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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 1-4166
FRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0613330
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
180 South Clinton Avenue, Rochester, NY 14646-0700
(Address of principal executive offices) (Zip Code)
(716) 777-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
$1.00 Par Value Common Stock 162,490,268 shares
as of April 30, 1996
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FRONTIER CORPORATION
Form 10-Q
Index
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Business Segment Information for the
three months ended March 31, 1996
and March 31, 1995 3
Consolidated Statements of Income for
the three months ended March 31, 1996
and March 31, 1995 4
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 5
Consolidated Statements of Cash Flows
for the three months ended March 31, 1996
and March 31, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
Index to Exhibits 23
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FRONTIER CORPORATION
Business Segment Information
(Unaudited)
3 Months Ended March 31,
In thousands of dollars 1996 1995
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Long Distance Communications Services
Revenues $ 486,102 $ 297,879
Operating Income:
Operating Income Before Acquisition $ 63,255 $ 47,153
Related Charges
Acquisition Related Charges - (4,750)
- ----------------------------------------------------------------
Total Operating Income $ 63,255 $ 42,403
Depreciation and Amortization $ 19,263 $ 11,069
Capital Expenditures $ 37,230 $ 3,984
Identifiable Assets (1) $1,181,384 $ 549,573
================================================================
Local Communications Services
Revenues:
Rochester, NY Operations $ 81,674 $ 77,481
Regional Operations 76,768 75,216
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Total Revenues $ 158,442 $ 152,697
Operating Income:
Rochester, NY Operations $ 19,608 $ 20,050
Regional Operations 31,243 27,988
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Total Operating Income $ 50,851 $ 48,038
Depreciation and Amortization:
Rochester, NY Operations $ 12,834 $ 14,055
Regional Operations 11,582 12,179
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Total Depreciation and Amortization $ 24,416 $ 26,234
Capital Expenditures $ 19,462 $ 13,981
Identifiable Assets (1) $1,148,764 $ 1,228,274
================================================================
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Corporate Operations and Other
Revenues $ 10,605 $ 8,464
Operating Income (Loss) (2,254) (3,160)
Depreciation and Amortization $ 2,009 $ 888
Capital Expenditures $ 5,308 $ 3,279
Identifiable Assets (1) $ 330,196 $ 642,296
================================================================
Consolidated
Revenues $ 655,149 $ 459,040
Operating Income:
Operating Income Before Acquisition $ 111,852 $ 92,031
Related Charges
Acquisition Related Charges - (4,750)
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Total Operating Income $ 111,852 $ 87,281
Depreciation and Amortization $ 45,688 $ 38,191
Capital Expenditures $ 62,000 $ 21,244
Identifiable Assets $2,154,715 $ 2,118,313
================================================================
(1) Includes intercompany accounts that are
eliminated in consolidation of $505,629, and
$301,830 in 1996 and 1995, respectively.
See accompanying Notes to Consolidated Financial Statements
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FRONTIER CORPORATION
Consolidated Statements of Income
(Unaudited)
3 Months Ended March 31,
In thousands, except per share data 1996 1995
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Revenues $655,149 $459,040
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Costs and Expenses
Operating expenses 485,828 317,205
Depreciation and amortization 45,688 38,191
Taxes other than income taxes 11,781 11,613
Acquisition related charges - 4,750
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Total Costs and Expenses 543,297 371,759
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Operating Income 111,852 87,281
Interest expense 11,638 13,547
Other income and expense:
Gain on sale of assets 4,976 4,826
Equity earnings from
unconsolidated wireless interests 1,455 396
Interest income 523 3,975
Other expense 727 602
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Income Before Taxes and Cumulative Effect of
Change in Accounting Principle 106,441 82,329
Income taxes 41,300 30,679
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Income Before Cumulative Effect of Change
in Accounting Principle 65,141 51,650
Cumulative effect of change in
accounting principle for the
impairment of long-lived assets
and for long-lived assets
to be disposed of (8,018) -
- --------------------------------------------------------------------
Net Income 57,123 51,650
Dividends on preferred stock 293 297
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Income Applicable to Common Stock $ 56,830 $ 51,353
====================================================================
Dividends declared on common stock $ 34,480 $ 16,989
====================================================================
Earnings Per Common Share
Income before cumulative effect
of change in accounting principle $ .40 $ .32
Cumulative effect of change (.05)
in accounting principle
- --------------------------------------------------------------------
Earnings Per Common Share $ .35 $ .32
====================================================================
Average Common Shares Outstanding
(in thousands) 163,527 160,924
====================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Balance Sheets
March 31, December 31,
1996 1995
In thousands of dollars,
except share data (Unaudited)
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ASSETS
Current Assets
Cash and cash equivalents $ 24,060 $ 31,449
Accounts receivable, (less
allowance for uncollectibles
of $29,288 and $28,515,
respectively) 434,654 404,081
Materials and supplies 15,284 12,928
Deferred income taxes 31,748 43,588
Prepayments and other 32,668 31,089
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Total Current Assets 538,414 523,135
Property, plant and equipment,net 895,223 881,309
Goodwill and customer base 557,166 550,081
Deferred and other assets 163,912 154,067
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Total Assets $2,154,715 $2,108,592
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LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 405,230 $ 381,680
Dividends payable 34,137 33,247
Debt due within one year 5,723 14,871
Taxes accrued 15,406 26,842
Other liabilities 26,450 47,561
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Total Current Liabilities 486,946 504,201
Long-Term debt 611,059 618,867
Deferred income taxes 4,999 15,644
Deferred employee benefits
obligation 61,077 58,385
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Total Liabilities 1,164,081 1,197,097
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Shareowners' Equity
Preferred stock 22,769 22,769
Common stock, par value $1.00,
authorized 300,000,000
shares; 162,329,827 shares and
158,063,387 shares
issued in 1996 and 1995 162,330 158,063
Capital in excess of par value 476,354 420,172
Retained earnings 339,251 317,149
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1,000,704 918,153
Less -
Treasury stock, 6,375 shares in
1996 and 1995, at cost 147 147
Unearned compensation -
restricted stock plan 9,923 6,511
- ----------------------------------------------------------
Total Shareowners' Equity 990,634 911,495
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Total Liabilities and
Shareowners' Equity $2,154,715 $2,108,592
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See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
3 Months Ended March 31,
In thousands of dollars 1996 1995
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Operating Activities
Net income $57,123 $ 51,650
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Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle 12,396 -
Acquisition related charges - 4,750
Depreciation and amortization 45,688 38,191
Gain on sale of assets (4,976) (4,826)
Equity earnings from unconsolidated
wireless interests (1,455) (396)
Other, net 950 107
Changes in operating assets and liabilities, exclusive
of impacts of purchase acquisitions:
Increase in accounts receivable (30,451) (15,223)
Increase in materials and supplies (2,356) (616)
(Increase) decrease in prepayments
and other assets (2,282) 2,663
Increase in deferred and other assets (5,349) (7,029)
Increase (decrease) in accounts payable 20,541 (15,648)
Increase in taxes accrued and other
liabilities 5,475 32,171
Increase in deferred employee benefits
obligation 2,692 3,402
Increase (decrease) in deferred income taxes 1,195 (1,057)
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Total adjustments 42,068 36,489
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Net cash provided by operating activities 99,191 88,139
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Investing Activities
Expenditures for property, plant and equipment (61,708) (21,299)
Decrease in short-term investments - 8,750
Investment in cellular partnerships (19,102) (470)
Proceeds from asset sales 10,441 -
Purchase of companies, net of cash acquired (4,868) (78,138)
Other investing activities - (195)
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Net cash used in investing activities (75,237) (91,352)
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Financing Activities
Proceeds from issuance of long-term debt - 44,568
Repayments of debt (16,280) (52,984)
Dividends paid (33,883) (15,733)
Treasury stock, net - (10,041)
Issuance of common stock, net 18,820 (239)
Distribution to shareowners of pooled company - (2,287)
- ------------------------------------------------------------------------
Net cash used in financing activities (31,343) (36,716)
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Net Decrease in Cash and Cash Equivalents (7,389) (39,929)
Cash and Cash Equivalents at Beginning of Period 31,449 359,309
- ------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $24,060 $319,380
========================================================================
See accompanying Notes to Consolidated Financial Statements.
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Note 1: Consolidation
The consolidated financial information includes the
accounts of Frontier Corporation and its affiliates (the
"Company" or "Frontier"). In the opinion of management,
the financial statements reflect all adjustments of a
normal and recurring nature which are necessary to present
fairly the financial positions, results of operations and
cash flows for the interim periods.
In the beginning of 1996, Frontier simplified its
business segment reporting to reflect the predominance of
its two major operating segments, long distance and local
communications services. The Company now reports its
operating results in three segments: Long Distance
Communications Services, Local Communications Services and
Corporate Operations and Other. The Company's majority
interest in two wireless properties, which were previously
reported as a Wireless Communications Segment, have been
consolidated under Corporate Operations and Other. The
change in the definition of the Company's segments has
been made to better reflect the changing scope of the
businesses in which Frontier operates. All historical
data have been restated accordingly to conform with the
new presentation.
Certain prior year amounts have been reclassified to
conform to the current year presentation.
Note 2 : Pooling of Interests 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), 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 for the purchase of an
equal number of its shares on exercise. 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 merger to include the accounts and operations
of ASI.
Note 3: Purchase Acquisitions
In March 1996, the Company acquired a 55 percent
interest in the New York RSA No. 3 Cellular Partnership
(RSA No. 3). RSA No. 3 is a provider of cellular mobile
telephone service in the New York State Rural Service Area
No. 3. RSA No. 3 encompasses much of the Southern Tier
Area of New York State. The Company's interest in RSA No.
3 is managed by Frontier Cellular, a 50/50 owned joint
venture with Bell Atlantic/NYNEX Mobile and the operating
results are reported using the equity method of
accounting. The Company paid $19.1 million in cash for
its interest in RSA No. 3.
In November 1995, the Company acquired the assets of
LINK-VTC, Inc. (LINK-VTC), a Boulder, Colorado based
telecommunications company specializing in video
conferencing 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 percent interest
in LinkUSA Corporation (LinkUSA) for $130 million in cash.
SCI provides telecommunication services in the Midwest.
LinkUSA develops software applications for
telecommunications firms. On February 2, 1996, the Company
acquired the remaining 19.2 percent interest in LinkUSA
for $2.3 million in cash.
In July 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.
In May 1995, the Company completed its purchase of 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 for all of the outstanding shares of WCT.
In March 1995, the Company, through ALC, completed its
acquisition of ConferTech International, Inc.
(ConferTech), a telecommunications company specializing in
teleconferencing services and audio bridge equipment. ALC
paid approximately $66 million in cash for ConferTech.
In March 1995, the Company completed its purchase of
Minnesota Southern Cellular Telephone Company (MSCTC). A
total of approximately 867,000 shares of Frontier common
stock were reissued from treasury in exchange for all of
the shares of MSCTC. 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 No. 10.
Note 4 : Acquisition Related Charges
In connection with the August 1995 merger with ALC,
Frontier recorded a one-time pre-tax acquisition related
charge of $109.5 million in the third quarter of 1995. A
one-time pre-tax acquisition charge of $4.8 million was
recorded in the first quarter of 1995 as a result of the
acquisition of ASI. The integration of the acquired
companies over the last year has resulted in instances of
redundant facilities, equipment and staffing. The
acquisition related charges include investment banker
fees, legal fees and other direct costs resulting from the
merger with ALC and the ASI transaction.
The acquisition related charges were reported as a
separate component of operating expenses for the 1995
results. Through a combination of attrition and force
reductions, the Company has reduced its number of
employees in the Long Distance and Administrative areas by
more than 300 thus far during the integration process. As
of March 31, 1996, 205 employees have been paid $7.7
million in severance benefits which were charged to the
reserve. The Company believes that the reserve balance of
$55.5 million 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 projects that the integration of the companies
acquired should be substantially completed during 1996.
Note 5 : Long - Lived Assets to Be Disposed Of
Effective January 1, 1996, the Company adopted Financial
Accounting Standards No. 121 (FAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". FAS 121 requires that certain
long-lived assets and identifiable intangibles be written
down to fair value whenever an impairment review indicates
that the carrying value cannot be recovered on an
undiscounted cash flow basis. The statement also requires
that certain long-lived assets and identifiable
intangibles to be disposed of be reported at fair value
less selling costs. The Company's adoption of this
standard resulted in a non-cash charge of $8.0 million
(net of a tax benefit of $4.4 million) and is reported in
the Consolidated Statement of Income as a cumulative
effect of a change in accounting principle. The charge
represents the cumulative adjustment required by FAS 121
to remeasure the carrying amount of certain assets held
for disposal as of January 1, 1996.
These assets held for disposal consist principally of
telephone switching equipment in the Company's Local
Communications Services segment as a result of
management's commitment, in late 1995, to a central office
switch consolidation project primarily at the Rochester
Telephone and Frontier Communications of New York
subsidiaries.
Note 6 : Discontinuance of Regulatory Accounting
As of September 30, 1995, the Company discontinued the
application of FAS 71, "Accounting for the Effects of
Certain Types of Regulation" for its local communications
companies. The Company discontinued the use of FAS 71
because of changes in regulation and increasingly rapid
advancements in telecommunications technology. The
discontinuance of regulatory accounting methods resulted
in a post-tax extraordinary charge of $112.1 million, net
of applicable income taxes of $68.3 million, primarily
caused by the reduction in the recorded value of long-
lived telephone plant assets.
Note 7: Gain on Sale of Assets
In March 1996, Frontier sold its minority investment in
a Canadian long distance company for a pre-tax gain of
$5.0 million.
In March 1995, the Company sold Ontonagon County
Telephone Company in Michigan and its subsidiary, Midway
Telephone Company. The sale, which was based on the
Company's plans to expand in areas other than Michigan's
Upper Peninsula, resulted in a non-taxable gain of $4.8
million or $.03 per share. The Company received 437,158
shares of its stock as a result of the transaction.
Note 8: 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.
Cash flows from financing activities includes $18.8
million of cash proceeds from stock options and warrants
exercised during the first quarter of 1996. The resultant
tax benefit realized from the exercise of stock options of
$38.5 million is reflected as an adjustment to capital in
excess of par value and taxes accrued.
Actual interest paid was $10.7 million and $12.5
million for the three month period ended March 31, 1996,
and March 31, 1995, respectively. In addition, actual
income taxes paid were $3.5 million for the three months
ended March 31, 1996, and $5.7 million for the three
months ended March 31, 1995.
Note 9: Major Customer
The Company's 1996 revenues include the impact of a
major carrier customer whose revenues comprise
approximately 17 percent of consolidated revenues for the
quarter ended March 31, 1996.
Note 10: Commitments and Contingencies
It is anticipated that the Company will expend
approximately $175 million to $200 million for additions
to property, plant and equipment during 1996. In
connection with this capital program, the Company has made
certain commitments for the purchase of material and
equipment. In addition, the Company is considering
entering certain commitments in the near future for the
purchase or construction of additional network facilities
not included in the $175 million to $200 million.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1996 and 1995
DESCRIPTION OF BUSINESS
Frontier Corporation (the "Company" or "Frontier") is a
diversified telecommunications company, serving more than
2 million customers throughout the United States and in
several foreign countries. Frontier Corporation's
principal lines of business are long distance and local
communications. The Company's other lines of business
include cellular and paging operations and
telecommunications equipment sales.
RESULTS OF OPERATIONS
Consolidated
Revenues for the first quarter of 1996 were $655.1
million, up $196.1 million or 42.7% over the comparable
period in 1995. The increase in revenue is primarily
driven by significant growth in the Company's long
distance segment. Operating income was $111.9 million for
the three months ended March 31, 1996, up $24.6 million or
28.2% from the same three months in 1995. The improvement
in operating income is attributable to revenue growth and
improved operating efficiencies. Revenue growth is driven
by the significant increase in traffic volume in the long
distance segment and from billable minutes and access line
growth in the local communications segment.
The Company has targeted significant operating
synergies from the restructuring of the long distance
operations. As a result of the significant traffic growth
in the long distance segment during 1996, Frontier has
experienced some delay in the integration of its long
distance switch network. The Company continues to
anticipate that total operating synergies of $40 million
will be achieved during 1996.
Income before the cumulative effect of adopting
Statement of Financial Accounting Standards No. 121 (FAS
121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" for the first
quarter of 1996 amounted to $65.1 million, a $13.5 million
increase, or 26.1%, over the comparable period in 1995.
Earnings per share before the adoption of FAS 121 were
$.40 in 1996 versus $.32 in 1995.
The financial results for 1996 and 1995 include certain
one time events. During the quarter ended March 31, 1996,
the Company sold its minority investment in a Canadian
long distance company for a pre-tax gain of $5.0 million.
This gain was offset by higher operating costs in the
Company's largest telephone subsidiary related to
increased labor and related expenses in connection with
work stoppage preparation costs for a bargaining unit
contract. The Company recorded a $4.8 million
pre-tax charge for costs related to the acquisition
of a long distance company in March 1995.
Earnings per share normalized for these one time
events amounted to $.39 and $.31 for the periods ended
March 31, 1996 and 1995, respectively.
Business Segments
The Company simplified its business segment reporting
at the beginning of 1996 to reflect the predominance of
its two major operating segments, long distance and local
communications services. The Company now reports its
operating results in three segments: Long Distance
Communications Services, Local Communications Services
and Corporate Operations and Other. The company's
majority interests in two wireless properties, which were
previously reported as a Wireless Communications Services
segment, have been consolidated under Corporate Operations
and Other. A review of the 1996 and 1995 first quarter
results of each business segment follows.
Long Distance Communications Services
Long Distance Communications Services continues to be
the Company's largest segment in terms of size and growth.
It accounted for 74% of the Company's 1996 first quarter
revenues as compared to 65% for the same period in 1995.
Long distance revenues totaled $486.1 million in the
first quarter of 1996, a $188.2 million, or 63.2%,
increase over the same quarter in 1995. The increase in
long distance revenues is attributed to significant
traffic growth. Traffic in long distance reached nearly
3.6 billion minutes in the first quarter, an increase of
86.6% over the same quarter in 1995. Revenue growth was
also impacted by the continued success of Frontier's
unified product set, Clear Value, which was introduced to
small and mid-sized businesses nationwide in October 1995.
Reported revenue growth was also aided by the impact of
1995 purchase acquisitions. Adjusting for the impact of
these acquisitions, consolidated revenues grew
approximately 31% in the quarter.
Revenue growth was also positively impacted by a major
carrier customer whose traffic has increased substantially
throughout the year and represents 17% of consolidated
revenues in the first quarter of 1996. The Company
believes that this customer may be installing its own long
distance switching capacity and may be diversifying its
traffic distribution to one or more additional carriers
this year. This could result in a portion of the traffic
moving to the customer's network or to another carrier's
network facilities. However, the customer has entered
into a three year agreement with the Company effective
April 1, 1995, amended October 27, 1995 and amended again
April 27, 1996 to address these and other issues. The
Company expects to retain significant traffic volumes and
has contractual provisions regarding exclusivity and
minimums that it views as favorable.
The Company expects to continue the process of
integrating the operations of its recently acquired long
distance businesses throughout 1996. The integration
process has been delayed primarily as a result of the
significant traffic growth experienced during the past six
months. This restructuring process will minimize
redundant facilities and staffing.
Costs and expenses for long distance operations,
excluding nonrecurring charges, increased $172.1 million
in the first quarter of 1996. This increase is primarily
the result of increased traffic volumes due to internal
growth and purchase acquisitions. Operating costs
excluding purchase acquisitions increased by $105.2
million over the comparable period in 1995. Cost of access
represented 62.2% of total revenue for the first quarter
of 1996, a five percent increase over the prior quarter.
Selling and marketing expenses accounted for $16.6 million
of the increased operating costs.
Operating income for long distance, excluding
nonrecurring charges, rose 34.1% to $63.3 million for the
three months ended March 31, 1996. Operating margin as a
percent of revenue decreased from 15.8% in the first
quarter of 1995 to 13.0% for the current quarter. The
reduction in operating margin in the first quarter is
partially the result of a contract with the Company's
major customer which was amended in the fourth quarter of
1995 to give the customer lower prices as a result of the
increased volume of traffic carried. Additionally, the
Company made several purchase acquisitions in 1995 that
impact year over year comparisons. Also contributing to
the decrease in operating margin is an operating loss
incurred by a start up long distance business in the
United Kingdom. As the network is integrated, the Company
anticipates that operating margin will improve; however,
this cannot be assured given competitive conditions in the
long distance communications market.
Local Communications Services
Local Communications Services includes the Company's
local telephone operations, consisting of the Rochester,
New York operation and the regional telephone operations,
which are comprised of 33 telephone operating subsidiaries
in 13 states. Also included with the Rochester, New York
operation are the local service revenues and associated
expenses generated from the efforts of Frontier
Communications of Rochester, a competitive
telecommunications company formed on January 1, 1995 that
provides an array of services on a retail basis in the
Rochester marketplace. Consequently, the Local
Communications Services segment includes both wholesale
and retail local service associated with the Rochester,
New York market.
Revenues for Local Communications Services were $158.4
million in the three month period ended March 31, 1996, an
increase of $5.7 million or 3.8% over the comparable
period in 1995. This segment accounted for 24.2% of
consolidated revenues in the first quarter of 1996.
Adjusting revenue for the sale of Ontonagon County
Telephone and its subsidiary, Midway Telephone, which
occurred in March 1995, revenues for Local Communications
Services rose 4.2% in the first quarter of 1996. This
increase is the result of a 3.9% increase in access
lines, an 8.6% increase in minutes of use and ongoing
sales of enhanced features and services. The Rochester
market continued its solid growth with a 5.4% increase in
revenues over the first quarter of the prior year. This
growth is attributable in part to aggressive marketing and
to a higher demand for services in the open market
environment. See discussion of the Open Market Plan on
page 18 through 19.
Excluding nonrecurring charges, costs and expenses in
the first quarter of 1996 for Local Communications
Services were $104.7 million, consistent with the first
quarter in 1995. The Rochester telephone operation
experienced increased costs and expenses related to higher
labor expenses resulting from work stoppage preparation
costs. These expenses, which were incurred in connection
with contract negotiations with Communications Workers of
America, Local 1170, were necessary to ensure continued
high standards of customer service in the event of a work
stoppage. The contract negotiations are currently at an
impasse and the Rochester company has implemented the
terms of its final offer as of April 9, 1996. The
increased costs and expenses at the Rochester telephone
operation were partially offset by reduced costs and
expenses at the regional telephone operations as a result
of continued operating efficiencies.
Normalized operating income for the first quarter of
1996 was $53.7 million, an increase of $5.7 million, or
11.8% over the first quarter of 1995. Normalized
operating margins for the three month period improved from
31.5% in 1995 to 33.9% in 1996, driven by improvements in
the Regional Operations, whose operating margin increased
to 40.7% for the quarter.
During late 1995, management committed to a major switch
consolidation plan at its Rochester Telephone and Frontier
Communications of New York subsidiaries. The three-year
plan to consolidate host switches by over 60% is projected
to improve network efficiency and reduce the cost of
maintenance and software upgrades.
Corporate Operations and Other
Corporate Operations is comprised of the expenses
traditionally associated with a holding company,
including executive and board of directors expenses,
corporate finance and treasury, investor relations,
corporate planning, legal services and business
development. The Other category is comprised of the
Company's majority ownership interest in wireless
operations and Frontier Network Systems ("FNS"). As of
March 31, 1996, wireless operations included the Alabama
RSAs No. 4 and No. 6, in which the Company has a 70%
interest, and Minnesota RSA No. 10, in which the Company
acquired a 100% interest in late March 1995. This latter
acquisition was accounted for as a purchase transaction.
FNS markets and installs telecommunications systems and
equipment.
Other Income Statement Items
Interest Expense
Interest expense was $11.6 million in the first quarter
of 1996, a $1.9 million decline from 1995. This decrease
is attributed to lower debt levels and a higher proportion
of variable rate debt outstanding. The Company refinanced
over $140 million of 9% fixed rate debt in the third and
fourth quarters of 1995 with variable rate debt, currently
at a lower interest rate, which had a positive effect on
interest expense in the first quarter of 1996.
Gain on Sale of Assets
During March 1996, the Company recorded a pretax gain of
$5.0 million related to the sale of its minority interest
in the stock of a Canadian long distance company.
The $4.8 million gain in 1995 resulted from the sale of
Ontonagon County Telephone and its subsidiary, Midway
Telephone. The Company received shares of its own common
stock in the transaction in a nontaxable exchange for all
the shares of Ontonagon and Midway.
Equity Earnings from Unconsolidated Wireless Interests
The Company's minority interests in wireless operations
and its 50% interest in the Frontier Cellular joint
venture with Bell Atlantic/NYNEX Mobile in upstate New
York are accounted for using the equity method. This
method of accounting results in the Company's
proportionate share of earnings being reflected in a
single line item below operating income.
Equity earnings from the Company's interests in wireless
partnerships in the first quarter of 1996 were $1.5
million, an increase of $1.1 million over 1995. The
increase over the prior year is the result of significant
customer growth and increased minutes of use. A portion
of the growth is attributable to the expansion of the
Frontier Cellular joint venture in other areas of New York
State. Adjusting for the recent expansion of the network
into these additional properties, customer base grew
approximately 51.0% and revenues increased 60.0% over the
first quarter of 1995.
Interest Income
Interest income in the first quarter of 1996 amounted to
$.5 million, a decrease of $3.5 million from first quarter
1995. This decrease is due to lower cash balances as a
result of the Company's long distance acquisition program
subsequent to the first quarter of 1995.
Income Taxes
The effective income tax rate for the first quarter of
1996 is 38.8% versus 37.3% for the first quarter of 1995.
The increase in the effective rate is primarily due to the
nontaxable gain on the sale of Ontonagon Telephone in
March 1995.
FINANCIAL CONDITION
Review of Cash Flow Activity
At March 31, 1996, the Company had $24.1 million in cash
and cash equivalents compared with $319.4 million at March
31, 1995, a decrease of $295.3 million. Cash generated
from operations amounted to $99.2 million for the three
months ended March 31, 1996 as compared to $88.1 million
for the same period in 1995. Offsetting the cash provided
by operating activities in 1996 was a $75.2 million
outflow for investing activities (mainly capital
expenditures of $61.7 million, investment in cellular
properties of $19.1 million and purchase acquisitions of
$4.9 million) and a $31.3 million outflow for financing
activities including debt retirements ($16.3 million),
dividend payments ($33.9 million) and proceeds from stock
option exercises ($18.8 million). Cash flow from
operations generated in the first quarter of 1995 was
offset by a $91.4 million use of cash for investing
activities (primarily capital expenditures of $21.2
million and purchase acquisitions of $78.1 million reduced
by a decrease in short term investments of $8.8 million)
and a $36.7 million outflow for financing activities
including debt retirements ($53 million), dividend
payments ($15.7 million) and purchases of treasury stock
($10.0 million) offset by proceeds from the issuance of
long-term debt ($44.6 million). Also, see Note 3 to the
Financial Statements for cash spent on acquisitions during
1995 and 1996.
EBITDA
Earnings before interest, taxes, depreciation and
amortization (EBITDA) is a common measurement of a
company's 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
$157.5 million and $125.5 million for the periods ending
March 31, 1996 and 1995, respectively. The increase in
EBITDA is primarily attributable to growth in the long
distance segment.
Debt
At March 31, 1996, the Company's total debt amounted to
$616.8 million, a decrease of $17.0 million from December
31, 1995. This decrease is mainly the result of a $6.4
million net reduction in long-term revolving bank debt,
the repayment of an $8.0 million note payable related to
the November 1995 purchase of Link-VTC, Inc. and the
repayment of approximately $1.0 million of various issues
of Rural Utilities Service (RUS) and Rural Telephone Bank
(RTB) debt.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percent of
total capitalization) was 38.4% at March 31, 1996, as
compared with 41.0% at December 31, 1995. Pre-tax
interest coverage, excluding nonrecurring charges, was
10.0 times for the three months ended March 31, 1996, as
compared with 6.9 times for the same period in 1995.
Capital Spending
Through March 1996, gross capital expenditures amounted
to approximately $62.0 million as compared to $21.2
million in the prior year. The Company plans to spend a
total of approximately $175 million to $200 million on its
capital program during the full year in 1996. The full
year capital program could represent an increase of up to
$37.4 million over 1995. The increase is largely driven by
capital requirements associated with the growth and
integration of the long distance segment.
A primary network strategy of the Company in recent
years has been to obtain capacity through leases of
facilities on a fixed price basis. Due to rapid growth in
its traffic volumes and changes in the long distance
market, the Company has been reassessing the relative
advantages of owning facilities in comparison to leasing
capacity from other carriers. The Company's assessment of
strategic and financial considerations may lead it to
enter into agreements for ownership rights to circuits in
place or to facilities to be built on long distance
routes, if the Company concludes that, on balance, such
ownership will better contribute to long term
competitiveness in critical areas such as transmission
cost, new service provision, broadband applications or
overall quality of service.
Dividends
On March 18, 1996, the Board of Directors declared the
first quarter 1996 dividend of 21.25 cents per share on
the Company's common stock, payable May 1, 1996 to
shareowners of record on April 15, 1996.
OTHER ITEMS
Open Market Plan
The Rochester, New York subsidiary (Rochester Telephone)
began its second year of operations under the Open Market
Plan. 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 and in the first quarter of 1996, indicate that a
stimulation of demand in the use of the network and new
product revenue can offset the loss of retail customers.
Increased competition may also lead to additional price
decreases for services, adversely impacting Rochester
Telephone's margins. During the seven year period of the
Open Market Plan Agreement, rate reductions of $21.0
million, $11.5 million of which occurred through 1995 and
an additional $2.5 million which will occur during 1996,
will be implemented for Rochester area consumers and rates
charged for residential and business telephone service may
not be increased. 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. The complaint primarily seeks changes in
the wholesale discount, the minutes of use surcharge and
changes in a number of operational and support activities.
Some of these issues are also being considered in other
states in other unrelated local competition proceedings.
On February 2, 1996, the NYSPSC issued an Order
reconvening the parties to the Open Market Plan. Pursuant
to this Order, a number of issues will be litigated before
the NYSPSC in the Open Market proceeding and a related
proceeding, including the wholesale discount, the minutes
of use surcharge and other operational issues. The Company
cannot predict the outcome of this matter.
Part II - Other Information
Item 1 - Legal Proceedings
On June 11, 1992, after incurring environmental response
costs of approximately $1.5 million pursuant to a consent
decree with the United States Environmental Protection
Agency (the "EPA"), a group of five corporate plaintiffs
commenced an action in the United States District Court
for the Northern District of New York seeking contribution
from 15 corporate defendants, including Rotelcom Inc., a
wholly-owned subsidiary of the registrant held through
intervening subsidiaries (now named Frontier Network
Systems Inc. or "FNS"). Two additional defendants were
named in 1994.
The plaintiffs' consent decree concerned the clean-up of
an environmental Superfund site located in Cortland, New
York. It is alleged that the corporate defendants
disposed of hazardous substances at the site and are
therefore liable under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The
Company anticipates that a final Record of Decision will
be issued by the EPA which will prescribe the remediation
requirements for the site. The total cost of remediation
at the site is uncertain, although estimates have recently
ranged from $25 million to $100 million. There has been
no allocation of liability among or between the plaintiffs
or defendants. The extent to which plaintiffs can recover
any of these costs from the defendants, including FNS,
will be determined at a trial. FNS has been vigorously
defending this lawsuit. The Company believes that it will
ultimately be successful, but it is unable to predict the
outcome with any certainty at this time.
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 counsel and Frontier. Class action 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 Communications Corporation as a result of its
announced merger with the Company. In two of those
actions, each filed in the Court of Chancery of the State
of Delaware, in and for New Castle County by Martin Mayers
and Mordecai Cohen, respectively, Frontier Corporation was
named as a defendant, although it has not yet been served
with process. The lawsuits purport to be class actions
brought on behalf of all ALC stockholders against ALC and
its directors. Among other things, the complaints sought
to enjoin the business combination and/or to obtain an
award of damages. On June 9, 1995, the Delaware Court
entered an order consolidating the three cases for all
purposes. Under the terms of that order, Mayers v. Irwin,
et al., C.A. No. 14196 is designated as the consolidated
complaint and the defendants are required to respond to
the consolidated complaint. On July 10, 1995, ALC and its
directors answered the consolidated complaint. The
Company believes these actions to be without merit and
will defend vigorously the claims asserted in the
consolidated suit.
The Open Market Plan discussion in the Management's
Discussion and Analysis of Financial Condition and Results
of Operations in Part I, Item 2 of this document is
incorporated herein by reference.
<PAGE>
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K filed during the quarter:
SEC Filing Date Item No. Financial Statements
January 26, 1996 4 None
March 26, 1996 5 None
The Company filed the following reports on Form 8-K
subsequent to the quarter ended March 31, 1996:
SEC Filing Date Item No. Financial Statements
April 2, 1996 5 None
April 16, 1996 5 None
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
FRONTIER CORPORATION
(Registrant)
Dated: May 14, 1996 /s/Richard A. Smith
By:----------------------------
Richard A. Smith
Vice President and Controller
(principal accounting officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
3 Bylaws Filed herewith
10.25 Executive contract with supporting offer
letter for Mr. Barrett Filed herewith
10.26 Executive contract with supporting offer
letter and note for Mr. Bennis Filed herewith
10.27 Restated Directors Stock Incentive Plan
(April 24, 1996) Filed herewith
10.28 Employees' Stock Option Plan Filed herewith
10.29 Amendment No. 1 to restated Management
Pension Plan Filed herewith
11 Statement re: Computation of
Earnings per Share of Common Stock
on a Fully Diluted Basis
(Unaudited) Filed herewith
27 Financial Data Schedule Filed herewith
<PAGE> 1
EXHIBIT 3
FRONTIER CORPORATION
By-Laws
As Revised Effective 4/30/96
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.
<PAGE>
<PAGE> 2
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
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.
<PAGE>
<PAGE> 3
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.
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
<PAGE>
<PAGE> 4
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
<PAGE>
<PAGE> 5
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
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
<PAGE>
<PAGE> 6
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.
<PAGE>
<PAGE> 7
ARTICLE II
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 twelve 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.
<PAGE>
<PAGE> 8
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.
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.
<PAGE>
<PAGE> 9
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;
(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.
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<PAGE> 10
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.
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<PAGE> 11
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
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,
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<PAGE> 12
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
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.
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<PAGE> 13
(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
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<PAGE> 14
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 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
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<PAGE> 15
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 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
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<PAGE> 16
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
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
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<PAGE> 17
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
<PAGE>
<PAGE> 18
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,
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.
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<PAGE> 19
(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 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.
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<PAGE> 20
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
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<PAGE> 21
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 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.
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<PAGE> 22
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
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> 1
FRONTIER CORPORATION
180 South Clinton Avenue
Rochester, New York 14646
March 25, 1996
Mr. Robert L. Barrett
6152 Grey Friar Way
Dublin, Ohio 43017
Dear Mr. Barrett:
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 March 26, 1996. However, this Agreement does not
supersede any stock option agreements or restricted stock grant
agreements dated as of March 26, 1996 between the Company and
you, all of which shall remain in full force and effect.
1. Employment.
1.1 Term. The Company shall employ you in a senior
executive management capacity as the Company, with your consent,
may from time to time designate. This Agreement shall become
effective as of March 26, 1996 and shall continue until March 31,
1999, unless earlier terminated or extended in accordance with
its terms. Beginning on April 1, 1998 and on each anniversary of
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<PAGE> 2
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 December 31 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 or Disability)
and will render the services contemplated in this Agreement for
the reasonable duration of the Company's defense against such
action and until such action has been abandoned or terminated or
a Change in Control has occurred.
Any termination of your employment during the Term for
reasons other than your death shall be evidenced by a written
Notice of Termination, which shall specify the provision of this
Agreement relied upon for such termination and describe with
reasonable detail the facts and circumstances claimed by the
sender of such Notice of Termination to provide the basis for
termination. Any such Notice of Termination shall also specify
the effective date of termination (the "Termination Date"). If
you die during the Term the Termination Date shall be the date of
your death.
1.2 Duties. You shall perform all duties incidental to
your position with the Company, or as may be assigned to you by
the Chief Executive Officer of the Company or the Board. You
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
<PAGE>
<PAGE> 3
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 $300,000, in installments in
accordance with the Company's policies from time to time in
effect, until January 1, 1997. 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 benefits and perquisites provided by the Company
under its Executive Compensation program in effect from time to
time for executives at the Executive Vice President level.
1.6 Expenses. You shall be reimbursed for any reasonable
expenses you incur in connection with your employment during the
Term, upon presentation to the Company of an itemized account and
receipts of such expenses as required by the Company's policies
from time to time in effect.
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
<PAGE>
<PAGE> 4
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 may now or will in the future have access
to information of the Company that the Company deems to be
confidential and/or proprietary, including but not limited to,
information about the Company's strategies, plans, products and
services, methods of operation, employees, sales, profits,
expenses, customer lists and the relationships between the
Company and its customers, suppliers and others who have business
dealings with the Company. You covenant and agree that during
the Term and thereafter, you will not disclose any such
information to any person without the prior written authorization
of the Chief Executive Officer or the Board.
4. Non-Competition.
4.1 Covenant. In consideration of the benefits provided
to you under this Agreement, which you acknowledge are
independent consideration, you covenant and agree that during the
Restricted Period (as defined below), you will not, directly or
indirectly, without the Company's prior consent: (i) own, manage,
operate, finance, join, control or participate in the ownership
or control of, or be associated as an officer, director,
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
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<PAGE> 5
employed by the Company at the time of such offer, employment,
solicitation, interference or enticement or has been so employed
by the Company within 12 months prior to such offer, employment,
solicitation, interference or enticement. This Section shall not
be construed to prohibit the ownership by you of not more than 1%
of any class of securities of any corporation which competes with
the Company and which has a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4.2 Definitions.
4.2.1 "Competes" means the production, marketing or
selling of any product or service of any person or entity
other than the Company which resembles or competes with a
product or service produced, marketed or sold by the Company
(or to your knowledge was under development by the Company)
during the period of your employment by the Company (whether
under this Agreement or otherwise).
4.2.2 "Restricted Area" means:
(a) The Standard Metropolitan Statistical Area (or the
equivalent) in which any office, place of employment,
business address or POP maintained by the Company is
located; or
(b) Any state of the United States, any province of
Canada or any foreign country from which the Company or
any of its material subsidiaries or affiliates derives
5% or more of its annual net income.
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;
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<PAGE> 6
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated 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.
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
<PAGE>
<PAGE> 7
located in or presiding over the county in which the Company has
its corporate headquarters at the applicable time in any action,
suit or proceeding brought by the Company to enforce its rights
under Sections 2, 3 and/or 4 of this Agreement.
6. Company's Obligations upon Termination. The sole
obligations of the Company upon the termination of your
employment prior to the failure of either you or the Company to
extend the Term in accordance with Section 1.1 of this Agreement
are as set forth in this Section 6. Any and all amounts to be
paid to you in connection with your termination shall be paid in
a lump sum promptly after the Termination Date, but not more than
30 days thereafter.
6.1 Termination upon Disability or Death. If your
employment with the Company ends by reason of your death or
Disability (as defined later in this Agreement), the Company
shall pay you all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date,
including:
6.1.1 Base compensation;
6.1.2 Reimbursement for reasonable and necessary
expenses incurred by you on behalf of the Company during the
Term;
6.1.3 Pay for earned but unused vacation and floating
holidays;
6.1.4 All compensation you previously deferred (if any)
to the extent not yet paid; and
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
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<PAGE> 8
the payouts set forth under the incentive compensation
program in effect for the year in which the Termination Date
occurs; or (ii) if the Termination Date occurs after the end
of a fiscal year but before any bonus related thereto was
paid, the bonus you would have received for that fiscal
year.
The amounts described in Sections 6.1.1 through 6.1.4,
inclusive, are called elsewhere in this Agreement, collectively,
the "Accrued Compensation".
Except as otherwise provided in this Section 6.1, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.2 Termination Without Cause. If the Company terminates
your employment without Cause (as defined later in this
Agreement), the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
6.2.3 Severance ("Severance") equal to: (a) twice the
sum of (i) the annual base compensation you would have
received for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii) $25,000
(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.
<PAGE>
<PAGE> 9
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.
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.3 Termination for Cause or Voluntary Termination. If
your employment is terminated for Cause (as defined later in this
Agreement), or if you voluntarily terminate your employment other
than for Good Reason, the Company shall pay you all Accrued
Compensation. Except as otherwise provided in this Section 6.3,
your entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.4 Termination for Good Reason or by Company Following
Change of Control. If you terminate your employment for Good
Reason or the Company terminates your employment following a
Change of Control, the Company shall pay you:
6.4.1 All Accrued Compensation;
6.4.2 A Pro Rata Bonus; and
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) $25,000 (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
<PAGE>
<PAGE> 10
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 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,
collectively the "Excise Tax"), then you are entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such
that, after you pay all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, you will retain an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. The
procedures for the calculation and contesting of any claim that
such Excise Tax is due are set forth in the Addendum.
<PAGE>
<PAGE> 11
8. No Obligation to Mitigate Damages. You are not required to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and the
amounts to be paid to you under Section 6 of this Agreement shall
not be reduced by any compensation you may earn from other
sources. However, if, during any period that you would otherwise
be entitled to receive any payments or benefits under this
Agreement, you breach your obligations under Section 2, 3 or 4 of
this Agreement, the Company may immediately terminate any and all
payments and the provision of benefits (to the extent permitted
by law and the terms of the benefit plans maintained by the
Company from time to time) hereunder.
9. Successor to Company. The Company will require any
successor or assignee to all or substantially all of the business
and/or assets of the Company, whether by merger, sale of assets
or otherwise, by agreement in form and substance reasonably
satisfactory to you, to assume and agree to perform the Company's
obligations under this Agreement in the same manner and to the
same extent that the Company would be required to perform them if
such succession or assignment had not taken place. Such
agreement of assumption must be express, absolute and
unconditional. If the Company fails to obtain such an agreement
within three business days prior to the effective date of such
succession or assignment, you shall be entitled to terminate your
employment under this Agreement for Good Reason.
10. Survival. Notwithstanding the expiration or termination of
this Agreement, except as otherwise specifically provided
herein, your obligations under Sections 2, 3 and 4 of this
Agreement and the obligations of the Company under this Agreement
shall survive and remain in full force and effect.
This Agreement shall inure to the benefit of, and be
enforceable by, your personal and legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you die while any amounts are still
payable to you, all such amounts, unless otherwise provided in
this Agreement, shall be paid in accordance with the terms of
this Agreement to your devisee(s), legatee(s) or other
designee(s) or, if there is no such designee(s), to your estate.
<PAGE>
<PAGE> 12
11. Definitions. Whenever used in this Agreement, the
following terms shall have the meanings below:
11.1 "Cause" means:
11.1.1 You have willfully and continually failed to
substantially perform your duties (other than due to an
incapacity resulting from physical or mental illness or due
to any actual or anticipated failure after you have given a
Notice of Termination for Good Reason) after a written
demand for substantial performance is delivered to you by
the Chief Executive Officer or the Board which specifically
identifies the manner in which it is believed that you have
not substantially performed your duties; or
11.1.2 You have willfully engaged in conduct which is
demonstrably and materially injurious to the Company
(monetarily or otherwise); or
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of Ethics; or
11.1.4 You have been convicted of a felony; or
11.1.5 You have violated the provisions of Section 2 and/or
Section 3 and/or Section 4 of this Agreement
and, in any of the events described in Sections 11.1.1 through
11.1.5 above, the Board adopts a resolution finding that in the
good faith opinion of the Board you were culpable for the conduct
set forth in any of Sections 11.1.1 through 11.1.5 and specifying
the particulars thereof in detail. For the purposes of this
Agreement, no act or failure to act on your part shall be
considered willful unless done, or omitted to be done, by you not
in good faith and without reasonable belief that your action or
omission was in the best interests of the Company. Any such
resolution of the Board must receive the affirmative vote of not
less than three-quarters of the entire membership of the Board at
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.
<PAGE>
<PAGE> 13
11.2 "Change of Control" means:
11.2.1 The consummation of a consolidation or merger of the
Company in which the Company is not the continuing or
surviving corporation or pursuant to which the shares of the
Company's common, voting equity are to be converted into
cash, securities or other property. For the purposes of
this Agreement, a consolidation or merger with a corporation
which was a wholly-owned direct or indirect subsidiary of
the Company immediately before the consolidation or merger
is not a Change of Control; or
11.2.2 The sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the Company's assets; or
11.2.3 The approval by the Company's shareowners of any
plan or proposal for the liquidation or dissolution of the
Company; or
11.2.4 Any person, as that term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities of the Company
under an employee benefit plan of the Company, a direct or
indirect wholly-owned subsidiary of the Company or any other
company owned, directly or indirectly, by the shareowners of
the Company in substantially the same proportions as their
ownership of the Company's common, voting equity), is or
becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of
30% or more of the Company's then outstanding common, voting
equity; or
11.2.5 During any period of two consecutive years,
individuals who at the beginning of such period constitute
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
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<PAGE> 14
the period or whose election or nomination for election was
previously so approved (the "Incumbent Board"), cease for
any reason to constitute a majority of the Board.
11.3 "Disability" means:
11.3.1 Your absence from your duties with the Company on a
full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness; or
11.3.2 A physical or mental condition which prevents you
from satisfactorily performing your duties with the Company
and such incapacity or condition is determined to be total
and permanent by a physician selected by the Company or its
insurers and reasonably acceptable to you and/or your legal
representative.
11.4 "Good Reason" means:
11.4.1 Without your express written consent, after a
Change of Control, the assignment to you of duties with the
Company or with a person, as that term is used in Section
13(d) and 14(d) of the Exchange Act, in control of the
Company materially diminished from the duties assigned to
you immediately prior to a Change of Control; or
11.4.2 Without your express written consent, after a
Change of Control, any reduction by the Company or any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company in your annual
base compensation or annual bonus at Standard (or
equivalent) rating from the amounts of such compensation
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
<PAGE>
<PAGE> 15
Exchange Act, in control of the Company to increase your
annual base compensation or annual bonus at Standard (or
equivalent) rating at the times and in comparable amounts as
they are increased for similarly situated senior executive
officers of the Company and of any person, as that term is
used in Section 13(d) and 14(d) of the Exchange Act, in
control of the Company; or
11.4.4 Without your express written consent, after a
Change of Control, the failure by the Company or by any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company to continue in
effect any benefit or incentive plan or arrangement (except
any benefit plan or arrangement which expires by its own
terms then in effect upon the occurrence of a Change of
Control) in which you are participating at the time of the
Change of Control, unless a replacement plan or arrangement
with at least substantially similar terms is provided to
you; or
11.4.5 Without your express written consent, after a
Change of Control, the taking of any action by the Company
or by any person, as that term is used in Section 13(d) and
14(d) of the Exchange Act, in control of the Company which
would adversely affect your participation in or materially
reduce your benefits under any benefit plan or arrangement
or deprive you of any other material benefit (including any
miscellaneous benefit which is not represented and protected
by a written plan document or trust) enjoyed by you at the
time of a Change of Control; or
11.4.6 You terminate your employment (other than because
of your death or Disability) 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.
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<PAGE> 16
12. Notice. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed given when mailed by certified mail, return receipt
requested, or by nationally recognized overnight courier, receipt
requested, when addressed to you at your official business
address when employed by the Company or at your home address as
reflected in the Company's records from time to time and when
addressed to the Company at its corporate headquarters, to the
attention of the Board, with a required copy to the Company's
Corporate Counsel.
13. Amendment and Assignment. This Agreement cannot be
changed, modified or terminated except in a writing. You may not
assign your duties with the Company to any other person.
14. Severability. If any provision of this Agreement or the
application of this Agreement to anyone or under any
circumstances is determined by a court to be invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect any other provisions or
applications of this Agreement which can be effective without the
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.
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<PAGE> 17
17. Counterparts. This Agreement may be signed by you and on
behalf of the Company in one or more counterparts, each of which
shall be one original but all of which together will constitute
one and the same instrument.
If this Agreement correctly sets forth our agreement on its
subject matter, please sign and return to me the enclosed copy of
this Agreement. Please keep the other copy for your records.
Sincerely,
FRONTIER CORPORATION
By: /s/Ronald L. Bittner
---------------------------------------
Ronald L. Bittner
Chairman and CEO
Agreed to on
/s/ Robert L. Barrett
-----------------------------------
Robert L. Barrett
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<PAGE> 18
ADDENDUM TO LETTER AGREEMENT DATED , 1996
The following provisions shall apply to the calculation and
procedures relating to the Gross-Up Payment in accordance with
Section 7 of the Agreement.
1. The Company's independent auditors in the fiscal year
in which the Change of Control occurs (the "Accounting Firm")
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.
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<PAGE> 19
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
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.
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<PAGE> 20
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>
<PAGE>21
FRONTIER CORPORATION
180 SOUTH CLINTON AVENUE
ROCHESTER, NY 14646
March 1, 1996
Mr. Robert L. Barrett
6152 Grey Friar Way
Dublin, Ohio 43017
Dear Mr. Barrett:
On behalf of Ronald L. Bittner, Chairman & Chief Executive
Officer, it is my pleasure to extend to you an offer of
employment for the position of President, Frontier Network
Systems & Services at Frontier Corporation, reporting directly to
the Chief Executive Officer, and effective April 1, 1996.
As President, Frontier Network Systems & Services, you will lead
all long distance network development, maintenance and
operations, as well as all corporate information systems. Your
assignment is currently based out of Frontier's corporate
headquarters location at 180 South Clinton Avenue, Rochester, New
York.
This position carries with it an annual base salary of
$300,000.00. Short term (annual) incentive payout for your
position will be prorated for your actual 1996 time worked in
Frontier, and is based upon the following 1996 Corporate
objectives:
OBJECTIVES THRESHOLD STANDARD PREMIER
EPS $ 1.55 $1.72 $ 1.81
EPITDA $ 645.0 (M) $ 695.0 (M) $ 720.0 (M)
PAYOUT IN % 27.5% 55.0% 96.5%
In addition to the base and annual short term incentive
opportunities, you shall receive, upon approval of Frontier's
Committee on Management, the following additional compensation
items:
1. 200,000 Stock Option Grants which will be granted at the
Frontier stock price of April 1, 1996, and will vest:
A) 66,666 upon first anniversary of date of grant
B) 66,666 upon second anniversary of date of grant
C) 66,668 upon third anniversary of date of grant
2. 50,000 shares restricted stock which vest based upon the
price of Frontier stock, close of business, on April 1,
1996:
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A) 16,666 at a pre-determined share price based on 16%
stock price growth plus continued employment on the first
anniversary of grant date
B) 16,666 at a pre-determined share price based on 32%
stock price growth plus continued employment on the second
anniversary of grant date
C) 16,668 at a pre-determined share price based on 48%
stock price growth plus continued employment on the third
anniversary of grant date
3. Three year Employment & Change in Control Contract to
include "non-compete" language, and safeguards for company
confidential & proprietary information. (Attachment "A")
4. A signing bonus of $80,000.00, payable July 1, 1996.
5. Up to one year temporary housing in Rochester, New York, and
reasonable return visits to Columbus, Ohio.
6. Full relocation support for your transfer to Frontier
corporate headquarters within one calendar year of your
start date.
7. Standard perks at Executive Vice President level (Attachment
"B").
Of necessity, this offer is contingent upon the following:
A) Positive reference check and credential verification
B) Successful completion of a pre-employment physical and
drug screening test
C) Proof of your identity and authorization to work in the
United States (Immigration Law of 1986)
D) Completion of the enclosed Employment Contract
E) Start date no later than April 1, 1996
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Please contact Dr. Gregory Riley, 220 Alexander Street, Suite
501, Rochester, New York 14607 at (716) 454-6700 to arrange for
your physical and drug screening. Please let me know the date
and time of your appointment.
Bob, these are exciting times for Frontier. Our future success
lies in leaders like you who have the energy, enthusiasm and
talent to take Frontier into the next century. Your experience
in the competitive marketplace, expertise in networks and
technology, and your approach to leadership and success will
accelerate Frontier's growth and establish our position among the
major players in telecommunications.
Ron would like to arrange a public announcement of your
appointment at a mutually agreeable time later this month. Also,
if you decide to accept this offer, let Ron or me know your
availability the weekends of March 16, 1996 or March 23, 1996.
Call him at home at (716) 385-3077 or at the office at (716) 777-8007.
If, in addition, there are concerns or terms we failed to
cover, please give either Ron or me a call.
Please acknowledge your acceptance of this offer by signing below
and returning it in the enclosed, self-addressed envelope no
later than March 11, 1996.
Sincerely,
/s/ Janet F. Sansone
Janet F. Sansone
Vice President Human Resources
Frontier Corporation
JFS:pd
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I accept the terms and conditions of this offer.
/s/ Robert L. Barrett
- -------------------------------------
Signature
- -------------------------------------
Date
###-##-####
- -------------------------------------
Social Security Number
11/3/41
- -------------------------------------
Date of Birth
April 1, 1996
- -------------------------------------
Start Date
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FRONTIER CORPORATION
180 South Clinton Avenue
Rochester, New York 14646
March 25, 1996
Mr. Kevin J. Bennis
1834 Ballybunion Drive
Duluth, Georgia 30155
Dear Mr. Bennis:
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 March 26, 1996. However, this Agreement does not
supersede any stock option agreements or restricted stock grant
agreements dated as of March 26, 1996 between the Company and
you, all of which shall remain in full force and effect.
1. Employment.
1.1 Term. The Company shall employ you in a senior
executive management capacity as the Company, with your consent,
may from time to time designate. This Agreement shall become
effective as of March 26, 1996 and shall continue until March 31,
1999, unless earlier terminated or extended in accordance with
its terms. Beginning on April 1, 1998 and on each anniversary of
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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 December 31 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 or Disability)
and will render the services contemplated in this Agreement for
the reasonable duration of the Company's defense against such
action and until such action has been abandoned or terminated or
a Change in Control has occurred.
Any termination of your employment during the Term for
reasons other than your death shall be evidenced by a written
Notice of Termination, which shall specify the provision of this
Agreement relied upon for such termination and describe with
reasonable detail the facts and circumstances claimed by the
sender of such Notice of Termination to provide the basis for
termination. Any such Notice of Termination shall also specify
the effective date of termination (the "Termination Date"). If
you die during the Term the Termination Date shall be the date of
your death.
1.2 Duties. You shall perform all duties incidental to
your position with the Company, or as may be assigned to you by
the Chief Executive Officer of the Company or the Board. You
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
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<PAGE> 3
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 $325,000, in installments in
accordance with the Company's policies from time to time in
effect, until January 1, 1997. 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 benefits and perquisites provided by the Company
under its Executive Compensation program in effect from time to
time for executives at the Executive Vice President level.
1.6 Expenses. You shall be reimbursed for any reasonable
expenses you incur in connection with your employment during the
Term, upon presentation to the Company of an itemized account and
receipts of such expenses as required by the Company's policies
from time to time in effect.
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
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<PAGE> 4
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 may now or will in the future have access
to information of the Company that the Company deems to be
confidential and/or proprietary, including but not limited to,
information about the Company's strategies, plans, products and
services, methods of operation, employees, sales, profits,
expenses, customer lists and the relationships between the
Company and its customers, suppliers and others who have business
dealings with the Company. You covenant and agree that during
the Term and thereafter, you will not disclose any such
information to any person without the prior written authorization
of the Chief Executive Officer of the Company or the Board.
4. Non-Competition.
4.1 Covenant. In consideration of the benefits provided
to you under this Agreement, which you acknowledge are
independent consideration, you covenant and agree that during the
Restricted Period (as defined below), you will not, directly or
indirectly, without the Company's prior consent: (i) own, manage,
operate, finance, join, control or participate in the ownership
or control of, or be associated as an officer, director,
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
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<PAGE> 5
employed by the Company at the time of such offer, employment,
solicitation, interference or enticement or has been so employed
by the Company within 12 months prior to such offer, employment,
solicitation, interference or enticement. This Section shall not
be construed to prohibit the ownership by you of not more than 1%
of any class of securities of any corporation which competes with
the Company and which has a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4.2 Definitions.
4.2.1 "Competes" means the production, marketing or
selling of any product or service of any person or entity
other than the Company which resembles or competes with a
product or service produced, marketed or sold by the Company
(or to your knowledge was under development by the Company)
during the period of your employment by the Company (whether
under this Agreement or otherwise).
4.2.2 "Restricted Area" means:
(a) The Standard Metropolitan Statistical Area (or the
equivalent) in which any office, place of employment,
business address or POP maintained by the Company is
located; or
(b) Any state of the United States, any province of
Canada or any foreign country from which the Company or
any of its material subsidiaries or affiliates derives
5% or more of its annual net income.
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;
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<PAGE> 6
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated 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.
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
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<PAGE> 7
located in or presiding over the county in which the Company has
its corporate headquarters at the applicable time in any action,
suit or proceeding brought by the Company to enforce its rights
under Sections 2, 3 and/or 4 of this Agreement.
6. Company's Obligations upon Termination. The sole
obligations of the Company upon the termination of your
employment prior to the failure of either you or the Company to
extend the Term in accordance with Section 1.1 of this Agreement
are as set forth in this Section 6. Any and all amounts to be
paid to you in connection with your termination shall be paid in
a lump sum promptly after the Termination Date, but not more than
30 days thereafter.
6.1 Termination upon Disability or Death. If your
employment with the Company ends by reason of your death or
Disability (as defined later in this Agreement), the Company
shall pay you all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date,
including:
6.1.1 Base compensation;
6.1.2 Reimbursement for reasonable and necessary
expenses incurred by you on behalf of the Company during the
Term;
6.1.3 Pay for earned but unused vacation and floating
holidays;
6.1.4 All compensation you previously deferred (if any)
to the extent not yet paid; and
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
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<PAGE> 8
the payouts set forth under the incentive compensation
program in effect for the year in which the Termination Date
occurs; or (ii) if the Termination Date occurs after the end
of a fiscal year but before any bonus related thereto was
paid, the bonus you would have received for that fiscal
year.
The amounts described in Sections 6.1.1 through 6.1.4,
inclusive, are called elsewhere in this Agreement, collectively,
the "Accrued Compensation".
Except as otherwise provided in this Section 6.1, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.2 Termination Without Cause. If the Company terminates
your employment without Cause (as defined later in this
Agreement), the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
6.2.3 Severance ("Severance") equal to: (a) twice the
sum of (i) the annual base compensation you would have
received for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii) $25,000
(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.
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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.
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.3 Termination for Cause or Voluntary Termination. If
your employment is terminated for Cause (as defined later in this
Agreement), or if you voluntarily terminate your employment other
than for Good Reason, the Company shall pay you all Accrued
Compensation. Except as otherwise provided in this Section 6.3,
your entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
6.4 Termination for Good Reason or by Company Following
Change of Control. If you terminate your employment for Good
Reason or the Company terminates your employment following a
Change of Control, the Company shall pay you:
6.4.1 All Accrued Compensation;
6.4.2 A Pro Rata Bonus; and
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) $25,000 (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
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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 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,
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.
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8. No Obligation to Mitigate Damages. You are not required to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and the
amounts to be paid to you under Section 6 of this Agreement shall
not be reduced by any compensation you may earn from other
sources. However, if, during any period that you would otherwise
be entitled to receive any payments or benefits under this
Agreement, you breach your obligations under Section 2, 3 or 4 of
this Agreement, the Company may immediately terminate any and all
payments and the provision of benefits (to the extent permitted
by law and the terms of the benefit plans maintained by the
Company from time to time) hereunder.
9. Successor to Company. The Company will require any
successor or assignee to all or substantially all of the business
and/or assets of the Company, whether by merger, sale of assets
or otherwise, by agreement in form and substance reasonably
satisfactory to you, to assume and agree to perform the Company's
obligations under this Agreement in the same manner and to the
same extent that the Company would be required to perform them if
such succession or assignment had not taken place. Such
agreement of assumption must be express, absolute and
unconditional. If the Company fails to obtain such an agreement
within three business days prior to the effective date of such
succession or assignment, you shall be entitled to terminate your
employment under this Agreement for Good Reason.
10. Survival. Notwithstanding the expiration or termination of
this Agreement, except as otherwise specifically provided
herein, your obligations under Sections 2, 3 and 4 of this
Agreement and the obligations of the Company under this Agreement
shall survive and remain in full force and effect.
This Agreement shall inure to the benefit of, and be
enforceable by, your personal and legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you die while any amounts are still
payable to you, all such amounts, unless otherwise provided in
this Agreement, shall be paid in accordance with the terms of
this Agreement to your devisee(s), legatee(s) or other
designee(s) or, if there is no such designee(s), to your estate.
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11. Definitions. Whenever used in this Agreement, the
following terms shall have the meanings below:
11.1 "Cause" means:
11.1.1 You have willfully and continually failed to
substantially perform your duties (other than due to an
incapacity resulting from physical or mental illness or due
to any actual or anticipated failure after you have given a
Notice of Termination for Good Reason) after a written
demand for substantial performance is delivered to you by
the Chief Executive Officer or the Board which specifically
identifies the manner in which it is believed that you have
not substantially performed your duties; or
11.1.2 You have willfully engaged in conduct which is
demonstrably and materially injurious to the Company
(monetarily or otherwise); or
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of Ethics; or
11.1.4 You have been convicted of a felony; or
11.1.5 You have violated the provisions of Section 2 and/or
Section 3 and/or Section 4 of this Agreement
and, in any of the events described in Sections 11.1.1 through
11.1.5 above, the Board adopts a resolution finding that in the
good faith opinion of the Board you were culpable for the conduct
set forth in any of Sections 11.1.1 through 11.1.5 and specifying
the particulars thereof in detail. For the purposes of this
Agreement, no act or failure to act on your part shall be
considered willful unless done, or omitted to be done, by you not
in good faith and without reasonable belief that your action or
omission was in the best interests of the Company. Any such
resolution of the Board must receive the affirmative vote of not
less than three-quarters of the entire membership of the Board at
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.
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11.2 "Change of Control" means:
11.2.1 The consummation of a consolidation or merger of the
Company in which the Company is not the continuing or
surviving corporation or pursuant to which the shares of the
Company's common, voting equity are to be converted into
cash, securities or other property. For the purposes of
this Agreement, a consolidation or merger with a corporation
which was a wholly-owned direct or indirect subsidiary of
the Company immediately before the consolidation or merger
is not a Change of Control; or
11.2.2 The sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the Company's assets; or
11.2.3 The approval by the Company's shareowners of any
plan or proposal for the liquidation or dissolution of the
Company; or
11.2.4 Any person, as that term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities of the Company
under an employee benefit plan of the Company, a direct or
indirect wholly-owned subsidiary of the Company or any other
company owned, directly or indirectly, by the shareowners of
the Company in substantially the same proportions as their
ownership of the Company's common, voting equity), is or
becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of
30% or more of the Company's then outstanding common, voting
equity; or
11.2.5 During any period of two consecutive years,
individuals who at the beginning of such period constitute
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
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then still in office who were directors at the beginning of
the period or whose election or nomination for election was
previously so approved (the "Incumbent Board"), cease for
any reason to constitute a majority of the Board.
11.3 "Disability" means:
11.3.1 Your absence from your duties with the Company on a
full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness; or
11.3.2 A physical or mental condition which prevents you
from satisfactorily performing your duties with the Company
and such incapacity or condition is determined to be total
and permanent by a physician selected by the Company or its
insurers and reasonably acceptable to you and/or your legal
representative.
11.4 "Good Reason" means:
11.4.1 Without your express written consent, after a
Change of Control, the assignment to you of duties with the
Company or with a person, as that term is used in Section
13(d) and 14(d) of the Exchange Act, in control of the
Company materially diminished from the duties assigned to
you immediately prior to a Change of Control; or
11.4.2 Without your express written consent, after a
Change of Control, any reduction by the Company or any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company in your annual
base compensation or annual bonus at Standard (or
equivalent) rating from the amounts of such compensation
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
<PAGE>
<PAGE> 15
11.4.3 Without your express written consent, after a
Change of Control, the failure by the Company or any person,
as that term is used in Section 13(d) and 14(d) of the
Exchange Act, in control of the Company to increase your
annual base compensation or annual bonus at Standard (or
equivalent) rating at the times and in comparable amounts as
they are increased for similarly situated senior executive
officers of the Company and of any person, as that term is
used in Section 13(d) and 14(d) of the Exchange Act, in
control of the Company; or
11.4.4 Without your express written consent, after a
Change of Control, the failure by the Company or by any
person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act, in control of the Company to continue in
effect any benefit or incentive plan or arrangement (except
any benefit plan or arrangement which expires by its own
terms then in effect upon the occurrence of a Change of
Control) in which you are participating at the time of the
Change of Control, unless a replacement plan or arrangement
with at least substantially similar terms is provided to
you; or
11.4.5 Without your express written consent, after a
Change of Control, the taking of any action by the Company
or by any person, as that term is used in Section 13(d) and
14(d) of the Exchange Act, in control of the Company which
would adversely affect your participation in or materially
reduce your benefits under any benefit plan or arrangement
or deprive you of any other material benefit (including any
miscellaneous benefit which is not represented and protected
by a written plan document or trust) enjoyed by you at the
time of a Change of Control; or
11.4.6 You terminate your employment (other than because
of your death or Disability) 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
<PAGE>
<PAGE> 16
have given notice of such failure to the Company and the
Company has not cured such failure promptly after its
receipt of such notice.
12. Notice. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed given when mailed by certified mail, return receipt
requested, or by nationally recognized overnight courier, receipt
requested, when addressed to you at your official business
address when employed by the Company or at your home address as
reflected in the Company's records from time to time and when
addressed to the Company at its corporate headquarters, to the
attention of the Board, with a required copy to the Company's
Corporate Counsel.
13. Amendment and Assignment. This Agreement cannot be
changed, modified or terminated except in a writing. You may not
assign your duties with the Company to any other person.
14. Severability. If any provision of this Agreement or the
application of this Agreement to anyone or under any
circumstances is determined by a court to be invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect any other provisions or
applications of this Agreement which can be effective without the
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.
<PAGE>
<PAGE> 17
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to any applicable conflicts of laws.
17. Counterparts. This Agreement may be signed by you and on
behalf of the Company in one or more counterparts, each of which
shall be one original but all of which together will constitute
one and the same instrument.
If this Agreement correctly sets forth our agreement on its
subject matter, please sign and return to me the enclosed copy of
this Agreement. Please keep the other copy for your records.
Sincerely,
FRONTIER CORPORATION
By: /s/Ronald L. Bittner
-------------------------------------------
Ronald L. Bittner
Chairman and CEO
Agreed to on
/s/ Kevin J. Bennis
- ------------------------------
Kevin J. Bennis
<PAGE>
<PAGE> 18
ADDENDUM TO LETTER AGREEMENT DATED , 1996
The following provisions shall apply to the calculation and
procedures relating to the Gross-Up Payment in accordance with
Section 7 of the Agreement.
1. The Company's independent auditors in the fiscal year
in which the Change of Control occurs (the "Accounting Firm")
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>
<PAGE> 19
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
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.
<PAGE>
<PAGE> 20
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>
<PAGE>21
FRONTIER CORPORATION
180 SOUTH CLINTON AVENUE
ROCHESTER, NY 14646
February 23, 1996
Mr. Kevin Bennis
1834 Ballybunion Drive
Duluth, Georgia 30136
Dear Mr. Bennis,
On behalf of Ronald L. Bittner, Chairman & Chief Executive
Officer, it is my pleasure to extend to you an offer of
employment for the position of President, Frontier Communications
at Frontier Corporation, reporting directly to the Chief
Executive Officer, and effective April 1, 1996.
As President, Frontier Communications, you will lead all Long
Distance Sales, including domestic wholesale, international
operations and long distance call centers, and corporate
marketing for all products and divisions. At a mutually agreed
upon date, your responsibilities will expand to include all
cellular and local telephone sales & customer services. Your
assignment is currently based out of Frontier's corporate
headquarters location at 180 South Clinton Avenue, Rochester, New
York.
This position carries with it an annual base salary of
$325,000.00. Short term (annual) incentive payout for your
position is based upon the following 1996 Corporate objectives:
OBJECTIVES THRESHOLD STANDARD PREMIER
EPS $ 1.55 $1.72 $ 1.81
EPITDA $ 645.0 (M) $ 695.0 (M) $ 720.0 (M)
PAYOUT IN % 27.5% 55.0% 96.25%
Although your Short Term Incentive will be prorated for the
actual 1996 time worked in Frontier, we have ample flexibility
within the Incentive Program to reward outstanding achievement.
<PAGE>
<PAGE>22
In addition to the base and annual short term incentive
opportunities, you shall receive, upon approval of Frontier's
Committee on Management, the following additional compensation
items:
1. 200,000 Stock Option Grants which will be granted at the
Frontier stock price of April 1, 1996, and will vest:
A) 66,666 upon first anniversary of date of grant
B) 66,666 upon second anniversary of date of grant
C) 66,668 upon third anniversary of date of grant
2. 50,000 shares restricted stock which vest based upon the
price of Frontier stock, close of business, on April 1,
1996:
A) 16,666 at a pre-determined share price based on 16%
stock price growth plus continued employment on the first
anniversary of grant date
B) 16,666 at a pre-determined share price based on 32%
stock price growth plus continued employment on the
second anniversary of grant date
C) 16,668 at a pre-determined share price based on 48%
stock price growth plus continued employment on the third
anniversary of grant date
3. Three year Employment & Change in Control Contract to
include "non-compete" language, and safeguards for company
confidential & proprietary information. (Attachment "A")
4. A loan in the amount of $250,000, forgivable at $50,000 per
year for five years. Should you leave the company for any
reason before the end of the five year period, the balance
remaining will be payable immediately with accrued interest
from April 1, 1996 at a rate of prime + 1%. (Attachment "B")
5. Up to one year temporary housing in Rochester, New York, and
reasonable return visits to Atlanta, GA.
6. Full relocation support for your transfer to Frontier
corporate headquarters within one calendar year of your
start date.
<PAGE>
<PAGE>23
7. Standard perks at Executive Vice President level (Attachment
"C").
Of necessity, this offer is contingent upon the following:
A) negotiated out
B) Successful completion of a pre-employment physical and
drug screening test
C) Proof of your identity and authorization to work in the
United States (Immigration Law of 1986)
D) Completion of the enclosed Employment Contract
E) Start date no later than April 1, 1996
Please contact Dr. Gregory Riley, 220 Alexander Street, Suite
501, Rochester, New York 14607 at (716) 454-6700 to arrange for
your physical and drug screening. Please let me know the date
and time of your appointment.
Kevin, these are exciting times for Frontier. Our future success
lies in leaders like you who have the energy, enthusiasm and
talent to take Frontier into the next century. Your experience
in the competitive marketplace, expertise in marketing and sales,
and your fresh approach to leadership and success will accelerate
Frontier's growth and establish our position among the major
players in telecommunications.
Ron would like to arrange a public announcement of your
appointment at a mutually agreeable time. At your earliest
convenience, please call him at home at (716) 385-3077 or at the
office at (716) 777-8007. If, in addition, there are concerns or
terms we failed to cover, please give either Ron or me a call.
Please acknowledge your acceptance of this offer by signing below
and returning it in the enclosed, self-addressed envelope no
later than March 4, 1996.
Sincerely,
/s/ Janet F. Sansone
Janet F. Sansone
Vice President Human Resources
Frontier Corporation
JFS:pd
<PAGE>
<PAGE>24
I accept the terms and conditions of this offer.
/s/ Kevin J. Bennis
- -----------------------------------
Signature
March 5, 1996
- -----------------------------------
Date
###-##-####
- -----------------------------------
Social Security Number
9/8/53
- -----------------------------------
Date of Birth
April 1, 1996
- -----------------------------------
Start Date
<PAGE>
<PAGE>25
PROMISSORY NOTE
$250,000 April 1, 1996
FOR VALUE RECEIVED, Kevin J. Bennis, residing at 1834
Ballybunion Drive, Duluth, Georgia 30155 ("Maker") promises to
pay to the order of Frontier Corporation, at its office and
principal place of business at 180 South Clinton Avenue,
Rochester, New York 14646-0700 ("Payee"), the principal amount of
Two Hundred Fifty Thousand Dollars ($250,000). On the condition
that Maker remains an employee of Payee or one of its
subsidiaries or affiliates, beginning in 1997, the principal
amount of this Note shall be deemed paid in equal annual
installments of Eighty-three Thousand Three Hundred Thirty-three
and 33/100's Dollars ($83,333.33) each on each of the first
through third anniversaries of the date hereof, with interest
thereon at the applicable federal rate for the month of April
1996.
If Maker ceases to be employed by Payee or any of its
subsidiaries or affiliates for any reason whatsoever, the
principal amount of this Note then outstanding and interest
thereon since the last accrual date at the rate of the prime rate
then charged by The Chase Manhattan Bank, N.A. plus one percent
shall become immediately due and payable without notice,
presentation or demand of any kind, all of which are hereby
waived.
No failure or delay on the part of Payee in the exercise of any
power or right in this Note shall operate as a waiver thereof,
and no exercise or waiver of any single power or right, or the
partial exercise thereof, shall affect Payee's rights with
respect to any and all other rights and powers.
Maker waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note.
The provisions of this Note shall inure to the benefit of and
extend to Payee or any holder hereof or any assigns of Payee.
<PAGE>
<PAGE>26
Any notice given pursuant to this Note shall be in writing and
shall be deemed to have been given when delivered by hand or
deposited for certified mail delivery in the United States mail
with postage prepaid or recognized overnight service and
addressed to the party for whom it is intended at the address for
such party set forth above or at such other address as to which
the parties may from time to time notify each other in like
manner.
This Note shall be governed by and construed under the laws of
the State of New York, without reference to and regardless of the
application of any of its principles of conflicts of law.
In the event that this Note is placed in the hands of an attorney
for the collection hereof, Maker agrees to pay all reasonable
costs of collection, including reasonable attorneys' fees.
IN WITNESS WHEREOF, Maker has executed and issued this Note on
the day and year first set forth above.
/s/ Kevin J. Bennis
-------------------------
Kevin J. Bennis
STATE OF NEW YORK )
COUNTY OF MONROE ) ss.:
On the 27th day of March, 1996, before me personally came
Kevin J. Bennis, to me known and known to me to be the same
person described in and who executed the foregoing instrument,
and he duly acknowledged to me that he executed the same.
/s/ Karen L. Markle
-------------------------
Notary Public
<PAGE>
EXHIBIT 10.27
4/24/96
FRONTIER CORPORATION
DIRECTORS STOCK INCENTIVE PLAN
This Frontier Corporation Directors Stock Incentive
Plan (the "Plan") was last amended and restated effective as of
January 1, 1995. The Plan is hereby continued, amended and
restated, effective January 1, 1996, for the purpose of
increasing the number of stock grants awarded to eligible
directors as follows:
1. PURPOSE
The purpose of the Plan is to enable Frontier
Corporation (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
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 are entitled to receive both options and stock grants.
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.
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 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.
(i) Frontier Directors. 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 1200 shares of the
Company's Common Stock. If an eligible
director is a chair of any Board committee on
the date of grant, the number of shares shall
be 1500 instead of 1200.
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 grant shall be 1200 (1500 for committee
chairs) 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.
Effective for years after 1996, at the
date each year when new members are elected
to the Company's Board, each eligible
director shall receive the greater of 1200
shares of the Company's Common Stock (1500
for chairs of Board Committees) or the number
of shares of Common Stock (rounded to the
nearest whole share) having a fair market
value on the trading day immediately
preceeding such date equal to the annual cash
retainer for members of the Board (or chairs
of Board Committees), exclusive of meeting
fees. Fair market value shall have the same
meaning as in Section 5(b).
In addition to the shares awarded
pursuant to the foregoing paragraphs of this
Section 6(a)(i), an eligible director of the
Company 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.
(ii) Subsidiary Directors. At the date each year
when new members are elected to a
subsidiary's board, each eligible director of
the subsidiary who will be serving on the new
board (whether newly elected or continuing as
a carryover director) shall be granted the
next highest whole number of shares of the
Company's Common Stock having an aggregate
fair market value of $18,000 ($25,000 in the
case of directors carried over from the old
Rochester Telephone Corporation board). If
an eligible director is a chair of any
subsidiary board committee, the fair market
value of the shares to be granted shall be
$21,000 instead of $18,000 ($29,000 instead
of $25,000 in the case of chairs who were on
the old Rochester Telephone Corporation
board). For this purpose, fair market value
shall have the same meaning as in Section
5(b).
An eligible director of a subsidiary 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 dollar value of
shares subject to such grant shall be
determined by multiplying $18,000 ($21,000 if
the new director is chair of a board
committee) 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.
The number of shares granted shall equal the
dollar amount obtained above divided by the
fair market value of the Company's Common
Stock on the date of grant. Any fractional
share shall be rounded up to the next highest
whole number of shares.
(b) Vesting. All shares shall be fully and
immediately vested at the date of grant.
(c) Restriction on Transferability. The 1,000
shares granted to a first time director (including
additional shares obtained through dividend
reinvestment) of the Company 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. All other
shares granted to an eligible director of the Company
or of a subsidiary are free of transfer restrictions
under the terms of this Plan.
(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
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 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.
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,
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
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 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,
1996.
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 4/24/96
FRONTIER CORPORATION
/s/ Josephine S. Trubek
By -------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE>1
EXHIBIT 10.28
[3/25/96]
FRONTIER CORPORATION
EMPLOYEES' STOCK OPTION PLAN
1. PURPOSE
The purpose of the Frontier Corporation Employees' Stock
Option Plan (the "Plan") is to enable the Company and its
subsidiaries to attract and retain valued 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 employees
non-qualified stock options ("options") 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 Committee
on Management (the "Committee"). This Committee shall consist of
at least two members of the Company's Board of Directors, none of
whom during the twelve months prior to commencement of service on
the Committee, or during such service, has been granted or
optioned 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
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 options shall be granted;
(b) to determine at the time of grant the number of shares to be
subject to each option; (c) to prescribe the form of the option
agreements and any appropriate terms and conditions applicable to
the options and to make any amendments to such agreements or
options; (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 option granted hereunder.
The Committee may delegate to a Stock Option Committee any
portion of its authority. In this event, the term "Committee" as
used herein shall include the Stock Option Committee with respect
to the delegated authority. Notwithstanding any such delegation
of authority, the Committee on Management shall retain overall
responsibility for the operation of the Plan. The Stock Option
Committee shall not make awards under the Plan to persons
described in Rule 16a-1(f) of the Exchange Act and any such
persons eligible to receive options under the Plan shall be
selected, all options granted, and terms established by the
Committee.
3. ELIGIBLE EMPLOYEES
All employees of the Company and its subsidiaries are
eligible to receive options except: (1) senior officers and (2)
employees within a unit covered by a collective bargaining
agreement unless the award of options under this Plan has been
bargained for. For this purpose, subsidiaries 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, and partnerships of which the Company has, either
directly or indirectly, at least a fifty percent interest in the
partnership's capital or profits.
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
options under this Plan shall not exceed 8 million shares,
including treasury shares. Shares to be granted may be
authorized and unissued shares or may be treasury shares.
If an option expires, terminates or is cancelled without
being exercised or becoming vested, new options may thereafter be
granted under the Plan covering such shares unless Rule 16b-3
provides otherwise. No options may be granted more than 10 years
after the effective date of the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
All options granted under this Plan shall be non-qualified
options. Each option shall be evidenced by an 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. 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 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.
(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.
(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 first become exercisable on the second anniversary of
the 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.
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 or
partnership. The Committee has the sole discretion to
determine whether an employee's actions constitute
competition with the Company or an affiliated company or
partnership. 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) 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.
6. 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 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 option shall be 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 option 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 options
or the issue or purchase of shares thereunder, such options 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.
7. IMPACT OF TERMINATION OF EMPLOYMENT
If the employment of a participant terminates by reason
of the participant's (a) retirement pursuant to the terms of a
defined benefit plan or, if he or she is not a participant in a
defined benefit plan, at or after age 55, (b) disability or (c)
death, any option may be exercised, in the case of retirement or
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
one year after the date of retirement, disability or death, but
only if, and to the extent that the participant was entitled to
exercise the option at the date of retirement, disability or
death. 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. In addition, an option 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.
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 an affiliated partnership, shall not be considered to
have terminated employment. Any such transferred participants
shall remain eligible to exercise previously granted options in
accordance with their terms as if no termination occurred and
shall be eligible to receive additional options pursuant to the
terms of employment with their new employer.
8. 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
option under the Plan and the number and kind of unexercised
options under outstanding option 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.
9. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, 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 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.
10. NO EMPLOYMENT RIGHTS
The Plan and any options 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.
11. 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.
12. 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
options may be granted under the Plan, change the minimum
exercise price of options, 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
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 option shall theretofore have been
granted, adversely affect the rights of such participant 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, 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 after the change in control, but prior to the
expiration date of the 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 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
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.
14. EFFECTIVE DATE
The effective date of the Plan shall be the date this
Plan is approved by the affirmative vote of the owners of a
majority of the Company's outstanding shares of Common Stock.
15. DEFINITIONS
Any terms or provisions used herein which are defined in
Sections 83 or 421 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.
<PAGE>
16. GOVERNING LAW
To the extent not inconsistent with the provisions of
the Internal Revenue Code that relate to options, this Plan and
any option agreement adopted pursuant to it shall be construed
under the laws of the State of New York.
Dated: 4/29/96 FRONTIER CORPORATION
/s/ Josephine S. Trubek
By --------------------------
Josephine S. Trubek
Corporate Secretary
Date of Shareholder Approval: April 24, 1996
<PAGE>
EXHIBIT 10.29
FRONTIER CORPORATION
MANAGEMENT PENSION PLAN
Amendment No. 1 to 1995 Restatement
Pursuant to Article XI, the Plan is amended, effective
December 31, 1995, as follows:
1. The following new Article XVI is added after Article
XV:
ARTICLE XVI
Freeze of Plan Benefits
Except for effective dates otherwise noted below,
the Plan is frozen, effective as of December 31, 1996,
pursuant to the following terms and conditions:
Eligibility: No person not already a Participant
on December 31, 1995, shall be eligible to
commence participation in the Plan, provided that
persons may become Participants through the merger
of other frozen plans of Affiliated Companies into
this Plan.
Benefits Freeze: All Accrued Benefits under the
Plan shall be frozen as of December 31, 1996, and
no further Plan benefits shall accrue after this
date.
Post-Freeze Service: No service with the Employer
or any Affiliated Company after December 31, 1996
shall be taken into account under this Plan for
the purpose of calculating the amount of a
person's Accrued Benefit but shall be taken into
account for purposes of determining eligibility
for benefits.
Vesting: All Accrued Benefits on and after August
16, 1995 shall become or shall remain 100 percent
vested.
<PAGE>
Compensation Definition: Effective with respect
to all Participants on the active payroll (or on
the inactive payroll but receiving benefits under
the Employer's Long Term Disability Benefit Plan)
on or after August 16, 1995, the definition of
"Compensation" in Section 2.11 shall be revised by
replacing the first paragraph in this provision
with the following:
"Compensation" means the total W-2 income
paid by the Employer to an Employee during a
Plan Year plus amounts contributed to the
Employer's Tel Flex Plan and its Employees'
Retirement Savings Plan during a Plan Year on
behalf of an Employee pursuant to a salary
reduction agreement. Compensation does not
include contributions made to this Plan or to
any other plan of deferred compensation
(other than ERSP) nor does it include an
Employee's compensation in excess of $150,000
(adjusted for cost of living increases under
the Code) per year.
Average Compensation Definition: Effective with
respect to all Participants on the active payroll
(or on the inactive payroll but receiving benefits
under the Employer's Long Term Disability Benefit
Plan) on or after August 16, 1995, the benefit
formula in Section 4.1 shall be applied to compute
average compensation on a three year basis by
replacing the word "five" with the word "three"
each place the former word appears in Section 4.1.
20% Benefit Increase: Each Plan Participant who
is on the active payroll (or on the inactive
payroll but receiving benefits under the
Employer's Long Term Disability Benefit Plan) on
or after August 16, 1995, who has five or more
Years of Service under this Plan upon the earlier
of (1) termination of employment or (2) December
31, 1996, shall have his or her Accrued Benefit at
the earlier of (1) termination of employment or
(2) December 31, 1996 increased by 20 percent. For
this purpose, an eligible Participant's Accrued
Benefit shall include the 3 year average and
compensation changes described above.
<PAGE>
Eligibility for Retirement Benefits: For purposes
of determining whether a Participant has met the
age and service requirements for unreduced and
reduced early retirement benefits, the age
requirements and the service requirements shall be
reduced by three for each Participant on the
active payroll (or on the inactive payroll but
receiving benefits under the Employer's Long Term
Disability Benefit Plan) on or after August 16,
1995. For example, if an unreduced benefit is
normally available for Participants who have
reached age 55 and have 20 Years of Service, under
this enhancement, the requirement shall be reduced
to age 52 with 17 years of service.
Death Benefits: The ancillary death benefit under
Section 7.4 is eliminated December 31, 1996 except
for the death of pensioners who retire on or prior
to December 31, 1996.
Preservation of Accrued Benefits: None of the
above changes shall diminish or eliminate a
Participant's Accrued Benefit in effect
immediately prior to December 31, 1995. For this
purpose, the Plan's death benefit is not part of a
Participant's Accrued Benefit.
Other: Except as modified above, the Plan shall
remain in effect, shall be administered according
to its terms and shall pay benefits as they become
due.
2. Effective December 31, 1995, Article V is amended by
adding at the end thereof the following new Section 5.20:
Benefit SECTION 5.20 Except for a person receiving
Supplement a deferred vested benefit or a contingent
for Retirees annuitant of such person, a Participant who
retired prior to January 1, 1994 shall have
his or her monthly benefit increased by $50
per month and a contingent annuitant of a
Participant who retired prior to January 1,
1994 shall have his or her monthly benefit
increased by $25 per month. This increase in
the monthly benefit shall be effective with
the first benefit payment due after December
31, 1995 and shall continue for as long as
the recipient is entitled to receive Plan
benefits.
3. Effective as of December 31, 1995, the Frontier
Communications of Minnesota, Inc. Retirement Pension Plan (the
"Minnesota Plan") shall be merged into this Plan (the pre-merger
portion of this Plan is herein referred to as the "Rochester
Plan") pursuant to the following terms and conditions (the merged
Plan is hereinafter referred to as "the merged Plan")
- the merged assets and liabilities of the Minnesota
Plan and the Rochester Plan (together with assets
of related plans that now constitute a single plan
under Code section 414(1) with respect to the
Minnesota and Rochester Plans) shall, as of
December 31, 1995, constitute a single "plan" as
this term is defined in Code section 414(1). All
assets of the merged Plan shall be available at
all times to pay benefits on an ongoing basis to
participants covered by the merged Plan;
- the Rochester Plan and the Minnesota Plan shall
continue to be maintained pursuant to separate
plan documents, i.e., a participant's eligibility,
vesting, benefits and other matters will all be
determined by reference to the separate plan
documents governing such participant;
- the merged Plan shall be administered by the
Employees' Benefit Committee of the Rochester Plan
provided that administrative responsibilities
relating to participants in the Minnesota Plan may
be delegated to the plan administrator of the
Minnesota Plan:
- each participant in the merged Plan shall (if the
merged Plan then terminated) receive a benefit
immediately after the merger which is equal to or
greater than the benefit he or she would have been
entitled to receive immediately before the merger
(if the constituent plan then terminated).
<PAGE>
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this amendment on its behalf this
14th day of December 1995.
FRONTIER CORPORATION
/s/ Barbara J. LaVerdi
By ------------------------
Barbara J. LaVerdi
Its: Assistant Secretary
<PAGE>
<PAGE>
Exhibit 11
Frontier Corporation
Computation of Earnings per Share of Common Stock
on a Fully Diluted Basis (Unaudited)
3 Months Ended
March 31,
- ------------------------------------------------------------
(In thousands, except per share data) 1996 1995
- -------------------------------------------------------------
Income applicable to common stock $ 56,830 $ 51,353
Add: Interest on convertible
debentures 139 139
- -------------------------------------------------------------
56,969 51,492
Less: Increase in related federal
income taxes 49 49
- -------------------------------------------------------------
Adjusted income applicable to common
stock $ 56,920 $ 51,443
=============================================================
Average Common Shares Outstanding
(excluding common stock equivalents) 160,178 149,298
Adjustments for:
Convertible Debentures 503 503
Stock Options 3,420 11,688
- -------------------------------------------------------------
Adjusted common shares assuming
conversion of outstanding Convertible
Debentures and Stock
Options at beginning of each period 164,101 161,489
=============================================================
Earnings per share of common stock on a
fully diluted basis $ .35 $ .32
=============================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FRONTIER CORPORATION'S FINANCIAL STATEMENTS FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,060
<SECURITIES> 0
<RECEIVABLES> 463,942
<ALLOWANCES> 29,288
<INVENTORY> 15,284
<CURRENT-ASSETS> 538,414
<PP&E> 2,133,386
<DEPRECIATION> 1,238,163
<TOTAL-ASSETS> 2,154,715
<CURRENT-LIABILITIES> 486,946
<BONDS> 611,059
0
22,769
<COMMON> 162,330
<OTHER-SE> 805,535
<TOTAL-LIABILITY-AND-EQUITY> 2,154,715
<SALES> 0
<TOTAL-REVENUES> 655,149
<CGS> 12,028
<TOTAL-COSTS> 543,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,638
<INCOME-PRETAX> 106,441
<INCOME-TAX> 41,300
<INCOME-CONTINUING> 65,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (8,018)
<NET-INCOME> 57,123
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
