mid- to large-size
business customers, and competes directly with other
interconnect vendors that market telephone systems to
businesses and other enterprises. FNS's product line
includes: private branch exchanges ("PBXs") from
Siemens/ROLM and Northern Telecom; data communications
equipment from leading manufacturers including Dowty and
Newbridge; and videoconferencing equipment from PictureTel.
Product lines purchased by FNS from its two largest
suppliers, Siemens/ROLM and Northern Telecom, account for
more than a majority of its purchases from suppliers. The
Company believes FNS's relationships with its various
suppliers is good. All of FNS's customers are located in
New York State.
Legislative and Regulatory Matters
- ----------------------------------
Each of Frontier's local telephone service companies is
regulated by the public utility regulatory agency of the
state in which that company provides local telephone service
and by the FCC. The respective states are listed on the
Access Line Table on page 10. The competitive evolution of
the telecommunications industry has resulted in a more fluid
regulatory framework than was in place historically. In
general, state regulatory agencies exercise authority over
the prices charged for the provision of local telephone
service and for intrastate long distance service, and over
the quality of service provided, the issuance of securities,
the construction of facilities and other matters. Each of
the Company's long distance and wireless companies may be
regulated to a limited extent by the public utility
regulatory agency of the state in which each is providing
service. The Company's long distance and wireless service
providers are also subject to FCC jurisdiction. However,
the Company's Wireless Communications Operations are no
longer subject to rate regulation at the Federal or State
level.
(a) Telecommunications Act of 1996. On February 8, 1996,
President Clinton signed into law the Telecommunications Act
of 1996 (the "Act"). The Act substantially revised the
Communications Act of 1934. The Act has particular
relevance to the Company in three areas. First, the Act
creates a duty on the part of the Company to interconnect
its networks with those of its competitors and, in
particular, creates a duty on the part of the Company's
local exchange operations to negotiate in good faith the
terms and conditions of such interconnection. The Act
requires the FCC to establish the rules governing the terms
and conditions of such interconnection within six months of
its enactment.
Second, the Act contains a number of provisions that
reduce barriers to entry and promote competition in a
variety of telecommunications markets, including both long
distance and local exchange operations. As a part of this
effort, the Act provides a framework under which the Bell
companies may enter the interexchange communications
business from which they were barred under the terms of the
<PAGE>
1982 AT&T Consent Decree. Under the framework of the Act, a
Bell company may provide long distance services in the
states where it provides telephone service upon a showing to
the affected state regulatory authority and to the FCC that:
(a) it faces competition for local telephone service from at
least one facilities-based competitor; and (b) that it
satisfies a fourteen point checklist that would purport to
show that the affected Bell company's local exchange
operations are open to competition. The Act establishes
deadlines within which both the affected state regulatory
agency and the FCC must act upon applications filed by a
Bell company to enter the long distance business. The Bell
companies can provide long distance services immediately in
other states, and also with certain restrictions, cellular,
video and incidental services.
Third, although the Act generally prohibits long
distance companies from marketing their services jointly
with local telephone services provided by a Bell company (at
least until that Bell company is permitted to enter the long
distance business), it contains an exception for companies
that serve less than five percent of the nation's
presubscribed access lines, such as the Company. Thus, the
Act permits the Company to continue to market its long
distance services jointly with local telephone services
whether provided by the Company or provided by a Bell or non-
affiliated company.
(b) State Proceedings -- General. A number of states in
which the Company has local or long distance operations are
conducting proceedings related to the ground rules under
which carriers may operate in an increasingly competitive
environment. Among the issues that the regulatory agencies
are examining include unbundling and interconnection,
dialing parity for intra-LATA (or short-haul) toll traffic,
number portability, resale of local exchange service and
universal service. The Act has begun to have an effect on
the timing and outcome of proceedings in many states, as
State Commissions have begun to review their actions in
light of the Act. The Company cannot, at this time, predict
how these proceedings will ultimately be resolved, nor when
a decision will be forthcoming.
(c) Rate Stabilization Plan. The Open Market Plan provides
for a total of $21 million in rate reductions for Rochester
Telephone Corp. (the "Rate Stabilization Plan") over a seven
year period beginning January 1, 1995, subject to
termination by either the Company or the NYSPSC after five
years (the "Rate Period"). The Rate Stabilization Plan also
precludes RTC from increasing basic residential and business
telephone service rates during the rate period. In
consideration of the rate reductions, the Rate Stabilization
Plan provides that RTC's local exchange services be subject
to price-cap regulation rather than rate of return
regulation. The rates provided in the Rate Stabilization
Plan are designed to permit RTC to recover its costs and to
earn a reasonable rate of return, calculated using a
methodology utilized by the NYSPSC to set the rate of return
earned by providers of local exchange services in New York
State.
<PAGE>
(d) Royalty Proceeding. In 1984, the NYSPSC initiated a
proceeding to investigate the issue of whether the Company's
competitive subsidiaries should pay a royalty to the
Rochester, New York local telephone service provider
primarily for the alleged intangible benefits received from
the use of the Rochester Telephone name and reputation.
Under the Open Market Plan Agreement, the NYSPSC will not
impute a royalty on either the Company or on Rochester
Telephone Corp. during the term of the Rate Stabilization
Plan, which was a component of the Open Market Plan or any
prior period, subject to certain limited exceptions. After
the termination of the Rate Period, however, the NYSPSC may
impute a royalty for the period beginning on the termination
date, subject to the outcome of any litigation regarding the
royalty. On October 31, 1995, the New York Court of Appeals
affirmed the NYSPSC's and the Appellate Division's
determinations that, as a matter of general ratemaking
authority, the NYSPSC possesses the authority to impose a
royalty. The decision of the Court of Appeals anticipates
that there will be subsequent challenges to royalties
imposed by the NYSPSC in specific circumstances. This
proceeding remains unresolved for the period after December
31, 2001, and is discussed in more detail in Item 3, Legal
Proceedings.
(e) FAS 106. The Company adopted Financial Accounting
Standards Board Statement 106 (FAS 106), "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
It had previously adopted FAS 87, "Employers' Accounting for
Pension Benefits." For the Rochester company, the
accumulated postretirement benefit obligation as of December
31, 1995 was approximately $76.9 million, and the projected
pension benefit obligation was approximately $88.1 million.
The Company elected to defer the recognition of the accrued
Transition Benefit Obligation over a period of twenty years.
Each state regulatory agency may treat these obligations
differently in the rate-making process. On September 7,
1993, the NYSPSC issued its Statement of Policy and Order
concerning postretirement benefit and pension accounting.
The FCC originally suspended the Company's petition to
include the incremental costs associated with adopting FAS
106 in its 1993 price cap filing. The Company, along with
all other local exchange carriers (LECs) subject to price
cap regulation, filed an appeal of the FCC's ruling with the
United States Court of Appeals. In the court's decision,
dated July 12, 1994, the FCC's original order was vacated
and the FCC was ordered to reconsider the merits of the
LECs' request for exogenous cost treatment under the price
cap rules. The FCC has reopened its investigation of the
carriers' filings. The Company is evaluating its options in
light of the Court's decision and cannot predict the final
outcome of the FCC's investigation.
(f) Open Market Plan. The Company filed a petition in
February 1993 with the NYSPSC in which the Company requested
approval to reorganize the corporation. This Open Market
Plan, which was implemented effective January 1, 1995, is
<PAGE>
discussed in more detail on pages 11 through 13.
Competition
- -----------
The telecommunications industry has experienced a
significant increase in competition in recent years.
Factors such as technological advancement and a more fluid
regulatory framework have encouraged competition. Frontier
is intent on taking advantage of the various business
opportunities which competition provides in the markets
where it operates. The Open Market Plan, described in more
detail at pages 11 through 13, is one way in which the
Company is proactively meeting competition. The Company is
also addressing competition by focusing on improved customer
satisfaction, developing and offering new products and
services, providing integrated communications services, and
by reducing its cost base and becoming more efficient.
(a) Long Distance Communications Services. Competition is
based upon pricing, customer service, network and service
quality and value-added services. The Company views the
long distance industry as a three tiered industry which is
dominated on a volume basis by the nation's three largest
long distance providers: American Telephone and Telegraph
Company ("AT&T"), MCI Telecommunications Corporation
("MCI"), and Sprint Communications, Inc. ("Sprint"). AT&T,
MCI and Sprint generate an aggregate of approximately 85% of
the nation's long distance revenue of $70 to $75 billion.
Frontier is positioned in the second tier with three other
companies with annual revenues of $600 million to $4 billion
each. The third tier consists of more than 300 companies
with annual revenues of less than $600 million each, the
majority below $50 million each. The Company targets small-
and medium-sized commercial customers with $100 to $50,000
in monthly long distance volume and seeks to provide the
same focus and attention to customer service that compares
favorably with what AT&T, MCI and Sprint offer to large
commercial customers. Frontier is one of the few long
distance companies with the ability to offer high quality
value-added services to small- and medium-size commercial
customers on a nationwide basis. A number of the Company's
competitors are primarily regional in nature, limited by the
size of their transmission systems or dependent on other
parties for their billing services and product offerings.
Generally, the current trend is toward decreased
regulation for both the Company and its competitors.
Regulatory trends had, and may have in the future, both
positive and negative effects upon the Company. For
example, more markets are opening up to the Company, as
state regulators allow Frontier to compete in markets from
which it was previously barred. On the other hand, the
largest competitor, AT&T, has gained increased pricing
flexibility over the years, allowing it to price its
services more aggressively. Likewise, costs for access to
local networks have declined in recent years, but this has
triggered more demand for long distance services, including
those provided by Frontier.
A comprehensive revision of the Communications Act of
<PAGE>
1934 was signed into law on February 8, 1996. It eliminates
a number of barriers to competition across the industry and
will lead to additional changes in the industry's structure.
Significantly, the law will allow the Regional Bell
Operating Companies ("RBOCs") to compete in the long
distance market within their regions in exchange for opening
their local markets to competition. Some of the RBOCs have
already taken steps to enter the long distance business
outside their region, and have announced plans to meet the
requirements to offer long distance services within their
region. See the discussion on the Telecommunications Act on
page 16.
The Company recognizes the need to grow to be able to
compete effectively in the changing telecommunications
industry and to avail itself of greater economies of scale
and scope in its transport and local access requirements and
in its back office operations. For this reason, Frontier
began to expand its long distance business through
acquisition of long distance businesses (see pages 3 and 4
for 1995 acquisitions). These acquisitions have expanded
the Company to a national scope which will enhance the
Company's ability to compete effectively in the long
distance business.
(b) Local Communications Services. The market for
equipment connected to common carrier networks is now fully
competitive. The Company faces many competitors in the
provision of equipment and facilities used in connection
with its local exchange networks. The market for the
provision of local services itself is now competitive in
Rochester, New York as a result of the Open Market Plan, and
the Act is likely to result in significantly greater
competition in other markets. The Open Market Plan enables
customers to choose their local telephone service company
and will potentially provide them a broader selection of
products, services and prices. It gives the Company greater
flexibility to broaden the scope and quality of its own
competitive offerings. In the Rochester market, competitors
who have stated they will enter or have actually entered the
local exchange market include Time Warner Communications
("Time Warner") and AT&T. See the discussion on the Open
Market Plan on pages 11 through 13 and Regulatory Matters on
pages 15 through 18.
Although competitive providers of basic local exchange
service are not expected to be active for the near future in
the Company's smaller rural properties, basic local exchange
service competition is occurring today in the Rochester, New
York marketplace. For example, MFS Telecom, Inc. ("MFS")
and Time Warner are alternative local exchange service
providers in Rochester. AT&T is also remarketing local
exchange service in the Rochester, New York marketplace as a
reseller of RTC's services, as is Frontier's subsidiary,
FCR. The Company is unaware of the exact market share of
the local exchange market that MFS, Time Warner, AT&T and
FCR account for in the Rochester, New York service area.
Long distance companies largely access their end user
customers through interconnection with local telephone
<PAGE>
companies. These long distance companies pay access fees to
the local telephone companies for this service. The
provision of access services is considered to be
competitive, and the Company has responded with price
changes that meet the demands in its individual market
areas.
Competitive Access Providers (CAPs) are companies which
provide alternative transmission services and provide access
services to local exchange and long distance companies.
CAPs compete with traditional local exchange companies.
Currently, MFS, ACC and Time Warner are the primary CAPs
active in the Rochester, New York area. No significant CAPs
are believed to be active in any of the Company's other
properties.
(c) Wireless Communications Services. The Company is the
managing partner of the UCN, which is a partnership with
Bell Atlantic/NYNEX Mobile. The partnership operates
cellular systems in central and western New York State.
Frontier also manages, through subsidiaries, cellular
properties in Alabama and Minnesota and has investments in
other cellular properties. See the Cellular Property
Ownership Table at page 14 for a listing of the various
cellular properties which the Company manages or in which it
has investment interests.
Cellular systems generally have at least one competitor
in each market. For example, in the Rochester, New York
MSA, the other cellular system is Genesee Telephone Company
("GTC") which does business as Cellular One. In 1994,
Southwestern Bell acquired a controlling interest in GTC.
Additionally, Time Warner has recently begun to resell
cellular service in the Rochester, New York MSA using the
UCN's facilities and services. In the cellular industry,
competitive characteristics include the geographic coverage
area, transmission clarity and the price of the service
offerings. The Company believes that the transmission
quality of its systems is generally comparable to or better
than the quality of its competitor in each market. The
Company also competes through pricing packages which provide
certain benefits to customers. For example, one pricing
package provides significantly reduced roaming rates
throughout most of upstate New York. In addition, the
Company's strong geographical service coverage of much of
the upstate New York area makes the Company a strong
competitor. This coverage, which includes handheld level
service in downtown Rochester and in most of its major
commuting areas, is believed to be comparable or superior to
the coverage of its competitors. Because the Company does
not have information regarding its competitors' customer
bases, the Company is unable to calculate any specific
assessment of its market share in its various markets.
The Company believes that additional competition for
wireless services will come from PCS providers. AT&T,
Sprint and OmniPoint have acquired licenses to provide
wireless service in the Company's upstate New York markets.
The Company believes these services will begin operation in
1997.
<PAGE>
In addition to the UCN, the Company has partnership
interests in various other MSAs and RSAs (Rural Service
Areas.) See the "Cellular Property Ownership Table" on page
14 for a list of the Company's cellular ownership interests
and the estimated population in each of the indicated
cellular markets. Although in the future the Company may
divest itself of selected cellular properties, the Company
will continue to seek cellular service growth and expansion.
See also the discussion of the Upstate Cellular Network on
pages 13 through 15.
Environmental and Other Matters
- -------------------------------
Except for site specific issues, environmental issues
tend to impact members of the telecommunications industry
in consistent ways. The Environmental Protection Agency
("EPA") and other agencies regulate a number of chemicals
and substances that may be present in facilities used in the
provision of telecommunications service. These include
preservatives in some wood poles, asbestos in certain
underground duct systems and lead in some cable sheathing.
Some components of the Company's network may include one or
more of these substances. The Company believes that in
their present uses, any such facilities of the Company pose
no significant environmental or health risk that derives
from EPA regulated substances. If EPA regulation of any
such substance is increased, or if any facilities are
disturbed or modified in such a way as to require removal,
special handling, storage and disposal may be required for
any such facilities removed from use. At this time the
Company is not subject to any environmental litigation that
requires disclosure, except as set out in Item 3, Legal
Proceedings.
Employees and Labor Relations
- -----------------------------
As of December 31, 1995, the Company had 7,837
employees, of which 2,959 were employees of Local
Communications Services, 4,203 were employees of Long
Distance Communications Services, and 675 were employees of
other operations. At the Rochester, New York Operating
Company, 720 clerical and service workers were represented
by the Rochester Telephone Workers Association ("RTWA") and
728 craft and clerical employees were represented by the
Communications Workers of America ("CWA"), Local 1170.
Under the current three-year contract between Rochester
Telephone Corp. and the RTWA, bargaining unit employees
received a 2.0 percent general increase, effective August
12, 1994. On February 12, 1995 and February 18, 1996 they
received a 1.0 percent general increase. The contract
provides that they will receive the same amount of increase
on February 16, 1997. The RTWA contract will expire on
August 12, 1997.
The CWA contract expired on January 31, 1996.
Bargaining for a new contract has been underway for some
time. To date, no new agreement has been reached.
<PAGE>
The International Brotherhood of Electrical Workers
("IBEW"), Local 503, represents 162 employees at Frontier
Communications of New York, 15 employees at Frontier
Communications of Sylvan Lake (through Local 320) and 11
employees at Frontier Communications of AuSable Valley
(through Local 2176). On May 25, 1993, Frontier
Communications of New York and the IBEW entered into a
contract which expires February 13, 1997, and provides for
an increase of 3.85% in September 1993, 4.0% in September
1994, 4.0% in September 1995, and no increase thereafter
until the contract is renegotiated. On September 29, 1992,
Sylvan Lake and the IBEW entered into a three-year contract
extension which provides for an increase of 3.0% in November
1993, 3.5% in November 1994, and 5.0% in November 1995. On
May 11, 1995, AuSable Valley and the IBEW entered into a
three year contract which provides for an increase of 3.25%
percent effective May 1995, 3.5% in May 1996, and 3.75% in
May 1997.
The IBEW, Local 1106, represents 21 employees of
Frontier Communications of Michigan. On October 9, 1994,
they entered into a three year contract which granted
bargaining unit employees a 3.0% increase in October 1994, a
3.0% increase in October 1995, a 2.5% increase in October
1996 and a 2.25% increase in October 1997. This contract
will expire October 8, 1997. The IBEW, Local 51, represents
7 employees at Frontier Communications - Midland, 5
employees at Frontier Communications of Illinois, 1 employee
at Frontier Communications - Lakeside, 1 employee at
Frontier Communications-Prairie, and 4 employees at Frontier
Communications of Mt. Pulaski. On November 1, 1994, each of
these companies entered into three-year contracts with the
IBEW that provided for a $.60 per hour wage increase on
November 1, 1994, a $.55 per hour wage increase on November
1, 1995, and a $.50 per hour wage increase on November 1,
1996.
The CWA, Local 7270, represents 177 employees at
Frontier Communications of Minnesota. On June 21, 1993,
Frontier Communications of Minnesota and the CWA entered
into a three-year contract which provided for a wage
increase of 2.0% in June 1994, and 2.0% in June 1995. In
addition, "gain share" awards of 2.0% and 2.6% were given in
June, 1994 and June, 1995, respectively, based upon the
performance of the Frontier Communications of Minnesota
telephone operation. The contract expires June 21, 1996.
The CWA, Local 7171, represents 75 employees at Frontier
Communications of Iowa. On May 1, 1993, Frontier
Communications of Iowa and the CWA entered into a three-year
contract which provided for wage increases of 2.0% in May
1994, and 2.0% in May 1995. In addition, "gain share" awards
of 2.0% and 2.6% were given in May, 1994 and May, 1995,
respectively, based upon the performance of the Frontier
Communications of Iowa telephone operation. The contract
expires April 30, 1996.
ITEM 2. PROPERTIES
The Company's local exchange service providers own
telephone property in their respective operating territories
<PAGE>
which includes: connecting lines between customers'
premises and the central offices; central office switching
equipment; buildings, land and miscellaneous property; and
customer premise equipment.
The connecting lines include aerial and underground
cable, conduit, poles, wires and microwave equipment. These
facilities are located on public streets and highways or on
privately owned land. The Company has permission to use
these lands pursuant to local governmental consent or lease,
permit, easement or other agreement.
The central office switching equipment includes digital
switches and peripheral equipment.
The Company owns or leases the land and buildings in
which its central offices, warehouse space, office and
traffic headquarters are located. Frontier Corporation's
headquarters are located in a leased seven story building at
180 South Clinton Avenue, Rochester, New York. The lease
expires in 2003 and is renewable for two successive ten year
periods.
The Company's Long Distance Operation owns property
which includes: fiber optic and copper cable, switching
equipment, microwave equipment, real estate and
miscellaneous office and work equipment. The Company's Long
Distance Operation also leases facilities or transmission
capacity from other carriers. The Company's wireless
service providers own switching equipment, cell site towers
and other site equipment, and miscellaneous office and work
equipment. These providers also lease or own the real
estate on which the cell site towers are located.
ITEM 3. LEGAL PROCEEDINGS
On June 11, 1992, a group of corporate plaintiffs
consisting of Cooper Industries, Inc.; Keystone Consolidated
Industries, Inc.; The Monarch Machine Tool Company; Niagara
Mohawk Corporation and Overhead Door Corporation commenced
an action in the United States District Court for the
Northern District of New York seeking contribution from
fifteen corporate defendants, including Rotelcom Inc., a
wholly-owned subsidiary of the registrant held through
intervening subsidiaries (now named Frontier Network
Systems, Inc. or FNS). The plaintiffs seek environmental
"response costs" in the approximate amount of $1.5 million
incurred by the plaintiffs pursuant to a consent decree
entered into by plaintiffs with the United States
Environmental Protection Agency (the "EPA"). Two additional
defendants were named in 1994. In addition to FNS, the
current defendants are: Agway, Inc.; BMC Industries, Inc.;
Borg-Warner Corporation; Elf Atochem North America, Inc.;
Mack Trucks, Inc.; Motor Transportation Services, Inc.; Pall
Trinity Micro Corporation; The Raymond Corporation;
Redding-Hunter, Inc.; Smith Corona Corporation; Sola Basic
Industries, Inc.; Wilson Sporting Goods Company; Phillip A.
Rosen; Harvey M. Rosen; City of Cortland and New York State
Electric & Gas Corporation.
<PAGE>
The consent decree concerned the clean-up of an
environmental Superfund site located in Cortland, New York.
It is alleged that the corporate defendants disposed of
hazardous substances at the site and are therefore liable
under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"). The Company is anticipating
that a final Record of Decision ("ROD") will be issued by
the EPA and will prescribe the remediation requirements for
the site. The aggregate amount of remediation costs to be
incurred by the plaintiffs will be based on the requirements
of the ROD. The total cost of remediation at the site is
uncertain, although estimates have recently ranged from $25
million and $100 million. There has been no allocation of
liability as among or between the plaintiffs or defendants.
The extent to which plaintiffs can recover any of these
costs from the defendants, including FNS, will be determined
at trial. The litigation has been delayed by the bankruptcy
filing of one of the defendants. FNS has been vigorously
defending this lawsuit. The Company believes that it will
ultimately be successful, but it is unable to predict the
outcome with any certainty at this time.
In its Opinion and Order in Case 87-C-8959, issued July
6, 1993, the NYSPSC, by a three-to-two vote, imposed a
royalty upon the Company in the amount of two percent of the
total capitalization of the Company's unregulated
operations. The NYSPSC justified the royalty on two
grounds: first, that ratepayers are entitled to protection
from potential cost misallocations and increased risk that
accompany diversification of the Company's basic telephone
business; and second, that the Company's unregulated
operations benefit from their use of the Rochester name and
reputation. At the time of the NYSPSC decision, the Company
estimated the potential impact in the range of $2 million
per year. The royalty, if implemented, would be an
imputation against the Rochester, New York operating
company's revenue requirement from regulated intrastate
operations.
On June 30, 1994, the Appellate Division unanimously
upheld the Commission's Order. On October 31, 1995, the
Court of Appeals affirmed the determination of the Appellate
Division. Although the Court concluded that the specific
application of the royalty to Rochester Telephone was
rendered moot by the Open Market Plan settlement, it held
that the Commission has the general authority to utilize the
royalty as a ratemaking tool. The Court further held that
the specific application of the royalty to any companies,
including Rochester Telephone, in the future would need to
be reviewed in the context of a company-specific proceeding.
This royalty issue has been settled for the Rochester, New
York operating company for the duration of the Rate Period
of the Rate Stabilization Plan, which is part of the Open
Market Plan.
From February 1994 to October 1995, a total of nine
complaints were filed in Hennepin County (Minnesota)
District Court by various former shareowners of ASI.
Included among the defendants are ASI, its former principal
shareowners Steven Simon and James Weinert, ASI legal
<PAGE>
counsel and Frontier. Class action status has been sought
in two suits; no class has yet been certified. These suits
allege generally that Simon and Weinert, with and through
ASI, embarked upon a scheme to gain control of ASI and
acquire all of its stock through common law fraud, breach of
fiduciary duty and certain violations of the Minnesota
Business Corporation Act. This Act requires shareowners in
a closely held corporation to act fairly to one another and
refrain from misappropriation. Some of the complaints
assert shareowner derivative rights. The one complaint that
names Frontier alleges that Frontier holds the ASI stock and
that it should be found to control certain Frontier stock
that was issued to Messrs. Simon and Weinert in Frontier's
acquisition of ASI in trust for the benefit of the
plaintiffs.
Although it is too early to determine the outcome of
these suits, Frontier, ASI and the other defendants each are
contesting the claims asserted, and the parties have had
discussions to resolve the litigation. To date, no
settlement has been reached. In connection with the
acquisition of ASI by Frontier, Simon and Weinert agreed to
indemnify the Company for these claims.
On April 10 and 11, 1995, three lawsuits were commenced
against ALC as a result of its announced merger with the
Company. In two of those actions, each filed in the Court
of Chancery of the State of Delaware, in and for New Castle
County by Martin Mayers and Mordecai Cohen, respectively,
Frontier was named as a defendant, although it has not yet
been served with process. The lawsuits purport to be class
actions brought on behalf of all ALC stockholders against
ALC and its directors. Among other things, the complaints
sought to enjoin the business combination and/or to obtain
an award of damages. On June 9, 1995, the Delaware Court
entered an order consolidating the three cases for all
purposes. Under the terms of that order, Mayers v. Irwin,
et al., C.A. No. 14196 is designated as the consolidated
complaint and the defendants are required to respond to the
consolidated complaint. On July 10, 1995, ALC and its
directors answered the consolidated complaint. The Company
believes these actions to be without merit and will defend
vigorously the claims asserted in the consolidated suit. To
date, only cursory discovery has been conducted.
On July 12, 1995, a Complaint was filed by Christopher
E. Edgecomb, a former officer, director and employee of WCT,
against Frontier, WCT, WCT's then President, Michael
Coghill, a Frontier Corporation employee, and fifty
unidentified additional defendants, in the California
Superior Court for Santa Barbara. Edgecomb alleged that
Frontier and WCT violated the terms of a non-compete
agreement, executed by Edgecomb, by failing to make payments
to Edgecomb in accordance with the agreement. Edgecomb has
also alleged that the defendants violated an implied duty of
good faith and fair dealing in the agreement and engaged in
unfair competition in violation of California law. In
addition, the complaint alleges that the defendants
slandered Edgecomb. The complaint sought rescission of the
non-compete agreement, compensatory damages in excess of $80
<PAGE>
million, punitive damages, injunctive relief restraining
further unfair competition, court costs and attorneys' fees.
The case was settled on March 5, 1996. Terms of the
settlement are confidential, but management views them as
not material.
The Regulatory Matters discussion in management's
discussion of business in Part 1, Item 1, on pages 15
through 18 is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY MATTERS
The Company's Common Stock is traded on the New York
Stock Exchange (Symbol - FRO). A stock split in the form of
a 100 per cent stock dividend was effected during 1994. The
information in the table below is adjusted to reflect the
effects of that stock split. The historical information
has been restated accordingly for the acquisitions of ALC
and ASI.
The specific information required by this item is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
Quarter High Low High Low High Low
------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Highest and lowest
market prices
for the 1st $23.38 $19.25 $22.44 $20.25 $19.44 $17.32
stock by quarter: 2nd 24.13 19.63 25.25 20.81 21.75 18.25
3rd 28.63 23.75 24.75 21.63 24.38 20.50
4th 30.00 25.50 24.63 20.50 25.13 21.69
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Common stock 1st $ .2075 $ .2025 $ .1975
dividends declared 2nd .2075 .2025 .1975
per share: 3rd .2075 .2025 .1975
4th .2125 .2075 .2025
Total Dividends per Year $.8350 $ .8150 $ .7950
Number of Shareowners
(at December 31)
Individuals 26,184 24,128 22,313
Brokers, nominees
and institutions 453 480 527
------ ------ ------
Total Shareowners 26,637 24,608 22,840
</TABLE>
On March 6, 1996, the closing price for the Company's
stock was $30.38 per share as published in the Wall Street
<PAGE>
Journal.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item should be read in
conjunction with the consolidated financial statements and
related notes included in Item 14 contained herein, and is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Revenues $2,143,691 $1,667,545 $1,437,448 $1,252,244 $1,120,375
Income from Continuing
Operations (before
Extraordinary Items and
Cumulative Effect of
Changes in Accounting
Principles) $ 144,768 $ 187,254 $ 128,644 $ 107,025 $ 80,187
Consolidated Net
Income $ 22,083 $ 180,057 $ 121,154 $ 105,953 $ 86,574
Earnings per Common Share:
Income before Extraordinary
Items and Cumulative
Effect of Changes in
Accounting
Principle $ .89 $ 1.16 $ .83 $ .75 $ .59
Extraordinary Items $ (.75) --- $ (.05) $ (.01) $ .05
Cumulative Effect
of Changes in
Accounting
Principles $ (.01) $ (.04) --- --- ---
Earnings per Common
Share-Primary $ .13 $ 1.12 $ .78 $ .74 $ .64
Earnings per Common
Share-Fully Diluted $ .13 $ 1.12 $ .78 $ .74 $ .64
Cash Dividends
Declared per
Common Share $0.835 $0.815 $0 .795 $0.775 $0.755
Total Assets $2,108,592 $2,060,794 $1,721,545 $1,679,743 $1,661,019
Long-Term Debt $ 618,867 $ 661,549 $ 581,707 $ 604,157 $ 636,099
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
AND ANALYSIS OF FINANCIAL CONDITION
The information required by this item is presented in
pages 18 through 24 of the Company's 1995 Annual Report to
Shareowners which is Exhibit 13 to this Form 10-K, and is
incorporated by reference into this Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with
the report thereon of Price Waterhouse LLP, dated January
22, 1996, is presented on pages 25 through 41 of the
Company's 1995 Annual Report to Shareowners, which is
<PAGE>
Exhibit 13 to this Form 10-K and is incorporated by
reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Based upon the recommendation of the Audit Committee of
the Board of Directors, the Board on January 22, 1996
approved the retention of Price Waterhouse LLP as the
independent accountant for the Company and its significant
subsidiary, Frontier Communications Services Inc. (formerly
"Allnet Communication Services, Inc.") ("Allnet") for fiscal
year 1996. This prospective change in Allnet's auditing
firm from Ernst & Young LLP is due to the merger between
ALC, the parent corporation of Allnet, and the Company,
effective on August 16, 1995.
Prior to the merger, Ernst & Young LLP served as
independent accountants for ALC; Price Waterhouse LLP served
as the Company's independent accountants. Since the Company
is the parent corporation of ALC as a result of the merger,
the Company's Audit Committee considered it appropriate to
engage Price Waterhouse LLP rather than Ernst & Young LLP as
independent accountants.
The reports of Ernst & Young LLP on ALC's financial
statements for the past two years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified as
to uncertainty, audit scope or accounting principles.
During ALC's two most recent fiscal years and through
January 22, 1996, there were no disagreements between ALC
and Ernst & Young LLP on any matter of accounting principles
or practices, financial statement disclosure or auditing
scope or procedure which disagreements, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused it
to make a reference to the subject matter of the
disagreement in connection with its reports.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
- ---------
The information required by this item for the Directors
of Frontier Corporation is presented on pages 3 and 4 of the
definitive proxy statement provided to shareowners on or
about March 11, 1996 in connection with the Annual Meeting
of Shareowners to be held April 24, 1996, which is Exhibit
99 to this Form 10-K and is incorporated by reference into
this Item 10. Exhibit 99 consists of the Notice of Meeting
plus material located at pages 1 through 18 of the Company's
Proxy Statement for the April 24, 1996 Annual Meeting of
Shareowners.
Executive Officers
- ------------------
Certain information is set forth below regarding the
Executive Officers of the Company as of March 26, 1996.
Each Officer serves for a period of one year or until a
<PAGE>
successor is elected.
<TABLE>
<CAPTION>
Other Positions Held
Name Position and During the Past
(Age) Offices Held Five Years
- ----------------- ------------ --------------------
<S> <C> <C>
Robert L. Barrett (54) Executive Vice From May 1995 to March 1996 he was
President and Executive Vice President and Chief
President of Technology Officer of Banc One
Network Systems & Corporation/1/. From May 1991 to May
Services since 1995 he was President and Chief
March 1996 Operating Officer of Banc One
Services Corporation/1/.
Kevin J. Bennis (42) Executive Vice From December 1994 to March 1996
President and he was President and Chief Executive
President of Frontier Officer of the Integrated Client
Communications Services Division of MCI/2/. From
since March 1996 February 1994 to December 1994 he
was President and Chief Operating
Officer of MCI/BANAMEX/2/. From
July 1992 to February 1994 he was
Senior Vice President of the Business
Markets division of MCI. From July
1988 to July 1992 he was Vice
President of Sales-Northeast
Division of MCI.
Ronald L. Bittner (54) Chairman, President From August 1995 to November 1995
and Chief Executive he was Chairman and Chief Executive
Officer since Officer. From February 1992 to April
November 1995 and 1993, he was President and Chief
For the period Executive Officer. From May 1988
April 1993 to to February 1992 he was Executive
August 1995 Vice President and President-
Telecommunications Group.
Jeremiah T. Carr (53) Senior Vice President From January 1995 to May 1995 he
since May 1995 and was President and Chief Executive
Chairman- Officer of Rochester Telephone Corp.,
Rochester Telephone and President Telephone Group.
Corp. From November 1993 to December
1994 he was Corporate Vice President
and President - Telephone Group.
From February 1992 to November
1993 he was Corporate Vice President
and President Telephone Operations.
From October 1991 to February
1992 he was President of
Rotelcom. From January 1990 to
October 1991 he was Vice President
RCI and Corporate Vice President
General Manager-NYS, and President
Rotelcom.
Joseph Enis (51) Treasurer since From June 1994 to December 1994
January 1995 he was Director of Finance. From
1992 to June 1994 he was Treasurer of
National Service Industries (3). From
1984 to 1992 he was Treasurer of
Cyclops Industries (4).
H. Robert Gill (59) Senior Vice President From 1989 to February 1996 he was
since December 1995 President and Chief Executive Officer
and President - of ConferTech International, Inc.
Enhanced Products
Group
Dale M. Gregory (47) Senior Vice President From January 1995 to May 1995 he
since May 1995 and was President - Frontier
Vice President - Communications Group. From
Network & November 1993 to December 1994 he
Operations was Corporate Vice President and
President - Telecommunications Group.
From February 1993 to November
1993 he was
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Corporate Vice President and President-
Network Systems and Services. From
February 1992 to February 1993 he was
Corporate Vice President and
President-Telecommunications
Services. From January 1991 to
February 1992 he was President-RCI
Network and Systems. From March
1991 to February 1992 he was also
President, Dale M. Gregory
Management Consultants, Inc.
Louis L. Massaro (49) Executive Vice From December 1994 to August 1995
President and Chief he was Corporate Vice President.
Administrative Officer From February 1993 to December
since August 1995 1994, he was Corporate Vice President
and Treasurer. From September 1991
to February 1993 he was Corporate
Vice President and President-
Rochester Operations. From May
1988 to September 1991 he was Vice
President- Telecommunications Group.
Marvin C. Moses (51) Vice Chairman From August 1995 to November 1995,
And Chief Financial he was Executive Vice President and
Officer since Chief Financial Officer. From October
November 1995 1988 to August 1995 he was Executive
Vice President and Chief Financial
Officer of ALC (5) Communications
Corporation.
Richard A. Smith (45) Controller From June 1994 to March 1995 he was
since April 1995 President - Frontier Information
Technologies, Inc. From February
1993 to June 1994 he was Senior Vice
President - Midwest Region of
Frontier's Telephone Group. From
1990 to February 1993 he was Vice
President - Midwest Telephone
Operations of Frontier's Telephone
Group.
Josephine S. Trubek (52) Corporate Secretary From January 1990 to April 1993 she
since April 1993 was General Counsel and Secretary.
</TABLE>
(1) Banc One is one of the 10 largest bank holding companies
in the U.S. Banc One Services Corporation is a subsidiary
of Banc One.
(2) MCI is the 2nd largest provider of long distance services
in the United States. MCI/BANAMEX is an MCI Joint Venture
in Mexico.
(3) National Service Industries is a public company with
businesses in lighting, textile rentals and specialty
chemicals.
(4) Cyclops Industries is a public manufacturer of specialty
steels and curtainwall systems.
(5) ALC Communications Corporation was the 6th largest
provider of long distance services in the United States
when it was acquired by the Company in August 1995.
PART III
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is presented on
page 2 of the Company's Proxy Statement (which was provided
to shareowners on or about March 11, 1996 in connection with
the Annual Meeting of Shareowners to be held on April 24,
1996) under the caption "Compensation of Directors" and on
pages 6 through 14 under the captions "Report of Committee
on Management", "Performance Graph", "Compensation of
Company Management", and "Compensation Committee Interlocks
and Insider Participation in Compensation Decisions", and is
incorporated by reference into this Item 11. The Company's
Proxy Statement is found at Exhibit 99 to this Form 10-K.
Exhibit 99 consists of the Notice of Meeting and material
located at pages 1 through 18 of the Company's Proxy
Statement for the April 24, 1996 Annual Meeting of
Shareowners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is presented in
the "Management and Directors Stock Ownership Table" and the
"Stock Ownership of Certain Beneficial Owners Table" under
the caption "Stock Ownership of Management, Directors and
Certain Beneficial Owners" on pages 4 through 5 of the
definitive Proxy Statement for the Annual Meeting of
Shareowners to be held April 24, 1996, and is incorporated
by reference into this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K
(a) 1. Index to Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Page*
Report of Management 25
Report of Audit Committee 25
Report of Independent Accountants 25
Business Segment Information 26
Consolidated Statements of Income 27
Consolidated Balance Sheets 28
Consolidated Statements of Cash Flows 29
Consolidated Statements of Shareowners' Equity 30
Notes to Consolidated Financial Statements 31-41
Report of Ernst & Young LLP 42**
</TABLE>
*Pages 25 through 41 are incorporated by reference from
the indicated pages of the 1995 Annual Report to Shareowners.
**Set forth herein.
2. Financial Statement Schedule for the years 1995,
<PAGE>
1994 and 1993:
Report of Independent Accountants on Financial
Statement Schedule
Report of Ernst & Young LLP on Financial Statement
Schedule
Valuation and Qualifying Accounts and Reserves -
Schedule II
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
3. See Exhibit Index for list of exhibits filed with
this report.
The Registrant hereby agrees to furnish the Commission
a copy of each of the Indentures or other instruments
defining the rights of security holders of the long-term
debt securities of the Registrant and any of its
subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed.
(b) Reports on Form 8-K
The Company filed the following three reports during
the quarter ended December 31, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
SEC Filing Date Item No. Financial Statements
--------------- ---------- --------------------
October 5, 1995 5 None
November 14, 1995 2,7 Yes
November 21, 1995 5 None
</TABLE>
The Company filed the following reports subsequent to
the quarter ended December 31, 1995 through March 26,
1996:
<TABLE>
<S> <C> <C>
January 26, 1996 4 None
March 26, 1996 5 None
</TABLE>
(c) Refer to Item 14 (a) (3) above for Exhibits required by
Item 601 of Regulation S-K.
(d) Schedules other than set forth in response to Item 14
(a) (2) above for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have
been omitted.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareowners of
Frontier Corporation
Our audits of the consolidated financial statements referred
to in our report dated January 22, 1996, appearing on page
25 of the 1995 Annual Report to Shareowners (which report
and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. We did not audit the Financial
Statement Schedule of ALC Communications Corporation, a
wholly owned subsidiary, which statement reflects valuation
and qualifying accounts and reserves of $40,078,000,
$32,692,000 and $38,874,000 at December 31, 1995, 1994 and
1993 respectively. That Financial Statement Schedule was
audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar
as it relates to the amounts included for ALC Communications
Corporation, is based solely on the report of the other
auditors. In our opinion, based on our audits and the
report of other auditors, the Financial Statement Schedule
presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
January 22, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENT SCHEDULE
Board of Directors
ALC Communications Corporation
We have audited the financial statements of ALC
Communications Corporation (ALC) as of December 31, 1995,
1994 and 1993 for each of the three years in the period
ended December 31, 1995, and have issued our report thereon
dated January 17, 1996. Our audits also included Schedule
II of ALC (not presented separately herein) which is
included in the related schedule of Frontier Corporation in
its Annual Report on Form 10-K for the year ended December
31, 1995. This financial statement schedule is the
responsibility of ALC management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule of ALC
referred to above, when considered in relation to the ALC
basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
January 17, 1996
Detroit, Michigan
<PAGE>
FRONTIER CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEAR ENDED DECEMBER 31, 1995
(Table 1 of 3)
In thousands of
dollars
<TABLE>
<CAPTION>
Additions
-----------------
Balance Charged Charged
at to costs to
beginning and other Balance at
Description of year expenses accounts Deductions end of year
----------- --------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for
uncollectible
accounts $11,407 $36,655 $24,986 (1) $44,533 (2) $28,515
Deferred tax asset
valuation
allowance $28,500 $0 $7,950 (3) $16,120 $20,330
Acquisition related
reserves $0 $114,239 $0 $31,090 $83,149 (4)
</TABLE>
(1) Primarily recoveries of uncollectible accounts and
balances added through acquisitions.
(2) Uncollectible accounts written off.
(3) Balances added through acquisitions.
(4) Included primarily in "Other liabilities" and "Property,
plant and equipment" in the Consolidated Balance Sheets.
<PAGE>
FRONTIER CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEAR ENDED DECEMBER 31, 1994
(Table 2 of 3)
In thousands of
dollars
<TABLE>
<CAPTION>
Additions
------------------
Balance Charged Charged
at to costs to
beginning and other Balance at
Description of year expenses accounts Deductions end of year
----------- --------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for
uncollectible
accounts $9,832 $29,526 $11,084 (1) $39,035 (2) $11,407
Deferred tax asset
valuation
allowance $34,900 $0 $0 $6,400 $28,500
</TABLE>
(1) Primarily recoveries of uncollectible accounts.
(2) Uncollectible accounts written off.
<PAGE>
FRONTIER CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1993
(Table 3 of 3)
In thousands of
dollars
<TABLE>
<CAPTION>
Additions
------------------
Balance Charged Charged
at to costs to
beginning and other Balance at
Description of year expenses accounts Deductions end of year
----------- --------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for
uncollectible
accounts $6,589 $25,885 $9,628 (1) $32,270 (2) $9,832
Deferred tax asset
valuation
allowance $33,200 $1,700 $0 $0 $34,900
</TABLE>
(1) Recoveries of uncollectible accounts.
(2) Uncollectible accounts written off.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
FRONTIER CORPORATION
(Registrant)
By/s/Ronald L. Bittner
--------------------------
Ronald L. Bittner
Chairman, President and
Chief Executive Officer
Date: March 18, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
By/s/Ronald L. Bittner By/s/Marvin C. Moses
----------------- ----------------
Ronald L. Bittner Marvin C. Moses
Chairman, President and Vice Chairman,
Chief Executive Officer and Chief Financial Officer and
Director Director (principal
financial officer)
Date: March 18, 1996 March 18, 1996
By/s/Richard A. Smith
----------------
Richard A. Smith
Controller
(principal accounting officer)
Date: March 18, 1996
* *
- --------------------------- --------------------------
Patricia C. Barron Raul E. Cesan
Date: March 18, 1996 March 18, 1996
*
- ------------------------ --------------------------
Brenda E. Edgerton Jairo A. Estrada
Date: March 18, 1996 March 18, 1996
* *
- -------------------------- ---------------------------
Michael E. Faherty Daniel E. Gill
Date: March 18, 1996 March 18, 1996
* *
- ------------------------- ---------------------------
Alan C. Hasselwander Robert J. Holland, Jr.
Date: March 18, 1996 March 18, 1996
* *
- ------------------------ ---------------------------
Douglas H. McCorkindale Leo J. Thomas
Date: March 18, 1996 March 18, 1996
*
- -----------------------
Richard J. Uhl
Date: March 18, 1996
*By/s/Josephine S. Trubek Manually signed powers of
------------------- attorney for each
Josephine S. Trubek Director are attached
Attorney-in-Fact hereto and filed
herewith pursuant to
Regulation S-K
Item 601(b)24 as Exhibit 24.
<PAGE>
FRONTIER CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Reference
- ------ ------------------------ --------------
<S> <C> <C>
3.1 Restated Certificate of Filed herewith
Incorporation dated
January 24, 1995
3.2 Amendment to Restated Filed herewith
Certificate of Incorporation
dated April 9, 1995
3.3 By-Laws Filed herewith
4.1 Copy of Indenture between Incorporated by reference
the Company and Manufacturers to Exhibit 4-12 to Form
Hanover Trust Company, 10-K for the year ended
Trustee, dated September 1, December 31, 1986
1986
4.2 Copy of First Supplemental Incorporated by reference
Indenture to said Indenture, to Exhibit 4(b) to
made by the Company to Registration Statement
Manufacturers Hanover Trust 33-32035
Company, Trustee, dated
December 1, 1989
4.3 Copy of 10.46% Non Negotiable Incorporated by reference
Convertible Debenture due to Exhibit 4-14 to Form
October 27, 2008 from the 10-K for the year ended
Company to The Walters Trust December 31, 1988
4.4 Copy of 9% Debenture due Incorporated by reference
August 15, 2021 to Exhibit 4-16 to Form
10-K for the year ended
December 31, 1991
4.5 Copy of Indenture between the Filed herewith
Company and Chase Manhattan
Bank, N.A. dated August 9,
1995
</TABLE>
<PAGE>
FRONTIER CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Reference
<S> <C> <C>
10.1 Copy of the Restated Incorporated by reference
Supplemental Management to Exhibit 10-14 to Form
Pension Plan and Amendments 10-K for the year ended
Nos. 1 and 2 thereto December 31, 1990
10.2 Copy of the Restated Incorporated by reference
Performance Unit Plan to Exhibit 10-15 to Form
10-K for the year ended
December 31, 1990
10.3 Copy of Amendment No. 1 to Incorporated by reference
Restated Performance Unit to Exhibit 10-21 to Form
Plan 10-K for the year ended
December 31, 1991
10.4 Copy of the Restated Incorporated by reference
Supplemental Retirement to Exhibit 10-23 to Form
Savings Plan and Amendment 10-K for the year ended
No. 1 thereto December 31, 1991
10.5 Copy of Amendment No. 3 to Incorporated by reference
to Restated Supplemental to Exhibit 10-22 to Form
Management Pension Plan 10-K for the year ended
December 31, 1991
10.6 Copy of Joint Venture Incorporated by reference
Agreement dated March 9, 1993 to Exhibit 10-13 to Form
by and between Rochester Tel 10-K for the year ended
Cellular Holding Corporation December 31, 1992
and New York Cellular
Geographic Service Area, Inc.
together with Exhibit A
thereto
</TABLE>
<PAGE>
FRONTIER CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Reference
<S> <C> <C>
10.7 Copy of Amendment No. 2 to Incorporated by reference
Restated Performance Unit to Exhibit 10-21 to Form
Plan 10-K for the year ended
December 31, 1992
10.8 Copy of Amendment No. 4 to Incorporated by reference
to Restated Supplemental to Exhibit 10-22 to Form
Management Pension Plan 10-K for the year ended
December 31, 1992
10.9 Copy of Amendment No. 2 to Incorporated by reference
the Supplemental Retirement to Exhibit 10-24 to Form
Savings Plan 10-K for the year ended
December 31, 1992
10.10 Copy of Amendment No. 3 to Incorporated by reference
the Performance Unit Plan to Exhibit 10-30 to Form
10-Q for the quarter ended
March 31, 1993
10.11 Copy of Amendment No. 5 to Incorporated by reference
the Supplemental Management to Exhibit 10-33 to Form
Pension Plan 10-Q for the quarter ended
June 30, 1993
10.12 Copy of Amendment No. 3 to Incorporated by reference
the Supplemental Retirement to Exhibit 10-35 to Form
Savings Plan 10-Q for the quarter ended
June 30, 1993
10.13 Copy of Amendment No. 6 to Incorporated by reference
the Supplemental Management to Exhibit 10-33 to Form
Pension Plan 10-K for the year ended
December 31, 1993
</TABLE>
<PAGE>
FRONTIER CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Reference
<S> <C> <C>
10.14 Copy of the Plan for the Incorporated by reference
Deferral of Directors Fees to Exhibit 10-34 to Form
10-K for the year ended
December 31, 1994
10.15 Copy of Amendment No. 4 to Incorporated by reference
the Supplemental Retirement to Exhibit 10-31 to Form
Savings Plan 10-K for the year ended
December 31, 1994
10.16 Copy of the Directors' Incorporated by reference
Common Stock Deferred to Exhibit 10-36 to Form
Growth Plan 10-K for the year ended
December 31, 1994
10.17 Forms of employment contracts Incorporated by reference
as amended to date for to Exhibits 10.1, 10.2 and
Messrs. Oberlin and Zrno 10.3 to ALC Communications
Corporation's Form 10-Q
for the quarter ended
September 30, 1995
10.18 Management contract Filed herewith
for Mr. Moses
10.19 Copy of Amendment Nos. 7 and Filed herewith
8 to the Supplemental
Management Pension Plan
10.20 Copy of the restated Filed herewith
Management Pension Plan
10.21 Copy of Executive Bonus Plan Filed herewith
10.22 Copy of the restated Filed herewith
Directors Stock Incentive
Plan dated April 26, 1995
</TABLE>
<PAGE>
FRONTIER CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Reference
<S> <C> <C>
10.23 Copy of the Management Stock Filed herewith
Incentive Plan dated
April 26, 1995
10.24 Form of management contracts Filed herewith
as amended with each of Messrs.
Bittner, Massaro, Carr and
Gregory
11 Computation of Fully Diluted Filed herewith
Earnings Per Share
13.1 Specified portions (pages 18 Filed herewith
through 41) of the Company's
Annual Report to shareholders
for the year ended December 31, 1995
13.2 Report of Ernst & Young LLP Filed herewith
21 Subsidiaries of Frontier Filed herewith
Corporation
23.1 Consent of Independent Filed herewith
Accountants - Price Waterhouse LLP
23.2 Consent of Independent Filed herewith
Accountants - Ernst & Young LLP
24 Power of Attorney for a Filed herewith
majority of Directors naming
Josephine S. Trubek attorney-in-fact
27 Financial Data Schedule Filed herewith
99 Proxy Statement for the Filed herewith
Annual Meeting of Shareowners
to be held April 24, 1996
</TABLE>
<PAGE>
EXHIBIT 3-1
RESTATED CERTIFICATE OF INCORPORATION
OF
FRONTIER CORPORATION
Under Section 807 of the Business Corporation Law
We, the undersigned, JOHN K. PURCELL, and JOSEPHINE S.
TRUBEK, being respectively a Corporate Vice President and the
Corporate Secretary of Frontier Corporation, do hereby CERTIFY
that:
1. The name of the Corporation is "FRONTIER CORPORATION".
2. The Certificate of Incorporation of the Corporation was
filed in the Department of State of the State of New York on
February 25, 1920. A Restated Certificate of Incorporation was
filed in the Department of state of the State of New York on
April 2, 1968.
3. The text of the Certificate of Incorporation, as
amended (or changed) heretofore, is hereby restated without
further amendment or change to read as herein set forth in full:
FIRST: The name of the Corporation is "Frontier
Corporation".
SECOND: The purposes for which the Corporation is
formed are: To engage in any lawful act or activity for which
corporations may be organized under the Business Corporation Law
of the State of New York, except that the Corporation is not
organized to engage in any act or activity requiring the consent
or approval of any official, department, board, agency or other
body of the State of New York without first obtaining such
consent or approval.
THIRD: The total number of shares which the
Corporation shall have authority to issue is (i) Three Hundred
Million (300,000,000) shares of Common Stock of the par value of
One Dollar ($1.00) per share, (ii) Four Million (4,000,000)
shares of Class A Preferred Stock of the par value of One Hundred
Dollars ($100.00) per share and (iii) Eight Hundred Fifty
Thousand (850,000) shares of Cumulative Preferred Stock of the
par value of One Hundred Dollars ($100.00) per share (the Class A
Preferred Stock and the Cumulative Preferred Stock referred to
collectively herein as the "Preferred Stock").
Subject to any exclusive voting rights which may vest
in holders of Preferred Stock under the provision of any series
of Preferred Stock established by the Board of Directors pursuant
to authority herein provided, and except as otherwise provided by
law, the shares of Common Stock shall entitle the holders thereof
to one vote for each share upon all matters upon which
shareowners have the right to vote.
No holders of shares of the Corporation of any class or
series, now or hereafter authorized, shall have any preemptive
rights to subscribe for or purchase any part of any issue, sale
<PAGE>
or offering of any shares of the Corporation of any class or
series, now or hereafter authorized, or of any options, warrants
or rights to subscribe for or purchase any such shares, or of any
securities convertible into, or carrying options, warrants or
rights to subscribe for or purchase, any such shares, regardless
of whether such issue, sale or offering is for cash, property,
services or otherwise.
FOURTH: Subject to the limitations and in the manner
provided by law and subject to the terms of this Certificate,
shares of Class A Preferred Stock may be issued from time to time
in series and the Board of Directors is hereby authorized to
establish and designate series, to fix the number of shares
constituting each series, and to fix the designations and the
relative rights, preferences and limitations of the shares of
each series and the variations in the relative rights,
preferences and limitations as between series, and to increase
and to decrease the number of shares constituting each series.
Subject to the limitations and in the manner provided by law and
subject to the terms of this Certificate, the authority of the
Board of Directors with respect to each series shall include but
shall not be limited to the authority to determine the following:
(i) the designation of such series;
(ii) the number of shares initially constituting such
series;
(iii) the increase, and the decrease to a number not
less than the number of the outstanding shares of such
series, of the number of shares constituting such series
theretofore fixed;
(iv) the rate or rates and the times at which
dividends on the shares of such series shall be paid and
whether or not such dividends shall be cumulative and, if
such dividends shall be cumulative, the date or dates from
and after which they shall accumulate; provided, however,
that, if the stated dividends are not paid in full, the
shares of all series of Class A Preferred Stock shall share
ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which
would be payable on such shares if all dividends were
declared and paid in full; and provided, further, that
dividends or other distributions shall not be declared or
paid on any shares of Class A Preferred Stock unless the
current quarterly dividend upon all the Cumulative Preferred
Stock then outstanding, together with all accumulations
thereon, shall have been paid or declared and set apart for
payment in accordance with the requirements of subdivision
(B) of Article FIFTH;
(v) whether or not the shares of such series shall be
redeemable and, if such shares shall be redeemable, the
terms and conditions of such redemption, including but not
limited to the date or dates upon or after which such shares
shall be redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary under
different conditions and at different redemption dates;
provided, that, unless the current quarterly dividend upon
<PAGE>
all the Cumulative Preferred Stock then outstanding,
together with all accumulations thereon, shall have been
paid or declared and set apart for payment in accordance
with the requirements of subdivision (B) of Article FIFTH,
the Corporation or any of its subsidiaries shall not redeem,
purchase or otherwise acquire shares of Class A Preferred
Stock (except by conversion into or exchange for, or out of
the net cash proceeds from the concurrent sale of, stock of
the Company ranking junior to the Cumulative Preferred Stock
as to dividends);
(vi) the amount payable on the shares of such series in
the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided,
however, that (1) before any assets of the Corporation shall
be distributed among or paid over to the holders of Class A
Preferred Stock, each holder of Cumulative Preferred Stock
then outstanding shall be entitled to be paid the amount
described in subdivision (C) of Article FIFTH, and (2) the
holders of shares of Class A Preferred Stock shall be
entitled to be paid, or to have set apart for payment, not
less than $100.00 per share before the holders of shares of
Common Stock or the holders of any other class of stock
ranking junior to the Class A Preferred Stock as to rights
on liquidation shall be entitled to be paid any amount or to
have any amount set apart for payment; provided, further,
that, if the amounts payable on liquidation are not paid in
full, the shares of all series of the Class A Preferred
Stock shall share ratably in any distribution of assets
other than by way of dividends in accordance with the sums
which would be payable in such distribution if all sums
payable were discharged in full. A liquidation, dissolution
or winding up of the Corporation, as such terms are used in
this clause (vi), shall not be deemed to be occasioned by or
to include any consolidation or merger of the Corporation
with or into any other corporation or corporations or a
sale, lease or conveyance of all or a part of its assets;
(vii) whether or not the shares of such series shall
have voting rights, in addition to the voting rights
provided by law and, if such shares shall have such voting
rights, the terms and conditions thereof, including but not
limited to the right of the holders of such shares to vote
as a separate class either alone or with the holders of
shares of one or more other series or class of stock and the
right to have more than one vote per share;
(viii) whether or not a sinking fund shall be provided
for the redemption of the shares of such series and, if such
a sinking fund shall be provided, the terms and conditions
thereof;
(ix) whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of stock of any
other class or any other series of this class or any other
securities or assets, and, if so, the terms and conditions of
conversion or exchange, including but not limited to any
provision for the adjustment of the rate or rates or the price or
prices of conversion or exchange; and
<PAGE>
(x) any other relative rights, preferences and
limitations.
If any shares of Class A Preferred Stock shall be
issued then, for purposes of clause (ii)(a) of subdivision (F) of
Article FIFTH, such shares shall be deemed to have been
authorized in connection with any prior authorization of shares
of Class A Preferred Stock, notwithstanding any subsequent action
by the Corporation's Board of Directors in connection with the
issuance of such shares or the filing of any certificate required
by law in connection with such issuance.
FIFTH: The respective rights, preferences and
limitations of the shares of Cumulative Preferred Stock are set
forth in the following subdivisions designated (A) to (F)
inclusive which are hereinafter referred to as subdivisions of
this Article FIFTH.
(Note: The words "preferential rights" whenever used in
this Certificate with respect to the Cumulative
Preferred Stock herein authorized or any preferred
stock of any class or series hereafter authorized by
any certificate filed pursuant to law, shall for the
sake of brevity and convenience, mean and include the
words "relative rights, preferences and limitations of
the shares of each class" as used in the Business
Corporation Law.)
(A) The shares of Cumulative Preferred Stock shall be
issuable from time to time in one or more series. The Board of
Directors is hereby authorized to fix, from time to time before
issuance, the preferential rights of the shares of each series of
such Cumulative Preferred Stock, to the extent that such
preferential rights are not herein expressly prescribed,
determined and set forth. The preferential rights of shares of
different series shall be identical, except that there may be
variations, as hereinafter provided, in respect of the dividend
rates, dates of payment of dividends and dates from which they
are cumulative, redemption prices, sinking fund requirements and
conversion and other rights. All shares of any one series will
be alike in every particular and all shares of Cumulative
Preferred Stock will rank equally. There shall be no
discrimination as between different series of Cumulative
Preferred Stock in the declaration and payment of dividends on
the basis of the rates appertaining thereto; and if at any time
there shall be outstanding Cumulative Preferred Stock of several
series bearing different rates of dividends and dividends are to
be declared on such stock at less than the full rates
appertaining thereto, the shares of all such series shall share
ratably in the payment of such dividends including accumulations,
if any, in accordance with the sums which would be payable on
said shares if all dividends were declared and paid in full.
The Board of Directors is authorized to fix from time
to time before issuance of each series of Cumulative Preferred
Stock, but subject to the provisions of this Certificate covering
all series of Cumulative Preferred Stock, the following: (a) the
designation and number of shares of such series; (b) the dividend
rate of such series; (c) the dates of payment of dividends on
shares of such series and the dates from which they are
<PAGE>
cumulative; (d) the redemption price or prices for shares of such
series; (e) the amount of the sinking fund or redemption or
purchase fund or account, if any, to be applied to the purchase
or redemption of shares of such series and the manner of its
application; and (f) whether or not the shares of such series
shall be made convertible into shares of any other class or
classes or of any other series of the same class of stock of the
Corporation, and if made so convertible the conversion price or
prices and the provisions, if any, for the adjustment thereof and
any other relative, participating, optional or other special
rights (including rights to purchase stock or obligations of the
Corporation) and powers and qualifications, limitations or
restrictions thereof of shares of such series.
(B) Dividends. The holders of the Cumulative
Preferred Stock of any series shall be entitled to receive, when
and as declared by the Board of Directors, but only out of funds
legally available for the payment thereof, fixed yearly preferred
dividends at the annual rate appertaining to such series, and no
more, payable in lawful money of the United States of America
quarterly on the first days of January, April, July and October
in each year, or on such other dates as may be determined by the
Board of Directors, before any dividends shall be paid upon or
set apart for any junior stock (which term as used herein shall
mean Common Stock, Class A Preferred Stock and any other class of
stock of the Corporation which shall rank junior to the
Cumulative Preferred Stock). Dividends on the Cumulative
Preferred Stock shall be cumulative, so that if dividends on all
outstanding shares of Cumulative Preferred Stock at the
respective annual dividend rates appertaining thereto shall not
have been paid for all past quarterly dividend periods, and the
full dividends thereon at such rates for the current quarterly
dividend period shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or
dividends equal thereto declared and set apart for payment at
such rates, but without interest thereon, before any dividend
shall be paid upon any junior stock.
After the payment or declaration and setting apart for
payment, for or in any calendar year, of the current quarterly
dividend upon all the Cumulative Preferred Stock then
outstanding, together with all accumulations as herein provided,
the Corporation may declare and pay, but only out of funds
legally available for the payment thereof, dividends on any class
of junior stock, in accordance with the rights of such junior
stock and respective classes thereof, in such amounts and at such
time or times as the Board of Directors may determine.
(C) Liquidation. The Cumulative Preferred Stock shall
be preferred as to both earnings and assets, and in the event of
any voluntary liquidation, dissolution or winding up of the
Corporation, or of any distribution of assets by way of return of
capital to its stockholders (other than redemption of Cumulative
Preferred Stock in accordance with the provisions hereinafter set
forth), each holder of Cumulative Preferred Stock shall be
entitled, before any assets of the Corporation shall be
distributed among or paid over to the holders of any junior
stock, to be paid, from the assets of the Corporation available
for distribution among its stockholders, an amount equal to the
redemption price or prices current at the date of such payment as
hereinafter provided (plus an amount equivalent to accrued and
<PAGE>
unpaid dividends, whether or not earned) on the respective shares
of Cumulative Preferred Stock held by him. In the event of any
involuntary liquidation, dissolution or winding up of the
Corporation, or of any involuntary distribution of assets by way
of return of capital to its stockholders, each holder of the
Cumulative Preferred Stock shall be entitled, before any assets
of the Corporation shall be distributed among or paid over to the
holders of any junior stock, to be paid, out of the assets of the
Corporation available for distribution among its stockholders, an
amount equal to the par value of the respective shares of
Cumulative Preferred Stock held by him, plus an amount equivalent
to accrued and unpaid dividends, whether or not earned. If, in
either of the foregoing events, there shall not be sufficient
assets to make the full payment herein required, the outstanding
shares of all series of Cumulative Preferred Stock shall share
ratably in the distribution of assets in accordance with the sums
which would be paid on such distribution if all sums payable were
discharged in full. If the appropriate payment herein required
shall have been made to the holders of the Cumulative Preferred
Stock, the holders of the Cumulative Preferred Stock shall not be
entitled to participate further in the distribution of the assets
of the Corporation and after such payment and distribution to the
holders of the Cumulative Preferred Stock, the remaining assets
of the Corporation shall be distributed among the holders of the
junior stock according to their respective rights and preferences
and pro rata in accordance with the number of shares respectively
held by such holders.
(D) (a) Redemption of Cumulative Preferred Stock.
Subject to the provisions of subsection (i) of this subdivision
(D), the Corporation, at the option of the Board of Directors,
expressed in a resolution adopted by said Board, may redeem, at
any time or times and from time to time, all or any part of the
shares of Cumulative Preferred Stock or all or any part of any
one or more series of such Cumulative Preferred Stock
outstanding, by paying the par value thereof plus an amount in
the case of each such share of Cumulative Preferred Stock to be
redeemed computed at the annual dividend rate for the series in
question from the date from which dividends on such share became
cumulative to the date fixed for such redemption, less the
aggregate of dividends theretofore or on such redemption date
paid thereon, plus such premium, if any, as shall have been fixed
in accordance with the provisions of subdivision (A) of this
Article FIFTH prior to the issuance thereof. Notice of every
such redemption shall be given by publication, published at least
once in each of two (2) calendar weeks in a daily newspaper
(which term shall mean and include a newspaper published in
morning editions or evening editions or both, and whether or not
it shall be published in Sunday editions or on holidays) printed
in the English language and published and of general circulation
in the Borough of Manhattan, the City and State of New York, the
first publication to be at least thirty (30) days and not more
than sixty (60) days prior to the date fixed for such redemption.
At least thirty (30) days' and not more than sixty (60) days'
previous notice of every such redemption shall also be mailed to
the holders of record of the Cumulative Preferred Stock to be
redeemed, at their respective addresses as the same shall appear
on the books of the Corporation; but no failure to mail such
notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for the redemption of any
<PAGE>
shares of such Cumulative Preferred Stock so to be redeemed. The
Board of Directors shall have full power and authority, subject
to the limitations and provisions herein contained, to prescribe
the manner in which and the terms and conditions upon which any
shares of any series of the Cumulative Preferred Stock shall be
redeemed from time to time. If such notice of redemption shall
have been duly given by publication, and if on or before the
redemption date specified in such notice all funds necessary for
such redemption shall have been set aside so as to be available
therefor, then, notwithstanding that any certificate for the
shares of such Cumulative Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the
shares represented thereby shall from and after the date fixed
for redemption no longer be deemed outstanding, the right to
receive dividends thereon shall cease to accrue from and after
the date of redemption so fixed, and all rights with respect to
such shares of Cumulative Preferred Stock so called for
redemption shall forthwith on such redemption date cease and
terminate, except only the right of the holders thereof to
receive the amount payable upon redemption thereof, but without
interest; provided, however, that the Corporation may, after
giving the first notice by publication of any such redemption or
upon furnishing the depositary hereinafter mentioned with
irrevocable authority to publish such notice of redemption on
behalf of the Corporation and prior to the redemption date
specified in such notice, deposit in trust, for the account of
the holders of such Cumulative Preferred Stock to be redeemed,
with a bank or trust company in good standing, organized under
the laws of the United States of America, or of the State of New
York, doing business in the City of Rochester, New York, or in
the Borough of Manhattan, the City and State of New York, and
having a capital, undivided profits and surplus aggregating at
least $5,000,000, all funds necessary for such redemption, and
upon such deposit all shares of such Cumulative Preferred Stock
with respect to which such deposit shall have been made shall no
longer be deemed to be outstanding, and all rights with respect
to such shares of such Cumulative Preferred Stock shall forthwith
upon such deposit in trust cease and terminate, except (1) the
right of the holders thereof to receive the amount payable upon
the redemption thereof, but without interest, or (2) the right of
the holders of any Cumulative Preferred Stock, which may be
convertible into shares of stock of the Corporation of any class
or classes, or other securities, to convert such Cumulative
Preferred Stock called for redemption within the time or up to a
date specified in the terms of such convertible stock or as may
be stated in any certificate filed pursuant to law creating such
convertible stock. If less than all the Cumulative Preferred
Stock of any series shall be redeemed, the stock to be redeemed
shall be selected by lot in such manner as the Board of Directors
may determine, by a bank or trust company appointed for that
purpose by said Board, which, unless otherwise directed by said
Board, shall be the bank or trust company with which the funds
necessary for such redemption are to be deposited.
(i) Unless all dividends accrued to the dividend date
next preceding such redemption date shall be paid on all
Cumulative Preferred Stock then outstanding, the Corporation
shall not have the right to redeem less than all of the
Cumulative Preferred Stock outstanding at the time of giving
the notice of such redemption.
<PAGE>
(b) Purchase of Cumulative Preferred Stock. In the
event that at any time the Corporation shall be in default in the
payment of dividends on the Cumulative Preferred Stock then so
long as such default shall continue, the Corporation shall not
purchase or otherwise acquire for a consideration any shares of
the Cumulative Preferred Stock unless such purchase or
acquisition shall be pursuant to tenders, called for on at least
20 days' previous notice by mail to the holders of record (at the
time of mailing such notice) of the Cumulative Preferred Stock at
their respective addresses as the same shall appear on the books
of the Corporation. The shares of stock to be purchased,
pursuant to such tenders, shall be purchased at the lowest prices
specified in such tenders, not exceeding, however, the redemption
prices then in effect or then current, and the notice shall
specify the method (whether by lot, or otherwise) of determining
the stock to be purchased in the event that stock shall be
tendered at the same price, whether the lowest or other price.
(E) Increase of Authorized Stock. The Corporation,
subject to the provisions of subsection (ii) of subdivision (F)
of this Article FIFTH, may from time to time increase the
authorized amount of the Cumulative Preferred Stock and may also
from time to time create other classes of preferred stock with
different preferential rights.
(F) Voting Rights. The holders of the Cumulative
Preferred Stock shall not be entitled to any voting rights
whatsoever, except as specifically required by statute or as
hereinafter expressly provided.
(i) Voting rights upon default in dividends. In the
event that, at any time, or from time to time, four full
quarterly dividends (whether consecutive or not) on the
Cumulative Preferred Stock then outstanding, at the dividend
rate appertaining thereto shall be in arrears, the holders
of such Cumulative Preferred Stock shall have the right,
voting separately as a class, to elect the smallest number
of directors then necessary to constitute a majority of the
full Board, and in such event the holders of stock of any
other class or classes then entitled to vote for directors
shall have the right, voting separately as a class, to elect
only the remaining directors.
If and whenever the right of the holders of Cumulative
Preferred Stock to elect directors hereunder shall accrue,
the terms of office of all persons who may be directors of
the Corporation at such time shall terminate upon the
election of their successors. Such election may be held at
a special meeting of all stockholders of the Corporation
which shall be convened at any time after the accrual of
such right, upon notice similar to that provided in the
Bylaws of the Corporation for calling the annual meeting of
the stockholders, at the written request of the holders of
record of at least 10% of the number of shares of Cumulative
Preferred Stock then outstanding, for which purpose any
holder of record of Cumulative Preferred Stock shall have
access to the stock books of the Corporation. In the event
of the failure of the Secretary or other proper officer of
the Corporation to give such notice within 10 days after
<PAGE>
receipt of such request, then such meeting may be called on like
notice given by the holders of at least 10% of the Cumulative
Preferred Stock then outstanding. If for any reason such special
meeting shall not be held prior to the next annual meeting, then
notice of such annual meeting shall be given to the holders of
the Cumulative Preferred Stock then outstanding in the manner
provided in the Bylaws, and at such meeting the holders of
Cumulative Preferred Stock and the holders of any other class or
classes of stock then entitled to vote for directors shall elect
the number of directors for which they are then respectively
entitled to vote under the provisions hereof, unless previously
thereto all such defaults in dividends shall have been made good.
In the event that the holders of the Cumulative Preferred Stock
then outstanding shall not exercise their right to elect
directors at such annual meeting then the holders of the other
class or classes of stock then entitled to vote for the election
of directors shall have the right to elect at such meeting the
entire membership of the Board of Directors, and such directors
so elected shall constitute the entire Board of Directors until
such time as part thereof shall be retired and replaced by
directors elected, as herein provided, by the holders of
Cumulative Preferred Stock then outstanding.
To entitle the holders of Cumulative Preferred Stock to
vote for the election of directors hereunder at any meeting,
there shall be present at such meeting in person or by proxy
the holders of not less than a majority of the shares of
Cumulative Preferred Stock then outstanding, but the holders
of less than a majority of such shares may adjourn such
meeting for a period or periods not exceeding four weeks in
the aggregate. In order to validate an election of
directors by the holders of Cumulative Preferred Stock as
herein provided, such election shall be by a vote of at
least a plurality of the shares of Cumulative Preferred
Stock then outstanding present at such meeting in person or
by proxy.
In the event that any meeting at which the holders of
Cumulative Preferred Stock shall have the right to elect
directors to replace directors theretofore elected by
holders of any other class or classes of stock shall be
attended by the holders of at least a majority of the
Cumulative Preferred Stock then outstanding, but not by the
holders of at least a majority of the other class or classes
of stock then entitled to vote for directors, such holders of
Cumulative Preferred Stock shall nevertheless be entitled to
proceed with the election of directors in place of directors
theretofore elected as hereinabove provided, such retiring
directors (if and so far as the necessary vacancies shall not be
provided by voluntary resignations) to be determined by lot from
the Board of Directors theretofore elected as aforesaid, not
including, however, directors then holding the office of Chairman
of the Board of Directors or President of the Corporation, and
the remaining directors (i.e., those not resigning or selected by
lot as aforesaid) theretofore elected by the holders of the other
class or classes of stock shall continue to hold office until
their successors shall have been duly elected as herein provided.
Whenever by reason of the resignation, death or removal
of any director or directors or any increase in the number
<PAGE>
of directors, the number of directors in office who have
been elected by the holders of stock voting as a class shall
become less than the total number then subject to election
by such class, the vacancy or vacancies so resulting may be
filled by the affirmative vote of the directors, if any, at
the time in office who were elected by the vote of such
class, although less than a quorum, or by vote of such class
at a special meeting thereof (if there are then no directors
in office who were elected by the vote of such class) which
shall be called at any time at the request of the holders of
record of at least 10% of the outstanding shares of such
class, for which purpose such holders shall have access to
the stock books of the Corporation.
If at any time the right of the holders of the
Cumulative Preferred Stock to elect directors hereunder
shall accrue as aforesaid, and the holders of such stock
shall not exercise such right at any meeting (whether annual
or otherwise) at which directors may be elected, such
failure to exercise such right shall not be construed as a
waiver thereof, but the holders of such stock may, so long
as the default in dividends aforesaid shall exist, exercise
the right given them hereunder in the manner aforesaid at
any annual meeting or at any special meeting called as
hereinabove provided or at any adjournment of either
thereof.
The right of the holders of Cumulative Preferred Stock
to elect directors, as hereinabove provided, shall continue
until all accrued dividends on the Cumulative Preferred
Stock at the full dividend rates thereto appertaining shall
have been paid, or declared and set apart for payment, at
which time such right shall cease.
If and whenever the right of the holders of Cumulative
Preferred Stock to elect directors as hereinabove provided
shall terminate, then the terms of office of all persons who
may be directors of the Corporation at such time shall
terminate upon the election of their successors. Such
election may be held at a special meeting of the holders of
the class or classes of stock then entitled to vote for
directors, which meeting may be convened at any time after
the termination of such right, upon notice similar to that
provided in the Bylaws of the Corporation for the annual
meeting of stockholders, at the written request of the
holders of record of at least 10% of such stock then
outstanding. In the event of the failure of the Secretary
or other proper officer of the Corporation to give such
notice within 10 days after receipt of such request, such
meeting may be called on like notice by the holders of
record of at least 10% of such stock, for which purpose any
holder of record of such stock shall have access to the
stock books of the Corporation. If for any reason such
special meeting be not held prior to the next annual
meeting, then at such meeting the holders of the class or
classes of stock then outstanding and entitled to vote for
the election of directors shall elect all of the members of
the Board.
(ii) Authorization or Issue of Additional
<PAGE>
Preferred Stock. The Corporation may from time to time
increase the authorized amount of Cumulative Preferred Stock
and may also from time to time create other classes of
preferred stock with different preferential rights but only
in accordance with the provisions hereinafter set forth, so
long as any shares of Cumulative Preferred Stock shall be
outstanding.
(a) Authorization. The authorized amount of
Cumulative Preferred Stock shall not be increased
beyond the 850,000 shares authorized by this
Certificate, and no class of stock having preferential
rights which are equal to those of the Cumulative
Preferred Stock, and no obligations or shares of stock
of any class convertible into or evidencing the right
to purchase any class of stock having such preferential
rights shall be authorized by any certificate hereafter
filed pursuant to law, except upon the affirmative vote
of the holders of record of at least a majority of the
shares of Cumulative Preferred Stock then outstanding
voting separately as a class. No class of stock having
any preferential rights which are in any way superior
to those of the Cumulative Preferred Stock and no
obligations or shares of stock of any class convertible
into or evidencing the right to purchase any class of
stock having such superior preferential rights, shall
be authorized except upon the affirmative vote of the
holders of record of at least two-thirds of the then
outstanding shares of Cumulative Preferred Stock voting
separately as a class.
(b) Issue. No shares of Cumulative Preferred
Stock authorized by this Certificate in excess of the
number of shares of the first series thereof, nor any
shares of stock or obligations authorized pursuant to
any of the provisions of the preceding subparagraph
(a), shall be issued except upon compliance with the
earnings requirements hereinafter set forth, unless
such compliance shall have been waived by the
affirmative vote of the holders of record of at least a
majority of the shares of Cumulative Preferred Stock
then outstanding voting separately as a class. In the
event that any vote of the holders of Cumulative
Preferred Stock shall be required to authorize any
waiver under this subparagraph (b), such vote shall be
taken at a meeting of the holders of the Cumulative
Preferred Stock only, upon notice as hereinafter
required.
(c) Earnings Requirements. The earnings
requirements herein referred to are as follows, to wit
the gross earnings of the Corporation for a period of
12 consecutive calendar months within the 15 calendar
months immediately preceding the issue of stock or
obligations referred to in subparagraphs (a) and (b)
above shall have been at least equal to one and
one-half (1 1/2) times the sum of the annual interest
requirements on all funded indebtedness and other
borrowings of the Corporation to be outstanding on the
date of the proposed issue and the annual dividend
<PAGE>
requirements on the Cumulative Preferred Stock then
outstanding and on any other class of stock then
outstanding having preferential rights equal or
superior to those of the Cumulative Preferred Stock and
the annual dividend requirements on the stock to be
issued. "Gross earnings" for any period for the
purposes of this subparagraph (c) shall be computed by
adding to the net income (determined as hereinafter
provided) of the Corporation for said period the amount
deducted for interest on all funded indebtedness and
other borrowings of the Corporation in determining such
net income. "Net income" for any period for the
purposes of this subparagraph (c) shall be determined
in accordance with accepted accounting principles, not
inconsistent, however, with the requirements of public
regulatory authorities having jurisdiction in the
premises, and in determining such net income for any
period, there shall be deducted, in addition to other
items of expense, the amount charged to income for said
period on the books of the Corporation for taxes and
provision for depreciation. The Board of Directors may
make adjustments by way of increase or decrease in such
net income to give effect to changes therein resulting
from acquisition of properties or any redemption,
acquisition, purchase, sale or exchange of stock or
obligations by the Corporation, whether prior to the
issue of any stock or obligations then to be issued, or
in connection with such issue. In computing net income
for the purposes of this subparagraph (c), adjustments
shall be made so as to eliminate profits or losses from
the sale or other disposition of capital assets and
from appreciation or depreciation in value of capital
assets and increases or decreases in book value
resulting from reappraisal (if any) at higher or lower
figures.
(iii) Alteration of Terms of Cumulative Preferred
Stock, etc. The Corporation shall not, except when
authorized by the vote of the holders of record of at least
two-thirds of the then outstanding shares of Cumulative
Preferred Stock voting separately as a class (1) alter
or abolish any preferential right of any outstanding
shares of such stock affecting the holders of such
shares adversely, or (2) create, alter or abolish any
provisions or right in respect of the redemption of any
outstanding shares of such stock affecting the holders
of such shares adversely, or (3) abolish any voting
right of the holders of shares of such stock or limit
their voting rights, except as the same may be limited
by the voting rights given to new shares of any class
authorized by any certificate filed pursuant to law.
Such vote, however, shall not affect the right of any
holder of shares of Cumulative Preferred Stock not
voting in favor of the authorization of any of the
foregoing transactions (designated (1), (2) and (3)) to
have such shares appraised and paid for as contemplated
by the provisions of any then applicable provisions of
the statutes of the State of New York.
SIXTH: The designation of each series of Cumulative
<PAGE>
Preferred Stock of the Corporation, and a statement of the
variations in the relative rights, preferences and limitations as
between series to the extent not set forth in Article FIFTH of
this Certificate, as fixed by the Board of Directors of the
Corporation before issuance of each such series, are as follows:
(a) An initial series of Sixty Thousand (60,000)
shares of the Cumulative Preferred Stock of the Corporation,
which shares are designated "Cumulative Preferred Stock, 5%
Series" (herein called the "initial series").
The rate of dividends payable upon the initial series
shall be 5% of the par value thereof per annum, payable
quarterly on the first days of January, April, July and
October in each year.
The Corporation may redeem all or any part of the
initial series at any time or times and from time to time,
on the terms and conditions with respect thereto set forth
in subdivision (D) of Article FIFTH of this Certificate, by
paying, in the case of each such share to be redeemed, the
par value thereof plus an amount computed at the annual
dividend rate of 5% of said par value from the date from
which said dividends on such share became cumulative to the
date fixed for redemption, less the aggregate of such
dividends theretofore or on such redemption date paid
thereon, plus a premium of $1 per share.
(b) A second series of Forty Thousand (40,000) shares
of the Cumulative Preferred Stock of the Corporation, which
shares are designated "Cumulative Preferred Stock, Second 5%
Series" (herein called the "second series").
The rate of dividends payable upon the second series
shall be 5% of the par value thereof per annum, payable
quarterly on the first days of January, April, July and
October in each year.
The Corporation may redeem all or any part of the
second series at any time or times and from time to time, on
the terms and conditions with respect thereto set forth in
subdivision (D) of Article FIFTH of this Certificate, by
paying, in the case of each such share to be redeemed, the
par value thereof plus an amount computed at the annual
dividend rate of 5% of said par value from the date from
which said dividends on such share became cumulative to the
date fixed for such redemption, less the aggregate of such
dividends theretofore or on such redemption date paid
thereon, plus a premium of $2 per share if the redemption
date shall be prior to July 1, 1971 and of $1 per share if
the redemption date shall be on or subsequent to July 1,
1971.
(c) A third series of Fifty Thousand (50,000) shares
of the Cumulative Preferred Stock of the Corporation, which
shares are designated "Cumulative Preferred Stock, 5.65%
Series" (herein called the "third series").
The rate of dividends payable upon the third series
shall be 5.65% of the par value thereof per annum, payable
<PAGE>
quarterly on the first days of January, April, July and
October in each year.
The Corporation may redeem all or any part of the third
series at any time or times and from time to time, on the
terms and conditions with respect thereto set forth in
subdivision (D) of Article FIFTH of this Certificate, by
paying, in the case of each such share to be redeemed, the
par value thereof plus an amount computed at the annual
dividend rate of 5.65% of said par value from the date from
which said dividends on such share became cumulative to the
date fixed for such redemption, less the aggregate of such
dividends theretofore or on such redemption date paid
thereon, plus a premium of $7 per share if the redemption
date shall be on or prior to October 1, 1971; of $5 per
share if the redemption date shall be subsequent to October
1, 1971 but on or prior to October 1, 1976; of $3 per share
if the redemption date shall be subsequent to October 1,
1976 but on or prior to October 1, 1981; and of $1 per share
if the redemption date shall be subsequent to October 1,
1981.
(d) A fourth series of Fifty Thousand (50,000) shares
of the Cumulative Preferred Stock of the Corporation, which
shares are designated "Cumulative Preferred Stock, 4.60%
Series" (herein called the "fourth series").
The rate of dividends payable upon the fourth series
shall be 4.60% of the par value thereof per annum, payable
quarterly on the first days of January, April, July and
October in each year.
The Corporation may redeem all or any part of the
fourth series at any time or times and from time to time, on
the terms and conditions with respect thereto set forth in
subdivision (D) of Article FIFTH of this Certificate, by
paying, in the case of each such share to be redeemed, the
par value thereof plus an amount computed at the annual
dividend rate of 4.60% of said par value from the date from
which said dividends on such share became cumulative to the
date fixed for such redemption, less the aggregate of such
dividends theretofore or on such redemption date paid
thereon, plus a premium of $5.00 per share if the redemption
date shall be on or prior to September 30, 1968; of $3.50
per share if the redemption date shall be subsequent to
September 30, 1968 but on or prior to September 30, 1973; of
$2.50 per share if the redemption date shall be subsequent
to September 30, 1973 but on or prior to September 30, 1978;
and of $1.00 per share if the redemption date shall be
subsequent to September 30, 1978; provided, however, that,
prior to October 1, 1968, shares of the fourth series shall
not be redeemed, directly or indirectly, by the application
of borrowed funds or the proceeds of the issue of any stock
ranking prior to or on a parity with the fourth series if
such borrowed funds have an interest cost, or such shares
have a dividend cost, to the Corporation of less than 4.60%
per annum.
(e) A fifth series of fifteen thousand (15,000) shares
of the Cumulative Preferred Stock of the Corporation, which
<PAGE>
shares are designated "Convertible Preferred Stock 5%
Series" (herein called the "fifth series").
The rate of dividends payable upon the fifth series
shall be 5% of the par value thereof per annum payable
quarterly on the first days of January, April, July and
October in each year.
The Corporation may redeem all or any part of the fifth
series at any time or times and from time to time, on or
after April 1, 1979, on the terms and conditions with
respect thereto set forth in subdivision (D) of Article
FIFTH of this certificate, by paying, in the case of each
share to be redeemed, the par value thereof plus an amount
computed at the annual dividend rate of 5% of said par value
from the date from which said dividends on such share became
cumulative to the date fixed for such redemption, less the
aggregate of such dividends theretofore or on such
redemption date paid thereon, plus a premium of $5 per share
if the redemption date shall be on or prior to April 1,
1981; of $3 per share if the redemption date shall be
subsequent to April 1, 1982, but on or prior to April 1,
1983; of $1 per share if the redemption date shall be
subsequent to April 1, 1983, but on or prior to April 1,
1984; and no premium if the redemption date shall be
subsequent to April 1, 1984.
The conversion rights of shares of the fifth series
shall be as follows:
(i) Shares of the fifth series may at any time after
the date of issue, at the option of the holder, be converted
into Common Stock of the Corporation (as such shares may be
constituted on the conversion date) at the rate of four (4)
shares of Common Stock for each share of the fifth series,
subject to adjustment as provided herein; provided that, as
to any shares of the fifth series which shall have been
called for redemption, the conversion right shall terminate
at the close of business on the business day prior to the
date fixed for redemption unless default shall be made in
the payment of the redemption price plus accrued and unpaid
dividends.
(ii) The holder of a share or shares of the fifth
series may exercise the conversion rights as to any thereof
by delivering to the Corporation during regular business
hours, or at the office of any transfer agent of the
Corporation for the fifth series, if any, or at such other
place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted,
duly endorsed or assigned in blank to the Corporation (if
required by it), accompanied by written notice stating that
the holder elects to convert such shares and stating the
name or names (with address) in which the certificate or
certificates for Common Stock are to be issued. Conversion
shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein as the
"conversion date". As promptly as practicable thereafter,
the Corporation shall issue and deliver to or upon the
written order of such holder, at such office or other place
<PAGE>
designated by the Corporation, a certificate or certificates
for the number of full shares of Common Stock to which he is
entitled and a check, cash, scrip certificate or other
adjustment in respect of any fraction of a share as provided
in paragraph (e)(iv) below. The person in whose name the
certificates for Common Stock are to be issued shall be
deemed to have become a holder of Common Stock of record at
the close of business on the conversion date unless the
transfer books of the Corporation are closed on that date,
in which event he shall be deemed to have become a holder of
Common Stock of record at the opening of business on the
next succeeding date on which the transfer books are open,
but the conversion rate shall be that in effect on the
conversion date.
(iii) No payment or adjustment shall be made for
dividends accrued on any shares of the fifth series
converted or for dividends on any shares of Common Stock
issuable on conversion, but until all dividends accrued and
unpaid on the fifth series up to the quarterly dividend
payment date next preceding the conversion date shall have
been paid to the holder of the shares of the fifth series
converted or to his assigns, or declared and set apart for
such payment, in full, no dividend shall be paid or set
apart for payment or declared on the Common Stock or on any
other class of stock of the Corporation ranking as to
dividends subordinate to the fifth series and no payment
shall be made with respect to any purchase or acquisition
of, or to any sinking fund with respect to, any class of
stock of the Corporation ranking as to dividends or
distribution of assets on a parity with or subordinate to
the fifth series.
(iv) The Corporation shall not be required to issue any
fraction of a share upon conversion of any share or shares
of the fifth series. If more than one share of the fifth
series shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the
basis of the total number of shares of the fifth series so
surrendered. If any fractional interest in a share of
Common Stock would be deliverable upon conversion, the
Corporation shall make an adjustment therefore in cash
unless its Board of Directors shall have determined to
adjust fractional interests by issuance of scrip
certificates or in some other manner. Adjustment in cash
shall be made on the basis of the current market value of
one share of Common Stock, which shall be taken to be the
last sale price, regular way, of the Corporation's Common
Stock on the New York Stock Exchange on the last trading day
before the conversion date, or, if there is no reported sale
on that day, the average of the closing bid and asked
quotations, regular way, on that Exchange on that day or, if
the Common Stock is not listed or admitted to trading on
such Exchange, on the principal national securities exchange
on which the Common Stock is listed or admitted to trading,
or if it is not listed or admitted to trading on any
national securities exchanges, the average of the closing
bid and asked prices in the over-the-counter market on that
date as furnished by any securities broker or dealer
<PAGE>
selected from time to time by the Corporation for that
purpose.
(v) The issuance of Common Stock on conversion of the
fifth series shall be without charge to the converting
holder of the fifth series for any fee, expense or tax which
may be payable in respect of any transfer involved in the
issuance and delivery of shares in any name other than that
of the holder of record on the books of the Corporation of
the shares of the fifth series converted, and the
Corporation shall not, in any such case, be required to
issue or deliver any certificate for shares of Common Stock
unless and until the person requesting the issuance thereof
shall have paid to the Corporation the amount of such fee,
expense or tax or shall have established to the satisfaction
of the Corporation that such fee, expense or tax has been
paid.
(vi) The conversion rate provided in paragraph (e)(i)
shall be subject to the following adjustments, which shall
be made to the nearest one-hundredth of a share of Common
Stock or, if none, to the next lower one-hundredth:
(A) In case the Corporation shall declare a
dividend on its Common Stock in shares of its capital
stock, subdivide its outstanding shares of Common
Stock, combine its outstanding shares of Common Stock
into a smaller number of shares, or issue by
reclassification of its Common Stock (including any
such reclassification in connection with a
consolidation or merger in which the Corporation is the
continuing corporation) any shares of its capital
stock, the conversion rate in effect at the time of the
record date for such dividend or of the effective date
of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of
any of the fifth series surrendered for conversion
after such time shall be entitled to receive the kind
and amount of shares which he would have owned or have
been entitled to receive had the fifth series been
converted immediately prior to such time. Such
adjustment shall be made successively whenever any
event listed above shall occur.
(B) In case the Corporation shall fix a record
date for the issuance of rights or warrants to all
holders of its Common Stock entitling them (for a
period expiring within 45 days after such record date)
to subscribe for or purchase shares of Common Stock at
a price per share less than the Current Market Price
(as defined below) on such record date, the number of
shares of Common Stock into which each share of the
fifth series shall be convertible after such record
date shall be determined by multiplying the number of
shares of Common Stock into which such share of the
fifth series was convertible immediately prior to such
record date by a fraction, of which the numerator shall
be the sum of the total number of shares of Common
Stock outstanding immediately prior to such record date
and the number of additional shares of Common Stock to
<PAGE>
be offered for subscription or purchase, and of which
the denominator shall be the sum of the total number of
shares of Common Stock outstanding immediately prior to
such record date and the number of shares of Common
Stock which the aggregate offering price (without
deduction for expenses or commissions of any kind) of
the total number of shares so to be offered would
purchase at such Current Market Price. Such adjustment
shall be made successively whenever such a record date
is fixed; and in the event that such rights or warrants
are not so issued, the conversion rate shall again be
adjusted to be the conversion rate which would then be
in effect if such record date had not been fixed.
(C) In case the Corporation shall fix a record
date for the making of a distribution to all holders of
its Common Stock (including any such distribution made
in connection with a consolidation or merger in which
the Corporation is the continuing corporation) of
evidences of its indebtedness or assets (excluding
dividends paid in, or distributions of, its capital
stock, or cash paid out of earned surplus) or
subscription rights or warrants (excluding those
referred to in subparagraph (vi)(B)), then in each such
case the number of shares of Common Stock into which
each share of the fifth series shall be convertible
after such record date shall be determined by
multiplying the number of shares of Common Stock into
which such share of the fifth series was convertible
immediately prior to such record date by a fraction, of
which the numerator shall be the Current Market Price
on such record date, and of which the denominator shall
be the Current Market Price on such record date less
the fair market value (as determined by the Board of
Directors of the Corporation, whose determination shall
be conclusive, and described in a certificate of an
officer of the Corporation filed in the Corporation's
records) of the portion of the assets or evidences of
indebtedness so to be distributed or of such
subscription rights or warrants applicable to one share
of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the
conversion rate shall again be adjusted to be the
conversion rate which would then be in effect if such
record date had not been fixed.
(D) For the purpose of any computation under
subparagraphs (vi)(B) and (vi)(C) above, the "Current
Market Price" on any record date shall be deemed to be
the average of the daily closing prices per share of
Common Stock for the 30 consecutive business days
commencing 45 business days before such date. The
closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and
asked prices, regular way, in either case on the New
York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the
<PAGE>
Common Stock is listed or admitted to trading, or if it
is not listed or admitted to trading on any national
securities exchange, the average of the closing bid and
asked prices in the over-the-counter market on that
date as furnished by any securities broker or dealer
selected from time to time by the Corporation for that
purpose. The closing price determined as stated above
is herein called the "closing price".
(E) No adjustment in the conversion rate shall be
required unless such adjustment would require an
increase or decrease in such rate of at least
one-twentieth of a share; provided, however, that any
adjustments which by reason of this subparagraph (E)
are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
All calculations under this paragraph (e)(vi) shall be
made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
(F) In the event that at any time, as a result of
an adjustment made pursuant to subparagraph (vi)(A)
above, the holder of any of the fifth series thereafter
surrendered for conversion shall become entitled to
receive any shares of the Corporation other than shares
of its Common Stock, thereafter the number of such
other shares so receivable upon conversion of any of
the fifth series shall be subject to adjustment from
time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with
respect to the Common Stock contained in this paragraph
(e)(vi).
No adjustment of the conversion rate provided in
subparagraph (e)(i) shall be made by reason of the
issuance of Common Stock for cash except as provided in
subparagraph (e)(vi)(B), or by reason of the issuance
of Common Stock for property or services; provided,
that no such issuance of Common Stock for cash,
property, or services shall be made unless the Board of
Directors shall first have made a determination that
consideration to be received with respect to any such
issuance of Common Stock is fair and reasonable under
the particular circumstances. Whenever the conversion
rate is adjusted pursuant to this paragraph (e)(vi),
advice of such adjusted conversion rate shall be sent
to the holders of the fifth series at or about the time
of the next dividend payment on such fifth series.
(vii) In case of any reclassification or change of
the outstanding shares of Common Stock of the Corporation
(except a split or combination of shares) or in case of any
consolidation or merger to which the Corporation is a party
(except a merger in which the Corporation is the surviving
corporation and which does not result in a reclassification
of or change in the outstanding Common Stock of the
Corporation except a split or combination of shares) or in
case of any sale or conveyance to another corporation of all
or substantially all of the property of the Corporation or
by the successor or purchasing corporation so that the
<PAGE>
holder of each share of the fifth series then outstanding
shall thereafter have the right to convert such share into
the kind and amount of stock and other securities and
property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock of the Corporation into
which such share of the fifth series might have been
converted immediately prior thereto, and that there shall be
subsequent adjustments of the conversion rate which shall be
equivalent, as nearly as practicable, to the adjustments
provided for in paragraph (e)(vi) above. The provisions of
this paragraph (e)(vii) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales
or conveyances.
(viii) Shares of Common Stock issued on conversion
of shares of the fifth series shall be issued as fully paid
shares and shall be non-assessable by the Corporation. The
Corporation shall at all times reserve and keep available,
free from preemptive rights for the purpose of effecting the
conversion of the fifth series, such number of its duly
authorized shares of Common Stock as shall be sufficient to
effect the conversion of all outstanding shares of the fifth
series.
(ix) Shares of the fifth series converted as provided
herein shall be cancelled, shall no longer be deemed
outstanding, and shall revert to the status of authorized,
unissued Preferred Stock of the Corporation, and the Board
of Directors shall have authority to issue such Preferred
Stock with such relative rights, preferences and privileges
as it may fix and as if such stock had not been issued as a
part of the initial series of the Preferred Stock.
SEVENTH: (A) Notwithstanding any other provision of
this Certificate, outstanding shares of Common Stock held by
Disqualified Holders (as hereinafter defined in subdivision (ii)
of Paragraph (B) of this Article SEVENTH) shall always be subject
to redemption by the Corporation to the extent necessary, in the
judgment of the Board of Directors, to prevent the loss or secure
the renewal or reinstatement of any license or franchise from any
governmental agency held by the Corporation or any of its
Subsidiaries (as hereinafter defined in subdivision (v) of
Paragraph (B) of this Article SEVENTH) to conduct any portion of
the business of the Corporation or any of its Subsidiaries, which
license or franchise is conditioned upon some or all of the
holders of the stock of the Corporation possessing prescribed
qualifications. The terms and conditions of such redemption
shall be as follows, subject in any case to any additional or
different rights of a particular Disqualified Holder or of the
Corporation pursuant to any contract or agreement between such
Disqualified Holder and the Corporation:
(i) the redemption price of the shares to be redeemed
pursuant to this Article SEVENTH shall be equal to the
Current Market Value (as hereinafter defined in subdivision
(i) of Paragraph (B) of this Article SEVENTH) of such
shares; provided that such redemption price as to any
Disqualified Holder who purchased such shares after November
18, 1994, and within one year of the Redemption Date (as
<PAGE>
hereinafter defined in subdivision (iii) of paragraph (B) of
this Article SEVENTH) shall not (unless otherwise determined
by the Board of Directors) exceed the purchase price paid by
such Disqualified Holder for such shares;
(ii) the redemption price of such shares may be paid in
cash, Redemption Securities (as hereinafter defined in
subdivision (iv) of Paragraph (B) of this Article SEVENTH)
or any combination thereof;
(iii) if less than all of the shares held by
Disqualified Holders are to be redeemed, the shares to be
redeemed shall be selected in such manner as shall be
determined by the Board of Directors, which may include
selection first of the most recently purchased shares
thereof, selection by lot or selection in any other manner
determined by the Board of Directors to be equitable;
(iv) at least ten days' written notice of the
Redemption Date shall be given to the record holders of the
shares selected to be redeemed (unless waived in writing by
any such holder), provided that the Redemption Date may be
the date on which written notice shall be given to record
holders if the cash or Redemption Securities necessary to
effect the redemption shall have been deposited in trust for
the benefit of such record holders and subject to immediate
withdrawal by them upon surrender of the stock certificates for
their shares to be redeemed;
(v) on the Redemption Date, unless the Corporation
shall have defaulted in paying or setting aside for payment
the cash or Redemption Securities payable upon such
redemption, any and all rights of Disqualified Holders in
respect of shares so redeemed (including without limitation
any rights to vote or participate in dividends), shall cease
and terminate, and from and after such Redemption Date such
Disqualified Holders shall be entitled only to receive the
cash or Redemption Securities payable upon redemption of the
shares so redeemed; and
(vi such other terms and conditions as the Board of
Directors shall determine.
(B) For purposes of this Article SEVENTH:
(i) "Current Market Value" of a share of Common Stock
shall mean the average of the daily closing prices for such
a share for the 20 consecutive trading days commencing on
the 22nd trading day prior to the date on which notice of
redemption shall be given pursuant to subdivision (iv) of
paragraph (A) of this Article SEVENTH (or, if such notice
shall have been waived, the date that is ten days prior to
the Redemption Date). The closing price for each day shall
be the closing price on the New York Stock Exchange
Composite Tape, or, if the Common Stock is not quoted on
such Composite Tape, on the New York Stock Exchange, Inc.,
or if such stock is not listed on such exchange, on the
principal United States registered securities exchange on
which such stock is listed, or if such stock is not listed
on any such exchange, the average of the closing bid and
<PAGE>
asked prices as reported by the electronic inter-dealer
quotation system operated by NASDAQ, Inc. or a similar
source selected from time to time by the Corporation for the
purpose, or if no such prices or quotations are available,
the fair market value on the applicable day as determined by
the Board of Directors in good faith.
(ii) "Disqualified Holder" shall mean any holder of
shares of Common Stock of the Corporation whose continued
holding of such stock, either individually or taken together
with the holding of shares of stock of the Corporation by any
other holder or holders of shares of stock of the Corporation,
may result, in the judgment of the board of directors, in the
loss of, or the failure to secure the renewal or reinstatement
of, any license or franchise from any governmental agency held by
the Corporation or any of its Subsidiaries to conduct any portion
of the business of the Corporation or any of its Subsidiaries.
(iii) "Redemption Date" shall mean the date fixed
by the Board of Directors for the redemption of any shares
of stock of the Corporation pursuant to this Article
SEVENTH.
(iv) "Redemption Securities" shall mean any debt or
equity securities of the Corporation, any of its
Subsidiaries or any other corporation, or any combination
thereof, having such terms and conditions as shall be
approved by the Board of Directors and which, together with
any cash to be paid as part of the redemption price, in the
opinion of any nationally recognized investment banking firm
selected by the Board of Directors (which may be a firm
which provides other investment banking, brokerage or other
services to the Corporation), has a value, at the time
notice of redemption is given pursuant to subdivision (iv)
of paragraph (A) of this Article SEVENTH (or, if such notice
shall have been waived, the date that is ten days prior to
the Redemption Date), at least equal to the price required
to be paid pursuant to subdivision (i) of paragraph (A) of
this Article SEVENTH (assuming, in the case of Redemption
Securities to be publicly traded, such Redemption Securities
were fully distributed and subject only to normal trading
activity).
(v) "Subsidiary" shall mean any corporation or other
entity of which at least a majority of the voting power of
the voting equity securities or equity interest is owned,
directly or indirectly, by the Corporation.
EIGHTH: The term of existence of the Corporation
shall be perpetual.
NINTH: The number of directors of the Corporation
shall be not less than nine (9).
TENTH: The office of the Corporation in the State of
New York is located in the County of Monroe. The Secretary of
State of the State of New York is hereby designated as an agent
of the Corporation upon whom all process in any action or
proceeding against the Corporation may be served within the State
of New York. The address to which the Secretary of State shall
<PAGE>
mail a copy of any process which may be served upon him is 180
South Clinton Avenue, Rochester, New York 14646-0700, Attention:
Secretary.
ELEVENTH: No director of the Corporation shall be
personally liable to the Corporation or its shareowners for
damages for any breach of duty as a director unless the
elimination or limitation of liability is expressly prohibited by
the New York Business Corporation Law as currently in effect or
as it may be amended. No amendment, modification or repeal of
this Article shall adversely affect any right or protection of
any director that exists at the time of such change.
This Restatement of the Certificate of Incorporation of the
Corporation was authorized by a resolution adopted by the Board
of Directors of the Corporation at a meeting thereof duly called
and held, followed by the affirmative votes of the holders of the
requisite percentage of the outstanding shares of Common Stock of
the Corporation, cast in person or by proxy, at the Special
Meeting of Shareowners held on December 19, 1994, and, in
addition, with respect to the authorization of a new class of
preferred stock, by the affirmative votes of the holders of the
requisite percentage of the outstanding shares of the Cumulative
Preferred Stock, cast in person or by proxy, at a Special Meeting
of Cumulative Preferred Shareowners held on December 19, 1994.
The aforementioned Special Meetings were held upon notice,
pursuant to Section 605 of the Business Corporation Law, to every
shareholder of record entitled to vote thereon, and neither the
Restated Certificate of Incorporation, as amended, nor any other
Certificate filed pursuant to law require a larger proportion of
votes.
IN WITNESS WHEREOF, this restated certificate has been
subscribed this 24th day of January, 1995 by the undersigned, who
affirm that the statements made herein are true under the
penalties of perjury.
/s/ John K. Purcell
------------------------------
John K. Purcell
Corporate Vice President
/s/ Josephine S. Trubek
------------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
FRONTIER CORPORATION
(Under Section 805 of the
Business Corporation Law of the State of New York)
---------------------------
We, the undersigned, JOHN K. PURCELL and JOSEPHINE S.
TRUBEK, being respectively a Corporate Vice President and the
Corporate Secretary of Frontier Corporation, do hereby CERTIFY
that:
1. The name of the Corporation is "Frontier
Corporation". The name under which the Corporation was
incorporated is "ROCHESTER TELEPHONE CORPORATION".
2. The Certificate of Incorporation of the Corporation
was filed in the Department of State of the State of New York on
February 25, 1920. A Restated Certificate of Incorporation was
filed in the Department of State of the State of New York on
April 2, 1968. A second Restated Certificate of Incorporation was
filed in the Department of State of the State of New York on
February 17, 1995 (such second Restated Certificate of
Incorporation, the "Restated Certificate of Incorporation").
3. The Restated Certificate of Incorporation is hereby
amended to add a provision to Article FOURTH thereof stating the
number, designation, relative rights, preferences and limitations
of the Series A Junior Participating Class A Preferred Stock as
fixed by the Board of Directors of the Corporation and to set
forth in full the text of such provision. To effect the
foregoing, Article FOURTH of the Restated Certificate of
Incorporation is amended to add the following at the end of such
Article FOURTH:
I. Series A Junior Participating Class A Preferred
Stock
There is hereby established a series of Class A
Preferred Stock of the number and designation, and having
relative rights, preference and limitations as follows:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series A Junior Participating
Class A Preferred Stock" (the "Series A Preferred Stock")
and the number of shares constituting the Series A Preferred
Stock shall be 3,000,000. Such number of shares may be
increased or decreased by resolution of the Board of
Directors; provided that no decrease shall reduce the number
of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise
<PAGE>
of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares
of any series of Preferred Stock of the Corporation (or any
similar stock) ranking prior and superior to the Series A
Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the
holders of Common Stock of the Corporation and of any other
stock of the Corporation ranking junior to the Series A
Preferred Stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in
cash on the first day of January, April, July, and October
in each year (each such date being referred to herein as a
"Dividend Payment Date"), commencing on the first Dividend
Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of
(a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in
shares of Common Stock, declared on the Common Stock since
the immediately preceding Dividend Payment Date or, with
respect to the first Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares
a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any
Dividend Payment Date and the next subsequent Dividend
Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable, when, as and
if declared, on such subsequent Dividend Payment Date.
<PAGE>
(C) Dividends shall begin to accrue and be cumulative,
whether or not earned or declared, on outstanding shares of
Series A Preferred Stock from the Dividend Payment Date next
preceding the date of issue of such shares, unless the date
of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Dividend Payment
Date or is a date after the record date for the
determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before
such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 50 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting
rights;
(A) Subject to the provision for adjustment
hereinafter set forth and except as otherwise provided
herein or in the Restated Certificate of Incorporation or
required by law, each share of Series A Preferred Stock
shall entitle the holder thereof to 100 votes on all matters
upon which the holders of the Common Stock of the
Corporation are entitled to vote. In the event the
Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share
to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or in the
Restated Certificate of Incorporation or in any other
Certificate of Amendment creating a series of Preferred
Stock or any similar stock, and except as otherwise required
by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other
capital stock of the Corporation having general voting
rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
<PAGE>
(C) Except as set forth herein, or as otherwise
provided by law, holders of Series A Preferred Stock shall
have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether
or not earned or declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(as to dividends) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a
parity (as to dividends) with the Series A Preferred
Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock
of the Corporation ranking junior (as to dividends and
upon dissolution, liquidation or winding up) to the
Series A Preferred Stock or rights, warrants or options
to acquire such junior stock;
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock,
or any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
in accordance with a purchase offer made in writing or
by publication (as determined by the Board of
Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in
fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
<PAGE>
consideration any shares of stock of the Corporation unless
the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (A) to the
holders of the Common Stock or of shares of any other stock
of the Corporation ranking junior, upon liquidation,
dissolution or winding up, to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and
distributions thereon, whether or not earned or declared, to
the date of such payment, provided that the holders of
shares of Series A Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (B) to the holders of
shares of stock ranking on a parity upon liquidation,
dissolution or winding up with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled
upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such
event under the proviso in clause (A) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of
Common Stock are converted into, exchanged for or changed
into other stock or securities, cash and/or any other
property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly
converted into, exchanged for or changed into an amount per
share (subject to the provision for adjustment hereinafter
set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each
<PAGE>
share of Common Stock is converted, exchanged or converted.
In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount
set forth in the preceding sentence with respect to the
conversion, exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series A
Preferred Stock shall not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall
rank, with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or
winding up of the Corporation, junior to all other series of
Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to
the Restated Certificate of Incorporation (including this
Certificate of Amendment) would alter, change or repeal any
of the preferences, powers or special rights given to the
Series A Preferred Stock so as to affect the Series A
Preferred Stock adversely, then the holders of the Series A
Preferred Stock shall be entitled to vote separately as a
class upon such amendment, and the affirmative vote of
two-thirds of the outstanding shares of the Series A
Preferred Stock, voting separately as a class, shall be
necessary for the adoption thereof, in addition to such
other vote as may be required by the Business Corporation
Law of the State of New York.
Section 11. Fractional Shares. Series A Preferred
Stock may be issued in fractions of a share which shall
entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred
Stock.
4. This Certificate of Amendment of the Restated
Certificate of Incorporation of the Corporation was authorized by
a majority vote of the Board of Directors of the Corporation
pursuant to Section 502 of the Business Corporation Law of the
State of New York.
IN WITNESS WHEREOF, the undersigned have executed and
subscribed this Certificate of Amendment of the Restated
Certificate of Incorporation of the Corporation this 9th day of
April, 1995.
<PAGE>
/s/ John K. Purcell
--------------------------
John K. Purcell
Corporate Vice President
/s/ Josephine S. Trubek
--------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
Exhibit 3-3
FRONTIER CORPORATION
By-Laws
As Revised Effective March 21, 1983
(And as amended 7/16/84, 11/19/84, 2/17/86, 2/16/87,
4/22/87, 11/20/89, 2/19/90, 11/19/90, 4/24/91,
4/29/92, 4/21/93, 4/27/94, 9/19/94, 1/1/95, 4/26/95, 8/16/95
1/22/96)
ARTICLE I
SHAREHOLDERS
Section 1 - Annual Meeting.
An annual meeting of shareholders for the election of
Directors and the transaction of other business shall be held at
such time on any day in the month of April in each year or on such
other date as shall be fixed by the Board of Directors.
Section 2 - Special Meetings.
Special Meetings of the shareholders 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.
Section 3 - Place of Meeting.
Meetings of shareholders shall be held at such place, within
or without the State of New York, as may be fixed in the notice of
meeting.
Section 4 - Notice of Meeting.
Notice of each meeting of shareholders shall be in writing
and shall state the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called.
A copy of the notice of any meeting shall be given,
personally, or by mail, not less than ten or more than fifty days
before the date of the meeting, to each shareholder entitled to
vote at such meeting. If mailed, such notice is given when
deposited in the United States mail, with postage thereon prepaid,
directed to the shareholder at the shareholder's address as it
appears on the record of shareholders, or, if the shareholder
shall have filed with the Secretary of the Corporation a written
request that notices be mailed to some other address, then
directed to the shareholder at such other address.
Section 5 - Inspectors of Election.
The Board of Directors, in advance of any shareholders'
meeting, may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed,
the person presiding at a shareholders' meeting may, and on the
<PAGE>
request of any shareholder entitled to vote at such meeting shall,
appoint two inspectors. Each inspector, before entering upon the
discharge of the inspector's duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of the inspector's
ability.
The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented
at the meeting, the existence of a quorum, and the validity and
effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all
shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote at such meeting, the
inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of
any fact found by them. Any report or certificate made by them
shall be prima facie evidence of the facts stated and of the vote
as certified by them.
Section 6 - List of Shareholders at Meeting.
A list of shareholders as of the record date, certified by
the Secretary or any Assistant Secretary or by the Transfer Agent,
if any, shall be produced at the meeting of shareholders upon the
request of any shareholder at such meeting or prior thereto. If
the right to vote at any meeting is challenged, the inspectors of
election, or person presiding at such meeting, shall require such
list of shareholders to be produced as evidence of the right of
the persons challenged to vote at such meeting, and all persons
who appear from such list to be shareholders entitled to vote at
such meeting may vote at such meeting.
Section 7 - Qualification of Voters.
Every shareholder of record of common stock of the
Corporation shall be entitled at every meeting of shareholders to
one vote for every share of common stock held by the shareholder
in the shareholder's name on the record of shareholders, subject,
however, to the voting rights granted to the holders of Cumulative
Preferred Stock of the Corporation upon default in dividends
thereon.
Section 8 - Quorum of Shareholders.
The holders of a majority of the shares entitled to vote at
such meeting shall constitute a quorum at a meeting of
shareholders for the transaction of any business, provided that
when a specified item of business is required to be voted on by a
class or series, voting as a class, the holders of a majority of
the shares of such class or series shall constitute a quorum for
the transaction of such specified item of business.
The shareholders present, in person or by proxy, and
entitled to vote may, by a majority of votes cast, adjourn the
meeting despite the absence of a quorum.
<PAGE>
Section 9 - Vote of Shareholders.
Directors shall, except as otherwise required by law, or by
the certificate of incorporation as permitted by law, be elected
by a plurality of the votes cast at a meeting of shareholders by
the holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of
Directors, is to be taken by vote of the shareholders, it shall,
except as otherwise required by law, or by the certificate of
incorporation as permitted by law, be authorized by a majority of
the votes cast at a meeting of shareholders by the holders of
shares entitled to vote thereon.
Section 10 - Proxies.
Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting
may authorize another person or persons to act for that
shareholder by proxy. Every proxy must be signed by the
shareholder or the shareholder's attorney-in-fact. No proxy shall
be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the shareholder executing it
except in those cases where an irrevocable proxy permitted by
statute has been given.
Section 11 - Fixing Record Date.
For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent or dissent from any
proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action,
the Board of Directors may fix, in advance, a date as the record
date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of
such meeting, nor more than fifty days prior to any other action.
Section 12 - Order of Business.*
The order of business at each meeting of shareholders shall
be as determined by the chairman of the meeting. The chairman of
the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations on
the time allotted to questions or comments on the affairs of the
Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and
closing of the voting polls.
At any special meeting of shareholders, only such business
may be transacted which is related to the purpose or purposes set
forth in the notice of such meeting.
At any annual meeting of shareholders, only such business
(other than the nomination or election of directors) shall be
<PAGE>
conducted as shall have been brought before the annual meeting (i)
by or at the direction of the chairman of the meeting or (ii) by
any shareholder who is a holder of record at the time of the
giving of the notice provided for in this Section 12, who is or
will be entitled to vote at the meeting and who complies with the
procedures set forth in this Section 12.
For business (other than the nomination or election of
directors) properly to be brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof
in proper written form to the Secretary. To be timely, a
shareholder's notice must be addressed to the Secretary and
delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90
days prior to the anniversary date of the immediately preceding
annual meeting; provided, however, that in the event that the date
of the annual meeting is more than 30 days earlier or more than 60
days later than such anniversary date, notice by the shareholder
to be timely must be so delivered or received not earlier than the
90th day prior to such annual meeting and not later than the close
of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. To be in
proper written form, a shareholder's notice to the Secretary shall
set forth in writing as to each matter the shareholder proposes to
bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books,
of the shareholder proposing such business; (iii) the class and
number of shares of the Corporation which are beneficially owned
by the shareholder; (iv) a representation that the shareholder is
or will be entitled to vote at such annual meeting and intends to
appear in person (or send a qualified representative) or by proxy
to present such proposal at the meeting; and (v) any material
interest of the shareholder in such business. The foregoing notice
requirements shall be deemed satisfied by a shareholder if the
shareholder has notified the Corporation of his or her intention
to present a proposal at an annual meeting and such shareholder's
proposal has been included in a proxy statement that has been
prepared by management of the Corporation to solicit proxies for
such annual meeting; provided, however, that if such shareholder
does not appear in person (or send a qualified representative) or
by proxy to present such proposal at such annual meeting, the
Corporation need not present such proposal for a vote at such
meeting, notwithstanding that proxies in respect of such vote may
have been received by the Corporation. Notwithstanding anything in
the By-Laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth
in this Section 12. The chairman of an annual meeting shall, if
the facts warrant, determine that business was not properly
brought before the annual meeting in accordance with the
provisions of this Section 12 and, if he should so determine, he
shall so declare to the annual meeting and any such business not
properly brought before the annual meeting shall not be transacted
and any proposal contemplated by such business shall be void.
ARTICLE II
<PAGE>
BOARD OF DIRECTORS
Section 1 - Power of Board and Qualification of Directors.
The business of the Corporation shall be managed under the
direction of its Board of Directors, each of whom shall be at
least twenty-one years of age.
Section 2 - Number of Directors.*
At the annual meeting of shareholders, the shareholders shall
elect thirteen directors.
Section 3 - Election, Term and Qualifications of Directors.
At each annual meeting of shareholders, Directors shall be
elected to hold office until the next annual meeting and until
their successors have been elected and qualified. No person shall
be eligible for election or reelection to the Board of Directors
after reaching seventy years of age, or in the case of a retired
Chairman of the Board of Directors or a retired President of the
Corporation, after reaching sixty-seven years of age. The term of
any Director who is also an Officer of the Corporation or any
subsidiary of the Corporation, other than the Chairman of the
Board or the President of the Corporation, shall end on the date
of termination from active employment and such officer shall
thereafter be ineligible for reelection to the Board of Directors.
Section 4 - Quorum of the Board: Action by the Board.
One-third of the entire Board of Directors shall constitute a
quorum for the transaction of business, and the vote of a majority
of the Directors present at the time of such vote, if a quorum is
then present, shall be the act of the Board.
Section 5 - Action Without a Meeting.
Any action required or permitted to be taken by the Board or
any committee thereof may be taken without a meeting if all
members of the Board or of the committee consent in writing to the
adoption of the resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or
committee shall be filed with the minutes of the proceedings of
the Board or committee.
Section 6 - Participation in Board Meetings by Conference
Telephone.
Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such Board or
committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by
such means shall constitute presence in person at a meeting.
Section 7 - Meetings of the Board.
<PAGE>
An annual meeting of the Board of Directors shall be held in
each year directly after adjournment of the annual shareholders'
meeting. Regular meetings of the Board shall be held at such
times as may from time to time be fixed by resolution of the
Board. Special meetings of the Board may be held at any time upon
the call of the Chairman of the Board of Directors, if such there
be, the President or any two Directors.
Meetings of the Board of Directors shall be held at such
place, within or without the State of New York, as from time to
time may be fixed by resolution of the Board for annual and
regular meetings and in the notice of meeting for special
meetings. If no place is so fixed, meetings of the Board shall be
held at the office of the Corporation in Rochester, New York.
No notice need be given of annual or regular meetings of the
Board of Directors. Notice of each special meeting of the Board
shall be given by oral, telegraphic or written notice, duly given
or sent or mailed to each Director not less than one (1) day
before such meeting.
Section 8 - Resignation.
Any Director may resign at any time by giving written notice
to the Chairman of the Board of Directors, if such there be, to
the President or to the Secretary. Such resignation shall take
effect at the time specified in such written notice, or if no time
be specified, then on delivery. Unless otherwise specified in the
written notice, the acceptance of such resignation by the Board of
Directors shall not be needed to make it effective.
Section 9 - Newly Created Directorships and Vacancies.
Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the Board of
Directors may be filled by vote of the Board. If the number of the
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. A director elected to fill a
vacancy shall be elected to hold office for the unexpired term of
such director's predecessor.
Section 10 - Executive and Other Committees of Directors.*
The Board of Directors, by resolution, adopted by a majority
of the entire Board, shall designate from among its members an
Executive Committee consisting of three or more Directors, a
majority of whom are outside directors.
The Executive Committee shall have all the authority of the
Board, except that it shall not have authority as to the following
matters:
(1) The submission to shareholders of any action that needs
shareholders' approval;
(2) The filling of vacancies in the Board or in any committee;
(3) The amendment or repeal of the By-Laws, or the adoption of
new By-Laws;
<PAGE>
(4) The amendment or repeal of any resolution of the Board
which, by its terms, shall not be so amendable or repealable;
(5) The fixing of compensation of the directors for serving on
the Board or on any Committee;
(6) The fixing or amendment of the compensation, benefits and
perquisites of the chief executive officer.
The Board of Directors, by resolution by a majority of the
entire Board, may designate from among its members an Audit
Committee consisting of three or more outside directors. The
Audit Committee shall, among other things, review the scope of
audit activities, review with management significant issues
concerning litigation, contingencies or other material matters
which may result in either potential liability of the Company or
significant exposure to the Company, review significant matters of
corporate ethics, review security methods and procedures, review
the financial reports and notes, and make reports and
recommendations with respect to audit activities, findings, and
reports of the independent public accountants and the internal
audit staff of the Company.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members a
Committee on Directors consisting of three or more outside
directors. The Committee on Directors shall, among other things,
review performance of incumbent directors, act as a nominating
committee, and consider and report to the entire Board of
Directors on all matters relating to the selection, qualification,
compensation and duties of the members of the Board of Directors
and any committees of the Board of Directors.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members a
Committee on Management consisting of three or more outside
directors. The Committee on Management shall, among other things,
fix or amend the compensation, benefits and perquisites of all
executive officers of the Company and recommend such for the chief
executive officer, select and administer executive compensation
plans and employee benefit plans which have Company stock as an
investment option, review succession planning for the Company and
review with management significant human resources issues. The
compensation, benefits and perquisites of the chief executive
officer shall be set by the outside directors of the full Board
upon the recommendation of the Committee on Management.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members other
committees each consisting of three or more directors.
Unless a greater proportion is required by the resolution
designating a committee of the Board of Directors, a quorum for
the transaction of business of a committee shall consist of (a) a
majority of the entire authorized number of members of the
Executive Committee or (b) one-third of the entire authorized
number of members of any other committee of the Board of
Directors, but in no event fewer than two persons. The vote of a
majority of the members of a committee present at the time of the
<PAGE>
vote concerning the transaction of business of that committee or
of any specified item of business of that committee if a quorum is
present at such time, shall be the act of such committee.
Any committee may fix the time and place of holding its
regular meetings and, if so fixed, no notice of such regular
meeting shall be necessary. Special meetings of any committee may
be called at any time by the Chairman of the Board of Directors,
if such there be, by the chief executive officer, by the
President, by the Chairperson of that committee, or by any two
members of that committee. Notice of each special meeting of any
committee shall be given by oral, telegraphic or written notice,
including notice via facsimile machine, duly given or sent or
mailed to each member of that committee not less than one day
before such meeting.
Section 11 - Compensation of Directors.
The Board of Directors shall have authority to fix the
compensation of directors for services in any capacity.
Section 12 - Indemnification.*
(a) Generally.
To the full extent authorized or permitted by law, the
Corporation shall indemnify any person ("indemnified Person")
made, or threatened to be made, a party to any action or
proceeding, whether civil, at law, in equity, criminal,
administrative, investigative or otherwise, including any action
by or in the right of the Corporation, by reason of the fact that
he, his testator or intestate, ("Responsible Person"), whether
before or after adoption of this Section 12, (1) is or was a
director or officer of the Corporation, or (2), if a director or
officer of the Corporation, is serving or served, in any capacity,
at the request of the Corporation, any other corporation, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, or (3), if not a director or officer of the
Corporation, is serving or served, at the request of the
Corporation, as a director or officer of any other corporation or
any partnership, joint venture, trust, employee benefit plan or
other enterprise, against all judgments, fines, penalties, amounts
paid in settlement (provided the Corporation shall have given its
prior consent to such settlement, which consent shall not be
unreasonably withheld by it) and reasonable expenses, including
attorneys' fees, incurred by such Indemnified Person with respect
to any such threatened or actual action or proceeding, and any
appeal therein, provided only that (x) acts of the Responsible
Person which were material to the cause of action so adjudicated
or otherwise disposed of were not (i) committed in bad faith or
(ii) were not the result of active and deliberate dishonesty, and
(y) the Responsible Person did not personally gain in fact a
financial profit or other advantage to which he was not legally
entitled.
(b) Advancement of Expenses.
All expenses reasonably incurred by an Indemnified Person in
connection with a threatened or actual action or proceeding with
<PAGE>
respect to which such person is or may be entitled to
indemnification under this Section 12 shall be advanced or
promptly reimbursed by the Corporation to him in advance of the
final disposition of such action or proceeding, upon receipt of an
undertaking by him or on his behalf to repay the amount of such
advances, if any, as to which he is ultimately found not to be
entitled to indemnification or, where indemnification is granted,
to the extent such advances exceed the indemnification to which he
is entitled. Such person shall cooperate in good faith with any
request by the Corporation that common counsel be used by the
parties to an action or proceeding who are similarly situated
unless to do so would be inappropriate due to an actual or
potential conflict of interest.
(c) Procedure for Indemnification.
(1) Not later than thirty (30) days following final
disposition of an action or proceeding with respect to which the
Corporation has received written request by an Indemnified Person
for indemnification pursuant to this Section 12, if such
indemnification has not been ordered by a court, the Board of
Directors shall meet and find whether the Responsible Person met
the standard of conduct set forth in paragraph (a) of this Section
12, and, if it finds that he did, or to the extent it so finds,
shall authorize such indemnification.
(2) Such standard shall be found to have been met unless (a)
a judgment or other final adjudication adverse to the Indemnified
Person establishes that subparagraphs (x) or (y) of paragraph (a)
of this Section 12 were violated, or (b) if the action or
proceeding was disposed of other than by judgment or other final
adjudication, the Board finds in good faith that, if it had been
disposed of by judgment or other final adjudication, such judgment
or other final adjudication would have been adverse to the
Indemnified Person and would have established a violation of
subparagraphs (x) or (y) of paragraph (a) of this Section 12.
(3) If indemnification is denied, in whole or part, because
of an adverse finding by the Board in the absence of a judgment or
other final adjudication, or because the Board believes the
expenses for which indemnification is requested to be
unreasonable, such action by the Board shall in no way affect the
right of the Indemnified Person to make application therefor in
any court having jurisdiction thereof, and in such action or
proceeding the issue shall be whether the Responsible Person met
the standard of conduct set forth in paragraph (a) of this Section
12, or whether the expenses were reasonable, as the case may be
(not whether the finding of the Board with respect thereto was
correct) and the determination of such issue shall not be affected
by the Board's finding. If the judgment or other final
adjudication in such action or proceeding establishes that the
Responsible Person met the standard set forth in paragraph (a) of
this Section 12, or that the disallowed expenses were reasonable,
or to the extent that it does, the Board shall then find such
standard to have been met or the expenses to be reasonable, and
shall grant such indemnification, and shall also grant to the
Indemnified Person indemnification of the expenses incurred by him
in connection with the action or proceeding resulting in the
judgment or other final adjudication that such standard of conduct
was met, or if pursuant to such court determination such person is
<PAGE>
entitled to less than the full amount of indemnification denied by
the Corporation, the portion of such expenses proportionate to the
amount of such indemnification so awarded.
(4) A finding by the Board pursuant to this paragraph (c)
that the standard of conduct set forth in paragraph (a) of this
Section 12 has been met shall mean a finding of the Board or
shareholders as provided by law.
(d) Contractual Article.
This Section 12 shall be deemed to constitute a contract
between the Corporation and each person who is a Responsible
Person at any time while this Section 12 is in effect. No repeal
or amendment of this Section 12, insofar as it reduces the extent
of the indemnification of any person who could be a Responsible
Person shall without his written consent be effective as to such
person with respect to any event, act or omission occurring or
allegedly occurring prior to (1) the date of such repeal or
amendment if on that date he is not serving in any capacity for
which he could be a Responsible Person, or (2) the thirtieth
(30th) day following delivery to him of written notice of such
repeal or amendment as to any capacity in which he is serving on
the date of such repeal or amendment, other than as a director or
officer of the Corporation, for which he could be a Responsible
Person, or (3) the later of the thirtieth (30th) day following
delivery to him of such notice or the end of the term of office
(for whatever reason) he is serving as director or officer of the
Corporation when such repeal or amendment is adopted, with respect
to being a Responsible Person in that capacity. No amendment of
the Business Corporation Law shall, insofar as it reduces the
permissible extent of the right of indemnification of a
Responsible Person under this Section 12, be effective as to such
person with respect to any event, act or omission occurring or
allegedly occurring prior to the effective date of such amendment
irrespective of the date of any claim or legal action in respect
thereto. This Section 12 shall be binding on any successor to the
Corporation, including any corporation or other entity which
acquires all or substantially all of the Corporation's assets.
(e) Non-exclusivity.
The indemnification provided by this Section 12 shall not be
deemed exclusive of any other rights to which any person covered
hereby may be entitled other than pursuant to this Section 12. The
Corporation is authorized to enter into agreements with any such
person or persons providing them rights to indemnification or
advancement of expenses in addition to the provisions therefor in
this Section 12 to the full extent permitted by law.
Section 13 - Notification of Nominations.*
Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends
or upon liquidation, nominations for the election of Directors may
be made by the Board of Directors or by any shareholder who is a
shareholder of record at the time of the giving of the notice of
nomination provided for in this Section 13 and who is entitled to
vote for the election of Directors. Any shareholder of record who
is or will be entitled to vote for the election of Directors at a
<PAGE>
meeting may nominate persons for election as Directors only if
timely written notice of such shareholder's intent to make such
nomination is given to the Secretary. To be timely, a
shareholder's notice must be addressed to the Secretary and
delivered to or mailed and received at the principal executive
offices of the Corporation (i) with respect to an election to be
held at an annual meeting of shareholders, not less than 60 days
nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 days
earlier or more than 60 days later than such anniversary date,
notice by the shareholder to be timely must be so delivered or
received not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made and (ii) with respect to an election to be
held at a special meeting of shareholders for the election of
Directors, not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees to be elected
at such meeting. Each such notice shall set forth: (a) the name
and address, as they appear on the Corporation's books, of the
shareholder who intends to make the nomination, and the name and
address of the person or persons to be nominated; (b) the class
and number of shares of the Corporation which are beneficially
owned by the shareholder: (c) a representation that the
shareholder is or will be entitled to vote at the meeting and
intends to appear in person (or send a qualified representative)
or by proxy at the meeting to nominate the person or persons
specified in the notice; (d) a description of all arrangements or
understandings between the shareholder and such nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the
shareholder; (e) such other information regarding each nominee
proposed by such shareholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had each nominee been
nominated, or intended to be nominated, by the Board of Directors;
and (f) the consent of each nominee to serve as a Director of the
Corporation if so elected. The chairman of the meeting may refuse
to acknowledge the nomination of any person not made after
compliance with the foregoing procedure. Only such persons who are
nominated in accordance with the procedures set forth in this
Section 13 shall be eligible to serve as Directors of the
Corporation and any purported nomination or purported election not
made in accordance with the procedures set forth in this Section
13 shall be void.
ARTICLE III
OFFICERS
<PAGE>
Section 1 - Officers.
The Board of Directors, as soon as may be practicable after
the annual election of directors, may elect a Chairman of the
Board of Directors and shall elect a President, one or more Vice
Presidents (one or more of whom may be designated Executive Vice
President), a Secretary and a Treasurer, and such other officers
as it may determine. Any two or more offices may be held by the
same person, except the office of President and Secretary.
Section 2 - Term of Office and Removal.
Each officer shall hold office for the term for which each
officer is elected or appointed, and until a successor has been
elected or appointed and qualified.
Section 3 - Powers and Duties.
The officers of the Corporation shall each have such powers
and authority and perform such duties in the management of the
Corporation as set forth in these By-Laws and as from time to time
prescribed by the Board of Directors. To the extent not set forth
in these By-Laws or so prescribed by the Board of Directors, they
shall each have such powers and authority and perform such duties
in the management of the Corporation, subject to the control of
the Board, as generally pertain to their respective offices.
In addition to the powers and authority above, each officer
has the powers and duties set out below.
(a) Chairman of the Board of Directors
The Chairman of the Board of Directors, if such there be,
shall preside at all meetings of the Board. The Chairman of
the Board of Directors may be the chief executive officer of
the Corporation, and if so designated, may preside at all
meetings of shareholders.
(b) President
The President shall be the chief operating officer and shall
have responsibility for the general management of the
business of the Corporation, subject only to the supervision
of the Board of Directors, the Executive Committee and the
Chairman of the Board of Directors, as chief executive
officer, if such there be. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of
Directors is not the chief executive officer, then the
President shall be the chief executive officer of the
Corporation. The President may preside at all meetings of
shareholders, when present, and at meetings of the Board of
Directors in the absence of the Chairman of the Board, if
such there be.
(c) Executive Vice President
The Executive Vice President or the Executive Vice
Presidents, if such there be, shall assist the President in
the management of the Corporation and, as may be designated
by the Board of Directors, in the event of the death,
<PAGE>
resignation, removal, disability or absence of the President,
an Executive Vice President shall possess the powers and
perform the duties of the President for the period of such
disability or absence or until the Board of Directors elects
a President.
(d) Vice President
Each Vice President shall assist the President in the
management of the Corporation and, in the absence or
incapacity of the President and Executive Vice Presidents,
and in order as fixed by the Board, possess the powers and
perform the duties of the President for the period of such
absence or incapacity, and shall possess such other powers
and perform such other duties as the Board of Directors may
prescribe.
(e) Secretary
The Secretary shall issue notices of all meetings of
shareholders and directors where notices of such meetings are
required by law or these By-Laws, and shall keep the minutes
of such meetings. The Secretary shall sign such instruments
and attest such documents as require signature or attestation
and affix the corporate seal thereto where appropriate and
shall possess such other powers and perform such other duties
as usually pertain to the office or as the Board of Directors
may prescribe.
(f) Treasurer
The Treasurer shall have general charge of, and be
responsible for, the fiscal affairs of the Corporation and
shall sign all instruments and documents as require such
signature, and shall possess such other powers and perform
such other duties as usually pertain to the office or as the
Board of Directors may prescribe.
(g) Assistant Officers
Any Assistant Officer elected by the Board of Directors shall
assist the designated officer and shall possess that
officer's powers and perform that officer's duties as
designated by that officer, and shall possess such other
powers and perform such other duties as the Board of
Directors may prescribe.
Section 4 - Records.
The Corporation shall keep (a) correct and complete books and
records of account; (b) minutes of the proceedings of the
shareholders, Board of Directors and any committees of the Board;
and (c) a current list of the directors and officers and their
residence addresses.
The Corporation shall also keep at its office in the State of
New York or at the office of its transfer agent or registrar in
the State of New York, if any, a record containing the names and
addresses of all shareholders, the number and class of shares held
by each and the dates when they respectively became the owners of
<PAGE>
record thereof.
Section 5 - Checks and Similar Instruments.
All checks and drafts on the Corporation's bank accounts and
all bills of exchange and promissory notes and all acceptances,
obligations and other instruments, for the payment of money, shall
be signed by facsimile or otherwise on behalf of the Corporation
by such officer or officers or agent or agents as shall be
thereunto authorized from time to time by the Board of Directors.
Section 6 - Voting Shares Held by the Corporation.
Either the President or the Secretary may vote shares of
stock held by the Corporation in other corporations and may
execute proxies for and on behalf of the Corporation for such
purpose.
ARTICLE IV
SHARE CERTIFICATES AND LOSS THEREOF - TRANSFER OF SHARES
Section 1 - Form of Share Certificate.
The shares of the Corporation shall be represented by
certificates, in such forms as the Board of Directors may from
time to time prescribe, signed by the Chairman of the Board if
such there be, or the President or a Vice President, and the
Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the officers
upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with
the same effect as if such person were such officer at the date of
issue.
Section 2 - Lost, Stolen or Destroyed Share Certificates.
No certificate or certificates for shares of the Corporation
shall be issued in place of any certificate alleged to have been
lost, stolen or destroyed, except upon production of such evidence
of the loss, theft or destruction, and upon such indemnification
and payment of costs of the Corporation and its agents to such
extent and in such manner as the Board of Directors may from time
to time prescribe. The Board of Directors, in its discretion, and
as a condition precedent to the issuance of any new certificate,
may require the owner of any certificate alleged to have been
lost, stolen or destroyed to furnish the Corporation with a bond,
in such sum and with such surety or sureties as it may direct, as
indemnity against any claim that may be made against the
Corporation in respect of such lost, stolen or destroyed
<PAGE>
certificate.
Section 3 - Transfer of Shares.
Shares of the Corporation shall be transferable on the books
of the Corporation by the registered holder thereof in person or
by the registered holder's duly authorized attorney, by delivery
for cancellation of a certificate or certificates for the same
number of shares, with proper endorsement consisting of either a
written assignment of the certificate or a power of attorney to
sell, assign or transfer the same or the shares represented
thereby, signed by the person appearing by the certificate to be
the owner of the shares represented thereby, either written
thereon or attached thereto, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably
require. Such endorsement may be either in blank or to a
specified person, and shall have affixed thereto all stock
transfer stamps required by law.
*Except as otherwise provided by law, not more than twenty
percent of the aggregate number of shares of stock of the
Corporation outstanding in any class or series shall at any time
be owned of record or beneficially or voted by or for the account
of aliens (as defined below). Shares of stock shall not be
transferable on the books of the Corporation to any alien if, as a
result of such transfer, the aggregate number of shares of stock
in any class or series owned by or for the account of aliens shall
be twenty percent or more of the number of shares of stock then
outstanding in such class or series. The Board of Directors may
make such rules and regulations as it shall deem necessary or
appropriate so that accurate records may be kept of the shares of
stock of the Corporation owned of record or beneficially or voted
by or for the account of aliens or to otherwise enforce the
provisions of this Section 3.
As used in this Section 3, the word "alien" shall mean the
following and their representatives: any individual not a citizen
of the United States of America; a partnership, unless a majority
of the partners are non-aliens and a majority interest in the
partnership profits is held by nonaliens; a foreign government; a
corporation, joint-stock company or association organized under
the laws of a foreign country; any other corporation of which any
officer or more than one-fourth of the directors are aliens, or of
which more than one-fourth of any class or series of stock is
owned of record or voted by or for the account of aliens; and any
other corporation, joint-stock company or association controlled
directly or indirectly by one or more of the above.
ARTICLE V
OTHER MATTERS
Section 1 - Corporate Seal.
The corporate seal shall have inscribed thereon the name of
the Corporation and such other appropriate legend as the Board of
<PAGE>
Directors may from time to time determine. In lieu of the
corporate seal, when so authorized by the Board, a facsimile
thereof may be affixed or impressed or reproduced in any other
manner.
Section 2 - Amendments.
By-Laws of the Corporation may be amended, repealed or
adopted by vote of the holders of the shares at the time entitled
to vote in the election of any directors. By-Laws may also be
amended, repealed, or adopted by the Board of Directors, but any
By-Law adopted by the Board may be amended or repealed by the
shareholders entitled to vote thereon as hereinabove provided.
If any By-Law regulating an impending election of directors
is adopted, amended or repealed by the Board of Directors, there
shall be set forth in the notice of the next meeting of
shareholders for the election of directors the By-Law so adopted,
amended or repealed, together with a concise statement of the
changes made.
<PAGE>
Exhibit 4.5
CREDIT AGREEMENT
dated as of August 9, 1995
among
FRONTIER CORPORATION
the Banks signatory hereto
and
THE CHASE MANHATTAN BANK, N.A.
as Agent
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. . . . . . . . . . . .5
Section 1.01. Definitions. . . . . . . . . . . . . . . . .5
Section 1.02. Accounting Terms . . . . . . . . . . . . . 12
ARTICLE 2. THE CREDIT . . . . . . . . . . . . . . . . . . . . 12
Section 2.01. The Loans. . . . . . . . . . . . . . . . . 12
Section 2.02. The Notes. . . . . . . . . . . . . . . . . 13
Section 2.03. Purpose. . . . . . . . . . . . . . . . . . 13
Section 2.04. Borrowing Procedures . . . . . . . . . . . 13
Section 2.05. Prepayments and Conversions. . . . . . . . 13
Section 2.06. Interest Periods; Renewals . . . . . . . . 14
Section 2.07. Changes of Commitments . . . . . . . . . . 15
Section 2.08. Certain Notices. . . . . . . . . . . . . . 15
Section 2.09. Minimum Amounts. . . . . . . . . . . . . . 15
Section 2.10. Interest . . . . . . . . . . . . . . . . . 16
Section 2.11. Fees . . . . . . . . . . . . . . . . . . . 16
Section 2.12. Payments Generally . . . . . . . . . . . . 17
Section 2.13. Quoted Rate Loans. . . . . . . . . . . . . 17
ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC. . . . . . . . . 18
Section 3.01. Additional Costs . . . . . . . . . . . . . 18
Section 3.02. Limitation on Types of Loans . . . . . . . 20
Section 3.03. Illegality . . . . . . . . . . . . . . . . 20
Section 3.04. Certain Conversions pursuant to Sections
3.01 and 3.03 . . . . . . . . . . . . . . . . . . . . . 20
Section 3.05. Certain Compensation . . . . . . . . . . . 21
ARTICLE 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 22
Section 4.01. Documentary Conditions Precedent . . . . . 22
Section 4.02. Additional Conditions Precedent. . . . . . 23
Section 4.03. Deemed Representations . . . . . . . . . . 23
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . 23
Section 5.01. Incorporation, Good Standing and Due
Qualification . . . . . . . . . . . . . . . . . . . . . 23
Section 5.02. Corporate Power and Authority;
No Conflicts . . . . . . . . . . . . . . . . . . . . . 23
Section 5.03. Legally Enforceable Agreements . . . . . . 24
Section 5.04. Litigation . . . . . . . . . . . . . . . . 24
Section 5.05. Financial Statements . . . . . . . . . . . 24
Section 5.06. Ownership and Liens. . . . . . . . . . . . 25
Section 5.07. Taxes. . . . . . . . . . . . . . . . . . . 25
Section 5.08. ERISA. . . . . . . . . . . . . . . . . . . 25
Section 5.09. Significant Subsidiaries . . . . . . . . . 25
Section 5.10. Borrower's Funded Debt . . . . . . . . . . 25
ARTICLE 6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 25
Section 6.01. Maintenance of Existence . . . . . . . . . 26
Section 6.02. Conduct of Business. . . . . . . . . . . . 26
Section 6.03. Maintenance of Insurance . . . . . . . . . 26
Section 6.04. Compliance with Laws . . . . . . . . . . . 26
Section 6.05. Reporting Requirements . . . . . . . . . . 26
Section 6.06. Other Funded Debt of Borrower. . . . . . . 29
ARTICLE 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 29
Section 7.01. Borrower Mergers . . . . . . . . . . . . . 29
<PAGE>
Section 7.02. Liens. . . . . . . . . . . . . . . . . . . 30
Section 7.03. Debt . . . . . . . . . . . . . . . . . . . 31
Section 7.04. No Dividend Restrictions . . . . . . . . . 32
Section 7.05. Ownership of Significant Subsidiaries. . . 32
ARTICLE 8. FINANCIAL COVENANTS. . . . . . . . . . . . . . . . 33
Section 8.01. Minimum Net Worth. . . . . . . . . . . . . 33
Section 8.02. Leverage Ratio . . . . . . . . . . . . . . 33
ARTICLE 9. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . 33
Section 9.01. Events of Default. . . . . . . . . . . . . 33
Section 9.02. Remedies . . . . . . . . . . . . . . . . . 35
ARTICLE 10. THE AGENT; RELATIONS AMONG BANKS AND BORROWER . . 35
Section 10.01. Appointment, Powers and Immunities
of Agent. . . . . . . . . . . . . . . . . 35
Section 10.02. Reliance by Agent . . . . . . . . . . . . 36
Section 10.03. Defaults. . . . . . . . . . . . . . . . . 36
Section 10.04. Rights of Agent as a Bank . . . . . . . . 36
Section 10.05. Indemnification of Agent. . . . . . . . . 37
Section 10.06. Documents . . . . . . . . . . . . . . . . 37
Section 10.07. Non-Reliance on Agent and Other Banks . . 37
Section 10.08. Failure of Agent to Act . . . . . . . . . 38
Section 10.09. Resignation or Removal of Agent . . . . . 38
Section 10.10. Amendments Concerning Agency Function . . 38
Section 10.11. Liability of Agent. . . . . . . . . . . . 38
Section 10.12. Transfer of Agency Function . . . . . . . 39
Section 10.13. Non-Receipt of Funds by the Agent . . . . 39
Section 10.14. Withholding Taxes . . . . . . . . . . . . 39
Section 10.15. Several Obligations and Rights of Banks . 39
Section 10.16. Pro Rata Treatment of Loans, Etc. . . . . 40
Section 10.17. Sharing of Payments Among Banks . . . . . 40
ARTICLE 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 41
Section 11.01. Amendments and Waivers. . . . . . . . . . 41
Section 11.02. Usury . . . . . . . . . . . . . . . . . . 41
Section 11.03. Expenses. . . . . . . . . . . . . . . . . 41
Section 11.04. Survival. . . . . . . . . . . . . . . . . 42
Section 11.05. Assignment; Participations. . . . . . . . 42
Section 11.06. Notices . . . . . . . . . . . . . . . . . 43
Section 11.07. Setoff. . . . . . . . . . . . . . . . . . 43
SECTION 11.08. JURISDICTION; IMMUNITIES. . . . . . . . . 43
Section 11.09. Table of Contents; Headings . . . . . . . 44
Section 11.10. Severability. . . . . . . . . . . . . . . 44
Section 11.11. Counterparts. . . . . . . . . . . . . . . 44
Section 11.12. Integration . . . . . . . . . . . . . . . 44
SECTION 11.13. GOVERNING LAW . . . . . . . . . . . . . . 44
Section 11.14. Confidentiality . . . . . . . . . . . . . 44
Section 11.15. Treatment of Certain Information. . . . . 45
EXHIBIT 2.02A. . . . . . . . . . . . . . . . . . . . . . . . . 59
REVOLVING NOTE. . . . . . . . . . . . . . . . . . . . . . 59
EXHIBIT 2.02B. . . . . . . . . . . . . . . . . . . . . . . . . 62
QUOTED RATE NOTE. . . . . . . . . . . . . . . . . . . . . 62
EXHIBIT 4.01(b). . . . . . . . . . . . . . . . . . . . . . . . 65
AUTHORIZATION LETTER. . . . . . . . . . . . . . . . . . . 65
EXHIBIT 4.01(e). . . . . . . . . . . . . . . . . . . . . . . . 67
<PAGE>
OPINION OF BORROWER'S COUNSEL . . . . . . . . . . . . . . 67
EXHIBIT 5.09 . . . . . . . . . . . . . . . . . . . . . . . . . 69
SIGNIFICANT SUBSIDIARIES. . . . . . . . . . . . . . . . . 69
EXHIBIT 5.10 . . . . . . . . . . . . . . . . . . . . . . . . . 72
BORROWER'S FUNDED DEBT. . . . . . . . . . . . . . . . . . 72
EXHIBIT 7.02 . . . . . . . . . . . . . . . . . . . . . . . . . 73
BORROWER'S LIENS. . . . . . . . . . . . . . . . . . . . . 73
<PAGE>
CREDIT AGREEMENT dated as of August 9, 1995 among FRONTIER
CORPORATION, a corporation organized under the laws of New York
(the "Borrower"), each of the banks which is a signatory hereto
(individually a "Bank" and collectively the "Banks") and THE
CHASE MANHATTAN BANK , N.A., a national banking association
organized under the laws of the United States of America, as
agent for the Banks (in such capacity, together with its
successors in such capacity, the "Agent").
The Borrower desires that the Banks extend credit as
provided herein and the Banks are prepared to extend such credit.
Accordingly, the Borrower, the Banks and the Agent agree as
follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. Definitions. As used in this Agreement the
following terms have the following meanings (terms defined in the
singular to have a correlative meaning when used in the plural
and vice versa):
"Affiliate" means any Person: (a) which directly or
indirectly Controls, or is Controlled by, or is under common
Control with, the Borrower or any of its Subsidiaries; (b) which
directly or indirectly beneficially owns or holds 5% or more of
any class of voting stock of the Borrower or any such Subsidiary;
(c) 5% or more of the voting stock of which is directly or
indirectly beneficially owned or held by the Borrower or such
Subsidiary; or (d) which is a partnership in which the Borrower
or any of its Subsidiaries is a general partner.
"Agreement" means this Credit Agreement, as amended or
supplemented from time to time. References to Articles,
Sections, Exhibits, Schedules and the like refer to the Articles,
Sections, Exhibits, Schedules and the like of this Agreement
unless otherwise indicated.
"Authorization Letter" means the letter agreement executed
by the Borrower in the form of Exhibit 4.01(b) .
"Banking Day" means any day on which commercial banks are
not authorized or required to close in New York City and whenever
such day relates to a Eurodollar Loan or notice with respect to
any Eurodollar Loan, a day on which dealings in Dollar deposits
are also carried out in the London interbank market.
"Borrower" shall mean Frontier Corporation.
"Borrowing" means the incurring of one or more Loans of the
same type from one or more Banks on the same day and, in the case
of Loans having an Interest Period, having the same Interest
Period.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Closing Date" means the date this Agreement has been
executed by the Borrower, the Banks and the Agent.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment" means, with respect to each Bank, the
obligation of such Bank to make Revolving Loans under this
Agreement, in the following aggregate principal amount, as such
amount may be reduced or otherwise modified from time to time:
<TABLE>
<S> <C>
The Chase Manhattan Bank, N.A. $ 40,000,000;
Chemical Bank $ 30,000,000;
Marine Midland Bank $ 30,000,000;
Union Bank of Switzerland $ 25,000,000;
PNC Bank, National Association $ 25,000,000;
Fleet Bank $ 25,000,000;
First Union National Bank $ 25,000,000;
of North Carolina
Bank One, Columbus, N.A. $ 15,000,000;
Comerica Bank $ 15,000,000;
Star Bank, N.A. $ 10,000,000;
Manufacturers and Traders Trust $ 10,000,000
Company
Total: $250,000,000
============
</TABLE>
"Consolidated Funded Debt" means Funded Debt of the
Borrower and its Consolidated Subsidiaries, as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means the Net Worth of the
Borrower and its Consolidated Subsidiaries, as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose
accounts are or are required to be consolidated with the accounts
of the Borrower in accordance with GAAP.
"Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Debt" means, with respect to any Person: (a) indebtedness
of such Person for borrowed money; (b) indebtedness for the
deferred purchase price of property or services (except trade
payables in the ordinary course of business); (c) Unfunded
Benefit Liabilities of such Person (if such Person is not the
Borrower, determined in a manner analogous to that of determining
Unfunded Benefit Liabilities of the Borrower); (d) the amount
available for drawing under any outstanding standby letters of
<PAGE>
credit issued for the account of such Person, less the principal
amount of any other Debt secured by such letters of credit; (e)
obligations arising under acceptance facilities; (f) guaranties,
endorsements (other than for collection in the ordinary course of
business) and other contingent obligations to purchase, to
provide funds for payment, to supply funds to invest in any
Person, or otherwise to assure a creditor against loss; (g)
obligations secured by any Lien on property of such Person; and
(h) obligations of such Person as lessee under Capital Leases.
"Default" means any event which with the giving of notice
or lapse of time, or both, would become an Event of Default.
"Default Rate" means, with respect to the principal of any
Loan and, to the extent permitted by law, any other amount
payable by the Borrower under this Agreement or any Note that is
not paid when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum during the period from and including
the due date, to, but excluding the date on which such amount is
paid in full equal to 1% above the Variable Rate as in effect
from time to time (provided that, if the amount so in default is
principal of a Fixed Rate Loan and the due date thereof is a day
other than the last day of the Interest Period therefor, the
"Default Rate" for such principal shall be, for the period from
and including the due date and to but excluding the last day of
the Interest Period therefor, 2% above the interest rate for such
Loan as provided in Section 2.10 hereof and, thereafter, the rate
provided for above in this definition).
"Dollars" and the sign "$" mean lawful money of the United
States of America.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, including any rules and
regulations promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or
business which is a member of any group of organizations (i)
described in Section 414(b) or (c) of the Code of which the
Borrower is a member, or (ii) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f)
of ERISA and Section 412(n) of the Code, described in Section
414(m) or (o) of the Code of which the Borrower is a member.
"Eurodollar Loan" means any Loan, other than a Quoted Rate
Loan, when and to the extent the interest rate therefor is
determined on the basis of the definition of "Eurodollar Rate."
"Eurodollar Rate" means, for any Eurodollar Loan, for any
Interest Period therefor, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Agent to
be equal to the quotient of (i) the Fixed Base Rate for such Loan
for such Interest Period, divided by (ii) one minus the Reserve
Requirement for such Loan for such Interest Period.
"Event of Default" has the meaning given such term in
Section 9.01.
"Facility Documents" means this Agreement, the Notes and
<PAGE>
the Authorization Letter.
"Fixed Base Rate" means with respect to any Interest
Period for a Borrowing of Eurodollar Loans, the rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted
at approximately 11:00 a.m. London time by the principal London
branch of the Reference Bank two Banking Days prior to the first
day of such Interest Period for the offering to the Reference
Bank in the London interbank market of Dollar deposits in
immediately available funds, for a period, and in an amount,
comparable to the Interest Period and principal amount of the
Eurodollar Loan which shall be made by the Reference Bank and
outstanding during such Interest Period.
"Fixed Rate Loan" means any Eurodollar Loan and any Quoted
Rate Loan.
"Funded Debt" means, with respect to any Person, all
indebtedness of such Person (including current maturities), for
money borrowed (including Capital Leases), which by its terms
matures more than one year from the date as of which such Funded
Debt is incurred, and any such indebtedness of such Person
maturing within one year from such date which is renewable or
extendable at the option of the obligor to a date beyond one year
from such date (whether or not theretofore renewed or extended),
including any such indebtedness renewable or extendable at the
option of the obligor under, or payable from the proceeds of
other indebtedness which may be incurred pursuant to, the
provisions of any revolving credit agreement or other similar
agreement.
"GAAP" means generally accepted accounting principles in
the United States of America as in effect from time to time,
applied on a basis consistent with those used in the preparation
of the financial statements referred to in Section 5.05 (except
for changes concurred in by the Borrower's independent public
accountants).
"Interest Period" means, with respect to any Fixed Rate
Loan, the period commencing on the date such Loan is made,
converted from another type of Loan or renewed, as the case may
be, and ending, as the Borrower may select pursuant to
Section 2.06 or Section 2.13 as the case may be: (a) in the case
of Eurodollar Loans, on the numerically corresponding day in the
first, second, third, or sixth calendar month thereafter,
provided that each such Interest Period which commences on the
last Banking Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Banking Day of
the appropriate subsequent calendar month; and (b) in the case of
Quoted Rate Loans, on the date established by the lending Bank
pursuant to Section 2.13.
"Lending Office" means, for each Bank and for each type of
Loan, the lending office of such Bank (or of an affiliate of such
Bank) designated as such for such type of Loan on its signature
page hereof or such other office of such Bank (or of an affiliate
of such Bank) as such Bank may from time to time specify to the
Agent and the Borrower as the office by which its Loans of such
type are to be made and maintained.
<PAGE>
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, charge,
conditional sale, title retention agreement, financing lease
(including any Capital Lease) or other encumbrance or similar
right of others, or any agreement to give any of the foregoing.
"Loan" means any loan made by a Bank pursuant to Section
2.01 or Section 2.13.
"Margin" means for each Eurodollar Loan, a rate determined
pursuant to the grid set forth below, based on Borrower's senior
unsecured debt rating established from time to time by Standard &
Poor's Ratings Group ("S & P") and Moody's Investors Service,
Inc. ("Moody's"). For purposes of this grid, (i) if the S & P
and Moody's ratings are different, the higher one shall be used
to determine the Margin, (ii) the symbol "(greater than)/=" shall mean greater
than or equal to, and (iii) the symbol "(less than)/=" shall mean less than
or equal to. If at any given time neither S & P nor Moody's has
an established senior unsecured debt rating for the Borrower, the
Reference Bank shall determine an S & P and a Moody's senior
unsecured debt rating which corresponds to the risk rating
assigned by the Reference Bank to the Borrower, and the Reference
Bank's determination shall be conclusive on the Borrower and the
Banks.
<PAGE>
<TABLE>
<CAPTION>
S & P/Moody's Margin (in basis points)
------------- -------
<S> <C>
(greater than)/= AA- / Aa3 13
(greater than)/= A- / A3 17
(greater than)/= BBB+ / Baa1 25
BBB / Baa2 30
BBB- / Baa3 40
(less than)/= BB+ / Ba1 50
</TABLE>
"Multiemployer Plan" means a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by the
Borrower or any ERISA Affiliate and which is covered by Title IV
of ERISA.
"Net Worth" means, at any date of determination thereof, the
excess of total assets of Borrower over total liabilities of
Borrower, determined in accordance with GAAP.
"Note" means each Revolving Note and Quoted Rate Note.
"OMP" means Rochester Telephone Corporation's Open Market
Plan as contemplated in the Joint Stipulation and Agreement
between the New York State Public Service Commission ("NYSPSC")
and Rochester Telephone Corporation (among others), Case 93-C-0103
and Case 93-C-0033 and the subsequent Order No. 94-25 issued
therein by the NYSPSC dated November 10, 1994. The term OMP shall
include any amendments to such Open Market Plan that may become
effective from time to time, provided that such term shall not
include any such amendments that may reasonably be expected to
have a material adverse effect on the risks assumed or to be
assumed by the Banks, or the prospect of repayment of any present
or future obligations of Borrower, pursuant to this Agreement or
any other Facility Documents.
"PBGC" means the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other
entity of whatever nature.
"Plan" means any employee benefit or other plan established
or maintained, or to which contributions have been made, by the
Borrower or any ERISA Affiliate and which is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"Prime Rate" means that rate of interest from time to time
announced by the Reference Bank at its principal office as its
prime commercial lending rate.
"Principal Office" means the principal office of the Agent,
presently located at 4 Chase Metro Tech Center, 13th Floor,
Brooklyn, New York, 11245.
"Quoted Rate Loan" shall have the meaning given such term in
Section 2.13.
<PAGE>
"Quoted Rate Note" means a promissory note of the Borrower
in the form of Exhibit 2.02B, executed pursuant to Section 2.02
and evidencing Quoted Rate Loans made by a Bank hereunder.
"Reference Bank" means The Chase Manhattan Bank, N.A.
"Regulation D" means Regulation D of the Board of Governors
of the Federal Reserve System as the same may be amended or
supplemented from time to time.
"Regulation U" means Regulation U of the Board of Governors
of the Federal Reserve System as the same may be amended or
supplemented from time to time.
"Regulatory Change" means, with respect to any Bank, any
change after the date of this Agreement in United States, state,
municipal or foreign laws or regulations (including without
limitation Regulation D) or the adoption or making after such
date of any interpretations, directives or requests applying to a
class of banks including such Bank of or under any United States,
state, municipal or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration
thereof.
"Required Banks" means, at any time while no Loans are
outstanding, Banks having at least 66 % of the aggregate amount
of the Commitments and, at any time while Loans are outstanding,
Banks holding at least 66 % of the aggregate principal amount of
the Loans.
"Reserve Requirement" means, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under
Regulation D by member banks of the Federal Reserve System in New
York City with deposits exceeding $1,000,000,000 against
"Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory
Change against (i) any category of liabilities which includes
deposits by reference to which the Fixed Base Rate for Eurodollar
Loans is to be determined as provided in the definition of "Fixed
Base Rate" in this Section 1.01 or (ii) any category of
extensions of credit or other assets which include Eurodollar
Loans.
"Revolving Loan" means a Eurodollar Loan, or a Variable Rate
Loan, made pursuant to Section 2.01(a).
"Revolving Note" means a promissory note of the Borrower
executed pursuant to Section 2.02 and evidencing the Revolving
Loans of a Bank hereunder.
"SEC" means the Securities and Exchange Commission.
"Significant Subsidiary" means at any time any Subsidiary of
the Borrower (i) whose "attributable" Tangible Assets constituted
6% or more of Consolidated Net Worth as of the end of the most
<PAGE>
recent Fiscal Quarter or (ii) whose "attributable" net income
contributed 10% or more of Borrower's and its Consolidated
Subsidiaries' net income, as determined on a consolidated basis
in accordance with GAAP, for the fiscal year most recently ended.
The percentage of any Subsidiary's Tangible Assets or net income
"attributable" to such Subsidiary for purposes of such
computation shall be the same percentage of such Subsidiary's
Tangible Assets and net income as are included, respectively, in
Consolidated Net Worth and in Borrower's and its Consolidated
Subsidiaries' net income.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which at least a majority of the
securities, or other ownership interests having ordinary voting
power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time
owned directly or indirectly by such Person.
"Tangible Assets" means, at any date of determination
thereof, total assets less all intangible assets, all determined
in accordance with GAAP.
"Termination Date" means August 8, 2000; provided that if
such date is not a Banking Day, the Termination Date shall be the
next succeeding Banking Day (or, if such next succeeding Banking
Day falls in the next calendar month, the next preceding Banking
Day).
"Unfunded Benefit Liabilities" means, with respect to any
Plan, the amount (if any) by which the present value of all
benefit liabilities (within the meaning of Section 4001(a)(16) of
ERISA) under the Plan exceeds the fair market value of all Plan
assets allocable to such benefit liabilities, as determined on
the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability
of the Borrower or any ERISA Affiliate under Title IV of ERISA.
"Variable Rate" means, for any day, the Prime Rate for such
day.
"Variable Rate Loan" means any Loan made pursuant to Section
2.01(a), when and to the extent the interest rate for such Loan
is determined in relation to the Variable Rate.
Section 1.02. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP, and all financial data required to be delivered hereunder
shall be prepared in accordance with GAAP.
ARTICLE 2. THE CREDIT.
Section 2.01. The Loans. (a) Subject to the terms and
conditions of this Agreement, each of the Banks severally agrees
to make Eurodollar Loans and Variable Rate Loans (each of which
shall be a "Loan" and all of which shall be collectively referred
to as "Revolving Loans") to the Borrower, from time to time from
and including the date hereof to but excluding the Termination
Date, up to but not exceeding in the aggregate principal amount
at any one time outstanding, the amount of its Commitment.
<PAGE>
(b) Subject to the terms and conditions of this Agreement,
each Bank may, in its discretion, make Quoted Rate Loans pursuant
to Section 2.13.
(c) Loans may be outstanding as Variable Rate Loans, Quoted
Rate Loans or Eurodollar Loans (each a "type" of Loan). Each
type of Loan of each Bank shall be made and maintained at such
Bank's Lending Office for such type of Loans.
(d) The Revolving Loans shall be entirely due and payable
on the Termination Date, and each Quoted Rate Loan shall be due
and payable on the maturity date therefor established pursuant to
Section 2.13.
Section 2.02. The Notes. The Revolving Loans of each Bank
shall be evidenced by a single promissory note in favor of such
Bank in the form of Exhibit 2.02A, (each a "Revolving Note"), and
the Quoted Rate Loans of each Bank shall be evidenced by a single
promissory note in favor of such Bank in the form of Exhibit
2.02B (each a "Quoted Rate Note"). The Notes shall each be dated
the date of this Agreement and shall be duly completed and
executed by the Borrower.
Section 2.03. Purpose. The Borrower shall use Loan
proceeds for any proper corporate purpose. Borrower shall not
use such proceeds for the purpose, whether immediate, incidental
or ultimate, of buying or carrying "margin stock" within the
meaning of Regulation U.
Section 2.04. Borrowing Procedures. The Borrower shall
give the Agent notice of each Variable Rate Loan and each
Eurodollar Loan to be made under Section 2.01 as provided in
Section 2.08; and the Borrower shall give the Agent notice of
each Quoted Rate Loan as provided in Section 2.13. Not later
than 2:00 p.m. New York, New York time on the date of such
Borrowing, each Bank shall, or in the case of a Quoted Rate Loan,
the lending Bank shall, through its Lending Office and subject to
the conditions of this Agreement, make the amount of the Loan to
be made by it on such day available to the Agent at the Principal
Office and in immediately available funds for the account of the
Borrower. The amount so received by the Agent shall, subject to
the conditions of this Agreement, be made available to the
Borrower, in immediately available funds, by the Agent crediting
an account of the Borrower designated by the Borrower and
maintained with the Agent at the Principal Office.
Section 2.05. Prepayments and Conversions. The Borrower
shall have the right to make prepayments of principal, or to
convert one type of Loans into another type of Loans, at any time
or from time to time, provided that:
(a) the Borrower shall give the Agent notice of each such
prepayment or conversion as provided in Section 2.08;
(b) Quoted Rate Loans may not be converted into another type
of Loan, except as provided in Section 3.04;
(c) Fixed Rate Loans may be prepaid or converted only on the
last day of an Interest Period for such Loans, except that (i) if
<PAGE>
after giving effect to any reduction or termination of the
Commitments pursuant to Section 2.07, either the outstanding
aggregate principal amount of all Loans exceeds the aggregate
amount of the Commitments or the outstanding aggregate principal
amount of Variable Rate and Eurodollar Loans from one or more
Banks exceeds the aggregate amount of such Banks' Commitments,
the Borrower shall pay or prepay, on the date of such reduction
or termination, one or more Loans in an aggregate principal
amount equal to the excess, together with interest thereon
accrued to the date of such payment or prepayment, and (ii) if
Borrower receives a notice pursuant to either Section 3.01(a) or
3.01(c) that a Bank is entitled to compensation as contemplated
therein, Borrower may prepay any Fixed Rate Loan(s) with respect
to which such compensation is due, provided that Borrower then
pays interest thereon accrued to the date of such prepayment(s)
or conversion; and
(d) Borrower shall have the right to designate the Loan(s)
to be prepaid pursuant to clauses (i) and (ii) of Section
2.05(c), provided that, (i) it shall be required to select the
type(s) of Loans to be prepaid in the following order of priority
- - Quoted Rate Loans and Revolving Loans; and (ii) Borrower shall
be required to prepay pro rata, in accordance with Section 10.16,
in whole or in part, all Loans of a particular type that were
borrowed as part of the same Borrowing, if it prepays any Loans
of such type and Borrowing.
Section 2.06. Interest Periods; Renewals. (a) In the case
of each Fixed Rate Loan, the Borrower shall select an Interest
Period of any duration in accordance with the definition of
Interest Period in Section 1.01, subject to the following
limitations: (i) in the case of a Eurodollar Loan, no Interest
Period shall have a duration less than one month, and if any such
proposed Interest Period would otherwise be for a shorter period,
such Interest Period shall not be available; (ii) if an Interest
Period would end on a day which is not a Banking Day, such
Interest Period shall be extended to the next Banking Day,
unless, in the case of a Eurodollar Loan, such Banking Day would
fall in the next calendar month in which event such Interest
Period shall end on the immediately preceding Banking Day; (iii)
no Interest Period shall end after the Termination Date; (iv) no
more than five Eurodollar Loans of each Bank may be outstanding
at any one time; and (v) no more than ten Quoted Rate Loans may
be outstanding at any one time.
(b) Upon notice to the Agent as provided in Section 2.08,
the Borrower may renew any Eurodollar Loan on the last day of the
Interest Period therefor as the same type of Loan with an
Interest Period of the same or different duration in accordance
with the limitations provided above. If the Borrower shall fail
to give timely notice to the Agent of such a renewal, such
Eurodollar Loan shall automatically become a Variable Rate Loan
on the last day of the current Interest Period.
Section 2.07. Changes of Commitments. The Borrower shall
have the right to reduce or terminate the amount of unused
Commitments at any time or from time to time, provided that: (a)
the Borrower shall give notice of each such reduction or
termination to the Agent as provided in Section 2.08; and (b)
each partial reduction shall be in an aggregate amount at least
<PAGE>
equal to $10,000,000. The Commitments once reduced or terminated
may not be reinstated.
Section 2.08. Certain Notices. Notices by the Borrower to
the Agent of each Borrowing pursuant to Section 2.04, and each
prepayment or conversion pursuant to Section 2.05 and each
renewal pursuant to Section 2.06(b), and each reduction or
termination of the Commitments pursuant to Section 2.07 shall be
irrevocable and shall be effective on the Banking Day of receipt
only if received by the Agent not later than 12:00 noon New York,
New York time on such Banking Day, and otherwise, on the Banking
Day following the day of receipt, and (a) in the case of
Borrowings and prepayments of, conversions into and (in the case
of Eurodollar Loans) renewals of (i) Variable Rate Loans, given
on the Banking Day thereof, and (ii) Eurodollar Loans, given
three Banking Days prior thereto; and (b) in the case of
reductions or termination of the Commitments, given three Banking
Days prior thereto. Each notice referred to in this Section 2.08
shall specify the Loans to be borrowed, prepaid, converted or
renewed and the amount (subject to Section 2.09) and type of the
Loans to be borrowed, or converted, or prepaid or renewed (and,
in the case of a conversion, the type of Loans to result from
such conversion and, in the case of a Eurodollar Loan, the
Interest Period therefor) and the date of the Borrowing or
prepayment, or conversion or renewal (which shall be a Banking
Day). Each such notice of reduction or termination shall specify
the amount of the Commitments to be reduced or terminated.
Notices pursuant to Section 2.13 shall be given as provided
therein. The Agent shall promptly notify the Banks of the
contents of each such notice.
Section 2.09. Minimum Amounts. Except for Borrowings which
exhaust the full remaining amount of the Commitments, prepayments
or conversions which result in the prepayment or conversion of
all Loans of a particular type or conversions made pursuant to
Section 3.04, each Borrowing, prepayment, conversion and renewal
of principal of Loans of a particular type shall be in an amount
at least equal to $1,000,000 in the aggregate for all Banks
(Borrowings, prepayments, conversions or renewals of or into
Loans of different types or, in the case of Fixed Rate Loans,
having different Interest Periods at the same time hereunder to
be deemed separate Borrowings, prepayments, conversions and
renewals for the purposes of the foregoing, one for each type and
Interest Period). Anything in this Agreement to the contrary
notwithstanding, the aggregate principal amount of Eurodollar
Loans of each type having concurrent Interest Periods shall be at
least $5,000,000.
Section 2.10. Interest. (a) Interest shall accrue on the
outstanding and unpaid principal amount of each Loan for the
period from and including the date of such Loan to but excluding
the date such Loan is due at the following rates per annum: (i)
for a Variable Rate Loan, at a variable rate per annum equal to
the Variable Rate; (ii) for a Eurodollar Loan, at a fixed rate
equal to the Eurodollar Rate plus the Margin; and (iii) for a
Quoted Rate Loan, at the fixed rate for such Loan established
pursuant to Section 2.13. If the principal amount of any Loan
and any other amount payable by the Borrower hereunder or under a
Note shall not be paid when due (at stated maturity, by
acceleration or otherwise), interest shall accrue on such amount
<PAGE>
to the fullest extent permitted by law from and including such
due date to but excluding the date such amount is paid in full at
the Default Rate.
(b) The interest rate on each Variable Rate Loan shall
change when the Variable Rate changes and interest on each such
Loan shall be calculated on the basis of a year of 365 (or, in
the case of a leap year, 366) days for the actual number of days
elapsed. Interest on each Fixed Rate Loan shall be calculated on
the basis of a year of 360 days for the actual number of days
elapsed. Promptly after the determination of any interest rate
provided for herein or any change therein, the Agent shall notify
the Borrower and the Banks.
(c) Accrued interest shall be due and payable in arrears
upon any payment of principal or conversion and (i) for each
Variable Rate Loan, on the last day of each March, June,
September and December, commencing the first such date after such
Loan; (ii) for each Fixed Rate Loan, on the last day of the
Interest Period with respect thereto and, in the case of an
Interest Period greater than three months, at three-month
intervals after the first day of such Interest Period; provided
that interest accruing at the Default Rate shall be due and
payable from time to time on demand of the Agent.
Section 2.11. Fees. The Borrower shall pay to the Agent
for the account of each Bank a facility fee on the daily average
total amount of the Commitment of such Bank for the period from
and including the date hereof to the earlier of the date the
Commitments are terminated or the Termination Date at a rate per
annum determined pursuant to the grid set forth below, calculated
on the basis of a year of 360 days for the actual number of days
elapsed. The accrued facility fee shall be due and payable in
arrears upon any reduction or termination of the Commitments and
on the last day of each March, June, September and December, for
the calendar quarter then ended, commencing on the first such
date after the Closing Date. The facility fee shall be
calculated on the basis of the Borrower's senior unsecured debt
rating established from time to time by Standard & Poor's Ratings
Group ("S & P") and Moody's Investors Service, Inc. ("Moody's").
For purposes of this grid, (i) if the S & P and Moody's ratings
are different, the higher one shall be used to determine the
facility fee, (ii) the symbol "(greater than)/=" shall mean greater than or
equal to, and (iii) the symbol "(less than)/=" shall mean less than or equal
to. If at any given time neither S & P nor Moody's has an
established senior unsecured debt rating for the Borrower, the
Reference Bank shall determine an S & P and a Moody's senior
unsecured debt rating which corresponds to the risk rating
assigned by the Reference Bank to the Borrower, and the Reference
Bank's determination shall be conclusive on the Borrower and the
Banks.
<TABLE>
<CAPTION>
S & P/Moody's Facility Fee
------------- (In basis points)
<S> <C>
(greater than)/= AA- / Aa3 7
(greater than)/= A- / A3 8
(greater than)/= BBB+/ Baa1 12.5
BBB / Baa2 15
BBB-/ Baa3 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(less than)/= BB+ / Ba1 50
</TABLE>
Section 2.12. Payments Generally. All payments under this
Agreement or the Notes shall be made in Dollars in immediately
available funds, without setoff or counterclaim, not later than
1:00 p.m. New York, New York time on the relevant dates specified
above (each such payment made after such time on such due date to
be deemed to have been made on the next succeeding Banking Day)
to the Agent's account number maintained at the Principal Office
for the account of the applicable Lending Office of each Bank.
The Agent, or any Bank for whose account any such payment is to
be made, may (but shall not be obligated to) debit the amount of
any such payment which is not made by such time to any ordinary
deposit account of the Borrower with the Agent or such Bank, as
the case may be, and any Bank so doing shall promptly notify the
Agent. Subject to Section 10.16, the Borrower shall, at the time
of making each payment under this Agreement or the Notes, specify
to the Agent the principal or other amount payable by the
Borrower under this Agreement, the Notes and the type of Loan(s)
to which such payment is to be applied; but in the event that it
fails to so specify, or if a Default or Event of Default has
occurred and is continuing, the Agent may apply such payment as
it may elect in its sole discretion subject also to Section
10.16. Except as otherwise provided in this Agreement, if the
due date of any payment under this Agreement or the Notes would
otherwise fall on a day which is not a Banking Day, such date
shall be extended to the next succeeding Banking Day and interest
shall be payable for any principal so extended for the period of
such extension. Each payment received by the Agent hereunder or
under any Note for the account of a Bank shall be paid promptly
to such Bank, in immediately available funds, for the account of
such Bank's Lending Office.
Section 2.13. Quoted Rate Loans. From time to time the
Borrower may request that any Bank or Banks, at the option of
each, offer to make Loans to the Borrower under this Agreement at
any time prior to the Termination Date, bearing interest at such
rates (other than those provided for in Section 2.10 hereof), and
for such Interest Period(s), as may be specified by the Bank in
its offer. Each such Loan shall be due and payable on the last
day of the Interest Period therefor and shall have such other
terms as may be set forth in the Bank's offer. If the Borrower
accepts any such offer within the time period for acceptance
specified therein and such Loan is made by the Bank to the
Borrower, such Loan (a "Quoted Rate Loan") shall be advanced
pursuant to Section 2.04 and shall constitute a "Loan" for all
purposes of, and shall be governed by, this Agreement, except to
the extent the terms specifically applicable to such Loan are
inconsistent with the provisions of this Agreement. The Borrower
shall give the Agent notice of each Quoted Rate Loan, specifying
the name of the lending Bank and the amount, interest rate and
Interest Period of the Loan to be made by such Bank. Such notice
must be received by the Agent, not later than 1 p.m. New York,
New York time on the Banking Day on which the Loan is to be made.
Each Quoted Rate Loan made by each Bank shall be deemed a
separate "type" of Loan and Quoted Rate Loans shall be excepted
from the pro rata borrowing and payment requirements of Section
10.16. No Quoted Rate Loan shall be deemed to utilize the
individual Commitment of the lending Bank, but it shall be deemed
to utilize the aggregate amount of the Commitments of all of the
<PAGE>
Banks as then in effect. Consequently, although a Bank may have
one or more Quoted Rate Loans outstanding at any one time, its
obligation to make Variable Rate Loans and Eurodollar Loans shall
not be affected thereby, and it shall be required to advance its
pro rata share of the Loans of such other types as provided in
this Agreement, even though the aggregate unpaid principal
balance of its outstanding Loans will thereafter exceed the
amount of its Commitment. However, the aggregate unpaid principal
balance of all outstanding Loans shall at no time exceed the
aggregate amount of the Commitments of all of the Banks, as then
in effect.
ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01. Additional Costs. (a) The Borrower shall
pay directly to each Bank from time to time on demand such
amounts as such Bank may determine to be necessary to compensate
it for any costs which such Bank determines are attributable to
its making or maintaining any Fixed Rate Loans under this
Agreement or its Notes or its obligation to make any such Loans
hereunder, or any reduction in any amount receivable by such Bank
hereunder (including any amount receivable under this Section
3.01) in respect of any such Loans or such obligation (such
increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any Regulatory
Change which: (i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes (including
any amounts payable under this Section 3.01) in respect of any of
such Loans (other than taxes imposed on the overall net income of
such Bank or of its Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such
Lending Office); or (ii) imposes or modifies any reserve, special
deposit, deposit insurance or assessment, minimum capital,
capital ratio or similar requirements relating to any extensions
of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including any of such Loans or any
deposits referred to in the definition of "Fixed Base Rate" in
Section 1.01); or (iii) imposes any other condition affecting
this Agreement or its Notes (or any of such extensions of credit
or liabilities). Each Bank will notify the Borrower of any event
occurring after the date of this Agreement which will entitle
such Bank to compensation pursuant to this Section 3.01(a) as
promptly as practicable after it obtains knowledge thereof and
determines to request such compensation. Any demand for payment
under this Section 3.01(a) may include on a prospective basis any
amounts required to be deducted from such payment to the extent
that such amounts would be reimbursable hereunder when incurred.
If any Bank requests compensation from the Borrower under this
Section 3.01(a), or under Section 3.01(c), the Borrower may, by
notice to such Bank (with a copy to the Agent), require that such
Bank's Loans of the type with respect to which such compensation
is requested be prepaid in accordance with Section 2.05 or be
converted in accordance with Section 3.04.
(b) Without limiting the effect of the foregoing provisions
of this Section 3.01, in the event that, by reason of any
Regulatory Change, any Bank either (i) incurs Additional Costs
based on or measured by the excess above a specified level of the
<PAGE>
amount of a category of deposits or other liabilities of such
Bank which includes deposits by reference to which the interest
rate on Eurodollar or then outstanding Quoted Rate Loans is
determined as provided in this Agreement or in the lending Bank's
offer with respect to a Quoted Rate Loan, or a category of
extensions of credit or other assets of such Bank which includes
Eurodollar or then outstanding Quoted Rate Loans or (ii) becomes
subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so
elects by notice to the Borrower (with a copy to the Agent), the
obligation of such Bank to make or renew, and to convert Loans of
any other type into, Loans of such type hereunder shall be
suspended until the date such Regulatory Change ceases to be in
effect (and all Loans of such type held by such Bank then
outstanding shall be, at Borrower's election, prepaid in
accordance with Section 2.05 or converted in accordance with
Section 3.04).
(c) Without limiting the effect of the foregoing provisions
of this Section 3.01 (but without duplication), the Borrower
shall pay directly to each Bank from time to time on request such
amounts as such Bank may determine to be necessary to compensate
such Bank for any costs which it determines are attributable to
the maintenance, by it or any of its affiliates pursuant to any
law or regulation of any jurisdiction or any interpretation,
directive or request (whether or not having the force of law and
whether in effect on the date of this Agreement or thereafter) of
any court or governmental or monetary authority, of capital in
respect of its Loans hereunder or its obligation to make Loans
hereunder (such compensation to include, without limitation, an
amount equal to any reduction in return on assets or equity of
such Bank to a level below that which it could have achieved but
for such law, regulation, interpretation, directive or request).
Each Bank will notify the Borrower if it is entitled to
compensation pursuant to this Section 3.01(c) as promptly as
practicable after it determines to request such compensation.
(d) Determinations and allocations by a Bank for purposes
of this Section 3.01 of the effect of any Regulatory Change
pursuant to subsections (a) or (b), or of the effect of capital
maintained pursuant to subsection (c), on its costs of making or
maintaining Loans or its obligation to make Loans, or on amounts
receivable by, or the rate of return to, it in respect of Loans
or such obligation, and of the additional amounts required to
compensate such Bank under this Section 3.01, shall be
conclusive, provided that such determinations and allocations are
made on a demonstrably reasonable basis.
Section 3.02. Limitation on Types of Loans. Anything
herein to the contrary notwithstanding, if:
(a) the Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant
deposits referred to in the definition of "Fixed Base Rate" in
Section 1.01 are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining the rate
of interest for any Eurodollar Loans as provided in this
Agreement; or
(b) the Required Banks determine (which determination shall
<PAGE>
be conclusive) and notify the Agent that the relevant rates of
interest referred to in the definition of "Fixed Base Rate" in
Section 1.01 upon the basis of which the rate of interest for any
Eurodollar Loans is to be determined do not adequately cover the
cost to the Banks of making or maintaining such Loans;
then the Agent shall give the Borrower and each Bank prompt
notice thereof, and so long as such condition remains in effect,
the Banks shall be under no obligation to make or renew
Eurodollar Loans or to convert Loans of any other type into
Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for any outstanding
Eurodollar Loans, either prepay such Loans or convert such Loans
into another type of Loans in accordance with Section 2.05.
Section 3.03. Illegality. Notwithstanding any other
provision in this Agreement, in the event that it becomes
unlawful, in the reasonable opinion of any Bank, for such Bank
or its Lending Office to (a) honor its obligation to make or
renew any Eurodollar or Quoted Rate Loan hereunder or convert
Variable Rate Loans of any type into Eurodollar Loans, or (b)
maintain any Eurodollar or Quoted Rate Loan hereunder, then such
Bank shall promptly notify the Borrower thereof (with a copy to
the Agent) and such Bank's obligation to make or renew such
Eurodollar or Quoted Rate Loan, as the case may be, and to
convert Variable Rate Loans into Eurodollar Loans shall be
suspended until such time as such Bank may again make, renew, or
convert and maintain such affected Loans, in which event such
Bank shall promptly notify the Borrower thereof (with a copy to
the Agent) and such Bank's outstanding Eurodollar or Quoted Rate
Loan, as the case may be, shall be, at Borrower's election,
either prepaid in accordance with Section 2.05 or converted in
accordance with Section 3.04.
Section 3.04. Certain Conversions pursuant to Sections 3.01
and 3.03. If the Fixed Rate Loans of any Bank of a particular
type (Loans of such type being herein called "Affected Loans" and
such type being herein called the "Affected Type") are to be
converted pursuant to Section 3.01 or 3.03, by reason of
Borrower's failure to prepay such Loans in accordance with
Section 2.05, such Bank's Affected Loans shall be automatically
converted into Variable Rate Loans on the last day(s) of the then
current Interest Period(s) for the Affected Loans (or, in the
case of a conversion required by Section 3.01(b) or 3.03, on such
earlier date as such Bank may specify to the Borrower with a copy
to the Agent) and, unless and until such Bank gives notice as
provided below that the circumstances specified in Section 3.01
or 3.03 which gave rise to such conversion no longer exist:
(a) to the extent that such Bank's Affected Loans have been
so converted, all payments and prepayments of principal which
would otherwise be applied to such Bank's Affected Loans shall be
applied instead to its Variable Rate Loans into which the
Affected Loans have been converted; and
(b) if Eurodollar Loans are the Affected Type, all Loans
which would otherwise be made or renewed by such Bank as Loans of
the Affected Type shall be made instead as Variable Rate Loans
and all Loans of such Bank which would otherwise be converted
into Loans of the Affected Type shall be converted instead into
<PAGE>
(or shall remain as) Variable Rate Loans.
If such Bank gives notice to the Borrower (with a copy to
the Agent) that the circumstances specified in Section 3.01 or
3.03 which gave rise to the conversion of such Bank's Eurodollar
Loans pursuant to this Section 3.04 no longer exist (which such
Bank agrees to do promptly upon such circumstances ceasing to
exist) at a time when Eurodollar Loans of other Banks are
outstanding, such Bank's Variable Rate Loans into which its
Eurodollar Loans were converted shall be automatically converted,
on the first day(s) of the next succeeding Interest Period(s)
for such other Banks' outstanding Eurodollar Loans occurring at
least three (3) Banking Days after such circumstances ceased to
exist, to the extent necessary so that, after giving effect
thereto, all Eurodollar Loans held by other Banks and by such
Bank are held pro rata (as to principal amounts and Interest
Periods) in accordance with their respective Commitments.
Section 3.05. Certain Compensation. The Borrower shall pay
to the Agent for the account of each Bank, upon the request of
such Bank through the Agent, such amount or amounts as shall be
sufficient (in the reasonable and demonstrable opinion of such
Bank) to compensate it for any loss, cost or expense which such
Bank determines is attributable to:
(a) any payment, prepayment, conversion or renewal of a
Fixed Rate Loan made by such Bank on a date other than the last
day of an Interest Period for such Loan (whether by reason of
required prepayment, required conversion, acceleration or
otherwise); or
(b) any failure by the Borrower to borrow, convert into or
renew a Fixed Rate Loan to be made, converted into or renewed by
such Bank on the date specified therefor in the relevant notice
under Section 2.04, 2.05, 2.06 or 2.13, as the case may be.
Without limiting the foregoing, such compensation shall
include an amount equal to the excess, if any, of: (i) the
amount of interest which otherwise would have accrued on the
principal amount so paid, prepaid, converted or renewed or not
borrowed, converted or renewed for the period from and including
the date of such payment, prepayment or conversion or failure to
borrow, convert or renew to but excluding the last day of the
then current Interest Period for such Loan (or, in the case of a
failure to borrow, convert or renew, to but excluding the last
day of the Interest Period for such Loan which would have
commenced on the date specified therefor in the relevant notice)
at the applicable rate of interest for such Loan provided for
herein; over (ii) the amount of interest (as reasonably
determined by such Bank) such Bank would have paid during the
same period if it had bid on the first day of the then current
Interest Period for such Loan in the London interbank market (if
interest on such Loan is based on the Eurodollar Rate) or in any
other relevant market (if such Loan is a Quoted Rate Loan) for
Dollar deposits for amounts comparable to such principal amount
and maturities comparable to such Interest Period.
ARTICLE 4. CONDITIONS PRECEDENT.
<PAGE>
Section 4.01. Documentary Conditions Precedent. The
obligations of the Banks to make the Loans constituting the
initial Borrowing are subject to the condition precedent that the
Agent shall have received on or before the date of such Loans
each of the following, in form and substance satisfactory to the
Agent and its counsel:
(a) the Notes duly executed by the Borrower;
(b) the Authorization Letter duly executed by the Borrower;
(c) a certificate of the Secretary or Assistant Secretary of
the Borrower, dated the Closing Date, attesting to all corporate
action taken by the Borrower, including resolutions of its Board
of Directors, authorizing the execution, delivery and performance
of the Facility Documents and each other document to be delivered
pursuant to this Agreement;
(d) a certificate of the Secretary or Assistant Secretary of
the Borrower, dated the Closing Date, certifying the names and
true signatures of the officers of the Borrower authorized to
sign the Facility Documents and the other documents to be
delivered by the Borrower under this Agreement and certifying
that attached thereto are true and correct copies of the
Borrower's certificate of incorporation and by-laws as in effect
on the date thereof;
(e) a favorable opinion of Helen A. Zamboni, Esq., Corporate
Counsel for the Borrower, dated the Closing Date, in
substantially the form of Exhibit 4.01(e) and as to such other
matters as the Agent or any Bank may reasonably request.
Section 4.02. Additional Conditions Precedent. The
obligations of the Banks to make any Loan (including the initial
Borrowing), to convert any Loans pursuant to Section 2.05 or to
renew or convert any Loans pursuant to Section 2.06, shall be
subject to the further conditions precedent that on the date of
any such Loan, conversion or renewal the following statements
shall be true:
(a) the representations and warranties contained in Article
5 are true and correct on and as of the date of such Loan,
conversion or renewal as though made on and as of such date,
provided that the representations and warranties in Sections
5.04, 5.09 and 5.10 are made only as of the date of this
Agreement; and
(b) no Default or Event of Default has occurred and is
continuing, or would result from such Loan, conversion or
renewal.
Section 4.03. Deemed Representations. Each notice of
Borrowing, conversion or renewal hereunder, each automatic
conversion pursuant to Section 2.06(b), and acceptance by the
Borrower of such conversion or renewal or of the proceeds of
such Borrowing, shall constitute a representation and warranty
that the statements contained in Sections 4.02(a) and (b) are
true and correct both on the date of such notice and as of the
date of such Borrowing, conversion or renewal.
<PAGE>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants that:
Section 5.01. Incorporation, Good Standing and Due
Qualification. Each of the Borrower and its Subsidiaries is duly
incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate
power and authority to own its assets and to transact the
business in which it is now engaged or proposed to be engaged,
and is duly qualified as a foreign corporation and in good
standing under the laws of each other jurisdiction in which such
qualification is required.
Section 5.02. Corporate Power and Authority; No Conflicts.
The execution, delivery and performance by the Borrower of the
Facility Documents to which it is a party have been duly
authorized by all necessary corporate action and do not and will
not: (a) require any consent or approval of its stockholders;
(b) contravene its charter or by-laws; (c) to the extent material
to the Borrower's financial condition, business, operations or
properties, violate any provision of, or require any filing,
registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability
to the Borrower or any of its Subsidiaries or Affiliates; (d) to
the extent material to the Borrower's financial condition,
business, operations or properties, result in a breach of or
constitute a default or require any consent under any indenture
or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; (e) result in, or require,
the creation or imposition of any Lien, upon or with respect to
any of the properties now owned or hereafter acquired by the
Borrower and its Subsidiaries; or (f) cause the Borrower (or any
Subsidiary or Affiliate, as the case may be) to be in default
under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
Section 5.03. Legally Enforceable Agreements. Each
Facility Document is, or when delivered under this Agreement will
be, a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms,
except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.
Section 5.04. Litigation. As of the date of this
Agreement, other than as disclosed in Borrower's reports
previously filed with the SEC under the Securities Exchange Act
of 1934, there are no actions, suits or proceedings pending or,
to the knowledge of the Borrower, threatened, against or
affecting the Borrower or any of its Subsidiaries before any
court, governmental agency or arbitrator, which could, in any one
case or in the aggregate, materially adversely affect the
financial condition, operations, properties or business of the
Borrower or any such Subsidiary or the ability of the Borrower to
perform its obligations under the Facility Documents.
<PAGE>
Section 5.05. Financial Statements. The consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries
as at December 31, 1994, and the related consolidated income
statement and statements of cash flows and changes in
stockholders' equity of the Borrower and its Consolidated
Subsidiaries for the fiscal year then ended, and the accompanying
footnotes, together with the opinion thereon, of Price
Waterhouse, independent certified public accountants included in
Borrower's 1994 annual report to its shareholders filed with the
SEC, and the interim consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as at March 31, 1995, and the
related consolidated income statement and statements of cash
flows and changes in stockholders' equity for the three month
period then ended, included in Borrower's Form 10-Q Quarterly
Report for the three months then ended, as filed with the SEC,
copies of which have been furnished to each of the Banks, are
complete and correct in all material respects and fairly present
the financial condition of the Borrower and its Consolidated
Subsidiaries as at such dates and the results of the operations
of the Borrower and its Consolidated Subsidiaries for the periods
covered by such statements, all in accordance either with GAAP
consistently applied (subject to year end adjustments in the case
of the interim financial statements), or with the rules and
regulations of the SEC. There are no liabilities of the Borrower
or any of its Consolidated Subsidiaries, fixed or contingent,
which are material but are not reflected in such financial
statements or in the notes thereto, other than liabilities
arising in the ordinary course of business since March 31, 1995.
No information, exhibit or report furnished by the Borrower to
the Banks in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements
contained therein not materially misleading. Since December 31,
1994, there has been no material adverse change in the condition
(financial or otherwise), business, operations or prospects of
the Borrower or any of its Subsidiaries.
Section 5.06. Ownership and Liens. Each of the Borrower
and its Consolidated Subsidiaries has title to, or valid
leasehold interests in, all of its properties and assets, real
and personal, including the properties and assets, and leasehold
interests reflected in the financial statements referred to in
Section 5.05 (other than any properties or assets disposed of in
the ordinary course of business), and none of the properties and
assets owned by the Borrower or any of its Subsidiaries and none
of its leasehold interests is subject to any Lien, except as
disclosed in such financial statements or as may be permitted
hereunder, and except for Liens not material, individually or in
the aggregate, with respect to Borrower's business, properties,
operations or financial condition.
Section 5.07. Taxes. Each of the Borrower and its
Subsidiaries has filed all tax returns (federal, state and local)
required to be filed and has paid all taxes, assessments and
governmental charges and levies shown thereon to be due,
including interest and penalties, to the extent material to
Borrower's business, properties, operations or financial
condition.
<PAGE>
Section 5.08. ERISA. Each Plan, and, to the best knowledge
of the Borrower, each Multiemployer Plan, is in compliance in all
material respects with, and has been administered in all material
respects in compliance with, the applicable provisions of ERISA,
the Code and any other applicable Federal or state law, and no
event or condition is occurring or exists concerning which the
Borrower would be under an obligation to furnish a report to the
Banks in accordance with Section 6.05(d) hereof.
Section 5.09. Significant Subsidiaries. Exhibit 5.09 lists
the name, address and state of incorporation of each Subsidiary
that constitutes a Significant Subsidiary as of the date of this
Agreement, along with the computation by which Borrower has made
such determination. Such Exhibit also describes the Debt of each
Significant Subsidiary, and each Lien to which any of the assets
of each Significant Subsidiary are subject, on the date hereof.
Section 5.10. Borrower's Funded Debt. Exhibit 5.10
describes all Funded Debt of Borrower as of the date hereof, and
contains a copy of each agreement, promissory note and other
instrument related to or evidencing such Funded Debt.
ARTICLE 6. AFFIRMATIVE COVENANTS.
So long as any of the Notes shall remain unpaid or any Bank
shall have any Commitment under this Agreement, the Borrower
shall:
Section 6.01. Maintenance of Existence. To the extent
material to Borrower's business, properties, operations or
financial condition, preserve and maintain, and cause each of its
Significant Subsidiaries to preserve and maintain, its corporate
existence and good standing in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each
of its Significant Subsidiaries to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such
qualification is required.
Section 6.02. Conduct of Business. Continue, and cause
each of its Significant Subsidiaries to continue, to engage in an
efficient and economical manner in a business of the same general
type as conducted by it on the date of this Agreement.
Section 6.03. Maintenance of Insurance. Maintain, and
cause each of its Significant Subsidiaries to maintain, insurance
with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are
usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof.
Section 6.04. Compliance with Laws. Comply, and cause each
of its Significant Subsidiaries to comply, in all material
respects with all applicable laws, rules, regulations and orders,
such compliance to include, without limitation, paying before the
same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property.
Section 6.05. Reporting Requirements. Furnish to the Agent
<PAGE>
for distribution to each of the Banks:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, a copy of
Borrower's annual report to shareholders as filed with the SEC
or, if Borrower does not prepare such a report, a copy of
Borrower's Form 10-K Annual Report as filed with the SEC or, if
Borrower does not prepare either such report, a separate
document. In any such case, the report or separate document shall
contain a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such fiscal year and a
consolidated income statement and statement of cash flows and
changes in stockholders' equity of the Borrower and its
Consolidated Subsidiaries for such fiscal year, all either
complying with the rules and regulations of the SEC, (if
contained in a report filed with the SEC), or prepared in
accordance with GAAP (if contained in a separate document) and
accompanied by an opinion thereon acceptable to the Agent and
each of the Banks by Price Waterhouse or other independent
accountants of national standing selected by the Borrower;
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal
year of the Borrower, a copy of Borrower's Form 10-Q Quarterly
Report for such quarter as filed with the SEC, or, if Borrower
does not prepare such report, a separate document. In either such
case, the report or separate document shall contain a
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and a consolidated
income statement and statement of cash flows and changes in
stockholders' equity, of the Borrower and its Consolidated
Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, all either
(i) complying with the rules and regulations of the SEC (if
contained in a report filed with the SEC), or (ii) If contained
in a separate document, prepared in accordance with GAAP and
certified by the chief financial officer of the Borrower (subject
to year-end adjustments);
(c) as soon as possible and in any event within 10 days
after the occurrence of each Default or Event of Default a
written notice setting forth the details of such Default or Event
of Default and the action which is proposed to be taken by the
Borrower with respect thereto;
(d) as soon as possible, and in any event within ten days
after the Borrower has actual knowledge that any of the events or
conditions specified below with respect to any Plan or
Multiemployer Plan have occurred or exist, a statement signed by
a senior financial officer of the Borrower setting forth details
respecting such event or condition and the action, if any, which
the Borrower or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed
with or given to PBGC by the Borrower or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA, with respect to a Plan, as to which PBGC
has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within 30 days of the
<PAGE>
occurrence of such event (provided that a failure to meet
the minimum funding standard of Section 412 of the Code or
Section 302 of ERISA including, without limitation, the
failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section
302(e) of ERISA, shall be a reportable event regardless of
the issuance of any waivers in accordance with Section
412(d) of the Code) and any request for a waiver under
Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a
notice of intent to terminate any Plan or any action taken
by the Borrower or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Borrower or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Borrower or any ERISA Affiliate
that results in liability under Section 4201 or 4204 of
ERISA (including the obligation to satisfy secondary
liability as a result of a purchaser default) or the receipt
of the Borrower or any ERISA Affiliate of notice from a
Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that
it intends to terminate or has terminated under Section
4041A of ERISA;
(v) the institution of a proceeding by a fiduciary or
any Multiemployer Plan against the Borrower or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding
is not dismissed within 30 days;
(vi) the adoption of an amendment to any Plan that
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA would result in the loss of tax-exempt status of the
trust of which such Plan is a part if the Borrower or an
ERISA Affiliate fails to timely provide security to the Plan
in accordance with the provisions of said Sections;
(vii) any event or circumstance exists which may
reasonably be expected to constitute grounds for the
Borrower or any ERISA Affiliate to incur liability under
Title IV of ERISA or under Sections 412(c)(11) or 412(n) of
the Code with respect to any Plan; and
(viii) the Unfunded Benefit Liabilities of one or more
Plans increase after the date of this Agreement in an amount
which is material in relation to the financial condition of
the Borrower and its Subsidiaries, on a consolidated basis.
(e) promptly after the written request of any Bank, copies
of each annual report filed pursuant to Section 104 of ERISA with
respect to each Plan (including, to the extent required by
Section 104 of ERISA, the related financial and actuarial
statements and opinions and other supporting statements,
<PAGE>
certifications, schedules and information referred to in Section
103) and each annual report filed with respect to each Plan under
Section 4065 of ERISA; provided, however, that in the case of a
Multiemployer Plan, such annual reports shall be furnished only
if they are available to the Borrower or an ERISA Affiliate;
(f) promptly after the sending or filing thereof, copies of
all proxy statements, financial statements and reports (in
addition to those described above) which the Borrower or any of
its Significant Subsidiaries sends to its stockholders, and
copies of all regular, periodic and special reports, (in addition
to those described above), and all registration statements which
the Borrower or any such Significant Subsidiary files with the
SEC or any governmental authority which may be substituted
therefor, or with any national securities exchange;
(g) promptly after sending or filing, or other receipt
thereof, copies of any material amendments or notices sent, filed
or received with respect to the OMP;
(h) with each financial report submitted pursuant to
Sections 6.05(a) and 6.05(b), a separate report describing (i)
the names of each Significant Subsidiary as of the date of the
balance sheet set forth in such report and of each Subsidiary (or
former Subsidiary) listed on the last such report but not on the
current report, along with the computation by which Borrower
determined that each such Subsidiary (or former Subsidiary) did
or did not constitute a Significant Subsidiary, (ii) the name,
address and state of incorporation of each Subsidiary that became
a Significant Subsidiary since the date of Borrower's latest such
report, and (iii) the Debt of each Significant Subsidiary listed
on such report, and each Lien to which any of the assets of each
such Significant Subsidiary were subject, as of the date of such
report; and
(i) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its
Significant Subsidiaries as the Agent or any Bank may from time
to time reasonably request.
Section 6.06. Other Funded Debt of Borrower. If after the
date of this Agreement, Borrower either incurs new Funded Debt
(other than pursuant to this Agreement and other than that
described in Exhibit 5.10) or amends any document related to
Funded Debt (other than pursuant to this Agreement) or pursuant
to which Borrower has the right to borrow Funded Debt, Borrower
will furnish to the Agent for distribution to each of the Banks
copies of all documents related to such new Funded Debt or to
such amendments. If (in the reasonable opinion of the Required
Banks) at any time and from time to time, after the date hereof,
any of the covenants, representations and warranties or events of
default, or any other material term or provision (other than any
term or provision relating to payment terms, interest rates,
penalties or the granting of a Lien permitted under Section
7.02), contained in any document, agreement or instrument from
time to time entered into by the Borrower in respect of such
other Funded Debt, is more favorable to the lenders of such other
Funded Debt, than are the terms of this Agreement to the Banks,
this Agreement shall be amended to contain each such more
favorable covenant, representation and warranty, event of
<PAGE>
default, term or provision, and the Borrower hereby agrees to so
amend this Agreement and to execute and deliver all such
documents requested by the Required Banks to reflect such
Amendment. Prior to the execution and delivery of such documents
by the Borrower, this Agreement shall be deemed to contain each
such more favorable covenant, representation and warranty, event
of default, term or provision for purposes of determining the
rights and obligations hereunder.
ARTICLE 7. NEGATIVE COVENANTS.
So long as any of the Notes shall remain unpaid or any Bank
shall have any Commitment under this Agreement:
Section 7.01. Borrower Mergers. Borrower shall not merge
or consolidate with, or sell, assign, lease or otherwise dispose
of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or
hereafter acquired) to, any Person, (or enter into any agreement
to do any of the foregoing), except that Borrower shall be
permitted to enter into mergers and consolidations in which
Borrower is the surviving entity, provided that no Default or
Event of Default either exists or will result therefrom.
Section 7.02. Liens. Borrower shall not create, incur,
assume or suffer to exist, or permit any of its Significant
Subsidiaries to create, incur, assume or suffer to exist, any
Lien, upon or with respect to any of its properties, now owned or
hereafter acquired, except:
(a) Existing Liens on Borrower's assets described in Exhibit
7.02 and existing Liens on Significant Subsidiaries' assets
described in Exhibit 5.09;
(b) Liens for taxes or assessments or other government
charges or levies if not yet due and payable or, if due and
payable, if they are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained;
(c) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar
Liens, securing obligations incurred in the ordinary course of
business which are not past due for more than 30 days, or which
are being contested in good faith by appropriate proceedings and
for which appropriate reserves have been established;
(d) Liens under workers' compensation, unemployment
insurance, social security or similar legislation (other than
ERISA);
(e) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement),
public or statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other similar obligations
arising in the ordinary course of business;
(f) judgment and other similar Liens arising in connection
with court proceedings; provided that the execution or other
<PAGE>
enforcement of such Liens is effectively stayed and the claims
secured thereby are being actively contested in good faith and by
appropriate proceedings;
(g) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere
with the occupation, use and enjoyment by Borrower or any such
Significant Subsidiary of the property or assets encumbered
thereby in the normal course of its business or materially impair
the value of the property subject thereto;
(h) Liens securing obligations of a Significant Subsidiary
to Borrower or another Significant Subsidiary;
(i) purchase money Liens on any property hereafter acquired
by Significant Subsidiaries that are regulated public utilities,
or the assumption by such Subsidiaries of Liens on property
existing at the time of such acquisition, or Liens incurred by
such Subsidiaries in connection with any conditional sale or
other title retention agreements or Capital Leases; and purchase
money Liens on transmission equipment hereafter acquired by
Significant Subsidiaries that are not regulated public utilities,
or the assumption by such Subsidiaries of Liens on transmission
equipment existing at the time of such acquisition, or Liens
incurred by such Subsidiaries in connection with any acquisition
of transmission equipment pursuant to any conditional sale or
other title retention agreements or Capital Leases; and Liens
attaching to the assets of businesses acquired by the Borrower or
any Significant Subsidiary by merger, consolidation or the
purchase of stock, which Liens existed at the time of such
acquisition; provided, in each case, that:
(i) any property subject to any of the foregoing is
acquired by Borrower or any such Subsidiary either (x) in
the ordinary course of its business and the Lien on any such
property is created contemporaneously with such acquisition,
or (xx) pursuant to the OMP;
(ii) the obligation secured by any Lien so created,
assumed or existing shall not exceed 100% of the lesser of
cost or fair market value as of the time of acquisition of
the property covered thereby to Borrower or such Subsidiary
acquiring the same; and
(iii) each such Lien shall attach only to the property
so acquired and fixed improvements thereon.
Section 7.03. Debt. Borrower shall not permit any of its
Significant Subsidiaries to create, incur, assume or suffer to
exist any Debt, except:
(a) Debt outstanding on the date hereof and Debt now or
hereafter incurred pursuant to existing agreements, in each case
as described in Exhibit 5.09, including renewals, extension or
refinancings thereof, provided that the principal amount thereof
does not increase over the amount outstanding or available for
borrowing on the date hereof;
(b) Debt secured by Liens permitted pursuant to Section
7.02;
<PAGE>
(c) Debt of entities acquired by Significant Subsidiaries
after the date hereof, which Debt exists on the date of
acquisition and is assumed by such Significant Subsidiaries;
(d) Debt of Significant Subsidiaries to Borrower incurred
upon Borrower's advancing to such Significant Subsidiaries the
proceeds of Loans; and
(e) other Debt of Significant Subsidiaries that are
regulated public utilities;
provided, however, that the outstanding principal amount of all
such permitted Significant Subsidiary Debt shall at no time
aggregate more than $500,000,000.
Section 7.04. No Dividend Restrictions. Borrower shall not
permit any of its Significant Subsidiaries to create, assume or
suffer to exist, any contractual, legal or other restriction that
specifically prohibits or limits the payment of dividends by any
such Significant Subsidiaries; provided, that the foregoing
provision shall not apply to (i) Significant Subsidiaries that
are regulated public utilities, to the extent that the agencies
charged with regulating them (as public utilities) may
specifically prohibit or limit dividend payments, (ii)
restrictions that apply to Significant Subsidiaries that were
acquired as Subsidiaries after the date hereof, if such
Significant Subsidiaries were subject to such restrictions at the
time of acquisition and if such restrictions do not extend to
Borrower or any other Significant Subsidiary, or (iii) the
existence and operation of financial covenants, such as maximum
debt to net worth or minimum working capital ratios, as long as
they do not specifically prohibit or restrict dividend payments.
Section 7.05. Ownership of Significant Subsidiaries.
Borrower shall not
(a) permit any Significant Subsidiary to merge or
consolidate with, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all
or substantially all of its assets (whether now owned or
hereafter acquired) to any Person (or enter into any agreement to
do any of the foregoing), except that: (i) any Significant
Subsidiary may merge into or transfer assets to the Borrower; and
(ii) any Significant Subsidiary may merge into or consolidate
with or transfer assets to any other Subsidiary of the Borrower;
or
(b) sell or dispose of any equity or voting interest in any
Significant Subsidiary, except that Borrower shall be permitted
to sell or dispose of such equity or voting interest as long as
the purchaser or transferee is an entity in which Borrower owns
an equity interest;
provided, however, that the transactions prohibited in clauses
(a) and (b) above shall be permitted as long as (x) the proceeds
thereof are received entirely in cash by Borrower or a
Significant Subsidiary, as the case may be, and (xx) unless
waived by all of the Banks, upon completion of any such
transaction, Borrower reduces the total amount of the Commitments
<PAGE>
by the amount of such cash proceeds, less the expenses and the
income and other taxes estimated to be due as a result of the
transaction, and Borrower makes any prepayments of outstanding
Loans necessary to reduce the aggregate outstanding principal
balance of such Loans to the amount of the Commitments as so
reduced.
ARTICLE 8. FINANCIAL COVENANTS.
So long as any of the Notes shall remain unpaid or any Bank
shall have any Commitment under this Agreement, as of the end of
each fiscal quarter:
Section 8.01. Minimum Net Worth. Borrower shall maintain a
Consolidated Net Worth of not less than $800,000,000 until
completion of the contemplated merger with ALC Communications
Corporation, and $900,000,000 thereafter; provided that in each
case, the required minimum Consolidated Net Worth amount shall be
reduced by the amount, which amount shall not exceed $200,000,000
in the aggregate, of any reduction(s) in Borrower's Consolidated
Net Worth that result from (i) any election by Borrower to
terminate the applicability of Statement of Financial Accounting
Standards No. 71 and/or (ii) an accelerated adjustment of the
Borrower's unrecognized transition obligation for its post-
retirement benefit obligations, as recognized under Statement of
Financial Accounting Standards No. 106.
Section 8.02. Leverage Ratio. The Borrower shall maintain
at all times a ratio of Consolidated Funded Debt to Consolidated
Net Worth of not greater than 1.25 to 1.
ARTICLE 9. EVENTS OF DEFAULT.
Section 9.01. Events of Default. Any of the following
events shall be an "Event of Default":
(a) the Borrower shall: (i) fail to pay the principal of any
Note as and when due and payable; or (ii) fail to pay interest on
any Note or any fee or other amount due hereunder as and when due
and payable and such failure shall continue for ten days;
(b) any representation or warranty made or deemed made by
the Borrower in this Agreement or in any other Facility Document
or which is contained in any certificate, document, opinion,
financial or other statement furnished at any time under or in
connection with any Facility Document shall prove to have been
incorrect in any material respect on or as of the date made or
deemed made;
(c) the Borrower shall: (i) fail to perform or observe any
term, covenant or agreement contained in Section 2.03 or Articles
7 or 8; or (ii) fail to perform or observe any term, covenant or
agreement on its part to be performed or observed (other than the
obligations specifically referred to elsewhere in this Section
9.01) in any Facility Document and such failure shall continue
for 30 consecutive days;
(d) the Borrower or any of its Significant Subsidiaries
<PAGE>
shall: (i) fail to pay any Debt, including but not limited to
Debt for borrowed money (other than the payment obligations
described in (a) above), of the Borrower and its Subsidiaries or
any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or
otherwise); or (ii) fail to perform or observe any term, covenant
or condition on its part to be performed or observed under any
agreement or instrument relating to any such Debt, when required
to be performed or observed, if the effect of such failure to
perform or observe is to accelerate, or to permit the
acceleration of, after the giving of notice or passage of time,
or both, the maturity of such Debt, whether or not such failure
to perform or observe shall be waived by the holder of such Debt;
or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;
(e) the Borrower or any of its Significant Subsidiaries (i)
shall generally not, or be unable to, or shall admit in writing
its inability to, pay its debts as such debts become due; or (ii)
shall make an assignment for the benefit of creditors, or
petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of
its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall
have been commenced, against it, in which an adjudication or
appointment is made or order for relief is entered, or which
petition, application or proceeding remains undismissed for a
period of 30 days or more; or shall be the subject of any
proceeding under which its assets may be subject to seizure,
forfeiture or divestiture (other than a proceeding in respect of
a Lien permitted under Section 7.02 (b)); or (v) by any act or
omission shall indicate its consent to, approval of or
acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or
trustee for all or any substantial part of its property; or (vi)
shall suffer any such custodianship, receivership or trusteeship
to continue undischarged for a period of 30 days or more;
(f) one or more judgments, decrees or orders for the payment
of money in excess of $2,000,000 in the aggregate shall be
rendered against the Borrower and/or any of its Significant
Subsidiaries and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of 30 consecutive days
without being vacated, discharged, satisfied or stayed or bonded
pending appeal;
(g) any event or condition shall occur or exist with respect
to any Plan or Multiemployer Plan concerning which the Borrower
is under an obligation to furnish a report to the Bank in
accordance with Section 6.05(d) hereof and as a result of such
event or condition, together with all other such events or
conditions, the Borrower or any ERISA Affiliate has incurred or
in the opinion of the Required Banks is reasonably likely to
incur a liability to a Plan, a Multiemployer Plan, the PBGC, or a
Section 4042 Trustee (or any combination of the foregoing) which
is material in relation to the financial position of the Borrower
<PAGE>
and its Consolidated Subsidiaries, on a consolidated basis;
provided, however, that any such amount shall not be deemed to be
material so long as all such amounts do not require payments by
Borrower in excess of $2,000,000 in the aggregate; and
(h) Any Person or group (as such term is defined pursuant to
the Securities Exchange Act of 1934, and the regulations
promulgated thereunder), acquires Control of the Borrower.
Section 9.02. Remedies. If any Event of Default shall
occur and be continuing, the Agent shall, upon request of the
Required Banks, by notice to the Borrower, (a) declare the
Commitments to be terminated, whereupon the same shall forthwith
terminate, and (b) declare the outstanding principal of the
Notes, all interest thereon and all other amounts payable under
this Agreement and the Notes to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that, in the
case of an Event of Default referred to in Section 9.01(e) above,
the Commitments shall be immediately terminated, and the Notes,
all interest thereon and all other amounts payable under this
Agreement shall be immediately due and payable without notice,
presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE 10. THE AGENT; RELATIONS AMONG BANKS AND BORROWER.
Section 10.01. Appointment, Powers and Immunities of Agent.
Each Bank hereby irrevocably (but subject to removal by the
Required Banks pursuant to Section 10.09) appoints and authorizes
the Agent to act as its agent hereunder and under any other
Facility Document with such powers as are specifically delegated
to the Agent by the terms of this Agreement and any other
Facility Document, together with such other powers as are
reasonably incidental thereto. The Agent shall have no duties or
responsibilities except those expressly set forth in this
Agreement and any other Facility Document, and shall not by
reason of this Agreement be a trustee for any Bank. The Agent
shall not be responsible to the Banks for any recitals,
statements, representations or warranties made by the Borrower or
any officer or official of the Borrower or any other Person
(other than Agent) contained in this Agreement or any other
Facility Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of
them under, this Agreement or any other Facility Document, or for
the value, legality, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other
Facility Document or any other document or instrument referred to
or provided for herein or therein, for the perfection or priority
of any collateral security for the Loans or for any failure by
the Borrower to perform any of its obligations hereunder or
thereunder. The Agent may employ agents and attorneys-in-fact
and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Agent nor any of its
directors, officers, employees or agents shall be liable or
<PAGE>
responsible for any action taken or omitted to be taken by it or
them hereunder or under any other Facility Document or in
connection herewith or therewith, except for its or their own
gross negligence or willful misconduct. The Borrower shall pay
any fee agreed to by the Borrower and the Agent with respect to
the Agent's services hereunder.
Section 10.02. Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
The Agent may deem and treat each Bank as the holder of the Loans
made by it for all purposes hereof. As to any matters not
expressly provided for by this Agreement or any other Facility
Document, the Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance
with instructions signed by the Required Banks, and such
instructions of the Required Banks and any action taken or
failure to act pursuant thereto shall be binding on all of the
Banks and any other holder of all or any portion of any Loan.
Section 10.03. Defaults. The Agent shall not be deemed to
have knowledge of the occurrence of a Default or Event of Default
(other than the non-payment of principal of or interest on the
Loans to the extent the same is required to be paid to the Agent
for the account of the Banks) unless the Agent has received
notice from a Bank or the Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of
the occurrence of a Default or Event of Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall
(subject to Section 10.08) take such action with respect to such
Default or Event of Default which is continuing as shall be
directed by the Required Banks; provided that, unless and until
the Agent shall have received such directions, the Agent may take
such action, or refrain from taking such action, with respect to
such Default or Event of Default as it shall deem advisable in
the best interest of the Banks; and provided further that the
Agent shall not be required to take any such action which it
determines to be contrary to law.
Section 10.04. Rights of Agent as a Bank. With respect to
its Commitment and the Loans made by it, the Agent in its
capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as
though it were not acting as the Agent, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include
the Agent in its capacity as a Bank. The Agent and its
affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to (on a secured or unsecured
basis), and generally engage in any kind of banking, trust or
other business with, the Borrower (and any of its Affiliates) as
if it were not acting as the Agent, and the Agent may accept fees
and other consideration from the Borrower for services in
connection with this Agreement or otherwise without having to
account for the same to the Banks. Although the Agent and its
<PAGE>
affiliates may, in the course of relationships with the Borrower
and its Affiliates other than those related to this Agreement,
and in the course of relationships with other Persons, acquire
information about the Borrower, its Affiliates and such other
Persons, the Agent shall have no duty to disclose such
information to the Banks.
Section 10.05. Indemnification of Agent. The Banks agree
to indemnify the Agent (to the extent not reimbursed under
Section 11.03 or under the applicable provisions of any other
Facility Document, but without limiting the obligations of the
Borrower under Section 11.03 or such provisions), ratably in
accordance with the aggregate unpaid principal amount of the
Loans made by the Banks (without giving effect to any assignments
or participations, in all or any portion of such Loans, sold by
them to any other Person) (or, if no Loans are at the time
outstanding, ratably in accordance with their respective
Commitments), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent (but solely
in its capacity as Agent) in any way relating to or arising out
of this Agreement, any other Facility Document or any other
documents contemplated by or referred to herein or the
transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which the Borrower is
obligated to pay under Section 11.03 or under the applicable
provisions of any other Facility Document but excluding, unless a
Default or Event of Default has occurred, normal administrative
fees, costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement of any of the terms
hereof or thereof or of any such other documents or instruments;
provided that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful
misconduct of the Agent.
Section 10.06. Documents. The Agent will forward to each
Bank, promptly after the Agent's receipt thereof, a copy of each
report, notice or other document required by this Agreement or
any other Facility Document to be delivered to the Agent for such
Bank.
Section 10.07. Non-Reliance on Agent and Other Banks. Each
Bank agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit
analysis of Borrower and the current and contemplated
Subsidiaries of Borrower and its own decision to enter into this
Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking
action under this Agreement or any other Facility Document. The
Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement or
any other Facility Document or any other document referred to or
provided for herein or therein or to inspect the properties or
books of Borrower or any Subsidiary. Except for notices, reports
and other documents and information expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall
<PAGE>
not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial
condition or business of Borrower or any Subsidiary (or any of
their Affiliates) which may come into the possession of the Agent
or any of its affiliates. The Agent shall not be required to
file this Agreement, any other Facility Document or any document
or instrument referred to herein or therein, for record or give
notice of this Agreement, any other Facility Document or any
document or instrument referred to herein or therein, to anyone.
Section 10.08. Failure of Agent to Act. Except for action
expressly required of the Agent hereunder, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder
unless it shall have received further assurances (which may
include cash collateral) of the indemnification obligations of
the Banks under Section 10.05 in respect of any and all liability
and expense which may be incurred by it by reason of taking or
continuing to take any such action.
Section 10.09. Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower, and the Agent may be
removed at any time with or without cause by the Required Banks;
provided that the Borrower and the other Banks shall be promptly
notified thereof. Upon any such resignation or removal, the
Required Banks shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the
Required Banks and shall have accepted such appointment within 30
days after the retiring Agent's giving of notice of resignation
or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor
Agent, which shall be a bank having a minimum capital and surplus
of $50,000,000 and having an office in New York State. The
Required Banks or the retiring Agent, as the case may be, shall
upon the appointment of a successor Agent promptly so notify the
Borrower and the other Banks. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from any
further duties and obligations hereunder. After any retiring
Agent's resignation or removal hereunder as Agent, the provisions
of this Article 10 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while
it was acting as the Agent.
Section 10.10. Amendments Concerning Agency Function. The
Agent shall not be bound by any waiver, amendment, supplement or
modification of this Agreement or any other Facility Document
which affects its duties hereunder or thereunder unless it shall
have given its prior consent thereto.
Section 10.11. Liability of Agent. The Agent shall not
have any liabilities or responsibilities to the Borrower on
account of the failure of any Bank to perform its obligations
hereunder or to any Bank on account of the failure of the
Borrower to perform its obligations hereunder or under any other
Facility Document.
<PAGE>
Section 10.12. Transfer of Agency Function. Without the
consent of the Borrower or any Bank, the Agent may at any time or
from time to time transfer its functions as Agent hereunder to
any of its offices in New York State, wherever located, provided
that the Agent shall promptly notify the Borrower and the Banks
thereof.
Section 10.13. Non-Receipt of Funds by the Agent. Unless
the Agent shall have been notified by a Bank or the Borrower
(either one as appropriate being the "Payor") prior to the date
and time as of which such Bank is to make payment hereunder to
the Agent of the proceeds of a Loan or the Borrower is to make
payment to the Agent, as the case may be (either such payment
being a "Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available
to the intended recipient on such date and, if the Payor has not
in fact made the Required Payment to the Agent, the recipient of
such payment (and, if such recipient is the Borrower and the
Payor Bank fails to pay the amount thereof to the Agent forthwith
upon demand, the Borrower) shall, on demand, repay to the Agent
the amount made available to it together with interest thereon,
for the period from the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate
per annum equal to the average daily federal funds rate for such
period.
Section 10.14. Withholding Taxes. Each Bank represents
that it is entitled to receive any payments to be made to it
hereunder without the withholding of any tax and will furnish to
the Agent such forms, certifications, statements and other
documents as the Agent may request from time to time to evidence
such Bank's exemption from the withholding of any tax imposed by
any jurisdiction or to enable the Agent to comply with any
applicable laws or regulations relating thereto. Without
limiting the effect of the foregoing, if any Bank is not created
or organized under the laws of the United States of America or
any state thereof, in the event that the payment of interest by
the Borrower is treated for U.S. income tax purposes as derived
in whole or in part from sources from within the U.S., such Bank
will furnish to the Agent Form 4224 or Form 1001 of the Internal
Revenue Service, or such other forms, certifications, statements
or documents, duly executed and completed by such Bank as
evidence of such Bank's exemption from the withholding of U.S.
tax with respect thereto. The Agent shall not be obligated to
make any payments hereunder to such Bank in respect of any Loan
or such Bank's Commitment until such Bank shall have furnished to
the Agent the requested form, certification, statement or
document.
Section 10.15. Several Obligations and Rights of Banks.
The failure of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve any other Bank of its
obligation to make its Loan on such date, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to
be made by such other Bank. The amounts payable at any time
hereunder to each Bank shall be a separate and independent debt,
and each Bank shall be entitled to protect and enforce its rights
<PAGE>
arising out of this Agreement, and it shall not be necessary for
any other Bank to be joined as an additional party in any
proceeding for such purpose.
Section 10.16. Pro Rata Treatment of Loans, Etc. Except to
the extent provided in Section 2.13 and as may be otherwise
provided in this Agreement: (a) each Borrowing under Section
2.04 shall be made from the Banks, each reduction or termination
of the amount of the Commitments under Section 2.07 shall be
applied to the Commitments of the Banks, and each payment of
facility fee accruing under Section 2.11 shall be made for the
account of the Banks, pro rata according to the amounts of their
respective Commitments; (b) each conversion under Section 2.05 of
Loans of a particular type (but not conversions provided for by
Section 3.04), shall be made pro rata among the Banks holding
Loans of such type according to the respective principal amounts
of such Loans by such Banks; and (c) each prepayment (but not
prepayments provided for in clause (c)(ii) of Section 2.05) and
payment of principal of or interest on Loans of a particular type
and a particular Interest Period shall be made to the Agent for
the account of the Banks holding Loans of such type and Interest
Period pro rata in accordance with the respective unpaid
principal amounts of such Loans of such type and Interest Period
held by such Banks.
Section 10.17. Sharing of Payments Among Banks. If a Bank
shall obtain payment of any principal of or interest on any Loan
made by it through the exercise of any right of setoff, banker's
lien, or counterclaim, or by any other means during the existence
of a Default or Event of Default, it shall promptly purchase from
the other Banks participations in (or, if and to the extent
specified by such Bank, direct interests in) the Loans made by
the other Banks in such amounts, and make such other adjustments
from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment (net of any
expenses which may be incurred by such Bank in obtaining or
preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Loans held by each of them. To
such end the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if
such payment is rescinded or must otherwise be restored. The
Borrower agrees that any Bank so purchasing a participation (or
direct interest) in the Loans made by other Banks may exercise
all rights of setoff, banker's lien, counterclaim or similar
rights with respect to such participation (or direct interest).
Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to
any other indebtedness of the Borrower.
ARTICLE 11. MISCELLANEOUS.
Section 11.01. Amendments and Waivers. Except as otherwise
expressly provided in this Agreement, any provision of this
Agreement may be amended or modified only by an instrument in
writing signed by the Borrower, the Agent and the Required Banks,
or by the Borrower and the Agent acting with the written consent
of the Required Banks and any provision of this Agreement may be
waived by the Required Banks or by the Agent acting with the
<PAGE>
written consent of the Required Banks; provided that no
amendment, modification or waiver shall, unless by an instrument
signed by all of the Banks or by the Agent acting with the
written consent of all of the Banks: (a) increase or extend the
term, or extend the time or waive any requirement for the
reduction or termination, of the Commitments, (b) extend the date
fixed for the payment of principal of or interest on any Loan or
any fee payable hereunder, (c) reduce the amount of any payment
of principal thereof or the rate at which interest is payable
thereon or any fee payable hereunder, (d) alter the terms of this
Section 11.01, (e) amend the definition of the term "Required
Banks" or (f) waive any of the documentary conditions precedent
set forth in Section 4.01 hereof and provided, further, that any
amendment of Article 10 hereof or any amendment which increases
the obligations of the Agent hereunder shall require the consent
of the Agent. No failure on the part of the Agent or any Bank to
exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof or preclude any other or further
exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 11.02. Usury. Anything herein to the contrary
notwithstanding, the obligations of the Borrower under this
Agreement and the Notes shall be subject to the limitation that
payments of interest shall not be required to the extent that
receipt thereof would be contrary to provisions of law applicable
to a Bank limiting rates of interest which may be charged or
collected by such Bank.
Section 11.03. Expenses. The Borrower shall pay the Agent
on demand for all costs, expenses, and charges (including,
without limitation, reasonable fees and charges of external legal
counsel for the Agent and costs allocated by its internal legal
department) incurred by the Agent in connection with the
preparation, execution and delivery of this Agreement, the other
Facility Documents and the other documents to be executed
contemporaneously herewith. In addition, the Borrower shall pay
the Agent and the Banks on demand for all costs, expenses, and
charges (including, without limitation, fees and charges of
external legal counsel for the Agent and each Bank and costs
allocated by their respective internal legal departments)
incurred by the Agent or the Banks in connection with the
performance or enforcement of this Agreement, the Notes and any
other Facility Documents. The Borrower hereby indemnifies the
Agent and each Bank and their respective directors, officers,
employees and agents from, and holds each of them harmless
against, any and all losses, liabilities, claims, damages or
expenses (each an "Indemnified Liability") incurred by any of
them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to or
arising out of this Agreement or any actual or proposed use by
the Borrower or any Subsidiary of the proceeds of the Loans,
including without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such
investigation or litigation or other proceedings (but excluding
any Indemnified Liability incurred by reason of the negligence or
willful misconduct of the Person to be indemnified). The
Borrower agrees that any Indemnified Liability will be promptly
<PAGE>
paid to the Person to be indemnified upon the written demand of
such Person.
Section 11.04. Survival. The obligations of the Borrower
under Sections 3.01, 3.05 and 11.03 shall survive the repayment
of the Loans and the termination of the Commitments.
Section 11.05. Assignment; Participations. (a) This
Agreement shall be binding upon, and shall inure to the benefit
of, the Borrower, the Agent, the Banks and their respective
successors and assigns, except that neither the Borrower nor any
Bank may assign its rights or obligations, or transfer
participations, hereunder other than as specifically permitted in
this Section 11.05. Notwithstanding the foregoing, (i) provided
that it obtains the prior written consent of the Borrower, which
consent may not be unreasonably withheld or delayed, each Bank
may transfer participations in all or any part of its Commitment,
in principal amounts aggregating at least $5,000,000, to one or
more other banks or other entities, and (ii) each Bank may
transfer participations in all or any part of its Loans to one or
more banks or other entities; provided, in each case, that the
participant(s) shall have no rights under the Facility Documents
and all amounts payable by the Borrower under Article 3 shall be
determined as if such Bank had not sold such participation(s).
The agreement executed by any such Bank in favor of any
participant shall not give the participant the right to prevent
such Bank from taking any action hereunder except action directly
relating to (i) the extension of the Termination Date, (ii) the
extension of a payment date with respect to any portion of the
principal, interest or fees allocated to such participant that
may be outstanding or payable hereunder, (iii) the reduction of
the principal amount outstanding hereunder or (iv) the reduction
of the rate of interest payable on such amount or any amount of
fees payable hereunder to a rate or amount, as the case may be,
below that which the participant is entitled to receive under its
agreement with such Bank. Such Bank may furnish any information
concerning the Borrower in the possession of such Bank from time
to time to participants (including prospective participants);
provided that such Bank shall require any such prospective
participant to agree to maintain the confidentiality of such
information.
(b) In addition to the participations permitted under
Section 11.05(a), any Bank may assign and pledge all or any
portion of its Loans and Notes to (i) any affiliate of such Bank
or (ii) any Federal Reserve Bank as collateral security pursuant
to Regulation A of the Board of Governors of the Federal Reserve
System and any Operating Circular issued by such Federal Reserve
Bank. No such assignment shall release the assigning Bank from
its obligations hereunder.
(c) As used on this Section 11.05, (i) the term
"participation" shall mean an undivided interest in the
Commitment, or in one or more Loans, of a Bank, provided, that in
acquiring such undivided interest the holder thereof acquires no
rights under any Facility Document and no rights against any
party thereto other than the transferor of such undivided
interest; and (ii) the terms "assign" and "assignment" relate to
transfers of an interest in the Commitment, or in one or more
Loans, of a Bank, or of obligations of a Bank, pursuant to which
the transferee acquires rights or obligations under one or more
<PAGE>
Facility Documents and rights against or obligations to one or
more parties thereto.
Section 11.06. Notices. All notices, requests and other
communications provided for herein (including, without
limitation, any modifications of, or waivers, requests or
consents under, this Agreement) shall be given or made in writing
(including, without limitation, by telex or facsimile
transmission), or, with respect to notices given pursuant to
Section 2.08 hereof, by telephone, confirmed in writing by
facsimile transmission by the close of business on the day the
notice is given, delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall
be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when
transmitted (with confirmation of receipt) by telex or facsimile
transmission or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as
aforesaid.
Section 11.07. Setoff. The Borrower agrees that, in
addition to (and without limitation of) any right of setoff,
banker's lien or counterclaim a Bank may otherwise have, each
Bank shall be entitled, at its option, to offset balances
(general or special, time or demand, provisional or final) held
by it for the account of the Borrower at any of such Bank's
offices, in Dollars or in any other currency, against any amount
payable by the Borrower to such Bank under this Agreement or such
Bank's Notes which is not paid when due (regardless of whether
such balances are then due to the Borrower), in which case it
shall promptly notify the Borrower and the Agent thereof and
shall share such payments as set forth in Section 10.17; provided
that such Bank's failure to give such notice shall not affect the
validity thereof. Payments by the Borrower hereunder shall be
made without setoff or counterclaim.
SECTION 11.08. JURISDICTION; IMMUNITIES. (a) THE AGENT,
THE BANKS AND THE BORROWER HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY NEW YORK STATE SUPREME OR UNITED STATES
FEDERAL COURT SITTING IN MONROE COUNTY OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
NOTES, AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE SUPREME OR FEDERAL COURT. EACH
PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO THE OTHER AT ITS ADDRESS SPECIFIED IN SECTION 11.06,
WITH, IN BORROWER'S CASE, A COPY TO ITS CORPORATE COUNSEL. EACH
PARTY AGREES THAT, SUBJECT TO ANY RIGHTS OF APPEAL, A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. EACH PARTY FURTHER WAIVES
ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN
ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON
CONVENIENS. EACH PARTY FURTHER AGREES THAT ANY ACTION OR
PROCEEDING BROUGHT AGAINST THE AGENT SHALL BE BROUGHT ONLY IN NEW
YORK STATE SUPREME OR UNITED STATES FEDERAL COURT SITTING IN
MONROE COUNTY. THE BORROWER, THE AGENT AND EACH BANK WAIVES ANY
<PAGE>
RIGHT IT MAY HAVE TO JURY TRIAL.
(b) Nothing in this Section 11.08 shall affect the right of
any party to serve legal process in any other manner permitted by
law or affect the right of the Agent or any Bank to bring any
action or proceeding against the Borrower or its property in the
courts of any other jurisdictions.
Section 11.09. Table of Contents; Headings. Any table of
contents and the headings and captions hereunder are for
convenience only and shall not affect the interpretation or
construction of this Agreement.
Section 11.10. Severability. The provisions of this
Agreement are intended to be severable. If for any reason any
provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any
other jurisdiction or the remaining provisions hereof in any
jurisdiction.
Section 11.11. Counterparts. This Agreement may be
executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing any such
counterpart.
Section 11.12. Integration. The Facility Documents set
forth the entire agreement among the parties hereto relating to
the transactions contemplated thereby and supersede any prior
oral or written statements or agreements with respect to such
transactions.
SECTION 11.13. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
Section 11.14. Confidentiality. Each Bank and the Agent
agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with
safe and sound banking practices, any non-public information
supplied to it by the Borrower pursuant to this Agreement which
is identified by the Borrower as being confidential at the time
the same is delivered to the Banks or the Agent, provided that
nothing herein shall limit the disclosure of any such information
(i) to the extent required by statute, rule, regulation or
judicial process, (ii) to counsel for any of the Banks or the
Agent, (iii) to bank examiners, auditors or accountants, (iv) in
connection with any litigation to which any one or more of the
Banks is a party or (v) to any assignee or participant (or
prospective assignee or participant) pursuant to Section 11.05;
provided, further, that, unless specifically prohibited by
applicable law or court order, each Bank shall, prior to
disclosure thereof, notify the Borrower of any request for
disclosure of any such non-public information (x) by any
governmental agency or representative thereof (other than any
such request in connection with an examination of the financial
<PAGE>
condition of such Bank by such governmental agency) or (y)
pursuant to legal process; and provided finally that in no event
shall any Bank or the Agent be obligated or required to return
any materials furnished by the Borrower. Each Bank agrees to
indemnify the Borrower with respect to any breach by such Bank of
this Section 11.14.
Section 11.15. Treatment of Certain Information. The
Borrower (a) acknowledges that services may be offered or
provided to it (in connection with this Agreement or otherwise)
by each Bank or by one or more of their respective subsidiaries
or affiliates and (b) acknowledges that any information delivered
to each Bank or its subsidiaries or affiliates regarding the
Borrower may be shared among such Bank and such subsidiaries and
affiliates. This Section 11.15 shall survive the repayment of
the Loans and the termination of the Commitments.
SIGNATURE PAGES S-1 through S-13 TO FOLLOW
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
FRONTIER CORPORATION
By: /s/ Louis L. Massaro
---------------------
Name: Louis L. Massaro
Title: Corporate Vice President-
Finance
Address for Notices:
180 S. Clinton Avenue
Rochester, New York 14646
Attn: Treasurer
Telephone: (716) 777-7130
Facsimile: (716) 232-8154
With a copy to:
180 S. Clinton Avenue
Rochester, New York 14646
Attn: Corporate Counsel
Telephone : (716) 777-7315
Facsimile: (716) 546-7823
<PAGE>
S-2
AGENT:
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Benedict A. Smith
--------------------------
Name: Benedict A. Smith
Title: Vice President
Address for Notices:
New York Agency
4 Chase Metro Tech Center
13th Floor
Brooklyn, New York 11245
Telephone: (718) 242-7970
Facsimile: (718) 242-6909
<PAGE>
S-3
BANKS:
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Benedict A. Smith
---------------------------
Name: Benedict A. Smith
Title: Vice President
Lending Office and Address for Notices:
1 Chase Square
Rochester, New York 14643
Attn: Benedict A. Smith
Telephone: (716) 258-5669
Facsimile: (716) 258-4258
<PAGE>
S-4
BANKS:
CHEMICAL BANK
By: /s/ Virginia Allen
----------------------
Name: Virginia Allen
Title:
Lending Office and Address for Notices:
300 Linden Oaks
Rochester, New York 14625
Attn: Virginia Allen
Telephone: (716) 387-3624
Facsimile: (716) 586-2749
<PAGE>
S-5
BANKS:
MARINE MIDLAND BANK
By: /s/ Ellen M. Wayne
----------------------------
Name: Ellen M. Wayne
Title: Vice President
Lending Offices and Address for Notices:
One Marine Midland Plaza, 2nd Floor
Rochester, New York 14639
Attn: Ellen M. Wayne
Telephone: (716) 238-7286
Facsimile: (716) 238-7992
<PAGE>
S-6
BANKS:
UNION BANK OF SWITZERLAND
By: /s/ Paul R. Morrison
-----------------------------
Name: Paul R. Morrison
Title: Assistant Vice President
By: /s/ Robert A. High
----------------------------
Name: Robert A. High
Title: Assistant Treasurer
Lending Offices and Address for Notices:
299 Park Avenue
New York, New York 10171-0026
Attn: Paul R. Morrison
Telephone: (212) 821-3358
Facsimile: (212) 821-3383
<PAGE>
S-7
BANKS:
PNC BANK, National Association
By: /s/ K. M. Wolters
---------------------------
Name: Karen M. Wolters
Title: Vice President
Lending Offices and Address for Notices:
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19110
Attn: Karen M. Wolters
Telephone: (215) 585-6376
Facsimile: (215) 585-6680
<PAGE>
S-8
BANKS:
FLEET BANK
By: /s/ Martin K. Birmingham
-------------------------
Name: Martin K. Birmingham
Title: Assistant Vice President
Lending Offices and Address for Notices:
One East Avenue
Rochester, New York 14692
Attn: Martin Birmingham
Telephone: (716) 546-9126
<PAGE>
S-9
BANKS:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ Jim P. Redman
---------------------------
Name: Jim P. Redman
Title: Senior Vice President
Lending Offices and Address for Notices:
301 South College Street/TW-19
Charlotte, NC 28288-0735
Attn: Bruce Levy
Telephone: (704) 383-5292
Facsimile: (704) 374-4092
<PAGE>
S-10
BANKS:
BANK ONE, COLUMBUS N.A.
By: /s/ D. H. Klamfoth
---------------------------
Name: Douglas H. Klamforth
Title: Vice President
Lending Offices and Address for Notices:
100 East Broad Street
Columbus, OH 43171-0209
Attn: Douglas Klamfoth
Telephone: (614) 248-5839
Facsimile: (614) 248-5518
<PAGE>
S-11
BANKS:
COMERICA BANK
By: /s/ Chris Geovassilis
-------------------------
Name: Chris Georvassilis
Title: Assistant Vice President
Lending Offices and Address for Notices:
One Detroit Center
MC3281-9th Floor
500 Woodward Avenue
Detroit, MI 48226
Attn: Chris Georvassilis
Telephone: (313) 222-6239
Facsimile: (313) 222-3330
<PAGE>
S-12
BANKS:
STAR BANK, N.A.
By: /s/ Nancy J. Cracolice
---------------------------
Name: Nancy J. Cracolice
Title: Vice President
Lending Offices and Address for Notices:
425 Walnut Street/ML-8160
Cincinnati, OH 45201
Attn: Nancy Cracolice
Telephone: (513) 632-4010
Facsimile: (513) 632-2068
<PAGE>
S-13
BANKS:
MANUFACTURERS AND TRADERS
TRUST COMPANY
By: /s/ John P. Chantra
------------------------
Name: John P. Chantra
Title: Vice President
Lending Offices and Address for Notices:
44 Exchange Street
P.O. Box 22900
Rochester, NY 14692
Attn: John P. Chantra
Telephone: (716) 258-8218
Facsimile: (716) 325-510
<PAGE>
EXHIBIT 2.02A
REVOLVING NOTE
$ August , 1995
----------- ---
FRONTIER CORPORATION (the "Borrower"), a corporation
organized under the laws of New York, for value received, hereby
promises to pay to the order of [BANK X] (the "Bank") at the
Principal Office of THE CHASE MANHATTAN BANK, N.A., at 4 Chase
Metro Tech Center, 13th Floor, New York, New York 11245 (the
"Agent'), for the account of the appropriate Lending Office of
the Bank, the principal sum of [$(Commitment of Bank X)] or, if
less, the amount loaned by the Bank to the Borrower as Revolving
Loans pursuant to the Credit Agreement referred to below, in
lawful money of the United States of America and in immediately
available funds, on the date and in the manner provided in said
Credit Agreement. The Borrower also promises to pay interest on
the unpaid principal balance hereof, for the period such balance
is outstanding, at said Principal Office for the account of said
Lending Office, in like money, at the rates of interest as
provided in the Credit Agreement described below, on the date(s)
and in the manner provided in said Credit Agreement.
The date and amount of each type of Revolving Loan made by
the Bank to the Borrower under the Credit Agreement referred
below, and each payment of principal thereof, shall be recorded
by the Bank on its books and, prior to any transfer of this Note
(or, at the discretion of the Bank, at any other time), endorsed
by the Bank on the schedule attached hereto or any continuation
thereof.
This is one of the Revolving Notes referred to in that
certain Credit Agreement (as amended from time to time the
"Credit Agreement") dated as of August 9, 1995 among the
Borrower, the Banks named therein (including the Bank) and the
Agent and evidences the Revolving Loans made by the Bank
thereunder. All terms not defined herein shall have the meanings
given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of
Default and for prepayments on the terms and conditions specified
therein.
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note.
This Note shall be governed by, and interpreted and
construed in accordance with, the laws of the State of New York.
FRONTIER CORPORATION
<PAGE>
By:
-------------------------------
Name:
Title:
<TABLE>
<CAPTION>
Amount Amount of Balance Notation
Date of Loan Payment Outstanding By
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 2.02B
QUOTED RATE NOTE
[DATE]
FRONTIER CORPORATION (the "Borrower"), a corporation
organized under the laws of New York, for value received, hereby
promises to pay to the order of [BANK X] (the "Bank") at the
Principal Office of The Chase Manhattan Bank, N.A., at 4 Metro
Tech Center, 13th Floor, Brooklyn, New York 11245 (the "Agent") ,
for the account of the appropriate Lending Office of the Bank,
the aggregate unpaid principal amount loaned by the Bank to the
Borrower as Quoted Rate Loans pursuant to the Credit Agreement
referred to below, in lawful money of the United States of
America and in immediately available funds, on the date(s) and in
the manner provided in said Credit Agreement. The Borrower also
promises to pay interest on the unpaid principal balance hereof,
for the period such balance is outstanding, at said Principal
Office for the account of said Lending Office, in like money, at
the rates of interest as provided in the Credit Agreement
described below, on the date(s) and in the manner provided in
said Credit Agreement.
The date and amount of each type of Quoted Rate Loan made by
the Bank to the Borrower under the Credit Agreement referred
below, and each payment of principal thereof, shall be recorded
by the Bank on its books and, prior to any transfer of this Note
(or, at the discretion of the Bank, at any other time), endorsed
by the Bank on the schedule attached hereto or any continuation
thereof.
This is one of the Quoted Rate Notes referred to in that
certain Credit Agreement (as amended from time to time the
"Credit Agreement") dated as of August 9, 1995 among the
Borrower, the Banks named therein (including the Bank) and the
Agent and evidences the Quoted Rate Loans made by the Bank
thereunder. All terms not defined herein shall have the meanings
given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of
Default and for prepayments on the terms and conditions specified
therein.
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note.
This Note shall be governed by, and interpreted and
construed in accordance with, the laws of the State of New York.
FRONTIER CORPORATION
<PAGE>
By
---------------------------
Name:
Title:
<TABLE>
<CAPTION>
Amount Amount of Balance Notation
Date of Loan Payment Outstanding By
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 4.01(b)
AUTHORIZATION LETTER
August , 1995
----
The Chase Manhattan Bank, N.A., as Agent
One Chase Square
Rochester, New York 14643
Attn: Benedict A. Smith
Re: Credit Agreement dated as of August 9, 1995
(the "Credit Agreement") among Frontier Corporation,
the Banks named therein (the "Banks"), and The Chase
Manhattan Bank, N.A., as Agent for the Banks
Ladies and Gentlemen:
In connection with the captioned Credit Agreement, we hereby
designate to you and to each of the Banks, any one of the
following persons to give to you and any Bank instructions,
including notices required pursuant to the Credit Agreement,
orally or by telephone or facsimile:
NAME (Typewritten)
--------------------------
--------------------------
--------------------------
--------------------------
Instructions may be honored on the oral, telephonic or
facsimile instructions of anyone purporting to be any one of the
above designated persons even if the instructions are for the
benefit of the person delivering them. We will furnish you and
each Bank to whom any such instructions are directed, with
confirmation of each such instruction either by telex (whether
tested or untested) or in writing signed by any person designated
above (including any facsimile which appears to bear the
signature of any person designated above) on the same day that
the instruction is provided to you or such Bank, but your and
such Bank's responsibility with respect to any instruction shall
not be affected by your or such Bank's failure to receive such
confirmation or by its contents.
You and each of the Banks shall be fully protected in, and
shall incur no liability to us for, acting upon any instructions
which any of you in good faith believe to have been given by any
person designated above, and in no event shall any of you be
liable for special, consequential or punitive damages. In
addition, we agree to hold each of you and your agents harmless
from any and all liability, loss and expense arising directly or
indirectly out of instructions that we provide to any of you in
connection with the Credit Agreement except for liability, loss
or expense occasioned by the gross negligence or willful
misconduct of you or your agents.
<PAGE>
Upon notice to us, you or any Bank may, at your or its
option, refuse to execute any instruction, or part thereof,
without incurring any responsibility for any loss, liability or
expense arising out of such refusal if you or such Bank in good
faith believe that the person delivering the instruction is not
one of the persons designated above or if the instruction is not
accompanied by an authentication method that we have agreed to in
writing.
Please provide a copy of this letter to each of the Banks,
on receipt of which each Bank will be entitled to rely on the
designations, agreements and other provisions hereof. We will
promptly notify you, for transmission to each of the Banks, in
writing of any change in the persons designated above and, until
you and each Bank have actually received such written notice and
have had a reasonable opportunity to act upon it, you and each
such Bank are authorized to act upon instructions, even though
the person delivering them may no longer be authorized.
Very truly yours,
FRONTIER CORPORATION
By:
------------------------------
Name:
Title:
<PAGE>
EXHIBIT 4.01(e)
OPINION OF BORROWER'S COUNSEL
(Letterhead of Helen A. Zamboni, Esq., counsel to the Borrower)
[Closing Date]
The Chase Manhattan Bank, N.A.
1 Chase Square
Rochester, New York 14643
[other Banks]
Ladies and Gentlemen:
I have acted as counsel to Frontier Corporation (the
"Borrower") in connection with the execution and delivery of that
certain Credit Agreement (the "Credit Agreement") dated as of
August , 1995 among the Borrower, the Banks signatory thereto
---
and The Chase Manhattan Bank, N.A. as Agent. Except as otherwise
defined herein, all terms used herein and defined in the Credit
Agreement or any agreement delivered thereunder shall have the
meanings assigned to them therein.
In connection with this opinion, I have examined executed
copies of the Facility Documents and such other documents,
records, agreements and certificates as I have deemed
appropriate. I have also reviewed such matters of law as I have
considered relevant for the purpose of this opinion.
Based upon the foregoing, I am of the opinion that:
1. Borrower and each Significant Subsidiary is a
corporation duly incorporated, validly existing and in good
standing under the laws of its state of incorporation set forth
in Exhibit 5.09 to the Credit Agreement, has the corporate power
and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged, and is duly
qualified as a foreign corporation and in good standing under the
laws of each other jurisdiction in which such qualification is
required.
2. The execution, delivery and performance by the Borrower
of the Facility Documents have been duly authorized by all
necessary corporate action and do not and will not: (a) require
any consent or approval of its stockholders; (b) contravene its
charter or by-laws; (c) violate any provision of, or require any
filing, registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability
to the Borrower or any of its Subsidiaries or affiliates; (d)
result in a breach of or constitute a default or require any
consent under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Borrower is a
<PAGE>
party or by which it or its properties may be bound or affected;
(e) result in, or require, the creation or imposition of any
Lien, upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower; or (f) cause the Borrower (or
any Subsidiary or affiliate, as the case may be) to be in default
under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
3. Each Facility Document is, or when delivered under the
Credit Agreement will be, a legal, valid and binding obligation
of the Borrower, enforceable against the Borrower in accordance
with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar
laws affecting creditors' rights generally.
4. To the best of my knowledge (after due inquiry), except
as disclosed in Borrower's reports filed with the SEC pursuant
to Section 13 of the Securities Exchange Act of 1934, there are
no pending or threatened actions, suits or proceedings against or
affecting the Borrower or any of its Subsidiaries before any
court, governmental agency or arbitrator, which may, in any one
case or in the aggregate, materially adversely affect the
financial condition, operations, properties or business of the
Borrower or of any such Subsidiary or the ability of the Borrower
to perform its obligations under the Facility Documents.
Very truly yours,
<PAGE>
EXHIBIT 5.09
SIGNIFICANT SUBSIDIARIES
I. Following is the name, address, state of incorporation, and
county in which the principal office is located, of each
Subsidiary of Borrower that constitutes a Significant Subsidiary
as of the date of the foregoing Agreement:
<TABLE>
<CAPTION>
State of
Name Address County Incorp.
<S> <C> <C> <C>
Rochester Telephone 180 S. Clinton Ave. Monroe NY
Corp. Rochester, NY 14646
Frontier Communications 145 North Main St. Orange NY
of New York, Inc., P.O. Box 657
f/k/a Highland Monroe, NY 10950
Telephone Company
Frontier Communications 180 S. Clinton Ave. Monroe DE
International Inc., Rochester, NY 14646
F/K/A RCI Long
Distance, Inc.
Frontier Communications 600 First Avenue N. Webster IA
of Iowa, Inc. F/K/A Fort Dodge, IA 50501
Vista Telephone Company
of Iowa
Frontier Communications 14450 Burnhaven Drive Dakota MN
of Minnesota, Inc. Burnsville, MN 55337
F/K/A Vista Telephone
Company of Minnesota
</TABLE>
<PAGE>
EXHIBIT 5.09
SIGNIFICANT SUBSIDIARIES
II. Set forth after the name of each Significant Subsidiary is a
computation by which the Borrower has determined that each of the
Subsidiaries listed in Section I above constitutes a Significant
Subsidiary:
<TABLE>
<CAPTION>
% of % of
Net Consol. Total Consol.
Income Income Assets Net Worth
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Rochester Telephone Corp. $111,873,331* 101.8% 565,865,175 69%
Frontier Communications $ 9,288,586 8.4% 90,356,175 11%
of New York, Inc.
Frontier Communications $ 19,068,725 17.3% 166,982,926 20.3%
International Inc.
Frontier Communications $ 6,979,739 6.3% 77,474,045 9.4%
of Iowa, Inc.
Frontier Communications $ 11,011,813 10.0% 128,176,894 15.6%
of Minnesota, Inc.
</TABLE>
<PAGE>
EXHIBIT 5.09-cont'd
SIGNIFICANT SUBSIDIARIES
III. Set forth after the name of each Significant Subsidiary is
a description of the Debt of such Subsidiary as of the date of
this Agreements:
<TABLE>
<S> <C> <C>
Rochester Telephone Corp. Revolving Credit $100,000,000
Agreement;
Mid Term Notes 7.51%, $ 40,000,000
due 2002
Frontier Communications Debt to Frontier
of New York, Inc. Corporation
8.4% due 2005 $ 5,900,000
6.5% due 2003 $ 3,000,000
Frontier Communications No Debt
International Inc.
Frontier Communications No Debt
of Iowa, Inc.
Frontier Communications Senior Notes, 7.61% $ 35,000,000
of Minnesota, Inc. due 2003
</TABLE>
- --------------------
* Represents aggregate amount of Commitments.
IV. No Significant Subsidiary is subject to any Lien or Liens
that are individually or in the aggregate material to its
financial condition, assets or Net Worth.
<PAGE>
EXHIBIT 5.10
BORROWER'S FUNDED DEBT
Frontier Corporation Funded Debt
in thousands of dollars
<TABLE>
<S> <C>
Debentures
10.46%, Convertible, due $ 5,300
October 27, 2008
9%, due January 1, 2020 62,785
9%, due August 15, 2021 100,000
Medium-Term Notes
8.77% - 9.30%, due 2000 to 2004 $179,000
- ---------------------------------------------------------------
Total $347,085
</TABLE>
<PAGE>
EXHIBIT 7.02
BORROWER'S LIENS
Borrower is not subject to any Lien or Liens that are
individually or in the aggregate material to its financial
condition, assets or Net Worth.
<PAGE>
EXHIBIT 10.18
February 22, 1996
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646-0700
Dear Mr. Moses:
With due regard to your recent increase in responsibility as
an executive officer of Frontier Corporation ("Frontier") and its
subsidiaries and affiliates (together, the "Company"), the Board
of Directors of Frontier (the "Board") has determined that it is
in the best interests of the Company and its shareowners to avail
itself of your continued dedication and service to the Company.
It is therefore the intent of this Agreement to encourage your
service to the Company by providing you with compensation and
benefit arrangements while you fulfill your duties, which provide
you with a measure of security commensurate with your importance
to the Company.
Upon your signature on a counterpart of this Agreement, the
following terms and conditions shall become effective as of
November 20, 1995 (the "Effective Date"), and shall supersede any
and all prior agreements between the Company and you related to
the subject matter hereof, except that this Agreement shall not
supersede any stock option agreements related to your prior
service with ALC Communications Corporation ("ALC"), which shall
each remain in full force and effect.
1. Employment
1.1 Employment term. The Company hereby employs Marvin C.
Moses (the "Employee") as Vice Chairman and Chief Financial
Officer of Frontier, and as Chief Financial Officer of ALC. The
Employee shall also serve as a director on the Board and a member
of the Board's Executive Committee as selected and elected by the
Board and the Company's shareowners. The term of the Employee's
employment (the "Employment Term") shall commence on the
Effective Date and shall continue until December 31, 1999 unless
sooner terminated in accordance with Section 7.
1.2 Duties and Responsibilities. The Employee shall
perform all duties incidental to his position with the Company,
or as may be assigned to him by the Chairman and CEO, and shall
cooperate fully with the executive officers of the Company.
Notwithstanding the foregoing or anything else contained in this
Agreement to the contrary, (i) Employee may from time to time
devote such time as he may determine reasonable to various
charitable and other community activities, and (ii) Employee may
from time to time devote a portion of his time to his own,
personal investments and projects (for which he may or may not
receive compensation), provided the amount of time he devotes
does not materially affect his duties under this Agreement. The
Company and the Employee agree that the Employee shall be able to
work from an office in a location that is mutually agreeable to
the Company and the Employee, and the Company and the Employee
shall determine together whether and when relocation is
<PAGE>
appropriate. If the Company designates a work location other
than Bingham Farms, Michigan, the Employee agrees to spend an
amount of time reasonable under the circumstances working at such
designated work location.
1.3 Extent of Service. The Employee agrees to use his best
efforts in the business of the Company and to devote his full
time, attention and energy to the business of the Company. The
Employee shall not work, including on either a part-time or
independent contracting basis, for any other business or
enterprise during the Employment Term without the Company's prior
written consent.
1.4 Compensation. The Employee shall receive annual Base
Compensation, commencing as of the Effective Date until January
31, 1996, of $350,000, and thereafter of $450,000. Such annual
Base Compensation shall thereafter be adjusted consistent with
the performance of the Company and the Employee, but in no event
less than $450,000. The Employee shall participate in the
Company's short term incentive compensation program, with a bonus
potential at Standard rating of 60% and at Premier rating of 105%
of the Employee's Base Compensation for the calendar years 1995
(prorated from the Effective Date) and 1996 based on the
performance of the Company and the Employee relative to certain
Performance Goals established by the Chairman and CEO and
concurred in by the Board. The Employee's short term incentive
compensation for periods after 1996 shall be established by the
Chairman and CEO and concurred in by the Board, consistent with
the performance of the Company and the Employee. The Employee
shall be eligible to participate in the retirement and pension
plans currently maintained by the Company for its executive
employees (the "Plans"). The Employee's prior employment in the
telecommunications industry (the "Qualifying Service") shall be
bridged for all purposes under the Plans as follows: half of the
Employee's Qualifying Service shall be bridged effective on
September 1, 1997 and the remaining half of the Employee's
Qualifying Service shall be bridged effective on September 1,
1999. Notwithstanding the foregoing, however, the Plans may be
amended, modified or terminated by the shareowners of the Company
or by the Board or any committee thereof to which has been duly
delegated the authority to so amend, modify or terminate the
Plans.
1.5 Options. The Company acknowledges that the Employee
has received options in Frontier's stock under the Frontier
Management Stock Incentive Plan (the "Stock Option Plan") as set
forth below:
<TABLE>
<CAPTION>
Grant Date and Amount Granted Vesting Schedule
----------------------------- ----------------
<S> <C>
August 16, 1995: 100,000 1/3 on August 16, 1996
1/3 on August 16, 1997
1/3 on August 16, 1998
</TABLE>
The Company agrees that the Employee shall hereinafter have
the right to earn, as described below, additional options,
according to the following schedule, so long as the Employee
meets the Performance Goals set for him by the Company on an
annual basis and so long as the Employee remains in the employ of
the Company:
<PAGE>
<TABLE>
<CAPTION>
Grant Date and Amount Granted Vesting Schedule
----------------------------- ----------------
<S> <C>
August 16, 1996: 100,000 1/3 on August 16, 1997
1/3 on August 16, 1998
1/3 on August 16, 1999
August 16, 1997: 100,000 1/3 on August 16, 1998
1/3 on August 16, 1999
1/3 on August 16, 2000
</TABLE>
To the extent permitted under the Stock Option Plan, the grants
provided for above shall be Incentive Stock Options.
Notwithstanding any other agreement by and between the Employee
and the Company, should the Employee's employment with the
Company be terminated under either Sections 7.4 or 7.5 hereunder,
the Employee shall have the right to exercise in full, for 30
days following the date of his termination, any options
previously granted to the Employee pursuant to this Section 1.5,
which have vested as of the date of his termination.
2. Expenses. The Company shall reimburse the Employee for
the reasonable expenses incurred by him in connection with his
performance of services hereunder during the Employment Term upon
presentation to the Company of any itemized account and written
proof of such expenses.
3. Developments. All developments, including trade
secrets, discoveries, improvements, ideas and writings which
either directly or indirectly relate to or may be useful in the
business of the Company (the "Developments") which the Employee,
either by himself or in conjunction with any other person or
persons, shall conceive, make, develop, acquire or acquire
knowledge of during the Employment Term, shall become and remain
the sole and exclusive property of the Company. The Employee
hereby assigns, transfers and conveys, and agrees to so assign,
transfer and convey, all of his right, title and interest in and
to any and all such Developments and to disclose fully as soon as
practicable, in writing, all Developments to the Chairman and
CEO. At any time and from time to time, upon the request of the
Company, the Employee will execute and deliver to the Company any
and all instruments, documents and papers, give evidence and do
any and all other acts which, in the opinion of counsel for the
Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce any and all
patents, trademark registrations or copyrights under United
States or foreign law with respect to any such Developments or to
obtain any extension, validation, reissue, continuance or renewal
of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable
expenses incurred by him in compliance with the provisions of
this Section 3.
4. Confidential Information. The Employee acknowledges
that by reason of his employment by and service to the Company he
will have access to confidential information of the Company
<PAGE>
including, without limitation, its strategies and corporate
plans, information and knowledge pertaining to products and
services, methods of operation, sales and profit figures,
customer lists and relationships between the Company and its
customers, suppliers and others who have business dealings with
it. The Employee covenants that, either during or after the
Employment Term, he will not disclose any such information to any
person without the prior written authorization of the Board.
5. Non-Competition. The provisions of this Section 5
shall supersede any conflicting terms contained in any other
agreement, instrument, contract or arrangement by and between the
Employee and the Company, including, but not limited to, any
option award described in Section 1.5.
5.1 During the Employment Term The Employee shall not,
unless acting pursuant hereto or with the prior written consent
of the Board, directly or indirectly, (i) own, manage, operate,
finance, join, control or participate in the ownership,
management, operation, financing or control of, or be associated
as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit
his name to be used in connection with, any business or
enterprise that is engaged in any business that is competitive
with the business conducted during the Employment Term by the
Company, or, during the Employment Term and for six months
thereafter, (ii) offer or provide employment (whether such
employment is with the Employee or any other business or
enterprise), either on a full-time or part-time or consulting
basis, to any person who then currently is, or who within three
months prior thereto had been, employed by the Company; provided,
however, that this provision shall not be construed to prohibit
the ownership by the Employee of not more than 1% of any class of
securities of any corporation which is engaged in a business
competitive with the Company and has a class of securities
registered pursuant to the Securities Exchange Act of 1934.
5.2 Following the Employment Term Upon Employee's
termination of employment, for any reason, the Employee covenants
and agrees that on or prior to August 16, 1997, he shall not be a
full time consultant, agent, representative or employee of LCI
Communications, Inc., WorldCom Corporation, Cable & Wireless,
Inc. or AT & T (the "Competitors"). The foregoing
notwithstanding, however, the Employee shall not be deemed to be
in violation of this covenant if the Employee becomes a full time
consultant, agent, representative or employee of an entity which,
within such time period, is acquired by a Competitor pursuant to
a merger, consolidation, share exchange, business combination,
tender or exchange offer, purchase of all or substantially all
the assets of such entity or other similar transaction.
5.3 Savings Clause. In the event that the provisions of
this Section 5 should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed
in such jurisdiction to the maximum time, geographic or other
limitations permitted by applicable law.
6. Indemnification
<PAGE>
A. ALC and Employee agree to bind themselves to the
provisions of the Amended and Restated Bylaws of ALC,
attached hereto and made a part hereof as Exhibit 6.A., as a
contractual agreement between them.
B. Allnet Communication Services, Inc. and Employee
agree to bind themselves to the provisions of the Amended
and Restated Bylaws of Allnet Communication Services, Inc.,
attached hereto and made a part hereof as Exhibit 6.B., as a
contractual agreement between them.
C. Frontier and Employee agree to bind themselves to
the provisions of the Amended and Restated Bylaws of
Frontier, attached hereto and made a part hereof as Exhibit
6.C., as a contractual agreement between them.
7. Termination
7.1 Disability or Death. In the event that the Employee
shall die or is unable to perform his duties and responsibilities
hereunder to the full extent required by the Chairman and CEO by
reason of illness, injury or incapacity for six consecutive
months, during which time he shall continue to be compensated
hereunder, the Employee's employment hereunder shall be
terminated and the Company shall have no further liability or
obligation to the Employee, or to his executors, administrators,
heirs, assigns or any other person claiming under or through him
hereunder, except for unpaid salary, incentive compensation
(including for partial periods) and benefits including
unreimbursed expenses accrued to the date of termination. The
Employee agrees, in the event of any dispute under this Section
7.1 regarding his health, to submit to a physical examination by
a licensed physician selected by the Company, the cost of such
examination to be borne by the Company.
7.2 Cause by the Company. The Employee's employment
hereunder may be terminated by the Chairman and CEO at any time
for "cause." "Cause" shall mean the failure of the Employee to
observe or perform (other than by reason of illness, injury or
incapacity) any of the terms or provisions of this Agreement,
dishonesty, willful misconduct, conviction of a felony or other
crime involving moral turpitude, misappropriation of funds,
habitual insobriety, use of controlled substances (other than
under the supervision of a licensed physician), or other proper
cause. Except as otherwise specified, the Company shall have no
liability or obligation to the Employee hereunder upon
termination under this Section 7.2 except for: (i) unpaid salary,
(ii) incentive compensation in respect of full annual, but not
partial, periods ended prior to the date of termination, (iii)
benefits including unreimbursed expenses accrued to the date of
termination and which are payable upon termination and (iv) any
obligation arising under any of the Company's (and ALC's) stock
option plans and stock awards.
7.3 Failure to Meet Goals. The Chairman and CEO may
terminate the Employee's employment hereunder at any time for
material failure to meet the Performance Goals. The Company
shall have no liability or obligation to the Employee hereunder
upon termination under this Section 7.3 except for: (i) unpaid
salary, (ii) incentive compensation in respect of periods
<PAGE>
(including partial periods) ended prior to the date of
termination, (iii) benefits including unreimbursed expenses
accrued to the date of termination and which are payable upon
termination, (iv) any obligation arising under any of the
Company's (and ALC's) stock option plans and stock awards and (v)
the salary to which the Employee would have been entitled for the
succeeding twelve months, payable in installments at the times
the same would have become due but for the termination, as well
as during such time period all employee benefits to which
Employee was entitled prior to such termination, other than any
officer perquisites and 401(k) plan participation, and upon
substantially the same terms and conditions including, but not
limited to, Life, Health and Long-Term Disability Insurance
coverage; provided, however, that if Employee obtains full-time
employment prior to the expiration of the twelve-month period,
the provision of these benefits shall terminate although the
salary shall continue for the remainder of the period.
7.4 Without Cause by the Company. The Company may
terminate the Employee's employment hereunder at any time,
without cause.
A. Upon such termination the Company shall not have
any liability or obligation to the Employee hereunder except
for (i) unpaid salary, (ii) incentive compensation in
respect of periods (including partial periods) prior to
termination, (iii) benefits including unreimbursed expenses
accrued to the date of termination and which are payable
upon termination, (iv) any obligation arising under any of
the Company's (and ALC's) stock option plans and stock
awards, (v) the salary to which the Employee would have been
entitled for the succeeding twenty-four months, payable in
installments at the time the same would have become due but
for the termination, as well as during such time period all
employee benefits to which Employee was entitled prior to
such termination, other than any officer perquisites and
401(k) plan participation, and upon substantially the same
terms and conditions including, but not limited to, Life,
Health and Long-term Disability Insurance coverage;
provided, however, that if Employee obtains full-time
employment prior to the expiration of the applicable period,
the provision of these benefits shall terminate, although
the salary shall continue for the remainder of the period,
and (vi) compensation equivalent to the sum of the prior
incentive compensation awards for the two fiscal years
immediately preceding said termination, payable pro rata
over the period during which the salary is to be paid to
Employee pursuant to Subsection 7.4(A)(v) herein.
B. Notwithstanding anything to the contrary in this
Section 7.4, if Employee's termination occurs prior to
August 16, 1996, the compensation payable to Employee under
Section 7.4(A)(vi) shall be reduced by $500,000, and an
identical sum (payable over the same period) shall be paid
to Employee as consideration for the noncompete described in
Section 5.2. For each month following August 15, 1996
during which no termination of employment occurs, the amount
of consideration reallocated under this Section 7.4(B) shall
be reduced by $41,666.67. Thus, for example, if the Company
terminates Employee on February 16, 1997, the amount of
<PAGE>
consideration reallocated under this Section 7.4 shall be
$250,000, computed as [$500,000 - ($41,666.67 x 6)].
C. Upon termination under this Section 7.4 (or
Section 7.5 below), Employee shall be entitled to exercise
all stock options previously granted to him by ALC, for a
period of twelve months following such termination date, or
such period as specified under the terms of ALC's 1990 Stock
Option Plan, as amended, whichever is longer.
7.5 Termination by the Employee. With or without cause,
the Employee may terminate his employment hereunder by delivering
written notice of such termination to the Company (the "Notice"),
which notice shall specify an effective date of termination (the
"Termination Date") at least sixty (60) days following the
delivery date of the Notice.
A. If the Termination Date is prior to April 1, 1997,
the Employee shall receive, as an incentive for his
continued dedication to the Company, each of the benefits
described in Sections 7.4(A) and (C) above, subject to the
reallocation of benefits described in Subsection 7.4(A)(vi),
pursuant to Section 7.4(B).
B. If the Termination Date is after March 31, 1997,
and if Employee's termination is without cause, the
Company's liability to the Employee shall include only (i)
unpaid salary through the Termination Date, (ii) incentive
compensation in respect of full annual, but not partial,
periods ended prior to the date of termination, (iii)
benefits including unreimbursed expenses accrued to the date
of termination and which are payable upon termination and
(iv) any obligation arising under any of the Company's (and
ALC's) stock option plans and stock awards.
C. If the Termination Date is after March 31, 1997,
and if the Employee's termination is for cause against the
Company, the Company's liability to the Employee shall
include, in addition to the obligations described in Section
7.5(B) above, the obligation to pay the Employee incentive
compensation in respect of partial periods prior to the
Termination Date. For purposes of this Section 7.5(C) only,
cause shall include the Company's failure to comply with any
of its material obligations under this Agreement, after
Employee has given notice of such failure to the Company and
the Company has not cured such failure promptly after its
receipt of such notice.
7.6 Survival. Notwithstanding the expiration or
termination of the Agreement, the obligations of the Company with
respect to payment of compensation (Section 1.4), incentive
compensation (Section 1.5) and expenses (Section 2) earned or
otherwise owed to Employee prior to the expiration of the
Agreement as well as salary and benefit continuation with respect
to the applicable periods set forth in this Section 7 of the
Agreement shall survive and remain in full force and effect.
Notwithstanding either the expiration or termination of the
Agreement, or the termination of the Employee's employment under
this Section 7, the obligations of the Employee under Sections 3,
4 and 5 shall survive and remain in full force and effect, and
<PAGE>
the Company shall be entitled to equitable relief against the
Employee pursuant to the provisions of Section 8. Further, upon
termination of the Employee's employment under this Section 7,
subject to Section 5.2, Employee shall have no restriction
hereunder from owning, managing, operating, financing, joining,
controlling or participating in the ownership, management,
operation, financing or control of, or be associated as an
officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit
his name to be used in connection with any business or enterprise
that is engaged in any business that is competitive with the
business conducted during the Employment Term by the Company.
The liability of the Company, if any, for payments to the
Employee by virtue of any wrongful termination of the Employee's
employment hereunder shall not exceed the amount that would be
payable to the Employee if the termination had been made under
Section 7.4.
8. Equitable Relief. The Employee acknowledges that the
restrictions contained in Sections 3, 4 and 5 are, in view of the
nature of the business of the Company, reasonable and necessary
to protect the legitimate interests of the Company, and that any
violation of the provisions of those Sections will result in
irreparable injury to the Company. The Employee also
acknowledges that the Company shall be entitled to preliminary
and permanent injunctive relief, without the necessity of proving
actual damages, and to an equitable accounting of all earnings,
profits and other benefits arising from any such violation, which
rights shall be cumulative and in addition to any other rights or
remedies to which the Company may be entitled. The Employee
hereby agrees that in the event of any such violation the Company
shall be entitled to commence an action for any such preliminary
and permanent injunctive relief and other equitable relief in any
court of competent jurisdiction and further irrevocably submits,
for himself and in respect of his property, generally and
unconditionally, to the jurisdiction of any Michigan state court
located in Wayne or Oakland Counties or the United States court
for the Eastern District of Michigan over any suit, action or
proceeding arising out of or relating to this Section 8. The
Employee hereby waives, to the fullest extent permitted by law,
any objection that he may now or hereafter have to such
jurisdiction or to the venue of any such suit, action or
proceeding brought in such a court and any claim that such suit,
action or proceeding has been brought in an inconvenient forum.
The Employee agrees that effective service of process may be made
upon him by mail under the notice provisions contained in Section
11.
9. Litigation Expenses. In the event of a lawsuit by
either party to enforce the provisions of this Agreement, the
prevailing party shall be entitled to recover reasonable costs,
expenses and attorneys' fees from the other party.
10. Life Insurance. The Company agrees to insure the life
of the Employee, and to pay the entire premium, under a term life
insurance policy continuing during the duration of the Employment
Term in an amount of at least $500,000, with the Employee having
the sole right to designate one or more beneficiaries under such
insurance policy.
<PAGE>
11. Notice. All notices and other communications required
or permitted hereunder or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been
given when mailed by registered or certified mail, return receipt
requested, as follows (provided that notice of change of address
shall be deemed given only when received):
If to the Company, to:
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Attention: Chairman and CEO
If to the Employee, to his residence
as shown from time to time on the
records of the Company
or to such other name or address as the Company or the Employee,
as the case may be, shall designate by notice to the other party
hereto in the manner specified in this Section.
12. Contents of Agreement, Amendment and Assignment. This
Agreement sets forth the entire understanding between the parties
hereto with respect to the subject matter hereof and cannot be
changed, modified or terminated except upon written amendment.
all of the terms and provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the
parties hereto, except that the duties and responsibilities of
the Employee hereunder are of a personal nature and shall not be
assignable in whole or in part by the Employee; provided,
however, that in the event that the Company effects a merger with
any corporation, or in the event that the business of the Company
is otherwise combined with the business of any corporation or
entity, then, notwithstanding anything herein to the contrary,
the provisions of Section 1 hereof shall be applicable only with
respect to the division or other unit of the Company or of such
other corporation or entity that conducts the business previously
conducted by the Company.
13. Severability. If any provision of this Agreement or
application thereof to anyone or under any circumstances is
adjudicated to be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or
application and shall not invalidate or render unenforceable such
provision in any other jurisdiction.
14. Remedies Cumulative; No Waiver. No remedy conferred
upon the Company by this Agreement is intended to be exclusive of
any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to any other remedy given
hereunder or now or hereafter existing at law or in equity. No
delay or omission by the Company in exercising any right, remedy
or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or
power may be exercised by the Company from time to time and as
often as may be deemed expedient or necessary by the Company in
its sole discretion.
15. Applicable Law. This Agreement shall be governed by
the laws of the State of New York, notwithstanding the provisions
contained herein regarding personal jurisdiction and venue.
16. Counterparts. This Agreement may be signed by the
parties in one or more counterparts, each of which shall be one
original but all of which together will constitute one and the
same instrument.
<PAGE>
If this Agreement correctly sets forth our agreement on its
subject matter, please sign and return to me the enclosed copy of
this Agreement. Please keep the other copy for your records.
Sincerely,
FRONTIER CORPORATION
/s/ Ronald L. Bittner
By:-------------------
Ronald L. Bittner
Its: Chairman and CEO
Agreed to on February 22, 1996
/s/ Marvin C. Moses
- -----------------------------
Marvin Moses
<PAGE>
EXHIBIT 10.19
ROCHESTER TELEPHONE CORPORATION
SUPPLEMENTAL MANAGEMENT PENSION PLAN
Amendment No. 7 to September 1, 1989 Restatement
Pursuant to Article Six, the Plan is amended, effective
January 1, 1994, by adding the following new Section 4.2
immediately following Section 4.1 and by renumbering the
remaining provisions of Article Four accordingly:
4.2 Subject to the conditions set forth below, an eligible
Employee who terminates employment on or after reaching
age 50 with at least five years of service while
holding the position of Corporate Vice President or
higher shall be entitled to receive a benefit equal to
(a) minus (b) below where
(a) equals the sum of (1) for each of the eligible
Employee's first 15 years of service, 2.5 percent
times his average annual compensation during the
three consecutive years of service with the
Company that produce the highest such average plus
(2) for each of the next 15 years of service 1.5
percent times his average annual compensation
during the three consecutive years of service with
the Company that produce the highest such average,
provided that in no event shall the amount under
this subsection (a) exceed 60 percent of the
eligible Employee's highest three years' average
compensation; minus
(b) equals the sum of the straight life annuity
benefit payable under Section 4.1 of this Plan and
the straight life annuity benefit payable under
the Funded Plan.
<PAGE>
The normal form of benefit payable under this Section
4.2 is a straight life annuity commencing as of the
eligible Employee's date of retirement and shall not be
subject to actuarial reduction even if the benefit
payable from the Funded Plan is subject to such
reduction.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this Amendment on its behalf this
15th day of November, 1993.
ROCHESTER TELEPHONE CORPORATION
By: /s/ Josephine S. Trubek
------------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
FRONTIER CORPORATION
SUPPLEMENTAL MANAGEMENT PENSION PLAN
Amendment No. 8 to September 1, 1989 Restatement
Pursuant to Article Six, the Plan is amended, effective
January 1, 1995, by adding the following new Article Four A
immediately following current Article Four:
ARTICLE FOUR A - Other Benefits
The Committee on Management may approve, individually or on
a group basis, benefits that are in addition to the benefits
provided in Article Four, including benefits to an employee of
the Company or of an affiliated company even though such employee
is not otherwise eligible to receive benefits under Article Four.
In all such instances, however, the employee must be within a
"select group of management or highly-compensated employees" as
this phrase is used in Title I of ERISA. In the event such other
benefits are provided, the following information with respect to
such benefits shall be listed on Schedule A attached hereto:
- the name of the employee or the class of employees to
whom such other benefits will be paid
- the amount of such benefits or the formula by which the
benefit amounts may be determined and their frequency
(e.g., benefits that are payable each month, year or
other payment period)
- the form of benefit (e.g., a life annuity, a joint and
survivor annuity, or installment payments)
- the date or the employee's age when benefits commence
<PAGE>
- any ancillary benefits that may be payable (e.g.,
death, disability or early retirement benefits)
- any other terms and conditions that reflect the
obligation to pay benefits as approved by the Committee
on Management.
The provisions of this Plan, other than Articles Three and
Four, shall apply to the benefits payable under this Article Four
A unless the context suggests otherwise or the Committee on
Management, in its sole discretion, provides otherwise.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
18th day of September, 1995.
FRONTIER CORPORATION
By: /s/ Josephine S. Trubek
-----------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
Schedule A
Other Benefits Provided Under Article Four A
1. Name of Employee:
Amount and Frequency of Benefit:
Form of Benefit:
Benefit Commencement Date:
Other Terms:
<PAGE>
EXHIBIT 10.20
FRONTIER CORPORATION
MANAGEMENT PENSION PLAN
FRONTIER CORPORATION, a New York corporation (the
"Employer"), hereby continues, amends and restates in its
entirety the FRONTIER CORPORATION MANAGEMENT PENSION PLAN (the
"Plan") for the exclusive benefit of its Employees who are
eligible to become Participants. By separate agreement with
Boston Safe Deposit and Trust Company, as Trustee, the Employer
has established a Trust to hold the assets of the Plan.
ARTICLE I - Introduction
The name of this Plan is the Frontier Corporation Management
Pension Plan. Its purpose is to provide retirement benefits to
the eligible management Employees of Frontier Corporation.
This Plan was originally established effective as of July
30, 1921 and last restated in its entirety as of January 1, 1987
to comply with the Tax Reform Act of 1986. Because of the
subsequent adoption of regulations under that enactment, the
passage of additional legislation and the desire to incorporate
all amendments into a single document, the Plan is again amended
and restated in its entirety. This restatement is generally
effective January 1, 1994, except that in the case of any
provision which itself contains a separate effective date, the
separate date shall apply.
No provision of this restated Plan shall operate to diminish
or adversely affect the accrued benefits of any Participant
determined immediately preceding the effective date of this
restatement.
<PAGE>
ARTICLE II - Definitions
SECTION 2.1 "Accrued Benefit" means the annual benefit
accrued at any particular point in time for each Participant as
determined in accordance with Section 4.2.
SECTION 2.2 "Actuarial Equivalent" means the equivalent
current value of the Article IV formula benefit determined
pursuant to the 1984 George B. Buck Mortality Table assuming 55%
male and 45% female at 8% interest; provided, however, that for
purposes of determining the present value of any lump sum payout
in Plan Years beginning after December 31, 1984: (1) for amounts
not in excess of $25,000 the interest assumption shall be the
rate that would have been used by the Pension Benefit Guaranty
Corporation ("PBGC") as of the distribution date for purposes of
determining the present value of a lump sum distribution on
termination of a plan; (2) if the lump sum payout exceeds $25,000
using the PBGC rate, the interest assumption shall be 120 percent
of the PBGC rate.
SECTION 2.3 "Actuary" means an enrolled actuary selected by
the Committee.
SECTION 2.4 "Affiliated Company" means (1) a member of an
affiliated service group within the meaning of Code section
414(m) of which the Employer is a member; (2) a member of a
controlled group of corporations of which the Employer is a
member; (3) an unincorporated business which is part of a group
of trades or businesses (whether or not incorporated) under
common control with the Employer as determined pursuant to
section 414(c) of the Code, or (4) any other entity with which
the Employer must be aggregated pursuant to section 414(o) of the
Code. For purposes of this Section, a controlled group of
corporations means a group defined under section 1563(a) of the
Code determined without regard to Code sections 1563(a)(4) and
1563(e)(3)(C).
SECTION 2.5 "Annuity Starting Date" means the first day of
the month with respect to which a retirement income payment is
payable under the Plan.
<PAGE>
SECTION 2.6 "Beneficiary" means, in the case of a married
Participant, the Participant's surviving spouse. If the
Participant is not married or if the surviving spouse of a
married Participant waives the spouse's right to any death
benefit, Beneficiary means any person (including a trustee)
specified by the terms of this Plan to receive any death benefit
which shall be payable under this Plan.
SECTION 2.7 "Board" means the Board of Directors of
Frontier Corporation or any committee of the Board of Directors
authorized to act on behalf of the Board. Any such Board
committee shall be composed of at least three members of the
Board of Directors. As used in this Plan the term "Board-appointed
committee" means any other committee appointed by the
Board which need not be comprised of at least three Board members
but may include or consist entirely of management personnel who
are not members of the Board.
SECTION 2.8 "Break in Service" means that an Employee fails
to complete more than 500 Hours of Service during an Eligibility
Computation Period or a Plan Year, whichever is applicable.
SECTION 2.9 "Code" means the Internal Revenue Code of 1986,
as amended from time to time.
SECTION 2.10 "Committee" means the Employees' Benefit
Committee appointed by the Board pursuant to Article X to
administer the Plan.
SECTION 2.11 "Compensation" means the total of an
Employee's annual base rate of pay (including any differentials
for acting assignments, team leader or shift differential),
bonuses and commissions paid by the Employer during a Plan Year
for services actually rendered by the Employee to the Employer.
For any Employee who is participating in the Employer's
Employees' Retirement Savings Plan or Tel Flex Plan, the term
Compensation shall include amounts contributed to such plans on
behalf of the Employee pursuant to a salary reduction agreement.
Compensation does not include contributions to this Plan or any
other plan of deferred compensation other than employee tax-
<PAGE>
deferred contributions to the Employees' Retirement Savings Plan,
nor does it include any types of extra remuneration (except the
bonuses or commissions included in the first sentence above) of
whatever nature or an Employee's compensation in excess of
$150,000 (adjusted for cost of living increases under the Code)
per year.
In determining the $150,000 Compensation limit of any
Participant who is a five percent owner or one of the ten most
highly compensated Highly Compensated Employees of the Employer,
the Participant, the Participant's spouse and the Participant's
lineal descendants who have not attained age 19 before the close
of the Plan Year (the "family unit") shall be treated as a single
employee. If the actual aggregate compensation of all members of
this family unit equals or exceeds $150,000 (as adjusted for cost
of living increases) in a Plan Year, the $150,000 shall be
allocated pro rata among all members of the family unit as their
Compensation for the Plan Year. If any Participant's Accrued
Benefit for Plan Years prior to the effective date of the Code
Section 401(a)(17) compensation limit took into account
compensation in excess of the 401(a)(17) compensation limit, such
Participant's Accrued Benefit shall be determined pursuant to the
rules described in Treasury Regulation Sec. 1.401(a)(17)-1(e).
SECTION 2.12 "Contingent Annuitant" means the person
designated by a Participant to receive lifetime monthly
retirement income payments after his death in accordance with
Article VI.
SECTION 2.13 "Deferred Retirement Date" means the first day
of the month next following the month in which a Participant
actually retires after his Normal Retirement Date.
SECTION 2.14 "Disability" means a physical or mental
condition which, in the judgment of the Committee, based on
medical reports and other evidence satisfactory to the Committee,
will permanently prevent an Employee from satisfactorily
performing his usual duties for the Employer.
<PAGE>
SECTION 2.15 "Early Retirement Date" means the first day of
the month next following the month in which a Participant retires
prior to Normal Retirement Age pursuant to Section 5.2 or Section
5.3.
SECTION 2.16 "Election Period" means the period of time
during which a Participant can elect, with the consent of his
spouse, to waive the Qualified Joint and Survivor Annuity or the
Qualified Pre-Retirement Survivor Annuity or can elect to revoke
such a waiver. In the case of a Qualified Joint and Survivor
Annuity, the Election Period is the 90 day period preceding the
Annuity Starting Date. In the case of a Qualified Pre-Retirement
Survivor Annuity the Election Period begins on the first day of
the Plan Year in which a Participant attains age 35 and ends on
the date of the Participant's death.
SECTION 2.17 "Eligibility Computation Period" means the
twelve-consecutive-month period beginning with an Employee's
Employment Date and each anniversary thereof.
SECTION 2.18 "Employee" means any individual who is
employed by Frontier Corporation or who is within a class of
employees designated as an eligible employee in any adoption
agreement of an Affiliated Company which may adopt this Plan in
accordance with Section 16.4.
SECTION 2.19 "Employer" means Frontier Corporation, its
predecessor or successor, and any Affiliated Company which,
pursuant to Section 16.4, has adopted this Plan for the benefit
of some or all of its employees. If this Plan is adopted by one
or more Affiliated Companies, the term "Employer" means either
one or more of the adopting companies acting individually or
collectively as the context requires.
SECTION 2.20 "Employment Date" means the date on which an
Employee first performs an Hour of Service for the Employer or an
Affiliated Company.
<PAGE>
SECTION 2.21 "ERISA" means the Employee Retirement Income
Security Act of 1974 as amended from time to time and regulations
issued thereunder.
SECTION 2.22 "Former Participant" means a Participant whose
employment with the Employer has terminated, and who has a vested
benefit under the Plan which has not been paid in full.
SECTION 2.23 "Hour of Service" means each hour for which an
Employee is paid, or entitled to payment, during an applicable
computation period in accordance with the following:
(a) Performance of Services. An Hour of Service shall be
credited for each hour that an Employee is paid or entitled to
payment for the performance of services for the Employer.
(b) Leaves of Absence, etc. An Hour of Service shall be
credited for each hour during which no duties are performed but
for which an Employee is paid or entitled to payment by the
Employer (whether or not the employment relationship has
terminated) for any other purpose, including without limitation
payment due to vacation, holiday, illness, disability, layoff,
jury duty or Leave of Absence. Credit shall also be given for
any maternity or paternity leave (i.e., pregnancy of the
Employee, birth or adoption of the Employee's child, or caring
for the Employee's child immediately following birth or adoption)
taken by an Employee. No more than 501 Hours of Service shall be
credited under this provision, however, to an Employee on account
of any single continuous period during which no services are
performed for the Employer. In addition, no Hours of Service
shall be credited with respect to payments made under a plan
maintained by the Employer solely for complying with applicable
workers' compensation, or disability insurance laws or to
payments which reimburse an Employee for medical or
medically-related expenses.
(c) Back pay. To the extent not credited for either of the
preceding purposes, an Employee shall be credited with an Hour of
Service for each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the
<PAGE>
Employer. If back pay is made with respect to one of the
purposes set forth in provision (b) above, the number of
creditable Hours of Service shall be subject to the limitations
set forth in that provision.
(d) Computation and Crediting of Hours. The Committee
shall determine the number of creditable Hours of Service in any
computation period on the basis of any records kept by the
Employer that accurately reflect Hours of Service. If any
payments (including back pay awards) relate to any period for
which no duties are performed, the number of creditable Hours of
Service shall equal the number of regularly scheduled working
hours upon which the payment is based. If the payment is not
calculated on the basis of units of time for which the hours may
be determined, the number of creditable Hours of Service shall be
equal to the amount of the payment divided by the Employee's most
recent hourly rate of compensation before the period during which
no duties are performed. In no event, however, shall an Employee
be credited with a greater number of Hours of Service than the
number of regularly scheduled hours for the performance of
services during the applicable period.
Hours of Service shall be credited to the computation period
in which the services were performed, the period to which
payments are made when no services are performed, or the period
to which back pay awards relate, whichever is applicable. Hours
of Service pursuant to maternity/paternity leave shall be
credited to the Employee in the Plan Year in which the absence
from work begins only if the additional hours afforded would
prevent the Participant from incurring a one year Break in
Service; otherwise these hours shall be credited to the
Participant in the Plan Year immediately following the date the
Participant begins his absence from work. The crediting of Hours
of Service for reasons other than the performance of services and
the crediting of Hours of Service to computation periods shall be
made in accordance with 29 C.F.R. sections 2530.200b-2(b) and (c)
which are hereby incorporated by this reference.
<PAGE>
(e) Alternative Method of Crediting Hours. In lieu of
counting an Employee's actual number of Hours of Service during
any computation period, the Committee shall credit each Employee
who earns at least one Hour of Service during any week of
employment with 45 Hours of Service for each such week.
(f) Military Service. An Hour of Service shall be credited
for each hour of the normally scheduled work hours for each day
during any period the Employee is on leave of absence from an
Employer or any Affiliated Company for military service with the
Armed Forces of the United States, but not to exceed the period
required under the law pertaining to veterans' reemployment
rights; provided that if he fails to report for work at the end
of such leave during which he has employment rights, he shall not
receive credit for hours on such leave.
SECTION 2.24 "Investment Manager" means any individual or
corporation selected by the Board or by any Board-appointed
committee having the authority to select such person who (i) is
registered as an investment adviser under the Investment Advisers
Act of 1940; or (ii) is a bank, as defined in that Act; or (iii)
is an insurance company qualified to manage, acquire or dispose
of plan assets under the laws of more than one state and each
individual or corporation acknowledges in writing that he or the
corporation, as the case may be, is a fiduciary with respect to
the Plan.
SECTION 2.25 "Leased Employee" means any person (other than
an employee of the Employer) who pursuant to an agreement between
the Employer and any other person (the "leasing organization")
has performed services for the Employer (or for the Employer and
related persons determined in accordance with section 414(n)(6)
of the Code) on a substantially full time basis for a period of
at least one year, and such services are of a type historically
performed by employees in the business field of the Employer.
Contributions or benefits provided a Leased Employee by the
leasing organization which are attributable to services performed
for the Employer shall be treated as provided by the Employer.
<PAGE>
A Leased Employee shall not be considered an employee of the
Employer if: (i) such employee is covered by a money purchase
pension plan providing: (1) a nonintegrated employer
contribution rate of at least 10 percent of compensation, as
defined in section 415(c)(3) of the Code, but including amounts
contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the employee's gross income
under section 125, section 402(a)(8), Section 402(h) or section
403(b) of the Code, (2) immediate participation, and (3) full and
immediate vesting; and (ii) Leased Employees do not constitute
more than 20 percent of the Employer's Non-highly Compensated
Employee workforce.
SECTION 2.26 "Leave of Absence" means any leave formally
granted in conformity with the rules of the Employer, as adopted
from time to time, and leave on account of continued Disability
following the expiration of a period of disability benefits. A
Leave of Absence for a period not exceeding one month, except a
leave following the expiration of disability benefits, will be
granted automatically in accordance with the rules of the
Employer without approval of the Committee. The period of
absence shall be credited in computing the Employee's Hours of
Service and the Employee shall be eligible for all benefits
during his absence. A Leave of Absence for any period in excess
of one month shall not be effective unless approved in writing by
the Committee and in any case in which approval is given, the
Committee shall indicate the effect of such leave on the
Employee's entitlement to benefits. An Employee's absence
following the expiration of a period of disability benefits shall
be considered as a separation from service unless the Employee is
granted a Leave of Absence by the Committee. The Committee may
deem such absence to be an approved Leave of Absence, however, if
satisfactory evidence is furnished that a Disability was
continuous during the entire period of absence.
SECTION 2.27 "Normal Retirement Age" means 65. Effective
for Plan Years beginning after December 31, 1987, Normal
Retirement Age means the later of age 65 or the fifth anniversary
of the Participant's commencement of participation in the Plan.
<PAGE>
SECTION 2.28 "Normal Retirement Date" means the first day
of the month coincident with or next following a Participant's
Normal Retirement Age.
SECTION 2.29 "Participant" means an Employee participating
in this Plan in accordance with the provisions of Section 3.1.
SECTION 2.30 "Plan" means the Frontier Corporation
Management Pension Plan as set forth herein, as amended from time
to time.
SECTION 2.31 "Prior Plan" means the Frontier Corporation
Management Pension Plan as in effect on December 31, 1986.
SECTION 2.32 "Qualified Joint and Survivor Annuity" means
an annuity for the life of the Participant with a survivor
annuity for the life of the Participant's spouse which is 50
percent of the amount which is payable during the joint lives of
the Participant and his spouse. The amount payable during the
joint lives of the Participant and his spouse shall be the
Actuarial Equivalent, determined on an individual Participant
basis, of the amount otherwise payable to the Participant as a
life annuity in accordance with the applicable benefit formula of
Article IV, provided that in no event shall any reduction from
the life annuity exceed 10 percent of the life annuity amount.
If the Participant's spouse predeceases the Participant, the
benefits thereafter payable to the Participant shall revert to
the unreduced amount to which the Participant is entitled in
accordance with the applicable benefit formula of Article IV.
SECTION 2.33 "Qualified Pre-Retirement Survivor Annuity"
means an annuity for the surviving spouse of a Participant in an
amount equal to the amount payable to such surviving spouse if
benefits had been paid as a Qualified Joint and Survivor Annuity.
If the Participant dies after his Early Retirement Date the
benefit amount shall be determined as if the Participant had
retired with an immediate Qualified Joint and Survivor Annuity on
the day before his death. In the case of a Participant who has
any vested Accrued Benefit and who dies on or before his Early
Retirement Date, the benefit amount shall be calculated as if he
had (a) separated from service on his date of death; (b) survived
<PAGE>
to his Early Retirement Date; (c) retired with an immediate
Qualified Joint and Survivor Annuity on his Early Retirement
Date; and (d) died on the day after what would have been his
Early Retirement Date.
SECTION 2.34 "Trust" or "Trust Fund" means the Frontier
Corporation Pension Fund (the "Pension Fund") or the Frontier
Corporation Second Pension Fund (the "Second Pension Fund") or
both as the context may require, maintained in accordance with
the terms of the trust agreement, as from time to time amended,
which constitutes a part of this Plan. The Pension Fund and
Second Pension Fund constitute common trust funds for the
Employer's Management Pension Plan, Craft Pension Plan-I and
Craft Pension Plan-II, all of which funds are available to pay
benefits under any of the three plans.
SECTION 2.35 "Trustee" means Boston Safe Deposit and Trust
Company or any other trustee appointed by the Board to administer
the Trust.
SECTION 2.36 "Year" or "Plan Year" means the
twelve-consecutive-month period ending each December 31. The
Plan Year shall be the accrual computation period, the vesting
computation period and the limitation year as these terms are
used in regulations issued pursuant to ERISA.
SECTION 2.37 "Year of Service" means any Eligibility
Computation Period or Plan Year during which an Employee
completes at least 1,000 Hours of Service with the Employer or
with an Affiliated Company. A Participant shall also be given
credit for each month of service not included in a period for
which a Year of Service has been earned under the 1000 hour rule,
subject to the following:
- the Participant must have worked at least 140 Hours of
Service in the month;
- the service must have been performed before the
Participant commenced participation in this Plan;
<PAGE>
- the service must have been performed for Frontier
Corporation but not already credited under any defined
benefit plan of Frontier Corporation or any Affiliated
Company; and
- the service will be credited only to calculate the
amount of a Participant's entitlement to an early or
normal retirement service pension.
A Participant whose last day of work at Frontier Corporation
was February 5, 1993 shall also be given credit for each month of
service not included in a period for which a Year of Service has
been earned under the 1,000 hour rule. For purposes of
determining a Participant's Accrued Benefit, of applying the
Plan's benefit formula and of determining the length of service
needed for receiving an unreduced benefit, the term Year of
Service shall include only those periods of time during which
either (1) the Employer or an Affiliated Company maintained this
Plan or (2) service credit is granted pursuant to the transfer
policy in Section 4.3.
SECTION 2.38 The masculine gender whenever used shall
include the feminine and the singular shall include the plural,
unless the context clearly indicates the contrary.
ARTICLE III - Participation and Service
SECTION 3.1 Eligibility. Every management Employee shall
be eligible to become a Participant on the first day of the month
after he meets the following age and service requirements:
attains age 21; and completes one Year of Service during his
Eligibility Computation Period. An Employee who satisfies the
age and service requirements of this Section but who separates
from the service of the Employer prior to his entry date is not
entitled to become a Participant on that entry date. In the
discretion of the Committee, an individual who is a management
employee of Frontier Corporation but who is assigned to an
Affiliated Company that has not adopted this Plan may participate
in the Plan under such arrangements as the Committee may
prescribe.
<PAGE>
Notwithstanding the above, this Plan does not cover any
Employee who (1) is in a unit of employees covered by a
collective bargaining agreement unless such agreement provides
for the application of this Plan to the employees in such unit,
(2) is not in a collective bargaining unit but is in a non-exempt
hourly status, (3) is a temporary employee, or (4) is a Leased
Employee.
SECTION 3.2 Inactive Status. Any Participant who fails to
complete 1,000 Hours of Service with the Employer in any Plan
Year shall be treated as an inactive Participant for that Plan
Year and shall not accrue a benefit for that Year. In the event
such Participant completes 1,000 Hours of Service with the
Employer in a subsequent Plan Year, he shall revert to active
status with full rights and privileges under the Plan restored as
of that Year.
SECTION 3.3 Participation and Service upon Reemployment.
Participation in the Plan shall cease as of the last day of the
Plan Year in which a Participant has both terminated his
employment with the Employer and has incurred a Break in Service,
as this term is defined in Article II.
Upon the reemployment of any person who had previously
separated from the service of the Employer and suffered a Break
in Service, the following rules shall apply in determining his
participation in the Plan and his credit, if any, for Years of
Service completed prior to termination:
(a) Participation: If the reemployed Employee had
satisfied the eligibility requirements of Section 3.1 (whether or
not he had become a Participant) prior to suffering a Break in
Service, he may become a Participant immediately upon his date of
rehire.
If the reemployed Employee had not satisfied either the age
or service requirements prior to suffering a Break in Service, he
must meet the requirements of Section 3.1 for participation in
the Plan as if he were a new Employee. The date of rehire shall
for this purpose be the Employee's new Employment Date. If he
had completed the service requirement prior to his Break in
<PAGE>
Service he may become a Participant on the first day of the month
after satisfying the Plan's age requirement on or following his
date of rehire.
(b) Vesting credit for prior Years of Service: In the case
of a Participant whose prior employment terminated at a time when
any portion of his Accrued Benefit had vested, all Years of
Service attributable to his prior period of employment shall be
reinstated as of the date of his reparticipation.
In the case of a reemployed Employee who was not a
Participant in the Plan during his prior period of employment or
whose prior employment terminated at a time when no portion of
his Accrued Benefit had become vested, any Years of Service
attributable to his prior period of employment shall be restored
except in those cases where the number of consecutive one-year
Breaks in Service equals or exceeds the greater of (1) five or
(2) the aggregate number of pre-break Years of Service. However,
any rehired Employee who completes five Years of Service
following his date of rehire shall be credited with all pre-break
Years of Service.
ARTICLE - Benefit Formula
SECTION 4.1 Calculation of Benefit. The annual rate of
retirement income benefit commencing on a Participant's Normal
Retirement Date shall be the sum of (1) and (2) where (1) equals
1.39 percent times the Participant's Years of Service times the
Participant's average annual Compensation during the five
consecutive Years of Service during which the Participant was
paid the highest annual Compensation, but not to exceed the
Social Security Wage Base in effect during the calendar year
preceding retirement; and (2) equals 1.54 percent times the
Participant's Years of Service times the average of his last five
years of Compensation preceding retirement in excess of the
Social Security Wage Base in effect during the calendar year
preceding retirement. The five year average compensation factor
used in (1) above shall be the higher of the average obtained
using calendar years of service or the average obtained using
12-consecutive-month years of service ending on a Participant's date
of retirement or any anniversary thereof.
<PAGE>
In applying this formula with respect to any Participant
whose Compensation includes amounts he has contributed to the
Employer's Employees' Retirement Savings Plan, all such employee
tax-deferred contributions shall be deemed to be Compensation in
excess of the Social Security Wage Base.
This formula benefit is computed on the basis of the benefit
being payable in the form of an annuity for the life of the
Participant with no further payments after his death. The actual
amount of accrual or monthly benefit shall depend on the actual
form of payment being paid in accordance with Article VI which
shall, in any event, be a benefit of actuarially equivalent value
of the rate determined under this Section 4.1.
SECTION 4.2 Accrued Benefit. A Participant's Accrued
Benefit at any particular point in time shall equal his Section
4.1 formula benefit based upon his Compensation and Years of
Service as of the date such Accrued Benefit is being determined.
SECTION 4.3 Transfer Policy. (a) Where the Code Treats
this Plan and Another Plan as a Single Plan. This subsection (a)
applies where a Participant in this Plan transfers to or from
another defined benefit plan whose assets are considered to be a
part of the assets of this Plan pursuant to the rules of Code
section 414(1). In this event, the Participant's entitlement to
receive benefits, and the level of such benefits, from either
this Plan or the other plan shall be determined in accordance
with the benefit formula of the plan in which the Participant
then participates actively, taking into account all of his
service and Compensation under both plans. No benefit shall be
payable from the plan in which the Participant is not then
active. In no event, however, shall the Participant's benefit
from either plan be less than the accrued benefit he had earned
under the other plan.
(b) Where the Code Does Not Treat this Plan and Another
Plan as a Single Plan. If a Participant ceases to be an active
Participant in this Plan because he has been transferred to the
employ of an Affiliated Company that maintains a defined benefit
pension plan, his Accrued Benefit under this Plan together with
<PAGE>
an allocable portion of the Plan's assets shall be transferred to
the plan maintained by the Affiliated Company. The transfer of
assets and liabilities shall be made at such time and pursuant to
such terms and conditions as the Committee may determine in
accordance with applicable law.
If an Employee who becomes an active Participant in this
Plan has an accrued benefit under a defined benefit pension plan
maintained by an Affiliated Company, the Committee shall accept a
transfer of such accrued benefit together with an allocable
portion of the other plan's assets at such time and pursuant to
such terms and conditions as the Committee may determine in
accordance with applicable law. In the event of such transfer,
the Participant's benefits shall be determined pursuant to the
terms of this Plan taking into account all of the Participant's
compensation and service credited under the Affiliated Company's
plan as of the date of transfer. If this Plan has a career pay
formula, current and future benefit accruals shall be determined
under this Plan's formula while a Participant's past service
benefit shall equal the accrued benefit transferred to the Plan.
In no event shall a Participant's Accrued Benefit under this
Plan be less than the accrued benefit he earned under the
Affiliated Company's plan as of the date such benefit is
transferred to this Plan, including early retirement benefits,
retirement-type subsidies and optional forms of benefits, all as
determined pursuant to Code section 411(d)(6) and regulations
thereunder.
A Participant in this Plan shall be credited with all Years
of Service with the Employer and with any Affiliated Company for
purposes of eligibility, vesting and entitlement to benefits,
whether or not the Participant had an accrued benefit in another
plan that has been transferred to this Plan.
(c) Transfers from Upstate Partners. A Participant may
elect to transfer his accrued benefit from the Upstate Partners
Pension Plan to this Plan in accordance with the terms of the
Upstate plan. In this event, the Participant shall be credited
for all purposes under this Plan with all service and
compensation he has with both the Employer and, to the extent
<PAGE>
taken into account in determining his accrued benefit, the
Upstate Partners. The Participant's Accrued Benefit shall be
determined under the terms of this Plan taking into account such
aggregate service and compensation provided that in no event
shall the Accrued Benefit be less than the aggregate of the
accrued benefit transferred from the Upstate Partners Pension
Plan plus the Accrued Benefit under the Plan, if any, immediately
preceding the transfer of the accrued benefit from the Upstate
Partners Pension Plan to this Plan.
ARTICLE V - Retirement Income Benefits
SECTION 5.1 Normal Retirement. A Participant who retires
upon reaching his Normal Retirement Age shall be 100 percent
vested in the retirement income benefit calculated pursuant to
Section 4.1. This benefit shall commence on the Participant's
Normal Retirement Date unless a later date is chosen in
accordance with the provisions of Section 6.4 and shall be paid
in the form selected pursuant to the provisions of Article VI.
SECTION 5.2 Unreduced Early Retirement Benefit. A
Participant who reaches age 55 and completes at least 20 Years of
Service or who completes at least 30 Years of Service, regardless
of his age, may elect early retirement. The amount of his early
retirement benefit shall be determined in accordance with Article
IV using the Participant's relevant service and Compensation as
of his Early Retirement Date. This benefit shall be payable on
the Participant's Early Retirement Date without reduction to take
account of its being paid prior to Normal Retirement Age.
SECTION 5.3 Reduced Early Retirement Benefit. Each
Participant who reaches age 50 but not 55 and who has
completed at least 25 Years of Service may also elect early
retirement. The amount of this benefit shall be determined in
accordance with Article IV using the Participant's relevant
service and Compensation as of his Early Retirement Date. If the
benefit is payable prior to age 55 it shall be reduced by 0.5
percent for each calendar month or part thereof by which his age
at termination of employment is less than 55 years.
<PAGE>
SECTION 5.4 Deferred Retirement. For Plan Years ending
before January 1, 1988, any Participant who continues in
employment after reaching his Normal Retirement Age shall receive
a benefit commencing on the first day of the month following his
actual retirement date which shall be equal to the benefit he
would have received had he retired at Normal Retirement Age.
This benefit shall be computed using the Section 4.1 formula in
effect on the Participant's Normal Retirement Age, using the
Participant's Compensation and service as of such Normal
Retirement Age. No actuarial adjustment shall be made to account
for the benefit payments commencing after Normal Retirement Age.
A Participant who has at least one Hour of Service in any
Plan Year beginning after December 31, 1987, and who retires
after reaching his Normal Retirement Age, shall receive a benefit
equal to the Section 4.1 formula benefit, using for this purpose
the Participant's service and Compensation figures as of his
actual retirement date. No actuarial adjustment shall be made to
account for the benefit payments commencing after Normal
Retirement Age.
The actual benefit paid to the Participant shall be in the
form selected pursuant to the provisions of Article VI.
SECTION 5.5 Disability Benefit. A Participant who suffers
a Disability and is eligible to receive benefits under the
Employer's Long Term Disability Benefit Plan shall be entitled to
receive a benefit beginning upon cessation of benefits under the
Long Term Disability Benefit Plan at or after the Participant's
Normal Retirement Date. The amount of this benefit shall be
equal to the greater of the amount payable under Section 5.1 or
the amount calculated pursuant to the benefit formula of Section
4.1 taking into account the following factors:
- - Notwithstanding the limitations of Sections 2.23(b) and
2.36, a Year of Service shall be credited to the Participant
for each Plan Year during which any benefits are payable to
the Participant under the Long Term Disability Benefit Plan
but no service credit shall be granted for any Year after
the Year in which the Participant reaches age 65.
<PAGE>
- - Compensation shall be determined on the basis of
remuneration paid to the Participant prior to the
commencement of benefits under the Long Term Disability
Benefit Plan.
- - The maximum benefit provided using the foregoing service and
compensation assumptions cannot exceed the level of benefits
being paid to the Participant under the Long Term Disability
Benefit Plan.
SECTION 5.6 Deferred Vested Benefit. A Participant who
has five or more Years of Service and terminates employment
before he is eligible for a normal or an early retirement benefit
shall be entitled to receive a deferred vested benefit, provided
that for Plan Years ending before January 1, 1989, ten or more
Years of Service are required for a deferred vested benefit. The
amount of this benefit shall be equal to the Participant's
Accrued Benefit as of his termination date.
The deferred vested benefit shall be paid commencing on what
would have been the Participant's Normal Retirement Date unless
it is cashed out earlier in accordance with Section 5.7 or, at
the Participant's election, is paid at what would have been the
Participant's Early Retirement Date, providing that the
Participant has sufficient service and has reached the age or
ages prescribed in Sections 5.2 or 5.3, whichever is applicable.
If a Participant elects to have his deferred vested benefit paid
prior to Normal Retirement Age, the monthly benefit shall be
reduced to the Actuarial Equivalent of the benefit which would
have been payable at his Normal Retirement Date.
SECTION 5.7 Cash out of Accrued Benefit. If a Participant
terminates participation in the Plan at a time when the present
value of his nonforfeitable Accrued Benefit attributable to
Employer contributions is $3,500 or less, the present value of
the benefit shall be paid in a lump sum in cash within one year
of termination of participation. Unless the Participant makes a
repayment of the cashout distribution as provided below, all
years of participation to which the cashout relates shall be
disregarded in any subsequent determination of his Accrued
Benefit under Article IV.
<PAGE>
If an individual to whom this cashout provision applies
later resumes participation in the Plan, he may repay the full
amount of the cashout distribution plus interest from the date of
distribution to the date of repayment, compounded annually at the
rate required under Code section 411(c)(2)(C). If such repayment
is made before the Participant has five consecutive one year
Breaks in Service beginning after the distribution, the Accrued
Benefit previously disregarded shall be restored.
No cashout shall be permitted under this Plan if the present
value of a Participant's Accrued Benefit exceeds $3500.
SECTION 5.8 Normal Retirement Benefit. The amount of the
normal retirement benefit provided shall be the greater of what a
Participant or Former Participant could have received under the
early retirement provisions of the Plan or the benefit commencing
at his Normal Retirement Date.
SECTION 5.9 Benefits Not Affected by Subsequent Social
Security Changes. Any benefits which are
being paid to a Participant, Former Participant, Beneficiary or
Contingent Annuitant under this Plan and the vested benefit of a
Participant or Former Participant who has separated from the
service of the Employer shall not be decreased by reason of any
post-separation increase in the benefit levels or the wage base
under Title II of the Social Security Act effective after the
later of September 2, 1974, or the date of first receipt of any
benefit provided by this Plan. In the case of a Participant who
separates from the service of the Employer with a vested benefit
and who returns to employment and participation in the Plan, his
vested benefit shall not be decreased by reason of any
post-separation increase in Social Security benefit levels or the
wage base effective after September 2, 1974, and during
separation from service which would decrease the benefits to
which he would have been entitled had he not returned to service
after his separation.
SECTION 5.10 Maximum Benefit. The maximum annual benefit
(i.e., the benefit computed under Article IV) payable under this
Plan and all other defined benefit plans of the Employer shall be
<PAGE>
limited to the maximum amounts permitted under Code section 415.
In general, section 415 limits a Participant's annual benefit to
the lesser of $90,000 or the Participant's average annual
compensation during the three consecutive Years of Service as a
Participant affording the highest such average, or during all
years if less than three. If the Participant has not completed
ten years of participation, such maximum annual dollar benefit
shall be reduced in the ratio which the number of his years of
participation bears to ten; if the Participant has less than 10
years of service with the Employer, the compensation limit shall
be reduced by one-tenth for each year of service (or part
thereof) less then ten. The maximum dollar limitation applies to
a benefit payable at the Social Security retirement age and shall
be adjusted in accordance with cost of living increases in the
amount determined by the Commissioner of Internal Revenue.
For any benefit payment which is to commence after the
Social Security retirement age, the maximum dollar limitation
shall be the actuarial equivalent of the maximum dollar
limitation at the Social Security retirement age. In computing
actuarial equivalency, the interest assumption shall be the
lesser of five percent or the percent specified in the Plan's
definition of Actuarial Equivalent.
For any benefit payment which is to commence before the
Social Security retirement age, the maximum dollar limitation
shall be reduced in accordance with this paragraph. The dollar
limitation for a Participant who has reached age 62 but not the
Social Security retirement age shall be reduced by 5/9 of 1
percent for each month by which benefits commence before the
month in which the Participant attains age 65 (assuming this is
the Participant's Social Security retirement age). If the
Participant's Social Security retirement age exceeds 65, the
dollar limit shall be reduced by 5/9 of one percent for each of
the first 36 months and 5/12 of 1 percent for each additional
month that the date the Participant's Annuity Starting Date
precedes his Social Security retirement age. For persons who
retire prior to age 62 pursuant to the early retirement
provisions of Sections 5.2 and 5.3 the maximum dollar limitation
shall be further reduced for months prior to age 62 on an
actuarial basis, using for this purpose an interest assumption of
<PAGE>
5 percent and the 1984 George B. Buck Mortality Table assuming a
blend of 55 percent male and 45 percent female. The dollar
limitation for any other benefits paid prior to age 62 shall be
reduced actuarially for months prior to age 62 using the
Actuarial Equivalent assumptions set forth in Section 2.2 of this
Plan.
Notwithstanding the foregoing, if a Participant's annual
benefit does not exceed $10,000 and he had not at any time
participated in a defined contribution plan maintained by the
Employer, he may receive the full amount of such retirement
income benefit without regard to the limitations provided in this
Section.
For purposes of this Section, a Participant's compensation
means the total remuneration paid to the Participant by the
Employer during the Plan Year for personal services actually
rendered, after the application of any salary reduction agreement
the Participant may have entered into with the Employer,
excluding Employer contributions to this Plan or any other plan
of deferred compensation, amounts realized upon the exercise of a
stock option or the lifting of restrictions on restricted stock,
amounts realized upon a disqualifying disposition of stock
acquired pursuant to an ISO or other qualified stock option or
other amounts which receive special tax benefits provided in this
Section.
If the maximum dollar limitation under this Section 5.10 and
under section 415 of the Code is increased in accordance with
cost of living adjustments pursuant to section 415, all benefits
in pay status that are subject to such limitation shall increase
to the maximum level permitted taking into account the cost of
living adjustment, provided that in no event shall the benefit be
increased to more than the benefit level calculated under this
Plan without regard to the Code's dollar limitation.
SECTION 5.11 Limits for Combined Plans. If a person
participates at any time in both a defined benefit plan and a
defined contribution plan ever maintained by the Employer or any
Affiliated Company, the sum of the defined benefit plan fraction
<PAGE>
and the defined contribution plan fraction for any Year may not
exceed 1.0. For purposes of this Section, the defined
contribution plan fraction for any Year is the person's annual
additions, as defined in section 415 of the Code, in such Year
and all prior Years of Service over the lesser of the following
amounts for such Year and for each prior Year: (a) 1.25 times
the dollar limitation of Code section 415(c)(1)(A) for the
pertinent Year or (b) 1.4 times the amount that could be
contributed under the percentage limitation of Code section
415(c)(1)(B) for the individual. The defined benefit plan
fraction for any Year is the person's projected annual benefit
under all defined benefit plans maintained by the Employer and
any Affiliated Company over the lesser of the following amounts
for such Year and for each prior Year: (a) 1.25 times the dollar
limitation of Code section 415(b)(1)(A) for the pertinent Year or
(b) 1.4 times the amount that could be taken into account under
the percentage limitation of Code section 415(b)(1)(B) for the
individual.
In the case of a Participant in the Plan as of the
limitation year beginning January 1, 1987, the limitations of
this Section 5.11 and of Section 5.10 shall not require a
reduction in the Participant's Accrued Benefit earned as of the
last limitation year ending December 31, 1986. Excess Accrued
Benefits shall be eliminated as of the limitation year commencing
January 1, 1987.
The Committee shall monitor the contributions and benefits
with respect to each Participant under all plans maintained by
the Employer and any Affiliated Company. The Committee in its
discretion shall reduce any such contributions or benefits to
prevent the combined defined benefit plan and defined
contribution plan fractions from exceeding 1.0.
SECTION 5.12 Suspension of Benefits. Neither an eligible
Employee under Section 3.1 who continues working beyond Normal
Retirement Age nor an eligible Employee under Section 3.1 who has
commenced receiving Plan benefits and is subsequently reemployed
by the Employer shall be entitled to receive benefits from this
Plan during his period of employment with the Employer. Any such
<PAGE>
withholding of benefits shall apply only with respect to any
month during which the Participant has 40 or more Hours of
Service with the Employer or an Affiliated Company which
maintains this Plan.
The Committee shall notify each Participant to whom this
suspension applies by personal delivery or first class mail
during the first month in which payments are withheld that the
Participant's benefits are suspended. Such notification shall
contain a description of the specific reasons why benefit
payments are being suspended, a general description and a copy of
this Section and a statement that the applicable Department of
Labor regulations may be found in section 2530.203-3 of Title 29
of the Code of Federal Regulations.
A Participant whose benefits have been suspended in
accordance with this Section shall be entitled to have his
benefit payments commence or resume, as the case may be, as of
the first payment date following the Participant's cessation of
employment. The amount of such payment shall be the greater of
(1) the benefit the Participant had been entitled to receive
immediately prior to the suspension provided for in this Section,
or (2) the benefit the Participant would be entitled to receive
upon his ultimate cessation of employment taking into account,
where required by the applicable benefits provisions, his service
and compensation figures during the suspension. No actuarial
adjustment shall be made to account for the period of suspension
or the fact that benefits commence after Normal Retirement Age
except, in the latter case, as may be provided for in the
deferred retirement provisions of Section 5.4.
SECTION 5.13 Notification to Participants of Benefits and
Reductions. Once each Plan Year the Committee shall notify each
Participant of the following information concerning his
participation in the Plan: (1) his Accrued Benefit under the
Plan; (2) the amount of his Accrued Benefit which is vested or,
if no benefits have vested, the earliest date on which benefits
can become vested; (3) any benefits that are forfeitable if the
Participant dies before a certain date; and (4) any reduction in
benefits required on account of the limits set forth in Sections
5.10 and 5.11 of the Plan.
<PAGE>
SECTION 5.14 Subsidized Pre-ERISA Joint and Survivor
Annuity. Effective with the first benefit payment payable on or
after July 1, 1989, benefits paid in the form of a joint and
one-third survivor annuity to pre-ERISA retirees and to surviving
annuitants of pre-ERISA retirees shall be paid in the form of a
joint and 50 percent survivor annuity. The benefit payable
during the joint lives of the retiree and the retiree's spouse
shall not be decreased actuarially to reflect the increase from
33 1/3 percent to 50 percent in the benefit payable to the
retiree's surviving annuitant. In addition, any actuarial
reduction for the survivor option shall not exceed 10 percent of
the life annuity amount. The increased benefits payable under
this Section shall apply only to future monthly payments.
SECTION 5.15 Benefit Supplement for Retirees. Except for
a person receiving a deferred vested benefit or a contingent
annuitant of such person, each individual receiving a pension
benefit or a disability pension benefit prior to January 1, 1990,
shall receive an increase in the amount of such benefit according
to the following schedule:
<TABLE>
<CAPTION>
Year Benefit Increase in
Payment Commenced Benefit Payment
- ------------------------------------
<S> <C>
prior to 1967 7.0%
1967 - 1981 6.0%
1982 - 1986 5.5%
1987 - 1988 5.0%
1989 2.0%
</TABLE>
The increase in benefits shall be effective with the first
benefit payment due on or after March 1, 1991, and shall continue
for as long as the recipient is entitled to receive Plan
benefits.
In applying the foregoing schedule for retiree benefits, the
amount of the increase shall be based on the year in which
benefit payments to the retiree commenced. For persons receiving
survivor annuity benefits, the increase shall be based on the
year in which the survivor annuity benefits commenced.
<PAGE>
SECTION 5.16 Enhanced Retirement Option. (a) Eligible
Participants. This Section 5.16 provides enhanced benefits for
Participants who are employed by the Employer on December 28,
1990, and who, without application of the terms of this Section,
have at least 5 Years of Service on this date. Notwithstanding
the foregoing, this Section does not cover persons who are on
pre-pension leave on December 28, 1990, or executive officers of
the Employer.
(b) Increase in Accrued Benefit. Each eligible
Participant's Accrued Benefit determined as of December 28, 1990
shall be calculated by adding 5 years to the Participant's actual
age on such date and by adding 5 Years of Service to the
Participant's actual Years of Service on such date. All other
factors used in computing a Participant's Accrued Benefit on
December 28, 1990 shall be those actually in effect on this date.
Any Participant who becomes entitled to receive a benefit from
the Plan on and after December 28, 1990, shall receive the higher
of his or her Accrued Benefit determined under this Section as of
such date or the benefit calculated in the normal fashion under
Article IV using relevant factors on the determination date
without the addition of the 5 years of age and service provided
for in this Section.
(c) Increase in Age and Service for Benefit Entitlement
Purposes. As of December 28, 1990, each eligible Participant
shall have 5 years added to his or her actual age on such date
and 5 years to his or her actual Years of Service on such date
for purposes of determining eligibility to receive a normal or an
early retirement service pension under Sections 5.1, 5.2 or 5.3
of the Plan. In determining whether a Participant has the
requisite age or service to retire on and after December 28,
1990, an eligible Participant shall be considered to have the
higher of his or her age and service as determined under this
provision on December 28, 1990 or his or her actual age and
service on the date the determination is made.
(d) One-time Supplement. An eligible Participant who
voluntarily ceases active employment on December 28, 1990 and is
eligible immediately following any vacation and pre-pension leave
<PAGE>
for either a service or an early retirement service pension under
Sections 5.1, 5.2 or 5.3 (including a Participant who becomes
eligible for such pension by application of the preceding
provisions) shall have his or her monthly pension increased by 10
percent of the amount calculated after application of the
preceding provisions. The 10 percent supplement shall be applied
to the benefit after any reduction for early retirement under
Section 5.3 but prior to any reduction for the Qualified Joint
and Survivor Annuity under Section 6.1. Payment of the 10
percent supplement shall commence with the first pension payment
on or after December 28, 1990 and continue in effect until the
earliest of the following:
- - December 31, 1995
- - the day preceding the Participant's 65th birthday
- - the day the Participant returns to employment and becomes
covered by this Plan
- - the Participant's death
The annual benefit payment under this subsection (d) shall not
exceed the 1990 Social Security maximum benefit.
SECTION 5.17 Voluntary Pension Incentive. A 7 1/2 percent
supplemental pension benefit shall be paid to Plan Participants
who satisfy all of the following criteria:
- - on November 30, 1992 the Participant is in the active employ
of an Employer, is on pre-pension leave or is on vacation
incident to pre-pension leave;
- - the Participant is not nor has ever been an executive
officer of Frontier Corporation;
- - the Participant is entitled to receive either a service or
an early retirement service pension under Sections 5.1, 5.2
or 5.3 of the Plan after taking into account any accrued
vacation or pre-pension leave to which he is entitled; and
<PAGE>
- - the Participant voluntarily chooses to retire and commences
the retirement process on or before December 31, 1992.
The 7 1/2 percent supplement amount shall be determined by
multiplying 7 1/2 percent times the benefit amount to which the
Participant is entitled after any reduction for early retirement
under Section 5.3 but prior to any reduction for the Qualified
Joint and Survivor Annuity under Section 6.1. Payment of the
supplement shall commence with the first monthly pension payment
made after December 31, 1992 and shall continue in effect until
the earliest of the following:
- - the completion of 60 monthly pension supplement payments;
- - the date a Participant is first eligible to receive
unreduced old-age insurance benefits under Title II of the
Social Security Act;
- - the Participant's death.
The annual benefit payment under this Section 5.17 shall not
exceed a Participant's annual unreduced old-age insurance
benefits under Title II of the Social Security Act calculated on
the assumption that a Participant has no FICA wages after the
date he commences receiving benefits under this Plan.
SECTION 5.18 QDRO's. Benefits shall be payable under this
Plan to an alternate payee pursuant to the terms of any qualified
domestic relations order. The Committee has the responsibility
for determining if a domestic relations order is qualified and
whether its payment terms are consistent with the terms of the
Plan.
SECTION 5.19 Enhanced Retirement Option. (a) Eligible
Participants. This Section 5.18 provides enhanced benefits for
Participants who are in the active employ of the Employer, on
January 3, 1994, including Participants on vacation, and who,
without application of the terms of this Section, have at least 5
Years of Service on this date. Notwithstanding the foregoing,
this Section does not cover persons who on January 3, 1994 are on
pre-pension leave or who are executive officers of the Employer.
<PAGE>
(b) Increase in Accrued Benefit. Each eligible
Participant's Accrued Benefit determined as of January 3, 1994
shall be calculated by adding 5 years to the Participant's actual
age on such date and by adding 5 Years of Service to the
Participant's actual Years of Service on such date.
Notwithstanding the above, an eligible Participant whose last day
of work is on or before March 31, 1994 shall have the additional
5 Years of Service added to his actual Years of Service
determined as of his or her retirement date. All other factors
used in computing a Participant's Accrued Benefit on January 3,
1994 shall be those actually in effect on this date. Any
Participant who becomes entitled to receive a benefit from the
Plan on and after January 3, 1994, shall receive the higher of
his or her Accrued Benefit determined under this Section as of
such date or the benefit calculated under other applicable Plan
provisions using relevant factors on the determination date
without the addition of the 5 years of age and service provided
for in this Section.
(c) Increase in Age and Service for Benefit Entitlement
Purposes. As of January 3, 1994, each eligible Participant shall
have 5 years added to his or her actual age on such date and 5
years to his or her actual Years of Service on such date for
purposes of determining eligibility to receive a normal or an
early retirement service pension under Sections 5.1, 5.2 or 5.3
of the Plan. In determining whether a Participant has the
requisite age or service to retire on and after January 3, 1994,
an eligible Participant shall be considered to have the higher of
his or her age and service as determined under this provision on
January 3, 1994 or his or her actual age and service on the date
the determination is made.
(d) Impact on Vesting. Service credit granted under this
Section 5.19 shall not be taken into account for determining the
portion of a Participant's benefit that is vested.
ARTICLE VI - Form of Benefit Payments
SECTION 6.1 Normal Form of Payment. The normal form of
payment of retirement income benefits shall be monthly
installments determined as follows:
<PAGE>
(a) Unmarried Participant. If the Participant is not
married when he becomes eligible to receive any benefits under
this Plan, his retirement income benefit shall be payable in the
form of a straight life annuity. Under such annuity, retirement
income payments will be made monthly during the Participant's
lifetime with no further payments on his behalf after his death.
(b) Married Participant. If the Participant is married
when he becomes eligible to receive any benefits under this Plan,
the normal form of benefit shall be a Qualified Joint and
Survivor Annuity. The amount of benefit payable in this form
shall be the Actuarial Equivalent of the benefit determined under
Article IV.
(c) Election of Optional Method of Payment. In accordance
with the terms of this subsection, a Participant may elect not to
receive his benefit in the normal form of payment and elect
instead one of the optional forms of benefits set forth in
Section 6.2. The Committee shall provide each Participant, not
less than nine months before his Early Retirement Date, a
retirement application form describing the normal and optional
forms of benefit payments, including their relative financial
effects in terms of dollars per annuity payment on the
Participant. The form shall indicate the Participant's right to
waive a survivor annuity and his spouse's right to consent to
such waiver or refuse such consent. This form shall provide a
place for the Participant to indicate his Annuity Starting Date,
the election of the normal or an optional method of payment and
his Beneficiary or Contingent Annuitant, whichever is applicable.
The completed form shall be signed by the Participant and bear
the written consent of his spouse. The spouse's consent shall
acknowledge the effect of the election and the form shall either
be notarized or be witnessed by a Plan representative and must be
returned to the Committee within the Election Period. Failure to
obtain the spouse's consent or to designate an optional form of
payment or the revocation of a previously designated optional
method shall result in the Participant's receiving his benefits
in the normal form of payment unless another election is made
within the Election Period.
<PAGE>
In the event of the death of a Participant before his Early
or Normal Retirement Date, no optional benefit shall be paid.
SECTION 6.2 Optional Forms of Benefits. The optional
benefits, all of Actuarial Equivalent value, which a Participant
may elect pursuant to Section 6.1(c) are as follows:
OPTION A: In the case of a married Participant, a straight
life annuity.
OPTION B: A reduced benefit payable during the
Participant's life equal to 90 percent of the benefit to which he
would otherwise be entitled with the provision that after his
death an income at one-half the rate of his reduced benefit
payable to his designated parent as Contingent Annuitant during
the parent's life. If the parent predeceases the Participant,
the benefits thereafter payable to the Participant shall revert
to the unreduced amount to which he would have otherwise been
entitled.
SECTION 6.3 Facility of Payment. If the Committee shall
find that any person to whom a benefit is payable from the Plan
is unable to care for his affairs, any payment due (unless a
prior claim therefor shall have been made by a duly appointed
guardian, committee or legal representative) may be paid to the
spouse, child, parent or to any person deemed by the Committee to
have incurred expense for such person otherwise entitled to
payment. Any such payment shall discharge the liability of the
Plan therefor.
SECTION 6.4 Time of Benefit Payments. In the event
benefits become payable to a Participant or, in the event of his
death, become payable to his Beneficiary, the Committee shall
consult with the Participant or his Beneficiary, as the case may
be, concerning the manner and the timing of benefit payments.
Based on such consultation and any other pertinent factors, the
Committee in its sole discretion shall direct the Trustee in
writing concerning the manner and timing of benefits to the
recipient. In any event, all distributions required under this
Section shall be determined and made in accordance with the
Income Tax Regulations under Code section 401(a)(9), including
<PAGE>
the minimum distribution incidental benefit requirement of
section 1.401(a)(9)-2 of the regulations, which regulations are
summarized generally in the following paragraphs.
Unless the Committee in its discretion determines otherwise,
payments shall begin no later than the April 1 following the
calendar year during which the Participant dies, suffers a
Disability or reaches his Normal, Early or Deferred Retirement
Date, as the case may be, and has terminated employment with the
Employer or an Affiliated Company. Notwithstanding the above,
benefit payments must commence no later than the April 1
following the calendar year in which a Participant attains age 70
1/2 even if he continues in employment with the Employer. In no
event shall payments begin later than sixty days after the close
of the Plan Year in which the latest of the following occurs:
(1) the Participant's attainment of age 65; (2) the termination
of the Participant's service with the Employer; (3) the 10th
anniversary of the Participant's commencement of participation in
this Plan; or (4) for a Participant who commences participation
in the Plan after age 60, the fifth anniversary of the
Participant's commencement of participation in this Plan; or (5)
the date specified in writing to the Committee by the Participant
(but not later than the year in which the Participant attains age
70 1/2). Notwithstanding any direction by the Participant to the
contrary, all payments must be payable pursuant to a schedule
whereby the Participant's entire interest in the Plan is paid
over a period that does not extend beyond the life of the
Participant or over the lives of the Participant and any
individual he has designated as his Beneficiary (or over the life
expectancies of the Participant and his designated individual
Beneficiary). In addition, unless the benefit is payable as a
Qualified Joint and Survivor Annuity with the Participant's
spouse as the contingent annuitant, the payment method selected
must provide that more than 50 percent of the present value of
the payments projected to be paid to the Participant and his
Beneficiary will be paid to the Participant during his life
expectancy.
In the event of the death of a Participant, Former
Participant or Beneficiary while benefits are being paid under a
<PAGE>
schedule which meets the requirements of the preceding paragraph
payments shall continue over a schedule at least as rapid as the
period selected. In the event of the death of a Participant or
Former Participant before benefit payments have commenced, any
death benefit shall be distributed within five years of death
unless the following conditions are met:
(a) payments are made to an individual Beneficiary
designated by the Participant;
(b) payments are made for the life of such individual
Beneficiary or over a period not extending beyond his life
expectancy; and
(c) payments commence within one year of death.
If the designated Beneficiary is the Participant's spouse,
payments may be delayed until the date the Participant would have
attained age 70 1/2. If the spouse dies before payments begin,
the rules of this paragraph shall be applied as if the spouse
were the Participant.
SECTION 6.5 Small Benefits. In the case of a Participant
whose vested percentage is 100 percent and whose monthly
installments of retirement income would be less than $10, the
Committee may adopt alternate payment procedures in lieu of
making monthly installments, provided that a benefit of
actuarially equivalent value is paid. In the case of a
Participant whose vested percentage is less than 100 percent, and
whose monthly installment of retirement income would be less than
$10, the Committee may adopt alternate payment procedures
consistent with the cash out rules of Section 5.7.
SECTION 6.6 Rollovers from Plan. This Section applies to
distributions made on or after January 1, 1993. Notwithstanding
any provision of the Plan to the contrary that would otherwise
limit a Participant's election under this Section, a Participant
may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the Participant in a direct rollover.
<PAGE>
An eligible rollover distribution is any distribution of all
or any portion of the balance to the credit of the Participant
except that an eligible rollover distribution does not include
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually made for the
life (or life expectancy) of the Participant or the joint lives
(or joint life expectancies) of the Participant and the
Participant's designated Beneficiary, or for a specified period
of ten years or more, any distribution to the extent such
distribution is required under section 401(a)(9) of the Code:
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to Employer securities).
An eligible retirement plan is an individual retirement
account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a
qualified trust described in section 401(a) of the Code, that
accepts the Participant's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
A Participant includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order, as defined in section 414(p) of the Code, are Participants
with regard to the interest of the spouse or former spouse. A
direct rollover is a payment by the Plan to the eligible
retirement plan specified by the Participant.
ARTICLE VII - Death Benefits
SECTION 7.1 Intent of Plan. This Plan is designed
primarily to provide retirement income. There are, however, the
circumstances set forth in the following Sections under which
death benefits are payable from this Plan.
<PAGE>
SECTION 7.2 Contingent Annuity. Upon the death of a
Participant who was receiving his benefit in the form of a
contingent annuity, his Contingent Annuitant shall receive the
payments designated for the Contingent Annuitant.
SECTION 7.3 Pre-Retirement Spouse's Benefit. Upon the
death of a married Participant before retirement but after
becoming vested in any part of his Accrued Benefit, his surviving
spouse shall be entitled to receive a Qualified Pre-Retirement
Survivor Annuity. In the case of a Participant who had attained
his Early Retirement Date on or before his date of death, this
benefit shall commence on the first day of the month next
following the date of death. In other cases the benefit shall
commence on the first day of the month following what would have
been the Participant's Early Retirement Date.
At any time during his Election Period, a Participant shall
have the right to waive the Qualified Pre-Retirement Survivor
Annuity and select, if otherwise available under the terms of
this Plan, an alternative form of benefit. Any such waiver shall
be in writing, shall contain the written consent of the
Participant's spouse and shall be either notarized or witnessed
by a Plan representative. This election, once made, may be
revoked at any time during the Election Period. To assist the
Participant in making the election, the Committee shall provide
the Participant a notice substantially similar to the notice
specified in Section 6.1(c). This notice may be supplied at any
time within the period beginning on the first day of the Plan
Year in which the Participant attains age 32 and ending on the
last day of the Plan Year preceding the Plan Year in which the
Participant attains age 35.
SECTION 7.4 Sickness and Pensioner Death Benefits. Upon
the death of any Employee or any pensioner who is receiving
normal, early, deferred or disability pension benefits in
accordance with the provisions of Sections 5.1, 5.2, 5.3, 5.4
or 5.5, which death is caused by sickness or injury except an
injury arising in the course of employment with the Employer,
a death benefit will be paid to:
<PAGE>
(a) the spouse of the deceased Employee or pensioner if the
spouse is legally married to him at the time of his death; or
(b) the unmarried child or children under the age of 23
years (or over that age if physically or mentally incapable of
self-support) of the deceased Employee or pensioner who was
actually supported in whole or in part by the deceased Employee
or pensioner at the time of his death; or
(c) a dependent parent who lives in the same household with
the Employee or pensioner or who lives in a separate household in
the vicinity which is provided for the parent by the Employee or
pensioner; or
(d) a trust for the benefit of any of the above
beneficiaries.
If none of the enumerated beneficiaries survives the
Employee or pensioner, no death benefit will be paid under this
Plan. If two or more of the enumerated beneficiaries survive the
Employee or pensioner, the Committee, in its sole discretion, may
pay the death benefit to one of the beneficiaries or allocate it
among the beneficiaries in such portions as it may determine.
The amount of the death benefit shall equal 12 months' wages
computed at the Employee's or pensioner's most recent rate of pay
at the date of death or at retirement, as the case may be. If
the Employee or pensioner was not employed full time, the death
benefit shall be prorated in accordance with the ratio that the
individual's usual Hours of Service during a Plan Year bear to
the Hours of Service of full time employees during a Plan Year.
For purposes of this section, the term rate of pay means the
total of the following amounts: (1) the Employee's annualized
base rate of pay at death, (2) all bonuses paid to the Employee
in the calendar year preceding his death and (3) all commissions
paid to the Employee in the calendar year preceding his death.
The term rate of pay shall not include overtime, tier payments or
any other form of special or nonrecurring compensation except for
bonuses and commissions included under the preceding sentence.
<PAGE>
The term rate of pay shall not include overtime or any other
form of special or nonrecurring compensation except for bonuses
and commissions included under the preceding sentence, or any
amounts in excess of $150,000 (as adjusted for cost of living
increases) paid to an Employee during any Plan Year.
An Employee or pensioner may file with the Committee a
written direction that the death benefit will be paid to his
Beneficiary in equal monthly installments over any period of
years up to ten. In the absence of such written direction, the
Committee in its sole discretion may pay the death benefit in a
lump sum or in installment payments, the number and size of which
may be varied by the Committee as circumstances may indicate.
All benefits under this Section are to be paid from the Second
Pension Fund established for this purpose.
ARTICLE VIII - Employer Contributions
SECTION 8.1 Employer Contributions. The Employer shall
contribute such amounts as it determines to be required for the
purpose of meeting the costs of the Plan. The contributions will
be determined by annual actuarial valuations on the basis of such
actuarial methods and assumptions as are adopted by the Committee
after consultation with an Actuary. The Employer shall comply
with the applicable minimum funding standards provided in section
412 of the Code.
SECTION 8.2 Employee Contributions. Employee
contributions are neither required nor permitted under this Plan.
SECTION 8.3 Diversion from Employees' Benefit Prohibited.
All contributions by the Employer are for the exclusive benefit
of Participants and any other person entitled to benefits under
the Plan. Prior to the satisfaction of all liabilities with
respect to such Participants and other persons, no amounts
arising from the Employer's contributions will revert to the
Employer.
SECTION 8.4 Return of Erroneous Contributions.
Notwithstanding Section 8.3, upon the Committee's request
any contribution which was made by a mistake of fact or which is
disallowed as a deduction under the Code, or which is made for a
<PAGE>
Year in which in the Plan is held not to be initially qualified
under the Code, shall be returned to the Employer within one year
after the payment of the contribution, the disallowance of the
deduction (to the extent disallowed) or the denial of the initial
qualification, whichever is applicable. All contributions to
this Plan are made contingent upon their being deductible under
the Code.
SECTION 8.5 Funding Policy. The Committee shall from time
to time communicate the liquidity and other needs of the Plan to
the Trustee.
ARTICLE IX - Trust Fund
All contributions under this Plan shall be paid to the
Trustee and deposited in the Trust Fund. The assets in the Trust
Fund, including investment income, shall be held and invested by
the Trustee or, if one has been appointed, by an Investment
Manager in accordance with the terms of the trust agreement or
investment manager agreement as the case may be. Benefits
payable under this Plan shall be provided from the Trust Fund as
the circumstances require. All assets of the Trust Fund,
including investment income, shall be retained for the exclusive
benefit of Participants, Former Participants, Contingent
Annuitants and Beneficiaries and shall be used to pay benefits to
such persons or to pay administrative expenses of the Plan and
Trust Fund to the extent not paid by the Employer and shall not
revert to or inure to the benefit of the Employer.
ARTICLE X - Employees' Benefit Committee and Other Fiduciaries
SECTION 10.1 Appointment of Committee. The Board shall
appoint an Employees' Benefit Committee to administer the Plan.
Any person, including an employee of the Employer or an
Affiliated Company, is eligible for appointment as a member of
the Committee. Such members shall serve at the pleasure of the
Board. Any member may resign by delivering his written
resignation to the Board. Vacancies in the Committee arising by
resignation, death, removal or otherwise, shall be filled by the
Board.
<PAGE>
SECTION 10.2 Named Fiduciary and Plan Administrator. The
Committee shall be the named fiduciary and plan administrator as
these terms are used in ERISA. The Committee shall appoint a
secretary to assist it in administering this Plan. The secretary
shall also be the agent for the service of legal process. The
Committee may appoint other assistants as may be required to
administer this Plan, including one or more departmental or
Affiliated Company committees which shall have such authority as
may be delegated by the Committee.
SECTION 10.3 Powers and Duties of Committee. The
Committee shall administer the Plan in accordance with its terms
and shall have all powers necessary to carry out the provisions
of the Plan, except such powers as are specifically reserved to
the Board or some other person. The Committee's powers include
the power to make and publish such rules and regulations as it
may deem necessary to carry out the provisions of the Plan. The
Committee shall interpret the Plan and shall determine all
questions arising in the administration, interpretation, and
application of the Plan. Any such determination by the Committee
shall be conclusive and binding on all persons.
SECTION 10.4 Operation of Committee. The Committee shall
act by a majority of its members at the time in office, and such
action may be taken either by a vote at a meeting or without a
meeting. Any action taken without a meeting shall be reflected
in a written instrument signed by a majority of the members of
the Committee. A member of the Committee who is also a
Participant shall not vote on any question relating specifically
to himself. Any such question shall be decided by the majority
of the remaining members of the Committee. The Committee may
authorize any one or more of its members to execute any document
or documents on behalf of the Committee, in which event the
Committee shall notify the Trustee and the Investment Manager in
writing of such action and the name or names of its member or
members so designated. The Trustee and the Investment Manager
thereafter shall accept and rely upon any document executed by
such member or members as representing action by the Committee
until the Committee shall file with the Trustee and the
Investment Manager a written revocation of such designation.
<PAGE>
The Committee may adopt such by-laws or regulations as it deems
desirable for the conduct of its affairs. The Committee shall
keep a record of all its proceedings and acts and shall keep all
such books of account, records, and other data as may be
necessary for the proper administration of the Plan.
SECTION 10.5 Power to Appoint Advisors. The Committee may
appoint such Actuaries, accountants, attorneys, specialists, and
other persons as it deems necessary or desirable in connection
with the administration of this Plan. Such accountants and
attorneys may, but need not, be accountants and attorneys for the
Employer. The Committee shall be entitled to rely upon any
opinions or reports which shall be furnished to it by any such
Actuary, accountant, attorney or other specialist.
SECTION 10.6 Expenses of Committee. The members of the
Committee shall serve without compensation for services as such,
but all reasonable expenses of the Committee shall be paid by the
Employer. Such expenses shall include any expenses incident to
the functioning of the Committee, including, but not limited to,
fees of Actuaries, accountants, attorneys, and other specialists,
and other costs of administering the Plan.
SECTION 10.7 Duties of Fiduciaries. All fiduciaries under
the Plan and Trust shall act solely in the interests of the
Participants and their Beneficiaries and in accordance with the
terms and provisions of the Plan and Trust insofar as such
documents are consistent with ERISA, and with the care, skill,
prudence, and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of like
character and with like aims. Any person may serve in more than
one fiduciary capacity with respect to the Plan and Trust.
SECTION 10.8 Liability of Members. No member of the
Committee shall incur any liability for any action or failure to
act, excepting only liability for his own breach of fiduciary
duty. To the extent not covered by insurance, the Employer shall
indemnify each member of the Committee and any employee acting on
its behalf against any and all claims, loss, damages, expense,
<PAGE>
and liability arising from any action or failure to act under
this Plan.
SECTION 10.9 Allocation of Responsibility. The Board,
Trustee, Investment Manager and the committees established to
administer the Plan possess certain specified powers, duties,
responsibilities and obligations under the Plan and Trust. It is
intended under this Plan that each be solely responsible for the
proper exercise of its own functions and that each shall not be
responsible for any act or failure to act of another, unless
otherwise responsible as a breach of its own fiduciary duty.
a. Generally, the Board shall be responsible for
appointing the members of the committees it may
establish to administer this Plan. If this Plan shall
at any time permit employees to invest any portion of
Plan assets in Employer securities, the Board shall
have sole authority to terminate this Plan and to make
any discretionary amendments, while any Board-appointed
committee given such authority shall be responsible for
making mandatory, non-discretionary amendments and for
recommending to the Board any other Plan amendments it
deems appropriate.
b. The Board-appointed committees so authorized shall have
the responsibilities of making Plan amendments not
specifically reserved to the Board in the preceding
subsection, including sole discretion to amend the Plan
if employees are not authorized to invest Plan assets
in Employer securities, to select Investment Managers,
to direct the Trustee and the Investment Managers with
respect to all matters relating to the investment of
Plan assets, to review and report to the Board on the
investment policy and performance of Plan assets and
generally to administer the Plan according to its
terms.
c. The Trustee or the Investment Manager, as the case may
be, is responsible for the management and control of
the Plan's assets as specifically provided in the trust
agreement or investment manager agreement.
<PAGE>
d. The Board may dissolve any committee it appoints or
reserve to itself any of its powers previously
delegated to a Board-appointed committee. In addition,
the Board may reorganize the committees it establishes
from time to time and reallocate their responsibilities
between them or assign them to other persons or
committees provided that the Employees' Benefit
Committee shall at all times continue as plan
administrator and named fiduciary as these terms are
defined in ERISA unless the Board formally amends the
Plan to reallocate these responsibilities. The Board
and the various committees may designate persons,
including committees, other than named fiduciaries to
carry out their responsibilities (other than trustee
responsibilities) under the Plan.
SECTION 10.10 Claims Review Procedures. The Committee
shall maintain a procedure under which any Participant or
Beneficiary (hereinafter called "claimant") whose claim for
benefits under the Plan has been denied will receive written
notice which clearly sets forth the specific reason or reasons
for such denial, the specific Plan provision or provisions on
which the denial is based, any additional information necessary
for the claimant to perfect the claim, if possible, an
explanation of why such additional information is needed, and an
explanation of the Plan's claims review procedure. Said
procedure should allow a claimant at least 60 days after receipt
of the written notice of denial to request a review of such
denied claim, and the Committee shall make its decision based on
such review within 60 days (120 days if special circumstances
require more time) of its receipt of the request for review. The
decision on review shall be in writing and shall clearly describe
the reasons for the Committee's decision.
ARTICLE XI - Amendments
Any amendment may be made to this Plan which does not cause
any part of the Plan's assets to be used for, or diverted to, any
purpose other than the exclusive benefit of Participants, Former
Participants, Contingent Annuitants or Beneficiaries, provided
<PAGE>
however, that any amendment may be made, with or without
retroactive effect, if such amendment is necessary or desirable
to comply with applicable law. Except in the case where approved
by the Secretary of Labor because of substantial business
hardship, as provided in section 412(c)(8) of the Code, no
amendment shall be made to the Plan if it would decrease the
Accrued Benefit of any Participant, eliminate or reduce an early
retirement benefit or a retirement-type subsidy or eliminate an
optional form of benefit as may be provided in regulations under
Code section 411(d)(6).
ARTICLE XII - Successor Employer and Merger or
Consolidation of Plans
SECTION 12.1 Successor Employer. In the event of the
dissolution, merger, consolidation or reorganization of the
Employer, provision may be made by which the Plan and Trust will
be continued by the successor, and, in that event, such successor
shall be substituted for the Employer under the Plan. The
substitution of the successor shall constitute an assumption of
Plan liabilities by the successor and the successor shall have
all of the powers, duties and responsibilities of the Employer
under the Plan.
SECTION 12.2 Plan Assets. In the event of any merger or
consolidation of the Plan with, or transfer in whole or part, of
the assets and liabilities of the Trust after September 2, 1974,
to another trust held under any other plan of deferred
compensation maintained or to be established for the benefit of
all or some of the Participants of this Plan, the assets of the
Plan applicable to such Participants shall be transferred to the
other trust only if:
(a) each Participant would (if either this Plan or the
other plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit he would
have been entitled to receive immediately before the
merger, consolidation or transfer (if this Plan had
then terminated);
<PAGE>
(b) resolutions of the Boards of Directors of the Employer
under this Plan, and of any new or successor employer
of the affected Participants, shall authorize such
transfer of assets; and, in the case of the new or
successor employer of the affected Participants, its
resolutions shall include an assumption of liabilities
with respect to such Participants' inclusion in the new
employer's plan; and
(c) such other plan and trust are qualified under sections
401(a) and 501(a) of the Code.
ARTICLE XIII - Plan Termination
SECTION 13.1 Right to Terminate. In accordance with the
procedures set forth in this Article, and consistent with the
provisions of title IV of ERISA, the Board may terminate this
Plan at any time. In the event the Plan is terminated or
partially terminated, whether by formal action or in actual
operation, the funded Accrued Benefits of all affected
Participants shall become fully vested.
SECTION 13.2 Partial Termination. Upon termination of the
Plan with respect to a group of Participants which constitutes a
partial termination of the Plan, the Accrued Benefits of all
affected Participants shall become fully vested. The Trustee
shall, in accordance with the directions of the Committee,
allocate and segregate for the benefit of the Participants or
Former Participants with respect to which the Plan is being
terminated the proportionate interest of such Participants in the
Trust Fund.
SECTION 13.3 Allocation of the Plan's Assets. If the Plan
is to be of the terminated, by written notice or in Plan's Assets
actual operation, it shall first be amended to provide for the
allocation of the Plan's assets in accordance with the priorities
established by section 4044 of ERISA and regulations thereunder.
Any excess assets remaining after all liabilities of the Plan to
Participants and their Beneficiaries have been satisfied shall be
distributed to the Employer. In the event that Plan liabilities
exceed Plan assets, the Employer's liability shall be limited to
<PAGE>
paying only such additional amounts which when added to existing
Plan assets may be required to pay benefits which are guaranteed
by the Pension Benefit Guaranty Corporation under Section 4022 of
ERISA.
SECTION 13.4 Nondiscrimination Payment of Benefits. In
the event of plan termination, the benefits paid from this Plan
in to any current or former Highly Compensated Employee shall be
limited as necessary to satisfy the nondiscrimination
requirements of Code section 401(a)(4).
SECTION 13.5 Benefit Limits for Restricted Employees. (a)
Subject to subsection (b), benefit payments to a "restricted
employee" shall not exceed the periodic amounts payable under a
single life annuity that is actuarially equivalent to the
employee's entire Plan benefit. This limit shall not apply if
either of the following is true:
(1) Immediately after a payment of a benefit to the restricted
employee Plan assets equal at least 110 percent of the
Plan's current liabilities.
(2) The value of the benefit paid is less than one percent of
the Plan's current liabilities.
For this purpose, "benefits" means all accrued and other
Plan benefits; "benefits paid" includes regular payments, and
death and disability payments; and "restricted employee" means
one of the highest-paid 25 of the current and former Highly
Compensated Employees with benefits under the Plan.
(b) Benefits may be paid to a restricted employee in a lump
sum or in faster installments than permitted under subsection (a)
if the following conditions are met:
(1) Before receiving any payments the restricted employee agrees
in writing to repay the actuarial value of the amounts by
which the payments exceed the amounts otherwise allowed
<PAGE>
under subsection (a) if the Plan is terminated at a time
when neither of the tests (1) and (2) in subsection (a) are
met.
(2) The employee guarantees repayment under (1) by fulfilling
the following conditions:
(i) Providing security acceptable to the Committee equal to
125 percent of the amount that would have to be repaid
if the Plan terminated on the date of distribution.
(ii) Agreeing to keep the security arrangement in effect and
to provide additional security from time to time as may
be needed to restore the security to the 125 percent
level if the market value of the security ever becomes
less than 110 percent of the repayable amount.
ARTICLE XIV - Top-Heavy Provisions
SECTION 14.1 Rules to Apply if Plan Top-Heavy.
Notwithstanding any other relevant provision of this Plan to the
contrary, the following rules will apply for any Plan Year that
the Plan becomes "top-heavy" (as defined in Section 14.2):
(a) Vesting. Except to the extent they are more favorable
to Participants at any point in time, the Plan's normal vesting
provisions shall be disregarded and in their place an employee
will become vested at the rate of 20 percent after two Years of
Service and 20 percent each year thereafter until 100 percent
vesting is achieved after six Years of Service.
(b) Minimum Benefit and Accrual. For each Year the Plan is
deemed "top-heavy" each participant who is a non-key employee
shall have a minimum formula benefit and Accrued Benefit equal to
the lesser of:
(i) 20 percent of such non-key employee's average
compensation; or
<PAGE>
(ii) 2 percent of his average compensation times his Years
of Service. Such benefit shall be in the form of a
life annuity. For the purposes of making this
computation, the term "average compensation" means the
average of the five consecutive Plan Years during which
such Participant has the greatest aggregate
compensation from the Employer. Compensation means the
compensation of the Participant from the Employer for
the year. The minimum benefit shall be payable
regardless of a non-key employee's level of
compensation or whether he is employed on a specified
date, such as the last day of the Plan Year.
(c) Limitation on Benefits. In applying the dollar
limitations under Section 415(e) of the Code, the 1.25 limitation
shall be supplanted by a 1.0 limitation for each year during
which the Plan is top-heavy.
(d) Maximum Compensation. The maximum annual compensation
of each employee that may be taken into account under the Plan
shall not exceed $150,000 (or such larger amount based on cost of
living adjustments as may be permitted under the Code).
SECTION 14.2 Top-Heavy Definition. For purposes of this
Section, the Plan will be considered "top-heavy" if on any given
determination date (the last day of preceding Plan Year or, in
the case of the Plan's first year, the last day of such Year) the
sum of the present value of the total accrued benefits for key
employees is more than 60 percent of the present value of the
total accrued benefits of all employees. The present value of
accrued benefits shall be determined on the annual valuation date
(the date used for computing plan costs for minimum funding
purposes) that falls within the 12-month period ending on the
determination date. The present value shall include
distributions made during any given Plan Year containing the
determination date and the preceding four Plan Years but shall
not include the present value of the benefits for any person who
has not received any compensation from the Employer at any time
during the five-year period ending on the determination date.
The method of determining the top-heavy ratio shall be made in
accordance with Code section 416.
<PAGE>
In making the top-heavy calculation, (a) all the Employer's
plans in which a key employee participates shall be aggregated
with all other Employer plans which enable a plan in which a key
employee participates to satisfy the Code's non-discrimination
requirements; and (b) all Employer plans not included in
subparagraph (a), above, may be aggregated with the Employer's
plans included in subparagraph (a), above, if all of the
aggregated plans would be comparable and satisfy the Code's
non-discrimination requirements.
SECTION 14.3 Key Employee Definition. A key employee is
any employee or former employee who at any time during the Plan
Year or the four preceding Plan Years is such within the meaning
of Code section 416. As of the effective date, the term key
employee includes the following individuals:
(a) an officer (but not more than 50 persons or, if lesser,
the greater of 3 or 10 percent of employees) having an annual
compensation greater than 50 percent of the dollar limit for
benefits payable from a defined benefit plan under Code section
415(b)(1)(A);
(b) one of 10 employees owning the largest interests of the
Employer (and having an annual compensation from the Employer
which is at least equal to the dollar limitation for
contributions to defined contribution plans as specified in Code
section 415(c)(1)(A));
(c) a five-percent owner of the Employer; and
(d) a one-percent owner of the Employer whose annual
compensation from the Employer exceeds $150,000.
SECTION 14.4 Relationship of the Normal and the Top-Heavy
Vesting Schedules. If the Plan's top-heavy status changes and
this change alters the Plan's normal vesting schedule, no
Participant's vested accrued benefit immediately prior to such
change in status shall be diminished on account of the change in
the vesting schedule. In addition, the vesting for each
<PAGE>
Participant in the Plan at the time of the change in status shall
be determined under whichever schedule provides the greatest
vested benefit at any particular point in time.
SECTION 14.5 Participation in Other Plans. A non-key
employee who participates in both a defined contribution plan and
a defined benefit plan of the Company shall not be entitled to
receive minimum benefits and/or minimum contributions under all
such plans. Instead, the employee shall receive the minimum
benefit as set forth in Section 15.1(b).
ARTICLE XV - Miscellaneous
SECTION 15.1 Nonguarantee of Employment. Nothing
contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right
of any Employee to be continued in the employment of the
Employer, or as a limitation on the right of the Employer to
discharge any of its Employees, with or without cause.
SECTION 15.2 Right to Former Plan Assets. No Participant,
Former Participant, Contingent Annuitant or Beneficiary shall
have any right to, or interest in, any assets of the Plan upon
termination of employment or otherwise, except as provided from
time to time under this Plan, and then only to the extent of the
benefits payable under the Plan to such Participant, Former
Participant, Contingent Annuitant or Beneficiary out of the
assets of the Plan. All payments of benefits provided for in
this Plan shall be made solely out of the assets of the Plan.
SECTION 15.3 Nonalienation of Benefits. Benefits payable
under this Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary, including any such liability
which arises from the Participant's bankruptcy prior to actually
being received by the person entitled to the benefit under the
terms of the Plan. Any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose
of any right to benefits payable hereunder, shall be void. The
<PAGE>
Plan shall not in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person
entitled to benefits hereunder.
Notwithstanding the foregoing, Plan benefits may be paid
pursuant to a qualified domestic relations order as defined in
Code section 414(p) pursuant to procedures adopted by the
Committee. In addition, a Participant, Beneficiary or Contingent
Annuitant whose benefits are in pay status may make a voluntary,
revocable assignment or alienation of future benefit payments not
to exceed, when all such amounts are aggregated, 10 percent of
each benefit payment. No part of any such voluntary assignment
or alienation may be used for defraying plan administrative
costs. All requests for benefit assignments shall be in writing
to the Committee on a form approved by it and pursuant to such
rules as the Committee may prescribe.
SECTION 15.4 Adoption by Affiliated Company. This Plan
may, with the approval of the Board, be adopted by any Affiliated
Company. Any such adoption must be authorized by the adopting
company's board of directors and shall be evidenced by the
execution of an adoption agreement which signifies the class of
eligible employees, the extent to which Years of Service prior to
the date of adoption shall be used to determine benefit levels,
and any other relevant terms. Except to the extent otherwise
required by law, each adopting company shall be responsible for
making contributions, paying administrative expenses and
incurring similar obligations only with respect to its own
employees who are covered by this Plan.
SECTION 15.5 Governing Law. To the extent not preempted
by federal law, this Plan shall be interpreted and enforced in
accordance with the laws of New York.
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Plan document on its behalf
this 26th day of May, 1995.
FRONTIER CORPORATION
By: /s/ Josephine S. Trubek
------------------------------------
Josephine S. Trubek, Corporate Secretary
<PAGE>
EXHIBIT 10.21
Description of 1995 Executive Bonus Plan
Annual Bonus
The Company's annual bonus plan is designed to provide
performance-based compensation awards to executives for
achievement during the past year. For executive officers, bonus
awards are a function of individual performance and consolidated
corporate results. Business unit performance is also a component
of the bonus plan for those involved in line operations below the
executive officer level. All participants are subject to a
discretionary adjustment, either positive or negative, based on
individual performance. The specified qualitative and
quantitative criteria employed by the Committee on Management
("Committee") in determining bonus awards vary individually and
from year to year. These criteria, or targets, are established
as a means of measuring executive performance. The corporate
target for 1995 was an equally weighted earnings per share and
cash flow target established by this Committee of the Board of
Directors as an incentive to improve the financial performance of
the firm and thus improve long-term stock performance.
Performance objectives and associated payouts were established at
the beginning of the year and were subsequently modified in
September to reflect the financial structure and objectives of
the Company following the completion of the Company's acquisition
of ALC Communications Corporation and other significant
acquisition and merger activity. The objectives are identified
as threshold, standard and premier targets with standard
performance yielding payouts at the median level competitively.
No award will be paid unless threshold performance is achieved
for both components.
For 1995, both earnings per share and cash flow results were
between the standard and premier levels. All the Company's
senior executives are eligible to participate in the bonus plan
with payout awards varying by salary grade. With respect to Mr.
Bittner's participation, his annual bonus was based upon
achievement of the corporate targets, a mechanical application of
the formula (which for Mr. Bittner was 105.0%, times his actual
salary) and an additional discretionary adjustment based on his
individual performance.
<PAGE>
EXHIBIT 10.22
[2/14/95]
FRONTIER CORPORATION
DIRECTORS STOCK INCENTIVE PLAN
The Rochester Telephone Corporation Directors Stock
Option Plan is hereby amended, restated and renamed as the
Frontier Corporation Directors Stock Incentive Plan (the "Plan")
to reflect the company's reorganization and the change in the
parent company's name to Frontier Corporation (the "Company"), to
authorize the award of stock grants in addition to stock options
and to expand eligibility to outside directors of the Company's
subsidiaries as follows:
1. PURPOSE
The purpose of the Plan is to enable the Company and
its subsidiaries to attract and retain outside directors and
provide them with an incentive to maintain and enhance the
Company's long-term performance record. It is intended that this
purpose will best be achieved by granting eligible directors
non-qualified stock options ("options") and/or stock grants
(collectively options and stock grants are referred to as
"awards") under this Plan pursuant to the rules set forth in
Section 83 of the Internal Revenue Code, as amended from time to
time.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board
of Directors (the "Board"). Subject to the provisions of the
Plan, the Board shall possess the authority, in its discretion,
(a) to prescribe the form of the stock option and stock grant
agreements including any appropriate terms and conditions
applicable to these awards and to make any amendments to such
agreements or awards; (b) to interpret the Plan; (c) to make and
<PAGE>
amend rules and regulations relating to the Plan; and (d) to make
all other determinations necessary or advisable for the
administration of the Plan. The Board's determinations shall be
conclusive and binding. No member of the Board shall be liable
for any action taken or decision made in good faith relating to
the Plan or any award granted hereunder.
3. ELIGIBLE DIRECTORS
Members of the Board of Directors of the Company and
its subsidiaries who are not also employees of the Company or its
subsidiaries are eligible to participate in this Plan. Eligible
directors of the Company's Board are entitled to receive both
options and stock grants. Eligible directors of a subsidiary are
entitled to receive only options. Beneficial owners of more than
five percent of the Common Stock of the Company are not eligible
to receive any awards under this Plan.
4. SHARES AVAILABLE
An aggregate of 1,000,000 shares of the Common Stock
(par value $1.00 per share) of the Company (subject to
substitution or adjustment as provided in Section 9 hereof) shall
be available for the grant of awards under the Plan. Such shares
may be authorized and unissued shares. If an option expires,
terminates or is cancelled without being exercised, new options
may thereafter be granted covering such shares. No award may be
granted more than ten years after the effective date of the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Each option granted under the Plan shall be evidenced
by an option agreement in such form as the Board shall approve
from time to time, which agreement shall conform with this Plan
and contain the following terms and conditions:
(a) Number of Shares. At the date each year when new
members are elected to the Company's Board, each eligible
director who will be serving on the new Board (whether newly
elected or continuing as a carryover director) shall receive
an option to purchase 4000 shares of the Company's Common
Stock. For an eligible director of a subsidiary's Board, the
option shall be for 3000 shares.
<PAGE>
An eligible director who begins Board service on a date
other than the date when new members are normally elected to
the Board shall receive a pro rata grant to cover the
partial year remaining until the next Board election. The
number of shares subject to such option shall be 4000 (3000
in the case of a director of a subsidiary) multiplied by a
fraction the numerator of which is the number of full or
partial months in the period commencing on the first day of
the month following the new Board member's appointment and
ending on the next following date when new members are
elected to the Board and the denominator of which is 12.
Any fractional share shall be rounded up to the next highest
whole number of shares.
(b) Exercise Price. The exercise price under each
option shall equal the fair market value of the Common Stock
at the time such option is granted. For this purpose, fair
market value shall equal the closing price of the Company's
Common Stock on the New York Stock Exchange on the date an
option is granted, or, if there was no trading in such stock
on the date of such grant, the closing price on the last
preceding day on which there was such trading.
(c) Duration of Option. Each option by its terms
shall not be exercisable after the expiration of ten years
from the date such option is granted.
(d) Options Nontransferable. Each option by its terms
shall not be transferable by the participant otherwise than
by will or the laws of descent and distribution, and shall
be exercisable, during the participant's lifetime, only by
the participant, the participant's guardian or the
participant's legal representative.
(e) Exercise Terms. Each option granted under the
Plan shall become exercisable with respect to 33 1/3 percent
of the shares subject thereto on the first anniversary of
the date of grant and with respect to an additional 33 1/3
<PAGE>
percent of such shares on each of the second and third
anniversaries of such date of grant. Options may be
partially exercised from time to time during the period
extending from the time they first become exercisable until
the tenth anniversary of the date of grant.
(f) Payment of Exercise Price. An option shall be
exercised upon written notice to the Company accompanied by
payment in full for the shares being acquired. The payment
shall be made in cash, by check or, if the option agreement
so permits, by delivery of shares of Common Stock of the
Company registered in the name of the participant, duly
assigned to the Company with the assignment guaranteed by a
bank, trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing. Any such
shares so delivered shall be deemed to have a value per
share equal to the fair market value of the shares on such
date. For this purpose, fair market value shall equal the
closing price of the Company's Common Stock on the New York
Stock Exchange on the date the option is exercised, or, if
there was no trading in such stock on the date of such
exercise, the closing price on the last preceding day on
which there was such trading.
6. TERMS AND CONDITIONS OF STOCK GRANTS
Each stock grant awarded under the Plan shall be
evidenced by a stock grant agreement in such form as the Board
shall approve from time to time, which agreement shall conform
with the Plan and the following terms and conditions:
(a) Number of Shares. At the date each year when new
members are elected to the Company's Board, each eligible
director of the Company who will be serving on the new Board
(whether newly elected or continuing as a carryover
director) shall be granted 500 shares of the Company's
Common Stock.
An eligible director who begins Board service on a date
other than the date when new members are normally elected to
the Board shall receive a pro rata grant to cover the
<PAGE>
partial year remaining until the next Board election. The
number of shares subject to such grant shall be 500
multiplied by a fraction the numerator of which is the
number of full or partial months in the period commencing on
the first day of the month following the new Board member's
appointment and ending on the next following date when new
members are elected to the Board and the denominator of
which is 12. Any fractional share shall be rounded up to
the next highest whole number of shares.
Notwithstanding the foregoing two paragraphs of this
Section 6(a), an eligible director who begins his or her
first service on the Company's Board, whether such service
commences on the date of the Annual Meeting or on another
date, shall be granted 1000 shares of the Company's Common
Stock.
(b) Vesting. All shares shall be fully and
immediately vested at the date of grant.
(c) Restriction on Transferability. The 500 shares
(or the partial year pro rata portion of such shares)
granted annually to each eligible director are not subject
to any transfer restrictions under the terms of this Plan.
However, the 1,000 shares granted to a first time director
(including additional shares obtained through dividend
reinvestment) may not be sold, gifted or otherwise
transferred while the director remains on the Board of the
Company unless the Board in its sole and absolute discretion
determines otherwise.
(d) Custody of Share Certificates. Certificates for
all shares subject to the transferability restriction under
subsection (c) above shall be held by the Company for the
benefit of the director who shall deliver to the Company a
stock power executed in blank covering such shares. Except
for this custody restriction, the holder of a stock grant
shall possess all the rights of a holder of the Company's
Common Stock, including voting and dividend rights, provided
that all dividends shall be automatically reinvested in
<PAGE>
additional shares of Company Common Stock rather than paid
in cash.
(e) Miscellaneous. All other provisions of the Plan
not inconsistent with this Section 6 shall apply to stock
grants and the holder thereof unless otherwise determined by
the Board. Stock grants shall be considered as directors
fees for purposes of any plan of deferred compensation that
permits the deferral of directors fees.
7. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any
certificate upon the grant of any award, the exercise of an
option or the satisfaction of any condition with respect to any
award until it has been furnished with such opinion,
representation or other document as it may reasonably deem
necessary to insure compliance with any law or regulation of the
Securities and Exchange Commission or any other governmental
authority having jurisdiction under this Plan. Certificates
delivered upon such grant, exercise or satisfaction of any
condition may bear a legend restricting transfer absent such
compliance. Each award shall be subject to the requirement that,
if at any time the Board shall determine, in its discretion, that
the listing, registration or qualification of the shares subject
to such award upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or
in connection with, the granting of such award or the issue or
purchase of shares thereunder, such award may not be granted or
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of
Directors in the exercise of its reasonable judgment.
8. TERMINATION OF EMPLOYMENT
(a) Options. If a director dies, either before or
after termination as a director, resigns from the Board as a
result of a conflict of interest or is removed from the
Board for cause, any option may be exercised by the director
<PAGE>
or by the director's personal representative, as the case
may be, at any time prior to the earlier of the expiration
date of the option or the first anniversary of the
director's date of death, resignation or removal but only
if, and to the extent that, the director was entitled to
exercise the option at the date of death, resignation or
removal. If a director's employment as a director
terminates for any reason other than death, resignation due
to a conflict or removal for cause, option rights shall
continue to vest in accordance with the terms of the option
agreement without regard to the termination of employment
and may be exercised by the director pursuant to the terms
of that agreement.
(b) Stock Grants. Upon a director's termination of
employment as a director for any reason, all certificates
for shares of Common Stock held by the Company on account of
the restriction on the transfer of stock grants during
service on the Board shall be delivered to the director. In
the event termination of employment is caused by the
director's death such certificates shall be delivered to the
director's personal representative. All such deliveries of
certificates shall be made as soon as reasonably practicable
on or following the date a director terminates employment as
a director of the Company.
9. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the
Company by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering
to purchase Common Stock at a price substantially below fair
market value, or of any similar change affecting the Common
Stock, the number and kind of shares authorized under Section 4,
the number and kind of shares which thereafter are subject to an
award under the Plan and the number and kind of shares set forth
in options under outstanding agreements and the price per share
shall be adjusted automatically consistent with such change to
prevent substantial dilution or enlargement of the rights granted
to, or available for, participants in the Plan.
<PAGE>
10. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall
not confer upon any director any right with respect to
continuance as a director of the Company or any subsidiary, nor
shall they interfere in any way with any right the Company or its
subsidiaries may have to terminate the director's position as a
director at any time.
11. RIGHTS AS A SHAREOWNER
The recipient of any option under the Plan shall have
no rights as a shareowner with respect thereto unless and until
certificates for shares of Common Stock are issued to the
recipient. The recipient of a stock grant shall have all rights
of a shareowner except for the nontransferability and dividend
reinvestment requirements.
12. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
shareowners of the Company or by the Company's Board of
Directors, provided that Plan provisions relating to the amount,
price and timing of awards may not be amended more than once
every six months other than to comport with changes in the
Internal Revenue Code or the regulations thereunder and provided
further that the Board may not, without approval of the
shareowners, materially increase the benefits accruing to
participants under the Plan, increase the maximum number of
shares as to which awards may be granted under the Plan, change
the minimum exercise price, change the class of eligible persons,
extend the period for which options may be granted or exercised,
or withdraw the authority to administer the Plan from the Board
or a Committee of the Board. Notwithstanding the foregoing, to
the extent permitted by law, the Board may amend the Plan without
the approval of shareowners, to the extent it deems necessary to
cause the Plan to comply with Securities and Exchange Commission
Rule 16b-3 or any successor rule, as it may be amended from time
to time. Except as required by law, no amendment, modification,
<PAGE>
or termination of the Plan may, without the written consent of a
director to whom any award shall theretofore have been granted,
adversely affect the rights of such director under such option.
13. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in
the event of a change in control of the Company (as defined in
subsection (c) below), all of a participant's options shall
become immediately vested and exercisable and all of a
participant's certificates held by the Company under a stock
grant shall be immediately delivered to the participant, unless
directed otherwise by a resolution of the Board adopted prior to
and specifically relating to the occurrence of such change in
control.
(b) In the event of a change in control each
participant holding an exercisable option (i) shall have the
right at any time thereafter during the term of such option to
exercise the option in full notwithstanding any limitation or
restriction in any option agreement or in the Plan, and (ii) may,
subject to Board approval and after written notice to the Company
within 60 days after the change in control, or during the period
beginning on the third business day and ending the twelfth
business day following the first release for publication by the
Company after such change of control of a quarterly or annual
summary statement of earnings, which release occurs at least six
months following grant of the option, whichever period is longer,
receive, in exchange for the surrender of the option or any
portion thereof to the extent the option is then exercisable in
accordance with clause (i), an amount of cash equal to the
difference between the fair market value (as determined by the
Board) on the date of surrender of the Common Stock covered by
the option or portion thereof which is so surrendered and the
option price of such Common Stock under the option.
(c) For purposes of this section "change in control"
means:
1) there shall be consummated
<PAGE>
i. any consolidation or merger of the Company in
which the Company is not the continuing or
surviving corporation or pursuant to which any
shares of the Company's common stock are to be
converted into cash, securities or other property,
provided that the consolidation or merger is not
with a corporation which was a wholly-owned
subsidiary of the Company immediately before the
consolidation or merger; or
ii. any sale, lease, exchange or other transfer (in
one transaction or a series of related
transactions) of all, or substantially all, of the
assets of the Company; or
2) the shareowners of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company; or
3) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), shall become the
beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, of 30%
or more of the Company's then outstanding common stock,
provided that such person shall not be a wholly-owned
subsidiary of the Company immediately before it becomes
such 30% beneficial owner; or
4) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date
hereof whose election, or nomination for election by
the Company's shareowners, was approved by a vote of at
least three quarters of the directors comprising the
Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which
such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of
<PAGE>
this clause (d), considered as though such person were
a member of the Incumbent Board.
14. EFFECTIVE DATE
The effective date of this restated Plan is January 1,
1995.
15. DEFINITIONS
Any terms or provisions used herein which are defined
in Section 83 of the Internal Revenue Code as amended, or the
regulations thereunder or corresponding provisions of subsequent
laws and regulations in effect at the time options are made
hereunder, shall have the meanings as therein defined.
16. GOVERNING LAW
To the extent not inconsistent with the provisions of
the Internal Revenue Code that relate to non-qualified stock
options and stock grants, this Plan and any agreement adopted
pursuant to it shall be construed under the laws of the State of
New York.
Dated: 4/26/95 FRONTIER CORPORATION
/s/ Josephine S. Trubek
By ------------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>
EXHIBIT 10.23
[2/14/95]
FRONTIER CORPORATION
MANAGEMENT STOCK INCENTIVE PLAN
1. BACKGROUND AND PURPOSE
On April 27, 1994, the shareholders of Rochester
Telephone Corporation approved the Restated Executive Stock
Option Plan. Frontier Corporation (the "Company"), as successor
to Rochester Telephone Corporation, hereby continues, amends,
restates and renames the Restated Executive Stock Option Plan as
the Frontier Corporation Management Stock Incentive Plan (the
"Plan"). The purpose of this restated Plan remains to enable the
Company to attract and retain key employees and provide them with
an incentive to maintain and enhance the Company's long-term
performance record. It is intended that this purpose will best
be achieved by granting eligible key employees incentive stock
options ("ISOs"), non-qualified stock options ("NQSOs") and
restricted stock grants, individually or in combination, under
this Plan pursuant to the rules set forth in Sections 83, 162(m),
421 and 422 of the Internal Revenue Code, as amended from time to
time.
2. ADMINISTRATION
The Plan shall be administered by the Company's
Committee on Management (the "Committee"). This Committee shall
consist of at least two members of the Company's Board of
Directors all of whom shall, unless the Board determines
otherwise, be "outside directors" as this term is defined in Code
Section 162(m) and regulations thereunder and none of whom during
the twelve months prior to commencement of service on the
Committee, or during such service, has been granted or awarded
any equity security or derivative security of the Company
pursuant to the Plan or, except as permitted by Rule 16b-3
(c)(2)(i), or any successor provision, promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange
<PAGE>
Act"), any other plan of the Company. Subject to the provisions
of the Plan, the Committee shall possess the authority, in its
discretion, (a) to determine the employees of the Company to
whom, and the time or times at which, ISOs and/or NQSOs (ISOs and
NQSOs are collectively referred to as "options") and restricted
stock grants (all three types of grants are collectively referred
to as "awards") shall be granted; (b) to determine at the time of
grant whether an award will be an ISO, a NQSO, a restricted stock
grant or a combination of these awards and the number of shares
to be subject to each award; (c) to prescribe the form of the
award agreements and any appropriate terms and conditions
applicable to the awards and to make any amendments to such
agreements or awards; (d) to interpret the Plan; (e) to make and
amend rules and regulations relating to the Plan; and (f) to make
all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations shall
be conclusive and binding. No member of the Committee shall be
liable for any action taken or decision made in good faith
relating to the Plan or any award granted hereunder.
3. ELIGIBLE EMPLOYEES
Awards may be granted under the Plan only to employees
of the Company and its subsidiaries (which shall include all
corporations of which at least fifty percent of the voting stock
is owned by the Company directly or through one or more
corporations at least fifty percent of the voting stock of which
is so owned) who hold a position of manager or higher and who
have the capability of making a substantial contribution to the
success of the Company.
4. SHARES AVAILABLE
The total number of shares of the Company's Common Stock
(par value of $1.00 per share) available in the aggregate for
awards under this Plan during any calendar year shall not exceed
one percent (1%) of the number of issued shares of the Company's
Common Stock, including treasury shares, determined as of the
first day of such calendar year (subject to substitution or
adjustment as provided in Section 10). In addition, not more
than 5 million shares of Common Stock shall be available for ISO
<PAGE>
awards during the term of the Plan. Finally, the aggregate
number of shares which may be issued under restricted stock
grants at any one time during the life of the Plan may not exceed
three percent (3%) of the number of issued shares, including
treasury shares, of the Company's Common Stock. Shares to be
granted may be authorized and unissued shares or may be treasury
shares.
The total number of shares with respect to which ISO and
NQSO awards in the aggregate may be granted to any one
participant may not exceed 500,000 per calendar year (subject to
substitution or adjustment as provided in Section 10). The total
number of shares with respect to which restricted stock awards
may be granted to any one participant shall not exceed 100,000
per calendar year (subject to substitution or adjustment as
provided in Section 10).
If an award expires, terminates or is cancelled without
being exercised or becoming vested, new awards may thereafter be
granted under the Plan covering such shares unless Rule 16b-3
provides otherwise. No award may be granted more than 10 years
after the effective date of the Plan.
5. TERMS AND CONDITIONS OF ISOS
Each ISO granted under the Plan shall be evidenced by an
ISO option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform with this Plan
and contain the following terms and conditions:
(a) Exercise Price. The exercise price under each
option shall equal the fair market value of the Common Stock
at the time such option is granted, or, if there was no
trading in such stock on the date of such grant, the closing
price on the last preceding day on which there was such
trading. If an option is granted to an officer or employee
who at the time of grant owns stock possessing more than ten
percent of the total combined voting power of all classes of
stock of the Company (a "10-percent Shareholder"), the
purchase price shall be at least 110 percent of the fair
market value of the stock subject to the option.
<PAGE>
(b) Duration of Option. Each option by its terms
shall not be exercisable after the expiration of ten years
from the date such option is granted. In the case of an
option granted to a 10-percent Shareholder, the option by
its terms shall not be exercisable after the expiration of
five years from the date such option is granted.
(c) Options Nontransferable. Each option by its terms
shall not be transferable by the participant otherwise than
(i) by will or the laws of descent and distribution, (ii)
pursuant to a domestic relations order, or (iii) to the
extent permitted under the option agreement or
interpretation of the Committee, by gift to family members
or entities beneficially owned by family members or other
permitted transferees under Rule 16b-3 promulgated under the
Exchange Act, and shall be exercisable, during the
participant's lifetime, only by the participant, the
participant's guardian or the participant's legal
representative, the participant's transferee under a
domestic relations order or other permitted transferee under
this section. To the extent required for the option grant
and/or exercise to be exempt under Rule 16b-3, options (or
the shares of Common Stock underlying the options) must be
held by the participant for at least six months following
the date of grant.
(d) Exercise Terms. Each option granted under the Plan
shall become exercisable with respect to 33 1/3 percent of
the shares subject thereto on the first anniversary of the
date of grant and with respect to an additional 33 1/3
percent of such shares on each of the second and third
anniversaries of such date of grant. Options may be
partially exercised from time to time during the period
extending from the time they first become exercisable until
the tenth anniversary (fifth anniversary for a 10-percent
Shareholder) of the date of grant.
<PAGE>
No outstanding option may be exercised by any
person if the employee to whom the option is granted is, or
at any time after the date of grant has been, in
competition with the Company or an affiliated company,
including Upstate Cellular Network. The Committee has the
sole discretion to determine whether an employee's actions
constitute competition with the Company or an affiliated
company, including Upstate Cellular Network. The Committee
may impose such other terms and conditions on the exercise
of options as it deems appropriate to serve the purposes
for which this Plan has been established.
(e) Maximum Value of ISO Shares. No ISO shall be
granted to an employee under this Plan or any other ISO
plan of the Company or its subsidiaries to purchase shares
as to which the aggregate fair market value (determined as
of the date of grant) of the Common Stock which first
become exercisable by the employee in any calendar year
exceeds $100,000.
(f) Payment of Exercise Price. An option shall be
exercised upon written notice to the Company accompanied by
payment in full for the shares being acquired. The payment
shall be made in cash, by check or, if the option agreement
so permits, by delivery of shares of Common Stock of the
Company beneficially owned by the participant, duly
assigned to the Company with the assignment guaranteed by a
bank, trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing. Any such
shares so delivered shall be deemed to have a value per
share equal to the fair market value of the shares on such
date. For this purpose, fair market value shall equal the
closing price of the Company's Common Stock on the New York
Stock Exchange on the date the option is exercised, or, if
there was no trading in such stock on the date of such
exercise, the closing price on the last preceding day on
which there was such trading.
<PAGE>
6. TERMS AND CONDITIONS FOR NQSOS
Each NQSO granted under the Plan shall be evidenced by a
NQSO option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform to this Plan and
contain the same terms and conditions as the ISO option agreement
except that the 10-percent Shareholder restrictions in Sections
5(a) and 5(b) and the maximum value of share rules of Section
5(e) shall not apply to NQSO grants. To the extent an option
initially designated as an ISO exceeds the value limit of
Section 5(e), it shall be deemed a NQSO and shall otherwise
remain in full force and effect.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK GRANTS
The Committee may, evidenced by such written agreement
as the Committee shall from time to time prescribe, grant to an
eligible employee a specified number of shares of the Company's
Common Stock which shall vest only after the attainment of the
relevant restrictions described in Section 7(b) below
("restricted stock"). Such restricted stock shall have an
appropriate restrictive legend affixed thereto. A restricted
stock grant shall be neither an option nor a sale, but shall be
subject to the following conditions and restrictions:
(a) Restricted stock may not be sold or otherwise
transferred by the participant until ownership vests,
provided however, to the extent required for the
restricted stock grant to be exempt under Rule 16b-3,
the restricted stock must be held by the participant
for at least six months following the date of
vesting.
(b) Ownership shall vest only following satisfaction of
one or more of the following criteria as the
Committee may prescribe:
(1) the passage of three years, or such longer
period of time as the Committee in its
discretion may provide, from the date of grant.
<PAGE>
(2) the attainment of performance-based goals
established by the Committee as of the date of
grant. If the participant's compensation is
subject to the $1 million cap of Code Section
162(m), the Committee may establish such
performance goals based on one or more of the
following targets:
- total shareholder return
- earnings per share growth
- cash flow growth
- return on equity and/or
If the participant's compensation is not subject
to the $1 million cap of Code Section 162(m),
the Committee may establish the performance goal
on the basis of the preceding four targets or
any other target it may from time to time deem
appropriate in its discretion.
(3) any other conditions the Committee may
prescribe, including a non-compete requirement.
(c) Unless the Committee shall determine otherwise with
respect to participants whose compensation is not
governed by Code Section 162(m), the Committee shall
grant and administer all performance-based awards
under (b)(2) above with the intent of meeting the
criteria of Code Section 162(m) for performance-based
compensation. To this end, the outcome of all
targeted goals shall be substantially uncertain on
the date of grant; the goals shall be established no
later than 90 days following the commencement of
service to which the goals relate; the minimum period
for attaining each performance goal shall be one
year; and the Committee shall certify at the
conclusion of the performance period whether the
performance-based goals have been attained. Such
certification may be made by noting the attainment of the
goals in the minutes of the Committee's meetings.
<PAGE>
(d) Except as otherwise determined by the Committee, all
rights and title to restricted stock granted to a
participant under the Plan shall terminate and be
forfeited to the Company upon failure to fulfill all
conditions and restrictions applicable to such
restricted stock.
(e) Except for the restrictions set forth in this Plan
and those specified by the Committee in any
restricted stock agreement, a holder of restricted
stock shall possess all the rights of a holder of the
Company's Common Stock (including voting and dividend
rights); provided, however, that prior to vesting the
certificates representing such shares of restricted
stock (and the amount of any dividends issued with
respect thereto) shall be held by the Company for the
benefit of the participant and the participant shall
deliver to the Company a stock power executed in
blank covering such shares. As the shares vest,
certificates representing such shares shall be
released to the participant.
(f) All other provisions of the Plan not inconsistent
with this section shall apply to restricted stock or
the holder thereof, as appropriate, unless otherwise
determined by the Committee.
8. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any
certificate upon the grant, vesting or exercise of any award or
option until it has been furnished with such opinion,
representation or other document as it may reasonably deem
necessary to insure compliance with any law or regulation of the
Securities and Exchange Commission or any other governmental
authority having jurisdiction under this Plan. Certificates
delivered upon such grant or exercise may bear a legend
restricting transfer absent such compliance. Each award shall be
<PAGE>
subject to the requirement that, if at any time the Committee
shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to such award
upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection
with, the granting of such awards or the issue or purchase of
shares thereunder, such awards may not vest or be exercised in
whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee
in the exercise of its reasonable judgment.
9. IMPACT OF TERMINATION OF EMPLOYMENT
(a) Options
If the employment of a participant terminates by
reason of the participant's disability or death, any option may
be exercised, in the case of disability, by the participant or,
in the case of death, the participant's designated beneficiary
(or personal representative if there is no designated
beneficiary) at any time prior to the earlier of the expiration
date of the option or the expiration of three years after the
date of disability or death, but only if, and to the extent that
the participant was entitled to exercise the option at the date
of disability or death. If the employment of a participant
terminates at any time on or after the participant is entitled to
receive an early retirement service pension or a normal service
pension under Sections 5.1, 5.2, or 5.3 of the Management Pension
Plan, or the equivalent plan if the participant is not a
participant in the Management Pension Plan, the participant may
exercise any options pursuant to the terms of the option
agreement governing such options. Upon termination of the
participant's employment for any reason other than retirement,
disability or death, all options held by the participant, whether
vested or not, shall be forfeited. An option that remains
exercisable after the expiration of three months from termination
of employment shall be treated as a NQSO after three months even
if it would have been treated as an ISO if exercised within three
months of termination. Notwithstanding the foregoing, an option
<PAGE>
may not be exercised after retirement if the Committee reasonably
determines that the termination of employment of such participant
resulted from willful acts, or failure to act, by the participant
detrimental to the Company or any of its subsidiaries.
(b) Restricted Stock Grants
(i) Passage of Time Vesting. If a participant has
been awarded restricted stock whose vesting is conditioned solely
on the passage of time, any termination of employment for any
reason, shall result in the forfeiture of all restricted stock
awards that were not vested prior to the termination of
employment except as otherwise provided by the Committee.
(ii) Performance-Based Vesting. If a participant has
been awarded restricted stock whose vesting is based solely on
the attainment of performance-based goals or partly on the
attainment of performance-based goals and partly on the passage
of time, any termination of employment except death, disability
or retirement under Sections 5.1, 5.2 or 5.3 of the Management
Pension Plan shall result in the forfeiture of all restricted
stock awards that were not vested prior to the termination of
employment. A participant who terminates employment on account
of death, disability or retirement may, if the performance-based
criteria are eventually attained, be awarded (or, in the event of
death, the participant's designated beneficiary or personal
representative if there is no designated beneficiary shall be
awarded) up to a pro rata portion of the restricted shares based
on the participant's length of service as of his or her
termination of employment over the length of the award period
ending on the date the performance-based criteria are satisfied
(or the passage of time would have been satisfied, if later, for
an award based in part on performance goals and in part on the
passage of time). The Committee shall have the discretion
whether to grant a full pro rata portion of the restricted
shares, a lesser portion or no shares at all under this
subsection (b)(ii).
<PAGE>
(c) Acts Not Constituting Termination of Employment.
Unless otherwise determined by the Committee, an
authorized leave of absence shall not constitute a termination of
employment for purposes of this Plan. In addition, participants
who transfer employment within the Frontier Group of companies,
including Upstate Cellular Network, shall not be considered to
have terminated employment. Any such transferred participants
shall remain eligible to exercise previously granted options and
to vest in restricted stock awards in accordance with their terms
as if no termination occurred and shall be eligible to receive
additional awards pursuant to the terms of employment with their
new employer.
10. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the
Company by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering
to purchase Common Stock at a price substantially below fair
market value, or of any similar change affecting the Common
Stock, the number and kind of shares authorized under Section 4,
the number and kind of shares which thereafter are subject to an
award under the Plan and the number and kind of unexercised
options and unvested shares set forth in awards under outstanding
agreements and the price per share shall be adjusted
automatically consistent with such change to prevent substantial
dilution or enlargement of the rights granted to, or available
for, participants in the Plan.
11. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, or whenever
restricted stock vests, the Company shall have the right to
require the recipient to remit to the Company an amount
sufficient to satisfy any federal, state and/or local income and
employment withholding tax requirements prior to the delivery of
any certificate or certificates for such shares or to take any
<PAGE>
other appropriate action to satisfy such withholding
requirements. Notwithstanding the foregoing, subject to such
rules as the Committee may promulgate and compliance with any
requirements under Rule 16b-3, the recipient may satisfy such
obligation in whole or in part by electing to have the Company
withhold shares of Common Stock from the shares to which the
recipient is otherwise entitled.
12. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall not
confer upon any participant any right with respect to continuance
as an employee of the Company or any subsidiary, nor shall they
interfere in any way with the right of the Company or any
subsidiary to terminate the participant's position as an employee
at any time.
13. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no
rights as a shareholder with respect thereto unless and until
certificates for the underlying shares of Common Stock are issued
to the recipient. The recipient of a restricted stock grant
shall have all rights of a shareholder except as otherwise
limited by the terms of this Plan.
14. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
Committee or by the shareowners of the Company, except that the
Committee may not, without approval of the shareholders,
materially increase the benefits accruing to participants under
the Plan, increase the maximum number of shares as to which
awards may be granted under the Plan, change the basis for making
performance-based awards for participants whose compensation is
subject to Section 162(m), change the minimum exercise price of
options, change the class of eligible persons, extend the period
for which awards may be granted or exercised, or withdraw the
authority to administer the Plan from the Committee or a
committee of the Committee consisting solely of outside directors
unless the Board determines that inside directors may serve on
<PAGE>
the Committee. Notwithstanding the foregoing, to the extent
permitted by law, the Committee may amend the Plan without the
approval of shareholders, to the extent it deems necessary to
cause the Plan to comply with Securities and Exchange Commission
Rule 16b-3 or any successor rule, as it may be amended from time
to time. Except as required by law, no amendment, modification,
or termination of the Plan may, without the written consent of a
participant to whom any award shall theretofore have been
granted, adversely affect the rights of such participant under
such award.
15. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in
the event of a change in control of the Company (as defined in
subsection (c) below), all of a participant's restricted stock
awards shall become immediately vested to the same extent as if
all restrictions had been satisfied and all options shall become
immediately vested and exercisable, unless directed otherwise by
a resolution of the Committee adopted prior to and specifically
relating to the occurrence of such change in control.
(b) In the event of a change in control each
participant holding an exercisable option (i) shall have the
right at any time thereafter during the term of such option to
exercise the option in full notwithstanding any limitation or
restriction in any option agreement or in the Plan, and (ii) may,
subject to Committee approval and after written notice to the
Company within 60 days after the change in control, or, if the
participant is an officer subject to Section 16 of the Exchange
Act and to the extent required to exempt the transaction under
Rule 16b-3, during the period beginning on the third business day
and ending on the twelfth business day following the first
release for publication by the Company after such change of
control of a quarterly or annual summary statement of earnings,
which release occurs at least six months following grant of the
option, whichever period is longer, receive, in exchange for the
surrender of the option or any portion thereof to the extent the
option is then exercisable in accordance with clause (i), an
amount of cash equal to the difference between the fair market
value (as determined by the Committee) on the date of surrender
<PAGE>
of the Common Stock covered by the option or portion thereof
which is so surrendered and the option price of such Common Stock
under the option.
(c) For purposes of this section, "change in control"
means:
1) there shall be consummated
i. any consolidation or merger of the Company in
which the Company is not the continuing or
surviving corporation or pursuant to which any
shares of the Company's common stock are to be
converted into cash, securities or other property,
provided that the consolidation or merger is not
with a corporation which was a wholly-owned
subsidiary of the Company immediately before the
consolidation or merger; or
ii. any sale, lease, exchange or other transfer (in
one transaction or a series of related
transactions) of all, or substantially all, of the
assets of the Company; or
2) the shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company; or
3) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) shall become the beneficial
owner (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, of 30% or more
of the Company's then outstanding common stock,
provided that such person shall not be a wholly-owned
subsidiary of the Company immediately before it becomes
such 30% beneficial owner; or
4) individuals who constitute the Company's Board of
Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director
<PAGE>
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by
a vote of at least three quarters of the directors
comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of this
clause (d), considered as though such person were a member
of the Incumbent Board.
16. EFFECTIVE DATE
The effective date of the Plan shall be the date this
restated Plan is approved by the affirmative vote of the owners
of a majority of the Company's outstanding shares of Common
Stock.
17. DEFINITIONS
Any terms or provisions used herein which are defined in
Sections 83, 162(m), 421, or 422 of the Internal Revenue Code as
amended, or the regulations thereunder or corresponding
provisions of subsequent laws and regulations in effect at the
time awards are made hereunder, shall have the meanings as
therein defined.
18. GOVERNING LAW
To the extent not inconsistent with the provisions of
the Internal Revenue Code that relate to awards, this Plan and
any award agreement adopted pursuant to it shall be construed
under the laws of the State of New York.
Dated: 4/26/95 FRONTIER CORPORATION
/s/ Josephine S. Trubek
By----------------------------
Josephine S. Trubek
Corporate Secretary
Date of Shareholder Approval: 4/26/95
<PAGE>
EXHIBIT 10.24
August 16, 1995
[Name]
[Address]
Dear [Name]:
The Board of Directors (the "Board") of Frontier Corporation, on
behalf of Frontier and its subsidiaries and affiliates (together,
the "Company") has determined that it is in the best interests of
the Company and its shareowners to be able to avail itself of
your continued dedication and service to the Company in the
immediate future and in case of Change of Control, as defined
later in this letter agreement ("Agreement"). It is therefore
the intent of this Agreement to encourage your complete
dedication to the Company by providing you with compensation and
benefits arrangements while you fulfill your duties now and
during the pendency of a Change of Control, should such an event
occur, which provide you with a measure of security commensurate
with your importance to the Company.
Therefore, upon your signature on a counterpart of this
Agreement, the following terms and conditions shall become
effective as of August 16, 1995 and shall supersede any prior
agreements between the Company and you related to the subject
matter hereof. However, this Agreement does not supersede any
stock option agreements, restricted stock grant agreements or
agreements related to the bridging of your prior service with
other employers for pension service credit purposes which may
exist as of August 16, 1995 between the Company and you, all of
which shall remain in full force and effect.
1. Employment.
1.1 Term. The Company shall employ you in a senior
executive management capacity as the Company, with your consent,
<PAGE>
may from time to time designate. This Agreement shall become
effective as of August 16, 1995 and shall continue until December
31, 1998, unless earlier terminated or extended in accordance
with its terms. Beginning on January 1, 1998 and on each
anniversary of that date thereafter, the term of this Agreement
(the "Term") shall automatically be extended for one additional
year unless either the Company or you has given written notice to
the other no later than September 30 of the preceding year that
the giver of the notice does not elect to extend the Term. Even
if the Company has given you such a notice, if a Change of
Control has occurred during the Term and you have met your
obligations in the next paragraph of this Section 1.1, the Term
will be automatically extended and this Agreement will remain in
full force and effect until the last day of the 36th month
following the month in which the Change of Control occurs. You
acknowledge that, except as set forth in this Agreement, your
employment is "at will".
If, during the Term, a person (as that term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) commences any action that, if
consummated, would result in a Change of Control of the Company,
or if any person publicly announces an intention or proposal to
commence any such action, you agree that you will not leave the
Company's employ (other than as a result of death, Disability or
Retirement) and will render the services contemplated in this
Agreement for the reasonable duration of the Company's defense
against such action and until such action has been abandoned or
terminated or a Change in Control has occurred.
Any termination of your employment during the Term for
reasons other than your death shall be evidenced by a written
Notice of Termination, which shall specify the provision of this
Agreement relied upon for such termination and describe with
reasonable detail the facts and circumstances claimed by the
sender of such Notice of Termination to provide the basis for
termination. Any such Notice of Termination shall also specify
the effective date of termination (the "Termination Date"). If
you die during the Term the Termination Date shall be the date of
your death.
<PAGE>
1.2 Duties. You shall perform all duties incidental to
your position with the Company, or as may be assigned to you by
the Board. You agree to use your best efforts in the business of
the Company and to devote your full time attention and energy to
the business of the Company. You agree not to work, either on a
part-time or independent contracting or consulting basis, with or
without compensation, for any other business or enterprise during
the Term without the Company's prior consent. Such consent shall
not be unreasonably withheld in the case of service on the boards
of directors of other corporations and community organizations.
1.3 Base Compensation. The Company shall pay you as base
compensation an annual salary of $ , in installments in
accordance with the Company's policies from time to time in
effect, until January 1, 1996. Thereafter, your annual salary
may be adjusted by the Company consistent with the Company's
results and your performance during the prior year. However,
unless the annual salaries of all senior executives of the
Company are reduced across-the-board, your annual salary in any
year shall not be less than your annual salary during the prior
year.
1.4 Incentive Compensation. The Company shall establish
and review with you from time to time the performance goals
("Performance Goals") for the Company and you individually, and a
methodology for calculating the amount of incentive compensation
to be paid upon achievement of such Performance Goals. Incentive
compensation shall be payable to you at such time or times as are
established under the Company's policies (including the Company's
Executive Compensation Program) in effect from time to time.
1.5 Benefits; Perquisites. You shall be entitled to
receive the retirement and welfare benefits and perquisites
provided by the Company under its Executive Compensation program
in effect from time to time for executives at the
Chief Executive Officer level.
<PAGE>
1.6 Expenses. You shall be reimbursed for any reasonable
expenses you incur in connection with your employment during the
Term, upon presentation to the Company of an itemized account and
receipts of such expenses as required by the Company's policies
from time to time in effect.
2. Developments and Intellectual Property. You acknowledge
that all developments, including but not limited to trade secrets
(including strategies, business plans and customer lists),
discoveries, improvements, ideas and writings which either
directly or indirectly relate to or may be useful in the business
of the Company (the "Developments") which you, either alone or in
conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Term
are the sole and exclusive property of the Company. You will
cooperate with the Company's reasonable requests to obtain or
maintain rights or protections under United States or foreign law
with respect to all Developments. The Company will reimburse you
for all reasonable expenses incurred by you in order to comply
with this provision of this Agreement, regardless of when such
expenses may be incurred.
3. Confidential Information. You acknowledge that by reason
of your employment by the Company, especially as a senior
executive thereof, you will in the future have (and you have had
prior to August 16, 1995), access to information of the Company
that the Company deems to be confidential and/or proprietary,
including but not limited to, information about the Company's
strategies, plans, products and services, methods of operation,
employees, sales, profits, expenses, customer lists and the
relationships between the Company and its customers, suppliers
and others who have business dealings with the Company. You
covenant and agree that during the Term and thereafter, you will
not disclose any such information to any person without the prior
written authorization of the Board.
4. Non-Competition.
4.1 Covenant. In consideration of the benefits provided
to you under this Agreement, which you acknowledge are
<PAGE>
independent consideration, you covenant and agree that during the
Restricted Period (as defined below), you will not, directly or
indirectly, without the Company's prior consent: (i) own, manage,
operate, finance, join, control or participate in the ownership
or control of, or be associated as an officer, director,
executive, partner or principal, agent, representative,
consultant or otherwise with, or use or permit your name to be
used in connection with, any enterprise that directly or
indirectly competes (as defined below) with the business of the
Company in a Restricted Area (as defined below); or (ii) offer or
provide employment to, or solicit, interfere with or attempt to
entice away from the Company any individual who either is
employed by the Company at the time of such offer, employment,
solicitation, interference or enticement or has been so employed
by the Company within 12 months prior to such offer, employment,
solicitation, interference or enticement. This Section shall not
be construed to prohibit the ownership by you of not more than 1%
of any class of securities of any corporation which competes with
the Company and which has a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4.2 Definitions.
4.2.1 "Competes" means the production, marketing or
selling of any product or service of any person or entity
other than the Company which resembles or competes with a
product or service produced, marketed or sold by the Company
(or to your knowledge was under development by the Company)
during the period of your employment by the Company (whether
under this Agreement or otherwise).
4.2.2 "Restricted Area" means:
(a) The Standard Metropolitan Statistical Area (or
the equivalent) in which any office, place of
employment, business address or POP maintained by the
Company is located; or
<PAGE>
(b) Any state of the United States, any province of
Canada or any foreign country from which the Company or
any of its material subsidiaries or affiliates derives
5% or more of its annual net income.
4.2.3 "Restricted Period" means:
(a) The period of your employment by the Company
(whether under this Agreement or otherwise), if your
employment is terminated because of your death or
Disability;
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated
because of your Retirement, or by the Company for Cause
or without Cause (and not by the Company following
Change of Control);
(c) The period of your employment by the Company
(whether under this Agreement or otherwise) and, if
this Agreement is still in effect at the Termination
Date, the number of months remaining in the Term at the
Termination Date or 12 months, whichever is longer (but
in no event more than 24 months), if you terminate your
employment voluntarily (and not for Good Reason); or
(d) The period of your employment by the Company
under this Agreement, if your employment is terminated
by you for Good Reason or by the Company following
Change of Control.
4.3 Savings Clause. If any of the provisions of this
Section 4 are ever determined by a court to exceed the time,
geographic scope or other limitations permitted by applicable law
in any jurisdiction, then such excessive provisions shall be
deemed reduced, in such jurisdiction only, to the maximum time,
geographic scope or other limitation permitted in such
jurisdiction.
<PAGE>
5. Equitable Relief. You acknowledge that the restrictions
contained in Sections 2, 3 and 4 of this Agreement are, in view
of the nature of the business of the Company, reasonable and
necessary to protect the legitimate interests of the Company, and
that any violation of the provisions of those Sections will
result in irreparable injury to the Company. You also
acknowledge that the Company shall be entitled to preliminary and
permanent injunctive relief, without the necessity of proving
actual damages, and to an equitable accounting of all earnings,
profits and other benefits arising from such violation. These
rights shall be cumulative and in addition to any other rights or
remedies to which the Company may be entitled. You agree to
submit to the jurisdiction of any New York State court located in
Monroe County or the United States District Court for the Western
District of New York or of the state court or the federal court
located in or presiding over the county in which the Company has
its corporate headquarters at the applicable time in any action,
suit or proceeding brought by the Company to enforce its rights
under Sections 2, 3 and/or 4 of this Agreement.
6. Company's Obligations upon Termination. The sole
obligations of the Company upon the termination of your
employment prior to the failure of either you or the Company to
extend the Term in accordance with Section 1.1 of this Agreement
are as set forth in this Section 6. Any and all amounts to be
paid to you in connection with your termination shall be paid in
a lump sum promptly after the Termination Date, but not more than
30 days thereafter.
6.1 Termination upon Disability or Death. If your
employment with the Company ends by reason of your death or
Disability (as defined later in this Agreement), the Company
shall pay you all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date,
including:
6.1.1 Base compensation;
6.1.2 Reimbursement for reasonable and necessary expenses
incurred by you on behalf of the Company during the Term;
<PAGE>
6.1.3 Pay for earned but unused vacation and floating
holidays;
6.1.4 All compensation you previously deferred (if any) to
the extent not yet paid; and
6.1.5 An amount equal to your "Pro Rata Bonus". Your Pro
Rata Bonus shall be determined by multiplying the "Bonus
Amount" (as defined below) by a fraction, the numerator of
which is the number of days in the fiscal year through the
Termination Date and the denominator of which is 365. The
term "Bonus Amount" means: (i) a bonus calculated using the
performance metrics of the Company's results and your
individual performance for the fiscal year ended prior to
the year in which the Termination Date occurs, applied to
the payouts set forth under the incentive compensation
program in effect for the year in which the Termination Date
occurs; or (ii) if the Termination Date occurs after the end
of a fiscal year but before any bonus related thereto was
paid, the bonus you would have received for that fiscal
year.
The amounts described in Sections 6.1.1 through 6.1.4,
inclusive, are called elsewhere in this Agreement, collectively,
the "Accrued Compensation".
Except as otherwise provided in this Section 6.1, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.2 Termination Without Cause. If the Company terminates
your employment without Cause (as defined later in this
Agreement), the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
<PAGE>
6.2.3 Severance ("Severance") equal to: (a) twice the sum
of (i) the annual base compensation you would have received
for the entire fiscal year in which the Termination Date
occurs plus (ii) the Bonus Amount plus (iii) $
(being the agreed cash equivalent of the annual value of the
perquisites provided to you under the Company's Executive
Compensation Program) plus (iv) the Company contributions
which would have been made on your behalf to the 401(k)
retirement savings plan maintained by the Company (b)
reduced by the present value (determined as provided in
Section 280G(d)(4) of the Internal Revenue Code of 1986 as
amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation to be received by
you upon termination of your employment under any severance
plan, policy or arrangement of the Company.
In addition, the Company shall continue to provide to you
and your family at the Company's expense, for 24 months following
the Termination Date, the life insurance, disability, medical,
dental, vision and hospitalization benefits provided to you and
your family immediately prior to the Termination Date.
Lastly, the Company shall credit you with an additional 24
months of service and age for the purposes of determining the
level of your retirement benefits under any qualified or
nonqualified defined benefit pension, supplemental or excess
retirement plan maintained by the Company in which you are a
covered employee (the "Retirement Plans").
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.3 Termination for Cause or Voluntary Termination. If
your employment is terminated for Cause (as defined later in this
Agreement), or if you voluntarily terminate your employment other
than for Good Reason, the Company shall pay you all Accrued
Compensation. Except as otherwise provided in this Section 6.3,
<PAGE>
your entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.4 Termination for Good Reason or by Company Following
Change of Control. If you terminate your employment for Good
Reason or the Company terminates your employment following a
Change of Control, the Company shall pay you:
6.4.1 All Accrued Compensation;
6.4.2 A Pro Rata Bonus;
6.4.3 Severance equal to: (a) three times the sum of (i)
the annual base compensation you would have received for the
entire fiscal year in which the Termination Date occurs plus
(ii) the Bonus Amount plus (iii) $ (being the agreed
cash equivalent of the annual value of the perquisites
provided to you under the Company's Executive Compensation
Program) plus (iv) the Company contributions which would
have been made on your behalf to the 401(k) retirement
savings plan maintained by the Company (b) reduced by the
present value (determined as provided in Section 280G(d)(4)
of the Code or any other amount of severance relating to
salary or bonus continuation to be received by you upon
termination of your employment under any severance plan,
policy or arrangement of the Company;
6.4.4 An amount equal to your "Supplemental Retirement
Amount". Your Supplemental Retirement Amount shall be equal
to the difference between (a) the benefit payable under the
Retirement Plans which you would have received had your
employment continued for 36 months following the Termination
Date and (b) your actual benefit paid or payable, if any,
under the Retirement Plans. Your Supplemental Retirement
Amount will be determined in accordance with the procedures
set forth in an Addendum to this Agreement, which is made a
part hereof (the "Addendum"); and
<PAGE>
6.4.5 An amount equal to your "SERP Payment". Your SERP
Payment shall satisfy the Company's obligations to you under
the supplemental or excess retirement plan or plans
maintained by the Company for its executive employees (the
"SERP") and shall be the actuarial equivalent (using the
Actuarial Assumptions, as defined in the Addendum) of your
benefit accrued under the SERP through the Termination Date.
If all or a part of the SERP Payment is funded through a
trust of which you are a beneficiary, the SERP Payment shall
be paid from such trust to the extent of such funding.
In addition, the Company shall continue to provide to you
and your family at the Company's expense, for 36 months following
the Termination Date, the life insurance, disability, medical,
dental, vision and hospitalization benefits provided to you and
your family immediately prior to the Termination Date.
The Company shall reimburse you for all reasonable legal
fees and expenses which you may incur following a Change of
Control as a result of the Company's attempts to contest the
validity or enforceability of this Agreement or your attempts to
obtain or enforce any right or benefit provided to you under this
Agreement, unless a court determines your actions to be
frivolous.
Except as otherwise provided in this Section 6.4, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
7. Gross-Up Payment. Notwithstanding anything else in this
Agreement, if it is found that any or all of the payments made to
you, including but not limited to payments made by the Company,
or under any plan or arrangement maintained by the Company, to
you or for your benefit (other than any additional payments
required under this Section 7) (the "Payments") would be subject
to the excise tax imposed by Section 4999 of the Code or you
incur any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties,
<PAGE>
collectively the "Excise Tax"), then you are entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such
that, after you pay all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, you will retain an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. The
procedures for the calculation and contesting of any claim that
such Excise Tax is due are set forth in the Addendum.
8. No Obligation to Mitigate Damages. You are not require to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and the
amounts to be paid to you under Section 6 of this Agreement shall
not be reduced by any compensation you may earn from other
sources. However, if, during any period that you would otherwise
be entitled to receive any payments or benefits under this
Agreement, you breach your obligations under Section 2, 3 or 4 of
this Agreement, the Company may immediately terminate any and all
payments and the provision of benefits (to the extent permitted
by law and the terms of the benefit plans maintained by the
Company from time to time) hereunder.
9. Successor to Company. The Company will require any
successor or assignee to all or substantially all of the business
and/or assets of the Company, whether by merger, sale of assets
or otherwise, by agreement in form and substance reasonably
satisfactory to you, to assume and agree to perform the Company's
obligations under this Agreement in the same manner and to the
same extent that the Company would be required to perform them if
such succession or assignment had not taken place. Such
agreement of assumption must be express, absolute and
unconditional. If the Company fails to obtain such an agreement
within three business days prior to the effective date of such
succession or assignment, you shall be entitled to terminate your
employment under this Agreement for Good Reason.
<PAGE>
10. Survival. Notwithstanding the expiration or termination of
this Agreement, except as otherwise specifically provided
herein, your obligations under Sections 2, 3 and 4 of this
Agreement and the obligations of the Company under this Agreement
shall survive and remain in full force and effect.
This Agreement shall inure to the benefit of, and be
enforceable by, your personal and legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you die while any amounts are still
payable to you, all such amounts, unless otherwise provided in
this Agreement, shall be paid in accordance with the terms of
this Agreement to your devisee(s), legatee(s) or other
designee(s) or, if there is no such designee(s), to your estate.
11. Definitions. Whenever used in this Agreement, the
following terms shall have the meanings below:
11.1 "Cause" means:
11.1.1 You have willfully and continually failed to
substantially perform your duties (other than due to an
incapacity resulting from physical or mental illness or due
to any actual or anticipated failure after you have given a
Notice of Termination for Good Reason) after a written
demand for substantial performance is delivered to you by
the Board which specifically identifies the manner in which
it is believed that you have not substantially performed
your duties; or
11.1.2 You have willfully engaged in conduct which is
demonstrably and materially injurious to the Company
(monetarily or otherwise); or
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of Ethics; or
11.1.4 You have been convicted of a felony; or
11.1.5 You have violated the provisions of Section 2
and/or Section 3 and/or Section 4 of this Agreement
<PAGE>
and, in any of the events described in Sections 11.1.1 through
11.1.5 above, the Board adopts a resolution finding that in the
good faith opinion of the Board you were culpable for the conduct
set forth in any of Sections 11.1.1 through 11.1.5 and specifying
the particulars thereof in detail. For the purposes of this
Agreement, no act or failure to act on your part shall be
considered willful unless done, or omitted to be done, by you not
in good faith and without reasonable belief that your action or
omission was in the best interests of the Company. Any such
resolution of the Board must receive the affirmative vote of not
less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for the purpose of
considering the issue, and you must receive reasonable notice of
the meeting and have an opportunity, with your counsel, to
present your case to the Board.
11.2 "Change of Control" means:
11.2.1 The consummation of a consolidation or merger of
the Company in which the Company is not the continuing or
surviving corporation or pursuant to which the shares of the
Company's common, voting equity are to be converted into
cash, securities or other property. For the purposes of
this Agreement, a consolidation or merger with a corporation
which was a wholly-owned direct or indirect subsidiary of
the Company immediately before the consolidation or merger
is not a Change of Control; or
11.2.2 The sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the Company's assets; or
11.2.3 The approval by the Company's shareowners of any
plan or proposal for the liquidation or dissolution of the
Company; or
11.2.4 Any person, as that term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities of the Company
under an employee benefit plan of the Company, a direct or
<PAGE>
indirect wholly-owned subsidiary of the Company or any other
company owned, directly or indirectly, by the shareowners of
the Company in substantially the same proportions as their
ownership of the Company's common, voting equity), is or
becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of
30% or more of the Company's then outstanding common, voting
equity; or
11.2.5 During any period of two consecutive years,
individuals who at the beginning of such period constitute
the Board, including for this purpose any new director
(other than a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in this Section 11.2.5) whose election
or nomination for election by the Company's shareowners was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
the period or whose election or nomination for election was
previously so approved (the "Incumbent Board"), cease for
any reason to constitute a majority of the Board.
11.3 "Disability" means:
11.3.1 Your absence from your duties with the Company on a
full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness; or
11.3.2 A physical or mental condition which prevents you
from satisfactorily performing your duties with the Company
and such incapacity or condition is determined to be total
and permanent by a physician selected by the Company or its
insurers and reasonably acceptable to you and/or your legal
representative.
11.4 "Good Reason" means:
11.4.1 Without your express written consent, after a
Change of Control, the assignment to you of duties with the
<PAGE>
Company or with a person, as that term is used in Section
13(d) and 14(d) of the Exchange Act, in control of the
Company materially diminished from the duties assigned to
you immediately prior to a Change of Control; or
11.4.2 Without your express written consent, after a
Change of Control, any reduction by the Company or any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company in your annual
base compensation or annual bonus at Standard (or
equivalent) rating from the amounts of such compensation
and/or bonus in effect immediately before and during the
fiscal year in which the Change of Control occurred (except
that this Section 11.4.2 shall not apply to across-the-board
salary or bonus reductions similarly affecting all
executives of the Company and all executives of any person
in control of the Company); or
11.4.3 Without your express written consent, after a
Change of Control, the failure by the Company or any person,
as that term is used in Section 13(d) and 14(d) of the
Exchange Act, in control of the Company to increase your
annual base compensation or annual bonus at Standard (or
equivalent) rating at the times and in comparable amounts as
they are increased for similarly situated senior executive
officers of the Company and of any person, as that term is
used in Section 13(d) and 14(d) of the Exchange Act, in
control of the Company; or
11.4.4 Without your express written consent, after a
Change of Control, the failure by the Company or by any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company to continue in
effect any benefit or incentive plan or arrangement (except
any benefit plan or arrangement which expires by its own
terms then in effect upon the occurrence of a Change of
Control) in which you are participating at the time of the
<PAGE>
Change of Control, unless a replacement plan or arrangement
with at least substantially similar terms is provided to
you; or
11.4.5 Without your express written consent, after a
Change of Control, the taking of any action by the Company
or by any person, as that term is used in Section 13(d) and
14(d) of the Exchange Act, in control of the Company which
would adversely affect your participation in or materially
reduce your benefits under any benefit plan or arrangement
or deprive you of any other material benefit (including any
miscellaneous benefit which is not represented and protected
by a written plan document or trust) enjoyed by you at the
time of a Change of Control; or
11.4.6 You terminate your employment (other than because
of your death, Disability or Retirement) by giving the
Company a Notice of Termination with a Termination Date not
later than the first anniversary of the Change of Control;
or
11.4.7 Any failure by the Company to comply with any of
its material obligations under this Agreement, after you
have given notice of such failure to the Company and the
Company has not cured such failure promptly after its
receipt of such notice.
11.5 "Retirement" means a voluntary or involuntary
termination of your employment after age 65 or any voluntary
termination at age 65 or earlier that entitles you to receive a
normal or early retirement service pension under the Retirement
Plans (or any successor or substitute plan or plans the Company
puts into effect prior to a Change in Control).
12. Notice. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed given when mailed by certified mail, return receipt
requested, or by nationally recognized overnight courier, receipt
requested, when addressed to you at your official business
address when employed by the Company or at your home address as
<PAGE>
reflected in the Company's records from time to time and when
addressed to the Company at its corporate headquarters, to the
attention of the Board, with a required copy to the Company's
Corporate Counsel.
13. Amendment and Assignment. This Agreement cannot be
changed, modified or terminated except in a writing. You may not
assign your duties with the Company to any other person.
14. Severability. If any provision of this Agreement or the
application of this Agreement to anyone or under any
circumstances is determined by a court to be invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect any other provisions or
applications of this Agreement which can be effective without the
invalid or unenforceable provision or application, and such
invalidity or unenforceability shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Remedies Cumulative; No Waiver. No remedy conferred on you
or on the Company by this Agreement is intended to be exclusive
of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to any other remedy given
under this Agreement or now or later existing at law or in
equity. No delay or omission by you or by the Company in
exercising any right, remedy or power under this Agreement or
existing at law or inequity shall be construed as a waiver of
such right, remedy or power, and any such right, remedy or power
may be exercised by you or the Company from time to time and as
often as is expedient or necessary.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to any applicable conflicts of laws.
17. Counterparts. This Agreement may be signed by you and on
behalf of the Company in one or more counterparts, each of which
shall be one original but all of which together will constitute
one and the same instrument.
<PAGE>
If this Agreement correctly sets forth our agreement on its
subject matter, please sign and return to me the enclosed copy of
this Agreement. Please keep the other copy for your records.
Sincerely,
FRONTIER CORPORATION
By:
--------------------------------------
Agreed to on
------------------------------
- -------------------------------------------
[Name]
<PAGE>
ADDENDUM TO LETTER AGREEMENT DATED AUGUST 16, 1995
The following provisions shall apply to the determination of
the Supplemental Retirement Amount in accordance with Section
6.4.4 of the Agreement.
1. The Supplemental Retirement Amount shall be determined
using the actuarial equivalent of the benefit payable under the
Retirement Plans which you would have received had your
employment continued for 36 months following the Termination Date
and, using the Actuarial Assumptions (as defined below) of your
actual benefit paid or payable, if any, under the Retirement
Plans. The actuarial equivalent shall be determined by using the
actuarial assumptions applied by the Company during the 90 day
period immediately prior to a Change of Control in connection
with the Retirement Plans (the "Actuarial Assumptions").
2. The calculation of your Supplemental Retirement Amount
shall also be based on the assumptions that your annual base and
incentive compensation would have remained the same over those 36
months, all accrued benefits under the Retirement Plans are fully
vested and the benefit accrual formulas are those provided for in
the Retirement Plans during the 90 day period immediately prior
to a Change of Control.
3. If all or a part of your Supplemental Retirement Amount
is derived under a supplemental or excess retirement plan
maintained by the Company for its executive employees (a "SERP"),
then the amount of your Supplemental Retirement Amount which is
derived from the SERP shall be paid from any trust of which you
are a beneficiary to the extent of funding actuarially available
in that trust to pay your Supplemental Retirement Amount.
The following provisions shall apply to the calculation and
procedures relating to the Gross-Up Payment in accordance with
Section 7 of the Agreement.
<PAGE>
1. The Company's independent auditors in the fiscal year
in which the Change of Control occurs (the "Accounting Firm")
shall determine whether and when a Gross-Up Payment is required,
the amount of such Gross-Up Payment and the assumptions to be
used in making such determination. The Accounting Firm shall
provide detailed supporting calculations, together with a written
opinion with respect to the accuracy of such calculations, to you
and the Company within 15 business days of the receipt of a
written request from either you or the Company. If the
Accounting Firm is serving (or has served within the three years
preceding the Change in Control) as accountant or auditor for the
person in control of the Company following the Change of Control
or any affiliate thereof, you may appoint another nationally
recognized accounting firm to make the determinations required in
connection with the Gross-Up Payment and the substitute
accounting firm shall then be referred to as the Accounting
Firm). The Company shall pay you any Gross-Up Payment,
determined in accordance with this Addendum, within five days of
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that you will not be liable for any
Excise Tax, it shall furnish you with a written opinion that your
failure to report the Excise Tax on the applicable federal income
tax return would not result in the imposition of a negligence or
similar penalty. Any determination by the Accounting Firm shall
be binding upon you and the Company.
2. If there is uncertainty about how Section 4999 is to be
applied when the Accounting Firm makes its initial determination,
and as a result the Gross-Up Payment made to you by the Company
is determined (after following the procedures set forth in this
Addendum) to be less than it should have been made (an
"Underpayment"), and you are thereafter required to pay any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment and any such Underpayment shall be promptly paid by
the Company to you or for your benefit.
<PAGE>
3. You shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require
the Company to pay you the Gross-Up Payment. Your notice shall
be given as soon as practicable but no later than ten business
days after you have been informed in writing of such claim and
shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. You shall not
pay such claim prior to the expiration of the 30 day period
following the date on which you gave such notice to the Company
(or any shorter period, if the taxes claimed are due sooner). If
the Company notifies you in writing prior to the expiration of
such period that it desires to contest such claim, you shall:
(a) give the Company any information reasonably requested by it
relating to such claim, (b) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company, (c) cooperate with
the Company in good faith in order effectively to contest such
claim, and (d) permit the Company to participate in any
proceedings relating to such claim.
4. The Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in connection
with the claim and may, at its sole option, either direct you to
pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and you agree to prosecute the contest to
a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts as the
Company shall determine.
5. Any extension by the Company of the statute of
limitations relating to payment of taxes for the taxable year for
which such contested amount is claimed to be due shall be limited
solely to such contested amount. The Company's control of the
contest shall be limited to issues with respect to which a
<PAGE>
Gross-Up Payment would be payable under this Agreement and you
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
6. If the Company directs you to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to you, on an interest-free basis, and shall indemnify
and hold you harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance.
7. If you receive a refund of any amount advanced to you
by the Company, you will promptly pay to the Company the amount
of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If the Company advanced
to you any amounts and a determination is made that you will not
be entitled to any refund with respect to such claim and the
Company does not notify you in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and you
will not be required to be repay it. The amount of such advance
shall offset the amount of the Gross-Up Payment required to be
paid.
8. The Company shall pay all fees and expenses of the
Accounting Firm. The Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold you harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment
of costs and expenses.
<PAGE>
EXHIBIT 11
FRONTIER CORPORATION
CONSOLIDATED COMPUTATION OF NET INCOME PER AVERAGE SHARE
OF COMMON STOCK ON A FULLY DILUTED BASIS
<TABLE>
<CAPTION>
In thousands, except per share data Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income applicable to
common stock $ 20,892 $178,870 $119,514 $101,511 $81,385
Add: Interest on
convertible debentures (1) - 554 553 561 562
-------------------------------------------------
$ 20,892 $179,424 $120,067 $102,072 $81,947
Less: Increase in
related federal
income taxes (1) - 194 194 191 191
-------------------------------------------------
Adjusted income
applicable to common
stock $ 20,892 $179,230 $119,873 $101,881 $81,756
Average common shares outstanding
(excluding common
stock equivalents) 152,077 148,170 134,093 112,519 107,347
Adjustments for:
Convertible debentures (1) - 502 502 528 530
Stock Options 9,592 12,183 19,137 23,661 20,280
------------------------------------------------
Adjusted common shares
assuming conversion of
outstanding convertible
debentures and stock
options at the
beginning of each
period. 161,669 160,855 153,732 136,708 128,157
==================================================
Net income per average
share of common stock
on a fully diluted basis $ .13 $ 1.12 $ .78 $ .74 $ .64
</TABLE>
(1) Convertible debentures are anti-dilutive in 1995.
<PAGE>
Exhibit 13.1
Management's Discussion of Results of Operations
and Analysis of Financial Condition
THE INFORMATION PRESENTED IN THIS MANAGEMENT'S DISCUSSION OF RESULTS OF
OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES OF FRONTIER
CORPORATION ("THE COMPANY" OR "FRONTIER") FOR THE THREE YEARS ENDED DECEMBER
31, 1995. ALL HISTORICAL FINANCIAL DATA PRESENTED HAVE BEEN RESTATED FOR 1995
POOLING OF INTERESTS TRANSACTIONS.
Major Events
The Company merged with ALC Communications Corporation (ALC) on August 16,
1995. ALC provided national long distance telecommunications services primarily
to commercial users. Its revenues in 1994 exceeded $567 million. The merger
with ALC gives the combined Company a nationwide presence in terms of size,
strength and opportunities. Under the terms of the merger agreement, the
Company exchanged two shares of its common stock for each of ALC's common
shares. The Company issued 69.2 million shares to effect the merger. The merger
was accounted for using the pooling of interests method of accounting.
The Company completed several other acquisitions during 1995:
. On March 1, 1995, prior to the merger with Frontier, ALC acquired ConferTech
International, Inc. (ConferTech), a telecommunications company specializing in
teleconferencing services and audio bridge equipment. ALC paid approximately
$66 million in cash for ConferTech.
. On March 17, 1995, the Company acquired American Sharecom, Inc. (ASI), a long
distance company headquartered in Minneapolis, Minnesota. ASI had been one of
the largest privately owned long distance companies in the country. ASI's
sales operations are concentrated in the Midwest, Northwest and California.
The Company acquired all of the outstanding shares of ASI in exchange for
approximately 8.7 million shares of Frontier common stock. The transaction has
been accounted for as a pooling of interests.
. On March 29, 1995, the Company acquired Minnesota Southern Cellular Telephone
Company (MSCTC). A total of 867,000 shares of Frontier common stock were
reissued from treasury in exchange for all of the shares of MSCTC. The
treasury shares were acquired from the sale of Ontonagon County Telephone
Company and open market purchases. MSCTC is the non-wireline provider of
cellular service in Minnesota Rural Service Area #10 and serves a population
of 227,000 in an area south of Minneapolis.
. On May 18, 1995, the Company purchased WCT Communications, Inc. for
approximately $80 million in cash. WCT is a facilities-based long distance
carrier providing service in 45 states primarily to carrier customers.
. On July 11, 1995, the Company completed its purchase of Enhanced
TeleManagement, Inc. (ETI), a privately-held telecommunications company
specializing in the integration and resale of local, long distance, and
ancillary telephone services to small and medium-sized business customers. ETI
provides service in the Midwest and Northwest states. Frontier paid
approximately $29 million in cash for ETI.
. On August 8, 1995, Frontier acquired Schneider Communications, Inc. (SCI) and
SCI's 80.8% interest in LinkUSA Corporation (LinkUSA) for $130 million in
cash. SCI provides telecommunications services in the Midwest. LinkUSA
develops software applications for telecommunications firms. On February 2,
1996, the Company acquired the remaining 19.2% interest in LinkUSA for $2.3
million.
. On November 22, 1995, the Company completed its acquisition of Link-VTC, Inc.
(Link-VTC), a Boulder, Colorado based telecommunications company specializing
in videoconferencing services. The Company will pay a total cash purchase
price in the range of approximately $12.4 million to $17.9 million, depending
on the 1996 financial performance of Link-VTC.
Revenues from the date of purchase for purchase acquisitions totaled $182
million in 1995. The Company expects to expand selectively through domestic
and international acquisitions in the future. See Notes 2 and 3 to the
Consolidated Financial Statements for additional information on all
acquisitions.
Consolidated Results of Operations
Revenues were $2.1 billion in 1995, a $476.1 million, or 28.6%, increase over
1994. Revenues in 1994 increased $230.1 million or 16.0% over 1993. Increases in
both years were led by Frontier's long distance communications services
segment, which has reported higher sales through both internal growth and
acquisitions. Costs and expenses were $1.9 billion, $1.3 billion, and $1.2
billion in 1995, 1994 and 1993, respectively. This resulted in operating margins
of 18.6%, 19.5 % and 17.7% during 1995, 1994 and 1993, respectively, normalized
for certain one time events. The reduction in 1995 operating margin results from
the shift of the Company to a primarily long distance provider. The operating
margin percent increase in 1994 over 1993 was driven by long distance revenue
increases from billable minutes and improved operating efficiencies in the Local
Communications Services segment. The Company has targeted operating synergies
from the restructuring of the long distance operations, a process started in
1995, of $40 million in 1996 and $50 million per year thereafter.
18
<PAGE>
Earnings per share were $.13, $1.12 and $.78 for the years ended 1995,
1994, and 1993, respectively. Excluding the impact of the nonrecurring
adjustments discussed below, net income amounted to $218.7 million, $180.1
million and $127.5 million in 1995, 1994 and 1993 respectively. Earnings per
share, excluding these adjustments, were $1.35, $1.12 and $.82 for the three
years, increases of 20.5% and 36.6%, respectively.
Nonrecurring Adjustments
The consolidated results for the years 1993 through 1995 include a number
of nonrecurring adjustments as summarized in the chart below and succeeding
narrative.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(All dollars, except per share
amounts, are in thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings available for common $ 20,892 $178,870 $119,514
- ------------------------------------------------------------------------
Adjustments, net of taxes:
Acquisition related and other 78,764 - 2,145
Gain on sale of assets (4,826) (7,109) (3,293)
Early debt retirement 9,060 - 7,490
Regulatory accounting change 112,148 - -
New accounting standards 1,477 7,197 -
- ------------------------------------------------------------------------
Total adjustments 196,623 88 6,342
- ------------------------------------------------------------------------
Normalized earnings $217,515 $178,958 $125,856
========================================================================
Earnings per share $ .13 $ 1.12 $ .78
- ------------------------------------------------------------------------
Adjustments:
Acquisition related and other .49 - .01
Gain on sale of assets (.03) (.04) (.02)
Early debt retirement .06 - .05
Regulatory accounting change .69 - -
New accounting standards .01 .04 -
- ------------------------------------------------------------------------
Total adjustments 1.22 - .04
- ------------------------------------------------------------------------
Earnings per share,
after adjustments $ 1.35 $ 1.12 $ .82
========================================================================
</TABLE>
1. Acquisition Related and Other
During 1995, in conjunction with the ALC merger and other acquisitions, the
Company recorded an acquisition related charge of $78.8 million, net of an
income tax benefit of $35.4 million. The acquisition related charge is
associated with the integration of the Company's recent acquisitions as well as
the ALC merger related transaction costs. The acquisition related charge
consists of an asset writedown of $71.5 million, transaction costs of $19.0
million, severance costs of $11.8 million and other acquisition related items
of $11.9 million. The remaining liability at December 31, 1995 was $83.1
million. The Company believes that this balance is adequate for the completion
of these activities during 1996. See Note 4 to the Consolidated Financial
Statements for further detail.
During 1993, as part of the Rochester, New York operating company's Settlement
Agreement with the New York State Public Service Commission, the Company agreed
to write off one-half of the costs ($3.3 million, $2.1 million after tax)
previously deferred as part of a project to redesign customer account records,
order flow and customer billing records.
2. Gain on Sale of Assets
Gain on sale of assets includes the sale of Ontonagon County Telephone
Company during 1995 ($4.8 million non-taxable gain), Minot Telephone Company
during 1994 ($11.3 million pre-tax gain, $7.1 million after taxes) and the
sales of S&A Telephone Company and a substantial portion of an investment in a
Canadian long distance company during 1993 ($4.4 million pre-tax gain, $3.2
million after taxes).
3. Early Debt Retirement
In 1995, the Company acquired, through a tender offer, $76.8 million of
ALC's 9% Senior Subordinated Notes for $83.5 million plus accrued interest. The
early retirement resulted in an extraordinary loss of $5.8 million, net of
applicable income taxes of $3.7 million, including other costs of $2.8 million.
In 1995, the Company also retired early its outstanding 9% debentures scheduled
to mature in 2020. The Company recorded an extraordinary loss of $3.2 million,
net of applicable income taxes of $1.7 million.
In 1993, ALC retired early $72.4 million of its 11-7/8% Senior Subordinated
Notes. The early retirement resulted in an extraordinary loss of $7.5 million,
net of applicable income taxes of $4.0 million.
4. Regulatory Accounting Change
As a result of changes in regulation and increasing competition in the
telecommunications industry, the Company discontinued the use of regulatory
accounting, Statement of Financial Accounting Standards No. 71 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation" as of September 30,
1995 for its local communications companies. This non-cash, extraordinary
write-off totaled $112.1 million, net of applicable income taxes of $68.4
million. The write-off was primarily related to the reduction in the recorded
values of long lived telephone plant assets. Subsequent to September 30, 1995,
the Company began using asset lives that are based on market forces and
technological changes and not on regulatory requirements to depreciate its
telephone plant assets. The impact of discontinuing FAS 71 will not be
significant to the results of operations in the future. See Note 5 to the
Consolidated Financial Statements for further detail.
5. New Accounting Standards
Frontier adopted FAS 116, "Accounting for Contributions Received and Made"
effective September 30, 1995. FAS 116 requires that the Company reflect in
current expenses an accrual for the cost of multi-year charitable
contributions. The cumulative effect of adopting FAS 116 was a charge of $1.5
million, net of applicable income taxes of $0.8 million.
As of January 1, 1994, the Company adopted FAS 112, "Employers' Accounting
for Postemployment Benefits," related to the accounting for certain employee
benefits costs. The cumulative effect of adopting FAS 112 was an after-tax
charge of $7.2 million, net of applicable income taxes of $3.9 million.
Open Market Plan
At its public meeting on October 13, 1994, the New York State Public
Service Commission (PSC) unanimously approved the Rochester, New York
subsidiary operation's (Rochester Telephone) Open Market Plan and Corporate
Restructuring (Open Market Plan). Rochester Telephone generated 20.3% of the
Company's 1995 normalized operating income. The PSC subsequently issued a
written Order in November 1994. The Open Market Plan was
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approved by shareowners in December 1994 and became operational on January 1,
1995. During the seven year period of the Open Market Plan Agreement, rate
reductions of $21 million, $11.5 million of which occurred in 1995, will be
implemented for Rochester area consumers and rates charged for basic residential
and business telephone service may not be increased. Under the Open Market Plan
Agreement, Rochester Telephone is no longer subject to rate of return regulation
and thus the company is able to retain any expense savings as well as additional
revenue generated from the sale of new products and services.
The Open Market Plan promotes telecommunications competition in the Rochester,
New York market by providing for (1) interconnection of competing local
networks including reciprocal compensation for terminating traffic, (2) equal
access to network databases, (3) access to local telephone numbers and (4)
service provider telephone number portability. The inherent risk associated
with opening the Rochester market to competition is that some customers are
able to purchase services from competitors, which reduces the number of retail
customers and potentially causes a decrease in the revenues and profitability
for Rochester Telephone. However, results in 1995 indicate that a stimulation
of demand in the use of the network and new product revenue can offset the
losses from customer migration. Increased competition may also lead to
additional price decreases for services, adversely impacting Rochester
Telephone's margins. However, the Open Market Plan does not require Rochester
Telephone to rebate any additional earnings achieved through operating
efficiencies that previously would have been shared with customers.
AT&T Communications of New York filed a complaint with the PSC for
reconsideration of the Open Market Plan on October 3, 1995. A petition by AT&T
to the same effect was dismissed earlier in 1995 as premature. The current
complaint seeks numerous changes in light of AT&T's experience, including
change in the minutes of use surcharge and a number of operational and support
activities. Some of these issues also are being considered in other states in
other unrelated local competition proceedings. The PSC has directed that the
companies seek to resolve this complaint through negotiation before the PSC
would act. Such discussions are continuing and the Company cannot predict the
outcome of this matter.
Although Rochester Telephone is a wholly-owned subsidiary of Frontier
Corporation, the Company's ability to control the management and operations of
Rochester Telephone is somewhat restricted by various provisions of the Open
Market Plan. The Company has made certain commitments under the Open Market
Plan that impact the operations of Rochester Telephone. These include certain
financial covenants that are intended to insure that Rochester Telephone will
continue to possess the financial strength to provide quality service,
including covenants relating to dividends that may be paid to the parent
company and the level of debt that may be maintained at the subsidiary company.
Rochester Telephone is in compliance with all of the covenants as of December
31, 1995.
Strategic Developments
During 1995, Frontier began the transformation from a provider of local and
long distance service in specific parts of the country to becoming a nationwide
provider of integrated communications services. The Company's goal is to
continue to develop its product and customer base and build larger customer
clusters in target segments and geographic markets, with the objective of
becoming a telecommunications company that operates across line-of-business
boundaries. The Company will continue to look for partners to supplement and
complement skills not available internally.
The Company believes that the Federal telecommunications legislative reform
approved by Congress on February 1, 1996 and subsequently signed by President
Clinton, is favorable and will provide Frontier with additional competitive
opportunities. It will allow the Company to more easily enter previously
restricted markets and to provide integrated services to customers. The Company
is one of few telecommunications companies today that can jointly market and
sell local, long distance and wireless services as one company and one brand.
The Company's success will be measured by its ability to outperform the
competition, not by whether legislative rules are changed to reflect market
forces. The Company believes that its experience in providing integrated
services and the Open Market Plan competition it faced in 1995 are an advantage.
The Company anticipates that the government, specifically the United States
Department of Justice, will continue to play a meaningful role in any decision
to approve or disapprove entry by the Regional Bell Operating Companies into the
long distance market, including their compliance with provisions that mandate
local service resale opportunities for competitors.
With expanded competition, Frontier is exposed to an increased level of
business risks. Frontier has formidable competitors of greater size and expects
more entrants into the long distance business and its local markets. The
Company also has larger customers than it had as a predominantly local exchange
company, the loss of which could significantly reduce revenue, at least on a
temporary basis. The Company believes that its strategies outlined above will
mitigate the risks and uncertainties it faces.
Results of Operations
Frontier redefined its business segments in the beginning of 1995 to better
distinguish its primary lines of business. The Company is now reporting its
operating results in four segments: Long Distance Communications Services,
Local Communications Services, Wireless Communications Services, and Corporate
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Operations and Other. This classification replaces the previous manner of
reporting which reflected only two groups, Telephone Operations and
Telecommunications Services.
Each of Frontier's segment results are reviewed below.
Long Distance Communications Services
Long Distance Communications Services is the Company's largest segment in terms
of size and growth. It accounted for over 72% of the Company's 1995 fourth
quarter revenue versus 27% in 1992 as reported. The Company expects to
complete the integration of its long distance business with ALC and the other
acquisitions during 1996. See Note 2 and Note 3 to the Consolidated Financial
Statements for further details on the merger and other acquisitions. This
restructuring process will minimize redundant facilities and staffing. These
redundancies had a negative impact on the Company's gross margin during 1995.
Revenues were $1.5 billion, $1.0 billion, and $.8 billion in 1995, 1994
and 1993, respectively, representing a 46.5% increase in 1995 and a 27.9%
increase in 1994. Excluding the impact of 1995 purchase acquisitions, revenues
grew 28.7% in 1995. In 1995, the Company introduced a unified product set to
all of its customers called Clear Value, offering options for service that
would ultimately include long distance, local and cellular services in all
markets. Clear Value did not have a significant impact on 1995 revenues. It is
expected to be the product set that is marketed across the Frontier
organization in 1996.
Carrier revenue growth was positively impacted by a major carrier customer
whose revenue has increased substantially for the year and represents 14.2% of
long distance revenues for 1995. It is the Company's understanding that this
customer may be installing long distance switching capacity which, as
completed, could result in a portion of this traffic gradually moving to the
customer's network. However, the customer has entered into a three year
agreement with the Company effective April 1, 1995 and amended October 27,
1995. The Company will retain significant traffic volumes and has obtained
provisions under the agreement regarding exclusivity and minimums that it
views as favorable.
Minutes of use continue to grow as the Company expands its customer base.
Minutes of use for 1995 exceeded 10.1 billion, representing a 114.9% increase
since 1993. Revenue per minute, a common industry measure, has decreased 12.8%
during the three years reported. The decrease in revenue per minute is due to
an increasing percent of carrier traffic and price decreases that the Company
believes are occurring across the industry as a result of increased
competition. Although carrier revenue is at a lower rate than business and
residential, the increased traffic has a positive impact on operating income
due to lower selling, general and administrative expenses.
Costs and expenses for the long distance operation were $1.3 billion, $.9
billion and $.7 billion in 1995, 1994 and 1993 respectively, excluding
nonrecurring charges. This increase is primarily the result of increased
traffic volumes due to internal growth and purchase acquisitions. Operating
costs excluding purchase acquisitions increased by 27.7% in 1995 and 24.0% in
1994. Cost of access as a percentage of revenues was 58% in 1995 and 56% in
1994 and 1993. The 1995 cost of access percentage was higher than prior years
primarily due to the acquisitions, which resulted in instances of redundant
network and higher carrier traffic levels, which produces a lower revenue per
minute rate than business and consumer segment traffic. The Company's network
integration and reconfiguration is expected to be completed during 1996 and
will result in network cost reductions. Other costs, which consist primarily of
selling, marketing, customer service, administrative costs and depreciation and
amortization decreased to 27.3% of revenues in 1995. This represents a 2.2%
decrease from 1994 and a 9.1% decrease from 1993. These reductions as a
percentage of revenues are due to increases in revenues without corresponding
cost increases, partially offset by increased depreciation and amortization.
Depreciation and amortization increased by $21.8 million over the prior year
due to increased goodwill amortization of $10.8 million caused by the 1995
purchase acquisitions. The Company expects further decreases in other costs,
mostly administrative, as integration efforts are realized in 1996.
Operating income, excluding nonrecurring charges, rose 30.6% and 53.4% over
1994 and 1993, respectively. Operating margin as a percent of revenue decreased
from 15.9% in the prior year to 14.2% in 1995. The reduction in 1995 operating
margin percent was caused by: (1) the assimilation of the Company's long
distance acquisitions, (2) an increased percent of lower margin carrier traffic
and (3) aggressive product pricing designed to maximize operating income. As
the network integration is completed, the Company expects that greater
efficiencies will lead to improved operating margin. However, this cannot be
assured given competitive conditions.
Local Communications Services
Local Communications Services is comprised of Frontier's local telephone
operations in Rochester, New York and the regional operations, which are made
up of 33 telephone subsidiaries in 13 states. In addition, the local service
revenues and associated expenses generated from the efforts of Frontier
Communications of Rochester, the newly formed competitive telecommunications
company that provides an array of services on a retail basis in the Rochester
marketplace, are included with the Rochester, New York segment.
In addition to providing strong cash flow and overall financial returns, the
local communications companies have been successful in marketing and selling
integrated services to their customers.
Revenues for 1995 were $621.7 million, an increase of $12.0 million or 2.0%.
Revenues for 1994 increased 2.7% over the prior year. Excluding the sales of
Ontonagon County Telephone Company in March 1995, and Minot Telephone Company
in
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May 1994, revenues increased 3.5% in 1995 and 4.1% in 1994. These revenues
were driven by a 7.3% increase in access lines from 1993 to 1995, a 13.5%
increase in minutes of use during the same period, and ongoing sales of
enhanced features and services, offset by continued decreases in long distance
access prices charged. In 1995, revenues in the Rochester market increased 3.1%
over the prior year. Access line growth was 4.5% in 1995, more than double the
1994 growth rate of 1.9%. Higher demand for enhanced services in the
environment of the Open Market also contributed to 1995 revenue increase. The
1994 revenue growth in the Rochester market compares favorably with a growth
rate of 1.4% in 1993. In general, prices being charged both to customers and
long distance companies for access service usage have declined over the past
three years due to regulatory requirements and to increased competition in the
Company's largest markets. The Company expects retail and wholesale prices to
decline as competition increases and regulatory controls are relaxed.
Costs and expenses, excluding acquisition related charges, were $423.4 million
in 1995, a decrease of $6.0 million, or 1.4% from 1994. Prior year costs and
expenses decreased $1.6 million. The 1995 decrease was due to the telephone
company dispositions in Regional Operations ($6.2 million) and ongoing cost
controls, offset by increased selling and marketing costs. The 1994 decrease
was primarily caused by telephone company dispositions ($5.9 million),
combining certain administrative operations, lower employee benefit costs and
an early retirement program. Employees per 10,000 access lines, a common
measure of efficiency for telephone companies, was 31 for 1995, 34 for 1994 and
38 for 1993 representing a decrease of 18.4% over this three year period.
The Local Communications Services segment's operating margins continue to
increase. Operating margins, excluding nonrecurring items, were 31.9% in 1995,
29.6% in 1994 and 27.4% in 1993.
Wireless Communications Services
Wireless Communications Services is comprised of the Company's ownership
interests in Alabama Rural Service Area's (RSA) #4 and #6, in which the Company
has a 70 percent interest, and Minnesota RSA #10, in which the Company acquired
a 100 percent interest in late March 1995. This latter acquisition was
accounted for as a purchase transaction.
Revenues were $12.3 million for 1995, down $11.5 million, or 48.3%, from the
comparable period in 1994. While the 1995 results reflect the operations of the
Alabama and Minnesota cellular properties, the 1994 results reflect the
operations associated with the Alabama cellular properties as well as the
upstate New York wireless properties that are no longer consolidated as a
result of a joint venture formed with NYNEX Corporation in July 1994. The
Company's New York wireless properties 1994 revenues prior to July were $17.6
million. After July 1994, the Company's share of the joint venture earnings are
reported below operating income. The joint venture was formed to operate a
unified cellular network in upstate New York. Revenues from 1993 include a full
year of the New York wireless properties contributed to the joint venture.
During 1995, NYNEX Corporation contributed its cellular interests partnership
into a new partnership it formed with Bell Atlantic Corporation.
Corporate Operations and Other
Corporate Operations comprise the expenses traditionally associated with a
holding company, including executive and board of directors expenses, corporate
finance and treasury, investor relations, corporate communications, corporate
planning, legal services and business development. The Other category is
comprised primarily of Frontier Network Systems ("FNS") and the Company's
information technologies operation (Frontier Information Technologies). FNS
markets and installs telecommunications systems and equipment.
Costs and expenses, before nonrecurring charges, were relatively consistent
for all years. During 1995, FNS operating costs were higher due to increased
sales, but this was offset by lower Corporate operating expenses. Corporate
costs were higher in 1994 and 1993 because of the Open Market Plan formation
costs and the holding company organization costs.
Other Income Statement Items
Interest Expense
Interest expense was $54.7 million in 1995, an increase of 6.5% over 1994.
During 1995, the Company used excess cash generated in 1994 and borrowed
against its line of credit to complete its long distance cash purchase
acquisitions. The line of credit borrowings caused interest expense to
increase. During the third and fourth quarters of 1995, the Company refinanced
$76.8 million of the ALC 9% Senior Subordinated Notes and $62.8 million of the
outstanding 9% Debentures scheduled for payment in 2020, which will lower
interest charges in the future.
Interest expense was lower in 1994 than in 1993 due to lower debt levels. In
December 1994, as a part of the Open Market Plan implementation, Rochester
Telephone Corp. issued $120 million of debt in the form of a Revolving Credit
Agreement. The Company also repurchased $30 million of outstanding debentures.
These December transactions did not have a significant impact on 1994 interest
expense.
During 1993, the Company recalled $160.4 million of debt, including the
11-7/8% ALC Subordinated Notes which had an effective interest rate of 13.6%. In
addition, line of credit borrowings decreased in 1994 and 1993 due to improved
cash from operations.
Equity Earnings from Unconsolidated Wireless Interests
Equity earnings from the Company's interests in wireless partnerships were $3.7
million in 1995, $3.2 million in 1994 and $1.3 million in 1993. Equity earnings
from 1995 include a full year of the 50/50 joint venture formed with NYNEX
Corporation, versus six months operations in 1994. Prior to 1994, the Company's
revenues and expenses associated with its Rochester
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and Utica-Rome cellular partnerships in New York State had been fully
consolidated. Equity earnings from the joint venture in 1995 were lower than
expected because of significant customer acquisition costs and higher than
expected toll fraud roaming charges.
Income Taxes
The effective tax rate in 1995 was 41.1%, versus 36.8% in 1994 and 36.4% in
1993. The effective tax rate increased in 1995 primarily due to additional
amounts of nondeductible goodwill amortization and nondeductible transaction
costs from the Company's long distance merger and other acquisitions.
Financial Condition
Review of Cash Flow Activity
Despite the Company's merger and acquisitions, Frontier was able to focus
attention on translating financial results into a cash return on its
investments. Cash provided from operations in 1995, normalized for $31.1
million of cash paid for acquisition related charges, amounted to $357.1
million. This compares favorably with cash from operations of $305.5 million in
1994 and $292.2 million in 1993. Cash from operations for 1995 was driven by
the Company's expanded revenue base in long distance and the strong operating
returns produced by the local communications services segment. The 1995
accounts receivable balance increased primarily because of the significant
revenue growth in long distance. The Company was negatively impacted in 1995 by
one time payments of accounts payable related to purchase acquisitions of $29.3
million. In 1994, cash from operations was offset in part by increased working
capital requirements and the taxes associated with the gain on the
sale of the Minot property in North Dakota in May 1994.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a
common measurement in the long distance industry of the ability to generate
cash flow from operations. EBITDA should be used as a supplement to, not in
place of, cash from operating activities. The Company's EBITDA was $568.2
million, $478.9 million and $403.7 million, excluding unusual items, in 1995,
1994 and 1993, respectively, representing a 40.7% increase over this time
period.
Cash used for investing activities was $519.3 million, $89.7 million and
$151.2 million in 1995, 1994, and 1993, respectively. The Company's cash
purchase acquisitions of $349.5 million were the largest use of investing
activities in 1995. Cash used for investing activities in 1994 was offset by
the excess cash generated from the sale of Minot Telephone of $55.7 million.
Net expenditures for property, plant and equipment amounted to $163.7
million, $112.2 million and $120.5 million in 1995, 1994 and 1993,
respectively. During this three year period, the Company has made significant
investments in its long distance, local and wireless networks to upgrade the
functionality, optimization and capacity required to meet its customers needs.
Cash flows from financing activities amounted to net outflows of $134.5
million in 1995, compared with net inflows of $109.6 million in 1994 and net
outflows of $177.4 million in 1993. During 1995, the Company made $4.9 million
of scheduled debt repayments and also refinanced $274.4 million of its long
term debt instruments. The refinancings included repayment of ALC's 9% Senior
Subordinated Debt for $83.5 million plus accrued interest and the retirement of
$69.8 million of 9% debentures due in 2020. These early retirements were
financed with excess cash and commercial paper borrowings. Dividend payments in
1995 increased to $82.8 million because of the increase in common shares
outstanding, which was primarily caused by the 69.2 million shares issued in
connection with the ALC merger. The annualized fourth quarter dividends declared
amount to $134.3 million. The increased annual dividend requirement is expected
to be funded through increased operating cash flow. The increase in 1994
financing activities resulted from $104 million in proceeds from the Company's
equity offering in February 1994 and the net proceeds of $70.9 million of debt
as a part of the Company's Open Market Plan reorganization, offset in part by
the payment of dividends to shareowners and the retirement of certain high cost
debt earlier in the year. In 1993, the Company retired early $88 million of its
First Mortgage Bonds and $72.4 million of ALC's 11-7/8% Senior Subordinated
Notes. The Company used cash from operations and of other lower cost debt
instruments to refinance these early retirements.
Liquidity and Capital Resources
The Company has the liquidity and capital to adequately meet its forecasted
financing needs. In March 1995, Rochester Telephone Corp. issued $40 million of
Medium Term Notes and used the proceeds to pay down a portion of its
outstanding Revolving Credit Agreement balance. In addition, it amended the
Rochester Telephone Corp. Revolving Credit Agreement to reduce the maximum line
of credit from $160 million to $100 million and release the security interest
on its assets. In August 1995, the Company consolidated its $125 million line
of credit and increased the amount available to $250 million through the
establishment of a Revolving Credit Agreement with eleven banks. The total
borrowings and amounts available under these lines of credit were $187.6
million and $162.4 million, respectively, at December 31, 1995. On November 15,
1995, the Company filed a $500 million universal shelf registration with the
Securities and Exchange Commission which became effective on January 30, 1996.
The shelf registration will allow the Company to issue and register a
combination of debt securities, common stock, preferred stock or warrant
securities.
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Proceeds will be used for general corporate purposes including, but not
limited to financing and growth activities. Additionally, in 1994, shareowners
gave their approval to authorize 4 million shares of a new class of preferred
stock which has been designated as Class A Preferred Stock. The Company's
working capital was $18.9 million, $368.1 million and $11.7 million at December
31, 1995, 1994 and 1993. The changes in the 1995 and 1994 working capital are
due to the Company's acquisition program. Frontier's working capital program
generates cash for operating needs and growth.
At December 31, 1995, aggregate debt maturities amounted to $14.9 million for
1996, $8.1 million for 1997 and $6.2 million for 1998. Despite the Company's
recent acquisition program, the debt to total capital ratio at December 31,
1995 remained strong at 41.0%, as compared to 41.2% in the prior year and 44.6%
in 1993. Pretax interest coverage, which measures the Company's ability to
adequately cover its financing costs was 7.6 times in 1995, versus 6.8 times in
1994 and 4.5 times in 1993, excluding nonrecurring charges for all years.
As a result of Frontier's merger with ALC in August 1995, Standard & Poor's,
Moody's and Fitch downgraded the Company's long-term credit ratings to "A",
"A3" and "A", respectively. The remaining rating agency, Duff & Phelps,
affirmed the Company's "A" rating following the announcement of the merger. In
spite of the combined entity's strengthened financial position, the rating
agencies cited concern with the dramatic shift in the Company's business risk
associated with an increasing dependence on the more competitive long distance
business. In addition, despite expected near term improvements in the Company's
debt protection measures, Moody's also downgraded the Company's commercial
paper rating from "P-1" to "P-2". Moody's is the only rating agency to have
downgraded the Company's short-term credit rating as the three other agencies
maintained their "P-1" rating. These ratings remained in effect at December 31,
1995.
The financing requirements associated with the Company's network modernization
programs have remained relatively stable. Frontier has a switching network that
is over 99% digital. Total gross expenditures for property, plant and equipment
in 1996 are currently anticipated to be about $175 million. The anticipated
increase is largely due to capital requirements for capacity growth and the
Company's networks. Frontier expects to generate sufficient operating cash to
finance its capital program.
In December 1995, the Board of Directors increased the quarterly dividend paid
on common stock to $0.2125 cents per share, payable February 1, 1996, to
shareowners of record on January 15, 1995. This 2.4% increase raises the
annualized common stock dividend to $0.85 per share. This represents the 36th
consecutive annual increase in the Frontier dividend.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued FAS 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of," effective for fiscal
years beginning after December 15, 1995, which establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
goodwill related to those assets to be held and used, and for long lived assets
and certain intangibles to be disposed of. The Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. FAS 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. The Company has not yet quantified the impact of
adopting FAS 121, but it is not expected to significantly impact future
operating activity. FAS 121 is required to be adopted in 1996.
The FASB issued FAS 123, "Accounting for Stock-Based Compensation,"
effective for fiscal years beginning after December 15, 1995, which establishes
accounting and reporting for stock-based employee compensation plans. Those
plans include all arrangements by which employees receive shares of stock or
other equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. This statement
defines a fair value based method of accounting for an employee stock option or
similar equity instrument, but also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 (APB 25) "Accounting for Stock
Issued to Employees". Entities electing to continue to measure compensation
cost following the provisions of APB 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting as defined by this statement had been applied. The Company
will adopt the provisions of FAS 123, effective January 1, 1996, and will elect
to continue to follow the provisions of APB 25 and provide the pro forma fair
value disclosures required by the new pronouncement.
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Report of Independent
Accountants
[LOGO OF PRICE WATERHOUSE LLP]
To the Shareowners of Frontier Corporation
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of income, shareowners' equity and cash flows present fairly, in all
material respects, the financial position of Frontier Corporation and its
subsidiaries at December 31, 1995, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of ALC Communications Corporation, a wholly owned
subsidiary, which statements reflect total assets of $432,146,000, $284,725,000
and $193,541,000 at December 31, 1995, 1994 and 1993, respectively, and total
revenues of $852,057,000, $567,824,000 and $436,432,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Those statements were audited
by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for ALC
Communications Corporation, is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for the opinion expressed above.
As discussed in Note 14 to the financial statements, during the third quarter
of 1995 the Company adopted the provisions of Statement of Financial Accounting
Standards No. 116, "Accounting for Contributions Received and Contributions
Made."
As discussed in Note 5 to the financial statements, during the third quarter
of 1995 the Company discontinued accounting for the operations of its local
communications subsidiaries in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation."
As discussed in Note 14 to the financial statements, during the first quarter
of 1994 the Company adopted the provisions of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
January 22, 1996
Rochester, NY
Report of Management
The integrity and objectivity of the accompanying financial information is
the responsibility of the management of Frontier Corporation.
The financial statements report on management's accountability for corporate
operations and assets. To this end management maintains a highly developed
system of internal controls and procedures designed to provide reasonable
assurance that the Company's assets are protected and that all transactions are
accounted for in conformity with generally accepted accounting principles. The
system includes documented policies and guidelines, augmented by a comprehensive
program of internal and independent audits conducted to monitor overall accuracy
of financial information and compliance with established procedures.
Price Waterhouse LLP, an independent accounting firm, provides an objective
assessment of the degree to which management meets its responsibility for
financial reporting. They regularly evaluate the system of internal accounting
controls and perform such tests and other procedures they consider necessary to
express an opinion that the financial statements present fairly the financial
position of the Company.
/s/ Marvin C. Moses
Marvin C. Moses
Vice Chairman and Chief Financial Officer
Report of Audit Committee
The Audit Committee of the Board of Directors is comprised of four independent
directors who are not officers or employees of the corporation. The committee
oversees the Company's financial reporting process on behalf of the Board of
Directors. The Audit Committee recommends to the Board of Directors the
independent accountants for election by the shareowners. The committee also
meets regularly with management and the independent accountants and internal
auditors to review accounting, auditing, internal accounting controls, pending
litigation and financial reporting matters. As a matter of policy, the internal
auditors and independent accountants have unrestricted access to the Audit
Committee.
/s/ Douglas H. McCorkindale
Douglas H. McCorkindale
Chairman, Audit Committee
25
<PAGE>
Business Segment Information
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Distance Communications Services
Revenues $1,480,313 $1,010,425 $ 790,139
Operating Income:
Operating Income Before Acquisition Related Charges 210,462 161,107 105,048
Acquisition Related Charges (91,448) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Operating Income $ 119,014 $ 161,107 $ 105,048
Depreciation and Amortization $ 61,070 $ 39,290 $ 32,480
Capital Expenditures $ 68,265 $ 41,668 $ 30,884
Identifiable Assets/(1)/ $ 995,712 $ 482,890 $ 377,538
===================================================================================================================
Local Communications Services
Revenues:
Rochester, NY Operations $ 315,273 $ 305,734 $ 301,447
Regional Operations 306,452 303,944 292,424
- -------------------------------------------------------------------------------------------------------------------
Total Revenues $ 621,725 $ 609,678 $ 593,871
Operating Income:
Operating Income Before Acquisition Related and Other Charges:
Rochester, NY Operations $ 80,991 $ 76,655 $ 72,046
Regional Operations 117,290 103,595 90,801
Acquisition Related and Other Charges:
Rochester, NY Operations (1,589) -- (3,300)
Regional Operations (8,660) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Operating Income $ 188,032 $ 180,250 $ 159,547
Depreciation and Amortization:
Rochester, NY Operations $ 55,003 $ 59,098 $ 60,982
Regional Operations 47,886 49,490 51,541
- -------------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 102,889 $ 108,588 $ 112,523
Capital Expenditures $ 73,766 $ 60,711 $ 89,823
Identifiable Assets/(1)/ $1,153,069 $1,250,798 $1,264,994
===================================================================================================================
Wireless Communications Services
Revenues $ 12,314 $ 23,840 $ 29,119
Operating Income $ 1,164 $ 1,142 $ 3,125
Depreciation and Amortization $ 2,418 $ 4,522 $ 3,205
Capital Expenditures $ 3,308 $ 2,982 $ 3,003
Identifiable Assets/(1)/ $ 102,647 $ 67,166 $ 65,474
===================================================================================================================
Corporate Operations and Other
Revenues $ 29,339 $ 23,602 $ 24,319
Operating Loss:
Operating Loss Before Acquisition Related Charges $ (11,438) $ (16,873) $ (16,083)
Acquisition Related Charges (12,542) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Operating Loss $ (23,980) $ (16,873) $ (16,083)
Depreciation and Amortization $ 3,332 $ 923 $ 558
Capital Expenditures $ 17,236 $ 8,374 $ 132
Identifiable Assets/(1)/ $ 200,895 $ 526,491 $ 283,219
===================================================================================================================
Consolidated
Revenues $2,143,691 $1,667,545 $1,437,448
Operating Income:
Operating Income Before Acquisition Related and Other Charges $ 398,469 $ 325,626 $ 254,937
Acquisition Related and Other Charges (114,239) -- (3,300)
- -------------------------------------------------------------------------------------------------------------------
Total Operating Income $ 284,230 $ 325,626 $ 251,637
Depreciation and Amortization $ 169,709 $ 153,323 $ 148,766
Capital Expenditures $ 162,575 $ 113,735 $ 123,842
Identifiable Assets $2,108,592 $2,060,794 $1,721,545
===================================================================================================================
</TABLE>
(1) Includes intercompany accounts that are eliminated in consolidation of
$343,731, $266,551, and $269,680, in 1995, 1994 and 1993, respectively.
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except per share data Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $2,143,691 $1,667,545 $1,437,448
- ----------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Operating expenses 1,527,050 1,139,587 982,996
Depreciation and amortization 169,709 153,323 148,766
Taxes other than income taxes 48,463 49,009 50,749
Acquisition related and other charges 114,239 -- 3,300
- ----------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 1,859,461 1,341,919 1,185,811
- ----------------------------------------------------------------------------------------------------------------------------
Operating Income 284,230 325,626 251,637
Interest expense 54,660 51,312 58,022
Other income and expense:
Gain on sale of assets 4,826 10,063 4,449
Equity earnings from unconsolidated wireless interests 3,676 3,185 1,296
Interest income 9,673 8,364 1,867
Other (expense) income, net (2,081) 406 926
- ----------------------------------------------------------------------------------------------------------------------------
Income Before Taxes, Extraordinary Items and
Cumulative Effect of Changes in Accounting Principles 245,664 296,332 202,153
Income taxes 100,896 109,078 73,509
- ----------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Items and
Cumulative Effect of Changes in Accounting Principles 144,768 187,254 128,644
Extraordinary items (121,208) -- (7,490)
Cumulative effect of changes in accounting principles (1,477) (7,197) --
- ----------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income 22,083 180,057 121,154
Dividends on preferred stock 1,191 1,187 1,640
- ----------------------------------------------------------------------------------------------------------------------------
Income Applicable to Common Stock $ 20,892 $ 178,870 $ 119,514
============================================================================================================================
Earnings Per Common Share
Income before extraordinary items and cumulative
effect of changes in accounting principles $ .89 $ 1.16 $ .83
Extraordinary items (.75) -- (.05)
Cumulative effect of changes in accounting principles (.01) (.04) --
- ----------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share $ .13 $ 1.12 $ .78
============================================================================================================================
Average Common Shares Outstanding (in thousands) 161,669 160,353 153,230
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except per share data December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 31,449 $ 359,309 $ 33,970
Short-term investments -- 9,047 349
Accounts receivable, (less allowance for uncollectibles of
$28,515, $11,407 and $9,832, respectively) 404,081 263,815 229,984
Materials and supplies 12,928 8,586 11,208
Deferred income taxes 43,588 5,712 3,329
Prepayments and other 31,089 27,357 24,594
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Assets 523,135 673,826 303,434
Property, plant and equipment, net 881,309 1,034,442 1,080,135
Goodwill and customer base 550,081 222,442 215,962
Deferred and other assets 154,067 130,084 122,014
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $2,108,592 $2,060,794 $1,721,545
============================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 373,022 $ 230,702 $ 211,532
Advance billings 8,658 12,719 12,573
Dividends payable 33,247 15,487 14,057
Debt due within one year 14,871 4,966 4,962
Taxes accrued 26,842 28,070 30,170
Other liabilities 47,561 13,754 18,466
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 504,201 305,698 291,760
Long-Term debt 618,867 661,549 581,707
Deferred income taxes 15,644 98,217 104,232
Deferred employee benefits obligation 58,385 46,001 16,121
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,197,097 1,111,465 993,820
- ----------------------------------------------------------------------------------------------------------------------------
Shareowners' Equity
Preferred stock 22,769 22,777 22,785
Common stock, par value $1.00, authorized 300,000,000 shares;
158,063,387 shares, 149,294,195 shares and 108,630,517 shares
issued in 1995, 1994, and 1993 158,063 149,294 108,630
Capital in excess of par value 420,172 379,404 308,649
Retained earnings 317,149 397,854 289,852
- ----------------------------------------------------------------------------------------------------------------------------
918,153 949,329 729,916
Less--
Treasury stock, 6,375 shares in 1995 and 56,413 shares in 1993, at cost 147 -- 2,191
Unearned compensation-restricted stock plan 6,511 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareowners' Equity 911,495 949,329 727,725
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $2,108,592 $2,060,794 $1,721,545
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 22,083 $ 180,057 $ 121,154
- ----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary items 194,932 -- 11,490
Cumulative effect of changes in accounting principles 2,272 11,072 --
Acquisition related and other charges 114,239 -- --
Depreciation and amortization 169,709 153,323 148,766
Gain on sale of assets (4,826) (10,063) (4,449)
Equity earnings from unconsolidated wireless interests (3,676) (3,185) (1,296)
Other, net 1,326 511 399
Changes in operating assets and liabilities, exclusive
of impacts of purchase acquisitions:
Increase in accounts receivable (99,127) (37,691) (28,831)
(Increase) decrease in materials and supplies (1,470) 1,824 4,728
Decrease (increase) in prepayments and other current assets 6,480 (2,434) (61)
Increase in deferred and other assets (32,482) (17,478) (1,168)
Increase in accounts payable and advance billings 30,585 32,544 21,514
Increase (decrease) in taxes accrued and other current liabilities 8,663 (746) 4,422
Increase in deferred employee benefits obligation 9,947 6,958 14,302
(Decrease) increase in deferred income taxes (92,631) (9,227) 1,263
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments 303,941 125,408 171,079
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 326,024 305,465 292,233
- ----------------------------------------------------------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (163,740) (112,162) (120,497)
Decrease (increase) in short-term investments 6,225 (11,386) 8,610
Investment in cellular partnerships (12,090) (3,939) (4,342)
Proceeds from asset sales -- 1,009 1,033
Purchase of companies, net of cash acquired (349,536) (18,546) (35,072)
Proceeds from sale of company -- 55,689 --
Other investing activities (196) (370) (897)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (519,337) (89,705) (151,165)
- ----------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 207,962 135,412 151,296
Repayments of debt (279,329) (64,747) (275,786)
Dividends paid (82,801) (59,388) (57,849)
Treasury stock, net (10,041) 2,302 (2,744)
Issuance of common stock 31,957 107,244 13,175
Distribution to shareowners of pooled company (2,287) (11,236) --
Preferred stock conversions -- -- (7,119)
Other financing activities (8) (8) 1,626
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (134,547) 109,579 (177,401)
- ----------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (327,860) 325,339 (36,333)
Cash and Cash Equivalents at Beginning of Year 359,309 33,970 70,303
- ----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 31,449 $ 359,309 $ 33,970
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE>
Consolidated Statements of Shareowners' Equity
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance, January 1 $ 22,777 $ 22,785 $ 22,813
Redemptions (8) (8) (28)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31 22,769 22,777 22,785
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance, January 1 149,294 108,630 89,616
Equity Offering -- 2,549 --
Stock Split -- 36,574 --
Retirements (117) -- --
Acquisitions -- -- 698
Exercise of stock options 2,434 713 1,512
Exercise of warrants 6,252 828 9,205
Restricted stock plan 200 -- --
Preferred stock and convertible debenture conversions -- -- 7,599
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31 158,063 149,294 108,630
- ----------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value
Balance, January 1 379,404 308,649 279,710
Equity offering -- 101,565 --
Stock split -- (36,574) --
Retirements (3,142) -- --
Acquisitions -- -- 27,259
Exercise of stock options 15,780 894 1,328
Exercise of warrants 8,095 1,242 766
Restricted stock plan 7,000 -- --
Tax benefit from exercise of stock options 15,252 4,062 5,452
Preferred stock and convertible debenture conversions -- -- (7,500)
Other (2,217) (434) 1,634
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 420,172 379,404 308,649
- ----------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, January 1 397,854 289,852 224,238
Net Income 22,083 180,057 121,154
Distribution to shareowners of pooled company (2,287) (11,236) --
Common and preferred dividends (100,501) (60,819) (55,540)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 317,149 397,854 289,852
- ----------------------------------------------------------------------------------------------------------------------------
Treasury Stock, at Cost
Balance, January 1 -- (2,191) --
Purchases for acquisitions (20,041) -- (12,572)
Issuances 19,894 2,191 10,381
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31 (147) -- (2,191)
- ----------------------------------------------------------------------------------------------------------------------------
Unearned Compensation-Restricted Stock Plan (6,511) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareowners' Equity $ 911,495 $ 949,329 $ 727,725
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Consolidation--The consolidated financial information includes the accounts of
Frontier Corporation and its majority-owned subsidiaries (the "Company" or
"Frontier") after elimination of all significant intercompany transactions.
Preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management estimates.
Materials and Supplies--Materials and supplies are stated at the lower of
cost or market, based on weighted average unit cost.
Property, Plant and Equipment--The investment in property, plant and equipment
is recorded at cost. Improvements that significantly add to productive capacity
or extend useful life are capitalized, while maintenance and repairs are
expensed as incurred. The Company's provision for depreciation of property,
plant and equipment is based on the straight-line method using estimated service
lives of the various classes of plant. The range of service lives for furniture
and fixtures is 5 to 20 years, network equipment is 7 to 17 years, local and
toll service lines is 12 to 25 years and for station equipment is 8 to 13 years.
The cost of depreciable telephone property units retired, plus removal costs,
less salvage is charged to accumulated depreciation. When non-telephone
property, plant and equipment is retired or sold, the resulting gain or loss is
recognized currently as an element of other income.
Goodwill and Customer Base--The excess of the cost of companies purchased over
the net assets acquired is being amortized on a straight-line basis over 20 to
40 years. The purchase price of customer bases and other intangible assets
acquired is being amortized on a straight-line basis over principally 5 to 7
years. Accumulated amortization is $64.0 million, $47.9 million and $37.2
million at the end of 1995, 1994, and 1993, respectively. Management continually
reviews the appropriateness of the carrying value of the excess acquisition cost
of its subsidiaries and the related amortization periods.
Accounts Payable--The Company estimates an accrual for long distance cost of
access. Subsequently, the accrual is adjusted based on invoices received from
local exchange carriers and others.
Fair Value of Financial Instruments--Cash and cash equivalents are valued at
their carrying amounts, which are reasonable estimates of fair value. The fair
value of long-term debt is estimated using rates currently available to the
Company for debt with similar terms and maturities. The fair value of all other
financial instruments approximates cost as stated.
Federal Income Taxes--Deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when those differences are expected to reverse. Income tax benefits of
tax deductions related to common stock transactions with the Company's stock
option plans are recorded directly to capital in excess of par value.
The Company provides a valuation allowance for its deferred tax assets when
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
Stock Split--In November 1993, the Board of Directors approved a 2-for-1
split of the common stock of the Company effected in the form of a 100 percent
stock dividend with no change in the $1.00 per share par value. The New York
State Public Service Commission (PSC) approved the stock split in March 1994 and
distribution of certificates began on April 29, 1994. Historical share and per
share data have been retroactively adjusted to reflect the split where
appropriate.
Revenue Recognition--Customers are billed as of monthly cycle dates. Revenue
is recognized as service is provided and unbilled usage is accrued.
Earnings Per Share--Earnings applicable to each share of common stock and
common stock equivalent are based on the weighted average number of shares
outstanding during each year. Common stock equivalents are primarily stock
options assumed to be exercised for the purposes of the computation.
Cash Flows--For purposes of the Statement of Cash Flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Actual interest paid was $57.9 million in 1995, $56.1 million in 1994 and
$59.3 million in 1993. Actual income taxes paid were $108.6 million in 1995,
$107.9 million in 1994 and $57.9 million in 1993.
Reclassifications--Certain prior year amounts have been reclassified to
conform to current year presentation.
2. Pooling of Interest Transactions
On August 16, 1995, the shareowners of the Company and ALC Communications
Corporation (ALC) approved a merger of the two companies. ALC, through its
subsidiary Allnet Communication Services, Inc. (renamed Frontier Communications
Services, Inc.), provides long distance products and services primarily
to small and medium-sized business customers and carrier customers nationwide.
Under the terms of the merger agreement, the Company exchanged two shares of its
common stock for each of ALC's common shares. The total shares issued by the
Company to effect the merger were 69.2 million. At the time of the merger, ALC
had 3.9 million stock options and 3.3 million stock warrants outstanding
providing on exercise, for the purchase of an equal number of its shares. As a
result of the merger, each of these options and warrants was converted into an
option or warrant for two shares of the Company's stock. The transaction has
been accounted for as a pooling of interests and the consolidated financial
statements have been restated for all periods prior to the merger to include the
accounts and operations of ALC.
On March 17, 1995, the Company acquired American Sharecom, Inc. (ASI), a long
distance company headquartered in Minneapolis, Minnesota. ASI's sales operations
are concentrated in the Midwest, Northwest and California. The Company acquired
all of the outstanding shares of ASI in exchange for approximately 8.7 million
shares of Frontier common stock. Subsequent to the acquisition, 117,336 shares
of Frontier common stock were returned to the Company in settlement of a pre-
acquisition liability and retired. The transaction has been accounted for as a
pooling of interests and the consolidated financial statements have been
restated for all periods prior to the acquisition to include the accounts and
operations of ASI.
31
<PAGE>
Combined and separate results of Frontier Corporation, ALC and ASI during
the periods preceding the mergers were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Frontier FAS 109
In millions Corporation ALC ASI Adjustment Combined
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Seven months ended July 31, 1995:
(unaudited)
Net revenues $678.4 $443.8 $ 20.2 $1,142.4
Net income $ 71.2 $ 46.7 $ 2.1 $ 120.0
=========================================================================================
December 31, 1994:
Net revenues $977.1 $567.8 $122.6 $1,667.5
Net income $102.7 $ 64.3 $ 13.1 $ 180.1
=========================================================================================
December 31, 1993:
Net revenues $900.1 $436.4 $100.9 $1,437.4
Extraordinary item -- $ 7.5 -- $ 7.5
Net income $ 82.7 $ 45.4 $ 6.6 ($13.5) $ 121.2
=========================================================================================
</TABLE>
The adjustment impacting 1993 net income reflects the restatement of ALC's
provision for income taxes from the accounting methods prescribed by APB 11 to
the accounting methods prescribed by Statement of Financial Accounting Standards
No. 109 (FAS 109), "Accounting for Income Taxes," which was implemented by the
Company in 1992.
3. Purchase Acquisitions and Divestitures
Purchase Acquisitions
In November 1995, the Company acquired Link-VTC, Inc. (Link-VTC), a Boulder,
Colorado based telecommunications company specializing in videoconferencing
services. The Company will pay a total cash purchase price in the range of
approximately $12.4 million to $17.9 million, depending on the 1996 financial
performance of Link-VTC.
In August 1995, Frontier acquired Schneider Communications, Inc. (SCI) and
SCI's 80.8% interest in LinkUSA Corporation (LinkUSA) for $130 million in cash.
SCI provides telecommunications services in the Midwest. LinkUSA develops
software applications for telecommunications firms.
In July 1995, the Company acquired Enhanced TeleManagement, Inc. (ETI), a
privately-held telecommunications company specializing in the integration and
resale of local, long distance, and ancillary telephone services to small and
medium-sized business customers. ETI provides service in the Midwest and
Northwest states. Frontier paid approximately $29 million in cash for ETI.
In May 1995, the Company purchased WCT Communications, Inc. WCT is a
facilities-based long distance carrier providing commercial and residential
services in 45 states. The Company paid approximately $80 million in cash for
all of the outstanding shares of WCT.
In March 1995, the Company, through ALC, acquired ConferTech International,
Inc. (ConferTech), a telecommunications company specializing in teleconferencing
services and audio bridge equipment. ALC paid approximately $66 million in cash
for ConferTech.
In March 1995, the Company acquired Minnesota Southern Cellular Telephone
Company (MSCTC) for 867,000 shares of Frontier common stock which were reissued
from treasury in exchange for all of the shares of MSCTC. MSCTC is the non-
wireline provider of cellular service in Minnesota Rural Service Area #10, an
area south of Minneapolis.
In April 1993, the Company acquired a 70 percent interest in the Utica-Rome
Cellular Partnership for approximately 703,000 shares of the Company's common
stock (prior to the April 1994 stock split). The transaction was accounted for
as a purchase acquisition. In addition, the Company acquired Budget Call Long
Distance, Inc. in June 1993 for $7.5 million in cash and acquired Mid Atlantic
Telecom, Inc. in September 1993 using 143,587 shares of treasury stock (prior to
the April 1994 stock split). Both transactions were accounted for as purchase
acquisitions.
The following unaudited pro forma results of operations for the twelve month
periods ended December 31, 1995 and 1994 present information as if the purchase
acquisitions had occurred at the beginning of the periods presented. The pro
forma results of operations are provided for information purposes only. They are
based upon historical information which has been restated to reflect the pooling
of interests with ALC and ASI, and do not necessarily reflect the actual results
that would have occurred nor are they necessarily indicative of future results
of operations of the combined companies.
<TABLE>
<CAPTION>
Pro Forma (unaudited)
- ---------------------------------------------------------------------------------
In thousands of dollars, except per share data 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Revenues $2,273,348 $1,949,551
Income before extraordinary items and cumulative effect
of changes in accounting principles $ 130,388 $ 157,756
Net Income $ 7,703 $ 150,559
Earnings Per Common Share:
Earnings before extraordinary items and cumulative
effect of changes in accounting principles $ .81 $ .98
Earnings Per Common Share $ .05 $ .93
=================================================================================
</TABLE>
32
<PAGE>
Divestitures
In March 1995, the Company sold Ontonagon County Telephone Company in Michigan
and its subsidiary, Midway Telephone Company. The sale resulted from the
Company's plans to expand in areas other than Michigan's Upper Peninsula. The
sale resulted in a non-taxable gain of $4.8 million, or $.03 per share.
In May 1994, the Company completed the sale of Minot Telephone Company in
Minot, North Dakota. Minot Telephone was the Company's only holding in North
Dakota and the Company had reassessed its prospects for expansion in North
Dakota. The sale resulted in a $7.1 million after tax gain, or $.04 per share.
4. Acquisition Related and Other Charges
The Company's current year operating results reflect acquisition related charges
of $114.2 million associated with the integration of a number of companies over
the last year, including the August 1995 merger with ALC. The integration of the
acquired companies with the existing Frontier businesses has resulted in
instances of redundant facilities, equipment and staffing. The acquisition
related charges includes investment banker, legal fees and other direct costs
resulting from the merger with ALC and the ASI transaction. Following is a
schedule of the costs included in the acquisition related charges:
<TABLE>
<CAPTION>
- -------------------------------------------------------
In millions
- -------------------------------------------------------
<S> <C>
Asset write-downs $ 71.5
Transaction costs 19.0
Severance 11.8
Other 11.9
- -------------------------------------------------------
$114.2
=======================================================
</TABLE>
The acquisition related charges were reported as a separate component of
operating expenses for the 1995 results. The Company estimates that
approximately 300 employees will be terminated as a result of the integration.
As of December 31, 1995, 43 employees have actually been terminated and were
paid severance benefits of $1.2 million. The Company believes that the balance
of reserves of $83.1 million at December 31, 1995, is adequate for the
completion of those activities. The accrual for acquisition related charges is
included in "Other liabilities" and "Property, plant and equipment" on the
consolidated balance sheets. The Company anticipates that the integration of the
companies acquired will be completed during 1996.
As part of the Rochester, New York operating company's Settlement Agreement
with the New York State Public Service Commission finalized in the third quarter
of 1993, the Company agreed to write off one-half of the costs ($3.3 million)
previously deferred as part of a project to redesign customer account records,
order flow and customer billing systems. The costs were incurred from January
1990 to December 1992 and the project was abandoned after it was determined that
the cost to complete it was substantially greater than initially estimated. This
charge is reflected as a separate component of 1993 operating expenses.
5. Discontinuance of Regulatory Accounting Principles
The Company determined in 1995 that FAS 71, "Accounting for the Effects of
Certain Types of Regulation," was no longer applicable based upon changes in
regulation, increasingly rapid advancements in telecommunications technology and
other factors creating competitive markets. The Company does not believe with
any certainty that prices can be maintained at levels that will recover its
costs.
As a result of the discontinuance of FAS 71, the Company recorded a non-
cash extraordinary charge of $112.1 million, net of an income tax benefit of
$68.4 million as of September 30, 1995. The components of the extraordinary
charge follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
In millions Pre-Tax After-Tax
- ----------------------------------------------------------------
<S> <C> <C>
Increase to the accumulated
depreciation balance $(185.6) $(115.4)
Elimination of other net
regulatory liabilities 5.1 3.3
- ----------------------------------------------------------------
$(180.5) $(112.1)
================================================================
</TABLE>
The adjustment of $185.6 million to net telephone plant was necessary
because estimated useful lives and depreciation methods historically prescribed
by regulators did not keep up with the rapid pace of technological changes in
the Company and differed significantly from those used by unregulated
enterprises. The increase to the accumulated depreciation balance was determined
by a depreciation reserve study that identified inadequate accumulated
depreciation levels by individual asset categories. The Company believes these
levels developed over the years as a result of the systematic underdepreciation
of assets resulting from the regulatory process.
When adjusting its net telephone plant, the Company gave effect to shorter,
more economically realistic lives. The following is a summary of average lives
before and after the discontinuation of FAS 71.
<TABLE>
<CAPTION>
- -----------------------------------------------------
Asset Category Before After
- -----------------------------------------------------
<S> <C> <C>
Central Office Equipment
Digital Switching 20.0 13.5
Analog Switching 12.0 8.0
Circuit Equipment 12.0 8.0
Cable & Wire Facilities
Aerial Metallic 27.0 19.0
Underground Metallic 35.0 12.0
Buried Metallic 24.0 18.0
Fiber Optic 35.0 25.0
=====================================================
</TABLE>
The discontinuance of FAS 71 also required the Company to eliminate for
financial reporting the effects of any actions of regulators that had been
recognized as regulatory assets and liabilities pursuant to FAS 71. These net
regulatory liabilities primarily consist of pension credits, interest on
unfunded OPEB liability, deferred software costs and other assets being
recognized over time for regulatory reporting.
Tax-related adjustments were required to adjust excess deferred tax levels
to the currently enacted statutory rates and to eliminate tax-related regulatory
assets and liabilities. Prior to the discontinuance of FAS 71, the Company had
recorded deferred income taxes on the cumulative amount of tax benefits
previously flowed through to ratepayers and recorded a regulatory asset for the
same amount. Also, the Company had recorded a regulatory liability for the
difference between deferred taxes at higher historical tax rates than with those
currently enacted. At the time the Company discontinued the application of FAS
71, the above tax-related regulatory assets and liabilities were eliminated and
deferred tax balances adjusted to reflect the application of FAS 109 consistent
with unregulated enterprises. In addition to these tax impacts, the Company,
prior to the discontinuance of FAS 71, used the deferral method of accounting
for investment tax credits. This method provided for the amortization of the
credits as a reduction to tax expense over the life of the assets that gave rise
to the tax credit.
The impact of discontinuing FAS 71 will not be significant to the results of
operations in the future.
33
<PAGE>
6. Upstate Cellular Network
In July 1994, Frontier Corporation and NYNEX Corporation combined certain of
their respective cellular interests to form a cellular Supersystem joint venture
in upstate and western New York State. The Supersystem includes the cellular
markets in Buffalo, Rochester, Syracuse, Utica-Rome and New York Rural Service
Area #1, which includes Jefferson, St. Lawrence and Lewis counties. The
structure of the transaction is a 50/50 joint venture partnership, with Frontier
as the managing partner. Financial results for the joint venture have been
reported on the equity method of accounting, reflecting Frontier's proportionate
share of the joint venture's earnings in the "Other income and expense" section
of the Consolidated Statement of Income. Previously, revenues and expenses for
these New York State wireless properties had been consolidated. During 1995,
NYNEX Corporation contributed its cellular interests partnership into a new
partnership it formed with Bell Atlantic Corporation.
7. Property, Plant and Equipment
Major classes of property, plant and equipment are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Land and Buildings $ 106,745 $ 103,235 $ 107,165
Local and Toll Service Lines 761,044 752,366 743,028
Central Office Equipment 587,814 584,434 583,928
Station Equipment 32,183 33,926 34,740
Switching and Network Facilities 330,567 234,433 207,952
Office Equipment, Vehicles and Tools 201,718 170,094 172,094
Plant Under Construction 77,091 36,130 33,048
Less: Accumulated Depreciation 1,215,853 880,176 801,820
- --------------------------------------------------------------------------
$ 881,309 $1,034,442 $1,080,135
==========================================================================
</TABLE>
Depreciation expense was $139.8 million, $130.7 million and $126.3 million
for the years ending December 31, 1995, 1994 and 1993, respectively.
8. Long-Term Debt
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frontier Communications of Minnesota, Inc.
Senior Notes, 7.61%, due February 1, 2003 $ 35,000 $ 35,000 $ 35,000
Rural Utilities Service
debt, 2%-9% due 1994 to 2026 69,878 77,045 80,667
- -------------------------------------------------------------------------------------
104,878/(a)/ 112,045 115,667
- -------------------------------------------------------------------------------------
Debentures
10.46% Convertible,
due October 27, 2008 5,300/(b)/ 5,300 5,300
9%, due January 1, 2020 --/(c)/ 69,785/(c)/ 100,000
9%, due August 15, 2021 100,000 100,000 100,000
- -------------------------------------------------------------------------------------
105,300 175,085 205,300
- -------------------------------------------------------------------------------------
9% Senior Subordinated Notes, due 2003 3,233/(d)/ 80,000/(d)/ 85,000
Medium-Term Notes, 7.51%--9.3%,
due 2000 to 2004 219,000/(e)/ 179,000 179,000
Revolving Credit and Term Loan Agreements 187,601/(f)/ 120,000 --
Capitalized Lease Obligations and Other Debt 17,376 3,971 5,817
- -------------------------------------------------------------------------------------
Sub-total 637,388/(g)/ 670,101 590,784
Less-Discount on long-term debt, net of premium 3,650 3,586 4,115
Current portion of long-term debt 14,871 4,966 4,962
- -------------------------------------------------------------------------------------
Total Long-Term Debt $618,867 $661,549 $581,707
=====================================================================================
</TABLE>
(a) Certain assets of Local Communications Operations are pledged as security
for Mortgage Bonds, Rural Utilities Service debt and other debt.
(b) The debenture is convertible into common stock at any time after October 26,
1998 for $10.5375 per share. A total of 502,966 shares of common stock are
reserved for such conversion.
(c) In December 1994, the Company redeemed $30.2 million of its 9% debentures
due January 1, 2020. This redemption was consummated through an
open market purchase at a price of 99% of face value.
In 1995, the Company redeemed the remaining $69.8 million of its 9%
debentures due January 1, 2020. This redemption was accomplished through an open
market purchase at a price of 106% of face value. As a result of the
transaction, the Company recorded an extraordinary loss of $3.2 million, net of
applicable income taxes of $1.7 million.
(d) In May 1993, the Company completed an offering of $85.0 million 9% Senior
Subordinated Notes. The Notes, which will mature on May 15, 2003 are redeemable
in whole or in part on or after May 15, 1998. The net proceeds of $84.3 million
were used to repay the outstanding 11.875% Senior Subordinated Notes and to
reduce the amount outstanding under the short term Revolving Credit Facility.
The early retirement of the 11.875% Notes resulted in an extraordinary loss of
$7.5 million, net of the related taxes of $4.0 million.
34
<PAGE>
In April 1994, the Company acquired $5.0 million of the 9% Senior Subordinated
Notes at the Company's approximate book value.
On September 26, 1995, the Company completed a tender offer for the $80.0
million of outstanding 9% Senior Subordinated Notes due May 15, 2003.
Approximately $76.8 million was tendered by the bondholders at a price of 109%
of face value. The early retirement resulted in an extraordinary loss of $5.8
million, net of applicable income taxes of $3.7 million.
(e) In March 1995, the Company completed an offering of $40.0 million 7.51%
Medium-Term Notes. The Notes, which will mature on March 27, 2002 are not
redeemable prior to maturity. The net proceeds of $39.8 million were used to
repay a portion of the loans outstanding under the Revolving Credit Agreement.
(f) The Company has a $250.0 million commercial paper program which is fully
backed by a committed Revolving Credit Agreement. The Revolving Credit Agreement
was entered into in August 1995 with a group of 11 commercial banks and expires
August 2000. The agreement is unsecured and has commitment fees of .08% per year
on the entire commitment. Interest on amounts drawn down is based upon the
London Interbank Offered Rate (LIBOR) plus .17%. At December 31, 1995, the
Company had outstanding $167.3 million in commercial paper issuances. Commercial
paper is classified as long term debt as the Company intends to refinance the
debt on a short term basis either through continued short-term borrowing or
available credit facilities with unused commitments extending beyond one year.
In December 1994, Rochester Telephone Corporation (Rochester Telephone)
entered into a Revolving Credit Agreement with seven commercial banks as part of
the implementation of the Open Market Plan. The agreement established a secured
$160.0 million line of credit. The Revolving Credit Agreement was amended at the
end of the first quarter 1995, reducing the available line of credit to $100
million and removing the security interest on the assets of Rochester Telephone.
The agreement carries commitment fees of .07% annually on the entire commitment.
Interest on amounts drawn down are based on either the prime rate, LIBOR plus
.13%, or a competitive bid rate. On December 31, 1995, Rochester Telephone had
drawn down $20.3 million under this facility at 6.11%. Borrowings under the
Revolving Credit Agreement are classified as long term debt as Rochester
Telephone intends to refinance the debt on a short term basis either through
continued short term borrowing or available credit facilities with unused
commitments extending beyond one year.
(g) In accordance with FAS 107, "Disclosures about Fair Value of Financial
Instruments," the Company estimates that the fair value of the debt, based on
rates currently available to the Company for debt with similar terms and
remaining maturities, is $689.9 million, as compared to the carrying value of
$637.4 million.
At December 31, 1995, aggregate debt maturities were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
In thousands of dollars 1996 1997 1998 1999 2000
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 14,871 $ 8,128 $ 6,181 $26,086 $276,932
- -------------------------------------------------------------------------------------------------------------
</TABLE>
9. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $103,689 $105,189 $64,939
Deferred (17,721) (9,120) 398
- ------------------------------------------------------------------------------------------------------
85,968 96,069 65,337
- ------------------------------------------------------------------------------------------------------
State:
Current 16,498 13,116 7,307
Deferred (1,570) (107) 865
- ------------------------------------------------------------------------------------------------------
14,928 13,009 8,172
- ------------------------------------------------------------------------------------------------------
Total income taxes $100,896 $109,078 $73,509
======================================================================================================
</TABLE>
The reconciliation of the federal statutory income tax rate with the
effective income tax rate reflected in the financial statements
is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax expense at statutory rate $ 85,982 35.0% $ 103,716 35.0% $ 70,754 35.0%
State income tax (net of federal benefit) 9,703 4.0 8,456 2.9 5,312 2.6
Accelerated depreciation 2,725 1.1 2,699 .9 2,656 1.3
Investment tax credit (1,430) (.6) (1,964) (.7) (2,044) (1.0)
Utilization of net operating loss carryforward (3,431) (1.4) (3,431) (1.2) (3,431) (1.7)
Acquisition related charges 5,789 2.4 -- -- -- --
Goodwill amortization 3,698 1.5 2,346 .8 2,770 1.4
Miscellaneous (2,140) (.9) (2,744) (.9) (2,508) (1.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income taxes $ 100,896 41.1% $ 109,078 36.8% $ 73,509 36.4%
</TABLE>
35
<PAGE>
Deferred tax (assets) liabilities are comprised of the following at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation $ 81,687 $ 151,069 $ 153,910
Investment tax credit -- 5,354 6,828
Other 18,297 11,799 10,533
- ----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 99,984 168,222 171,271
- ----------------------------------------------------------------------------------------------------------------------------
Basis adjustment-purchased telephone companies (29,232) (31,851) (42,741)
Employee benefits obligation (4,562) (12,955) (5,415)
Deferred compensation (2,903) (2,864) (2,548)
Net operating loss carryforward (42,312) (42,000) (44,700)
Acquisition related charges (29,213) -- --
Bad debt expense (11,801) (4,657) (3,557)
Other (28,235) (9,890) (6,307)
- ----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets (148,258) (104,217) (105,268)
Valuation allowance for deferred tax assets 20,330 28,500 34,900
- ----------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets (127,928) (75,717) (70,368)
- ----------------------------------------------------------------------------------------------------------------------------
Net Deferred Tax (Assets) Liabilities $ (27,944) $ 92,505 $ 100,903
============================================================================================================================
</TABLE>
Certain of the Company's acquired subsidiaries have tax net operating
losses, alternative tax net operating losses and investment tax credit ("ITC")
carryforwards which can be utilized annually to offset stand alone future
taxable income. Under the provisions of Internal Revenue Code Section 382, the
utilization of carryforwards is presently limited to approximately $15.0 million
per year through 2002. This annual limitation, coupled with the 15 year
carryforward limitation, results in a maximum cumulative NOL and ITC
carryforward which may be utilized of approximately $113.0 million as of
December 31, 1995. The Company has established valuation allowances primarily
for net operating loss carryforwards. Because it is difficult to predict the
realization of the NOL benefit beyond a period of three years, the Company has
established valuation allowances of $20.3 million, $28.5 million, and $34.9
million, as of December 31, 1995, 1994 and 1993, respectively.
10. Service Pensions and Benefits
The Company has contributory and noncontributory plans providing for service
pensions and certain death benefits for a substantial number of employees. The
Company's provisions for service pensions and certain death benefits are
remitted, at least annually, to the trustees.
The majority of the Company's pension plans have plan assets that exceed
accumulated benefit obligations. There are certain plans, however, with
accumulated benefit obligations which exceed plan assets. The following tables
summarize the funded status of the Company's pension plans and the related
amounts that are recognized in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Plans for Plans for
which assets which
exceed accumulated
December 31, 1995 accumulated benefits
In thousands of dollars benefits exceed assets Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 367,765 $ 19,984 $ 387,749
Accumulated benefit obligation $ 381,528 $ 22,335 $ 403,863
============================================================================================================================
Plan assets at fair value, primarily fixed
income securities and common stock $ 437,151 $ 8,234 $ 445,385
Projected benefit obligation (384,199) (25,364) (409,563)
- ----------------------------------------------------------------------------------------------------------------------------
Funded status 52,952 (17,130) 35,822
Unrecognized net (gain) loss (19,194) 4,337 (14,857)
Unrecognized net transition (asset) obligation (3,909) 36 (3,873)
Unrecognized prior service cost 12,533 3,783 16,316
Adjustment required to recognize minimum liability -- (5,246) (5,246)
- ----------------------------------------------------------------------------------------------------------------------------
Pension asset (liability) reflected in Consolidated Balance Sheet $ 42,382 $(14,220) $ 28,162
============================================================================================================================
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Plans for Plans for
which assets which
exceed accumulated
December 31, 1994 accumulated benefits
In thousands of dollars benefits exceed assets Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 294,140 $ 15,494 $ 309,634
Accumulated benefit obligation $ 308,432 $ 17,223 $ 325,655
============================================================================================================================
Plan assets at fair value, primarily fixed
income securities and common stock $ 373,446 $ 6,641 $ 380,087
Projected benefit obligation (326,858) (20,774) (347,632)
- ----------------------------------------------------------------------------------------------------------------------------
Funded status 46,588 (14,133) 32,455
Unrecognized net (gain) loss (23,244) 2,980 (20,264)
Unrecognized net transition (asset) obligation (3,935) 18 (3,917)
Unrecognized prior service cost 6,563 5,240 11,803
Adjustment required to recognize minimum liability -- (4,728) (4,728)
- ----------------------------------------------------------------------------------------------------------------------------
Pension asset (liability) reflected in Consolidated Balance Sheet $ 25,972 $(10,623) $ 15,349
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Plans for Plans for
which assets which
exceed accumulated
December 31, 1993 accumulated benefits
In thousands of dollars benefits exceed assets Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 280,941 $ 2,626 $ 283,567
Accumulated benefit obligation $ 304,359 $ 2,657 $ 307,016
============================================================================================================================
Plan assets at fair value, primarily fixed
income securities and common stock $ 395,698 $ 2,143 $ 397,841
Projected benefit obligation (350,946) (3,119) (354,065)
- ----------------------------------------------------------------------------------------------------------------------------
Funded status 44,752 (976) 43,776
Unrecognized net (gain) loss (29,311) 582 (28,729)
Unrecognized net transition asset (5,291) (151) (5,442)
Unrecognized prior service cost 9,018 209 9,227
- ----------------------------------------------------------------------------------------------------------------------------
Pension asset (liability) reflected in Consolidated Balance Sheet $ 19,168 $ (336) $ 18,832
============================================================================================================================
</TABLE>
The net periodic pension cost consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
In thousands of dollars 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,616 $ 7,934 $ 7,758
Interest cost on projected benefit obligation 28,868 25,565 23,932
Actual (return) loss on plan assets (89,195) 2,229 (40,484)
Net amortization and deferral 52,744 (37,863) 7,623
- ----------------------------------------------------------------------------------------------------------------------------
Net periodic pension benefit (1,967) (2,135) (1,171)
Benefit due to regulatory agency actions (1,307) (1,743) (1,537)
Amount expensed due to curtailment 2,907 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net periodic pension benefit $ (367) $ (3,878) $ (2,708)
============================================================================================================================
</TABLE>
The projected benefit obligation at December 31, 1995, 1994 and 1993 was
determined using an assumed weighted average discount rate of 7.5%, 8.5% and
7.25%, respectively, and an assumed weighted average rate of increase in future
compensation levels of 5.0%, 5.5% and 5.0%, respectively. The weighted average
expected long-term rate of return on plan assets was assumed to be 9.0% at
December 31, 1995 and 1994 and 8.75% at December 31, 1993. The unrecognized net
transition asset as of January 1, 1987 is being amortized over the estimated
remaining service lives of employees, ranging from 12 to 26 years.
The Company's funding policy is to make contributions for pension benefits
based on actuarial computations which reflect the long-term nature of the
pension plan. However, under FAS 87, "Employers' Accounting for Pensions," the
development of the projected benefit obligation essentially is computed for
financial reporting purposes and may differ from the actuarial determination for
funding due to varying assumptions and methods of computation.
During 1995, 1994 and 1993, the Company funded $3.0 million, $1.0 million
and $.2 million, respectively, for employees' service pensions and certain death
benefits. In addition to the net pension expense in 1995, the Company recognized
a net curtailment loss of $2.6 million reflecting the freezing of defined
benefit plans sponsored by Frontier Corporation for non-bargaining unit
employees as of December 31, 1996.
37
<PAGE>
The Company has established a rabbi trust separate from the pension plan
assets to provide funding for the benefits payable under its Supplemental
Management Pension Plan ("SMPP"). The SMPP is a defined benefit plan under which
the Company will pay supplemental pension benefits to key executives in addition
to amounts received under the Company's retirement plan. The trust is
irrevocable and assets contributed to the trust can only be used to pay such
benefits with certain exceptions. The assets held in trust at December 31, 1995,
1994 and 1993 amounted to $10.3 million, $7.1 million and $4.4 million,
respectively, and consist primarily of fixed income securities and common stock.
During 1995, 1994 and 1993, the Company's total cost for this plan was $1.9
million, $1.3 million and $1.0, respectively. The 1995 cost includes an
additional $.3 million curtailment loss resulting from the freezing of the SMPP
benefit plan effective December 31, 1996.
The Company also sponsors a number of defined contribution plans. The most
significant plan covers non-union employees, who make contributions through
payroll deduction. The Company matches up to 75 percent of that contribution up
to 6 percent of gross compensation. The total cost recognized for all defined
contribution plans was $6.8 million for 1995, $5.6 million for 1994, and $4.7
million for 1993.
11. Postretirement Benefits Other Than Pensions
The Company provides health care, life insurance, and certain other retirement
benefits for a substantial number of employees. Plan assets consist principally
of life insurance policies and money market instruments. In adopting FAS 106,
the Company elected to defer the recognition of the accrued obligation of $125
million over a period of twenty years. During the fourth quarter of 1995, the
Company amended its health benefits plan to cap the cost absorbed by the Company
for health care and life insurance costs for its non-bargaining unit employees
who retire after December 31, 1996. All other benefits are discontinued. The
effect of this amendment was to reduce the December 31, 1995 accumulated
postretirement obligation by $8.1 million.
The status of the plans is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO) attributable to:
Retirees $ 73,032 $ 79,935 $ 63,749
Fully eligible plan participants 17,235 22,812 44,399
Other active plan participants 20,127 28,877 34,892
- ----------------------------------------------------------------------------------------------------------------------------
Total APBO 110,394 131,624 143,040
Plan assets at fair value 5,716 5,545 3,944
- ----------------------------------------------------------------------------------------------------------------------------
APBO in excess of plan assets 104,678 126,079 139,096
Unrecognized transition obligation (99,836) (109,730) (117,706)
Unrecognized net prior service cost (1,790) (6,003) (1,458)
Unrecognized net gain (loss) 30,110 15,502 (3,811)
- ----------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 33,162 $ 25,848 $ 16,121
============================================================================================================================
</TABLE>
The components of the estimated postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 947 $ 1,323 $ 2,746
Interest on APBO 8,614 9,666 10,046
Amortization of transition obligation 6,045 6,094 6,241
Return on plan assets (462) (385) (290)
Amortization of prior service cost 392 383 --
Amortization of gains and losses (2,758) (704) --
- ----------------------------------------------------------------------------------------------------------------------------
Net postretirement benefit cost $ 12,778 $ 16,377 $ 18,743
============================================================================================================================
</TABLE>
To estimate these costs, health care costs were assumed to increase 10.5%,
11.2% and 12.0% in 1996, 1995 and 1994 respectively, with the rate of increase
declining consistently to 5.0% by 2006 and thereafter. The weighted discount
rate was assumed to be 7.5%, 8.5% and 7.25% and the rate of salary increase was
assumed to be 5.0%, 5.5% and 5.0% at December 31, 1995, 1994 and 1993,
respectively. The expected long-term rate of return on plan assets was 9.0% at
December 31, 1995 and 1994 and 7.4% at December 31, 1993. If the health care
cost trend rates were increased by one percentage point, the accumulated
postretirement benefit health care obligation as of December 31, 1995 would
increase by $10.2 million while the sum of the service and interest cost
components of the net postretirement benefit health care cost for 1995 would
increase by $1.0 million.
12. Stock Option Plans and Other Common Stock Transactions
The Company has a stock option plan for its directors, executives and certain
employees. The exercise price for all plans is the fair market value of the
stock on the date of the grant of the stock option. The options expire ten years
from the date of the grant. Options previously issued to ALC employees are
vested in their entirety as of the August 16, 1995 merger date. The remaining
options vest over a period from one to three years. The total number of shares
which may be granted under the executive and employee plans is limited to one
percent of the number of issued shares, including treasury shares, of the
Company's common stock during any calendar year. The maximum number of shares
which may be granted under the directors plan is 1,000,000 shares.
38
<PAGE>
Information with respect to options under the above plans follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Option Price
Shares Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1993 7,370,456 $ 1.75-$15.69
Granted in 1993 3,519,038 $13.03-$19.75
Cancelled in 1993 (45,634) $ 1.75-$19.06
Exercised in 1993 (1,512,748) $ 1.75-$15.75
- --------------------------------------------------------------------------------
Outstanding at December 31, 1993 9,331,112 $ 1.75-$19.75
Granted in 1994 507,900 $14.82-$22.69
Cancelled in 1994 (150,464) $ 1.75-$22.69
Exercised in 1994 (713,025) $ 1.75-$19.75
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 8,975,523 $ 1.75-$22.69
Granted in 1995 2,020,315 $15.53-$27.13
Cancelled in 1995 (195,716) $ 2.25-$27.13
Exercised in 1995 (2,433,623) $ 1.75-$26.75
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 8,366,499 $ 1.75-$27.13
================================================================================
Exercisable at December 31, 1995 6,231,994 $ 1.75-$27.13
================================================================================
</TABLE>
At December 31, 1995, 2,468,007 shares were available for future grant.
Restricted Stock Plan
During 1995, the Company issued restricted stock to certain key employees under
its Management Stock Incentive Plan. The stock vests over a period of three
years based upon performance of the Company's stock price and continued
employment. During 1995, 200,000 shares were issued and outstanding under the
plan. Shareowners' equity reflects unearned compensation for the unvested stock
awarded. This amount is reduced and charged against operations, along with any
changes in market prices, as the stock awards vest.
Common Stock Warrants
As of December 31, 1995, warrants for the purchase of 131,169 shares of common
stock at $2.50 per share were outstanding. The warrants expire in June 1997. As
of December 31, 1995, 1994 and 1993, 6,252,000, 828,000 and 9,205,000 warrants
were exercised. The warrants were issued in connection with ALC's refinancings
and the difference between the exercise price and the fair value of the warrants
at the time of issuance was recorded as a discount on the related notes and an
increase to capital in excess of par value.
Stock Offering
In February 1994, the Company sold 5.4 million shares of its common stock at $42
per share in a public offering. As part of the offering, 2.5 million new primary
shares were issued and sold directly by the Company and 2.9 million shares were
sold by C FON Corporation, a subsidiary of Sprint Corporation. All share and per
share data is prior to the 2-for-1 stock split in April 1994.
13. Preferred Stock
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except share data 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frontier Corporation--850,000 shares authorized; par value $100
5.00% Series--redeemable at $101 per share
Shares Outstanding 100,000 100,000 100,000
Amount Outstanding $ 10,000 $ 10,000 $ 10,000
5.65% Series--redeemable at $101 per share
Shares Outstanding 50,000 50,000 50,000
Amount Outstanding $ 5,000 $ 5,000 $ 5,000
4.60% Series--redeemable at $101 per share
Shares Outstanding 50,000 50,000 50,000
Amount Outstanding $ 5,000 $ 5,000 $ 5,000
Frontier Communications of New York, Inc.
40,000 shares authorized; par value $100
5.875% Series A--redeemable at par
Shares Outstanding 18,694 18,694 18,694
Amount Outstanding $ 1,869 $ 1,869 $ 1,869
7.80% Series B--redeemable at $100.80-$105.00 per share
Shares Outstanding 6,240 6,320 6,400
Amount Outstanding $ 624 $ 632 $ 640
Frontier Communications of AuSable Valley, Inc.
4,000 shares authorized; par value $100
5.50% Series--redeemable at par
Shares Outstanding 2,754 2,754 2,754
Amount Outstanding $ 276 $ 276 $ 276
- ----------------------------------------------------------------------------------------------------------------------------
Total Shares Outstanding 227,688 227,768 227,848
============================================================================================================================
Total Amount Outstanding $ 22,769 $ 22,777 $ 22,785
============================================================================================================================
</TABLE>
39
<PAGE>
At the special meeting in December 1994, Frontier shareowners authorized 4
million shares of a new class of preferred stock, having a value of $100.00 per
share and designated as Class A Preferred Stock. This class of stock will rank
junior to the cumulative preferred stock as to dividends and distributions, and
upon the liquidation, dissolution or winding up of the Company. As of December
31, 1995, no shares of this class have been issued.
On April 9, 1995, the Board of Directors adopted a Shareowners Rights Plan
(the "Plan"). This Plan provides for a dividend distribution on each outstanding
common share of a right to purchase one one-hundredth of a share of Series A
Junior Participating Class A Preferred Stock. The rights are designed to protect
shareowners in the event of an unsolicited attempt to acquire Frontier which the
Board does not believe is fair to the shareowners interest. The rights become
exercisable under certain circumstances to purchase Frontier common stock, or
securities of an acquiring entity, at one-half market value.
14. Accounting Pronouncements Adopted
The Company adopted FAS 116, "Accounting for Contributions Received and
Contributions Made" for all of its consolidated subsidiaries effective September
30, 1995. FAS 116 requires that the Company reflect in current expenses an
accrual for the cost of multi-year charitable contributions. The net impact of
adopting FAS 116 resulted in a post tax charge of $1.5 million, net of taxes of
$0.8 million.
In 1992, the Financial Accounting Standards Board released FAS 112,
"Employers' Accounting for Postemployment Benefits" which the Company
implemented on January 1, 1994. FAS 112 requires that the projected future costs
of providing postemployment (but preretirement) benefits, such as disability,
prepension leave (salary continuation) and severance pay, be recognized as an
expense as employees render service rather than when the benefits are paid. The
Company recognized the obligation for postemployment benefits through a
cumulative effect charge to net income of $7.2 million, net of taxes of
$3.9 million.
15. Commitments and Contingencies
Operating Environment--During 1995, the Company evolved from a provider of local
and long distance services in certain areas of the country to a nationwide
provider of integrated communications services. As a result, the Company has
formidable competitors of greater size and expects that there will be more
entrants into the long distance business and its local markets. The Company also
has larger customers than it had as a predominantly local exchange company.
Legal Matters--The Company and a number of its subsidiaries are party to a
number of judicial and administrative proceedings involving matters incidental
to their business. The Company's management does not believe that any material
liability will be imposed as a result of these matters.
Leases and License Agreements--The Company leases buildings, land, office
space, fiber optic network, computer hardware and other equipment, and has
license agreements for rights-of-way for the construction and operation of a
fiber optic communications system. Total rental expense amounted to $77.8
million in 1995, $68.7 million in 1994 and $66.2 million in 1993.
Minimum annual rental commitments under noncancellable operating leases and
license agreements in effect on December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
In thousands of dollars NonCancellable Leases Transmission/
-------------------------- License
Years Buildings Equipment Agreements
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $16,589 $10,675 $34,644
1997 15,524 5,843 25,429
1998 11,935 1,790 17,682
1999 7,124 58 5,187
2000 6,389 15 2,996
2001 and thereafter 15,645 -- 11,451
- -------------------------------------------------------------------------
Total $73,206 $18,381 $97,389
=========================================================================
</TABLE>
Other Matters--It is anticipated that the Company will expend approximately
$175.0 million for additions to property, plant and equipment during 1996. In
connection with this construction program, the Company has made certain
commitments for the purchase of materials and equipment.
16. Business Segment Information
As of January 1995, the Company reports its operations in four segments: Long
Distance Communications Services, Local Communications Services, Wireless
Communications Services and Corporate Operations and Other. Prior to January
1995, the Company reported its operations in only two segments, Telephone
Operations and Telecommunications Services. The change in the definition of the
Company's segments has been made to better reflect the changing scope of the
businesses in which the Company operates. All historical data have been restated
accordingly to conform with the new presentation.
Revenues, operating income, depreciation, construction and identifiable assets
by business segment are set forth in the Business Segment Information on page
26.
40
<PAGE>
17. Selected Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues Income Per Share
-------------------------------------------------------------------------------------------------------
Earnings Before
(In thousands of dollars, Operating Net Extraordinary Market Price
except per share data) Consolidated Income Income Items and -------------
Revenues (Loss) (Loss) Cumulative Effect Earnings High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 First Quarter/(1)/ $ 459,040 $ 87,281/(2)/ $ 51,650/(2)/ $ .32 $ .32 $23.38 $19.25
Second Quarter/(1)/ 506,920 96,314 53,069 .33 .33 $24.13 $19.63
Third Quarter 571,386 (7,681)/(3)/ (137,912)/(3)/ (.12)/(5)/ (.90)/(5)/ $28.63 $23.75
Fourth Quarter 606,345 108,316 55,276/(4)/ .36 .34 $30.00 $25.50
-----------------------------------------
Full Year $2,143,691 $284,230 $ 22,083 $ .89 $ .13
=========================================
- ------------------------------------------------------------------------------------------------------------------------------------
1994 First Quarter $ 399,454 $ 75,967 $ 32,962/(6)/ $ .25 $ .21 $22.44 $20.25
Second Quarter 416,767 79,686 52,909 .33 .33 $25.25 $20.81
Third Quarter 421,503 84,557 47,407 .29 .29 $24.75 $21.63
Fourth Quarter 429,821 85,416 46,779 .29 .29 $24.63 $20.50
-----------------------------------------
Full Year $1,667,545 $325,626 $ 180,057 $1.16 $1.12
=========================================
- ------------------------------------------------------------------------------------------------------------------------------------
1993 First Quarter $ 333,939 $ 57,351 $ 27,432 $ .18 $ .18 $19.44 $17.32
Second Quarter 349,617 60,840 22,016/(7)/ .19 .14 $21.75 $18.25
Third Quarter 369,011 63,866 32,850 .21 .21 $24.38 $20.50
Fourth Quarter 384,881 69,580 38,856 .25 .25 $25.13 $21.69
-----------------------------------------
Full Year $1,437,448 $251,637 $ 121,154 $ .83 $ .78
=========================================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) First and second quarter results for 1995 as previously reported did not
include the pooling of interests with ALC Communications, Inc. Consolidated
revenues for ALC were $177.8 million and $197.2 million for the first and second
quarters, respectively. ALC's operating income and net income were $33.1 million
and $20.0 million at March 31, 1995 and $33.9 million and $20.2 million at June
30, 1995.
(2) Includes a pre-tax acquisition related charge of $4.8 million (post-tax
charge of $3.1 million.)
(3) Includes a pre-tax acquisition related charge of $109.5 million (post-tax
charge of $75.7 million.) Includes post-tax extraordinary charges of $112.1
million resulting from the discontinuance of regulatory accounting, a post-tax
extraordinary loss on retirement of debt of $5.8 million and a post-tax
cumulative effect charge related to change in accounting principle of $1.5
million.
(4) Includes a post-tax extraordinary loss on retirement of debt of $3.2
million.
(5) Due to the net loss incurred, the earnings per share calculation excludes
common stock equivalents.
(6) Includes a post-tax cumulative effect charge related to change in accounting
principle of $7.2 million.
(7) Includes a post-tax extraordinary loss on retirement of debt of $7.5
million.
41
<PAGE>
Condensed Six-Year Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except per
share data
Years Ended December 31, 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
Revenues $2,143,691 $1,667,545 $1,437,448 $1,252,244 $1,120,375 $ 978,805
Costs and expenses 1,859,461 1,341,919 1,185,811 1,047,393 952,165 867,857
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Income 284,230 325,626 251,637 204,851 168,210 110,948
Interest expense 54,660 51,312 58,022 68,243 64,722 57,324
Other income 16,094 22,018 8,538 3,511 29,473 12,048
Income taxes 100,896 109,078 73,509 33,094 52,774 32,585
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Items
and Cumulative Effect of Changes
in Accounting Principles 144,768 187,254 128,644 107,025 80,187 33,087
Extraordinary items (121,208) -- (7,490) (1,072) 6,387 --
Cumulative effect of changes
in accounting principles (1,477) (7,197) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income 22,083 180,057 121,154 105,953 86,574 33,087
Dividends on preferred stock 1,191 1,187 1,640 4,442 5,189 5,192
- ----------------------------------------------------------------------------------------------------------------------------------
Income Applicable to Common Stock $ 20,892 $ 178,870 $ 119,514 $ 101,511 $ 81,385 $ 27,895
==================================================================================================================================
Earnings Per Common Share:
Primary $ .13 $ 1.12 $ .78 $ .74 $ .64 $ .27
Fully Diluted $ .13 $ 1.12 $ .78 $ .74 $ .64 $ .27
==================================================================================================================================
CONSOLIDATED BALANCE SHEET
Current Assets $ 523,135 $ 673,826 $ 303,434 $ 302,122 $ 270,122 $ 235,523
Property, plant and equipment, net 881,309 1,034,442 1,080,135 1,085,760 1,075,584 916,018
Goodwill and customer base 550,081 222,442 215,962 187,278 197,201 113,399
Deferred and other assets 154,067 130,084 122,014 104,583 118,112 208,156
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $2,108,592 $2,060,794 $1,721,545 $1,679,743 $1,661,019 $1,473,096
==================================================================================================================================
Current Liabilities $ 504,201 $ 305,698 $ 291,760 $ 344,962 $ 344,974 $ 281,413
Long-term debt 618,867 661,549 581,707 604,157 636,099 486,853
Deferred income taxes 15,644 98,217 104,232 104,588 113,973 148,491
Deferred employee benefits obligation 58,385 46,001 16,121 -- -- --
Redeemable preferred stock -- -- -- 9,659 62,434 57,766
Shareowners' Equity 911,495 949,329 727,725 616,377 503,539 385,174
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $2,108,592 $2,060,794 $1,721,545 $1,679,743 $1,661,019 $1,359,697
==================================================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities $ 326,024 $ 305,465 $ 292,233 $ 249,763 $ 186,771 $ 121,871
Investing activities (519,337) (89,705) (151,165) (137,540) (283,607) (130,533)
Financing activities (134,547) 109,579 (177,401) (87,396) 116,579 (37,595)
- ----------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents $ (327,860) $ 325,339 $ (36,333) $ 24,827 $ 19,743 $ (46,257)
==================================================================================================================================
</TABLE>
42
<PAGE>
Financial and Operating Statistics for Six Years
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except per
share data
Years Ended December 31, 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current ratio 1.04 2.20 1.04 .88 .79 .84
Pretax interest coverage 1.9x 6.6x 4.3x 3.0x 3.2x 2.1x
Total debt $ 633,738 $ 666,515 $ 586,669 $ 694,803 $ 737,629 $ 566,699
Debt ratio 41.0% 41.2% 44.6% 52.6% 56.6% 56.1%
Common shareowners' equity $ 888,726 $ 926,552 $ 704,940 $ 593,564 $ 480,716 $ 362,343
Rate of return on average common equity/(1)/ 24.0% 21.9% 19.4% 18.9% 19.3% 7.8%
==================================================================================================================================
Construction $ 162,575 $ 113,735 $ 123,842 137,066 119,082 114,840
Percent of funds generated internally 150% 216% 189% 145% 117% 67%
==================================================================================================================================
Common shares outstanding end of year* 158,057 149,294 142,542 122,935 109,798 103,675
Average common shares outstanding* 161,669 160,353 153,230 136,180 127,627 104,310
Total number of common shareowners 26,637 24,608 22,840 22,520 21,376 19,640
Market price per common share:
High $ 30.00 $ 25.25 $ 25.13 $ 17.88 $ 17.00 $ 20.75
Low $ 19.25 $ 20.25 $ 17.32 $ 14.57 $ 13.00 $ 12.32
End of year $ 30.00 $ 21.13 $ 22.57 $ 17.82 $ 16.07 $ 14.63
==================================================================================================================================
Dividends declared per common share $ .835 $ .815 $ .795 $ .775 $ .755 $ .735
Dividends paid per common share $ .830 $ .810 $ .790 $ .770 $ .750 $ .730
Dividend yield-end of year 2.8% 3.9% 3.6% 4.4% 4.8% 5.1%
==================================================================================================================================
Percent to total revenues:
Net Revenues:
Long Distance Communications Services 69% 61% 55% 51% 51% 52%
Local Communications Services 29% 37% 41% 45% 44% 43%
Wireless Communications Services 1% 1% 2% 2% 2% 1%
Other 1% 1% 2% 2% 3% 4%
Operating Margin:
Long Distance Communications Services 8% 16% 13% 10% 7% 1%
Local Communications Services 30% 30% 27% 25% 26% 26%
Wireless Communications Services 10% 5% 11% 19% 20% 16%
Consolidated 13% 20% 18% 16% 15% 11%
==================================================================================================================================
Access lines in service-Rochester 524,630 501,811 492,512 488,986 473,391 461,551
Access lines in service-Regionals 426,245 416,327 425,128 407,415 394,513 227,138
- ----------------------------------------------------------------------------------------------------------------------------------
Total access lines in service 950,875 918,138 917,640 896,401 867,904 688,689
==================================================================================================================================
Employees:
Long Distance Communications Services 4,203 2,647 2,378 2,280 2,141 1,811
Local Communications Services 2,959 3,156 3,444 3,885 3,915 3,251
Other 675 369 259 296 316 543
- ----------------------------------------------------------------------------------------------------------------------------------
Total employees 7,837 6,172 6,081 6,461 6,372 5,605
==================================================================================================================================
Local Communications Services minutes of use:
Carrier access minutes-interstate* 2,272,294 2,079,328 2,015,602 1,912,531 1,569,309 1,233,045
Carrier access minutes-intrastate* 1,759,425 1,763,871 1,664,262 1,439,983 1,173,685 901,376
- ----------------------------------------------------------------------------------------------------------------------------------
Total carrier access minutes* 4,031,719 3,843,199 3,679,864 3,352,514 2,742,994 2,134,421
==================================================================================================================================
Long Distance minutes of use 10,066,777 6,286,912 4,684,981 3,909,616 2,868,545 2,640,667
==================================================================================================================================
</TABLE>
*In thousands
(1) Excluding nonrecurring charges.
43
<PAGE>
Exhibit 13.2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
ALC Communications Corporation
We have audited the consolidated balance sheets of ALC
Communications Corporation and subsidiaries as of December
31, 1995, 1994 and 1993, and the related consolidated
statements of operations, cash flows, and preferred stock
and stockholders' equity for each of the three years in the
period ended December 31, 1995 (not included herein). These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of ALC Communications
Corporation and subsidiaries at December 31, 1995, 1994 and
1993, and the consolidated results of their operations and
their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
January 17, 1996
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FRONTIER CORPORATION
AS OF March 1, 1996
STATE OF BUSINESS
NAME OF SUBSIDIARY INCORPORATION NAMES USED
- ------------------ ------------- ----------
ALC Communications Corporation MI ALC Communications Corp.;
(A subsidiary of Frontier ALC
Corporation)
Ameritel Management, Inc. Canada Ameritel Management, Inc.
(A subsidiary of WCT (British Columbia)
Communications, Inc.)
Budget Call Long Distance, Inc. DE Budget Call Long
(A subsidiary of Frontier Distance, Inc.; Budget
Telecommunications Inc.) Call
Business Telemanagement, Inc. CA Business Telemanagement,
(A subsidiary of Ameritel Inc.; BTI
Management, Inc.)
Computer Calling Technologies, Inc. CA Computer Calling
(A subsidiary of Frontier Technologies, Inc.
Communications of the West, Inc.)
ConferLink Corp. CO Conferlink Corp.
(A subsidiary of ConferTech
International, Inc.)
ConferTech Australia Pty. Ltd. Australia ConferTech Australia
(A subsidiary of ConferTech
International, Inc.)
ConferTech Canada, Inc. Canada ConferTech Canada, Inc.
(A subsidiary of ConferTech (All provinces)
International, Inc.)
Confertech Holdings, Inc. CO Confertech Holdings, Inc.
(A subsidiary of ConferTech
International, Inc.)
ConferTech International (UK), United ConferTech International
Ltd. (A subsidiary of Kingdom (UK), Ltd.
ConferTech International, Inc.)
ConferTech International, Inc. CO ConferTech International,
(A subsidiary of ALC Communications Inc.
Corporation)
DePue Communications, Inc. IL DePue Communications,
(A subsidiary of Frontier Inc.
Communications of DePue, Inc.)
<PAGE>
Dowdy Minnesota 10, Inc. FL Dowdy Minnesota 10, Inc.
(A subsidiary of Frontier Cellular
Holding Inc.)
Enhanced Telemanagement, Inc. MN Enhanced Telemanagement;
(A subsidiary of Frontier ETI; Frontier Telemanage-
Telecommunications Inc.) ment
Enterprise Marketing Services, PA Enterprise Marketing
Inc. (A subsidiary of Frontier Services
Communications of Pennsylvania,
Inc.)
Fairmount Cellular Inc. GA Fairmount Cellular Inc.
(A subsidiary of Frontier
Communications of Fairmount, Inc.)
Frontel Communications Limited England Frontel Communications
(A subsidiary of ALC Communications Ltd.; Frontel
Corporation)
Frontier Cellular Holding Inc. DE Frontier Cellular
(A subsidiary of Frontier Corporation) Holding Inc.; FCHI
Frontier Cellular of Alabama, Inc. AL Frontier Cellular
(A subsidiary of Frontier
Communications of the South, Inc.)
Frontier Communications DE Frontier Communications
International Inc. International Inc.; FCI;
(A subsidiary of RCI Long Distance, Inc.
Frontier Telecommunications Inc.)
Frontier Communications of AL Frontier Communications
Alabama, Inc. of Alabama, Inc.
A subsidiary of Frontier Subsidiary
Telco Inc.)
Frontier Communications of NY Frontier Communications
AuSable Valley, Inc. of AuSable Valley, Inc.;
(A subsidiary of Frontier
Frontier Corporation)
Frontier Communications of PA Frontier Communications
Breezewood, Inc. of Breezewood, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications
Canton, Inc. of Canton, Inc.; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications
DePue, Inc. of DePue, Inc.; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of GA Frontier Communications
Fairmount, Inc. of Fairmount, Inc.;
<PAGE>
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of GA Frontier Communications
Georgia, Inc. of Georgia, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of the WI Frontier Communications
Great Lakes, Inc. of the Great Lakes, Inc.;
(A subsidiary of Frontier Schneider Communications;
Telecommunications Inc.) Frontier Telemanagement
Frontier Communications of IL Frontier Communications
Illinois, Inc. of Illinois, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of IN Frontier Communications
Indiana, Inc. of Indiana, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Telecommunications IA Frontier Communications
of Iowa, Inc. of Iowa, Inc.; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications- WI Frontier Communications
Lakeshore, Inc. -Lakeshore, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications
Lakeside, Inc. of Lakeside; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications
Lakewood, Inc. of Lakewood, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of AL Frontier Communications
Lamar County, Inc. of Lamar County, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of MI Frontier Communications
Michigan, Inc. of Michigan, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of the VA Frontier Communications
Mid Atlantic, Inc. of the Mid Atlantic,
(A subsidiary of Frontier Inc.; Mid Atlantic
Telecommunications Inc.) Telecom
Frontier Communications-Midland, IL Frontier Communications
<PAGE>
Inc. -Midland, Inc.; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications MN Frontier Communications
of Minnesota, Inc. of Minnesota, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of MS Frontier Communications
Mississippi, Inc. of Mississippi, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of WI Frontier Communications
Mondovi, Inc. of Mondovi, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications
Mt. Pulaski, Inc. of Mt. Pulaski, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of DE Frontier Communications
New England, Inc. of New England, Inc.;
(A subsidiary of Long Distance North; LDN;
Frontier Telecommunications Inc.) Frontier
Frontier Communications - MN Frontier Communications
North Central Region, Inc. North Central Region,
(A subsidiary of Frontier Inc; American Sharecom;
Telecommunications Inc.) ASI
Frontier Communications of NY Frontier Communications
New York, Inc. of New York, Inc.;
(A subsidiary of Frontier
Frontier Corporation)
Frontier Communications of IL Frontier Communications
Orion, Inc. of Orion, Inc.; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications
Oswayo River, Inc. of Oswayo River, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications
Pennsylvania, Inc. of Pennsylvania, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications-Prairie, IL Frontier Communications-
Inc. Prairie, Inc.; Frontier
(A subsidiary of
Frontier Subsidiary Telco Inc.)
Frontier Communications of DE Frontier Communications
<PAGE>
Rochester, Inc. of Rochester, Inc.; FCR
(A subsidiary of Frontier
Corporation)
Frontier Communications-Schuyler, IL Frontier Communications
Inc. -Schuyler, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of NY Frontier Communications
Seneca-Gorham, Inc. of Seneca-Gorham, Inc.;
(A subsidiary of Frontier
Frontier Corporation)
Frontier Communications of AL Frontier Communications
the South, Inc. of the South, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications - WI Frontier Communications
St. Croix, Inc. - St. Croix, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of NY Frontier Communications
Sylvan Lake, Inc. of Sylvan Lake, Inc.;
(A subsidiary of Frontier
Frontier Corporation)
Frontier Communications of IN Frontier Communications
Thorntown, Inc. of Thorntown, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of WI Frontier Communications
Viroqua, Inc. of Viroqua, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications of the CA Frontier Communications
West, Inc. of the West, Inc.; West
(A subsidiary of Frontier Coast Telecommunications,
Telecommunications Inc.) Inc.
Frontier Communications of WI Frontier Communications
Wisconsin, Inc. of Wisconsin, Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Communications Services MI Frontier Communications
Inc. (A subsidiary of ALC Services Inc.; Allnet
Communications Corporation) Communication Services
Frontier Information DE Frontier Information
Technologies, Inc. Technologies, Inc.;
(A subsidiary of Frontier FIT
Corporation)
Frontier InfoServices Inc. DE Frontier InfoServices
(A subsidiary of Inc.; Visions Publishing
<PAGE>
Frontier Subsidiary Telco Inc.)
Frontier Local Services Inc. MI Frontier Local Services
(A subsidiary of ALC Inc.; Allnet Local
Communications Corporation) Services
Frontier Long Distance of DE Frontier Long Distance
America, Inc. of America Inc;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Long Distance of NY Frontier Long Distance
New York, Inc. of New York Inc.;
(A subsidiary of Frontier
Frontier Subsidiary Telco Inc.)
Frontier Network Systems Inc. DE Frontier Network Systems
(A subsidiary of Inc.; Rotelcom Network
Frontier Telecommunications Inc.) Systems; Rotelcom
Frontier Subsidiary Telco Inc. DE Frontier Subsidiary
(A subsidiary of Telco Inc.; FSTI
Frontier Corporation)
Frontier Telecommunications Inc. DE Frontier Telecommuni-
(A subsidiary of Frontier Corporation) cations, Inc.; FTI
LinkUSA Corporation IA LinkUSA Corporation
(A subsidiary of Frontier
Telecommunications Inc.)
Mid-South Cablevision MS Mid-South Cablevision
Company, Inc. Company, Inc.
(A subsidiary of
Frontier Subsidiary Telco Inc.)
MLD Minnesota 10, Inc. FL MLD Minnesota 10, Inc.
(A subsidiary of Frontier
Cellular Holding Inc.)
Montel Communications, Inc. AL Montel Communications,
(A subsidiary of Frontier Inc.
Communications of Alabama, Inc.)
New Richmond Cable WI New Richmond Cable
Company, Inc. Company, Inc.
(A subsidiary of Frontier
Communications - St. Croix, Inc.)
O. T. Cellular Telephone IL O. T. Cellular
Company Telephone Company
(A subsidiary of
Frontier Communications of
Orion, Inc.)
RCI Long Distance Canada Ltd. Canada RCI Long Distance
(A subsidiary of (Ont., Quebec) Canada Ltd.
Frontier Telecommunications Inc.)
<PAGE>
Rochester Telephone Corp. NY Rochester Telephone
(A subsidiary of Corp.; RTC
Frontier Corporation)
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.)
Schuyler Cellular, Inc. IL Schuyler Cellular, Inc.
(A subsidiary of Frontier
Communications - Schuyler, Inc.)
Taconic Long Distance NY Taconic Long Distance
Service Corp. Service Corp.
(A subsidiary of
Frontier Telecommunications Inc.)
TDCI, Ltd. IN Thorntown Development
(A subsidiary of Company, Inc.; TDCI,
Frontier Communications of Ltd.
Thorntown, Inc.)
WCT Communications, Inc. CA WCT Communications, Inc.
(A subsidiary of Frontier
Telecommunications Inc.)
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration
Statements on Forms S-3 (File Nos. 33-57895 and 33-64307),
Form S-4 (File No. 33-61047 and 33-91250) and in the
Registration Statements on Forms S-8 (File Nos.33-67430,
33-54511, 33-67432, 33-54519, 33-67324, 33-51331, 33-51885,
33-52025, 33-59579 and 33-61855) of Frontier Corporation of
our report dated January 22, 1996, appearing on page 25 of
the Annual Report to Shareowners which is incorporated by
reference in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page 37
of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
March 25, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption
"Experts" and to the incorporation by reference in the
Registration Statement on Form S-3 (File No. 33-64307) and
the related Prospectus of Frontier Corporation and to the
incorporation by reference in the Prospectuses constituting
part of the Registration Statement on Form S-3 (File No.
33-57895), Form S-4 (File Nos. 33-61047 and 33-91250) and in
the Registration Statements on Form S-8 (File Nos. 33-67430,
33-67432, 33-67324, 33-51331, 33-51885, 33-52025, 33-54511,
33-54519, 33-59579 and 33-61855) of Frontier Corporation of
our reports dated January 17, 1996 with respect to the
consolidated financial statements and financial statement
Schedule II of ALC Communications Corporation and subsidiaries
which reports are included in the Annual Report on Form 10-K
of Frontier Corporation for the year ended December 31, 1995
to be filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
March 25, 1996
Detroit, Michigan
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
I, the undersigned, hereby constitute and appoint
JOSEPHINE S. TRUBEK as my true and lawful agent and
attorney-in-fact to act with full power and authority and in my
name, place and stead as I, myself, could act for the sole
purpose of executing the Form 10-K of Frontier Corporation for
the year ended December 31, 1995, pursuant to Instruction
D(2)(a) of the Form 10-K and in accordance with Regulation S-K
Item 601(b)(24) of the Securities Act of 1933 and the
Securities Exchange Act of 1934, and with full and unqualified
authority to delegate such power to any person or persons as my
attorney-in-fact shall select.
IN WITNESS WHEREOF, THIS INSTRUMENT HAS BEEN SIGNED AND
DELIVERED BY THE UNDERSIGNED AS OF MARCH 18, 1996.
/s/ Patricia C. Barron
----------------------------
Patricia C. Barron
/s/ Ronald L. Bittner
----------------------------
Ronald L. Bittner
/s/ Raul E. Cesan
----------------------------
Raul E. Cesan
/s/ Brenda E. Edgerton
----------------------------
Brenda E. Edgerton
----------------------------
Jairo A. Estrada
/s/ Daniel E. Gill
----------------------------
Daniel E. Gill
/s/ Michael E. Faherty
----------------------------
Michael E. Faherty
/s/ Alan C. Hasselwander
----------------------------
Alan C. Hasselwander
/s/ Robert J. Holland, Jr.
----------------------------
Robert J. Holland, Jr.
<PAGE>
/s/ Douglas H. McCorkindale
----------------------------
Douglas H. McCorkindale
----------------------------
Marvin C. Moses
/s/ Leo J. Thomas
----------------------------
Leo J. Thomas
/s/ Richard J. Uhl
----------------------------
Richard J. Uhl
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FRONTIER
CORPORATION'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 31,449
<SECURITIES> 0
<RECEIVABLES> 404,081
<ALLOWANCES> 28,515
<INVENTORY> 12,928
<CURRENT-ASSETS> 523,135
<PP&E> 2,097,162
<DEPRECIATION> 1,215,853
<TOTAL-ASSETS> 2,108,592
<CURRENT-LIABILITIES> 504,201
<BONDS> 618,867
0
22,769
<COMMON> 158,063
<OTHER-SE> 737,321
<TOTAL-LIABILITY-AND-EQUITY> 2,108,592
<SALES> 0
<TOTAL-REVENUES> 2,143,691
<CGS> 0
<TOTAL-COSTS> 1,859,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,660
<INCOME-PRETAX> 245,664
<INCOME-TAX> 100,896
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (128,208)
<CHANGES> (1,477)
<NET-INCOME> 22,083
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
<PAGE>
Exhibit 99
Frontier
Proxy Statement
Frontier Corporation
Frontier Center
180 South Clinton Avenue
Rochester, New York 14646-0700
Notice of Annual Meeting of
Common Shareowners
To be Held on April 24, 1996
Dear Shareowners:
The Annual Meeting of Common Shareowners of Frontier Corporation (the
"Company") will be held at the Ritz-Carlton Hotel, 15 Arlington Street, Boston,
Massachusetts 02117, at 10:30 a.m. on April 24, 1996. The purposes of the
meeting are:
. To elect thirteen Directors;
. To elect Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending
December 31, 1996;
. To approve two proposals regarding employee and
director compensation plans; and
. To transact such other business, if any, as may properly
come before the meeting or any adjournments thereof.
The Board of Directors amended Article II, Section 2, of the By-Laws to set
the number of Directors constituting the entire Board at thirteen, effective
January 22, 1996.
The Board of Directors has fixed the close of business on March 6, 1996, as
the record date for the determination of shareowners entitled to notice of and
to vote at the meeting.
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 to gain entry to the meeting. If you are
planning to attend the Annual Meeting, please check the box on the back of the
proxy card. We will then send you your admission card which will include a map
with directions to the meeting place.
By Action of the Board of Directors,
/s/ Josephine S. Trubek
- --------------------------
Josephine S. Trubek
Corporate Secretary
Rochester, New York
March 11, 1996
<PAGE>
Table of Contents
Proxy Statement
Proxy Solicitation 1
Voting at the Annual Meeting 1
Proposal 1 - Election of Directors 1
Information about the Board of Directors 1
Nominees for Director 2
Stock Ownership of Management, Directors and
Certain Beneficial Owners 4
Report of Committee on Directors 5
Report of Committee on Management 6
Performance Graph 8
Compensation of Company Management 9
Summary Compensation Table 9
Option/SAR Grants in Last Fiscal Year 10
Individual Grants in 1995 Table 11
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values Table 11
Long-Term Incentive Plans-Awards in Last Fiscal
Year Table 12
Pension Plan Table 12
Compensation Committee Interlocks and
Insider Participation in Compensation Decisions 13
Interest of Certain Persons in Matters to be
Acted Upon 14
Indemnification of Certain Persons 14
Proposal 2 - Election of Independent Auditors 15
Proposal 3 - Employees' Stock Option Plan 15
Proposal 4 - Directors' Stock Incentive Plan 16
New Plan Benefits 18
Other Matters 18
Future Proposals of Shareowners 18
<PAGE>
Proxy Statement
1996 Annual Meeting of Common Shareholders
of Frontier Corporation
- -------------------------------------------------------------------------------
Proxy Solicitation
We are sending you this Proxy Statement and the enclosed proxy card in
connection with the solicitation of proxies by the board of directors ("Board
of Directors") of Frontier Corporation (the "Company"), a New York corporation,
for use at the annual meeting of holders of the Company's $1.00 par value
common stock. This meeting (the "Annual Meeting") will be held on April 24,
1996, at 10:30 a.m., local time at the Ritz-Carlton Hotel, 15 Arlington Street,
Boston, Massachusetts 02117, or any later time, if adjourned, for the purposes
stated in the Notice of Annual Meeting of Common Shareowners provided to you.
The Company will bear the cost of proxy solicitation. In addition to
the solicitation of proxies by mail, some officers and employees of the Company,
without additional compensation, may solicit proxies personally or by telephone,
facsimile, telegraph or cable. The Company will also request brokerage houses,
nominees, custodians and fiduciaries to forward soliciting materials to the
beneficial owners of stock held of record and will reimburse such persons for
forwarding such materials. In addition, the Company has retained Georgeson &
Co., Inc., New York, New York, to aid in the solicitation of proxies at a fee
not to exceed $8,500, plus reimbursement for out-of-pocket expenses incurred by
that firm on behalf of the Company.
The principal executive offices of the Company are located at 180 South
Clinton Avenue, Rochester, New York 14646, and its telephone number is (716)
777-1000.
Voting at the Annual Meeting
The close of business on March 6, 1996, has been fixed as the Record Date
for the determination of the shareowners entitled to notice of, and to vote at,
the Annual Meeting. On that date there were 162,195,487 shares of the Company's
$1.00 par value common stock outstanding and entitled to vote at the meeting.
Each shareowner is entitled to cast one vote for each share of common stock held
as of the Record Date.
Each proxy which is properly executed and returned in the enclosed
return envelope will be voted at the Annual Meeting. Shares represented by your
proxy will be voted in accordance with the directions you specify on the proxy
card. If your proxy does not specify a choice, your shares will be voted for the
election of the Directors nominated in the proxy; in favor of the election of
Price Waterhouse LLP as independent auditors; and in favor of each of the
proposals regarding employee and Director compensation plans. You have the right
to revoke your proxy by executing a proxy bearing a later date, by attending the
meeting and voting in person, or by otherwise notifying the Company prior to the
meeting.
The proxy card contains spaces for you to indicate if you wish to
abstain on one or more of the proposals or to withhold authority to vote for one
or more nominees for Director. Directors are elected by a plurality of the votes
cast. Votes withheld in connection with the election of one or more of the
nominees for Director will not be counted as votes cast in connection with that
nominee's election. Auditors are elected by a majority of the votes cast.
Abstentions are not counted in determining the votes cast in connection with the
selection of auditors. Approval of the two proposals concerning employee and
Director compensation plans (Proposals 3 and 4) requires that a majority of the
outstanding shares entitled to vote on those proposals be voted in favor of
them. Abstentions on either of the Plan proposals have the same effect as a vote
against that proposal.
The New York Stock Exchange allows brokerage firms holding shares for
the benefit of their clients to vote in their discretion on behalf of their
clients with respect to "discretionary items" if the clients have not furnished
voting instructions within ten days of the shareowner meeting. The election of
Directors and auditors are discretionary items with respect to which brokerage
firms may vote. The proposals relating to the employee and Director compensation
plans are not discretionary items and brokers who receive no instructions from
their clients may not vote on these proposals. If your broker does not vote your
shares, those broker "non-votes" will not be considered as votes cast with
respect to the employee and Director compensation plan proposals but will have
the same effect as a "no" vote since the proposals require approval by a
majority of the outstanding shares entitled to vote.
- -------------------------------------------------------------------------------
Proposal 1 - Election of Directors
YOUR BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" ALL NOMINEES.
Information about the Board of Directors
Board of Directors
The Board of Directors of the Company is currently composed of thirteen
Directors. The Board of Directors nominates the thirteen persons named on pages
3 and 4 for election to the Board of Directors. All of the nominees are
currently Directors of the Company whose terms expire coincident with the
Annual Meeting. If elected, all nominees will serve until the Annual Meeting of
Shareowners to be held in 1997 or until such time as their respective
successors are elected.
The Board of Directors held ten meetings during 1995. All of the
Directors attended at least 75% of the total meetings of the Board and its
committees which they were eligible to attend.
This Proxy Statement and Form of Proxy are being first sent to Shareholders
on March 11, 1996.
1
<PAGE>
Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the Board
and through the activities of its committees. The standing committees of the
Board are the Audit Committee, the Committee on Management, the Committee on
Directors and the Executive Committee.
Audit Committee
The Audit Committee of the Board is currently composed of Douglas H.
McCorkindale, Chair; Raul E. Cesan, Brenda E. Edgerton and Richard J. Uhl. This
committee reviews the scope of audit activities and the financial reports of
the Company, and reviews with management significant and material matters which
may result in either potential liability to the Company or significant exposure
to the Company. The Committee also makes reports and recommendations with
respect to audit activities, findings, and reports of the independent public
accountants and the internal audit staff of the Company. The Audit Committee
held three meetings in 1995.
Committee on Management
The present members of the Committee on Management are Daniel E. Gill,
Chair; Patricia C. Barron, Michael E. Faherty and Douglas H. McCorkindale. This
committee is responsible for determining the compensation, benefits and
perquisites of all senior executive officers of the Company, with the exception
of the Chief Executive Officer, and for recommending the compensation, benefits
and perquisites of the Chief Executive Officer to the full Board. This
committee also develops and administers executive compensation plans and
reviews succession planning for the Company and other significant human
resources issues. The Committee on Management held six meetings in 1995.
Committee on Directors
The Committee on Directors focuses the Board's attention on corporate
governance issues and serves as the nominating committee. The Committee
currently consists of Patricia C. Barron, Chair; Jairo A. Estrada, Robert J.
Holland, Jr., and Dr. Leo J. Thomas. The Committee is responsible for reviewing
all matters relating to the selection, qualification, evaluation, and
compensation of members of the Board of Directors and all nominees to the Board.
The Committee on Directors held four meetings in 1995.
The Committee on Directors will consider nominations by shareowners.
Such submissions should include sufficient biographical information so that the
committee can appropriately assess a nominee's qualifications. This information
would include, at a minimum, the nominee's name and address, business and other
experience, and a listing of any other Boards on which the nominee may be a
member. All submissions should be sent by a letter addressed to the Corporate
Secretary, Frontier Corporation, 180 South Clinton Avenue, Rochester, New York
14646-0700. Suggestions in connection with the 1997 Annual Meeting of Common
Shareowners must be received by November 1, 1996 in order to receive
consideration.
Executive Committee
The present members of the Executive Committee are Jairo A. Estrada, Chair;
Patricia C. Barron, Ronald L. Bittner, Daniel E. Gill, Alan C. Hasselwander,
Douglas H. McCorkindale and Marvin C. Moses. The Executive Committee possesses
all of the powers of the Board of Directors except those which, by law or the
Company's By-Laws, cannot be delegated to it. The Executive Committee met four
times in 1995.
Compensation of Directors
Directors are paid an annual retainer and meeting fees. The annual retainer
as set in 1995 is $15,000 and 500 shares of Frontier Corporation common stock.
However, if shareowners approve Proposal 4, Amendment to Directors' Stock
Incentive Plan, the annual retainer will consist of 1,200 shares of Frontier
Corporation common stock and no cash. As stated on page 6, this change in
compensation is intended to better align the interests of Directors with those
of shareowners. The meeting fee is $1,500 for each Board and/or committee
meeting attended. Under the 1995 compensation plan, each committee chair
received an annual retainer in the amount of $4,000. However, if shareowners
approve Proposal 4, Amendment to Directors' Stock Incentive Plan, the annual
retainer for each committee chair will instead consist of 300 shares of
Frontier Corporation common stock and no cash. New Directors also receive an
additional one-time grant of 1,000 shares of Frontier Corporation common stock
which they must hold during their tenure on the Board. Directors who are
employees of the Company or its subsidiaries receive no annual retainer or
meeting fees. Directors may elect to defer payment of their fees to future
years.
Pursuant to the Company's Directors' Stock Incentive Plan, Directors
annually receive an option to purchase 4,000 shares of the Company's common
stock. These options expire ten years after issuance, and the exercise price is
the value of the stock on the day the option was issued. Each outside Director
received a grant of options for 4,000 shares at an exercise price of $19.8750
per share on April 26, 1995, with the exception of Mr. Holland who received a
grant of options for 3,667 shares at an exercise price of $22.875 per share on
June 1, 1995, and Messrs. Faherty and Uhl who each received a grant of options
for 2,834 shares at an exercise price of $27.125 per share on August 16, 1995.
Messrs. Faherty and Uhl also held options for ALC Communications Corporation
common stock. In conjunction with the Company's acquisition of ALC on August
16, 1995, each ALC option became exercisable for two shares of Frontier
Corporation common stock.
Directors also receive cellular telephone equipment and service and
other nominal in-kind benefits.
- -------------------------------------------------------------------------------
Nominees for Director
The Board believes that all of the nominees will be available and willing to
serve as Directors. If any nominee is unable to serve, the shares represented
by all valid proxies will be voted for the election of such substitute as the
Board may recommend or the Board may fill the vacancy at a later date after
selecting an appropriate nominee.
2
<PAGE>
The principal occupation and business experience of each nominee
for election at the Annual Meeting of Common Shareowners to be held on
April 24, 1996 appears next to that person's photograph:
- -------------------------------------------------------------------------------
[Photo Appears Here]
Patricia C. Barron, 53, is President, Xerox Engineering Systems, Xerox
Corporation, a manufacturer of office systems and equipment, and has held this
position since February 1994. From March 1992 until February 1994, she was
President, Office Documents Products Division, Xerox Corporation. From 1979 to
March 1992, she was a Vice President of Xerox Corporation. She is a Director of
Quaker Chemical Corporation and of Reynolds Metals Company. She has been a
Director of the Company since 1990.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Ronald L. Bittner, 54, is Chairman, President and Chief Executive Officer of the
Company and has held this position since November 1995 and for the period of
April 1993 to August 1995. From August 1995 to November 1995, he was Chairman
and Chief Executive Officer of the Company. He served as the Company's President
and Chief Executive Officer from February 1992 to April 1993, and was an
Executive Vice President and President - Telecommunications Group from May 1988
to February 1992. He is also a Director of Dynatech Corp. He has been a Director
of the Company since 1989.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Raul E. Cesan, 48, is President, Schering-Plough Pharmaceuticals and
Executive Vice President, Schering-Plough Corporation, a worldwide manufacturer
and marketer of pharmaceutical and health care products and has held this
position since September 1994. From September 1992 through September 1994,
he was President, Schering Laboratories - U.S. Pharmaceutical Operations.
From September 1988 to September 1992, he was President, Schering-Plough
International. He has been a Director of the Company since 1995.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Brenda E. Edgerton, 46, is Vice President, Finance-U.S. Soup, Campbell Soup
Company, a manufacturer of prepared convenience foods and has held this position
since May 1994. From August 1989 through April 1994, she was Vice President and
Treasurer, Campbell Soup Company. She has been a Director of the Company since
1993.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Jairo A. Estrada, 48, is Past Chairman of the Board and Chief Executive Officer
of Garden Way Incorporated, a company which manufactures outdoor power
equipment. He held that position until December 1995. Mr. Estrada has been a
Director of the Company since 1989.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Michael E. Faherty, 61, is the principal of MICO, a general business consulting
and contract executive firm since February 1977. In connection with this
business, he has served, since 1994, as Chairman and Chief Executive Officer of
ECCS, Inc., a provider of open systems-based networked computing solutions which
incorporate ECCS's mass storage enhancement products. He also served from
January 1992 to January 1994, as President and Chief Executive Officer of Shared
Financial Systems, Inc., and was, from February 1989 to June 1992, President
and/or Chairman of Intec Corp. He is a Director of Bantec, Inc. and of ECCS,
Inc. Mr. Faherty has been a Director of the Company since 1995.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Daniel E. Gill, 59, is Past Chairman and Chief Executive Officer of Bausch &
Lomb Incorporated, a worldwide manufacturer and marketer of health care and
optical products. Mr. Gill retired from that position in December 1995. He is a
Director of Reebok International, Ltd. Mr. Gill has been a Director of the
Company since 1981.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Alan C. Hasselwander, 62, is Past Chairman of the Board of Rochester Telephone
Corporation (now Frontier Corporation). From February 1992 to April 1992, he was
Chairman of the Company. From July 1984 to February 1992, he was President and
Chief Executive Officer of the Company. He has been a Director of the Company
since 1984.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Robert J. Holland, Jr., 55, is Chief Executive Officer of Ben and Jerry's
Homemade, Inc., a manufacturer and marketer of premium ice cream, and has held
this position since February 1995. From 1991 to 1995, he was Chairman and Chief
Executive of Rokher-J, Inc., a business consulting firm, and from 1990 to 1991,
he was Chairman, Gilreath Manufacturing, Inc. He is also a Director of Mutual
Life Insurance Company of New York and Trumark Inc. Mr. Holland has been a
Director of the Company since 1995.
3
<PAGE>
- -------------------------------------------------------------------------------
[Photo Appears Here]
Douglas H. McCorkindale, 56, is Vice Chairman and Chief Financial and
Administrative Officer of Gannett Co., Inc., a nationwide diversified
communications company. He is a Director of Gannett Co., Inc., Continental
Airlines, and seven mutual funds in the Prudential Mutual Fund complex of funds.
He has been a Director of the Company since 1980.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Marvin C. Moses, 51, is Vice Chairman and Chief Financial Officer of the
Company and has held this position since November 1995. From August 1995 to
November 1995, he was Executive Vice President and Chief Financial Officer for
the Company. Mr. Moses was previously Executive Vice President and Chief
Financial Officer of ALC Communications Corporation from October 1988 to August
1995. Frontier Corporation acquired that provider of long distance
telecommunications services in 1995. Mr. Moses has been a Director of the
Company since 1995.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Dr. Leo J. Thomas, 59, is Executive Vice President of Eastman Kodak Company,
a manufacturer of imaging products, and has held this position since January
1995. From September 1994 to January 1995, he was Executive Vice President and
President, Imaging; and from September 1991 to September 1994, he was Group
Vice President and President, Imaging, Eastman Kodak Company. From November 1989
to September 1991, he was Group Vice President and General Manager, Health Group
of Eastman Kodak Company. He is a Director of Eastman Kodak Company and of John
Wiley & Sons, Inc. He has been a Director of the Company since 1984.
- -------------------------------------------------------------------------------
[Photo Appears Here]
Richard J. Uhl, 55, is President and a Director of Chicago Holdings, Inc., a
privately owned company engaged in the management of several lease portfolios
owned by it and its subsidiaries and in investments in operating companies. He
has held these positions since 1985. Since July 1995, Mr. Uhl has also served
as Chairman of the Board of Business Alliance Capital Corporation, an asset
based lender to small and medium sized businesses. Since December 1987, Mr. Uhl
also has been the President of Steiner Financial Corporation. He has been
Chairman of the Board of Dealers Alliance Credit Corp. since November 1993 and
a Director of First Merchant's Acceptance Corp. since May 1991. Both of these
companies are purchasers and servicers of automobile finance contracts. He has
been a Director of the Company since 1995.
- -------------------------------------------------------------------------------
Stock Ownership of Management, Directors
and Certain Beneficial Owners
In 1993, the Committee on Directors established targets for the minimum
amounts of the Company's common stock which Directors should own. These targets
for stock ownership consider the length of a Director's tenure on the Board. By
the end of 1995, each outside Director with at least five years' service on the
Board was to own at least 4,000 shares of the Company's common stock.
Executive officers of the Company are also encouraged to own shares of
the Company. The recommended stock ownership level is based on each officer's
position in the organization and is a multiple of salary. The stock ownership
targets of Messrs. Bittner, Moses and Massaro are the beneficial ownership of
Company common stock equal in value to four times his respective salary. Each
other Company executive has a target of beneficial ownership of Company common
stock, varying by salary grade, equal in value to one to three times his or her
respective salary. Each corporate officer is expected to achieve his or her
target by the later of January 1, 1999 or the fifth anniversary of his or her
appointment as an executive officer.
The following table sets forth the number of shares of the Company's
common stock beneficially owned by each Director and nominee, by each of the
named executive officers, and by Directors and officers of the Company as a
group as of February 22, 1996. No Director, officer or nominee owns more than 1%
of the Company's outstanding shares of common stock. The group's aggregate
holdings constitute less than 1% of the Company's issued and outstanding common
stock.
Management and Directors Stock Ownership Table
<TABLE>
<CAPTION>
Total
Common Stock Beneficial
Name Stock(1) Options(2) Ownership
- ---- -------- ---------- ----------
<S> <C> <C> <C>
Directors and Nominees:
Patricia C. Barron 4,884 4,064 8,948
Ronald L. Bittner (3) 149,920 149,264 299,184
Raul E. Cesan 2,437 0 2,437
Brenda E. Edgerton 4,453 3,114 7,567
Jairo A. Estrada 15,034 4,664 19,698
Michael E. Faherty 2,181 82,500 84,681
Daniel E. Gill 5,605 4,664 10,269
Alan C. Hasselwander (4) 33,395 1,964 35,359
Robert J. Holland, Jr. 2,590 0 2,590
Douglas H. McCorkindale 4,748 4,664 9,412
Marvin C. Moses (5) 18,047 612,800 630,847
Dr. Leo J. Thomas 23,444 4,664 28,108
Richard J. Uhl 1,754 42,500 44,254
Named Executive
Officers:
Ronald L. Bittner (3) 149,920 149,264 299,184
Marvin C. Moses(5) 18,047 612,800 630,847
Jeremiah T. Carr 19,633 39,398 59,031
Dale M. Gregory (6) 35,237 43,264 78,501
Louis L. Massaro 35,984 36,398 72,382
William H. Oberlin 0 69,200 69,200
John M. Zrno 0 100,000 100,000
Directors and Executive
Officers as a Group 359,346 1,203,122 1,562,468
</TABLE>
4
<PAGE>
(1) Includes all shares which each Director, nominee or officer directly, or
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. Amounts in this column
include restricted stock. However, these amounts do not include shares which
each such person has the right to acquire pursuant to options or other rights.
(2) Includes all shares which such persons have the right to acquire within
the sixty days following February 22, 1996, pursuant to options or other
rights. These amounts do not include shares which such persons have the right
to acquire more than sixty days after that date.
(3) Includes 129 shares owned by Mr. Bittner's spouse and 313 shares owned
by other members of Mr. Bittner's family. Mr. Bittner disclaims beneficial
ownership of these shares.
(4) Includes 1,400 shares owned by Mr. Hasselwander's spouse. Mr. Hasselwander
disclaims beneficial ownership of these shares.
(5) Includes 4,000 shares owned by Mr. Moses' children. Mr. Moses disclaims
beneficial ownership of these shares.
(6) Includes 1,268 shares held by various trusts for the benefit of Mr.
Gregory's children. Mr. Gregory's spouse is a co-trustee of each of these
trusts. Mr. Gregory disclaims beneficial ownership of these shares.
Set forth below is the name, address and stock ownership of each person or
group of persons known by the Company to own beneficially more than 5% of the
outstanding shares of common stock.
Stock Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Number of
Name and Address Shares of Percent
of Beneficial Owner Common Stock of Class
- ------------------- ------------ --------
<S> <C> <C>
FMR Corp.(1) 13,679,120 8.4%
82 Devonshire Street
Boston, Massachusetts 02109
Steven C. Simon(2) 5,143,217 3.2%
1300 Nicolett Mall
Minneapolis, Minnesota 55403
James J. Weinert(2) 3,424,633 2.1%
1300 Nicolett Mall
Minneapolis, Minnesota 55403
</TABLE>
(1) FMR Corp. ("FMR") filed with the Securities and Exchange Commission a
Schedule 13G, dated February 14, 1996, stating that it beneficially owned in
the aggregate 13,679,120 shares of the Company's common stock. As of February
22, 1996, this would represent approximately 8.4% of the Company's outstanding
common stock. Of that amount, 11,327,390 shares were beneficially owned by
FMR's wholly-owned subsidiary Fidelity Management & Research Company (acting as
investment advisor) and 2,351,730 shares were beneficially owned by FMR's
wholly-owned subsidiary Fidelity Management Trust Company (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 Corp. 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 1,479,830 shares, sole dispositive power with respect to
13,679,120 shares, and no shared voting or shared dispositive power with respect
to any shares.
(2) Steven C. Simon and James J. Weinert have expressly affirmed that they
together comprise a group in a Schedule 13D, dated March 17, 1995, filed with
the Securities and Exchange Commission. Each holds sole voting and investment
power with respect to his shares.
The Company's Directors, executive officers and shareowners holding in
excess of 10% of the common stock are required to file reports with the
Securities and Exchange Commission and the New York Stock Exchange, with copies
to the Company, concerning ownership of and transactions in the Company's common
stock. Based solely on those reports furnished to the Company and related
information, the Company believes that all such filing requirements for 1995
were complied with in a timely fashion.
- -------------------------------------------------------------------------------
Report of Committee on Directors
The Committee on Directors, which was created in 1993, focuses the Board's
attention on corporate governance issues and serves as the nominating
committee. Since its formation, the Committee initiated several actions
designed to increase the independence of the Board and to further align the
interests of Directors with the interests of shareowners. The Committee first
reported its activities in last year's proxy statement. During 1995, the
Committee continued its efforts to improve Frontier's corporate governance.
The Committee reviewed the complete set of Governance Guidelines,
originally created in 1994, and recommended certain changes. The Guidelines
establish the standards for Board operation. At the recommendation of the
Committee on Directors, the Board approved the standards.
The Governance Guidelines set the size of the Board to be between 9 and
14 members who are each elected for a one year term. Attendance is expected to
be 100 percent of meetings with a minimum of 75 percent. The minimum number of
Board meetings held each year is five and, for each Committee, is two.
The Governance Guidelines require that the Board be composed of
primarily outside directors, and all committees except the Executive Committee
are composed entirely of independent outside directors. Retirement age is 70. If
a Director's primary job changes, the Governance Guidelines require that the
Director submit a resignation which the Committee then recommends to the Board
whether or not to accept. Retirement is considered a job change in the context
of this provision.
The Committee monitored the stock ownership of the members of the
Board and reports that all current outside Board members have met their stock
ownership targets. In addition, the Committee re-evaluated the targets and set
new stock ownership targets commencing in 1996 at a multiple of four times the
annual compensation of a director.
5
<PAGE>
The Committee reviewed Board member compensation and determined that a
major shift was desirable to more closely align the Directors' interests with
those of the shareowners. Thus, the Committee set the 1996 compensation package
to require, subject to shareowner approval, that the full retainer for each
Board member and the full retainer for each Chair of a committee be paid
entirely in the form of shares of Frontier common stock.
The Committee utilized a formal system of evaluation of each Director in
its consideration of the slate of nominees submitted to shareowners for a vote
at the annual meeting of shareowners.
Your Committee on Directors will continue to review annually the
Governance standards and recommend improvements to the full Board of Directors.
The full Board of Directors considers the Governance Guidelines annually.
Respectfully submitted,
The Committee on Directors
Patricia C. Barron (Chair)
Jairo A. Estrada
Robert J. Holland, Jr.
Dr. Leo J. Thomas
January 22, 1996
- -------------------------------------------------------------------------------
Report of Committee on Management
Compensation Philosophy and Policy
We believe that a compensation program should offer performance-based
compensation to its employees and reward employees whose results enable the
Company to achieve its vision. The executive compensation program is designed
to measure and enhance executive performance.
The Company's executive compensation program has four components:
. Base Salary
. Annual Bonus
. Long-Term Incentive Plan
. Stock Incentive Plan
These components are designed to provide incentives and motivate key
executives whose efforts and job performance will enhance the strategic well-
being of the Company and maximize value to its shareowners.The program is also
structured to attract and retain the highest caliber executives.
The executive compensation program compensates the individual executive
officers based on the Company's consolidated performance and the individual's
contribution. The program is designed to be competitive with compensation
programs offered by comparable employers.
The Company retains William M. Mercer, Inc., to review its executive
compensation program on an annual basis. Information from this consulting firm,
as well as public information concerning salaries paid by companies in the
telecommunications and related industries, is used to determine what a
comparable firm would consider an appropriate performance-based compensation
package for its executives.
The analysis includes information from a self-constructed group of forty
publicly-traded companies in the telephone, long distance, cable television,
cellular and information technology industries. This group includes most of the
companies reported in the Standard and Poor's Telephone Index and the Standard
and Poor's Long Distance Index, together with additional companies. The
Company's policy is to benchmark compensation levels at the median of the
comparative companies and to reward results based on performance. On a
comparative basis, the base salary of the Company's CEO and its other
executives, on average, would be considered within the third quartile.
Base Salary
The salaries of the executive officers, including Mr. Bittner, were
determined based on the executive's performance and an analysis of base
salaries paid executive officers having similar responsibilities in other
companies. This analysis included the companies in the self-constructed group
of forty publicly-traded companies, together with additional companies from
other industries with similar revenues and/or asset values. The level of Mr.
Bittner's base salary was also based upon a subjective assessment of his
individual performance and responsibilities as well as overall corporate
performance as measured by actual earnings per share and cash flow versus
pre-established targets, strategic goals, and growth of the business. The other
executive officers have similar measurements, but specific factors are more
closely linked to individual responsibilities. No relative weights are
attributed to any specific measurement factors.
Annual Bonus
The Company's annual bonus plan is designed to provide performance-based
compensation awards to executives for achievement during the past year. For
executive officers, bonus awards are a function of individual performance and
consolidated corporate results. Business unit performance is also a component
of the bonus plan for those involved in line operations below the executive
officer level. All participants are subject to a discretionary adjustment,
either positive or negative, based on individual performance. The specified
qualitative and quantitative criteria employed by the Committee in determining
bonus awards vary individually and from year to year. These criteria, or
targets, are established as a means of measuring executive performance. The
corporate target for 1995 was an equally weighted earnings per share and cash
flow target established by this Committee of the Board of Directors as an
incentive to improve the financial performance of the firm and thus improve
long-term stock performance. Performance objectives and associated payouts were
established at the beginning of the year and were subsequently modified in
September to reflect the financial structure and objectives of the Company
following the completion of the Company's acquisition of ALC Communications
Corporation and other significant acquisition and merger activity. The
objectives are identified as threshold, standard and premier targets with
standard performance yielding payouts at the median level competitively. No
award will be paid unless threshold performance is achieved for both components.
6
<PAGE>
For 1995, both earnings per share and cash flow results were between
the standard and premier levels. All the Company's senior executives are
eligible to participate in the bonus plan with payout awards varying by salary
grade. With respect to Mr. Bittner's participation, his annual bonus was based
upon achievement of the corporate targets, a mechanical application of the
formula (which for Mr. Bittner was 105.0%, times his actual salary) and an
additional discretionary adjustment based on his individual performance.
Long-Term Incentive Plan
The Company's long-term incentive plan, the Performance Unit Plan ("PUP"),
was originally designed to motivate executives to improve shareowner value over
longer periods of time than one year. In the Committee's judgment, the
long-term incentive plan was not totally successful in linking employee
performance with increased shareowner value. The Committee determined that
stock-based compensation programs provide a better incentive to link an
executive's goals to those of a shareowner. Therefore, beginning in 1994, PUP
was discontinued and the Committee used stock-based plans to better align
employee interests with the long-term interests of shareowners. No new PUP
grants were issued in either 1994 or 1995, and the payouts for the 1993 -1995
cycle represent the conclusion of this Plan.
Executives received PUP payouts based on equally weighted measures of
the Company's stock appreciation over the past three years as compared to a
group of sixteen telecommunications firms and as compared to the Standard and
Poor's 500 Index. Cycle payouts are a product of the Company's stock price at
the end of the cycle, corporate performance against the selected measures, and
the number of units granted to an executive for the cycle. The final PUP awards
for Mr. Bittner and the other executive officers were based upon performance
achieved at 120% of the target levels.
Stock Incentive Plan
This Committee believes that stock-based plans are an important component of
executive compensation programs because they tie long-term compensation
directly to the interests of shareowners. The Company's Management Stock
Incentive Plan is designed to align executive compensation with the long-term
performance of the Company's stock. Stock options issued in 1995 do not expire
until 2005, and the exercise price is the value of the stock on the day the
option was granted. This Committee makes a subjective determination of the
specific stock option grant to be awarded to each executive officer. The factors
considered by the Committee in making this determination are:
(a) the executive officer's past performance on previously set objectives
and
(b) his or her expected future contribution to the long-term strategic goals
and objectives of the Company.
No relative weights are attributed to either of these factors. All executive
officers of the Company received options in 1995 based on their position in the
Company, their contribution to the achievement of the Company's long-term
objectives as assessed by Committee members based on their experience with the
executive officers, and upon the recommendation of the chief executive officer.
Upon this Committee's recommendation, the full Board awarded
Mr. Bittner options based upon these factors as well.
Restricted stock awards issued in 1995 expire on December 31, 1998, and
require that both passage of time and performance criteria be satisfied for
vesting of shares to occur. An executive must continue to be employed by the
Company and specified stock price levels must also be achieved by certain dates
for vesting to occur. No greater than one-third of an executive's award can be
paid in either 1996 or 1997. On the grant date the Company's stock price was
$27.1250 per share. The stock price performance vesting criteria for the first
one-third of the grant is the achievement of at least a $31.00 stock price for
twenty business days in a thirty business day period. Subsequent thirds will
vest upon the achievement of stock prices of $36.00 and $41.00 and the passage
of time. Messrs. Carr, Massaro and Gregory, and selected other key senior
managers received restricted stock awards based upon their expected future
contributions to the long-term strategic goals and objectives of the Company as
recommended by the chief executive officer and as assessed by Committee members.
Upon this Committee's recommendation, the full Board awarded Mr. Bittner
restricted stock based upon these factors as well.
Other Actions
The Company took action in 1995 to redesign a competitive, standardized
benefit package for all non-bargaining unit employees. To align executive
benefits, this Committee modified several of the executive benefit plans. The
Supplemental Management Pension Plan ("SMPP") is frozen as of December 31,
1996. Changes have been made affecting service and age factors impacting
retirement. The final benefit calculation will be enhanced by 20% to offset
partially the loss of future benefit accruals as a result of freezing the Plan.
Senior management as well as all executive officers are covered by SMPP.
The Supplemental Executive Retirement Plan ("SERP") is frozen as of
December 31, 1999. This date was selected to retain the Company's senior
executives during the period of transition following mergers and acquisitions
in 1995, and to avoid creating an incentive for senior executives to retire
prematurely. No change in retirement parameters nor enhancement of benefits is
provided, nor will new participants be included in the Plan beyond December 31,
1995. All executive officers are covered by SERP. See Pension Plans, page 12.
7
<PAGE>
The Committee believes that stock-based programs provide the best
long-term incentives, are excellent motivators and better align the efforts of
employees with the objectives of the shareowners. The Committee has established
stock ownership guidelines for the Company's executives. These guidelines are a
multiple of salary. Mr. Bittner's target, to be achieved by January 1, 1999, is
the beneficial ownership of Company common stock equal in value to four times
his annual salary.
The Committee approved the Employees' Stock Option Plan for
presentation to shareowners for approval (see pages 15 and 16). This broad-based
plan provides eligibility for stock option grants to non-executive employees of
the Company. Options will be issued at fair market value on the day of grant,
will vest upon the second anniversary of the grant date, and will expire on the
tenth anniversary of the grant date. The Committee believes that the
introduction of this program will better align the interests of all Company
employees with the interests of shareowners. This becomes much more important as
the Company continues its accelerated transition into a fully competitive
telecommunications marketplace.
Section 162(m) of the Internal Revenue Code limits the tax deduction
to $1 million for compensation paid to the five highest paid executive officers
unless certain requirements are met. The Management Stock Incentive Plan,
specifically as it relates to performance-based restricted stock, is designed to
comply with Section 162(m) requirements. The Committee favors a pay-for-
performance compensation program and intends to continue to review executive
compensation plans in consideration of the regulations.
No member of this Committee is a former or current officer or employee
of the Company or any of its subsidiaries.
Respectfully submitted,
Daniel E. Gill (Chair)
Patricia C. Barron
Michael E. Faherty
Douglas H. McCorkindale
January 22, 1996
- -------------------------------------------------------------------------------
Performance Graph
The following graph charts the Company's cumulative total shareowner return
performance against the Standard and Poor's Telephone Index, the Standard and
Poor's Long Distance Index and the Standard and Poor's 500 Index. The Long
Distance Index has been added this year because long distance is a more
significant component of the Company's business following its August 1995
acquisition of ALC Communications Corporation. The other indices have been
presented in past years. A variety of factors may be used in order to assess a
corporation's performance. This Performance Graph, which reflects the Company's
total return against the selected peer group, reflects one such method. The
performance of the Standard and Poor's Telephone Index and the Standard and
Poor's Long Distance Index are weighted by the stock market capitalization of
the companies within each of these peer groups.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG FRONTIER, S&P TELEPHONE INDEX, S&P 500 INDEX AND S&P LONG DISTANCE INDEX
<CAPTION>
Measurement period S&P TELEPHONE S&P 500 S&P LONG DISTANCE
(Fiscal year Covered) FRONTIER INDEX INDEX INDEX
- --------------------- -------- ------------- ------- -----------------
<S> <C> <C> <C> <C>
Measurement PT -
12/31/90 $100 $100 $100 $100
FYE 12/31/91 $116 $107 $130 $134
FYE 12/31/92 $135 $118 $140 $177
FYE 12/31/93 $177 $136 $155 $198
FYE 12/31/94 $172 $126 $157 $180
FYE 12/31/95 $254 $190 $215 $242
</TABLE>
8
<PAGE>
- -------------------------------------------------------------------------------
Compensation of Company Management
We have included the following tables and other information to help you
understand the compensation of the Company's executives. These tables reflect
the components of compensation paid the executive officers of Frontier
Corporation. Specifically, these include salary, bonus, stock options and a
long-term incentive plan. The Company does not provide its executives with
stock appreciation rights.
The Report of the Committee on Management of the Board of Directors
appears on pages 6 to 8 of this Proxy Statement. This Report discusses the
factors taken into consideration in setting Mr. Bittner's compensation and the
compensation of the other executive officers. A Performance Graph showing the
performance of the Company's stock as compared to the Standard and Poor's 500
Index, the Standard and Poor's Telephone Index, and the Standard and Poor's Long
Distance Index appears on page 8 of this Proxy Statement.
Summary Compensation Table
The following table provides a summary of compensation paid to the CEO and
the other four most highly compensated executive officers of the Company for
services rendered to the Company and its subsidiaries over the past three
fiscal years. The indicated titles are those currently held by each named
executive officer. The table also includes information concerning two
additional persons who were executive officers of the Company during 1995.
<TABLE>
<CAPTION>
Long Term
Compensation
-----------------------
Annual Compensation Awards Payouts
------------------------------------------ ----------- -------
Other Securities
Annual Underlying All Other
Name Compen- Options/ LTIP Compen-
and Principal Salary Bonus sation SARs Payouts sation
Position Year ($) ($) ($)(3) (#) ($)(4) ($)(5)
- ------------------------ ---- -------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. L. Bittner 1995 $575,000 $660,000 $ 0 502,000 $222,850 $ 42,703
Chairman, President and 1994 $408,333 $349,471 $ 0 88,800 $204,164 $ 41,369
CEO Frontier Corporation 1993 $360,000 $407,500 $ 0 46,000 $230,121 $ 26,856
M. C. Moses(1) 1995 $272,917 $293,500 $ 0 100,000 $ 0 $ 1,065
Vice Chairman and 1994 $246,562 $250,000 $1,761 0 $ 0 $ 750
Chief Financial Officer 1993 $245,417 $210,000 $ 0 480,000 $ 0 $ 600
Frontier Corporation
J. T. Carr 1995 $258,033 $208,466 $ 0 86,400 $ 67,182 $ 8,152
Senior Vice President 1994 $200,275 $132,500 $8,330 22,000 $ 67,856 $ 10,508
Frontier Corporation 1993 $176,350 $ 87,750 $ 0 12,000 $ 80,702 $ 8,934
and Chairman Rochester
Telephone Corp.
D. M. Gregory 1995 $274,467 $193,315 $4,541 86,400 $ 71,545 $ 19,749
Senior Vice President 1994 $219,542 $131,600 $3,799 26,400 $ 65,556 $ 17,306
Frontier Corporation and 1993 $186,567 $131,625 $ 0 13,200 $ 69,753 $ 29,963
President-Carrier Services
L. L. Massaro 1995 $241,375 $219,199 $ 0 126,400 $ 68,127 $ 17,234
Executive Vice 1994 $189,442 $111,700 $ 0 22,000 $ 70,385 $ 16,600
President and Chief 1993 $174,800 $131,625 $ 0 9,000 $ 95,662 $ 11,721
Administrative Officer
Frontier Corporation
W. H. Oberlin(2) 1995 $258,333 $264,475 $ 0 100,000 $ 0 $1,161,065
former President 1994 $246,562 $250,000 $5,668 0 $ 0 $ 750
Frontier Corporation 1993 $245,417 $210,000 $ 0 480,000 $ 0 $ 600
J. M. Zrno(2) 1995 $270,833 $285,075 $6,269 0 $ 0 $1,274,064
former Vice Chairman 1994 $321,524 $325,000 $4,673 0 $ 0 $ 750
Frontier Corporation 1993 $319,041 $273,000 $2,650 600,000 $ 0 $ 600
</TABLE>
9
<PAGE>
(1) Mr. Moses was named Vice Chairman effective November 20, 1995. The
compensation indicated for 1995 and prior years includes compensation relating
to his position as an executive officer of ALC Communications Corporation,
which was acquired by the Company effective August 16, 1995. As a result of
that acquisition, each option for a share of ALC common stock became
exercisable for two shares of Frontier common stock. The number of securities
underlying options granted in 1993 has been adjusted in this Table to reflect
the effect of the acquisition. (See also footnote 3 to the Table of Aggregated
Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Values at page
11.)
(2) Messrs. Oberlin and Zrno were named to the indicated positions with the
Company effective August 16, 1995, pursuant to the agreement for the
acquisition of ALC Communications Corporation by the Company. The compensation
indicated for 1995 and prior years includes compensation relating to their
positions as executive officers of ALC Communications Corporation. The number
of securities underlying options granted in 1993 has been adjusted in this
Table to reflect the effect of the acquisition. Mr. Zrno retired from Frontier
Corporation effective October 31, 1995. Mr. Oberlin resigned from Frontier
Corporation effective November 20, 1995, and consequently the 100,000 options
granted in 1995 and reflected in this Table will never vest. (See also footnote
3 to the Table of Aggregated Option/SAR Exercises in Last Fiscal Year and
Year-End Option/SAR Values at page 11.)
(3) The amounts reported in this column for 1995 include $4,541 paid to Mr.
Gregory and $6,269 paid to Mr. Zrno to offset income tax liabilities incurred
by each of them.
(4) As described in more detail in the Report of Committee on Management at
page 7 of this Proxy Statement, 1995 Performance Unit Plan awards are based
upon performance achieved at 120% of the target levels. This represents the
final payout under this plan.
(5) "All Other Compensation" includes imputed income from term life
insurance coverage and the Company's contributions to both the tax-qualified
401(k) and nonqualified defined contribution plans. For 1995, the dollar value
of term life insurance coverage premiums paid by the Company for the benefit of
the named executive officers was $1,476 for Mr. Bittner, $1,402 for Mr. Carr,
$1,476 for Mr. Gregory, $1,476 for Mr. Massaro, $65 for Mr. Moses, $65 for Mr.
Oberlin and $65 for Mr. Zrno. The Company's 1995 contributions on behalf of the
named executive officers to the tax-qualified 401(k) and nonqualified defined
contribution plans, respectively, were as follows: $5,368 and $35,859 for Mr.
Bittner; $6,750 and $0 for Mr. Carr; $6,126 and $12,147 for Mr. Gregory; $5,430
and $10,328 for Mr. Massaro; $1,000 and $0 for Mr. Moses; $1,000 and $0 for Mr.
Oberlin and $1,000 and $0 for Mr. Zrno. For Messrs. Oberlin and Zrno, "All
Other Compensation" includes amounts accrued in 1995 as a result of their
decision to terminate employment following a change in control of ALC
Communications Corporation. These amounts will be paid out over 24 month
periods. The sum of $1,160,000 was accrued for Mr. Oberlin and the sum of
$1,272,999 was accrued for Mr. Zrno.
The following companion tables to the Summary Compensation Table list
the stock options granted during the 1995 fiscal year to the named executive
officers, their stock held at the end of 1995, long-term incentive plan
restricted stock awards granted during 1995, and the estimated retirement
benefits which would be paid to them at age 65.
Option/SAR Grants in Last Fiscal Year
The following Individual Grants table includes two columns designated as
"Potential Realized Value." The calculations in those columns are based on
hypothetical growth assumptions, proposed by the Securities and Exchange
Commission, of 5% and 10% for stock price appreciation for the option term.
There is no way to anticipate what the actual growth rate of the Company's stock
price will be.
10
<PAGE>
Individual Grants in 1995
<TABLE>
<CAPTION>
Number of Potential Realized Value
Securities % of Total at Assumed Annual Rates
Underlying Options/SARs of Stock Price Appreciation
Options/SARs Granted to Exercise or for Option Term
Granted(1) Employees in Base Price Expiration ----------------------------
Name (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------------ ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
R. L. Bittner 102,000 5.09% $21.875 3/13/05 $1,403,221 $ 3,556,038
400,000 19.97% $27.125 8/16/05 $6,823,507 $17,292,106
M. C. Moses 100,000 4.99% $27.125 8/16/05 $1,705,877 $ 4,323,026
J. T. Carr 26,400 1.32% $21.875 3/13/05 $ 363,187 $ 920,386
60,000 3.00% $27.125 8/16/05 $1,023,526 $ 2,593,816
D. M. Gregory 26,400 1.32% $21.875 3/13/05 $ 363,187 $ 920,386
60,000 3.00% $27.125 8/16/05 $1,023,526 $ 2,593,816
L. L. Massaro 26,400 1.32% $21.875 3/13/05 $ 363,187 $ 920,386
100,000 4.99% $27.125 8/16/05 $1,705,877 $ 4,323,026
W. H. Oberlin 100,000 4.99% $27.125 8/16/05 $1,705,877 $ 4,323,026
J. M. Zrno 0 0.00% N/A N/A N/A N/A
</TABLE>
(1) The option grants have the following material terms: exercise price is
the market price (based on the closing price of the Company's common stock on
the New York Stock Exchange) on the date of the option grant; 1/3 of the
options granted may be exercised commencing one year following the grant date,
a second 1/3 may be exercised commencing two years following
the grant date, and the remaining 1/3 may be exercised commencing three
years following the grant date. The option grant dates were March 13, 1995 and
August 16, 1995. Options may not be transferred other than by will or the laws
of descent and distribution. An option may be exercised upon written notice to
the Company accompanied by payment in full for the shares being acquired. In the
event of a "change in control" as defined by the Management Stock Incentive
Plan, all options become immediately vested and exercisable. Mr. Oberlin has
left the Company and consequently the 100,000 options reflected in this Table
will never vest.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options/SARs
Shares Options/SARs at FY End at FY End(2)
Acquired Value --------------------------- ---------------------------
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
Name (#) ($)(1) (#) (#) ($) ($)
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. L. Bittner 0 N/A 76,264 576,536 $ 816,344 $2,650,381
M. C. Moses(3) 0 N/A 1,500,000 100,000 $37,005,806 $ 287,500
J. T. Carr 0 N/A 20,732 105,068 $ 226,864 $ 555,611
D. M. Gregory 0 N/A 22,998 108,402 $ 263,384 $ 585,041
L. L. Massaro 0 N/A 18,732 144,068 $ 204,989 $ 659,673
W. H. Oberlin (3) 0 N/A 1,569,200 100,000 $38,960,706 $ 0
J. M. Zrno (3) 0 N/A 1,600,000 0 $38,452,976 N/A
</TABLE>
(1) Aggregate market value of the shares acquired or covered by the option
less the aggregate exercise price.
(2) Options are valued at the market value of Frontier Corporation common
stock at December 31, 1995, (closing price of $30.00) less the per share option
exercise price, multiplied by the number of exercisable/unexercisable options.
(3) ALC Communications Corporation merged with a subsidiary of Frontier
Corporation effective August 16, 1995. As a result of the merger, all options
in ALC Communications Corporation shares previously granted to Messrs. Moses,
Oberlin and Zrno became immediately vested and each option for an ALC share
became exercisable for two shares of Frontier Corporation common stock. This
exchange ratio is consistent with the exchange ratio of the underlying merger.
The exercisable stock options reported for Messrs. Moses, Oberlin and Zrno
include options for ALC shares which were previously granted by ALC
Communications Corporation. All options for ALC common stock were originally
granted with an exercise price equal to market price on the date of grant.
These options retain their original expiration dates. Mr. Oberlin has left the
Company and consequently the 100,000 options reflected in this Table in the
"Unexercisable" column will never vest and for that reason their value is
reflected as zero.
11
<PAGE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Performances or
Shares, Units Other Period Until
or Other Maturation or
Name Rights (#) Payout
- ---- ------------- ------------------
<S> <C> <C>
R.L. Bittner 100,000 (1)
M.C. Moses 0
J.T. Carr 10,000 (1)
D.M. Gregory 10,000 (1)
L.L. Massaro 20,000 (1)
W.H. Oberlin 0
J.M. Zrno 0
</TABLE>
(1) Messrs. Bittner, Carr, Gregory and Massaro each were awarded shares of
restricted stock on August 16, 1995, under the Management Stock Incentive Plan
which is a long-term incentive plan. Vesting is subject to performance criteria
as well as the passage of time and continued employment. No greater than
one-third of the award can be paid in either 1996 or 1997. The first third will
vest upon achievement of at least a $31.00 stock price for twenty business days
in a thirty business day period. The remaining two-thirds will vest upon the
achievement of stock prices of $36.00 and $41.00 and the passage of time.
Unvested restricted share awards expire on December 31, 1998. Recipients of
restricted shares have full voting rights on the shares and are entitled to
receive accumulated dividends when the shares vest. In the event of a "change
in control" as defined by the Management Stock Incentive Plan, all restricted
shares become immediately vested and exercisable.
Pension Plans
The following table shows the estimated annual benefits payable upon
retirement at age 65 to individuals in specified remuneration and years of
service classifications. The amounts set forth in this table do not reflect
early retirement incentives which the Company had previously offered certain of
its management employees. Furthermore, the amounts set forth are neither
subject to any deduction for Social Security benefits or any other offsets nor
adjusted to reflect maximum allowable benefits under the Internal Revenue Code.
All of the Company's officers, including those listed in the Summary
Compensation Table, are participants in the Company's Management Pension Plan
as supplemented by a Supplemental Management Pension Plan ("SMPP"). The
annual aggregate pension benefit for an officer under these Plans is based
upon several factors and is largely determined by the number of years of
employment multiplied by a percentage of the officer's three consecutive years
of highest average annual compensation preceding retirement.
Both the Company's Management Pension Plan and
the SMPP have been amended and will be frozen effective December 31, 1996.
Benefit calculations under both pension plans were increased by 20% for all
plan participants who will have five or more years of service under the Plans
by December 31, 1996. Additionally, early retirement requirements were reduced
by three years of service and three years of age as final enhancements to both
plans.
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service/
Remuneration (15) (20) (25) (30) (35)
- ----------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 350,000 95,368 127,157 158,946 190,735 222,524
400,000 109,228 145,637 182,046 218,455 254,864
450,000 123,088 164,117 205,146 246,175 287,204
500,000 136,948 182,597 228,246 273,895 319,544
550,000 150,808 201,077 251,346 301,615 351,884
600,000 164,668 219,557 274,446 329,335 384,224
650,000 178,528 238,037 297,546 357,055 416,564
700,000 192,388 256,517 320,646 384,775 448,904
750,000 206,248 274,997 343,746 412,495 481,244
800,000 220,108 293,477 366,846 440,215 513,584
850,000 233,968 311,957 389,946 467,935 545,924
900,000 247,828 330,437 413,046 495,655 578,264
950,000 261,688 348,917 436,146 523,375 610,604
1,000,000 275,548 367,397 459,246 551,095 642,944
1,050,000 289,408 385,877 482,346 578,815 675,284
1,100,000 303,268 444,357 505,446 606,535 707,624
</TABLE>
12
<PAGE>
Mr. Bittner, Mr. Moses, Mr. Carr, Mr. Gregory and Mr. Massaro each have
executive contracts which may pay a benefit in the event of a "Change in
Control" of the Company. These contracts are explained in detail on page 14 of
this Proxy Statement. Each of them also participates in the Company's Pension
Plan. Under SMPP, their service factor would include, subject to certain
limitations, the amount of service for which payment is made to them under their
executive contract.
The SMPP also provides that in the event of a Change in Control of the
Company, the Board may not terminate a participant's benefit and the Employees'
Benefit Committee may not change prior decisions regarding a participant's
service factor.
Effective January 1, 1994, the Company established a Supplemental
Executive Retirement Plan ("SERP") which covers all the officers named in the
preceding tables plus one additional executive officer and six other executives.
The Plan has an accrual and vesting schedule based on years of service and age.
A maximum benefit of 60% of final compensation will be paid to an executive
retiring at age 50 or older with 30 or more years of service. Payments made
under the Company's Management Pension Plan and the Supplemental Management
Pension Plan are included in determining the ultimate benefit payable under the
SERP. However, in order to qualify for the SERP benefit, a covered executive
must be at least 50 years of age. Executive officers who are not at least 50
years old when they retire would only receive the retirement benefits set forth
in the above Pension Plan Table and would receive no SERP benefit. Effective
December 31, 1999, the SERP will be frozen with no enhancements.
For the purpose of the Management Pension Plan, annual compensation
includes all taxable W-2 compensation plus deferred compensation. For the
purpose of SMPP and the SERP, annual compensation is the same as that given in
the Salary and Bonus columns of the Summary Compensation Table for the named
executive officers. The number of years of employment of such individuals for
the purposes of these Plans currently are as follows: Mr. Bittner-33; Mr. Carr-
26; Mr. Gregory-17; and Mr. Massaro-27. Messrs. Moses, Oberlin and Zrno have no
years of employment for purposes of these Plans. However, the Company has agreed
to bridge Mr. Moses's prior service with telecommunications companies provided
he remains employed by Frontier Corporation. Effective September 1, 1997, the
Company will credit Mr. Moses nine years and three months toward pension
eligibility, and two years thereafter, the Company will credit him his remaining
nine years and three months experience. The Company has also agreed to bridge
Mr. Gregory's prior service with other telecommunications companies provided he
remains employed by Frontier Corporation until January 1, 1997. Effective that
date, the Company will credit Mr. Gregory his additional six years and six
months experience in the telecommunications industry.
Mr. Zrno and Mr. Oberlin will receive no payments from the SERP as they
have left the Company and because they have no years of employment for the
purpose of any of the Company's plans. Neither Mr. Massaro nor Mr. Gregory has
yet reached the age of 50 years. Assuming they retired as of the current date,
Mr. Massaro would receive a full pension and Mr. Gregory would receive a
deferred pension based upon the amount reflected in the Pension Plan Table, and
neither would receive any additional benefit under the SERP. Mr. Bittner has
reached the age of 50 years and has accrued at least 30 years of service
credit. If he retired as of the current date, he would receive a full pension
based on the amount reflected in the Pension Plan Table and no SERP benefit
because the amount he would receive under the current pension formula would
exceed any SERP benefit. Since Mr. Carr has reached the age of 50 years and has
26 years of service credit, he is entitled to a full pension based on the
amount reflected in the Pension Plan Table. Assuming annual compensation at his
January 31, 1996 level, if Mr. Carr were to retire, he would additionally
receive an annual SERP benefit of $23,945. Although Mr. Moses has reached the
age of 50 years, he does not currently have enough years of service with the
Company to qualify for any pension or SERP benefit.
- -------------------------------------------------------------------------------
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The members of the Committee on Management at the end of the last completed
fiscal year were Ms. Barron, Mr. Faherty, Mr. McCorkindale and Mr. Gill
(Chair). None of these persons were, during 1995 or previously, an officer or
employee of the Company or any of its subsidiaries.
The full Board of Directors accepted the recommendation of the
Committee on Management concerning Mr. Bittner's compensation. Mr. Hasselwander
is a former officer of the Company and, during 1995, he participated in those
deliberations of the Company's Board of Directors in which the Board accepted
the Committee on Management's recommendations concerning executive officer
compensation. Mr. Hasselwander is not a member of the Committee on Management.
No executive officer of the Company has, during 1995 or previously, served as a
director or member of the compensation committee of any other entity that has an
executive officer who serves or has served either as a member of the Committee
on Management or as a member of the Board of Directors of Frontier Corporation.
13
<PAGE>
Employment Contracts
On August 16, 1995, the Company entered into three year employment agreements,
with provisions for annual renewals, with Mr. Bittner, Mr. Carr, Mr. Gregory,
and Mr. Massaro. Each agreement provides for specific compensation, duties and
terms and conditions of employment. Each agreement also provides that, in the
event of a change in control (as defined in the agreement) which is followed
within three (3) years by termination of employment under certain circumstances,
the employee will be entitled to all accrued compensation, a pro rata bonus, a
cash severance payment (as determined under the agreement), the cash value of
certain retirement amounts (as determined under the agreement) and continuation
for three years of certain health and life insurance benefits. Additionally, in
the event any of these amounts are determined to trigger an Excise Tax (as
defined in the agreement), the employee may also be entitled to a Gross-Up
Payment (also as defined in the agreement).
Frontier Corporation acquired ALC Communications Corporation ("ALC") on
August 16, 1995. Under the terms of the acquisition agreement, Messrs. Faherty,
Uhl and Moses became Directors of the Company. In late 1988, ALC entered into
employment agreements with Messrs. Zrno and Oberlin. These agreements were
subsequently amended several times. As of the effective date of the acquisition,
each employment agreement was amended again to provide for a specific base
salary, term of employment and position with Frontier Corporation, and qualified
the employee to participate in Frontier Corporation's executive retirement and
pension plans. Mr. Zrno's employment agreement had a base salary of $300,000
which was increased to $325,000 and an expiration date of January 7, 1997, while
Mr. Oberlin's agreement had an expiration date of January 1, 2000, and an annual
base salary of $350,000. Both agreements also contained certain non-compete
provisions. Mr. Oberlin's agreement also granted him 100,000 options in Frontier
Corporation common stock and the right to earn 200,000 additional options, if
certain performance goals are met and he remained employed by Frontier.
The acquisition of ALC by Frontier qualified as a "Change-in-Control
Event" under the employment agreements of Messrs. Zrno and Oberlin. Accordingly,
each officer was entitled to terminate voluntarily his employment at any time
within 12 months after the acquisition date and receive the same severance
package as if his employment were terminated without cause. Specifically, this
benefit would be the salary and benefits which he would have been entitled to
receive for a period of two years had his employment not terminated, plus an
amount of compensation equivalent to the sum of his incentive compensation
awards for the immediately preceding two fiscal years. The employment agreements
also provided that any ALC stock options previously granted to that officer
would immediately vest upon his termination of employment and remain exercisable
for shares of Frontier Corporation common stock for at least the 12 months
following the termination of his employment. Mr. Zrno elected to terminate his
employment effective October 31, 1995, and Mr. Oberlin chose to terminate his
employment effective November 20, 1995. These events triggered the payments due
them under the Change-in-Control provisions. Frontier Corporation has accrued
for these payments which are reflected in the "All Other Compensation" column of
the Summary Compensation Table located at page 9 of this proxy statement.
Effective November 20, 1995, the Company entered into a restated
employment agreement with Mr. Moses. That agreement, which continues through
December 31, 1999, provides for specific compensation, duties and position with
Frontier Corporation and qualifies Mr. Moses to participate in the Company's
executive retirement and pension plans. That agreement contains customary terms
regarding the reimbursement of employee expenses and the indemnification of
officer acts, as well as typical covenants regarding certain confidential
matters. It also contains certain non-compete provisions and reaffirmed a prior
grant to Mr. Moses of 100,000 options in Frontier Corporation common stock and
the right to earn 200,000 options, if certain performance goals are met and he
remains employed by Frontier. The Company may terminate Mr. Moses' employment
with or without cause, and Mr. Moses may also terminate his employment with or
without cause. Depending upon the circumstances and date of Mr. Moses'
employment termination, the Company may be required to pay Mr. Moses certain
benefits.
- -------------------------------------------------------------------------------
Interest of Certain Persons In Matters to
be Acted Upon
As disclosed at Proposal 3, Employees' Stock Option Plan, at pages 15 and
16, the executive officers of the Company would not be entitled to participate
in that Plan. They would continue to participate in the Management Stock
Incentive Plan which was previously approved by shareowners. As disclosed at
Proposal 4, Directors' Stock Incentive Plan, at pages 16 and 17, the nominees
for Director would be entitled to participate in that Plan. The New Plan
Benefits Table at page 18 of this Proxy Statement reflects the benefits each
group would receive under the Plans which are the subject of these Proposals.
- -------------------------------------------------------------------------------
Indemnification of Certain Persons
As authorized by New York State Law, the Company and its subsidiaries have
purchased insurance from the Chubb Group, the National Union Fire Insurance
Company of Pittsburgh, PA, and Gulf Insurance Company, insuring such companies
against amounts they may pay as a result of indemnifying their officers and
Directors for certain liabilities such officers and Directors might incur. These
14
<PAGE>
insurance policies also insure all officers and Directors of the Company and its
affiliates for additional liabilities against which such officers and Directors
may not be indemnified by the Company and its affiliates. The insurance was
renewed on May 21, 1995 for a period of one year. During 1995, the Company paid
$594,907 for this insurance and the renewal policy costs will be negotiated in
March, 1996.
- -------------------------------------------------------------------------------
Proposal 2-Election of Independent Auditors
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The Company's independent auditors are Price Waterhouse LLP. At the Annual
Meeting, the shareowners will consider and vote upon a proposal to elect
independent auditors for the Company's fiscal year ending December 31, 1996.
The Audit Committee of the Board of Directors has recommended that Price
Waterhouse LLP be re-elected as independent auditors for that year. No member
of the Audit Committee is an officer or employee of the Company. The Board of
Directors unanimously recommends that you vote FOR this proposal. Proxies
solicited by the Board of Directors will be voted FOR the foregoing proposal
unless otherwise indicated. Approval of this proposal will require the
affirmative vote of a majority of the votes cast at the Annual Meeting by the
holders of the common stock outstanding.
Representatives of Price Waterhouse LLP will be present at the Annual
Meeting to make a statement, if they wish, and to respond to appropriate
questions from shareowners.
- -------------------------------------------------------------------------------
Proposals Regarding Employee and Director
Compensation Plans
The Company is requesting your approval of a new employee compensation plan
and an amendment and modification to an existing Director compensation plan.
These are designed to incent employees and Directors to act in the best
interests of shareowners by increasing their ownership of Company common stock.
These proposals are included on pages 15 through 17 of this Proxy Statement as
Proposals 3 and 4. Specifically, in the case of Proposal 3, shareowner approval
is requested to establish a new plan that will increase the group of employees
eligible to receive stock compensation. A total of 8,000,000 shares over a 10
year period would be available for grant under this new plan. In the case of
Proposal 4, shareowner approval is requested to increase the number of shares
of Frontier common stock granted, in lieu of cash, to Directors of the Company
and its subsidiaries annually for service on the Board. A brief summary of the
intent of each proposal is presented after the title of the proposal. As
required by the regulations of the Securities and Exchange Commission, also
included is a summary of the material provisions of each Plan.
You can receive a copy of these Plans by calling the Shareowner Line,
1-800-836-0342. Alternatively, you may direct a written request for copies of
the Plans to the Corporate Secretary at the Company's office at Frontier Center,
180 South Clinton Avenue, Rochester, New York 14646. We must receive your oral
or written request by April 18, 1995, in order for you to receive the copy in
advance of the meeting. Copies of each of these Plans will also be available at
the meeting.
- -------------------------------------------------------------------------------
Proposal 3-Employees' Stock Option Plan
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Summary of Proposed Action
As discussed in the Report of the Committee on Management at page 6 of this
Proxy Statement, the Committee has adopted the Employees' Stock Option Plan
(the "Plan"), subject to shareowners' approval. The purpose of the proposed
action is to provide a broad-based stock option plan available to employees
other than senior executives. This action will require the affirmative vote of a
majority of the outstanding shares eligible to vote on this proposal.
Your Board of Directors believes that all employees should be
encouraged to own shares of the Company's stock in order to align employees'
interests better with shareowners. As the telecommunications industry becomes
more competitive, the speed of change in the industry requires employees to
become more entrepreneurial and customer focused. The nature of the Company's
business has grown and changed dramatically over the past several years.
Currently, nearly 70% of the Company's revenue is generated from the provision
of long distance service, an already very competitive market. It is necessary
for the Company to maintain a competitive compensation program in order to
attract and retain high performance employees critical to the future success of
the Company. Stock options, even in limited numbers per employee, will provide
an important link between the employee's performance, compensation and increased
value for shareowners. Your Board of Directors asks that you approve this broad-
based employee stock option plan that will allow the Company to incent and
reward non-senior executive employees with stock options.
Summary of Plan Provisions
The Company's Employees' Stock Option Plan will be a new, broad-based plan.
All employees of the Company and its subsidiaries, other than senior
executives, generally will be eligible to participate. Participation of
bargaining unit employees would be subject to the collective bargaining
process. Options may be granted under the Plan during a 10 year period
following shareowner approval of the Plan.
15
<PAGE>
Plan Administration; Eligibility. A Stock Option Committee (the
"Committee"), which currently would be composed of members of the Company's
senior management team, has discretion to select, from among the persons
eligible for awards, the employees to whom awards will be granted and to
determine the specific terms of each award, subject to the provisions of the
Plan.
Stock Options. The Plan permits the granting of Non-Qualified Stock
Options ("NQSOs"). The exercise price under each option is the fair market value
of the common stock on the day the option is granted. Options by their terms are
not transferable by the participant other than by will or the laws of descent
and distribution, by gift to family members or by the terms of a domestic
relations order. Options become exercisable on the second anniversary of the
date of the grant. Options expire automatically if not exercised within ten (10)
years following the date of grant.
Shares Available. The aggregate number of shares of the Company's common
stock available for award under this Plan during the 10 year life of the Plan
will not exceed eight million (8,000,000) shares.
If an award expires, terminates or is canceled without being exercised,
under certain circumstances, new awards may thereafter be granted incorporating
such shares. No award will be granted more than 10 years after the Plan
is approved by shareowners.
Change in Control. In the event of a change in control of the Company,
all of a participant's stock options shall become immediately exercisable,
unless directed otherwise by resolution of the Board adopted prior to and
specifically relating to the occurrence of such change in control. Each
participant also has the right, exercised by written notice to the Company
within sixty (60) days after the change in control, to receive, in exchange for
the surrender of an option or any portion thereof to the extent the option is
then exercisable, an amount of cash equal to the difference between the fair
market value (as determined by the Board) on the date of surrender of the common
stock covered by the option or portion thereof which is so surrendered and the
option price of such common stock under the option.
Tax Consequences
The Company has been advised by counsel that under present law the following
are the Federal income tax consequences generally arising with respect to stock
options granted under the Plan. The grant of an option will create no Federal
income tax consequences for an optionee or the Company. Upon exercising an
NQSO, the optionee must recognize ordinary income equal to the difference
between the exercise price and the fair market value of the stock on the date
of exercise. The Company will be entitled to a deduction for the same amount.
The treatment of an optionee's disposition of shares acquired through the
exercise of an option depends on how long the shares have been held.
- -------------------------------------------------------------------------------
Proposal 4-Directors' Stock Incentive Plan
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Summary of Proposed Action
Increased common share ownership in the Company by non-employee Directors of the
Company and its subsidiaries will more closely align their interests to those of
our general shareowner population. Based on management's recommendation, your
Board of Directors has recommended a modification and restatement of the
Directors' Stock Incentive Plan to increase the annual stock grants to non-
employee Directors of the Company and its subsidiaries so that their retainers
will be paid entirely in Company common stock. Currently eleven persons are non-
employee Directors of Frontier Corporation and five persons are non-employee
Directors of Frontier Corporation subsidiaries. This action requires the
affirmative vote of a majority of the outstanding shares eligible to vote on
this proposal.
Summary of Current Plan Provisions
The Directors' Stock Option Plan was adopted by the Board of Directors on
November 20, 1989, approved by shareowners on April 25, 1990, and amended by
shareowners on April 27, 1994. Modified and renamed the Directors' Stock
Incentive Plan, the Plan currently authorizes 1,000,000 shares to be available
for grants. This authorization is sufficient to support the proposed new
action. The Plan currently provides for the automatic annual grant to
non-employee Directors of Frontier Corporation of non-qualified stock options
to purchase 4,000 shares of the Company's common stock, and the automatic
annual grant to non-employee Directors of Frontier Corporation subsidiaries of
non-qualified stock options to purchase 3,000 shares of the Company's common
stock. Additionally, the Plan also currently provides for an annual grant of
500 shares to non-employee Frontier Corporation Directors. Grants are made each
year on the date of the Annual Meeting electing Directors to the Board. Any new
non-employee Director also receives a one time grant of 1,000 shares which may
not be transferred while the Director remains on the Board. Non-employee Board
members who begin service on the Board on a date other than the date of the
Annual Meeting are granted an option to purchase a pro rata portion of 4,000
shares and are awarded a pro rata portion of 500 shares. All eleven current
non-employee Frontier Corporation Directors and five Rochester Telephone Corp.
Directors currently participate in this Plan.
16
<PAGE>
Each option granted under the Plan is evidenced by an option agreement
between the individual Director and the Company. At the date each year that
Directors are elected to the Board, each Director so elected (whether newly
elected or continuing as a carryover Director) will receive an option to
purchase a fixed number of shares of the Company's common stock. The exercise
price under each option equals the fair market value of the common stock at the
time the option is granted. Options are not transferable by the participant
other than by will or the laws of descent and distribution. New options granted
under the Plan will become exercisable with respect to one-third of the option
shares on the first anniversary of the date of grant and with respect to an
additional one-third of such shares on the second and third anniversaries of the
grant.
Notwithstanding any of the provisions of the Plan, in the event of a
change in control of the Company, all of a participant's options are immediately
vested and exercisable, unless directed otherwise by resolution of the Board
adopted prior to and specifically relating to the change in control. In the
event of a change in control, each holder of an exercisable option shall also
have the right at any time thereafter during the term of such option to exercise
the option in full, notwithstanding any limitation or restriction in any option
agreement or in the Plan. Each participant shall also have the right, exercised
by written notice to the Company within sixty (60) days after the change in
control, to receive, in exchange for the surrender of the option or any portion
thereof to the extent the option is then exercisable, an amount of cash. This
amount of cash will be equal to the difference between the fair market value (as
determined by the Board) on the date of surrender of the common stock covered by
the option or portion thereof which is so surrendered and the option price of
such common stock under the option.
Plan Modifications
Eligibility. Currently the eligible participants are persons who are
non-employee Directors of Frontier Corporation and its subsidiaries. The
restated Plan will not change the composition of the eligible group.
Stock Grants. The Board of Directors of Frontier Corporation believes it
would further the purpose of aligning the interests of the Directors of the
Company and its shareowners if the annual retainers paid to the non-employee
Directors were paid in the form of shares of Frontier common stock rather than
in cash. Upon the recommendation of the Committee on Directors, the Board of
Directors voted, subject to the approval of shareowners, to change the form of
payment of the annual retainers for non-employee Directors from a combination of
cash and stock to all stock. To achieve this, the Directors' Stock Incentive
Plan must be changed in the following manner:
1. Annual Frontier Board Retainer will be 1,200 shares of Frontier common stock;
after 1996 the retainer will be the greater of 1,200 shares or the number of
shares of common stock having a fair market value equal to the annual cash Board
Retainer.
2. Annual Frontier Committee Chair Retainer will be 300 additional shares of
Frontier common stock; after 1996 the retainer will be the greater of 300 shares
or the number of shares of common stock having a fair market value equal to the
annual cash Committee Chair Retainer.
3. Subsidiary annual retainers will be paid in Frontier common stock having
an aggregate fair market value on the date of grant equal to the amount of the
Retainer.
Other provisions of the Plan, such as the grant of stock options and new
Director shares, would remain unchanged.
Tax Consequences
The Company has been advised by counsel that under present law the following
are the Federal income tax consequences generally arising with respect to
awards granted under the Plan.
The grant of an NQSO will create no Federal tax consequences for the
optionee or the Company. Upon exercising, the optionee must recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the stock on the date of exercise. The Company will be entitled to a
deduction for the same amount. The treatment of an optionee's disposition of
the shares acquired through exercise of an NQSO depends on how long the shares
have been held. Generally, there will be no tax consequences to the Company in
connection with the disposition of the shares acquired by an optionee through
exercise of an NQSO.
A recipient of a stock grant will be subject to tax at ordinary income
rates on the fair market value of the stock at the time of the grant, provided
that a Director who has elected to defer receipt of directors fees shall
recognize income in accordance with the deferral election. The Company will be
entitled to take a tax deduction equal to the amount includable in the
Director's income.
New Plan Benefits
As required by regulations of the Securities and Exchange Commission, the
following table shows the benefits under each of the Plans described in
Proposals 3 and 4. The table indicates the Plan benefits which may be received
by or allocated for the named executive officers, the executive officers as a
group, Directors who are not executive officers, and Company employees who are
not executive officers. The benefits are expressed in number of units. The
Directors and nominees will benefit from approval of the Plan in which they
participate.
17
<PAGE>
New Plan Benefits
<TABLE>
<CAPTION>
Employees' Directors'
Stock Option Stock Incentive
Plan(1) Plan(2)
Name and Position (#) (#)
- ----------------- ---------------- ---------------
<S> <C> <C>
R. L. Bittner N/A N/A
Chairman, President and CEO
Frontier Corporation
M. C. Moses N/A N/A
Vice Chairman and Chief Financial
Officer Frontier Corporation
J. T. Carr N/A N/A
Senior Vice President Frontier
Corporation and Chairman
Rochester Telephone Corp.
D. M. Gregory N/A N/A
Senior Vice President
Frontier Corporation and
President - Carrier Services
L. L. Massaro N/A N/A
Executive Vice President and
Chief Administrative Officer
Frontier Corporation
W. H. Oberlin N/A N/A
former President
Frontier Corporation
J. M. Zrno N/A N/A
former Vice Chairman
Frontier Corporation
Executive Group N/A N/A
Non-Executive N/A 83,700
Director Group
Non-Executive Discretionary(3) N/A
Officer Employee
Group
</TABLE>
(1) Executive Officers and Directors are not eligible to participate in the
Employees' Stock Option Plan.
(2) All amounts are 1996 projections. This Plan is available only to
Directors of the Company and its subsidiaries who are not employees of the
Company or any of its subsidiaries or affiliates.
(3) The number of stock options which would be granted to the eligible
employees is undeterminable at this time as any such grants are at the
discretion of the Stock Option Committee.
- -------------------------------------------------------------------------------
Other Matters
As of the date of this Proxy Statement, the Board of Directors does not
intend to present any matter for action at the Annual Meeting other than those
set forth in the Notice of Annual Meeting. If any other matters properly come
before the meeting, the holders of the proxies will act in accordance with
their best judgment. In the event a nominee is unable to serve, the proxies
will vote upon a substituted nominee.
- -------------------------------------------------------------------------------
Future Proposals of Shareowners
In order to be eligible for inclusion in the proxy materials for the
Company's 1997 Annual Meeting of Shareowners, any shareowner proposal to take
action at such meeting must be received at the Company's principal executive
offices by November 13, 1996. Any such proposal should be addressed to 180
South Clinton Avenue, Rochester, New York 14646, Attention: Josephine S.
Trubek, Corporate Secretary.
In addition, the Company's By-Laws establish an advance notice procedure
with regard to certain matters, including shareowner proposals not included in
the Company's proxy statement, to be brought before an annual meeting of
shareowners. In general, in order to bring a matter before the meeting, notice
must be received by the Corporate Secretary of the Company not less than 60
days nor more than 90 days prior to the anniversary of the immediately preceding
annual meeting and must contain specified information concerning the matters to
be brought before such meeting and concerning the shareowner proposing such
matters. If the date of the annual meeting is more than 30 days earlier or more
than 60 days later than the anniversary date, notice must be received not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which the public announcement of the date of
such meeting is first made. However, if a shareowner complies with the
requirements to have a proposal included in the proxy materials, he or she is
deemed to have complied with this advance notice procedure. If a shareowner who
has notified the Company of his or her intention to present a proposal at an
annual meeting does not appear or send a qualified representative to present
that proposal at the meeting, the Company need not present the proposal for a
vote at the meeting.
March 11, 1996
18
<PAGE>
Frontier
Without Limits, Within Reach.
Frontier Corporation
Frontier Center
180 South Clinton Avenue
Rochester, NY 14646-0700
<PAGE>
Frontier [LOGO] Proxy For Common Shares
CORPORATION
I authorize each of Ronald L. Bittner and/or Josephine S. Trubek, or
substitutes selected by them, to vote all shares of Frontier Corporation
which I am entitled to vote at the Annual Meeting of Shareowners on April
24, 1996, or at any adjournment thereof, as specified below:
The Board of Directors recommends a vote FOR Proposals 1 through 4:
1. NOMINEES FOR DIRECTORS: Patricia C. Barron, Ronald L. Bittner, Raul
E. Cesan, Brenda E. Edgerton, Jairo A. Estrada, Michael E. Faherty,
Daniel E. Gill, Alan C. Hasselwander, Robert J. Holland, Jr.,
Douglas H. McCorkindale, Marvin C. Moses, Dr. Leo J. Thomas, and
Richard J. Uhl.
[ ] VOTE FOR all nominees listed above, except for the following
(if any):
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[ ] VOTE WITHHELD from ALL nominees
FOR AGAINST ABSTAIN
2. Election of Price Waterhouse LLP as Auditors [ ] [ ] [ ]
FOR AGAINST ABSTAIN
3. Approval of the Employees' Stock [ ] [ ] [ ]
Option Plan
FOR AGAINST ABSTAIN
4. Approval of the Directors' [ ] [ ] [ ]
Stock Incentive Plan Amendment
5. To vote in favor of any substituted director if a nominee is unable
to serve and to act in their discretion upon such other matters which
may properly come before the meeting, or which are incident to the conduct
of the meeting, or which the Board of Directors does not know, at the time
of this solicitation, will be presented at the meeting.
CONTINUED, and to be signed and dated, on REVERSE SIDE
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION TO
THE CONTRARY IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES AND AUDITORS AND IN FAVOR OF THE BENEFIT PLAN PROPOSALS, NUMBERS
3 AND 4.
[ ] Yes, I plan to attend the 1996 Annual Meeting.
Dated , 1996
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(Please sign exactly as name appears below)
