<PAGE>
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 June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For 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 173,415,499 shares as of July 31, 1999
<PAGE>
FRONTIER CORPORATION
Form 10-Q
Index
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Business Segment Information for the three
and six months ended June 30, 1999 and 1998 3
Consolidated Statements of Income for the three
and six months ended June 30, 1999 and 1998 4
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion of Results of Operations
and Analysis of Financial Condition 14-25
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 25-27
Item 4. Submission of Matters to a Vote of Security
Holders 27
Item 5. Other Information 27-28
Item 6. Exhibits and Reports on Form 8-K 28
Signature 29
Index to Exhibits 30-32
<PAGE>
<TABLE>
FRONTIER CORPORATION
Business Segment Information
(Unaudited)
<CAPTION>
3 Months Ended June 30, 6 Months Ended June 30,
In thousands of dollars 1999 1998 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Integrated Services
Revenue
Commercial $ 250,959 $ 248,074 $ 500,427 $ 490,313
Consumer 45,035 61,554 95,400 130,211
Carrier 168,680 155,036 359,483 293,686
- -------------------------------------------------------------------------
Total Revenue $ 464,674 $ 464,664 $ 955,310 $ 914,210
Cost of Access 297,167 301,029 609,126 587,816
- -------------------------------------------------------------------------
Gross Margin 167,507 163,635 346,184 326,394
Selling, General and
Administrative Expense 123,778 118,738 240,882 239,369
Depreciation and
Amortization 35,353 25,176 67,660 51,111
- -------------------------------------------------------------------------
Operating Income:
Operating Income Before
Other Charges 8,376 19,721 37,642 35,914
Other Charges - - - 6,528
- -------------------------------------------------------------------------
Total Operating Income $ 8,376 $ 19,721 $ 37,642 $ 29,386
Capital Expenditures $ 208,051 $ 85,639 $ 397,146 $ 140,924
Total Assets $ 2,089,382 $1,488,341 $2,089,382 $1,488,341
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Local Communications Services
Revenue $ 182,091 $ 175,105 $ 361,327 $ 348,203
Operating Expenses 84,895 81,826 168,941 162,988
Depreciation and
Amortization 30,001 28,167 59,675 56,511
- -------------------------------------------------------------------------
Operating Income $ 67,195 $ 65,112 $ 132,711 $ 128,704
Capital Expenditures $ 51,633 $ 39,589 $ 89,168 $ 62,558
Total Assets $ 1,065,130 $ 970,943 $1,065,130 $ 970,943
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Corporate Operations and Other
Revenue $ - $ 8,547 $ 4,960 $ 17,901
Operating Expenses 8,052 11,917 19,530 25,553
Depreciation and
Amortization 158 628 721 1,589
- -------------------------------------------------------------------------
Operating Income:
Operating Loss Before
Other Charges (8,210) (3,998) (15,291) (9,241)
Other Charges - - 7,520 -
- -------------------------------------------------------------------------
Total Operating Loss $ (8,210) $ (3,998) $ (22,811) $ (9,241)
Capital Expenditures $ 8,591 $ 8,413 $ 12,656 $ 15,664
Total Assets $ 319,926 $ 234,937 $ 319,926 $ 234,937
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Consolidated
Revenue $ 646,765 $ 648,316 $1,321,597 $1,280,314
Operating Expenses 513,892 513,510 1,038,479 1,015,726
Depreciation and
Amortization 65,512 53,971 128,056 109,211
- -------------------------------------------------------------------------
Operating Income:
Operating Income Before
Other Charges 67,361 80,835 155,062 155,377
Other Charges - - 7,520 6,528
- -------------------------------------------------------------------------
Total Operating Income $ 67,361 $ 80,835 $ 147,542 $ 148,849
Capital Expenditures $ 268,275 $ 133,641 $ 498,970 $ 219,146
Total Assets $ 3,474,438 $2,694,221 $3,474,438 $2,694,221
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FRONTIER CORPORATION
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In thousands of dollars, 3 Months Ended June 30, 6 Months Ended June 30,
except per share data 1999 1998 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Integrated Services $464,674 $464,664 $955,310 $ 914,210
Local Communications 182,091 175,105 361,327 348,203
Corporate Operations and Other - 8,547 4,960 17,901
- -------------------------------------------------------------------------
Total Revenue $646,765 $648,316 $1,321,597 $1,280,314
Costs and Expenses
Operating expenses 499,608 498,302 1,010,738 984,036
Depreciation and amortization 65,512 53,971 128,056 109,211
Taxes other than income taxes 14,284 15,208 27,741 31,690
Other Charges - - 7,520 6,528
- -------------------------------------------------------------------------
Total Costs and Expenses 579,404 567,481 1,174,055 1,131,465
- -------------------------------------------------------------------------
Operating Income 67,361 80,835 147,542 148,849
Interest expense 14,631 12,558 29,850 25,989
Other income:
Gain on sale of assets 2,000 14,551 2,000 14,551
Equity earnings from
unconsolidated wireless interests 5,446 4,178 9,687 6,636
Interest income 1,482 1,191 3,134 2,389
Other income 165 1,002 173 1,894
- -------------------------------------------------------------------------
Income Before Taxes and Cumulative
Effect of Change in Accounting
Principles 61,823 89,199 132,686 148,330
Income tax expense 24,450 41,536 55,411 66,753
- -------------------------------------------------------------------------
Income Before Cumulative Effect
of Change in Accounting Principles 37,373 47,663 77,275 81,577
Cumulative effect of change in
accounting principle - 1,755 - 1,755
- -------------------------------------------------------------------------
Consolidated Net Income 37,373 45,908 77,275 79,822
Dividends on preferred stock 255 252 506 503
- -------------------------------------------------------------------------
Basic Income Applicable to
Common Stock $37,118 $45,656 $ 76,769 $79,319
Diluted earnings adjustment 90 90 180 180
- -------------------------------------------------------------------------
Diluted Income Applicable to
Common Stock $37,208 $45,746 $ 76,949 $79,499
========================================================================
Basic Earnings Per Common Share $ 0.22 $ 0.27 $ 0.45 $ 0.47
Average Shares Outstanding 172,542 170,390 172,048 170,230
=========================================================================
Diluted Earnings Per Common Share $ 0.21 $ 0.26 $ 0.43 $ 0.46
Average Shares Outstanding 179,235 174,093 177,273 173,449
=========================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FRONTIER CORPORATION
Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
In thousands of dollars, 1999 1998
except share data (Unaudited)
- -------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 99,453 $ 85,143
Accounts receivable, (less
allowance for uncollectibles
of $60,912 and $45,787,
respectively) 430,576 422,724
Materials and supplies 7,243 9,924
Deferred income taxes 13,105 13,320
Prepayments and other 27,260 35,563
- ------------------------------------------------------
Total Current Assets 577,637 566,674
Property, plant and equipment,
net 2,038,457 1,677,559
Goodwill and customer base, net 466,851 484,015
Deferred and other assets 391,493 330,495
- ------------------------------------------------------
Total Assets $3,474,438 $3,058,743
======================================================
Current Liabilities
Accounts payable $ 449,429 $ 449,041
Dividends payable 8,955 38,508
Debt due within one year 10,508 9,466
Taxes accrued 39,996 26,128
Other liabilities 42,341 44,554
- ------------------------------------------------------
Total Current Liabilities 551,229 567,697
Long-term debt 1,647,960 1,350,821
Deferred income taxes 50,462 40,046
Deferred employee benefits
obligation 92,049 81,925
- ------------------------------------------------------
Total Liabilities 2,341,700 2,040,489
- ------------------------------------------------------
Shareholders' Equity
Preferred stock 18,294 18,770
Common stock, par value $1.00,
authorized 300,000,000
shares; 173,269,723 shares and
171,635,518 shares
issued in 1999 and 1998,
respectively 173,270 171,636
Capital in excess of par value 640,409 578,946
Retained earnings 334,325 274,870
Other comprehensive loss (1,555) (4,249)
- ------------------------------------------------------
1,164,743 1,039,973
Less -
Treasury stock, 10,849 shares in
1999 and 1998, at cost 231 231
Unearned compensation -
restricted stock plan 31,774 21,488
- ------------------------------------------------------
Total Shareholders' Equity 1,132,738 1,018,254
- ------------------------------------------------------
Total Liabilities and
Shareholders' Equity $3,474,438 $3,058,743
======================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FRONTIER CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
6 Months Ended June 30,
In thousands of dollars 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 77,275 $ 79,822
- ------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Other charges 7,520 6,528
Cumulative effect of change in
accounting principle - 1,755
Depreciation and amortization 128,056 109,211
Gain on sale of assets (2,000) (14,551)
Equity earnings from unconsolidated
wireless interests (9,687) (6,636)
Other, net 7,304 2,876
Changes in operating assets and liabilities, exclusive
of impacts of dispositions and acquisitions:
Increase in accounts receivable (10,730) (53,628)
Increase in materials and supplies (3,053) (1,515)
Decrease in prepayments and other
current assets 9,091 5,032
Increase in deferred and other assets (16,291) (14,270)
Increase in accounts payable 5,312 62,133
Increase in taxes accrued and other
current liabilities 17,295 18,709
Increase in deferred income taxes 8,617 22,848
Increase in deferred employee
benefits obligation 10,124 2,034
- ------------------------------------------------------------------------
Total Adjustments 151,558 140,526
- ------------------------------------------------------------------------
Net Cash Provided by Operating Activities 228,833 220,348
- ------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant
and equipment (585,542) (165,796)
Deposit for capital projects (32,198) (92,781)
Proceeds from sale of assets 10,532 41,543
Other investing activities (7,900) (264)
- ------------------------------------------------------------------------
Net Cash Used in Investing Activities (615,108) (217,298)
- ------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 423,547 131,181
Repayments of debt (5,827) (12,698)
Dividends paid (47,373) (74,704)
Issuance of common stock 30,731 4,094
Other financing activities (493) (290)
- ------------------------------------------------------------------------
Net Cash Provided by Financing Activities 400,585 47,583
- ------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 14,310 50,633
Cash and Cash Equivalents at Beginning of Period 85,143 26,302
- ------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 99,453 $ 76,935
========================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
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
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, 1998 and the
reports on Form 8-K filed with the Securities and Exchange
Commission as follows:
SEC Filing Date Matter
- -------------------------------------------------------------
7/21/99 Agreement to Sell Upstate Cellular Network
5/18/99 Consent and Amendment #1 to
Global Crossing Ltd. Merger Agreement
3/19/99 Merger Agreement with Global Crossing Ltd.
1/26/99 Dividend Restructuring
1/26/99 Filing of Management's Discussion and Analysis,
Consolidated Financial Statements and
Notes for 1998, 1997 and 1996
6/17/98 Pooling of Interests Merger with GlobalCenter Inc.
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.
It is the Company's policy to reclassify prior year
amounts to conform with current year presentation.
Note 2: Merger with Global Crossing
On March 17, 1999, the Company announced a definitive
merger agreement to be acquired by Global Crossing Ltd.
("Global Crossing"), the owner and operator of the world's
first independent global fiber-optic network. The
transaction is valued at $11.2 billion based on the March
16, 1999 closing price of Global Crossing shares. The
combination of the two companies will create a global
Internet Protocol-based fiber-optic network able to provide
customers with global voice, web hosting, private line, ATM
and Internet services. Based on already announced networks,
the combination will have 71,000 route miles, over 1 million
fiber miles, and offer ultra-high bandwidth to 159 cities in
20 countries.
During May 1999, Global Crossing contacted Frontier
representatives to inform them of a proposed transaction
between Global Crossing and U S WEST and, pursuant to the
merger agreement, to request the Company's consent to that
proposed transaction. After discussion and negotiation,
Global Crossing and the Company agreed to specified
amendments to their merger agreement. On May 16, 1999, the
Company consented to Global Crossing entering into a merger
agreement to effect the proposed transaction with U S West
and both parties approved an amendment to the Global
Crossing-Frontier merger agreement.
On June 13, 1999, the Company received an unsolicited
acquisition proposal from Qwest Communications International
Inc. ("Qwest") to acquire all of the common stock of the
Company. Qwest offered to pay $20 in cash and issue not
less than 1.181 shares of Qwest common stock for each share
of Frontier Common stock. On June 17, 1999, the Company
issued a press release announcing that its board of
directors had reviewed the unsolicited acquisition offer
made by Qwest and had determined to take no action with
respect to the offer at that time.
On June 23, 1999, Qwest submitted a revised acquisition
proposal to the Company. Qwest offered a value of $68 for
each share of Frontier common stock, such $68 value
consisting of $20 in cash and the balance in Qwest common
stock. Qwest's revised acquisition proposal included a
"collar" on the price of Qwest common stock between $30.50
and $43.50. The Frontier board of directors directed
Frontier's management and advisors to meet with Qwest and
explore the proposal and also to explore Global Crossing's
position with respect to the revised Qwest proposal.
On July 18, 1999, in connection with the execution by
Qwest and U S WEST of a merger agreement and the termination
of the proposed Global Crossing-U S WEST merger, Qwest
withdrew its proposal to acquire the Company.
Under the terms of the Company's amended merger agreement
for the Global Crossing-Frontier transaction, Frontier
shareholders would receive Global Crossing common shares
valued at $63 per Frontier share, as long as Global Crossing
shares trade within a range of $34.5625 to $56.7813 per
share (the "collar") during a measurement period prior to
closing. Outside the collar, Frontier shareholders would
receive a fixed number of Global Crossing shares, 1.1095
shares at the top end of the collar and 1.8229 at the bottom
of the collar. The initial value of the shares of Global
Crossing common stock Frontier stockholders would receive in
the merger may be more or less than the value based on the
measurement period average price because
the trading price of the Global
Crossing common stock at closing may be higher or lower than
the average trading price during the measurement period or
because the average trading price may be outside the collar.
The value of this consideration would be increased by a 7%
per annum interest factor if the Global Crossing-Frontier
merger does not close by December 31, 1999 and the average
trading price of the Global Crossing common stock during the
measurement period was not greater than $56.7813. In
connection with the Global Crossing-Frontier transaction,
the Company has also granted Global Crossing an option to
acquire up to 19.9% of its outstanding shares at $63 per
share as well as a break-up fee if the merger is terminated
for certain reasons.
The Global Crossing-Frontier transaction is expected to
qualify as a tax-free reorganization to the Frontier
shareholders and is anticipated to be accounted for as a
purchase. Based on market prices as of March 16, 1999, the
merged company will be approximately two-thirds owned by
current Global Crossing shareholders and one-third owned by
current Frontier shareholders.
This transaction is subject to approval by shareholders of
both companies, the Federal Communications Commission, state
and other regulatory authorities. The Company has filed
regulatory petitions in 26 states and has already received
approvals from several states. Regulatory approvals are
still pending from the Federal Communications Commission and
a number of states. The Company and Global Crossing expect
that the transaction will be completed in the third quarter
of 1999, but cannot predict with certainty the timing or
nature of regulatory approvals or shareholder action.
Note 3: Acquisitions
On February 27, 1998, the Company acquired GlobalCenter,
Inc. ("Frontier GlobalCenter, Inc." or "GlobalCenter"), a
leading provider in digital distribution, Internet and data
services headquartered in Sunnyvale, California. Under the
terms of the merger agreement, the Company acquired all of
the outstanding shares of GlobalCenter. The total shares
issued by the Company to effect the merger were 6.4 million.
At the time of the merger, GlobalCenter had approximately
1.1 million stock options and warrants outstanding as
converted into Frontier equivalents. This transaction was
accounted for using the pooling of interests method of
accounting and, accordingly, historical information was
restated to reflect GlobalCenter.
Note 4: Divestitures
During the first six months of 1999, the Company
continued its efforts to sell non-core assets. On April 15,
1999, the Company sold Frontier Network Systems Corp.
("FNSC") for $12.4 million, including cash of $7.9 million
and a long-term note for $4.5 million. FNSC marketed and
installed telecommunications systems and equipment. No gain
or loss was recognized on this transaction. On June 3,
1999, the Company completed the sale of Illinois RSA No. 3,
a cellular partnership, resulting in a pre-tax gain of $2.0
million. On May 28, 1999, the Company signed a non-
binding letter of intent to sell its ConferTech Systems
unit. The transaction is expected to close in August 1999.
At this time the Company has not yet quantified the gain or
loss on this transaction.
In April 1998, the Company completed the sale of Minnesota
Southern Cellular Telephone Company ("Minnesota RSA No.
10"), a wholly owned cellular partnership, and certain other
properties. The sale of these properties resulted in a
combined pre-tax gain of $14.6 million and an after-tax gain
of $2.5 million. The income tax effect on these gains of
$12.1 million is primarily impacted by the sale of Minnesota
RSA No. 10 which resulted in nondeductible goodwill.
Note 5: Other Charges
In the first quarter of 1999, the Company recorded a $7.5
million charge, or $.04 per diluted share, for costs related
to the merger with Global Crossing. These charges primarily
included investment banker fees, legal fees and other direct
costs. Additional fees and costs are being incurred in
connection with the merger.
In the first quarter of 1998, the Company recorded a pre-
tax charge of $6.5 million associated with the acquisition
of GlobalCenter, which included investment banker fees,
legal fees and other direct costs.
Note 6: Earnings Per Share
The Company follows the provisions of Financial Accounting
Standards Board Statement ("FAS") No. 128, "Earnings Per
Share" ("EPS"). Basic EPS are based on the weighted average
number of shares of common stock outstanding during the
period. Diluted EPS are based on the weighted average
number of shares of common stock and common stock
equivalents (options, warrants, restricted stock, and
convertible debentures) outstanding during the period,
computed in accordance with the treasury stock method.
The following is a reconciliation of the denominator used
in the computation of diluted earnings per share:
3 Months Ended 6 Months Ended
June 30, June 30,
In thousands 1999 1998 1999 1998
- ------------------------------------------------------------
Weighted Average Shares
Outstanding - Basic 172,542 170,390 172,048 170,230
Stock Options and Warrants 6,190 3,200 4,722 2,716
Convertible Debentures 503 503 503 503
- -------------------------------------------------------------
Weighted Average Shares
Outstanding - Diluted 179,235 174,093 177,273 173,449
=============================================================
Note 7: Marketable Securities
During the second quarter of 1999, the Company purchased
certain equity securities through its wholly owned
subsidiary, Frontier Internet Ventures, Inc. The Company
classifies these securities as available for sale in
accordance with the provisions of FAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Investments are carried at fair value, based on quoted
market prices and are recorded in the "Deferred and other
assets" caption of the Consolidated Balance Sheets.
Unrealized holding gains and losses are excluded from
earnings and reported, net of income taxes, as a component
of shareholders' equity. Realized gains and losses, if any,
will be recognized on the specific identification method and
reflected in income. As of June 30, 1999, the fair value of
these investments was $12.9 million, with a cost $7.9
million, and a total unrealized gain of $5.0 million.
Accordingly, the Company has recorded a $3.0 million
increase to shareholder's equity at June 30, 1999, net of
taxes of $2.0 million. There were no unrealized losses at
June 30, 1999.
Note 8: Comprehensive Income
The Company adopted the provisions of FAS No. 130,
"Reporting Comprehensive Income" as of January 1, 1998.
This statement establishes standards for reporting and
display of comprehensive income and its components. This
statement requires reporting, by major components and as a
single total, the change in net assets during the period
from nonshareholder sources. Adoption of this standard did
not materially impact the Company's consolidated financial
position, results of operations or cash flow. The
reconciliation of net income to comprehensive net income is
as follows:
3 Months Ended 6 Months Ended
June 30, June 30,
In thousands 1999 1998 1999 1998
- -------------------------------------------------------------
Net income $37,373 $45,908 $77,275 $79,822
Unrealized gain on investment,
net of taxes 3,022 - 3,022 -
Foreign currency translation
adjustment (429) 437 (328) 882
- -------------------------------------------------------------
Total comprehensive income $39,966 $46,345 $79,969 $80,704
=============================================================
At June 30, 1999 and December 31, 1998, "Accumulated other
comprehensive income," as reflected in the Consolidated
Balance Sheets is comprised of the following:
June 30, December 31,
1999 1998
- -----------------------------------------------------------
Foreign currency translation
adjustment $ (916) $ (588)
Unrealized gain on investment,
net of taxes 3,022 -
Minimum pension liability (3,661) (3,661)
- ------------------------------------------------------------
Accumulated other comprehensive
loss $(1,555) $(4,249)
============================================================
Note 9: Dividend Restructuring
On January 25, 1999, the Company's Board of Directors
approved a dividend restructuring plan which reduced the
annualized common stock dividend from $0.89 to $0.20 per
share. This change in dividend policy was effective
beginning with the payment of the common stock cash dividend
declared on March 22, 1999 and paid on May 3, 1999 and had
no effect on the common stock dividend paid February 1, 1999
to shareholders of record on January 15, 1999, nor on any
outstanding issues of the Company's preferred stock. This
dividend restructuring was approved in order to place the
Company's dividend payments more in line with growth-
oriented integrated telecommunication services companies,
allowing the Company to invest more heavily in its growth
businesses.
Note 10: 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.
Actual interest paid was $48.3 million and $35.0 million
for the six months ended June 30, 1999 and 1998,
respectively. Income taxes paid totaled $42.6 million and
$21.8 million for the six months ended June 30, 1999 and
1998, respectively. Interest costs associated with the
construction of capital assets, including the Optronics
network, are capitalized. Total amounts capitalized for the
six months ended June 30, 1999 totaled $18.5 million, as
compared to $8.9 million in 1998.
Note 11: New Accounting Pronouncements
Effective January 1, 1999, the Company adopted the
American Institute of Public Accountants Statement of
Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". Adoption
of this statement did not have a material impact on the
financial position or results of operations of the Company
for the six months ended June 30, 1999.
In June 1999, the Financial Accounting Standards Board
issued FAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of
FAS No. 133" which deferred FAS No. 133's effective date to
fiscal quarters beginning after June 15, 2000. This
statement standardizes the accounting for derivatives and
hedging activities and requires that all derivatives be
recognized in the statement of financial position as either
assets or liabilities at fair value. Changes in the fair
value of derivatives that do not meet the hedge accounting
criteria are to be reported in earnings. Adoption of this
standard is not expected to have a material effect on the
Company's financial position, results of operations or cash
flows.
Note 12: Commitments and Contingencies
In connection with the Company's capital program, certain
commitments have been made for the purchase of materials and
equipment. Total capital expenditures for 1999 are
currently projected to be approximately $1.0 billion. At
June 30, 1999 and December 31, 1998, respectively, $138.1
million and $114.0 million of deposits for the Company's
Optronics network are included in the "Deferred and other
assets" caption in the Consolidated Balance Sheets.
Note 13: Subsequent Events
Effective July 1, 1999, the Company redeemed all
outstanding shares of Cumulative Preferred Stock, 4.60%
Series, 5.00% Series, 5.00% Second Series, and 5.65% Series
pursuant to the original terms.
On July 20, 1999 the Company announced an agreement to
sell its partnership interest in the Upstate Cellular
Network (UCN) doing business under the name of Frontier
Cellular to the other major UCN partner, Bell Atlantic
Mobile. The transaction is subject to regulatory approval
and is expected to close by the end of 1999. The Company is
in the process of quantifying the pre-tax gain on this
transaction, which is expected to be material.
Item 2 - Management's Discussion of Results of Operations
and Analysis of Financial Condition
For the Three and Six Months Ended June 30, 1999 and 1998
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, completion of the pending merger with
Global Crossing, the increasing competitiveness of the
market segments in which the Company competes, 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 June 30, 1999 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, 1998 and the reports on Form 8-K filed with the
Securities and Exchange Commission as follows:
SEC Filing Date Matter
- ------------------------------------------------------------
7/21/99 Agreement to Sell Upstate Cellular Network
5/18/99 Consent and Amendment #1 to Global Crossing
Ltd. Merger Agreement
3/19/99 Merger Agreement with Global Crossing Ltd.
1/26/99 Dividend Restructuring
1/26/99 Filing of Management's Discussion and Analysis,
Consolidated Financial Statements and Notes
for 1998, 1997 and 1996
6/17/98 Pooling of Interests Merger with GlobalCenter Inc.
DESCRIPTION OF BUSINESS
Frontier Corporation (the "Company" or "Frontier")
provides integrated telecommunications services including
Internet, IP and data applications, long distance, local
telephone and enhanced services to business, carrier, web-
centric and targeted residential customers nationwide and in
certain international countries.
RESULTS OF OPERATIONS
Consolidated revenues for the second quarter of 1999 and
on a year-to-date basis were $646.8 million and $1.3
billion, respectively, representing a decrease of $1.6
million or 0.2%, and an increase of $41.3 million or 3.2%
over the three and six month periods ended June 30, 1998.
Consolidated operating income was $67.4 million for the
quarter ended June 30, 1999 and $147.5 million for the six
months ended June 30, 1999 as compared to $80.8 million and
$148.8 million for the three and six month periods ended
June 30, 1998. Operating results were impacted by $7.5
million and $6.5 million in non-recurring charges in the
first quarters of 1999 and 1998, respectively. Operating
results continue to be positively impacted by revenue growth
in Data, Carrier Services and Competitive Local Exchange
Carrier ("CLEC") services, offset by a decrease in switched
long distance revenue due to price erosion and customer
attrition. Data revenue grew $27.3 million or 123.1% in the
second quarter and $51.3 million or 126.9% for the six
months ended June 30, 1999 over the respective prior year
periods. Data growth is driven by a 242.1% increase in
frame relay, a 164.1% increase in dedicated internet, and a
161.4% increase in content distribution in the second
quarter as compared to the prior year. Carrier Services
revenues grew $13.6 million or 8.8% over the second quarter
of 1998 and $65.8 million or 22.4% over the first six months
of 1998, driven by a growing customer base as well as higher
levels of switched and dedicated traffic. CLEC revenue grew
at 53.8% and 66.5% for the three months and six months ended
June 30, 1999.
Normalized for other charges, costs and expenses grew
$11.9 million or 2.1% for the second quarter and $41.6
million or 3.7% for the six months ended June 30, 1999 over
the same prior year periods, while consolidated revenues
declined by 0.2% and grew by 3.2% over the same periods.
Expenses were driven primarily by higher depreciation
expense related to the Optronics network, media distribution
centers, and other network related investments, as well as generally
higher cost of access in the Integrated Services segment due
to growth in Carrier Services volumes.
In the first quarter of 1999, the Company recorded a $7.5
million charge, or $.04 per diluted share, for costs related
to the merger with Global Crossing. These charges primarily
included investment banker fees, legal fees and other direct
costs. Additional fees and costs are being incurred in
connection with the merger.
During the first quarter of 1998, the Company recorded an
after-tax charge of $5.8 million (net of taxes of $0.7
million) associated with the acquisition of GlobalCenter
Inc. ("GlobalCenter"), a leading provider of digital
distribution, Internet and data services. These charges
included investment banker fees, legal fees and other direct
costs.
Diluted earnings per share were $0.21 and $0.26 for the
quarters ended June 30, 1999 and 1998, and $0.43 and $0.46
for the six months ended June 30, 1999 and 1998,
respectively, representing decreases of 19.2% and 6.5%,
respectively. Excluding nonrecurring items, diluted
earnings per share were $0.20 and $0.26 for the quarters
ended June 30, 1999 and 1998, and $0.47 and $0.49 for the
six months ended June 30, 1999 and 1998, representing
decreases of 23.1% and 4.1%, respectively.
Integrated Services
Through its Integrated Services segment, the Company is
one of the nation's largest long distance companies. The
Integrated Services segment provides domestic and
international voice, data products, video and audio
communications, digital distribution services, Internet
service and other communications products to business
customers, carrier customers, web-centric customers and
targeted consumer markets. Results for this segment also
include CLEC services, currently available in 32 states plus
Washington D.C., providing Frontier the ability to offer
integrated local and long distance telephone service to
approximately 70% of the U. S. business population.
Integrated Services revenue of $464.7 million in the
second quarter of 1999 was the same as the year ago quarter.
Revenue for the six months ended June 30, 1999 was $955.3
million, representing an increase of $41.1 million or 4.5%
over the six months ended June 30, 1998. The year-to-date
increase in revenue is attributed to a growing base of
carrier customers, as well as CLEC and data revenue growth.
The year-to-date revenue increase was dampened by price
erosion and customer attrition in switched voice products as
a result of increasing competition and the Company's
decision to no longer invest in consumer long distance
programs outside its incumbent local exchange territories.
Increased bad debt also served to reduce revenue growth in
the second quarter of 1999. Second quarter 1999 switched
voice products, excluding CLEC, represent approximately 77%
of Integrated Services revenue, down from 87% one year ago.
In the second quarter of 1999, Data Services revenue
reached $49.5 million, representing growth of $27.3 million
over the same prior year period. On a year-to-date basis,
Data Services revenue grew $51.3 million, or 126.9% to $91.8
million. The increase was driven by second quarter growth
of 242.1% in frame relay, a 164.1% increase in dedicated
Internet, and a 161.4% increase in content distribution.
During the quarter ended June 30, 1999, Carrier Services
revenue grew $13.6 million to $168.7 million, representing
an 8.8% increase over the same prior year period. Increased
bad debt and price erosion reduced second quarter 1999
revenue growth. On a year-to-date basis, Carrier Services
grew $65.8 million or 22.4%, driven by a strong first
quarter performance resulting from an increase in the
customer base as well as higher levels of switched and
dedicated traffic.
Consumer revenue declined 26.8% and 26.7%, respectively,
for the three month and six month periods ending June 30,
1999. The decline is a function of the Company's decision
to no longer invest in these long distance programs outside
its incumbent local exchange territories.
Frontier provides local service as a CLEC on both a resale
and facility basis with a focus on providing integrated
local, long distance and data services. As of June 30,
1999, Frontier has expanded its coverage to 32 states plus
Washington, D. C. for local resale and to 22 top business
markets for other facilities-based local service,
cumulatively reaching 70% of the U. S. business population.
Facilities-based service is being offered in cities that are
on the Company's Optronics network, which will provide
Frontier with the opportunity to expand its offerings of
combined local and long distance services into additional
markets and continue to leverage the Optronics network.
CLEC revenue growth was 53.8% for the second quarter and
66.5% year to date, while CLEC line growth was 39.7% from
June 30, 1998.
Cost of access represented 64.0% of total Integrated
Services revenue for the second quarter of 1999 and 64.8%
for the same period in 1998 while year-to-date figures were
63.8% and 64.3% for 1999 and 1998, respectively. The lower
cost of access percentages are primarily driven by more
effective traffic management and lower access costs, offset
by growth in generally lower margin Carrier Services
revenue.
Delays in the completion of a small number of segments
have moved the expected completion date of all portions of
the original Optronics network into the third quarter of
1999. Cost benefits are expected to be realized as the
SONET rings are closed, traffic is migrated and redundant
leased costs are eliminated. The Company has further
enhanced its Optronics network by expanding its geographic
coverage. Through swap agreements with Enron and WTCI,
Frontier will add approximately 4,000 route miles in the
western United States. These agreements will also provide
the Company with additional SONET rings, further enhancing
the reliability and performance of the network. In
addition, in July 1998, Frontier entered into an agreement
with Williams Communications to construct an extension of
the network into the southeast United States. In aggregate,
the Company's Optronics network will have 20,000 route
miles. As of June 30, 1999, approximately 71% of the total
Optronics network was carrying traffic. Construction of the
Optronics network and continuing integration efforts are
expected to reduce future network costs as well as provide
new revenue opportunities for the Company.
SG&A expense represented 26.6% of the total Integrated
Services' revenue for the second quarter of 1999 as compared
to 25.6% for the same period in 1998. Through June 30, 1999
and 1998, SG&A as a percentage of revenue was 25.2% and
26.2%, respectively. The higher SG&A percentage in the
second quarter is a result of flat revenue and a $5.0
million increase in SG&A costs on a year-over-year basis due
to rent and other expenses related to the Optronics network
and media distribution centers. On a year-to-date basis
SG&A expense as a percentage of revenue was lower, driven by
a first quarter 1999 change in revenue mix away from the
consumer business to the Carrier Services business. The
consumer business historically has higher SG&A expense as a
percentage of revenue than the Carrier Services business.
Depreciation and amortization expense increased 40.4% and
32.4% for the three month and six month periods ended June
30, 1999 as compared to the same periods in 1998, primarily
due to depreciation of the Optronics network, media distribution
centers and other network related investments.
Operating income before other charges for the second
quarter of 1999 was $8.4 million, a decrease of 57.5% over
the second quarter of 1998. For the six months ended June
30, 1999 operating income before other charges increased
$1.7 million or 4.8% over the first six months of 1998.
Operating income before other charges as a percent of
revenue for the three months ended June 30, 1999, decreased
from 4.2% in the second quarter of 1998 to 1.8% in the
second quarter of 1999, and was flat on a year-to-date
basis. The second quarter 1999 decrease in operating margin
is attributed to lower levels of switched traffic and an
increase in bad debt.
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 revenues and expenses of Frontier Communications of
Rochester Inc., a competitive telecommunications company
formed January 1, 1995 that provides an array of services on
a retail basis in the Rochester, New York marketplace.
Consequently, the Local Communications Services segment
includes both wholesale and retail local service provided in
the Rochester, New York market.
Revenues for Local Communications Services were $182.1
million in the three month period ended June 30, 1999, an
increase of $7.0 million or 4.0% over the comparable period
in 1998. On a year-to-date basis, revenues were $361.3
million, an increase of $13.1 million or 3.8% over the first
six months of 1998. Access lines increased 2.8% from June
30, 1998. Access minutes of use increased 3.6% in the
current quarter and 5.2% year to date over the same prior
year periods. Revenue growth during 1999 is also influenced
by an increased demand for Internet services, dedicated
services growth, and enhanced features.
Costs and expenses in the second quarter of 1999 for Local
Communications Services were $114.9 million, an increase of
$4.9 million or 4.5% over the second quarter of 1998. The
increase in costs and expenses is attributable to service
quality improvements, increased depreciation expense, and
higher customer service costs as a result of access line
growth.
Operating income was $67.2 million for the quarter ended
June 30, 1999, representing an increase of $2.1 million or
3.2% over the comparable quarter in the prior year.
Operating income on a year to date basis was $132.7 million,
representing a 3.1% increase over the first six months of
1998. Operating margins for both the second quarter and the
first half of the year were down slightly due to increased
depreciation resulting from higher capital expenditures for
network infrastructure.
Corporate Operations and Other
Corporate Operations is comprised of 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 includes FNSC, which was sold on April 15, 1999.
FNSC markets and installs telecommunications systems and
equipment. This segment also includes wireless operations
of Minnesota RSA No. 10, which was sold on April 30, 1998,
and Illinois RSA No. 3, which was sold on June 3, 1999.
The change in results for this segment is influenced by
the sale of certain wireless operations and diminished
revenue from FNSC prior to its sale in April 1999.
Other Income Statement Items
Interest Expense
Interest expense for the three and six months ending June
30, 1999 was $14.6 million and $29.9 million, representing
increases of 16.5% and 14.9% over the prior year periods.
The overall increase in interest expense is the result of
higher levels of debt outstanding and is partially offset by
increases in capitalized interest of $5.6 million and $9.6
million respectively during the same periods. The increase
in capitalized interest and levels of debt outstanding is
primarily attributable to the Company's capital program
driven in large measure by the Optronics network, media
distribution centers and other network related investments.
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 reported using the equity method of
accounting, which results in the Company's proportionate
share of earnings being reflected in a single line item
below operating income. On July 20, 1999 the Company
announced an agreement to sell its partnership interest in
Frontier Cellular.
Equity earnings from the Company's unconsolidated wireless
interests, including Frontier Cellular, the 50/50 joint
venture of Frontier and Bell Atlantic, currently managed by
Frontier, were $5.4 million in the second quarter, a 30.3%
increase over the $4.2 million reported in the year-ago
quarter. Customers increased to 422,000, or 21.6% more than
the year-ago quarter. The increase in equity earnings is
attributable to continued operating efficiencies as well as
an increase in the number of customers.
Income Taxes
The effective income tax rate (normalized for nonrecurring
items) was 39.5% for the quarters ended June 30, 1999 and
1998.
Effective income tax rates, as reported, are impacted by
certain nonrecurring items for the six months ended June 30,
1999 and 1998. The effective rates were primarily impacted
by transaction costs associated with the Global Crossing
merger in the first quarter of 1999, GlobalCenter
transaction costs in the first quarter of 1998, and the sale
of Minnesota RSA No. 10 in the second quarter of 1998. The
tax effect of nonrecurring items in the second quarter of
1999 was immaterial.
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. On a quarter over
quarter basis, the Company's EBITDA before nonrecurring
charges was $132.9 million, or 1.4% lower than the year-ago
amount, as a result of a decline in revenue. On a year-to-
date basis, EBITDA, before nonrecurring charges, was $283.1
million, or 7.0% higher than the year-ago amount, driven by
strong first quarter 1999 revenue growth.
Cash provided from operations for the six months ended
June 30, 1999 increased $8.5 million to $228.8 million primarily
as a result of stronger cash basis operating results in the
Integrated Services segment during 1999 as compared to the
same prior year period.
Cash used for investing activities increased to $615.1
million, or $397.8 million higher than the prior year driven
by an increase in cash expenditures for capital projects
principally due to the Optronics network, media distribution
centers and other network related investments.
Cash provided from financing activities increased $353.0
million during the year as compared to the same period in
1998. This net inflow of cash is primarily attributable to
new borrowings on long-term debt driven by the Company's
capital program and proceeds from the issuance of common
stock resulting from the exercise of stock options.
Debt
The Company's total outstanding debt balance was $1,658.5
million at June 30, 1999, an increase of $298.2 million from
December 31, 1998. This higher debt level is driven by the
Company's capital program, including the Optronics network,
media distribution center build outs and other network
related investments, as well as the temporary
restriction on dividend payments from Frontier
Telephone of Rochester.
In April 1999, the Company established an additional $250
million credit facility which bears interest at LIBOR plus
50 basis points and matures the earlier of April 27, 2000 or
the date of occurrence of a change in control.
On June 2, 1999, in connection with the Company's merger with
Global Crossing, Moody's and Standard and Poor's downgraded
Frontier's long-term senior unsecured debt ratings from
"A3"/"A" to "Ba2"/"BB+", respectively.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percentage of
total capitalization) was 59.4% at June 30, 1999, as
compared with 57.2% at December 31, 1998. Pre-tax interest
coverage, excluding nonrecurring charges, was 3.5 times for
the six months ended June 30, 1999, as compared with 4.8
times for the same period in 1998.
Capital Spending
Through June 1999, gross capital expenditures amounted to
approximately $499.0 million, as compared to $219.1 million
in the prior year. The Company currently projects its 1999
capital expenditures to be approximately $1.0 billion. The
Company anticipates financing its capital program through a
combination of internally generated cash from operations as
well as external financing.
Year 2000 Issues
The Company's Year 2000 ("Year 2K") project is intended
to address potential processing errors in computer programs
that use two digits (rather than four) to define the
applicable year. The Company's assessment of Year 2K issues
is essentially complete. The Company addresses Year 2K
issues in four areas:
State of Readiness. Frontier has developed plans to
assess and remediate key internally-developed computer
systems so they will be Year 2K compliant in advance of
December 31, 1999 and has implemented those plans to a
significant degree. The plans encompass all operating
properties as well as Frontier's corporate headquarters.
These include both information technology ("IT") and non-IT
compliance. The plans cover the review, and either
modification or replacement where necessary, of portions of
the Company's computer applications, telecommunications
networks, telecommunications equipment and building facility
equipment that directly connect the Company's business with
customers, suppliers and service providers. Implementation
of the plan began in 1996 and the Company believes that
substantially all of its IT systems are now compliant.
Final remediation is expected to be substantially complete
during the third quarter of 1999.
The Company has given special attention to the Year 2K
issues involved in its network, switches and billing
systems, and will continue to dedicate significant resources
to these areas as a priority. The Company has also
increased its resources in areas in which assessment and
remediation has not yet reached a point where management is
satisfied with progress. To date, Year 2K readiness is
progressing at a pace that is acceptable to management and
management maintains continuous contact with the Year 2K
team to receive progress reports and to address issues.
Costs. The Company has recently performed a detailed
update of Year 2K costs. Costs to date that are directly
attributable to Year 2K issues are $29.0 million, and the
Company now anticipates spending an additional $12.0 to
$13.0 million during the remainder of 1999. This includes
costs directly related to Year 2K assessment and remediation
and the replacement of non-compliant systems and end user
equipment, including acceleration of replacement of non-
compliant systems and end user equipment due to Year 2K
issues. A substantial portion of the total amount has been
used for third party assistance in assessment and
remediation. The source of these funds is cash generated
from operations. The Year 2K projects have not caused the
Company to forego or defer, to any material degree, other
critical IT projects. To date, the costs of addressing
potential Year 2K problems are not considered material to
the Company's financial condition, results of operations or
cash flows and have been consistent with planned
expenditures, and future costs are not expected to be
material in such respects.
Risks. The Company is engaged primarily in
telecommunications lines of business, and therefore connects
directly and indirectly with thousands of other carriers,
inside and outside the United States. These connections are
made through switching offices of the Company and the other
carriers. The switching offices were manufactured by and
often maintained by third parties. While many other
carriers have announced plans to engage independently in
Year 2K assessment and remediation for their networks, there
is a risk that some carriers (particularly smaller carriers
and carriers outside the United States) will not address or
resolve Year 2K issues, and that telecommunications may
therefore be affected. If this were to occur, it is likely
that the Company would be affected only to the same degree
as the other carriers in the telecommunications industry. A
Year 2K failure in the network of smaller carriers would not
be likely to have a significant impact on telecommunications
generally, or on the Company. However, addressing these
risks to the telecommunications industry in general is
outside the Company's control. The Company has initiated an
inquiry with its primary vendors and continues to engage in
discussions related to Year 2K compliance with many of them.
The Company has replaced some equipment and systems, and may
continue to do so in appropriate circumstances.
Another risk to the Company arises with respect to the
timely completion of Year 2K remediation for the processing
that occurs in the Company's IT and non-IT systems,
including billing systems. If the Company or its vendors
are unable to resolve such processing issues in a timely
manner, it could pose independent risks to the Company's
business that could be material. Accordingly, the Company
has devoted resources it believes to be adequate to resolve
all significant identified Year 2K issues in a timely
manner, and has undertaken plans to make information
available to customers and others related to its Year 2K
activities. Since the Company's own Optronics NetworkSM,
including the southeast expansion, is expected to be
substantially deployed before December 31, 1999, the Company
anticipates that the impact of other carriers who may
experience business interruptions would be lessened, and
such interruptions are not currently expected to have
material adverse impacts on the Company.
Contingency Plans. The Company consistently monitors
the progress of its Year 2K program. The Company currently
anticipates that it will resolve its Year 2K issues before
the end of 1999, with the exception of any issues that
involve other carriers or suppliers and that are outside of
its control.
The Company has begun to develop contingency plans in a
number of areas. Contingency planning does not mean that a
facility or system will fail. It may be merited because of
many different factors, including the inherent importance of
a system or facility, the response or lack of response from
a third party vendor, or the results of the Company's review
and evaluation. The following areas have been identified as
areas in which contingency planning is occurring: SS7
Network arrangements internally and with third parties,
power availability, certain OSS and CARS operating systems,
network operations and call centers, EDI and credit and
collections systems, lockbox arrangements and internal
telephone systems. In all of these areas it is the
potential impact of a failure rather than the probability of
a failure that has led the Company to identify it as an area
for contingency planning. To date, the Company has not
identified contingency planning requirements relative to its
Internet operations. Plans will be developed and tested as
necessary and closely monitored by the Company's Internal
Audit department and the Year 2K Executive Steering
Committee. Because of its prior use of multiple billing
systems, the Company has experience in manual billing
consolidation for its carrier customers, and will always
have manual processes available to it. The costs of
contingency planning are not expected to be material to the
Company.
Dividends
On June 28, 1999, the Board of Directors declared the
second quarter 1999 dividend of $0.05 cents per share on the
Company's common stock, payable August 2, 1999 to
shareholders of record on July 15, 1999.
The dividend reflects an adjustment to Frontier's
annualized common stock dividend, which was reduced from
$0.89 per share to $0.20 per share by the Company's Board of
Directors on January 25, 1999.
New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board
issued FAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of
FAS No. 133" which deferred FAS No. 133's effective date to
fiscal quarters beginning after June 15, 2000. This
statement standardizes the accounting for derivatives and
hedging activities and requires that all derivatives be
recognized in the statement of financial position as either
assets or liabilities at fair value. Changes in the fair
value of derivatives that do not meet the hedge accounting
criteria are to be reported in earnings. Adoption of this
standard is not expected to have a material effect on the
Company's financial position, results of operations or cash
flows.
OTHER ITEMS
Open Market Plan
Open Market Plan. The Company began its fifth year of
operations under the Open Market Plan in January 1999. 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. Results since implementation of the Open Market
Plan are considered to have been constructive for the
Company as a whole.
During the seven-year period of the Open Market Plan, the
Company will not be regulated by rate-of-return regulation,
but instead, will be regulated under pure price cap
regulation. Over this period, planned rate reductions of
$21.0 million (the "Rate Stabilization Plan") will be
implemented for Rochester area consumers, including $16.5
million of which occurred through 1998, and an additional
$1.5 million which commenced in January 1999. 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.
The New York State Public Service Commission ("NYSPSC")
has issued a Notice Inviting Comments in which it has
proposed to make further changes in pricing under the Open
Market Plan. These pricing changes could reduce some prices
to competitors for network elements and other offerings, but
could also reduce the amount paid by the Company for
reciprocal compensation. The issues being addressed by the
NYSPSC have been under consideration since 1995. The
Company cannot predict the ultimate impact of any NYSPSC
action in this proceeding, although it is not expected to be
material. The NYSPSC has also issued orders on other
regulatory issues over time, related to service quality,
staff allocations, provisioning and relations with other
carriers.
Management believes there continues to be significant
market and business opportunities, as well as uncertainties,
associated with the Company's Open Market Plan. There can
be no assurance that the changing regulatory environment
will positively impact the Company.
Dividend Policy
The Open Market Plan prohibits the payment of dividends by
the Company's subsidiary, Frontier Telephone of Rochester,
Inc. ("FTR"), 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. Dividend
payments to Frontier also require FTR's directors to certify
that such dividends will not impair FTR's service quality or
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. FTR requested a waiver,
but was denied. The NYSPSC's ruling resulted in a
restriction on the flow of cash dividends from FTR to
Frontier. On October 22, 1997, the NYSPSC adopted an order
requiring FTR to issue refunds of approximately $0.9
million, or $2.60 per customer. Reserves sufficient to
cover the refund were established in 1996. These refunds
have been issued.
On October 15, 1998, the NYSPSC approved a proposal by FTR
for revision of its service incentive plan that:
- required a rebate of $8.00 per customer to resolve all
service penalties for 1997 and 1998, such rebates have
been issued,
- established a rebate/client program for missed
appointments, and
- increased the amounts at risk for the period 1999-2001
should FTR fail to meet required service levels.
In 1998, the Company completed its commitment to the
NYSPSC to increase capital expenditures to a minimum of
$80.0 million and add employees in service-affecting areas.
The temporary restriction of dividend payments from FTR to
the Company will remain in place until the NYSPSC is
satisfied that FTR's service levels demonstrate that FTR has
rectified the service deficiency.
On June 2, 1999, Moody's and S&P downgraded FTR's senior
debt ratings from A1/AA- to Baa2/BBB, respectively. These
ratings actions were a direct result of the announced merger
between the Company and Global Crossing Ltd. and did not
reflect any change in the financial condition or
creditworthiness of FTR. However, these actions triggered an
additional dividend restriction for FTR until either the
NYPSC approves the payment of dividends or FTR's senior debt
rating rises above BBB (for S&P, or the equivalent for other
rating agencies).
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. (later
known as Frontier Network Systems Corp. (FNS)), a
wholly-owned subsidiary of the registrant held through
intervening subsidiaries which was sold on April 15, 1999.
The plaintiffs seek environmental response costs incurred by
the plaintiffs pursuant to a consent decree entered into by
plaintiffs with the United States 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. On November 21, 1997, the EPA issued a
Proposed Remedial Action Plan" ("PRAP"). In the PRAP, the
EPA outlined four alternative plans for remediating the
site. A number of parties, excluding the Company, have
reached agreements with the EPA to fund certain future
remedy costs at the site consistent with the PRAP. There
has been no allocation of liability by the Court as among or
between the plaintiffs or defendants.
Since February 1994, a significant number of 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 shareholders, 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 shareholders 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 the cashout merger that
finally took ASI private was dismissed by the federal court
in Minnesota. The claims against the Company maintain only
that the Company 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.
At this time Simon and Weinert have either negotiated
settlements with the majority of former ASI shareholders who
had asserted claims or have succeeded in obtaining dismissal
of many of the lawsuits.
Although it is too early to determine the outcome of the
remaining lawsuits, the Company, ASI and the other
defendants each are contesting the claims. In connection
with the acquisition of ASI by the Company, Simon and
Weinert agreed to indemnify and defend the Company for these
claims.
On June 25, 1999, the Company was served with a summons
and complaint in a lawsuit commenced in the New York State
Supreme Court, Monroe County by a Frontier shareholder
alleging that the Company and its Board of Directors had
breached their fiduciary duties to shareholders by endorsing
a definitive merger agreement with Global Crossing Ltd.
without having adequately considered an alternative merger
proposal made by Qwest Communications International, Inc.
The lawsuit has been framed as a purported class action
brought on behalf of all shareholders of the Company and
seeks unstated compensatory damages and injunctive relief
compelling the Company's board to evaluate the Company's
suitability as a merger partner, to enhance the Company's
value as a merger candidate, to engage in discussions with
Qwest about possible business combinations, to act
independently to protect the interests of Frontier
shareholders, and to ensure that no conflicts of interest
exist which would prevent maximizing value to shareholders.
On July 16, 1999, the Company was served with a summons and
complaint in a second lawsuit commenced in Rochester, New
York on behalf of another named shareholder seeking
essentially identical relief. The Company believes the
claims asserted in both lawsuits are without merit and will
be defending itself vigorously.
On July 12, 1999, the Company was served with a summons
and complaint in a lawsuit commenced in New York State
Supreme Court, New York County by a Frontier shareholder
alleging that the Company and its board breached their
fiduciary duties by failing to obtain the highest possible
acquisition price for the Company in the definitive merger
agreement with Global Crossing. The action has been framed
as a purported class action and seeks compensatory damages
and injunctive relief. The claims against the Company are
asserted in the same action as similar but separate claims
against US West, Inc. Frontier believes the claims asserted
against it are meritless.
The Open Market Plan discussion in the Management's
Discussion and Analysis of Financial Condition and Results
of Operations, Part I, Item 2 of this document is
incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on April 29,
1999 for the purpose of electing a board of directors and
approving the ratification of auditors.
All of management's nominees for directors as listed in
the proxy statement were elected with the following vote:
Number of Shares/Votes
Name For Authority Withheld
Patricia C. Barron 147,045,823 1,070,424
Raul E. Cesan 147,129,464 986,783
Joseph P. Clayton 147,103,758 1,012,489
Brenda E. Edgerton 147,070,605 1,045,642
Jairo A. Estrada 147,071,648 1,044,599
Michael E. Faherty 147,086,804 1,029,443
Alan C. Hasselwander 147,020,471 1,095,776
Eric Hippeau 147,072,138 1,044,109
Robert Holland, Jr. 147,059,024 1,057,223
Douglas H. McCorkindale 147,127,551 988,696
James F. McDonald 147,090,361 1,025,886
Leo J. Thomas 147,114,818 1,001,429
The ratification of PricewaterhouseCoopers LLP as Public
Accountant for the fiscal year 1999 was approved with the
following vote:
For 147,085,666
Against 559,006
Abstain 471,575
Item 5. Other Information
On October 9, 1997, the FCC ordered carriers that receive
"dial around" calls from payphones (certain calls sent
without coins, such as 800 or other calls, with special
access codes) to compensate payphone owners at the rate of
28.4 cents per completed call. The Court of Appeals for the
District of Columbia Circuit found that the FCC had failed
to justify this rate and sent the matter back to the FCC for
further consideration. On February 4, 1999, the FCC set the
"dial around" compensation rate at 24 cents per completed
call retroactive to October 7, 1997. That decision is now
up for review in the United States District Court for the
District of Columbia Circuit. The Company has intervened in
that proceeding. Briefing of the issues is underway and the
Court is scheduled to hear oral argument in early November.
The FCC has yet to determine how to address the payphone
compensation obligation for the period from November 7, 1996
through October 6, 1997.
On July 15, 1998, an administrative complaint was filed by
Bell Atlantic Corp. seeking $3.2 million in compensation for
use of its payphones since October 7, 1997. On August 17,
1998, an administrative complaint was filed by Ameritech
Corp. with the FCC seeking $1.9 million in compensation for
the use of its payphones since October 7, 1997. On
September 1, 1998, SBC Communications Inc. filed an
administrative complaint with the FCC seeking $3.3 million
in compensation for the use of its payphones since October
7, 1997. On November 24, 1998, U S West Communication Group
filed an administrative complaint seeking $2.5 million in
compensation for the use of its payphones since October 7,
1997. On April 30, 1999, the Company and U S West executed
a settlement and on May 5, 1999, the parties filed a joint
motion to dismiss U S West's complaint. The filing of the
complaints has had no effect upon the position of the
Company with respect to payphone compensation. The Company
cannot predict the ultimate outcome of any of these FCC
proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) See Index to Exhibits for exhibits required by Item 601
of Regulation S-K.
The Registrant hereby agrees to furnish the Commission a
copy of each of the Indentures or other instruments defining
the rights of security holders of the long-term debt
securities of the Registrant and any of its subsidiaries for
which consolidated or unconsolidated financial statements
are required to be filed.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during or
subsequent to the quarter ended June 30, 1999.
SEC Filing Date Item Nos. Financial Statements
---------------------------------------------------
5/18/99 5,7 None
7/21/99 5 None
<PAGE>
SIGNATURE
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: August 3, 1999 /s/ Harold M. Winfield
By: ---------------------------------
Harold M. Winfield
Vice President and
Corporate Controller
(principal accounting officer)
<PAGE>
FRONTIER CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Description Reference
- ---------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation Incorporated by reference to
dated January 24, 1995 Exhibit 3.1 to Form 10-K
for the year ended
December 31, 1995
3.2 Amendment to Restated Certificate Incorporated by reference to
of Incorporation dated April 9, 1995 Exhibit 3.2 to Form 10-K
for the year ended
December 31, 1995
3.3 By-laws Incorporated by reference to
Exhibit 3.3 to Form 10-K
for the year ended
December 31, 1998
4.1 Indenture between the Company and Incorporated by reference to
Manufacturers Hanover Trust Company, Exhibit 4.12 to Form 10-K
Trustee, dated September 1, 1986 for the year ended
December 31, 1986
4.2 First Supplemental Indenture to said Incorporated by reference to
Indenture with Manufacturers Hanover Exhibit 4(b) to Registration
Trust Company, Trustee, dated Statement 33-32035
December 1, 1989
4.3 10.46% Non-Negotiable Convertible Incorporated by reference to
Debenture due October 27, 2008 from Exhibit 4.14 to Form 10-K
the Company to The Walters Trust for the year ended
December 31, 1988
4.4 9% Debenture due August 15, 2021 Incorporated by reference to
Exhibit 4.16 to Form 10-K
for the year ended
December 31, 1991
4.5 Indenture between the Company and Incorporated by reference to
Chase Manhattan Bank, N.A., Trustee, Exhibit 4.1 to Form 8-K
dated May 21, 1997, $300M 7.25% dated May 23, 1997.
Notes due May 15, 2004.
4.6 Supplemental Indenture between the Incorporated by reference to
Company and Chase Manhattan Bank, Exhibit 4.7 to Form 10-K
N.A. as Trustee, dated December 8, 1997, for the year ended
$100M 6.25% Notes due December 15, December 31, 1997.
2009.
4.7 $200 Million Credit Agreement Incorporated by reference to
dated November 10, 1998 with Exhibit 4.8 to Form 10-K
Chase Manhattan Bank, Fleet Bank, for the year ended
Marine Midland Bank December 31, 1998
4.8 $275 Million Credit Agreement Incorporated by reference to
dated November 10, 1998 with Exhibit 4.9 to Form 10-K
Chase Manhattan Bank, Fleet Bank, for the year ended
Marine Midland Bank December 31, 1998
4.9 $250 Million Credit Agreement Incorporated by reference to
dated April 29, 1999 with Morgan Exhibit 4.9 to Form 10-Q
Stanley, First National Bank of Chicago, for the quarter ended
and Fleet National Bank, et al. March 31, 1999
10.1 Amendment No. 3 to Supplemental Filed herewith
Management Pension Plan
10.2 Amendment No. 1 to Supplemental Filed herewith
Retirement Savings Plan
10.3 Amendment No. 5 to Management Filed herewith
Stock Incentive Plan
10.4 Amendment No. 3 to Employees' Filed herewith
Stock Option Plan
10.5 Amendment to management contract Filed herewith
with Mr. Barrett
10.6 Amendment to management contract Filed herewith
with Mr. Carey
10.7 Amendment to management contract Filed herewith
with Mr. Carr
10.8 Amendment to management contract Filed herewith
with Mr. Clayton
10.9 Amendment to management contract Filed herewith
with Mr. Detampel
10.10 Amendment to management contract Filed herewith
with Mr. Dole
10.11 Amendment to management contract Filed herewith
with Mr. Huff
10.12 Amendment to management contract Filed herewith
with Mr. McCue
10.13 Amendment to management contract Filed herewith
with Ms. Reeves-Collins
10.14 Change of Control Severance Plan Filed herewith
For Salary Band Levels 25 and Above
10.15 Letter to Mr. Clayton regarding deferral of Filed herewith
Restricted Stock Benefits
11 Statement re: Computation of Diluted Filed herewith
Earnings Per Common Share (Unaudited)
27 Financial Data Schedule Filed herewith
22714
FRONTIER CORPORATION
SUPPLEMENTAL MANAGEMENT PENSION PLAN
Amendment No. 3
Pursuant to Article Six, the Plan is amended, effective
March 16, 1999, as follows:
1. Section 6.1 is amended by deleting the current
provision in its entirety and substituting in its place the
following:
6.1 While the Company intends to maintain this Plan in
conjunction with the Funded Plan for as long as necessary,
the Board reserves the right to amend or terminate it at any
time for whatever reasons it may deem appropriate prior to a
Change in Control. Upon a Change in Control, this Plan may
not be amended or terminated to the extent that any such
amendment or termination would reduce the amount payable to
a Participant hereunder or otherwise prejudice a
Participant's rights or benefits under the Plan.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
30th day of June, 1999.
FRONTIER CORPORATION
By: Josephine S. Trubek
Title: Corporate Secretary
22713
Exhibit 10.2
FRONTIER CORPORATION
SUPPLEMENTAL RETIREMENT SAVINGS PLAN
Amendment No. 1
Pursuant to Article Eight, the Plan is amended, effective
March 16, 1999, as follows:
1. Article One is amended by adding the following new
Section 1.2 immediately after current Section 1.1 and by
renumbering the remaining sections accordingly:
1.2 "Change in Control" means any of the following:
(a) 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, other than any such
merger or consolidation in which the shareholder's of the
Company prior to such merger or consolidation own at least
65% of the voting equity of the successor entity following
such merger or consolidation. For the purposes of this
Agreement, a consolidation or merger with a corporation
which was a wholly-owned direct or indirect subsidiary of
the Company immediately before the consolidation or merger
is not a Change in Control; or
(b) 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, other than a
sale or exchange in which the acquiring party is an
affiliate of the Company in which at least 65% of the shares
are held (directly or indirectly) by the shareholders of the
Company; or
(c) The approval by the Company's shareholders of any
plan or proposal for the liquidation or dissolution of the
Company; or
(d) 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 shareholders
of the Company in substantially the same proportions as
their ownership of the Company'' 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 (or a successor's) then
outstanding common, voting equity; or
(e) 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, or who
has threatened to effect, a transaction described in this
Section 11.2) whose election or nomination for election by
the Company's shareholders 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.
2. Section 8.1 is amended by deleting the current
provision in its entirety and substituting in its place the
following:
Company's Authority. While it intends to maintain this
Plan in conjunction with ERSP for as long as necessary to
achieve its purposes, the Company reserves the right to
amend or to terminate the Plan at any time for whatever
reason it may deem appropriate prior to a Change in Control.
Upon a Change in Control, this Plan may not be amended or
terminated to the extent that any such amendment or
termination would reduce the amount payable to a Participant
hereunder or otherwise prejudice a Participant's rights or
benefits under the Plan. No Plan amendment shall accelerate
the payment of amounts previously deferred or provide for
additional benefits other than in the event of a Change in
Control.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
30th day of June, 1999.
FRONTIER CORPORATION
By: Josephine S. Trubek
Title: Corporate Secretary
22833
Exhibit 10-3
FRONTIER CORPORATION
MANAGEMENT STOCK INCENTIVE PLAN
AMENDMENT NO. 5
Pursuant to Section 14, Section 9(a) is amended, effective
March 16, 1999, by adding to the end thereof the following new
paragraph:
Notwithstanding the foregoing, an unvested option shall become
fully vested upon a participant's involuntary termination of
employment without cause on or after March 16, 1999 but prior to
the earlier of (1) the date on which the Company's acquisition by
Global Crossing is effective or (2) the date on which the Company
announces that the acquisition by Global Crossing is no longer
being actively pursued. Any such option plus any previously
vested option held by such participant may be exercised prior to
the earlier of the expiration date of the option or the
expiration of 90 days from the date of termination. For this
purpose, "cause" shall have such meaning as the Committee shall
determine, which meaning shall be applied uniformly and
consistently with respect to all participants similarly situated.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
1st day of May 1999.
FRONTIER CORPORATION
By: /s/Josephine S. Trubek
---------------------------------
Josephine S. Trubek
Corporate Secretary
Exhibit 10.4
FRONTIER CORPORATION
EMPLOYEES' STOCK OPTION PLAN
AMENDMENT NO. 3
Pursuant to Section 12, Section 7 is amended, effective
March 16, 1999, by adding to the end of the first paragraph
thereof the following new paragraph:
Notwithstanding the foregoing, an unvested option shall become
fully vested upon a participant's involuntary termination of
employment without cause on or after March 16, 1999 but prior to
the earlier of (1) the date on which the Company's acquisition by
Global Crossing is effective or (2) the date on which the Company
announces that the acquisition by Global Crossing is no longer
being actively pursued. Any such option plus any previously
vested option held by such participant may be exercised prior to
the earlier of the expiration date of the option or the
expiration of 90 days from the date of termination. For this
purpose, "cause" shall have such meaning as the Committee shall
determine, which meaning shall be applied uniformly and
consistently with respect to all participants similarly situated.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this amendment on its behalf this
1st day of May 1999.
FRONTIER CORPORATION
By: /s/Josephine S. Trubek
---------------------------------
Josephine S. Trubek
Corporate Secretary
23031
May 1, 1999
Mr. Robert L. Barrett
14 Stonebridge Lane
Pittsford, New York 14534
Dear Mr. Barrett:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated March 25, 1996 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement.
3. The third sentence of Section 6.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 6.2 is amended to read as follows:
6.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
6.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $25,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
5. The first phrase of the introductory sentence of
Section 6.4 is amended to
read as follows:
6.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 6.4.3 is amended to read
as follows:
6.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$25,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 6.4.3 shall
be amended to read as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 8:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 11.1.3 is amended to read as follows:
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 11.1.3 shall be of no force and
effect; or
10. Section 11.4.7 is renumbered to be Section 11.4.8 and
the following Section 11.4.7 is added:
11.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
11. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
---------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/Robert L. Barrett
- --------------------------
Robert L. Barrett
23032
May 1, 1999
Mr. David R. Carey
27 Sunrise Hill
Pittsford, New York 14534
Dear Mr. Carey:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated October 7, 1997 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement.
3. The third sentence of Section 7.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 7.2 is amended to read as follows:
7.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
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
7.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $15,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) 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.
5. The first phrase of the introductory sentence of
Section 7.4 is amended to
read as follows:
7.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 7.4.3 is amended to read
as follows:
7.4.3 Severance equal to 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) $15,000,
or if greater, the 1999 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 for the year of your
termination (v) the Company allocation which would have
been made to your account in the Company's Supplemental
Retirement Savings Plan (or any successor thereto) for
the year of your termination. 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.
7. The paragraph immediately following Section 7.4.3 shall
be amended to read
as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 9:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 12.1.3 is amended to read as follows:
12.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 12.1.3 shall be of no force and
effect; or
10. Section 12.1.4 is amended to read as follows:
12.1.4 You have been convicted of a felony or a crime
involving moral turpitude; provided, however, that on
and after a Change of Control this Section 12.1.4 shall
be limited to apply only to the conviction of a felony;
or
11. Section 12.4.7 is renumbered to be Section 12.4.8 and
the following Section
12.4.7 is added:
12.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
12. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
--------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/David R. Carey
- ------------------------
David R. Carey
23033
May 1, 1999
Mr. Jeremiah T. Carr
3455 Elmwood Avenue
Rochester, New York 14610
Dear Mr. Carr:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated August 16, 1995 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement. In such case, the Company also will not
assert that any activity covered under Section 4
constitutes inimical conduct under any circumstances.
3. The third sentence of Section 6.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i)
your annual cash performance bonus under the Company's
bonus program at the premier target level for the year
in which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 6.2 is amended to read as follows:
6.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
6.2.3 Severance ("Severance") equal to twice the
sum of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $25,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
Lastly, the Company shall credit you with an additional
24 months of service and age for the purposes of
determining the level of your retirement benefits under
any qualified or unqualified defined benefit pension,
supplemental or excess retirement plan maintained by
the Company for the year of your termination in which
you are a covered employee (the "Retirement Plans").
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
5. The first phrase of the introductory sentence of
Section 6.4 is amended to
read as follows:
6.4 Termination by Company Following Change of
Control or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 6.4.3 is amended to read
as follows:
6.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$25,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 6.4.5 shall
be amended to read
as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 8:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 11.1.3 is amended to read as follows:
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 11.1.3 shall be of no force and
effect; or
10. Section 11.4.7 is renumbered to be Section 11.4.8 and
the following Section 11.4.7 is added:
11.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
11. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or
agreement involving you and the Company, have the
meaning established in the applicable plan or
agreement, or in the absence of a definition or
consistently applied interpretation, shall mean a
voluntary or involuntary termination of your employment
after age 65, or at age 65 or earlier, with age and
service credits that would, in such case, entitle you
to receive a normal or early retirement service pension
under the Frontier Management Pension Plan (or any
successor or substitute plan or plans of Frontier
instituted prior to March 16, 1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
------------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/Jeremiah T. Carr
- -------------------------
Jeremiah T. Carr
23034
May 1, 1999
Mr. Joseph P. Clayton
20 Windham Hill
Mendon, New York 14506
Dear Mr. Clayton:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated January 1, 1998 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement.
3. The third sentence of Section 7.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 7.2 is amended to read as follows:
7.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
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
7.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $40,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) 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.
5. The first phrase of the introductory sentence of
Section 7.4 is amended to read as follows:
7.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 7.4.3 is amended to read
as follows:
7.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$40,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 7.4.3 shall
be amended to read as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 9:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 12.1.3 is amended to read as follows:
12.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 12.1.3 shall be of no force and
effect; or
10. Section 12.1.4 is amended to read as follows:
12.1.4 You have been convicted of a felony or a crime
involving moral turpitude; provided, however, that on
and after a Change of Control this Section 12.1.4 shall
be limited to apply only to the conviction of a felony;
or
11. Section 12.4.7 is renumbered to be Section 12.4.8 and
the following Section 12.4.7 is added:
12.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
12. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Douglas H. McCorkindale
--------------------------------
Douglas H. McCorkindale
Agreed and Accepted:
/s/Joseph P. Clayton
- ---------------------------
Joseph P. Clayton
23035
May 1, 1999
Mr. Donald F. Detampel, Jr.
6969 West 90th Avenue - Apartment 937
Westminster, Colorado 80021
Dear Mr. Detampel:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated December 1, 1998 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement.
3. The third sentence of Section 7.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 7.2 is amended to read as follows:
7.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
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
7.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $15,000, or if greater, the 1999 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 for the year of your
termination for the year of your termination plus (v)
the Company allocation which would have been made to
your account in the Company's Supplemental Retirement
Savings Plan (or any successor thereto) for the year of
your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) 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.
5. The first phrase of the introductory sentence of
Section 7.4 is amended to read as follows:
7.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 7.4.3 is amended to read
as follows:
7.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$15,000, or if greater, the 1999 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 for the year of your
termination for the year of your termination plus (v)
the Company allocation which would have been made to
your account in the Company's Supplemental Retirement
Savings Plan (or any successor thereto) for the year of
your termination. 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.
7. The paragraph immediately following Section 7.4.3 shall
be amended to read as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 9:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 12.1.3 is amended to read as follows:
12.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 12.1.3 shall be of no force and
effect; or
10. Section 12.1.4 is amended to read as follows:
12.1.4 You have been convicted of a felony or a crime
involving moral turpitude; provided, however, that on
and after a Change of Control this Section 12.1.4 shall
be limited to apply only to the conviction of a felony;
11. Section 12.4.7 is renumbered to be Section 12.4.8 and
the following Section 12.4.7 is added:
12.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
12. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
------------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/Donald F. Detampel, Jr.
- -------------------------------
Donald F. Detampel, Jr.
23036
May 1, 1999
Mr. James G. Dole
23 Brunson Way
Penfield, New York 14526
Dear Mr. Dole:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated August 16, 1995 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. A new section, Section 4.2.3(c), is added and shall
read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement. In such case, the Company also will not
assert that any activity covered under Section 4
constitutes inimical conduct under any circumstances.
3. The third sentence of Section 6.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 6.2 is amended to read as follows:
6.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
the Company shall pay you:
6.2.1 All Accrued Compensation;
6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5
above); and
6.2.3 Severance ("Severance") equal to 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)
$7,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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 12
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
Lastly, the Company shall credit you with an additional
12 months of service and age for the purposes of
determining the level of your retirement benefits under
any qualified or nonqualified defined benefit pension,
supplemental or excess retirement plan maintained by
the Company in which you are a covered employee (the
"Retirement Plans").
Except as otherwise provided in this Section 6.2, your
entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
5. The first phrase of the introductory sentence of
Section 6.4 is amended to read as follows:
6.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 6.4.3 is amended to read
as follows:
6.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$7,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 6.4.5 shall
be amended to read as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 8:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 11.1.3 is amended to read as follows:
11.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 11.1.3 shall be of no force and
effect;; or
10. Section 11.4.7 is renumbered to be Section 11.4.8 and
the following Section
11.4.7 is added:
11.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
11. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
-------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/James G. Dole
- -------------------------
James G. Dole
23037
May 1, 1999
Mr. Rolla Huff
17 Moraine Point
Victor, New York 14564
Dear Mr. Huff:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated May 22, 1998 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement.
3. The third sentence of Section 7.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 7.2 is amended to read as follows:
7.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
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
7.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $18,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) 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.
5. The first phrase of the introductory sentence of
Section 7.4 is amended to read as follows:
7.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 7.4.3 is amended to read
as follows:
7.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$18,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 7.4.3 shall
be amended to read as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 9:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 12.1.3 is amended to read as follows:
12.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 12.1.3 shall be of no force and
effect; or
10. Section 12.1.4 is amended to read as follows:
12.1.4 You have been convicted of a felony or a crime
involving moral turpitude; provided, however, that on
and after a Change of Control this Section 12.1.4 shall
be limited to apply only to the conviction of a felony;
or
11. Section 12.4.7 is renumbered to be Section 12.4.8 and
the following Section 12.4.7 is added:
12.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
12. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
---------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/Rolla P. Huff
- --------------------------
Rolla P. Huff
23038
May 1, 1999
Mr. Martin T. McCue
14 Fall Meadow Drive
Pittsford, New York 14534
Dear Mr. McCue:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated January 1, 1998 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement. In such case, the Company also will not
assert that any activity covered under Section 4
constitutes inimical conduct under any circumstances.
3. The third sentence of Section 7.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 7.2 is amended to read as follows:
7.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
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
7.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $15,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) 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.
5. The first phrase of the introductory sentence of
Section 7.4 is amended to
read as follows:
7.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 7.4.3 is amended to read
as follows:
7.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$15,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 7.4.3 is
amended to read as
follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 9:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 12.1.3 is amended to read as follows:
12.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 12.1.3 shall be of no force and
effect; or
10. Section 12.1.4 is amended to read as follows:
12.1.4 You have been convicted of a felony or a crime
involving moral turpitude; provided, however, that on
and after a Change of Control this Section 12.1.4 shall
be limited to apply only to the conviction of a felony;
or
11. Section 12.4.7 is renumbered to be Section 12.4.8 and
the following Section
12.4.7 is added:
12.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
12. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
This amendment does not modify to your detriment the
application of provisions in your current agreement that provide
that you will be credited with certain age and years of service
credits upon a Change of Control so as to enable you to enter
Retirement thereafter if you so elect.
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
--------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/Martin T. McCue
- ---------------------------
Martin T. McCue
23039
May 1, 1999
Ms. Donna L. Reeves
26 Sunrise Hill
Pittsford, New York 14534
Dear Ms. Reeves:
As you know, Frontier Corporation (the "Company") has
entered into an agreement which would constitute a Change of
Control pursuant to the agreement between yourself and the
Company dated October 14, 1997 (the "COC Agreement"). In
contemplation of a Change of Control, the Company and you agree
to amend your COC Agreement as follows:
1. Section 4.2.3(b) is amended to read as follows:
(b) The period of your employment by the Company
(whether under this Agreement or otherwise) and 24
months thereafter, if your employment is terminated,
prior to a Change of Control (i) because of your
Retirement, or (ii) by the Company for Cause or without
Cause;
2. Section 4.2.3(d) is amended to read as follows:
(d) On and after a Change of Control has occurred, or
if your employment is terminated for Good Reason, the
period of your employment by the Company under this
Agreement. In such case, the Company also will not
assert that any activity covered under Section 4
constitutes inimical conduct under any circumstances.
3. The third sentence of Section 7.1.5 is amended to read
as follows:
The term "Bonus Amount" means the greatest of: (i) your
annual cash performance bonus under the Company's bonus
program at the premier target level for the year in
which the Termination Date occurs, but no lower than
the premier target level established and in effect
prior to March 16, 1999; (ii) the bonus paid or payable
to you with respect to the fiscal year preceding the
year in which the Termination Date occurs; or (iii)
following a Change of Control, the bonus paid to you
with respect to the fiscal year preceding the year in
which the Change of Control occurred.
4. Section 7.2 is amended to read as follows:
7.2 Termination Without Cause. If the Company
terminates your employment without Cause (as defined
later in this Agreement) prior to a Change of Control,
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
7.2.3 Severance ("Severance") equal to twice the sum
of (i) the annual base compensation you would have
received for the entire fiscal year in which the
Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $15,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) 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.
5. The first phrase of the introductory sentence of
Section 7.4 is amended to
read as follows:
7.4 Termination by Company Following Change of Control
or Termination for Good Reason. If the Company
terminates your employment on and after a Change of
Control, or you terminate your employment for Good
Reason (whether or not you elect to retire, if
eligible), the Company shall pay you:
6. The first paragraph of Section 7.4.3 is amended to read
as follows:
7.4.3 Severance equal to three times the sum of (i)
the annual base compensation you would have received
for the entire fiscal year in which the Termination
Date occurs plus (ii) the Bonus Amount plus (iii)
$15,000, or if greater, the 1999 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 for the year of your
termination plus (v) the Company allocation which would
have been made to your account in the Company's
Supplemental Retirement Savings Plan (or any successor
thereto) for the year of your termination. 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.
7. The paragraph immediately following Section 7.4.3 shall
be amended to read
as follows:
In addition, the Company shall continue to provide to
you and your family at the Company's expense, for 36
months following the Termination Date, the life
insurance, disability, medical, dental, vision and
hospitalization benefits provided to you and (other
than for disability) your family immediately prior to
the Termination Date.
8. The following proviso is added to the end of Section 9:
; provided, however, that on and after a Change of
Control neither the Company nor any other person shall
be permitted to terminate any payments or benefits
under the terms of this section.
9. Section 12.1.3 is amended to read as follows:
12.1.3 You have willfully engaged in conduct which is
illegal or in violation of the Company's Code of
Ethics; provided, however, that on and after a Change
of Control this Section 12.1.3 shall be of no force and
effect; or
10. Section 12.1.4 is amended to read as follows:
12.1.4 You have been convicted of a felony or a crime
involving moral turpitude; provided, however, that on
and after a Change of Control this Section 12.1.4 shall
be limited to apply only to the conviction of a felony;
or
11. Section 12.4.7 is renumbered to be Section 12.4.8 and
the following Section 12.4.7 is added:
12.4.7 Without your express written consent, after a
Change of Control, any requirement that you relocate
your principal place of business more than 50 miles
from your principal place of business immediately prior
to such Change of Control or any substantial increase
in business related travel over the level of travel
required immediately prior to the Change of Control; or
12. The term "Retirement" above is used in the event you
are or are currently entitled to become retirement
eligible, and does not create new retirement
eligibility. In the absence of a definition in your
existing agreement, for purposes of this COC Amendment,
the following definition applies:
"Retirement" shall, for each affected plan or agreement
involving you and the Company, have the meaning
established in the applicable plan or agreement, or in
the absence of a definition or consistently applied
interpretation, shall mean a voluntary or involuntary
termination of your employment after age 65, or at age
65 or earlier, with age and service credits that would,
in such case, entitle you to receive a normal or early
retirement service pension under the Frontier
Management Pension Plan (or any successor or substitute
plan or plans of Frontier instituted prior to March 16,
1999.)
Three signed copies of this amendment have been enclosed.
The amendments being made herein are being made pursuant to
authorization of the board of directors of the Company. Your
agreement and this COC Amendment will not adversely impact the
validity or treatment of any separate agreement that you have
with the Company with respect to options, loan forgiveness or the
like that was in place as of March 16, 1999.
If you agree to the above mentioned changes to your COC
Agreement, please sign all copies below and return two of the
signed original agreements to Mr. McCue.
Sincerely,
/s/Joseph P. Clayton
------------------------
Joseph P. Clayton
Agreed and Accepted:
/s/Donna L. Reeves
- ----------------------------
Donna L. Reeves
11
22753
CHANGE OF CONTROL SEVERANCE PLAN
FOR SALARY BAND LEVELS 25 AND ABOVE
WHEREAS, the Board of Directors (the "Board") of
Frontier Corporation (the "Company") recognizes that the
possibility of a Change of Control (as hereinafter defined)
exists and that the threat, or the occurrence, of a Change of
Control can result in significant distraction of its personnel
because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential
and in the best interest of the Company and its shareholders to
retain the services of certain employees (other than those with
change of control or employment agreements) in the event of a
threat, or occurrence, of a Change of Control and to ensure the
employees' continued dedication and efforts in such event without
undue concern for their personal financial and employment
security; and
WHEREAS, in order to induce the employees to remain in
the employ of the Company or any Employer (as hereinafter
defined), particularly in the event of a threat, or the
occurrence, of a Change of Control, the Company desires to
establish this Change of Control Severance Plan for Salary Band
Levels 25 and Above (the "Plan") to provide eligible employees
with certain benefits in the event of certain terminations of
their employment within two years following a Change of Control.
NOW, THEREFORE, the Company does hereby establish the
Plan in accordance with the following terms:
1. Term of Plan. This Plan shall become effective on
the Effective Date and remain in effect until the second
anniversary of a Change of Control; provided, however, that the
Company shall in all events remain liable to provide any amounts
or benefits to which a Participant became entitled hereunder
prior to such anniversary.
2. Eligible Employees. This Plan shall apply to all
full- and part-time regular employees in salary bands 25 through
41, 25S through 33S, SA, SB, SC and SD, or any salary category
applicable to a Participant that replaces or supersedes these
salary bands, and who are employed by the Company immediately
prior to a Change of Control.
However, this Plan does not cover:
- employees covered by a collective
bargaining agreement
- temporary employees
- leased employees
- interns
- inactive employees
Employees covered by individual employment contracts and/or
employees of international business units shall participate in
this Plan only insofar as the benefits received under such
individual employment agreement or non-US severance program are
in the aggregate less than the benefits provided for under this
Plan. In such case, benefits received shall be limited to the
greater of benefits under this Plan or those received under such
participant's individual employment agreement or non-US severance
program.
3. Definitions. For purposes of this Plan, the
following definitions shall apply:
"Base Salary" shall mean the higher of the
Participant's annual base salary on either the Effective Date or
the Termination Date.
"Cause" shall mean the termination of a
Participant due to:
(i) the failure of the Participant to
perform substantially the Participant's duties with the
Employer (other than any such failure resulting from
incapacity due to physical or mental illness), after
written notice of nonperformance is provided to or a
demand for substantial performance is made upon the
Participant by an officer of the Employer or the
Participant's superior or the engaging by a Participant
in insubordinate or disloyal conduct with respect to
the Employer;
(ii) the willful engaging by a Participant in
any misconduct which is demonstrably injurious to the
Company or any Employer; or
(iii) a material violation by the Participant
of any written policies of the Company or any Employer
with regards to performance, conduct on the job or
integrity which violation is reasonably determined to
justify a termination of employment for Cause in
accordance with the Company's past practice.
"Change of Control" shall mean any of the
following events:
(i) 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, other than any such merger or consolidation
in which the shareholders of the Company prior to such
merger or consolidation own at least 65% of the voting
equity of the successor entity following such merger or
consolidation. For the purposes of this Plan, 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
(ii) 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, other than a sale or exchange in
which the acquiring party is an affiliate of the
Company in which at least 65% of the shares are held
(directly or indirectly) by the shareholders of the
Company; or
(iii) The approval by the Company's shareholders
of any plan or proposal for the liquidation or
dissolution of the Company; or
(iv) 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 shareholders 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 (or a
successor's) then outstanding common, voting equity; or
(v) 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, or who has threatened to effect, a
transaction described in subparagraphs (i)-(iv)) whose
election or nomination for election by the Company's
shareholders 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.
"COBRA" shall mean the Consolidated Omnibus
Reconciliation Act of 1985, as amended.
"Disability" shall mean the Participant's absence from
the full-time performance of the Participant's duties (as they
existed immediately prior to such absence) for a period of time
longer than 180 days within a 365-day rolling calendar, when the
Participant is disabled as a result of incapacity due to physical
or mental illness or serious injury.
"Effective Date" shall mean the date on which a Change
of Control occurs, including the date on which the merger
contemplated in the Merger Agreement is completed.
"Employer" shall mean the Company, or any parent,
subsidiary, or affiliate of the Company (as defined pursuant to
sections 414(b) or 414(c) of the Internal Revenue Code, as
amended) or successor thereto, for which a Participant performs
services or is employed thereby, as applicable to each
Participant.
"Good Reason" shall mean the occurrence after a Change
of Control of any of the following events or conditions which is
not done with the Participant's written consent or other
acquiescence or is not cured within thirty (30) days after the
Company receives written notice from the Participant setting
forth in reasonable detail the basis for the Participant's claim
of Good Reason:
(i) any reduction in the Participant's Base
Salary from the Base Salary in effect immediately prior
to the Change of Control;
(ii) any significant diminution in the
Participant's titles, duties or responsibilities from
those he or she held immediately prior to the Effective
Date; and
(iii) the Participant is required to be based at a
location more than 50 miles from the location where the
Participant was based and performed services
immediately prior to the Effective Date or any
substantial increase in the Participant's business
related travel over the level of travel required of
such Participant immediately prior to the Effective
Date.
"Merger Agreement" shall mean the agreement of merger
between Frontier Corporation and Global Crossing Ltd. dated
March 16, 1999.
"Participant" shall mean an eligible employee under
Section 2 of this Plan.
"Retirement" shall mean a termination of employment by
the Participant pursuant to late, normal or early retirement
under a pension plan sponsored by the Company, as defined in such
plan.
"Severance Period" shall mean the number of months a
Participant is entitled to receive severance payments pursuant to
Section 4(a) of this Plan.
"Termination Date" shall mean in the case of the
Participant's death, his or her date of death, or in all other
cases, the date specified in any notice of termination.
4. Benefits Upon Termination. Subject to the
limitations set forth in succeeding paragraphs, a Participant
who, within two years following a Change of Control, terminates
employment from the Employer due to a reason other than Cause, or
terminates employment for Good Reason (both as defined herein),
shall be entitled to the following benefits:
(a) Severance. The Participant shall receive, based
on his or her respective Salary Band Level or equivalent, cash
severance payments, payable in installments pursuant to the
normal payroll practices of the Company, equal to the following:
(i) Salary Band Levels 25 through 28, 25S
through 28S, SA and SB. One month of Base Salary for
each full or partial calendar year of service with the
Company, with a minimum payment of six (6) months Base
Salary.
(ii) Salary Band Levels 29 through 30, 29S,
30S, SC and SD. One month of Base Salary for each full
or partial calendar year of service with the Company,
with a minimum payment of twelve (12) months Base
Salary.
(iii) Salary Band Levels 31 and above. Two
months of Base Salary for each full or partial calendar
year of service with the Company, with a minimum
payment of twelve (12) months Base Salary.
In no event shall any Participant be entitled to
receive more than 24 months of Base Salary.
(b) Additional Payments. In addition to the severance
payment in (a), above, a Participant shall receive additional
payments, also payable in installments pursuant to the normal
payroll practices of the Company, equal to the following:
(i) any accrued but unpaid Base Salary
through the Termination Date, any unpaid bonus
attributable to the prior year, and any unpaid due and
owing commissions;
(ii) a pro rata portion, if any, of the
annual bonus at the standard level that would be
payable pursuant to the annual incentive plan in which
the Participant participates (calculated through the
Termination Date);
(iii) for commissioned sales employees, an
amount equal to the Participant's average monthly sales
commission for the immediately preceding six months
multiplied by the number of months constituting the
Participant's Severance Period;
(iv) an amount, if any, equal to any accrued
paid time off in full satisfaction of the Participant's
rights thereto.
(c) Welfare Benefits. The Company and the Participant
shall continue to make such contributions as were required to be
paid by the Company and the Participant immediately prior to the
Termination Date for, and the Participant shall continue to
receive, medical, dental, and vision benefits for the Participant
and the Participant's eligible dependents on the same basis as in
effect prior to the Change of Control or the Participant's
Termination Date, whichever is deemed to provide for more
substantial benefits, for a period equal to the number of months
constituting the Severance Period; thereafter, the Participant
may continue to be covered under the plans of the Employer
providing such benefits at the Participant's expense at the
applicable COBRA rate for the duration of the COBRA period which
begins to run as of the Termination Date of the Participant;
provided, however, in the event that the Participant commences
comparable benefit coverage with a subsequent employer during the
Severance Period, such Employer benefit coverage shall cease. If
a Participant does not have medical, dental or vision coverage
through the Employer immediately preceding the Termination Date,
this paragraph shall not be construed as giving the Participant
any additional rights with respect to these benefits.
(d) Outplacement. If the Participant chooses to
receive the Company's outplacement services, the Company shall
provide such outplacement services, so long as such services do
not exceed 10% of the Participant's Base Salary.
(e) Withholding. Payments and benefits provided
pursuant to this Section 4 shall be subject to any applicable
payroll and other taxes required to be withheld.
(f) No Mitigation. The Participant shall not be
required to mitigate the amount of any payment provided for in
this Plan by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Participant in any
subsequent employment, other than is set forth in Section 4(c).
(g) Offset for Other Severance. In the event that the
Participant is eligible for severance under any other plan or
agreement of the Company or any Employer, then any cash severance
amounts payable pursuant to this Plan shall be reduced by the
amount of any cash severance payments payable under such other
plan or agreement. Additionally, any award or settlement
received in any successful claim against the Company shall be
offset by severance payments received under this Plan.
5. Limitations on Benefits.
(a) No benefits shall be paid to a Participant
who voluntarily terminates employment without Good Reason or who
terminates employment through death.
(b) No benefits shall be paid to an employee
whose employment is terminated for Cause.
(c) A Participant will not receive benefits under
this Plan in the event that the business unit for which the
Participant provides services is sold, spunoff, merged or
otherwise disposed to a third party and the Participant is
offered employment by the successor entity. Nothing in this
subparagraph is deemed to limit the Participant's ability to
invoke Good Reason with respect to the employment opportunity
offered through the successor entity.
(d) No benefits shall be paid to a Participant
whose employment terminates by reason of Retirement, unless such
Retirement is associated with an event giving rise to severance
benefits under this Plan.
(e) A Participant will not receive benefits
under this Plan in the event the Participant's employment is
terminated due to a 365-day absence from work following the
Participant's Disability Date; provided, however, such
termination from work shall be effected pursuant to the
provisions of the Company's Long-Term Disability Program.
6. Notices. Termination by the Employer of the
Participant's employment for any reason shall be made by delivery
to the Participant of a written notice specifying the basis for
such termination ("Notice of Termination"). For the purposes of
this Plan, notices and all other communications provided for in
the Plan shall be in writing and shall be deemed to have been
duly given when personally delivered, delivered by a nationally
recognized overnight delivery service, or sent by certified mail,
return receipt requested, postage prepaid, addressed to the
respective address last given by each party to the other,
provided that all notices to the Employer shall be directed to
the attention of the General Counsel with a copy to the Secretary
of the Employer. All notices and communications shall be deemed
to have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
7. Amendment and Termination. This Plan may not be
amended or terminated during the period commencing on the date of
a Change of Control and ending on the second anniversary of the
Change of Control; provided, however, that no amendment or
termination after May 15, 1999 of this Plan may alter or curtail
the entitlements of a Participant accrued under the terms of this
Plan by virtue of a termination of the Participant's employment
prior to such amendment or termination and the Company shall
continue to provide the benefits or payments to which a
Participant had become entitled hereunder prior to the
termination or amendment of this Plan.
8. Non-exclusivity of Rights. Nothing in this Plan
shall prevent or limit the Participant's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Company, its parent, subsidiaries,
affiliates and successors thereto, and for which the Participant
may qualify, nor shall anything herein limit or reduce such
rights as the Participant may have under any agreements with the
Company or any of the foregoing related entities (although any
such severance benefits reduce the severance payable under this
Plan). Amounts which are vested benefits or which the
Participant is otherwise entitled to receive under any plan or
program of the Company or any of the foregoing related entities
shall be payable in accordance with such plan or program, except
as explicitly modified by this Plan.
9. Joint and Several Liability. Each entity included
in the definition of "Employer" and any successors or assigns
shall be jointly and severally liable with the Company under this
Plan.
10. Governing Law. This Plan shall be governed by and
construed and enforced in accordance with the laws of the State
of New York without giving effect to the conflict of law
principles thereof. For purposes of jurisdiction and venue, the
Company and each Employer hereby consent to jurisdiction and
venue in any action, suit or proceeding in any court of competent
jurisdiction in any state in which the Participant resides at the
commencement of such action, suit or proceeding and waives any
objection, challenge or dispute as to such jurisdiction or venue
being proper.
11. Successors and Assigns. This Plan shall be
binding upon and shall inure to the benefit of the Company, its
successors and assigns, and the Company shall require any
successor or assign to expressly assume and agree to maintain
this Plan and to perform under this Plan to the same extent that
the Company would be required to perform under the Plan if no
such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The terms "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all of the stock or
all or substantially all the assets and business of the Company
whether by operation of law or otherwise and shall include but
not be limited to Global Crossing Ltd. and the surviving
corporation in existence upon completion of the merger
contemplated in the Merger Agreement, or any other firm with whom
the Company merges or is merged into or is acquired, as well as
all successors and assigns by merger or otherwise to Global
Crossing Ltd. or any other acquirer of the Company.
12. Severability. The provisions of this Plan shall
be deemed severable, and the invalidity or unenforceability of
any provision hereof shall not affect the validity or
enforceability of the other provisions hereof.
13. Claims for Benefits. All claims for benefits
under this Plan must be submitted to the Employees' Benefit
Committee within 60 days following termination of employment. In
the event a claim for benefits is denied, the Employees' Benefit
Committee will provide the employee with a written notice stating
the specific reason or reasons for denial, including specific
provisions of the Plan relied upon. The notice will also explain
what is necessary to perfect the claim, if possible, and inform
the employee that the denial may be appealed. Such denial may be
appealed by written request to the Employees' Benefit Committee
within a reasonable time. Within 60 days of receiving a request
for review of a denied claim, the Employees' Benefit Committee
shall provide a written decision to the employee.
14. Plan Administration. The Plan is administered by
the Employees' Benefit Committee, which shall have the sole
discretion to determine eligibility for benefits and to interpret
the Plan and shall possess all powers necessary to administer the
Plan. The Employees' Benefit Committee may designate in writing
one or more of the Employer's employees or one or more other
persons to carry out its duties under this Plan. The Employees'
Benefit Committee is the Named Fiduciary and Plan Administrator
as these terms are used in the Employee Retirement Income
Security Act of 1974 ("ERISA").
15. Miscellaneous Information.
Plan Sponsor: Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Sponsor's Employer Identification Number: 16-0613330
Plan Administrator and Agent for Service of
Legal Process:
Employees' Benefit Committee
Frontier Corporation
180 South Clinton Avenue
Rochester, NY 14646
(716) 777-7133
Plan Number: 502
16. Statement of Participant Rights. As a Participant
in the Plan you are entitled to certain rights and protections
under the Employee Retirement Income Security Act of 1974
("ERISA"). These rights and protections have been summarized in
government regulations which require that we inform you of them
in the following statement:
ERISA provides that all plan participants shall be
entitled to:
Examine, without charge, at the plan administrator's
office and at other specified locations, such as worksites, all
plan documents, including insurance contracts, and copies of all
documents filed by the Plan with the U.S. Department of Labor,
such as detailed annual reports and plan descriptions.
Obtain copies of all plan documents and other plan
information upon written request to the plan administrator. The
administrator may make a reasonable charge for the copies.
Receive a summary of the plan's annual financial
report. The plan administrator is required by law to furnish
each participant with a copy of this summary annual report.
In addition to creating rights for plan participants,
ERISA imposes duties upon the people who are responsible for the
operation of the employee benefit plan. The people who operate
your plan, called "fiduciaries" of the plan, have a duty to do so
prudently and in the interest of you and other plan participants
and beneficiaries. No one, including your employer, or any other
person, may fire you or otherwise discriminate against you in any
way to prevent you from obtaining a welfare benefit or exercising
your rights under ERISA. If your claim for a welfare benefit is
denied in whole or in part you must receive a written explanation
of the reason for the denial.
You have the right to have the plan review and
reconsider your claim. Under ERISA, there are steps you can take
to enforce the above rights. For instance, if you request
materials from the plan and do not receive them within 30 days,
you may file suit in a federal court. In such a case, the court
may require the plan administrator to provide the materials and
pay you up to $100 a day until you receive the materials, unless
the materials were not sent because of reasons beyond the control
of the administrator. If you have a claim for benefits which is
denied or ignored, in whole or in part, you may file suit in a
state or federal court. If it should happen that you are
discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor or you may file suit
in a federal court. The court will decide who should pay court
costs and legal fees. If you are unsuccessful the court may
order you to pay these costs and fees, for example, if it finds
your claim is frivolous. If you have any questions about your
plan, you should contact the plan administrator. If you have any
questions under this statement or about your rights under ERISA,
you should contact the nearest Area Office of the U.S. Labor-
Management Services Administration, Department of Labor.
Although this government statement emphasizes your
right to bring a lawsuit in federal court or to seek Labor
Department assistance, most disputes can probably be resolved
short of such actions. The Employees' Benefit Committee may be
able to help you without need to resort to government assistance.
Dated: May 14, 1999 FRONTIER CORPORATION
/s/ Martin T. McCue
By: _______________________
Martin T. McCue
Senior Vice President and
General Counsel
23020
July 17, 1998
Joseph P. Clayton
Chief Executive Officer
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646-0007
RE: Deferral of Restricted Stock Benefits
This letter implements, in accordance with Internal Revenue
Code requirements, paragraph 2(f) of the 100,000 share Restricted
Stock Agreement dated February 10, 1998 between you and the
Company. Paragraph 2(f) states that any shares which vest under
the Agreement will be deferred and paid to you on October 11,
2004 in either a lump sum or in installment payments over a
period of years not to exceed 10.
The following terms and conditions apply to this deferral:
-- All shares that become vested under the Agreement
plus any dividends payable on them will be deferred and credited
to a deferral account maintained by the Company for your benefit.
At least annually, the Company will provide you with a statement
setting forth the number of shares and the amount of cash, if
any, held in your account together with pertinent transactions
with respect to the account since the last statement.
-- Any dividends payable on the deferred shares will
be reinvested, together with any other cash already in your
account, in the largest possible whole number of shares of
Company stock with any fractional share held in cash.
-- Within 30 days following October 11, 2004, both the
restricted shares and any cash in your deferral account will be
paid to you in a lump sum payment unless you elect at least three
years prior to October 11, 2004, i.e., before October 11, 2001,
to receive the balance in your account in annual installment
payments over a period of years not to exceed 10.
If you elect installment payments, the first
annual installment will be paid within 30 days following October
11, 2004 and each subsequent annual installment will by made
within 30 days following the relevant anniversary of October 11,
2004. The number of shares to be paid each year will be the
nearest whole number of shares obtained by multiplying the total
number of shares held in the deferral account immediately
preceding the payment date by a fraction, the numerator of which
is one and the denominator of which is the total number of annual
installments you have elected minus the number of installments
already paid. Any cash in your account representing a fractional
share will be paid with the final installment. If you elect
installment payments and die before all payments have been made,
the remaining balance of shares and cash in your deferral account
will be paid in a lump sum to your estate as soon as
administratively practicable following your death.
-- In the event of your death before any payments
have commenced, the entire balance of shares and cash held in
your deferral account will be paid in a lump sum to your estate
as soon as administratively practicable following your death.
-- In the event of an unforeseeable financial
emergency prior to all benefits being paid, the Company, in its
sole discretion, may elect to accelerate the payment of benefits
to you in such amount as it deems appropriate to alleviate the
financial emergency.
-- The maintenance of the deferral account is for
bookkeeping purposes only. The Company may, but is not obligated
to, acquire or set aside any particular assets for the discharge
of its obligations, nor will you have any property rights in any
particular assets held by the Company, whether or not held for
the purpose of funding the Company's obligations to you. Your
right, or the right of your estate upon your death, to receive
future payments pursuant to this arrangement is an unsecured
claim against the general assets of the Company. In other words,
your rights to payment are the same as any other unsecured
general creditor of the Company, a condition required by the tax
laws in order to have an effective deferral. Notwithstanding
the foregoing, your right to receive payment under this
arrangement is a vested right that cannot be forfeited due to any
action by you or the Company, such as your termination of
employment after the shares have vested under the Agreement but
before they are paid out under this arrangement.
-- Your rights under this arrangement are not
transferable other than by will or the laws of descent and
distribution and are exercisable during your lifetime only by
you, your guardian or your legal representative.
-- The terms of this arrangement shall be interpreted
in light of the terms of the Agreement and the Company's
Management Stock Incentive Plan in the event any question under
this arrangement arises that is not addressed directly herein.
If you agree with the terms of this letter, please so
signify by executing the acceptance below.
Very truly yours,
/s/ Janet Sansone
-----------------------
Janet Sansone
I agree with the terms and conditions set forth above.
Dated 2/16/99 /s/Joseph P. Clayton
--------------------------
Joseph P. Clayton
<PAGE>
<TABLE>
Exhibit 11
Frontier Corporation
Computation of Diluted Earnings Per Common Share
(Unaudited)
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
In thousands of dollars,
except per share data 1999 1998 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Income Applicable to Common Stock $ 37,118 $ 45,656 $ 76,769 $ 79,319
Interest expense on convertible debentures,
net of tax 90 90 180 180
- --------------------------------------------------------------------------------------
Diluted Income Applicable to Common Stock $ 37,208 $ 45,746 $ 76,949 $ 79,499
======================================================================================
Weighted Average Shares Outstanding-Basic 172,542 170,390 172,048 170,230
Stock options and warrants 6,190 3,200 4,722 2,716
Convertible debentures 503 503 503 503
- --------------------------------------------------------------------------------------
Weighted Average Shares Outstanding-Diluted 179,235 174,093 177,273 173,449
======================================================================================
Diluted Earnings Per Common Share $ 0.21 $ 0.26 $ 0.43 $ 0.46
======================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FRONTIER CORPORATION'S FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD
ENDED 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 99,453
<SECURITIES> 0
<RECEIVABLES> 491,488
<ALLOWANCES> 60,912
<INVENTORY> 7,243
<CURRENT-ASSETS> 577,637
<PP&E> 3,652,617
<DEPRECIATION> 1,614,160
<TOTAL-ASSETS> 3,474,438
<CURRENT-LIABILITIES> 551,229
<BONDS> 1,647,960
0
18,294
<COMMON> 173,270
<OTHER-SE> 941,174
<TOTAL-LIABILITY-AND-EQUITY> 3,474,438
<SALES> 0
<TOTAL-REVENUES> 1,321,597
<CGS> 0
<TOTAL-COSTS> 1,174,055
<OTHER-EXPENSES> 173
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 29,850
<INCOME-PRETAX> 132,686
<INCOME-TAX> 55,411
<INCOME-CONTINUING> 77,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,275
<EPS-BASIC> .45
<EPS-DILUTED> .43
</TABLE>
