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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 1-4166
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FRONTIER CORPORATION
(Exact name of Registrant as specified in its charter)
New York 16-0613330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 South Clinton Avenue, Rochester, New York 14646-0700
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 777-1000
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of Class Name of each exchange on which registered
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Common Stock, par value $1.00 per share New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1999 is $6,113,615,520. The number of shares
outstanding of Frontier Corporation's common stock (Par Value $1.00 per share)
as of the close of March 1, 1999 is 172,277,729 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's 1998 Annual Report to Shareholders including
Management's Discussion of Results of Operations and Analysis of Financial
Condition, Consolidated Financial Statements and Notes to Consolidated
Financial Statements, as presented in Exhibit No. 13 of this Form 10-K, are
incorporated by reference in Parts I, II and IV hereof.
(2) Portions of the Notice of Annual Meeting and Proxy Statement issued by the
registrant in connection with its Annual Meeting of Shareholders to be held
April 29, 1999, as presented in Exhibit No. 99 of this Form 10-K, are
incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
General
Frontier Corporation ("Frontier" or the "Company") provides integrated
telecommunications services including Internet, Internet Protocol ("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. Although certain of its subsidiaries date
to 1899, the Company was incorporated in 1920 under the laws of New York State
to take over and unify the properties of a predecessor company and certain
properties of the New York Telephone Company which were located in the same
general territory. Frontier is headquartered in Rochester, New York. Through
its Integrated Services segment, the Company is one of the nation's largest long
distance companies. This segment provides domestic and international voice,
data products, video and audio communications, digital distribution services,
Internet service and other communications products to primarily small to mid-
size business customers, carrier customers, web-centric customers and targeted
consumer markets. The Company's Local Communications Services segment consists
of 34 local telephone companies, which as of December 31, 1998, serve over one
million access lines in thirteen states and is one of the largest local exchange
service providers in the United States. The Corporate Operations and Other
segment includes 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 Frontier Network Systems ("FNS"). FNS
markets and installs telecommunications systems and equipment. This segment
previously included the wireless operations of Minnesota Southern Cellular
Telephone Company ("Minnesota RSA No. 10") and the Company's 69.5% interest in
South Alabama Cellular Communications Partnership RSAs No. 4 and No. 6 ("Alabama
RSA No. 4 and No. 6"). The sale of Minnesota RSA No. 10 was finalized April 30,
1998. The Alabama interest was sold in January 1997. The Company also owns a
50% interest in Frontier Cellular, a wireless joint venture with Bell Atlantic
in upstate New York and Pennsylvania that is managed by the Company, and is
accounted for using the equity method of accounting. This method of accounting
results in the Company's proportionate share of earnings being reflected in the
"Other income" section of the Consolidated Statements of Income.
Merger Agreement 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
currently valued at $11.2 billion based on the March 16, 1999 closing price of
Global
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Crossing shares. The combination of the two companies will create a global
Internet Protocol-based fiber-optic network able to provide customers with
integrated worldwide Internet, data, long distance, local telephone and
conferencing 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. It will offer global voice, web
hosting, private line, ATM and Internet services.
Under the terms of the transaction, which has been unanimously approved by
the Boards of Directors of both companies, Frontier shareholders will receive
Global Crossing common shares valued at $62 per Frontier share, as long as
Global Crossing shares trade within a range of $34.56 to $56.78 per share (the
"collar") during a price period prior to closing. Outside the collar, Frontier
shareholders will receive a fixed number of Global Crossing shares, 1.0919
shares at the top end of the collar and 1.7939 at the bottom of the collar. In
connection with the transaction, Frontier has granted Global Crossing an option
to acquire up to 19.9% of its outstanding shares at $62 per share as well as a
break-up fee if the merger is terminated for certain reasons.
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. The transaction is expected to
qualify as a tax-free reorganization to the Frontier shareholders and is
anticipated to be accounted for as a purchase. This transaction is subject to
approval by shareholders of both companies, the Federal Communications
Commission, state and other regulatory authorities. It is expected that the
transaction will be completed in the third quarter of 1999.
Company Strategy
The Company's strategy is to be the premier provider of integrated
telecommunications solutions in its target markets. The Company will market
itself to customers as a single source provider of integrated communications
services, which can include long distance, local, cellular, paging, data,
Internet and enhanced services. Frontier is committed to growth through
expansion of its existing businesses and relationships, the development of
value-added products and services and through strategic acquisitions. Frontier
anticipates that public policy will continue to evolve in favor of greater
competition and, as a result, the Company has been positioning itself to compete
aggressively in a marketplace with numerous new competitors.
In 1997, the Company's strategy was defined and actions have been taken to
move toward the goal of becoming a market-driven business. During the fourth
quarter of 1997, the Company began to divest certain nonstrategic assets and
operations. These actions included the sale of a portion of the Company's
retail
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prepaid calling card business to SmarTalk Teleservices Inc. in December 1997,
the sale of the Minnesota and Alabama facilities-based cellular businesses in
1998 and 1997, respectively, as well as the sale of certain other nonstrategic
assets during 1998. The Company continues to evaluate the strategic value of
other assets and additional sales are expected from time to time.
Construction of the Company's Optronics network, as originally announced in
1996, was on schedule through the first half of 1998. However, delays in the
completion of a small number of segments have moved the expected completion date
of the network into the first half of 1999. Most segments are now complete and
in operation. The Company made a commitment to extend this network in 1998, and
that extension is expected to be completed in late 1999. Through swap
agreements with Enron Communications and WTCI, Frontier will add approximately
4,000 additional route miles in the western half of the United States. These
agreements will also permit the Company to establish additional redundant SONET
rings, further enhancing the reliability and performance of the network. In
addition, in July 1998, Frontier entered into an agreement with Williams
Communications, Inc. to construct an extension of the network into the
southeastern United States. In aggregate, the Company's Optronics network will
have approximately 20,000 route miles. As of December 31, 1998, approximately
74% of the original 13,000 route mile Optronics network is carrying traffic.
Continuing network integration efforts are expected to further reduce future
network costs as well as provide new revenue opportunities for the Company.
The combined technology of the Optronics network and the Nortel DMS-500
switches installed at strategic locations along the network will enable the
Company to expand its ability to provide integrated local and long distance
services nationwide. In 1998, the Company added ATM and IP capabilities to the
Optronics network which will provide greater speed and service for data
products. In the fourth quarter of 1997, the Company also introduced a
nationwide frame relay product. This product complements the Company's voice
services business with a portfolio of additional data services products. This
technology makes Frontier a nationwide facilities-based provider of integrated
local, long distance and data services.
Legislative and Regulatory Matters
The competitive evolution of the telecommunications industry has resulted
in a changing regulatory framework. In general, state regulatory agencies
exercise authority over the prices charged for the provision of local telephone
and intrastate long distance services, the quality of service provided, the
issuance of securities, the construction of facilities and other matters. Each
of Frontier's local telephone service companies is regulated by the public
utility regulatory agency of the state in which that company provides local
telephone service and by the Federal
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Communications Commission ("FCC"). To a lesser extent, the Company's interstate
long distance business is also subject to FCC and state jurisdiction.
(a) Telecommunications Act of 1996. The Telecommunications Act of 1996
("Telecommunications Act") was enacted on February 8, 1996. This landmark
legislation significantly modified the Communications Act of 1934 and
established a framework for increased competition in the Local and Integrated
Services segments of the Company's business. The Company views this legislation
as favorable to its operations because Frontier has been able to enter new
markets to provide local service as a competitive local exchange carrier
("CLEC"), as well as derive other benefits from the elimination of barriers to
competition. In addition to its established local telephone and long distance
base, Frontier has been authorized to provide competitive local services in 33
states, plus Washington D.C., as of December 31, 1998 and has commenced
operations in 32 of these states.
On August 8, 1996, the FCC released a First Report and Order (the "First
Report and Order") in a core rulemaking proceeding to implement the
Telecommunications Act. The First Report and Order established guidelines to
promote local competition, affecting the Company and all other competitors in
local telecommunications markets. On July 18, 1997, the U.S. Circuit Court of
Appeals for the Eighth Circuit reversed portions of the First Report and Order
that provided for pricing based primarily on forward looking, rather than
historical costs, and that would have provided the FCC with substantially more
authority over the compliance by local telephone companies with provisions of
the Telecommunications Act. On January 25, 1999, the United States Supreme
Court revised, in substantial part, the Eighth Circuit's decision. The Supreme
Court affirmed the FCC's authority to promulgate rules governing the methodology
by which pricing decisions are to be made. The Court also found that the
Eighth Circuit should not have addressed the issue regarding the FCC's
jurisdiction to enforce compliance with the Act because this issue was not ripe
for review. Finally, the Court held that the FCC had not followed the statutory
test for determining which network elements incumbent local exchange carriers
were required to unbundle and ordered the matter sent back to the FCC for
further consideration. Action at the FCC is pending.
The Act also requires the FCC to restructure the manner in which universal
service support payments are established and distributed. On May 7, 1997, the
Commission substantially adopted the recommendation of a Federal-State Joint
Board released on November 8, 1996 with respect to universal service. The FCC's
order increased the amount of financial support to be dedicated to universal
service programs. The Commission has released numerous subsequent orders that
have modified its original decisions. Further action is anticipated in this
area.
On May 16, 1997, the Commission adopted an order that substantially
modified the structure by which local exchange carriers are compensated for
access
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to and use of their networks. This order was implemented effective January 1,
1998. In general, this order encouraged the recovery of some costs that had
previously been recovered through usage-based charges to be recovered through
fixed charges. The FCC has postponed implementation of portions of the order and
additional change is considered likely.
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. This decision is subject to reconsideration and
appeal.
The FCC has yet to determine how to address the payphone compensation
obligation for the period from November 7, 1996 through October 6, 1997. The
Company is considering whether to pursue challenges to the FCC order with other
carriers in light of the FCC's February 4, 1999 order. 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. 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.
(b) State Proceedings -- General. A number of states in which the Company has
local or long distance operations are conducting proceedings related to the
ground rules under which carriers may operate in an increasingly competitive
environment. The issues that the regulatory agencies are examining include
unbundling of local network elements, local interconnection obligations, dialing
parity for intra-LATA (or short-haul) toll traffic, local number portability,
resale of local exchange service and universal service. The Company cannot, at
this time, predict how these proceedings will ultimately be resolved, nor when
decisions will be forthcoming. On balance, the actions taken reflect reasonable
steps consistent with the procompetitive objectives of the Telecommunications
Act.
(c) 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
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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 the 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."
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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 commitments to the NYSPSC to increase
capital expenditures to a minimum of $80.0 million and added employees in
service-affecting areas.
The temporary restriction of dividend payments to Frontier will remain in
place until the NYSPSC is satisfied that FTR's service levels demonstrate that
FTR has rectified the service deficiency.
Competition
The telecommunications industry continues to experience significant changes in
the competitive landscape. Factors such as industry consolidation,
technological advancement, growth in Internet and data applications and changing
regulatory framework have created economies of scale for some companies and
niche opportunities for others. Frontier is intent on taking advantage of the
various business opportunities which competition provides in the markets where
it operates as well as in new markets. The Company is addressing competition by
focusing on its core business and the markets it serves, divesting non-strategic
operations, creating advantages through its infrastructure and sales and
customer care philosophies, and by continuing to reduce its cost base to become
more efficient.
(a) Integrated Services. Competition in this line of business is generally
based upon pricing, customer service, network efficiencies and reliability,
service quality and enhanced service offerings. Frontier views the long
distance industry in three tiers. The industry is dominated on a revenue basis
by the first tier which is made up of the nation's three largest long distance
providers: AT&T Corp. ("AT&T"), MCI WorldCom, Inc. ("MCI WorldCom") and Sprint
Communications, Inc. ("Sprint"). AT&T, MCI WorldCom and Sprint generate more
than 85% of the nation's domestic and international long distance revenue.
Frontier is positioned in the second tier.
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The third tier consists of more than 300 companies with annual revenues of less
than $1 billion each, the majority below $50 million each. The Company targets
small to mid-sized business customers and seeks to provide a level of focus and
attention to customer service that compares favorably with what its larger
competitors offer to large commercial customers. Frontier believes that it is
one of a small number of integrated service companies with the ability to offer
high quality integrated data, local and long distance services to small to mid-
size business customers on a nationwide basis. A number of the Company's
competitors are primarily regional in nature, limited by the size of their
transmission systems, dependent on other parties for their billing services, or
offer only basic long distance services.
The Regional Bell Operating Companies ("RBOC") are continuing to take actions
to meet the Telecommunications Act's "checklist" for entry into the long
distance market within its region. To date, several applications for entry have
been rejected by the FCC. Other applications are pending before regulatory
agencies. An RBOC that is able to meet the checklist is able to enter the long
distance business in its region only in the states where it is authorized.
The Company recognizes that a benefit of continuing growth is that it will be
able to compete effectively in the changing telecommunications industry and
avail itself of greater economies of scale and scope in its transport and local
access facilities and in its back office operations.
(b) Local Communications Services. The Company faces many competitors in the
provision of equipment and facilities used in connection with its local exchange
networks, as this market has become increasingly competitive in recent years.
The market for the provision of local services itself is now competitive in
Rochester, New York as a result of the Open Market Plan, and the
Telecommunications Act is likely to result in significantly greater competition
in other markets. Competitive Local Exchange Carrier ("CLEC") activity is
believed to be minimal in the Company's telephone properties outside the
Rochester, New York area.
Long distance companies largely access their end user customers through
interconnection with local exchange companies. These long distance companies pay
access fees to the local exchange companies for this service. The provision of
access services in Rochester by FTR and elsewhere is considered to be
competitive.
Integrated Services
General
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
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service and other communications products to primarily small to mid-size
business customers, carrier customers and targeted consumer markets. Results for
this segment also include CLEC services. As explained below, CLEC services are
currently available in 32 states, plus Washington D.C., providing the Company
with the ability to offer integrated data, local and long distance services to
approximately 71% of the United States population. In February 1998, the Company
acquired GlobalCenter Inc. (renamed "Frontier GlobalCenter Inc." or
"GlobalCenter"), a leading provider in digital distribution, Internet and data
services headquartered in Sunnyvale, California. The acquisition of GlobalCenter
and subsequent development and integrative work has assisted the Company in
responding to changes in the nature of calling, expanded use of the Internet and
growth of data transmission.
The Company operates its own switches, develops and implements its own
products, monitors and deploys its transmission facilities and prepares and
designs its own billing and reporting systems. The Company focuses primarily on
commercial accounts and certain targeted consumer markets. In this segment,
calling volume consists primarily of calls made during normal business hours,
which command peak-hour pricing. The Company's residential subscribers tend to
make most of their calls in the evening and on weekends, when business usage is
lowest.
Products and Services
The Company provides a variety of integrated telecommunications products and
services to commercial and residential subscribers nationwide designed to meet
the customer's total communications needs. The bulk of the Company's revenue is
derived from outbound and inbound long distance services which are generally
marketed under the Frontier name. Many of the Company's integrated products,
however, differ from those of competitors due to the level of value-added
services the Company offers and the flexibility of product pricing to maintain
competitiveness.
The variety of products and services developed and offered are based upon
market driven requirements of the customer including an expectation that
services can be integrated. They include: digital distribution and data
services, CLEC services, and voice and other value-added services.
Digital Distribution and Data Services-The Company's Data Services products
target small to mid-sized businesses and web-centric businesses. Data services
currently include digital private lines, frame relay, dial-up Internet,
dedicated Internet and web-hosting. The acquisition of GlobalCenter has
accelerated Frontier's ability to provide an expanded line of data services.
During 1998, Frontier expanded its data services product set that can be
segmented into three product lines: Transport, IP and Application Services.
Transport is the means to transfer data from one location to another. Product
offerings within this service
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category include dedicated private lines, frame relay, and managed services.
Within the IP product line, we provide the customer with the cost efficiencies
of a public Internet network and the security of a private network. Applications
Services are outsourced applications hosted by the service provider and
integrated into both public and private networks which enable the customer to
access the application at all times. Product offerings within this category
include digital distribution, integrated messaging, and web site hosting.
Digital distribution involves a combination of transport services, consulting
services and professional expertise aimed at providing customers with customized
Web based data services.
CLEC Services-The Company provides competitive local telephone service bundled
with the Company's other integrated services through its CLEC product offering.
The CLEC offering is provided either using the Company's local switching
equipment in locations where it is available or on a resale basis. As of
December 31, 1998, the Company was providing local services as a CLEC, together
with a complete range of long distance products, in 32 states plus Washington
D.C. Most of that coverage was provided via resale of services of incumbent
local exchange carriers. Within that footprint, CLEC service also was provided
initially from Frontier's own switches in New York, Boston and Minneapolis.
Since then, Frontier expanded its coverage to approximately two-thirds of the
United States and turned up facilities-based service in a total of thirteen
metropolitan areas by the end of 1998. 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, control access costs, and
leverage the Optronics network. As of the end of 1998, Frontier is serving in
excess of 208,000 CLEC ANIs, or access lines as compared to 100,000 CLEC ANIs at
the end of 1997. Frontier's objective is to have the capability to offer local
services in 33 states, plus Washington D.C., covering 74% of the population of
the United States by the end of 1999.
Value-added Services-The Company's value-added services are aimed primarily at
the business subscriber, although the Company also offers products for
residential customers. Value-added services provide cost-effective solutions
for both simple and complex communications applications and include calling
cards, teleconferencing, broadcast fax, voice mail and cellular and paging
services.
The calling card is a personal communication tool that can provide access to
teleconferencing, voice mail, information services such as stock quotes and
weather information, Flexible Call Routing of toll free service, Call Delivery
for immediate or future message delivery, Directory Assistance and Travel
Connections to hotel, car and airline reservation systems. Using a calling
card, customers can call to any domestic and most international locations from
the U.S. or numerous international locations. In addition, the calling card
product enables customers to dial 100 frequently called numbers using their own
toll free number and a four-digit preprogrammed PIN.
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Frontier Conferencing provides a way for three or more people at different
locations to participate in a joint discussion. Several options are available:
800 Meet-Me, Dial-Out or Dial-In via a Frontier calling card. Broadcast Fax
enables the user to fax a single document to multiple locations at the same time
and is designed for the larger fax user who regularly sends information to an
established list.
Voice Mail Plus with Fax Mail provides an efficient means of always being
accessible (through the use of outcall or pager notification) and never missing
important calls. With an individual toll-free number, a customer can save,
delete or forward fax and voice messages to other Voice Mail Plus users or
change greetings all on one call. Customers can also store a fax or
automatically print it at a designated fax machine.
The Company offers cellular and paging services to both commercial and
residential customers on a single invoice to complement the customer's
integrated services. Cellular services are offered in 189 markets through
strategic partnerships with major cellular carriers. The Company believes this
multi-market coverage offers significant value to customers with multiple
locations and high mobility needs. Expansion into additional markets and new
digital technologies is being pursued for future development.
The Company also offers nationwide numeric paging through personal toll free
numbers. When coupled with the Flexible Call Routing feature, nationwide paging
creates a robust travel application. Local paging service is also available in
selected local franchise markets.
The Company's toll free services are offered primarily to business customers
on a single invoice, although several residential products are available. In
addition to basic 800/888 toll-free applications, the Company offers MultiPoint,
which allows customers to terminate calls in different locations based on the
four-digit Personal Identification Number (PIN) the caller enters; GlobalPoint
international service, which completes calls originating in over 40 countries;
and Flex Connect 800, a fractional service which allows multiple residential
customers to reach different terminating locations utilizing a four-digit
security PIN. The Company also provides a robust line of routing features such
as Flexible Call Routing, which allows customers to change where calls terminate
based on their need; routing and blocking enhancements determined by the area
code, area code and exchange or full ten-digit telephone number of the caller;
time of day and day of week routing; and percent call allocation.
Toll free services also include Interactive Voice Response ("IVR") services,
including TargetLine, a call prompter that routes callers either by menu options
or prompting them to enter digits for extension routing; InstaLink, a dealer
locator
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routing callers based upon their area code and exchange or zip code; and
PassPort, a network based host interface IVR solution.
Pricing-Customers subscribe to various products which determine the price per
minute that they pay on their outbound or inbound long distance calls. Rates
typically vary by the volume of usage, the distance of the calls, the time of
day that calls are made, the region that originates the call and whether or not
the product is being provided on a promotional basis.
Reporting Services-The Company offers a variety of billing options and media
aimed primarily at business customers. When a new commercial account is opened,
the customer is offered the opportunity to custom design the format of its
reports. The Company also offers customers graphic reports of traffic patterns
on a nationwide basis by state, within state by area of dominant influence
("ADI") and within ADI by zip code. The Company believes these services are
useful to certain customers for direct response advertising and customer service
applications. The Company also offers its proprietary personal computer
reporting service, known as uCommand, which allows customers to design their own
reports, prepare separate itemized bills, do mark-up reporting and generate
numerous other customer reports.
800 Services-These services include area code blocking and routing; time of
day routing; Home Connection 800, a fractional 800 service which allows
residential customers to access 800 service utilizing a four-digit security PIN;
Multi-Point 800 service, which allows customers to use accounting codes on an
800 number or route a single 800 number to numerous locations simultaneously;
Follow-Me 800, which allows customers to change call routing and TargetLine 800,
which routes calls to the closest location a customer identifies and provides
custom prompts based upon a customer specific database.
Transmission
The Company endeavors to have sufficient switching capacity, local access
circuits, and integrated services circuits at and between its network switching
centers to permit subscribers to obtain access to the switching centers and its
integrated services circuits on a basis which exceeds industry standards
regarding clarity, busy signals or delays.
The network currently utilizes a variety of transmission circuits to complete
long distance calls. The Company's Optronics network will reduce the number of
transmission facilities leased and provide for a more dependable and cost-
effective transmission system. Currently, Optronics network facilities have
been completed in Texas, California, Nevada, Utah, Colorado, Kansas, Missouri,
Ohio, Pennsylvania, New York, Illinois, Wisconsin, New Mexico, Arizona, Oregon,
Washington, Nebraska, Iowa, Indiana, Michigan, New Jersey, Maryland, Kentucky,
13
<PAGE>
Tennessee, Oklahoma and Massachusetts. Completion of the expanded Optronics
network is expected by year end 1999.
In addition to the Optronics transmission circuits, the network is comprised
of digital microwave systems located in California, New York and Pennsylvania
for which the Company holds FCC licenses, and facilities that have been leased
on a fixed price basis under primarily short-term contracts. While the Company
still has a number of longer term lease contracts, these contracts have annual
"mark-to-market," "circuit portability," and "commitment buy-out" clauses.
These provisions function to keep the price the Company pays at or near current
market rates. An important aspect of the Company's operation is planning the
mix of the types of circuits and transmission capacity to be used for each
network switching center so that calls are completed on a basis which is cost
effective for the Company without compromising prompt service and high quality
to subscribers.
The Company's network switching centers house equipment with varying
capacities to meet the anticipated needs of the service origination region(s)
served by the center. The equipment used by the Company is, for the most part,
designed to permit expansion of its capacity by the addition of standard
components. If the maximum capacity of the equipment in any center is reached,
the Company upgrades it with higher capacity switching equipment in an effort to
scale the equipment for growth. The Company is dependent upon local telephone
companies for installing local access circuits and providing related service
when establishing a network switching center. International service is provided
through both Company owned direct circuits and through contracts with several
international long distance companies to provide high quality international
service at competitive rates.
It is anticipated that the Optronics network will continue to lower the
Company's current cost structure and expand the Company's transmission
capabilities. However, the Company cannot definitively project the change in
its cost structure nor assure that the network will be fully completed as
scheduled.
Major Customer
In 1996, the Company renegotiated its contract with its then largest
carrier customer as the customer was planning to install its own long distance
switching capacity and diversify its traffic distribution to one or more
additional carriers. Revenue from this carrier comprised approximately 4% of
Frontier's Integrated Services revenue in 1998 as contrasted with 6% and 21% in
1997 and 1996, respectively. The loss of this customer's one-plus traffic
contributed to lower operating income in 1997 due to lower overall traffic
levels resulting in a higher level of fixed network costs than required by the
remaining volume of business carried by the Company.
Seasonality
14
<PAGE>
The Company's integrated services revenue is subject to certain limited
seasonal variations. Because most of the integrated services revenue is
generated by commercial customers, the Company traditionally experiences
decreases in long distance usage and revenue from its commercial customers
during vacation and holiday periods. The effect of commercial seasonality is
evidenced by lower sequential traffic growth in the fourth quarter for these
customers.
Local Communications Services
The Company's Local Communications Services segment comprises one of the
largest local exchange service providers in the United States. This segment
consists of 34 regulated telephone operating subsidiaries in 13 states, serving
in excess of one million access lines. The local exchange carriers provide
local, toll, access and resale services, sell, install and maintain customer
premises equipment and provide directory services.
Over the last decade, the Company has invested heavily to install advanced
digital switching platforms throughout all of its switching network, making the
Company one of a small number in the industry to be served by an entirely
digital network for its local exchange companies.
Frontier has achieved substantial cost reductions through the elimination of
duplicative services and procedures and the consolidation of administrative
functions. The Company believes that additional cost reductions may be
obtainable from advanced switching platforms and outside plant delivery systems.
The Company intends to pursue additional gains in productivity by investing in
these technologies where feasible, and through reengineering customer service
processes.
Of the approximately 1,024,726 access lines in service on December 31, 1998,
721,039 were residential lines and 303,687 were business lines. Long distance
network service to and from points outside of the telephone companies' operating
territories is provided by interconnection with the facilities of interexchange
carriers.
Frontier is pursuing several alternatives to provide expanded broadband
capabilities to its customers. To date, the Company has installed over 31,000
fiber miles of fiber based network facilities (over 930 sheath miles) in the
Rochester, New York area to provide its customers with enhanced capacity and to
position the Company to offer new products. The Company provides expanded
broadband services to select customers, including video-distance learning
arrangements for educational institutions, and access to SONET based fiber rings
for major business customers.
15
<PAGE>
In connection with its integration strategy, the Company has developed a
program known as "Frontier Long Distance", whereby the Company's local exchange
companies resell Frontier's integrated services. The Company believes that many
customers prefer the convenience of obtaining their long distance service
through their local telephone company and receiving a single bill. Frontier
Long Distance is currently offered in the product lines of most of the Company's
local telephone exchange companies. The results of "Frontier Long Distance" are
included as part of the Integrated Services segment.
Environmental and Other Matters
Except for site specific issues, environmental issues tend to impact members
of the telecommunications industry in consistent ways. The Environmental
Protection Agency ("EPA") and other agencies regulate a number of chemicals and
other substances that may be present in facilities used in the provision of
telecommunications service. These include preservatives in some wood poles,
asbestos in certain underground duct systems and lead in some cable sheathing.
Some components of the Company's network may include one or more of these
substances. The Company believes that in their present uses, any such
facilities of the Company pose no significant environmental or health risk
derived from EPA regulated substances. If EPA regulation of any such substance
is increased, or if any facilities are disturbed or modified in such a way as to
require removal, special handling, storage and disposal may be required for any
such facilities removed from use. At this time the Company is not subject to
any environmental litigation that requires disclosure, except as set out in Item
3, Legal Proceedings.
Year 2000 Issues
In furtherance to the 8-K filed 1/26/99 and the Company's Annual Report, 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. Disclosure is warranted because the issues, if unresolved
by the Company and by the many unaffiliated carriers and other firms with whom
the Company interconnects its networks or does business, could have impacts that
are material. 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
16
<PAGE>
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 internally-developed IT systems are now
compliant. Final assessments and remediation are expected to be substantially
complete by midyear 1999, leaving the remainder of 1999 for additional system
testing, carrier interoperability testing and other remediation. These plans
involve capital expenditures for new software and hardware, as well as costs to
modify existing software. This could include replacement of individual end user
equipment. Initially, work with IT systems was given priority over work with
non-IT systems, but the Company is comprehensively reviewing its non-IT Year 2K
readiness as well, including communications with third parties who supply or
maintain non-IT systems or significant non-IT subsystems.
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.
Costs. To date, the Company has committed approximately $7.5 million to Year
-----
2K issues, and anticipates that it will spend an additional $3.0 to $4.6 million
during 1999. This includes costs directly related to Year 2K assessment and
remediation and the replacement of non-compliant systems, including acceleration
of replacement of non-compliant systems due to Year 2K issues. A substantial
portion of the total amount has been used for third party assistance in
assessment and remediation. Another $5 million may be spent to replace end
user equipment. 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 will
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
17
<PAGE>
telecommunications generally, or on the Company. However, addressing these risks
is outside the Company's control. In addition, the Company is unable at this
time to assess the degree to which the manufacturers of switches and similar
equipment have completed their assessment and remediation of such equipment and
its associated software with respect to any other carriers. The majority of the
Company's switches are manufactured and supported by entities with a broad base
of similarly situated customers, and who have a vested interest in assuring that
their products will not be affected by Year 2K events, and if affected, will be
remedied promptly. 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. 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. Consistent with the practice of other carriers, the
Company generally has declined to provide Year 2K compliance warranties or other
Year 2K-related contractual promises to customers or other persons. In addition,
the Company is engaged in communications with third party equipment and software
vendors and suppliers of services to verify their Year 2K readiness, and plans
to engage in internetwork testing with other carriers during 1999. Since the
Company's own Optronics network, including the recently announced 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. During
1999, the Company will also monitor efforts undertaken through regulatory
agencies and industry groups to assure that Year 2K preparations are completed
in a timely manner. The Company has begun to evaluate whether there are areas
for which contingency plans are appropriate (but has not identified any such
areas to date). Any need for contingency planning will be identified well
before year end. 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. Contingency
plans will be developed for critical systems if conversion or replacement
projects fall behind schedule, or if internetwork testing should identify
significant risk issues, or if broader industry concerns emerge that management
concludes require such action.
18
<PAGE>
Employees and Labor Relations
As of December 31, 1998, the Company had 8,151 employees, of which 2,708 were
employees of Local Communications Services, 4,254 were employees of Integrated
Services, and 1,189 were employees of other operations. At the Rochester, New
York Operating Company, 633 clerical and service workers were represented by the
Rochester Telephone Workers Association ("RTWA") and 730 craft and clerical
employees were represented by the Communications Workers of America, Local 1170
("CWA Local"). The union labor contracts are normally negotiated in three year
cycles.
Under the current three-year contract between the Company and the RTWA,
effective August 10, 1997, bargaining unit employees will receive a 2.0% general
increase on August 15, 1999. On August 16, 1998 they received a 2.0% general
increase. On February 18, 1996 and February 16, 1997 they received a 1.0%
general increase.
On January 31, 1996, the CWA Local contract expired. The contract
negotiations reached an impasse, and the Company implemented the terms of its
final offer as of April 9, 1996. Members of the CWA Local ratified a tentative
agreement with the Company on April 29, 1997 which contained provisions that
differed from the Company's final offer implemented at the time of impasse. The
differences between the Company's final offer and the agreement that was
subsequently reached and ratified by CWA Local membership are not material. The
new agreement provides several operational improvements and will result in a
more consistent alignment of benefits with the rest of Frontier. The CWA Local
continued to appeal one issue with the National Labor Relations Board ("NLRB")
related to the declaration of impasse. In October 1998, the administrative law
judge found in favor of the Company. Presently, the Union and the government
are appealing to the NLRB. The Company cannot predict the final outcome of this
matter at the present time. The CWA Local and the Company reached a new three
year agreement in December 1998 which is not scheduled to expire until January
2002.
The International Brotherhood of Electrical Workers ("IBEW") currently
represents 186 employees at three of the Company's New York communications
subsidiaries. These subsidiaries are Frontier Communications of New York,
Frontier Communications of Sylvan Lake and Frontier Communications of AuSable
Valley. The contracts between employees of Frontier Communications of New York
and Frontier Communications of Sylvan Lake and the IBEW expire January 31, 2001.
The current contract between employees of Frontier Communications of AuSable
Valley and the IBEW expires May 10, 2002.
19
<PAGE>
The Company cannot predict the final outcome of these matters at this
time and there can be no assurance that there will not be a material impact on
the results of operations. There can be no assurance that as contracts with the
Company's other labor unions expire, successful bargaining of new contract terms
will occur.
Risk Factors
The Company is subject to several risk factors that should be considered by
current shareholders and prospective investors. This Report on Form 10-K and
the documents incorporated by reference include forward looking statements as
described under the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from those identified in forward looking
statements. Forward looking statements are identified by such words as
"expects", "anticipates", "believes", "intends", "plans" and variations of such
words and similar expressions.
Changes in Rates of Growth of the Economy and the Overall Industry
To some extent, the Company's revenue and earnings per share growth are
related to the overall economy and to the telecommunications industry in
general. Factors that may influence the Company's performance within the
telecommunications industry include product pricing and development, integration
of services, the effects of competition and the expansion of the business. The
performance of the economy and the telecommunications industry could cause the
Company's actual results to vary significantly.
Competition Risk
Technological innovation and regulatory changes are accelerating the pace
of competition for telecommunications services. As a result, the Company faces
intensified competition in all aspects of providing telecommunications services.
There are significant uncertainties surrounding the introduction of new
products and services and the capital expenditures that will be required by the
Company to remain in a competitive position. In addition, there are
uncertainties surrounding the impact on competition as a result of the enactment
of the Telecommunications Act.
Acquisition Integration
The Company's growth over the last few years has been driven by its long
distance acquisition program and internal growth. In the last year, the Company
has altered its strategy to place significantly greater emphasis on acquisitions
and growth in the Internet and data area. This growth strategy involves certain
operational and financial risks. The operational risks include the possibility
that
20
<PAGE>
implementation of an acquisition does not provide the economies of scale or
synergies anticipated by management. Successful integration and expansion of the
Company's network as a result of the acquisitions is dependent on management's
ability to anticipate market growth, install facilities, consolidate databases,
obtain rights of way and negotiate leases economically and efficiently. The
integration of a growing employee base and the elimination of redundant
operations and facilities has required and will continue to require significant
management resources. Although management's plans are to minimize the risks
associated with acquisitions, there can be no assurance that acquired businesses
will be assimilated effectively into the Company.
Contingent Liabilities
The Company and a number of its subsidiaries are continuously involved in
various judicial and administrative proceedings involving matters incidental to
the business. Unless otherwise stated specifically, the Company believes that
the probable outcome of any of these matters, or the combination of all of the
matters, will not have a material adverse effect on the Company's consolidated
results of operations or financial position. However, there can be no assurance
that the resolution of these matters will not be contrary to management's
expectations.
ITEM 2. PROPERTIES
The Company's Integrated Services segment owns property which includes:
Optronics and copper cable, switching equipment, microwave equipment, real
estate and miscellaneous office and work equipment. The Company's Integrated
Services segment also leases facilities or transmission capacity from other
carriers.
The Company's Local Communications Services segment owns telephone properties
in their respective operating territories which include: connecting lines
between customers' premises and the central offices; central office switching
equipment; buildings, land and miscellaneous property and customer premise
equipment. The central office switching equipment includes digital switches and
peripheral equipment. The connecting lines include aerial and underground
cable, conduit, poles, wires and microwave equipment. These facilities are
located on public streets and highways or on privately owned land. The Company
has permission to use these lands pursuant to local governmental consent or
lease, permit, franchise, easement or other agreement.
The Company owns or leases the land and buildings in which its central
offices, warehouse space, office and traffic headquarters are located. Frontier
Corporation's headquarters are located in a leased seven story building at 180
South Clinton Avenue, Rochester, New York. The lease expires in 2014.
ITEM 3. LEGAL PROCEEDINGS
21
<PAGE>
On June 11, 1992, a group of corporate plaintiffs consisting of Cooper
Industries, Inc.; Keystone Consolidated Industries, Inc.; The Monarch Machine
Tool Company; Niagara Mohawk Corporation and Overhead Door Corporation commenced
an action in the United States District Court for the Northern District of New
York seeking contribution from fifteen corporate defendants, including Rotelcom
Inc., a wholly-owned subsidiary of the registrant held through intervening
subsidiaries (now named FNS). 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.
Recently, 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 recently dismissed by
the federal court in Minnesota. The claims against Frontier maintain only that
Frontier controls the disposition of the restricted Frontier stock which was
issued to Simon and Weinert in connection with the acquisition of ASI and that
such stock should be held in trust for the benefit of the plaintiffs. 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.
22
<PAGE>
Although it is too early to determine the outcome of the remaining
lawsuits, Frontier, ASI and the other defendants each are contesting the claims.
In connection with the acquisition of ASI by Frontier, Simon and Weinert agreed
to indemnify and defend the Company for these claims.
On April 10, 1997, Jeff Thompson filed a purported class action on behalf
of himself and all other similarly-situated persons in Circuit Court for Marengo
County Alabama. Named as defendants are Frontier Corporation, Frontier
Subsidiary Telco, Inc. and Frontier Communications of the South, Inc.
("defendants"). The complaint also reserves the right to add additional
defendants and identifies all of Frontier's telephone subsidiaries. Concomitant
with filing the complaint, plaintiff also filed an ex parte motion for
conditional class certification which the Court granted. It conditionally
certified a class consisting of "All persons or entities in the United States
who have been charged by defendants or their subsidiaries or affiliates a fee
for `inside wire maintenance' without having given their affirmative acceptance
to a repair service contract; specifically excluded from this class, however,
are all employees, agents, officers, directors and affiliates of any of the
Defendants and all persons or entities who have pending and/or previously filed
individual (non-class) lawsuits against any of the defendants for the same
claims set forth in the Complaint." On January 30, 1998, the Supreme Court of
Alabama issued a writ of mandamus to the trial court ordering it to vacate its
conditional class certification. In light of the decision of the Alabama
Supreme Court, plaintiffs have agreed voluntarily to dismiss this action with
prejudice. A stipulation of dismissal with prejudice was entered by the trial
court on February 19, 1999.
The Open Market Plan discussion in the Business section, Part I, Item 1 of
this document is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange (Symbol
- - FRO). The specific information required by this item is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
Quarter High Low High Low High Low
------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Highest and lowest
market prices for the 1st $ 33.44 $24.44 $ 23.25 $17.75 $ 33.25 $28.25
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
stock by quarter: 2nd $33.00 $28.31 $20.50 $15.38 $33.38 $27.75
3rd $36.75 $24.13 $24.19 $19.00 $31.25 $25.88
4th $34.13 $24.81 $25.00 $20.00 $31.88 $19.88
Common stock 1st $.2225 $.2175 $.2125
dividends declared 2nd $.2225 $.2175 $.2125
per share: 3rd $.2225 $.2175 $.2125
4th $.2225 $.2225 $.2175
------ ------ ------
Total Dividends per Year $.8900 $.8750 $.8550
Number of Shareholders (at December 31)
Individuals 29,074 28,432 29,697
Brokers, nominees and institutions 555 522 509
--- --- ---
Total Shareholders 29,629 28,954 30,206
</TABLE>
On March 1, 1999, the closing price for the Company's stock was $35.69
per share as published in the Wall Street Journal.
On January 25, 1999, the Company's Board of Directors approved a change in
its dividend policy which will result in a reduction of the annual common stock
dividend from $0.89 to $0.20 per share annually. This change in dividend policy
will be effective with the payment of the common stock cash dividend currently
expected to be declared in March, 1999 and paid on May 1, 1999 to shareholders
of record as of April 15, 1999. The reduction has no effect on the common stock
dividend payable February 1, 1999 to shareholders of record on January 15, 1999,
nor on any outstanding issues of the Company's preferred stock. This dividend
policy change was approved in order to place the Company more in line with
growth-oriented integrated telecommunication services companies and to allow the
Company to invest more heavily in its growth businesses and provide for greater
strategic alternatives.
ITEM 6. SELECTED FINANCIAL DATA
The unaudited information required by this item should be read in
conjunction with the consolidated financial statements and related notes
included in Item 14 contained herein. Historical earnings per share have been
restated to conform with the provisions of Financial Accounting Standards Board
Statement No. 128, and is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............................... $2,593,558 $2,374,809 $2,588,519 $2,150,328 $1,667,545
Income from Continuing Operations
(before Extraordinary Items and
Cumulative Effect of Changes in
Accounting Principles)................ $177,543 $31,801 $198,205 $145,129 $187,254
Consolidated Net Income................ $175,788 $31,801 $190,187 $ 22,444 $180,057
Basic Earnings per Common Share:
Income before Extraordinary Items and
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Cumulative effect of Changes in
Accounting Principles................. $1.03 $.18 $1.19 $.94 $1.25
Extraordinary items.................... --- --- --- (.79) ---
Cumulative Effect of Changes
in Accounting Principles.............. (.01) --- (.05) (.01) (.04)
Basic Earnings per Common Share $1.02 $.18 $1.14 $.14 $1.21
Diluted Earnings per Common Share:
Income before Extraordinary Items and
Cumulative effect of Changes in
Accounting Principles................. $1.02 $.18 $1.18 $.88 $1.15
Extraordinary items.................... --- --- --- (.74) ---
Cumulative Effect of Changes
in Accounting Principles.............. (.01) --- (.05) (.01) (.04)
Diluted Earnings per Common Share...... $1.01 $.18 $1.13 $.13 $1.11
Cash Dividends Declared per
Common Share.......................... $0.890 $0.875 $0.855 $0.835 $0.815
Total Assets........................... $3,058,743 $2,487,920 $2,229,392 $2,111,415 $2,060,794
Long-Term Debt......................... $1,350,821 $ 934,681 $ 677,570 $ 618,867 $ 661,549
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF
FINANCIAL CONDITION
The information required by this item is presented in pages 13 through
27 of the Company's 1998 Annual Report to Shareholders which is Exhibit 13 to
this Form 10-K, and is incorporated by reference into this Item 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, the Company does not have any significant
concentration of business transacted with a particular customer, supplier or
lender that could, if suddenly eliminated, severely impact its operations.
However, a portion of the Company's revenues is derived from services provided
to others in the telecommunications industry, mainly resellers of long distance
telecommunications service. Accordingly, the Company periodically performs
ongoing credit evaluations of its larger customers' financial condition to limit
credit risk to the extent possible.
The Company is also exposed to market risk from changes in interest rates
on long-term debt obligations that impact the fair value of these obligations.
The Company's policy is to manage interest rates through the use of a
combination of fixed and variable rate debt, and to periodically use interest
rate swaps to manage its risk profile.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, dated January 25, 1999, is presented on pages 28
25
<PAGE>
through 49 of the Company's 1998 Annual Report to Shareholders, which is Exhibit
13 to this Form 10-K and is incorporated by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information required by this item for the Directors of Frontier
Corporation is presented on pages 2 through 4 of the definitive proxy statement
provided to shareholders on or about March 12, 1999 in connection with the
Annual Meeting of Shareholders to be held April 29, 1999, which is Exhibit 99 to
this Form 10-K and is incorporated by reference into this Item 10. Exhibit 99
consists of the Notice of Annual Meeting and the Company's Proxy Statement for
the April 29, 1999 Annual Meeting of Shareholders.
Executive Officers
Certain information is set forth below regarding the Executive Officers of the
Company as of March 22, 1999. Each officer serves for a period of one year or
until a successor is elected.
<TABLE>
<CAPTION>
Other Positions Held
Position and During the Past
Name (Age) Offices Held Five Years
- ----------------------------------------------------------------------------------
<S> <C> <C>
Robert L. Barrett (57) Executive Vice From March 1996 to December 1998
President and he was also President-Network Systems
President - & Services. From May 1995 to March
Technology since 1996 he was President and Executive
December 1998 Vice President and Chief Technology
Officer of Banc One Corporation1.
From May 1991 to May 1995 he was
President and Chief Operating Officer
of Banc One Services Corporation./1/
David R. Carey (45) Senior Vice From December 1995 to March
President - 1997 he was Chief Executive
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
Marketing Officer and President of LG&E
since Natural Inc. From January 1994
October 1997 to December 1995 he was Senior
Vice President - Operations of
Louisville Gas & Electric Co./2/
Jeremiah T. Carr (55) Executive Vice From May 1995 to January 1997 he
President was Senior Vice President.
and President - From January 1995 to May 1995
Frontier he was President and Chief Executive
Operations since Officer of Frontier Telephone of Rochester,
January 1997 Inc. and President-Telephone Group.
From November 1993 to December
1994 he was Corporate Vice President
and President - Telephone Group.
Joseph P. Clayton (49) Chief Executive From August 1997 to March 1999 he was
Officer since Chief Executive Officer and President.
March 1999 From June 1997 to August 1997 he
was President and Chief Operating
Officer. From March 1992 to December
1996 he was Executive Vice President-
Marketing & Sales--Americas & Asia
of Thomson Multimedia./3/
Donald F. Detampel (43) Senior Vice From February 1996 to December
President and 1998 he was President-Frontier
President- ConferTech. From April 1990 to
Frontier February 1996 he was President -
GlobalCenter Schneider Communications.
since December
1998
James G. Dole (40) Senior Vice From October 1997 to December
President since 1998 he was also Controller.
October 1997 From August 1997 to October 1997 he
was Vice President and Controller.
From January 1995 to August 1997 he
was Vice President - Business
Development. From November 1993
to January 1995 he was Corporate
Strategic Planning Director.
Joseph Enis (54) Treasurer since From June 1994 to December 1994
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
January 1995 he was Director of Finance. From
1992 to June 1994 he was Treasurer of
National Service Industries./4/
Rolla P. Huff (42) President and From June 1998 to March 1999 he
Chief Operating was Executive Vice President
Officer since and Chief Financial Officer.
March 1999 From August 1983 to June 1998 he
held various management positions
with AT&T, including President of
Central US AT&T Wireless./5/
Martin T. McCue (48) Senior Vice Since July 1997 he serves as
President and General Counsel to the Company.
General Counsel From July 1997 to January 1998 he
since January was Vice President and General
1998 Counsel. From January 1995 to
July 1997 he was Corporate Vice
President - Legal, Planning and
Regulatory. From April 1994 to
January 1995 he was Corporate Vice
President - Planning & Legal. From
December 1993 to April 1994 he was
Corporate Vice President - Planning.
Donna L. Reeves- Senior Vice From September 1996 to October
Collins (38) President and 1997 she was President - Western
President - Sales Region Long Distance Sales. From
since October December 1994 to September 1996
1997 she was President and Chief Operating
Officer of Upstate Cellular Network (a
joint venture). From September 1993
to December 1994 she was Vice
President-Consumer Service Long Distance.
Josephine S. Trubek (56) Corporate From January 1990 to April 1993 she
Secretary since was General Counsel and Secretary.
April 1993
</TABLE>
28
<PAGE>
/1/ Banc One is one of the largest bank holding companies in the U.S. Banc One
Services Corporation is a subsidiary of Banc One.
/2/ Louisville Gas & Electric Co. is a public utility corporation.
/3/ Thomson Multimedia is one of the largest manufacturers of consumer
electronics in the world.
/4/ National Service Industries is a public company with businesses in
lighting, textile rentals and specialty chemicals.
/5/ AT&T Corp. is the largest telecommunications provider in the U.S. AT&T
Wireless is a subsidiary of AT&T.
Section 16(a) Beneficial Ownership Reporting Compliance
The information required by this item for the compliance with section 16(a) of
the Exchange Act is presented on page 7 of the definitive proxy statement
provided to shareholders on or about March 12, 1999 in connection with the
Annual Meeting of Shareholders to be held April 29, 1999, which is Exhibit 99 to
this Form 10-K and is incorporated by reference into this Item 10. Exhibit 99
consists of the Notice of Annual Meeting and the Company's Proxy Statement for
the April 29, 1999 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is presented on page 6 of the
Company's Proxy Statement (which was provided to shareholders on or about March
12, 1999 in connection with the Annual Meeting of Shareholders to be held on
April 29, 1999) under the caption "Compensation of Directors" and on pages 8
through 18 under the captions "Report of Committee on Management," "Performance
Graph," "Compensation of Company Management," and "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions," and is
incorporated by reference into this Item 11. The Company's Proxy Statement is
found at Exhibit 99 to this Form 10-K. Exhibit 99 consists of the Notice of
Annual Meeting and the Company's Proxy Statement for the April 29, 1999 Annual
Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item is presented in the "Management and
Directors Stock Ownership Table as of February 12, 1999" and the "Stock
Ownership of Certain Beneficial Owners Table as of December 31, 1998" under the
caption "Stock Ownership of Management, Directors and Certain Beneficial Owners"
on pages 6 through 7 of the definitive Proxy Statement for the Annual
29
<PAGE>
Meeting of Shareholders to be held April 29, 1999, and is incorporated by
reference into this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is presented under the sub-caption
"Employment Contracts" on page 17 of the Definitive Proxy Statement for the
Annual Meeting of Shareholders to be held April 29, 1999 and is incorporated by
reference into this Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
Page*
----
Report of Management 28
Report of Audit Committee 28
Report of Independent Accountants 28
Business Segment Information 29
Consolidated Statements of Income 30
Consolidated Balance Sheets 31
Consolidated Statements of Cash Flows 32
Consolidated Statements of Shareholders' Equity 33
Notes to Consolidated Financial Statements 34-49
*Pages 28 through 49 are incorporated by reference from the
indicated pages of the 1998 Annual Report to Shareholders.
2. Financial Statement Schedule for the years ended December 31,
1998, 1997 and 1996:
Report of Independent Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
3. See Exhibit Index for list of exhibits filed with this report.
30
<PAGE>
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.
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
The following reports on Form 8-K were filed subsequent to the quarter
ended December 31, 1998 through March 19, 1999.
SEC Filing Date Item No. Financial Statements
--------------- -------- --------------------
1/26/99 5 Yes
1/26/99 5 Yes
3/19/99 5,7 No
(c) Refer to Item 14(a)(3) above for Exhibits required by Item 601 of
Regulation S-K.
(d) Schedules other than set forth in response to Item 14(a)(2) above for which
provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of
Frontier Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1999 appearing on page 28 of the 1998 Annual Report to
Shareholders of Frontier Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, based on our audits, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
January 25, 1999
Rochester, New York
32
<PAGE>
FRONTIER CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR
ENDED DECEMBER 31, 1998
(Table 1 of 3)
In thousands of dollars
<TABLE>
<CAPTION>
Additions
--------------------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
----------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Reserve for uncollectible accounts
$25,100 $74,587 $10,159 (1) $71,890 (2) $37,956
======= ======= ======= ======= =======
Deferred tax asset valuation
allowance $22,906 $0 $0 $3,467 $19,439
======= == == ====== =======
Acquisition related reserves $4,198 $0 $0 $4,198 $0
====== == == ====== ==
Restructuring reserves $16,200 $0 $0 $16,200 $0
======= == == ======= ==
</TABLE>
(1) Primarily recoveries of uncollectible accounts.
(2) Uncollectible accounts written off.
(3) Included primarily in "Property, plant, and equipment" in the Consolidated
Balance Sheets.
33
<PAGE>
FRONTIER CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE
YEAR ENDED DECEMBER 31, 1997
(Table 2 of 3)
In thousands of dollars
<TABLE>
<CAPTION>
Additions
--------------------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for uncollectible accounts
$31,519 $54,216 $9,030(1) $69,665(2) $25,100
======= ======= ====== ======= =======
Deferred tax asset valuation
allowance $21,066 $5,528 $0 $ 3,688 $22,906
======= ====== == ======= =======
Acquisition related reserves $40,796 $0 $0 $36,598 $ 4,198(3)
======= == == ======= =======
Restructuring reserves $0 $43,000 $0 $26,800 $16,200(4)
== ======= == ======= =======
</TABLE>
(1) Primarily recoveries of uncollectible accounts.
(2) Uncollectible accounts written off.
(3) Included primarily in "Property, plant, and equipment" in the Consolidated
Balance Sheets.
(4) Included primarily in "Other liabilities" in the Consolidated Balance
Sheets.
34
<PAGE>
FRONTIER CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE
YEAR ENDED DECEMBER 31, 1996
(Table 3 of 3)
In thousands of dollars
<TABLE>
<CAPTION>
Additions
--------------------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for uncollectible accounts $28,515 $76,184 $10,102(1) $83,282(2) $31,519
======= ======= ======= ======= =======
Deferred tax asset valuation
allowance $23,887 $1,605 $0 $ 4,426 $21,066
======= ====== == ======= =======
Acquisition related reserves $83,149 $0 $0 $42,353 $40,796(3)
======= == == ======= =======
</TABLE>
(1) Primarily recoveries of uncollectible accounts.
(2) Uncollectible accounts written off.
(3) Included primarily in "Property, plant and equipment" in the Consolidated
Balance Sheets.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/Joseph P. Clayton
----------------------------
Joseph P. Clayton
Chief Executive Officer
Date: March 22, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: /s/Joseph P. Clayton By: /s/Rolla P. Huff
------------------------------ ---------------------------------
Joseph P. Clayton Rolla P. Huff
Chief Executive Officer President and
and Director Chief Operating Officer
Date: March 22, 1999 (principal accounting officer)
Date: March 22, 1999
*
- ------------------------------------ ---------------------------------
Patricia C. Barron Raul E. Cesan
Date: March 22, 1999 Date: March 22, 1999
* *
- ------------------------------------ ---------------------------------
Brenda E. Edgerton Jairo A. Estrada
Date: March 22, 1999 Date: March 22, 1999
*
- ------------------------------------ --------------------------------
Michael E. Faherty Alan C. Hasselwander
Date: March 22, 1999 Date: March 22, 1999
*
- ------------------------------------ ---------------------------------
Eric Hippeau Robert J. Holland, Jr.
Date: March 22, 1999 Date: March 22, 1999
*
- ------------------------------------ ---------------------------------
Douglas H. McCorkindale James F. McDonald
Date: March 22, 1999 Date: March 22, 1999
*
- ------------------------------------
Leo J. Thomas
Date: March 22, 1999
*By: /s/ Rolla P. Huff Manually signed powers of
------------------------------- attorney for each Director are
Rolla P. Huff attached hereto and filed
Attorney-in-Fact herewith pursuant to Regulation
S-K Item 601(b)24 as Exhibit 24.
36
<PAGE>
FRONTIER CORPORATION
EXHIBIT INDEX
Exhibit
Number Exhibit Description Reference
- ------ ------------------- ----------
3.1 Restated Certificate of Incorporated by reference
Incorporation dated to Exhibit 3.1 to Form 10-K
January 24, 1995 for the year ended
December 31, 1995
3.2 Amendment to Restated Incorporated by reference
Certificate of Incorporation to Exhibit 3.2 to Form 10-K
dated April 9, 1995 for the year ended
December 31, 1995
3.3 By-Laws Filed herewith
4.1 Indenture between the Company Incorporated by reference
and Manufacturers Hanover to Exhibit 4.12 to Form
Trust Company, Trustee, 10-K for the year ended
dated September 1, 1986 December 31, 1986
4.2 First Supplemental Indenture Incorporated by reference
made by the Company to to Exhibit 4(b) to
Manufacturers Hanover Trust Registration Statement
Company, Trustee, dated 33-32035
December 1, 1989
4.3 10.46% Non Negotiable Incorporated by reference
Convertible Debenture due to Exhibit 4.14 to Form
October 27, 2008 from the 10-K for the year ended
Company to The Walters Trust December 31, 1988
4.4 9% Debenture due Incorporated by reference
August 15, 2021 to Exhibit 4.16 to Form
10-K for the year ended
December 31, 1991
4.5 Indenture between the Incorporated by reference
Company and Chase Manhattan to Exhibit 4.5 to Form
Bank, N.A. dated August 9, 10-K for the year ended
1995 December 31, 1995
4.6 Indenture, dated May 21, 1997 Incorporated by reference
between the Company and Chase to Exhibit 4.1 to Form 8-K
Manhattan Bank, NA as Trustee filed May 23, 1997
37
<PAGE>
4.7 Supplemental Indenture between Incorporated by reference
the Company and Chase Manhattan Bank, to Exhibit 4.7 to Form
NA as Trustee 10-K for the year ended
December 31, 1997
4.8 $200 Million Credit Agreement Filed herewith
dated November 10, 1998 with
Chase Manhattan Bank, Fleet Bank,
Marine Midland Bank
4.9 $275 Million Credit Agreement Filed herewith
dated November 10, 1998 with
Chase Manhattan Bank, Fleet Bank,
Marine Midland Bank
10.1 Joint Venture Agreement dated Incorporated by reference
March 9, 1993 by and between to Exhibit 10.13 to Form
Rochester Tel Cellular Holding 10-K for the year ended
Corporation and New York Cellular December 31, 1992
Geographic Service Area, Inc.
together with Exhibit A
thereto
10.2 Plan for the Deferral of Incorporated by reference
Directors Fees to Exhibit 10.34 to Form
10-K for the year ended
December 31, 1994
10.3 Directors' Common Stock Deferred Incorporated by reference
Growth Plan to Exhibit 10.36 to Form
10-K for the year ended
December 31, 1994
10.4 Management Stock Incentive Incorporated by reference
Plan dated April 26, 1995 to Exhibit 10.23 to Form
10-K for the year ended
December 31, 1995
10.5 Executive contract with supporting Incorporated by reference
offer letter for Mr. Barrett to Exhibit 10.25 to Form
10-Q for the quarter
ended March 31, 1996
38
<PAGE>
10.6 Restated Directors Incorporated by reference
Stock Incentive Plan to Exhibit 10.27 to Form
dated April 24, 1996 10-Q for the quarter
ended March 31, 1996
10.7 Employee Stock Option Plan Incorporated by reference
to Exhibit 10.28 to Form
10-Q for the quarter
ended March 31, 1996
10.8 IRU Agreement between Qwest Incorporated by
Frontier Communications International reference
Communications Corp. and to Exhibit 10.11 to Form
Inc. dated October 18, 1996. 10-K for the year ended
(CONFIDENTIAL TREATMENT December 31, 1996
GRANTED FOR CERTAIN PORTIONS
OF THIS EXHIBIT)
10.9 Restated Supplemental Incorporated by reference
Management Pension Plan to Exhibit 10.12 to Form
10-K for the year ended
December 31, 1996
10.10 Restated Supplemental Incorporated by reference
Retirement Savings Plan to Exhibit 10.13 to Form
10-K for the year ended
December 31, 1996
10.11 Form of management contracts Incorporated by reference
as amended with each of Messrs. to Exhibit 10.7 to Form
Massaro and Carr 10-K for the year ended
December 31, 1996
10.12 Form of management contracts with Incorporated by reference
Ms. Reeves-Collins and Mr. Carey to Exhibit 10.21 to Form
10-Q for the quarter
ended September 30, 1997
10.13 Amendment No. 1 to the Management Incorporated by reference
Stock Incentive Plan to Exhibit 10.22 to Form
10-Q for the quarter
ended September 30, 1997
39
<PAGE>
10.14 Amendment No. 1 to Supplemental Incorporated by reference
Management Pension Plan to Exhibit 10.21 to Form
10-K for the year ended
December 31, 1997
10.15 Executive contract with Mr. Clayton, Incorporated by reference
effective January 1, 1998 to Exhibit 10.15 to Form
10-K for the year ended
December 31, 1997
10.16 Service Continuation Agreement with Incorporated by reference
collateral documentation with Mr. Massaro, to Exhibit 10.24 to Form
effective December 29, 1997 10-K for the year ended
December 31, 1997
10.17 Management contract with Mr. McCue, Incorporated by reference
effective January 1, 1998 to Exhibit 10.25 to Form
10-K for the year ended
December 31, 1997
10.18 Executive contract with Mr. Huff, Incorporated by reference
effective May 22, 1998 to Exhibit 10.1 to
Registration Statement
333-72333 filed
February 12, 1999
10.19 1998 Executive Compensation Program Filed herewith
10.20 Amendment No. 1 to Employees' Filed herewith
Stock Option Plan
10.21 Amendment No. 2 to Management Filed herewith
Stock Incentive Plan
10.22 Amendment No. 3 to the Management Filed herewith
Stock Incentive Plan
10.23 Amendment No. 2 to Supplemental Filed herewith
Management Pension Plan
10.24 Executive contract with Mr. Detampel Filed herewith
10.25 Pension Bridging Agreement with Filed herewith
40
<PAGE>
Mr. McCue
11 Computation of Diluted Earnings Filed herewith
Per Share
13 Specified portions (pages 13 Filed herewith
through 49 of the Company's
Annual Report to Shareholders
for the year ended December 31, 1998
21 Subsidiaries of Frontier Corporation Filed herewith
23 Consent of Independent Filed herewith
Accountants - PricewaterhouseCoopers LLP
24 Power of Attorney for a Filed herewith
majority of Directors naming
Josephine S. Trubek attorney-in-fact
27 Financial Data Schedule Filed herewith
99 Proxy Statement for the Filed herewith
Annual Meeting of Shareholders
41
<PAGE>
Exhibit 3.3
FRONTIER CORPORATION
By-Laws
As Revised Effective March 21, 1983
(And as amended 7/16/84, 11/19/84, 2/17/86, 2/16/87,
4/22/87, 11/20/89, 2/19/90, 11/19/90, 4/24/91, 4/29/92, 4/21/93,
4/27/94, 9/19/94, 1/1/95, 4/26/95, 8/16/95, 1/22/96, 4/30/96,
6/16/97, 9/15/97, 3/1/98, 4/29/98, 10/12/98, 12/1/98)
ARTICLE I
SHAREHOLDERS
Section 1 - Annual Meeting.
- ---------------------------
An annual meeting of shareholders for the election of Directors and the
transaction of other business shall be held at such time on any day in the month
of April in each year or on such other date as shall be fixed by the Board of
Directors.
Section 2 - Special Meetings.
- -----------------------------
Special Meetings of the shareholders may be called by the Board of
Directors. Such meeting shall be held at such time as may be fixed in the
notice of meeting.
Section 3 - Place of Meeting.
- -----------------------------
Meetings of shareholders shall be held at such place, within or without
the State of New York, as may be fixed in the notice of meeting.
Section 4 - Notice of Meeting.
- ------------------------------
Notice of each meeting of shareholders shall be in writing and shall state
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called.
A copy of the notice of any meeting shall be given, personally, or by
mail, not less than ten or more than fifty days before the date of the meeting,
to each shareholder entitled to vote at such meeting. If mailed, such notice is
given when deposited in the United States mail, with postage thereon prepaid,
directed to the shareholder at the shareholder's address as it appears on the
record of shareholders, or, if the shareholder shall have filed with the
Secretary of the Corporation a written request that notices be mailed to some
other address, then directed to the shareholder at such other address.
3/21/83
<PAGE>
(2)
Section 5 - Inspectors of Election.
- -----------------------------------
The Board of Directors, in advance of any shareholders' meeting, may
appoint one or more inspectors to act at the meeting or any adjournment thereof.
If inspectors are not so appointed, the person presiding at a shareholders'
meeting may, and on the request of any shareholder entitled to vote at such
meeting shall, appoint two inspectors. Each inspector, before entering upon the
discharge of the inspector's duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of the inspector's ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote at such meeting,
the inspectors shall make a report in writing of any challenge, question or
matter determined by them and execute a certificate of any fact found by them.
Any report or certificate made by them shall be prima facie evidence of the
----- -----
facts stated and of the vote as certified by them.
Section 6 - List of Shareholders at Meeting.
- --------------------------------------------
A list of shareholders as of the record date, certified by the Secretary
or any Assistant Secretary or by the Transfer Agent, if any, shall be produced
at the meeting of shareholders upon the request of any shareholder at such
meeting or prior thereto. If the right to vote at any meeting is challenged,
the inspectors of election, or person presiding at such meeting, shall require
such list of shareholders to be produced as evidence of the right of the persons
challenged to vote at such meeting, and all persons who appear from such list to
be shareholders entitled to vote at such meeting may vote at such meeting.
3/21/83
<PAGE>
(3)
Section 7 - Qualification of Voters.
- ------------------------------------
Every shareholder of record of common stock of the Corporation shall be
entitled at every meeting of shareholders to one vote for every share of common
stock held by the shareholder in the shareholder's name on the record of
shareholders, subject, however, to the voting rights granted to the holders of
Cumulative Preferred Stock of the Corporation upon default in dividends thereon.
Section 8 - Quorum of Shareholders.
- -----------------------------------
The holders of a majority of the shares entitled to vote at such meeting
shall constitute a quorum at a meeting of shareholders for the transaction of
any business, provided that when a specified item of business is required to be
voted on by a class or series, voting as a class, the holders of a majority of
the shares of such class or series shall constitute a quorum for the transaction
of such specified item of business.
The shareholders present, in person or by proxy, and entitled to vote
may, by a majority of votes cast, adjourn the meeting despite the absence of a
quorum.
Section 9 - Vote of Shareholders.
- ---------------------------------
Directors shall, except as otherwise required by law, or by the
certificate of incorporation as permitted by law, be elected by a plurality of
the votes cast at a meeting of shareholders by the holders of shares entitled to
vote in the election.
Whenever any corporate action, other than the election of Directors, is to
be taken by vote of the shareholders, it shall, except as otherwise required by
law, or by the certificate of incorporation as permitted by law, be authorized
by a majority of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote thereon.
Section 10 - Proxies.*
- ---------------------
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for that shareholder by proxy. Any proxy may be transmitted,
authorized or executed in any manner permitted by the New York Business
Corporation Law. No proxy shall be valid after the expiration of eleven months
from the
3/21/83
*Revised 3/1/98
<PAGE>
(4)
date thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the shareholder executing it except in those cases
where an irrevocable proxy permitted by statute has been given.
Section 11 - Fixing Record Date.**
- --------------------------------
For the purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof, or to express
consent or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action.
Section 12 - Order of Business.*
- --------------------------------
The order of business at each meeting of shareholders shall be as
determined by the chairman of the meeting. The chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts and things as are necessary or desirable for the proper
conduct of the meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations on the time
allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls.
At any special meeting of shareholders, only such business may be
transacted which is related to the purpose or purposes set forth in the notice
of such meeting.
At any annual meeting of shareholders, only such business (other than the
nomination or election of directors) shall be conducted as shall have been
brought before the annual meeting (i) by or at the direction of the chairman of
the meeting or (ii) by any shareholder who is a holder of record at the time of
the giving of the notice provided for in this Section 12, who is or will be
entitled to vote at the meeting and who complies with the procedures set forth
in this Section 12.
3/21/83
*Revised 9/19/94
**Revised 3/1/98
<PAGE>
(5)
For business (other than the nomination or election of directors) properly
to be brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in proper written form to the Secretary. To be
timely, a shareholder's notice must be addressed to the Secretary and delivered
to or mailed and received at the principal executive offices of the Corporation
not less than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event that
-------- -------
the date of the annual meeting is more than 30 days earlier or more than 60 days
later than such anniversary date, notice by the shareholder to be timely must be
so delivered or received not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. To be in proper written
form, a shareholder's notice to the Secretary shall set forth in writing as to
each matter the shareholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder; (iv) a
representation that the shareholder is or will be entitled to vote at such
annual meeting and intends to appear in person (or send a qualified
representative) or by proxy to present such proposal at the meeting; and (v) any
material interest of the shareholder in such business. The foregoing notice
requirements shall be deemed satisfied by a shareholder if the shareholder has
notified the Corporation of his or her intention to present a proposal at an
annual meeting and such shareholder's proposal has been included in a proxy
statement that has been prepared by management of the Corporation to solicit
proxies for such annual meeting; provided, however, that if such shareholder
-------- -------
does not appear in person (or send a qualified representative) or by proxy to
present such proposal at such annual meeting, the Corporation need not present
such proposal for a vote at such meeting, notwithstanding that proxies in
respect of such vote may have been received by the Corporation. Notwithstanding
anything in the By-Laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
Section 12. The chairman of an annual meeting shall, if the facts warrant,
determine that business was not properly brought before the annual meeting in
accordance with the provisions of this
3/21/83
<PAGE>
(6)
Section 12 and, if he should so determine, he shall so declare to the annual
meeting and any such business not properly brought before the annual meeting
shall not be transacted and any proposal contemplated by such business shall be
void.
ARTICLE II
BOARD OF DIRECTORS
Section 1 - Power of Board and Qualification of Directors.
- ----------------------------------------------------------
The business of the Corporation shall be managed under the direction of
its Board of Directors, each of whom shall be at least twenty-one years of age.
Section 2 - Number of Directors.*
- ---------------------------------
At the annual meeting of shareholders, the shareholders shall elect twelve
directors.
Section 3 - Election, Term and Qualifications of Directors.
- -----------------------------------------------------------
At each annual meeting of shareholders, Directors shall be elected to hold
office until the next annual meeting and until their successors have been
elected and qualified. No person shall be eligible for election or reelection
to the Board of Directors after reaching seventy years of age, or in the case of
a retired Chairman of the Board of Directors or a retired President of the
Corporation, after reaching sixty-seven years of age. The term of any Director
who is also an Officer of the Corporation or any subsidiary of the Corporation,
other than the Chairman of the Board or the President of the Corporation, shall
end on the date of termination from active employment and such officer shall
thereafter be ineligible for reelection to the Board of Directors.
Section 4 - Quorum of the Board: Action by the Board.
- -----------------------------------------------------
One-third of the entire Board of Directors shall constitute a quorum for
the transaction of business, and the vote of a majority
3/21/83
*Revised 7/16/84, 2/17/86, 11/20/89, 2/19/90, 11/19/90, 4/24/91, 4/27/94,
1/1/95, 4/26/95, 8/16/95, 1/22/96, 4/30/96, 6/16/97, 9/15/97, 4/29/98, 10/12/98,
12/1/98
<PAGE>
(7)
of the Directors present at the time of such vote, if a quorum is then present,
shall be the act of the Board.
Section 5 - Action Without a Meeting.
- -------------------------------------
Any action required or permitted to be taken by the Board or any committee
thereof may be taken without a meeting if all members of the Board or of the
committee consent in writing to the adoption of the resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board or committee shall be filed with the minutes of the proceedings of the
Board or committee.
Section 6 - Participation in Board Meetings by Conference Telephone.
- --------------------------------------------------------------------
Any one or more members of the Board of Directors or any committee thereof
may participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
Section 7 - Meetings of the Board.
- ----------------------------------
An annual meeting of the Board of Directors shall be held in each year
directly after adjournment of the annual shareholders' meeting. Regular
meetings of the Board shall be held at such times as may from time to time be
fixed by resolution of the Board. Special meetings of the Board may be held at
any time upon the call of the Chairman of the Board of Directors, if such there
be, the President or any two Directors.
Meetings of the Board of Directors shall be held at such place, within or
without the State of New York, as from time to time may be fixed by resolution
of the Board for annual and regular meetings and in the notice of meeting for
special meetings. If no place is so fixed, meetings of the Board shall be held
at the office of the Corporation in Rochester, New York.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given by oral,
telegraphic or written notice, duly given or sent or mailed to each Director not
less than one (1) day before such meeting.
3/21/83
<PAGE>
(8)
Section 8 - Resignation.
- ------------------------
Any Director may resign at any time by giving written notice to the
Chairman of the Board of Directors, if such there be, to the President or to the
Secretary. Such resignation shall take effect at the time specified in such
written notice, or if no time be specified, then on delivery. Unless otherwise
specified in the written notice, the acceptance of such resignation by the Board
of Directors shall not be needed to make it effective.
Section 9 - Newly Created Directorships and Vacancies.
- ------------------------------------------------------
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board of Directors may be filled by
vote of the Board. If the number of the directors then in office is less than a
quorum, such newly created directorships and vacancies may be filled by vote of
a majority of the directors then in office. A director elected to fill a
vacancy shall be elected to hold office for the unexpired term of such
director's predecessor.
Section 10 - Executive and Other Committees of Directors.*
- ----------------------------------------------------------
The Board of Directors, by resolution, adopted by a majority of the entire
Board, shall designate from among its members an Executive Committee consisting
of three or more Directors, a majority of whom are outside directors.
The Executive Committee shall have all the authority of the Board, except
that it shall not have authority as to the following matters:
(1)The submission to shareholders of any action that needs shareholders'
approval;
(2)The filling of vacancies in the Board or in any committee;
(3)The amendment or repeal of the By-Laws, or the adoption of new By-Laws;
(4)The amendment or repeal of any resolution of the Board which, by its
terms, shall not be so amendable or repealable;
(5)The fixing of compensation of the directors for serving on the Board or
on any Committee;
3/21/83
*Revised 11/19/84, 4/22/87, 4/29/92, 4/21/93, 8/16/95
<PAGE>
(9)
(6)The fixing or amendment of the compensation, benefits and perquisites
of the chief executive officer.
The Board of Directors, by resolution by a majority of the entire Board,
may designate from among its members an Audit Committee consisting of three or
more outside directors. The Audit Committee shall, among other things, review
the scope of audit activities, review with management significant issues
concerning litigation, contingencies or other material matters which may result
in either potential liability of the Company or significant exposure to the
Company, review significant matters of corporate ethics, review security methods
and procedures, review the financial reports and notes, and make reports and
recommendations with respect to audit activities, findings, and reports of the
independent public accountants and the internal audit staff of the Company.
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members a Committee on Directors consisting
of three or more outside directors. The Committee on Directors shall, among
other things, review performance of incumbent directors, act as a nominating
committee, and consider and report to the entire Board of Directors on all
matters relating to the selection, qualification, compensation and duties of the
members of the Board of Directors and any committees of the Board of Directors.
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members a Committee on Management consisting
of three or more outside directors. The Committee on Management shall, among
other things, fix or amend the compensation, benefits and perquisites of all
executive officers of the Company and recommend such for the chief executive
officer, select and administer executive compensation plans and employee benefit
plans which have Company stock as an investment option, review succession
planning for the Company and review with management significant human resources
issues. The compensation, benefits and perquisites of the chief executive
officer shall be set by the outside directors of the full Board upon the
recommendation of the Committee on Management.
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members other committees each consisting of
three or more directors.
Unless a greater proportion is required by the resolution designating a
committee of the Board of Directors, a quorum for the transaction of business of
a committee shall consist of (a) a
3/21/83
<PAGE>
(10)
majority of the entire authorized number of members of the Executive Committee
or (b) one-third of the entire authorized number of members of any other
committee of the Board of Directors, but in no event fewer than two persons. The
vote of a majority of the members of a committee present at the time of the vote
concerning the transaction of business of that committee or of any specified
item of business of that committee if a quorum is present at such time, shall be
the act of such committee.
Any committee may fix the time and place of holding its regular meetings
and, if so fixed, no notice of such regular meeting shall be necessary. Special
meetings of any committee may be called at any time by the Chairman of the Board
of Directors, if such there be, by the chief executive officer, by the
President, by the Chairperson of that committee, or by any two members of that
committee. Notice of each special meeting of any committee shall be given by
oral, telegraphic or written notice, including notice via facsimile machine,
duly given or sent or mailed to each member of that committee not less than one
day before such meeting.
Section 11 - Compensation of Directors.
- ---------------------------------------
The Board of Directors shall have authority to fix the compensation of
directors for services in any capacity.
Section 12 - Indemnification.*
- ------------------------------
(a) Generally.
----------
To the full extent authorized or permitted by law, the Corporation shall
indemnify any person ("indemnified Person") made, or threatened to be made, a
party to any action or proceeding, whether civil, at law, in equity, criminal,
administrative, investigative or otherwise, including any action by or in the
right of the Corporation, by reason of the fact that he, his testator or
intestate, ("Responsible Person"), whether before or after adoption of this
Section 12, (1) is or was a director or officer of the Corporation, or (2), if a
director or officer of the Corporation, is serving or served, in any capacity,
at the request of the Corporation, any other corporation, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, or (3), if not
a director or officer of the Corporation, is serving or served, at the request
of the
3/21/83
*Revised 2/16/87
<PAGE>
(11)
Corporation, as a director or officer of any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against all judgments, fines, penalties, amounts paid in settlement (provided
the Corporation shall have given its prior consent to such settlement, which
consent shall not be unreasonably withheld by it) and reasonable expenses,
including attorneys' fees, incurred by such Indemnified Person with respect to
any such threatened or actual action or proceeding, and any appeal therein,
provided only that (x) acts of the Responsible Person which were material to the
cause of action so adjudicated or otherwise disposed of were not (i) committed
in bad faith or (ii) were not the result of active and deliberate dishonesty,
and (y) the Responsible Person did not personally gain in fact a financial
profit or other advantage to which he was not legally entitled.
(b) Advancement of Expenses.
------------------------
All expenses reasonably incurred by an Indemnified Person in connection
with a threatened or actual action or proceeding with respect to which such
person is or may be entitled to indemnification under this Section 12 shall be
advanced or promptly reimbursed by the Corporation to him in advance of the
final disposition of such action or proceeding, upon receipt of an undertaking
by him or on his behalf to repay the amount of such advances, if any, as to
which he is ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent such advances exceed the
indemnification to which he is entitled. Such person shall cooperate in good
faith with any request by the Corporation that common counsel be used by the
parties to an action or proceeding who are similarly situated unless to do so
would be inappropriate due to an actual or potential conflict of interest.
(c) Procedure for Indemnification.
------------------------------
(1) Not later than thirty (30) days following final disposition of an
action or proceeding with respect to which the Corporation has received written
request by an Indemnified Person for indemnification pursuant to this Section
12, if such indemnification has not been ordered by a court, the Board of
Directors shall meet and find whether the Responsible Person met the standard of
conduct set forth in paragraph (a) of this Section 12, and, if it finds that he
did, or to the extent it so finds, shall authorize such indemnification.
3/21/83
<PAGE>
(12)
(2) Such standard shall be found to have been met unless (a) a judgment or
other final adjudication adverse to the Indemnified Person establishes that
subparagraphs (x) or (y) of paragraph (a) of this Section 12 were violated, or
(b) if the action or proceeding was disposed of other than by judgment or other
final adjudication, the Board finds in good faith that, if it had been disposed
of by judgment or other final adjudication, such judgment or other final
adjudication would have been adverse to the Indemnified Person and would have
established a violation of subparagraphs (x) or (y) of paragraph (a) of this
Section 12.
(3) If indemnification is denied, in whole or part, because of an adverse
finding by the Board in the absence of a judgment or other final adjudication,
or because the Board believes the expenses for which indemnification is
requested to be unreasonable, such action by the Board shall in no way affect
the right of the Indemnified Person to make application therefor in any court
having jurisdiction thereof, and in such action or proceeding the issue shall be
whether the Responsible Person met the standard of conduct set forth in
paragraph (a) of this Section 12, or whether the expenses were reasonable, as
the case may be (not whether the finding of the Board with respect thereto was
correct) and the determination of such issue shall not be affected by the
Board's finding. If the judgment or other final adjudication in such action or
proceeding establishes that the Responsible Person met the standard set forth in
paragraph (a) of this Section 12, or that the disallowed expenses were
reasonable, or to the extent that it does, the Board shall then find such
standard to have been met or the expenses to be reasonable, and shall grant such
indemnification, and shall also grant to the Indemnified Person indemnification
of the expenses incurred by him in connection with the action or proceeding
resulting in the judgment or other final adjudication that such standard of
conduct was met, or if pursuant to such court determination such person is
entitled to less than the full amount of indemnification denied by the
Corporation, the portion of such expenses proportionate to the amount of such
indemnification so awarded.
(4) A finding by the Board pursuant to this paragraph (c) that the
standard of conduct set forth in paragraph (a) of this Section 12 has been met
shall mean a finding of the Board or shareholders as provided by law.
(d) Contractual Article.
--------------------
This Section 12 shall be deemed to constitute a contract between the
Corporation and each person who is a Responsible Person
3/21/83
<PAGE>
(13)
at any time while this Section 12 is in effect. No repeal or amendment of this
Section 12, insofar as it reduces the extent of the indemnification of any
person who could be a Responsible Person shall without his written consent be
effective as to such person with respect to any event, act or omission occurring
or allegedly occurring prior to (1) the date of such repeal or amendment if on
that date he is not serving in any capacity for which he could be a Responsible
Person, or (2) the thirtieth (30th) day following delivery to him of written
notice of such repeal or amendment as to any capacity in which he is serving on
the date of such repeal or amendment, other than as a director or officer of the
Corporation, for which he could be a Responsible Person, or (3) the later of the
thirtieth (30th) day following delivery to him of such notice or the end of the
term of office (for whatever reason) he is serving as director or officer of the
Corporation when such repeal or amendment is adopted, with respect to being a
Responsible Person in that capacity. No amendment of the Business Corporation
Law shall, insofar as it reduces the permissible extent of the right of
indemnification of a Responsible Person under this Section 12, be effective as
to such person with respect to any event, act or omission occurring or allegedly
occurring prior to the effective date of such amendment irrespective of the date
of any claim or legal action in respect thereto. This Section 12 shall be
binding on any successor to the Corporation, including any corporation or other
entity which acquires all or substantially all of the Corporation's assets.
(e) Non-exclusivity.
----------------
The indemnification provided by this Section 12 shall not be deemed
exclusive of any other rights to which any person covered hereby may be entitled
other than pursuant to this Section 12. The Corporation is authorized to enter
into agreements with any such person or persons providing them rights to
indemnification or advancement of expenses in addition to the provisions
therefor in this Section 12 to the full extent permitted by law.
Section 13 - Notification of Nominations.*
---------------------------
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of Directors may be made by the Board of Directors
or by any shareholder who is a
3/21/83
*Revised 9/19/94
<PAGE>
(14)
shareholder of record at the time of the giving of the notice of nomination
provided for in this Section 13 and who is entitled to vote for the election of
Directors. Any shareholder of record who is or will be entitled to vote for the
election of Directors at a meeting may nominate persons for election as
Directors only if timely written notice of such shareholder's intent to make
such nomination is given to the Secretary. To be timely, a shareholder's notice
must be addressed to the Secretary and delivered to or mailed and received at
the principal executive offices of the Corporation (i) with respect to an
election to be held at an annual meeting of shareholders, not less than 60 days
nor more than 90 days prior to the anniversary date of the immediately preceding
annual meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the shareholder to be timely must be so delivered or
received not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made and (ii) with respect to an election to
be held at a special meeting of shareholders for the election of Directors, not
earlier than the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees to be elected at such meeting.
Each such notice shall set forth: (a) the name and address, as they appear on
the Corporation's books, of the shareholder who intends to make the nomination,
and the name and address of the person or persons to be nominated; (b) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder: (c) a representation that the shareholder is or will be entitled to
vote at the meeting and intends to appear in person (or send a qualified
representative) or by proxy at the meeting to nominate the person or persons
specified in the notice; (d) a description of all arrangements or understandings
between the shareholder and such nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; (e) such other information regarding each nominee
proposed by such shareholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors; and (f) the consent of each nominee to serve as a Director
of the
3/21/83
<PAGE>
(15)
Corporation if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made after compliance with the foregoing
procedure. Only such persons who are nominated in accordance with the procedures
set forth in this Section 13 shall be eligible to serve as Directors of the
Corporation and any purported nomination or purported election not made in
accordance with the procedures set forth in this Section 13 shall be void.
ARTICLE III
OFFICERS
Section 1 - Officers.
- ---------------------
The Board of Directors, as soon as may be practicable after the annual
election of directors, may elect a Chairman of the Board of Directors and shall
elect a President, one or more Vice Presidents (one or more of whom may be
designated Executive Vice President), a Secretary and a Treasurer, and such
other officers as it may determine. Any two or more offices may be held by the
same person, except the office of President and Secretary.
Section 2 - Term of Office and Removal.
- ---------------------------------------
Each officer shall hold office for the term for which each officer is
elected or appointed, and until a successor has been elected or appointed and
qualified.
Section 3 - Powers and Duties.
- ------------------------------
The officers of the Corporation shall each have such powers and authority
and perform such duties in the management of the Corporation as set forth in
these By-Laws and as from time to time prescribed by the Board of Directors. To
the extent not set forth in these By-Laws or so prescribed by the Board of
Directors, they shall each have such powers and authority and perform such
duties in the management of the Corporation, subject to the control of the
Board, as generally pertain to their respective offices.
3/21/83
<PAGE>
(16)
In addition to the powers and authority above, each officer has the powers
and duties set out below.
(a) Chairman of the Board of Directors
----------------------------------
The Chairman of the Board of Directors, if such there be, shall preside at
all meetings of the Board. The Chairman of the Board of Directors may be
the chief executive officer of the Corporation, and if so designated, may
preside at all meetings of shareholders.
(b) President
---------
The President shall be the chief operating officer and shall have
responsibility for the general management of the business of the
Corporation, subject only to the supervision of the Board of Directors,
the Executive Committee and the Chairman of the Board of Directors, as
chief executive officer, if such there be. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of Directors is not the
chief executive officer, then the President shall be the chief executive
officer of the Corporation. The President may preside at all meetings of
shareholders, when present, and at meetings of the Board of Directors in
the absence of the Chairman of the Board, if such there be.
(c) Executive Vice President
------------------------
The Executive Vice President or the Executive Vice Presidents, if such
there be, shall assist the President in the management of the Corporation
and, as may be designated by the Board of Directors, in the event of the
death, resignation, removal, disability or absence of the President, an
Executive Vice President shall possess the powers and perform the duties
of the President for the period of such disability or absence or until the
Board of Directors elects a President.
(d) Vice President
--------------
Each Vice President shall assist the President in the management of the
Corporation and, in the absence or incapacity of the President and
Executive Vice Presidents,
3/21/83
<PAGE>
(17)
and in order as fixed by the Board, possess the powers and perform the duties of
the President for the period of such absence or incapacity, and shall possess
such other powers and perform such other duties as the Board of Directors may
prescribe.
(e) Secretary
---------
The Secretary shall issue notices of all meetings of shareholders and
directors where notices of such meetings are required by law or these By-
Laws, and shall keep the minutes of such meetings. The Secretary shall
sign such instruments and attest such documents as require signature or
attestation and affix the corporate seal thereto where appropriate and
shall possess such other powers and perform such other duties as usually
pertain to the office or as the Board of Directors may prescribe.
(f) Treasurer
---------
The Treasurer shall have general charge of, and be responsible for, the
fiscal affairs of the Corporation and shall sign all instruments and
documents as require such signature, and shall possess such other powers
and perform such other duties as usually pertain to the office or as the
Board of Directors may prescribe.
(g) Assistant Officers
------------------
Any Assistant Officer elected by the Board of Directors shall assist the
designated officer and shall possess that officer's powers and perform
that officer's duties as designated by that officer, and shall possess
such other powers and perform such other duties as the Board of Directors
may prescribe.
Section 4 - Records.
- --------------------
The Corporation shall keep (a) correct and complete books and records of
account; (b) minutes of the proceedings of the shareholders, Board of Directors
and any committees of the Board; and (c) a current list of the directors and
officers and their residence addresses.
3/21/83
<PAGE>
(18)
The Corporation shall also keep at its office in the State of New York or
at the office of its transfer agent or registrar in the State of New York, if
any, a record containing the names and addresses of all shareholders, the number
and class of shares held by each and the dates when they respectively became the
owners of record thereof.
Section 5 - Checks and Similar Instruments.
- -------------------------------------------
All checks and drafts on the Corporation's bank accounts and all bills of
exchange and promissory notes and all acceptances, obligations and other
instruments, for the payment of money, shall be signed by facsimile or otherwise
on behalf of the Corporation by such officer or officers or agent or agents as
shall be thereunto authorized from time to time by the Board of Directors.
Section 6 - Voting Shares Held by the Corporation.
- --------------------------------------------------
Either the President or the Secretary may vote shares of stock held by the
Corporation in other corporations and may execute proxies for and on behalf of
the Corporation for such purpose.
ARTICLE IV
SHARE CERTIFICATES AND LOSS THEREOF - TRANSFER OF SHARES
Section 1 - Form of Share Certificate.
- --------------------------------------
The shares of the Corporation shall be represented by certificates, in
such forms as the Board of Directors may from time to time prescribe, signed by
the Chairman of the Board if such there be, or the President or a Vice
President, and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation or its employee. In case any officer
who
3/21/83
<PAGE>
(19)
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person were such
officer at the date of issue.
Section 2 - Lost, Stolen or Destroyed Share Certificates.
- ---------------------------------------------------------
No certificate or certificates for shares of the Corporation shall be
issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of the loss, theft or
destruction, and upon such indemnification and payment of costs of the
Corporation and its agents to such extent and in such manner as the Board of
Directors may from time to time prescribe. The Board of Directors, in its
discretion, and as a condition precedent to the issuance of any new certificate,
may require the owner of any certificate alleged to have been lost, stolen or
destroyed to furnish the Corporation with a bond, in such sum and with such
surety or sureties as it may direct, as indemnity against any claim that may be
made against the Corporation in respect of such lost, stolen or destroyed
certificate.
Section 3 - Transfer of Shares.
- -------------------------------
Shares of the Corporation shall be transferable on the books of the
Corporation by the registered holder thereof in person or by the registered
holder's duly authorized attorney, by delivery for cancellation of a certificate
or certificates for the same number of shares, with proper endorsement
consisting of either a written assignment of the certificate or a power of
attorney to sell, assign or transfer the same or the shares represented thereby,
signed by the person appearing by the certificate to be the owner of the shares
represented thereby, either written thereon or attached thereto, with such proof
of the authenticity of the signature as the Corporation or its agents may
reasonably require. Such endorsement may be either in blank or to a specified
person, and shall have affixed thereto all stock transfer stamps required by
law.
*Except as otherwise provided by law, not more than twenty percent of the
aggregate number of shares of stock of the Corporation outstanding in any class
or series shall at any time be owned of record or beneficially or voted by or
for the account of aliens (as defined below). Shares of stock shall not be
transferable on the books of the Corporation to any alien if, as a
3/21/83
*Revised 9/19/94
<PAGE>
(20)
result of such transfer, the aggregate number of shares of stock in any class or
series owned by or for the account of aliens shall be twenty percent or more of
the number of shares of stock then outstanding in such class or series. The
Board of Directors may make such rules and regulations as it shall deem
necessary or appropriate so that accurate records may be kept of the shares of
stock of the Corporation owned of record or beneficially or voted by or for the
account of aliens or to otherwise enforce the provisions of this Section 3.
As used in this Section 3, the word "alien" shall mean the following and
their representatives: any individual not a citizen of the United States of
America; a partnership, unless a majority of the partners are non-aliens and a
majority interest in the partnership profits is held by nonaliens; a foreign
government; a corporation, joint-stock company or association organized under
the laws of a foreign country; any other corporation of which any officer or
more than one-fourth of the directors are aliens, or of which more than one-
fourth of any class or series of stock is owned of record or voted by or for the
account of aliens; and any other corporation, joint-stock company or association
controlled directly or indirectly by one or more of the above.
ARTICLE V
OTHER MATTERS
Section 1 - Corporate Seal.
- ---------------------------
The corporate seal shall have inscribed thereon the name of the
Corporation and such other appropriate legend as the Board of Directors may from
time to time determine. In lieu of the corporate seal, when so authorized by
the Board, a facsimile thereof may be affixed or impressed or reproduced in any
other manner.
Section 2 - Amendments.
- -----------------------
By-Laws of the Corporation may be amended, repealed or adopted by vote of
the holders of the shares at the time entitled to vote in the election of any
directors. By-Laws may also be
3/21/83
<PAGE>
(21)
amended, repealed, or adopted by the Board of Directors, but any By-Law adopted
by the Board may be amended or repealed by the shareholders entitled to vote
thereon as hereinabove provided.
If any By-Law regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the By-
Law so adopted, amended or repealed, together with a concise statement of the
changes made.
3/21/83
<PAGE>
================================================================================
$200,000,000
CREDIT AGREEMENT
dated as of
November 10, 1998
among
FRONTIER CORPORATION
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
FLEET BANK,
as Syndication Agent
MARINE MIDLAND BANK,
as Documentation Agent
CHASE SECURITIES INC.,
as Lead Arranger and Book Manager
================================================================================
<PAGE>
================================================================================
TABLE OF CONTENTS
ARTICLE I Definitions
SECTION 1.01. Defined Terms. 6
SECTION 1.02. Classification of Loans and Borrowings. 20
SECTION 1.03. Terms Generally. 20
SECTION 1.04 Accounting Terms; GAAP. 20
ARTICLE II The Credits
SECTION 2.01. Commitments. 21
SECTION 2.02. Loans and Borrowings 21
SECTION 2.03. Requests for Revolving Borrowings. 22
SECTION 2.04. Competitive Bid Procedure 23
SECTION 2.05. Funding of Borrowings. 25
SECTION 2.06. Interest Elections. 25
SECTION 2.07. Termination and Reduction of Commitments. 27
SECTION 2.08. Repayment of Loans; Evidence of Debt; Extension
of Maturity Date. 27
SECTION 2.09. Prepayment of Loans 28
SECTION 2.10. Fees. 29
SECTION 2.11. Interest 30
SECTION 2.12. Alternate Rate of Interest 31
SECTION 2.13. Increased Costs 31
SECTION 2.14. Break Funding Payments 32
SECTION 2.15. Taxes 33
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. 34
SECTION 2.17. Mitigation Obligations; Replacement of Lenders 35
<PAGE>
ARTICLE III Representations and Warranties
SECTION 3.01. Organization; Powers 36
SECTION 3.02. Authorization; Enforceability. 36
SECTION 3.03. Governmental Approvals; No Conflicts 37
SECTION 3.04. Financial Condition; No Material Adverse Change 37
SECTION 3.05. Properties 37
SECTION 3.06. Litigation and Environmental Matters 37
SECTION 3.07. Compliance with Laws and Agreements 38
SECTION 3.08. Investment and Holding Company Status 38
SECTION 3.09. Taxes 38
SECTION 3.10. ERISA 38
SECTION 3.11. Disclosure 38
SECTION 3.12. Year 2000. 39
SECTION 3.13. Significant Subsidiaries 39
SECTION 3.14. Borrower's Funded Debt 39
ARTICLE IV Conditions
SECTION 4.01. Effective Date 39
SECTION 4.02. Each Credit Event 40
ARTICLE V Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information 41
SECTION 5.02. Notices of Material Events 42
SECTION 5.03. Existence; Conduct of Business 43
SECTION 5.04. Payment of Obligations 43
<PAGE>
SECTION 5.05. Maintenance of Properties; Insurance 43
SECTION 5.06. Books and Records; Inspection Rights. 43
SECTION 5.07. Compliance with Laws 44
SECTION 5.08. Use of Proceeds 44
SECTION 5.09. Other Funded Debt of Borrower 44
ARTICLE VI Negative Covenants
SECTION 6.01. Indebtedness of Subsidiaries 44
SECTION 6.02. Liens 45
SECTION 6.03. Fundamental Changes. 46
SECTION 6.04. Transactions with Affiliates 47
SECTION 6.05. Restrictive Agreements 47
SECTION 6.06. Interest Coverage 48
ARTICLE VII Events of Default 48
ARTICLE VIII The Administrative Agent 51
ARTICLE IX Miscellaneous
SECTION 9.01. Notices 53
SECTION 9.02. Waivers; Amendments 53
SECTION 9.03 . Expenses; Indemnity; Damage Waiver 54
SECTION 9.04. Successors and Assigns. 55
SECTION 9.05. Survival 58
SECTION 9.06. Counterparts; Integration; Effectiveness 58
SECTION 9.07. Severability 58
<PAGE>
SECTION 9.08. Right of Setoff 58
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. 59
SECTION 9.10. WAIVER OF JURY TRIAL 59
SECTION 9.11. Headings 60
SECTION 9.12. Confidentiality 60
SECTION 9.13. Interest Rate Limitation 60
EXHIBITS
EXHIBIT 1.01 73
EXHIBIT 2.01 76
EXHIBIT 3.06 77
EXHIBIT 3.13 78
EXHIBIT 3.14 79
EXHIBIT 4.01(b) 80
EXHIBIT 6.01 82
EXHIBIT 6.02 83
EXHIBIT 6.05 84
<PAGE>
CREDIT AGREEMENT dated as of November 10, 1998, among FRONTIER CORPORATION,
the LENDERS party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the following
--------------
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether
---
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Revolving
------------------
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity as
--------------------
administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in a
----------------------------
form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that
---------
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
-------------------
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the percentage
---------------------
of the total Commitments represented by such Lender's Commitment. If the
Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
<PAGE>
"Applicable Rate" means, for any day, with respect to any Eurodollar
---------------
Revolving Loan, or with respect to the facility fees payable hereunder, as the
case may be, the applicable rate per annum set forth below, expressed in basis
points, under the caption "Eurodollar Spread" or "Facility Fee Rate", as the
case may be, based upon the ratings by Moody's and S&P, respectively, applicable
on such date to the Index Debt:
<TABLE>
<CAPTION>
==============================================================================================
Eurodollar Facility Fee
-------------------- ----------------------
Index Debt Ratings: Spread Rate
- ------------------------------------------------ -------------------- ----------------------
<S> <C> <C>
Category 1 13 7
- ----------
Greater than or equal to A+/A1
- ----------------------------------------------------------------------------------------------
Category 2 16 9
- ----------
Greater than or equal to A-/A3
- ----------------------------------------------------------------------------------------------
Category 3 20 10
- ----------
Equal to BBB+/Baa1
- ----------------------------------------------------------------------------------------------
Category 4 22.5 12.5
- ----------
Equal to BBB/Baa2
- ----------------------------------------------------------------------------------------------
Category 5 30 15
- ----------
Lower than BBB/Baa2 or not rated by both
Moody's and S&P
==============================================================================================
</TABLE>
For purposes of the foregoing, (i) if either Moody's or S&P shall not have
in effect a rating for the Index Debt (other than by reason of the circumstances
referred to in the last sentence of this definition), then such rating agency
shall be deemed to have established a rating in Category 5; (ii) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall fall within different Categories, the Applicable Rate shall be based
on the higher of the two ratings unless one of the two ratings is two or more
Categories lower than the other, in which case the Applicable Rate shall be
determined by reference to the Category next below that of the higher of the two
ratings; and (iii) if the ratings established or deemed to have been established
by Moody's and S&P for the Index Debt shall be changed (other than as a result
of a change in the rating system of Moody's or S&P), such change shall be
effective as of the date on which it is first announced by the applicable rating
agency. Each change in the Applicable Rate shall apply during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change. If the rating
system of Moody's or S&P shall change, or if either such rating agency shall
cease to be in the business of rating corporate debt obligations, the Borrower
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable Rate shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
"Assessment Rate" means, for any day, the annual assessment rate in effect
---------------
on such day that is payable by a member of the Bank Insurance Fund classified as
"well-capitalized" and within supervisory subgroup "B" (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to
<PAGE>
the Federal Deposit Insurance Corporation for insurance by such Corporation of
time deposits made in dollars at the offices of such member in the United
States; provided that if, as a result of any change in any law, rule or
--------
regulation, it is no longer possible to determine the Assessment Rate as
aforesaid, then the Assessment Rate shall be such annual rate as shall be
determined by the Administrative Agent to be representative of the cost of such
insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered into
-------------------------
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
------------
of Exhibit 1.01 or any other form approved by the Administrative Agent.
-------------
"Availability Period" means the period from and including the Effective
-------------------
Date to but excluding the earlier of the Termination Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
------------
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of the
-----
United States of America.
"Borrower" means Frontier Corporation, a New York corporation.
--------
"Borrowing" means (a) Revolving Loans of the same Type, made, converted or
---------
continued on the same date and, in the case of Eurodollar Revolving Loans, as to
which a single Interest Period is in effect or (b) a Competitive Loan or group
of Competitive Loans of the same Type made on the same date and as to which a
single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Revolving
-----------------
Borrowing in accordance with Section 2.03.
------------
"Business Day" means any day that is not a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law to
remain closed; provided that, when used in connection with a Eurodollar Loan,
--------
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of such
-------------------------
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
<PAGE>
"Change in Control" means (a) the acquisition of ownership, directly or
-----------------
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 30% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Borrower; (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Borrower by Persons who were neither (i) nominated by the board of directors of
the Borrower nor (ii) appointed by directors so nominated; or (c) the
acquisition of direct or indirect Control of the Borrower by any Person or
group.
"Change in Law" means (a) the adoption of any law, rule or regulation after
-------------
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender (or, for purposes of
Section 2.13(b), by any lending office of such Lender or by such Lender's
- ---------------
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to whether
-----
such Loan, or the Loans comprising such Borrowing, are Revolving Loans, or
Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time.
"Commitment" means, with respect to each Lender, the commitment of such
----------
Lender to make Revolving Loans hereunder, expressed as an amount representing
the maximum aggregate amount of such Lender's Revolving Credit Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.07 and (b) reduced or increased from time to time pursuant to
- ------------
assignments by or to such Lender pursuant to Section 9.04. The initial amount
------------
of each Lender's Commitment is set forth on Exhibit 2.01, or in the Assignment
------------
and Acceptance pursuant to which such Lender shall have assumed its Commitment,
as applicable. The initial aggregate amount of the Lenders' Commitments is
$200,000,000.
"Competitive Bid" means an offer by a Lender to make a Competitive Loan in
---------------
accordance with Section 2.04.
------------
"Competitive Bid Rate" means, with respect to any Competitive Bid, the
--------------------
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" means a request by the Borrower for Competitive
-----------------------
Bids in accordance with Section 2.04.
------------
"Competitive Loan" means a Loan made pursuant to Section 2.04.
---------------- ------------
<PAGE>
"Consolidated Interest Expense" means for any period for which such amount
-----------------------------
is being determined, the interest expense of the Borrower and its Consolidated
Subsidiaries for such period, as reported on the relevant financial statements
delivered pursuant to Sections 5.01(a) and 5.01(b).
----------------------------
"Consolidated Net Income" means the net income of the Borrower and its
-----------------------
Consolidated Subsidiaries, after taxes and after extraordinary items, as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means the Net Worth of the Borrower and its
----------------------
Consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP. For this purpose, "Net Worth" of a Person means, at any date of
---------
determination thereof, the excess of total assets of the Person over total
liabilities of the Person, determined in accordance with GAAP.
"Consolidated Tangible Net Worth" means the Tangible Net Worth of the
-------------------------------
Borrower and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP. For this purpose, "Tangible Net Worth" of a
------------------
Person means, at any date of determination thereof, the excess of total Tangible
Assets of the Person over total liabilities of the Person, determined in
accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or are
-----------------------
required to be consolidated with the accounts of the Borrower in accordance with
GAAP.
"Control" means the possession, directly or indirectly, of the power to
-------
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
- ------------ ----------
"Default" means any event or condition which (a) constitutes an Event of
-------
Default, (b) upon notice, lapse of time or both would, unless cured or waived,
become an Event of Default or (c) constitutes a "Default", as such term is
defined in the $275,000,000 Credit Agreement.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Exhibit 3.06.
------------
"dollars" or "$" refers to lawful money of the United States of America.
------- -
"EBITDA" means the sum of the following items measured for the twelve month
------
period ending on the last day of each fiscal quarter: (a) Consolidated Net
Income calculated after eliminating extraordinary and/or non-recurring items, to
the extent included in the determination of Consolidated Net Income, plus (b)
depreciation, amortization, and all other non-cash charges included in the
determination of
<PAGE>
Consolidated Net Income, plus (c) income taxes to the extent that they reduce
Consolidated Net Income, plus (d) Consolidated Interest Expense.
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
- ------------ ------------
"Environmental Laws" means all laws, rules, regulations, codes, ordinances,
------------------
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to health
and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------
that, together with the Borrower, is treated as a single employer under Section
414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
-----------
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a
<PAGE>
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
----------
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of
a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in Article VII.
---------------- -----------
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.17(b)), any withholding tax that is imposed on amounts payable to such
- ---------------
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section 2.15(e), except to the extent that such Foreign
---------------
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from the
Borrower with respect to such withholding tax pursuant to Section 2.15(a).
---------------
"Federal Funds Effective Rate" means, for any day, the weighted average
----------------------------
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal accounting
-----------------
officer, treasurer or controller of the Borrower.
"Fixed Rate" means, with respect to any Competitive Loan (other than a
----------
Eurodollar Competitive Loan), the fixed rate of interest per annum specified by
the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed
---------------
Rate.
<PAGE>
"Foreign Lender" means any Lender that is organized under the laws of a
--------------
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Funded Debt" means, with respect to any Person, all Indebtedness of such
-----------
Person (including current maturities), for money borrowed (including Capital
Leases), which by its terms matures more than one year from the date as of which
such Funded Debt is incurred, and any such Indebtedness of such Person maturing
within one year from such date which is renewable or extendable at the option of
the obligor to a date beyond one year from such date (whether or not theretofore
renewed or extended), including any such Indebtedness renewable or extendable at
the option of the obligor under, or payable from the proceeds of other
Indebtedness which may be incurred pursuant to, the provisions of any revolving
credit agreement or other similar agreement.
"GAAP" means generally accepted accounting principles in the United States
----
of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
--------- ---------
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
---------------
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term Guarantee shall not include endorsements for
--------
collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or
-------------------
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
<PAGE>
"Hedging Agreement" means any interest rate protection agreement, foreign
-----------------
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Index Debt" means senior, unsecured, long-term indebtedness for borrowed
----------
money of the Borrower that is not guaranteed by any other Person or subject to
any other credit enhancement.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated September, 1998 relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to convert or
-------------------------
continue a Revolving Borrowing in accordance with Section 2.06.
------------
"Interest Payment Date" means (a) with respect to any ABR Loan, the last
---------------------
day of each March, June, September and December, (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period and (c) with respect to any Fixed
Rate Loan, the last day of the Interest Period applicable to the Borrowing of
which such Loan is a part and, in the case of a Fixed Rate Borrowing with an
Interest Period of more than 90 days' duration (unless otherwise specified in
the
<PAGE>
applicable Competitive Bid Request), each day prior to the last day of such
Interest Period that occurs at intervals of 90 days' duration after the first
day of such Interest Period, and any other dates that are specified in the
applicable Competitive Bid Request as Interest Payment Dates with respect to
such Borrowing.
"Interest Period" means (a) with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, (b) with respect to any Fixed Rate
Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
--------
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of a
Eurodollar Borrowing only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and, in
the case of a Revolving Borrowing, thereafter shall be the effective date of the
most recent conversion or continuation of such Borrowing.
"Lenders" means the Persons listed on Exhibit 2.01 and any other Person
------- ------------
that shall have become a party hereto pursuant to an Assignment and Acceptance,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
---------
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
<PAGE>
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
----
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase option,
call or similar right of a third party with respect to such securities.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
-----
this Agreement.
"Margin" means, with respect to any Competitive Loan bearing interest at a
------
rate based on the LIBO Rate, the marginal rate of interest, if any, to be added
to or subtracted from the LIBO Rate to determine the rate of interest applicable
to such Loan, as specified by the Lender making such Loan in its related
Competitive Bid.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform any of its obligations under this Agreement or (c) the
rights of or benefits available to the Lenders under this Agreement.
"Material Indebtedness" means Indebtedness (other than the Loans) or
---------------------
obligations in respect of one or more Hedging Agreements, of any one or more of
the Borrower and its Significant Subsidiaries in an aggregate principal amount
exceeding $10,000,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of the Borrower or any Significant
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or
such Significant Subsidiary would be required to pay if such Hedging Agreement
were terminated at such time.
"Maturity Date" means the Termination Date, unless and until such date is
-------------
extended pursuant to Section 2.08(f), in which case it shall mean November 9,
---------------
2000.
"Maturity Date Extension Notice" has the meaning set forth in Section
------------------------------ -------
2.08(f).
- -------
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------ -------
4001(a)(3) of ERISA.
- ----------
"Other Taxes" means any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
<PAGE>
"Participant" has the meaning set forth in Section 9.04(e).
----------- ---------------
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
------------
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
------------
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII; and
---------- ------------
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
"Person" means any natural person, corporation, limited liability company,
------
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
----
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
<PAGE>
"Prime Rate" means the rate of interest per annum publicly announced from
----------
time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04.
-------- ------------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit
----------------
Exposures and unused Commitments representing more than 50% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time; provided
--------
that, for purposes of declaring the Loans to be due and payable pursuant to
Article VII, and for all purposes after the Loans become due and payable
- -----------
pursuant to Article VII or the Commitments expire or terminate, the outstanding
-----------
Competitive Loans of the Lenders shall be included in their respective Revolving
Credit Exposures in determining the Required Lenders.
"Revolving Credit Exposure" means, with respect to any Lender at any time,
-------------------------
the sum of the outstanding principal amounts of such Lender's Revolving Loans at
such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
-------------- ------------
"S&P" means Standard & Poor's.
---
"Significant Subsidiary" means at any time any Subsidiary of the Borrower
----------------------
(i) whose total assets constituted 10% or more of Consolidated Tangible Net
Worth as of the end of the most recent fiscal quarter or (ii) whose
"attributable" net income contributed 10% or more of Consolidated Net Income for
the fiscal year most recently ended. The percentage of any Subsidiary's net
income "attributable" to such Subsidiary for purposes of such computation shall
be the same percentage of such Subsidiary's net income as is included in
Consolidated Net Income.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
----------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months,
and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant to such
Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration,
<PAGE>
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date,
---------- ------
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
----------
"Tangible Assets" means, at any date of determination thereof, in each case
---------------
to the extent included in Consolidated Net Worth, total assets minus any share
capital discount and expense, any unamortized discount and expense on
Indebtedness, any write-up of assets, any excess of cost over market value of
investments, any development, pre-operating, pre-production, and start-up
expenses, any good will, and any other intangible assets.
"Taxes" means any and all present or future taxes, levies, imposts, duties,
-----
deductions, charges or withholdings imposed by any Governmental Authority.
"Term Period" shall mean, if the Maturity Date is extended pursuant to
-----------
Section 2.08(f), the period between the Termination Date and the Maturity Date,
- ---------------
as so extended.
"Termination Date" means November 9, 1999.
----------------
"Three-Month Secondary CD Rate" means, for any day, the secondary market
-----------------------------
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day is not a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day) or, if such rate is not so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
<PAGE>
"Transactions" means the execution, delivery and performance by the
------------
Borrower of this Agreement, the borrowing of Loans, and the use of the proceeds
thereof.
"$275,000,000 Credit Agreement" means the $275,000,000, three year Credit
-----------------------------
Agreement, of even date with this Agreement, among the Borrower, The Chase
Manhattan Bank, as Administrative Agent, and the Lenders party thereto.
"Type", when used in reference to any Loan or Borrowing, refers to whether
----
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or,
in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
--------------------
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of
---------------------------------------
this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
- -----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
---- ----
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
----------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections and Exhibits shall be construed to refer
to Articles and Sections of, and Exhibits to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
-----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Borrower
<PAGE>
notifies the Administrative Agent that the Borrower requests an amendment to any
provision hereof to eliminate the effect of any change occurring after the date
hereof in GAAP or in the application thereof on the operation of such provision
(or if the Administrative Agent notifies the Borrower that the Required Lenders
request an amendment to any provision hereof for such purpose), regardless of
whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of
GAAP as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision amended
in accordance herewith.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set forth
------------
herein, each Lender agrees to make Revolving Loans to the Borrower from time to
time during the Availability Period in an aggregate principal amount that will
not result in (a) such Lender's Revolving Credit Exposure exceeding such
Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus
the aggregate principal amount of outstanding Competitive Loans exceeding the
total Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be
---------------------
made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. Each Competitive Loan
shall be made in accordance with the procedures set forth in Section 2.04. The
------------
failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the
--------
Commitments and Competitive Bids of the Lenders are several and no Lender shall
be responsible for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, (i) each Revolving Borrowing shall be
------------
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith, and (ii) each Competitive Borrowing shall be comprised
entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
--------
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $10,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $5,000,000;
provided that an ABR Revolving
- --------
<PAGE>
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Commitments. Each Competitive Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$5,000,000. Borrowings of more than one Type and Class may be outstanding at the
same time; provided that there shall not at any time be more than a total of
--------
five (5) Eurodollar Revolving Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Termination Date; provided, that, if the Maturity Date is extended pursuant
to Section 2.08(f), Borrower shall have the right, during the Term Period, to
---------------
convert and continue Revolving Borrowings outstanding on the Termination Date,
as long as the Interest Period with respect thereto would not end after the
Maturity Date, as so extended.
SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving
----------------------------------
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing and (b) in the case of an ABR Borrowing, not later than 11:00 a.m.,
New York City time, one Business Day before the date of the proposed Borrowing.
Each such telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Borrowing Request in a form approved by the Administrative Agent and
signed by the Borrower. Each such telephonic and written Borrowing Request
shall specify the following information in compliance with Section 2.02:
------------
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of
Section 2.05.
------------
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative
<PAGE>
Agent shall advise each Lender of the details thereof and of the amount of such
Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms and
-------------------------
conditions set forth herein, from time to time during the Availability Period
the Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; provided
--------
that the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans at any time shall not exceed
the total Commitments, and provided further that no Competitive Bids may be
requested during the existence of a Default. To request Competitive Bids, the
Borrower shall notify the Administrative Agent of such request by telephone, in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, four Business Days before the date of the proposed Borrowing and, in the
case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time,
one Business Day before the date of the proposed Borrowing; provided that the
--------
Borrower may submit up to (but not more than) three (3) Competitive Bid Requests
on the same day, but a Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request, unless any
and all such previous Competitive Bid Requests shall have been withdrawn or all
Competitive Bids received in response thereto rejected. Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Administrative Agent of a written Competitive Bid Request in a form
approved by the Administrative Agent and signed by the Borrower. Each such
telephonic and written Competitive Bid Request shall specify the following
information in compliance with Section 2.02:
------------
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing or a
Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period" and shall end on or before the Termination Date; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of
Section 2.05.
------------
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make one or
more Competitive Bids to the Borrower in response to a Competitive Bid Request.
Each
<PAGE>
Competitive Bid by a Lender must be in a form approved by the Administrative
Agent and must be received by the Administrative Agent by telecopy, in the case
of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City
time, three Business Days before the proposed date of such Competitive
Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m.,
New York City time, on the proposed date of such Competitive Borrowing.
Competitive Bids that do not conform substantially to the form approved by the
Administrative Agent may be rejected by the Administrative Agent, and the
Administrative Agent shall notify the applicable Lender as promptly as
practicable. Each Competitive Bid shall specify (i) the principal amount (which
shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and
which may equal the entire principal amount of the Competitive Borrowing
requested by the Borrower) of the Competitive Loan or Loans that the Lender is
willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is
prepared to make such Loan or Loans (expressed as a percentage rate per annum in
the form of a decimal to no more than four decimal places) and (iii) the
Interest Period applicable to each such Loan and the last day thereof.
(c) The Administrative Agent shall promptly notify the Borrower by
telecopy of the Competitive Bid Rate and the principal amount specified in each
Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.
(d) Subject only to the provisions of this paragraph, the Borrower may
accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing,
not later than 10:30 a.m., New York City time, three Business Days before the
date of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York City time, on the proposed date
of the Competitive Borrowing; provided that (i) the failure of the Borrower to
--------
give such notice shall be deemed to be a rejection of each Competitive Bid, (ii)
the Borrower shall not accept a Competitive Bid made at a particular Competitive
Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive
Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the
Borrower shall not exceed the aggregate amount of the requested Competitive
Borrowing specified in the related Competitive Bid Request, (iv) to the extent
necessary to comply with clause (iii) above, the Borrower may accept Competitive
------------
Bids at the same Competitive Bid Rate in part, which acceptance, in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid, and (v) except
pursuant to clause (iv) above, no Competitive Bid shall be accepted for a
-----------
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple of $1,000,000; provided further that if
----------------
a Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
-----------
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
-----------
rounded to integral multiples of $1,000,000 in a manner
<PAGE>
determined by the Borrower. A notice given by the Borrower pursuant to this
paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender by
telecopy whether or not its Competitive Bid has been accepted (and, if so, the
amount and Competitive Bid Rate so accepted), and each successful bidder will
thereupon become bound, subject to the terms and conditions hereof, to make the
Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower at least one quarter of an hour earlier than the time by which the
other Lenders are required to submit their Competitive Bids to the
Administrative Agent pursuant to paragraph (b) of this Section.
-------------
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each
----------------------
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds, to
an account of the Borrower maintained with the Administrative Agent in New York
City and designated by the Borrower in the applicable Borrowing Request or
Competitive Bid Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
-------------
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount, with interest thereon for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing initially
-------------------
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period
as specified in such Borrowing Request. Thereafter, during the Availability
Period and the Term Period, if
<PAGE>
any, the Borrower may elect to convert each Revolving Borrowing to a different
Type or to continue such Borrowing and, in the case of a Eurodollar Revolving
Borrowing, may elect Interest Periods therefor, all as provided in this Section.
The Borrower may, subject to the provisions of Section 2.02(c), elect different
---------------
options with respect to different portions of the affected Borrowing, in which
case each such portion shall be allocated ratably among the Lenders holding the
Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing. This Section shall not apply to
Competitive Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
------------
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
------------
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
----------------------
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period" and which shall end on or before the Maturity Date.
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
<PAGE>
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof,
if an Event of Default has occurred and is continuing and the Administrative
Agent, at the request of the Required Lenders, so notifies the Borrower, then,
so long as an Event of Default is continuing (i) no outstanding Revolving
Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii)
unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.07. Termination and Reduction of Commitments. (a) Unless
-----------------------------------------
previously terminated, the Commitments shall terminate on the Termination Date.
(b) Prior to the Termination Date, the Borrower may at any time terminate,
or from time to time reduce, the Commitments; provided that (i) each reduction
--------
of the Commitments shall be in an amount that is an integral multiple of
$1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not
terminate or reduce the Commitments if, after giving effect to any concurrent
prepayment of the Loans in accordance with Section 2.09, the sum of the
------------
Revolving Credit Exposures plus the aggregate principal amount of outstanding
Competitive Loans would exceed the total Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Commitments under paragraph (b) of this Section at least
-------------
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable; provided that a notice of termination of
--------
the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent.
Each reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt; Extension of Maturity
-----------------------------------------------------------
Date. (a) The Borrower hereby unconditionally promises to pay (i) to the
- -----
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Revolving Loan on the Maturity Date and (ii) to the
Administrative Agent for the account of each Lender, as appropriate, the then
unpaid principal amount of each Competitive Loan on the last day of the Interest
Period applicable to such Loan, which day shall be on or before the Termination
Date.
<PAGE>
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b)
-------------
or (c) of this Section shall be prima facie evidence of the existence and
- ------ ----- -----
amounts of the obligations recorded therein; provided that the failure of any
--------
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
------------
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
(f) The Borrower may elect to extend the Maturity Date from the
Termination Date to November 9, 2000, by delivering an extension notice (a
"Maturity Date Extension Notice") to the Administrative Agent (which shall
- -------------------------------
promptly deliver a copy of such Maturity Date Extension Notice to each Lender)
not later than 10 days prior to the Termination Date; provided, that, if a
Default exists either on the date on which the Maturity Date Extension Notice is
delivered to the Administrative Agent or on the Termination Date, the Maturity
Date shall not be so extended. Provided that no Default exists on either such
date, a Maturity Date Extension Notice, once given, shall be irrevocable and the
Maturity Date shall be extended as provided therein. If the Maturity Date is
extended as provided in this paragraph, then the maturity of the unpaid
principal amount of each Revolving Loan outstanding on the Termination Date
shall be extended to the Maturity Date as so extended and such principal amount
shall be payable on such extended Maturity Date in accordance with Section
-------
2.08(a) above.
- -------
<PAGE>
SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the right
--------------------
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section;
-------------
provided that the Borrower shall not have the right to prepay any Competitive
- --------
Borrowing without the prior consent of the Lender thereof, except in connection
with a reduction of Commitments as provided in Section 6.03(b).
---------------
(b) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment or (ii) in the case of
prepayment of an ABR Revolving Borrowing or a Fixed Rate Borrowing, not later
than 11:00 a.m., New York City time, one Business Day before the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid; provided that, if a notice of prepayment is given in connection with
--------
a conditional notice of termination of the Commitments as contemplated by
Section 2.07, then such notice of prepayment may be revoked if such notice of
- ------------
termination is revoked in accordance with Section 2.07. Promptly following
------------
receipt of any such notice relating to a Revolving Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof. Each partial
prepayment of any Borrowing shall be in an amount that would be permitted in the
case of an advance of a Borrowing of the same Type as provided in Section 2.02.
------------
Each prepayment of a Borrowing shall be applied ratably to the Loans included in
the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to
the extent required by Section 2.11.
------------
SECTION 2.10. Fees. (a) The Borrower agrees to pay to the Administrative
-----
Agent for the account of each Lender a facility fee, which shall accrue at the
Applicable Rate on the daily amount of the Commitment of such Lender (whether
used or unused) during the period from and including the Effective Date to but
excluding the date on which such Commitment terminates; provided that, if such
--------
Lender continues to have any Revolving Credit Exposure after its Commitment
terminates, (including any Revolving Credit Exposure during the Term Period)
then such facility fee shall continue to accrue on the daily amount of such
Lender's Revolving Credit Exposure from and including the date on which its
Commitment terminates to but excluding the date on which such Lender ceases to
have any Revolving Credit Exposure. Each Lender's accrued facility fees shall
be payable in arrears (i) on the last day of March, June, September and December
of each year commencing on the first such date to occur after the date hereof;
and (ii) on the later of the date on which such Lender's Commitment terminates
or the date on which such Lender ceases to have any Revolving Credit Exposure;
provided that, if the Commitments are terminated prior to the Termination Date,
- --------
any facility fees accruing after the date on which the Commitments terminate
shall be payable on demand. All facility fees shall be computed on the basis of
a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
<PAGE>
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees to the Lenders. Fees paid shall not be refundable
under any circumstances.
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
---------
shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest (i)
in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Rate, or (ii)
in the case of a Eurodollar Competitive Loan, at the LIBO Rate for the Interest
Period in effect for such Borrowing plus (or minus, as applicable) the Margin
applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable
to such Loan.
(d) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
-------------
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan, on the Maturity Date and, in the case of
Revolving Loans, upon termination of the Commitments, if the Commitments are
terminated prior to the Termination Date; provided that (i) interest accrued
--------
pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in
-------------
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(f) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual
<PAGE>
number of days elapsed (including the first day but excluding the last day). The
applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the commencement of
---------------------------
any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (or,
in the case of a Eurodollar Competitive Loan, the Lender that is required
to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans
(or its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any
request by the Borrower for a Eurodollar Competitive Borrowing shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
--------
do not affect all the Lenders, then requests by the Borrower for Eurodollar
Competitive Borrowings may be made to Lenders that are not affected thereby and
(B) if the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans
made by such Lender;
<PAGE>
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the Borrower will pay to such Lender such
additional amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
--------------------
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrower shall not be required to
--------
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 270 days prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
- -------- -------
or reductions is retroactive, then the 270-day period referred to above shall be
extended to include the period of retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section, a Lender
shall not be entitled to compensation pursuant to this Section in respect of any
Competitive Loan if the Change in Law that would otherwise entitle it to such
compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the payment of
-----------------------
any principal of any Eurodollar Loan or Fixed Rate Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event
of Default), (b) the conversion of any Eurodollar Loan other than on the last
day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Revolving Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether
<PAGE>
such notice may be revoked under Section 2.09(b) and is revoked in accordance
---------------
therewith), (d) the failure to borrow any Competitive Loan after accepting the
Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar Loan
or Fixed Rate Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.17, then,
------------
in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense attributable to such event. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate or LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.15. Taxes. (a) Any and all payments by or on account of any
------
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
--------
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or each
Lender (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each Lender,
within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of the Borrower hereunder (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the
<PAGE>
relevant Governmental Authority. A certificate as to the amount of such payment
or liability delivered to the Borrower by a Lender, or by the Administrative
Agent on its own behalf or on behalf of a Lender, shall be conclusive absent
manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to
the Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law, such
properly completed and executed documentation prescribed by applicable law or
reasonably requested by the Borrower as will permit such payments to be made
without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
------------------------------------------------------------
(a) The Borrower shall make each payment required to be made by it hereunder
(whether of principal, interest or fees or of amounts payable under Section
-------
2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City time, on
- ------------------
the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except that payments pursuant to Sections 2.13,
--------------
2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The
- -------------------
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto
in accordance with the amounts of interest and fees then due to such parties,
and (ii) second, towards payment of principal then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal then
due to such parties.
<PAGE>
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans; provided that (i) if any
--------
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or to any payment obtained by a Lender as consideration
for the assignment of or sale of a participation in any of its Loans to any
assignee or participant, other than to the Borrower or any Subsidiary or
Affiliate thereof (as to which the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrower will not make
such payment, the Administrative Agent may assume that the Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may, in
--------------------------
its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If any
-----------------------------------------------
Lender requests compensation under Section 2.13, or if the Borrower is required
------------
to pay
<PAGE>
any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.15, then such Lender shall use
------------
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and
--------------------
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.13, or if the
------------
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
------------
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
- ------------
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Borrower shall have received the
--------
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (other than Competitive
Loans), accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
------------
Section 2.15, such assignment will result in a reduction in such compensation or
- ------------
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
ARTICLE III
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
---------------------
Significant Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is
<PAGE>
qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions are within
------------------------------
the Borrower's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action. This Agreement has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a)
-------------------------------------
do not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any applicable
law or regulation or the charter, by-laws or other organizational documents of
the Borrower or any of its Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, and (d) will not
result in the creation or imposition of any Lien on any asset of the Borrower or
any of its Subsidiaries.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
------------------------------------------------
Borrower has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and for
the fiscal year ended December 31, 1997, reported on by PricewaterhouseCoopers,
LLP, independent public accountants, and (ii) as of and for the fiscal quarter
and the portion of the fiscal year ended June 30, 1998, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
-----------
(b) Since December 31, 1997, there has been no material adverse change in
the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries
-----------
has good title to, or valid leasehold interests in, all its real and personal
property material to its business, except for minor defects in title that do not
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes.
<PAGE>
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use,
all trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
-------------------------------------
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect, neither the Borrower nor any of its
Subsidiaries (i) has failed to comply with any Environmental Law or to obtain,
maintain or comply with any permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental Liability, (iii)
has received notice of any claim with respect to any Environmental Liability or
(iv) knows of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower
------------------------------------
and its Subsidiaries is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the Borrower
--------------------------------------
nor any of its Subsidiaries is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely
------
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or (b) to the
<PAGE>
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
------
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all
-----------
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither the Information Memorandum nor any of the
other reports, financial statements, certificates or other information furnished
by or on behalf of the Borrower to the Administrative Agent or any Lender in
connection with the negotiation of this Agreement or delivered hereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
--------
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Year 2000. Borrower reasonably expects to complete any
----------
reprogramming required to permit the proper functioning, in and following the
year 2000, of (i) the Borrower's and it Subsidiaries' computer systems and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others to Borrower) either or both of which Borrower and its
Subsidiaries plan to utilize in and following the year 2000, and the testing of
all such systems and equipment, as so reprogrammed. The cost to the Borrower
and its Subsidiaries of such reprogramming and testing and reasonably
foreseeable remediation is not expected to result in a Default or a Material
Adverse Effect. Except for remediation referred to in the preceding sentence,
the computer and management information systems of the Borrower and its
Subsidiaries are expected to continue for the term of this Agreement to be
sufficient to permit the Borrower to conduct its business without Material
Adverse Effect.
SECTION 3.13. Significant Subsidiaries. Exhibit 3.13 lists the name,
------------------------ ------------
address and state of incorporation of each Subsidiary that constitutes a
Significant Subsidiary as of the date of this Agreement, along with the
computation by which Borrower has made such determination. Such Exhibit also
describes the Indebtedness of each Significant Subsidiary, and each Lien to
which any of the assets of each Significant Subsidiary are subject, on the date
hereof.
SECTION 3.14. Borrower's Funded Debt. Exhibit 3.14 describes all Funded
---------------------- ------------
Debt of Borrower as of the date hereof, and no agreement, promissory note or
other instrument related to or evidencing such Funded Debt contains any covenant
or event of default that is more favorable to the lenders of such Funded Debt
than are the covenants and Events of Defaults in this Agreement to the Lenders.
<PAGE>
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
---------------
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
------------
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Martin T. McCue, Esq., Senior Vice President and
General Counsel of Borrower, as counsel for the Borrower, substantially in
the form of Exhibit 4.01(b), which opinion shall also cover such other
---------------
matters relating to the Borrower, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Borrower hereby requests
such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of the
Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form
and substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by a Vice President or a Financial Officer of
the Borrower, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 4.02.
--------------------------------------
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
(f) All of the "Commitments" under the $250,000,000 Revolving Credit
Agreement, dated August 9, 1995, as amended, among the Borrower, the Banks
signatary thereto and The Chase Manhattan Bank, as Agent shall have been
terminated and all principal and interest with respect to any "Loans"
outstanding thereunder shall have been paid in full.
<PAGE>
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
------------
York City time, on November 15, 1998 (and, in the event such conditions are not
so satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to make a
------------------
Loan on the occasion of any Borrowing, is subject to the satisfaction of the
following conditions:
(a) The representations and warranties of the Borrower set forth in
this Agreement shall be true and correct on and as of the date of such
Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
--------------
and (b) of this Section.
- -------
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The Borrower
-------------------------------------------
will furnish to the Administrative Agent and each Lender:
(a) as soon as available and in any event within 100 days after the
end of each fiscal year of the Borrower, its audited consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on
by PricewaterhouseCoopers, LLP or other independent public accountants of
recognized national standing selected by Borrower (without a "going
concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;
<PAGE>
(b) as soon as available and in any event within 55 days after the end
of each of the first three fiscal quarters of each fiscal year of the
Borrower, its consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet,
as of the end of) the previous fiscal year, all certified by one of its
Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
-----------------
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.06 and (iii)
------------
stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of
------------
such change on the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
----------
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
by the Borrower to its shareholders generally, as the case may be;
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Agreement,
as the Administrative Agent or any Lender may reasonably request; and
(g) with each financial report submitted pursuant to Sections 5.01(a)
----------------
and 5.01(b), a separate report describing (i) the names of each Significant
-----------
Subsidiary as of the date of the balance sheet set forth in such report and
of each Subsidiary (or former Subsidiary) listed on the last such report
but not on the current report,
<PAGE>
along with the computation by which Borrower determined that each such
Subsidiary (or former Subsidiary) did or did not constitute a Significant
Subsidiary, (ii) the name, address, form and state of organization of each
Subsidiary that became a Significant Subsidiary since the date of
Borrower's latest such report, (iii) the Indebtedness of each Significant
Subsidiary listed on such report, and each Lien to which any of the assets
of each such Significant Subsidiary were subject, as of the date of such
report, and (iv) as of the date of such report, the total outstanding
Indebtedness of Borrower's Subsidiaries.
SECTION 5.02. Notices of Material Events. The Borrower will furnish to
---------------------------
the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Subsidiaries in an aggregate
amount exceeding $10,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will
-------------------------------
cause each of its Significant Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
--------
any merger, consolidation, liquidation or dissolution permitted under Section
-------
6.03.
- ----
SECTION 5.04. Payment of Obligations. The Borrower will, and will cause
-----------------------
each of its Subsidiaries to, pay its obligations, including Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to
<PAGE>
make payment pending such contest could not reasonably be expected to result in
a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will,
-------------------------------------
and will cause each of its Significant Subsidiaries to, (a) keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The Borrower will,
-------------------------------------
and will cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Significant Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender, upon reasonable prior
notice, to visit and inspect its properties, to examine and make extracts from
its books and records, and to discuss its affairs, finances and condition with
its officers and independent accountants, all at such reasonable times and as
often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Borrower will, and will cause
---------------------
each of its Subsidiaries to, comply with all laws, rules, regulations and orders
of any Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be used
---------------
only for general corporate purposes. No part of the proceeds of any Loan will
be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations G,
U and X.
SECTION 5.09. Other Funded Debt of Borrower. If after the date of this
-----------------------------
Agreement, Borrower either incurs new Funded Debt (other than pursuant to this
Agreement and other than that described in Exhibit 3.14) or amends any document
------------
related to any Funded Debt (other than pursuant to this Agreement) or pursuant
to which Borrower has the right to borrow Funded Debt, and if any of the
covenants or events of default, contained in any document, agreement or
instrument from time to time entered into by the Borrower in respect of such
Funded Debt is more favorable to the lenders of such Funded Debt, than are the
terms of this Agreement to the Lenders, (i) the Borrower shall promptly notify
the Administrative Agent of such incurrence or amendment, (ii) the
Administrative Agent shall, in turn, so notify each Lender, and (ii) this
Agreement shall be amended to contain each such more favorable covenant or event
of default, and the Borrower hereby agrees to so amend this Agreement and to
execute and deliver all such documents requested by the Required Lenders to
reflect such Amendment. Prior to the execution and delivery of such documents
by the Borrower, this Agreement shall be
<PAGE>
deemed to contain each such more favorable covenant or event of default for
purposes of determining the rights and obligations hereunder.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in
full the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness of Subsidiaries. Borrower shall not permit any
----------------------------
of its Subsidiaries to create, incur, assume or suffer to exist any Indebtedness
if at the time or as a result thereof the outstanding principal amount of all
Subsidiary Indebtedness aggregates or would aggregate more than $500,000,000.
For purposes of the foregoing sentence, the Indebtedness of RTMC Holdings, Inc.
described in Exhibit 6.01 shall be subject to the $500,000,000 maximum only to
------------
the extent that the Indebtedness of Upstate Cellular Network underlying such
Indebtedness of RTMC Holdings, Inc. has become due and payable by RTMC Holdings,
Inc.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
------
Significant Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any
Significant Subsidiary existing on the date hereof and set forth in Exhibit
-------
6.02; provided that (i) such Lien shall not apply to any other property or
---- --------
asset of the Borrower or any Subsidiary and (ii) such Lien shall secure
only those obligations which it secures on the date hereof and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof;
(c) Liens securing obligations of a Significant Subsidiary to Borrower
or to another Significant Subsidiary;
(d) purchase money Liens on any property hereafter acquired by
Significant Subsidiaries that are regulated public utilities, or the
assumption by such Subsidiaries of Liens on property existing at the time
of such acquisition, or Liens incurred by such Subsidiaries in connection
with any conditional sale or other title retention agreements or Capital
Leases; and purchase money Liens on transmission equipment hereafter
acquired by Significant Subsidiaries that are not regulated public
utilities, or the assumption by such Subsidiaries of Liens on transmission
equipment existing at the time of such acquisition, or Liens incurred by
such Subsidiaries in connection with any acquisition of transmission
<PAGE>
equipment pursuant to any conditional sale or other title retention
agreements or Capital Leases; and Liens attaching to the assets of
businesses acquired by the Borrower or any Significant Subsidiary by
merger, consolidation or the purchase of stock, which Liens existed at the
time of such acquisition; provided, in each case, that:
(i) any property subject to any of the foregoing is acquired by
Borrower or any such Subsidiary in the ordinary course of its business
and the Lien on any such property is created prior to or
contemporaneously with such acquisition;
(ii) the obligation secured by any Lien so created, assumed or
existing shall not exceed 100% of the lesser of cost or fair market
value as of the time of acquisition of the property covered thereby to
Borrower or such Subsidiary acquiring the same; and
(iii) each such Lien shall attach only to the property so acquired and
fixed improvements thereon, and shall secure only those obligations
which it secures on the date of such acquisition, and extensions,
renewals or replacements thereof that do not increase the outstanding
principal amount thereof.
SECTION 6.03. Fundamental Changes. (a) The Borrower will not merge into
--------------------
or consolidate with any other Person, or permit any other Person to merge into
or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of its
assets, (in each case, whether now owned or hereafter acquired), or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing, any Person may
merge into the Borrower in a transaction in which the Borrower is the surviving
corporation.
(b) Borrower shall not
(i) permit any Significant Subsidiary to merge or consolidate
with, or sell, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter
acquired) to any Person (or enter into any agreement to do any of
the foregoing), except that (x) any Significant Subsidiary may
merge into or transfer assets to the Borrower; and (xx) any
Significant Subsidiary may merge into or consolidate with or
transfer assets to any other Subsidiary of the Borrower; or
(ii) sell or dispose of any equity or voting interest in any
Significant Subsidiary, except that Borrower shall be permitted to
sell or dispose of
<PAGE>
such equity or voting interest as long as the purchaser or
transferee is an entity in which Borrower owns an equity interest;
provided, however, that the transactions prohibited in clauses (i) and (ii)
--------------------
above shall be permitted as long as (x) the proceeds thereof are received
entirely in cash by Borrower or a Significant Subsidiary, as the case may
be,(xx) unless waived by all of the Lenders, upon completion of any such
transaction during the Availability Period, Borrower reduces the total amount of
the Commitments by an amount that is not less than the amount determined in
accordance with the next sentence, and Borrower makes any prepayments of
outstanding Borrowings necessary to reduce the aggregate outstanding principal
balance of all Loans to be less than or equal to the amount of the Commitments
as so reduced and (xxx) unless waived by all of the Lenders, upon completion of
any such transaction during the Term Period, Borrower prepays the principal of
outstanding Borrowings in an aggregate amount that is not less than the amount
determined in accordance with the next sentence. The amount by which the total
Commitments shall be reduced pursuant to clause (xx), and/or by which the
------------
principal of outstanding Borrowings are to be prepaid pursuant to clause (xxx),
------------
of the preceding sentence shall be not less than (z) the amount of the cash
proceeds received in the transaction less the expenses of, and any income and
other taxes estimated to be due as a result of, the transaction, times either
(zz) if the transaction is completed during the Availability Period, a fraction
whose numerator is the total amount of the Commitments prior to such reduction
and whose denominator is the sum of such total Commitment amount and the total
amount of the commitments immediately prior to the transaction under the
$275,000,000 Credit Agreement or (zzz) if the transaction is completed during
the Term Period, if any, a fraction whose numerator is total of all Revolving
Credit Exposures prior to such prepayment and whose denominator is the sum of
such total Revolving Credit Exposures and the total amount of the commitments
immediately prior to the transaction under the $275,000,000 Credit Agreement.
If Borrower is required to prepay any Borrowings in connection with a Commitment
reduction pursuant to clause (xx) of this Section, it shall prepay all Revolving
-----------
Borrowings in full, prior to prepaying any Competitive Borrowings. If it is
then required to prepay all or part of any Competitive Borrowings in order to
comply with clause (xx) of this Section, Borrower shall notify the
-----------
Administrative Agent of such prepayment, (which shall promptly notify each
Lender whose Competitive Loans comprise the Borrowings that Borrower intends to
prepay) not later than 11:00 a.m., New York City time, two Business Days before
the Business Day on which the Borrower is required to give a notice of
prepayment of such Borrowings pursuant to Section 2.09(b). Such notice shall
---------------
identify the Competitive Borrowings to be prepaid, the amount to be prepaid and
the prepayment date. If any Lender whose Competitive Loan or Loans are being
prepaid under such clause (xx) notifies the Administrative Agent and the
-----------
Borrower prior to the time at which a notice of prepayment is required under
Section 2.09(b) that it objects to any prepayment of one or more of such Loans
- ---------------
held by it, specifying such Loans, Borrower will have the obligation, and to the
extent that it does not receive such a notice, it shall have the right, in lieu
of immediate prepayment, to provide cash collateral to any Lender whose
Competitive Loans are being prepaid, in an amount not less than the
<PAGE>
principal amount being prepaid. The terms of such cash collateral shall be
reasonably acceptable to such Lender and to the Administrative Agent.
SECTION 6.04. Transactions with Affiliates. The Borrower will not, and
-----------------------------
will not permit any of its Significant Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of business at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between or among the Borrower and its Subsidiaries not
involving any other Affiliate.
SECTION 6.05. Restrictive Agreements. The Borrower will not, and will not
-----------------------
permit any of its Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Significant Subsidiary to pay dividends or other
distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Borrower or any other Subsidiary or to Guarantee
Indebtedness of the Borrower or any other Subsidiary; provided that (i) the
--------
foregoing shall not apply to restrictions and conditions imposed by law or by
this Agreement, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Exhibit 6.05 (but shall
------------
apply to any amendment or modification expanding the scope of any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or conditions
----------
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness, (v) clause (a) of the foregoing shall not
----------
apply to customary provisions in leases and other contracts restricting the
assignment thereof, (vi) clause (b) of the foregoing shall not apply to
----------
Subsidiaries that are regulated public utilities, to the extent that the
agencies charged with regulating them (as public utilities) may specifically
prohibit or limit dividend payments, (vii) the foregoing shall not apply to
restrictions that apply to Significant Subsidiaries that were acquired as
Subsidiaries after the date hereof, if such Significant Subsidiaries were
subject to such restrictions at the time of acquisition and if such restrictions
do not extend to Borrower or any other Significant Subsidiary, and (viii) clause
------
(b) of the foregoing shall not apply to the existence and operation of financial
- ---
covenants, such as maximum debt to net worth or minimum working capital ratios,
as long as they do not specifically prohibit or restrict dividend payments or
other distributions.
SECTION 6.06. Interest Coverage. The Borrower will not permit the ratio
-----------------
of EBITDA to Consolidated Interest Expense to be less than 4.50 to 1 for each
twelve month period ending on the last day of each fiscal quarter.
<PAGE>
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan when and
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay (i) any interest on any Loan or any
facility fee payable under this Agreement, when and as the same shall
become due and payable, and such failure shall continue unremedied for a
period of five days, or (ii) any other fee or any other amount payable
under this Agreement (other than an amount referred to in clause (a) or
----------
clause (b)(i) of this Article), when and as the same shall become due and
-------------
payable, and such failure shall continue unremedied for a period of ten
days after notice to the Borrower from the Administrative Agent or from the
Lender to which such amount is payable;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with this Agreement
or any amendment or modification hereof or waiver hereunder, or in any
report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or
modification hereof or waiver hereunder, shall prove to have been incorrect
when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to the
------------------
Borrower's existence only) or 5.08 or in Article VI;
---- ----------
(e) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
----------------------
shall continue unremedied for a period of 30 days;
(f) the Borrower or any Significant Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become due
and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase,
<PAGE>
redemption or defeasance thereof, prior to its scheduled maturity; provided
--------
that this clause shall not apply to secured Indebtedness that becomes due
as a result of the voluntary sale or transfer of the property or assets
securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Borrower or any Significant Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower
or any Significant Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed
for 30 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) the Borrower or any Significant Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (h)
----------
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting
any of the foregoing;
(j) the Borrower or any Significant Subsidiary shall become unable,
admit in writing its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $10,000,000 shall be rendered against the Borrower, any
Significant Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the
Borrower or any Significant Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse
Effect; or
(m) a Change in Control shall occur; or
<PAGE>
(n) the occurrence of an "Event of Default", as such term is defined
in the $275,000,000 Credit Agreement.
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
-----------------
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate
the Commitments, if any, and thereupon any existing Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to the Borrower described in
clause (h) or (i) of this Article, any existing Commitments shall automatically
- -----------------
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
ARTICLE VIII
The Administrative Agent
Each of the Lenders hereby irrevocably appoints the Administrative Agent as
its agent and authorizes the Administrative Agent to take such actions on its
behalf and to exercise such powers as are delegated to the Administrative Agent
by the terms hereof, together with such actions and powers as are reasonably
incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except
those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required
<PAGE>
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
------------
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall not be liable for any action taken
or not taken by it with the consent or at the request of the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 9.02) or in the absence of its own
------------
gross negligence or wilful misconduct. The Administrative Agent shall be deemed
not to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrower or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement, (ii) the contents of any certificate, report or
other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Article IV or elsewhere
----------
herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor
<PAGE>
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within 30 days after the retiring Administrative Agent gives
notice of its resignation, then the retiring Administrative Agent may, on behalf
of the Lenders, appoint a successor Administrative Agent which shall be a bank
with an office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 9.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any related agreement or any
document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 180 South Clinton Avenue, Rochester,
New York 14646, Attention of Treasurer (Telecopy No. (716) 325-7638), with
a copy to 180 South Clinton Avenue, Rochester, New York 14646, Attention
of Corporate Counsel (Telecopy No. (716) 325-7639);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658),
with a copy to The Chase Manhattan Bank, 1 Chase Square, Rochester, New
York 14643, Attention of Benedict A. Smith, (Telephone No. (716) 258-5669;
Telecopy No. (716) 258-4258);
<PAGE>
(c) if to any Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
--------------------
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
- -------------
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; provided that no
--------
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing
----------------------
of payments required thereby, without the written consent of each Lender, or (v)
change any of the provisions of this Section or the definition of "Required
Lenders" or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; provided further that no such agreement shall amend, modify or
----------------
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
<PAGE>
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall
-----------------------------------
pay (i) all reasonable out-of-pocket expenses incurred by the Administrative
Agent and its Affiliates, including the reasonable fees, charges and
disbursements of counsel for the Administrative Agent, in connection with the
syndication of the credit facilities provided for herein, the preparation and
administration of this Agreement or any amendments, modifications or waivers of
the provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by
the Administrative Agent or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with
the Loans made issued hereunder, including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans.
(b) The Borrower shall indemnify the Administrative Agent and each Lender,
and each Related Party of any of the foregoing Persons (each such Person being
called an "Indemnitee") against, and hold each Indemnitee harmless from, any and
----------
all losses, claims, damages, liabilities and related expenses, including the
fees, charges and disbursements of any counsel for any Indemnitee, incurred by
or asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the consummation of the Transactions or any
other transactions contemplated hereby, (ii) any Loan or the use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
--------
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required to be
paid by it to the Administrative Agent under paragraph (a) or (b) of this
--------------------
Section, each Lender severally agrees to pay to the Administrative Agent such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
- --------
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or
<PAGE>
instrument contemplated hereby, the Transactions, any Loan or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it); provided that (i) except in
--------
the case of an assignment to a Lender or an Affiliate of a Lender, each of the
Borrower and the Administrative Agent must give their prior written consent to
such assignment (which consent shall not be unreasonably withheld), (ii) except
in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
------------
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500 with
respect to each assignment other than an assignment by a Lender to one of its
Affiliates, and (v) the assignee, if it shall not be a Lender, shall deliver to
the Administrative Agent an Administrative Questionnaire; and provided further
----------------
that any consent of the Borrower otherwise required under this paragraph shall
not be required if an Event of Default under clause (h) or (i) of Article VII
--------------------------------
has occurred and is continuing. Subject to acceptance and recording thereof
pursuant to paragraph (d) of this Section, from and after the effective date
-------------
specified in each Assignment and Acceptance the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and,
<PAGE>
in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
--------
2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or
- -------------------------
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
-------------
this Section.
(c) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
--------
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
-------------
this Section and any written consent to such assignment required by paragraph
---------
(b) of this Section, the Administrative Agent shall accept such Assignment and
- ---
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
-----------
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
--------
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
--------
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
---------------
Subject to paragraph (f) of this Section, the Borrower agrees that each
-------------
Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to
----------------------------
the same
<PAGE>
extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section. To the extent permitted by law, each
-------------
Participant also shall be entitled to the benefits of Section 9.08 as though it
------------
were a Lender, provided such Participant agrees to be subject to Section 2.16(c)
---------------
as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.13 or 2.15 than the applicable Lender would have been entitled
--------------------
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were
a Lender shall not be entitled to the benefits of Section 2.15 unless the
------------
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
-------
2.15(e) as though it were a Lender.
- -------
(g) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section shall not apply to any such pledge or assignment
of a security interest; provided that no such pledge or assignment of a security
--------
interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
---------
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and so
long as the Commitments have not expired or terminated. The provisions of
Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive and remain in
- ---------------------------------- ------------
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement
-----------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof.
<PAGE>
Except as provided in Section 4.01, this Agreement shall become effective when
------------
it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be
-------------
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred
----------------
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter existing
under this Agreement held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.
-----------------------------------------------------------
(a) This Agreement shall be construed in accordance with and governed by the
law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Administrative Agent or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement against the
Borrower or its properties in the courts of any jurisdiction.
<PAGE>
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
- -------------
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
------------
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
---------------------
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent and the
----------------
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or the enforcement
of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g)
<PAGE>
with the consent of the Borrower or (h) to the extent such Information (i)
becomes publicly available other than as a result of a breach of this Section or
(ii) becomes available to the Administrative Agent or any Lender on a
nonconfidential basis from a source other than the Borrower. For the purposes of
this Section, "Information" means all information received from the Borrower
-----------
relating to the Borrower or its business, other than any such information that
is available to the Administrative Agent or any Lender on a nonconfidential
basis prior to disclosure by the Borrower; provided that, in the case of
information received from the Borrower after the date hereof, such information
is clearly identified at the time of delivery as confidential. Any Person
required to maintain the confidentiality of Information as provided in this
--------
Section shall be considered to have complied with its obligation to do so if
such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein
-------------------------
to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
SIGNATURE PAGES S-1 THROUGH S-11 TO FOLLOW.
<PAGE>
S-1
FRONTIER CORPORATION
/s/ Joseph P. Clayton
By ____________________________________
Name: Joseph P. Clayton
Title: Chief Executive Officer and
President
<PAGE>
S-2
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
/s/ Benedict A. Smith
By __________________________
Name: Benedict A. Smith
Title: Vice President
<PAGE>
S-3
FLEET BANK
/s/ Martin K. Birmingham
By ____________________________
Name: Martin K. Birmingham
Title: Vice President
<PAGE>
S-4
MARINE MIDLAND BANK
/s/ Keith E. Cleary
By __________________________
Name: Keith E. Cleary
Title: Vice President
<PAGE>
S-5
KEYBANK NATIONAL ASSOCIATION
/s/ Lawrence A. Mack
By _______________________________
Name: Lawrence A. Mack
Title: Senior Vice President
<PAGE>
S-6
FIRST NATIONAL BANK OF CHICAGO
/s/ Michael J. Harrinton
By ___________________________________
Name: Michael J. Harrington
Title: Corporate Banking Officer
<PAGE>
S-7
PNC BANK, NATIONAL ASSOCIATION
/s Steffen W. Crowther
By __________________________
Name: Steffen W. Crowther
Title: Vice President
<PAGE>
S-8
REVOLVING COMMITMENT
VEHICLE CORPORATION
/s/ James Dwyer
By __________________________
Name: James Dwyer
Title: Vice President
<PAGE>
S-9
STAR BANK
/s/ Thomas D. Gibbons
By __________________________
Name: Thomas D. Gibbons
Title: Vice President
<PAGE>
S-10
MANUFACTURERS AND TRADERS TRUST COMPANY
/s/ Ellen M. Wayne
By __________________________
Name: Ellen M. Wayne
Title: Vice President
<PAGE>
S-11
CREDIT SUISSE FIRST BOSTON
/s/ Judith E. Smith
By __________________________
Name: Judith E. Smith
Title: Director
<PAGE>
EXHIBIT 1.01
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of [ ] (as amended
and in effect on the date hereof, the "Credit Agreement"), among Frontier
----------------
Corporation, the Lenders named therein and The Chase Manhattan Bank, as
Administrative Agent for the Lenders. Terms defined in the Credit Agreement are
used herein with the same meanings.
The Assignor named on the reverse hereof hereby sells and assigns, without
recourse, to the Assignee named on the reverse hereof, and the Assignee hereby
purchases and assumes, without recourse, from the Assignor, effective as of the
Assignment Date set forth on the reverse hereof, the interests set forth on the
reverse hereof (the "Assigned Interest") in the Assignor's rights and
-----------------
obligations under the Credit Agreement, including, without limitation, the
interests set forth on the reverse hereof in the Commitment of the Assignor on
the Assignment Date and Competitive Loans and Revolving Loans owing to the
Assignor which are outstanding on the Assignment Date, but excluding accrued
interest and fees to and excluding the Assignment Date. The Assignee hereby
acknowledges receipt of a copy of the Credit Agreement. From and after the
Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent of the Assigned Interest, relinquish its rights and be
released from its obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the Administrative
Agent together with (i) if the Assignee is a Foreign Lender, any documentation
required to be delivered by the Assignee pursuant to Section 2.15(e) of the
---------------
Credit Agreement, duly completed and executed by the Assignee, and (ii) if the
Assignee is not already a Lender under the Credit Agreement, an Administrative
Questionnaire in the form supplied by the Administrative Agent, duly completed
by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the
Administrative Agent pursuant to Section 9.04(b) of the Credit Agreement.
---------------
This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
<PAGE>
Effective Date of Assignment
("Assignment Date"):
<TABLE>
===========================================================================================================
Facility Principal Amount Assigned Percentage Assigned of Facility/ Commitment
- -------- (and identifying information (set forth, to at least 8 decimals, as a
as to individual percentage of the Facility and the aggregate
Competitive Loans) Commitments of all Lenders thereunder)
----------------- ----------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitment Assigned: $ %
- -----------------------------------------------------------------------------------------------------------
Revolving Loans:
- -----------------------------------------------------------------------------------------------------------
Competitive Loans:
===========================================================================================================
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor] , as Assignor
--------------------------------
By:
------------------------------
Name:
Title:
[Name of Assignee] , as Assignee
---------------------------------
By:
-------------------------------
Name:
Title:
<PAGE>
The undersigned hereby consent to the within assignment:
Frontier Corporation The Chase Manhattan Bank,
as Administrative Agent,
By: By:
----------------------------- --------------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT 2.01
COMMITMENTS
<TABLE>
<CAPTION>
LENDER COMMITMENT
<S> <C>
The Chase Manhattan Bank $ 40,000,000
Fleet Bank $ 25,263,158
Marine Midland Bank $ 25,263,158
KeyBank, National Association $ 21,052,632
First National Bank of Chicago $ 21,052,632
PNC Bank, National Association $ 16,842,104
JP Morgan $ 14,736,842
Star Bank $ 14,736,842
Manufacturers and Traders Trust Company $ 10,526,316
Credit Suisse First Boston $ 10,526,316
Total $200,000,000
</TABLE>
<PAGE>
EXHIBIT 3.06
DISCLOSED MATTERS
As of the date of this Credit Agreement, other than as disclosed in
Borrower's reports previously filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, there are no actions, suits or
proceedings pending or, to the knowledge of Borrower or any of its Subsidiaries
threatened before any court, governmental agency or arbitrator, which could, in
any one case or in the aggregate, materially adversely affect the financial
condition, operations, properties or business of Borrower or any such Subsidiary
or the ability of Borrower to perform its obligations under the Facility
Documents; however, the Borrower does not expect that such disclosed matters
could reasonably be expected to result in a Material Adverse Effect.
<PAGE>
EXHIBIT 3.13
SIGNIFICANT SUBSIDIARIES
<PAGE>
EXHIBIT 3.14
BORROWER'S FUNDED DEBT
<PAGE>
EXHIBIT 4.01(b)
MARTIN T. MC CUE, ESQ.
[Effective Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o The Chase Manhattan Bank, as
Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I am Senior Vice President and General Counsel of Frontier Corporation, and
I have acted as counsel for Frontier Corporation, a New York corporation (the
"Borrower"), in connection with the $200,000,000, 364 Day Credit Agreement dated
- ---------
as of [ ] (the "Credit Agreement"), among the Borrower, the banks
----------------
and other financial institutions identified therein as Lenders, and The Chase
Manhattan Bank, as Administrative Agent. Terms defined in the Credit Agreement
are used herein with the same meanings.
I have examined originals or copies, certified or otherwise identified to
my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower and each Significant Subsidiary (a) is an entity duly
organized, validly existing and in good standing under the laws of its state of
organization set forth on Exhibit 3.13 to the Credit Agreement, (b) has all
------------
requisite power and authority to carry on its business as now conducted and (c)
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
2. The Transactions are within the Borrower's corporate powers and have
been duly authorized by all necessary corporate and, if required, stockholder
action. The Credit Agreement has been duly executed and delivered by the
Borrower and constitutes a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
<PAGE>
3. The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority,
except such as have been obtained or made and are in full force and effect, (b)
will not violate any applicable law or regulation or the charter, by-laws or
other organizational documents of the Borrower or any of its Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the Borrower or
any of its Subsidiaries or its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any of its Subsidiaries, and
(d) will not result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
4. There are no actions, suits or proceedings by or before any arbitrator
or Governmental Authority pending against or, to my knowledge, threatened
against or affecting the Borrower or any of its Subsidiaries (a) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect (other than the Disclosed Matters)
or (b) that involve the Credit Agreement or the Transactions.
5. Neither the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
I am a member of the bar of the States of Illinois and New Jersey and in
the District of Columbia, but I am not admitted to the bar of the State of New
York. I am however, familiar with the laws of the State of New York and the
foregoing opinion is limited to the laws of the State of New York and the
Federal laws of the United States of America. This opinion is rendered solely
to you in connection with the above matter. This opinion may not be relied upon
by you for any other purpose or relied upon by any other Person (other than your
successors and assigns as Lenders and Persons that acquire Participations in
your Loans) without my prior written consent.
Very truly yours,
Martin T. McCue
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 6.01
EXCLUDED INDEBTEDNESS OF RTMC HOLDING, INC.
Upstate Cellular Network ("UCN") is a New York general partnership.
Subsidiaries (direct and indirect) of the Borrower own an aggregate of 50% of
the general partnership interests in UCN. RTMC Holding, Inc. is an indirect
Subsidiary of the Borrower and is a general partner of UCN, owning 41.6% of the
general partnership interests in UCN. Under the New York Partnership Law, RTMC
Holding, Inc. is liable for UCN's indebtedness under a revolving credit facility
with commitments totaling $120,000,000. Such liability will become payable in
the event that the assets of UCN are insufficient to discharge such revolving
credit indebtedness.
Outstanding Indebtedness
Upstate Cellular Network As of 9/30/98
Credit Agreement $101,500,000
<PAGE>
EXHIBIT 6.02
LIENS
Borrower and its Subsidiaries are not subject to any Lien or Liens that are
individually or in the aggregate material to Borrower's financial condition,
assets or Consolidated Net Worth.
<PAGE>
EXHIBIT 6.05
CERTAIN RESTRICTIONS AND CONDITIONS
None.
<PAGE>
================================================================================
$275,000,000
CREDIT AGREEMENT
dated as of
November 10, 1998
among
FRONTIER CORPORATION
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
FLEET BANK,
as Syndication Agent
MARINE MIDLAND BANK,
as Documentation Agent
CHASE SECURITIES INC.,
as Lead Arranger and Book Manager
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions
SECTION 1.01. Defined Terms. 6
SECTION 1.02. Classification of Loans and Borrowings. 20
SECTION 1.03. Terms Generally. 20
SECTION 1.04. Accounting Terms; GAAP. 20
ARTICLE II The Credits
SECTION 2.01. Commitments. 21
SECTION 2.02. Loans and Borrowings 21
SECTION 2.03. Requests for Revolving Borrowings. 21
SECTION 2.04. Competitive Bid Procedure 22
SECTION 2.05. Funding of Borrowings. 24
SECTION 2.06. Interest Elections. 25
SECTION 2.07. Termination and Reduction of Commitments. 26
SECTION 2.08. Repayment of Loans; Evidence of Debt. 27
SECTION 2.09. Prepayment of Loans 28
SECTION 2.10. Fees. 28
SECTION 2.11. Interest 29
SECTION 2.12. Alternate Rate of Interest 30
SECTION 2.13. Increased Costs 30
SECTION 2.14. Break Funding Payments 31
SECTION 2.15. Taxes 32
SECTION 2.16. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs. 33
SECTION 2.17. Mitigation Obligations; Replacement of Lenders 34
ARTICLE III Representations and Warranties
<PAGE>
SECTION 3.01. Organization; Powers 35
SECTION 3.02. Authorization; Enforceability. 35
SECTION 3.03. Governmental Approvals; No Conflicts 36
SECTION 3.04. Financial Condition; No Material Adverse Change 36
SECTION 3.05. Properties 36
SECTION 3.06. Litigation and Environmental Matters 37
SECTION 3.07. Compliance with Laws and Agreements 37
SECTION 3.08. Investment and Holding Company Status 37
SECTION 3.09. Taxes 37
SECTION 3.10. ERISA 37
SECTION 3.11. Disclosure 38
SECTION 3.12. Year 2000. 38
SECTION 3.13. Significant Subsidiaries 38
SECTION 3.14. Borrower's Funded Debt 38
ARTICLE IV Conditions
SECTION 4.01. Effective Date 38
SECTION 4.02. Each Credit Event 40
ARTICLE V Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information 40
SECTION 5.02. Notices of Material Events 42
SECTION 5.03. Existence; Conduct of Business 42
SECTION 5.04. Payment of Obligations 42
SECTION 5.05. Maintenance of Properties; Insurance 42
<PAGE>
SECTION 5.06. Books and Records; Inspection Rights. 43
SECTION 5.07. Compliance with Laws 43
SECTION 5.08. Use of Proceeds 43
SECTION 5.09. Other Funded Debt of Borrower 43
ARTICLE VI Negative Covenants
SECTION 6.01. Indebtedness of Subsidiaries 44
SECTION 6.02. Liens 44
SECTION 6.03. Fundamental Changes. 45
SECTION 6.04. Transactions with Affiliates 46
SECTION 6.05. Restrictive Agreements 46
SECTION 6.06. Interest Coverage 47
ARTICLE VII Events of Default 47
ARTICLE VIII The Administrative Agent 50
ARTICLE IX Miscellaneous
SECTION 9.01. Notices 52
SECTION 9.02. Waivers; Amendments 52
SECTION 9.03. Expenses; Indemnity; Damage Waiver 53
SECTION 9.04. Successors and Assigns. 54
SECTION 9.05. Survival 57
SECTION 9.06. Counterparts; Integration; Effectiveness 57
SECTION 9.07. Severability 57
SECTION 9.08. Right of Setoff 57
SECTION 9.09. Governing Law; Jurisdiction; Consent to
<PAGE>
Service of Process. 58
SECTION 9.10. WAIVER OF JURY TRIAL 58
SECTION 9.11. Headings 59
SECTION 9.12. Confidentiality 59
SECTION 9.13. Interest Rate Limitation 59
EXHIBITS
EXHIBIT 1.01 72
EXHIBIT 2.01 75
EXHIBIT 3.06 76
EXHIBIT 3.13 77
EXHIBIT 3.14 78
EXHIBIT 4.01(b) 79
EXHIBIT 6.01 81
EXHIBIT 6.02 82
EXHIBIT 6.05 83
<PAGE>
CREDIT AGREEMENT dated as of November 10, 1998, among FRONTIER CORPORATION,
the LENDERS party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the following
--------------
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether
---
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Revolving
------------------
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity as
--------------------
administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in a
----------------------------
form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that
---------
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
-------------------
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the percentage
---------------------
of the total Commitments represented by such Lender's Commitment. If the
Commitments have terminated or expired, the
<PAGE>
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day, with respect to any Eurodollar
---------------
Revolving Loan, or with respect to the facility fees payable hereunder, as the
case may be, the applicable rate per annum set forth below, expressed in basis
points, under the caption "Eurodollar Spread" or "Facility Fee Rate", as the
case may be, based upon the ratings by Moody's and S&P, respectively, applicable
on such date to the Index Debt:
================================================================================
Eurodollar Facility Fee
------------ --------------
Index Debt Ratings: Spread Rate
------------------- ------ ----
- --------------------------------------------------------------------------------
Category 1 13 7
- ----------
Greater than or equal to A+/A1
- --------------------------------------------------------------------------------
Category 2 16 9
- ----------
Greater than or equal to A-/A3
- --------------------------------------------------------------------------------
Category 3 20 10
- ----------
Equal to BBB+/Baa1
- --------------------------------------------------------------------------------
Category 4 22.5 12.5
- ----------
Equal to BBB/Baa2
- --------------------------------------------------------------------------------
Category 5 30 15
- ----------
Lower than BBB/Baa2 or not rated by both
Moody's and S&P
================================================================================
For purposes of the foregoing, (i) if either Moody's or S&P shall not have
in effect a rating for the Index Debt (other than by reason of the circumstances
referred to in the last sentence of this definition), then such rating agency
shall be deemed to have established a rating in Category 5; (ii) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall fall within different Categories, the Applicable Rate shall be based
on the higher of the two ratings unless one of the two ratings is two or more
Categories lower than the other, in which case the Applicable Rate shall be
determined by reference to the Category next below that of the higher of the two
ratings; and (iii) if the ratings established or deemed to have been established
by Moody's and S&P for the Index Debt shall be changed (other than as a result
of a change in the rating system of Moody's or S&P), such change shall be
effective as of the date on which it is first announced by the applicable rating
agency. Each change in the Applicable Rate shall apply during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change. If the rating
system of Moody's or S&P shall change, or if either such rating agency shall
cease to be in the business of rating corporate debt obligations, the Borrower
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable Rate shall
<PAGE>
be determined by reference to the rating most recently in effect prior to such
change or cessation.
"Assessment Rate" means, for any day, the annual assessment rate in effect
---------------
on such day that is payable by a member of the Bank Insurance Fund classified as
"well-capitalized" and within supervisory subgroup "B" (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation for insurance
by such Corporation of time deposits made in dollars at the offices of such
member in the United States; provided that if, as a result of any change in any
--------
law, rule or regulation, it is no longer possible to determine the Assessment
Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall
be determined by the Administrative Agent to be representative of the cost of
such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered into
-------------------------
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
------------
of Exhibit 1.01 or any other form approved by the Administrative Agent.
-------------
"Availability Period" means the period from and including the Effective
-------------------
Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
------------
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of the
-----
United States of America.
"Borrower" means Frontier Corporation, a New York corporation.
--------
"Borrowing" means (a) Revolving Loans of the same Type, made, converted or
---------
continued on the same date and, in the case of Eurodollar Revolving Loans, as to
which a single Interest Period is in effect or (b) a Competitive Loan or group
of Competitive Loans of the same Type made on the same date and as to which a
single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Revolving
-----------------
Borrowing in accordance with Section 2.03.
------------
"Business Day" means any day that is not a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or
<PAGE>
required by law to remain closed; provided that, when used in connection with a
--------
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
------------
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Lease Obligations" of any Person means the obligations of such
-------------------------
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly or
-----------------
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 30% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Borrower; (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Borrower by Persons who were neither (i) nominated by the board of directors of
the Borrower nor (ii) appointed by directors so nominated; or (c) the
acquisition of direct or indirect Control of the Borrower by any Person or
group.
"Change in Law" means (a) the adoption of any law, rule or regulation after
-------------
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender (or, for purposes of
Section 2.13(b), by any lending office of such Lender or by such Lender's
- ---------------
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to whether
-----
such Loan, or the Loans comprising such Borrowing, are Revolving Loans, or
Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time.
"Commitment" means, with respect to each Lender, the commitment of such
----------
Lender to make Revolving Loans hereunder, expressed as an amount representing
the maximum aggregate amount of such Lender's Revolving Credit Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.07 and (b) reduced or
- ------------
<PAGE>
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04. The initial amount of each Lender's Commitment is
------------
set forth on Exhibit 2.01, or in the Assignment and Acceptance pursuant to
------------
which such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $275,000,000.
"Competitive Bid" means an offer by a Lender to make a Competitive Loan in
---------------
accordance with Section 2.04.
------------
"Competitive Bid Rate" means, with respect to any Competitive Bid, the
--------------------
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" means a request by the Borrower for Competitive
-----------------------
Bids in accordance with Section 2.04.
------------
"Competitive Loan" means a Loan made pursuant to Section 2.04.
---------------- ------------
"Consolidated Interest Expense" means for any period for which such amount
-----------------------------
is being determined, the interest expense of the Borrower and its Consolidated
Subsidiaries for such period, as reported on the relevant financial statements
delivered pursuant to Sections 5.01(a) and 5.01(b).
----------------------------
"Consolidated Net Income" means the net income of the Borrower and its
-----------------------
Consolidated Subsidiaries, after taxes and after extraordinary items, as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means the Net Worth of the Borrower and its
----------------------
Consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP. For this purpose, "Net Worth" of a Person means, at any date of
---------
determination thereof, the excess of total assets of the Person over total
liabilities of the Person, determined in accordance with GAAP.
"Consolidated Tangible Net Worth" means the Tangible Net Worth of the
-------------------------------
Borrower and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP. For this purpose, "Tangible Net Worth" of a
------------------
Person means, at any date of determination thereof, the excess of total Tangible
Assets of the Person over total liabilities of the Person, determined in
accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or are
-----------------------
required to be consolidated with the accounts of the Borrower in accordance with
GAAP.
"Control" means the possession, directly or indirectly, of the power to
-------
direct or cause the direction of the management or policies of a Person,
<PAGE>
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which (a) constitutes an Event of
-------
Default , (b) upon notice, lapse of time or both would, unless cured or waived,
become an Event of Default, or (c) constitutes a "Default", as such term is
defined in the $200,000,000 Credit Agreement.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Exhibit 3.06.
------------
"dollars" or "$" refers to lawful money of the United States of America.
------- -
"EBITDA" means the sum of the following items measured for the twelve month
------
period ending on the last day of each fiscal quarter: (a) Consolidated Net
Income calculated after eliminating extraordinary and/or non-recurring items, to
the extent included in the determination of Consolidated Net Income, plus (b)
depreciation, amortization, and all other non-cash charges included in the
determination of Consolidated Net Income, plus (c) income taxes to the extent
that they reduce Consolidated Net Income, plus (d) Consolidated Interest
Expense.
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
- ------------ ------------
"Environmental Laws" means all laws, rules, regulations, codes, ordinances,
------------------
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to health
and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
<PAGE>
"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------
that, together with the Borrower, is treated as a single employer under Section
414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
-----------
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
----------
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of
a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in Article VII.
---------------- -----------
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.17(b)), any withholding tax that is imposed
- ---------------
<PAGE>
on amounts payable to such Foreign Lender at the time such Foreign Lender
becomes a party to this Agreement (or designates a new lending office) or is
attributable to such Foreign Lender's failure to comply with Section 2.15(e),
---------------
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment), to
receive additional amounts from the Borrower with respect to such withholding
tax pursuant to Section 2.15(a).
---------------
"Federal Funds Effective Rate" means, for any day, the weighted average
----------------------------
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal accounting
-----------------
officer, treasurer or controller of the Borrower.
"Fixed Rate" means, with respect to any Competitive Loan (other than a
----------
Eurodollar Competitive Loan), the fixed rate of interest per annum specified by
the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed
---------------
Rate.
"Foreign Lender" means any Lender that is organized under the laws of a
--------------
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Funded Debt" means, with respect to any Person, all Indebtedness of such
-----------
Person (including current maturities), for money borrowed (including Capital
Leases), which by its terms matures more than one year from the date as of which
such Funded Debt is incurred, and any such Indebtedness of such Person maturing
within one year from such date which is renewable or extendable at the option of
the obligor to a date beyond one year from such date (whether or not theretofore
renewed or extended), including any such Indebtedness renewable or extendable at
the option of the obligor under, or payable from the proceeds of other
Indebtedness which may be
<PAGE>
incurred pursuant to, the provisions of any revolving credit agreement or other
similar agreement.
"GAAP" means generally accepted accounting principles in the United States
----
of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
--------- ---------
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
---------------
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term Guarantee shall not include endorsements for
--------
collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or
-------------------
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement, foreign
-----------------
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
<PAGE>
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Index Debt" means senior, unsecured, long-term indebtedness for borrowed
----------
money of the Borrower that is not guaranteed by any other Person or subject to
any other credit enhancement.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated September, 1998 relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to convert or
-------------------------
continue a Revolving Borrowing in accordance with Section 2.06.
------------
"Interest Payment Date" means (a) with respect to any ABR Loan, the last
---------------------
day of each March, June, September and December, (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period and (c) with respect to any Fixed
Rate Loan, the last day of the Interest Period applicable to the Borrowing of
which such Loan is a part and, in the case of a Fixed Rate Borrowing with an
Interest Period of more than 90 days' duration (unless otherwise specified in
the applicable Competitive Bid Request), each day prior to the last day of such
Interest Period that occurs at intervals of 90 days' duration after the first
day of such Interest Period, and any other dates
<PAGE>
that are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing.
"Interest Period" means (a) with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, (b) with respect to any Fixed Rate
Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
--------
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of a
Eurodollar Borrowing only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and, in
the case of a Revolving Borrowing, thereafter shall be the effective date of the
most recent conversion or continuation of such Borrowing.
"Lenders" means the Persons listed on Exhibit 2.01 and any other Person
------- ------------
that shall have become a party hereto pursuant to an Assignment and Acceptance,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
---------
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
<PAGE>
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
----
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase option,
call or similar right of a third party with respect to such securities.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
-----
this Agreement.
"Margin" means, with respect to any Competitive Loan bearing interest at a
------
rate based on the LIBO Rate, the marginal rate of interest, if any, to be added
to or subtracted from the LIBO Rate to determine the rate of interest applicable
to such Loan, as specified by the Lender making such Loan in its related
Competitive Bid.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform any of its obligations under this Agreement or (c) the
rights of or benefits available to the Lenders under this Agreement.
"Material Indebtedness" means Indebtedness (other than the Loans) or
---------------------
obligations in respect of one or more Hedging Agreements, of any one or more of
the Borrower and its Significant Subsidiaries in an aggregate principal amount
exceeding $10,000,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of the Borrower or any Significant
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or
such Significant Subsidiary would be required to pay if such Hedging Agreement
were terminated at such time.
"Maturity Date" means November 9, 2001.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------ -------
4001(a)(3) of ERISA.
- ----------
"Other Taxes" means any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
<PAGE>
"Participant" has the meaning set forth in Section 9.04(e).
----------- ---------------
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
------------
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
------------
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII; and
---------- ------------
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
"Person" means any natural person, corporation, limited liability company,
------
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
----
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which
<PAGE>
the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section
3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced from
----------
time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04.
-------- ------------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit
----------------
Exposures and unused Commitments representing more than 50% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time; provided
--------
that, for purposes of declaring the Loans to be due and payable pursuant to
Article VII, and for all purposes after the Loans become due and payable
- -----------
pursuant to Article VII or the Commitments expire or terminate, the outstanding
-----------
Competitive Loans of the Lenders shall be included in their respective Revolving
Credit Exposures in determining the Required Lenders.
"Revolving Credit Exposure" means, with respect to any Lender at any time,
-------------------------
the sum of the outstanding principal amounts of such Lender's Revolving Loans at
such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
-------------- ------------
"S&P" means Standard & Poor's.
---
"Significant Subsidiary" means at any time any Subsidiary of the Borrower
----------------------
(i) whose total assets constituted 10% or more of Consolidated Tangible Net
Worth as of the end of the most recent fiscal quarter or (ii) whose
"attributable" net income contributed 10% or more of Consolidated Net Income for
the fiscal year most recently ended. The percentage of any Subsidiary's net
income "attributable" to such Subsidiary for purposes of such computation shall
be the same percentage of such Subsidiary's net income as is included in
Consolidated Net Income.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
----------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages
<PAGE>
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months, and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date,
---------- ------
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
----------
"Tangible Assets" means, at any date of determination thereof, in each case
---------------
to the extent included in Consolidated Net Worth, total assets minus any share
capital discount and expense, any unamortized discount and expense on
Indebtedness, any write-up of assets, any excess of cost over market value of
investments, any development, pre-operating, pre-production, and start-up
expenses, any good will, and any other intangible assets.
"Taxes" means any and all present or future taxes, levies, imposts, duties,
-----
deductions, charges or withholdings imposed by any Governmental Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary market
-----------------------------
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day is not a Business Day, the next
<PAGE>
preceding Business Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day) or, if such rate is not so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the next
preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Transactions" means the execution, delivery and performance by the
------------
Borrower of this Agreement, the borrowing of Loans, and the use of the proceeds
thereof.
"$200,000,000 Credit Agreement" means the $200,000,000, 364 day Credit
------------------------------
Agreement, of even date with this Agreement, among the Borrower, The Chase
Manhattan Bank, as Administrative Agent, and the Lenders party thereto.
"Type", when used in reference to any Loan or Borrowing, refers to whether
----
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or,
in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
--------------------
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of
---------------------------------------
this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
- -----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
---- ----
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
----------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires
<PAGE>
otherwise (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (b) any reference herein to any Person shall
be construed to include such Person's successors and assigns, (c) the words
"herein", "hereof" and "hereunder", and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Articles, Sections and Exhibits
shall be construed to refer to Articles and Sections of, and Exhibits to, this
Agreement and (e) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
-----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set forth
------------
herein, each Lender agrees to make Revolving Loans to the Borrower from time to
time during the Availability Period in an aggregate principal amount that will
not result in (a) such Lender's Revolving Credit Exposure exceeding such
Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus
the aggregate principal amount of outstanding Competitive Loans exceeding the
total Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be
---------------------
made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. Each Competitive Loan
shall be made in accordance with the procedures set forth
<PAGE>
in Section 2.04. The failure of any Lender to make any Loan required to be
------------
made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments and Competitive Bids of the Lenders are several
- --------
and no Lender shall be responsible for any other Lender's failure to make Loans
as required.
(b) Subject to Section 2.12, (i) each Revolving Borrowing shall be
------------
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith, and (ii) each Competitive Borrowing shall be comprised
entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
--------
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $10,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $5,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
- --------
equal to the entire unused balance of the total Commitments. Each Competitive
Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $5,000,000. Borrowings of more than one Type and
Class may be outstanding at the same time; provided that there shall not at any
--------
time be more than a total of five (5) Eurodollar Revolving Borrowings
outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving
----------------------------------
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing and (b) in the case of an ABR Borrowing, not later than 11:00 a.m.,
New York City time, one Business Day before the date of the proposed Borrowing.
Each such telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Borrowing Request in a form approved by the Administrative Agent and
signed by the Borrower. Each such telephonic and written Borrowing Request
shall specify the following information in compliance with Section 2.02:
------------
<PAGE>
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of
Section 2.05.
------------
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms and
-------------------------
conditions set forth herein, from time to time during the Availability Period
the Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; provided
--------
that the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans at any time shall not exceed
the total Commitments, and provided further that no Competitive Bids may be
requested during the existence of a Default. To request Competitive Bids, the
Borrower shall notify the Administrative Agent of such request by telephone, in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, four Business Days before the date of the proposed Borrowing and, in the
case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time,
one Business Day before the date of the proposed Borrowing; provided that the
--------
Borrower may submit up to (but not more than) three (3) Competitive Bid Requests
on the same day, but a Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request, unless any
and all such previous Competitive Bid Requests shall have been withdrawn or all
Competitive Bids received in response thereto rejected. Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Administrative Agent of a written Competitive Bid
<PAGE>
Request in a form approved by the Administrative Agent and signed by the
Borrower. Each such telephonic and written Competitive Bid Request shall
specify the following information in compliance with Section 2.02:
------------
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing or a
Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of
Section 2.05.
------------
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make one or
more Competitive Bids to the Borrower in response to a Competitive Bid Request.
Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 9:30
a.m., New York City time, three Business Days before the proposed date of such
Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than
9:30 a.m., New York City time, on the proposed date of such Competitive
Borrowing. Competitive Bids that do not conform substantially to the form
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall specify (i) the principal
amount (which shall be a minimum of $5,000,000 and an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the Borrower) of the Competitive Loan or Loans that the
Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the
Lender is prepared to make such Loan or Loans (expressed as a percentage rate
per annum in the form of a decimal to no more than four decimal places) and
(iii) the Interest Period applicable to each such Loan and the last day thereof.
(c) The Administrative Agent shall promptly notify the Borrower by
telecopy of the Competitive Bid Rate and the principal amount specified in
<PAGE>
each Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.
(d) Subject only to the provisions of this paragraph, the Borrower may
accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing,
not later than 10:30 a.m., New York City time, three Business Days before the
date of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York City time, on the proposed date
of the Competitive Borrowing; provided that (i) the failure of the Borrower to
--------
give such notice shall be deemed to be a rejection of each Competitive Bid, (ii)
the Borrower shall not accept a Competitive Bid made at a particular Competitive
Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive
Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the
Borrower shall not exceed the aggregate amount of the requested Competitive
Borrowing specified in the related Competitive Bid Request, (iv) to the extent
necessary to comply with clause (iii) above, the Borrower may accept Competitive
------------
Bids at the same Competitive Bid Rate in part, which acceptance, in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid, and (v) except
pursuant to clause (iv) above, no Competitive Bid shall be accepted for a
-----------
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple of $1,000,000; provided further that if
----------------
a Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
-----------
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
-----------
rounded to integral multiples of $1,000,000 in a manner determined by the
Borrower. A notice given by the Borrower pursuant to this paragraph shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender by
telecopy whether or not its Competitive Bid has been accepted (and, if so, the
amount and Competitive Bid Rate so accepted), and each successful bidder will
thereupon become bound, subject to the terms and conditions hereof, to make the
Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower at least one quarter of an hour earlier than the time by which
<PAGE>
the other Lenders are required to submit their Competitive Bids to the
Administrative Agent pursuant to paragraph (b) of this Section.
-------------
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each
----------------------
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds, to
an account of the Borrower maintained with the Administrative Agent in New York
City and designated by the Borrower in the applicable Borrowing Request or
Competitive Bid Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
-------------
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount, with interest thereon for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing initially
-------------------
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period
as specified in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurodollar Revolving Borrowing, may elect Interest Periods
therefor, all as provided in this Section. The Borrower may, subject to the
provisions of Section 2.02(c), elect different options with respect to different
---------------
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing.
<PAGE>
This Section shall not apply to Competitive Borrowings, which may not be
converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
------------
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
------------
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
----------------------
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
<PAGE>
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof,
if an Event of Default has occurred and is continuing and the Administrative
Agent, at the request of the Required Lenders, so notifies the Borrower, then,
so long as an Event of Default is continuing (i) no outstanding Revolving
Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii)
unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.07. Termination and Reduction of Commitments. (a) Unless
-----------------------------------------
previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time reduce,
the Commitments; provided that (i) each reduction of the Commitments shall be in
--------
an amount that is an integral multiple of $1,000,000 and not less than
$10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments
if, after giving effect to any concurrent prepayment of the Loans in accordance
with Section 2.09, the sum of the Revolving Credit Exposures plus the aggregate
------------
principal amount of outstanding Competitive Loans would exceed the total
Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Commitments under paragraph (b) of this Section at least
-------------
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable; provided that a notice of termination of
--------
the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent.
Each reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The Borrower
-------------------------------------
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
on the Maturity Date and (ii) to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Competitive Loan on the
last day of the Interest Period applicable to such Loan.
<PAGE>
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b)
-------------
or (c) of this Section shall be prima facie evidence of the existence and
- ------ ----- -----
amounts of the obligations recorded therein; provided that the failure of any
--------
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
------------
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the right
--------------------
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section;
-------------
provided that the Borrower shall not have the right to prepay any Competitive
- --------
Borrowing without the prior consent of the Lender thereof, except in connection
with a reduction of Commitments as provided in Section 6.03(b).
---------------
(b) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment or (ii) in the case of
prepayment of an ABR Revolving Borrowing or a Fixed Rate
<PAGE>
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid; provided that, if a notice of prepayment is given
--------
in connection with a conditional notice of termination of the Commitments as
contemplated by Section 2.07, then such notice of prepayment may be revoked if
------------
such notice of termination is revoked in accordance with Section 2.07. Promptly
------------
following receipt of any such notice relating to a Revolving Borrowing, the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to
------------
the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 2.11.
------------
SECTION 2.10. Fees. (a) The Borrower agrees to pay to the Administrative
-----
Agent for the account of each Lender a facility fee, which shall accrue at the
Applicable Rate on the daily amount of the Commitment of such Lender (whether
used or unused) during the period from and including the Effective Date to but
excluding the date on which such Commitment terminates; provided that, if such
--------
Lender continues to have any Revolving Credit Exposure after its Commitment
terminates, then such facility fee shall continue to accrue on the daily amount
of such Lender's Revolving Credit Exposure from and including the date on which
its Commitment terminates to but excluding the date on which such Lender ceases
to have any Revolving Credit Exposure. Accrued facility fees shall be payable
in arrears on the last day of March, June, September and December of each year
and on the date on which the Commitments terminate, commencing on the first such
date to occur after the date hereof; provided that any facility fees accruing
--------
after the date on which the Commitments terminate shall be payable on demand.
All facility fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees to the Lenders. Fees paid shall not be refundable
under any circumstances.
<PAGE>
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
---------
shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest (i)
in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Rate, or (ii)
in the case of a Eurodollar Competitive Loan, at the LIBO Rate for the Interest
Period in effect for such Borrowing plus (or minus, as applicable) the Margin
applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable
to such Loan.
(d) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
-------------
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Commitments; provided that (i) interest accrued pursuant to
--------
paragraph (d) of this Section shall be payable on demand, (ii) in the event of
- -------------
any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(f) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate, Adjusted
LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
<PAGE>
SECTION 2.12. Alternate Rate of Interest. If prior to the commencement of
---------------------------
any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (or,
in the case of a Eurodollar Competitive Loan, the Lender that is required
to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans
(or its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any
request by the Borrower for a Eurodollar Competitive Borrowing shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
--------
do not affect all the Lenders, then requests by the Borrower for Eurodollar
Competitive Borrowings may be made to Lenders that are not affected thereby and
(B) if the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans
made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount
<PAGE>
of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise), then the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
--------------------
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrower shall not be required to
--------
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 270 days prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
- -------- -------
or reductions is retroactive, then the 270-day period referred to above shall be
extended to include the period of retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section, a Lender
shall not be entitled to compensation pursuant to this Section in respect of any
Competitive Loan if the Change in Law that would otherwise entitle it to such
compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the payment of
-----------------------
any principal of any Eurodollar Loan or Fixed Rate Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event
of Default), (b) the conversion of any Eurodollar Loan other than on the last
day of the Interest Period applicable thereto, (c) the
<PAGE>
failure to borrow, convert, continue or prepay any Revolving Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice may be revoked under Section 2.09(b) and is revoked in accordance
---------------
therewith), (d) the failure to borrow any Competitive Loan after accepting the
Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar Loan
or Fixed Rate Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.17, then,
------------
in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense attributable to such event. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate or LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.15. Taxes. (a) Any and all payments by or on account of any
------
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
--------
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or each
Lender (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each Lender,
within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any
<PAGE>
payment by or on account of any obligation of the Borrower hereunder (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such
payment or liability delivered to the Borrower by a Lender, or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to
the Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law, such
properly completed and executed documentation prescribed by applicable law or
reasonably requested by the Borrower as will permit such payments to be made
without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
------------------------------------------------------------
(a) The Borrower shall make each payment required to be made by it hereunder
(whether of principal, interest or fees or of amounts payable under Section
-------
2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City time, on
- ------------------
the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except that payments pursuant to Sections 2.13,
--------------
2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The
- -------------------
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
<PAGE>
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto
in accordance with the amounts of interest and fees then due to such parties,
and (ii) second, towards payment of principal then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal then
due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans; provided that (i) if any
--------
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or to any payment obtained by a Lender as consideration
for the assignment of or sale of a participation in any of its Loans to any
assignee or participant, other than to the Borrower or any Subsidiary or
Affiliate thereof (as to which the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrower will not make
such payment, the Administrative Agent may assume that the Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date
<PAGE>
such amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may, in
--------------------------
its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If any
-----------------------------------------------
Lender requests compensation under Section 2.13, or if the Borrower is required
------------
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.15, then such Lender shall use
------------
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and
--------------------
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.13, or if the
------------
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
------------
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
- ------------
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Borrower shall have received the
--------
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (other than Competitive
Loans), accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
<PAGE>
compensation under Section 2.13 or payments required to be made pursuant to
------------
Section 2.15, such assignment will result in a reduction in such compensation or
- ------------
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
ARTICLE III
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
---------------------
Significant Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions are within
------------------------------
the Borrower's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action. This Agreement has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a)
-------------------------------------
do not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any applicable
law or regulation or the charter, by-laws or other organizational documents of
the Borrower or any of its Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, and (d) will not
result in the creation or imposition of any Lien on any asset of the Borrower or
any of its Subsidiaries.
<PAGE>
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
------------------------------------------------
Borrower has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and for
the fiscal year ended December 31, 1997, reported on by PricewaterhouseCoopers,
LLP, independent public accountants, and (ii) as of and for the fiscal quarter
and the portion of the fiscal year ended June 30, 1998, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
-----------
(b) Since December 31, 1997, there has been no material adverse change in
the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries
-----------
has good title to, or valid leasehold interests in, all its real and personal
property material to its business, except for minor defects in title that do not
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use,
all trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
-------------------------------------
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect, neither the Borrower nor any of its
Subsidiaries (i) has failed to comply with any Environmental Law or to obtain,
maintain or comply with any permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental Liability, (iii)
has received notice of any claim with respect to
<PAGE>
any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower
------------------------------------
and its Subsidiaries is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the Borrower
--------------------------------------
nor any of its Subsidiaries is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely
------
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
------
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all
-----------
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither the Information Memorandum nor any of the
other reports, financial statements, certificates or other information furnished
by or on behalf of the Borrower to the Administrative Agent or any Lender in
connection with the negotiation of this Agreement or delivered hereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact
<PAGE>
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
--------
projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.
SECTION 3.12. Year 2000. Borrower reasonably expects to complete any
----------
reprogramming required to permit the proper functioning, in and following the
year 2000, of (i) the Borrower's and it Subsidiaries' computer systems and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others to Borrower) either or both of which Borrower and its
Subsidiaries plan to utilize in and following the year 2000, and the testing of
all such systems and equipment, as so reprogrammed. The cost to the Borrower
and its Subsidiaries of such reprogramming and testing and reasonably
foreseeable remediation is not expected to result in a Default or a Material
Adverse Effect. Except for remediation referred to in the preceding sentence,
the computer and management information systems of the Borrower and its
Subsidiaries are expected to continue for the term of this Agreement to be
sufficient to permit the Borrower to conduct its business without Material
Adverse Effect.
SECTION 3.13. Significant Subsidiaries. Exhibit 3.13 lists the name,
------------------------ ------------
address and state of incorporation of each Subsidiary that constitutes a
Significant Subsidiary as of the date of this Agreement, along with the
computation by which Borrower has made such determination. Such Exhibit also
describes the Indebtedness of each Significant Subsidiary, and each Lien to
which any of the assets of each Significant Subsidiary are subject, on the date
hereof.
SECTION 3.14. Borrower's Funded Debt. Exhibit 3.14 describes all Funded
---------------------- ------------
Debt of Borrower as of the date hereof, and no agreement, promissory note or
other instrument related to or evidencing such Funded Debt contains any covenant
or event of default that is more favorable to the lenders of such Funded Debt
than are the covenants and Events of Default in this Agreement to the Lenders.
<PAGE>
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
---------------
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
------------
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Martin T. McCue, Esq., Senior Vice President and
General Counsel of the Borrower, as counsel for the Borrower, substantially
in the form of Exhibit 4.01(b), which opinion shall also cover such other
---------------
matters relating to the Borrower, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Borrower hereby requests
such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of the
Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form
and substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by a Vice President or a Financial Officer of
the Borrower, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 4.02.
--------------------------------------
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
(f) All of the "Commitments" under the $250,000,000 Revolving Credit
Agreement, dated August 9, 1995, as amended, among the Borrower, the Banks
signatary thereto and The Chase Manhattan Bank, as Agent shall have been
terminated and all principal and interest with
<PAGE>
respect to any "Loans" outstanding thereunder shall have been paid in full.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
------------
York City time, on November 15, 1998 (and, in the event such conditions are not
so satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to make a
------------------
Loan on the occasion of any Borrowing, is subject to the satisfaction of the
following conditions:
(a) The representations and warranties of the Borrower set forth in
this Agreement shall be true and correct on and as of the date of such
Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
--------------
and (b) of this Section.
- -------
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The Borrower
-------------------------------------------
will furnish to the Administrative Agent and each Lender:
(a) as soon as available and in any event within 100 days after the
end of each fiscal year of the Borrower, its audited consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on
by PricewaterhouseCoopers, LLP or other independent public accountants of
recognized national standing selected by Borrower (without a "going
concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect
<PAGE>
that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the Borrower
and its Consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied;
(b) as soon as available and in any event within 55 days after the end
of each of the first three fiscal quarters of each fiscal year of the
Borrower, its consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet,
as of the end of) the previous fiscal year, all certified by one of its
Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
-----------------
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.06 and (iii)
------------
stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of
------------
such change on the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
----------
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
by the Borrower to its shareholders generally, as the case may be;
<PAGE>
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Agreement,
as the Administrative Agent or any Lender may reasonably request; and
(g) with each financial report submitted pursuant to Sections 5.01(a)
----------------
and 5.01(b), a separate report describing (i) the names of each Significant
-----------
Subsidiary as of the date of the balance sheet set forth in such report and
of each Subsidiary (or former Subsidiary) listed on the last such report
but not on the current report, along with the computation by which Borrower
determined that each such Subsidiary (or former Subsidiary) did or did not
constitute a Significant Subsidiary, (ii) the name, address, form and
state of organization of each Subsidiary that became a Significant
Subsidiary since the date of Borrower's latest such report, (iii) the
Indebtedness of each Significant Subsidiary listed on such report, and each
Lien to which any of the assets of each such Significant Subsidiary were
subject, as of the date of such report, and (iv) as of the date of such
report, the total outstanding Indebtedness of Borrower's Subsidiaries.
SECTION 5.02. Notices of Material Events. The Borrower will furnish to
---------------------------
the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Subsidiaries in an aggregate
amount exceeding $10,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will
-------------------------------
cause each of its Significant Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to
<PAGE>
the conduct of its business; provided that the foregoing shall not prohibit
--------
any merger, consolidation, liquidation or dissolution permitted under Section
-------
6.03.
- ----
SECTION 5.04. Payment of Obligations. The Borrower will, and will cause
-----------------------
each of its Subsidiaries to, pay its obligations, including Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will,
-------------------------------------
and will cause each of its Significant Subsidiaries to, (a) keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The Borrower will,
-------------------------------------
and will cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Significant Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender, upon reasonable prior
notice, to visit and inspect its properties, to examine and make extracts from
its books and records, and to discuss its affairs, finances and condition with
its officers and independent accountants, all at such reasonable times and as
often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Borrower will, and will cause
---------------------
each of its Subsidiaries to, comply with all laws, rules, regulations and orders
of any Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be used
---------------
only for general corporate purposes. No part of the proceeds of any Loan will
be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations G, U and
X.
SECTION 5.09. Other Funded Debt of Borrower. If after the date of this
-----------------------------
Agreement, Borrower either incurs new Funded Debt (other than pursuant to this
Agreement and other than that described in Exhibit 3.14) or amends any
------------
<PAGE>
document related to any Funded Debt (other than pursuant to this Agreement) or
pursuant to which Borrower has the right to borrow Funded Debt, and if any of
the covenants or events of default, contained in any document, agreement or
instrument from time to time entered into by the Borrower in respect of such
Funded Debt is more favorable to the lenders of such Funded Debt, than are the
terms of this Agreement to the Lenders, (i) the Borrower shall promptly notify
the Administrative Agent of such incurrence or amendment, (ii) the
Administrative Agent shall, in turn, so notify each Lender, and (ii) this
Agreement shall be amended to contain each such more favorable covenant or event
of default, and the Borrower hereby agrees to so amend this Agreement and to
execute and deliver all such documents requested by the Required Lenders to
reflect such Amendment. Prior to the execution and delivery of such documents
by the Borrower, this Agreement shall be deemed to contain each such more
favorable covenant or event of default for purposes of determining the rights
and obligations hereunder.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in
full the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness of Subsidiaries. Borrower shall not permit any
----------------------------
of its Subsidiaries to create, incur, assume or suffer to exist any Indebtedness
if at the time or as a result thereof the outstanding principal amount of all
Subsidiary Indebtedness aggregates or would aggregate more than $500,000,000.
For purposes of the foregoing sentence, the Indebtedness of RTMC Holdings, Inc.
described in Exhibit 6.01 shall be subject to the $500,000,000 maximum only to
------------
the extent that the Indebtedness of Upstate Cellular Network underlying such
Indebtedness of RTMC Holdings, Inc. has become due and payable by RTMC Holdings,
Inc.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
------
Significant Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any
Significant Subsidiary existing on the date hereof and set forth in Exhibit
-------
6.02; provided that (i) such Lien shall not apply to any other property or
---- --------
asset of the Borrower or any Subsidiary and (ii) such Lien shall secure
only those obligations which it secures on the date hereof and extensions,
<PAGE>
renewals and replacements thereof that do not increase the outstanding
principal amount thereof;
(c) Liens securing obligations of a Significant Subsidiary to Borrower
or to another Significant Subsidiary;
(d) purchase money Liens on any property hereafter acquired by
Significant Subsidiaries that are regulated public utilities, or the
assumption by such Subsidiaries of Liens on property existing at the time
of such acquisition, or Liens incurred by such Subsidiaries in connection
with any conditional sale or other title retention agreements or Capital
Leases; and purchase money Liens on transmission equipment hereafter
acquired by Significant Subsidiaries that are not regulated public
utilities, or the assumption by such Subsidiaries of Liens on transmission
equipment existing at the time of such acquisition, or Liens incurred by
such Subsidiaries in connection with any acquisition of transmission
equipment pursuant to any conditional sale or other title retention
agreements or Capital Leases; and Liens attaching to the assets of
businesses acquired by the Borrower or any Significant Subsidiary by
merger, consolidation or the purchase of stock, which Liens existed at the
time of such acquisition; provided, in each case, that:
(i) any property subject to any of the foregoing is acquired by
Borrower or any such Subsidiary in the ordinary course of its business
and the Lien on any such property is created prior to or
contemporaneously with such acquisition;
(ii) the obligation secured by any Lien so created, assumed or
existing shall not exceed 100% of the lesser of cost or fair market
value as of the time of acquisition of the property covered thereby to
Borrower or such Subsidiary acquiring the same; and
(iii) each such Lien shall attach only to the property so acquired and
fixed improvements thereon, and shall secure only those obligations
which it secures on the date of such acquisition, and extensions,
renewals or replacements thereof that do not increase the outstanding
principal amount thereof.
SECTION 6.03. Fundamental Changes. (a) The Borrower will not merge into
--------------------
or consolidate with any other Person, or permit any other Person to merge into
or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of its
assets, (in each case, whether now owned or hereafter acquired), or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing, any Person may
merge into the Borrower in a transaction in which the Borrower is the surviving
corporation.
<PAGE>
(b) Borrower shall not
(i) permit any Significant Subsidiary to merge or consolidate with, or
sell, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all
of its assets (whether now owned or hereafter acquired) to any Person
(or enter into any agreement to do any of the foregoing), except that
(x) any Significant Subsidiary may merge into or transfer assets to
the Borrower; and (xx) any Significant Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary of the
Borrower; or
(ii) sell or dispose of any equity or voting interest in any
Significant Subsidiary, except that Borrower shall be permitted to
sell or dispose of such equity or voting interest as long as the
purchaser or transferee is an entity in which Borrower owns an equity
interest;
provided, however, that the transactions prohibited in clauses (i) and (ii)
--------------------
above shall be permitted as long as (x) the proceeds thereof are received
entirely in cash by Borrower or a Significant Subsidiary, as the case may be,
and (xx) unless waived by all of the Lenders, upon completion of any such
transaction, Borrower reduces the total amount of the Commitments by an amount
that is not less than the amount determined in accordance with the next
sentence, and Borrower makes any prepayments of outstanding Borrowings necessary
to reduce the aggregate outstanding principal balance of all Loans to be less
than or equal to the amount of the Commitments as so reduced. The amount by
which the total Commitments shall be reduced pursuant to the preceding sentence
shall be not less than (z) the amount of the cash proceeds received in the
transaction less the expenses of, and any income and other taxes estimated to be
due as a result of, the transaction, times (zz) a fraction whose numerator is
the total amount of the Commitments prior to such reduction and whose
denominator is the sum of such total Commitment amount and the total amount of
the available commitments and the aggregate principal amount of the loans
outstanding immediately prior to the transaction, under the $200,000,000 Credit
Agreement. If Borrower is required to prepay any Borrowings in connection with
a Commitment reduction pursuant to this Section, it shall prepay all Revolving
Borrowings in full, prior to prepaying any Competitive Borrowings. If it is
then required to prepay all or part of any Competitive Borrowings in order to
comply with this Section, Borrower shall notify the Administrative Agent of such
prepayment, (which shall promptly notify each Lender whose Competitive Loans
comprise the Borrowings that Borrower intends to prepay) not later than 11:00
a.m., New York City time, two Business Days before the Business Day on which the
Borrower is required to give a notice of prepayment of such Borrowings pursuant
to Section 2.09(b). Such notice shall identify the Competitive Borrowings to be
---------------
prepaid, the amount to be prepaid and the prepayment date. If
<PAGE>
any Lender whose Competitive Loan or Loans are being prepaid notifies the
Administrative Agent and the Borrower prior to the time at which a notice of
prepayment is required under Section 2.09(b) that it objects to any prepayment
---------------
of one or more of such Loans held by it, specifying such Loans, Borrower will
have the obligation, and to the extent that it does not receive such a notice,
it shall have the right, in lieu of immediate prepayment, to provide cash
collateral to any Lender whose Competitive Loans are being prepaid, in an amount
not less than the principal amount being prepaid. The terms of such cash
collateral shall be reasonably acceptable to such Lender and to the
Administrative Agent.
SECTION 6.04. Transactions with Affiliates. The Borrower will not, and
-----------------------------
will not permit any of its Significant Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of business at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between or among the Borrower and its Subsidiaries not
involving any other Affiliate.
SECTION 6.05. Restrictive Agreements. The Borrower will not, and will not
-----------------------
permit any of its Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Significant Subsidiary to pay dividends or other
distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Borrower or any other Subsidiary or to Guarantee
Indebtedness of the Borrower or any other Subsidiary; provided that (i) the
--------
foregoing shall not apply to restrictions and conditions imposed by law or by
this Agreement, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Exhibit 6.05 (but shall
------------
apply to any amendment or modification expanding the scope of any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or conditions
----------
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness, (v) clause (a) of the foregoing shall not
----------
apply to customary provisions in leases and other contracts restricting the
assignment thereof, (vi) clause (b) of the foregoing shall not apply to
----------
Subsidiaries that are regulated public utilities, to the extent that the
agencies charged with regulating them (as public utilities) may specifically
prohibit or limit dividend payments, (vii) the foregoing shall not apply to
restrictions that apply to Significant Subsidiaries that were acquired as
Subsidiaries after the date hereof,
<PAGE>
if such Significant Subsidiaries were subject to such restrictions at the time
of acquisition and if such restrictions do not extend to Borrower or any other
Significant Subsidiary, and (viii) clause (b) of the foregoing shall not apply
----------
to the existence and operation of financial covenants, such as maximum debt to
net worth or minimum working capital ratios, as long as they do not specifically
prohibit or restrict dividend payments or other distributions.
SECTION 6.06. Interest Coverage. The Borrower will not permit the ratio
-----------------
of EBITDA to Consolidated Interest Expense to be less than 4.50 to 1 for each
twelve month period ending on the last day of each fiscal quarter.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan when and
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay (i) any interest on any Loan or any
facility fee payable under this Agreement, when and as the same shall
become due and payable, and such failure shall continue unremedied for a
period of five days, or (ii) any other fee or any other amount payable
under this Agreement (other than an amount referred to in clause (a) or
----------
clause (b)(i) of this Article), when and as the same shall become due and
-------------
payable, and such failure shall continue unremedied for a period of ten
days after notice to the Borrower from the Administrative Agent or from the
Lender to which such amount is payable;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with this Agreement
or any amendment or modification hereof or waiver hereunder, or in any
report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or
modification hereof or waiver hereunder, shall prove to have been incorrect
when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to the
------------------
Borrower's existence only) or 5.08 or in Article VI;
---- ----------
(e) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those
<PAGE>
specified in clause (a), (b) or (d) of this Article), and such failure
----------------------
shall continue unremedied for a period of 30 days;
(f) the Borrower or any Significant Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become due
and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity; provided that this clause shall
--------
not apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Borrower or any Significant Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower
or any Significant Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed
for 30 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) the Borrower or any Significant Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (h)
----------
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting
any of the foregoing;
<PAGE>
(j) the Borrower or any Significant Subsidiary shall become unable,
admit in writing its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $10,000,000 shall be rendered against the Borrower, any
Significant Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the
Borrower or any Significant Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse
Effect; or
(m) a Change in Control shall occur;
(n) the occurrence of an "Event of Default", as such term is defined
in the $200,000,000 Credit Agreement.
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
-----------------
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate
the Commitments, and thereupon the Commitments shall terminate immediately, and
(ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall become due and payable immediately, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Borrower; and
in case of any event with respect to the Borrower described in clause (h) or (i)
-----------------
of this Article, the Commitments shall automatically terminate and the principal
of the Loans then outstanding, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
<PAGE>
Each of the Lenders hereby irrevocably appoints the Administrative Agent as
its agent and authorizes the Administrative Agent to take such actions on its
behalf and to exercise such powers as are delegated to the Administrative Agent
by the terms hereof, together with such actions and powers as are reasonably
incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except
those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02), and (c) except as expressly set forth herein, the
------------
Administrative Agent shall not have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to the Borrower or
any of its Subsidiaries that is communicated to or obtained by the bank serving
as Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02) or in the absence of its own gross negligence or
------------
wilful misconduct. The Administrative Agent shall be deemed not to have
knowledge of any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and the Administrative Agent
shall not be responsible for or have any duty to ascertain or inquire into (i)
any statement, warranty or representation made in or in connection with this
Agreement, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other
----------
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
<PAGE>
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
------------
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit
<PAGE>
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 180 South Clinton Avenue, Rochester,
New York 14646, Attention of Treasurer (Telecopy No. (716) 325-7638), with
a copy to 180 South Clinton Avenue, Rochester, New York 14646, Attention
of Corporate Counsel (Telecopy No. (716) 325-7639);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658),
with a copy to The Chase Manhattan Bank, 1 Chase Square, Rochester, New
York 14643, Attention of Benedict A. Smith, (Telephone No. (716) 258-5669;
Telecopy No. (716) 258-4258);
(c) if to any Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
--------------------
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of
<PAGE>
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
- -------------
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; provided that no
--------
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing
----------------------
of payments required thereby, without the written consent of each Lender, or (v)
change any of the provisions of this Section or the definition of "Required
Lenders" or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; provided further that no such agreement shall amend, modify or
----------------
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall
-----------------------------------
pay (i) all reasonable out-of-pocket expenses incurred by the Administrative
Agent and its Affiliates, including the reasonable fees, charges and
disbursements of counsel for the Administrative Agent, in connection with the
syndication of the credit facilities provided for herein, the preparation and
administration of this Agreement or any amendments, modifications or waivers of
the provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by
the Administrative Agent or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with
the Loans made issued hereunder, including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans.
<PAGE>
(b) The Borrower shall indemnify the Administrative Agent and each Lender,
and each Related Party of any of the foregoing Persons (each such Person being
called an "Indemnitee") against, and hold each Indemnitee harmless from, any and
----------
all losses, claims, damages, liabilities and related expenses, including the
fees, charges and disbursements of any counsel for any Indemnitee, incurred by
or asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the consummation of the Transactions or any
other transactions contemplated hereby, (ii) any Loan or the use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
--------
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required to be
paid by it to the Administrative Agent under paragraph (a) or (b) of this
--------------------
Section, each Lender severally agrees to pay to the Administrative Agent such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
- --------
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
<PAGE>
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it); provided that (i) except in
--------
the case of an assignment to a Lender or an Affiliate of a Lender, each of the
Borrower and the Administrative Agent must give their prior written consent to
such assignment (which consent shall not be unreasonably withheld), (ii) except
in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
------------
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500 with
respect to each assignment other than an assignment by a Lender to one of its
Affiliates, and (v) the assignee, if it shall not be a Lender, shall deliver to
the Administrative Agent an Administrative Questionnaire; and provided further
----------------
that any consent of the Borrower otherwise required under this paragraph shall
not be required if an Event of Default under clause (h) or (i) of Article VII
--------------------------------
has occurred and is continuing. Subject to acceptance and recording thereof
pursuant to paragraph (d) of this Section, from and after the effective date
-------------
specified in each Assignment and Acceptance the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by
----------------------------------
a Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
- -------------
<PAGE>
(c) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
--------
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
-------------
this Section and any written consent to such assignment required by paragraph
---------
(b) of this Section, the Administrative Agent shall accept such Assignment and
- ---
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
-----------
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
--------
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
--------
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
---------------
Subject to paragraph (f) of this Section, the Borrower agrees that each
-------------
Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to
----------------------------
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted
--------------
by law, each Participant also shall be entitled to the benefits of Section 9.08
------------
as though it were a Lender, provided such Participant agrees to be subject to
Section 2.16(c) as though it were a Lender.
- ---------------
<PAGE>
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.13 or 2.15 than the applicable Lender would have been entitled
--------------------
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were
a Lender shall not be entitled to the benefits of Section 2.15 unless the
------------
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
-------
2.15(e) as though it were a Lender.
- -------
(g) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section shall not apply to any such pledge or assignment
of a security interest; provided that no such pledge or assignment of a security
--------
interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
---------
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and so
long as the Commitments have not expired or terminated. The provisions of
Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive and remain in
- ---------------------------------- ------------
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement
-----------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been
- ------------
executed by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof which, when taken together, bear
<PAGE>
the signatures of each of the other parties hereto, and thereafter shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be
-------------
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred
----------------
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter existing
under this Agreement held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.
-----------------------------------------------------------
(a) This Agreement shall be construed in accordance with and governed by the
law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Administrative Agent or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement against the
Borrower or its properties in the courts of any jurisdiction.
<PAGE>
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
- -------------
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
------------
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
---------------------
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent and the
----------------
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or the enforcement
of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or
Participant in, or any
<PAGE>
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Borrower or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Administrative Agent or
any Lender on a nonconfidential basis from a source other than the Borrower.
For the purposes of this Section, "Information" means all information received
-----------
from the Borrower relating to the Borrower or its business, other than any such
information that is available to the Administrative Agent or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; provided that, in the
--------
case of information received from the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein
-------------------------
to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
SIGNATURE PAGES S-1 THROUGH S-11 TO FOLLOW.
<PAGE>
S-1
FRONTIER CORPORATION
/s/ Joseph P. Clayton
By _________________________
Name Joseph P. Clayton
Title: Chief Executive Officer and
President
<PAGE>
S-2
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
/s/ Benedict A. Smith
By _________________________
Name: Benedict A. Smith
Title: Vice President
<PAGE>
S-3
FLEET BANK
/s/ Martin K. Birmingham
By _________________________
Name: Martin K. Birmingham
Title: Vice President
<PAGE>
S-4
MARINE MIDLAND BANK
/s/ Keith E. Cleary
By _________________________
Name: Keith E. Cleary
Title: Vice President
<PAGE>
S-5
KEYBANK, NATIONAL ASSOCIATION
/s/ Lawrence A. Mack
By _________________________
Name: Lawrence A. Mack
Title: Senior Vice President
<PAGE>
S-6
FIRST NATIONAL BANK OF CHICAGO
/s/ Michael J. Harrington
By _________________________________
Name: Michael J. Harrington
Title: Corporate Banking Officer
<PAGE>
S-7
PNC BANK, NATIONAL ASSOCIATION
/s/ Steffen W. Crowther
By _________________________
Name: Steffen W. Crowther
Title: Vice President
<PAGE>
S-8
REVOLVING COMMITMENT
VEHICLE CORPORATION
/s/ James Dwyer
By _________________________
Name: James Dwyer
Title: Vice President
<PAGE>
S-9
STAR BANK
/s/ Thomas D. Gibbons
By _________________________
Name: Thomas D. Gibbons
Title: Vice President
<PAGE>
S-10
MANUFACTURERS AND TRADERS TRUST COMPANY
Ellen M. Wayne
By _________________________
Name: Ellen M. Wayne
Title: Vice President
<PAGE>
S-11
CREDIT SUISSE FIRST BOSTON
/s/ Judith E. Smith
By _________________________
Name: Judith E. Smith
Title: Director
<PAGE>
EXHIBIT 1.01
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of [ ] (as amended
and in effect on the date hereof, the "Credit Agreement"), among Frontier
----------------
Corporation, the Lenders named therein and The Chase Manhattan Bank, as
Administrative Agent for the Lenders. Terms defined in the Credit Agreement are
used herein with the same meanings.
The Assignor named on the reverse hereof hereby sells and assigns, without
recourse, to the Assignee named on the reverse hereof, and the Assignee hereby
purchases and assumes, without recourse, from the Assignor, effective as of the
Assignment Date set forth on the reverse hereof, the interests set forth on the
reverse hereof (the "Assigned Interest") in the Assignor's rights and
-----------------
obligations under the Credit Agreement, including, without limitation, the
interests set forth on the reverse hereof in the Commitment of the Assignor on
the Assignment Date and Competitive Loans and Revolving Loans owing to the
Assignor which are outstanding on the Assignment Date, but excluding accrued
interest and fees to and excluding the Assignment Date. The Assignee hereby
acknowledges receipt of a copy of the Credit Agreement. From and after the
Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent of the Assigned Interest, relinquish its rights and be
released from its obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the Administrative
Agent together with (i) if the Assignee is a Foreign Lender, any documentation
required to be delivered by the Assignee pursuant to Section 2.15(e) of the
---------------
Credit Agreement, duly completed and executed by the Assignee, and (ii) if the
Assignee is not already a Lender under the Credit Agreement, an Administrative
Questionnaire in the form supplied by the Administrative Agent, duly completed
by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the
Administrative Agent pursuant to Section 9.04(b) of the Credit Agreement.
---------------
This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
<PAGE>
Effective Date of Assignment
("Assignment Date"):
================================================================================
Facility Principal Amount Percentage Assigned of Facility/
- -------- Assigned (and Commitment (set forth, to at least
identifying information 8 decimals, as a percentage of the
as to individual Facility and the aggregate
Competitive Loans) Commitments of all Lenders
------------------ thereunder)
-----------
- --------------------------------------------------------------------------------
Commitment Assigned: $ %
- --------------------------------------------------------------------------------
Revolving Loans:
- --------------------------------------------------------------------------------
Competitive Loans:
================================================================================
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor] , as Assignor
---------------------
By:______________________________
Name:
Title:
[Name of Assignee] , as Assignee
---------------------
By: ______________________________
Name:
Title:
<PAGE>
The undersigned hereby consent to the within assignment:
Frontier Corporation The Chase Manhattan Bank,
as Administrative Agent,
By: ______________________ By: __________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT 2.01
COMMITMENTS
LENDER COMMITMENT
The Chase Manhattan Bank $55,000,000
Fleet Bank $34,736,842
Marine Midland Bank $34,736,842
KeyBank, National Association $28,947,368
First National Bank of Chicago $28,947,368
PNC Bank, National Association $23,157,896
JP Morgan $20,263,158
Star Bank $20,263,158
Manufacturers and Traders Trust Company $14,473,684
Credit Suisse First Boston $14,473,684
Total $275,000,000
<PAGE>
EXHIBIT 3.06
DISCLOSED MATTERS
As of the date of this Credit Agreement, other than as disclosed in
Borrower's reports previously filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, there are no actions, suits or
proceedings pending or, to the knowledge of Borrower or any of its Subsidiaries
threatened before any court, governmental agency or arbitrator, which could, in
any one case or in the aggregate, materially adversely affect the financial
condition, operations, properties or business of Borrower or any such Subsidiary
or the ability of Borrower to perform its obligations under the Facility
Documents; however, the Borrower does not expect that such disclosed matters
could reasonably be expected to result in a Material Adverse Effect.
<PAGE>
EXHIBIT 3.13
SIGNIFICANT SUBSIDIARIES
<PAGE>
EXHIBIT 3.14
BORROWER'S FUNDED DEBT
<PAGE>
EXHIBIT 4.01(b)
MARTIN T. MC CUE, ESQ.
[Effective Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o The Chase Manhattan Bank, as
Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I am Senior Vice President and General Counsel of Frontier Corporation, and
I have acted as counsel for Frontier Corporation, a New York corporation (the
"Borrower"), in connection with the $275,000,000, three year Credit Agreement
- ---------
dated as of [ ] (the "Credit Agreement"), among the Borrower, the
----------------
banks and other financial institutions identified therein as Lenders, and The
Chase Manhattan Bank, as Administrative Agent. Terms defined in the Credit
Agreement are used herein with the same meanings.
I have examined originals or copies, certified or otherwise identified to
my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower and each Significant Subsidiary (a) is an entity duly
organized, validly existing and in good standing under the laws of its state of
organization set forth on Exhibit 3.13 to the Credit Agreement, (b) has all
------------
requisite power and authority to carry on its business as now conducted and (c)
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
2. The Transactions are within the Borrower's corporate powers and have
been duly authorized by all necessary corporate and, if required, stockholder
action. The Credit Agreement has been duly executed and delivered by the
Borrower and constitutes a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
<PAGE>
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
3. The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority,
except such as have been obtained or made and are in full force and effect, (b)
will not violate any applicable law or regulation or the charter, by-laws or
other organizational documents of the Borrower or any of its Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the Borrower or
any of its Subsidiaries or its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any of its Subsidiaries, and
(d) will not result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
4. There are no actions, suits or proceedings by or before any arbitrator
or Governmental Authority pending against or, to my knowledge, threatened
against or affecting the Borrower or any of its Subsidiaries (a) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect (other than the Disclosed Matters)
or (b) that involve the Credit Agreement or the Transactions.
5. Neither the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
I am a member of the bar of the States of Illinois and New Jersey and in
the District of Columbia, but I am not admitted to the bar of the State of New
York. I am however, familiar with the laws of the State of New York and the
foregoing opinion is limited to the laws of the State of New York and the
Federal laws of the United States of America. This opinion is rendered solely
to you in connection with the above matter. This opinion may not be relied upon
by you for any other purpose or relied upon by any other Person (other than your
successors and assigns as Lenders and Persons that acquire Participations in
your Loans) without my prior written consent.
Very truly yours,
Martin T. McCue
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 6.01
EXCLUDED INDEBTEDNESS OF RTMC HOLDING, INC.
Upstate Cellular Network ("UCN") is a New York general partnership.
Subsidiaries (direct and indirect) of the Borrower own an aggregate of 50% of
the general partnership interests in UCN. RTMC Holding, Inc. is an indirect
Subsidiary of the Borrower and is a general partner of UCN, owning 41.6% of the
general partnership interests in UCN. Under the New York Partnership Law, RTMC
Holding, Inc. is liable for UCN's indebtedness under a revolving credit facility
with commitments totaling $120,000,000. Such liability will become payable in
the event that the assets of UCN are insufficient to discharge such revolving
credit indebtedness.
Outstanding Indebtedness
Upstate Cellular Network As of 9/30/98
- --------------------------------------------------------------------
Credit Agreement $101,500,000
<PAGE>
EXHIBIT 6.02
LIENS
Borrower and its Subsidiaries are not subject to any Lien or Liens that are
individually or in the aggregate material to Borrower's financial condition,
assets or Consolidated Net Worth.
<PAGE>
EXHIBIT 6.05
CERTAIN RESTRICTIONS AND CONDITIONS
None.
<PAGE>
Exhibit 10.19
Frontier Corporation
--------------------
Executive Compensation Program
------------------------------
1998
----
April, 1998
<PAGE>
Compensation Philosophy
- -----------------------
The philosophy of Frontier Corporation's Compensation Program is to offer
performance-based compensation to attract, retain and motivate key employees who
are best positioned to achieve the goals of the Corporation and maximize value
to its shareowners. The compensation program encompasses the following
elements:
. Base Salary
. Annual Bonus
. Long-Term Incentive Plan
. Benefits
The Executive Compensation Program is the responsibility of the Committee
on Management of the Frontier Board of Directors. The Program is reviewed
annually for competitiveness.
The following is a brief summary of the complete Executive Compensation
Program currently in place and available to senior management of Frontier
Corporation. The Company reserves the right to change any and all aspects of
the Plans included in this Program as it sees fit, from time to time. The
benefits and perquisites addressed herein supplement the general management
fringe benefits provided by the Company.
Salary Plan
- -----------
Nine non-sales and 3 sales compensation levels are delineated within the
Program. Salary ranges for 1998 are as follows:
TITLE RANGE
----- -----
CEO $526,000 - 914,000
Vice Chairman $285,000 - 500,000
COO $285,000 - 500,000
Executive Vice President $230,000 - 400,000
Senior Vice President $183,000 - 320,000
Vice President 1 $159,000 - 278,000
Vice President 2 $118,000 - 207,000
Senior Director $ 90,000 - 158,000
Director $ 74,000 - 130,000
Executive VP Sales $159,000 - 278,000
2
<PAGE>
Senior VP Sales $118,000 - 207,000
VP Sales $ 82,000 - 155,000
Short-Term Incentive Plan (annual bonus)
- ------------------------------------------
The Short-Term Incentive Plan (STI) is designed to provide a superior
reward to outstanding performers. Actual bonus awards are a function of
corporate financial performance and customer and employee results measured
against pre-established objectives. Earnings per share is the gate. Threshold
level performance must be attained for this measure in order for a bonus to be
paid. Once achieved, performance is measured in four categories, with
weightings as follows:
Measurement Weighting
----------- ---------
Revenue 30%
Operating Income 50%
Customer Churn 10%
Employee Initiated Churn 10%
The Open Market Plan agreement with the New York State Public Service
Commission stipulates that employees of Frontier Telephone of Rochester must be
compensated on objectives associated with its performance, not those of the
consolidated Frontier Corporation. The Upstate Cellular Network (UCN) is a
partnership between Frontier and Bell Atlantic/NYNEX which governs its financial
targets. As such, those Frontier Telephone of Rochester and UCN employees
participating in the Executive Compensation program will be measured on their
respective business unit financial objectives. Also, for 1998, in conjunction
with the acquisition, Frontier GlobalCenter will be measured on objectives
specific to its operations.
STI pay out opportunities are as follows:
Threshold Standard Premier
CEO 50.0% 100.0% 175.0%
Vice Chairman* 30.0% 60.0% 105.0%
COO* 30.0% 60.0% 105.0%
Executive Vice President 30.0% 60.0% 105.0%
Senior Vice President 25.0% 50.0% 87.5%
Vice President 1 22.5% 45.0% 79.0%
Vice President 2 17.5% 35.0% 61.5%
Senior Director 15.0% 30.0% 52.5%
Director 12.5% 25.0% 44.0%
Executive VP Sales 22.5% 45.0% 79.0%
Senior VP Sales** 10.0% 20.0% 35.0%
* Vacant positions for which range has not been updated for current market
** Also participates in sales incentive plan
3
<PAGE>
Threshold, standard and premier corporate performance objectives are
approved by the Committee on Management annually. If threshold performance for
earnings per share is not attained, no bonus will be paid.
The Committee has established the following objectives for 1998:
Threshold Standard Premier
---------- --------- ---------
Earnings per share $ .96 $ 1.04 $ 1.14
Revenue (Millions) $2,571.0 $2,635.0 $2,710.0
Operating Income (millions) $ 328.3 $ 349.5 $ 376.8
Customer Churn 3.25% 3.10% 2.95%
Employee Initiated Churn 20.0% 17.5% 15.0%
The final bonus calculation may include a discretionary component to
reflect individual circumstances. Discretion may account for up to + or - 25%.
The final bonus award, after application of the discretionary factor, may not
exceed the premier percent presented above.
Bonus payments are made in the first quarter following the end of the year
for which the award is earned. Payment is usually made in a lump sum; however,
an eligible employee may defer payment of all or part of the bonus to a
subsequent year.
The election to defer a bonus must be made prior to the beginning of the
year in which the bonus is earned. The Company will establish an account or a
fund for maintaining a deferred bonus and will credit interest to the deferred
bonus at the rate established from time to time for interest paid on Frontier's
telephone customers' deposits. The deferred bonus plus the earnings associated
with it will be paid to the employee as specified in the deferral election.
Long Term Incentive
- -------------------
Frontier Corporation provides long term incentives through two plans; the
Management Stock Inventive Plan and the Employees' Stock Option Plan. Stock
Options are available in both Plans while the Management Plan also provides for
the granting of restricted stock. The intent of both Plans is to align
employees' actions and performance with the goals and objectives of shareowners.
. Management Stock Incentive Plan
4
<PAGE>
All Executive group participants are eligible for grants under this
Plan.
Restricted Stock is available as a component of compensation.
The Plan offers flexibility such that grants may vest with passage of time,
performance parameters or a combination of both. Performance parameters may
include, but not be limited to, one or more of the following.
- total shareowner return
- earnings per share growth
- cash flow growth
- return on equity
It is expected that restricted stock will be used selectively among the
executive group.
Under the Management Stock Incentive Plan either Incentive Stock
Options or Non-Qualified Stock Options may be granted.
The closing New York Stock Exchange price of Frontier common stock on the
grant date becomes the exercise price at which the stock may be purchased.
Option grants are valid for up to ten years and are exerciseable as follows:
1. Up to 1/3 of the granted options can be exercised one year following
the date of the grant,
2. A second 1/3 can be exercised beginning on the second anniversary of
the grant, and
3. The final 1/3 can be exercised beginning on the third anniversary.
. Employees' Stock Option Plan
Executive group employees below the level of Senior Vice President
are eligible for grants under this Plan.
All options granted under this plan will be Non-Qualified Stock Options.
The closing New York Stock Exchange price of Frontier common stock on the grant
date becomes the exercise price at which the stock may be purchased. Option
grants are valid for up to ten years and are fully (100%) vested and become
exerciseable on the second anniversary of the grant date.
5
<PAGE>
Executive Stock Ownership
- -------------------------
Frontier is increasingly emphasizing the importance of employee stock
ownership. Stock ownership supports the company's objective of effective
teamwork at all levels and aligns employee goals with those of shareowners.
Stock ownership guidelines have been established for executives to be attained
over a five-year period, by the later of January 1, 1999 or 5 years after
joining Frontier. The targets are as follows:
Position Times Annual Salary
-------- -------------------
CEO 4.0
Vice Chairman 4.0
COO 4.0
Executive Vice President 4.0
Senior Vice President 3.0
Vice President 1 2.5
Vice President 2 2.0
Senior Director 1.0
Director 1.0
Executive VP Sales 2.5
Senior VP Sales 2.0
VP Sales 1.0
Executive Benefit Plans
- -----------------------
Frontier provides an array of health care, retirement, paid time off,
holiday and sickness benefits to its employees. The Executive group shares in
this program plus other programs, as appropriate, to offer a comprehensive and
competitive compensation package.
Frontier has recognized the impact of legislation and various tax rulings
on executive management and has created a package of benefit arrangements to
protect its executives from some of the consequences. These and other
supplemental benefits are highlighted below. Some differentiation of benefits
exists among levels in the Program.
. Supplemental Retirement Savings Plan (SRSP)
6
<PAGE>
This plan provides for the continuance of 401(k) deferred compensation
[Employees' Retirement Savings Plan (ERSP)] for highly compensated employees who
exceed the statutory annual IRS limited for qualified plans ($10,000 in 1998).
Company policy provides all employees the option to contribute up to 16% of
their annual base salaries and annual bonuses into the ERSP program. SRSP is a
non-qualified plan that allows those higher salaried executives to participate
in a deferred retirement savings plan beyond the statutory limit up to the
maximum 16% ceiling. A non-qualified plan is defined as an unfunded benefit plan
in accordance with the Internal Revenue Code. As such, the corporation is the
ultimate payer of benefits and all accounts are subject to claims of the
Company's creditors.
The plan is administered by Marine Midland Bank, N.A., as its Trustee,
which establishes individual accounts for each participant. Contributions to the
plan can be fully invested in, or split between any of eight funds (money
market, S&P 500 Index, Putnam Income, Putnam Voyager, Putnam Global Growth,
Putnam Growth and Income, Putnam Asset Allocation - Balanced Portfolio and
Frontier stock) that are currently offered. Company contributions, which follow
the same schedule as under ERSP, are invested in Frontier stock. Funds will be
distributed upon termination of employment.
. Supplemental Management Pension Plan (SMPP)
This non-qualified plan allows payment above the government restriction
applicable to qualified pension plans. If any qualified employee's age 65
pension exceeds the limit under the Management Pension Plan (MPP), $130,000 in
1998, the difference will be provided through corporate assets or from a trust
established by the Company for this purpose. SMPP was frozen as of December 31,
1996. To participate under this plan, an individual must have been a Frontier
employee prior to January 1, 1995 and be a participant in a qualified defined
benefit pension plan.
. Supplemental Executive Retirement Program (SERP)
7
<PAGE>
This non-qualified program provides an enhanced retirement benefit to those
at Vice President 1 level and above. The plan has an accrual and vesting
schedule based on years of service and age. The maximum benefit of 60% of final
compensation (highest consecutive three-year average salary plus bonus) less any
amounts paid through the regular MPP and regular SMPP formulas, will be paid to
an executive retiring at age 50 or older with 30 or more years of service.
Accrual: 2.5% for each of the first 15 years
1.5% for each of the next 15 years
0.0% beyond 30 years
Vesting: 0% first 5 years
100% for year 6 and beyond
Participants must be age 50 or over to receive this benefit. SERP will be
frozen as of December 31, 1999. No new participants were admitted after December
31, 1995. SERP participants who retire between January 1, 1997 and December 31,
1999 are eligible for enhanced medical and life insurance coverage consistent
with that offered through 1996.
. Life Insurance
Life insurance for the executive group follows the program provided non-
bargaining unit employees through the Tel Flex Program. The Company provides
$10,000 of insurance and the employee is able to purchase additional coverage in
various increments up to a total of $990,000 of coverage. At retirement an
executive may elect to continue coverage at his/her expense up to age 65.
. Financial Planning Services
8
<PAGE>
The Company offers executives the ability to engage an independent
financial consultant to assist with their personal financial planning. The AYCO
Corporation has been retained and is available to all executives holding the
position of Senior Vice President or higher. For those executives wishing to
select another consultant, costs associated with this service will be reimbursed
as follows:
- a maximum of $11,605 per year, in year one
- a maximum of $6,960 per year thereafter, until
- a maximum of $11,605 in the year preceding retirement
Financial planning services for other executives are available as a
component of Flexible Perquisites.
. Automobile/Club Membership
All executives who hold the position of Senior Vice President or above have
access to vehicles which are provided and maintained by the Company. The Company
pays for parking at the Corporate Headquarters location. These officers are also
reimbursed for membership in two clubs of his/her choice.
. Telecommunication Services
Executives who hold the position of Senior Vice President or higher receive
cellular phones and free cellular services. These individuals also receive
totally free usage (business and personal) of Frontier Long Distance credit
cards and local residential telephone service. Executives who were at senior
director and above prior to January 1, 1996 receive this benefit and are
"grandfathered" under the plan.
. Flexible Perquisites
9
<PAGE>
This plan allows executives to choose from a menu of perquisites
which includes:
- automobile procurement allowance via purchase, financing or
lease; operating costs are not covered by this program.
- legal or financial counseling; tax preparation.
- club membership and dues for luncheon or country clubs (maximum, two
clubs); club initiation fees and usage charges are not covered by this program.
- home computer and accessories.
- personal excess liability insurance.
- supplemental life insurance
- telecommunications services
The menu dollar limit is:
CEO* $40,000
Vice Chairman* 30,000
COO* 30,000
Executive Vice President* 18,000
Senior Vice President* 15,000
VP 1, Executive VP Sales 12,000
VP 2 8,000
Senior VP Sales, VP Sales 5,000
Senior Director 5,000
Director 2,500
*Eligible alternatively for Discrete Plan Benefits listed above.
Additionally, anyone in a lower salary level already under an alternate or
discrete benefit plan, as of December 31, 1995, is "grandfathered" on these plan
benefits. If, for business reasons, the Company elects to provide a vehicle to
an executive, the menu dollar limit will be reduced accordingly.
Payments under this plan are automatically applied to the individual's
semi-monthly pay check under a separate designation of "exec perq".
10
<PAGE>
. Paid Time Off
Executives are eligible for six holidays plus paid time off (PTO) to be
used for sickness, personal and vacation needs. Annual PTO days are based on the
following schedule:
<TABLE>
<CAPTION>
Annual days off based on years of service
0-4 5-14 15-24 25 & Above
--- ---- ----- ----------
<S> <C> <C> <C> <C>
CEO, Vice Chairman
COO, EVP, SVP 39 39 39 39
VP 1, Executive VP Sales
VP 2, Senior VP Sales, VP Sales 34 34 34 34
Senior Director 29 29 29 34
Director 24 24 29 34
</TABLE>
. Annual Physical Exam
All executive group employees are eligible for, and strongly encouraged to
have, an annual company paid physical exam. Invoices should be paid by the
employee and receipts submitted to the benefit office for reimbursement. Payment
will be made in a subsequent paycheck and is not taxable.
11
<PAGE>
Exhibit 10.20
FRONTIER CORPORATION
EMPLOYEES' STOCK OPTION PLAN
Amendment No. 1
Pursuant to Section 12, the Plan is amended, effective January 1, 1999, by
deleting the first paragraph of Section 7 in its entirety and substituting in
its place the following:
If the employment of a participant terminates by reason of the
participant's disability or death, any option may be exercised, in the case of
disability, by the participant or, in the case of death, the participant's
designated beneficiary (or personal representative if there is no designated
beneficiary) at any time prior to the earlier of the expiration date of the
option or the expiration of one year after the date of disability or death, but
only if, and to the extent that, the participant was entitled to exercise the
option on the date of his disability or death. If the employment of a
participant terminates on account of retirement, all of the participant's
outstanding options shall become immediately vested and these options together
with previously vested but unexercised options may be exercised at any time
prior to the earlier of the expiration date of the option or the expiration of
13 months from the date of retirement. For this purpose, "retirement" means any
termination of employment on or after a participant is entitled to receive an
early retirement benefit under any defined benefit pension plan maintained by
the Company or an affiliate in which the participant has an accrued benefit. If
the participant does not have an accrued benefit in any such plan, "retirement"
means the participant's termination of employment on or after he has reached age
55. Upon termination of the participant's employment for any reason other than
retirement, disability or death, all non-vested options held by the participant
shall be forfeited and any options that are vested on the date of termination
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. Notwithstanding the
foregoing, an option may not be exercised after retirement if the Committee
reasonably determines that the termination of employment of such participant
resulted from willful acts, or failure to act, by the participant detrimental to
the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this amendment on its behalf this 9th day of December 1998.
FRONTIER CORPORATION
<PAGE>
/s/ Barbara J. LaVerdi
By: ------------------------------------------
Barbara J. LaVerdi, Assistant Secretary
<PAGE>
Exhibit 10.21
FRONTIER CORPORATION
MANAGEMENT STOCK INCENTIVE PLAN
Amendment No. 2
Pursuant to Section 14, the Plan is hereby amended, effective as of
the dates and under the conditions specified below, by deleting current Section
9(a) and substituting in its place the following:
(a) Options
-------
If the employment of a participant terminates by reason of the
participant's disability or death, any option may be exercised, in the case
of disability, by the participant or, in the case of death, the
participant's designated beneficiary (or personal representative if there
is no designated beneficiary) at any time prior to the earlier of the
expiration date of the option or the expiration of one year after the date
of disability or death, but only if, and to the extent that the participant
was entitled to exercise the option at the date of disability or death. If
the employment of a participant terminates on account of retirement, all of
the participant's outstanding options shall become immediately vested and
these options together with previously vested but unexercised options may
be exercised prior to the earlier of the expiration date of the option or
the expiration of 13 months from the date of retirement. For this purpose,
"retirement" means any termination of employment on or after a participant
is entitled to receive an early retirement benefit under any defined
benefit pension plan maintained by the Company or an affiliate in which the
participant has any accrued benefit. If the participant does not have an
accrued benefit in any such plan, "retirement" means the participant's
termination of employment on or after he has reached age 55. Upon
termination of the participant's employment for any reason other than
retirement, disability or death, all nonvested options held by the
participant shall be forfeited and any options that are vested on the date
of termination 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.
An option that remains exercisable after the expiration of three months
from termination of employment shall be treated as a NQSO after three
months even if it would have been treated as an ISO if exercised within
three months of termination. Notwithstanding the foregoing, an option may
not be exercised after retirement if the Committee reasonably determines
that the termination of employment of such participant resulted from
<PAGE>
willful acts, or failure to act, by the participant detrimental to the
Company or any of its subsidiaries.
Effective Dates: The reduction, in the first sentence, from three years to
---------------
one year in the right to exercise options following disability is
effective for options granted after December 31, 1998.
The definition of retirement, in the new third sentence, is
effective January 1, 1999.
The provisions in the second sentence for the vesting and
exercising of options on account of retirement are effective for
options granted after December 31, 1998.
The provisions in the fifth sentence concerning the exercise
of options upon termination of employment for reasons other than
disability, death or retirement are effective January 1, 1999.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this amendment on its behalf this 9th day of December 1998.
FRONTIER CORPORATION
/s/ Barbara J. Laverdi
By ---------------------------
Barbara J. LaVerdi
Title: Assistant Secretary
<PAGE>
Exhibit 10.22
FRONTIER CORPORATION
MANAGEMENT STOCK INCENTIVE PLAN
Amendment No. 3
Pursuant to Section 14, the Plan is hereby amended as follows:
Effective April 26, 1995, Section 4, paragraph second, is hereby
deleted and replaced by the following new paragraph in order to
clarify the aggregate number of shares that may be the subject of
awards granted to any one participant:
The total number of shares covered by all awards granted
under this Plan to any one participant in any one calendar year
may not exceed 500,000. The Committee may issue awards in any
combination it may choose provided that the total shares under
all such awards does not exceed the 500,000 aggregate limit.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this amendment on its behalf this 26th day of February, 1999.
FRONTIER CORPORATION
/s/ Barbara J. LaVerdi
By -------------------------------
Barbara J. LaVerdi
Title: Assistant Secretary
<PAGE>
Exhibit 10.23
FRONTIER CORPORATION
SUPPLEMENTAL MANAGEMENT PENSION PLAN
Amendment No. 2
Pursuant to Section 6.1, the Plan is amended, effective August 1, 1997, by
deleting the first sentence of the second paragraph of Section 3.1 and
substituting the following in its place:
And otherwise eligible employee who, without the consent of the Board,
engages in any activity inimical to the interests of any Participating
Company within two years of retirement shall cease being eligible to
receive any further benefits after commencing such activity, provided that
upon a Change in Control this sentence shall have no effect.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this amendment on its behalf this 10th day of August 1998.
FRONTIER CORPORATION
/s/ Barbara J. LaVerdi
By: ----------------------------------------
Barbara J. LaVerdi, Assistant Secretary
<PAGE>
Exhibit 10.24
December 1, 1998
Mr. Donald F. Detampel, Jr.
Dear Don:
The Board of Directors (the "Board") of Frontier Corporation, on behalf of
Frontier and its subsidiaries and affiliates (together, the "Company") has
determined that it is in the best interests of the Company and its shareowners
to be able to avail itself of your continued dedication and service to the
Company in the immediate future and in case of Change of Control, as defined
later in this letter agreement ("Agreement"). It is therefore the intent of
this Agreement to encourage your complete dedication to the Company by providing
you with compensation and benefits arrangements while you fulfill your duties
now and during the pendency of a Change of Control, should such an event occur,
which provide you with a measure of security commensurate with your importance
to the Company.
Therefore, upon your signature on a counterpart of this Agreement, the following
terms and conditions shall become effective as of December 1, 1998. This
Agreement supersedes in its entirety the current agreement that you have with
Frontier, dated as of June 1, 1996. However, this Agreement does not supersede
any stock option agreements or restricted stock grant agreements between the
Company and you, all of which shall remain in full force and effect.
1. Employment.
----------
1.1 Term. The Company shall employ you as a senior vice president or in
----
such comparable management capacity as the Company may from time to time
designate but at no lower level. This Agreement shall have an initial term
("Term") of two (2) years, ending November 30, 2000. This Agreement shall
continue from year to year thereafter, unless earlier terminated or extended in
accordance with its terms. You acknowledge that, except as set forth in this
Agreement, your employment is "at will".
If, during the Term, a "person" (as that term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
commences any action that, if consummated, would result in a Change of Control
of the Company or if any person publicly announces an intention or proposal to
commence any such action, you agree that you will not leave the Company's employ
(other than as a result of death or Disability), you will render the services
contemplated in this Agreement for the reasonable duration of the Company's
defense against such action and until such action has been abandoned or
terminated or a Change in Control has occurred, and you will actively promote
the Company's interest during such period.
1
<PAGE>
Any termination of your employment during the Term for reasons other than your
death shall be evidenced by a written notice ("Notice of Termination"), which
shall specify the provision of this Agreement relied upon for such termination
and describe with reasonable detail the facts and circumstances claimed by the
sender of such Notice of Termination to provide the basis for termination. Any
such Notice of Termination shall also specify the effective date of termination
(the "Termination Date"). If you die during the Term, the Termination Date
shall be the date of your death, except as otherwise provided herein.
1.2 Present and Future Duties. Your role in the Company shall be that of
-------------------------
its executive with authority over the product management and marketing of the
data products of its subsidiaries, and you also shall have supervisory authority
with respect to the Company's Global Center subsidiary and such other areas as
the board or the chief executive officer of the Company may from time to time
determine. You shall perform all duties required of or incidental to your
position with the Company, or as may be assigned to you, and which are
reasonably consistent with this role and your other responsibilities. You agree
to use your best efforts in the business of the Company and to devote your full
time attention and energy to the business of the Company. You agree not to
work, either on a part-time or independent contracting or consulting basis, with
or without compensation, for any other business or enterprise during the Term
without the Company's prior consent. Such consent shall not be unreasonably
withheld in the case of service on the boards of directors of other
corporations, industry groups and community organizations.
1.3 Base Compensation. The Company shall pay you as base compensation at
-----------------
an annual salary rate of $275,000 until February, 1999, in installments in
accordance with the Company's policies from time to time in effect. Thereafter,
your annual salary may be further adjusted by the Company consistent with the
Company's results and your performance during the prior year. However, unless
the annual salaries of all executives at your level in the Company are reduced
across-the-board, your annual salary in any year shall not be less than your
annual salary during the prior year.
1.4 Incentive Compensation. The Company shall establish and review with
----------------------
you for 1999 and thereafter the performance goals ("Performance Goals") for the
Company and for you individually, and a methodology for calculating the amount
of incentive compensation to be paid upon achievement of such Performance Goals.
Your eligibility for a corporate bonus will be calculated on the same basis as
other similarly situated executives. Incentive compensation shall be payable to
you at such time or times as are established under the Company's policies
(including the Company's Executive Compensation Program) in effect from time to
time. Any additional option awards are addressed in a separate document that is
consistent with the applicable plan.
1.5 Benefits; Perquisites. You shall be entitled to receive the benefits
---------------------
and perquisites provided by the Company under its
2
<PAGE>
Executive Compensation program in effect from time to time for executives at the
senior vice president level.
1.6 Expenses. You shall be reimbursed for any reasonable expenses
--------
prudently incurred in connection with your employment during the Term, upon
presentation to the Company of an itemized account and receipts of such expenses
as required by the Company's policies from time to time in effect.
2. Developments and Intellectual Property. You acknowledge that all
--------------------------------------
developments, including but not limited to trade secrets (including strategies,
business plans and customer lists), discoveries, improvements, ideas and
writings which either directly or indirectly relate to or may be useful in the
business of the Company (the "Developments") which you, either alone or in
conjunction with any other person or persons, shall conceive, make, develop,
acquire or acquire knowledge of during the Term are the sole and exclusive
property of the Company. You will cooperate with the Company's reasonable
requests to obtain or maintain rights or protections under United States or
foreign law with respect to all Developments. The Company will reimburse you
for all reasonable expenses incurred by you in order to comply with this
provision of this Agreement, regardless of when such expenses may be incurred.
3. Confidential Information. You acknowledge that by reason of your
------------------------
employment by the Company, especially as a senior executive thereof, you will in
the future have access to information of the Company that the Company deems to
be confidential and/or proprietary, including but not limited to, information
about the Company's target markets and customer segments, strategies, plans,
products and services, methods of operation, employees, financial forecasts and
results, sales, profits, expenses, customer lists and the relationships between
the Company or a subsidiary and its customers, suppliers and others who have
business dealings with it. You covenant and agree that during the Term and
thereafter, without time or geographic limitation, you will not disclose any
such information to any person without the prior written authorization of the
Chief Executive Officer of the Company or the Board.
If your employment ends for any reason other than your death, you agree to
return promptly to Company all such information and any other tangible product
or document which has been produced or received by, or otherwise submitted to
you during your employment, and no copies shall be retained by you or made
available to any other person or entity. This provision includes but is not
limited to information printed or stored on paper, magnetic tape, floppy disks,
hard drives or other computer storage media.
4. Non-Competition.
---------------
4.1 Covenant. You and the Company acknowledge that you have a special,
--------
unique and extraordinary expertise in telecommunications, and that in your
employment with the Company, you will have continuing access to information
about the Company's target markets, strategies,
3
<PAGE>
plans, product or service offerings, methods of operation, financial and
operating expectations and results, customer base, sales, marketing and pricing
strategies, most valued employees, and customer and supplier relationships. In
consideration of the benefits provided to you under this Agreement, which you
acknowledge are independent consideration, you covenant and agree that during
the Restricted Period (as defined below), you will not, directly or indirectly,
without the Company's prior consent, own, manage, operate, finance, join,
control or participate in the ownership or control of, or be associated as an
officer, director, executive, partner or principal, agent, representative,
consultant or otherwise with, or use or permit your name to be used in
connection with, any enterprise that directly or indirectly competes (as defined
below) with any telecommunications business of the Company in a Restricted Area
(as defined below). You acknowledge that so long as you are able to use your
skills for enterprises that do not directly or indirectly compete with the
business of the Company, you will not be unreasonably limited in your ability to
work.
4.2 Definitions.
-----------
4.2.1 "Competes" means the production, marketing, promotion,
distribution or selling of any product, capability, functionality or
service of any person or entity other than the Company which resembles or
competes with a product or service produced, marketed, promoted,
distributed or sold by the Company (or to your knowledge was under
development by the Company) during the period of your employment by the
Company (whether under this Agreement or otherwise).
4.2.2 "Restricted Area" means:
(a) The Standard Metropolitan Statistical Area (or an equivalent
Census Office classification for an equal or larger populated area) in
which any Company business office or sales office, or Company place of
employment is located, which office or place has more than ten (10)
full-time employees, or where more than 5% of the Company's customers
or gross revenues, in a line of business where you had
responsibilities during your employment, are derived; or
(b) Any state of the United States, any province of Canada or any
foreign country from which the Company or any of its subsidiaries or
affiliates derives more than $50 million in revenue.
4.2.3 "Restricted Period" for the purposes of Section 4.1 means:
(a) The period of your employment by the Company (whether under
this Agreement or otherwise), if your employment is terminated because
of your death or Disability;
4
<PAGE>
(b) The period of your employment by the Company (whether under
this Agreement or otherwise) and six (6) months thereafter, if your
employment is terminated by the Company for Cause or without Cause
(and not by the Company following Change of Control);
(c) The period of your employment by the Company (whether under
this Agreement or otherwise) and, if this Agreement is still in effect
at the Termination Date, the number of months remaining in the Term at
the Termination Date or six (6) months, whichever is longer (but in no
event more than 6 months), if you terminate your employment
voluntarily (and not for Good Reason); or
(d) The period of your employment by the Company under this
Agreement, if your employment is terminated by you for Good Reason or
by the Company on any basis following Change of Control.
4.2.4 "Restricted Period" for the purposes of Section 5 means the
Restricted Period for the purposes of Section 4.1 plus an additional twelve
(12) months, except in the case of termination for Good Reason or upon
Change of Control, in which case it shall be the same period as stated in
Section 4.2.3(d).
4.2.5 Exception. This Section shall not be construed to prohibit
---------
the ownership by you of not more than 2.5% of any class of securities of
any corporation which competes with the Company and which has a class of
securities registered pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
4.3 Savings Clause. You and the Company specifically agree that this
--------------
covenant not to compete and its specific limitations constitute a reasonable
covenant under the circumstances and is supported by the consideration stated
above, and further agree that if, in the opinion of any court of competent
jurisdiction, any of the provisions of this Section 4 are ever determined by a
court to exceed the time, geographic scope or other limitations permitted by
applicable law in any jurisdiction, then such excessive provisions shall be
deemed reduced, in such jurisdiction only, to the maximum time, geographic scope
or other limitation permitted in such jurisdiction, and you agree to the
enforcement of the remainder of the covenant as so amended.
5. Non-Solicitation. You also covenant and agree that during the Restricted
----------------
Period set out in Section 4.2.4, and without regard to the activity or
activities in which you are engaging, whether it is within or without the
telecommunications industry, you will not, directly or through employees,
agents, recruiters, independent contractors or others: (a) offer, promise,
provide or guarantee employment, work for compensation, business opportunity or
other means of financial gain, or solicit, invite an inquiry on employment or
other compensatory relationship, respond to such inquiry with a promise or grant
of an employment or other compensatory relationship, or otherwise seek to
5
<PAGE>
influence any person to leave the Company or to undertake activities that would
be adverse to the Company's interests, where such person is employed by the
Company or is in an independent contractor relationship in which a majority of
their time is spent on Company-related activities, or is a supplier of services
to the Company who would thereafter become unavailable to provide such services
to the Company, or who has been in such an employment or independent contractor
relationship within the 12 months prior to your contact(s); or (b) solicit from,
convert, attempt to convert, divert business from, or attempt to divert business
from any of the Company's customers, customer accounts or locations, whether
such activity is intended to benefit you or any other person or entity, and
whether or not such activity is successful.
It is not a violation of this paragraph for any entity with which you are
associated as an employee or otherwise, or who may act on your behalf, to engage
in general newspaper advertising or other general recruiting or solicitation
that is not targeted at the Company or any employees or customers of the
Company, provided you are not involved in identification of recruiting targets
at the Company or in its customer base, or steering the entity toward any
employee or group of employees or customer or group of customers.
6. Equitable And Other Relief. You specifically acknowledge that the
--------------------------
restrictions contained in each of Sections 2, 3, 4 and 5 of this Agreement are,
in view of the nature of the business of the Company, and your position with it,
reasonable and necessary to protect the legitimate interests of the Company, and
that any violation of the provisions of those Sections will result in
irreparable injury to the Company for which there would be no adequate remedy at
law. You also acknowledge that the Company shall be entitled to preliminary and
permanent injunctive relief, without the necessity of proving actual damages,
and to an equitable accounting of all earnings, profits and other benefits
arising from such violation. These rights shall be cumulative and in addition
to any other rights or remedies to which the Company may be entitled. You agree
to submit to the jurisdiction of any New York State court located in Monroe
County or the United States District Court for the Western District of New York
or of the state court or the federal court located in or presiding over the
county in which the Company has its corporate headquarters at the applicable
time in any action, suit or proceeding brought by the Company to enforce its
rights under Sections 2, 3, 4 and/or 5 of this Agreement, and that any separate
claim you have shall not constitute a defense to the enforcement of the
covenants and agreements in those paragraphs.
7. Company's Obligations upon Termination. The sole obligations of the
--------------------------------------
Company upon the termination of your employment are as set forth in this Section
7. Subject to the provisions in Section 9, any and all amounts to be paid to
you in connection with your termination shall be paid in a lump sum promptly
after the Termination Date, but not more than thirty (30) days thereafter.
6
<PAGE>
7.1 Termination upon Disability or Death. If your employment with the
------------------------------------
Company ends by reason of your death or Disability (as defined later in this
Agreement), the Company shall pay you all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date, including:
7.1.1 Base compensation;
7.1.2 Reimbursement for reasonable and necessary expenses incurred by
you on behalf of the Company during the Term;
7.1.3 Pay for earned but unused vacation and floating holidays;
7.1.4 All compensation you previously deferred (if any) to the extent
not yet paid; and
7.1.5 An amount equal to your "Pro Rata Bonus". Your Pro Rata Bonus
shall be determined by multiplying the "Bonus Amount" (as defined below) by
a fraction, the numerator of which is the number of days in the fiscal year
through the Termination Date and the denominator of which is 365. The term
"Bonus Amount" means for each period for which a bonus is payable to
employees under the short term incentive compensation program then in
effect and for which you have not yet been paid: (i) a bonus at the level
actually achieved by the Company for the fiscal year if you worked for the
Company for the full fiscal year; and (ii)(a) a bonus established under the
applicable plan using the level actually achieved for such prorated portion
of the fiscal year in which the Termination Date occurs as relates to your
actual employment, using such measurements as are used generally by the
Company for monitoring employee bonus qualification; or (b) if you leave at
a time in which the performance of the Company is not measured generally by
the Company for employee bonus purposes, but the Company has met its bonus
goals for the most recent period for which bonus measurements were taken
and the goals met, then the bonus at standard level for the number of full
months of the fiscal year that you worked for the Company.
The amounts described in Sections 7.1.1 through 7.1.4, inclusive, are
called elsewhere in this Agreement, collectively, the "Accrued Compensation".
Except as otherwise provided in this Section 7.1, your entitlement to any
other compensation or benefits shall be determined in accordance with the
Company's employee benefit plans and other applicable programs and practices,
including any long term compensation benefits, then in effect.
7.2 Termination Without Cause. If the Company terminates your employment
-------------------------
without Cause (as defined later in this Agreement and not in anticipation of a
Change of Control), the Company shall pay you:
7.2.1 All Accrued Compensation;
7
<PAGE>
7.2.2 A Pro Rata Bonus (as defined in Section 7.1.5 above); and
7.2.3 Severance ("Severance") equal to: (a) two times the sum of (i)
the annual base compensation you would have received for the entire fiscal
year in which the Termination Date occurs plus (ii) the Bonus Amount plus
(iii) $15,000, being the agreed cash equivalent of the annual value of the
perquisites provided to you under the Company's Executive Compensation
Program, plus (iv) the Company contributions which would have been made on
your behalf to the 401(k) retirement savings plan maintained by the Company
(b) reduced by the present value of such amounts identified in subpart (a)
as are "parachute payments" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code") in the event of a
change of control of the Company, determined in accordance with Section
280G(d)(4) of the Code. The foregoing shall be in lieu of any other
amount of severance relating to salary or bonus continuation to be received
by you upon termination of your employment under any severance plan, policy
or arrangement of the Company.
In addition, the Company shall continue to provide to you and your family at the
Company's expense, for 24 months following the Termination Date, the life
insurance, medical, dental, vision and hospitalization benefits provided to you
and your family immediately prior to the Termination Date, and will pay to you
the cash value of certain in-the-money options, and of restricted stock that has
vested in the relevant tranch and for which the Company has met its performance
criteria .
Except as otherwise provided in this Section 7.2, your entitlement to any
other compensation or benefits shall be determined in accordance with the
Company's employee benefit plans and other applicable programs and practices
then in effect.
7.3 Termination for Cause or Voluntary Termination. If your employment
----------------------------------------------
is terminated for Cause (as defined later in this Agreement and not in
anticipation of a Change of Control), or if you voluntarily terminate your
employment other than for Good Reason, the Company shall pay you all Accrued
Compensation. Except as otherwise provided in this Section 7.3, your
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefit plans and other applicable
programs and practices then in effect.
7.4 Termination for Good Reason or by Company Following Change of Control.
---------------------------------------------------------------------
If you terminate your employment for Good Reason or the Company terminates your
employment in anticipation of or following a Change of Control, the Company
shall pay you:
7.4.1 All Accrued Compensation;
7.4.2 A Pro Rata Bonus; and
8
<PAGE>
7.4.3 Severance equal to: (a) two times the sum of (i) the annual
base compensation you would have received for the entire fiscal year in
which the Termination Date occurs plus (ii) the Bonus Amount plus (iii)
$15,000 (being the agreed cash equivalent of the annual value of the
perquisites provided to you under the Company's Executive Compensation
Program), plus (iv) the Company contributions which would have been made on
your behalf to the 401(k) retirement savings plan maintained by the Company
(b) reduced by the present value of such amounts identified in subsection
(a) as are "parachute payments" within the meaning of Section 280G(b)(2) of
the Code in the event of a change of control of the Company, determined in
accordance with Section 280G(d)(4) of the Code. The foregoing severance
shall be in lieu of any other amount of severance relating to salary or
bonus continuation to be received by you upon termination of your
employment under any severance plan, policy or arrangement of the Company.
In addition, the Company shall continue to provide to you and your family
at the Company's expense, for 36 months following the Termination Date, the life
insurance, medical, dental, vision and hospitalization benefits provided to you
and your family immediately prior to the Termination Date, and will pay to you
the cash value of certain in-the-money options, and of restricted stock that has
vested in the relevant tranch and for which the Company has met its performance
criteria.
The Company shall reimburse you for all reasonable legal fees and expenses
which you may incur following a Change of Control as a result of the Company's
attempts to contest the validity or enforceability of this Agreement or your
attempts to obtain or enforce any right or benefit provided to you under this
Agreement, provided any actions you have taken are determined to have been
undertaken in good faith and upon a reasonable basis.
Except as otherwise provided in this Section 7.4, your entitlement to any
other compensation or benefits shall be determined in accordance with the
Company's employee benefit plans and other applicable programs and practices,
including any long term compensation benefits, then in effect.
8. Gross-Up Payment. Notwithstanding anything else in this Agreement, if it
----------------
is found that any or all of the payments made to you, including but not limited
to payments made by the Company, or under any plan or arrangement maintained by
the Company, to you or for your benefit (other than any additional payments
required under this Section 8) (the "Payments") or any income you receive in the
form of restricted stock of the Company or options of the Company, would be
subject to the excise tax imposed by Section 4999 of the Code or you incur any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, collectively the "Excise Tax"), then you
are entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that,
9
<PAGE>
after you pay all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, you will retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The procedures for the calculation and
contesting of any claim that such Excise Tax is due are set forth in the
Addendum.
9. No Obligation to Mitigate Damages. You are not required to mitigate
---------------------------------
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and except as stated below, the amounts
to be paid to you under Section 7 of this Agreement shall not be reduced by any
compensation you may earn from other sources. However, if, during any period
that you would otherwise be entitled to receive any payments or benefits under
this Agreement, you breach your obligations under Section 2, 3, 4 and/or 5 of
this Agreement, the Company may immediately terminate any and all payments and
the provision of benefits (to the extent permitted by law and the terms of the
benefit plans maintained by the Company from time to time) hereunder, and you
shall be liable to return to the Company the amount of any severance you may
have received, including any gross up payments.
10. Successor to Company. The Company will require any successor or assignee
--------------------
to all or substantially all of the business and/or assets of the Company,
whether by merger, sale of assets or otherwise, by agreement in form and
substance reasonably satisfactory to you, to assume and agree to perform the
Company's obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform them if such succession or
assignment had not taken place. Such agreement of assumption must be express,
absolute and unconditional. If the Company fails to obtain such an agreement
within three business days prior to the effective date of such succession or
assignment, you shall be entitled to terminate your employment under this
Agreement for Good Reason.
11. Survival. Notwithstanding the expiration or termination of this
--------
Agreement, except as otherwise specifically provided herein, your obligations
under Sections 2, 3, 4 and/or 5 of this Agreement and the obligations of the
Company under this Agreement shall survive and remain in full force and effect.
This Agreement shall inure to the benefit of, and be enforceable by, your
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you die while any amounts are
still payable to you, all such amounts, unless otherwise provided in this
Agreement, shall be paid in accordance with the terms of this Agreement to your
devisee(s), legatee(s) or other designee(s) or, if there is no such designee(s),
to your estate.
12. Definitions. Whenever used in this Agreement, the following terms shall
-----------
have the meanings below:
10
<PAGE>
12.1 "Cause" means:
12.1.1 You have willfully and continually failed to substantially
perform your duties (other than due to an incapacity resulting from
physical or mental illness or due to any actual or anticipated failure
after you have given a Notice of Termination for Good Reason) after a
written demand for substantial performance is delivered to you by the Chief
Executive Officer or the Board which specifically identifies the manner in
which it is believed that you have not substantially performed your duties;
or
12.1.2 You have willfully engaged in conduct which is demonstrably
and materially injurious to the Company (monetarily or otherwise),
including but not limited to a breach of fiduciary duty; or
12.1.3 You have willfully engaged in conduct which is illegal or in
violation of a material provision of the Company's Code of Ethics; or
12.1.4 You have been convicted of a felony or a crime involving moral
turpitude; or
12.1.5 You have violated the provisions of Section 2 and/or Section 3
and/or Section 4 and/or Section 5 of this Agreement
and, in any of the events described in Sections 12.1.1 through 12.1.5 above, the
- ---
Board adopts a resolution or its minutes reflect a finding that in the good
faith opinion of the Board you were culpable for the conduct set forth in any of
Sections 12.1.1 through 12.1.5 and specifying the particulars thereof in detail.
For the purposes of this Agreement, no act or failure to act on your part shall
be considered willful unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission was in the best
interests of the Company. Any such resolution of the Board must receive the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for the purpose of considering
the issue, and you must receive reasonable notice of the meeting and have an
opportunity, with your counsel, to present your case to the Board.
12.2 "Change of Control" means:
12.2.1 The consummation of a consolidation or merger of the Company
in which the Company is not the continuing or surviving corporation or
pursuant to which the shares of the Company's common, voting equity are to
be converted into cash, securities or other property. For the purposes of
this Agreement, a consolidation or merger with a corporation which was a
wholly-owned direct or indirect subsidiary of the Company immediately
before the consolidation or merger is not a Change of Control; or
11
<PAGE>
12.2.2 The sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially
all of the Company's assets; or
12.2.3 The approval by the Company's shareowners of any plan or
proposal for the liquidation or dissolution of the Company; or
12.2.4 Any person, as that term is used in Section 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities of the Company under an employee benefit plan of the
Company, a direct or indirect wholly-owned subsidiary of the Company or any
other company owned, directly or indirectly, by the shareowners of the
Company in substantially the same proportions as their ownership of the
Company's common, voting equity), is or becomes the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, of 30% or more of the Company's then outstanding common, voting
equity; or
12.2.5 During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, including for this
purpose any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in this Section 12.2.5) whose election or nomination for election
by the Company's shareowners was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning
of the period or whose election or nomination for election was previously
so approved (the "Incumbent Board"), cease for any reason to constitute a
majority of the Board.
12.3 "Disability" means:
12.3.1 Your absence from your duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity due to
mental or physical illness; or
12.3.2 A physical or mental condition which prevents you from
satisfactorily performing your duties with the Company and such incapacity
or condition is determined to be total and permanent by a physician
selected by the Company or its insurers and reasonably acceptable to you
and/or your legal representative.
12.4 "Good Reason" means:
12.4.1 Without your express written consent, after a Change of
Control, a significant reduction in title and authority, or the assignment
to you of duties with the Company or with a person, as that term is used in
Section 13(d) and 14(d) of the Exchange Act, in control of the Company
materially diminished
12
<PAGE>
from the duties assigned to you immediately prior to a Change of Control;
or
12.4.2 Without your express written consent, after a Change of
Control, any reduction by the Company or any person, as that term is used
in Section 13(d) and 14(d) of the Exchange Act, in control of the Company
in your annual base compensation or annual bonus at Standard (or
equivalent) rating from the amounts of such compensation and/or bonus in
effect immediately before and during the fiscal year in which the Change of
Control occurred (except that this Section 12.4.2 shall not apply to
across-the-board salary or bonus reductions similarly affecting all
executives of the Company and all executives of any person in control of
the Company); or
12.4.3 Without your express written consent, after a Change of
Control, the failure by the Company or any person, as that term is used in
Section 13(d) and 14(d) of the Exchange Act, in control of the Company to
increase your annual base compensation or annual bonus at Standard (or
equivalent) rating at the times and in comparable amounts as they are
increased for similarly situated senior executive officers of the Company
and of any person, as that term is used in Section 13(d) and 14(d) of the
Exchange Act, in control of the Company; or
12.4.4 Without your express written consent, after a Change of
Control, the failure by the Company or by any person, as that term is used
in Section 13(d) and 14(d) of the Exchange Act, in control of the Company
to continue in effect any benefit or incentive plan or arrangement (except
any benefit plan or arrangement which expires by its own terms then in
effect upon the occurrence of a Change of Control) in which you are
participating at the time of the Change of Control, unless a replacement
plan or arrangement with at least substantially similar terms is provided
to you; or
12.4.5 Without your express written consent, after a Change of
Control, the taking of any action by the Company or by any person, as that
term is used in Section 13(d) and 14(d) of the Exchange Act, in control of
the Company which would adversely affect your participation in or
materially reduce your benefits under any benefit plan or arrangement or
deprive you of any other material benefit (including any miscellaneous
benefit which is not represented and protected by a written plan document
or trust) enjoyed by you at the time of a Change of Control; or
12.4.6 You terminate your employment (other than because of your
death or Disability) by giving the Company a Notice of Termination with a
Termination Date not later than the first anniversary of the Change of
Control; or
12.4.7 Any failure by the Company to comply with any of its material
obligations under this Agreement, after you have
13
<PAGE>
given notice of such failure to the Company and the Company has not cured
such failure promptly after its receipt of such notice.
13. Notice. All notices and other communications required or permitted under
------
this Agreement shall be in writing and shall be deemed given when mailed by
certified mail, return receipt requested, or by nationally recognized overnight
courier, receipt requested, when addressed to you at your official business
address when employed by the Company and at your home address as reflected in
the Company's records from time to time and when addressed to the Company at its
corporate headquarters, to the attention of the Board, with a required copy to
the Company's general counsel.
14. Amendment and Assignment. This Agreement cannot be changed, modified or
------------------------
terminated except in a writing. You may not assign your duties with the Company
to any other person. The Company may assign its obligations under this
Agreement to one of its principal subsidiaries for administrative purposes.
15. Severability. If any provision of this Agreement or the application of
------------
this Agreement to anyone or under any circumstances is determined by a court to
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect any other provisions or applications of this
Agreement which can be effective without the invalid or unenforceable provision
or application, and such invalidity or unenforceability shall not invalidate or
render unenforceable such provision in any other jurisdiction.
16. Remedies Cumulative; No Waiver. No remedy conferred on you or on the
------------------------------
Company by this Agreement is intended to be exclusive of any other remedy, and
each and every remedy shall be cumulative and shall be in addition to any other
remedy given under this Agreement or now or later existing at law or in equity.
No delay or omission by you or by the Company in exercising any right, remedy or
power under this Agreement or existing at law or inequity shall be construed as
a waiver of such right, remedy or power, and any such right, remedy or power may
be exercised by you or the Company from time to time and as often as is
expedient or necessary.
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to any
applicable conflicts of laws.
18. Counterparts. This Agreement may be signed by you and on behalf of the
------------
Company in one or more counterparts, each of which shall be one original but all
of which together will constitute one and the same instrument.
If this Agreement correctly sets forth our agreement, please sign and
return to me the enclosed copy of this Agreement. Please keep the other copy
for your records.
Sincerely,
14
<PAGE>
FRONTIER CORPORATION
By: /s/ Joseph P. Clayton
----------------------------
Joseph P. Clayton
Chief Executive Officer
Agreed to this __ date of December, 1998
/s/ Donald F. Detample, Jr.
---------------------------------------------
Donald F. Detampel, Jr.
15
<PAGE>
ADDENDUM TO LETTER AGREEMENT DATED AS OF DECEMBER 1, 1998
The following provisions shall apply to the calculation and procedures
relating to the Gross-Up Payment in accordance with Section 8 of the Agreement.
1. The Company's independent auditors in the fiscal year in which the
Change of Control occurs (the "Accounting Firm") shall determine whether and
when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the
assumptions to be used in making such determination. The Accounting Firm shall
provide detailed supporting calculations, together with a written opinion with
respect to the accuracy of such calculations, to you and the Company within 15
business days of the receipt of a written request from either you or the
Company. If the Accounting Firm is serving (or has served within the three
years preceding the Change in Control) as accountant or auditor for the person
in control of the Company following the Change of Control or any affiliate
thereof, you may appoint another nationally recognized accounting firm to make
the determinations required in connection with the Gross-Up Payment and the
substitute accounting firm shall then be referred to as the Accounting Firm).
The Company shall pay you any Gross-Up Payment, determined in accordance with
this Addendum, within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that you will not be liable
for any Excise Tax, it shall furnish you with a written opinion that your
failure to report the Excise Tax on the applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon you and the Company.
2. If there is uncertainty about how Section 4999 is to be applied when
the Accounting Firm makes its initial determination, and as a result the Gross-
Up Payment made to you by the Company is determined (after following the
procedures set forth in this Addendum) to be less than it should have been made
(an "Underpayment"), and you are thereafter required to pay any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment and any such
Underpayment shall be promptly paid by the Company to you or for your benefit.
3. You shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the Company to pay you the
Gross-Up Payment. Your notice shall be given as soon as practicable but no
later than ten business days after you have been informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. You shall not pay such claim prior to
the expiration of the 30 day period following the date on which you gave such
notice to the Company (or any shorter period, if the taxes claimed are due
sooner). If the Company notifies you in writing prior to the expiration of such
period that it desires to contest such claim, you shall: (a) give the Company
any information reasonably requested by it relating to such claim, (b) take such
action in
16
<PAGE>
connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company, (c) cooperate with the Company in good faith in order
effectively to contest such claim, and (d) permit the Company to participate in
any proceedings relating to such claim.
4. The Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
connection with the claim and may, at its sole option, either direct you to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and you agree to prosecute the contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts as the Company shall determine.
5. Any extension by the Company of the statute of limitations relating to
payment of taxes for the taxable year for which such contested amount is claimed
to be due shall be limited solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable under this Agreement and you shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
6. If the Company directs you to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to you, on an interest-free
basis, and shall indemnify and hold you harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance.
7. If you receive a refund of any amount advanced to you by the Company,
you will promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If the
Company advanced to you any amounts and a determination is made that you will
not be entitled to any refund with respect to such claim and the Company does
not notify you in writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then such advance shall
be forgiven and you will not be required to be repay it. The amount of such
advance shall offset the amount of the Gross-Up Payment required to be paid.
8. The Company shall pay all fees and expenses of the Accounting Firm.
The Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax
or income tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expenses.
17
<PAGE>
Exhibit 10.25
Frontier letterhead
PERSONAL AND CONFIDENTIAL
May 31, 1996
To: Martin T. McCue
Dear Mick,
I have reviewed the issues you have raised about bridging past service with
other employers. I believe that Frontier benefited from your work within the
telecommunications industry in the past: (1) with respect to the Minnesota and
Iowa properties Frontier now owns and with which you worked during your tenure
at Centel Corporation, and (2) with respect to your tenure as general counsel of
the United States Telephone Association (USTA). Therefore, I am recommending to
the Employees' Benefit Committee that your previous service be bridged, as
delineated in the following paragraph, and that you receive credit for service
with other employers under the terms of Frontier's benefit plans, including
relevant conditions.
I am recommending that if you remain an employee of Frontier or an affiliate on
the date indicated, your service will be bridged as follows:
Date Organization Time Bridged
- ----------------------------------------------------
January 1, 1997 Centel 8 years
January 1, 1999 USTA 4 years
December 31, 1999 USTA 3 years, 8 months
This bridging credit enables you to derive all benefits associated with these
years of service, including retirement benefits, as of the dates stated above.
Very truly yours,
/s/Ronald L. Bittner
- -------------------------
Ronald L. Bittner
RLB/cn
<PAGE>
EXHIBIT 11
----------
FRONTIER CORPORATION
CONSOLIDATED COMPUTATION OF NET INCOME PER AVERAGE SHARE
OF COMMON STOCK ON A DILUTED BASIS
<TABLE>
<CAPTION>
In thousands, except per share data Years Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income applicable to common stock $174,783 $ 30,782 $189,005 $ 21,253 $178,870
Add: Interest on convertible debentures (1) 554 - 554 - 554
------------------------------------------------
$175,337 $ 30,782 $189,559 $ 21,253 $179,424
Less: Increase in related federal
income taxes (1) 194 - 194 - 194
------------------------------------------------
Adjusted income applicable to common
stock $175,143 $ 30,782 $189,365 $ 21,253 $179,230
================================================
Average common shares outstanding
(excluding common stock equivalents) 170,626 168,975 165,234 153,764 148,170
Adjustments for:
Convertible debentures (1) 503 - 503 - 503
Stock Options 2,812 992 1,771 9,612 12,183
------------------------------------------------
Adjusted common shares assuming
conversion of outstanding convertible
debentures and stock options at the
beginning of each period 173,941 169,967 167,508 163,376 160,856
================================================
Net income per average share of
common stock on a diluted basis $1.01 $0.18 $1.13 $0.13 $1.11
</TABLE>
(1) Convertible debentures are anti-dilutive in 1997 and 1995.
<PAGE>
Management's Discussion of Results of Operations
- --------------------------------------------------------------------------------
and Analysis of Financial Condition
The information presented in this Management's Discussion of Results of
Operations and Analysis of Financial Condition should be read in conjunction
with the consolidated financial statements and accompanying notes of Frontier
Corporation (the "Company" or "Frontier") for the three years ended December 31,
1998. The matters discussed throughout this report, 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 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 Frontier's markets, the increasing competitiveness of the
business, changes in law and regulatory policy, our ability to respond to
technological changes in the telecommunications industry, the mix of products
and services offered in the Company's markets and risks associated with
acquisitions. Any forward-looking statements in this report 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.
DESCRIPTION OF THE BUSINESS
Frontier Corporation 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. Following is a description of
the Company's principal lines of business:
Business
Segments
Integrated Services
Through its Integrated Services segment, the Company is one of the nation's
largest long distance companies. This segment provides domestic and
international voice, data products, video and audio communications, digital
distribution services, Internet service and other communications products to
primarily small to mid-size business customers, carrier customers, web-centric
customers and targeted consumer markets. Results for this segment also include
competitive local exchange carrier ("CLEC") services, currently available in 32
states, plus Washington D. C. , providing Frontier with the ability to offer
integrated local and long distance telephone service to approximately 71% of the
United States.
Local Communications Services
The Company's Local Communications Services operation is one of the largest
local exchange service providers in the United States. This segment 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 on January 1, 1995. Frontier Telephone of
Rochester, Inc. ("FTR") led the telecommunications industry by being the first
to open its local market to competition in 1995 under the Open Market Plan.
Consequently, the Local Communications Services segment includes both wholesale
and retail local service provided in the Rochester, New York market. After four
years of operating in a competitive marketplace, the Rochester local exchange
carrier retains a market share of approximately 98% of wholesale, and
approximately 96% of retail local service access lines in the Rochester, New
York operating territory.
13
<PAGE>
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 Frontier Network Systems
("FNS"). FNS markets and installs telecommunications systems and equipment. This
segment has also included wireless operations of Minnesota Southern Cellular
Telephone Company ("Minnesota RSA No. 10") and the Company's 69.5% interest in
South Alabama Cellular Communications Partnership RSAs No. 4 and No. 6 ("Alabama
RSAs No. 4 and No. 6"). The sale of Minnesota RSA No. 10 was finalized April 30,
1998. The Alabama interest was sold in January 1997.
Telecom
Act
Telecommunications Law
The Telecommunications Act of 1996 was enacted on February 8, 1996. This
landmark legislation significantly modified the Communications Act of 1934 and
established a framework for increased competition in the Local and Integrated
Services' segments of the Company's business. The Company views this legislation
as favorable to its operations because Frontier has been able to enter new
markets to provide local service as a CLEC, as well as derive other benefits
from the elimination of barriers to competition. In addition to its established
local telephone and long distance base, Frontier has been authorized to provide
competitive local services in 33 states, plus Washington D. C, as of December
31, 1998. The Telecommunications Act incorporated many aspects of the Open
Market Plan initiated by the Company in Rochester, New York in 1993 and
implemented in 1995. The Company believes its experience in providing integrated
services and its experience with the Rochester, New York Open Market Plan
provides it with a competitive advantage.
The Telecommunications Act has been substantially implemented by the Federal
Communications Commission ("FCC"). In late 1996, the FCC released a First Report
and Order (the "First Report and Order") establishing guidelines to promote
local competition affecting the Company and all other competitors in local
telecommunications markets. On July 18, 1997, the U. S. Circuit Court of Appeals
for the Eighth Circuit reversed portions of the First Report and Order that
provided for pricing based primarily on forward-looking, rather than historical
costs, which would have provided the FCC with substantially more authority over
the compliance by local telephone companies with provisions of the
Telecommunications Act. On January 22, 1998, the same court issued a mandate
compelling adherence to the decision. On January 23, 1998, the U. S. Supreme
Court agreed to review this case. The case was argued on October 13, 1998. On
January 25, 1999, the Court reversed the Eighth Circuit Court's decision and
reinstated the rules.
The Act also requires the FCC to restructure the manner in which universal
service support payments are established and distributed. On May 7, 1997, the
Commission substantially adopted the recommendation of a Federal-State Joint
Board released on November 8, 1996 with respect to universal service. The FCC's
order increased the amount of support to be dedicated to universal service
programs. The Commission has released numerous subsequent orders that have
modified its original decisions. These actions are subject to reconsideration
and appeal. On May 16, 1997, the Commission adopted an order that substantially
modified the structure by which local exchange carriers are compensated for
access to and use of their networks. This order was implemented effective
January 1, 1998. In general, this order encouraged the recovery of some costs
that had previously been recovered in usage-based charges to be recovered in
fixed charges. Both of these orders are subject to the possibility of Commission
modification in light of market impacts. The Federal-State Joint Board issued a
recommendation on November 23, 1998, outlining options for future high cost
recovery and that could result in significant changes in the current
relationship between carriers. This recommendation is currently being reviewed
by the FCC. Any decision is subject to modification and review.
14
<PAGE>
On October 9, 1997, the FCC ordered carriers who 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 per-call compensation rate became effective
retroactive to October 7, 1997. The FCC subsequently lowered the rate to 24.0
cents. The FCC is still considering how it will address the payphone operator
compensation issue for a preceding eleven month period. The Company has pursued
challenges to the FCC order. However, the Company has also taken action to
assess a surcharge to recover the amount of the compensation ordered and related
costs or to allocate responsibility for the surcharge where it believes that is
an appropriate course. This is believed to be consistent with the action taken
by other long distance providers that handle similar calls through payphones.
Some payphone providers have initiated proceedings seeking payphone
compensation. They have also asked the FCC to find certain carriers responsible
for unpaid surcharges of unaffiliated providers. The Company cannot predict the
ultimate outcome of any of these proceedings.
The Company's entry into the Internet distribution business through its
Frontier GlobalCenter Inc. subsidiary ("GlobalCenter") has led it to accelerate
its development of additional Internet related products including the provision
of certain information or communications offerings over the Internet. Some
parties have relied on the Telecommunications Act and other provisions of law to
minimize regulatory cost and other burdens on some of these services. As these
services develop, these issues will be resolved. A decision that causes access
charges and universal service costs to be collected and paid on Internet-based
communications during the course of their provision could drive up the price and
make them less attractive.
Competitive Response To Changes in Telecommunications Law
Since the enactment of the Telecommunications Act of 1996, a number of
fundamental changes in the business have occurred. Many companies in the
industry, particularly among the largest companies, have announced or completed
corporate consolidations or other acquisitions, partnerships or organizational
transactions. As a result, a number of these competitors may be substantially
larger in size and may possess financial resources substantially greater than
Frontier's. This trend toward consolidation is expected to continue. There is
ongoing regulatory activity at both the federal and state levels to implement
the Telecommunications Act, and to put in place mechanisms to address new
business relationships. If some of the more recently announced mergers are
permitted to go forward, these firms will have greater ability to impact the
provision of access and other services to the Company and could affect
competition in one or more of the Company's markets.
As new technological and business opportunities emerge, the pace of innovation
and business activity will likely accelerate. New business relationships are
developing and this also can be expected to continue. These relationships are
partially the result of provisions in the law that require new forms of pricing
agreements between facilities-based carriers and resellers, new interconnection
agreements, and arrangements that replace long-standing tariff filing
mechanisms. Many interconnection and resale agreements have been entered into
between incumbent local exchange carriers and other firms. However, in the
regions served by the Bell Operating Companies, there continue to be large
numbers of customers who cannot obtain basic local services from competitors of
the incumbent Bell Operating Company. The new law promotes broader competition
among incumbent companies in traditional telecommunications lines of business
and across such lines of business. While such competition is growing, the
Company believes that the local telephone market has not yet achieved the level
of competition that was anticipated at the time of the enactment of the
Telecommunications Act. At some point, there will be sufficient competition and
other actions taken within individual states such that one or more of the Bell
Operating Companies will be able to justify entry into the interLATA long
distance business within that state. Such an event is likely to have direct
impacts on both the local telephone market and the long distance market in that
state, and indirect impacts elsewhere.
15
<PAGE>
Frontier anticipated that public policy would continue to evolve in favor of
greater competition. As a result, the Company has been positioning itself to
confront a marketplace with numerous new competitors in each of its targeted
business segments. This includes the development of sales, marketing, new
products, provisioning, customer service, billing and information technology
capabilities that are necessary to compete aggressively and successfully.
Part of this activity has involved an analysis of the merits of owning
additional amounts of long distance facilities. Ownership of facilities can
provide a number of benefits, including the advantages of lower unit costs, new
strategic pricing opportunities and the ability to offer new or unique services.
Completion of the Company's nationwide Optronics network in 1999 will provide
the Company with the infrastructure necessary to meet the increasing demands for
bandwidth capacity and connectivity from both a wholesale and retail basis. The
Optronics network will also result in reduced costs and unparalleled
reliability. Frontier is installing Nortel DMS-500 switching systems in
strategic locations across the country that will connect to the Optronics
network. These switches will provide Frontier the ability to offer combined
local and long distance telecommunications services to its customers through a
single, cost-effective switching platform and will enable Frontier to accelerate
offerings of its CLEC services. In the fourth quarter of 1997, Frontier
introduced a nationwide frame relay product. This product complements the
Company's voice services business with a portfolio of additional data services
products. In addition, the acquisition of GlobalCenter, a provider of Internet,
data and digital distribution services, completed in February 1998, further
enhances Frontier's data product capability. The combined technology of the
Optronics network, DMS-500 switches, frame relay and enhanced data service
comprises a substantial part of the Company's strategic infrastructure that has
made Frontier a nationwide, facilities-based provider of local, long distance
and data services.
The Company's customer base has been segmented to provide better focus for its
sales efforts. Frontier targets four major customer segments: business
customers, where Frontier offers customized products for vertical industry
segments; wholesale carrier customers, which includes long distance resellers as
well as Internet Service Providers ("ISPs"), CLECs and international
telecommunications companies; selected data and Internet segments; and targeted
consumer markets. Marketing efforts have been centralized. Frontier anticipates
that brand awareness and product development will be critical to successful
marketing in the future telecommunications marketplace. The Company committed
resources in 1998 to diversify and improve its product lines and increase brand
awareness, which is expected to continue into 1999.
Strategy
Strategic Developments
In the fourth quarter of 1997, the Company announced a restructuring plan
designed to focus the Company on its core business. The restructuring plan
included exiting certain non-strategic businesses; phasing out low margin,
price-sensitive long distance consumer products; and targeting actions to reduce
costs. In connection with these actions, a post-tax charge of $54.7 million was
recorded in the fourth quarter of 1997, primarily associated with a workforce
reduction, program cancellations, the exiting of certain product lines and
miscellaneous asset and lease impairments. During 1997, the Company reduced its
workforce by approximately 700 positions or 8%. These cost cutting measures were
partially offset in 1998 by investments in sales and customer service, an
acceleration of competitive local service expansion and increased product
development costs. Frontier continues to redeploy its resources to respond
quickly to opportunities to provide superior product offerings and customer
service in its core business.
16
<PAGE>
The Company's strategy has been defined and actions have been taken to move
toward the goal of becoming a market-driven business. During the fourth quarter
of 1997, the Company began to divest certain nonstrategic assets, which has
allowed for the redirection of resources into more strategic assets and
operations. These actions included the sale of a portion of the Company's retail
prepaid calling card business to SmarTalk Teleservices Inc. in December 1997 and
the sale of the Minnesota and Alabama facilities-based cellular businesses in
1998 and 1997 as well as the sale of certain other nonstrategic assets during
1998. The Company continues to evaluate the strategic value of other assets and
additional sales are expected from time to time.
Construction of the nationwide Optronics network, which commenced in the
fourth quarter of 1996, is near completion. The Company's service capacity and
network reliability is increasing significantly as the Optronics network is put
into service. The Company made a commitment to extend this network in 1998, and
that extension is expected to be completed in late 1999. The combined technology
of the Optronics network and the DMS-500 switches will enable the Company to
expand its ability to provide integrated local and long distance services
nationwide. In 1998, the Company added ATM and IP capabilities to the Optronics
network which will provide a greater speed and service for data products. In the
fourth quarter of 1997, the Company also introduced a nationwide frame relay
product. This product will complement the Company's voice services business with
a portfolio of additional data services products. This technology will make
Frontier a nationwide facilities based provider of integrated local, long
distance and data services.
Growth
Consolidated Results of Operations
Consolidated revenues in 1998 were $2.6 billion, a $218.7 million or 9.2%,
increase from 1997. Revenues in 1997 were $2.4 billion, a $213.7 million or 8.3%
decrease from 1996. The most significant growth in 1998 continues to be
generated by the Integrated Services Segment's Carrier Services business.
Carrier Services' revenues grew $220.7 million or 52.5% over 1997. Carrier
Services' revenue normalized for the effect of a major carrier customer's one-
plus traffic grew $23.0 million or 6.2% over 1996. The growth in Carrier
Services reflects a growing and diverse base of telecommunications customers,
such as Level 3 Communications. The Company's agreement with Level 3
Communications provides them with additional bandwidth for IP-based applications
and is expected to generate $195.0 million in incremental revenue for the
Company over the five year term of the agreement. The decrease in 1997 revenue
is primarily attributed to the migration of the Company's major carrier
customer's one-plus traffic from the Frontier network, a process that was
essentially completed by the end of 1996.
Normalized for other charges, total costs and expenses were $2.3 billion in
1998, $2.1 billion in 1997, and $2.2 billion in 1996. This resulted in an
operating income before other charges increase of 20.2% in 1998, as compared
with a decrease of 38.2% in 1997. Operating margins, before other charges, were
12.5%, 11.4%, and 16.8% during 1998, 1997 and 1996, respectively.
Operating results in 1998 continue to be positively impacted by revenue growth
in several areas including Carrier, Data and CLEC services which are all
included in the Integrated Services segment. The downturn in operating income
and operating margins for 1997 was attributable to the migration of the
Company's largest long distance carrier customer discussed above as well as a
higher level of primarily network expenses in the Integrated Services segment.
Expenses in 1998 were driven primarily by an increase in service costs in the
Local segment as well as a higher cost of access in the Integrated Services
segment due to growth in Carrier Services, a historically lower margin product.
These increases are offset by improvements in selling, general and
administrative expenses as a percent of revenue, in part resulting from the
restructuring plans announced in the fourth quarter of 1997, which entailed
exiting of the Company's prepaid business, the phasedown of the Integrated
Services residential consumer base, a refocusing of the Company's core product
offerings, and centralization of marketing efforts.
17
<PAGE>
Diluted earnings per share were $1.01, $0.18, and $1.13 for the years ended
1998, 1997 and 1996, respectively. Excluding the impact of nonrecurring other
charges discussed below, normalized diluted net income applicable to common
stock amounted to $176.8 million, $137.0 million, and $238.9 million in 1998,
1997 and 1996, respectively. Diluted earnings per share, normalized for
nonrecurring adjustments, were $1.02, $0.81, and $1.43 for the three years,
representing an increase of 25.9% for 1998 and a decrease of 43.4% for 1997.
Nonrecurring Adjustments
Consolidated results for the years 1998 through 1996 were impacted by a number
of nonrecurring adjustments. Net income for these years, normalized for
nonrecurring adjustments, is summarized in the following chart and succeeding
narrative.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(In thousands of dollars, except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Diluted income applicable to common stock $175,143 $ 30,782 $189,365
- -----------------------------------------------------------------------------------
Adjustments, net of taxes:
Other charges 5,797 117,464 42,670
Gain on sale of assets (5,922) (11,243) (3,029)
Adoption of new accounting standards 1,755 -- 8,018
Work stoppage preparation costs -- -- 1,861
- -----------------------------------------------------------------------------------
Total adjustments $ 1,630 $106,221 $ 49,520
- -----------------------------------------------------------------------------------
Normalized income applicable to common stock $176,773 $137,003 $238,885
- -----------------------------------------------------------------------------------
Diluted earnings per share $ 1.01 $ 0.18 $ 1.13
Total adjustments 0.01 0.63 0.30
- -----------------------------------------------------------------------------------
Normalized diluted earnings per share $ 1.02 $ 0.81 $ 1.43
- -----------------------------------------------------------------------------------
</TABLE>
1. Other Charges
During 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. These
charges included investment banker, legal fees and other direct costs and were
subsequently liquidated in the second quarter of 1998.
In March 1997, the Company recorded a $62.8 million charge, net of a tax
benefit of $33.8 million, primarily related to the write-off of certain network
costs no longer required for the Company's long distance traffic volumes. As a
result of the decline in long distance traffic, an evaluation of the existing
network was performed and facilities deemed no longer necessary to support the
Company's revenue and traffic levels were identified.
In the fourth quarter of 1997, Frontier recorded a $54.7 million charge, net
of a tax benefit of $32.1 million. This charge was primarily associated with a
restructuring and refocusing of the business which included a workforce
reduction, program cancellations, the exiting of certain product lines and
miscellaneous asset and lease impairments.
Operating results for 1996 included a $42.7 million charge, net of a tax
benefit of $25.0 million, resulting from the curtailment of certain Company
pension plans, a one-time charge associated with the Company's conference
calling product line and the write-off of in-process product development costs.
The pension curtailment comprises $17.3 million of the total post-tax charge and
is a result of the Company's efforts to standardize pension benefits. The one-
time charge associated with the Company's conference calling product line ($13.1
million, post-tax) primarily reflected an adjustment to write-off nonrecoverable
product development costs relating to proprietary software. The write-off of in-
process product development costs ($12.3 million, post-tax) related to the 1996
GlobalCenter merger with GCIS, an Internet management services company.
18
<PAGE>
2. Gain on Sale of Assets
During November 1998, the Company sold certain non-strategic investments. The
sales resulted in an after tax
gain of $3.0 million.
In April 1998, the Company completed the sale of Minnesota RSA No. 10, a
wholly owned cellular partnership, and certain other properties. The sale of
these properties resulted in a combined after-tax gain of $2.9 million, or $.02
per share. The income taxes in these transactions of $12.3 million are primarily
driven by a low tax basis in the Minnesota RSA No. 10 investment which was
acquired in a tax free stock transaction and resulted in nondeductible goodwill.
Gain on sale of assets in 1997 reflects the sale of the Company's 69.5% equity
interest in the South Alabama Cellular Communications Partnership which resulted
in a post-tax gain of $11.2 million ($18.8 million pre-tax).
In 1996, Frontier sold its minority investment in a Canadian long distance
company ($5.0 million pre-tax gain, $3.0 million post-tax).
3. Adoption of New Accounting Standards
The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." ("SOP 98-5") during 1998. The cumulative effect of
adopting SOP 98-5 was an after-tax charge of $1.8 million, net of applicable
income taxes of $0.8 million or $.01 per share. The charge is primarily
attributed to unamortized start-up costs related to product development costs
associated with new business ventures.
Additionally in 1996, the Company recorded an $8.0 million charge, net of a
tax benefit of $4.3 million, for the adoption of Financial Accounting Standards
Board ("FAS") 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The assets held for disposal consisted
principally of telephone switching equipment in the Local Communications segment
as a result of a central office switch consolidation project in Frontier's New
York markets.
4. Work Stoppage Preparation Costs
During the first quarter of 1996, operating costs increased $1.9 million, net of
applicable income taxes of $0.9 million, at the Company's largest telephone
subsidiary due to high labor and related expenses in connection with a union
contract negotiation that was substantively settled during 1997.
[Graph of Revenues]
Results of Segment Operations
Integrated Services
Revenues were $1.9 billion, $1.7 billion, and $1.9 billion in 1998, 1997 and
1996, respectively, representing an 11.8% increase in 1998 and a 12.3% decrease
in 1997. The increase in revenue from 1997 to 1998 is attributed to a growing
base of carrier customers, CLEC services and Data revenue. Revenue increases are
being offset from exiting the prepaid business and the de-emphasis of selected
consumer programs. The decrease in revenue from 1996 to 1997 is attributable
primarily to the migration of the one-plus long distance traffic of the
Company's major carrier customer from the Frontier network as discussed below.
Normalized for the effect of this major carrier customer's one-plus traffic,
Integrated Services' revenue grew approximately 5% in 1997.
Carrier Services' revenue grew 52.5% in 1998 and 6.2% in 1997, normalized for
the effect of the major carrier customer's one-plus traffic in 1997. These
increases are driven by both an increase in the customer base as well as higher
levels of switched and dedicated traffic. As the Optronics network is completed,
the Company anticipates further fiber capacity sales, swaps and exchanges such
as the Level 3 Communications contract which includes a minimum commitment of
$195.0 million over a five year contract term.
19
<PAGE>
In 1996, the Company renegotiated its contract with its then largest carrier
customer as the customer was planning to install its own long distance switching
capacity and diversify its traffic distribution to one or more additional
carriers. Revenue from this carrier comprised approximately 4% of Frontier's
Integrated Services revenue in 1998 as contrasted with 6% and 21% in 1997 and
1996, respectively. The loss of this customer's one-plus traffic contributed to
lower operating income in 1997 due to lower overall traffic levels resulting in
a higher level of fixed network costs than required by the remaining volume of
business carried by the Company.
Sustain-
ability
CLEC revenue growth was 107.2% for the year ended 1998. 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. At year end 1998,
the Company was providing local services as a CLEC together with a complete
range of long distance products in 32 states, plus Washington, D. C. Most of
that coverage was provided via resale of services of incumbent local exchange
carriers. Within that footprint, CLEC service also was provided initially from
Frontier's own switches in New York, Boston and Minneapolis. Since then,
Frontier expanded its coverage to approximately 71% of the United States and
turned up facilities-based service in a total of thirteen metropolitan areas at
the end of 1998. 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, control access costs, and leverage the Optronics
network. As of the end of1998, Frontier is serving in excess of 208,000 CLEC
ANIs, or access lines as compared to 100,000 CLEC ANIs at the end of 1997.
Frontier's objective is to have the capability to offer local services in 33
states, plus Washington D. C., covering 74% of the United States by the end of
1999.
Data Services' revenue was $97.6 million, $22.4 million and $12.9 million in
1998, 1997 and 1996, respectively, which led to increases of 335.7% in 1998 and
73.6% in 1997. The continued integration and growth of GlobalCenter largely led
to the year over year increase. In general, growth in Data Services' revenue was
driven by dedicated Internet, national frame relay and web hosting.
GlobalCenter's major digital distribution service customers include Yahoo!,
Motley Fool, and USA Today among others.
Cost of access as a percentage of revenues was 64.0% in 1998, 64.1% in 1997,
and 63.7% in 1996. The 1998 percentage has remained constant as compared to 1997
due to increased Carrier Services' traffic, which has lower margins, offset by
network migration, favorable 1998 access rate reductions and a shift in the
international traffic mix. Construction delays of the Optronics network impacted
the level of savings expected during 1998. The higher cost of access percentages
reported for 1997 compared to 1996 was driven by the growth and mix of
international traffic and a higher proportion of fixed network costs than would
have been required for the volume of minutes actually carried by the Company's
network during these periods. Cost of access in 1997 was also impacted by
increased costs related to the public payphone compensation order. In September
1996, an FCC ruling established a "per call compensation plan" that provides
payphone service providers with compensation for calls completed using their
payphones. The FCC substantially increased these charges in October 1997. In
1997, the Company began assessing a surcharge to its payphone users in order to
recover the amount of compensation and related costs ordered by the FCC.
Construction of the Company's Optronics network as originally announced in
1996, was on schedule through the first half of 1998. However, delays in the
completion of a small number of segments have moved the expected completion date
of the network into the first half 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
Communications and WTCI, Frontier will add approximately 4,000 additional route
miles in the western half of the United States. These agreements will also
provide the Company with additional redundant SONET rings, further enhancing the
20
<PAGE>
reliability and performance of the network. In addition, in July 1998, Frontier
entered into an agreement with Williams Communications to construct an extension
of Frontier's Optronics network into the southeast United States. In aggregate,
the Company's Optronics network will have 20,000 route miles. As of December 31,
1998, approximately 74% of the original 13,000 route mile Optronics network is
carrying traffic. Construction of the Optronics network and the continuing
network integration efforts are expected to reduce future network costs as well
as provide new revenue opportunities for the Company.
Selling, general and administrative costs ("SG&A"), as a percentage of
revenues, was 25.3% in 1998, 27.9% in 1997 and 19.8% in 1996. The 1998 decrease,
as a percentage of revenues, is largely due to increased Carrier Services'
revenue which carries lower SG&A costs as well as cost controls and a change in
the revenue mix away from consumer businesses. The 1997 increase as a percentage
of revenues is principally due to the decrease in revenues without corresponding
proportional cost decreases. During the last half of 1996 and continuing through
1998, the Company intensified its investment in the sales and marketing areas
with the intent of providing the Company with the resources necessary to expand
into new markets, attract and retain new customers and provide superior customer
service.
Depreciation and amortization increased by $11.3 million and $14.5 million in
1998 and 1997, respectively due primarily to the impact of the Optronics
network.
Operating income for Integrated Services, excluding nonrecurring charges,
increased 153.0% in 1998 and decreased 84.6% in 1997. Operating margin was 4.8%
in 1998, 2.1% in 1997, and 12.1% in 1996. The Company anticipates improved
operating margins during 1999 as higher revenue levels are achieved, higher cost
routes are removed from the network, the Optronics network is completed and
additional operating efficiencies are introduced. The growth in revenue is
expected to be driven by expanded sales in the Company's targeted markets, and
the introduction of new products and services, and the maintenance of superior
customer service.
Local Communications Services
In addition to consistent profitability and strong cash flows, the local
communications companies have been successful in marketing and selling
integrated services to their customers. Local Communications' revenues were
$701.9 million in 1998, $667.1 million in 1997, and $643.0 million in 1996,
representing increases of 5.2% and 3.7%, respectively over the prior years.
Revenue growth in each year was driven by the introduction of new products and
features such as voice mail, caller ID and call waiting, and a higher demand for
services such as second lines. Revenue growth in 1998 and 1997 was also
influenced by an increased demand for Internet services and dedicated traffic
growth. The growth in revenue is partially offset by the elimination of the
surcharge on wholesale, flat rate local measured service, as ordered by the New
York State Public Service Commission ("NYSPSC") in 1996, an increase in the
discount to wholesale providers in the Rochester, NY market from 5% to 17%, also
ordered by the NYSPSC, and a $1.5 million annual rate reduction as stipulated by
the Open Market Plan for the Company's subsidiary, FTR. Total access lines
increased 3.5% and 2.3% and minutes of use increased 3.4% and 5.3% in 1998 and
1997, respectively.
21
<PAGE>
[Graph of Local Operations]
Costs and expenses for the local communications segment, excluding
nonrecurring charges, were $334.6 million in 1998, up slightly over 1997, but
down as a percent of revenue. The increase in costs and expenses in 1998 is
attributable to service quality improvement efforts during the year in response
to continued scrutiny by the NYSPSC and the assessment of a $2.0 million service
penalty at FTR. Service penalty assessments in 1999 could range up to $7.0
million if certain service metrics are not obtained. FTR met or exceeded service
requirements in the fourth quarter of 1998. Costs are also up due to increased
depreciation expense, higher operating costs for repair and maintenance and an
increase in customer service costs due to access line growth. A portion of the
repair and maintenance increase was caused by severe flooding and ice storms
during the first half of 1998 as well as a severe windstorm during the third
quarter at certain local properties. Costs and expenses for 1997 compared to
1996 were relatively consistent. During 1996, the Rochester telephone operation
experienced increased costs and expenses related to incremental labor expenses
resulting from work stoppage preparation costs. These expenses, which were
incurred in connection with contract negotiations with the Communications
Workers of America ("CWA" or "Union"), were necessary to ensure continued high
standards of customer service levels in the event of a work stoppage or
slowdown. The contract negotiations resulted in an agreement which expired at
the end of 1998. A new three year agreement became effective on January 3, 1999.
The result of these agreements provide several operational improvements and a
more consistent alignment of benefits. Operating margins, excluding nonrecurring
items, were 36.2% in 1998, 36.3% in 1997, 33.5% in 1996. This positive result is
reflective of the continuing effort in maintaining operating efficiencies and
consistent revenue growth.
The Rochester, New York local communications subsidiary completed its fourth
year of operations under the Open Market Plan in December 1998. The Open Market
Plan promotes telecommunications competition in the Rochester, New York
marketplace by providing for (1) interconnection of competing local networks
including reciprocal compensation for terminating traffic, (2) equal access to
network databases, (3) access to local telephone numbers, (4) service provider
telephone number portability, and (5) certain wholesale discounts to resellers
of local services. The Open Market Plan has undergone some modifications in
light of the Telecommunications Act and other regulatory action of the NYSPSC.
The Company believes that it has successfully maintained its competitiveness in
the Rochester marketplace, as the Company's subsidiary still provides
approximately 98% of the services in the wholesale market and approximately 96%
of retail local services in the market.
Corporate Operations and Other
This segment includes the operations of FNS and 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. Formerly, the wireless
operations from Minnesota RSA No. 10 and the Company's 69.5% interest in Alabama
RSAs No. 4 and No. 6 were included in this segment. The sale of the Company's
interest in Alabama RSAs No. 4 and No. 6 was finalized January 31, 1997 and on
April 30, 1998, the Company sold Minnesota RSA No. 10. The sale of wireless
properties is a result of the Company's strategic decision to divest non-core
assets. Wireless products, as a part of Frontier's integrated services, are
offered to Frontier customers on a resale basis.
In February 1997, the Company completed its purchase of R. G. Data
Incorporated (renamed FNS). FNS was a privately held upstate New York based
computer and data networking equipment and services company. A total of 110,526
shares of Frontier common stock held in treasury were reissued in exchange for
all of the shares of FNS. The treasury shares were acquired through open market
purchases.
22
<PAGE>
Other Income Statement Items
Interest Expense
Interest expense was $55.3 million in 1998, an increase of $7.1 million or 14.7%
over 1997. Interest expense was $48.2 million in 1997, an increase of $4.9
million or 11.4% over 1996. The overall increase in interest expense in both
periods is the result of higher levels of debt outstanding primarily
attributable to the Company's capital program. The amount of interest expense
capitalized increased $18.2 million and $7.2 million in 1998 and 1997,
respectively, also as a result of increased capital spending.
Equity Earnings from Unconsolidated Wireless Interests
The Company's minority interests in wireless operations and its 50% interest in
the Frontier Cellular joint venture with Bell Atlantic are accounted for using
the equity method. This method of accounting results in the Company's
proportionate share of earnings being reflected in a single line item below
operating income.
Equity earnings from the Company's interests in wireless partnerships were
$16.7 million in 1998, $12.0 million in 1997, and $9.0 million in 1996. The
increase in equity earnings during 1998 and 1997 is attributable to increased
customers, primarily at Frontier Cellular, and usage, as well as improved
operating efficiencies as compared to 1996.
Income Taxes
The effective tax rate was 42.2% in 1998 versus 58.1% in 1997 and 41.8% in 1996.
The increase in the effective tax rate for 1997 is attributable to the
nonrecurring charges recorded by the Company, combined with the effect of
recording additional valuation allowance for net operating loss deferred tax
assets at GlobalCenter prior to the pooling of interests transaction. Use of the
preacquisition net operating losses are limited by tax laws and the realization
of these losses is uncertain at this time.
[Graph of EBITDA]
Financial Condition
Review of Cash Flow Activity
Cash provided from operations in 1998 amounted to $434.2 million as compared to
$255.8 million in 1997 and $397.2 million in 1996. The increase in cash flow
from operations is largely attributable to the increased operating income in the
Integrated Services' segment during 1998. The accounts receivable allowance
increase in 1998 is primarily due to revenue volume increases and a higher mix
of carrier customers with larger account balances.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a
common measurement of a company's ability to generate operating cash flow.
EBITDA should be used as a supplement to, not in place of, cash from operating
activities. The Company's EBITDA was $549.7 million, $482.1 million, and $626.9
million before other charges in 1998, 1997 and 1996, respectively.
Cash used for investing activities was $597.6 million, $292.6 million, and
$333.3 million in 1998, 1997 and 1996, respectively. Capital expenditures
continue to be the largest recurring use of the Company's investing funds.
Capital spending amounted to $646.9 million, $365.1 million, and $311.9 million
in 1998, 1997 and 1996, respectively. The Company's total capital investment for
1998 was $696.4 million, including the $136.9 million accrued for the Company's
new Optronics network and other capital programs. The $136.9 million obligation
at December 31, 1998 is a non-cash transaction that is treated as debt in the
Company's capital structure as the Company intends to finance this obligation
through available credit facilities and unused commitments extending beyond one
year. The increase in the 1998 capital program was due to long distance switch
enhancements, additional investments intended to improve service at FTR,
continued product enhancements and construction costs for the Optronics network.
Cash utilized in 1998 for investing activities was partially funded by the
proceeds received from the sale of Minnesota RSA No. 10 and the sale of other
certain nonstrategic investments.
23
<PAGE>
Cash flows from financing activities amounted to inflows of $222.3 million and
$25.7 million in 1998 and 1997, respectively, compared with an outflow of $58.0
million in 1996. The net inflow of cash is the result of increased borrowings
during 1998 and 1997 driven by the Company's capital program. The Company's
largest recurring financing activities are the payment of common and preferred
dividends which totaled $151.8 million, $143.6 million, and $138.7 million in
1998, 1997 and 1996, respectively.
[Graph of Credit Ratings]
Liquidity and Capital Resources
The Company has a number of financing vehicles in place to ensure adequate
liquidity in meeting its anticipated cash needs. Frontier has a commercial paper
program of $350 million which is fully backed by committed revolving credit
agreements. In November 1998, the Company established combined revolving credit
agreements of $475 million which will serve as backup to the Company's
commercial paper program. These facilities replaced the Company's existing $350
million credit facility which was due to expire in August 2000. At December 31,
1998, total borrowings and amounts available under these lines of credit were
$197.7 million and $277.3 million, respectively. In September 1998, the Company
completed a $200.0 million public offering of 6.00% Dealer remarketable
securities ("Drs./SM/") which mature in 2013. In December 1997, the Company
entered into an interest rate hedge agreement that effectively converts $200.0
million of the Company's fixed-rate debt into a floating rate, based on an index
rate plus 2.88%. The agreement expires in May 2004 and caps the floating rate
the Company pays at 7.25% through November 1999 and 9.00% through May 2004. In
May 1997, the Company completed a $300.0 million public offering of 7.25% Notes
which mature in 2004. In December 1997, the Company issued $100.0 million, 6.25%
Pass-Through Asset Trust Securities ("PATS") due in 1999. The PATS securities
were sold pursuant to Rule 144A under the Securities Act, and not under the
shelf registration. Proceeds from these offerings were used to finance a portion
of the nationwide Optronics network and to pay down commercial paper borrowings.
At December 31, 1998, aggregate debt maturities amounted to $9.5 million for
1999, $16.9 million for 2000 and $273.4 million for 2001. The debt to total
capital ratio at December 31, 1998 increased to 57.2%, as compared to 49.2% in
the prior year and 39.1% in 1996. Pre-tax interest coverage, which measures the
Company's ability to cover its financing costs, was 4.7 times in 1998 and 1997
versus 8.7 times in 1996 (excluding nonrecurring charges for all years).
In May 1997, Duff and Phelps revised its rating on the Company's long-term
debt from "A" to "A-", reflecting concern about the recent performance of the
Company's integrated services operations, increased capital spending levels and
rising uncertainty in the integrated services business. Standard & Poor's
affirmed its "A" rating of the Company, although it revised its rating "outlook"
from stable to negative. Rating outlooks serve as an assessment of long-term
trends or risks, normally for periods covering one to three years, that have
less certain credit implications, and are not necessarily a precursor to future
rating changes. Moody's and Fitch affirmed their ratings of "A3" and "A",
respectively. The Company does not anticipate that the revised rating or rating
"outlook" will have a material impact on the future cost of borrowing.
Total gross expenditures for property, plant and equipment in 1999 are
anticipated to be consistent with 1998. The Company anticipates financing its
capital program through a combination of internally generated cash from
operations and external borrowings.
Under the Company's Open Market Plan, dividend payments to the parent company
are temporarily prohibited until FTR receives clearance from the NYSPSC that
service requirements are being met. Cash restricted for dividend payments by FTR
as of December 31, 1998 was approximately $53.0 million.
In December 1998, the Company's Board of Directors declared a quarterly
dividend on common stock of $0.2225 per share, payable February 1, 1999, to
shareholders of record on January 15, 1999.
24
<PAGE>
On January 25, 1999, the Company's Board of Directors approved a dividend
restructuring plan which reduces the annual common stock dividend from $0.89 to
$0.20 per share annually. This change in dividend policy will be effective with
the payment of the common stock cash dividend currently expected to be declared
in March, 1999 and paid on May 1, 1999 to shareholders of record as of April 15,
1999. The reduction has no effect on the common stock dividend payable 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 more in line with growth-oriented
integrated telecommunication services companies and to allow the Company to
invest more heavily in its growth businesses and provide for greater strategic
alternatives.
Y2K
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. Disclosure is warranted because the issues, if unresolved
by the Company and by the many unaffiliated carriers and other firms with whom
the Company interconnects its networks or does business, could have impacts that
are material. 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 internally-developed
IT systems are now compliant. Final assessments and remediation are expected to
be substantially complete by midyear 1999, leaving the remainder of 1999 for
additional system testing, carrier interoperability testing and other
remediation. These plans involve capital expenditures for new software and
hardware, as well as costs to modify existing software. Initially, work with IT
systems was given priority over work with non-IT systems, but the Company is
comprehensively reviewing its non-IT Year 2K readiness as well, including
communications with third parties who supply or maintain non-IT systems or
significant non-IT subsystems.
Costs. To date, the Company has committed approximately $7.5 million to Year
2K issues, and anticipates that it will spend an additional $3.0 to $4.6 million
during 1999. This includes costs directly related to Year 2K assessment and
remediation and the replacement of non-compliant systems, including acceleration
of replacement of non-compliant systems 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.
25
<PAGE>
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 will
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 is outside the
Company's control. In addition, the Company is unable at this time to assess the
degree to which the manufacturers of switches and similar equipment have
completed their assessment and remediation of such equipment and its associated
software with respect to any other carriers. The majority of the Company's
switches are manufactured and supported by entities with a broad base of
similarly situated customers, and who have a vested interest in assuring that
their products will not be affected by Year 2K events, and if affected, will be
remedied promptly. 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. 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. 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.
Consistent with the practice of other carriers, the Company generally has
declined to provide Year 2K compliance warranties or other Year 2K-related
contractual promises to customers or other persons. In addition, the Company is
engaged in communications with third party equipment and software vendors and
suppliers of services to verify their Year 2K readiness, and plans to engage in
internetwork testing with other carriers during 1999. Since the Company's own
Optronics network, including the recently announced 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 are outside of its control. During 1999, the
Company will also monitor efforts undertaken through regulatory agencies and
industry groups to assure that Year 2K preparations are completed in a timely
manner. The Company has begun to evaluate whether there are areas for which
contingency plans are appropriate (but has not identified any such areas to
date). Any need for contingency planning will be identified over the next two
quarters. Contingency plans (if necessary) will be developed for critical
systems if conversion or replacement projects fall behind schedule, or if
internetwork testing should identify significant risk issues, or if broader
industry concerns emerge that management concludes require such action.
26
<PAGE>
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued FAS 130, "Reporting
Comprehensive Income," effective for fiscal years beginning after December 15,
1997. This statement establishes standards for reporting and displaying of
comprehensive income and its components in a full-set of general-purpose
financial statements. Comprehensive income is defined as "the change in equity
of a company during a period from transactions and other events and
circumstances from nonowner sources." This statement requires reporting by major
components and as a single total, the change in net assets during the period
from non-shareholder sources. The Company adopted FAS 130 in the first quarter
of 1998. Adoption of this standard does not have a material impact on Frontier.
The Company has adopted the provisions of FAS 131, "Disclosures about Segments
of an Enterprise and Related Information," effective December 31, 1998. This
statement establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of this statement did not impact
the Company's consolidated financial position, results of operations or cash
flows.
In April 1998, the American Institute of Certified Public Accountants issued
SOP 98-5 which requires that start-up costs be expensed as incurred. The Company
adopted the provisions of SOP 98-5 in 1998. Accordingly, $1.8 million, net of
applicable income taxes of $.8 million of unamortized start-up costs at December
31, 1997, have been expensed in the accompanying Consolidated Statements of
Income and is reported as cumulative effect of a change in accounting principle.
These start-up costs are primarily related to product development costs
associated with new business ventures.
The Company adopted FAS 128, "Earnings Per Share," effective December 31,
1997. This statement simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No. 15, "Earnings Per
Share", and makes them comparable to international earnings per share ("EPS")
standards. FAS 128 requires dual presentation of basic and diluted EPS on the
face of the income statement and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS calculation. Basic EPS excludes the effect of common stock
equivalents and is computed by dividing income available to common shareholders
by the weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could result if securities or other
contracts to issue common stock were exercised or converted into common stock.
The impact on EPS resulting from the adoption of FAS 128 was not material.
The FASB issued FAS 133, "Accounting for Derivative Instruments and Hedging
Activities" effective for fiscal years beginning after June 15, 1999. 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.
27
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and
Shareholders of Frontier Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Frontier Corporation
and its subsidiaries at December 31, 1998, 1997, and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 12 to the financial statements, during 1998 the Company
adopted the provisions of Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities."
As discussed in Note 12 to the financial statements, during 1996 the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
January 25, 1999
Rochester, New York
Report of Management
- --------------------------------------------------------------------------------
The integrity and objectivity of the accompanying financial information is the
responsibility of the management of Frontier Corporation.
The financial statements report on management's accountability for corporate
operations and assets. To this end management maintains a highly developed
system of internal controls and procedures designed to provide reasonable
assurance that the Company's assets are protected and that all transactions are
accounted for in conformity with generally accepted accounting principles. The
system includes documented policies and guidelines, augmented by a comprehensive
program of internal and independent audits conducted to monitor overall accuracy
of financial information and compliance with established procedures.
PricewaterhouseCoopers LLP, an independent accounting firm, provides an
objective assessment of the degree to which management meets its responsibility
for financial reporting. They regularly evaluate the system of internal
accounting controls and perform such tests and other procedures they consider
necessary to express an opinion that the financial statements present fairly the
financial position of the Company.
/s/ Rolla P. Huff
Rolla P. Huff
Executive Vice President and Chief Financial Officer
Frontier Corporation
January 25, 1999
Report of Audit Committee
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors is comprised of three independent
directors who are not officers or employees of the corporation. The committee
oversees the Company's financial reporting process on behalf of the Board of
Directors. The Audit Committee recommends to the Board of Directors the election
of the independent accountants and ratification by the shareholders. The
committee also meets regularly with management, the independent accountants and
internal auditors to review accounting, auditing, internal accounting controls,
pending litigation and financial reporting matters. As a matter of policy, the
internal auditors and independent accountants have unrestricted access to the
Audit Committee.
/s/ Jairo A. Estrada
Jairo A. Estrada
Chairman, Audit Committee
Frontier Corporation
January 25, 1999
28
<PAGE>
Business Segment Information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Integrated Services:
Revenue
Commercial $ 981,977 $ 924,779 $ 938,030
Consumer 239,782 267,689 241,311
Carrier 641,361 420,670 702,590
Exited business-Prepaid -- 53,362 19,278
- ------------------------------------------------------------------------------------------------------------
Total Revenue 1,863,120 1,666,500 1,901,209
Cost of Access 1,191,760 1,067,985 1,210,343
- ------------------------------------------------------------------------------------------------------------
Gross Margin 671,360 598,515 690,866
Selling, General and Administrative Expense 471,625 464,236 376,600
Depreciation and Amortization 110,097 98,844 84,336
- ------------------------------------------------------------------------------------------------------------
Operating Income:
Operating Income Before Other Charges 89,638 35,435 229,930
Other Charges (6,528) (175,856) (39,756)
- ------------------------------------------------------------------------------------------------------------
Total Operating Income (Loss) $ 83,110 $ (140,421) $ 190,174
Capital Expenditures $ 487,403 $ 316,901 $ 189,604
Total Assets $1,740,320 $1,327,651 $1,059,951
============================================================================================================
Local Communications Services:
Revenue $ 701,935 $ 667,078 $ 643,013
Costs and Expenses 334,642 314,503 325,025
Depreciation and Amortization 112,925 110,104 102,350
- ------------------------------------------------------------------------------------------------------------
Operating Income:
Operating Income Before Other Charges 254,368 242,471 215,638
Other Charges -- (4,174) (23,100)
- ------------------------------------------------------------------------------------------------------------
Total Operating Income $ 254,368 $ 238,297 $ 192,538
Capital Expenditures $ 153,901 $ 108,782 $ 101,342
Total Assets $1,033,655 $ 931,438 $ 941,629
============================================================================================================
Corporate Operations and Other:
Revenue $ 28,503 $ 41,231 $ 44,297
Costs and Expenses 45,801 46,011 49,612
Depreciation and Amortization 2,784 3,584 4,274
- ------------------------------------------------------------------------------------------------------------
Operating Loss:
Operating Loss Before Other Charges (20,082) (8,364) (9,589)
Other Charges -- (3,354) (4,900)
- ------------------------------------------------------------------------------------------------------------
Total Operating Loss $ (20,082) $ (11,718) $ (14,489)
Capital Expenditures $ 55,128 $ 27,305 $ 22,554
Total Assets $ 284,768 $ 228,831 $ 227,812
============================================================================================================
Consolidated:
Revenue $2,593,558 $2,374,809 $2,588,519
Costs and Expenses 2,043,828 1,892,735 1,961,580
Depreciation and Amortization 225,806 212,532 190,960
- ------------------------------------------------------------------------------------------------------------
Operating Income:
Operating Income Before Other Charges 323,924 269,542 435,979
Other Charges (6,528) (183,384) (67,756)
- ------------------------------------------------------------------------------------------------------------
Total Operating Income $ 317,396 $ 86,158 $ 368,223
Capital Expenditures $ 696,432 $ 452,988 $ 313,500
Total Assets $3,058,743 $2,487,920 $2,229,392
============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE>
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except per share data Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Integrated Services $1,863,120 $1,666,500 $1,901,209
Local Communications 701,935 667,078 643,013
Corporate Operations and Other 28,503 41,231 44,297
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 2,593,558 2,374,809 2,588,519
Costs and Expenses
Operating expenses 1,982,008 1,834,239 1,911,553
Depreciation and amortization 225,806 212,532 190,960
Taxes other than income taxes 61,820 58,496 50,027
Other charges 6,528 183,384 67,756
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 2,276,162 2,288,651 2,220,296
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income 317,396 86,158 368,223
Interest expense 55,318 48,239 43,312
Other income:
Gain on sale of assets 20,378 18,765 4,976
Equity earnings from unconsolidated wireless interests 16,711 12,019 9,011
Interest income 5,084 3,659 2,363
Other income (expense) 2,852 3,627 (500)
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes and Cumulative Effect of
Changes in Accounting Principles 307,103 75,989 340,761
Income tax expense 129,560 44,188 142,556
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Changes in
Accounting Principles 177,543 31,801 198,205
Cumulative effect of changes in accounting principles (1,755) -- (8,018)
- -----------------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income 175,788 31,801 190,187
Dividends on preferred stock (1,005) (1,019) (1,182)
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Income Applicable to Common Stock $ 174,783 $ 30,782 $ 189,005
Diluted earnings adjustment 360 -- 360
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted Income Applicable to Common Stock $ 175,143 $ 30,782 $ 189,365
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share
Income before cumulative effect of changes in accounting principles $ 1.03 $ .18 $ 1.19
Cumulative effect of changes in accounting principles (.01) -- (.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share $ 1.02 $ .18 $ 1.14
Average Shares Outstanding 170,626 168,975 165,234
===================================================================================================================================
Diluted Earnings Per Common Share
Income before cumulative effect of changes in accounting principles $ 1.02 $ .18 $ 1.18
Cumulative effect of changes in accounting principles (.01) -- (.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share $ 1.01 $ .18 $ 1.13
Average Shares Outstanding 173,941 169,967 167,508
===================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars, except share data December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 85,143 $ 26,302 $ 37,411
Accounts receivable (less allowance for uncollectibles of
$37,956, $25,100 and $31,519, respectively) 422,724 380,324 365,486
Materials and supplies 9,924 12,312 13,421
Deferred income taxes 13,320 33,948 30,617
Prepayments and other 35,563 37,419 30,826
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 566,674 490,305 477,761
Property, plant and equipment, net 1,677,559 1,046,884 975,982
Goodwill and customer base, net 484,015 517,754 538,296
Deferred and other assets 330,495 432,977 237,353
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $3,058,743 $2,487,920 $2,229,392
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 449,041 $ 343,606 $ 326,938
Dividends payable 38,508 36,798 35,966
Debt due within one year 9,466 6,443 7,929
Taxes accrued 26,128 16,023 34,968
Other liabilities 44,554 90,108 18,596
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 567,697 492,978 424,397
Long-term debt 1,350,821 934,681 677,570
Deferred income taxes 40,046 10,927 2,542
Deferred employee benefits obligation 81,925 74,965 57,573
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,040,489 1,513,551 1,162,082
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock 18,770 20,126 22,611
Common stock, par value $1.00, authorized 300,000,000 shares;
171,635,518 shares, 170,503,300 shares, and 168,649,955
shares issued in 1998, 1997, and 1996 171,636 170,503 168,649
Capital in excess of par value 578,946 550,423 523,011
Retained earnings 274,870 253,042 365,651
Accumulated other comprehensive income:
Minimum pension liability adjustment and other (4,249) (2,546) (1,076)
- -----------------------------------------------------------------------------------------------------------------------------------
1,039,973 991,548 1,078,846
Less-
Treasury stock, 10,849 shares in 1998 and 1997
and 6,375 shares in 1996, at cost 231 231 147
Unearned compensation 21,488 16,948 11,389
- -----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,018,254 974,369 1,067,310
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $3,058,743 $2,487,920 $2,229,392
===================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 175,788 $ 31,801 $ 190,187
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating activities:
Other charges 6,528 183,384 67,756
Cumulative effect of changes in accounting principles 2,564 -- 12,396
Depreciation and amortization 225,806 212,532 190,960
Gain on sale of assets (20,378) (18,765) (4,976)
Equity earnings from unconsolidated wireless interests (16,711) (12,019) (9,011)
Other, net 6,768 4,474 92
Changes in operating assets and liabilities,
exclusive of impacts of dispositions and acquisitions:
(Increase) decrease in accounts receivable (43,388) (26,057) 36,137
Decrease (increase) in material and supplies 2,183 (1,315) (1,378)
Decrease (increase) in prepayments and other current assets 1,779 (7,047) (2,295)
Increase in deferred and other assets (32,896) (7,646) (12,970)
Increase (decrease) in accounts payable 85,717 3,482 (77,532)
(Decrease) increase in taxes accrued and other current liabilities (15,589) (120,416) 1,582
Increase (decrease) in deferred employee benefits obligation 5,916 8,323 (1,298)
Increase in deferred income taxes 50,113 5,054 7,545
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments 258,412 223,984 207,008
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 434,200 255,785 397,195
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (629,815) (286,947) (249,231)
Deposits for capital projects (17,060) (78,109) (62,694)
Proceeds from asset sales 49,216 67,889 13,841
Investment in cellular partnerships 29 4,524 (29,422)
Purchase of companies, net of cash acquired -- -- (5,791)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (597,630) (292,643) (333,297)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 380,910 401,450 58,335
Repayments of debt (13,840) (236,386) (15,120)
Dividends paid (151,812) (143,638) (138,697)
Issuance of common stock 8,433 9,289 33,407
Other financing activities (1,420) (4,966) 4,103
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 222,271 25,749 (57,972)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 58,841 (11,109) 5,926
Cash and Cash Equivalents at Beginning of Year 26,302 37,411 31,485
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 85,143 $ 26,302 $ 37,411
====================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Capital Compre- Unearned
Preferred Common In Excess Retained hensive Treasury Compen-
In thousands of dollars Stock Stock of Par Earnings Income Stock sation Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 22,769 $160,754 $418,848 $ 317,575 $ (842) $ (147) $ (6,511) $ 912,446
Comprehensive Income:
Net income 190,187 190,187
Minimum pension liability
adjustment and other
(net of tax of $261) (234) (234)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 189,953
- -----------------------------------------------------------------------------------------------------------------------------------
Acquisitions 1,645 19,984 21,629
Redemptions (158) 53 (105)
Exercise of stock options 5,482 27,355 32,837
Exercise of warrants 87 131 218
Restricted stock plan activity, net 100 4,089 (4,878) (689)
Tax benefit from exercise of
stock options 48,531 48,531
Common and preferred dividends (141,416) (141,416)
Equity offering of pooled subsidiary 574 3,675 4,249
Other 7 345 (695) (343)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 22,611 $168,649 $523,011 $ 365,651 $ (1,076) $ (147) $(11,389) $1,067,310
Comprehensive Income:
Net income 31,801 31,801
Minimum pension liability
adjustment and other
(net of tax of $868) (1,470) (1,470)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 30,331
- -----------------------------------------------------------------------------------------------------------------------------------
Acquisitions 616 8,146 2,384 11,146
Redemptions (2,485) (13) (2,498)
Exercise of stock options 162 752 914
Exercise of warrants 44 65 109
Restricted stock plan activity, net 190 3,933 (2,556) 1,567
Incentive stock plan, net 4,964 (3,003) 1,961
Tax benefit from exercise of
stock options 982 982
Common and preferred dividends (144,470) (144,470)
Purchases for acquisition (2,468) (2,468)
Equity offering of pooled subsidiary 813 8,215 9,028
Other 29 368 60 457
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 20,126 $170,503 $550,423 $ 253,042 $ (2,546) $ (231) $(16,948) $ 974,369
Comprehensive Income:
Net income 175,788 175,788
Minimum pension liability
adjustment and other
(net of tax of $365) (1,703) (1,703)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 174,085
- -----------------------------------------------------------------------------------------------------------------------------------
Redemptions (1,356) (102) (1,458)
Exercise of stock options 548 7,885 8,433
Restricted stock plan activity, net 344 15,847 (5,380) 10,811
Incentive stock plan, net 840 840
Tax benefit from exercise of
stock options 4,505 4,505
Common and preferred dividends (153,522) (153,522)
Other 241 388 (438) 191
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $18,770 $171,636 $578,946 $ 274,870 $ (4,249) $ (231) $(21,488) $1,018,254
===================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Description of Business and Organization--Frontier Corporation ("Frontier" or
"the Company"), headquartered in Rochester, New York, is a leading provider of
integrated telecommunications services, including Internet, IP and data
applications, long distance, local telephone and enhanced services to more than
two million business, carrier, web-centric and targeted residential customers
nationwide, and in certain international countries. It is one of the largest
long distance carriers and local exchange service providers in the United
States. The Company provides domestic and international voice, data products,
video and audio communications, digital distribution services, and Internet
service and other communications products to primarily small to mid-sized
business customers, carrier customers, web-centric customers and targeted
consumer markets.
Consolidation--The consolidated financial information includes the accounts of
Frontier 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.
Materials and Supplies--Materials and supplies are stated at the lower of cost
or market, based on weighted average unit cost.
Property, Plant and Equipment--The investment in property, plant and equipment
is recorded at cost. Improvements that significantly add to productive capacity
or extend useful life are capitalized. Maintenance and repairs are expensed as
incurred. The Company's provision for depreciation of property, plant and
equipment is based on the straight-line method using estimated service lives of
the various classes of plant. The range of service lives for buildings is 10 to
40 years. The range of service lives for local and fiber service lines is 12 to
25 years, central office equipment and switching facilities is 3 to 20 years,
station equipment is 10 to 21 years and for office equipment and other is 2 to
20 years.
The cost of depreciable telephone property units (assets of the Local
Communications segment) retired, plus removal costs, less salvage is charged to
accumulated depreciation. When non-telephone property, plant and equipment is
retired or sold, the resulting gain or loss is recognized currently as an
element of other income.
Goodwill and Customer Base--The excess of the cost of companies purchased over
the net assets acquired is amortized using a straight-line basis over 7 to 40
years. The purchase price of customer bases acquired is amortized using a
straight-line basis over principally 5 to 7 years. Accumulated amortization is
$142.8 million, $131.6 million, and $106.5 million at the end of 1998, 1997 and
1996, respectively.
Investment in Cellular Partnerships--Financial results for the Company's
cellular joint venture with Bell Atlantic Corporation have been reported using
the equity method of accounting. Accordingly, Frontier's 50% share of the joint
venture's earnings is reflected in the "Other income" section of the
Consolidated Statements of Income. The partnership investment balances of $83.5
million in 1998, $69.3 million in 1997, and $58.6 million in 1996 are included
in "Deferred and other assets" in the Consolidated Balance Sheets.
Impairment of Long-Lived Assets--In the event that facts and circumstances
indicate that the carrying amount of a long-lived asset may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow is required.
34
<PAGE>
Accounts Payable--Accounts payable includes trade accounts payable and an
estimated accrual for long distance cost of access.
Fair Value of Financial Instruments--Cash and cash equivalents are valued at
their carrying amounts, which are reasonable estimates of fair value. The fair
value of long-term debt is estimated using rates currently available to the
Company for debt with similar terms and maturities. The fair value of all other
financial instruments approximates cost as stated.
Federal Income Taxes--Deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that are
anticipated to be in effect when those differences are expected to reverse.
Income tax benefits of tax deductions related to common stock transactions with
the Company's stock option plans are recorded directly to capital in excess of
par value.
The Company provides a valuation allowance for its deferred tax assets when it
is more likely than not that some portion or all of the deferred tax assets will
not be realized.
Revenue Recognition--Customers are billed as of monthly cycle dates. Revenue
is recognized as service is provided net of an estimate for uncollectible
accounts.
Fiber Exchange Agreements--In connection with its Optronics network expansion,
the Company has entered into various agreements to sell or exchange fiber usage
rights. Sales of fiber usage rights are recorded as unearned revenue. Revenue is
recognized over the terms of the related agreements. Non-monetary exchanges of
fiber usage rights (swaps of fiber usage with other long distance carriers) are
recorded at the cost of the asset transferred or, if applicable, the fair value
of the asset received.
Market Risk Disclosure--As of December 31, 1998, the Company does not have any
significant concentration of business transacted with a particular customer,
supplier or lender that could, if suddenly eliminated, severely impact its
operations. However, a portion of the Company's revenues is derived from
services provided to others in the telecommunications industry, mainly resellers
of long distance telecommunications service. Accordingly, the Company
periodically performs ongoing credit evaluations of its larger customers'
financial condition to limit credit risk to the extent possible.
The Company is also exposed to market risk from changes in interest rates on
long-term debt obligations that impact the fair value of these obligations. The
Company's policy is to manage interest rates through the use of a combination of
fixed and variable rate debt, and to periodically use interest rate swaps to
manage its risk profile.
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.
The tax benefit realized from the exercise of stock options of $4.5 million,
$1.0 million, and $48.5 million for 1998, 1997 and 1996, respectively, is
reflected as an adjustment to capital in excess of par value and taxes accrued.
Actual interest paid was $53.8 million in 1998, $59.6 million in 1997, and
$49.7 million in 1996. Actual income taxes paid were $64.2 million in 1998,
$61.3 million in 1997, and $70.1 million in 1996. Interest costs associated with
the construction of capital assets, including the nationwide Optronics network
project, are capitalized. Total amounts capitalized during 1998, 1997 and 1996
were $18.2 million, $13.4 million, and $6.2 million, respectively.
Reclassifications--Certain reclassifications have been made to previously
reported balances for 1996 and 1997 to conform to the 1998 presentation.
35
<PAGE>
2. Acquisitions, Mergers and Divestitures
Acquisitions and Mergers
On February 27, 1998, the Company acquired GlobalCenter Inc. (renamed "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
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 has been restated
to include GlobalCenter.
Combined and separate results of Frontier Corporation and GlobalCenter were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Frontier
In Millions Corporation GlobalCenter Combined
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One month ended January 31, 1998
Revenues $ 205.5 $ 2.5 $ 208.0
Net income (loss) $ 14.7 $ (1.0) $ 13.7
- --------------------------------------------------------------------------------
Year ended December 31, 1997
Revenues $2,352.9 $ 21.9 $2,374.8
Net income (loss) $ 54.6 $(22.8) $ 31.8
- --------------------------------------------------------------------------------
Year ended December 31, 1996
Revenues $2,575.6 $ 12.9 $2,588.5
Net income (loss) $ 209.9 $(19.7) $ 190.2
================================================================================
</TABLE>
In November 1997, the Company, through GlobalCenter, acquired Voyager
Networks, Inc. ("Voyager"), a New York City-based provider of content management
and distribution services. The Company issued .6 million shares of Frontier
equivalent common stock in exchange for all of Voyager's issued and outstanding
shares of common stock. Additionally, .1 million outstanding options for common
stock of Voyager, as converted into Frontier equivalents, were assumed by the
Company in connection with the acquisition. This transaction was accounted for
as a purchase.
In May 1997, the Company, through GlobalCenter, merged with ISI, Inc. ("ISI"),
a Sunnyvale, California-based provider of web hosting and digital distribution
services. The Company issued 1.7 million shares of Frontier equivalent common
stock in exchange for all of ISI's issued and outstanding voting stock.
Additionally, .1 million outstanding options for common stock of ISI, as
converted into Frontier equivalents, were assumed by the Company in connection
with the merger. The ISI merger was accounted for as a pooling of interests and,
accordingly, the Company's consolidated financial statements have been restated
for all periods prior to the merger to include the accounts and operations of
ISI.
In February 1997, the Company completed its purchase of R.G. Data Incorporated
(renamed "Frontier Network Systems Corp." or "FNSC"), a privately held upstate
New York based computer and data networking equipment and services company. A
total of 110,526 shares of Frontier common stock held in treasury were reissued
in exchange for all of the shares of R.G. Data Incorporated. The treasury shares
were acquired through open market purchases. This transaction was accounted for
as a purchase.
In December 1996, the Company, through GlobalCenter, merged with GCIS, Inc.
("GCIS"), a Sunnyvale, California-based provider of business Internet management
services. The Company issued 1.6 million shares of Frontier equivalent common
stock in exchange for all of the issued and outstanding voting stock of GCIS.
Additionally, .1 million outstanding options for the common stock of GCIS, as
converted into Frontier equivalents, were assumed by the Company in connection
with the merger. This transaction was accounted for as a purchase.
36
<PAGE>
In March 1996, the Company acquired a 55 percent interest in the New York RSA
No. 3 Cellular Partnership ("RSA No. 3"). RSA No. 3 is a provider of cellular
mobile telephone service in the New York State Rural Service Area No. 3, which
encompasses much of the Southern Tier area of New York State. The Company's
interest in RSA No. 3 is managed by Frontier Cellular, a 50/50 owned joint
venture with Bell Atlantic, and the operating results are reported using the
equity method of accounting. The Company paid $25.3 million in cash for its
interest in RSA No. 3.
Divestitures
During November 1998, the Company sold certain non-strategic investments. The
sales resulted in an after-tax gain of $3.0 million.
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 $15.2 million and an after-tax gain of $2.9 million.
The income tax effect on these gains of $12.3 million is primarily impacted by
the sale of Minnesota RSA No. 10 which resulted in nondeductible goodwill.
On December 9, 1997, the Company completed the sale of a portion of its retail
prepaid calling card business to SmarTalk Teleservices Inc. for $36.6 million.
The net proceeds from this sale were offset by costs necessary to phase out the
remainder of the Company's prepaid business.
On January 31, 1997, the Company completed the sale of its 69.5% equity
interest in the South Alabama Cellular Communications Partnership. The sale
resulted in a pre-tax gain of $18.8 million.
3. Other Charges
In the first quarter of 1998, the Company recorded a pre-tax charge of $6.5
million associated with the acquisition of GlobalCenter. These charges included
investment banker, legal fees and other direct costs and were subsequently
liquidated in 1998.
In October 1997, the Company recorded a pre-tax charge of $86.8 million
consisting of a restructuring charge of $43.0 million and a provision for asset
and lease impairments of $43.8 million. The restructuring charge was primarily
associated with a workforce reduction, program cancellations and the exiting of
certain product lines. During 1997, the Company reduced its work force by
approximately 700 positions, or 8%, and the restructuring charge of $43.0
million was subsequently liquidated during 1998. The provision for asset and
lease impairments primarily relates to long term assets and certain lease
obligations the Company is in the process of disposing of, or exiting.
In March 1997, the Company recorded a $96.6 million pre-tax charge primarily
related to the write-off of certain leased network facilities no longer required
as a result of the migration of the Company's major carrier customer's one-plus
traffic volume to other networks and the Company's overall network integration
efforts. The Company completed the decommissioning of these redundant facilities
during the first quarter of 1998.
In December 1996, the Company, through GlobalCenter, recorded a pre-tax charge
of $18.9 million related to the write-off of in-process product development
costs associated with the 1996 merger with GCIS, an Internet management services
company.
In November 1996, the Company recorded a $48.8 million pre-tax charge. This
charge included $28.0 million for the curtailment of certain Company pension
plans and a $20.8 million charge primarily to write-off unrecoverable product
development costs for its conference calling product line.
37
<PAGE>
4. Property, Plant and Equipment
Major classes of property, plant, and equipment are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands of dollars At December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and buildings $ 111,948 $ 117,750 $ 116,876
Local and fiber service lines 857,699 817,645 795,855
Central office equipment 677,380 614,021 580,217
Station equipment 43,293 40,608 38,770
Switching facilities and Optronics network 720,019 412,067 390,779
Office equipment and other 370,959 266,223 233,737
Plant under construction 424,153 171,756 126,140
Less: Accumulated Depreciation 1,527,892 1,393,186 1,306,392
- --------------------------------------------------------------------------------
$1,677,559 $1,046,884 $ 975,982
================================================================================
</TABLE>
Depreciation expense was $189.8 million, $167.7 million and $147.6 million for
the years ending December 31, 1998, 1997 and 1996, respectively.
5. Long-Term Debt
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
In thousands of dollars At December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frontier Communications of Minnesota, Inc.
Senior Notes, 7.61%, due 2003 $ 35,000 $ 35,000 $ 35,000
Rural Utilities Service Debt,
2%-9% due 1999 to 2026 50,313 53,239 64,654
- ---------------------------------------------------------------------------------------
85,313(a) 88,239 99,654
- ---------------------------------------------------------------------------------------
Debentures
10.46% convertible, due 2008 5,300(b) 5,300 5,300
9%, due 2021 100,000 100,000 100,000
- ---------------------------------------------------------------------------------------
105,300 105,300 105,300
- ---------------------------------------------------------------------------------------
9% Senior Subordinated Notes, due 2003 --(c) 3,061 3,180
Medium-term notes, 7.51% - 9.3%, due 2000 to 2004 219,000 219,000 219,000
8.25% Notes, due 2011 -- 2,225 2,600
7.25% Notes, due 2004 300,000 300,000(d) --
6.25% 12-2 Putable Notes ("PATS"), due 1999 100,000 100,000(e) --
6.00% 15-5 Putable Notes, due 2013 200,000(f) -- --
Revolving Credit Agreements 197,719(g) 21,705 248,570
Capitalized lease obligations 12,519 8,795 9,051
Other debt 136,914(h) 92,888 996
- ---------------------------------------------------------------------------------------
Sub-total 1,356,765(i) 941,213 688,351
Less: Discount/(Premium) on long-term debt (3,522) 89 2,852
Current portion of long-term debt 9,466 6,443 7,929
- ---------------------------------------------------------------------------------------
Total Long-Term Debt $1,350,821 $934,681 $677,570
=======================================================================================
</TABLE>
(a) Certain assets of the Local Communications Services' segment are pledged as
security.
(b) The debenture is convertible into common stock at any time after October
26, 1998 at $10.5375 per share. A total of 502,966 shares of common stock are
reserved for such conversion.
(c) The Company exercised its option to call the remaining balance of its 9%
2003 Senior Subordinated Notes in May 1998.
(d) In December 1997, the Company entered into an interest rate hedge agreement
that effectively converts $200.0 million of the Company's 7.25% fixed-rate notes
due May 2004 into a floating rate based on a "basket" London Interbank Offered
Rate ("LIBOR") index rate plus 2.88%. The agreement expires in May 2004 and caps
the floating rate the Company pays at 7.25% through November 1999 and 9.00%
through May 2004. Interest expense and the related cash flows under the
agreement are accounted for on an accrual basis. The Company periodically enters
into such agreements to balance its floating rate and fixed rate obligations to
insulate against interest rate risk and maximize savings.
38
<PAGE>
(e) The Company issued $100.0 million face value of putable notes in December,
1997 as a 144A offering. These notes have an initial maturity of two years, at
which time the notes will be either put back to the Company for redemption or
effectively remarketed by the trust as 10 year debt, depending on the interest
rate environment at that time. In the event that the notes are put back for
redemption in 1999, the Company intends to finance this obligation through
available credit facilities and unused commitments extending beyond one year;
therefore, the obligation is classified as long-term debt.
(f) The Company issued $200.0 million face value of putable notes in September
1998. These notes may be put back to the Company in October 2003, depending on
the interest rate environment at that time.
(g) The Company has credit facilities totaling $475.0 million which are
available through commercial paper borrowings or through draws under Revolving
Credit Agreements. At December 31, 1998, the Company had outstanding $197.7
million in commercial paper issuances. Commercial paper is classified as long-
term debt as the Company intends to refinance the debt through continued short-
term borrowing or available credit facilities with unused commitments extending
beyond one year. The Company established a $275.0 million three-year revolving
credit facility and a $200.0 million 364 day facility in November 1998 with a
group of ten commercial banks. The Agreements are unsecured and have commitment
fees of .09 percent per year on the entire commitment, with interest on amounts
drawn down based upon LIBOR plus .16 percent
(h) This amount includes the Company's obligation to pay $136.9 million related
to its Optronics network build ($57.9 million) and other capital initiatives
($79.0 million). As of December 31, 1997, the Company was obligated to pay $92.9
million related to its Optronics network. These amounts are classified as long-
term as the Company intends to finance this obligation through available credit
facilities and unused commitments extending beyond one year.
(i) In accordance with FAS 107, "Disclosures about Fair Value of Financial
Instruments," the Company estimates that the fair value of the debt, based on
rates currently available to the Company for debt with similar terms and
remaining maturities, is $1.41 billion, as compared to the carrying value of
$1.36 billion.
At December 31, 1998, aggregate debt maturities were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
In thousands of dollars 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9,466 $16,942 $273,355 $43,249 $ 37,991
============================================================================
</TABLE>
6. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 64,057 $24,189 $114,402
Deferred 47,144 11,101 5,996
- -----------------------------------------------------------------------------------
111,201 35,290 120,398
- -----------------------------------------------------------------------------------
State:
Current 11,327 11,234 19,757
Deferred 7,032 (2,336) 2,401
- -----------------------------------------------------------------------------------
18,359 8,898 22,158
- -----------------------------------------------------------------------------------
Total income taxes $129,560 $44,188 $142,556
===================================================================================
</TABLE>
The reconciliation of the federal statutory income tax rate with the effective
income tax rate reflected in the financial statements is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense at statutory rate 35.0% 35.0% 35.0%
State income tax (net of federal benefit) 3.9 7.6 4.2
Net operating loss carryforwards (1.1) 4.7 (1.0)
Research and development costs -- -- 1.9
Goodwill amortization 3.4 7.0 1.3
Other 1.0 3.8 .4
- -----------------------------------------------------------------------------------
Total income tax 42.2% 58.1% 41.8%
===================================================================================
</TABLE>
39
<PAGE>
Deferred tax liabilities (assets) are comprised of the following at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
In thousands of dollars 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation $ 121,038 $ 111,657 $ 87,612
Research and development costs 9,376 4,712 1,447
Other 36,924 19,206 21,468
- ----------------------------------------------------------------------------------------
Gross deferred tax liabilities 167,338 135,575 110,527
- ----------------------------------------------------------------------------------------
Basis adjustment - purchased
telephone companies (25,296) (23,120) (25,477)
Employee benefits obligation (15,498) (13,509) (11,136)
Net operating loss carryforwards (54,589) (56,494) (46,066)
Acquisition related and other charges (20,255) (46,944) (27,630)
Bad debt expense (3,486) (4,463) (11,232)
Other (40,927) (36,972) (38,127)
- ----------------------------------------------------------------------------------------
Gross deferred tax assets (160,051) (181,502) (159,668)
Valuation allowance 19,439 22,906 21,066
- ----------------------------------------------------------------------------------------
Total deferred tax assets (140,612) (158,596) (138,602)
- ----------------------------------------------------------------------------------------
Net deferred tax liabilities (assets) $ 26,726 $ (23,021) $ (28,075)
========================================================================================
</TABLE>
Certain of the Company's acquired subsidiaries have tax net operating losses
and alternative tax net operating loss carryforwards ("NOLs") which can be
utilized annually to offset separate company future taxable income. Under the
provisions of Internal Revenue Code Section 382, the utilization of
carryforwards is presently limited. The Company's NOLs begin to expire in 2004.
As a result of the annual limitation and the difficulty in predicting their
utilization beyond a period of three years, the Company has established
valuation allowances for the NOL carryforwards. Because certain of the NOL
carryforwards were acquired in purchase acquisitions and the related valuation
allowance was recorded using purchase accounting, $7.0 million of this valuation
allowance, if subsequently recognized, would be allocated to reduce goodwill.
7. Service Pensions and Benefits
The Company has contributory and noncontributory plans providing for service
pensions and certain death benefits for substantially all employees. In 1995 and
1996, defined benefit plans sponsored by the Company were frozen. On an annual
basis, contributions are remitted to the trustees to ensure proper funding of
the plans.
The majority of the Company's pension plans have plan assets that exceed
accumulated benefit obligations. There are certain plans, however, with
accumulated benefit obligations which exceed plan assets. The following tables
summarize the funded status of the Company's pension plans and the related
amounts that are primarily included in "Deferred and other assets" in the
Consolidated Balance Sheets.
40
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
In thousands of dollars 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $487,702 $437,954 $409,563
Service cost 162 1,551 6,487
Interest cost 32,820 32,983 30,100
Actuarial loss (gain) 14,663 35,947 (5,692)
Benefits paid (36,085) (28,413) (22,110)
Curtailments -- 737 19,606
Special termination benefits -- 6,943 --
- ----------------------------------------------------------------------------------------
Benefit obligation at end of year $499,262 $487,702 $437,954
- ----------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $550,866 $493,894 $451,024
Actual return on plan assets 73,667 83,775 63,806
Employer contribution 2,000 1,610 1,174
Benefits paid (36,085) (28,413) (22,110)
- ----------------------------------------------------------------------------------------
Fair value of plan assets at end of year $590,448 $550,866 $493,894
- ----------------------------------------------------------------------------------------
Funded status 91,186 63,164 55,940
Unrecognized net transition asset (1,479) (1,801) (2,837)
Unrecognized prior service cost 9,916 10,556 11,097
Unrecognized net gain (66,702) (57,616) (52,354)
Adjustment required to recognize minimum liability (5,632) (4,588) (2,109)
- ----------------------------------------------------------------------------------------
Prepaid benefit cost, net $ 27,289 $ 9,715 $ 9,737
========================================================================================
</TABLE>
The net periodic pension cost consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 162 $ 1,551 $ 6,487
Interest cost on projected benefit obligation 32,820 32,983 30,100
Expected return on plan assets (47,174) (83,775) (63,807)
Net amortization and deferral (4,110) 40,715 25,723
Amount expensed due to curtailment -- 6,943 28,000
- ----------------------------------------------------------------------------------------
Net periodic pension (benefit) cost $(18,302) $ (1,583) $ 26,503
========================================================================================
</TABLE>
The following rates and assumptions were used to calculate the projected
benefit obligation:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 6.8% 7.0% 7.5%
Rate of salary increase 5.0% 5.0% 5.0%
Expected return on plan assets 9.5% 9.5% 9.0%
========================================================================================
</TABLE>
The projected benefit obligation and accumulated benefit obligation for the
pension plans with accumulated benefit obligations in excess of plan assets were
$25.8 million and $25.2 million, respectively, as of December 31, 1998, $24.6
million and $24.1 million, respectively, as of December 31, 1997, and $14.9
million and $13.8 million, respectively, as of December 31, 1996. As of December
31, 1998, 1997 and 1996, the fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets was zero.
The Company's funding policy is to make contributions for pension benefits
based on actuarial computations which reflect the long-term nature of the
pension plan. However, under FAS 87, "Employers' Accounting for Pensions," the
development of the projected benefit obligation essentially is computed for
financial reporting purposes and may differ from the actuarial determination for
funding due to varying assumptions and methods of computation. The Company
changed its assumptions used in 1998 and 1997. These changes in assumptions did
not have a material effect on pension expense in the respective years.
41
<PAGE>
In 1997, the Company recognized a curtailment loss of $6.9 million related to
the restructuring of the workforce. In 1996, the Company recognized a
curtailment loss of $28.0 million reflecting the enhancement and freezing of
defined benefit plans sponsored by Frontier Corporation, primarily for certain
bargaining unit employees.
The Company also sponsors a number of defined contribution plans. The most
significant plan covers non-bargaining employees, who can elect to make
contributions through payroll deduction. Effective January 1, 1996, the Company
provides a contribution of .5 percent of gross compensation in common stock for
every employee eligible to participate in the plan. The common stock used for
matching contributions is purchased on the open market by the plan's trustee.
The Company also provides 100% matching contributions in its common stock up to
three percent of gross compensation, and may, at the discretion of the
Management Benefit Committee, provide additional matching contributions based
upon Frontier's financial results. The total cost recognized for all defined
contribution plans was $9.7 million for 1998, $8.8 million for 1997, and $8.4
million for 1996.
8. Postretirement Benefits Other Than Pensions
The Company provides health care and life insurance benefits to most employees.
Plan assets consist principally of life insurance policies and money market
instruments. In adopting FAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", the Company elected to defer the recognition of
the accrued obligation of $125.0 million over a period of twenty years. During
1996, the Company amended its health care benefits plan to cap the cost absorbed
by the Company for health care and life insurance for its bargaining unit
employees who retire after December 31, 1996. The effect of this amendment was
to reduce the December 31, 1996 accumulated postretirement obligation by $11.2
million. Additionally, during 1996, special termination benefits were offered to
certain employees with 25 years of service or more who were already entitled to
reduced or full retirement benefits and who voluntarily terminated their
employment with the Company prior to December 31, 1996.
The status of the plans is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
December 31, 1998 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $ 118,587 $ 104,273 $110,394
Service cost 671 755 642
Interest cost 8,080 7,734 7,735
Amendments 412 (2,810) (11,191)
Actuarial loss 9,473 15,676 2,560
Special termination benefit -- -- 360
Benefits paid (7,473) (7,041) (6,227)
- ----------------------------------------------------------------------------------------
Benefit obligation at end of year $ 129,750 $ 118,587 $104,273
- ----------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 5,039 $ 5,322 $ 5,716
Actual return on plan assets 79 360 (120)
Employer contribution 6,786 6,398 5,953
Benefits paid (7,473) (7,041) (6,227)
- ----------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 4,431 $ 5,039 $ 5,322
- ----------------------------------------------------------------------------------------
Funded status $(125,319) $(113,548) $(98,951)
Unrecognized transition obligation 73,292 78,586 84,764
Unrecognized prior service cost 1,516 1,262 90
Unrecognized net loss (gain) 2,196 (8,958) (24,235)
- ----------------------------------------------------------------------------------------
Accrued benefit cost $ (48,315) $ (42,658) $(38,332)
========================================================================================
</TABLE>
42
<PAGE>
The components of the estimated postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
In thousands of dollars Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 671 $ 755 $ 642
Interest on accumulated postretirement benefit obligation 8,080 7,734 7,735
Amortization of transition obligation 5,294 5,276 5,512
Return on plan assets (447) (476) (457)
Amortization of prior service cost 165 217 69
Amortization of gains and losses (1,259) (1,891) (2,024)
Special termination benefit -- -- 360
- ---------------------------------------------------------------------------------------------------
Net postretirement benefit cost $ 12,504 $ 11,615 $ 11,837
===================================================================================================
</TABLE>
The following assumptions were used to value the postretirement benefit
obligation:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 6.8% 7.0% 7.5%
Expected return on plan assets 9.5% 9.5% 9.0%
Rate of salary increase 5.0% 5.0% 5.0%
Assumed rate of increase in cost
of covered health care benefits 6.4% 6.6% 7.1%
===================================================================================================
</TABLE>
Increases in health care costs were assumed to decline consistently to a rate
of 5.0% by 2006 and remain at that level thereafter. If the health care cost
trend rates were increased by one percentage point, the accumulated
postretirement benefit health care obligation as of December 31, 1998 would
increase by $10.0 million while the sum of the service and interest cost
components of the net postretirement benefit health care cost for 1998 would
increase by $.7 million. If the health care cost trend rates were decreased by
one percentage point, the accumulated postretirement benefit health care
obligations as of December 31, 1998 would decrease by $9.4 million while the sum
of the service and interest cost components of the net postretirement benefit
health care cost for 1998 would decrease by $.7 million.
The Company changed its assumptions used in 1998 and 1997 for the weighted
average discount rate. This change in assumption did not have a material effect
on the 1998 or 1997 postretirement expense.
9. Earnings Per Share
The Company adopted the provisions of FAS 128, "Earnings Per Share" effective
December 31, 1997. This statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share", and makes them comparable to international
earnings per share ("EPS") standards. Basic EPS excludes the effect of common
stock equivalents and is computed by dividing income available to common
shareholders by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could result if
securities or other contracts to issue common stock were exercised or converted
into common stock. Historical earnings per share have been restated to conform
with the provisions of FAS 128.
43
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
In thousands of dollars,
except per share data Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income Applicable to Common Stock $174,783 $ 30,782 $189,005
Average Common Shares Outstanding 170,626 168,975 165,234
- -----------------------------------------------------------------------------------------
Basic Earnings Per Common Share $ 1.02 $ 0.18 $1.14
=========================================================================================
Diluted Earnings Per Share
Income Applicable to Common Stock $174,783 $ 30,782 $189,005
Interest Expense on Convertible Debentures(1) 360 -- 360
- -----------------------------------------------------------------------------------------
$175,143 $ 30,782 $189,365
=========================================================================================
Average Common Shares Outstanding 170,626 168,975 165,234
Options and Warrants 2,812 992 1,771
Convertible Debentures(1) 503 -- 503
- -----------------------------------------------------------------------------------------
173,941 169,967 167,508
=========================================================================================
Diluted Earnings Per Common Share $ 1.01 $ 0.18 $1.13
=========================================================================================
</TABLE>
(1) Convertible debentures are anti-dilutive in 1997.
10. Stock Option Plans and Other Common Stock Transactions
The Company has stock option plans for its directors, executives and certain
employees. The exercise price for all plans is the fair market value of the
stock on the date of the grant. The options expire ten years from the date of
the grant. The options vest over a period from one to three years. The maximum
number of shares which may be granted under the executive plan is limited to one
percent of the number of issued shares, including treasury shares, of the
Company's common stock during any calendar year. The maximum number of shares
which may be granted under the employee plan is a total of 8,000,000 shares over
a 10 year period. The maximum number of shares which may be granted under the
directors plan is 1,000,000 shares. In connection with the GlobalCenter merger,
the Company assumed all the outstanding options of GlobalCenter. The plans
provide for discretionary grants of stock options which are subject to the
passage of time and continued employment restrictions.
Information with respect to options under the above plans follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1996 8,441,386 $11.24
Granted in 1996 3,165,878 $30.02
Cancelled in 1996 (800,329) $28.26
Exercised in 1996 (5,481,681) $ 5.99
- -----------------------------------------------------------------
Outstanding at December 31, 1996 5,325,254 $25.25
Granted in 1997 4,679,587 $17.83
Cancelled in 1997 (1,529,340) $23.77
Exercised in 1997 (162,421) $ 5.58
- -----------------------------------------------------------------
Outstanding at December 31, 1997 8,313,080 $21.49
Granted in 1998 4,884,020 $27.23
Cancelled in 1998 (855,618) $23.55
Exercised in 1998 (547,467) $13.76
- -----------------------------------------------------------------
Outstanding at December 31, 1998 11,794,015 $24.24
=================================================================
</TABLE>
At December 31, 1998, 5,466,372 shares were available for future grant.
44
<PAGE>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans other than for restricted stock awards and for GlobalCenter
stock options issued with an exercise price below fair market value. During
1997, the Company recorded deferred compensation of $5.0 million related to the
majority of these options which represents the difference between the exercise
price of the options and the fair market value at the time of issuance. As of
December 31, 1998 and 1997, the Company recognized related compensation expense
of $0.8 million and $2.0 million. The remaining balance will continue to be
amortized over the four year term of these options.
During 1996 the Company adopted the disclosure requirements of FAS 123,
"Accounting for Stock-Based Compensation". In accordance with FAS 123, the
Company has elected not to recognize compensation cost related to stock options
with exercise prices equal to the market price at the date of issuance. If the
Company had elected to recognize compensation cost based on the fair value of
the options at grant date as prescribed by FAS 123, the following results would
have occurred using the Black-Scholes option valuation model:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
In thousands of dollars,
except per share data Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Post-Tax Compensation Cost $ 14,038 $12,049 $ 5,358
Pro Forma Net Income $161,750 $19,752 $184,829
Pro Forma Basic EPS $ 0.95 $ 0.11 $ 1.11
Pro Forma Diluted EPS $ 0.93 $ 0.11 $ 1.10
Fair Value of Options Granted $ 7.77 $ 5.85 $ 8.50
Volatility 33.9% 33.2% 28.4%
Dividend Yield 3.3% 3.5% 3.0%
Risk-Free Interest Rates 4.2% to 6.7% 5.7% to 6.7% 5.5% to 7.0%
==============================================================================================
</TABLE>
Due to the difference in vesting requirements in each of the plans, the
expected lives of the options range from 5 to 7 years. Forfeitures are
recognized as they occur.
<TABLE>
<CAPTION>
Options Outstanding
- ---------------------------------------------------------
Weighted
Average Weighted
Range Of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- ---------------------------------------------------------
<S> <C> <C> <C>
$ 1 - $ 5 630,512 7.79 $ 2.23
$12 - $20 1,278,981 7.22 $17.37
$21 - $50 9,884,522 8.25 $26.53
=========================================================
<CAPTION>
Options Exercisable
- -----------------------------------------------
Range Of Average
Exercise Number Exercise
Prices Exercisable Price
- -----------------------------------------------
<S> <C> <C>
$ 1 - $ 5 178,241 $ 3.46
$12 - $20 683,285 $17.23
$21 - $50 3,124,776 $27.36
===============================================
</TABLE>
45
<PAGE>
Restricted Stock Plan
The Company has 691,669 shares of common stock outstanding as of December 31,
1998 under its Management Stock Incentive Plan. The stock issued under this plan
("Restricted Stock") is subject to the achievement of certain performance goals,
the passage of time and continued employment restrictions. Participants in the
plan may earn, without cost to them, Frontier common stock over three years.
Shareholders' equity reflects unearned compensation for the unvested stock
awarded. During 1998, the Company recognized related compensation expense of
$5.9 million, net of cancellations, and $1.6 million during 1997. The Company
did not recognize compensation expense for restricted stock granted prior to
1997 as the market price of the common stock was significantly below the vesting
prices.
11. Preferred Stock
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
In thousands of dollars, except share data December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frontier Corporation-850,000 shares authorized;
par value $100
5.00% Series-redeemable at $101 per share
Shares outstanding 95,276 100,000 100,000
Amount outstanding $ 9,527 $ 10,000 $ 10,000
5.65% Series-redeemable at $101 per share
Shares outstanding 48,219 50,000 50,000
Amount outstanding $ 4,822 $ 5,000 $ 5,000
4.60% Series-redeemable at $101 per share
Shares outstanding 41,514 48,500 48,500
Amount outstanding $ 4,151 $ 4,850 $ 4,850
Frontier Communications of New York, Inc.
40,000 shares authorized; par value $100
5.875% Series A-redeemable at par
Shares outstanding -- -- 18,694
Amount outstanding -- -- $ 1,869
7.80% Series B-redeemable at $100.80-$105.00 per share
Shares outstanding -- -- 6,160
Amount outstanding -- -- $ 616
Frontier Communications of AuSable Valley, Inc.
4,000 shares authorized; par value $100
5.50% Series-redeemable at par
Shares outstanding 2,702 2,754 2,754
Amount outstanding $ 270 $ 276 $ 276
- ----------------------------------------------------------------------------------------------------
Total shares outstanding 187,711 201,254 226,108
Total amount outstanding $ 18,770 $ 20,126 $ 22,611
====================================================================================================
</TABLE>
Effective January 1, 1997, the Company redeemed all of the outstanding
preferred stock of its wholly-owned subsidiary, Frontier Communications of New
York, Inc. at approximately par value.
At the special meeting in December 1994, Frontier shareholders authorized
4,000,000 shares of a new class of preferred stock, having a par value of
$100.00 per share and designated as Class A Preferred Stock. This class of stock
will rank junior to the cumulative preferred stock as to dividends and
distributions, and upon the liquidation, dissolution or winding up of the
Company. As of December 31, 1998, no shares of this class have been issued.
On April 9, 1995, the Board of Directors adopted a Shareholders' Rights Plan
(the "Plan"). This Plan provides for a dividend distribution on each outstanding
common share of a right to purchase one one-hundredth of a share of Series A
Junior Participating Class A Preferred Stock. The rights are designed to protect
shareholders in the event of an unsolicited offer or initiative to acquire
Frontier which the Board does not believe is fair to shareholders. The rights
become exercisable under certain circumstances to purchase Frontier common stock
at one-half market value.
46
<PAGE>
12. New Accounting Pronouncements
The Company adopted the provisions of FAS 130, "Reporting Comprehensive Income"
as of January 1, 1998. This statement establishes standards for reporting and
displaying 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 flows.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5") which requires that start-up costs be expensed as incurred. The
Company adopted the provisions of SOP 98-5 in 1998. Accordingly, $1.8 million,
net of applicable income taxes of $.8 million of unamortized start-up costs at
December 31, 1997, have been expensed in the accompanying Consolidated
Statements of Income and is reported as a cumulative effect of a change in
accounting principle. These start-up costs are primarily related to product
development costs associated with new business ventures.
On June 17, 1998, the Financial Accounting Standards Board issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities" effective for
fiscal years beginning after June 15, 1999. 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.
Effective January 1, 1996, the Company adopted FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
FAS 121 requires that certain long-lived assets and identifiable intangibles be
written down to fair value whenever an impairment review indicates that the
carrying value cannot be recovered on an undiscounted cash flow basis. The
statement also requires that certain long-lived assets and identifiable
intangibles to be disposed of be reported at fair value less selling costs. The
Company's adoption of this standard resulted in a non-cash charge of $8.0
million (net of a tax benefit of $4.4 million) and is reported as a cumulative
effect of a change in accounting principle. The charge represents the cumulative
adjustment required by FAS 121 to remeasure the carrying amount of certain
assets held for disposal as of January 1, 1996. These assets held for disposal
consist principally of telephone switching equipment in the Company's Local
Communications Services segment as a result of management's commitment, in late
1995, to a central office switch consolidation project primarily at Frontier
Telephone of Rochester and Frontier Communications of New York subsidiaries.
13. Major Customer
The Company's revenues include the impact of a major carrier customer whose
revenues comprised approximately 3%, 4%, and 15% of consolidated revenues in
1998, 1997 and 1996, respectively.
14. Commitments, Contingencies And Other
Operating Environment--The Company has evolved from being a provider of local
and long distance services in certain areas of the country to being a nationwide
provider of integrated communications services. As a result, the Company has
formidable competitors of greater size and expects that, over time and due to
the lifting of regulatory restrictions, there will be more entrants into the
long distance business and its local markets.
47
<PAGE>
Legal Matters--The Company and a number of its subsidiaries in the normal
course of business are party to a number of judicial, regulatory and
administrative proceedings. The Company's management does not believe that any
material liability will be imposed as a result of any of these matters.
Leases and License Agreements--The Company leases buildings, land, office
space, fiber optic network, computer hardware and other equipment, and has
license agreements for rights-of-way for the construction and operation of a
fiber optic communications system.
Total rental expense amounted to $133.9 million in 1998, $156.5 million in
1997, and $164.7 million in 1996.
Minimum annual rental commitments under non-cancelable operating leases and
license agreements in effect on December 31, 1998 were as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------------------------------
License
Years Buildings Equipment Agreements
- -----------------------------------------------------------
<S> <C> <C> <C>
1999 $ 18,417 $2,330 $ 54,526
2000 16,893 1,835 29,381
2001 15,666 280 16,928
2002 14,882 128 5,047
2003 14,118 -- 1,647
2004 and thereafter 48,450 -- --
- -----------------------------------------------------------
Total $128,426 $4,573 $107,529
===========================================================
</TABLE>
Other Matters--In connection with the Company's capital program, certain
commitments have been made for the purchase of material and equipment. Total
capital expenditures for 1999 are currently projected to be consistent with
1998. In October 1996, construction began on the Optronics network. At December
31, 1998 and 1997, the Company has recorded $114.0 million and $238.2 million,
respectively, of deposits for the Optronics network and other projects which are
included in the "Deferred and other assets" caption in the Consolidated Balance
Sheets.
Under the Company's Open Market Plan, dividend payments to the parent company
are temporarily prohibited until Frontier Telephone of Rochester, Inc. ("FTR")
receives clearance from the New York State Public Service Commission that
service requirements are being met. Cash restricted for dividend payments by
FTR, as of December 31, 1998, was approximately $53.0 million.
Change in dividend policy--On January 25, 1999, the Company's Board of
Directors approved a dividend restructuring plan which reduces the annual common
stock dividend from $0.89 to $0.20 per share annually. This change in dividend
policy will be effective with the payment of the common stock cash dividend
currently expected to be declared in March, 1999 and paid on May 1, 1999 to
shareholders of record as of April 15, 1999. The reduction has no effect on the
common stock dividend payable February 1, 1999 to shareholders of record on
January 15, 1999, nor on any outstanding issues of the Company's preferred
stock.
15. Business Segment Information
Effective December 31, 1998, the Company has adopted the provisions of FAS 131,
" Disclosures about Segments of an Enterprise and Related Information." This
statement establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of this statement had no impact
on the Company's consolidated financial position, results of operations or cash
flows. Comparative information for earlier years has been restated.
48
<PAGE>
The Company reports its operating results in three segments: Integrated
Services, Local Communications Services and Corporate Operations and Other. The
Company's majority interest in certain wireless properties are consolidated
under Corporate Operations and Other. The change in the definition of the
Company's segments has been made to better reflect the changing scope of the
businesses in which Frontier operates.
Revenue and sales, operating income, depreciation, construction and
identifiable assets by business segment are set forth in the Business Segment
Information on page 29.
16. Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1998 Quarter
In thousands of dollars, ------------------------------------------ Full
except per share data 1st 2nd 3rd 4th Year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $631,998 $648,316 $658,208 $655,036 $2,593,558
Operating Income $ 68,014(1) $ 80,835 $ 81,155 $ 87,392 $ 317,396
Income before taxes and
cumulative effect of changes
in accounting principles $ 59,131(1) $ 89,199 $ 75,638 $ 83,135 $ 307,103
Consolidated Net Income $ 33,914(1) $ 45,908 $ 45,757 $ 50,209 $ 175,788
Earnings Per Share:
Basic $ .20 $ .27 $ .27 $ .29 $ 1.02(2)
Diluted $ .20 $ .26 $ .26 $ .29 $ 1.01
Market Price:
High $ 33.44 $ 33.00 $ 36.75 $ 34.13
Low $ 24.44 $ 28.31 $ 24.13 $ 24.81
================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------
1997 Quarter
In thousands of dollars, ------------------------------------------ Full
except per share data 1st 2nd 3rd 4th Year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $577,576 $590,116 $606,521 $600,596 $2,374,809
Operating (Loss) Income $(28,566)(3) $ 74,019 $ 64,871 $(24,166)(4) $ 86,158
Income (loss) before taxes and
cumulative effect of changes
in accounting principles $(18,108)(3) $ 66,335 $ 58,162 $(30,400)(4) $ 75,989
Consolidated Net
(Loss) Income $(15,902)(3) $ 39,334 $ 32,451 $(24,082)(4) $ 31,801
(Loss) Earnings Per Share:
Basic $ (.10) $ .23 $ .19 $ (.14) $ .18
Diluted $ (.10)(5) $ .23 $ .19 $ (.14)(5) $ .18(6)
Market Price:
High $ 23.25 $ 20.50 $ 24.19 $ 25.00
Low $ 17.75 $ 15.38 $ 19.00 $ 20.00
================================================================================================
</TABLE>
(1) Includes a pre-tax charge of $6.5 million comprised of investment banker,
legal fees and other direct costs associated with the acquisition of
GlobalCenter.
(2) As a result of rounding, the total of the four quarters' earnings does not
equal the earnings per share for the year.
(3) Includes a pre-tax charge of $96.6 million primarily related to the write-
off of certain leased network costs no longer necessary to support long
distance traffic volumes.
(4) Includes a pre-tax charge of $86.8 million primarily related to the
divestiture of certain product lines and businesses.
(5) Due to the net loss incurred, the earnings per share calculation excludes
common stock equivalents.
(6) Convertible debentures are anti-dilutive in 1997.
49
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FRONTIER CORPORATION
AS OF MARCH 1, 1999
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALC Communications Corporation DE ALC Communications Corp.;
(A subsidiary of ALC
Frontier Corporation)
Ameritel Management, Inc. Canada Ameritel Management, Inc.
(A subsidiary of Frontier (British Columbia)
Communications of the West, Inc.)
Budget Call Long Distance, Inc. DE Budget Call Long Distance, Inc.;
(A subsidiary of Frontier Budget Call
Communications International Inc.)
Business Telemanagement, Inc. CA Business Telemanagement, Inc.
(A subsidiary of Ameritel
Management, Inc.)
ConferTech Systems Inc. CO ConferTech Systems; CSI
(A subsidiary of Frontier
Communications Services Inc.)
DePue Communications, Inc. IL DePue Communications, Inc.
(A subsidiary of Frontier
Communications of DePue, Inc.)
Fairmount Cellular Inc. GA Fairmount Cellular Inc.
(A subsidiary of Frontier
Communications of Fairmount, Inc.)
Frontel Communications Limited England Frontel Communications Ltd.;
(A subsidiary of ALC Frontel
Communications Corporation)
Frontier Advanced Services Technologies Inc. IA FAST Inc., LinkUSA Corporation
(A subsidiary of ALC
Communications Corporation)
Frontier Billing Corp. MI Frontier Billing
(A subsidiary of Frontier
Communications Services Inc.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frontier Cable of Indiana, Inc. IN Frontier Cable of Indiana, TDCI Ltd.
(A subsidiary of Frontier
Communications of Thorntown, Inc.)
Frontier Cable of Mississippi, Inc. MS Frontier Cable of Mississippi;
(A subsidiary of Frontier Mid-South Cablevision Company, Inc.
Subsidiary Telco Inc.)
Frontier Cable of Wisconsin, Inc. WI Frontier Cable of Wisconsin;
(A subsidiary of Frontier New Richmond Cable Company, Inc.
Communications - St. Croix, Inc.)
Frontier Cellular Holding Inc. DE Frontier Cellular Holding Inc.;
(A subsidiary of Frontier Corporation) FCHI
Frontier Cellular of Alabama, Inc. AL Frontier Cellular
(A subsidiary of Frontier
Communications of the South, Inc.)
Frontier Communications International Inc. DE Frontier Communications
(A subsidiary of ALC International Inc.; FCI;
Communications Corporation) RCI Long Distance, Inc.
Frontier Communications of AL Frontier Communications
Alabama, Inc. of Alabama, Inc.; Frontier
(A subsidiary of Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of NY Frontier Communications of
AuSable Valley, Inc. AuSable Valley, Inc.;
(A subsidiary of Frontier Communications
Frontier Corporation)
Frontier Communications of PA Frontier Communications of
Breezewood, Inc. Breezewood, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications of
Canton, Inc. Canton, Inc.; Frontier Communications
(A subsidiary of Frontier
Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications of
DePue, Inc. DePue, Inc.; Frontier Communications
(A subsidiary of Frontier
Subsidiary Telco Inc.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frontier Communications of GA Frontier Communications of
Fairmount, Inc. Fairmount, Inc.; Frontier
(A subsidiary of Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of GA Frontier Communications of
Georgia, Inc. Georgia, Inc.; Frontier Communications
(A subsidiary of Frontier
Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications of
Illinois, Inc. Illinois, Inc.; Frontier Communications
(A subsidiary of Frontier
Subsidiary Telco Inc.)
Frontier Communications of IN Frontier Communications of
Indiana, Inc. Indiana, Inc.; Frontier Communications
(A subsidiary of Frontier
Subsidiary Telco Inc.)
Frontier Communications of IA Frontier Communications of
Iowa, Inc. Iowa, Inc.; Frontier Communications
(A subsidiary of Frontier
Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications of
Lakeside, Inc. Lakeside, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications of
Lakewood, Inc. Lakewood, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of AL Frontier Communications of
Lamar County, Inc. Lamar County, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of MI Frontier Communications of
Michigan, Inc. Michigan, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications-Midland, Inc. IL Frontier Communications
(A subsidiary of Frontier -Midland, Inc.;
Subsidiary Telco Inc.) Frontier Communications
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frontier Communications MN Frontier Communications of
of Minnesota, Inc. Minnesota, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of MS Frontier Communications of
Mississippi, Inc. Mississippi, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of WI Frontier Communications of
Mondovi, Inc. Mondovi, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of IL Frontier Communications of
Mt. Pulaski, Inc. Mt. Pulaski, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of NY Frontier Communications of
New York, Inc. New York, Inc.;
(A subsidiary of Frontier Communications
Frontier Corporation)
Frontier Communications of IL Frontier Communications of
Orion, Inc. Orion, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications of
Oswayo River, Inc. Oswayo River, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of PA Frontier Communications of
Pennsylvania, Inc. Pennsylvania, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications-Prairie, Inc. IL Frontier Communications-
(A subsidiary of Frontier Prairie, Inc.;
Subsidiary Telco Inc.) Frontier Communications
Frontier Communications of DE Frontier Communications of
Rochester, Inc. Rochester, Inc.; FCR
(A subsidiary of
Frontier Corporation)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frontier Communications-Schuyler, Inc. IL Frontier Communications
(A subsidiary of Frontier -Schuyler, Inc.;
Subsidiary Telco Inc.) Frontier Communications
Frontier Communications of NY Frontier Communications of
Seneca-Gorham, Inc. Seneca-Gorham, Inc.;
(A subsidiary of Frontier Communications
Frontier Corporation)
Frontier Communications of AL Frontier Communications of
the South, Inc. the South, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications - WI Frontier Communications
St. Croix, Inc. - St. Croix, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of NY Frontier Communications of
Sylvan Lake, Inc. Sylvan Lake, Inc.;
(A subsidiary of Frontier Communications
Frontier Corporation)
Frontier Communications of IN Frontier Communications of
Thorntown, Inc. Thorntown, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of WI Frontier Communications of
Viroqua, Inc. Viroqua, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications of the CA Frontier Communications of
West, Inc. the West, Inc.; West Coast
(A subsidiary of ALC Telecommunications, Inc.; WCT
Communications Corporation)
Frontier Communications of WI Frontier Communications of
Wisconsin, Inc. Wisconsin, Inc.;
(A subsidiary of Frontier Frontier Communications
Subsidiary Telco Inc.)
Frontier Communications Services Inc. MI Frontier Communications
(A subsidiary of ALC Services Inc.; Allnet Communications
Corporation) Communication Services
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frontier ConferTech Canada Inc. Canada Frontier ConferTech Canada
(A subsidiary of Frontier Communications
Services Inc.)
Frontier GlobalCenter Inc. DE Frontier GlobalCenter Inc.;
(A subsidiary of Frontier Corporation) GlobalCenter Inc.
Frontier GlobalCenter Pty Ltd. Austrialia Frontier GlobalCenter
(A subsidiary of Frontier GlobalCenter Inc.)
Frontier Information Technologies Inc. DE Frontier Information Technologies
(A subsidiary of Frontier Corporation) Inc.; FIT
Frontier InfoServices Inc. DE Frontier InfoServices Inc.;
(A subsidiary of Frontier Visions Publishing
Subsidiary Telco Inc.)
Frontier International Management Corp. DE Frontier International Management
(A subsidiary of
Frontier Corporation)
Frontier Internet Ventures Inc. DE Frontier Ventures
(A subsidiary of
Frontier Corporation)
Frontier Local Services Inc. MI Frontier Local Services Inc.;
(A subsidiary of ALC Allnet Local Services
Communications Corporation)
Frontier Long Distance of DE Frontier Long Distance of
America, Inc. America Inc.
(A subsidiary of Frontier
Subsidiary Telco Inc.)
Frontier Network Systems Corp. NY Frontier Network Systems; RG Data;
(A subsidiary of ALC Rotelcom
Communications Corporation)
Frontier Subsidiary Telco Inc. DE Frontier Subsidiary Telco Inc.;
(A subsidiary of FSTI
Frontier Corporation)
Frontier Telemanagement Inc. WI Frontier Telemanagement
(A subsidiary of ALC
Communications Corporation)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frontier Telephone of Rochester, Inc. NY Frontier Telephone, Rochester
(A subsidiary of Telephone Corp.; FTR
Frontier Corporation)
Frontier VTC Inc. CO Frontier Link VTC; Frontier
(A subsidiary of Frontier Videoconferencing
Communications Services Inc.)
O. T. Cellular Telephone Company IL O. T. Cellular Telephone
(A subsidiary of Frontier Company
Communications of Orion, Inc.)
RCI Long Distance Canada Ltd. Canada RCI Long Distance Canada Ltd.
(A subsidiary of ALC (Ontario, Quebec)
Communications Corporation)
RTMC Holding, Inc. DE RTMC Holding, Inc.
(A subsidiary of Frontier
Cellular Holding Inc.)
Schuyler Cellular, Inc. IL Schuyler Cellular, Inc.
(A subsidiary of Frontier Communications -
Schuyler, Inc.)
UCN Subsidiary One Inc. DE
(A subsidiary of Upstate Cellular
Partnership (GP))
</TABLE>
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Forms S-3 (File Nos. 33-
64307, 333-72333, 333-57137 and 333-23229), Form S-4 (File No. 33-91250) and in
the Registration Statements on Forms S-8 (File Nos. 33-67324, 33-51331, 33-
51885, 33-52025, 33-67430, 33-54511, 33-67432, 33-54519, 33-59579, 33-61855,
333-04803, 333-48755 and 333-49657 of Frontier Corporation of our report dated
January 25, 1999, appearing on page 28 of the 1998 Annual Report to Shareholders
which is incorporated by reference in the Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 30 of the Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
March 25, 1999
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
I, the undersigned, hereby constitute and appoint JOSEPHINE S. TRUBEK
and/or ROLLA P. HUFF as my true and lawful agent and attorney-in-fact to act
with full power and authority and in my name, place and stead as I, myself,
could act for the sole purpose of executing the Form 10-K of Frontier
Corporation for the year ended December 31, 1998, pursuant to Instruction
D(2)(a) of the Form 10-K and in accordance with Regulation S-K Item 601(b)(24)
of the Securities Act of 1933 and the Securities Exchange Act of 1934, and with
full and unqualified authority to delegate such power to any person or persons
as my attorney-in-fact shall select.
IN WITNESS WHEREOF, this instrument has been signed and delivered by the
undersigned as of March 22, 1999.
/s/ Patricia C. Barron
- ----------------------------- -----------------------------
Patricia C. Barron Raul E. Cesan
/s/ Brenda E. Edgerton /s/ Jairo A. Estrada
- ----------------------------- -----------------------------
Brenda E. Edgerton Jairo A. Estrada
/s/ Michael E. Faherty
- ----------------------------- -----------------------------
Michael E. Faherty Alan C. Hasselwander
/s/ Robert J. Holland, Jr.
- ----------------------------- -----------------------------
Eric Hippeau Robert J. Holland, Jr.
/s/ Douglas H. McCorkindale
- ----------------------------- -----------------------------
Douglas H. McCorkindale James F. McDonald
/s/ Leo J. Thomas
- ---------------------------------
Leo J. Thomas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FRONTIER
CORPORATION'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000084567
<NAME> FRONTIER CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 85,143
<SECURITIES> 0
<RECEIVABLES> 460,680
<ALLOWANCES> 37,956
<INVENTORY> 9,924
<CURRENT-ASSETS> 566,674
<PP&E> 3,205,451
<DEPRECIATION> 1,527,892
<TOTAL-ASSETS> 3,058,743
<CURRENT-LIABILITIES> 567,697
<BONDS> 1,350,821
0
18,770
<COMMON> 171,636
<OTHER-SE> 827,848
<TOTAL-LIABILITY-AND-EQUITY> 3,058,743
<SALES> 0
<TOTAL-REVENUES> 2,593,558
<CGS> 0
<TOTAL-COSTS> 2,276,162
<OTHER-EXPENSES> (45,025)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,318
<INCOME-PRETAX> 307,103
<INCOME-TAX> 129,560
<INCOME-CONTINUING> 177,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,755)
<NET-INCOME> 175,788
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
</TABLE>
<PAGE>
[LOGO OF FRONTIER COMMUNICATIONS]
Frontier Corporation
Proxy Statement
Frontier Center
180 South Clinton Avenue
Rochester, New York 14646-0700
Annual Meeting
Notice of Annual Meeting
of Common Shareholders
Please Join Us In Celebrating
Frontier Corporation's 100 Years of Doing Business
Date:
Thursday, April 29, 1999
Time:
10:00 a.m., Pacific Time
Place:
Grand Ballroom
Hotel Nikko San Francisco
222 Mason Street
San Francisco, California 94102
Record Date:
March 1, 1999
Meeting Agenda:
1. Election of Directors
2. Ratification of Appointment of Auditors
3. Any other matters that properly come before the
meeting or any adjournments of the meeting.
By-Law Amendments:
Effective December 15, 1998, the Board of Directors
amended Article II, Section 2, of the By-Laws to set
the number of Directors constituting the entire Board
at twelve.
Sign Language Interpreters:
The meeting will be sign language interpreted for the
hearing impaired.
Electronic Copies of Proxy Statement and
Annual Report:
A copy of this proxy statement and the Company's Annual Report are also
available on the Company's web site which can be reached at:
http://www.frontiercorp.com
Admission to the Meeting:
An admission card will be required to gain entry to the meeting. If you are
planning to attend the Annual Meeting, please check the appropriate box on the
proxy card. We will then send your admission card to you. A map identifying the
location of the meeting place appears on the back cover of the proxy statement.
Vote:
Your vote is very important. Please either vote electronically or sign and date
the enclosed proxy card and return it promptly in the enclosed return envelope,
whether or not you expect to attend the meeting. If you do not specify your
choices when you vote, it will be understood that you wish to have your shares
voted in accordance with the Board of Directors' recommendations. You may revoke
your proxy and vote in person if you decide to attend the meeting.
By Action of the Board of Directors,
/s/ Josephine S. Trubek
Josephine S. Trubek
Corporate Secretary
Rochester, New York
March 12, 1999
<PAGE>
Table of Contents
Proxy Statement
1 . Proxy Solicitation
1 . Voting at the Annual Meeting
2 . Proposal 1--Election of Directors
2 . Nominees for Director
5 . Information about the Board of Directors
6 . Stock Ownership of Management, Directors
and Certain Beneficial Owners
7 . Section 16(a) Beneficial Ownership
Reporting Compliance
8 . Report of Committee on Directors
9 . Report of Committee on Management
11 . Performance Graph
12 . Compensation of Company Management
12 . Summary Compensation Table
13 . Option/SAR Grants in Last Fiscal Year
13 . Individual Grants in 1998 Table
14 . Aggregated Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option/SAR Values Table
15 . Long-Term Incentive Plans-Awards in Last
Fiscal Year Table
16 . Pension Plan Table
17 . Employment Contracts
17 . Business Transactions and Relationships
18 . Compensation Committee Interlocks and
Insider Participation in Compensation Decisions
18 . Indemnification of Certain Persons
18 . Proposal 2--Ratification of Public Accountant
18 . 2000 Annual Meeting--Future Proposals
of Shareholders
19 . Other Matters
<PAGE>
Proxy Statement
1999 Annual Meeting of Common Shareholders of Frontier Corporation
Proxy Solicitation
When and where will the Annual Meeting be held?
The Annual Meeting will be held on April 29, 1999, at 10:00 a.m., Pacific Time
in the Grand Ballroom of the Hotel Nikko San Francisco, 222 Mason Street, San
Francisco, California 94102, or at any later time, if adjourned. The purposes of
the Annual Meeting are stated in the attached Notice of Annual Meeting of Common
Shareholders.
Who is soliciting proxies and for what purpose?
The Board of Directors of Frontier Corporation, a New York corporation, is
soliciting proxies for use at the annual meeting of holders of the Company's
$1.00 par value common stock. This proxy statement will refer to Frontier
Corporation as the "Company" and the annual meeting as the "Annual Meeting". We
are sending you this proxy statement and the enclosed proxy card and alternative
electronic voting instructions in connection with the Board's solicitation so
that you may vote your shares.
The Company will pay the cost of proxy solicitation. In addition to the
solicitation of proxies by mail, some officers and employees of the Company,
without additional compensation, may contact you personally or by telephone,
Internet or electronic mail, facsimile, telegraph or cable, to solicit your
proxy. The Company will also request brokerage houses, nominees, custodians and
fiduciaries to forward soliciting materials to the beneficial owners of stock
held of record and will reimburse such persons for forwarding such materials. In
addition, the Company has retained Innisfree M&A Incorporated, New York, New
York, to aid in the solicitation of proxies at a fee of $6,000 plus
reimbursement for out-of-pocket expenses incurred by that firm on behalf of the
Company.
The principal executive offices of the Company are located at 180 South
Clinton Avenue, Rochester, New York 14646. The main telephone number is
(716) 777-1000.
Voting at the Annual Meeting
Is my vote important?
Whether or not you plan to attend our Annual Meeting, please take the time to
vote your shares as soon as possible. Your prompt voting by telephone,
electronically or by mail may save the Company the expense of a second mailing.
Each proxy which is properly completed will be voted at the Annual Meeting. If
you return a proxy by mail, or vote by telephone or electronically over the
Internet and do not specify your vote, your shares will be voted as recommended
by the Board of Directors. Specifically, if your proxy does not specify a
choice, your shares will be voted for the election of all the Directors
nominated in the proxy and in favor of ratification of the election of
PricewaterhouseCoopers LLP as public accountant.
What are the methods of voting?
All shareholders may vote by mail. SHAREHOLDERS OF RECORD CAN ALSO VOTE BY
TELEPHONE OR ELECTRONICALLY OVER THE INTERNET. Shareholders who hold their
shares through a bank or broker can vote by telephone or electronically over the
Internet if that option is offered by the bank or broker.
. Voting by mail. Shareholders may sign, date and mail their proxies in the
postage-paid envelope provided. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be voted as
recommended by the Board of Directors.
. Voting by telephone or Internet. Shareholders of record may vote by using the
toll-free number listed on the proxy card or electronically over the Internet.
Telephone and/or Internet voting is also available to shareholders who hold
their shares through a Frontier Corporation benefit plan. The telephone and
Internet voting procedures are designed to verify shareholders through use of
a Control Number that is provided on each proxy card. Both procedures allow
you to vote your shares and to confirm that your shares have been properly
recorded. If you do not indicate how you want to vote, your proxy will be
voted as recommended by the Board of Directors. Please see your proxy card for
specific instructions.
This Proxy Statement and Form of Proxy are being first sent to Shareholders on
March 12, 1999.
1
<PAGE>
How do I revoke my proxy?
Whether you vote by mail, by telephone, or electronically over the Internet, you
may later revoke your proxy by:
. sending a written statement to that effect to the
Corporate Secretary of the Company;
. submitting a properly signed proxy at a later date;
. voting by telephone at a later time;
. voting by Internet at a later time; or
. voting in person at the Annual Meeting.
What is the record date, vote required and method
of counting votes?
The close of business on March 1, 1999 is the Record Date for determination of
the shareholders entitled to notice of, and to vote at, the Annual Meeting. On
that date there were 172,277,729 shares of the Company's $1.00 par value common
stock outstanding and entitled to vote at the meeting. You are entitled to cast
one vote for each share held as of the Record Date on matters properly brought
before the Annual Meeting. Both the hard-copy proxy card and the electronic
voting proxy card contain spaces for you to indicate if you wish to abstain on
one or more of the proposals or to withhold authority to vote for one or more
nominees for Director. The telephone voting prompts also provide a mechanism for
you to abstain or withhold authority to vote. The following is an explanation of
the vote required and the method of counting votes for each of the items to be
voted on at the Annual Meeting.
ITEM 1--Election of Directors. Directors are elected by a plurality of the votes
cast and the twelve nominees receiving the highest number of votes will be
elected. Shares represented by your proxy will be voted in accordance with the
directions you specify on the proxy card or that you specify electronically
either by telephone or the Internet. Votes withheld in connection with the
election of one or more of the nominees for Director will not be counted as
votes cast in connection with that nominee's election.
ITEM 2--Ratification of public accountant. The public accountant is ratified by
a majority of the votes cast, so the affirmative vote of a majority of shares
voted in person or by proxy is required for approval of this item. Abstentions
are not counted in determining the votes cast in connection with the
ratification of the public accountant.
The New York Stock Exchange allows brokerage firms holding shares for the
benefit of their clients to vote in their discretion on behalf of their clients
with respect to "discretionary items" if the clients have not furnished voting
instructions within ten days of the shareholder meeting. The election of
Directors and the ratification of the public accountant are discretionary items
with respect to which brokerage firms may vote. If your broker does not vote
your shares, those broker "non-votes" will not be considered as votes cast.
Is there any other business for the meeting?
The Board knows of no other matters to be presented for shareholder action at
the meeting. If other matters are properly brought before the meeting, the
persons named in the accompanying proxy card intend to vote the shares
represented by them in accordance with their best judgment.
PROPOSAL 1--ELECTION OF DIRECTORS
Your Board of Directors recommends a vote "FOR" all nominees.
Nominees for Director
The Board of Directors nominates the twelve persons named on pages 3 and 4 for
election to the Board of Directors. All of these people are currently Directors
of the Company, and their terms of office all expire on the date of the Annual
Meeting. If elected, each will serve until the Annual Meeting of Shareholders to
be held in 2000 or until such time as his or her respective successor is
elected. The Board believes that all of the persons it has nominated will be
available and willing to serve as Directors. The accompanying proxy will be
voted for the election of these nominees, unless authority to vote for one or
more nominees is withheld. If any nominee is unable to serve, the shares
represented by all valid proxies will be voted for the election of any
substitute nominee designated by the Board or its Executive Committee, or the
Board may fill the vacancy at a later date after selecting a person it believes
is appropriate.
The principal occupation and business experience of each nominee for election
at the Annual Meeting appears next to that person's photograph.
2
<PAGE>
[PHOTO]
Patricia C. Barron, 56, is Executive in Residence and Senior Fellow of Stern
School of Business, New York University, one of the nation's leading academic
institutions. She has held this position since October 1998. From May 1997 to
June 1998 she was Corporate Vice President, Business Operations Support, Xerox
Corporation, a manufacturer of office systems and equipment, and held this
position since May 1997. From February 1994 until May 1997, she was President,
Xerox Engineering Systems. She is a Director of Aramark Corporation, Quaker
Chemical Corporation, Reynolds Metals Corporation, and TeleFlex Corporation. She
has been a Director of the Company since 1990.
[PHOTO]
Raul E. Cesan, 51, is President and Chief Operating Officer, Schering-Plough
Corporation, a worldwide researcher, manufacturer and marketer of pharmaceutical
and health care products and has held this position since November 1998. From
September 1994 to November 1998 he was President, Schering-Plough
Pharmaceuticals and Executive Vice President, Schering-Plough Corporation. From
September 1992 through September 1994, he was President, Schering
Laboratories--U.S. Pharmaceutical Operations. He has been a Director of the
Company since 1995.
[PHOTO]
Joseph P. Clayton, 49, is Chief Executive Officer and President of the Company
and has held this position since August 1997. He also served as the Company's
President and Chief Operating Officer from June 1997 to August 1997. From March
1992 until December 1996 he was Executive Vice President, Marketing and Sales--
Americas and Asia, Thomson Consumer Electronics, a worldwide leader in the
consumer electronics industry. He has been a Director of the Company since 1997.
[PHOTO]
Brenda E. Edgerton, 49, is Senior Vice President and Chief Financial Officer,
C&S Wholesale Grocers, Inc., the United States' third largest wholesale
distributor of food to retail markets. She has held this position since November
1998. From May 1996 to October 1998 she served as Vice President--Business
Development, Campbell Soup Company, a manufacturer of prepared convenience
foods. From May 1994 to May 1996, she held the position Vice President, Finance
- --U.S. Soup, and from August 1989 through April 1994, she was Vice President and
Treasurer, Campbell Soup Company. She has been a Director of the Company since
1993.
[PHOTO]
Jairo A. Estrada, 51, is President and Chief Executive Officer of EMRALD
Enterprises, a private investment firm. He has served in this capacity since
June 1996. Until December 1995, he was Chairman of the Board and Chief Executive
Officer of Garden Way Incorporated, a company which manufactures outdoor power
equipment, as well as Chairman of the Board of Stairmaster, which manufactures
exercise equipment. He is Chairman of the Board of Mercer Management, Inc., and
a member of the Board of Flow Management Technologies, Inc. Mr. Estrada has been
a Director of the Company since 1989.
[PHOTO]
Michael E. Faherty, 63, is an active investor in publicly traded securities and
in various venture capital and other private businesses. He is also the
principal of MICO, Inc., a general business consulting and contract executive
firm. In connection with this business, he has served as an executive for
various companies. Since 1994, he has served as Chairman of ECCS, Inc., a
provider of open systems-based networked computing solutions which incorporate
ECCS's mass storage enhancement products. From December 1994 until June 1996, he
was also ECCS's Chief Executive Officer. From January 1992 to January 1994, he
was President and Chief Executive Officer of Shared Financial Systems, Inc. He
has also served for varying periods of time as either Chief Executive or Chief
Operating Officer of Intec Corp., Information Magnetics, Cable &
3
<PAGE>
Wireless North America, Digital Sound Corporation, and BancTec, Inc. He is a
Director of BancTec, Inc., and of ECCS, Inc. Mr. Faherty has been a Director of
the Company since 1995.
[PHOTO]
Alan C. Hasselwander, 65, is Past Chairman of the Board of Rochester Telephone
Corporation (now Frontier Corporation). From February 1992 to April 1992, he was
Chairman of the Company. From July 1984 to February 1992, he was President and
Chief Executive Officer of the Company. He has been a Director of the Company
since 1984.
[PHOTO]
Eric Hippeau, 47, is Chairman and Chief Executive Officer of Ziff-Davis Inc., a
subsidiary of Softbank, Inc. Ziff-Davis Inc., is a leading integrated media and
marketing company focused on computing and Internet-related technology. Mr.
Hippeau has held this position since December 1993. Prior to that he held other
senior executive positions within Ziff-Davis. He is a Director of Ziff-Davis
Inc., Yahoo!, Inc., GeoCities, Inc., Herring Communications, Inc., and Softbank,
Inc. He has been a Director of the Company since 1998.
[PHOTO]
Robert Holland, Jr., 58, is the Chief Executive Officer of Workplace
Integrators, an office furniture distributor, and has held that position since
June 1997. From February 1995 until October 1996, he was Chief Executive Officer
of Ben and Jerry's Homemade, Inc., a manufacturer and marketer of premium ice
cream. From 1991 to 1995, he was Chairman and Chief Executive Officer of Rokher-
J, Inc., a business consulting firm. He is also a Director of The MONY Group,
Olin Corporation, Tricon Global Restaurants, Inc., Trumark Inc., A.C. Nielsen
Co., Lexmark International, Inc., and Lexmark International Group, Inc. Mr.
Holland has been a Director of the Company since 1995.
[PHOTO]
Douglas H. McCorkindale, 59, is Vice Chairman and President of Gannett Co.,
Inc., a nationwide diversified communications company and has held that position
since September 1997. Prior to that he held the position of Vice Chairman and
Chief Financial and Administrative Officer. He is a Director of Gannett Co.,
Inc., Continental Airlines, and a director or trustee of a number of investment
companies in the family of Prudential Mutual Funds. He has been a Director of
the Company since 1980.
[PHOTO]
James F. McDonald, 59, is President and Chief Executive Officer of Scientific-
Atlanta, Inc., a leading supplier of broadband communications systems,
satellite-based video, voice and data communications networks, and world-
wide customer service and support. Mr. McDonald has held that position since
July 1993. He is a Director of Scientific-Atlanta, Inc., Burlington Resources,
Inc., and American Business Products, Inc. He has been a Director of the Company
since 1998.
[PHOTO]
Dr. Leo J. Thomas, 62, retired in May 1996, from Eastman Kodak Company, a
manufacturer of imaging products. From September 1994 to May 1996, he held the
position of Executive Vice President, and from September 1991 to September 1994,
he was Group Vice President, Eastman Kodak Company. He is a Director of
Unigraphics, Inc. He has been a Director of the Company since 1984.
4
<PAGE>
INFORMATION ABOUT THE BOARD OF DIRECTORS
Board of Directors
The Board of Directors of the Company currently consists of twelve persons and
held seven meetings during 1998. All of the Directors attended at least 75% of
the total meetings of the Board and its committees which they were eligible
to attend.
Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the Board and
through the activities of its committees. The standing committees of the Board
are the Audit Committee, the Committee on Management, the Committee on
Directors and the Executive Committee. Committee membership as of the Record
Date is listed below.
Audit Committee
The members of the Audit Committee are:
. Jairo A. Estrada, Chair
. Patricia C. Barron
. Robert Holland, Jr.
This committee reviews the scope of audit activities and the financial reports
of the Company and reviews with management significant and material matters
which may result in either potential liability to the Company or significant
exposure to the Company. The Committee also makes reports and recommendations
with respect to audit activities, findings, and reports of the independent
public accountant and the internal audit staff of the Company. The Audit
Committee held five meetings in 1998.
Committee on Management
The members of the Committee on Management are:
. Dr. Leo J. Thomas, Chair
. Raul E. Cesan
. James F. McDonald
This committee is responsible for determining the compensation, benefits and
perquisites of all senior executive officers of the Company, with the exception
of the Chief Executive Officer, and for recommending the compensation, benefits
and perquisites of the Chief Executive Officer to the full Board after an
evaluation of his performance. This committee also develops and administers
executive compensation plans and reviews succession planning for the Company and
other significant human resources issues. The Committee on Management held eight
meetings in 1998.
Committee on Directors
The Committee on Directors serves as the nominating committee and is responsible
for corporate governance
issues. The Committee consists of:
. Michael E. Faherty, Chair
. Brenda E. Edgerton
. Eric Hippeau
. Douglas H. McCorkindale
This committee reviews all matters relating to the selection, qualification,
evaluation, and compensation of members of the Board of Directors and all
nominees to the Board. The Committee on Directors held seven meetings in 1998.
The Committee on Directors will consider nominations by shareholders. Such
suggestions should include sufficient biographical information so that the
Committee can appropriately assess a nominee's qualifications. This information
about a potential nominee would include, at a minimum:
. name and address
. business and other experience relevant to serving as a
member of Frontier's Board of Directors, and
. a listing of any other Boards on which the nominee may
be a member.
All submissions should be sent by a letter addressed to the Corporate
Secretary, Frontier Corporation, 180 South Clinton Avenue, Rochester, New York
14646-0700. Suggestions in connection with the 2000 Annual Meeting of Common
Shareholders must be received by October 29, 1999 in order to receive
consideration.
Executive Committee
The members of the Executive Committee are:
. Douglas H. McCorkindale, Chair
. Joseph P. Clayton
. Jairo A. Estrada
. Michael E. Faherty
. Alan C. Hasselwander
. Dr. Leo J. Thomas
The Chair of the Executive Committee serves as the lead outside director. The
Executive Committee possesses all of the powers of the Board of Directors except
those which, by law or the Company's By-Laws, cannot be delegated to it. The
Executive Committee met three times in 1998.
5
<PAGE>
Compensation of Directors
Directors who are not Company employees are paid an annual retainer and meeting
fees as follows:
. The annual retainer consists of 1,200 shares of Frontier Corporation common
stock. This amount is prorated if a Director begins service on other than the
date of the Annual Meeting.
. The meeting fee is $1,500 for each Board and/or committee meeting attended.
. The annual retainer for each committee chair consists of an additional 300
shares of Frontier Corporation common stock.
. New Directors also receive an additional one-time grant of 1,000 shares of
Frontier Corporation common stock which they must hold during their tenure on
the Board.
. The Lead Director receives additional compensation equal to the cash value of
1,200 shares of the Company's common stock. Mr. McCorkindale served as Lead
Director in 1998. It is currently expected that he will continue to serve in
this capacity in 1999.
. Directors may elect to defer payment of their fees to future years.
. Directors annually receive an option to purchase 4,000 shares of the
Company's common stock pursuant to the Company's Directors' Stock Incentive
Plan. This amount is prorated if a Director begins service on other than the
date of the Annual Meeting. These options expire ten years after issuance,
and the exercise price is the closing price of the stock on the day the
option was granted.
Mr. Hippeau received a grant of options for 2,000 shares at an exercise price
of $25.3125 on October 12, 1998. Mr. McDonald received a grant of options for
1,333 shares at an exercise price of $32.3125 on December 15, 1998. Each other
outside Director received a grant of options for 4,000 shares at an exercise
price of $28.625 per share on April 29, 1998.
Directors also receive cellular telephone equipment and service and other
nominal in-kind items.
STOCK OWNERSHIP OF
MANAGEMENT, DIRECTORS AND
CERTAIN BENEFICIAL OWNERS
In 1993, the Committee on Directors first established targets
for the minimum amounts of the Company's common stock which Directors should
own. These targets for stock ownership consider the length of a Director's
tenure on the Board. The 1998 target for Directors was the beneficial ownership
of 12,000 shares of the Company's common stock. Each Director has five years to
achieve this target, and all Directors with at least five years of service on
the Board have met the target. In 1999 the target for each outside Director
continues to be the beneficial ownership of at least 12,000 shares of the
Company's common stock.
Executive officers of the Company are also encouraged to own shares of the
Company. The recommended stock ownership level is based on each officer's
position in the organization and is a multiple of salary. Mr. Clayton and each
Executive Vice President has a stock ownership target which is the beneficial
ownership of Company common stock equal in value to four times his or her
respective salary. Each other executive officer has a target of beneficial
ownership of Company common stock equal in value to three times his or her
respective salary. Each executive officer is expected to achieve his or her
target by the later of January 1, 1999 or the fifth anniversary of his or her
appointment as an executive officer. All executive officers with at least five
years' tenure as an executive officer of the Company have met this target.
The following table sets forth the number of shares of the Company's common
stock beneficially owned by each Director and nominee, by each of the named
executive officers, and by Directors and officers of the Company as a group as
of February 12, 1999. No Director, officer or nominee beneficially owns more
than 1% of the Company's outstanding shares of common stock. The group's
aggregate holdings constitute approximately 1.3% of the Company's issued and
outstanding common stock.
6
<PAGE>
Management and Directors Stock Ownership Table as of February 12, 1999
- ----------------------------------------------------------------------
Total
Common Stock Beneficial
Name Stock(1) Options(2) Ownership
- ----------------------------------------------------------------------
Directors and Nominees:
Patricia C. Barron 13,234 15,399 28,633
Raul E. Cesan 9,099 7,999 17,098
Joseph P. Clayton 328,102 233,332 561,434
Brenda E. Edgerton 12,477 14,449 26,926
Jairo A. Estrada 28,773 15,999 44,772
Michael E. Faherty 98,639 24,333 122,972
Alan C. Hasselwander (3) 40,097 13,265 53,362
Eric Hippeau 15,846 0 15,846
Robert Holland, Jr. 9,559 7,666 17,225
Douglas H. McCorkindale 15,668 15,999 31,667
James F. McDonald 1,400 0 1,400
Dr. Leo J. Thomas 34,463 15,999 50,462
Named Executive Officers:
Robert L. Barrett 105,930 258,333 364,263
Joseph P. Clayton 328,102 233,332 561,434
Jeremiah T. Carr 57,856 232,732 290,588
Rolla P. Huff 152,613 0 152,613
Donna L. Reeves-Collins 9,499 100,232 109,731
Directors and Executive
Officers as a Group
(20 persons) 980,012 1,319,867 2,299,879
- ----------------------------------------------------------------------
(1) Includes all shares which each Director, nominee or officer directly, or
through any contract, arrangement, understanding, relationship or otherwise, has
or shares the power to vote or to direct the voting of such shares or to dispose
or to direct the disposition of such shares. Amounts in this column include both
vested and unvested restricted stock granted to selected executive officers.
However, these amounts do not include shares which each such person has the
right to acquire pursuant to options or other rights.
(2) Includes all shares which such persons have the right to acquire within the
sixty days following February 12, 1999, pursuant to options or other rights.
These amounts do not include shares which such persons have the right to acquire
more than sixty days after that date.
(3) Includes 1,480 shares owned by Mr. Hasselwander's spouse. Mr. Hasselwander
disclaims beneficial ownership of these shares.
Set forth below is the name, address and stock ownership of the only persons or
groups of persons known by the Company to own beneficially more than 5% of the
outstanding shares of common stock.
Stock Ownership of Certain Beneficial Owners as of December 31, 1998
- -------------------------------------------------------------------
Number of
Name and Address Shares of Percent
of Beneficial Owners Common Stock of Class
- -------------------------------------------------------------------
Delaware Management Holdings, Inc. (1) 11,512,972 6.71%
2005 Market Street
Philadelphia, Pennsylvania 19103
Scudder Kemper Investments, Inc. (2) 10,379,385 6.10%
345 Park Avenue
New York, New York 10154
- -------------------------------------------------------------------
(1) Delaware Management Holdings, Inc., filed with the Securities and Exchange
Commission a Schedule 13G, dated February 5, 1999, stating that it beneficially
owned in the aggregate 11,512,972 shares of the Company's common stock in its
capacity as the parent holding company of Delaware Management Business Trust. In
its Schedule 13G filing, Delaware Management Holdings, Inc., also disclosed that
with respect to the shares it beneficially owns, it has sole voting power with
respect to 10,965,172 shares, shared voting power with respect to 547,800
shares, sole dispositive power with respect to 11,512,972 shares, and shared
dispositive power with respect to 0 shares.
(2) Scudder Kemper Investments, Inc., filed with the Securities and Exchange
Commission a Schedule 13G, dated February 12, 1999, stating that it beneficially
owned in the aggregate 10,379,385 shares of the Company's common stock. In its
Schedule 13G filing, Scudder Kemper Investments, Inc., also disclosed that with
respect to the shares it beneficially owns, it has sole voting power with
respect to 4,207,085 shares, shared voting power with respect to 5,706,000
shares, sole dispositive power with respect to 10,270,285 shares, and shared
dispositive power with respect to 109,100 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's Directors, executive officers and shareholders holding in excess
of 10% of the common stock are required to file reports with the Securities and
Exchange Commission and the New York Stock Exchange, with copies to the Company,
concerning ownership of and transactions in the Company's common stock. Based
solely on those reports furnished to the Company and related information, the
Company believes that all such filing requirements for 1998 were complied with
in a timely fashion with the exception of a single transaction by Donna L.
Reeves-Collins in November 1998 which was not timely reported on a Form 4.
7
<PAGE>
REPORT OF COMMITTEE ON DIRECTORS
Your Board formed the Committee on Directors in 1993 to focus the Board's
attention on corporate governance and to serve as the nominating committee.
Since then, the Committee initiated several actions designed to increase the
independence of the Board and to enhance the alignment of Directors' interests
with those of shareholders. Many of these actions were already reported to you
in prior proxy statements. During 1998, the Committee maintained its oversight
responsibilities with respect to corporate governance.
In adopting a set of Governance Guidelines, the Board sought to improve the
overall financial performance of the Company. The Guidelines, designed to serve
the best interests of the shareholders, establish the framework and standards
for Board operation. We review these annually and describe the main provisions
here.
Under the Governance Guidelines, the size of the Board is set between 9 and 14
members, each of whom is elected for a one-year term. Currently there are 12
members of the Board of Directors and each serves on at least one committee. We
expect 100 percent attendance with a minimum permitted attendance of 75 percent
of the meetings. All of your Directors met the attendance requirement in 1998.
The minimum number of Board meetings held each year is 5 and, for each
Committee, is 2.
There is a majority of independent outside Directors on the Board. All
Committees, except the Executive Committee, are composed entirely of independent
outside Directors. A majority of the Executive Committee members is independent
outside Directors. Generally, retirement age is 70. If a Director's primary job
changes, he or she submits a resignation to the Committee on Directors which,
after consideration, recommends whether or not to accept it. Retirement is
considered a job change in the context of this provision. The Chair of the
Executive Committee serves as Lead Director. In recognition of the additional
responsibilities of the Lead Director function, this Committee recommended that
the Lead Director receive additional compensation in an amount equal to the cash
value of 1,200 shares of the Company's common stock. This additional
compensation was approved by the full Board of Directors.
The Committee monitors the stock ownership of the members of the Board and
reports that all current outside Board members have met their respective stock
ownership target in effect at the end of 1998. The target may be reached over a
period of five years and is 12,000 shares.
In 1996, the Committee reviewed Board member compensation and determined that
a major shift was desirable to more closely align the Directors' interests with
those of the shareholders. Thus, the Committee recommended that beginning with
the 1996 compensation package, the full retainer paid to each Board member and
each Chair of a Committee would be in the form of shares of Frontier common
stock. The Board approved this plan, and subsequently the shareholders approved
this plan at the April 24, 1996 Annual Meeting of Shareholders. This plan
remains in effect for 1999.
In 1998, the Committee and the Board continued the practice of peer
evaluation. This process provides feedback to each Director and to the Board
with respect to strengths of the Board and areas for improvement. In alternate
years, the Board evaluates its effectiveness as a whole in a number of areas of
the Board's responsibility including the protection of shareholders' interests,
CEO performance review, strategic planning and management succession. This
Committee on Directors performed two searches in 1998 for new Directors and
successfully added two new members to your Company's Board.
Your Committee on Directors will continue to review annually the governance
standards and recommend improvements in governance to the full Board of
Directors. A complete copy of the Governance Guidelines is available from the
Corporate Secretary.
Respectfully submitted,
The Committee on Directors
Michael E. Faherty (Chair)
Brenda E. Edgerton
Eric Hippeau
Douglas H. McCorkindale
January 25, 1999
8
<PAGE>
REPORT OF COMMITTEE ON MANAGEMENT
Compensation Philosophy and Policy
The Committee on Management believes that it is imperative for Frontier to offer
an aggressive, competitive compensation program to motivate employees to build
wealth for shareholders. The executive compensation program is designed to
reward employees whose results enable the Company to achieve its vision. The
components of the program are:
. Base Salary
. Annual Incentive Plan (Bonus)
. Stock Incentive Plan
The executive compensation program is structured to attract and retain the
highest caliber executives. They are compensated based on the Company's
consolidated performance and the individual's contribution. The program is
designed to be competitive with compensation programs offered by comparable
employers. The Company retains William M. Mercer, Inc. to review its executive
compensation program on an annual basis. Information from this consulting firm,
other independent studies and public information concerning salary, bonus and
long-term incentive payments paid by companies in the telecommunications and
related industries are used by this Committee to determine an appropriate
compensation package for the Company's executives.
The analysis includes information from a peer group of twenty-seven companies
in the telephone, long distance, cable television, cellular and information
technology industries. This group includes most of the companies reported
in the Standard & Poor's Telephone Index and all of the companies reported in
the Standard & Poor's Long Distance Index, together with additional companies.
The Company's policy is to establish benchmarks at the median and 75th
percentile of the comparative companies and to reward results based on
performance. On a comparative basis, the base salary of the Company's CEO and
its other executives, on average, would be considered within the third quartile
of this group of peer companies.
Significant Actions During The Year
In January 1998, the Committee negotiated, with the Board's approval, a new
employment agreement with Mr. Clayton to reflect his duties as Chief Executive
Officer. The term of the agreement is for three years and defines the elements
of his compensation. The Committee also approved employment agreements during
the year with other executive officers of the Company which reflect their
respective duties and the elements of their compensation.
In February 1998, Louis Massaro, then Chief Financial Officer, retired from
the Company. Rolla P. Huff was hired in May 1998 to fill this role. As
components of his compensation package, Mr. Huff was awarded stock options and
restricted stock. Vesting of the restricted stock is predicated on both
continued employment and the achievement of specific stock price performance
targets.
Base Salary
The salaries of the executive officers are based on the executive's performance
and an analysis of base salaries paid executive officers having similar
responsibilities in other companies. This analysis included the companies in the
peer group of twenty-seven publicly-traded companies together with additional
companies from other industries with similar revenues and/or asset values. Mr.
Clayton's base salary was adjusted in 1998 to reflect his responsibilities as
Chief Executive Officer. A further adjustment will be made to his salary in
February 1999. The level of Mr. Clayton's base salary was also based upon a
subjective assessment of his individual performance as well as overall corporate
performance as measured by actual financial and operating results versus pre-
established targets, strategic goals, and growth of the business. The base
salaries of the other executive officer positions, other than that of the Chief
Executive Officer, were set during 1998 and are commensurate with the respective
position's responsibilities. This Committee continues to review executive salary
levels in order to ensure competitiveness. Adjustments are planned to these
salaries to take effect beginning in February 1999.
In addition to benchmarking comparative companies' salaries, salary levels for
the executives were based upon a subjective assessment of each individual's
performance and responsibilities as well as overall corporate performance as
measured by actual earnings per share and revenue versus pre-established
targets, strategic goals and business and individual performance. No relative
weights are attributed to any specific measurement factors.
Annual Incentive Plan (Bonus)
The Company's annual incentive plan is a bonus plan designed to provide
performance-based compensation awards to executives for achievement during the
past year. For executive officers, annual incentive awards are a function of
individual performance and consolidated corporate results. Business
9
<PAGE>
unit performance is also a component of the annual incentive plan for certain of
those employees involved in line operations below the executive officer level.
All participants are subject to a discretionary adjustment, either positive or
negative, based on individual performance. The specified qualitative and
quantitative criteria employed by the Committee in determining annual incentive
awards vary individually and from year to year. These criteria, or targets, are
established as a means of measuring executive performance. The corporate targets
for 1998 were based upon earnings per share, revenue, operating income, customer
churn, and employee-initiated churn. Targets and weightings were established by
this Committee as an incentive to improve the financial performance of the firm
and thus improve long-term stock performance. Performance objectives and
associated payout opportunities were established at the beginning of the year
for executive officers. The objectives are identified as threshold, standard and
premier targets with standard performance yielding payouts at the median level
competitively. Actual overall 1998 corporate performance was between the
threshold and standard levels, and accordingly, there was a bonus payout for the
executives. Mr. Clayton's incentive bonus in the amount of $527,583 was
determined in accordance with these targets and was paid out in early 1999. One
executive who joined Frontier in 1998 received a guaranteed incentive bonus as
part of his initial compensation package.
Stock Incentive Plan
This Committee believes that stock-based plans are an important component of
executive compensation programs because they tie long-term compensation directly
to the interests of shareholders. The Company's Management Stock Incentive Plan
is designed to align executive compensation with long-term performance of the
Company's stock. Stock options issued in 1998 do not expire until 2008, and the
exercise price is the closing price of the stock on the day the option was
granted. This Committee makes a subjective determination of the specific stock
option grant to be awarded to each executive officer. The factors considered by
the Committee in making this determination are:
(a) the executive officer's past performance on previously set objectives;
(b) his or her expected future contribution to the long-term strategic goals
and objectives of the Company; and
(c) industry practices.
No relative weights are attributed to any of these factors. All executive
officers of the Company received options in 1998 based on their position in the
Company, their contribution to the achievement of the Company's long-term
objectives as assessed by Committee members based on their experience with the
executive officers, and upon the recommendation of the Chief Executive Officer.
Upon the recommendation of this Committee, Mr. Clayton received stock option
grants for 200,000 shares based upon these factors as well.
Restricted stock awards were granted to incent and retain certain of the named
executive officers. The awards were issued to them based upon their expected
contribution to the achievement of the Company's long-term objectives as
assessed by Committee members based on their experience with the executive
officers, and upon recommendation of the Chief Executive Officer. Restricted
stock awards issued to them in 1998 vest based upon stock performance and the
passage of time. Upon the recommendation of this Committee, the full Board of
Directors awarded Mr. Clayton a total of 300,000 shares of restricted stock.
Restricted stock awards to Mr. Clayton for 200,000 of these shares expire on
February 28, 2001 and on February 10, 2003 for the other 100,000 of these
shares. Executives, including Mr. Clayton, must continue to be employed by the
Company and specified stock price targets must be achieved by certain dates for
vesting to occur. Executives who leave the Company for any reason other than
retirement, death or disability forfeit all unvested awards. No greater than
one-third of an executive's award can be paid out in either 1999 or 2000. On
February 10, 1998, the grant date of Mr. Clayton's 300,000 shares of restricted
stock, the Company's stock price was $25.50 per share. Of this amount 66,666
shares vest upon the achievement of at least a $29.00 stock price for twenty
business days in a thirty business day period. Subsequent tranches will vest
upon achievement, for the same minimum duration, of stock prices of $34.00 and
$39.00. (See also footnote 1 to the Long-Term Incentive Plans--Awards in Last
Fiscal Year Table at page 15.)
Other Actions
The Committee believes that stock-based programs provide the best long-term
incentives, are excellent motivators and better align the efforts of employees
with the objectives of the shareholders. The Committee had previously
established stock ownership guidelines for the Company's executives. These
guidelines are described elsewhere in this proxy statement.
10
<PAGE>
Section 162(m) of the Internal Revenue Code limits the tax deduction to $1
million per person for compensation paid to the five highest paid executive
officers unless certain requirements are met. The Management Stock Incentive
Plan, specifically as it relates to performance-based restricted stock, is
designed to comply with Section 162(m) requirements. The Committee favors a pay-
for-performance compensation program and intends to continue to review executive
compensation plans in consideration of the regulation.
No member of this Committee is a former or current officer or employee of the
Company or any of its subsidiaries.
Respectfully submitted,
The Committee on Management
Dr. Leo J. Thomas (Chair)
Raul E. Cesan
James F. McDonald
January 25, 1999
PERFORMANCE GRAPH
The following graph charts the Company's cumulative total shareholder return
performance against the Standard & Poor's Telephone Index, the Standard & Poor's
Long Distance Index and the Standard & Poor's 500 Index. A variety of factors
may be used in order to assess a corporation's performance. This Performance
Graph, which reflects the Company's total return against the selected peer
group, reflects one such method. The performance of the Standard & Poor's
Telephone Index and the Standard & Poor's Long Distance Index are weighted by
the stock market capitalization of the companies within each of these peer
groups. These same comparisons have been presented in the last three proxy
statements. The Company's common stock closing price on December 31, 1998 was
$34.00 per share.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Value of $100 invested
through the period ending: 0 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
. Frontier Corporation $100.00 $99.12 $140.05 $110.64 $120.47 $172.83
[] S&P 500 $100.00 $101.52 $139.72 $170.47 $228.48 $292.38
* S&P Long Distance $100.00 $88.93 $120.35 $120.66 $169.40 $281.94
/\ S&P Telephone $100.00 $92.06 $138.11 $139.01 $192.53 $280.79
- ----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
COMPENSATION OF COMPANY MANAGEMENT
We have included the following tables and other information to help you
understand the compensation of the Company's executives. These tables reflect
the components of compensation paid the executive officers of Frontier
Corporation. Specifically, these include salary, bonus, stock options and a
long-term incentive plan. The Company does not provide its executives with stock
appreciation rights.
The Report of the Committee on Management of the Board of Directors appears on
pages 9 through 11 of this proxy statement. This Report discusses the factors
taken into consideration in setting Mr. Clayton's compensation and the
compensation of the other executive officers. A Performance Graph showing the
performance of the Company's stock as compared to the Standard & Poor's 500
Index, the Standard & Poor's Telephone Index, and the Standard & Poor's Long
Distance Index appears on page 11 of this proxy statement.
Summary Compensation Table
The following table provides a summary of compensation paid to the CEO and the
other four most highly compensated executive officers of the Company for
services rendered to the Company and/or its subsidiaries over the past three
fiscal years. The indicated titles are those held by each named executive
officer as of January 31, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------------------------------------------------------------
SECURITIES
NAME OTHER ANNUAL UNDERLYING LTIP ALL OTHER
AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (2) (#) ($) (3) ($) (4)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. P. CLAYTON /(1)/ 1998 $725,000 $527,583 $ 16,274 200,000 N/A $286,366
CEO AND PRESIDENT 1997 $364,583 $350,000 $ 0 500,000 N/A $475,535
FRONTIER CORPORATION 1996 N/A N/A N/A N/A N/A N/A
R. L. BARRETT /(1)/ 1998 $345,000 $150,627 $ 0 75,000 $522,932 $ 12,025
EXECUTIVE VICE PRESIDENT 1997 $322,500 $ 0 $ 0 50,000 N/A $ 4,638
FRONTIER CORPORATION AND 1996 $231,250 $ 0 $ 84,670 200,000 N/A $246,528
PRESIDENT--TECHNOLOGY
J. T. CARR
EXECUTIVE VICE PRESIDENT 1998 $400,000 $174,640 $ 0 100,000 $632,394 $ 5,622
FRONTIER CORPORATION 1997 $319,084 $ 0 $ 0 50,000 N/A $ 3,825
AND PRESIDENT-- 1996 $270,000 $ 0 $ 0 100,000 N/A $ 5,226
FRONTIER OPERATIONS
R. P. HUFF /(1)/ 1998 $218,750 $300,000 $ 31,188 350,000 N/A $141,579
EXECUTIVE VICE 1997 N/A N/A N/A N/A N/A N/A
PRESIDENT AND CHIEF 1996 N/A N/A N/A N/A N/A N/A
FINANCIAL OFFICER
FRONTIER CORPORATION
D. L. REEVES-COLLINS /(1)/ 1998 $275,000 $115,084 $110,713 75,000 N/A $ 47,081
SENIOR VICE 1997 $262,841 $ 65,520 $ 18,205 70,500 N/A $334,203
PRESIDENT AND PRESIDENT-- 1996 $146,035 $ 67,388 $ 0 25,000 N/A $ 42,868
FRONTIER SALES
==============================================================================================================================
</TABLE>
(1) Mr. Clayton became an employee on June 9, 1997 and was named President and
Chief Operating Officer effective June 16, 1997, Mr. Barrett was named Executive
Vice President effective March 26, 1996, and Mr. Huff became an employee on May
22, 1998 and was named Executive Vice President effective June 1, 1998. Prior to
those dates, none had received any remuneration for services to Frontier
Corporation or any of its subsidiaries. See also Long-Term Incentive Plans--
Awards in Last Fiscal Year Table at page 15. The amount reflected as 1997 salary
for Ms. Reeves-Collins includes a cost-of-living adjustment of $84,706 paid to
her in connection with her relocation, at that time, to California in her
position as Frontier Corporation's Vice-President-Western Region. The amounts
shown as bonus for Ms. Reeves-Collins in 1996 and in 1997 reflect commissions
paid to her in connection with her prior sales management positions with
Frontier's long distance business unit.
12
<PAGE>
(2) The amount reported in this column for 1996 includes $84,670 paid to Mr.
Barrett to offset income tax liabilities incurred by him. The amount reported in
this column for 1997 includes $18,205 paid to Ms. Reeves-Collins to offset
income tax liabilities incurred by her in 1996 and 1997. The amount reported in
this column for 1998 includes $16,274 paid to Mr. Clayton to offset income tax
liabilities incurred by him in 1998, $110,713 paid to Ms. Reeves-Collins to
offset income tax liabilities incurred by her in 1998, and $31,188 paid to Mr.
Huff to offset income tax liabilities incurred by him in 1998.
(3) The amounts reflect the dollar value of the portion of Mr. Barrett's and
Mr. Carr's restricted share grants which vested in 1998. The grants of these
restricted shares were reflected as Long-Term Incentive Plan Awards in the years
in which they were originally granted.
(4) "All Other Compensation" includes imputed income from term life insurance
coverage and the Company's contributions to both the tax-qualified 401(k) and
nonqualified defined contribution plans. For 1998, the dollar value of term life
insurance coverage premiums paid by the Company for the benefit of the named
executive officers was $22 for Mr. Clayton, $22 for Mr. Barrett, $22 for Mr.
Carr, $11 for Mr. Huff and $22 for Ms. Reeves-Collins. The Company's 1998
contributions on behalf of the named executive officers to the tax-qualified
401(k) and nonqualified defined contribution plans, respectively, were as
follows: $0 and $37,625 for Mr. Clayton; $2,956 and $9,047 for Mr. Barrett;
$5,600 and $0 for Mr. Carr; $800 and $4,766 for Mr. Huff; and $2,863 and $6,762
for Ms. Reeves-Collins. For Mr. Clayton, Mr. Huff and Ms. Reeves-Collins, "All
Other Compensation" also includes the reimbursement of relocation fees in the
respective amounts of $248,719, $136,002 and $37,434.
The following companion tables to the Summary Compensation Table list the
stock options granted during the 1998 fiscal year to the named executive
officers, their stock option exercises in 1998 and the aggregate options they
held at the end of 1998, long-term incentive plan restricted stock awards
granted during 1998, and the estimated retirement benefits which would be paid
to them at age 65.
Option/SAR Grants in Last Fiscal Year
The following table of Individual Grants includes a column designated as "Grant
Date Present Value." The calculations in this column are based on the
Black/Scholes Present Value Pricing Methodology. This is used to determine the
theoretical value of a stock option. The parameters used in this model are the
exercise or strike price, the term of the option or term to expiration, the
underlying stock price, the daily volatility of the stock, the prevailing
interest rate, and the stock's dividend rate.
INDIVIDUAL GRANTS IN 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION
GRANTED FISCAL YEAR BASE PRICE DATE GRANT DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
NAME (#) (1) ($/SHARE) GRANT DATE
PRESENT VALUE ($)(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. P. CLAYTON /(2)/ 200,000 4.11% $25.5000 2/10/08 $1,532,340
R. L. BARRETT /(2)/ 75,000 1.54% $25.5000 2/10/08 $ 574,628
J. T. CARR /(2)/ 100,000 2.06% $25.5000 2/10/08 $ 766,170
R. P. HUFF /(2)/ 200,000 4.11% $30.7500 5/22/08 $2,049,740
50,000 1.03% $33.3125 8/26/08 $ 594,630
100,000 2.06% $26.4375 10/19/08 $1,019,320
D. L. REEVES-COLLINS /(2)/ 75,000 1.54% $25.5000 2/10/08 $ 574,628
=======================================================================================================================
</TABLE>
(1) The options granted under the Management Stock Incentive Plan have the
following material terms: exercise price is the market price (based on
the closing price of the Company's common stock on the New York Stock Exchange)
on the date of the option grant; 1/3 of the options granted may be exercised
commencing one year following the grant date, a second 1/3 may be exercised
commencing two years following the grant date, and the remaining 1/3 may be
exercised commencing three years following the grant date. Options may not be
transferred other than by will or the laws of descent and distribution. An
option may be exercised upon written notice to the Company accompanied by
payment in full for the shares being acquired. In the event of a "change in
control" as defined by the Management Stock Incentive Plan, all options become
immediately vested and exercisable.
(2) Options were granted to Mr. Huff on May 22, 1998, August 26, 1998 and
19, 1998, at an exercise price equal to Frontier Corporation's closing stock
price on each date; such prices were, respectively, $30.75 per share, $33.3125
per share and $26.4375 per share. Options were granted to all other named
executive officers on February 10, 1998, at an exercise price equal to
Frontier's closing stock price on that date of $25.50 per share.
13
<PAGE>
(3) The Black/Scholes pricing model is a methodology by which to determine the
theoretical value of a stock option. The parameter assumptions used in the
model are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Grant Exercise Option Underlying Risk Free Expected Dividend
Date Price Term Stock Price Rate of Daily Yield
Return Volatility
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/10/98 $ 25.50 10 yrs. $ 25.50 5.570% .349 4.216%
5/22/98 $ 30.75 10 yrs. $ 30.75 5.640% .339 3.485%
8/26/98 $33.3125 10 yrs. $33.3125 5.200% .355 3.086%
10/19/98 $26.4375 10 yrs. $26.4375 4.670% .411 3.086%
===========================================================================================================================
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Shares Options/SARs at FY End SARs at FY End (2)
Acquired Value --------------------------------------------------------------
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($)(1) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. P. Clayton 0 N/A 166,666 533,333 $2,427,074 $6,554,176
R. L. Barrett 0 N/A 149,999 175,001 $ 618,741 $1,250,009
J. T. Carr 26,400 $300,456 182,732 166,668 $1,325,982 $1,333,342
R. P. Huff 0 N/A 0 350,000 $ 0 $1,440,625
D. L. Reeves-Collins 0 N/A 75,232 116,668 $ 703,621 $1,005,217
==================================================================================================================================
</TABLE>
(1) Aggregate market value of the shares acquired or covered by the option less
the aggregate exercise price.
(2) Options are valued at the market value of Frontier Corporation common stock
at December 31, 1998, (closing price of $34.00) less the per share option
exercise price, multiplied by the number of exercisable/unexercisable options.
14
<PAGE>
Long-Term Incentive Plans Awards in Last Fiscal Year
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Number of Performance or
Shares, Units Other Period
or Other Until Maturation
Name Rights (#) or Payout
- ---------------------------------------------------------------
<S> <C> <C>
J. P. Clayton 300,000 (1)
R. L. Barrett 0
J. T. Carr 0
R. P. Huff 150,000 (1)
D. L. Reeves-Collins 0
===============================================================
</TABLE>
(1) Messrs. Clayton and Huff each were awarded shares of restricted stock under
the Management Stock Incentive Plan which is a long-term incentive plan. Mr.
Clayton received all his shares on February 10, 1998. Mr. Huff received 100,000
shares on May 22, 1998 and 50,000 shares on October 19, 1998. Vesting is subject
to performance criteria as well as the passage of time and continued employment.
Recipients of restricted shares have full voting rights on the shares and are
entitled to receive accumulated dividends when the shares vest. In the event of
death, disability, or retirement, individuals (or their estates) will be
entitled to a distribution of restricted shares upon the achievement of the
vesting criteria, prorated to reflect their periods of active participation
during the grant term. In the event of a "change in control" as defined by the
Management Stock Incentive Plan, all restricted shares become immediately
vested. With respect to 200,000 shares of Mr. Clayton's award, the first third
will vest upon achievement of at least a $29.00 stock price for twenty business
days in a thirty business day period. The remaining two-thirds will vest upon
achievement of stock prices of $34.00 and $39.00 for twenty business days in a
thirty business day period. Shares which do not vest by February 28, 2001 are
forfeited, together with all dividends thereon. With respect to Mr. Huff's May
22, 1998 award of 100,000 restricted shares, the first third will vest upon
achievement of at least a $35.00 stock price for twenty business days in a
thirty business day period. The remaining two-thirds will vest upon achievement
of stock prices of $41.00 and $47.00 for twenty business days in a thirty
business day period; shares which do not vest by May 31, 2001 are forfeited,
together with all dividends thereon. With respect to Mr. Huff's October 19, 1998
award of 50,000 restricted shares, the first third will vest upon achievement of
at least a $29.00 stock price for twenty business days in a thirty business day
period. The remaining two-thirds will vest upon achievement of stock prices of
$32.00 and $35.00 for twenty business days in a thirty business day period;
shares which do not vest by October 31, 2001 are forfeited, together with all
dividends thereon. In the case of Mr. Clayton's 200,000 restricted shares and
all Mr. Huff's restricted shares, no greater than one-third of the award can be
paid in either 1999 or 2000. Mr. Clayton's remaining 100,000 restricted shares
vest February 10, 2003 provided that the Company's stock price shall have
reached $29.00 per share within 12 months of the grant, $31.00 per share within
18 months of the grant, or $32.00 per share within 24 months of the grant. This
stock price appreciation target was reached; payout of the vested amounts will
be deferred until Mr. Clayton reaches age 55 on October 11, 2004.
Pension Plans
The following table shows the estimated annual benefits payable upon retirement
at age 65 to individuals in specified remuneration and years of service
classifications. Furthermore, the amounts set forth are neither subject to any
deduction for Social Security benefits or any other offsets nor adjusted to
reflect maximum allowable benefits under the Internal Revenue Code.
Certain of the Company's officers are participants in the Company's Pension
Plan for Non-Bargaining Employees (the "Management Pension Plan") as
supplemented by a Supplemental Management Pension Plan ("SMPP"). Of those listed
in the Summary Compensation Table, Mr. Carr and Ms. Reeves-Collins participate
in these Plans. The annual aggregate pension benefit for an officer under these
Plans is based upon several factors and is largely determined by the number of
years of employment multiplied by a percentage of the officer's three
consecutive years of highest average annual compensation preceding retirement.
Both the Company's Management Pension Plan and the SMPP were amended and
frozen effective December 31, 1996. Benefit calculations under both pension
plans were increased by 20% for all plan participants who had five or more years
of service under the Plans by December 31, 1996. Additionally, early retirement
requirements were reduced by three years of service and three years of age as
final enhancements to both plans.
15
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Years of Service
Remuneration (15) (20) (25) (30) (35)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$250,000 $ 67,648 $ 90,197 $112,746 $135,295 $157,844
300,000 81,508 108,677 135,846 163,015 190,184
350,000 95,368 127,157 158,946 190,735 222,524
400,000 109,228 145,637 182,046 218,455 254,864
450,000 123,088 164,117 205,146 246,175 287,204
500,000 136,948 182,597 228,246 273,895 319,544
550,000 150,808 201,077 251,346 301,615 351,884
600,000 164,668 219,557 274,446 329,335 384,224
650,000 178,528 238,037 297,546 357,055 416,564
===========================================================================
</TABLE>
Messrs. Clayton, Barrett, Carr, and Huff and Ms. Reeves-Collins each have
executive contracts which may pay a benefit in the event of a "change in
control" of the Company. These contracts are explained in detail on page 17 of
this proxy statement. With the exception of Messrs. Clayton, Barrett and Huff,
each of them also participates in the Company's Management Pension Plan and
SMPP. Under SMPP, the service factor would include, subject to certain
limitations, the amount of service for which payment is made to each of them
under his or her respective executive contract.
The SMPP also provides that in the event of a Change in Control of the
Company, the Board may not terminate a participant's benefit and the Employees'
Benefit Committee may not change prior decisions regarding a participant's
service factor.
Effective January 1, 1994, the Company established a Supplemental Executive
Retirement Plan ("SERP") which covers Mr. Carr plus one other current executive.
The Plan has an accrual and vesting schedule based on years of service and age.
A maximum benefit of 60% of final compensation will be paid to an executive
retiring at age 50 or older with 30 or more years of service. Payments made
under the Company's Management Pension Plan and the SMPP are included in
determining the ultimate benefit payable under the SERP. However, in order to
qualify for the SERP benefit, a covered executive must be at least 50 years of
age. Executive officers who are not at least 50 years old when they retire would
only receive the retirement benefits set forth in the above Pension Plan Table
and would receive no SERP benefit. Effective December 31, 1999, the SERP will be
frozen with no enhancements.
For the purpose of the Management Pension Plan, annual compensation includes
all taxable W-2 compensation plus deferred compensation. For the purpose of SMPP
and the SERP, annual compensation is the same as that given in the Salary and
Bonus columns of the Summary Compensation Table for the named executive
officers. The number of years of employment of such individuals for the purposes
of these Plans currently are as follows: Mr. Carr--29 and Ms. Reeves-Collins--
15.
Ms. Reeves-Collins has not yet attained the age and years of service criteria
to be retirement eligible. If her employment ended as of the current date, Ms.
Reeves-Collins would receive a deferred pension based upon the amount reflected
in the Pension Plan Table. Since Mr. Carr has attained the age of 50 years and
has 29 years of service credit, he is entitled to a full pension based on the
amount reflected in the Pension Plan Table. Assuming compensation at his January
31, 1999 level, if Mr. Carr were to retire, he would additionally receive an
annual SERP benefit of $44,900.58.
16
<PAGE>
Employment Contracts
The Company has entered into employment agreements with certain of its executive
officers. Effective August 16, 1995, the Company entered with Mr. Carr into an
employment agreement with a three-year term and a provision for annual renewals.
Effective March 26, 1996, the Company also entered with Mr. Barrett into a
three-year employment agreement with a provision for annual renewals.
Additionally, the Company entered with Ms. Reeves-Collins into a similar
agreement on October 13, 1997. Each of these agreements provides for specific
compensation, duties and terms and conditions of employment. Each agreement also
provides that, in the event of a Change in Control (as defined in the agreement)
which is followed within three (3) years by termination of employment under
certain circumstances, the employee will be entitled to all accrued
compensation, a pro rata bonus, a cash severance payment (as determined under
the agreement), the cash value of certain retirement amounts (if applicable and
as determined under the agreement) and continuation for three years of certain
health and life insurance benefits. Additionally, in the event any of these
amounts are determined to trigger an Excise Tax (as defined in the agreement),
the employee may also be entitled to a Gross-Up Payment (also as defined in the
agreement). The amount of the severance payable to a named officer may vary
based upon the individual's agreement with the Company.
Effective January 1, 1998, the Company entered into an employment agreement
with Mr. Clayton. Mr. Clayton's agreement has a three-year term with annual
renewals and specifies the duties of his employment. It also provides for an
annual base compensation of $725,000, a short-term incentive as established
under the Company's Executive Compensation Program, a grant of 200,000 stock
options, and the grant of a total of 300,000 restricted shares with vesting tied
to specific performance criteria linked to an increase in the Company's stock
price and the passage of time. Of this grant, 200,000 restricted shares will
vest over three years, assuming achievement of certain specific stock price
appreciation targets. The performance criteria for the remaining 100,000
restricted shares is a specific stock price appreciation target to be achieved
over 12, 18 or 24 months. Assuming achievement of these stock price appreciation
targets, the 100,000 restricted shares will vest five years following the grant
date. Mr. Clayton's employment agreement also contains termination and Change in
Control provisions substantially similar to the agreements of the other named
executive officers.
Effective May 22, 1998, the Company entered into an employment agreement with
Mr. Huff. Mr. Huff's agreement has a three-year term with annual renewals and
specifies the duties of his employment. It also provides for an annual base
compensation of $375,000, a short-term incentive as established under the
Company's Executive Compensation Program, a grant of 200,000 stock options, and
the grant of a total of 100,000 restricted shares with vesting tied to specific
performance criteria linked to an increase in the Company's stock price and the
passage of time. All these restricted shares would vest over three years,
assuming achievement of certain specific stock price appreciation targets. Mr.
Huff's employment agreement also contains termination and Change in Control
provisions substantially similar to the agreements of the other named executive
officers. This agreement addresses Mr. Huff's responsibilities as Executive Vice
President and Chief Financial Officer and provides that the Board of Directors
may consider his appointment to the position of President and Chief Operating
Officer.
BUSINESS TRANSACTIONS AND RELATIONSHIPS
Alan Hasselwander and the Company entered into a consulting arrangement under
which he serves as Chair of the North American Numbering Council ("NANC"). The
NANC advises the Federal Communications Commission ("FCC") on telecommunications
industry numbering issues, including implementation of the FCC's number
portability rules. Mr. Hasselwander's consulting agreement provides that he will
perform services on a per diem basis and is reimbursed for necessary expenses.
During 1998, Mr. Hasselwander received $150,000, plus reimbursement for
expenses, under this consulting arrangement. The Company anticipates that Mr.
Hasselwander will continue to render services during 1999 pursuant to this
consulting arrangement but is, at this time, unable to anticipate the amount
which it will pay for any future services.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
The Committee on Management serves as the compensation committee. The members of
the Committee on Management at the end of the last completed fiscal year were
Mr. Cesan, Mr. McDonald and Dr. Thomas (Chair). None of these persons were,
during 1998 or previously, an officer or employee of the Company or any of its
subsidiaries.
The full Board of Directors accepted the recommendation of the Committee on
Management concerning Mr. Clayton's compensation. Mr. Hasselwander is a former
officer of the Company and, during 1998, he participated in those deliberations
of the Company's Board of Directors in which the Board accepted the Committee on
Management's recommendations concerning executive officer compensation. Mr.
Hasselwander is not a member of the Committee on Management. No executive
officer of the Company has, during 1998 or previously, served as a director or
member of the compensation committee of any other entity that has an executive
officer who serves or has served either as a member of the Committee on
Management or as a member of the Board of Directors of Frontier Corporation.
INDEMNIFICATION OF CERTAIN PERSONS
The Company and its subsidiaries indemnify their Directors and officers against
certain liabilities they may incur. As authorized by New York State Law, the
Company and its subsidiaries have purchased insurance from the Chubb Group,
Reliance National, and Gulf Insurance Company insuring the Company and its
subsidiaries against amounts they may pay as a result of indemnifying their
officers, Directors and certain fiduciaries under the Employees Retirement
Income Security Act of 1974 (ERISA). These insurance policies also insure all
officers and Directors of the Company and its affiliates for additional
liabilities against which the Company and its affiliates may not provide
indemnification. The Directors and Officers Liability insurance has combined
limits with the Fiduciary Liability insurance. The insurance was renewed on May
21, 1998 for a period of three years. During 1998, the Company prepaid $924,000
for the entire three-year term of this insurance.
- --------------------------------------------------------------
PROPOSAL 2--RATIFICATION OF PUBLIC ACCOUNTANT
Your Board of Directors recommends a vote "FOR" this proposal.
- --------------------------------------------------------------
The Company's public accountant is Pricewaterhouse-Coopers LLP. At the Annual
Meeting, the shareholders will consider and vote upon a proposal to ratify the
public accountant for the Company's fiscal year ending December 31, 1999. The
Audit Committee of the Board of Directors has recommended that shareholders
ratify the re-election of PricewaterhouseCoopers LLP as public accountant for
that year. No member of the Audit Committee is an officer or employee of the
Company. The Board of Directors unanimously recommends that you vote FOR this
proposal. Proxies solicited by the Board of Directors will be voted FOR the
foregoing proposal unless otherwise indicated. Approval of this proposal will
require the affirmative vote of a majority of the votes cast at the Annual
Meeting by the holders of the common stock outstanding.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting to make a statement, if they wish, and to respond to appropriate
questions from shareholders.
2000 ANNUAL MEETING--FUTURE PROPOSALS OF SHAREHOLDERS
In order to be eligible for inclusion in the proxy materials for the Company's
2000 Annual Meeting of Common Shareholders, any shareholder proposal to take
action at such meeting must be received at the Company's principal executive
offices by November 12, 1999. Any such proposal should be addressed to 180 South
Clinton Avenue, Rochester, New York 14646, Attention: Josephine S. Trubek,
Corporate Secretary.
In addition, the Company's By-Laws establish an advance notice procedure with
regard to certain matters, including shareholder proposals not included in the
Company's proxy statement, to be brought before an annual meeting of
shareholders. In general, in order to bring a matter before the meeting, notice
must be received by the Corporate Secretary of the Company not less than 60 days
nor more than 90 days prior to the anniversary of the immediately preceding
annual meeting.
18
<PAGE>
The notice must contain information as specified in the By-Laws concerning the
matters to be brought before such meeting and concerning the shareholder
proposing such matters. If the date of the annual meeting is more than 30 days
earlier or more than 60 days later than the anniversary date, notice must be
received not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which the public
announcement of the date of such meeting is first made. However, if a
shareholder complies with the requirements to have a proposal included in the
proxy materials, he or she is deemed to have complied with this advance notice
procedure. If a shareholder who has notified the Company of his or her intention
to present a proposal at an annual meeting does not appear or send a qualified
representative to present that proposal at the meeting, the Company need not
present the proposal for a vote at the meeting. In order to provide an admission
card, we do ask that if a proposal is to be presented by a qualified
representative, the shareholder advise us of the identity of the person who will
be presenting the proposal.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors does not intend
to present any matter for action at the Annual Meeting other than those set
forth in the Notice of Annual Meeting. If any other matters properly come before
the meeting, the holders of the proxies will act in accordance with their best
judgment. In the event a nominee is unable to serve, the proxies will vote upon
a substituted nominee.
An admission ticket will be required to enter the Annual Meeting. Please use
the form attached to your proxy card to request your ticket. Ticket requests
after April 9, 1999 should be made by calling the Shareholder Line: 1-800-836-
0342. If you hold your shares through your broker or otherwise are not a record
holder, you may be asked to show evidence of your share position in order to
enter the Annual Meeting. At this meeting we will celebrate the Company's 100th
year of providing telephone service. We hope you will join us in this
celebration.
March 12, 1999
19
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF FRONTIER COMMUNICATIONS]
Frontier Corporation
Frontier Center
180 South Clinton Avenue
Rochester, New York 14646-0700
[Map showing meeting location]
<PAGE>
LOGO Frontier Communications/SM/
180 SOUTH CLINTON AVENUE
ROCHESTER, NY 14646
Vote by Telephone
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683).
Follow these four easy steps:
1. Read the accompanying Proxy Statement
and Proxy Card
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683)
3. Enter your 14 digit Control Number located
on your Proxy Card above your name
4. Follow the recorded instructions
Your vote is important!
Call 1-877-PRX-VOTE anytime!
Vote by Internet
It's fast, convenient, and your vote is immediately
confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement
and Proxy Card
2. Go to the Website:
http://www.eproxyvote.com/fro
3. Enter your 14-digit Control Number located on
your Proxy Card above your name
4. Follow the instructions provided
Your vote is important!
Go to http://www.eproxyvote.com/fro anytime!
Your telephone or internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card. Please
note all votes cast via the telephone or the internet must be cast prior to 3:00
p.m. EDT, April 28, 1999. If you wish to change your address or notify the
company that you plan to attend the meeting, please mark the boxes below and
return your proxy by mail or call the Shareowner Line at 1-800-836-0342 to
request an admission ticket.
Do not return your Proxy Card if you are voting by Telephone or Internet
THANK YOU FOR VOTING
FRC91A DETACH HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[2920-FRONTIER CORPORATION] [FILE NAME:FRC91A.ELX] [VERSION-4] [3/04/99]
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote "FOR" Proposals 1 and 2:
1. Nominees for Director: (01) Patricia C. Barron, (02) Raul E. Cesan,
(03) Joseph P. Clayton, (04) Brenda E. Edgerton, (05) Jairo A. Estrada,
(06) Michael E. Faherty, (07) Alan C. Hasselwander, (08) Eric Hippeau,
(09) Robert Holland, Jr., (10) Douglas H. McCorkindale, (11) James F. McDonald
(12) and Dr. Leo J. Thomas
FOR WITHHELD
ALL [_] FROM ALL [_]
NOMINEES NOMINEES
[_]______________________________________
For all nominees except as noted above
2. Ratification of PricewaterhouseCoopers LLP as Public Accountant.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To vote in favor of any substituted director if a nominee is unable to serve
and act in their discretion upon such matters which may properly come before the
meeting or which are incident to the conduct of the meeting, or which the Board
of Directors does not know, at the time of this solicitation, will be presented
at the Annual Meeting.
MARK HERE FOR MARK HERE IF YOU
ADDRESS CHANGE [_] PLAN TO ATTEND THE [_]
AND NOTE AT LEFT MEETING
(Please sign exactly as your name appears at left)
Signature:_____________ Date:__________ Signature:_____________ Date:__________
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Ticket Request
If your plan to attend the Annual Meeting of Shareholders at 10:00 a.m., Pacific
Time, on Thursday, April 29, 1999, at the Hotel Nikko San Francisco, 222 Mason
Street in San Francisco, California, use this form to request your admission
ticket. Complete the form by typing or printing your name and address. If your
request is received by April 9, 1999, an admission ticket will be mailed to you.
All other admission tickets will be provided beginning at 9:00 a.m., at the
registration desk for the meeting. (Doors to the meeting will not be open before
9:00 a.m.) The envelope provided for the return of your proxy card should also
be used to return this form. Alternatively, tickets may be requested by calling
the Shareholder Line 1-800-836-0342. If you hold your shares through a broker or
otherwise are not a record holder, we may require you to show evidence of your
share position before you will be allowed into the Annual Meeting.
NOTE: If your shares are not registered in your own name, please advise the
shareholder of record (i.e., your bank, broker, trustee, etc.) that you wish to
attend the meeting. The registered owner must provide you with evidence of your
stock ownership so that you may gain admittance to the meeting.
I plan to attend the meeting.
(please print or type)
Name
________________________________________________________________________________
Street
________________________________________________________________________________
City
________________________________________________________________________________
State Zip Code
________________________________________________________________________________
[2920-FRONTIER CORPORATION] [FILE NAME:FRC91B.ELX] [VERSION-3] [3/05/99]
FRC91B DETACH HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROXY
LOGO Frontier Communications/SM/
I authorize each of Joseph P. Clayton and/or Josephine S. Trubek, or
substitutes selected by them, to vote all shares of Frontier Corporation Common
Stock which I am entitled to vote at the Annual Meeting of Shareholders on April
29, 1999, or at any adjournment thereof, as specified below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION TO THE
CONTRARY IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
AND THE RATIFICATION OF THE PUBLIC ACCOUNTANT.
SEE REVERSE CONTINUED, and to be signed and dated, on REVERSE SIDE SEE REVERSE
SIDE SIDE
