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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 164,164,275 shares
as of October 31, 1997
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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 and for the nine
months ended September 30, 1997
and September 30, 1996 3
Consolidated Statements of Income
for the three months ended and for
the nine months ended September
30, 1997 and September 30, 1996 4
Consolidated Balance Sheets as
of September 30, 1997 and
December 31, 1996 5
Consolidated Statements of Cash Flows
for the nine months ended
September 30, 1997 and
September 30, 1996 6
Notes to Consolidated Financial
Statements 7-11
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of Operations 12-24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 24-26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
Index to Exhibits 29
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<TABLE>
FRONTIER CORPORATION
Business Segment Information
(Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30,
In thousands of dollars 1997 1996 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long Distance Communications
Services
Revenues $ 423,754 $ 496,011 $1,231,735 $1,479,869
Costs and Expenses 409,805 419,602 1,186,374 1,267,334
- ---------------------------------------------------------------------------------
Operating Income (Loss):
Operating Income Before Other
Charge $ 13,949 $ 76,409 $ 45,361 $ 212,535
Other Charge - - (96,600) -
- ---------------------------------------------------------------------------------
Total Operating Income (Loss) $ 13,949 $ 76,409 $ (51,239)$ 212,535
Depreciation and Amortization $ 24,743 $ 21,026 $ 68,787 $ 61,039
Capital Expenditures $ 60,578 $ 21,191 $ 152,464 $ 83,176
Identifiable Assets $1,212,193 $1,000,369 $1,212,193 $1,000,369
=================================================================================
Local Communications Services
- -----------------------------
Revenues $ 166,772 $ 160,776 $ 497,089 $ 480,601
Costs and Expenses 106,975 106,059 317,627 321,843
- ---------------------------------------------------------------------------------
Operating Income $ 59,797 $ 54,717 $ 179,462 $ 158,758
Depreciation and Amortization $ 27,344 $ 25,438 $ 82,004 $ 76,050
Capital Expenditures $ 25,815 $ 25,670 $ 69,379 $ 66,786
Identifiable Assets $ 895,316 $ 931,217 $ 895,316 $ 931,217
=================================================================================
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Corporate Operations and Other
- ------------------------------
Revenues $ 11,044 $ 12,282 $ 30,869 $ 34,027
Costs and Expenses 12,427 14,190 35,949 41,549
- ---------------------------------------------------------------------------------
Operating Income (Loss) $ (1,383) $ (1,908) $ (5,080)$ (7,522)
Depreciation and Amortization $ 897 $ 1,076 $ 2,662 $ 3,165
Capital Expenditures $ 6,101 $ 5,210 $ 18,076 $ 16,395
Identifiable Assets $ 232,374 $ 252,872 $ 232,374 $ 252,872
=================================================================================
Consolidated
- ------------
Revenues $ 601,570 $ 669,069 $1,759,693 $1,994,497
Costs and Expenses 529,207 539,851 1,539,950 1,630,726
- ---------------------------------------------------------------------------------
Operating Income:
Operating Income Before Other
Charge $ 72,363 $ 129,218 $ 219,743 $ 363,771
Other Charge - - (96,600) -
- ---------------------------------------------------------------------------------
Total Operating Income $ 72,363 $ 129,218 $ 123,143 $ 363,771
Depreciation and Amortization $ 52,984 $ 47,540 $ 153,453 $ 140,254
Capital Expenditures $ 92,494 $ 52,071 $ 239,919 $ 166,357
Identifiable Assets $2,339,883 $2,184,458 $2,339,883 $2,184,458
=================================================================================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
FRONTIER CORPORATION
Consolidated Statements of Income
(Unaudited)
In thousands, 3 Months Ended 9 Months Ended
September 30, September 30,
except per share data 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $601,570 $669,069 $1,759,693 $1,994,497
- ----------------------------------------------------------------------------------------
Costs and Expenses
Operating expenses 461,788 479,496 1,343,919 1,453,206
Depreciation and amortization 52,984 47,540 153,453 140,254
Taxes other than income taxes 14,435 12,815 42,578 37,266
Other Charge - - 96,600 -
- ---------------------------------------------------------------------------------------
Total Costs and Expenses 529,207 539,851 1,636,550 1,630,726
- ---------------------------------------------------------------------------------------
Operating Income 72,363 129,218 123,143 363,771
Interest expense 12,489 10,167 34,647 33,623
Other income and expense:
Gain on sale of assets - - 18,765 4,976
Equity earnings from unconsolidated
wireless interests 3,677 2,601 7,949 5,741
Interest income 763 380 2,153 1,684
Other income (expense) 1,466 - 2,082 (989)
- ---------------------------------------------------------------------------------------
Income Before Taxes and Cumulative Effect of
Change in Accounting Principle 65,780 122,032 119,445 341,560
Income tax expense 25,676 48,255 50,458 133,436
- ---------------------------------------------------------------------------------------
Income Before Cumulative Effect of
Change in Accounting Principle 40,104 73,777 68,987 208,124
Cumulative effect of change in accounting
principle - - - (8,018)
- ---------------------------------------------------------------------------------------
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Net Income 40,104 73,777 68,987 200,106
Dividends on preferred stock 253 297 764 886
- ----------------------------------------------------------------------------------------
Income Applicable to Common Stock $ 39,851 $ 73,480 $ 68,223 $ 199,220
========================================================================================
Dividends declared on common stock $ 35,561 $ 34,814 $106,870 $ 104,640
========================================================================================
Earnings Per Common Share
Income before cumulative effect of change in
accounting principle $ .24 $ .45 $ .42 $ 1.27
Cumulative effect of change in accounting
principle - - - (.05)
- ----------------------------------------------------------------------------------------
Earnings Per Common Share $ .24 $ .45 $ .42 $ 1.22
========================================================================================
Average Common Shares Outstanding (in
thousands) 163,962 164,273 163,898 163,960
=======================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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FRONTIER CORPORATION
Consolidated Balance Sheets
September 30, December 31,
1997 1996
In thousands of dollars, except share data (Unaudited)
- --------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 26,532 $ 30,948
Accounts receivable, (less allowance for
uncollectibles
of $23,001 and $30,911, respectively) 379,797 364,256
Materials and supplies 13,935 13,198
Deferred income taxes 41,778 30,349
Prepayments and other 33,010 30,483
- --------------------------------------------------------------------
Total Current Assets 495,052 469,234
Property, plant and equipment, net 979,166 971,259
Goodwill and customer base 517,146 535,979
Deferred income taxes 15,431 -
Deferred and other assets 333,088 245,048
- --------------------------------------------------------------------
Total Assets $2,339,883 $2,221,520
====================================================================
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LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 277,713 $ 322,325
Dividends payable 35,774 35,966
Debt due within one year 5,592 6,253
Taxes accrued 55,184 34,963
Other liabilities 26,589 18,596
- --------------------------------------------------------------------
Total Current Liabilities 400,852 418,103
Long-term debt 840,158 675,043
Deferred income taxes - 2,542
Deferred employee benefits obligation 76,379 65,479
- --------------------------------------------------------------------
Total Liabilities 1,317,389 1,161,167
- --------------------------------------------------------------------
Shareowners' Equity
Preferred stock 20,125 22,611
Common stock, par value $1.00, authorized
300,000,000 shares; 164,162,391 shares and
163,731,733 shares issued in 1997 and 1996 164,162 163,732
Capital in excess of par value 509,080 500,196
Retained earnings 346,702 385,350
- --------------------------------------------------------------------
1,040,069 1,071,889
Less -
Treasury stock, 10,849 shares in 1997 and
6,375 shares in 1996, at cost 230 147
Unearned compensation - restricted stock plan 17,345 11,389
- --------------------------------------------------------------------
Total Shareowners' Equity 1,022,494 1,060,353
- --------------------------------------------------------------------
Total Liabilities and
Shareowners' Equity $2,339,883 $2,221,520
====================================================================
See accompanying Notes to Consolidated Financial Statements.
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FRONTIER CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
9 Months Ended September 30,
In thousands of dollars 1997 1996
- ------------------------------------------------------------------------
Operating Activities
Net income $ 68,987 $200,106
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle - 12,396
Other charge 96,600 -
Depreciation and amortization 153,453 140,254
Gain on sale of assets (18,765) (4,976)
Equity earnings from unconsolidated
wireless interests (7,949) (5,741)
Other, net 1,438 2,830
Changes in operating assets and liabilities, exclusive
of impacts of dispositions and acquisitions:
Increase in accounts receivable (16,439) (11,888)
Increase in materials and supplies (546) (2,502)
Increase in prepayments and other assets (2,495) (2,295)
Increase in deferred and other assets (24,191) (22,894)
(Increase) decrease in deferred
income taxes (29,403) 7,425
Decrease in accounts payable (48,164) (65,973)
(Decrease) increase in taxes accrued and
other liabilities (36,436) 76,709
Increase (decrease) in deferred employee
benefits obligation 11,348 (1,723)
- ------------------------------------------------------------------------
Total adjustments 78,450 121,622
- ------------------------------------------------------------------------
Net cash provided by operating activities 147,436 321,728
- ------------------------------------------------------------------------
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Investing Activities
Expenditures for property, plant and equipment (174,908) (164,773)
Deposit for capital projects (67,571) -
Investment in cellular partnerships - (26,203)
Proceeds from asset sales 32,889 10,441
Other investing activities 921 (9,118)
- ------------------------------------------------------------------------
Net cash used in investing activities (208,669) (189,653)
- ------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 297,897 -
Repayments of debt (129,010) (62,595)
Dividends paid (107,824) (103,675)
Treasury stock, net (2,468) -
Issuance of common stock, net 721 32,872
Other financing activities (2,499) (8)
- ------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 56,817 (133,406)
- ------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (4,416) (1,331)
Cash and Cash Equivalents at Beginning of Period 30,948 31,449
- ------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 26,532 $ 30,118
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
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FRONTIER CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1: Consolidation
The consolidated financial statements of Frontier
Corporation (the "Company" or "Frontier") included herein,
are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission
("SEC") regulations. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations. 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 position, results of operations and
cash flows for the interim periods. These financial
statements should be read in conjunction with the Annual
Report of the Company on Form 10-K for the year ended
December 31, 1996.
The consolidated financial information includes the
accounts of Frontier Corporation and its majority-owned
subsidiaries after elimination of all significant
intercompany transactions. Investments in entities in
which the Company does not have a controlling interest are
accounted for using the equity method.
Preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to
conform to current year presentation.
Note 2 : Other Charge
In March 1997, the Company recorded a $96.6 million pre-
tax charge primarily related to the write-off of certain
network facilities no longer required as a result of the
migration of the Company's major carrier customer's one-
plus traffic volume to other networks and the Company's
overall network integration efforts. The Company is in
the process of decommissioning these redundant facilities
and the project is expected to be completed by the second
quarter of 1998.
Note 3: Purchase Acquisitions
In February 1997, the Company completed its purchase of
R.G. Data Incorporated (renamed "Frontier Data Systems
Inc."), a privately held upstate New York based computer
and data networking equipment and services company. A
total of 110,526 shares of Frontier common stock held in
treasury were reissued in exchange for all of the shares
of R.G. Data Incorporated. The treasury shares were
acquired through open market purchases.
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 and the operating results are
reported using the equity method of accounting. The
Company paid $25.3 million in cash for its interest in RSA
No. 3.
Note 4 : 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 Statements 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 at its New York local
telephone subsidiaries.
Note 5 : Long-Term Debt
In May 1997, the Company completed a $300 million
offering of 7.25% Notes, maturing in 2004. Proceeds from
the offering were used to pay down Frontier's commercial
paper borrowings.
Effective June 30, 1997, the Company's subsidiary,
Frontier Telephone of Rochester, Inc. (formerly Rochester
Telephone Corp.), reduced its available line of credit
under its Revolving Credit Agreement from $100 million to
$50 million.
Note 6: Gain on Sale of Assets
On January 31, 1997, the Company completed the sale of
its 69.5% equity interest in the South Alabama Cellular
Communications Partnership. The sale resulted in an after-
tax gain of $11.2 million, or $.07 per share. In March
1996, Frontier sold its minority investment in a Canadian
long distance company for an after-tax gain of $3.0
million, or $.02 per share. The Company decided to
redeploy resources into more strategic assets as the
assets sold were not critical to the achievement of the
Company's overall business strategy.
Note 7: New Accounting Standards
The Company will adopt the provisions of Financial
Accounting Standards Board Statement No. 128, "Earnings
Per Share" ("FAS 128") effective December 31, 1997. This
statement is effective for financial statements issued for
periods ending after December 15, 1997; earlier
application is not permitted. This statement simplifies
the standards for computing earnings per share previously
found in Accounting Principles Board Opinion No. 15,
"Earnings Per Share", and makes them comparable to
international earnings per share ("EPS") standards. FAS
128 requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a
reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of
the diluted EPS calculation. Basic EPS excludes the
effect of common stock equivalents and is computed by
dividing income available to common shareowners by the
weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that
could result if securities or other contracts to issue
common stock were exercised or converted into common
stock.
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Proforma unaudited earnings per share computed in
accordance with FAS 128 is presented below for
informational purposes only.
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
- -----------------------------------------------------------------
Basic EPS
Earnings before cumulative
effect of change in
accounting principle $.24 $.45 $.42 $1.28
Cumulative effect of
change in accounting
principle - - - (.05)
- -----------------------------------------------------------------
Basic earnings per share $.24 $.45 $.42 $1.23
=================================================================
Diluted EPS
Earnings before cumulative
effect of change in
accounting principle $.24 $.45 $.42 $1.26
Cumulative effect of change
in accounting principle - - - (.05)
- -----------------------------------------------------------------
Diluted earnings
per share $.24 $.45 $.42 $1.21
=================================================================
Note 8: Cash Flows
For purposes of the Statements 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 $32.9
million of cash proceeds from stock options and warrants
exercised during the first nine months of 1996. The
resultant tax benefit realized from the exercise of stock
options during the first nine months of 1996 of $46.0
million is reflected as an adjustment to capital in excess
of par value and taxes accrued.
Actual interest paid was $36.9 million and $33.2 million
for the nine month periods ended September 30, 1997 and
September 30, 1996, respectively. Interest costs
associated with the construction of capitalized assets,
including the nationwide fiber optic network project, are
capitalized. Total amounts capitalized for the first nine
months of 1997 and 1996 were $9.2 million and $3.1
million, respectively. In addition, actual income taxes
paid were $57.3 million for the nine months ended
September 30, 1997 and $44.8 million for the nine months
ended September 30, 1996.
Note 9: Commitments and Contingencies
During 1997, it is anticipated that the Company will
expend approximately $430 million to $470 million for
additions to property, plant and equipment, including the
Company's fiber optic network expansion project.
Construction began on the nationwide fiber optic network
in late 1996. The fiber optic network is being
constructed under an agreement with Qwest Communications
Corporation. Capital expenditures related to the network
expansion will approximate $210 million for 1997. Since
construction of the nationwide fiber optic network began
in 1996, the Company has made total deposit payments of
$144.0 million, $80.3 million of which was incurred during
the first nine months of 1997. This amount is included in
the "Deferred and other" caption in the Consolidated
Balance Sheets. In connection with the total capital
program, the Company has made certain commitments for the
purchase of materials and equipment.
Note 10: Subsequent Events
In October 1997, the Company made a strategic decision
to divest product lines and businesses that are not
considered critical to its long-term growth. The plan
will include the exit from non-strategic businesses and
the phasing out of certain low margin, price-driven long
distance consumer segments. In connection with these
actions, the Company will record a charge in the fourth
quarter of 1997 of approximately $55 million post-tax, or
$.33 cents per share. This charge is primarily associated
with workforce reductions, program cancellations, the
exiting of certain product lines and miscellaneous asset
impairments. The provision for the reduction of the
workforce of approximately $16.5 million pre-tax includes
severance and related termination benefits associated with
the elimination of approximately 700 positions. On a pre-
tax basis, the provision for restructuring activities
represents $29.8 million of the charge and the remaining
$40.5 million is associated with the impairment of assets.
On October 22, 1997, the Company announced the sale of a
portion of its prepaid calling card business to SmarTalk
Teleservices, Inc. for $35 million in cash, subject to
certain post-closing adjustments. The sale is anticipated
to close before the end of the fourth quarter in 1997.
The net proceeds from this sale are expected to be largely
offset by the costs to phase down the remainder of the
Company's prepaid business.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the Three and Nine Months Ended September 30, 1997
and 1996
The matters discussed throughout this Form 10-Q, except
for historical financial results contained herein, may be
forward-looking in nature or "forward-looking statements."
Actual results may differ materially from the forecasts or
projections presented. Forward-looking statements are
identified by such words as "expects," "anticipates,"
"believes," "intends," "plans" and variations of such
words and similar expressions. The Company believes that
its primary risk factors include, but are not limited to:
changes in the overall economy, the nature and pace of
technological change, the number and size of competitors
in the Company's market, changes in law and regulatory
policy and the mix of products and services offered in the
Company's markets. Any forward-looking statements in this
September 30, 1997 Form 10-Q should be evaluated in light
of these important risk factors. For additional
disclosure regarding risk factors refer to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996.
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'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,
and video and audio conferencing.
RESULTS OF OPERATIONS
Consolidated
Revenues for the third quarter of 1997 and on a year-to-
date basis were $601.6 million and $1.8 billion,
respectively, representing decreases of $67.5 million or
10.1% and $234.8 million or 11.8% from the three and nine
months ended September 30, 1996. Excluding nonrecurring
items, operating income was $72.4 million for the three
months ended September 30, 1997 and $219.7 million for the
nine month period ending September 30, 1997, as compared
to $129.2 million and $366.6 million for the three and
nine month periods ending September 30, 1996,
respectively. Operating results in 1997 continue to be
adversely impacted by the previously announced migration
of the Company's largest carrier customer's one-plus
traffic from the Frontier network. Consolidated operating
margins declined from 19.3% in the third quarter of 1996
to 12.0% for the same period of 1997. On a year-to-date
basis, excluding nonrecurring items, consolidated
operating margins declined from 18.4% in 1996 to 12.5% in
1997. This decline is attributable to the previously
discussed decrease in revenue as well as increased
expenses in the Long Distance segment. In addition,
expenses were higher in the long distance segment
primarily due to an increase in cost of access driven by
the growth and mix of international traffic, increased
costs related to the public payphone compensation order
and operating losses attributed to the prepaid business.
SG&A costs in the Long Distance segment have also
increased as compared to the same periods in the prior
year, partly due to increased costs for sales and
marketing support associated with new revenue initiatives
and distribution channels.
In October 1997, the Company made a strategic decision
to divest product lines and businesses that are not
considered critical to long-term growth. The plan
includes the exit from non-strategic businesses and
phasing out of certain low margin, price-driven long
distance consumer segments. In connection with these
actions, the Company will record a charge in the fourth
quarter of 1997 of approximately $55 million, or $.33
cents per share. This charge is primarily associated with
force reductions, program cancellations, the exiting of
certain product lines and miscellaneous asset impairments.
The plan includes provisions for the elimination of
approximately 8% of the workforce, or approximately 700
positions. These cost cutting measures are expected to be
partially offset in the short-term by investments in sales
and customer service, an acceleration of competitive local
service expansion and increased product development costs.
On October 22, 1997, the Company announced that a
definitive agreement had been reached to sell a portion of
its prepaid calling card business to SmarTalk
Teleservices, Inc. for $35.0 million in cash, subject to
certain post-closing adjustments. The sale is anticipated
to close by the end of the fourth quarter in 1997. The
net proceeds from this sale are expected to be largely
offset by the costs to phase out the remainder of the
Company's prepaid business.
Operating results for 1997 and 1996 were affected by
certain one time events. In March 1997, the Company
recorded a pre-tax charge of $96.6 million, or $0.38 per
share post-tax, primarily related to the write-off of
certain network costs no longer necessary to support long
distance traffic volumes largely due to the migration of
the Company's major carrier customer's one-plus traffic.
As a result of the decline in long distance traffic, an
evaluation of the existing network was performed and
facilities deemed no longer necessary to support the
Company's revenue and traffic levels were identified. The
Company is decreasing its fixed network cost structure
through the integration and consolidation of facilities.
In the first quarter of 1997, the Company also completed
the sale of its 69.5% equity interest in the South Alabama
Cellular Communications Partnership. The sale resulted in
a pre-tax gain of $18.7 million. The Company sold its
minority investment in a Canadian long distance company
for a pre-tax gain of $5.0 million during the quarter
ended March 31, 1996.
During the first quarter of 1996, the Company's
operating costs increased $2.8 million (pre-tax) due to
increased labor and related expenses in connection with
union contract negotiations at one of the Company's
subsidiaries, Frontier Telephone of Rochester, Inc.
Year-to-date results for 1996 also include an $8.0
million post-tax charge relating to the adoption of
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." The assets
held for disposal consist principally of telephone
switching equipment in the Local Communications Services
segment as a result of the central office switch
consolidation project.
Business Segments
The Company reports its operating results in three
segments: Long Distance Communications Services, Local
Communications Services, and Corporate Operations and
Other. A review of the 1997 and 1996 third quarter and
year-to-date results of each business segment follows.
Long Distance Communications Services
Long distance revenues totaled $423.8 million in the
third quarter of 1997, a decrease of $72.3 million or
14.6% as compared to the third quarter of 1996. On a year-
to-date basis, revenues totaled $1,231.7 million as
compared to $1,479.8 million in the same period in 1996, a
decrease of $248.1 million or 16.8%. The decrease in long
distance revenues is attributable to the migration of the
Company's largest customer's one-plus traffic from the
Frontier network. Normalized for the effect of this major
carrier customer's one-plus traffic, revenue grew
approximately 5% and 3% for the three and nine month
periods ended September 30, 1997, respectively, as
compared to the same periods in the prior year. Traffic,
excluding the Company's major customer's one-plus traffic,
increased approximately 6% over both the three and nine
month periods ended September 30, 1996.
The decline in this segment's operating results is
largely attributable to the previously discussed migration
of the Company's largest customer's one-plus traffic.
Total revenue from this customer, including both one-plus
services and enhanced services, represented approximately
5% of long distance revenue for the third quarter of 1997
and approximately 6% of 1997 year-to-date long distance
revenue as compared to approximately 24% for the same
periods in the prior year. During the second quarter of
1997, the Company introduced a new bundled services
product, "Frontier Independence", (which replaces the
Company's "Clear Value" product). During the second
quarter of 1997, the Company also announced plans to
complete a national frame relay network by the fourth
quarter of 1997 to complement the Company's core voice
services business with a portfolio of additional data
services products. The nationwide frame relay product was
introduced on schedule in October. The Company's credit
card services agreement with US West began contributing to
operating results in the second quarter; results included
in the third quarter of 1997 demonstrate strong growth in
revenue from this agreement. The agreement allows US West
the ability to offer calling card services to its
customers and is expected to generate in excess of $50
million in incremental revenue for the Company over the 30
month term of the agreement.
The Company began to expand its competitive local
service offerings in late 1996 and is competing
aggressively with other incumbent local exchange carriers
and other Competitive Local Exchange Carriers ("CLECs").
Frontier is now providing local service as a CLEC,
primarily on a resale basis, combined with a complete
range of long distance products, in 32 markets across the
country. The Company also currently provides local
services as a facilities-based CLEC from its own switch in
New York City and plans to provide facilities-based CLEC
services in Minneapolis and Boston by the end of 1997.
The Company anticipates that up to 12 additional switches
will be installed by mid-1998. The switches are being
placed in cities that are on the Company's fiber optic
network, which will provide Frontier with the opportunity
to expand its offerings of combined local and long
distance services into additional markets. As of
September 30, 1997, Frontier is serving in excess of
88,000 ANIs, or access lines, predominantly through resale
in markets where it is not the incumbent local exchange
carrier.
Operating income for long distance, excluding
nonrecurring charges, decreased 81.7% to $13.9 million and
78.7% to $45.4 million, respectively, for the three and
nine month periods ended September 30, 1997. Operating
margin as a percent of revenue, excluding nonrecurring
charges, decreased from 15.4% in the third quarter of 1996
to 3.3% in the current quarter and from 14.4% for the nine
months ended September 30, 1996 to 3.7% for the same
period in 1997. The reduction in operating margin in 1997
is driven by the decrease in revenue, primarily
attributable to the migration of the Company's largest
customer's one-plus traffic, increased network costs and
the incremental SG&A costs associated with sales and
marketing support for new revenue initiatives. Cost of
access represented approximately 64.6% and 63.6% of total
long distance revenue for the three and nine months of
1997 as compared to approximately 60.7% and 61.8% for the
same periods in 1996, respectively. The higher cost of
access percentages reflect changes in the revenue mix,
particularly the growth and mix of international traffic;
lower revenue yields due to competitive pricing and a
reduced revenue base to cover the fixed component of
access costs. Operating losses attributable to the
prepaid business, which the Company is in the process of
selling, had a negative effect on cost of access for the
three and nine month periods ended September 30, 1997.
Additionally, the cost associated with public payphone
usage has increased as compared to prior periods as a
result of FCC rules adopted September 1996, establishing a
"per call compensation plan" that provides payphone
service providers with compensation for calls completed
using their payphones. Effective October 1997, the
company began assessing a surcharge to these payphone
users in order to recover the amount of compensation and
related costs ordered by the FCC. Continued network
integration and the construction of the Company's fiber
optic network are expected to further reduce network costs
and provide new revenue opportunities for Frontier.
Construction of the fiber optic network is on schedule
with more than 75% of the segments planned currently in
progress. Management anticipates that approximately 30%
of the network will be completed and capable of carrying
traffic by the end of 1997, with the remainder expected
to be completed by year end 1998.
Local Communications Services
Local Communications Services includes the Company's
local telephone operations, consisting of 34 telephone
operating subsidiaries in 13 states. Also included in
this segment are the local service revenues and associated
expenses generated from the efforts of Frontier
Communications of Rochester, Inc., 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 provided in the Rochester, New
York market. As a result of the Company's efforts to
consolidate operations within this segment to become more
efficient and improve operating results, management has
concluded that separate financial reporting of the
Rochester, New York operations from the Regional Telephone
Companies is no longer meaningful.
Revenues for Local Communications Services were $166.8
million in the three month period ended September 30,
1997, an increase of $6.0 million or 3.7% over the
comparable period in 1996. For the nine month period
ended September 30, 1997, revenues were $497.1 million, an
increase of $16.5 million or 3.4% over the comparable
period in 1996. The growth in this segment is driven by a
2.7% increase in access lines and a 6.6% increase in
minutes of use on a year-to-date basis over the same
period in 1996. Revenue growth during the first nine
months of 1997 is also influenced by the provision of
enhanced services, driven by increased demand for Internet
services. Revenue growth is partially offset by the
elimination of the surcharge on wholesale, flat rate local
measured service, as ordered by the New York State Public
Service Commission ("NYSPSC") in 1996, an increase in the
discount to wholesale providers from 5% to 17%, also
ordered by the NYSPSC and the $1.5 million annual rate
reduction as stipulated by the Open Market Plan.
Costs and expenses in the third quarter of 1997 for
Local Communications Services were $107.0 million,
relatively consistent with the same period in the prior
year. On a year-to-date basis, costs and expenses were
$317.6 million, representing a decrease of $1.4 million or
less than 1.0% over the same period in 1996, excluding
certain one-time charges. Contributing to the overall
decrease in expenses is the impact of continuing
centralization of the administrative functions for all of
the local telephone companies. During the first nine
months of 1996, 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 the Communications Workers
of America ("CWA" or the "Union"), were necessary to
insure continued high standards of customer service levels
in the event of a work stoppage or slowdown. The contract
negotiations were at an impasse and the Rochester company
implemented the terms of its final offer as of April 9,
1996. Subsequently, members of the CWA Local 1170,
ratified a new collective bargaining agreement with
Frontier Telephone of Rochester, Inc. (formerly Rochester
Telephone Corp.) on April 29, 1997 which contained
provisions that differed moderately from the Company's
final offer implemented at the time of impasse. The new
agreement will provide several operational improvements
and will result in a more consistent alignment of benefits
with the rest of the Corporation. The Union continues to
appeal one issue related to the declaration of impasse
with the National Labor Relations Board. Hearings on this
issue were completed in June and a decision is anticipated
by the end of 1997. This decision may be appealed by
either the Union or the Company. At this time, the
Company cannot predict the outcome of this matter.
Operating income, normalized for nonrecurring items, was
$59.8 million and $179.5 million for the three and nine
month periods ended September 30, 1997, respectively,
representing increases of $5.1 million or 9.3%, and $17.9
million or 11.0%, over the three and nine month periods in
the prior year. Operating margins for the three month
periods ended September 30, 1996 and 1997 improved from
34.0% to 35.9%, respectively and for the nine month
periods ended September 30, 1996 and 1997 improved from
33.6% to 36.1%, reflecting the continuing improvements in
operating efficiencies.
During late 1995, management committed to a major switch
consolidation plan at its New York local telephone
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. As of September 1997, the project is
progressing as scheduled and eleven host switches have
been consolidated, representing approximately 70% of the
total switches that will be consolidated. The Company
anticipates that this project will be substantially
complete by July 1998.
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 Inc. ("FNS"). Wireless operations for the
first nine months of 1997 included Minnesota RSA No. 10,
in which the Company acquired a 100% interest in late
March 1995 and the Company's 69.5% interest in the South
Alabama Cellular Communications Partnership ("Alabama RSAs
No. 4 and No. 6") through January 1997. The sale of the
Company's interest in Alabama RSAs No. 4 and No. 6 was
finalized January 31, 1997.
The Company completed its purchase of R.G. Data
Incorporated (renamed "Frontier Data Systems Inc.") in
February 1997. R.G. Data Incorporated was a privately
held upstate New York based computer and data networking
equipment and services company. A total of 110,526 shares
of Frontier common stock held in treasury were reissued in
exchange for all of the shares of R.G. Data Incorporated.
The treasury shares were acquired through open market
purchases. This transaction was accounted for as a
purchase. R.G. Data Incorporated's operations are
consolidated with FNS for reporting purposes.
Results from operations for this segment for the third
quarter of 1997 were consistent with the third quarter of
1996. On a year-to-date basis, revenue for this segment
decreased $3.2 million, or 9.3%, and expenses decreased
$5.6 million, or 13.5% as compared to the same period in
the prior year, primarily as a result of the sale of the
Company's interest in Alabama RSAs No. 4 and No. 6, the
acquisition of R.G. Data Incorporated and reduced costs
and expenses for the Holding Company.
Other Income Statement Items
Interest Expense
Interest expense was $12.5 million and $34.6 million in
the three and nine month periods ending September 30,
1997, representing increases of $2.3 million and $1.0
million respectively, over the same periods in 1996. The
overall increase in interest expense is the result of
higher levels of debt outstanding. The increase in debt
is primarily attributable to the Company's capital program
driven by the nationwide fiber build. The Company
expended $36.9 million and $80.3 million for the fiber
build in the three and nine month periods ended September
30, 1997, respectively. Capitalized interest increased
$2.5 million and $6.1 million during the three and nine
months of 1997 as compared to the same period in 1996,
partially offsetting the increase in gross interest
expense.
Gain on Sale of Assets
In February 1997, the Company completed the sale of its
69.5% equity interest in the South Alabama Cellular
Communications Partnership. The sale resulted in an after-
tax gain of $11.2 million, or $.07 per share. During
March 1996, the Company recorded an after-tax gain of $3.0
million, or $.02 per share, related to the sale of its
minority interest in the stock of a Canadian long distance
company. The Company decided to redeploy resources into
more strategic assets as the assets sold were not critical
to the achievement of the Company's overall business
strategy.
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 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 third quarter of 1997 were $3.7
million, an increase of $1.1 million or 41.4% over the
third quarter of 1996. For the nine months ended
September 30, 1997, equity earnings were $7.9 million, an
increase of $2.2 million or 38.5% over the same nine month
period of 1996. The improvement in equity earnings is
driven by revenue increases, expense reductions and
increased operating efficiencies as compared to the same
period in the prior year.
Income Taxes
The effective income tax rates for the third quarter of
1997 and on a year-to-date basis, normalized for
nonrecurring items, are relatively consistent with the
same periods in 1996.
FINANCIAL CONDITION
Review of Cash Flow Activity
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, and not in place
of, cash flow from operating activities. The Company's
EBITDA was $373.2 million and $506.9 million, excluding
nonrecurring charges, for the nine month periods ending
September 30, 1997 and 1996, respectively. The decrease
in EBITDA is primarily attributable to the decrease in
revenue and increased operating costs in the long distance
segment.
Cash provided from operations for the nine months ending
September 30, 1997 decreased $174.3 million or 54.2% as a
result of increased working capital requirements and the
decreased operating results. The primary drivers of the
changes in cash from operations include decreased accounts
payable and income taxes. The decrease in accounts payable
is a function of the timing of payments to vendors. The
change in income taxes relates to the nonrecurring charge
recorded by the Company in the first quarter of 1997 and
the year-to-date operating results.
Cash used for investing activities increased $19.0
million or 10.0%, primarily due to increases in capital
expenditures during the first nine months of 1997 of $77.7
million or 47.2%. The increase in capital expenditures is
principally due to the fiber optic network build. This
increase is partially offset by the proceeds received from
the sale of the Company's equity interest in the South
Alabama Cellular Communications Partnership which closed
in the first quarter of 1997 ($32.9 million). Also, the
Company purchased an interest in a cellular partnership in
March 1996 for $25.3 million.
Cash provided from financing activities increased $190.2
million during the first nine months of 1997 as compared
to the same period in 1996. This net inflow of cash is
the result of increased borrowings during the period which
were driven by the Company's capital program.
Debt
The Company's total debt amounted to $845.8 million at
September 30, 1997, an increase of $164.5 million from
December 31, 1996. This higher debt level is largely
driven by the Company's capital program, including the
nationwide fiber optic network. In May 1997, the Company
completed a public offering of $300.0 million, 7.25%
Notes, maturing in 2004. Proceeds from the offering will
be used to finance a portion of the Company's cost of its
nationwide fiber build project. Until such time as
additional payments are required to be made to Qwest
Communications Corporation, the company constructing the
nationwide network, proceeds from the offering were used
to pay down a portion of the Company's commercial paper
borrowings.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percent of
total capitalization) was 45.3% at September 30, 1997, as
compared with 39.1% at December 31, 1996. Pre-tax
interest coverage, excluding nonrecurring charges, was 5.3
times for the nine months ended September 30, 1997, as
compared with 10.2 times for the same period in 1996.
Capital Spending
Through September 1997, gross capital expenditures
amounted to approximately $239.9 million as compared to
$166.4 million in the prior year. The Company plans to
spend a total of approximately $430 million to $470
million on its capital program during the full year in
1997, including approximately $210 million for the fiber
optic network project. Through September 1997, capital
expenditures relating to the fiber optic network totaled
$80.3 million. The Company anticipates financing its
capital program through a combination of internally
generated cash from operations as well as external
financing.
Dividends
On September 15, 1997, the Board of Directors declared
the third quarter 1997 dividend of 21.75 cents per share
on the Company's common stock, payable November 3, 1997 to
shareowners of record on October 15, 1997.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard 128 ("FAS 128"), "Earnings
Per Share", effective for financial statements issued for
periods ending after December 15, 1997; earlier
application is not permitted. This statement simplifies
the standards for computing earnings per share previously
found in Accounting Principles Board Opinion No. 15,
"Earnings Per Share", and makes them comparable to
international earnings per share ("EPS") standards. FAS
128 requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a
reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of
the diluted EPS calculation. Basic EPS excludes the
effect of common stock equivalents and is computed by
dividing income available to common shareowners by the
weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that
could result if securities or other contracts to issue
common stock were exercised or converted into common
stock.
The FASB issued FAS 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after
December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its
components in a full-set of general-purpose financial
statements. Comprehensive income is defined as "the
change in equity of a company during a period from
transactions and other events and circumstances from
nonowner sources." It includes all changes in equity
during a period except those resulting from investments by
owners and distributions to owners. Early application of
this statement is permitted. If comparative financial
statements are provided for earlier periods,
reclassification to reflect the provisions of this
statement is required. The Company will adopt FAS 130 in
the first quarter of 1998.
The FASB issued FAS 131, " Disclosures about Segments of
an Enterprise and Related Information," effective for
financial statements for periods beginning after December
15, 1997. This statement requires that public companies
report certain information about operating segments in
complete sets of financial statements of the company and
in condensed financial statements of interim periods
issued to shareholders. It also requires that public
companies report certain information about their products
and services, the geographic areas in which they operate,
and their major customers. In the initial year of
application, comparative information for earlier years is
to be restated. The Company will adopt FAS 131 in the
first quarter of 1998. The Company has not yet completed
its evaluation of the disclosures that will be required
by this statement.
OTHER ITEMS
Open Market Plan
The Rochester, New York local communications subsidiary
began its third year of operations under the Open Market
Plan in January 1997. The Open Market Plan promotes
telecommunications competition in the Rochester, New York
marketplace 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, (4)
service provider telephone number portability, and (5)
certain wholesale discounts to resellers of local
services. The inherent risk associated with opening the
Rochester market to competition is that some customers are
able to purchase services from competitors, which may
reduce the number of retail customers and potentially
cause a decrease in the revenues and profitability for
Frontier Telephone of Rochester, Inc. or "FTR", (formerly
Rochester Telephone Corp.). However, results since
implementation of the Open Market Plan indicate that a
stimulation of demand in the use of the network and new
product revenue may offset losses from customer migration.
Increased competition may also lead to additional price
decreases for services, potentially impacting FTR's
margins adversely. An additional positive feature of the
Open Market Plan provides that FTR can retain additional
earnings achieved through operating efficiencies.
Previously these earnings would have been shared with
customers.
During the seven year period of the Open Market Plan,
rate reductions of $21 million will be implemented for
Rochester area consumers, including $11.5 million of which
occurred in 1995, $2.5 million which occurred in 1996, and
a rate reduction of $1.5 million which commenced in
January 1997. Rates charged for basic residential and
business telephone service may not be increased during the
seven year period of the Plan. The Company is allowed to
raise prices on certain enhanced products such as caller
ID and call forwarding. Price increases on enhanced
products partially offset the rate reductions required
under the Plan during 1997.
During the second quarter of 1997, the Federal
Communications Commission ("FCC") issued decisions that
are intended to implement provisions of the
Telecommunications Act of 1996. Of significance were
decisions that outlined changes in the structure of
universal service support and in the framework that
applies to certain interstate rates that are generally
characterized as access-related charges. In addition,
during the second and third quarters of 1997, a Federal
appeals court issued a series of decisions reversing parts
of an earlier FCC order that set out conditions governing
the provisions of interconnection services. These orders
are not expected to have a material impact on Frontier or
any of its business segments.
Under the Telecommunications Act of 1996 and a statewide
proceeding, the NYSPSC is considering the prices that
local exchange companies in New York may charge for
"unbundled" service elements such as links (the wire from
the switch to the customers premises), ports (the portion
of the switch that terminates the link) and switch usage
features. The Company is actively participating in this
proceeding and expects the NYSPSC to issue a decision on
service elements in late 1997 or early 1998.
Management believes there are significant market and
business opportunities associated with the Company's Open
Market Plan. However, there are also uncertainties
associated with the Plan. In the Company's opinion, the
most significant risks relate to increased competition in
the Rochester, New York market, the risk inherent in the
Rate Stabilization Plan and the potential diversification
risk.
Similar proceedings to address the Telecommunications
Act of 1996 and to implement certain provisions have been
initiated in most states in which Frontier does business.
There can be no assurance that the changing regulatory
environment will not have a negative impact on the
Company.
Dividend Policy
The Open Market Plan prohibits the payment of dividends
by the Company's subsidiary, Frontier Telephone of
Rochester, Inc. to Frontier if (i) FTR's senior debt is
downgraded to "BBB" by Standard & Poor's ("S&P"), or the
equivalent rating by other rating agencies, or is placed
on credit watch for such a downgrade, or (ii) a service
quality penalty is imposed under the Open Market Plan.
Dividends paid to Frontier also are prohibited unless
FTR's directors certify that such dividends will neither
impair FTR's service quality nor its ability to finance
its short and long term capital needs on reasonable terms
while maintaining an S&P debt rating target of "A".
In 1996, FTR failed to achieve the service quality
levels required by the Open Market Plan. On December 19,
1996, pursuant to the Open Market Plan, FTR requested the
NYSPSC staff to exclude certain months from the
calculation used to measure service quality, due to
operating conditions considered by management to be
abnormal and beyond FTR's control. In April 1997, FTR
received notice from the NYSPSC that its request for a
waiver of certain conditions in the Open Market Plan
related to service quality results was denied. The
NYSPSC's ruling will result in a temporary restriction on
the flow of cash dividends from FTR to Frontier and a
refund to FTR's customers of $.9 million. Reserves
sufficient to cover the refund were established in 1996.
On October 22, 1997, the NYSPSC adopted an order requiring
the FTR to issue rebates of approximately $2.60 per
customer (totaling approximately $.9 million), commencing
within 60 days after the NYSPSC issues its order.
The temporary restriction of dividend payments from FTR
to Frontier Corporation remains in place, as FTR has not
yet reached 1997 service quality levels that are
sufficiently adequate to justify its removal.
Part II - Other Information
Item 1. Legal Proceedings
On June 11, 1992, a group of corporate plaintiffs
consisting of Cooper Industries, Inc.; Keystone
Consolidated Industries, Inc.; The Monarch Machine Tool
Company; Niagara Mohawk Corporation and Overhead Door
Corporation commenced an action in the United States
District Court for the Northern District of New York
seeking contribution from fifteen corporate defendants,
including Rotelcom Inc., a wholly-owned subsidiary of the
registrant held through intervening subsidiaries (now
named Frontier Network Systems Inc. or FNS). The
plaintiffs seek environmental "response costs" in the
approximate amount of $1.5 million incurred by the
plaintiffs pursuant to a consent decree entered into by
plaintiffs with the United States Environmental Protection
Agency (the "EPA"). Two additional defendants were named
in 1994. In addition to FNS, the current defendants are:
Agway, Inc.; BMC Industries, Inc.; Borg-Warner
Corporation; Elf Atochem North America, Inc.; Mack Trucks,
Inc.; Motor Transportation Services, Inc.; Pall Trinity
Micro Corporation; The Raymond Corporation;
Redding-Hunter, Inc.; Smith Corona Corporation; Sola Basic
Industries, Inc.; Wilson Sporting Goods Company; Phillip
A. Rosen; Harvey M. Rosen; City of Cortland and New York
State Electric & Gas Corporation.
The consent decree concerned the clean-up of an
environmental Superfund site located in Cortland, New
York. It is alleged that the corporate defendants
disposed of hazardous substances at the site and are
therefore liable under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The
Company is anticipating that a final Record of Decision
("ROD") will be issued by the EPA and will prescribe the
remediation requirements for the site. The aggregate
amount of remediation costs to be incurred by the
plaintiffs will be based on the requirements of the ROD.
The total cost of remediation at the site is uncertain,
although estimates have ranged from $25 million to $100
million. There has been no allocation of liability as
among or between the plaintiffs or defendants. The extent
to which plaintiffs can recover any of these costs from
the defendants, including FNS, will be determined at
trial. The litigation has been delayed by the bankruptcy
filing of one of the defendants. FNS has been vigorously
defending this lawsuit. The federal government and one or
more of the defendants have been in discussions intended
to facilitate settlement, but no recommendations have yet
been made. The Company believes that it will ultimately
be successful, but it is unable to predict the outcome
with any certainty at this time.
Since February 1994, a large number of plaintiffs, all
of whom are former American Sharecom Inc. ("ASI")
shareholders, have filed and amended several and various
complaints in Hennepin County (Minnesota) District Court.
Included among the defendants are ASI, its former
principal shareowners, Steven Simon and James Weinert, and
Frontier. These suits allege generally that Simon and
Weinert, with and through ASI, embarked upon a scheme to
gain control of ASI and acquire all of its stock through
common law fraud, breach of fiduciary duty and certain
violations of the Minnesota Business Corporation Act.
This Act requires shareowners in a closely held
corporation to act fairly toward one another and refrain
from misappropriation. Another action by a few former ASI
shareholders who dissented from a cashout merger that
finally took ASI private is pending in federal court in
Minnesota. The federal lawsuit asserts RICO claims in
addition to state common law and statutory violations.
The claims against Frontier maintain that Frontier
controls the disposition of the restricted Frontier stock
which was issued to Simon and Weinert in connection with
the acquisition of ASI and that such stock should be held
in trust for the benefit of the plaintiffs. Recently, the
former owners of over half of the stock who had made
claims entered into a settlement in principle with Simon
and Weinert. That settlement is now being submitted to
the individual plaintiffs for their review and acceptance.
Closure of this agreement is expected in 1997. If the
settlements are accepted, the lawsuits of these plaintiffs
shall be dismissed.
Although it is too early to determine the outcome of the
suits that have not settled, Frontier, ASI and the other
defendants each are contesting the claims. In connection
with the acquisition of ASI by Frontier, Simon and Weinert
agreed to indemnify Frontier for these claims.
On April 10, 1997, Jeff Thompson filed a purported class
action on behalf of himself and all other similarly-
situated persons in Circuit Court for Marengo County
Alabama. Named as defendants are Frontier Corporation,
Frontier Subsidiary Telco, Inc. and Frontier
Communications of the South, Inc. ("defendants"). The
complaint also reserves the right to add additional
defendants and identifies all of Frontier's telephone
subsidiaries. Concomitant with filing the complaint,
plaintiff also filed an ex parte motion for conditional
class certification which the Court granted. It
conditionally certified a class consisting of "All persons
or entities in the United States who have been charged by
defendants or their subsidiaries or affiliates a fee for
`inside wire maintenance' without having given their
affirmative acceptance to a repair service contract;
specifically excluded from this class, however, are all
employees, agents, officers, directors and affiliates of
any of the Defendants and all persons or entities who have
pending and/or previously filed individual (non-class)
lawsuits against any of the defendants for the same claims
set forth in the Complaint."
In the complaint, plaintiff alleges that the Company
improperly marketed and sold deregulated inside wire
maintenance services to defendant subscribers pursuant to
a "negative option" or "default sale" approach from
January 1, 1987 to the present. Plaintiff alleges that
the defendants have never had enforceable contracts with
their customers for inside wire maintenance services, and
have defrauded their customers. Plaintiff requests a
refund of all moneys paid for inside wire maintenance
services. This case is similar to a number of cases filed
against other carriers with local telephone properties.
The Company believes that the inside wire programs in
place in its telephone properties have been implemented in
accordance with the law and any applicable regulatory
requirements. The liability, if any, is not expected to be
material. The Company is vigorously defending against this
suit, but cannot predict the outcome at this time.
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.
Item 5. Other Information
On October 9, 1997, the FCC ordered carriers that
receive "dial around" calls from payphones (certain calls
sent without coins as 800 or other calls, with special
access codes) to compensate payphone owners at the rate of
28.4 cents per completed call.
The per-call compensation rate became effective on
October 7, 1997. The FCC has yet to determine how to
address the payphone compensation obligation for the
period from November 7, 1996 through October 6, 1997.
The Company intends to pursue challenges to the FCC
order with other carriers. However, the Company has also
taken action to assess a surcharge to recover the amount
of the compensation ordered and related costs. This is
consistent with the action taken by most other competitors
with similar calls that are handled through payphones.
The Company cannot predict the outcome of future
proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K filed during the period: None
The Company filed one report on Form 8-K subsequent to
the quarter ended September 30, 1997:
SEC Filing Date Item No. Financial Statements
October 14, 1997
5 No
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
FRONTIER CORPORATION
--------------------
(Registrant)
Dated: November 12, 1997 /s/Louis L. Massaro
By:------------------------------
Louis L. Massaro
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- --------------------------------------------------------------------
3.1 Restated Certificate of Incorporation Incorporated by
reference to Exhibit
3.1 to Form 10-K for
the year ended
December 31, 1995.
3.2 Amendment to Restated Certificate of Incorporated by
Incorporation reference to Exhibit
3.2 to Form 10-K for
the year ended
December 31, 1995.
3.3 Bylaws Filed herewith
4.1 Indenture, dated as of May 21, 1997, Incorporated by
between the Registrant and reference to Exhibit
Chase Manhattan Bank, as Trustee 4.1 to Form 8-K, filed
May 23, 1997
10.21 Form of management contracts with Filed herewith
Ms. Reeves and Mr. Carey
10.22 Amendment No.1 to the Management Stock Filed herewith
Incentive Plan
10.23 Amendment No.1 to the Supplemental Filed herewith
Management Pension Plan
10.24 Form of management contracts as amended Incorporated by
with each of Messrs. Bittner, Massaro, reference to Exhibit
Carr, Gregory and Dole 10.7 to Form 10-K
for the year ended
December 31, 1996
10.25 Letter agreement regarding severance Filed herewith
with Mr. Bennis
10.26 Letter agreement regarding severance with Filed herewith
Mr. Gregory
11 Statement re: Computation of Earnings Filed herewith
per Share of Common Stock on a
Fully Diluted Basis (Unaudited)
27 Financial Data Schedule Filed herewith
<PAGE> 1
EXHIBIT 3.3
FRONTIER CORPORATION
By-Laws
As Revised Effective March 21, 1983
(And as amended 7/16/84, 11/19/84, 2/17/86, 2/16/87,
4/22/87, 11/20/89, 2/19/90, 11/19/90, 4/24/91,
4/29/92, 4/21/93, 4/27/94, 9/19/94, 1/1/95, 4/26/95, 8/16/95
1/22/96, 4/30/96, 6/16/97, 9/15/97)
ARTICLE I
SHAREHOLDERS
Section 1 - Annual Meeting.
- ---------------------------
An annual meeting of shareholders for the election of
Directors and the transaction of other business shall be held at
such time on any day in the month of April in each year or on
such other date as shall be fixed by the Board of Directors.
Section 2 - Special Meetings.
- -----------------------------
Special Meetings of the shareholders may be called by the
Board of Directors. Such meeting shall be held at such time as
may be fixed in the notice of meeting.
Section 3 - Place of Meeting.
- -----------------------------
Meetings of shareholders shall be held at such place, within
or without the State of New York, as may be fixed in the notice
of meeting.
Section 4 - Notice of Meeting.
- ------------------------------
Notice of each meeting of shareholders shall be in writing
and shall state the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called.
A copy of the notice of any meeting shall be given,
personally, or by mail, not less than ten or more than fifty days
before the date of the meeting, to each shareholder entitled to
vote at such meeting. If mailed, such notice is given when
deposited in the United States mail, with postage thereon
<PAGE> 2
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.
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
<PAGE> 3
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
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
<PAGE> 4
shareholder or the shareholder's attorney-in-fact. No proxy
shall be valid after the expiration of eleven months from the
date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder executing
it except in those cases where an irrevocable proxy permitted by
statute has been given.
Section 11 - Fixing Record Date.
- ---------------------------------
For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent or dissent from any
proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action,
the Board of Directors may fix, in advance, a date as the record
date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of
such meeting, nor more than fifty days prior to any other action.
Section 12 - Order of Business.*
- --------------------------------
The order of business at each meeting of shareholders shall
be as determined by the chairman of the meeting. The chairman of
the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of
the meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations
on the time allotted to questions or comments on the affairs of
the Corporation, restrictions on entry to such meeting after the
time prescribed for the commencement thereof, and the opening and
closing of the voting polls.
At any special meeting of shareholders, only such business
may be transacted which is related to the purpose or purposes set
forth in the notice of such meeting.
At any annual meeting of shareholders, only such business
(other than the nomination or election of directors) shall be
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.
<PAGE> 5
For business (other than the nomination or election of
directors) properly to be brought before an annual meeting by a
shareholder, the shareholder must have given timely notice
thereof in proper written form to the Secretary. To be timely, a
shareholder's notice must be addressed to the Secretary and
delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90
days prior to the anniversary date of the immediately preceding
annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days earlier or more
than 60 days later than such anniversary date, notice by the
shareholder to be timely must be so delivered or received not
earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on
which public announcement of the date of such meeting is first
made. To be in proper written form, a shareholder's notice to the
Secretary shall set forth in writing as to each matter the
shareholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business
at the annual meeting; (ii) the name and address, as they appear
on the Corporation's books, of the shareholder proposing such
business; (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder; (iv) a
representation that the shareholder is or will be entitled to
vote at such annual meeting and intends to appear in person (or
send a qualified representative) or by proxy to present such
proposal at the meeting; and (v) any material interest of the
shareholder in such business. The foregoing notice requirements
shall be deemed satisfied by a shareholder if the shareholder has
notified the Corporation of his or her intention to present a
proposal at an annual meeting and such shareholder's proposal has
been included in a proxy statement that has been prepared by
management of the Corporation to solicit proxies for such annual
meeting; provided, however, that if such shareholder does not
appear in person (or send a qualified representative) or by proxy
to present such proposal at such annual meeting, the Corporation
need not present such proposal for a vote at such meeting,
notwithstanding that proxies in respect of such vote may have
been received by the Corporation. Notwithstanding anything in the
By-Laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth
in this Section 12. The chairman of an annual meeting shall, if
the facts warrant, determine that business was not properly
brought before the annual meeting in accordance with the
<PAGE> 6
provisions of this Section 12 and, if he should so determine, he
shall so declare to the annual meeting and any such business not
properly brought before the annual meeting shall not be
transacted and any proposal contemplated by such business shall
be void.
ARTICLE II
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.
<PAGE> 7
Section 5 - Action Without a Meeting.
- -------------------------------------
Any action required or permitted to be taken by the Board or
any committee thereof may be taken without a meeting if all
members of the Board or of the committee consent in writing to
the adoption of the resolution authorizing the action. The
resolution and the written consents thereto by the members of the
Board or committee shall be filed with the minutes of the
proceedings of the Board or committee.
Section 6 - Participation in Board Meetings by Conference
Telephone.
- -------------------------------------------------------------
Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such Board or
committee by means of a conference telephone or similar
communications equipment allowing all persons participating in
the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
Section 7 - Meetings of the Board.
- ----------------------------------
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
<PAGE> 8
the President or to the Secretary. Such resignation shall take
effect at the time specified in such written notice, or if no
time be specified, then on delivery. Unless otherwise specified
in the written notice, the acceptance of such resignation by the
Board of Directors shall not be needed to make it effective.
Section 9 - Newly Created Directorships and Vacancies.
- ------------------------------------------------------
Newly created directorships resulting from an increase in
the number of directors and vacancies occurring in the Board of
Directors may be filled by vote of the Board. If the number of
the directors then in office is less than a quorum, such newly
created directorships and vacancies may be filled by vote of a
majority of the directors then in office. A director elected to
fill a vacancy shall be elected to hold office for the unexpired
term of such director's predecessor.
Section 10 - Executive and Other Committees of Directors.*
- ----------------------------------------------------------
The Board of Directors, by resolution, adopted by a majority
of the entire Board, shall designate from among its members an
Executive Committee consisting of three or more Directors, a
majority of whom are outside directors.
The Executive Committee shall have all the authority of the
Board, except that it shall not have authority as to the
following matters:
(1) The submission to shareholders of any action that needs
shareholders' approval;
(2) The filling of vacancies in the Board or in any
committee;
(3) The amendment or repeal of the By-Laws, or the adoption
of new By-Laws;
(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.
<PAGE> 9
The Board of Directors, by resolution by a majority of the
entire Board, may designate from among its members an Audit
Committee consisting of three or more outside directors. The
Audit Committee shall, among other things, review the scope of
audit activities, review with management significant issues
concerning litigation, contingencies or other material matters
which may result in either potential liability of the Company or
significant exposure to the Company, review significant matters
of corporate ethics, review security methods and procedures,
review the financial reports and notes, and make reports and
recommendations with respect to audit activities, findings, and
reports of the independent public accountants and the internal
audit staff of the Company.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members a
Committee on Directors consisting of three or more outside
directors. The Committee on Directors shall, among other things,
review performance of incumbent directors, act as a nominating
committee, and consider and report to the entire Board of
Directors on all matters relating to the selection,
qualification, compensation and duties of the members of the
Board of Directors and any committees of the Board of Directors.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members a
Committee on Management consisting of three or more outside
directors. The Committee on Management shall, among other
things, fix or amend the compensation, benefits and perquisites
of all executive officers of the Company and recommend such for
the chief executive officer, select and administer executive
compensation plans and employee benefit plans which have Company
stock as an investment option, review succession planning for the
Company and review with management significant human resources
issues. The compensation, benefits and perquisites of the chief
executive officer shall be set by the outside directors of the
full Board upon the recommendation of the Committee on
Management.
The Board of Directors, by resolution adopted by a majority
of the entire Board, may designate from among its members other
committees each consisting of three or more directors.
Unless a greater proportion is required by the resolution
designating a committee of the Board of Directors, a quorum for
the transaction of business of a committee shall consist of (a) a
majority of the entire authorized number of members of the
<PAGE> 10
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,
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,
<PAGE> 11
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.
(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
<PAGE> 12
action or proceeding was disposed of other than by judgment or
other final adjudication, the Board finds in good faith that, if
it had been disposed of by judgment or other final adjudication,
such judgment or other final adjudication would have been adverse
to the Indemnified Person and would have established a violation
of subparagraphs (x) or (y) of paragraph (a) of this Section 12.
(3) If indemnification is denied, in whole or part,
because of an adverse finding by the Board in the absence of a
judgment or other final adjudication, or because the Board
believes the expenses for which indemnification is requested to
be unreasonable, such action by the Board shall in no way affect
the right of the Indemnified Person to make application therefor
in any court having jurisdiction thereof, and in such action or
proceeding the issue shall be whether the Responsible Person met
the standard of conduct set forth in paragraph (a) of this
Section 12, or whether the expenses were reasonable, as the case
may be (not whether the finding of the Board with respect thereto
was correct) and the determination of such issue shall not be
affected by the Board's finding. If the judgment or other final
adjudication in such action or proceeding establishes that the
Responsible Person met the standard set forth in paragraph (a) of
this Section 12, or that the disallowed expenses were reasonable,
or to the extent that it does, the Board shall then find such
standard to have been met or the expenses to be reasonable, and
shall grant such indemnification, and shall also grant to the
Indemnified Person indemnification of the expenses incurred by
him in connection with the action or proceeding resulting in the
judgment or other final adjudication that such standard of
conduct was met, or if pursuant to such court determination such
person is 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
<PAGE> 13
reduces the extent of the indemnification of any person who could
be a Responsible Person shall without his written consent be
effective as to such person with respect to any event, act or
omission occurring or allegedly occurring prior to (1) the date
of such repeal or amendment if on that date he is not serving in
any capacity for which he could be a Responsible Person, or (2)
the thirtieth (30th) day following delivery to him of written
notice of such repeal or amendment as to any capacity in which he
is serving on the date of such repeal or amendment, other than as
a director or officer of the Corporation, for which he could be a
Responsible Person, or (3) the later of the thirtieth (30th) day
following delivery to him of such notice or the end of the term
of office (for whatever reason) he is serving as director or
officer of the Corporation when such repeal or amendment is
adopted, with respect to being a Responsible Person in
that capacity. No amendment of the Business Corporation Law
shall, insofar as it reduces the permissible extent of the right
of indemnification of a Responsible Person under this Section 12,
be effective as to such person with respect to any event, act or
omission occurring or allegedly occurring prior to the effective
date of such amendment irrespective of the date of any claim or
legal action in respect thereto. This Section 12 shall be
binding on any successor to the Corporation, including any
corporation or other entity which acquires all or substantially
all of the Corporation's assets.
(e) Non-exclusivity.
---------------------
The indemnification provided by this Section 12 shall
not be deemed exclusive of any other rights to which any person
covered hereby may be entitled other than pursuant to this
Section 12. The Corporation is authorized to enter into
agreements with any such person or persons providing them rights
to indemnification or advancement of expenses in addition to the
provisions therefor in this Section 12 to the full extent
permitted by law.
Section 13 - Notification of Nominations.*
- ------------------------------------------
Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of
Directors may be made by the Board of Directors or by any
shareholder who is a shareholder of record at the time of the
giving of the notice of nomination provided for in this Section
13 and who is entitled to vote for the election of Directors. Any
shareholder of record who is or will be entitled to vote for the
<PAGE> 14
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
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.
<PAGE> 15
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
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
<PAGE> 16
the Board of Directors may be the chief executive officer of the
Corporation, and if so designated, may preside at all meetings of
shareholders.
(b) President
--------------
The President shall be the chief operating officer and
shall have responsibility for the general management of the
business of the Corporation, subject only to the supervision of
the Board of Directors, the Executive Committee and the Chairman
of the Board of Directors, as chief executive officer, if such
there be. If there is no Chairman of the Board of Directors or
if the Chairman of the Board of Directors is not the chief
executive officer, then the President shall be the chief
executive officer of the Corporation. The President may preside
at all meetings of shareholders, when present, and at meetings of
the Board of Directors in the absence of the Chairman of the
Board, if such there be.
(c) Executive Vice President
-----------------------------
The Executive Vice President or the Executive Vice
Presidents, if such there be, shall assist the President in the
management of the Corporation and, as may be designated by the
Board of Directors, in the event of the death, 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
<PAGE> 17
attest such documents as require signature or attestation and
affix the corporate seal thereto where appropriate and shall
possess such other powers and perform such other duties as
usually pertain to the office or as the Board of Directors may
prescribe.
(f) Treasurer
--------------
The Treasurer shall have general charge of, and be
responsible for, the fiscal affairs of the Corporation and shall
sign all instruments and documents as require such signature, and
shall possess such other powers and perform such other duties as
usually pertain to the office or as the Board of Directors may
prescribe.
(g) Assistant Officers
-----------------------
Any Assistant Officer elected by the Board of Directors
shall assist the designated officer and shall possess that
officer's powers and perform that officer's duties as designated
by that officer, and shall possess such other powers and perform
such other duties as the Board of Directors may prescribe.
Section 4 - Records.
- --------------------
The Corporation shall keep (a) correct and complete books
and records of account; (b) minutes of the proceedings of the
shareholders, Board of Directors and any committees of the Board;
and (c) a current list of the directors and officers and their
residence addresses.
The Corporation shall also keep at its office in the State
of New York or at the office of its transfer agent or registrar
in the State of New York, if any, a record containing the names
and addresses of all shareholders, the number and class of shares
held by each and the dates when they respectively became the
owners of 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.
<PAGE> 18
Section 6 - Voting Shares Held by the Corporation.
- --------------------------------------------------
Either the President or the Secretary may vote shares of
stock held by the Corporation in other corporations and may
execute proxies for and on behalf of the Corporation for such
purpose.
ARTICLE IV
SHARE CERTIFICATES AND LOSS THEREOF - TRANSFER OF SHARES
Section 1 - Form of Share Certificate.
- --------------------------------------
The shares of the Corporation shall be represented by
certificates, in such forms as the Board of Directors may from
time to time prescribe, signed by the Chairman of the Board if
such there be, or the President or a Vice President, and the
Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the
officers upon a certificate may be facsimiles if the certificate
is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with
the same effect as if such person were such officer at the date
of issue.
Section 2 - Lost, Stolen or Destroyed Share Certificates.
- ---------------------------------------------------------
No certificate or certificates for shares of the Corporation
shall be issued in place of any certificate alleged to have been
lost, stolen or destroyed, except upon production of such
evidence of the loss, theft or destruction, and upon such
indemnification and payment of costs of the Corporation and its
agents to such extent and in such manner as the Board of
Directors may from time to time prescribe. The Board of
Directors, in its discretion, and as a condition precedent to the
issuance of any new certificate, may require the owner of any
certificate alleged to have been lost, stolen or destroyed to
furnish the Corporation with a bond, in such sum and with such
surety or sureties as it may direct, as indemnity against any
claim that may be made against the Corporation in respect of such
lost, stolen or destroyed certificate.
<PAGE> 19
Section 3 - Transfer of Shares.
- -------------------------------
Shares of the Corporation shall be transferable on the books
of the Corporation by the registered holder thereof in person or
by the registered holder's duly authorized attorney, by delivery
for cancellation of a certificate or certificates for the same
number of shares, with proper endorsement consisting of either a
written assignment of the certificate or a power of attorney to
sell, assign or transfer the same or the shares represented
thereby, signed by the person appearing by the certificate to be
the owner of the shares represented thereby, either written
thereon or attached thereto, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably
require. Such endorsement may be either in blank or to a
specified person, and shall have affixed thereto all stock
transfer stamps required by law.
*Except as otherwise provided by law, not more than twenty
percent of the aggregate number of shares of stock of the
Corporation outstanding in any class or series shall at any time
be owned of record or beneficially or voted by or for the account
of aliens (as defined below). Shares of stock shall not be
transferable on the books of the Corporation to any alien if, as
a result of such transfer, the aggregate number of shares of
stock in any class or series owned by or for the account of
aliens shall be twenty percent or more of the number of shares of
stock then outstanding in such class or series. The Board of
Directors may make such rules and regulations as it shall deem
necessary or appropriate so that accurate records may be kept of
the shares of stock of the Corporation owned of record or
beneficially or voted by or for the account of aliens or to
otherwise enforce the provisions of this Section 3.
As used in this Section 3, the word "alien" shall mean the
following and their representatives: any individual not a citizen
of the United States of America; a partnership, unless a majority
of the partners are non-aliens and a majority interest in the
partnership profits is held by nonaliens; a foreign government; a
corporation, joint-stock company or association organized under
the laws of a foreign country; any other corporation of which any
officer or more than one-fourth of the directors are aliens, or
of which more than one-fourth of any class or series of stock is
owned of record or voted by or for the account of aliens; and any
other corporation, joint-stock company or association controlled
directly or indirectly by one or more of the above.
<PAGE> 20
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
EXHIBIT 10.21
FORM OF MANAGEMENT CONTRACTS WITH
MS. REEVES AND MR. CAREY
October 7, 1997
[name]
Dear [name]:
The Board of Directors (the "Board") of Frontier Corporation, on
behalf of Frontier and its subsidiaries and affiliates (together,
the "Company") has determined that it is in the best interests of
the Company and its shareowners to welcome you as an employee of
Frontier, and to retain your services for the future and in case
of a "Change of Control", as defined later in this letter
agreement ("Agreement"). It is therefore the intent of this
Agreement to assure 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, and to assure itself of continuity in its relationship
with customers and employees.
Therefore, upon your signature on a counterpart of this
Agreement, the following terms and conditions shall become
effective as stated below. However, this Agreement does not
supersede any stock option agreements or restricted stock grant
agreements 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 an executive
position as Senior Vice President - Marketing at the Senior Vice
President level, or in such comparable management capacity as the
Company may from time to time designate. This Agreement shall
become effective as of October 15, 1997. This Agreement shall
continue from year to year thereafter, unless earlier terminated
or extended in accordance with its terms. You acknowledge that,
except as set forth in this Agreement, your employment is "at
will".
<PAGE>
<PAGE>2
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), you 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, and you will
actively promote the Company's interest during such period.
Any termination of your employment during the Term for reasons
other than your death shall be evidenced by a written notice
("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 Present and Future Duties. Your role in the Company
shall be that of senior marketing executive with responsibility
for marketing and related activities where responsibility is
assigned in connection with that role. You shall perform all
duties required of or incidental to your position with the
Company, and such specific duties as may be assigned to you. You
agree to use your best efforts in the business of the Company and
to devote your full time attention and energy to the business of
the Company. You agree not to work, either on a part-time or
independent contracting or consulting basis, with or without
compensation, for any other business or enterprise during the
Term without the Company's prior consent. Such consent shall not
be unreasonably withheld in the case of service on the boards of
directors of other corporations and community organizations.
<PAGE>
<PAGE> 3
1.3 Base Compensation. The Company shall pay you as base
compensation at an annual salary rate of $_________, in
installments in accordance with the Company's policies from time
to time in effect. 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 for you individually,
and a methodology for calculating the amount of incentive
compensation to be paid upon achievement of such Performance
Goals. Your eligibility for a corporate bonus will be calculated
on the same basis as other similarly situated executives. Your
incentive will be based on the success of the Company as
reflected in increased shareowner value, with such metrics to be
mutually agreed upon by you with the Chief Executive Officer of
the Company, and with the subsequent concurrence of the Board.
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 Senior Vice President level.
1.6 Expenses. You shall be reimbursed for any reasonable
expenses prudently incurred in connection with your employment
during the Term, upon presentation to the Company of an itemized
account and receipts of such expenses as required by the
Company's policies from time to time in effect.
2. Developments and Intellectual Property. You acknowledge
that all developments, including but not limited to trade secrets
(including strategies, business plans and customer lists),
discoveries, improvements, ideas and writings which either
directly or indirectly relate to or may be useful in the business
<PAGE>
<PAGE> 4
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 target markets and customer
segments, strategies, plans, products and services, methods of
operation, employees, financial forecasts and results, sales,
profits, expenses, customer lists and the relationships between
the Company or a subsidiary and its customers, suppliers and
others who have business dealings with it. You covenant and
agree that during the Term and thereafter, without time or
geographic limitation, 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.
If your employment ends for any reason other than your
death, you agree to return promptly to Company all such
information and any other tangible product or document which has
been produced or received by, or otherwise submitted to you
during your employment, and no copies shall be retained by you or
made available to any other person or entity. This provision
includes but is not limited to information printed or stored on
paper, magnetic tape, floppy disks, hard drives or other computer
storage media.
4. Non-Competition.
4.1 Covenant. You and the Company acknowledge that you
have a special, unique and extraordinary expertise in
telecommunications, and also a special, unique and extraordinary
<PAGE>
<PAGE> 5
expertise in the marketing area, and that in your employment with
the Company, you will have continuing access to information about
the Company's target markets, strategies, plans, product or
service offerings, methods of operation, financial and operating
expectations and results, customer base, sales, marketing and
pricing strategies, most valued employees, and customer and
supplier relationships. 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, 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 any
telecommunications business of the Company in a Restricted Area
(as defined below). You acknowledge that so long as you are able
to use your skills for enterprises that do not directly or
indirectly compete with the business of the Company, you will not
be unreasonably limited in your ability to work.
4.2 Definitions.
4.2.1 "Competes" means the production, marketing,
promotion, distribution or selling of any product, capability,
functionality or service of any person or entity other than the
Company which resembles or competes with a product or service
produced, marketed, promoted, distributed 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 employee or independent contractor sales
office, place of employment, business address or POP maintained
by the Company is located; or
<PAGE>
<PAGE> 6
(b) Any state of the United States, any province of
Canada or any foreign country from which the Company or any of
its subsidiaries or affiliates derives more than $25 million in
revenue.
4.2.3 "Restricted Period" means:
(a) The period of your employment by the Company
(whether under this Agreement or otherwise), if your employment
is terminated because of your death or Disability;
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24 months
thereafter, if your employment is terminated by the Company for
Cause or without Cause (and not by the Company following Change
of Control), unless this Agreement ends or is terminated under
Section 1.2 in which event the Restricted Period shall be 12
months;
(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 (unless this Agreement ends or is terminated under Section
1.2 in which event the Restricted Period shall be 12 months) or
by the Company on any basis following Change of Control.
4.2.4 Exception. 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").
4.3 Savings Clause. You and the Company specifically
agree that this covenant not to compete and its specific
<PAGE>
<PAGE> 7
limitations constitute a reasonable covenant under the
circumstances and is supported by the consideration stated above,
and further agree that if, in the opinion of any court of
competent jurisdiction, 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, and you agree to the enforcement of the remainder
of the covenant as so amended.
5. Non-Solicitation. You also covenant and agree that during
the Restricted Period set out in Section 4.2.3, and without
regard to the activity or activities in which you are engaging,
whether it is within or without the telecommunications industry,
you will not, directly or through employees, agents, recruiters,
independent contractors or others: (a) offer, promise, provide
or guarantee employment, work for compensation, business
opportunity or other means of financial gain, or solicit, invite
an inquiry on employment or other compensatory relationship,
respond to such inquiry with a promise or grant of an employment
or other compensatory relationship, or otherwise seek to
influence any person to leave the Company or to undertake
activities that would be adverse to the Company's interests,
where such person is employed by the Company or is in an
independent contractor relationship in which a majority of their
time is spent on Company-related activities, or is a supplier of
services to the Company who would thereafter become unavailable
to provide such services to the Company, or who has been in such
an employment or independent contractor relationship within the
12 months prior to your contact(s); or (b) solicit from, convert,
attempt to convert, divert business from, or attempt to divert
business from any of the Company's customers, customer accounts
or locations, whether such activity is intended to benefit you or
any other person or entity, and whether or not such activity is
successful.
6. Equitable Relief. You specifically acknowledge that the
restrictions contained in each of Sections 2, 3, 4 and 5 of this
Agreement are, in view of the nature of the business of the
Company, and your position with it, reasonable and necessary to
<PAGE>
<PAGE> 8
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 for which there would be no
adequate remedy at law. You also acknowledge that the Company
shall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving actual damages, and to an
equitable accounting of all earnings, profits and other benefits
arising from such violation. These rights shall be cumulative
and in addition to any other rights or remedies to which the
Company may be entitled. You agree to submit to the jurisdiction
of any New York State court located in Monroe County or the
United States District Court for the Western District of New York
or of the state court or the federal court located in or
presiding over the county in which the Company has its corporate
headquarters at the applicable time in any action, suit or
proceeding brought by the Company to enforce its rights under
Sections 2, 3, 4 and/or 5 of this Agreement, and that any
separate claim you have shall not constitute a defense to the
enforcement of the covenants and agreements in those paragraphs.
7. Company's Obligations upon Termination. The sole
obligations of the Company upon the termination of your
employment are as set forth in this Section 7. Any and all
amounts to be paid to you in connection with your termination
shall be paid, at the Company's election, either: (a) in a lump
sum promptly after the Termination Date, and not more than 30
days thereafter, or (b) as salary continuation for a period
identified by the number of years' salary to be paid as
severance.
7.1 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:
7.1.1 Base compensation;
7.1.2 Reimbursement for reasonable and necessary
expenses incurred by you on behalf of the Company during the
Term;
<PAGE>
<PAGE> 9
7.1.3 Pay for earned but unused vacation and
floating holidays;
7.1.4 All compensation you previously deferred (if
any) to the extent not yet paid; and
7.1.5 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 the greater of: (i) your identified or standard
bonus for that part of the bonus year during which you were
employed, using the Performance Criteria and the actual
performance metrics of the Company applied to the time period
until the Termination Date occurs, and only to that period; or
(ii) the bonus paid or payable to you with respect to the fiscal
year preceding the year in which the Termination Date occurs. No
bonus will cover any period after the date that your employment
ends, or use any Performance Criteria or actual performance
metrics of the Company established or achieved after that date.
The amounts described in Sections 7.1.1 through 7.1.4,
inclusive, are called elsewhere in this Agreement, collectively,
the "Accrued Compensation".
Except as otherwise provided in this Section 7.1, 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, including any
long term compensation benefits, then in effect.
7.2 Termination Without Cause. If the Company terminates
your employment without Cause (as defined later in this
Agreement), the Company shall pay you:
7.2.1 All Accrued Compensation;
7.2.2 A Pro Rata Bonus (as defined in Section 7.1.5
above); and
<PAGE>
<PAGE> 10
7.2.3 Severance ("Severance") equal to: (a) two
times the sum of (i) the annual base compensation you would have
received for the entire fiscal year in which the Termination Date
occurs plus (ii) the Bonus Amount plus (iii) $______ (being the
agreed cash equivalent of the annual value of the perquisites
provided to you under the Company's Executive Compensation
Program), plus (iv) the Company contributions which would have
been made on your behalf to the 401(k) retirement savings plan
maintained by the Company (b) reduced by the present value
(determined as provided in Section 280G(d)(4) of the Internal
Revenue Code of 1986 as amended (the "Code")). The foregoing
shall be in lieu of any other amount of severance relating to
salary or bonus continuation to be received by you upon
termination of your employment under any severance plan, policy
or arrangement of the Company.
In addition, the Company shall continue to provide to you
and your family at the Company's expense, for 24 months following
the Termination Date, the life insurance, 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 7.2, 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.
7.3 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 7.3,
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.
7.3.1 You and Company acknowledge that at the
inception of this Agreement, the Company has agreed to pay the
reasonable costs of travel and temporary living expenses in
connection with this Agreement. You agree that, except in
connection with a Change of Control, within such reasonable time
period as you and Company agree, not to exceed 180 days, you will
<PAGE>
<PAGE> 11
move your residence to such place as Company has its headquarters
location, under the Company's relocation program, plus such
amounts as have been agreed to with you. You agree that, if you
should decline to make such move, or should fail to comply with
Company's request or directive, such refusal or failure shall be
a basis for Company to terminate your employment for Cause, at
its election, and without action of the Board. This subsection
7.3.1 shall cease to apply upon a Change of Control.
7.4 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:
7.4.1 All Accrued Compensation;
7.4.2 A Pro Rata Bonus; and
7.4.3 Severance equal to: (a) two times the sum of
(i) the annual base compensation you would have received for the
entire fiscal year in which the Termination Date occurs plus (ii)
the Bonus Amount plus (iii) $______ (being the agreed cash
equivalent of the annual value of the perquisites provided to you
under the Company's Executive Compensation Program), plus (iv)
the Company contributions which would have been made on your
behalf to the 401(k) retirement savings plan maintained by the
Company (b) reduced by the present value (determined as provided
in Section 280G(d)(4) of the Code). The foregoing severance
shall be in lieu of any other amount of severance relating to
salary or bonus continuation to be received by you upon
termination of your employment under any severance plan, policy
or arrangement of the Company.
In addition, the Company shall continue to provide to you
and your family at the Company's expense, for 36 months following
the Termination Date, the life insurance, 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
<PAGE>
<PAGE> 12
obtain or enforce any right or benefit provided to you under this
Agreement, provided any actions you have taken are determined to
have been undertaken in good faith and upon a reasonable basis.
Except as otherwise provided in this Section 7.4, 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, including any
long term compensation benefits, then in effect.
8. 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 8) (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.
9. 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 7 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.
<PAGE>
<PAGE> 13
10. 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.
11. 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.
12. Definitions. Whenever used in this Agreement, the
following terms shall have the meanings below:
12.1 "Cause" means:
12.1.1 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
<PAGE>
<PAGE> 14
manner in which it is believed that you have not substantially
performed your duties; or
12.1.2 You have willfully engaged in conduct which
is demonstrably and materially injurious to the Company
(monetarily or otherwise), including but not limited to a breach
of fiduciary duty; or
12.1.3 You have willfully engaged in conduct which
is illegal or in violation of the Company's Code of Ethics; or
12.1.4 You have been convicted of a felony or a
crime involving moral turpitude; or
12.1.5 You have violated the provisions of Section 2
and/or Section 3 and/or Section 4 and/or Section 5 of this
Agreement
and, in any of the events described in Sections 12.1.1 through
12.1.5 above, the Board adopts a resolution or its minutes
reflect a finding that in the good faith opinion of the Board you
were culpable for the conduct set forth in any of Sections 12.1.1
through 12.1.5 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.
12.2 "Change of Control" means:
12.2.1 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
<PAGE>
<PAGE> 15
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
12.2.2 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
12.2.3 The approval by the Company's shareowners of
any plan or proposal for the liquidation or dissolution of the
Company; or
12.2.4 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
12.2.5 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 12.2.5) whose election or nomination for election by the
Company's shareowners was approved by a vote of at least two-
thirds of the directors then still in office who were directors
at the beginning of the period or whose election or nomination
for election was previously so approved (the "Incumbent Board"),
cease for any reason to constitute a majority of the Board.
12.3 "Disability" means:
<PAGE>
<PAGE> 16
12.3.1 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
12.3.2 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.
12.4 "Good Reason" means:
12.4.1 Without your express written consent, after a
Change of Control, a significant reduction in title and
authority, or 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
12.4.2 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 12.4.2 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
12.4.3 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
<PAGE>
<PAGE> 17
12.4.4 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
12.4.5 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
12.4.6 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
12.4.7 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.
13. 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
highest ranking legal executive or officer.
<PAGE>
<PAGE> 18
14. 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. The
Company may assign its obligations under this Agreement to one of
its principal subsidiaries for administrative purposes.
15. 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.
16. 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.
17. 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.
18. Counterparts. This Agreement may be signed by you and on
behalf of the Company in one or more counterparts, each of which
shall be one original but all of which together will constitute
one and the same instrument.
<PAGE>
<PAGE> 19
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: -------------------------
Joseph P. Clayton
Chief Executive Officer
Agreed to on
[name]
<PAGE>
<PAGE> 20
ADDENDUM TO LETTER AGREEMENT DATED ___________, 1997
The following provisions shall apply to the calculation and
procedures relating to the Gross-Up Payment in accordance with
Section 8 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> 21
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> 22
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> 1
EXHIBIT 10.22
FRONTIER CORPORATION
MANAGEMENT STOCK INCENTIVE PLAN
Amendment No. 1
Pursuant to Section 14, the Plan is hereby amended as
follows:
1. Effective April 19, 1996, Section 5(d) is amended by
deleting the last paragraph thereof and by adding to the end of
the first paragraph the following sentence:
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.
2. Effective November 20, 1995, Section 7(e) is amended by
adding to the end thereof the following:
Until such time as the restricted shares vest, all dividends
payable on such shares shall be reinvested in the Company's
Common Stock, treated as restricted stock until the
underlying restricted shares vest, and, upon such vesting,
released to the participant. If the underlying shares do
not vest, all shares purchased with the reinvested dividends
shall be forfeited.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
16th day of October, 1997.
Dated 10/16/97 FRONTIER CORPORATION
-----------------
By /s/ Josephine S. Trubek
----------------------
Josephine S. Trubek
Corporate Secretary
<PAGE> 1
EXHIBIT 10.23
FRONTIER CORPORATION
SUPPLEMENTAL MANAGEMENT PENSION PLAN
Amendment No. 1 to 1996 Restatement
Pursuant to Article Six, the Plan is amended as follows:
1. Section 4.1(k) is amended, effective January 1, 1996,
to clarify that the five years of service requirement specified
in Section 4.1(j) does not apply to the 3 + 3 enhancement by
deleting the current introductory clause of Section 4.1(k) and
substituting in its place the following:
for each Participant on the active payroll (or on the
inactive payroll but receiving benefits under the Company's
long term disability benefit plan) on August 16, 1995, the
eligibility requirements for determining the Participant's
entitlement to receive early or normal retirement benefits
shall be reduced as follows:
2. Sections 4.4 and 4.5 are amended by substituting
"Section 4.7" for "Section 4.2" in each place the latter section
is referenced in parentheses.
3. Article Four is amended, effective as of August 20,
1997, by adding the following new Section 4.7 to the end thereof:
4.7 Notwithstanding the normal benefit payment provisions
of Sections 4.4 and 4.5, any Plan benefit payable to a
Participant eligible to accrue a benefit under Section 4.2
on and after December 31, 1995 shall be subject to the
following additional provisions:
o in addition to other forms of payment available to
Participants generally, benefits to married
Participants may, with the Committee's approval, be
paid in the form of a joint and 100 percent spousal
survivor annuity. Under this form of benefit the
surviving spouse shall receive, upon the death of the
<PAGE>
<PAGE> 2
Participant, a benefit equal to 100 percent of the
benefit paid to the Participant while both were living.
The amount of this benefit shall be the straight life
annuity calculated under Section 4.2 (without taking
into account the offset of the benefit payable from the
Funded Plan) reduced pursuant to the actuarial
assumptions used in the Funded Plan, provided that the
straight life annuity shall not be reduced by more than
20 percent, and then offset by the benefit payable from
the Funded Plan.
o in the event a married Participant dies prior to the
commencement of benefits, the surviving spouse's
benefit shall, with the Committee's approval, be 100
percent (in lieu of the 50% under Section 4.5) of the
benefit the Participant would have received had the
Participant elected the joint and 100 percent spousal
survivor annuity and retired on the first day of the
month on or before the date of death.
o if a married Participant fails to elect a form of
benefit, or if the elected form of benefit is not
appropriate as of the date of death, the benefit shall
be paid in the form of a joint and 100 percent spousal
survivor annuity.
IN WITNESS WHEREOF, the Company has caused this amendment to
be executed by its duly authorized officer this 20th day of
August, 1997.
FRONTIER CORPORATION
By /s/ Josephine S. Trubek
-------------------------
Josephine S. Trubek
Corporate Secretary
<PAGE> 1
EXHIBIT 10.25
October 13, 1997
Mr. Kevin Bennis
1834 Ballybunion Drive
Duluth, Georgia 30155
Dear Kevin,
You have been advised that today, October 13, 1997, is your
final day at Frontier. It is our intention to honor the terms
and conditions of your employment agreement ("Agreement") as
explained below. This assumes that you, too, have honored it to
date, and will continue to honor those provisions that continue
to apply in the future.
The Agreement itself will not be renewed, and will be
terminated as explained below. Likewise, the Change of Control
provisions in that Agreement are to be terminated at the same
time.
There are two issues that must be addressed that are outside
the scope of the Agreement; your loan from Frontier and your
continued availability with respect to Frontier matters in which
you were an active participant or may have relevant knowledge.
This Agreement is intended to resolve all of these issues at one
time, and to permit Frontier and you to pursue other interests
without facing any complicating disagreements.
We intend to address these issues as follows. We expect
that in consideration of the mutual promises and benefits,
explained below, your signature will show that you and Frontier
agree to these arrangements. In the event you do not sign, we
will implement this arrangement unilaterally, but may elect not
to make any disbursements pending your acceptance.
1. The effective date of the termination of the Agreement
and your employment is to be today, October 13, 1997. (This will
<PAGE>
<PAGE> 2
also include ending, by resignation, removal or replacement, as
appropriate, any positions that you hold as an officer or
director of Frontier or any of its subsidiaries.)
You will receive a severance payment that has been
calculated under the terms of the Agreement. Since the
likelihood of a bonus in 1997 for the employees at your level is
doubtful, there will be no bonus component in your severance, and
there will be no bonus payment at any later date. You may elect
to discuss with Ken Schirmuhly the opportunity to obtain the
severance as salary continuation as a part of your tax planning.
The amounts actually provided to you will be net of federal,
state and local taxes and other withholdings of a kind such as
are normally made to your pay. We anticipate that the total will
be paid in a lump sum as soon as administratively practical at a
time after seven days after the date of your signature. Once we
have made normal withholdings and related payments to the
government, any tax that may be owed or payable is your sole
responsibility, excluding any FICA payments. You must indemnify
Frontier should any liability be imposed on it for taxes,
interest or penalties owed or payable on the severance payments.
The amounts set out above are separate from and in addition
to any benefits or amounts that you are eligible to receive under
any Frontier benefit plan in which you participate. Your rights
to such standard benefits or amounts shall continue to be as set
forth in the relevant plan documents. Payouts of money invested
in the Supplemental Retirement Savings Plan will commence in
accord with the payment schedule you have previously selected.
Finally, the opportunity for restricted stock that you have had
now ends, as do all stock options under the relevant plans and
your agreements.
2. If there are any cash advances or expenses that must be
cleared, you must advise us and resolve them.
Benefits and perquisites made available to you, such as
payments or reimbursements related to club memberships,
telecommunications services, financial counseling and the like,
<PAGE>
<PAGE> 3
will terminate when your employment terminates. You will receive
the required COBRA bridging or transitional coverage if you so
elect, though the Agreement is more favorable to you. More
information on COBRA is available on request.
3. The terms and conditions of your Agreement include
provisions that will survive your termination of employment. We
will reduce the time period for non-competition set out in
Section 4 of the Agreement to twelve months, but in return
require you to agree to a more precise non-solicitation
paragraph, attached. We expect that you will strictly honor
these provisions and the Agreement provisions related to
confidential information and intellectual property. In
accordance with the Frontier Corporation Code of Ethics and
Business Conduct, you have agreed that after your employment you
will not publish, disclose, use, or authorize anyone else to
publish, disclose or use any private, confidential or proprietary
information that you may have in any way acquired, learned,
developed or created by reason of your employment with Frontier.
If you should desire to seek any specific relief under the non-
competition provision, you must discuss the matter personally
with me at the appropriate time.
4. There is no further vacation or PTO time which is
available to you after today. Unused PTO time will be prorated
in relation to the calendar year, and paid as the law requires.
We require that you promptly vacate your apartment, leave it
in good condition, and return the keys. Also, you currently
have available to you for your use an automobile that is owned or
leased by Frontier. This automobile and all keys must be
returned promptly to Frontier in good condition. All other
Frontier property must also be returned in good condition.
5. You have a loan outstanding to Frontier that totals
$167,000. This loan will be forgiven after two years, if you
have fully complied with the terms of the non-competition and non-
solicitation provisions. Until then, it will remain payable
according to its terms and we may elect to call it at any time if
we believe you have violated the provisions.
<PAGE>
<PAGE> 4
6. To clarify the matters related to investigations and
litigation, you may have knowledge of certain situations that may
have given rise to litigation against Frontier, or that are
likely to lead to litigation. We expect you to make yourself
available to Frontier to assist Frontier in the prosecution or
defense of such claims. Frontier will pay for the reasonable
costs of your travel and related expenses. We expect you to
cooperate fully in the handling of such matters, which are to be
controlled by counsel for Frontier. You agree to travel so as
to assist Frontier in the defense of these matters, to provide
information truthfully and to the best of your knowledge and
recollection, and where requested, to provide sworn testimony to
the extent required.
7. We require you to release and discharge Frontier, its
officers, agents, employees, subsidiaries, affiliates and
successors in interest from any and all claims of any kind which
you, or anyone acting on your behalf or claiming rights through
you, including agents, executors, heirs, devisees or assigns, now
have or ever had, whether known or unknown, up to and including
October 13, 1997, or arising out of your employment with Frontier
or any Frontier Company, including any rights or claims under
this Agreement, except as specifically set out here.
In return, Frontier, its subsidiaries, affiliates and agents
will release, waive and discharge you and your heirs, assigns,
and agents from each and every claim, action, or right of any
sort, known or unknown, relating to events or matters occurring
or arising on or before October 13, 1997.
8. We require that you will keep confidential the terms
and conditions of this Agreement, and you will not disclose them
to any person other than your legal and/or financial advisor(s),
and your immediate family, unless compelled by law to do so. If
a person not a party to this Agreement requests or demands, by
subpoena or otherwise, that you disclose or produce this
Agreement or any terms or conditions thereof, you will notify us
and give us time to respond before taking any action or making
any disclosure. We will make those disclosures required of us.
<PAGE>
<PAGE> 5
We will respond to inquiries in a manner that is consistent
with our policy of verifying the fact of employment, the position
and the length of service. We invite you to seek personal
references within the Company with whom you feel comfortable.
9. YOU SHOULD READ THE FOLLOWING DISCLOSURE THAT IS
REQUIRED BY LAW. THE RELEASE WE REQUEST HERE INCLUDES BUT IS
NOT LIMITED TO CLAIMS, ACTIONS OR CAUSES OF ACTION ASSERTED OR
WHICH COULD HAVE BEEN ASSERTED UNDER THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VIII OF THE CIVIL
RIGHTS ACT OF 1964, THE NEW YORK (OR ANY OTHER STATE'S) HUMAN
RIGHTS LAW, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT, OR THE
AMERICANS WITH DISABILITIES ACT, AS ANY HAVE BEEN AMENDED, and
any claims, actions or causes of action for wrongful discharge,
unjust dismissal, constructive discharge, breach of any written,
oral or implied promise or agreement related to employment,
salary, severance payments, benefits, other compensation, or
attorneys' fees or costs related to employment or compensation.
IN EXECUTING THIS AGREEMENT, YOU AGREE THAT YOU HAVE BEEN
GIVEN AT LEAST 45 DAYS IN WHICH TO CONSIDER SIGNING THIS LETTER
AGREEMENT AND THE RELEASE SET OUT JUST ABOVE, EVEN THOUGH YOU MAY
EXECUTE IT WITHIN THAT TIME. YOU ACKNOWLEDGE AND AGREE THAT YOU
HAVE HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF YOUR
CHOICE CONCERNING THIS AGREEMENT. YOU AGREE THAT YOU HAVE
CAREFULLY READ AND FULLY UNDERSTAND ALL THE PROVISIONS OF THIS
AGREEMENT, AND ARE ENTERING INTO THIS AGREEMENT VOLUNTARILY. YOU
HAVE NOT RELIED UPON ANY REPRESENTATION OR STATEMENT, WRITTEN OR
ORAL, NOT SET FORTH IN THIS AGREEMENT.
YOU HAVE THE RIGHT TO REVOKE THIS AGREEMENT WITHIN SEVEN
DAYS OF SIGNING IT, AND IT WILL NOT BECOME EFFECTIVE UNTIL THE
SEVEN DAY PERIOD HAS EXPIRED. IF YOU HAVE RECEIVED ANY
COMPENSATION WITHIN THIS SEVEN DAY PERIOD RELATED TO THIS
AGREEMENT, YOU AGREE TO RETURN SUCH COMPENSATION TO FRONTIER
IMMEDIATELY AFTER ANY REVOCATION.
10. You should also recall that you are a Section 16
"insider", and that there are obligations with respect to
holding such status that continue for a period of six months into
the future. We require that you will comply with the rules
applicable to this status.
<PAGE>
<PAGE> 6
We believe that what is set out above reflects a fair
reading of the Agreement and a reasonable method to wind things
up. If you should elect to reject this proposed resolution of
the Agreement, Frontier reserves the right to take other steps
available to it under the Agreement, and may elect to make no
disbursements pending resolution of the Agreement and other
issues.
If you are willing to agree with the terms of this
Agreement, please signify your consent by signing this letter in
the place provided below, and returning the original to me.
You should contact Ken Schirmuhly at 716-777-6028 with any
questions about the implementation of this action. Thank you.
Very truly yours,
/s/ Joseph P. Clayton
Joseph P. Clayton
Chief Executive Officer
AGREEMENT
I have reviewed this Agreement, including the recitals set
out in paragraphs 9 and 10, and by signing below, signify that I
agree with what is stated above, I have had sufficient
opportunity to seek outside legal advice, and I am willing to,
and do agree with its terms and conditions. The effective date
of this Agreement is October 13, 1997.
/s/ Kevin Bennis
Dated: October 23, 1997 ----------------------------
Kevin Bennis
<PAGE>
<PAGE> 7
RESIGNATION
I resign from any and all positions as officer or director
of Frontier or any Frontier affiliate or subsidiary, effective
immediately.
/s/ Kevin Bennis
Dated: October 23, 1997 -----------------------------
Kevin Bennis
<PAGE>
<PAGE> 8
Attachment to Letter Agreement Dated October 13, 1997
Non-Solicitation.
- -----------------
You covenant and agree that for a period of two years, and
without regard to the activity or activities in which you are
engaging, whether it is within or without the telecommunications
industry, you will not, directly or through employees, agents,
recruiters, independent contractors or others: (a) offer,
promise, provide or guarantee employment, work for compensation,
business opportunity or other means of financial gain, or
solicit, invite an inquiry on employment or other compensatory
relationship, respond to such inquiry with a promise or grant of
an employment or other compensatory relationship, or otherwise
seek to influence any person to leave Frontier or any Frontier
Company or to undertake activities that would be adverse to
Frontier's interests, where such person is employed by Frontier
or is in an independent contractor relationship in which a
majority of their time is spent on Frontier-related activities,
or is a supplier of services to Frontier who would thereafter
become unavailable to provide such services to Frontier, or who
has been in such an employment or independent contractor
relationship within the 12 months prior to your contact(s); or
(b) solicit from, convert, attempt to convert, divert business
from, or attempt to divert business from any of Frontier's
customers, customer accounts or locations, whether such activity
is intended to benefit you or any other person or entity, and
whether or not such activity is successful.
<PAGE> 1
EXHIBIT 10.26
October 13, 1997
Mr. Dale M. Gregory
1615 Parkside Circle S.
Boca Raton, Florida 33486
Dear Dale,
You have been advised that today, October 13, 1997, is your
final day at Frontier. It is our intention to honor your
employment agreement ("Agreement") as explained below. We assume
that you, too, have honored it to date, and will continue to
honor those provisions that continue to apply in the future. You
should recognize below that your service and your contribution to
the Company have led us to take some additional steps that we
believe are uniquely favorable to you.
The Agreement itself will not be renewed, and will be
terminated today as explained below. Likewise, the Change of
Control provisions in that Agreement are to be terminated at the
same time.
There are a number of issues that must be addressed that are
outside the scope of the Agreement. These include: your pension
arrangements, certain stock option and restricted stock issues,
and your continued availability with respect to any Frontier
matters in which you were an active participant. This Agreement
is intended to resolve all of these issues at one time, and to
permit Frontier and you to pursue other interests without facing
any complicating disagreements.
We intend to address these issues as follows. We expect
that in consideration of the mutual promises and benefits,
explained below, your signature will show that you and Frontier
agree to these arrangements. In the event you do not sign, we
<PAGE>
<PAGE> 2
will implement this arrangement unilaterally, but may elect not
to make any disbursements pending your acceptance.
1. The effective date of the termination of the Agreement
is to be today, October 13, 1997. (This will also include
ending, by resignation, removal or replacement, as appropriate,
any positions that you hold as an officer or director of Frontier
or any of its affiliates or subsidiaries.)
You will receive a severance payment that has been
calculated under the terms of the Agreement. Since the
likelihood of a bonus in 1997 for the employees at your level is
doubtful, there will be no bonus component in your severance, and
no bonus will be paid in the future. You may elect to discuss
with Ken Schirmuhly the opportunity to obtain the severance as
salary continuation as a part of your tax planning.
The amounts actually provided to you will be net of federal,
state and local taxes and other withholdings of a kind such as
are normally made to your pay. The total will be paid in a lump
sum as soon as administratively practical after seven days after
the date of your signature. Once we have made normal
withholdings and related payments to the government, any tax that
may be owed or payable is your sole responsibility, excluding any
FICA payments. You must indemnify Frontier should any liability
be imposed on it for taxes, interest or penalties that you owe or
that are payable by you on the severance payments.
The amounts set out above are separate from and in addition
to any benefits or amounts that you are eligible to receive under
any Frontier benefit plan in which you participate. Your rights
to such standard benefits or amounts shall continue to be as set
forth in the relevant plan documents. Payouts of money invested
in the Supplemental Retirement Savings Plan will commence in
accord with the payment schedule you have previously selected.
Finally, assuming you elect to retire, you will retain the
opportunity to obtain a payout under the existing restricted
stock plans in which you participate, if the targets set out in
the applicable plans are achieved within the time frames
<PAGE>
<PAGE> 3
established. In addition, as a retiree, the options for Frontier
shares under the Management Stock Incentive Plan that you now
hold will continue to vest, and may be exercised during the term
under which they were granted.
If there are any cash advances or expenses that must be
cleared, you must advise us and resolve them.
2. The terms and conditions of your Agreement include
provisions that will survive your termination of employment. We
expect that you will strictly honor the provisions related to
confidential information, non-solicitation, non-competition, and
intellectual property. If there should be an opportunity
afforded to you that may implicate the non-competition provision,
we expect you to identify it to us in confidence, and we will
address it with you to seek a fair resolution. In accordance
with the Frontier Corporation Code of Ethics and Business
Conduct, you have agreed that after your employment you will not
publish, disclose, use, or authorize anyone else to publish,
disclose or use any private, confidential or proprietary
information that you may have in any way acquired, learned,
developed or created by reason of your employment with Frontier.
3. We will agree with you to accelerate and to complete
the previously-agreed bridging of your pension eligibility, by
providing you with the minimum additional years remaining to be
bridged under the Supplemental Management Pension Plan. This
will be additional consideration for your unconditional agreement
to adhere strictly to the various Agreement provisions that
survive, and to be available to Frontier at reasonable times with
respect to investigations, litigation or business transactions.
4. There is no further vacation or PTO time which is
available to you after today. Unused vacation or PTO time will
be prorated in relation to the calendar year, and paid as the law
requires. You will also be paid for any vacation time that was
banked.
We require that you promptly vacate your apartment, leave it
in good condition, and return the keys. Also, you currently have
<PAGE>
<PAGE> 4
available to you for your use an automobile that is owned or
leased by Frontier. This automobile and all keys must be
returned promptly to Frontier in good condition. All other
Frontier property must also be returned.
5. Benefits and perquisites made available to you, such as
payments or reimbursements related to club memberships,
telecommunications services, financial counseling and the like,
will terminate when your employment terminates. You will receive
the required COBRA bridging or transitional coverage if you elect
it. More information on COBRA is available to you on request.
6. To clarify the matters related to investigations,
business transactions and litigation, you may have been involved
in a number of situations in which your future involvement or
counsel may be needed. We expect you to make yourself available
to Frontier at reasonable times stipulated by Frontier to assist
Frontier on these matters. Frontier will pay for the reasonable
costs of your travel and related expenses. We expect you to
cooperate fully in the handling of such matters, which are to be
controlled by counsel for Frontier. If you require your own
counsel, it must be confirmed in advance, and we will then pay
such reasonable fees as are incurred and documented. You agree
to travel so as to assist Frontier, to provide information
truthfully and to the best of your knowledge and recollection,
and where requested, to provide sworn testimony.
7. We require you to release and discharge Frontier, its
officers, agents, employees, subsidiaries, affiliates and
successors in interest from any and all claims of any kind which
you, or anyone acting on your behalf or claiming rights through
you, including agents, executors, heirs, devisees or assigns, now
have or ever had, whether known or unknown, up to and including
October 13, 1997, or arising out of your employment with Frontier
or any Frontier Company, including any rights or claims under
this Agreement, except as specifically set out here.
In return, Frontier, its subsidiaries, affiliates and agents
will release, waive and discharge you and your heirs, assigns,
and agents from each and every claim, action, or right of any
sort, known or unknown, relating to events or matters occurring
<PAGE>
<PAGE> 5
or arising on or before October 13, 1997. No matter specifically
addressed here will be deemed in violation of the Agreement.
8. We require that you will keep confidential the terms
and conditions of this Agreement, and you will not disclose them
to any person other than your legal and/or financial advisor(s),
and your immediate family, unless compelled by law to do so. If
a person not a party to this Agreement requests or demands, by
subpoena or otherwise, that you disclose or produce this
Agreement or any terms or conditions thereof, you will notify us
and give us time to respond before taking any action or making
any disclosure. We will make those disclosures required of us.
We will respond to inquiries in a manner that is consistent
with our policy of verifying the fact of employment, the position
and the length of service. We invite you to seek personal
references within the Company with whom you feel comfortable.
9. YOU SHOULD READ THE FOLLOWING DISCLOSURE THAT IS
REQUIRED BY LAW. THE RELEASE FROM YOU WE REQUEST HERE INCLUDES
BUT IS NOT LIMITED TO CLAIMS, ACTIONS OR CAUSES OF ACTION
ASSERTED OR WHICH COULD HAVE BEEN ASSERTED UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VIII
OF THE CIVIL RIGHTS ACT OF 1964, THE NEW YORK (OR ANY OTHER
STATE'S) HUMAN RIGHTS LAW, THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT, OR THE AMERICANS WITH DISABILITIES ACT, AS ANY HAVE
BEEN AMENDED, and any claims, actions or causes of action for
wrongful discharge, unjust dismissal, constructive discharge,
breach of any written, oral or implied promise or agreement
related to employment, salary, severance payments, benefits,
other compensation, or attorneys' fees or costs related to
employment or compensation.
IN EXECUTING THIS AGREEMENT, YOU AGREE THAT YOU HAVE BEEN
GIVEN AT LEAST 45 DAYS IN WHICH TO CONSIDER SIGNING THIS LETTER
AGREEMENT AND THE RELEASE SET OUT JUST ABOVE, EVEN THOUGH YOU MAY
EXECUTE IT WITHIN THAT TIME. YOU ACKNOWLEDGE AND AGREE THAT YOU
HAVE HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF YOUR
CHOICE CONCERNING THIS AGREEMENT. YOU AGREE THAT YOU HAVE
CAREFULLY READ AND FULLY UNDERSTAND ALL THE PROVISIONS OF THIS
AGREEMENT, AND ARE ENTERING INTO THIS AGREEMENT VOLUNTARILY. YOU
<PAGE>
<PAGE> 6
AGREE THAT THE COMPENSATION YOU ARE RECEIVING FOR EXECUTING THIS
AGREEMENT IS GREATER THAN WHAT YOU WOULD HAVE BEEN ENTITLED TO IN
THE ABSENCE OF THIS AGREEMENT. YOU HAVE NOT RELIED UPON ANY
REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN
THIS AGREEMENT.
YOU HAVE THE RIGHT TO REVOKE THIS AGREEMENT WITHIN SEVEN
DAYS OF SIGNING IT, AND IT WILL NOT BECOME EFFECTIVE UNTIL THE
SEVEN DAY PERIOD HAS EXPIRED. IF YOU HAVE RECEIVED ANY
COMPENSATION WITHIN THIS SEVEN DAY PERIOD RELATED TO THIS
AGREEMENT, YOU AGREE TO RETURN SUCH COMPENSATION TO FRONTIER
IMMEDIATELY AFTER ANY REVOCATION.
10. You should also recall that you are a Section 16
"insider", and that there are obligations with respect to
holding such status that continue for a period of six months into
the future. We require that you will comply with the rules
applicable to this status.
We believe that what is set out above reflects a fair
reading of the Agreement and a reasonable method to wind things
up. If you should elect to reject this proposed resolution of
the Agreement, Frontier reserves the right to take other steps
available to it under the Agreement, and may elect to make no
disbursements pending resolution of the Agreement and other
issues.
If you are willing to agree with the terms of this
Agreement, please signify your consent by signing this letter in
the place provided below, and returning the original to me.
You should contact Ken Schirmuhly at 716-777-6028 with any
questions about the implementation of this action. Thank you.
Very truly yours,
/s/ Joseph P. Clayton
Joseph P. Clayton
Chief Executive Officer
<PAGE>
<PAGE> 7
AGREEMENT
I have reviewed this Agreement, including the recitals set
out in paragraphs 9 and 10, and by signing below, signify that I
agree with what is stated above, I have had sufficient
opportunity to seek outside legal advice, and I am willing to,
and do agree with its terms and conditions. The effective date
of this Agreement is October 13, 1997.
/s/ Dale M. Gregory
Dated: October 13, 1997 -----------------------------
Dale M. Gregory
<PAGE>
<PAGE> 8
RESIGNATION
I resign from any and all positions as officer or director
of Frontier or any Frontier affiliate or subsidiary, effective
immediately.
/s/ Dale M. Gregory
Dated: October 13, 1997 ----------------------------
Dale M. Gregory
Exhibit 11
Frontier Corporation
Computation of Earnings per Share of Common Stock
on a Fully Diluted Basis (Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30,
(In thousands, except per share data) 1997 1996 1997 1996
- -------------------------------------------------------------------------
Income applicable to common stock $ 39,851 $ 73,480 $ 68,223 $199,220
Add: Interest on convertible
debentures 139 139 416 416
- -------------------------------------------------------------------------
$ 39,990 $ 73,619 $ 68,639 $199,636
Less: Increase in related
federal income taxes 49 49 146 146
- -------------------------------------------------------------------------
Adjusted income applicable to
common stock $ 39,941 $ 73,570 $ 68,493 $199,490
Average Common Shares Outstanding 163,555 163,261 163,511 161,936
(excluding common stock
equivalents)
Adjustments for:
Convertible Debentures 503 503 503 503
Stock Options 408 712 387 1,813
- -------------------------------------------------------------------------
Adjusted common shares assuming
conversion of outstanding Convertible
Debentures and Stock Options at
beginning of each period 164,466 164,476 164,401 164,252
=========================================================================
Earnings per share of common stock
on a fully diluted basis $ .24 $ .45 $ .42 $ 1.21
========================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FRONTIER CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 26532
<SECURITIES> 0
<RECEIVABLES> 402798
<ALLOWANCES> 23001
<INVENTORY> 13935
<CURRENT-ASSETS> 495052
<PP&E> 2359423
<DEPRECIATION> 1380257
<TOTAL-ASSETS> 2339883
<CURRENT-LIABILITIES> 400852
<BONDS> 840158
0
20125
<COMMON> 164162
<OTHER-SE> 838207
<TOTAL-LIABILITY-AND-EQUITY> 2339883
<SALES> 0
<TOTAL-REVENUES> 1759693
<CGS> 50479
<TOTAL-COSTS> 1636550
<OTHER-EXPENSES> (2082)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34647
<INCOME-PRETAX> 119445
<INCOME-TAX> 50458
<INCOME-CONTINUING> 68987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68987
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
