-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QViJ3+5ZLDBZkIYTMa5vgn+boAxrkyN+sFhQM+CFexywGK672IBEErWk3GrkwKvE J/h+lzDTZo1dUzfy2MiJ2Q== /in/edgar/work/0000020520-00-000025/0000020520-00-000025.txt : 20001115 0000020520-00-000025.hdr.sgml : 20001115 ACCESSION NUMBER: 0000020520-00-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS COMMUNICATIONS CO CENTRAL INDEX KEY: 0000020520 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 060619596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11001 FILM NUMBER: 765713 BUSINESS ADDRESS: STREET 1: HIGH RIDGE PK BLDG 3 STREET 2: P O BOX 3801 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2033298800 MAIL ADDRESS: STREET 1: HIGH RIDGE PARK BLDG NO 3 CITY: STAMFORD STATE: CT ZIP: 06905 FORMER COMPANY: FORMER CONFORMED NAME: CITIZENS UTILITIES CO DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt CITIZENS COMMUNICATIONS COMPANY FORM 10-Q CITIZENS COMMUNICATIONS COMPANY FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to__________ Commission file number 001-11001 --------- CITIZENS COMMUNICATIONS COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-0619596 - ------------------------------------ -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3 High Ridge Park P.O. Box 3801 Stamford, Connecticut 06905 - ---------------------------------------- ------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 614-5600 ------------------------------ No change since last report - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No The number of shares outstanding of the registrant's class of common stock as of October 31, 2000 was 265,211,459. CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Index to Consolidated Financial Statements
Page No. Part I. Financial Information Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 2 Consolidated Statements of Income and Comprehensive Income (Loss) for the Three Months Ended September 30, 2000 and 1999 3 Consolidated Statements of Income and Comprehensive Income (Loss) for the Nine Months Ended September 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Quantitative and Qualitative Disclosures about Market Risk 23 Part II. Other Information Legal Proceedings 25 Exhibits and Reports on Form 8-K 26 Signatures 27
1 PART I. FINANCIAL INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, 2000 December 31,1999 ASSETS ------------------ ---------------- Current assets: Cash $ 45,963 $ 37,141 Accounts receivable, net 220,257 241,519 Short-term investments 224,655 - Other 37,954 29,964 Net assets held for sale 498,290 552,771 ---------- ----------- Total current assets 1,027,119 861,395 ---------- ----------- Property, plant and equipment 4,972,531 4,458,654 Less accumulated depreciation 1,717,411 1,569,936 ---------- ----------- Net property, plant and equipment 3,255,120 2,888,718 Investments 147,457 591,386 Excess of cost over net assets acquired 466,358 - Regulatory assets 181,800 184,942 Deferred debits and other assets 172,301 141,274 Assets of discontinued operations 1,169,898 1,065,701 ---------- ---------- Total assets $ 6,420,053 $ 5,733,416 ========== ========== LIABILITIES AND EQUITY Current liabilities: Long-term debt due within one year $ 84,187 $ 31,156 Accounts payable and other current liabilities 306,803 435,856 ---------- ---------- Total current liabilities 390,990 467,012 Deferred income taxes 433,993 460,208 Customer advances for construction and contributions in aid of construction 190,395 179,831 Deferred credits and other liabilities 70,845 87,668 Regulatory liabilities 25,251 27,000 Long-term debt 2,925,680 2,107,460 Liabilities of discontinued operations 332,545 272,327 ---------- --------- Total liabilities 4,369,699 3,601,506 Company Obligated Mandatorily Redeemable Convertible Preferred Securities* 201,250 201,250 Minority interest in subsidiary - 11,112 Shareholders' equity: Common stock issued, $.25 par value 66,223 65,519 Additional paid-in capital 1,613,693 1,577,903 Retained earnings 273,393 261,590 Accumulated other comprehensive income (loss) (54,174) 14,923 Treasury stock (50,031) (387) ---------- --------- Total shareholders' equity 1,849,104 1,919,548 ---------- --------- Total liabilities and shareholders' equity $ 6,420,053 $ 5,733,416 ========== =========
* Represents securities of a subsidiary trust, the sole assets of which are securities of a subsidiary partnership, substantially all the assets of which are convertible debentures of the Company. The accompanying Notes are an integral part of these Consolidated Financial Statements. 2 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (In thousands, except per-share amounts)
2000 1999 ------ ------ Revenue $ 389,941 $ 337,091 Operating Expenses: Network access 25,130 20,366 Gas purchased 48,182 31,152 Depreciation and amortization 89,130 69,715 Other operating expenses 180,203 197,315 Acquisition assimilation expense 12,539 - ---------- ---------- Total operating expenses 355,184 318,548 Income from operations 34,757 18,543 Investment and other income, net 5,435 9,703 Minority interest - 5,301 Interest expense 45,025 27,319 ---------- ---------- Income (loss) before income taxes, dividends on convertible preferred securities and discontinued operations (4,833) 6,228 Income tax expense (benefit) (1,170) 1,041 ---------- ---------- Income (loss) before dividends on convertible preferred securities and discontinued operations (3,663) 5,187 Dividends on convertible preferred securities, net of income tax benefit 1,553 1,553 ---------- ---------- Income (loss) before discontinued operations (5,216) 3,634 Income from discontinued operations, net of tax 6,683 8,272 ---------- ---------- Net income $ 1,467 $ 11,906 ========== ========== Other comprehensive loss, net of tax and reclassification adjustments (28,704) (17) ---------- ---------- Total comprehensive income (loss) $ (27,237) $ 11,889 ========== ========== Income (loss) before discontinued operations per common share: Basic $ (0.02) $ 0.01 Diluted $ (0.02) $ 0.01 Income from discontinued operations per common share: Basic $ 0.03 $ 0.03 Diluted $ 0.02 $ 0.03 Net income per common share: Basic $ 0.01 $ 0.05 Diluted $ 0.01 $ 0.05
The accompanying Notes are an integral part of these Consolidated Financial Statements. 3 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (In thousands, except per-share amounts)
2000 1999 ------ ------- Revenue $ 1,150,140 $ 1,048,698 Operating Expenses: Network access 81,926 84,945 Gas purchased 148,238 116,706 Depreciation and amortization 258,677 202,265 Other operating expenses 543,102 580,006 Acquisition assimilation expense 24,130 - ---------- ---------- Total operating expenses 1,056,073 983,922 Income from operations 94,067 64,776 Investment and other income, net 15,086 91,016 Minority interest 12,222 16,987 Interest expense 116,288 74,560 ---------- ---------- Income before income taxes, dividends on convertible preferred securities and discontinued operations 5,087 98,219 Income tax expense 2,298 32,737 ---------- ---------- Income before dividends on convertible preferred securities and discontinued operations 2,789 65,482 Dividends on convertible preferred securities, net of income tax benefit 4,657 4,657 ---------- ---------- Income (loss) before discontinued operations (1,868) 60,825 Income from discontinued operations, net of tax 13,672 13,459 ---------- ---------- Net income $ 11,804 $ 74,284 ========== ========== Other comprehensive loss, net of tax and reclassification adjustments (69,097) (14,428) ---------- ---------- Total comprehensive income (loss) $ (57,293) $ 59,856 ========== ========== Income (loss) before discontinued operations per common share: Basic $ (0.01) $ 0.23 Diluted $ (0.01) $ 0.23 Income from discontinued operations per common share: Basic $ 0.05 $ 0.05 Diluted $ 0.05 $ 0.05 Net income per common share: Basic $ 0.04 $ 0.29 Diluted $ 0.04 $ 0.28
The accompanying Notes are an integral part of these Consolidated Financial Statements. 4 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (In thousands)
2000 1999 ------ ----- Net cash provided by continuing operating activities $ 269,141 $ 354,784 Cash flows from investing activities: Capital expenditures (386,893) (412,764) Securities purchased (52,102) (792,706) Securities sold 129,396 757,028 Securities matured 10,400 2,035 Acquisitions (644,300) - ELI share purchases (38,748) - Other (469) (2,847) --------- --------- Net cash used by investing activities (982,716) (449,254) Cash flows from financing activities: Short-term debt repayments - (110,000) Long-term debt borrowings 822,204 315,053 Long-term debt principal payments (34,008) (90,021) Issuance of common stock 19,504 6,742 Common stock buybacks (49,209) (411) Other 11,668 3,699 --------- --------- Net cash provided by financing activities 770,159 125,062 Cash used by discontinued operations (47,762) (26,644) Increase in cash 8,822 3,948 Cash at January 1, 37,141 31,922 --------- --------- Cash at September 30, $ 45,963 $ 35,870 ========= ========= Supplemental cash flow information: Non-cash increase in capital lease asset $ 98,555 $ 45,195
The accompanying Notes are an integral part of these Consolidated Financial Statements. 5 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies: ------------------------------------------ (a) Basis of Presentation: Citizens Communications Company and its subsidiaries are referred to as "we", "us" or "our" in this report. The unaudited consolidated financial statements include our accounts and have been prepared in conformity with generally accepted accounting principles and should be read in conjunction with the consolidated financial statements and notes included in our 1999 Annual Report on Form 10-K. These unaudited consolidated financial statements include all adjustments, which consist of normal recurring accruals necessary to present fairly the results for the interim periods shown. Certain information and footnote disclosures have been condensed pursuant to Securities and Exchange Commission rules and regulations. The results of the interim periods are not necessarily indicative of the results for the full year. Certain reclassifications of balances previously reported have been made to conform to current presentation. (b) Regulatory Assets and Liabilities: Our regulated operations are subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" with the exception of our recent acquisitions from GTE and US West (see Note 2). SFAS No. 71 requires regulated entities to record regulatory assets and liabilities as a result of actions of regulators. We are evaluating the applicability of SFAS No. 71 to the newly acquired operations. (c) Net Income Per Common Share: Basic net income per common share is computed using the weighted average number of common shares outstanding during the period being reported on. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock at the beginning of the period being reported on (see Note 5). (d) Minority Interest and Minority Interest in Subsidiary: Minority interest, as presented on the statements of income, represents the minority's share of Electric Lightwave, Inc.'s (ELI) net loss for the periods being reported on. Minority interest in subsidiary, as presented on the balance sheet at December 31, 1999, represents the minority's share of ELI's equity capital. Since ELI's public offering, we have been recording minority interest on our income statement and reducing minority interest on our balance sheet by the amount of the minority interests' share of ELI's losses. As of June 30, 2000, the minority interest on the balance sheet had been reduced to zero, therefore, from that point going forward, we discontinued recording minority interest income on our income statement as there is no obligation for the minority interests to provide additional funding for ELI. Therefore, we are recording ELI's entire loss in our consolidated results. When ELI becomes profitable, we will recognize ELI's earnings in full until the cumulative losses of the minority interests previously absorbed by us are recovered. After such recovery, we will begin to record minority interest on our income statement and minority interest in subsidiary on our balance sheet based on the percentage of ELI owned by third parties. (2) Acquisitions: ------------ From May 27, 1999 through July 12, 2000 we have entered into several agreements to acquire approximately 2,011,000 telephone access lines (as of December 31, 1999) for approximately $6,471,000,000 in cash. These transactions have been/will be accounted for using the purchase method of accounting and the results of operations have been/will be included in the accompanying financial statements from the dates of acquisition of each property. These agreements are described as follows: On May 27, September 21, and December 16, 1999, we announced that we had entered into definitive agreements to purchase from Verizon Communications (formerly GTE Corp.) approximately 366,000 telephone access lines (as of December 31, 1999) in Arizona, California, Illinois, Minnesota and Nebraska for approximately $1,171,000,000 in cash. The acquisitions are subject to various state and federal regulatory approvals. On June 30, 2000, we closed on the Nebraska purchase of approximately 61,000 access lines for $205,000,000 in cash. On August 31, 2000, we closed on the Minnesota purchase of approximately 133,000 access lines for $439,000,000 in cash. We expect that the remainder of these transactions will close on a state-by-state basis throughout the next 9 months. On June 16, 1999, we announced that we had entered into a series of definitive agreements to purchase from Qwest Communications (formerly US West) approximately 545,000 telephone access lines (as of December 31, 1999) in Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming for approximately $1,650,000,000 in cash and the assumption of certain liabilities. On October 31, 2000, we closed on the North Dakota purchase of approximately 17,000 access lines for $38,000,000 in cash. We expect that the remainder of these acquisitions, which are subject to various state and federal regulatory approvals, will occur on a state-by-state basis throughout the next 9 months. 6 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On July 12, 2000, we announced that we had entered into a definitive agreement to purchase from Global Crossing Ltd. 100% of the stock of Frontier Corp. which holds approximately 1,100,000 telephone access lines in Alabama, Georgia, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, New York, Pennsylvania and Wisconsin for approximately $3,650,000,000 in cash. We expect that this transaction, which is subject to various state and federal regulatory approvals, will be completed in the first half of 2001. We have recorded acquired assets from our recent acquisitions from Verizon Communications (formerly GTE Corp.) at their historical carrying values and have recorded the excess of cost over such amounts as excess of cost over net assets acquired. We are in the process of fully evaluating the assets acquired and, as a result, the purchase price allocation among the tangible and intangible assets acquired, and their related useful lives may change. The excess of cost over net assets acquired is being amortized over an estimated life of 15 years. The following pro forma financial information for the three and nine months ended September 30, 2000 and 1999, presents the combined results of our operations and the GTE Nebraska and GTE Minnesota properties acquired on June 30, 2000 and August 31, 2000, respectively, as if the acquisitions had occurred at the beginning of the respective periods. The pro forma information does not necessarily reflect the results of operations that would have occurred had we constituted a single entity during such periods.
($ in thousands, except per share amounts) For the three months ended September 30, For the nine months ended September 30, ------------------------------------------- --------------------------------------- 2000 1999 2000 1999 ---------------- --------------- ---------------- ------------- Revenue $ 402,900 $ 368,022 $ 1,225,917 $ 1,142,308 Income (loss) from continuing operations (11,535) (6,519) (18,910) 44,404 Net income (loss) (4,527) 1,923 (4,896) 58,033 Income (loss) from continuing operations per share $ (0.04) $ (0.03) $ (0.07) $ 0.17 Net income (loss) per share $ (0.02) $ 0.01 $ (0.02) $ 0.22
7 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Discontinued Operations and Net Assets Held for Sale: ---------------------------------------------------- On August 24, 1999, our Board of Directors approved a plan of divestiture by sale of our public services properties, which include gas, electric and water and wastewater businesses. The proceeds from the sales of these public services businesses will be used to partially fund the telephone access line purchases discussed in Note 2. We have signed agreements to date for the sale of all our water and wastewater operations, all our electric operations and one of our natural gas operations. The proceeds from the agreements signed to date will include approximately $1,745,000,000 in cash plus the assumption of certain liabilities. These agreements are described as follows: On October 18, 1999, we announced that we had agreed to sell our water and wastewater operations to American Water Works, Inc. for $835,000,000 in cash plus the assumption of certain liabilities. These transactions are expected to begin closing in the fourth quarter of 2000 following regulatory approvals. On February 15, 2000, we announced that we had agreed to sell our electric utility operations for $535,000,000 in cash plus the assumption of certain liabilities. The Arizona and Vermont electric divisions are under contract to be sold to Cap Rock Energy Corp. To date, Cap Rock has failed to raise the required financing and obtain the required regulatory approval necessary to meet its obligations under the contract for sale. We are currently evaluating our alternatives which may include a restructuring of the agreement or terminating the Cap Rock Energy Corp. contract for sale of the Vermont and Arizona electric divisions and pursuing the disposition with an alternative buyer. There is no assurance that the sale to Cap Rock will be completed or that we will reach definitive terms with an alternate buyer. In August 2000, the Public Utilities Commission of the state of Hawaii denied the initial application requesting approval of the purchase of our Kauai electric division by the Kauai Island Electric Co-Op. Consideration is being given to a variety of options, including the filing of a request for reconsideration of the decision, which may include the filing of a new application. On April 13, 2000, we announced that we had agreed to sell our Louisiana Gas operations to Atmos Energy Corporation for $375,000,000 in cash plus the assumption of certain liabilities. This transaction is expected to close in the first quarter of 2001 following regulatory approvals. Discontinued operations in the consolidated statements of income and comprehensive income (loss) reflect the results of operations of the electric and water/wastewater properties including allocated interest expense for the periods presented. Interest expense was allocated to the discontinued operations based on the outstanding debt specifically identified with these businesses. The debt presented in liabilities of discontinued operations represents only debt to be transferred pursuant to the respective asset sale agreements. Initially, we accounted for the planned divestiture of all the public services properties as discontinued operations. Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," states a plan of disposal of a business segment is expected to be carried out within a period of one year. As of September 30, 2000, we have not yet entered into agreements to sell our entire gas segment. Consequently, we reclassified all of our gas assets and related liabilities to "net assets held for sale" on the balance sheet in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and reclassified the results of these operations into their original income statement captions as part of continuing operations. We have restated our prior periods to conform to the current presentation. Additionally, as a result of their classification as held for sale, we ceased to record depreciation expense on these assets effective October 1, 2000. We are continuing to actively pursue a buyer for those gas operations for which we do not yet have signed agreements. 8 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summarized financial information for the electric and water/wastewater operations (discontinued operations) is set forth below:
($ in thousands) September 30, 2000 December 31, 1999 ------------------ ----------------- Current assets $ 50,726 $ 44,654 Net property, plant and equipment 1,022,205 961,739 Other assets 96,967 59,308 ----------- ----------- Total assets $ 1,169,898 $ 1,065,701 =========== =========== Current liabilities $ 69,715 $ 17,976 Long-term debt 133,848 133,226 Other liabilities 128,982 121,125 ----------- ----------- Total liabilities $ 332,545 $ 272,327 =========== ===========
($ in thousands) For the three months ended September 30, For the nine months ended September 30, ---------------------------------------- --------------------------------------- 2000 1999 2000 1999 ------- ------- ------ ------ Revenue $ 92,041 $ 88,557 $ 249,791 $ 229,311 Operating income $ 17,402 $ 18,655 $ 40,819 $ 40,165 Income taxes $ 3,382 $ 4,363 $ 6,722 $ 7,786 Net income $ 6,683 $ 8,272 $ 13,672 $ 13,459
We have classified certain balance sheet items as discontinued operations in the September 30, 2000 balance sheet that were previously classified as continuing operations in the December 31, 1999 balance sheet as a result of the finalization of certain divestiture agreements and updates to our estimates. Summarized financial information for the gas operations (net assets held for sale) is set forth below:
($ in thousands) September 30, 2000 December 31, 1999 --------------------- --------------------- Current assets $ 61,464 $ 64,596 Net property, plant and equipment 514,908 498,219 Other assets 21,676 27,898 ------------- ---------- Total assets held for sale 598,048 590,713 Current liabilities 57,909 64 Long-term debt 548 591 Other liabilities 41,301 37,287 ------------- ---------- Total liabilities related to assets held for sale 99,758 37,942 ------------- ---------- Net assets held for sale $ 498,290 $ 552,771 ============= ==========
9 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) 1999 Restructuring Charges: -------------------------- In the fourth quarter of 1999, we approved a plan to restructure our corporate office activities. In connection with this plan, we recorded a pre-tax charge of $5,760,000 in other operating expenses in the fourth quarter of 1999. The restructuring resulted in the reduction of 49 corporate employees. All affected employees were communicated with in the early part of November 1999. As of September 30, 2000, approximately $4,049,000 of the costs had been paid and 39 employees were terminated. The remaining employees will be terminated in the fourth quarter of 2000. The remaining accrual of approximately $1,711,000 is included in other current liabilities. These costs are expected to be paid during the fourth quarter of 2000. (5) Net Income Per Common Share: --------------------------- The reconciliation of the net income per common share calculation for the three and nine months ended September 30, 2000 and 1999, respectively, is as follows:
(In thousands, except per share amounts) For the three months ended September 30, ----------------------------------------------------------------------- 2000 1999 --------------------------------- --------------------------------- Income Shares Per Share Income Shares Per Share -------- ------ --------- ------- ------ --------- Net income per common share: Basic $ 1,467 264,749 $ 0.01 $ 11,906 260,607 $ 0.05 Effect of dilutive options - 6,028 - - 3,180 - Diluted $ 1,467 270,777 $ 0.01 $ 11,906 263,787 $ 0.05 (In thousands, except per share amounts) For the nine months ended September 30, ----------------------------------------------------------------------- 2000 1999 ---------------------------------- ----------------------------------- Income Shares Per Share Income Shares Per Share -------- ------- ----------- --------- -------- ---------- Net income per common share: Basic $ 11,804 263,725 $ 0.04 $ 74,284 260,118 $ 0.29 Effect of dilutive options - 4,317 - - 2,419 - Diluted $ 11,804 268,042 $ 0.04 $ 74,284 262,537 $ 0.28
All share amounts represent weighted average shares outstanding for each respective period. The diluted net income per common share calculation excludes the effect of potentially dilutive shares when their effect is antidilutive. At September 30, 2000, we have 4,025,000 shares of potentially dilutive Mandatorily Redeemable Convertible Preferred Securities which are convertible into common stock at a 3.76 to 1 ratio at an exercise price of $13.30 per share and 160,000 potentially dilutive stock options at a range of $16.69 to $18.53 per share that are not included in the calculation as they are antidilutive. (6) Segment Information: ------------------- We operate in two segments, telecommunications and ELI. Our gas segment, which is intended to be sold, was previously reported as discontinued operations (see Note 3). The telecommunications segment provides both regulated and competitive communications services to residential, business and wholesale customers. ELI is a facilities based integrated communications provider offering a broad range of communications services throughout the United States. We own 86% of ELI and we guarantee all of ELI's long-term debt, one of its capital leases and one of its operating leases. EBITDA is earnings (operating income (loss)) before interest, income taxes, depreciation and amortization. EBITDA is a measure commonly used to analyze companies on the basis of operating performance. It is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income as a measure of performance nor as an alternative to cash flow as a measure of liquidity and may not be comparable to similarly titled measures of other companies. 10
PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) For the three months ended September 30, 2000 ------------------------------------------------------------------------------------ Consolidated Telecommunications ELI Gas Eliminations Total ------------------ -------- -------- ------------ ----------- Revenue $ 246,767 $ 63,610 $ 80,333 $ (769) (1) $ 389,941 Depreciation 65,858 16,306 6,708 258 (2) 89,130 Operating Income (Loss) 45,106 (11,530) 1,210 (29) (2,3) 34,757 EBITDA 110,964 4,776 7,918 229 (3) 123,887 ($ in thousands) For the three months ended September 30, 1999 ------------------------------------------------------------------------------------- Consolidatied Telecommunications ELI Gas Eliminations Total ------------------ -------- -------- ------------ ------------- Revenue $ 223,662 $ 48,602 $ 65,574 $ (747) (1) $ 337,091 Depreciation 54,821 9,807 5,087 - 69,715 Operating Income (Loss) 39,354 (18,673) (2,453) 315 (3) 18,543 EBITDA 94,175 (8,866) 2,634 315 (3) 88,258 ($ in thousands) For the nine months ended September 30, 2000 ------------------------------------------------------------------------------------- Consolidated Telecommunications ELI Gas Eliminations Total ------------------ --------- --------- ------------ -------------- Revenue $ 700,475 $ 181,008 $ 270,753 $ (2,096) (1) $ 1,150,140 Depreciation 195,628 43,782 19,076 191 (2) 258,677 Operating Income (Loss) 116,462 (47,106) 24,160 551 (2,3) 94,067 EBITDA 312,090 (3,324) 43,236 742 (3) 352,744 ($ in thousands) For the nine months ended September 30, 1999 ------------------------------------------------------------------------------------- Consolidated Telecommunications ELI Gas Eliminations Total ------------------ --------- --------- ------------ -------------- Revenue $ 679,515 $ 132,913 $ 238,485 $ (2,215) (1) $ 1,048,698 Depreciation 161,325 24,951 15,989 - 202,265 Operating Income (Loss) 115,279 (73,313) 21,677 1,133 (3) 64,776 EBITDA 276,604 (48,362) 37,666 1,133 (3) 267,041 1 Represents revenue received by ELI from our telecommunications operations. 2 Represents amortization of the capitalized portion of intercompany interest related to our guarantees of ELI debt and leases and amortization of goodwill related to our purchase of ELI stock (see Note 8). 3 Represents the administrative services fee charged to ELI pursuant to the management services agreement between the Company and ELI.
11 PART I. FINANCIAL INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Supplemental Segment Information: --------------------------------- Supplemental segment income statement information for the nine months ended September 30, 2000 is as follows:
For the nine months ended September 30, 2000 ------------------------------------------------------------------------------------ ( $ in thousands) Citizens Communciations before ELI, Gas, and Discontinued Consolidated Discontinued Operations ELI Gas Operations Eliminations Total ----------------------- --------- ---------- ------------- ----------------------- Revenue $ 700,475 $ 181,008 $ 270,753 $ - $ (2,096) $ 1,150,140 Operating Expenses: Network access 27,211 56,811 - - (2,096) 81,926 Gas purchased - - 148,238 - - 148,238 Depreciation and amortization 195,628 43,782 19,076 - 191 258,677 Other operating expenses 337,044 127,521 79,279 - (742) 543,102 Acquisition assimilation expense 24,130 - - - - 24,130 ------------ -------- --------- --------- ---------- ----------- Total operating expenses 584,013 228,114 246,593 - (2,647) 1,056,073 ------------ -------- --------- --------- ---------- ----------- Income (loss) from operations 116,462 (47,106) 24,160 - 551 94,067 Investment and other income, net 16,898 (40) (1,029) - (743) 15,086 Minority interest 12,222 - - - - 12,222 Interest expense 48,281 54,603 13,404 - - 116,288 ----------- -------- --------- -------- ----------- ----------- Income (loss) before income taxes, dividends on convertible preferred securities and discontinued operations 97,301 (101,749) 9,727 - (192) 5,087 Income tax expense (benefit) (2,035) 940 3,393 - - 2,298 ----------- -------- -------- -------- ----------- ----------- Income (loss) before dividends on convertible preferred securities and discontinued operations 99,336 (102,689) 6,334 - (192) 2,789 Dividends on convertible preferred securities,net of income tax benefit 4,657 - - - - 4,657 ----------- -------- -------- -------- ----------- ----------- Income (loss) before discontinued operations 94,679 (102,689) 6,334 - (192) (1,868) Income from discontinued operations, net of tax - - - 13,672 - 13,672 ----------- -------- -------- -------- ----------- ----------- Net income (loss) $ 94,679 $(102,689) $ 6,334 $ 13,672 $ (192) $ 11,804 =========== ======== ======== ======== =========== ===========
(8) Capital Stock: ------------- In December 1999, our Board of Directors authorized the purchase, from time to time, of up to $100,000,000 worth of shares of our common stock. This share purchase program was completed in April 2000 and resulted in the acquisition or contract to acquire approximately 6,165,000 shares of our common stock. Of those shares, 2,500,000 shares were purchased for approximately $40,959,000 in cash and we entered into an equity forward contract for the acquisition of the remaining 3,665,000 shares. In April 2000, our Board of Directors authorized the purchase, from time to time, of up to an additional $100,000,000 worth of shares of our common stock. This share purchase program was completed in July 2000 and resulted in the acquisition or contract to acquire approximately 5,927,000 shares of our common stock. Of these shares, 452,000 shares were purchased for approximately $8,250,000 in cash and we entered into an equity forward contract for the acquisition of the remaining 5,475,000 shares. In addition to our share purchase programs described above, in April 2000, our Board of Directors authorized the purchase, from time to time, of up to $25,000,000 worth of shares of Class A common stock of ELI, our 86% owned subsidiary, on the open market or in negotiated transactions. This ELI share purchase program was completed in August 2000 and resulted in the acquisition of approximately 1,288,000 shares of ELI common stock for approximately $25,000,000 in cash. In August 2000, our Board of Directors authorized the purchase, from time to time, of up to an additional 1,000,000 shares of ELI on the open market or in negotiated transactions. The second ELI share purchase program was completed in September 2000 and resulted in the acquisition of approximately 1,000,000 shares of ELI common stock for approximately $13,748,000 in cash. 12 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- This quarterly report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties which could cause actual results to differ materially from those expressed or implied in the statements. Forward-looking statements (including oral representations) are only predictions or statements of current plans, which we review continuously. Forward-looking statements may differ from actual future results due to, but not limited to, any of the following possibilities: o changes in the economy of our markets, o the nature and pace of technological changes, o the number and effectiveness of competitors in our markets, o changes in legal and regulatory policy, o success in overall strategy, o our ability to identify future markets and successfully expand existing ones, o the mix of products and services offered in our target markets, and o the effects of acquisitions and dispositions and the ability to effectively integrate businesses acquired. You should consider these important factors in evaluating any statement in this Form 10-Q or otherwise made by us or on our behalf. The following information is unaudited and should be read in conjunction with the consolidated financial statements and related notes included in this report and as presented in our 1999 Annual Report on Form 10-K. We have no obligation to update or revise these forward-looking statements. (a) Liquidity and Capital Resources ------------------------------- We consider our operating cash flows and our ability to raise debt and equity capital as the principal indicators of our liquidity. For the nine months ended September 30, 2000, we used cash flow from operations and proceeds from net financings to fund capital expenditures. Funds requisitioned from the Industrial Development Revenue Bond construction fund trust accounts and advances and contributions from parties desiring utility services were used to partially fund the construction of certain public services plant. In June 2000, we arranged for the issuance of $19.6 million of 2000 Series special purpose revenue bonds as money market bonds with an initial interest rate of 4.6% and a maturity date of December 1, 2020. The proceeds were used to fund and/or prefund expenditures for construction, extension, improvement and purchase of facilities of the gas division in Hawaii. In June and August 2000, we completed the purchase of approximately 61,000 and 133,000 access lines in Nebraska and Minnesota, respectively, from Verizon Communications (formerly GTE Corp.). These transactions totaled approximately $205 million and $439 million, respectively, and were funded from commercial paper issuances and proceeds from sales of investments. In August and October 2000, one of our subsidiaries, Citizens Utilities Rural Company, was advanced $2.7 million and $.3 million, respectively, under its Rural Utilities Services Loan Contract. The initial interest rate on the advances was 5.78% and they have an ultimate maturity date of November 1, 2016. We have available lines of credit with financial institutions in the amounts of $5.7 billion with associated facility fees of 0.10% per annum (based our current long term debt rating) and $450 million with no associated facility fees. These lines of credit expire on October 26, 2001 and provide us with extension options. These credit facilities are in addition to credit commitments under which the Company may borrow up to $200 million, which expire on December 16, 2003. There were no amounts outstanding under these commitments at September 30, 2000. ELI has committed revolving lines of credit with commercial banks under which it borrowed $400 million and as of September 30, 2000, no further amounts were available. We have guaranteed all of ELI's obligations under these revolving lines of credit. In addition we have agreed to fund, on market terms and conditions, the operating and capital needs of ELI through 2001. In October 2000, we completed the purchase of approximately 17,000 access lines in North Dakota from Qwest Communications (formerly US West). This transaction totaled approximately $38 million and was funded from commercial paper issuances. 13 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Net capital expenditures, by sector, have been and are budgeted as follows: Actual ($ in thousands) Budget Year-to-Date 2000 September 30, 2000 ------------------- -------------------- Communications $ 396,800 $ 249,794 ELI (1) 200,000 192,797 Gas 48,700 35,211 General 3,000 222 ------------------- -------------------- 648,500 478,024 Discontinued operations (2) 121,200 93,336 ------------------- -------------------- $ 769,700 $ 571,360 =================== ==================== (1) Includes approximately $38,000,000 and $98,600,000 in budgeted and actual, respectively, of non-cash capital lease additions. (2) The 2000 budget assumes full year ownership of discontinued operations and includes approximately $41,900,000 for a special water pipeline project. Acquisitions - ------------ From May 27, 1999 through July 12, 2000 we have entered into several agreements to acquire approximately 2,011,000 telephone access lines (as of December 31, 1999) for approximately $6,471,000,000 in cash. These transactions have been/will be accounted for using the purchase method of accounting and the results of operations have been/will be included in the accompanying financial statements from the dates of acquisition of each property. These agreements are described as follows: On May 27, September 21, and December 16, 1999, we announced that we had entered into definitive agreements to purchase from Verizon Communications (formerly GTE Corp.) approximately 366,000 telephone access lines (as of December 31, 1999) in Arizona, California, Illinois, Minnesota and Nebraska for approximately $1,171,000,000 in cash. The acquisitions are subject to various state and federal regulatory approvals. On June 30, 2000, we closed on the Nebraska purchase of approximately 61,000 access lines for $205,000,000 in cash. On August 31, 2000, we closed on the Minnesota purchase of approximately 133,000 access lines for $439,000,000 in cash. We expect that the remainder of these transactions will close on a state-by-state basis throughout the next 9 months. On June 16, 1999, we announced that we had entered into a series of definitive agreements to purchase from Qwest Communications (formerly US West) approximately 545,000 telephone access lines (as of December 31, 1999) in Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming for approximately $1,650,000,000 in cash and the assumption of certain liabilities. On October 31, 2000, we closed on the North Dakota purchase of approximately 17,000 access lines for $38,000,000 in cash. We expect that the remainder of these acquisitions, which are subject to various state and federal regulatory approvals, will occur on a state-by-state basis throughout the next 9 months. On July 12, 2000, we announced that we had entered into a definitive agreement to purchase from Global Crossing Ltd. 100% of the stock of Frontier Corp. which holds approximately 1,100,000 telephone access lines in Alabama, Georgia, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, New York, Pennsylvania and Wisconsin for approximately $3,650,000,000 in cash. We expect that this transaction, which is subject to various state and federal regulatory approvals, will be completed in the first half of 2001. We expect to temporarily fund these telephone access line purchases with cash and investment balances and proceeds from commercial paper issuances, backed by the credit commitments described above. Permanent funding is expected to be from cash and investment balances, the proceeds from the divestiture of our public services businesses, direct drawdowns from certain of the credit facilities and issuances of debt and equity securities. 14 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Divestitures - ------------ On August 24, 1999, our Board of Directors approved a plan of divestiture for our public services properties, which include gas, electric and water and wastewater businesses. The proceeds from the sales of these public services businesses will be used to partially fund the telephone access line purchases discussed above. We have signed agreements to date for the sale of all our water and wastewater operations, all our electric operations and one of our natural gas operations. The proceeds from the agreements signed to date will include approximately $1,745,000,000 in cash plus the assumption of certain liabilities. These agreements are described as follows: On October 18, 1999, we announced that we had agreed to sell our water and wastewater operations to American Water Works, Inc. for $835,000,000 in cash plus the assumption of certain liabilities. These transactions are expected to begin closing in the fourth quarter of 2000 following regulatory approvals. On February 15, 2000, we announced that we had agreed to sell our electric utility operations for $535,000,000 in cash plus the assumption of certain liabilities. The Arizona and Vermont electric divisions are under contract to be sold to Cap Rock Energy Corp. To date, Cap Rock has failed to raise the required financing and obtain the required regulatory approval necessary to meet its obligations under the contract for sale. We are currently evaluating our alternatives which may include a restructuring of the agreement or terminating the Cap Rock Energy Corp. contract for sale of the Vermont and Arizona electric divisions and pursuing the disposition with an alternative buyer. There is no assurance that the sale to Cap Rock will be completed or that we will reach definitive terms with an alternate buyer. In August 2000, the Public Utilities Commission of the state of Hawaii denied the initial application requesting approval of the purchase of our Kauai electric division by the Kauai Island Electric Co-Op. Consideration is being given to a variety of options, including the filing of a request for reconsideration of the decision, which may include the filing of a new application. On April 13, 2000, we announced that we had agreed to sell our Louisiana Gas operations to Atmos Energy Corporation for $375,000,000 in cash plus the assumption of certain liabilities. This transaction is expected to close in the first quarter of 2001 following regulatory approvals. Discontinued operations in the consolidated statements of income and comprehensive income (loss) reflect the results of operations of the electric and water/wastewater properties including allocated interest expense for the periods presented. Interest expense was allocated to the discontinued operations based on the outstanding debt specifically identified with these businesses. The debt presented in liabilities of discontinued operations represents only debt to be transferred pursuant to the respective asset sale agreements. Initially, we accounted for the planned divestiture of all the public services properties as discontinued operations. Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," states a plan of disposal of a business segment is expected to be carried out within a period of one year. As of September 30, 2000, we have not yet entered into agreements to sell our entire gas segment. Consequently, we reclassified all of our gas assets and related liabilities to "net assets held for sale" on the balance sheet in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and reclassified the results of these operations into their original income statement captions as part of continuing operations. We have restated our prior periods to conform to the current presentation. Additionally, as a result of their classification as held for sale, we ceased to record depreciation expense on these assets effective October 1, 2000. We are continuing to actively pursue a buyer for those gas operations for which we do not yet have signed agreements. Share Purchase Program - ---------------------- In December 1999, our Board of Directors authorized the purchase, from time to time, of up to $100,000,000 worth of shares of our common stock. This share purchase program was completed in early April 2000 and resulted in the acquisition or contract to acquire approximately 6,165,000 shares of our common stock. Of those shares, 2,500,000 shares were purchased for approximately $40,959,000 in cash and we entered into an equity forward contract for the acquisition of the remaining 3,665,000 shares. 15 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES In April 2000, our Board of Directors authorized the purchase, from time to time, of up to an additional $100,000,000 worth of shares of our common stock. This share purchase program was completed in July 2000 and resulted in the acquisition or contract to acquire approximately 5,927,000 shares of our common stock. Of these shares, 452,000 shares were purchased for approximately $8,250,000 in cash and we entered into an equity forward contract for the acquisition of the remaining 5,475,000 shares. In addition to our share purchase programs described above, in April 2000, our Board of Directors authorized the purchase, from time to time, of up to $25,000,000 worth of shares of Class A common stock of ELI, our 86% owned subsidiary, on the open market or in negotiated transactions. This ELI share purchase program was completed in August 2000 and resulted in the acquisition of approximately 1,288,000 shares of ELI common stock for approximately $25,000,000 in cash. In August 2000, our Board of Directors authorized the purchase, from time to time, of up to an additional 1,000,000 shares of ELI on the open market or in negotiated transactions. The second ELI share purchase program was completed in September 2000 and resulted in the acquisition of approximately 1,000,000 shares of ELI common stock for approximately $13,748,000 in cash. New Accounting Pronouncement - ---------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments and hedging activities and, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The statement requires balance sheet recognition of derivatives as assets or liabilities measured at fair value. Accounting for gains and losses resulting from changes in the values of derivatives is dependent on the use of the derivative and whether it qualifies for hedge accounting. Management does not anticipate that the application of SFAS 133 will have a material impact on our financial statements. On December 3, 1999, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." On October 13, 2000, the SEC published "Frequently Asked Questions and Answers" (Q&A) related to SAB 101 and deferred the effective date to no later than the fourth quarter of fiscal years beginning after December 15, 1999. We are currently evaluating the impact of SAB 101 on our financial statements. (b) Results of Operations --------------------- REVENUE Consolidated revenue for the three and nine months ended September 30, 2000 increased $52.9 million, or 16%, and $101.4 million, or 10%, respectively, as compared with the prior periods. The increase for the three months ended September 30, 2000 is due to a $23.1 million increase in telecommunications revenue, a $15.0 million increase in ELI revenue and a $14.8 million increase in gas revenue. The increase for the nine months ended September 30, 2000 is due to a $21.0 million increase in telecommunications revenue, a $48.2 million increase in ELI revenue and a $32.3 million increase in gas revenue. TELECOMMUNICATIONS REVENUE
($ in thousands) For the three months ended September 30, For the nine months ended September 30, ------------------------------------------- ----------------------------------------- 2000 1999 % Change 2000 1999 % Change ----------- ---------- ----------- ---------- ---------- ----------- Network access services $ 129,584 $ 123,939 5% $ 375,994 $ 381,014 -1% Local network services 80,579 69,046 17% 224,284 205,735 9% Long distance and data services 20,481 17,705 16% 58,534 59,096 -1% Directory services 8,016 7,058 14% 22,636 21,017 8% Other 18,003 15,964 13% 51,492 45,725 13% Eliminations (9,896) (10,050) N/A (32,465) (33,072) N/A ----------- ---------- ---------- ---------- $ 246,767 $ 223,662 10% $ 700,475 $ 679,515 3% =========== ========== ========== ==========
We acquired the GTE Nebraska access lines on June 30, 2000 and the GTE Minnesota access lines on August 31, 2000 (collectively referred to as the Acquisitions). These Acquisitions contributed $15.6 million of revenue for both the three and nine months ended September 30, 2000. 16 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Network access services revenue for the three months ended September 30, 2000 increased $5.6 million, or 5%, as compared with the prior year period. The Acquisitions accounted for $7.5 million of the increase while growth in minutes of use accounted for $1.2 million of the increase. These increases were partially offset by the effect of the Federal Communications Commission's (FCC) Coalition for Affordable Local and Long Distance Services (CALLS) mandate which reduces access charges paid by long distance companies of $5.0 million and the impact of an intercompany adjustment made in 1999. Network access services revenue for the nine months ended September 30, 2000 decreased $5.0 million, or 1%, as compared with the prior year period primarily due to a non-recurring $10.4 million interstate universal service fund (USF) settlement received in the first quarter of 1999, the effect of CALLS of $5.0 million, a decrease in intralata toll revenue of $3.8 million, settlements with long distance carriers of $2.3 million in 1999, and the price effect of a July 1999 FCC tariff adjustment of $1.8 million, partially offset by the impact of the Acquisitions of $7.5 million and growth in minutes of use and special access revenue of $11.5 million. Local network services revenue for the three months ended September 30, 2000 increased $11.5 million, or 17%, as compared with the prior year period. The Acquisitions contributed $6.5 million, enhanced services increased $2.1 million, access line growth of 39,000 contributed $2.3 million, frame relay increased $.4 million and white pages directory revenue increased $.2 million. Local network services revenue for the nine months ended September 30, 2000 increased $18.5 million, or 9%, as compared with the prior year period. The Acquisitions contributed $6.5 million, enhanced services increased $5.4 million due to increased demand for these services, access line growth of 39,000 contributed $5.1 million and frame relay increased $1.5 million. Long distance services revenue for the three months ended September 30, 2000 increased $2.8 million, or 16%, as compared with the prior year periods primarily due to increases in internet revenue and the impact of an intercompany adjustment made in 1999. Long distance services revenue for the nine months ended September 30, 2000 decreased $.6 million, or 1%, as compared with the prior year periods primarily due to a decrease in long distance revenue of $2.9 million, partially offset by increases in internet revenue of $2.3 million for the nine months ended September 30, 2000. The long distance decreases were due to decreased minutes of use of 14.3 million for the nine month period as compared with the prior year period as we continued to exit the out-of-territory long distance market. In addition, the average rate per minute for long distance service declined from $.123 in the nine months ended September 30, 1999 to $.113 in the nine months ended September 30, 2000, or 8%, as a result of offering discounted calling plans. Directory services revenue for the three and nine months ended September 30, 2000 increased $1.0 million, or 14%, and $1.6 million, or 8%, respectively, as compared with the prior year periods primarily due to increased directory advertising and listing sales. Other revenue for the three and nine months ended September 30, 2000 increased $2.0 million, or 13%, and $5.8 million, or 13%, as compared with the prior year periods primarily due to an increase in conference call and cable revenue. A decrease in uncollectible accounts due to improved collection efforts also contributed to the increase for the nine month period. Eliminations represent network access revenue received by our local exchange operations from our long distance operations. 17 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
ELI REVENUE ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ----------------------------------------- ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ----------- --------- --------- ---------- ----------- ----------- Network services $ 21,627 $ 14,024 54% $ 54,804 $ 37,431 46% Local telephone services 25,187 22,313 13% 75,412 55,221 37% Long distance services 3,728 4,812 -23% 12,590 22,587 -44% Data services 13,068 7,453 75% 38,202 17,674 116% -------- -------- -------- --------- 63,610 48,602 31% 181,008 132,913 36% Intersegment revenue (769) (747) N/A (2,096) (2,215) N/A -------- -------- -------- --------- $ 62,841 $ 47,855 31% $178,912 $130,698 37% ======== ======== ======== =========
Network Services revenue increased $7.6 million, or 54%, and $17.4 million, or 46% for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. The increase is due to continued growth in our network and sales of additional high bandwidth, D5-3 and OC level circuits to new and existing customers. Local telephone services revenue increased $2.9 million, or 13%, and $20.2 million, or 37%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Local telephone services include dial tone, ISDN PRI, Carrier Access Billings and reciprocal compensation. ISDN PRI revenue increased $3.1 million, or 51%, and $10.2 million, or 66%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Dial tone revenue increased $0.6 million, or 12%, and $1.9 million, or 15%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Increases in revenue for both ISDN PRI and dial tone is the result of an increase in the average access line equivalents of 61,478, or 43%, and 72,716, or 60%, for the three and nine months ended September 30, 2000, respectively. Carrier Access Billings revenue increased $0.1 million, or 7%, and $3.7 million, or 142%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. The increase is due to an increase in average monthly minutes processed of 38.6 million from 21.9 million, or 76%, and 33.2 million from 19.2 million, or 73%, for the three and nine months ended September 30, 2000, respectively, partially offset by lower average rates per minute due to competitive pressures in the markets in which we operate. Reciprocal compensation revenue decreased $0.9 million, or 9%, and increased $4.4 million, or 18%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. The decrease for the three months ended September 30, 2000 is primarily due to decreased revenue from Qwest due to lower rates applicable to new interconnection agreements effective January 1, 2000. The increase for the nine months ended September 30, 2000 is due to interconnection agreements being in place with Verizon and PacBell during the three and nine months ended September 30, 2000 to record reciprocal compensation revenue that were not in place for the same periods in 1999. The increase for nine months was partially offset by decreased revenue from Qwest due to lower rates applicable to new interconnection agreements effective January 1, 2000. Long distance services revenue decreased $1.1 million, or 23%, and $10.0 million, or 44%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Long distance services include retail long distance, wholesale long distance and prepaid services. Retail long distance revenue increased $0.7 million, or 42%, and $2.3 million, or 51%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. The increase is due to an increase in average monthly minutes processed of 9.8 million from 6.8 million, or 44%, and 9.9 million from 5.9 million, or 68% for the three and nine months ended September 30, 2000, respectively, partially offset by lower average rates per minute. Wholesale long distance revenue decreased $0.4 million, or 26%, and increased $0.2 million, or 4%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. 18 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES We exited the prepaid services market in the third quarter of 1999. As a result, prepaid services revenue decreased $1.4 million, or 86%, and $12.5 million, or 93%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Data services revenue increased $5.6 million, or 75%, and $20.5 million, or 116%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Data services include Internet, RSVP and other services. Data services revenue also increased $3.3 million, or 200%, and $13.2 million, or 800% for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999, as the result of an 18-month take-or-pay contract with a significant customer that expires on February 28, 2001. The take-or-pay contract will provide $20 million in revenue for 2000. It is not likely that this take-or-pay contract will be renewed in 2001. Revenue from our Internet services product increased $1.6 million, or 49%, and $5.0 million, or 64%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Revenue from our RSVP products increased $0.6 million, or 235% and $1.7 million, or 288%, for the three and nine months ended September 30, 2000, respectively, over the same periods in 1999. Intersegment revenue reflects revenue received by ELI from our telecommunications operations.
GAS REVENUE ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ----------------------------------------- ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ----------- ------- ---------- ----------- -------- ---------- Gas revenue 80,333 65,574 23% 270,753 238,485 14%
Gas revenue for the three and nine months ended September 30, 2000 increased $14.8 million, or 23%, and $32.3 million, or 14%, respectively, as compared with the prior year periods primarily due to higher purchased gas costs passed on to customers, partially offset by decreased unit sales due to warmer weather conditions.
COST OF SERVICES ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ------------------------------------------ ----------------------------------------- 2000 1999 % Change 2000 1999 % Change ------------- ----------- ---------- ------------ ---------- ----------- Gas purchased $ 48,182 $ 31,152 55% $ 148,238 $ 116,706 27% Network access 35,795 31,163 15% 116,487 120,232 -3% Eliminations (10,665) (10,797) N/A (34,561) (35,287) N/A ------------- ----------- ------------ ----------- $ 73,312 $ 51,518 42% $ 230,164 $ 201,651 14% ============= =========== ============ ===========
Gas purchased for the three and nine months ended September 30, 2000 increased $17.0 million, or 55%, and $31.5 million, or 27%, respectively, as compared with the prior year periods primarily due to an increase in the cost of gas and customer growth. Gas margin (revenue less purchases) for the three months ended September 30, 2000 decreased $2.3 million, or 7%, as compared with the prior year period primarily due to a $2.5 million expense of a previously deferred gas cost in September 2000. Gas margin for the nine months ended September 30, 2000 increased $0.7 million, or 1%, as compared with the prior year period primarily due to increased customer growth of approximately 2%, partially offset by a $2.5 million expense of a previously deferred gas cost in September 2000. Network access expenses for the three months ended September 30, 2000 increased $4.6 million, or 15%, as compared with the prior year period primarily due to increased costs related to increased revenue growth at ELI, $2.4 million more vendor disputes resolved in ELI's favor in the prior year period and the impact of an intercompany adjustment made in 1999, partially offset by a reduction in costs related to the exit of ELI's prepaid services business. 19 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Network access expenses for the nine months ended September 30, 2000 decreased $3.7 million, or 3%, as compared with the prior year periods primarily due to a reduction in costs related to the exit of ELI's prepaid services business, partially offset by increased costs related to increased revenue growth and our dialed internet product. Eliminations represent expenses incurred by our long distance operations related to network access services provided by our local exchange operations and expenses incurred by our telecommunications operations related to network services provided by ELI.
DEPRECIATION AND AMORTIZATION EXPENSE ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ---------------------------------------- ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ---------- ----------- --------- ------------ ----------- ---------- Depreciation and amortization $ 89,130 $ 69,715 28% $ 258,677 $ 202,265 28%
Depreciation expense for the three and nine months ended September 30, 2000 increased $19.4 million, or 28%, and $56.4 million, or 28%, respectively, as compared with the prior year periods primarily due to higher plant in service balances for newly completed communications network facilities and electronics at ELI, higher property, plant and equipment balances in the telecommunications sector and the impact of the Acquisitions of $7.0 million including the amortization of goodwill of $2.7 million. For the nine months ended September 30, 2000, the increase is also attributable to $19.1 million of accelerated depreciation taken during the first half of 2000 related to the change in useful life of an operating system in the telecommunications sector.
OTHER OPERATING EXPENSES ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ----------------------------------------- ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ----------- ---------- ----------- ----------- ----------- ----------- Operating expenses $ 146,494 $ 160,364 -9% $ 433,672 $ 468,131 -7% Taxes other than income taxes 20,115 21,298 -6% 65,219 64,669 1% Sales and marketing 13,824 15,968 -13% 44,954 48,339 -7% Eliminations (230) (315) N/A (743) (1,133) N/A ----------- ---------- ----------- ------------ $ 180,203 $ 197,315 -9% $ 543,102 $ 580,006 -6% =========== ========== =========== ============
Operating expenses for the three months ended September 30, 2000 decreased $13.9 million, or 9%, as compared with the prior year period primarily due to decreased Year 2000 (Y2K) expenses of $3.9 million, decreased corporate office expense and prior year consulting, severance and benefits payments. The decreases were partially offset by increased operating expenses related to the Acquisitions of $3.8 million. Operating expenses for the nine months ended September 30, 2000 decreased $34.5 million, or 7%, as compared with the prior year period primarily due to decreased Y2K expenses of $12.4 million, decreased corporate office expense, prior year consulting, severance and benefits payments and prior year costs associated with information technology projects that have been completed. The decreases were partially offset by increased operating expenses related to the Acquisitions of $3.8 million. Taxes other than income taxes for the three months ended September 30, 2000 decreased $1.2 million, or 6%, as compared with the prior year periods primarily due to decreased payroll taxes due to decreased headcount of 67 employees, or 6%, in the gas sector and a payroll tax adjustment in the gas sector in 1999. Taxes other than income taxes for the nine months ended September 30, 2000 increased $.6 million or 1%, respectively, as compared with the prior year periods primarily due to increase property taxes at ELI. Sales and marketing expenses decreased $2.1 million, or 13%, and $3.4 million, or 7%, as compared with the prior year periods primarily due to decreased sales personnel related to the exit of ELI's prepaid services business. Eliminations represent the elimination of intercompany administrative fees charged to ELI. 20 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
ACQUISITION ASSIMILATION EXPENSE ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ----------------------------------------- --------------------------------------- 2000 1999 % Change 2000 1999 % Change ----------- --------- ---------- ----------- ------- --------- Acquisition assimilation expense $ 12,539 $ - N/A $ 24,130 $ - N/A
Acquisition assimilation expense of $12.5 million and $24.1 million for the three and nine months ended September 30, 2000, respectively, is related to the pending acquisition of approximately 2 million telephone access lines (as of December 31, 1999). We anticipate that we will continue to incur such assimilation costs through the remainder of 2000 and into 2001.
INCOME FROM OPERATIONS ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ------------------------------------------ ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ---------- ---------- ---------- ----------- ---------- ------------- Income from operations $ 34,757 $ 18,543 87% $ 94,067 $ 64,776 45%
Income from operations for the three and nine months ended September 30, 2000 increased $16.2 million, or 87%, and $29.3 million, or 45%, respectively, as compared with prior year periods primarily due to decreased ELI operating losses and decreased Y2K expenses, partially offset by increased acquisition assimilation expense. Income from operations for the nine months ended September 30, 2000 also included increased depreciation expense related to the change in useful life of an operating system in the telecommunications sector. Income from operations for the nine months ended September 30, 1999 included the $10.4 million universal service fund settlement recorded in the first quarter of 1999.
INVESTMENT AND OTHER INCOME, NET / MINORITY INTEREST / INTEREST EXPENSE / INCOME TAXES ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ----------------------------------------- ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ----------- ----------- ----------- ----------- ------------ ---------- Investment and other income, net $ 5,435 $ 9,703 -44% $ 15,086 $ 91,016 -83% Minority interest $ - $ 5,301 -100% $ 12,222 $ 16,987 -28% Interest expense $ 45,025 $27,319 65% $ 116,288 $ 74,560 56% Income taxes (benefit) $ (1,170) $ 1,041 -212% $ 2,298 $ 32,737 -93%
Investment and other income, net for the three months ended September 30, 2000 decreased $4.3 million, or 44%, as compared with the prior year period primarily due to lower average investment balances. Investment income for the nine months ended September 30, 2000 decreased $75.9 million, or 83%, as compared with the prior year period primarily due to the $69.5 million gain on the sale of our investment in Centennial Cellular Corp. in January 1999 and lower average investment balances. As of September 30, 2000, we reclassified certain bond investments to short-term investments which we plan to sell in the fourth quarter of 2000. Unrealized losses on these securities were approximately $11.8 million as of September 30, 2000 and are included in comprehensive income. Minority interest, as presented on the income statement, represents the minority's share of ELI's net loss. Minority interest in subsidiary, as presented on the balance sheet at December 31, 1999, represents the minority's share of ELI's equity capital. Since ELI's public offering, we have been recording minority interest on our income statement and reducing minority interest on our balance sheet by the amount of the minority interests' share of ELI's losses. As of June 30, 2000, the minority interest on the balance sheet had been reduced to zero, therefore, from that point going forward, we discontinued recording minority interest income on our income statement as there is no obligation for the minority interests to provide additional funding for ELI. Therefore, we are recording ELI's entire loss in our consolidated results. When ELI becomes profitable, we will recognize ELI's earnings in full until the cumulative losses of the minority interests previously absorbed by us are recovered. After such recovery, we will begin to record minority interest on our income statement and minority interest in subsidiary on our balance sheet based on the percentage of ELI owned by third parties. 21 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Interest expense for the three months ended September 30, 2000 increased $17.7 million, or 65%, as compared with the prior year period primarily due to a $6.5 million increase in ELI's interest expense related to increased borrowings and higher interest rates, $6.5 million increase due to an increase in our commercial paper outstanding and $3.2 million for amortization of costs associated with our committed bank credit facilities. A reduction in capitalized interest of $1.1 million due to lower average capital work in process balances at ELI also contributed to the increase. During the three months ended September 30, 2000, we had average long-term debt outstanding of $2.7 billion compared to $2.1 billion during the three months ended September 30, 1999. Interest expense for the nine months ended September 30, 2000 increased $41.7 million, or 56%, as compared with the prior year period primarily due to a $19.3 million increase in ELI's interest expense related to increased borrowings and higher interest rates, $8.0 million increase due to an increase in our commercial paper outstanding and $9.5 million for amortization of costs associated with our committed bank credit facilities. A reduction in capitalized interest of $4.0 million due to lower average capital work in process balances at ELI also contributed to the increase. During the nine months ended September 30, 2000, we had average long-term debt outstanding of $2.5 billion compared to $1.9 billion during the nine months ended September 30, 1999. Income taxes for the three and nine months ended September 30, 2000 decreased $2.2 million, or 212%, and $30.4 million, or 93%, respectively, as compared with the prior year periods primarily due to changes in taxable income. The nine months ended September 30, 2000 decrease is primarily due to taxes on the gain on the sale of our investment in Centennial Cellular Corp. in January 1999. The estimated annual effective tax rate for 2000 is 34% as compared with 35% for 1999.
DISCONTINUED OPERATIONS ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ------------------------------------------ --------------------------------------- 2000 1999 % Change 2000 1999 % Change ------------ ------------ ----------- ------------ ---------- --------- Revenue $ 92,041 $ 88,557 4% $ 249,791 $ 229,311 9% Operating income $ 17,402 $ 18,655 -7% $ 40,819 $ 40,165 2% Net income $ 6,683 $ 8,272 -19% $ 13,672 $ 13,459 2%
Revenue from discontinued operations for the three and nine months ended September 30, 2000 increased $3.5 million, or 4%, and $20.5 million, or 9%, respectively, as compared with the prior periods primarily due to customer growth, increased consumption due to favorable weather conditions and increased purchased fuel costs and purchased power costs passed on to customers. The increase for the nine months ended September 30, 2000 as compared with the prior period was partially offset by $3,750,000 of customer refunds recorded in the second quarter of 2000 in Arizona in the electric sector. Operating income from discontinued operations for the three months ended September 30, 2000 decreased $1.3 million, or 7%, primarily due to increased purchased fuel costs and purchased power costs and increased depreciation expense due to increased property, plant and equipment. Operating income from discontinued operations for the nine months ended September 30, 2000 increased $.7 million, or 2%, respectively, as compared with prior periods primarily due to increased revenue, decreased Y2K expenses, decreased sales and marketing expenses, decreased corporate overhead charges and lower payroll costs due to reduction in staffing levels of support functions, partially offset by increased depreciation expense due to increased property, plant and equipment. Net income from discontinued operations for the three and nine months ended September 30, 2000 decreased $1.6 million, or 19%, and increased $.2 million, or 2%, respectively, as compared with prior periods primarily due to the respective changes in operating income. 22 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
NET INCOME / NET INCOME PER COMMON SHARE / OTHER COMPREHENSIVE LOSS, NET OF TAX AND RECLASSIFICATION ADJUSTMENTS ($ in thousands) For the three months ended September 30, For the nine months ended September 30, ----------------------------------------- ---------------------------------------- 2000 1999 % Change 2000 1999 % Change ------------ ---------- ---------- ----------- ------------ ---------- Net income $ 1,467 $ 11,906 -88% $ 11,804 $ 74,284 -84% Net income per common share $ 0.01 $ 0.05 -80% $ 0.04 $ 0.29 -86% Other comprehensive loss, net of tax and reclassification adjustments $ (28,704) $ (17) N/A $ (69,097) $ (14,428) N/A
Net income and net income per share for the three months ended September 30, 2000 decreased $10.4 million, or 88%, and 4(cent), or 80%, respectively, as compared with the prior year period primarily due to increased ELI interest expense and decreased minority interest income, partially offset by increased operating income and decreased Y2K expenses. Net income and net income per share for the nine months ended September 30, 2000 decreased $62.5 million, or 84%, and 25 (cent), or 86%, respectively, as compared with the prior year period primarily due to the $42.9 million, or 16 (cent) per share, after tax gain on the sale of our investment in Centennial Cellular Corporation in January 1999, the 1999 non-recurring universal service fund settlement, accelerated depreciation related to the change in useful life of an operating system in the telecommunications sector and increased ELI interest expense, partially offset by increased operating income and decreased Y2K expenses. Other comprehensive loss, net of tax and reclassification adjustments during the three and nine months ended September 30, 2000 and the three months ended September 30, 1999 are primarily the result of higher unrealized losses on our investment portfolio. Other comprehensive loss, net of tax and reclassification adjustments during the nine months ended September 30, 1999 is primarily the result of the realization of the gain on the sale of our investment in Centennial Cellular Corp. in January 1999, partially offset by higher unrealized gains on our investment portfolio during the first quarter 1999. Item 3. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- We are exposed to market risk in the normal course of our business operations due to our ongoing investing and funding activities and our purchases of certain commodities. Market risk refers to the risk of loss that may result from the potential change in fair value of a financial instrument as a result of fluctuations in interest rates and equity and commodity prices. We manage our exposure to these risks by maintaining a conservative investment portfolio, entering into long term debt obligations with appropriate price and term characteristics, and utilizing derivative financial instruments when they make business sense as follows: Interest Rate Exposure - ---------------------- Our objectives in managing our interest rate risk is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we maintain a conservative investment portfolio, consisting of equity and debt financial instruments, a majority of which includes state and municipal and other fixed income securities, which is designed to earn current income and is adequately diversified to offset reasonable interest rate fluctuations. In addition, we maintain fixed rate debt on a majority of our borrowings and refinance debt when advantageous by entering into long term debt obligations, including but not limited to, debenture and industrial development revenue bonds, which usually possess better than prime interest rates. During the third quarter of 2000, we arranged for a committed $6.15 billion in credit facilities for the purpose of funding our pending acquisitions and supporting general corporate activities. As of September 30, 2000 there are no funds outstanding under these facilities. Once funds are drawn down on these facilities it is our intention to permanently fund these amounts through cash and investment balances, proceeds from the divestiture of our public services businesses and other debt and equity instruments. Based upon our overall interest rate exposure at September 30, 2000 a near term change in interest rates would not materially affect our consolidated financial position, results of operations or cash flows. 23 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Equity Price Exposure - --------------------- In December 1999, our Board of Directors authorized the purchase, from time to time, of up to $100 million worth of shares of our common stock. In April 2000, our Board of Directors authorized the purchase, from time to time, of up to an additional $100 million worth of shares of our common stock. We purchased approximately $49 million worth of our shares on the open market in cash and approximately $151 million worth of our shares using equity forward contracts. These types of contracts are exposed to equity price risk as these contracts are indexed to our common stock, which is traded on stock exchanges. Based upon our overall equity price exposure at September 30, 2000 an adverse change in the price of our common stock would not materially affect our consolidated financial position, results of operations or cash flows. Commodity Price Exposure - ------------------------ We purchase monthly gas future contracts to manage well defined commodity price fluctuations, caused by weather and other unpredictable factors, associated with our commitments to deliver natural gas to customers at fixed prices. This commodity activity relates to the net assets held for sale and is not material to our consolidated financial position, results of operations or cash flows. The Company does not hold or issue derivative or other financial instruments for trading purposes. Finally, the carrying amount of cash, accounts receivable, short-term debt, accounts payable and other accrued liabilities approximate fair value because of the short maturity of these instruments. 24 PART II. OTHER INFORMATION CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Item 1. Legal Proceedings ----------------- In November 1995, our Vermont electric division was permitted an 8.5% rate increase. Subsequently, the Vermont Public Service Board (VPSB) called into question the level of rates awarded us in connection with its formal review of allegations made by the Department of Public Service (the DPS), the consumer advocate in Vermont and a former Citizens employee. The major issues in this proceeding involved classification of certain costs to property, plant and equipment accounts and our Demand Side Management program. In addition, the DPS believed that we should have sought and received regulatory approvals prior to construction of certain facilities in prior years. On June 16, 1997, the VPSB ordered us to reduce our rates for Vermont electric service by 14.65% retroactive to November 1, 1995 and to refund to customers, with interest, all amounts collected since that time in excess of the rates then authorized by the VPSB. In addition, the VPSB assessed statutory penalties totaling $60,000 and placed us on regulatory probation for a period of at least five years. During this probationary period, we could lose our franchise to operate in Vermont if we violate the terms of probation prescribed by the VPSB. The VPSB prescribed final terms of probation in its final order issued September 15, 1998. In October 1998, we filed an appeal in the Vermont Supreme Court challenging certain of the penalties imposed by the VPSB. The appeal has been fully briefed and argued and we are awaiting the Court's decision. In August 1997, a lawsuit was filed in the United States District Court for the District of Connecticut (Leventhal vs. Tow, et al.) against us and five of our officers, one of whom is also a director, on behalf of all persons who purchased or otherwise acquired Series A and Series B shares of our Common Stock between September 5, 1996 and July 11, 1997, inclusive. On February 9, 1998, the plaintiffs filed an amended complaint. The complaint alleged that we and the individual defendants, during such period, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based upon certain public statements made by us, which are alleged to be materially false or misleading, or are alleged to have failed to disclose information necessary to make the statements made not false or misleading. The plaintiffs sought to recover unspecified compensatory damages. We and the individual defendants believe the allegations are unfounded and filed a motion to dismiss on March 27, 1998 and on March 30, 1999 the Court dismissed the action. On April 29, 1999 the plaintiffs filed a notice of appeal with the Court of Appeals for the Second Circuit. The parties have entered into a settlement stipulation which is subject to the District Court's approval. In March 1998, a lawsuit was filed in the United States District Court for the District of Connecticut (Ganino vs. Citizens Utilities Company, et al.), against us and three of our officers, one of whom is also a director, on behalf of all purchasers of our Common Stock between May 6, 1996 and August 7, 1997, inclusive. The complaint alleges that we and the individual defendants, during such period, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading public statements concerning our relationship with a purported affiliate, Hungarian Telephone and Cable Corp. (HTCC), and by failing to disclose material information necessary to render prior statements not misleading. The plaintiff seeks to recover unspecified compensatory damages. We and the individual defendants believe that the allegations are unfounded and filed a motion to dismiss. The plaintiff requested leave to file an amended complaint and an amended complaint was served on us on July 24, 1998. Our motion to dismiss the amended complaint was filed on October 13, 1998 and the Court dismissed the action with prejudice on June 28, 1999. The plaintiffs filed a notice of appeal with the Court of Appeals for the Second Circuit, briefing has been completed and oral argument took place April 10, 2000. The parties have entered into a settlement stipulation which is subject to the District Court's approval. In November 1998, a class action lawsuit was filed in state District Court for Jefferson Parish, Louisiana, against us and our subsidiary LGS Natural Gas Company. The lawsuit alleges that we and the other named defendants passed through in rates charged to Louisiana customers certain costs that plaintiffs contend were unlawful. The lawsuit seeks compensatory damages in the amount of the alleged overcharges and punitive damages equal to three times the amount of any compensatory damages, as allowed under Louisiana law. In addition, the Louisiana Public Service Commission has opened an investigation into the allegations raised in the lawsuit. We believe that the allegations made in the lawsuit are unfounded and we will vigorously defend our interests in both the lawsuits and the related Commission investigation. In addition, we are party to other proceedings arising in the normal course of business. The outcome of individual matters is not predictable. However, management believes that the ultimate resolution of all such matters, including those discussed above, after considering insurance coverages, will not have a material adverse effect on our financial position, results of operations, or our cash flows. 25 PART II. OTHER INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits: 3.200.2 By-laws of Citizens Communications Company with all amendments to July 18, 2000. 10.32 Stock Purchase Agreement among Citizens Communications Company, Global Crossing Ltd. and Global Crossing North America, Inc. dated July 11, 2000. 27 Financial data schedule for the period ended September 30, 2000. b) Reports on Form 8-K: We filed on Form 8-K dated August 8, 2000 under Item 7 "Exhibits," a press release announcing financial results for the quarter ended June 30, 2000 and certain operating data. We filed on Form 8-K dated August 15, 2000 under Item 5 "Other Events" and Item 7 "Exhibits," a press release announcing that a Decision and Order issued by the Public Utilities Commission of the State of Hawaii denied the initial application requesting approval of the purchase of our Kauai Electric Division by the Kauai Island Utility Co-Op. We filed on Form 8-K dated August 31, 2000 under Item 2 "Acquisition or Disposition of Assets" and Item 7 "Exhibits," announcing the closing of the Nebraska and Minnesota asset purchases from Verizon Communications (formerly GTE Corp.) and the corresponding press releases. 26 PART II. OTHER INFORMATION (Continued) CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITIZENS COMMUNICATIONS COMPANY ------------------------------- (Registrant)
By: /s/ Robert J. Larson ------------------------- Robert J. Larson Vice President and Chief Accounting Officer
Date: November 14, 2000 EX-3.(II) 2 0002.txt RESTATED BY-LAWS BYLAWS* OF CITIZENS COMMUNICATIONS COMPANY As amended March 9, 1937; May 12, 1942; June 15, 1946; October 1, 1946; May 23, 1947; January 7, 1948, April 1, 1948; March 31, 1949; January 26, 1951; April 11, 1952; July 28, 1954; February 24, 1960; November 18, 1963; May 10, 1966; February 3, 1967; April 10, 1968; April 17, 1970; June 11, 1970; June 7, 1974; August 8, 1975; November 7, 1980; January 16, 1981; March 3, 1981; February 20, 1986; June 5, 1987; August 8, 1988; May 5, 1989; May 31, 1989; June 23, 1989; September 11, 1989 (clerical correction); May 1, 1990; April 14, 1992; and February 17, 1993, February 8, 1994 (clerical correction); October 24, 1995, August 8, 1996 (clerical correction), December 17, 1996; January 20, 1998; May 20, 1999, July 18, 2000 BYLAWS OF CITIZENS COMMUNICATIONS COMPANY TITLE 1. The title of this corporation is CITIZENS COMMUNICATIONS COMPANY. LOCATION OF OFFICES 2. The principal office of the corporation in Delaware shall be in Wilmington and the resident agent in charge thereof shall be PRENTICE HALL CORPORATION SYSTEM, INC., 1013 Centre Road. The corporation may also have an office or offices at such other places within or without the State of Delaware as the Board of Directors may from time to time designate. CORPORATE SEAL 3. The corporate seal shall be circular in form and have inscribed thereon the name of the corporation, the year of its incorporation (1935) and the words "Incorporated Delaware". MEETINGS OF STOCKHOLDERS 4. All meetings of stockholders shall be held at the offices of the corporation or such other place as shall be designated by the Board of Directors of the corporation. Annual Meetings of stockholders shall be held on a date and at a time designated by the Board of Directors of the corporation. At each annual meeting the stockholders shall elect a Board of Directors, such election to be by majority of the stock present or represented by proxy, and entitled to vote at the meeting. Each stockholder shall, at every meeting of the stockholders, be entitled to one vote in person or by written proxy signed by him, for each share of stock held by him, but no proxy shall be voted on after one year from its date. Such right to vote shall be subject to the right of the Board of Directors to close the transfer books or to fix a record date for voting stockholders as hereinafter provided. Special meetings of the stockholders may be called by the Chief Executive Officer and shall be called on the request in writing or by vote of a majority of the Board of Directors or on demand in writing of stockholders of record owning thirty-three percent (33%) in amount of the capital stock outstanding and entitled to vote. Notice of each meeting of stockholders, whether annual or special, shall be mailed by the secretary to each stockholder of record, at his or her post office address as shown by the stock books of the Company, at least ten days and not more than sixty days prior to the date of the meeting. If the transfer books are closed or a record date is fixed in connection with an annual meeting, as permitted by By-Law 17, the notice of the meeting shall be given to the stockholders of record as of the time said books are closed or record date is fixed, but if the transfer books are not closed or a record date is not fixed, said notice shall be given to the stockholders of record at the time the notice is mailed. The holders of a majority of the stock outstanding and entitled to vote shall constitute a quorum, but the holders of a smaller amount may adjourn any meeting from time to time without further notice until a quorum is secured. At the annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for below, who shall be entitled to vote at such meeting and who complies with the procedures set forth below; provided that any such business proposed by a stockholder is otherwise proper for consideration under applicable law, the corporation's certificate of incorporation and these Bylaws. For business to be brought before an annual meeting by a stockholder, the stockholder must have given notice thereof in writing to the Secretary of the corporation, delivered to or mailed and received at the principal office of the corporation no [earlier than the January 1 and no] later than the February 15 preceding the annual meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (c) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder of record and by the beneficial owner, if any, on whose behalf the proposal is made, together with documentary support for any claim of beneficial ownership, (d) any material interest of such stockholder of record and the beneficial owner, if any, on whose behalf the proposal is made in such business and (e) any information, in addition to that required above, which may be required from time to time by Regulation 14A of the Securities Exchange Act of 1934 with respect to security holder proposals. The Chairman of the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and whether such business is otherwise proper for consideration (using as a non-exclusive guideline the provisions of Rule 14a-8(c) under the Securities Exchange Act of 1934), and shall direct that any business not properly brought before the meeting shall not be transacted. DIRECTORS 5. The property and business of the corporation shall be managed and controlled by its Board of Directors, which shall consist of not less than seven nor more than thirteen members. The number of Directors shall be fixed from time to time, within the limits prescribed, by resolution of the Board of Directors. As of July 18, 2000, 1999, the Board of Directors shall consist of thirteen members, unless a different number shall thereafter be fixed by resolution of the Board -3- of Directors. Vacancies in the Board of Directors (except vacancies resulting from the removal of directors by stockholders), including vacancies in the Board of Directors resulting from any increase in the number of Directors, may be filled by a majority of the Directors then in office, though less than a quorum. Directors shall otherwise be elected by the stockholders at the annual meeting and shall hold office until the next annual election and until their successors are elected and qualified. At all elections of Directors of this corporation each stockholder shall be entitled to one vote in person or by written proxy signed by him, for each share of stock owned by him, and election shall be by majority vote of the stock present or represented by proxy and entitled to vote at the meeting. The stockholders of this corporation shall have no preemptive right to subscribe to any issue of shares of stock of this corporation now or hereafter made. A Director may be designated a "Director Emeritus" of the Company by the vote of the Board of Directors. A Director Emeritus shall be invited to attend all meetings of the Board of Directors but shall not have the right to vote. A Director Emeritus shall receive such compensation as the Board shall determine. A Director Emeritus shall be designated by the Board of Directors for a one-year term (and may be reappointed) at the Annual Meeting of the Board of Directors following the Company's Annual Meeting of Shareholders. The Board of Directors shall have an Executive Committee. The Executive Committee of the Board shall consist of four (4) members, to be appointed by and to serve at the pleasure of the Board. The Chairman of the Board shall be the Chairman of the Executive Committee. During intervals between meetings of the Board, the Committee shall have the power and authority of the Board of Directors of the management of the business affairs and property of the Company. A majority of the Directors in office shall be independent directors as hereinafter defined. At the time that the nominees for the Board of Directors are selected for proposal for election at the Annual Meeting of Shareholders, the Board of Directors will review the circumstances of each nominee and determine whether he or she is an independent director. If it should be -4- determined that a majority of the nominees are not independent directors, the Nominating Committee shall take steps to select and recommend the nomination of a sufficient number of individuals who are independent directors so that a majority of members of the Board of Directors shall be independent directors. The Board of Directors shall have a Nominating Committee. The Nominating Committee shall consist of not less than two directors and not more than four directors, to be appointed by and to serve at the pleasure of the Board. Each member of the Nominating Committee shall be an independent director as hereinafter defined. The Nominating Committee shall consider recommendations of individuals who may be expected to make contributions to the Company or members of the Board of Directors. The Nominating Committee shall establish procedures for the nominating process and make recommendations to the Board of Directors annually for the slate of nominees for the Board of Directors to be proposed at the Annual Meeting of Shareholders. The Board of Directors shall have a Compensation Committee. The Compensation Committee shall consist of not less than two directors and not more than five directors, to be appointed by and to serve at the pleasure of the Board. Each member of the Compensation Committee shall be an independent director as hereafter defined. The Compensation Committee shall consider matters related to compensation of officers, directors and employees of the Company and to make recommendations with respect thereto to the Board of Directors. The Compensation Committee shall have the authority to retain inde- pendent legal counsel and compensation advisors. For purposes of this Article 5 of the Bylaws, "independent director" shall mean a director who is: (a) an individual who is not and has not been employed as an executive officer by the Company (or any corporation, the majority of the voting stock of which is owned, directly or indirectly through one or more other subsidiaries, by the Company) within three (3) fiscal -5- years immediately prior to his or her most recent election or appointment as a member of the Board of Directors; or (b) an individual who is not a regular paid advisor or consultant to the Company and who is not an affiliate (within the meaning of Exchange Act Rule 12b-2 of the Securities and Exchange Commission) of any entity that is a regular paid advisor or consultant to the Company; or (c) an individual who is not an employee or owner of five percent (5%) or more of the voting stock of any business or professional entity that has made, during the Company' s last full fiscal year, payments to the Company or its subsidiaries for property, goods or services in excess of five percent (5%) of the lesser of (i) the Company's consolidated gross revenues for its last full fiscal year, or (ii) such other entity's consolidated gross revenues for its last full fiscal year; or (d) an individual who is not an employee or owner of five percent (5%) or more of the voting stock of any business or professional entity to which the Company or its subsidiaries have made, during the Company's last full fiscal year, payments for property, goods or services in excess of five percent (5%) of the lesser of (i) the Company's consolidated gross revenues for its last full fiscal year, or (ii) such other entity's consolidated gross revenues for its last full fiscal year; or (e) an individual who is not a party to a personal service contract with the Company pursuant to which fees or other compensation received by the individual from the Company during his or her last full fiscal year (other than fees received as a member of the Company's Board of Directors or a committee thereof so as to require description of such contract under Item 404(a) of Regulation S-K promulgated by the Securities and Exchange Commission, as in effect on January 1, 1994; or (f) an individual who is not employed by a tax-exempt organization that received, during its last full fiscal year, contributions from the Company in excess of five percent (5%) of the lesser of (i) the consolidated gross revenues of the Company during its -6- last full fiscal year, or (ii) the contributions received by the tax-exempt organization during its last full fiscal year; or (g) an individual who has not carried out a transaction or did not have a relationship, during the Company's last full fiscal year, such that the specifics of a transaction would be required to be described under Item 404 of Regulation S-K promulgated by the Securities and Exchange Commission, as in effect on January 1, 1994; or (h) an individual who is not employed by a public company at which an executive officer of the Company serves as a member of the board of directors; or (i) an individual who has not had any relationship described in paragraphs (a) - (h) with any corporation, the majority of the voting stock of which is owned directly or indirectly, through one or more subsidiaries, by the Company; or (j) an individual who is not a member of the immediate family of any person described in paragraphs (a) - (i). For these purposes, an individual's immediate family shall include such individual's spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-laws, and brothers and sisters-in-law. The term "independent director" shall have no legal significance under applicable corporate or securities law or in any respect other than for the purposes of this Bylaw. No inference shall be drawn that a director is "not independent," "interested," or "a party to a contract or transaction" or has a "financial interest" in any contract or transaction within the meaning of any applicable corporate or securities law, and no director shall be disqualified from taking action or refraining from acting on any matter coming before the Board of Directors by reason of his or her status as an independent director under this Bylaw. Nominations of persons for election to the Board of Directors of the corporation may be made by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for below, -7- who shall be entitled to vote for the election of Directors at the meeting and who complies with the notice procedures set forth below. Nominations by stockholders shall be made pursuant to notice in writing to the Nominating Committee of the corporation, delivered to or mailed and received at the principal office of the corporation no [earlier than the January 1 and no] later than the February 15 preceding the annual meeting. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election as a Director all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (b) as to,the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder and also which are owned of record by such stockholder and (iii) documentary support for such claim of beneficial ownership; (c) as to the beneficial owner, if any, on whose behalf the nomination is made, (i) the name and address of such person, (ii) the class and number of shares of the corporation which are beneficially owned by such person and (iii) documentary support for such claim of beneficial ownership and (d), a description of all arrangements or understandings between the stockholder giving notice, the beneficial owner and each nominee and any other person or persons (naming such person or persons) relating to the nomination to be made or resulting directorship. The Nominating Committee shall determine whether a stockholder nomination was made in accordance with the procedures prescribed herein and whether the stockholder's nominee should be recommended as a member of the slate of nominees to be proposed at the annual meeting, and the Nominating Committee may disregard any nomination not made in accordance with these Bylaws. The Chairman of the meeting shall not nominate for election to the Board of Directors any stockholder nominee who has been disregarded by the Nominating Committee. -8- POWERS OF DIRECTORS 6. The Board of Directors shall have all such powers as may be exercised by the Corporation, subject to the provisions of the statutes, the Certificate of Incorporation, and the Bylaws. MEETINGS OF DIRECTORS 7. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board of Directors, or as may be specified by the Chief Executive Officer in the call of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board of Directors and special meetings may be held at any time upon the call of two (2) Directors or of the Chief Executive Officer, by oral, telegraphic or written notice duly served or sent or mailed to each Director not less than five (5) days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Meetings may be held at any time without notice if all the Directors are present or if those not present waive notice of the meeting in writing. (Telephone Participation in Meetings) Members of the Board of Directors (or any committees thereof) may participate in a meeting of the Board of Directors (or of such committees) by means of conference telephone or other communications equipment via which all persons participating can hear each other. Such participation in the substantive discussion and determinations of a meeting shall constitute presence in person at such meeting. -9- A majority of the Directors shall constitute a quorum, but a smaller number may adjourn any meeting from time to time without further notice until a quorum is secured. OFFICERS OF THE COMPANY 8. The officers of the Company shall be a Chairman of the Board of Directors, a President, one or more vice presidents (with such duties and titles as may be assigned to them), a secretary, a treasurer, one or more assistant vice presidents (with such duties and titles as may be assigned to them), and such other officers as may from time to time be chosen by the Board of Directors. The officers of the Company shall hold office until their successors are elected and qualified. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the affirmative vote of a majority of the whole Board of Directors. DUTIES OF THE CHAIRMAN 9. The Chairman presides at all meetings of the Board of Directors and at all meetings of the shareholders. It shall be his prerogative to see that all orders, resolutions, and policy determinations of the Board of Directors are carried into effect. He acts in a general oversight and advisory capacity with respect to the affairs of the Company. He provides leadership to the Board in reviewing and deciding upon matters which constitute major policies of the Company, what the Company does and the manner in which the Company business is conducted. DUTIES OF THE CHIEF EXECUTIVE OFFICER 9A. It shall be the duty of the Chief Executive Officer to carry into effect all orders, resolutions, and policy determinations of the Board of Directors; to execute all contracts and agreements; to keep the seal of the Company; and to sign and to affix the seal of the Company to any instrument -10- requiring the same, which seal shall be attested by the signature of the Secretary or Treasurer or Assistant Secretary or Assistant Treasurer. He shall have the general supervision and direction of the other officers of the Company. He shall submit a report of the operations of the Company for the year to the Directors at their meeting next preceding the annual meeting of the stockholders and to the stockholders at their annual meeting. He shall have the general duties and powers of supervision and management usually vested in the chief executive officer of a corporation. The Chief Executive may also hold another office with the Company. Accordingly, the duties and responsibilities of the position may be assigned by the Board of Directors to any Company officer. DUTIES OF THE PRESIDENT 9B. Unless otherwise decided by the Board of Directors, the President shall be the chief executive and administrative officer of the Company. It shall be his duty to see that all orders and policy determination conveyed by the Chairman are carried into effect. He shall have the general supervision and direction of the operations and administration of the affairs of the Company and general supervision and direction of the other officers and employees of the Company and shall see that their duties are properly performed. VICE PRESIDENT 10. The vice president or vice presidents, in the order of their seniority, shall be vested with all the powers and required to perform all the duties of the President in his absence or disability and shall perform such other duties as may be prescribed by the Board of Directors. -11- CHIEF EXECUTIVE PRO TEM 11. In the absence or disability of both the Chairman and President, the Board may appoint a chief executive pro tem. SECRETARY 12. The secretary shall attend all meetings of the corporation and the Board of Directors. He shall act as clerk thereof and shall record all of the proceedings of such meetings in a book kept for that purpose. He shall give proper notice of meetings of stockholders and Directors and shall perform such other duties as shall be assigned to him by the Chairman, President or the Board of Directors. TREASURER 13. The treasurer shall have custody of the funds and securities of the corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board, or Chairman or President, taking proper vouchers for such disbursements and shall render to the Chairman, President and Directors, whenever they may require it, an account of all his transactions as treasurer and of the financial condition of the corporation. He shall keep an account of stock and income notes registered and transferred in such manner and subject to such regulations as the Board of Directors may prescribe. He shall give the corporation a bond, if required by the Board of Directors, in such sum and in form and with security satisfactory to the Board of Directors for the faithful performance of the duties of his office and the restoration to the corporation, in case of his death, resignation, or removal -12- from office, of all books, papers, vouchers, money and other property of whatever kind in his possession, belonging to the corporation. He shall perform such other duties as the Board of Directors may from time to time prescribe or require. DUTIES OF OFFICERS MAY BE DELEGATED 14. In case of the absence or disability of any officer of the corporation or for any other reason deemed sufficient by a majority of the Board, the Board of Directors may delegate his powers or duties to any other officer or to any Director for the time being. The duties relating to the execution of contracts and agreements and the signing of instruments and affixing the seal of the Company and other matters may be delegated to any officer, from time to time, as the Board shall see fit. CERTIFICATES OF STOCK 15. Certificates of stock shall be signed by the Chairman, President or a vice president and either the treasurer, assistant treasurer, secretary or assistant secretary. If a certificate of stock be lost or destroyed, another may be issued in its stead upon proof of such loss or destruction and the giving of a satisfactory bond of indemnity, in an amount sufficient to indemnify the corporation against any claim. TRANSFER OF STOCK 16. All transfer of stock of the corporation shall be made upon its books upon presentation of the certificate or certificates therefor, properly endorsed by the holder of the shares in person or by his lawfully constituted representative, and upon surrender of such certificate or certificates of stock for cancellation. -13- CLOSING OF TRANSFER BOOKS 17. The Board of Directors shall have the power to close the stock transfer books of the corporation for a period not exceeding sixty, days preceding the date for any meeting of stockholders or for payment of any dividend or for the allotment of rights or when any change or conversion or exchange of capital stock shall go into effect, or for a period of not exceeding sixty days in connection with obtaining the consent of stockholders for any purpose. In lieu of so closing the books, the Board of Directors may fix in advance a date, not exceeding sixty days preceding the said above mentioned dates, as a record date for the determination of the stockholders entitled to notice of or to vote at any such meeting, and any adjournment thereof, or entitled to dividends or other rights hereinbefore mentioned, or to give such consent. STOCKHOLDERS OF RECORD 18. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. FISCAL YEAR 19. The fiscal year of the corporation shall begin on the first day in January in each year. DIVIDENDS 20. Dividends, to the extent not restricted by provisions of the corporation's Certificate of Incorporation or by subsisting agreements of the -14- corporation, may be declared by the Board of Directors and paid in cash, in property, or in shares of the capital stock of the corporation to the extent permitted by law, out of net assets in excess of its capital or out of its net profits, provided there shall be no impairment of the capital of the corporation represented by its issued and outstanding stock of all classes having a preference upon the distribution of assets. BOOKS AND RECORDS 21. The books, accounts, and records of the corporation may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the Bylaws or by resolution of the Directors. NOTICES 22. Notice required to be given under the provisions of these Bylaws to any Director, officer or stockholder shall not be construed to mean personal notice, but may be given in writing by depositing the same in a post office or letter box, in a postpaid sealed or unsealed wrapper, addressed to such stockholder, officer or Director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be thus mailed. In computing the number of days notice required for any meeting, the day on which the notice shall be deposited in the mail or sent by telegraph shall be excluded. WAIVER OF NOTICE 23. Any stockholder, officer, or Director may waive in writing, or by telegraph, any notice required to be given under these Bylaws, whether before or after the time stated therein. INDEMNIFICATION OF DIRECTORS AND OFFICERS 24. Paragraph (a). Right of Indemnification. The Corporation shall, to the fullest extent permitted by applicable law as then in effect, indemnify any person (the "indemnitee") who was or is involved in any manner (including, -15- without limitation, as a party or a witness) or was or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal administrative or investigative (including, without limitation, any action or proceeding by or in the right of the Corporation to procure a judgement in its favor) (a "Proceeding") by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, or of a partnership, joint venture, trust or other enterprise (including, without limitation, service with respect to any employee benefit plan), whether the basis of any such Proceeding is alleged action in an official capacity as director or officer or in any other capacity while serving as a director or officer, against all expenses, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) actually and reasonably incurred by him in connection with such Proceeding. Such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his heirs, executors, administrators and legal representatives. The right to indemnification conferred in this By-law shall include the right to receive payment of any expenses incurred by the indemnitee in connection with such Proceeding in advance of the final disposition of the Proceeding, consistent with applicable law as then in effect. All rights to indemnification conferred in this By-law, including rights to the advancement of expenses and the evidentiary, procedural and other provisions of this By-law, shall be contract rights. The Corporation may, by action of its Board of Directors, provide indemnification for employees, agents, attorneys and representatives of the Corporation with the same, or with more or less, scope and extent as herein provided for officers and directors. No amendment to the Restated Certificate of Incorporation or amendment or repeal of the By-laws -16- purporting to have the effect of modifying or repealing any of the provisions of this By-law in a manner adverse to the indemnitee shall abridge or adversely affect any right to indemnification or other similar rights and benefits with respect to any acts or omissions occurring prior to such amendment or repeal. This By-law shall be applicable to all Proceedings, whether arising from acts or omissions occurring before or after the adoption of this Bylaw. The phrases "this By-law" and "By-law" shall refer to "By-laws 24 and 24A," and for all purposes, except the corporate procedure required for amendment of the By-law, this By-law shall be considered as one By-law. Paragraph (b). By-Law Not Exclusive. The right of indemnification, including the right to receive payment in advance of expenses, conferred in this By-law shall not be exclusive of any other rights to which any person seeking indemnification may otherwise be entitled under any provision of the Restated Certificate of Incorporation, By-law, agreement, applicable corporate law and statute, vote of disinterested directors or stockholders or otherwise. The indemnitee is free to proceed under any of the rights or procedures available to him. Paragraph (c). Burden of Proof. In any determination, review of a determination, action, arbitration, or other proceeding relating to the right to indemnification conferred in this By-law, the Corporation shall have the burden of proof that the indemnitee has not met any standard of conduct or belief which may be required by applicable law to be applied in connection with a determination that the indemnitee is not entitled to indemnity and also the burden of proof on any of the issues which may be material to a determination that the indemnitee is not entitled to indemnification. Neither a failure to make such a determination of entitlement nor an adverse determination of entitlement to indemnity shall be a defense of the Corporation in an action or proceeding brought by the indemnitee or by or on behalf of the Corporation relating to indemnification or create any presumption that the indemnitee has -17- not met any such standard of conduct or belief or is otherwise not entitled to indemnity. If successful in whole or in part in such an action or proceeding, the indemnitee shall be entitled to be further indemnified by the Corporation for the expenses actually and reasonably incurred by him in connection with such action or proceeding. Paragraph (d). Advancement of Expenses. All reasonable expenses incurred by or on behalf of indemnitee in connection with any Proceeding shall be advanced from time to time to the indemnitee by the Corporation promptly after the receipt by the Corporation of a statement from the indemnitee requesting such advance, whether prior to or after final disposition of such Proceeding. Paragraph (e). Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any person who is, or may become an officer, director, employee, agent, attorney, trustee or representative (any of the foregoing being herein referred to as a "Representative") of the Corporation or, at the request of the Corporation, a Representative of another corporation or entity, against any expenses, liability or loss asserted against him or incurred by him in connection with any Proceeding in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such expense, liability or loss under the provisions of this By-law or otherwise. The Corporation may enter into contracts with any Representative of the Corporation, or any person serving as such at the request of the Corporation for another corporation or entity, in furtherance of the provisions of this By-law. Such contracts shall be deemed specifically approved and authorized by the stockholders of the Corporation and not subject to invalidity by reason of any interested directors. The Corporation may create a trust fund, grant a security -18- interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification of any person entitled thereto. Paragraph (f) Severability; Statutory Alternative. If any provision or provisions of this By-law shall be held to be invalid, illegal or unenforceable for any reason whatsoever (i) the validity, legality and enforceability of all of the remaining provisions of this By-law shall not in any way be affected or impaired thereby; and (ii) to the fullest extent possible, the remaining provisions of this By-law shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. In the event that the indemnitee elects, as an alternative to the procedures specified in this By-law, to follow one of the procedures authorized by applicable corporate law or statute to enforce his right to indemnification and notifies the Corporation of his election, the Corporation agrees to follow the procedure so elected by the indemnitee. If in accordance with the preceding sentence, the procedure therefor contemplated herein or the procedure elected by the indemnitee in any specific circumstances (or such election by the indemnitee) shall be invalid or ineffective in bringing about a valid and binding determination of the entitlement of the indemnitee to indemnification, the most nearly comparable procedure authorized by applicable corporate law or statute shall be followed by the Corporation and the indemnitee. 24A. Procedures; Presumptions and Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation, of the foregoing provisions of this By-law, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this By-law: -19- Section 1. Advancement of Expenses. The advancement or reimbursement of expenses to an indemnitee shall be made within 20 days after the receipt by the Corporation of a request therefor from the indemnitee. Such request shall reasonably evidence the expenses incurred or about to be incurred by the indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the indemnitee to repay the amounts advanced if it should ultimately be determined that the indemnitee is not entitled to be indemnified against such expenses. Section 2. Procedure for Determination of Entitlement to Indemnifica- tion. Section 2.l. To obtain indemnification (except with respect to the advancement of expenses), an indemnitee shall submit to the Chief Executive Officer or Secretary of the Corporation a written request, including such documentation and information as is reasonably available to the indemnitee and reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification (the "Supporting Documentation"). The Secretary of the Corporation shall promptly advise the Board of Directors in writing that the indemnitee has requested indemnification. The determination of the indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Corporation of the written request and Supporting Documentation. Section 2.2. The indemnitee's entitlement to indemnification shall be determined in one of the following ways: (a) by a majority vote of the Disinterested Directors (as hereinafter defined) (which term shall mean the Disinterested Director, if there is only one); (b) by a written opinion of the Independent Counsel (as hereinafter defined) if (i) a majority of the Disinterested Directors so directs; (ii) there is no Disinterested Director, or (iii) a Change of Control (as hereinafter defined) shall have occurred and the indemnitee so requests in which case the Disinterested Directors shall be deemed -20- to have so directed; (c) by the stockholders of the Corporation (but only if a majority of the Disinterested Directors determines that the issue of entitlement to indemnification should be submitted to the stockholders for their determination); or (d) as provided in Section 3 of this By-law. Section 2.3. In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 2.2 of this By-law, a majority of the Disinterested Directors shall select the Independent Counsel, but only an Independent Counsel to which the indemnitee does not reasonably object; provided, however, that if a Change of Control shall have occurred, the indemnitee shall select such Independent Counsel, but only an Independent Counsel to which the Board of Directors does not reasonably object. Section 3. Presumptions and Effect of Certain Proceedings. Except as otherwise expressly provided in this By-law, the indemnitee shall be presumed to be entitled to indemnification upon submission of a request for indemnification together with the Supporting Documentation, and thereafter in any determination or review of any determination, and in any arbitration, proceeding or adjudication the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section 2.2 of this By-law to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within 60 days after receipt by the Corporation of the request therefor together with the Supporting Documentation, the indemnitee shall be deemed to be entitled to indemnification. In either case, the indemnitee shall be entitled to such indemnification, unless (a) the indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (b) such indemnification is prohibited by law, in either case as finally determined by adjudication or, at the -21- indemnitee's sole option, arbitration (as provided in Section 4 of this By-law). The termination of any Proceeding, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contenders or its equivalent, shall not, of itself, adversely affect the right of the indemnitee to indemnification or create any presumption with respect to any standard of conduct or belief or any other matter which might form a basis for a determination that the indemnitee is not entitled to indemnification. With regard to the right to indemnification for expenses, (a) if and to the extent that the indemnitee has been successful on the merits or otherwise in any Proceeding, or (b) if a Proceeding was terminated without a determination of liability on the part of the indemnitee with respect to any claim, issue or matter therein or without any payments in settlement or compromise being made by the indemnitee with respect to a claim, issue or matter therein, or (c) if and to the extent that the indemnitee was not a party to the Proceeding, the indemnitee shall be deemed to be entitled to indemnification, which entitlement shall not be defeated or diminished by any determination which may be made pursuant to clauses (a), (b) or (c) of Section 2.2. The indemnitee shall be presumptively entitled to indemnification in all respects for any act, omission or conduct taken or occurring which (whether by condition or otherwise) is required, authorized or approved by any order issued or other action by any commission or governmental body pursuant to any federal statute or state statute regulating the Corporation or any of its subsidiaries by reason of its status as a public utility or public utility holding company or by reason of its activities as such. To the extent permitted by law, the presumption shall be conclusive on all parties with respect to acts, omissions or conduct of the indemnitee if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation or its subsidiary. No presumption adverse to an indemnitee shall be drawn with respect to any act, omission or conduct of the indemnitee if he acted in good faith and in a manner -22- he reasonably believed to be in or not opposed to the best interests of the Corporation or its subsidiary taken or occurring in the absence of, or inconsistent with, any order issued or action by any commission or governmental body. Section 4. Remedies of Indemnitee. Section 4.1. In the event that a determination is made pursuant to Section 2 of this By-law that the indemnitee is not entitled to indemnification under this By-law, (a) the indemnitee shall be entitled to seek an adjudication of his entitlement to such indemnification either, at the indemnitee's sole option, in (i) an appropriate court of the State of Delaware or any other court of competent jurisdiction or (ii) to the extent consistent with law, arbitration to be conducted by three arbitrators (or, if the dispute involves less than $100,000, by a single arbitrator) pursuant to the rules of the American Arbitration Association; (b) any such judicial Proceeding or arbitration shall be de novo and the indemnitee shall not be prejudiced by reason of such adverse determination; and (c) in any such judicial Proceeding or arbitration the Corporation shall have the burden of proof that the indemnitee is not entitled to indemnification under this By-law. Section 4.2. If a determination shall have been made or deemed to have been made, pursuant to Sections 2 or 3 of this By-law, that the indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination, unless (a) the indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (b) such indemnification is prohibited by law, in either case as finally determined by adjudication or, at the indemnitee's sole option, arbitration (as provided in Section 4.1 of this -23- By-law). In the event that (i) advancement of expenses is not timely made by the Corporation pursuant to this By-law or (ii) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 2 or 3 of this By-law, the indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligations to pay to the indemnitee such advancement of expense of indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of Delaware or any other court of competent jurisdiction, contesting the right of the indemnitee to receive indemnification hereunder due to the occurrence of a circumstance described in subclause (a) of this Section 4.2 or a prohibition of law (both of which are herein referred to as a "Disqualifying Circumstance"). In either instance, if the indemnitee shall elect, at his sole option, that such dispute shall be determined by arbitration (as provided in Section 4.1 of this By-law), the indemnitee and the Corporation shall submit the controversy to arbitration. In any such enforcement action or other proceeding whether brought by the indemnitee or the Corporation, indemnitee shall be entitled to indemnification unless the Corporation can satisfy the burden or proof that indemnification is prohibited by reason of a Disqualifying Circumstance. Section 4.3. The Corporation shall be precluded from asserting in any judicial Proceeding or arbitration commenced pursuant to this Section 4 that the procedures and presumptions of this By-law are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator or arbitrators that the Corporation is bound by all the provisions of this By-law. Section 4.4. In the event that the indemnitee, pursuant to this By-law, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this By-law, or is otherwise involved in any adjudication or arbitration with respect to his right to -24- indemnification, the indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any expenses actually and reasonably incurred by him if the indemnitee prevails in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that the indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by the indemnitee in connection with such judicial adjudication or arbitration shall be prorated accordingly. Section 5. Definitions. For purposes of indemnification under this By-law or otherwise. Section 5.1. "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in re- sponse to Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 20 percent or more of the combined voting power of the Corporation's then outstanding securitie without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such acquisition; (b) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which, members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (c) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new Director whose election or nomination for election by the Corporation's stockholders -25- was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. Section 5.2. "Disinterested Director" means a Director of the Corporation who is not or was not a material party to the Proceeding in respect of which indemnification is sought by the indemnitee. Section 5.3. "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent (a) the Corporation or the indemnitee in any manner or (b) any other party to the Proceeding giving rise to a claim for indemnification under this By-law. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the law of the State of Delaware, would have a conflict of interest in representing either the Corporation or the indemnitee in an action to determine the indemnitee's rights under this By-law. Section 6. Acts of Disinterested Directors. Disinterested Directors considering or acting on any indemnification matter under this By-law or under governing corporate law or otherwise may consider or take action as the Board of Directors or may consider or take action as a committee or individually or otherwise. In the event that Disinterested Directors consider or take action as the Board of Directors, one-third of the total number of Directors in office shall constitute a quorum. AMENDMENTS OF BYLAWS 25. These By-laws may be amended or altered by the vote of a majority of the whole Board of Directors at any meeting provided that notice of such proposed amendment shall have been given in the notice given to the Directors of -26- such meeting. Such authority in the Board of Directors is subject to the power of the stockholders to change or repeal any By-laws by a majority vote of the stockholders present and represented at any annual meeting or at any special meeting called for such purpose, and the Board of Directors shall not repeal or alter any By-laws, other than By-law 24A, adopted by the stockholders. -27- EX-10.32 3 0003.txt PURCHASE AGREEMENT WITH GLOBAL CROSSING STOCK PURCHASE AGREEMENT by and among GLOBAL CROSSING LTD., GLOBAL CROSSING NORTH AMERICA, INC. and CITIZENS COMMUNICATIONS COMPANY Dated as of July 11, 2000
TABLE OF CONTENTS Page ---- Article 1. Purchase and Sale.....................................................................................1 1.1 General...........................................................................................1 1.2 Delivery of the Shares............................................................................1 1.3 Purchase Price; Payment...........................................................................2 1.4 Post-Closing Adjustment...........................................................................3 1.5 Resignations......................................................................................5 1.6 Closing and Closing Date..........................................................................5 1.7 Taking of Necessary Action; Further Action........................................................5 Article 2. Representations and Warranties Relating to the Sellers................................................6 2.1 Organization and Standing.........................................................................6 2.2 Binding Agreement.................................................................................6 2.3 Absence of Violations or Required Consents........................................................6 2.4 Ownership of Stock................................................................................7 2.5 Entire Business...................................................................................8 2.6 Financial Information.............................................................................8 2.7 Title to Assets; Related Matters..................................................................9 2.8 Absence of Certain Changes, Events and Conditions.................................................9 2.9 Litigation.......................................................................................10 2.10 Insurance.........................................................................................10 2.11 Material Contracts................................................................................11 2.12 Permits and Licenses; Compliance with Law.........................................................11 2.13 Environmental Matters.............................................................................12 2.14 Employee Benefit Matters..........................................................................12 2.15 Labor Relations...................................................................................14 2.16 Intellectual Property.............................................................................14 2.17 Taxes.............................................................................................14 2.18 Commissions.......................................................................................15 2.19 Affiliate Transactions............................................................................15 2.20 Telephone Operations..............................................................................15 2.21 Long Distance Agreements..........................................................................18 Article 3. Representations and Warranties of the Buyer..........................................................18 3.1 Organization and Standing........................................................................18 3.2 Binding Agreement................................................................................18 3.3 Absence of Violations or Required Consents.......................................................18 3.4 Litigation.......................................................................................19 3.5 Commissions......................................................................................19 3.6 Financing........................................................................................19 3.7 Acquisition of Shares for Investment.............................................................19 Article 4. Covenants and Agreements.............................................................................20 4.1 Conduct of the Business Prior to Closing; Access.................................................20 4.2 Financing Commitments............................................................................24 4.3 Post-Closing Covenants and Agreements............................................................25 4.4 Cooperation......................................................................................27 4.5 Confidentiality..................................................................................30 4.6 Public Announcements.............................................................................30 4.7 No Solicitation..................................................................................30 4.8 No Additional Representations....................................................................30 4.9 Use of Global Crossing and Frontier Names........................................................31 4.10 Long Distance Agreements..........................................................................31 4.11 Transition Services...............................................................................32 4.12 Sublease of Premises in GCNA Building.............................................................34 4.13 Intercompany Accounts and Guaranties..............................................................35 4.14 Capital Expenditures..............................................................................35 4.15 Non-Compete.......................................................................................36 4.16 Transition Plan...................................................................................37 Article 5. Conditions to Obligations of the Buyer...............................................................38 5.1 Representations and Warranties...................................................................38 5.2 Performance by the Sellers.......................................................................38 5.3 Certificate......................................................................................38 5.4 Consents; No Objections..........................................................................38 5.5 No Proceedings or Litigation.....................................................................39 5.6 No Material Events...............................................................................39 Article 6. Conditions to Obligations of the Seller..............................................................39 6.1 Representations and Warranties...................................................................39 6.2 Performance by the Buyer.........................................................................39 6.3 Certificate......................................................................................39 6.4 Consents; No Objections..........................................................................40 6.5 No Proceedings or Litigation.....................................................................40 6.6 Purchase Price Adjustment Limitation.............................................................40 Article 7. Tax Matters..........................................................................................40 7.1 Liability for Taxes..............................................................................40 7.2 Tax Refunds......................................................................................41 7.3 Adjustment to Purchase Price.....................................................................42 7.4 Amended Returns..................................................................................42 7.5 Tax Returns......................................................................................42 7.6 Tax Contest Provisions...........................................................................43 7.7 Termination of Tax Allocation Agreements.........................................................44 7.8 Assistance and Cooperation.......................................................................44 7.9 Transfer and Conveyance Taxes....................................................................44 7.10 Global Crossing Options...........................................................................44 7.11 Carryback of Net Operating Losses.................................................................45 7.12 Survival..........................................................................................45 Article 8. Employee Benefit and Labor Matters...................................................................45 8.1 Continuation of Employee Benefits................................................................45 8.2 Termination of Participation in Employee Benefit Plans; Defined Benefit Pension Plans.........................................................................46 8.3 Defined Contribution Plan........................................................................47 8.4 Post-Retirement Benefits.........................................................................48 8.5 Collective Bargaining Agreements.................................................................49 8.6 WARN.............................................................................................49 8.7 Annual Incentive Compensation....................................................................49 Article 9. Indemnification......................................................................................50 9.1 Indemnification by the Sellers...................................................................50 9.2 Indemnification by the Buyer.....................................................................50 9.3 Limitations on Indemnification Claims and Liability..............................................50 9.4 Computation of Claims and Damages................................................................52 9.5 Notice of Claims.................................................................................52 9.6 Defense of Third Party Claims....................................................................53 9.7 Special Indemnification Procedures with Respect to Environmental Matters.........................54 9.8 Probable Liabilities and Assets Lists............................................................55 Article 10. Definitions.........................................................................................55 Article 11. Miscellaneous Provisions............................................................................68 11.1 Termination Rights................................................................................68 11.2 Expenses..........................................................................................68 11.3 Notices...........................................................................................68 11.4 Benefit and Assignment............................................................................70 11.5 Waiver............................................................................................70 11.6 Severability......................................................................................71 11.7 Amendment.........................................................................................71 11.8 Effect and Construction of this Agreement.........................................................71 11.9 Specific Performance..............................................................................71
INDEX OF ANNEXES AND SCHEDULES ANNEXES Annex I The Companies Annex II The Company Subsidiaries SCHEDULES Schedule 1.3 Performance Adjustment Calculation Methodology Schedule 4.11 Transition Services Disclosure Schedule STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement") made as of July 11, 2000 by and among Global Crossing Ltd., a company formed under the laws of Bermuda ("Global"), Global Crossing North America, Inc., a New York corporation and a wholly owned subsidiary of Global ("GCNA" and together with Global, the "Sellers"), and Citizens Communications Company, a Delaware corporation (the "Buyer"). W I T N E S S E T H : ------------------- WHEREAS, GCNA is the record and beneficial owner of all of the capital stock of certain corporations (the "Companies") that, together with their wholly owned subsidiaries, constitute the Frontier LEC Business (as hereinafter defined); and WHEREAS, the Sellers desire to sell to the Buyer all of the outstanding capital stock of the Companies (the "Sale") and the Buyer desires to purchase from GCNA at the Closing all of the then outstanding capital stock of the Companies, in each case upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, the respective Boards of Directors of the Sellers and the Buyer have each approved the Sale, the terms of this Agreement and the transactions contemplated hereby. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties, intending legally to be bound, agree as follows: [A list of defined terms is provided in Article 10 hereof] Article 1. Purchase and Sale. ----------------- 1.1 General. At the Closing (as defined in Section 1.6 hereof), and subject to the terms and conditions of this Agreement, GCNA agrees to, and Global agrees to cause GCNA to, sell, assign, convey and deliver to the Buyer, and the Buyer agrees to purchase, acquire and accept from GCNA, all of the outstanding shares of capital stock of the Companies as set forth in Annex I hereto (the "Shares"). 1.2 Delivery of the Shares. At the Closing, and subject to the terms and conditions of this Agreement, GCNA shall deliver to the Buyer certificates representing all of the Shares, duly endorsed in blank for transfer or accompanied by stock powers duly executed, with all necessary stock transfer stamps attached thereto and canceled, and such other instruments as shall reasonably be required to transfer to the Buyer all right, title and interest in and to the Shares, free and clear of any security interests, pledges, liens, charges, encumbrances, adverse claims, restrictions or defects in title. All such certificates, stock powers and instruments shall be in form and substance reasonably satisfactory to the Buyer. 1.3 Purchase Price; Payment. (a) The consideration for the sale of the Shares shall be the aggregate of (i) $ 3,650,000,000 (Three Billion, Six Hundred Fifty Million Dollars), minus (ii) the amount of the Combined Liabilities as of 11:59 p.m., New York City time, on the day immediately preceding the Closing Date (the "Liabilities Adjustment"), plus (if greater than or equal to zero) or minus (if less than zero) (iii) the amount of the Combined Working Capital as of 11:59 p.m., New York City time, on the day immediately preceding the Closing Date (the "Working Capital Adjustment"), minus (iv) the Performance Adjustment set forth in Section 1.3(d), if any, subject to adjustment pursuant to Section 1.4 (the "Purchase Price"). (b) On or before ten days prior to the Closing, the Sellers shall deliver to the Buyer a statement setting forth the amounts estimated in good faith by the Company to be the amounts of the Liabilities Adjustment, the Working Capital Adjustment and the Performance Adjustment, if any, as of the Closing Date (collectively, the "Estimated Adjustment") and the estimated amount of the aggregate Purchase Price based upon the Estimated Adjustment (the "Closing Cash Payment"). (c) At the Closing, and subject to the terms and conditions of this Agreement, the Buyer shall pay to GCNA the Closing Cash Payment by wire transfer in immediately available funds to an account or accounts designated by GCNA not later than three Business Days prior to the Closing. (d) The "Performance Adjustment," if any, shall be the largest of (x) the Access Line Deficiency, if any, (y) the Revenue Deficiency, if any, and (z) the EBITDA Deficiency, if any. For purposes of this Section 1.3(d), (i) The "Access Line Deficiency" means (A) the difference between the number of Access Lines billed by the Companies and Company Subsidiaries as of the end of the month most recently completed prior to the Closing Date and 1,071,644 multiplied by (B) $3,294; provided that there shall be no Access Line Deficiency unless the number of Access Lines billed by the Companies and Company Subsidiaries as of such date is less than 1,071,644; (ii) The "Revenue Deficiency" means (A) the difference between the pro forma revenue for the Frontier LEC Business (calculated as provided in Schedule 1.3 hereto) for the 12 calendar months ending as of the end of the month most recently completed prior to the Closing Date (the "Pre-Closing Pro Forma Revenue) and $805,204,000 multiplied by (B) 4.38; provided that there shall be no Revenue Deficiency unless the Pre-Closing Pro Forma Revenue is less than $805,204,000; and (iii) The "EBITDA Deficiency" means (A) the difference between the pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Frontier LEC Business (excluding non-recurring revenues and expenses resulting from assets and liabilities being put on the balance sheet in the process of determining the amount of Combined Liabilities or Combined Working Capital and calculated as provided in Schedule 1.3 hereto) for the 12 calendar months ending as of the end of the month most recently completed prior to the Closing Date (the "Pre-Closing Pro Forma EBITDA") and $386,769,000 multiplied by (B) 9.13; provided that there shall be no EBITDA Deficiency unless the Pre-Closing Pro Forma EBITDA is less than $386,769,000. (e) Notwithstanding anything in this Agreement to the contrary, other than with respect to the calculation of the Performance Adjustment (which shall be calculated without consideration of whether any matter reflected in such adjustment also may be reflected in any other adjustment or payment), in no event shall the Buyer be entitled to receive any duplicate decrease to the Purchase Price under any adjustment provision hereof or payment under any other Section of this Agreement relating to any single matter. 1.4 Post-Closing Adjustment. (a) Not later than 75 days after the Closing (or such later date on which such statement reasonably can be prepared and delivered in light of the compliance of the Buyer with its obligations set forth in next two succeeding sentences), the Sellers shall cause to be prepared and shall deliver to the Buyer (i) a statement of the actual amount of the Combined Liabilities as of 11:59 p.m., New York City time, on the day immediately preceding the Closing Date, the actual amount of the Combined Working Capital as of 11:59 p.m., New York City time, on the day immediately preceding the Closing Date, the actual amount of the Performance Adjustment, if any, and the actual amount of the Purchase Price derived thereby (the "Closing Statement") to be prepared in conformity with GAAP consistently applied and on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) and except as specifically required by the definitions of "Combined Liabilities", "Combined Working Capital" and "Performance Adjustment", (ii) a determination of the amount (the "Proposed Adjustment") by which the Purchase Price as then determined by the Sellers is less than or greater than the Closing Cash Payment (the amount of such excess or shortfall, as finally determined, is referred to herein as the "Adjustment"), (iii) a statement of the Probable Liabilities prepared in accordance with Section 9.8 (the "Probable Liabilities Statement") and (iv) a statement of the Probable Assets prepared in accordance with Section 9.8 (the "Probable Assets Statement"), in each case certified by PricewaterhouseCoopers LLP, or other independent accountants for the Sellers. The Buyer shall provide the Sellers and their independent accountants access at all reasonable times to the relevant personnel, properties, books and records of the Frontier LEC Business in the possession of the Buyer and its Affiliates (including, without limitation, the Companies and Company Subsidiaries) for such purposes and to assist the Sellers and their independent accountants in preparing the Closing Statement, the Probable Liabilities Statement and the Probable Assets Statement. The Buyer's assistance shall include, without limitation, the closing of the books of the Frontier LEC Business as of the Closing, the preparation of schedules supporting the amounts set forth in the general ledger and other books and records of the Frontier LEC Business, and such other assistance as the Sellers or their independent accountants may reasonably request. (b) During the 75-day period following the delivery by the Sellers of the Closing Statement, the Proposed Adjustment, the Probable Liabilities Statement and the Probable Assets Statement referred to in Section 1.4(a) (or such longer period during which such statement and adjustment reasonably can be reviewed in light of the compliance of the Sellers with their obligations set forth in next two succeeding sentences), the Buyer and KPMG LLP, independent accountants for the Buyer (or another nationally recognized accounting firm selected by the Buyer that is not also retained by the Sellers), will be permitted to review the working papers of the Sellers and their independent accountants relating to the preparation of the Closing Statement, the Proposed Adjustment, the Probable Liabilities Statement and the Probable Assets Statement. The Sellers shall provide the Buyer and its independent accountants access at all reasonable times to the relevant personnel, properties, books and records of the Frontier LEC Business in the possession of the Sellers and their Affiliates for such purposes and to assist the Buyer and its independent accountants in reviewing the Closing Statement, the Probable Liabilities Statement and the Probable Assets Statement. The Sellers' assistance shall include, without limitation, the preparation of schedules supporting the amounts set forth in the general ledger and other books and records of the Frontier LEC Business, and such other assistance as the Buyer or its independent accountants may reasonably request. (c) Unless the Buyer delivers written notice to the Sellers of its disagreement with the Closing Statement and the Proposed Adjustment, the Probable Liabilities Statement and/or the Probable Assets Statement within 75 days following delivery by the Sellers of the Closing Statement, the Proposed Adjustment, the Probable Liabilities Statement and the Probable Assets Statement, the Buyer will be deemed to have accepted and agreed to the Closing Statement and Proposed Adjustment, the Probable Liabilities Statement and/or the Probable Assets Statement, and such Adjustment, the Probable Liabilities List and/or the Probable Assets List shall be final and binding. If, within such 75-day period, the Buyer notifies the Sellers that it disagrees with the Closing Statement and the Proposed Adjustment, the Probable Liabilities Statement and/or the Probable Assets Statement, and the Sellers and the Buyer cannot agree with respect to the Closing Statement and the Proposed Adjustment, the Probable Liabilities Statement and/or the Probable Assets Statement within 14 days of the notice of disagreement provided by the Buyer to the Sellers, then the determination shall be submitted for resolution promptly to an independent nationally recognized accounting firm jointly selected by the Sellers and the Buyer (the "Neutral Auditor"), whose determination (the "Neutral Auditor Determination") shall be instructed by the parties to be made within 30 days and be final and binding upon all parties hereto. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor will be borne (i) by the Buyer in the same proportion that the aggregate amount of all of the objections on the Closing Statement, the Probable Liabilities Statement and/or the Probable Assets Statement that are submitted by the Buyer to the Neutral Auditor and are unsuccessfully disputed by the Buyer, bear to the total amount of all of such objections and (ii) by the Sellers in the same proportion that the aggregate amount of all of the objections on the Closing Statement, the Probable Liabilities Statement and/or the Probable Assets Statement that are submitted by the Buyer to the Neutral Auditor and are successfully disputed by the Buyer, bear to the total amount of all of such objections. The Buyer and the Sellers shall reimburse the other to the extent the other pays more than the amount so required pursuant to the preceding sentence. In the event of a Neutral Auditor Determination, the Neutral Auditor shall deliver a certificate to each of the Sellers and the Buyer setting forth the amount of the Adjustment, the Probable Liabilities List and/or the Probable Assets List. (d) If the Adjustment provides that the Closing Cash Payment is greater than the Purchase Price as finally determined, then the Purchase Price shall be reduced to the amount as so determined and GCNA shall pay to the Buyer an amount equal to the amount of the Adjustment. If the Adjustment provides that the Closing Cash Payment is less than the Purchase Price as finally determined, then the Purchase Price shall be increased to the amount as so determined and the Buyer shall pay to GCNA an amount equal to the amount of the Adjustment. If the Adjustment provides that the Closing Cash Payment was equal to the Purchase Price as finally determined, then no further payments with respect to the Purchase Price shall be made. Any payment required to be made by GCNA or the Buyer pursuant to this Section 1.4(d) shall bear interest from the Closing Date through the date of payment at a rate of interest equal to the prime rate per annum publicly announced from time to time by The Chase Manhattan Bank, N.A. at its principal office in New York City and shall be made by wire transfer in immediately available funds to an account or accounts designated by the party to receive such payment. 1.5 Resignations. Prior to or at the Closing, the Sellers will, upon the request of the Buyer, obtain the removal or resignation, effective as of the Closing, of each of the directors and officers of the Companies and Company Subsidiaries so requested. 1.6 Closing and Closing Date. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been terminated pursuant to Section 11.1 hereof, the closing (the "Closing") of the transactions herein contemplated shall take place ten days following the satisfaction of the conditions set forth in Sections 5.4(a) and 6.4(a) hereof, and the satisfaction or waiver of the other conditions set forth in Articles 5 and 6 hereof, other than those that are satisfied on the Closing Date, or at such other time and date as the Sellers and the Buyer shall agree (such time and date being referred to herein as the "Closing Date"), at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, or at such other place as the Sellers and the Buyer shall agree. At the Closing, each of the parties hereto shall take, or cause to be taken, all such actions and deliver, or cause to be delivered, all such documents, instruments, certificates and other items as may be required under this Agreement or otherwise, in order to perform or fulfill all covenants and agreements on its part to be performed at or prior to the Closing Date. 1.7 Taking of Necessary Action; Further Action. Each of the parties shall use its respective reasonable best efforts to take all such action as may be necessary or appropriate in order to effectuate the Closing as promptly as possible. If, on or at any time after the Closing Date, any further reasonable action is necessary or desirable to carry out the purposes of this Agreement and to vest the Buyer with full right, title and possession to all assets, property, rights, privileges, powers, and franchises of the Frontier LEC Business, the Sellers shall take, and shall ensure that the officers of the Companies are fully authorized, in the name of the Companies or otherwise, to take, and shall take, all such lawful and necessary action. Article 2. Representations and Warranties Relating to the Sellers. ------------------------------------------------------ Each of the Sellers represents and warrants to the Buyer as follows: 2.1 Organization and Standing. (a) Each of the Sellers is a company or a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its organization, and has all requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. (b) Each of the Companies and their respective Subsidiaries (the "Company Subsidiaries") is a corporation duly incorporated, validly existing, and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. Each of the Companies and the Company Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state in which the operation of its business or ownership of its assets makes such qualification necessary, except where the failure to so qualify or be in good standing would not reasonably be expected to have a Material Adverse Effect. 2.2 Binding Agreement. Each of the Sellers has all requisite corporate power and authority to enter into this Agreement, to execute and deliver this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Sellers and the consummation by the Sellers of their obligations hereunder have been duly and validly authorized by all necessary corporate and stockholder action on the part of the Sellers. This Agreement has been duly executed and delivered on behalf of the Sellers and, assuming the due authorization, execution and delivery by the Buyer, constitutes a legal, valid and binding obligation of each of the Sellers enforceable in accordance with its terms. 2.3 Absence of Violations or Required Consents. Except as set forth in Section 2.3 of the Disclosure Schedule and, in the case of clauses (b), (c) and (d), except for such violations, breaches, defaults, consents, approvals, authorizations, orders, actions, registrations, filings, declarations, notifications and Encumbrances that would not reasonably be expected to have a Material Adverse Effect or materially impair or delay the consummation of the transactions contemplated hereby, the execution, delivery and performance by the Sellers of this Agreement do not and will not (a) violate or result in the breach or default of any provision of Global's memorandum of association or bye-laws or the certificates of incorporation or by-laws of GCNA, the Companies or the Company Subsidiaries, (b) violate any Law or Governmental Order applicable to either Seller or any of the Companies or the Company Subsidiaries or any of their respective properties or assets, (c) except for the Required Consents, require any consent, approval, authorization or other order of, action by, registration or filing with or declaration or notification to any Governmental Authority or any other Person or (d) result in any violation or breach of, constitute a default (or event which with the giving of notice, or lapse of time or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Sellers', the Companies' or the Company Subsidiaries' respective assets, or result in the imposition or acceleration of any payment, time of payment, vesting or increase in the amount of compensation or benefit payable, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license or permit, or franchise to which either Seller or any Company or Company Subsidiary is a party or by which their respective assets are bound. 2.4 Ownership of Stock. (a) GCNA is the record and beneficial owner of all of the issued and outstanding shares of capital stock of each of the Companies. (b) One of the Companies, Frontier Subsidiary Telco Inc. ("FSTI"), or one or more of the other Company Subsidiaries wholly owned by FSTI, is the record and beneficial owner of all of the issued and outstanding shares of capital stock of each of the Company Subsidiaries. The issued and outstanding shares of capital stock of each of the Company Subsidiaries, and the record owners thereof, are set forth in Annex II hereto. (c) Other than this Agreement, the shares of capital stock identified in Annex I and Annex II hereto, and rights or interests created by or suffered to exist by the Buyer, there are no outstanding options, warrants or other rights of any kind relating to the sale, issuance or voting of any shares of capital stock or other ownership interests in any of the Companies or Company Subsidiaries or any securities convertible into or evidencing the right to purchase any shares of capital stock or other ownership interests in any of the Companies or Company Subsidiaries. (d) Upon the consummation of the Sale at the Closing as contemplated by this Agreement, the Sellers will deliver to the Buyer good title to the Shares free and clear of any security interests, pledges, liens, charges, encumbrances, adverse claims, restrictions or defects in title, other than (i) security interests, pledges, liens, charges, encumbrances, claims or restrictions created by or suffered to exist by the Buyer and (ii) requirements of federal and state securities Laws and utilities, telecommunications and other Laws respecting limitations on the subsequent transfer thereof. (e) Except as set forth in Section 2.4 of the Disclosure Schedule, other than the Company Subsidiaries, none of the Companies or Company Subsidiaries owns any shares of capital stock or other ownership interests in any other Person or any options, warrants or other securities, or other rights of any kind, convertible into or evidencing the right to purchase any shares of capital stock or other ownership interests in any other Person. 2.5 Entire Business. Except as disclosed in Section 2.5 of the Disclosure Schedule and except for such matters that are not material to the Frontier LEC Business (and, in each case, such exceptions being subject to (i) an obligation of the Sellers to use their reasonable best efforts to effect the actions required by Section 2.5 of the Disclosure Schedule prior to the Closing and (ii) the obligations of the Sellers pursuant to Section 1.7 to the extent that any such required actions have not been effected prior to the Closing), the Sellers' ownership of the Frontier LEC Business is evidenced solely by the Shares and the sale, assignment, conveyance and delivery of the Shares to the Buyer or its permitted assignee pursuant to this Agreement will transfer all of the Sellers' and their Affiliates' ownership interests comprising the Frontier LEC Business. 2.6 Financial Information. (a) The (i) business segment information for the Frontier LEC Business (identified as "Local Communications Services") (x) for the three fiscal years ended December 31, 1996, 1997 and 1998 included in the audited consolidated financial statements of GCNA (formerly named Frontier Corporation) incorporated by reference in GCNA's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and (y) for the three-month periods and nine-month periods ended September 30, 1998 and 1999 included in the unaudited consolidated financial statements of GCNA included in GCNA's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999; (ii) segment financial data for the Frontier LEC Business (identified as "Incumbent Local Exchange Carrier Services") set forth in Note 19 to the audited consolidated financial statements of Global included in Global's Annual Report on Form 10-K for the fiscal year ended December 31, 1999; and (iii) business segment information for the Frontier LEC Business (identified as "Incumbent Local Exchange Carrier Services") for the three-month period ended March 31, 2000 included in the unaudited consolidated financial statements of Global included in Global's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000 (in each case subject to the information set forth in the notes to such financial statements) fairly state in all material respects in relation to the basic financial statements taken as a whole the financial information or data set forth therein (subject, in the case of unaudited interim financial statements, to normal year-end adjustments) and have been prepared in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes to such financial statements). (b) The Sellers have furnished to the Buyer the financial statements of certain of the Companies and Company Subsidiaries contained in filings with PUCs under applicable regulatory Laws as listed in Section 2.6 of the Disclosure Schedule (the "Regulatory Financial Statements"). The Regulatory Financial Statements have been prepared based on the books and records of the relevant Company or Company Subsidiary in all material respects. Such books and records have been maintained in all material respects in accordance with the Uniform System of Accounts, GAAP and, where required by Law, the applicable regulations of the FCC and relevant PUCs; however, because each such Company or Company Subsidiary represents only a portion of a larger entity, the Regulatory Financial Statements are based on the extensive use of estimates and allocations. The Sellers believe that these estimates and allocations have been performed on a reasonable basis consistent in all material respects with the Uniform System of Accounts, GAAP and, where required by Law, the applicable regulations of the FCC and relevant PUCs. 2.7 Title to Assets; Related Matters. Except for Permitted Exceptions or as disclosed in Section 2.7 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) the Companies and the Company Subsidiaries have good, valid and marketable title (as measured in the context of their current uses) to, or, in the case of leased or subleased assets or other possessory interests, valid and subsisting leasehold or other possessory interests (as measured in the context of their current uses) in, or otherwise have the right to use, all of the assets of the Frontier LEC Business, free and clear of all Encumbrances (except for any assets sold or otherwise disposed of, or with respect to which the lease, sublease or other right to use such asset has expired or has been terminated, in each case after the date hereof solely to the extent permitted under Section 4.1(a) hereof), (ii) such assets constitute all the assets and rights necessary for the operation of the Frontier LEC Business as currently conducted, including, without limitation, all interoffice network facilities and related electronic equipment used in the Frontier LEC Business, (iii) the Real Property and Equipment are in good operating condition and repair and maintained in accordance with customary procedures of the Frontier LEC Business taking into account the age thereof and (iv) to the knowledge of the Sellers, there are no contractual or legal restrictions to which either Seller or any of the Companies or Company Subsidiaries is a party or by which the Real Property is otherwise bound that preclude or restrict the Companies' or Company Subsidiaries' ability to use the Real Property for the purposes for which it is currently being used. 2.8 Absence of Certain Changes, Events and Conditions. Since December 31, 1999, except as otherwise provided in or contemplated by this Agreement or as disclosed in Section 2.8 of the Disclosure Schedule and, with respect to clauses (a), (b), (d), (f), (g) and (h) (to the extent clause (h) refers to clause (a), (b), (d), (f) or (g)), except for such matters that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) other than in the ordinary course of business consistent with past practice, neither Seller nor any Company or Company Subsidiary has sold, transferred, leased, subleased, licensed, encumbered or otherwise disposed of any assets of the Frontier LEC Business, other than the sale of obsolete Equipment and transfers of cash; (b) (i) neither Seller nor any Company or Company Subsidiary has granted any increase, or announced any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable to any of the officers or employees of the Frontier LEC Business, including, without limitation, any increase or change pursuant to any Employee Benefit Plan, or (ii) established, increased or accelerated the payment or vesting of any benefits under any Employee Benefit Plan with respect to officers or employees, in either case except (A) as required by Law, (B) that involve only increases consistent with the past practices of the Frontier LEC Business, (C) that involve only increases in the ordinary course of business, (D) as required under any existing agreement or arrangement or (E) that involve increases related to promotions; (c) neither Seller nor any Company or Company Subsidiary has made any material change in any method of accounting or accounting practice or policy used by the Sellers, the Companies or the Company Subsidiaries with respect to the Frontier LEC Business, including, without limitation, material changes in assumptions underlying or methods of calculating bad debt, contingency or other reserves, or notes or accounts receivable write-offs, or in corporate allocation methodology, in each case other than changes required by Law or under GAAP; (d) neither Seller nor any Company or Company Subsidiary has suffered any casualty loss or damage with respect to any assets of the Frontier LEC Business, whether or not covered by insurance; (e) there has not been any Material Adverse Effect; (f) the Frontier LEC Business has been conducted only in the ordinary and usual course consistent with past practice; (g) neither Seller nor any Company or Company Subsidiary has compromised, settled, granted any waiver or release relating to, or otherwise adjusted any Action, Indebtedness or any other claims or rights of the Frontier LEC Business; and (h) neither Seller nor any Company or Company Subsidiary has entered into any agreement, contract, commitment or arrangement to do any of the foregoing. 2.9 Litigation. Except as disclosed in Section 2.9 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, as of the date hereof, (i) there are no Actions against either Sellers or any Company or Company Subsidiary pending, or, to the knowledge of the Sellers, threatened to be brought by or before any Governmental Authority, in each case with respect to the Frontier LEC Business, (ii) neither Seller nor any Company or Company Subsidiary is subject to any Governmental Order (nor, to the knowledge of the Sellers, are there any such Governmental Orders threatened to be imposed by any Governmental Authority), in each case with respect to the Frontier LEC Business and (iii) there is no Action pending, or, to the knowledge of the Sellers, threatened to be brought before any Governmental Authority, that seeks to question, delay or prevent the consummation of the transactions contemplated hereby. 2.10 Insurance. Except as set forth in either Section 2.10 or Section 2.14 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) all insurance policies to which any Company or Company Subsidiary is a party or under which such Company or Company Subsidiary is covered as an additional named insured or otherwise (or replacement policies therefor) are in full force and effect, and the related Seller or such Company or Company Subsidiary has paid all premiums due and is not in default, (ii) no notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the related Seller or such Company or Company Subsidiary and (iii) neither Seller nor any Company or Company Subsidiary has been refused insurance with respect to the Frontier LEC Business, nor has coverage with respect to the Frontier LEC Business been previously canceled or materially limited, by an insurer to which a Seller or such Company or Company Subsidiary has applied for such insurance, or with which a Seller or such Company or Company Subsidiary has held insurance, within the last three years. 2.11 Material Contracts. Except as set forth in Section 2.11 of the Disclosure Schedule and except for such matters which would not reasonably be expected to have a Material Adverse Effect, (i) Section 2.11 of the Disclosure Schedule sets forth all Material Contracts as of the date hereof, (ii) each agreement, contract, policy, plan, mortgage, understanding, arrangement or commitment of any Company or Company Subsidiary that is intended to be binding upon the parties thereto is legal, valid and binding on the Company or Company Subsidiary party thereto and, to the knowledge of the Sellers, the other parties thereto, enforceable in accordance with the terms thereof, (iii) no Company or Company Subsidiary is in default under any such agreement, contract, policy, plan, mortgage, understanding, arrangement or commitment and (iv) to the knowledge of the Sellers, no other party to any such agreement, contract, policy, plan, mortgage, understanding, arrangement or commitment has breached or is in default thereunder. 2.12 Permits and Licenses; Compliance with Law. (a) Except as disclosed in Section 2.12 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) the Companies and Company Subsidiaries currently hold all the permits, licenses, authorizations, certificates, exemptions and approvals of Governmental Authorities or other Persons including, without limitation, Environmental Permits, necessary for the current operation and the conduct (as it is being conducted prior to the Closing Date) of the Frontier LEC Business (collectively, "Permits"), and all Permits are in full force and effect, (ii) neither Seller nor any Company or Company Subsidiary has received any written notice from any Governmental Authority revoking, canceling, rescinding, materially modifying or refusing to renew any Permit and (iii) the Sellers and the Companies and Company Subsidiaries are in compliance with the requirements of all Permits. (b) Except as disclosed in Section 2.12 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) the Sellers, the Companies and the Company Subsidiaries are in compliance with all Laws (including, without limitation, with respect to affiliate transactions) and Governmental Orders applicable, to the knowledge of the Sellers, to the conduct of the Frontier LEC Business as it is being conducted prior to the Closing Date and (ii) neither Seller nor any Company or Company Subsidiary has been charged since July 1, 1997 by any Governmental Authority with a violation of any Law or any Governmental Order relating to the conduct of the Frontier LEC Business which charge remains unresolved. (c) Except as disclosed in Section 2.12 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) each of the Companies and Company Subsidiaries maintains effective tariffs for services that they offer that are subject to tariff requirements, (ii) each of the Companies and Company Subsidiaries offers its tariffed services in a manner consistent with the filed tariff, (iii) other than orders and other requirements of Law applicable generally to local exchange carriers or another subset of carriers, no order or other requirement of Law has been received by a Company or Company Subsidiary concluding that its tariff is unlawful, (iv) other than orders and other requirements of Law applicable generally to local exchange carriers or another subset of carriers, no order or other requirement of Law has been received by a Company or Company Subsidiary since December 31, 1999 suspending a tariff, which suspension remains in effect as of the date hereof and (v) each Company and Company Subsidiary with a tariff in effect has taken steps in the ordinary course of business to maintain the effectiveness of its tariffs and to enforce applicable terms and conditions in a manner that is not unreasonably discriminatory. 2.13 Environmental Matters. Except as disclosed in Section 2.13 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, to the knowledge of the Sellers, (i) Hazardous Materials have not been Released on any Real Property except in compliance with applicable Law; (ii) there have been no events related to the Companies, the Company Subsidiaries or the Real Property that would reasonably be expected to give rise to liability under any Environmental Law; (iii) the Sellers, the Companies and the Company Subsidiaries are now, and have for the past three years been, in compliance with all applicable Environmental Laws relating to the Frontier LEC Business and there are no extant conditions that would reasonably be expected to constitute an impediment to such compliance in the future; (iv) the Sellers, the Companies and the Company Subsidiaries have disposed of all wastes containing Hazardous Materials arising from or otherwise relating to the Frontier LEC Business, in compliance with all applicable Environmental Laws (including the filing of any required reports with respect thereto) and Environmental Permits; (v) there are no pending or threatened Environmental Claims against the Sellers, the Companies or the Company Subsidiaries relating to the Real Property or the operations of the Frontier LEC Business; (vi) there is no environmental remediation or other environmental response occurring on any Real Property (including any easements, rights-of-way or other possessory interests in the real property of others) nor has any Company or Company Subsidiary issued a request for proposal or otherwise requested an environmental contractor to begin plans for any such environmental remediation or other environmental response; and (vii) no Company or Company Subsidiary has received any notice, or has knowledge of any circumstances related to liability, under CERCLA or any analogous state law. 2.14 Employee Benefit Matters. The Sellers have delivered or made available to the Buyer copies of all Employee Benefit Plans, which plans are set forth in Section 2.14 of the Disclosure Schedule. Except as set forth in Section 2.14 of the Disclosure Schedule, all such Employee Benefit Plans are in compliance with the terms of the applicable plan and the requirements prescribed by applicable law currently in effect with respect thereto, and each Seller and each of the Companies and Company Subsidiaries has performed in all respects all obligations required to be performed by it under, where any such noncompliance or nonperformance would be reasonably expected to result in liability that would have a Material Adverse Effect. The pool of Union Employees who are potentially eligible to qualify for Post-Retirement Welfare Benefits is frozen. Neither Seller nor any Company or Company Subsidiary has incurred, and, to the knowledge of the Sellers, no event, transaction or condition has occurred or exists which is reasonably expected to result in the occurrence of, any liability to the Pension Benefit Guaranty Corporation (other than contributions to the plan and premiums to the Pension Benefit Guaranty Corporation, which in either event are not in default) or any "withdrawal liability" within the meaning of Section 4201 of ERISA, or any other liability pursuant to Title I or IV of ERISA or the penalty, excise tax or joint and several liability provisions of the Code relating to employee benefit plans, in any such case relating to any Employee Benefit Plan or any pension plan maintained by any company that would be treated as a single employer with the Sellers, the Companies or the Company Subsidiaries under Section 4001 of ERISA or Section 414 of the Code (an "ERISA affiliate"), where individually or in the aggregate, in any of such events, any such liability would be reasonably expected to have a Material Adverse Effect. Except as set forth in Section 2.14 of the Disclosure Schedule, each Employee Benefit Plan intended to be "qualified" within the meaning of Section 401(a) of the Code has received a favorable determination letter that such plan is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code, the Sellers have not received any notices from the Internal Revenue Service that any such plan is not so qualified, and, to the knowledge of the Sellers, each such plan is so qualified in form and in operation. Except as set forth in Section 2.14 of the Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or officer of any Company or Company Subsidiary or any ERISA affiliate to severance pay, unemployment compensation or other payment, except as expressly provided in this Agreement, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer. There are no pending, or, to the knowledge of the Sellers, threatened or anticipated claims by or on behalf of any Employee Benefit Plan, by any employee or beneficiary covered under any such plan, or otherwise involving any such plan (other than routine claims for benefits) where any such pending, threatened or anticipated claims would reasonably be expected to have a Material Adverse Effect. Except as specifically identified in Section 2.14, neither Company nor any Company Subsidiary, nor Sellers contribute in any multiemployer plan (within the meaning of Section 3(37) of ERISA) for the benefit of Business Employees; and to the extent that they do so contribute, all contributions that are required under the terms of any applicable collective bargaining agreement or plan to be contributed prior to the Closing Date will have been contributed as of the Closing Date. All contributions that are due on or before the Closing Date to any other Employee Benefit Plans, including without limitation salary reduction contributions and matching contributions, will have been contributed or accrued as of the Closing Date (to the extent such accrual is required under GAAP), except where the failure to do so would not be reasonably expected to have a Material Adverse Effect. Neither Seller nor any Companies or Company Subsidiaries shall grant any additional equity-based awards to any current or former directors of the Companies or Company Subsidiaries. 2.15 Labor Relations. Section 2.15 of the Disclosure Schedule sets forth a list of all labor organizations recognized as representing the employees of the Frontier LEC Business. Complete and accurate copies of all collective bargaining agreements and other labor union contracts between either Sellers or any Company or Company Subsidiary and any such labor organizations have been delivered or made available to the Buyer. Other than as set forth in Section 2.15 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) neither Seller nor any Company or Company Subsidiary is party to any collective bargaining agreement or other labor union contract applicable to employees of the Frontier LEC Business, (ii) there are no strikes, slowdowns or work stoppages pending or, to the knowledge of the Sellers, threatened between the Sellers or any Company or Company Subsidiary and any employees of the Frontier LEC Business, and the Frontier LEC Business has not experienced any such strike, slowdown, or work stoppage within the past two years, (iii) there are no unfair labor practice complaints pending against either Sellers or any Company or Company Subsidiary relating to employees of the Frontier LEC Business before the National Labor Relations Board or any other Governmental Authority or, to the knowledge of the Sellers, any current union representation questions involving employees of the Frontier LEC Business and (iv) to the knowledge of the Sellers, the Frontier LEC Business is in compliance in all respects with its obligations under all Laws and Governmental Orders governing its employment practices, including, without limitation, provisions relating to wages, hours and equal opportunity. 2.16 Intellectual Property. Except as disclosed in Section 2.16 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (i) the rights of either Sellers or any Company or Company Subsidiary in or to the Intellectual Property do not conflict with or infringe on the rights of any other Person, and neither Seller nor any Company or Company Subsidiary has received any claim from any Person to such effect, (ii) the Companies and the Company Subsidiaries own, are licensed or otherwise have the right to use, and as of the Closing Date the Companies and the Company Subsidiaries will own, be licensed or otherwise have the right to use, all Intellectual Property and (iii) to the knowledge of the Sellers, no other Person is infringing or diluting the rights of the Sellers, the Companies or the Company Subsidiaries with respect to the Intellectual Property. 2.17 Taxes. Except as disclosed in Section 2.17 of the Disclosure Schedule and except for such matters that would not reasonably be expected to have a Material Adverse Effect, (a) all Tax Returns required to be filed by the Sellers, the Companies or the Company Subsidiaries with respect to the Frontier LEC Business have been timely filed; (b) all Taxes shown on such Tax Returns have been timely paid other than such Taxes, if any, as are described in Section 2.17 of the Disclosure Schedule and are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided in the financial statements of the Frontier LEC Business; (c) no audits with respect to the Companies or Company Subsidiaries are in process, pending or threatened in writing, no deficiencies or adjustments to Tax Returns exist or have been asserted in writing with respect to Taxes of the Companies or Company Subsidiaries, no notice has been received in writing that any Tax Return or Taxes of the Companies or Company Subsidiaries required to be filed or paid has not been filed or has not been paid; (d) there are no Tax liens on any of the assets of the Frontier LEC Business or shares of the Companies or Company Subsidiaries (other than liens for Taxes that are not yet due and payable); (e) all Taxes that the Frontier LEC Business is required to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Tax authority; (f) none of the Companies or Company Subsidiaries (i) is currently or has ever been a member of an affiliated group (other than a group the common parent of which is any of the Sellers) filing a consolidated federal income tax return and (ii) has any liability for the Taxes of any person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law), or as transferee or successor, by contract or otherwise; (g) all Tax sharing or similar agreements shall be terminated as of the Closing Date and, after the Closing Date, the Companies and Company Subsidiaries shall not be bound thereof or have any liability thereunder; and (h) no consent under Section 341(f) of the Code has been filed with respect to any of the Companies or Company Subsidiaries. 2.18 Commissions. With the exception of any responsibility that the Sellers have to Chase Securities Inc. and to Merrill Lynch & Co., whose fees will be paid by the Sellers, there is no broker or finder or other Person who has any valid claim against any Company or Company Subsidiary, the Buyer, any of their respective Affiliates or any of their respective assets for a commission, finders' fee, brokerage fee or other similar fee in connection with this Agreement, or the transactions contemplated hereby, by virtue of any actions taken by on or behalf of the Sellers, the Companies, the Company Subsidiaries or any of their respective officers, employees or agents. 2.19 Affiliate Transactions. Except as set forth in Section 2.19 of the Disclosure Schedule, except as otherwise provided or permitted in this Agreement or entered into in the ordinary course of business consistent with past practice, and except for such matters which would not reasonably be expected to have a Material Adverse Effect, since September 29, 1999 neither the Sellers nor any Affiliate thereof that is not one of the Companies or Company Subsidiaries has engaged in any transaction with any Company or Company Subsidiary, and neither Seller nor any Affiliate thereof that is not one of the Companies or Company Subsidiaries is a party to any agreements or arrangements, including, without limitation, co-location or interconnection agreements, with any Company or Company Subsidiary that will continue in effect after the Closing Date for the Companies or Company Subsidiaries that are not terminable by the Companies or Company Subsidiaries at will without cost, penalty or premium to the Companies and Company Subsidiaries. 2.20 Telephone Operations. Except as disclosed in Section 2.20 of the Disclosure Schedule and except for such matters that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) The financial information for the Frontier LEC Business set forth in Annex A to Section 2.20 of the Disclosure Schedule (i) with respect to the historical (actual) information as of December 31, 1995, 1996, 1997, 1998 and 1999 and each of the fiscal years then ended, fairly states the financial information set forth therein and has been prepared in conformity with GAAP applied on a consistent basis and (ii) with respect to the pro forma information for the fiscal year ended December 31, 1999, has been prepared in good faith by subjecting the historical (actual) information for the fiscal year ended December 31, 1999 set forth in such Annex A to the adjustments described in Section 2.20 of the Disclosure Schedule. (b) The schedule of corporate and information technology charges of the Frontier LEC Business for the fiscal years ended December 31, 1998 and 1999 set forth in Annex B to Section 2.20 of the Disclosure Schedule fairly states such information in relation to the basic financial information based upon the cost allocation methodology described therein. (c) The information for the Frontier LEC Business set forth in Annex C to Section 2.20 of the Disclosure Schedule (i) with respect to the pro forma information for the fiscal year ended December 31, 1999, has been prepared in good faith by subjecting the historical (actual) information for the fiscal year ended December 31, 1999 to the adjustments described in Section 2.20 of the Disclosure Schedule and (ii) with respect to the number of Access Lines, is a true statement of the approximate number of such Access Lines as of December 31, 1999. (d) The financial information for the Frontier LEC Business set forth in Annex D to Section 2.20 of the Disclosure Schedule (i) with respect to historical (actual) information as of December 31, 1995, 1996, 1997 and 1998 and each of the fiscal years then ended, has been prepared in good faith based upon the books and records of the Frontier LEC Business and, taken as a whole, fairly states such information in all material respects in relation to the basic financial information and (ii) with respect to the pro forma information as of December 31, 1999 and for the fiscal year then ended, has been prepared in good faith based upon the books and records of the Frontier LEC Business after subjecting the historical (actual) information for such fiscal year to the adjustments described in Section 2.20 of the Disclosure Schedule and, taken as a whole, the historical (actual) financial information set forth in such Annex fairly states such information in all material respects in relation to the basic financial information. (e) Except as required by Law or by pool requirements applied generally to carriers or a subgroup of carriers, no Company or Company Subsidiary has been given written notice by any regulatory authority or pool administrator advising it that amounts paid to such Company or Company Subsidiary are required to be repaid into a pool or that amounts payable to such Company or Company Subsidiary are going to be reduced. (f) No Company or Company Subsidiary has received an order from any regulatory authority requiring it to make refunds to its retail customer base or any significant portion thereof. (g) No Company or Company Subsidiary has been made subject to any order from any regulatory authority requiring it to make a reduction to rates generally applicable to its retail customer base or any significant portion thereof. (h) No Company or Company Subsidiary has been made subject to a moratorium preventing it from seeking an increase in rates for basic services. (i) No Company or Company Subsidiary is subject to any requirement of Law solely applicable to it and not to any carrier or any subgroup of carriers which requires it to make specific material network investments in connection with the Frontier LEC Business. (j) No host or hub switch of a Company or a Subsidiary has exhausted its capacity to serve the customers who are currently in the area for which the switch is intended to be used, except switches scheduled for upgrade or expansion during calendar year 2000 or 2001 (which upgrades and expansions are included in the amounts of the relevant capital expenditure budgets set forth in Section 4.4). (k) The switches of each Company and Company Subsidiary used in the telephone service areas covered by the Frontier LEC Business are Class 5 compliant, can support the utilization of SS7 signaling and are equipped for the provision of CLASS services. (l) The Companies and Company Subsidiaries operating in the Rochester, New York area telephone service area utilize 20 main hub central offices, each of which is interconnected directly or indirectly to the other switches through SONET rings using Nortel OC-48 equipment. The Companies and Company Subsidiaries operating in the Rochester, New York area telephone service area have features in place that are available to support local number portability, enhanced 911 services and cellular 911 services. (m) The Companies and Company Subsidiaries operating in telephone service areas outside the Rochester, New York market utilize switches that are Class 5 compliant, and are compatible with CLASS features and SS7 signaling. Where required by an order or other requirements of Law, such Companies and Company Subsidiaries have installed features that support local number portability, enhanced 911 services and cellular 911 services. (n) The regulatory books of account of the Companies and Company Subsidiaries have been maintained in accordance with normal business practices, and accurately and fairly reflect in all material respects all of the properties, assets, liabilities, transactions and regulatorily required appropriate accruals of each Company and Company Subsidiary. The continuing property records (CPRs) and other regulatory records related to the assets and properties of the Companies and Company Subsidiaries maintained by the Companies and Company Subsidiaries conform in all material respects with the applicable rules and regulations of the FCC and applicable PUCs. The records of the Companies and Company Subsidiaries relating to Telephone Plant (the assets used primarily in the local exchange carrier operations that would be properly included in the fixed assets referenced in Part 32 of the FCC Rules and Regulations (47 C.F.R., Part 32)) have been prepared in good faith and fairly reflect all such Telephone Plant. (o) A true and complete list of the approximate number of Access Lines of the Companies and Company Subsidiaries in service as of May 31, 2000, broken down by the categories specified therein, is set forth in Section 2.20 of the Disclosure Schedule. 2.21 Long Distance Agreements. On or prior to the date hereof, Subsidiaries of Global have entered into the Carrier Services Agreement, dated as of June 19, 2000 (the "Carrier Services Agreement"), and the Asset Purchase Agreement, dated as of July 11, 2000 (the "Asset Purchase Agreement"), with one of the Company Subsidiaries. True and complete copies of the Carrier Services Agreement and the Asset Purchase Agreement have been provided to the Buyer, together with all amendments, modifications and side letter agreements relating thereto. Article 3. Representations and Warranties of the Buyer. ------------------------------------------- The Buyer represents and warrants to the Seller as follows: 3.1 Organization and Standing. The Buyer is a corporation duly incorporated, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. 3.2 Binding Agreement. The Buyer has all requisite corporate power and authority to enter into this Agreement, to execute and deliver this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Buyer and the consummation by the Buyer of its obligations hereunder have been duly and validly authorized by all necessary corporate and stockholder action on the part of the Buyer. This Agreement has been duly executed and delivered on behalf of the Buyer and, assuming the due authorization, execution and delivery by the Seller, constitutes a legal, valid and binding obligation of the Buyer enforceable in accordance with its terms. 3.3 Absence of Violations or Required Consents. Except as set forth in Section 3.3 of the Disclosure Schedule and, in the case of clauses (b), (c) and (d), except for such violations, breaches, defaults, consents, approvals, authorizations, orders, actions, registrations, filings, declarations, notifications and Encumbrances that would not reasonably be expected to have a material adverse effect on the business, results of operations or financial condition of the Buyer and its Subsidiaries, taken as a whole, or materially impair or delay the consummation of the transactions contemplated hereby, the execution, delivery and performance by the Buyer of this Agreement does not and will not (a) violate or result in the breach or default of any provision of the certificate or articles of incorporation or by-laws of the Buyer, (b) violate any Law or Governmental Order applicable to the Buyer or any of its properties or assets, (c) except for the Required Consents, require any consent, approval, authorization or other order of, action by, registration or filing with or declaration or notification to any Governmental Authority or any other Person or (d) result in any violation or breach of, constitute a default (or event which with the giving of notice, or lapse of time or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Buyer's assets pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license or permit, or franchise to which the Buyer is a party or by which its assets are bound. 3.4 Litigation. Except as described in Section 3.4 of the Disclosure Schedule, there are no Actions pending or, to the Buyer's knowledge, any Action threatened to be brought by or before any Governmental Authority, against the Buyer or any of its Affiliates that (i) seeks to question, delay or prevent the consummation of the transactions contemplated hereby or (ii) would reasonably be expected to affect adversely the ability of the Buyer to fulfill its obligations hereunder, including without limitation, the Buyer's obligations under Article 1 hereof. 3.5 Commissions. There is no broker or finder or other Person who has any valid claim against the Sellers, any of their respective Affiliates or any of their respective assets for a commission, finders' fee, brokerage fee or other similar fee in connection with this Agreement, or the transactions contemplated hereby, by virtue of any actions taken by on or behalf of the Buyer or its officers, employees or agents. 3.6 Financing. The Buyer has delivered to the Sellers true and complete copies of all commitment letters from commercial banks or other financing sources setting forth their respective commitments to provide all necessary financing in connection with the transactions contemplated by this Agreement (the "Financing Commitments"). The Buyer has on hand funds that, together with the proceeds of the Financing Commitments, are sufficient to pay the Purchase Price pursuant to this Agreement and otherwise to satisfy its obligations hereunder. The Buyer has been advised by the parties providing the Financing Commitments that none of such parties knows of any fact or circumstance (including, without limitation, the obligations of the Buyer under this Agreement) that is reasonably likely to result in any of the conditions to the Financing Commitments not being satisfied or the funds contemplated by the Financing Commitments not being available for the transactions contemplated by this Agreement and the Buyer knows of no such fact or circumstance. 3.7 Acquisition of Shares for Investment. The Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its purchase of the Shares. The Buyer is acquiring the Shares for investment and not with a view toward the distribution thereof. The Buyer agrees that the Shares may not be sold or otherwise disposed of without registration under the Securities Act of 1933, as amended, except pursuant to an exemption from registration available under such Act. Article 4. Covenants and Agreements. ------------------------ 4.1 Conduct of the Business Prior to Closing; Access. The -------------------------------------------------- Sellers covenant as follows: (a) Between the date hereof and the Closing Date, except as contemplated by this Agreement, except as described in either Section 2.8 or Section 4.1 of the Disclosure Schedule, or except with the consent of the Buyer (which consent shall not be unreasonably withheld or delayed in the case of clauses (i), (iii), (vi), (vii), (viii), (ix), (xi), (xii) and (xiii) to the extent clause (xiii) refers to clauses (i), (iii), (vi), (vii), (viii), (ix), (xi) or (xii)), the Sellers will cause the Frontier LEC Business to be operated in the ordinary course of business consistent with past practice (including, without limitation, with respect to compliance with Laws and performance under contracts) and will not permit: (i) any of the assets of the Frontier LEC Business to be subjected to any Encumbrance, other than Permitted Exceptions, that will not be released at or prior to the Closing Date; (ii) any changes, including changes to con- nection, disconnection and collection practices, to be made in the operations of the Frontier LEC Business that are ma- terial to the Frontier LEC Business as a whole; (iii) other than, in each case, in the ordinary course of business consistent with past practice, any assets of the Frontier LEC Business to be sold, transferred, leased, subleased, licensed, encumbered or otherwise disposed of (including, without limitation, sales, transfers, leases, subleases, licenses or dispositions of material assets to Sellers or any of their Subsidiaries other than the Companies and Company Subsidiaries), other than the sale of obsolete Equipment and transfers of cash; (iv) (A) any increase, or the announcement of any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by any Company or Company Subsidiary to any of the officers or key employees of the Frontier LEC Business to be granted, including, without limitation, any increase or change pursuant to any Employee Benefit Plan, or (B) any benefits under any Employee Benefit Plan with respect to officers or key employees (or material benefits with respect to any employees who are not officers or key employees) of the Frontier LEC Business to be established or increased or to be promised to be increased, or any payment or vesting thereof to be accelerated, in either case except (I) as required by Law, (II) that involve only increases in the ordinary course of business consistent with the past practices of the Frontier LEC Business or (III) as required under any existing agreement or arrangement; (v) any material change in any method of accounting or accounting practice or policy used by the Frontier LEC Business to be made, including, without limitation, material changes in assumptions underlying or methods of calculating bad debt, contingency or other reserves, or notes or accounts receivable write-offs, or in corporate allocation methodology, in each case other than as required by Law or under GAAP; (vi) any commitments for any Company or Company Subsidiary to make capital expenditures in excess of $20,000,000 in the aggregate that are not contemplated in the capital improvements budgets for 2000 or 2001 set forth in Section 4.1 of the Disclosure Schedule; (vii) any amendment of the certificate of incorpor- ation or bylaws of any Company or Company Subsidiary; (viii) any material Action, Indebtedness or any other claims or rights related to the Companies or Company Subsidiaries to be compromised, settled or otherwise adjusted, or any waiver or release relating thereto to be granted other than (unless such action would impose material restrictions or obligations on the Frontier LEC Business after the Closing) in the ordinary course of business; (ix) any new agreement, contract, commitment or arrangement, or any amendments or modifications to any existing such agreement, contract, commitment or arrangement, to be entered into with any Affiliate of any Company or Company Subsidiary (other than with another Company or Company Subsidiary) that is material to the Frontier LEC Business or that will continue in effect after the Closing Date and not be terminable by such Company or Company Subsidiary on not more than 60 days' written notice without payment of premium or penalty; (x) any change in the stock ownership of any Com- pany or Company Subsidiary to be made or any interest in any Company or Company Subsidiary to be granted or assigned; (xi) any Indebtedness in excess of a net amount of $10,000,000 to be created, incurred, assumed or guaranteed by any Company or Company Subsidiary that cannot be prepaid or terminated without payment of premium or penalty, except for borrowings under existing credit agreements (or replacements therefor on substantially the same terms) or the creation of trade payables; (xii) any new Material Contract (other than those covered by clause (ii), (iii) or (ix) above), or any amendments or modifications to any existing such Material Contract, to be entered into that will continue in effect after the Closing Date and not be terminable by the Company or Company Subsidiary on not more than 60 days' written notice without payment of premium or penalty; (xiii) any agreement, contract, commitment or ar- rangement to do any of the foregoing to be entered into. (b) Pending the Closing Date, the Sellers shall: (1) Ensure that the Buyer and its representatives are given reasonable access during normal business hours to all of the employees (including appropriate experts and other knowledgeable personnel), properties, books and records of the Companies and Company Subsidiaries and that the Buyer and its representatives are furnished with such information concerning the Companies and Company Subsidiaries as the Buyer may reasonably require, including such access and cooperation as may be necessary to allow the Buyer and its representatives to: (A) identify those contracts and Permits that require third party consent to the transactions contemplated hereby, those that expire prior to or soon after the Closing and those that may require special documentation at the Closing; (B) review any arrangements with respect to those assets that will not be transferred as part of the Frontier LEC Business that Buyer may need to replicate or replace at the Closing; (C) determine what changes Buyer may need to make to various assets, including information technology assets, to be owned by the Companies and the Company Subsidiaries after the Closing; (D) arrange appropriate insurance coverage by the Closing with respect to the Companies and the Company Sub- sidiaries; (E) become familiar with the location and organization of the books and records, including any original cost documents and outside plant maps; (F) make appropriate arrangements for the continuation of ongoing maintenance, construction and plant upgrade activities of the Companies and the Company Subsidiaries after the Closing; (G) identify various regulatory mandates applicable to the Companies and the Company Subsidiaries and review compliance therewith, including matters relating to the National Exchange Carrier Association (including the Universal Service Fund and the Local Switching Support and Telecommunications Relay Services funds); (H) perform Transaction Screens and/or Phase I environmental reviews with respect to each parcel of Real Property at Buyer's expense; and (I) obtain title insurance policies and surveys covering Real Property at Buyer's expense and provide the title company with such instructions, authorizations and affidavits at no cost to the Sellers or the Companies or Company Subsidiaries as may be reasonably necessary for the title company to issue title policies (based upon the most recent assessed value or market value of such parcels) to the Buyer, dated as of the Closing Date, for all of the Real Property owned by the Companies or Company Subsidiaries with so-called non-imputation endorsements; provided that this right of access shall not be exercised in any way which would unreasonably interfere with the normal operations, business or activities of the Sellers or any Company or Company Subsidiary; (2) Furnish to the Buyer within 30 Business Days after the end of each month ending between the date of this Agreement and the Closing Date a statement of income for the Frontier LEC Business for the month just ended, on a state by state basis to the extent prepared, and within 30 Business Days after the end of each quarter ending between the date of this Agreement and the Closing Date a balance sheet for the Frontier LEC Business as of the end of such quarter; (3) Make available for the Buyer all other routine management and statistical reports of the Frontier LEC Business; (4) From time to time, furnish to the Buyer such additional information (financial or otherwise) concerning the Frontier LEC Business as the Buyer may reasonably request (which right to request information shall not be exercised in any way which would unreasonably interfere with the normal operations, business or activities of the Sellers, the Companies or the Company Subsidiaries); (5) Use, to the extent the Buyer requires audited or reviewed financial statements of the Frontier LEC Business in order to comply with the reporting requirements of the Securities and Exchange Commission (the "SEC") set forth in Regulations S-K and S-X, reasonable best efforts to obtain (or, if Buyer proposes to have its auditors audit any such financial statements, to permit the Buyer to obtain by providing audited consolidating balance sheets as of the end of the fiscal years hereinafter described and consolidating income statements and statements of cash flows and changes in equity for such periods, in each case, for the Companies and the Company Subsidiaries in the form required by Regulations S-K and S-X), in either case at the Buyer's expense, the required audited or reviewed combined financial statements of the Frontier LEC Business covering the fiscal years ended December 31, 1998 and 1999 (and each fiscal quarter thereof), and to the extent the Closing shall not have occurred prior to the end thereof, the fiscal year ending December 31, 2000 (and each fiscal quarter thereof) and each subsequent fiscal quarter, reasonably sufficient and timely enough to permit the Buyer reasonably to satisfy such obligations, including, without limitation, providing reasonable access as stated under clause (1) above to any auditors engaged by the Buyer for such purpose and delivering one or more representation letters from the Sellers to any such auditors as may be reasonably requested by the Buyer to allow such auditors to complete any such audit or review and to issue an opinion on such financial statements acceptable to the SEC; (6) Consult with the Buyer with respect to taking, or permitting the Companies and Subsidiaries to take, any material action with respect with the Frontier LEC Business other than in the ordinary course of business consistent with past business or other than as contemplated by this Agreement (including, without limitation, the Disclosure Schedule), including, without limitation, consultation regarding the negotiation or renegotiation of any collective bargaining agreements; provided, however, that, except as required by Section 4.1(a), neither Seller nor any of the Companies or Company Subsidiaries shall be obligated to accept or follow any advice proffered by the Buyer with respect to any such prospective action and that such right of consultation shall not entitle the Buyer to participate in any such negotiations or renegotiations of collective bargaining agreements; and (7) Endeavor with reasonable efforts to notify the Buyer within a reasonable period of time after the Sellers have obtained knowledge of the occurrence of any circumstance, change in, or effect on the Companies or Company Subsidiaries that Sellers believe had or would in the reasonably foreseeable future have a Material Adverse Effect. 4.2 Financing Commitments. The Buyer covenants as follows: --------------------- (a) The Buyer shall use its reasonable best efforts to obtain the financing provided for by the Financing Commitments. Without limiting the generality of the foregoing, the Buyer shall not take or fail to take, and shall cause its Subsidiaries not to take or fail to take, any action the taking of which, or which the failure to take, would reasonably likely result in any of the conditions to the Financing Commitments not being satisfied or the funds contemplated by the Financing Commitments not being available for the transactions contemplated by this Agreement, or that would otherwise materially impair or delay the consummation of the transactions contemplated hereby. In the event that such financing or any portion thereof becomes unavailable, the Buyer shall use its reasonable best efforts promptly to obtain commitment letters for alternative financing from other sources sufficient to enable the Buyer to pay the Purchase Price pursuant to this Agreement and otherwise to satisfy its obligations hereunder. Any such alternative financing shall be deemed to constitute (or to constitute a portion of, as the case may be) "Financing Commitments" for purposes of this Agreement. The Buyer shall furnish to the Sellers promptly true and complete copies of any alternative commitment letters from commercial banks or other financing sources, all definitive loan agreements entered into pursuant to the Financing Commitments and all other correspondence or notices from any party providing the Financing Commitments relating to the financing. (b) The Buyer shall give prompt notice to the Sellers of the occurrence, or non-occurrence, of any fact or circumstance, or of any notice from any party providing the Financing Commitments, that is reasonably likely to result in any of the conditions to the Financing Commitments not being satisfied or the funds contemplated by the Financing Commitments not being available for the transactions contemplated by this Agreement. 4.3 Post-Closing Covenants and Agreements. (a) From and after the Closing Date, the Sellers shall, at all reasonable times, make available without cost, for inspection and/or copying for reasonable business purposes by the Buyer or any of the Companies or Company Subsidiaries, or their representatives, any books and records of the Frontier LEC Business, whether in electronic or physical form, that are not in the possession of the Companies and Company Subsidiaries after the Closing. Any such books and records shall be preserved by the Sellers for so long as the Buyer or any Company or Company Subsidiary shall be obligated by Law to maintain the same. After the period set forth above, upon not less than 30 days written notice to the Buyer specifying in reasonable detail the books and records that neither Seller proposes to destroy, such Seller may destroy the books and records in its possession unless, before expiration of such notice period, the Buyer or any of the Companies or Company Subsidiaries objects in writing to the destruction of any or all of such books and records, in which case such books and records shall be delivered to the objecting Person at the expense of the objecting Person. (b) From and after the Closing Date, the Buyer shall, and shall cause the Companies and Company Subsidiaries to: (i) At all reasonable times, make available without cost, for inspection and/or copying for reasonable business purposes by the Sellers or their representatives, the books and records of the Companies and Company Subsidiaries, whether in electronic or physical form. Such books and records shall be preserved by the Buyer or the Companies and Company Subsidiaries until the later of the closing by tax audit of, or the expiration of the relevant statute of limitations (including any waiver thereof) with respect to, all open tax periods of the Sellers prior to and including the Closing Date. After the period set forth above, upon not less than 30 days written notice to the Sellers specifying in reasonable detail the books and records that the Buyer or any Company or Company Subsidiary proposes to destroy, the Buyer or such Company or Company Subsidiary may destroy the books and records in their possession unless, before expiration of such notice period, a Seller objects in writing to the destruction of any or all of such books and records, in which case such books and records shall be delivered to the objecting Person at the expense of the objecting Person. Notwithstanding the foregoing, the Buyer and the Companies and Company Subsidiaries shall continue to preserve and, at all reasonable times after the Closing Date, to make available without cost, for inspection and/or copying by any Person that was a trustee or other fiduciary under the Employee Benefit Plans identified in Section 4.3 of the Disclosure Schedule, the books and records of such Employee Benefit Plan and the books and records of the Companies and Company Subsidiaries relating thereto. (ii) (x) Exculpate, indemnify and hold harmless all past and present employees, officers, agents and directors of the Companies and Company Subsidiaries to the full extent permitted by law for any acts or omissions relating to, or arising out of, the Frontier LEC Business occurring on or prior to the Closing Date; (y) cause to be maintained in effect through September 28, 2005 the current provisions regarding elimination of liability of directors and indemnification of officers and directors contained in the certificate of incorporation and by-laws or other organizational documents of the Companies and the Company Subsidiaries; and (z) not take any action that would cause any directors', officers', fiduciaries' or similar insurance and indemnification policies that may be maintained by the Sellers for past and present directors and officers of the Companies and Company Subsidiaries and trustees of the Employee Benefit Plans providing coverage for acts and omissions and other events relating to, or arising out of, the Frontier LEC Business occurring at or prior to the Closing Date, including, without limitation, in respect of the transactions contemplated by this Agreement, not to remain in full force and effect. (iii) Except for disputes in good faith, honor and comply in all material respects with the terms and conditions contained in all contracts to which any of the Companies or any of the Company Subsidiaries is a party or by which it is bound. (c) Effective as of the Closing Date, the Sellers will have no obligation to provide insurance coverage for the Companies, the Company Subsidiaries and the Frontier LEC Business for occurrences after the Closing Date and the Buyer will become solely responsible for all insurance coverage and related risk of loss based on events occurring on and after the Closing Date with respect to the Companies, the Company Subsidiaries and the Frontier LEC Business. To the extent that (i) any insurance policies controlled by the Sellers (the "Sellers' Insurance Policies"), cover any loss, liability, claim, damage or expense relating to the Companies, the Company Subsidiaries or the Frontier LEC Business (the "Subject Liabilities") and relating to or arising out of occurrences prior to the Closing Date, and (ii) the Sellers' Insurance Policies continue after the Closing to permit claims to be made thereunder with respect to the Subject Liabilities relating to or arising out of occurrences prior to the Closing Date ("Subject Claims"), the Sellers shall cooperate with the Buyer in submitting Subject Claims on behalf of the Buyer or any Company or Company Subsidiary under the Sellers' Insurance Policies and the Buyer shall reimburse, indemnify and hold the Sellers harmless from all out-of-pocket, costs and expenses (including, without limitation, all retroactive or retrospective premiums related to the Subject Claims (but not any other present or future premiums), deductibles, out-of-pocket legal and administrative costs, net Tax costs to the Sellers resulting from the receipt and payment to the Buyer of any insurance proceeds relating to any Subject Claim and attorneys' fees under the Sellers' Insurance Policies) of any nature actually incurred by the Sellers as a result of Subject Claims made under the Sellers' Insurance Policies. The Sellers shall exercise reasonable best efforts (which efforts shall not require the Sellers to incur any out-of-pocket costs or expenses not reimbursed by the Buyer or any other adverse consequences) to cause the Sellers' Insurance Policies to be modified to allow for the assignment to the Buyer of all benefits, rights and obligations thereunder in respect of any Subject Liabilities. To the extent any such policies are not so assigned, upon receipt by the Sellers of any insurance proceeds relating to any Subject Claims made under the Sellers' Insurance Policies, the Sellers will promptly pay such insurance proceeds to the Buyer, net of any unreimbursed costs and expenses described above. (d) From and after the Closing Date, (i) The Buyer will not, for a period of two years following the Closing Date, without the prior written consent of Global, directly or indirectly, solicit to hire or hire (or cause or seek to cause to leave the employ of Global or any Subsidiary of Global) any employee of Global or any Subsidiary of Global with whom the Buyer has had contact or who (or whose performance) became known to the Buyer in connection with this Agreement; provided, however, that the foregoing provision will not prevent the Buyer from hiring any such Person who contacts the Buyer on his or her own initiative without any direct or indirect solicitation by or encouragement from the Buyer or who contacted the Buyer in response to a general advertisement; and. (ii) The Sellers will not, for the period from the date hereof through the date that is two years following the Closing Date, without the prior written consent of the Buyer, directly or indirectly, solicit to hire or hire (or cause or seek to cause to leave the employ of the Companies or Company Subsidiaries on the Buyer or any Subsidiary of the Buyer) any employee of the Companies or Company Subsidiaries or the Buyer or any Subsidiary of the Buyer with whom (other than with respect to the Companies and the Company Subsidiaries) the Sellers have had contact or who (or whose performance) became known to the Sellers in connection with this Agreement; provided, however, that the foregoing provision will not prevent the Sellers from hiring any such Person who contacts the Sellers on his or her own initiative without any direct or indirect solicitation by or encouragement from the Sellers or who contacted the Sellers in response to a general advertisement. 4.4 Cooperation. Following the execution of this Agreement, ----------- the Buyer and the Sellers agree as follows: (a) Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable, including under applicable Laws and regulations, to consummate the Sale and the other transactions contemplated by this Agreement as soon as practicable after the date hereof. In furtherance and not in limitation of the foregoing, each party hereto agrees (i) to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable after the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and to take all other actions necessary to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable, (ii) to file all necessary applications for Required Consents at the FCC, PUCs and local franchising authorities with respect to the transactions contemplated hereby as promptly as practical after the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested by the FCC, PUCs and local franchising authorities and to take all other actions necessary to cause the Required Consents to be obtained as soon as practicable and (iii) to obtain all other required consents from third parties. The parties agree to file all necessary applications for Required Consents with state PUCs jointly to the extent permitted under Applicable Law, and to share counsel whenever feasible and where it does not pose a conflict of interest. (b) The Sellers and the Buyer shall, in connection with the efforts referenced in Section 4.5(a) to obtain all requisite approvals and authorizations for the transactions contemplated by this Agreement under the HSR Act or any other Regulatory Law, use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party, (ii) promptly inform the other party of any communication received by such party from, or given by such party to, the FCC, PUCs, the Antitrust Division of the Department of Justice (the "DOJ") or any other Governmental Entity and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby, and (iii) permit the other party to review any communication (other than filings pursuant to the HSR Act) given by it to, and consult with each other in advance of any meeting or conference with, the FCC, PUCs, the DOJ or any such other Governmental Authority or, in connection with any proceeding by a private party, with any other Person, and to the extent permitted by the FCC, PUCs, the DOJ or such other applicable Governmental Authority or other Person, give the other party the opportunity to attend and participate in such meetings and conferences. Neither party shall take any action in connection with obtaining any Required Consent that is intended to create, allocate, or shift to the other party any liability arising from the obtaining of such Required Consent; provided that this provision is not intended to limit the rights or obligations of either party under this Section 4.4 or any other Section of this Agreement or the right of any party to otherwise seek to reduce or eliminate any such liability on itself. For purposes of this Agreement, "Regulatory Law" means (i) the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, the Communications Act, and all other federal, state and foreign, if any, Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition, whether in the communications industry or otherwise, through merger or acquisition and (ii) all federal, state and foreign, if any, Laws with respect to the transfer, assignment, modification or granting of Permits, whether in the public utility or communications industries or otherwise, including, without limitation, certificates of public convenience and necessity, public interests certificates and radio licenses. (c) In furtherance and not in limitation of the covenants of the parties contained in Sections 4.4(a) and 4.4(b), if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Regulatory Law, the Sellers and Buyer shall cooperate in all respects with each other and use their respective reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 4.4 shall limit a party's right to terminate this Agreement pursuant to Section 11.1 so long as such party has up to then complied in all material respects with its obligations under this Section 4.4. (d) If any objections are asserted with respect to the transactions contemplated hereby under any Regulatory Law or if any suit is instituted by any Governmental Authority or any private party challenging any of the transactions contemplated hereby as violative of any Regulatory Law, each of the Sellers and the Buyer shall use its reasonable best efforts to resolve any such objections or challenge as such Governmental Authority or private party may have to such transactions under such Regulatory Law so as to permit consummation of the transactions contemplated by this Agreement. (e) As used in this Section 4.4, "reasonable best efforts" shall not require (i) the Buyer or any of its Affiliates to divest or hold separate or otherwise take or commit to take any action that limits their freedom of action with respect to, or their ability to retain, any of their assets or businesses or any other action, in each case that would be reasonably expected to have a Material Adverse Effect or Buyer Material Adverse Effect, or (ii) either Seller or any of their Affiliates to divest or hold separate or otherwise take or commit to take any action that limits their freedom of action with respect to, or their ability to retain, any of their assets or businesses or any other action, in each case that would be reasonably expected to have a Material Adverse Effect or an adverse effect (other than an immaterial effect) on the business, results of operations or financial condition of the Sellers or their Subsidiaries (other than the Companies and the Company Subsidiaries). 4.5 Confidentiality. --------------- (a) Prior to the Closing Date. The terms of the Confidentiality Agreement are herewith incorporated by reference and shall continue in full force and effect until the Closing Date and shall remain in effect in accordance with its terms even if this Agreement is terminated. (b) Financial and Tax Information. (i) Before and after the Closing Date, each of the parties shall maintain the confidentiality of the tax information of the Frontier LEC Business under terms similar to those set forth in the Confidentiality Agreement with respect to "Evaluation Material" as though such terms applied to the parties and continued after the Closing Date. (ii) After the Closing Date, the Sellers shall maintain the confidentiality of the financial information of the Frontier LEC Business prior to the Closing under terms similar to those set forth in the Confidentiality Agreement with respect to "Evaluation Material" as though such terms applied to the Sellers and continued after the Closing Date. 4.6 Public Announcements. Except as otherwise required by law or the rules of any stock exchange or automated quotation system, the parties shall not issue any report, statement or press release or otherwise make any public announcement with respect to this Agreement and the other transactions contemplated hereby without prior consultation with and approval of the other parties hereto (which approval shall not be unreasonably withheld). 4.7 No Solicitation. Other than as specified in this Agreement, the Sellers shall not, and shall use their best efforts to cause its officers, directors, representatives, affiliates or associates not to, (a) initiate contact with, solicit, encourage or respond to any inquiries or proposals by, or (b) enter into any discussions or negotiations with, or disclose, directly or indirectly, any information concerning the Companies and Company Subsidiaries to, or afford any access to the properties, books and records of the Companies and Company Subsidiaries to, any Person in connection with any possible proposal for the acquisition (directly or indirectly, whether by purchase, merger, consolidation or otherwise) of all or substantially all of the assets, business or capital stock of the Companies and Company Subsidiaries. The Seller agrees to terminate immediately any such discussions or negotiations. 4.8 No Additional Representations. THE BUYER ACKNOWLEDGES THAT, EXCEPT THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER THE SELLER NOR ANY OTHER PERSON HAS MADE ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, REGARDING THE FRONTIER LEC BUSINESS OR THE ACCURACY OR COMPLETENESS OF ANY INFORMATION FURNISHED OR MADE AVAILABLE TO THE BUYER AND ITS REPRESENTATIVES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY PROPERTIES OR ASSETS OF THE FRONTIER LEC BUSINESS. THE BUYER FURTHER ACKNOWLEDGES THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR REFERRED TO IN THE OFFERING MATERIALS THAT HAVE BEEN PROVIDED TO THE BUYER ARE NOT AND SHALL NOT BE DEEMED TO BE REPRESENTATIONS OR WARRANTIES OF THE SELLERS. 4.9 Use of Global Crossing and Frontier Names. (a) After the Closing Date, neither the Buyer nor any of its Affiliates (including, without limitation, the Companies and Company Subsidiaries) shall use "Global Crossing" or "Global" or any name or term confusingly similar to or "Global Crossing" or "Global" in any corporate name or in connection with the operation of any business. Notwithstanding the foregoing, the Companies and Company Subsidiaries shall have a period of time (which in no event is, except as set forth in Schedule 4.9(a), to exceed 120 days following the Closing Date) in which to, and the Buyer shall cause the Companies and Company Subsidiaries to, remove or cover the names "Global Crossing" or "Global" and any trademarks, tradenames, servicemarks, trade dress or logos relating to such names from all signs, billboards, advertising materials, telephone listings, labels, stationery, office forms and mastheads; provided, however, that during such period of time such names, trademarks, tradenames, servicemarks, trade dress and logos shall be used (i) only to the extent necessary to avoid financial hardship and (ii) only to the extent and in the manner that such names, trademarks, tradenames, servicemarks, trade dress and logos were used by the Companies and Company Subsidiaries as of immediately prior to the Closing. (b) After the Closing Date, except as set forth in Section 4.9 of the Disclosure Schedule, neither of the Sellers nor any of their Affiliates shall use "Frontier" or any name or term confusingly similar to "Frontier" in any corporate name or in connection with the operation of any business. Notwithstanding the foregoing, the Sellers and their Affiliates shall have a period of time (which in no event is, except as set forth in Schedule 4.9(b), to exceed 120 days following the Closing Date) in which to, and the Sellers shall cause their Affiliates to, remove or cover the name "Frontier" and any trademarks, trade names, service marks, trade dress or logos relating to such names from all signs, billboards, advertising materials, telephone listings, labels, stationery, office forms and mastheads; provided, however, that during such period of time such names, trademarks, trade names, service marks, trade dress and logos shall be used (i) only to the extent necessary to avoid financial hardship and (ii) only to the extent and in the manner that such names, trademarks, trade names, service marks, trade dress and logos were used by the Sellers and their Affiliates as of immediately prior to the Closing. This Section 4.9(b) shall not be construed to prohibit the Sellers and their Affiliates from using the name "Frontier" in connection with the filing of any Tax Returns required by any Tax authority or jurisdiction for periods prior to the Closing or the filing of any other documents required by any Governmental Authority. 4.10 Long Distance Agreements. (a) The closing under the Asset Purchase Agreement shall occur in accordance with the terms thereof without creating any liability or obligation of any Company or Company Subsidiary thereunder extending beyond the Closing Date. The Sellers shall use reasonable best efforts to obtain, as soon as practicable, all required consents necessary for consummation of the Asset Purchase Agreement. (b) The Carrier Service Agreement shall be amended prior to the Closing as follows: (i) The initial term of the Carrier Service Agreement shall continue in effect for a period of three years following the Closing Date. The Buyer may thereafter at its option renew the Carrier Service Agreement for up to four consecutive two-year periods. Renewal shall be automatic unless the Carrier Service Agreement is canceled by the Buyer pursuant to Section 2.3 of the Carrier Service Agreement or is otherwise canceled in accordance with the termination provisions of the Carrier Service Agreement. Sections 2.2 and 2.3 of the Carrier Service Agreement shall be revised as appropriate to eliminate Global's right to terminate the Carrier Service Agreement except for breach by the Buyer. (ii) Section 3.9 of the Carrier Service Agreement shall be revised to change "then current standard wholesale pricing programs" to "the best prices given to another carrier with the same or lower volume or term commitments, and the same or substantially similar cost characteristics with respect to traffic origination and termination". (iii) The Buyer may include at its option any of its present and future Subsidiaries as parties to the Carrier Service Agreement, subject to the pricing limitation specified immediately below. Such election shall be binding for each included Subsidiary for the remaining term of the Carrier Service Agreement. (iv) Pursuant to the Exhibits to the Carrier Service Agreement one of Global's Subsidiaries has the right under certain pricing arrangements to surcharge an additional four cents per minute if more than a specified percentage of traffic originates or terminates in non-RBOC/GTE regions. This four cent surcharge shall not be applied under the Carrier Service Agreement with respect to long distance end-user customers located in the franchise territories of the incumbent local exchange carrier operations of the Frontier LEC Business. This subparagraph does not apply to the Buyer's other present or future Subsidiaries. (v) Sections 3.3 and 3.11 of the Carrier Service Agreement shall be deleted. 4.11 Transition Services. (a) Following the Closing and for so long as a Company or Company Subsidiary remains a Subsidiary of the Buyer (but in no event for a period longer than two years from the Closing Date), the Sellers agree to provide, or to cause their Affiliates to provide, to the Companies and Company Subsidiaries, and the Buyer shall pay for, all of the administrative and support services provided to the Frontier LEC Business by the Sellers as of the date hereof which are on Schedule 4.11 hereto, at a relative level of service consistent with that provided by the Sellers to the Frontier LEC Business during the 12 months preceding the date hereof, unless on or before the date that is four months after the date hereof (which date may up to twice be extended for an additional 30 days at the Buyer's sole option), the Buyer shall notify the Sellers of any or all of such services that should not be so provided following the Closing. The services initially so provided following the Closing shall continue to be provided as set forth in the previous sentence, and the Buyer shall continue to pay therefor, unless the Buyer shall have given the Sellers at least three months advance written notice of any or all of such services the provision of which shall be terminated. (b) Following the Closing and for so long as the Company or Company Subsidiary currently providing such services remains a Subsidiary of the Buyer (but in no event for a period longer than two years from the Closing Date), the Buyer agrees to provide, or to cause its Affiliates to provide, to the Sellers and their Subsidiaries, and the Sellers shall pay for, all of the administrative and support services provided by the Frontier LEC Business to the Sellers and their Subsidiaries (other than the Companies and Company Subsidiaries) as of the Closing Date which are on Schedule 4.11 hereto, at a relative level of service consistent with that provided to the Sellers and their Subsidiaries by the Frontier LEC Business during the 12 months preceding the date hereof, unless on or before the date that is four months after the date hereof (which date may up to twice be extended for an additional 30 days at the Sellers' sole option), the Sellers shall notify the Buyer of any or all of such services that should not be so provided following the Closing. The services initially so provided following the Closing shall continue to be provided as set forth in the previous sentence, and the Sellers shall continue to pay therefor, unless the Sellers shall have given the Buyer at least three months advance written notice of any or all of such services the provision of which shall be terminated. (c) Such services will be provided for a charge equal to the then current cost of such services (without mark-up) to the Sellers and their Affiliates or to the Buyer and its Affiliates, as the case may be, determined and allocated to the Buyer or the Sellers, as the case may be, in a manner consistent with the determination and allocation of such costs to the Frontier LEC Business reflected in the financial data and information described in clauses (ii) and (iii) of Section 2.6(a). The Buyer and the Sellers agree to pay, promptly in accordance with their standard payment practices (but in no event later than 45 days after presentation), any bills and invoices that it receives from the other party for services provided under this Section 4.11, subject to receiving, if requested, any reasonably appropriate support documentation for such bills and invoices. Such charges shall be billed as of the end of each calendar month. Each party shall provide the other at least 60 days' notice of any material increase in the cost of such services prior to the date such increase will take effect. (d) The parties hereto agree to negotiate in good faith a transition services agreement with respect to services to be provided by the Sellers to the Frontier LEC Business, or by the Frontier LEC Business to the Sellers, following the Closing consistent with the terms of this Section 4.11. (e) Section 2.5 (by reference to Section 2.7) of the Disclosure Schedule identifies the proposed "Future Allocation" of certain shared or displaced assets or services relating to the Frontier LEC Business between the Companies and Company Subsidiaries, on the one hand, and the Sellers, on the other (the "Scheduled Allocation"). Each of the Buyer and the Sellers agrees to negotiate in good faith such proposed allocations prior to the Closing with a view to creating a final allocation which (A) to the extent there exists an overwhelmingly dominant user or beneficiary of such assets or services, allocates such asset or service to such user or beneficiary, and (B) otherwise equitably allocates such assets and services between the Companies and Company Subsidiaries and the Sellers taking into account the criticality of the function to each, the cost and burden on the party to whom the asset or service is not allocated to replace such function in light of such party's other resources, and the related disruption, and the overall burdens and benefits of the overall allocation. If the Buyer and the Sellers are unable to agree on a negotiated final allocation, the Scheduled Allocation shall be deemed to constitute the final allocation and the party to whom such asset or service is allocated (which shall be the Sellers if no allocation is provided for in the Scheduled Allocation) will provide the other party access to such asset or service as a Transition Service under the provisions of this Section 4.11 on the cost basis described in Section 4.11(c). (f) Consistent with its notice requirements in this Section 4.11, the Buyer at its sole discretion may choose to migrate any or all of the billing, ordering, provisioning and other operations support systems being provided under the transition services arrangement in accordance with Schedule 4.11 to the Buyer's own platforms. The Sellers will use its reasonable best efforts to comply with reasonable data requests (including requests for electronic source data) for information that is necessary to map, convert and integrate such systems into the Buyer's or its vendor's platforms. The Sellers also agree to use its reasonable best efforts to provide the applicable information required to migrate all other transition services to the Buyer's or its vendor's systems. The Buyer agrees that its requests may not impose a material burden on the operation of the Sellers and their Subsidiaries (including, prior to the Closing, the Companies and Company Subsidiaries). 4.12 Sublease of Premises in GCNA Building. At the Buyer's request, GCNA and the Buyer agree to exercise reasonable good faith efforts after the execution of this Agreement to negotiate and finalize a Sublease Agreement pursuant to which GCNA will agree to sublease to Buyer or one of its Subsidiaries for a period of not less than two years following the Closing Date (with an option to extend the term thereof to the end of the term of GCNA's current lease of such premises), a portion of the building located at 180 South Clinton Avenue, Rochester, New York not to exceed the number of square feet currently allocated to the Frontier LEC Business and for a rent based on the pro rata cost allocable to the square feet so subleased, in each case, determined on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) and containing such other terms and conditions as are customary in such a sublease agreement (including an indemnity for failure of the Buyer to perform its obligations under the sublease); provided that, if the consent of the landlord under the lease is not obtained within three months of the date hereof, then the Buyer shall have no obligation under this Section so long as the Buyer has complied with its obligation to exercise reasonable good faith efforts to obtain such consent in accordance with this Section 4.12. 4.13 Intercompany Accounts and Guaranties. (a) As of the calendar day immediately prior to the Closing Date, except for amounts identified as "Affiliate Advance Receivables" on the books and records of the Companies and Company Subsidiaries and any other accounts that may not be so canceled under applicable Law, all amounts (x) owed to any of the Companies or Company Subsidiaries by the Sellers and their Affiliates (other than the Companies and the Company Subsidiaries) or (y) owed to the Sellers and their Affiliates (other than the Companies and the Company Subsidiaries) by any of the Companies or Company Subsidiaries shall be canceled and extinguished. (b) With respect to all intercompany accounts not so canceled, upon the Closing the Buyer shall assume responsibility for and shall release the Sellers and their Affiliates (other than the Companies and the Company Subsidiaries) from, and indemnify and hold harmless the Sellers and their Affiliates (other than the Companies and the Company Subsidiaries) from and against, all liability for, and (to the extent permitted under applicable Law) shall cause the relevant Companies and Company Subsidiaries to enter into novation agreements (in form and substance satisfactory to the parties hereto) with respect to, all amounts owed to any of the Companies or Company Subsidiaries by the Sellers and their Affiliates (other than the Companies and the Company Subsidiaries); provided that no such action shall be taken if such action would be in violation of any Law or would, without the consent of the Sellers, otherwise result in an adverse effect on either Seller, in which case the parties hereto shall negotiate in good faith suitable alternative arrangements that would not be in violation of any Law or result in any adverse effects. (c) The Buyer shall use its best efforts to obtain the release prior to the Closing of the Sellers and any Affiliate of the Sellers other than the Companies and the Company Subsidiaries from any and all guarantees of such Persons of any indebtedness or other obligations of the Frontier LEC Business and shall indemnify and hold harmless such Persons against any payment that any of them must make under any of such guarantees and its reasonable costs and expenses thereunder including, without limitation, reasonable attorney's fees and costs. 4.14 Capital Expenditures. If the aggregate amount of capital expenditures incurred for assets of the Frontier LEC Business from and including January 1, 2000 through and including the Closing Date shall not equal or exceed (i) if the Closing were to occur during the year 2000, a pro rata portion (based upon the number of elapsed days in such year prior to the Closing) of the $212,287,000 aggregate 2000 capital expenditures budget or (ii) if the Closing were to occur after December 31, 2000, the sum of (x) $212,287,000 and (y) a pro rata portion (based upon the number of elapsed days in such year prior to the Closing) of the aggregate $222,800,000 2001 capital expenditures budget, then the Sellers shall cause an aggregate amount of cash equal to any such shortfall, not restricted under applicable regulatory Laws as to its use, to pay for capital expenditures of such Company or Company Subsidiary (the "Capital Expenditure Cash Fund") to be retained in the accounts of one or more of the Companies and Company Subsidiaries at the Closing. The Capital Expenditure Cash Fund shall not be counted as "Working Capital" for purposes of the adjustment to Purchase Price pursuant to Sections 1.3 and 1.4. 4.15 Non-Compete. (a) The Sellers covenant and agree that the Sellers and their Subsidiaries, for a period of three years from the Closing Date, will not, without the Buyer's prior consent, directly or indirectly compete with the Companies or Company Subsidiaries by engaging in local exchange carrier operations, by providing retail long distance services (other than calling card, toll free and terminating long distance) or by providing retail data services (other than Internet services and Webhosting services) in a Restricted Area, except as stated herein. (b) For the purposes of this Section 4.15, a "Restricted Area" means the telephone service area on the Closing Date of any Company or Company Subsidiary that is an incumbent local exchange carrier, and in addition any territory adjacent to such telephone service area and within 20 miles of such telephone service area, but a Restricted Area shall not include any such adjacent territory that is within the CMSAs (or equivalent Census Office classification for an equal or larger populated area) covering the New York City metropolitan area or covering the Minneapolis-St. Paul metropolitan area. (c) For the purposes of this Section 4.15, a Seller or a Subsidiary shall not be deemed to compete with a Company or Company Subsidiary if it is engaged in the provision of local exchange carrier operations, retail long distance services, or any prohibited retail data services in a Restricted Area by using services of a Company or Company Subsidiary other than on a reseller or competitive local exchange carrier basis, or if it is providing as of the Closing Date any of such services to a customer that is simultaneously being provided service to multiple locations outside a Restricted Area by a Seller or its Subsidiary as of the Closing Date. (d) For purposes of this Section 4.15, a Seller or a Subsidiary shall not be deemed to compete with a Company or Company Subsidiary if it provides any retail long distance service or retail data service to a customer when: (i) it has engaged in seeking to win a bid or otherwise to establish the terms and conditions for the provision of services on a regional, national or global basis to a customer or prospective customer that is not headquartered in a Restricted Area, (ii) it has sought from a Company or Company Subsidiary all of such services that are offered by the Company within a Restricted Area on terms and conditions, including price and assurance of service quality for such services that it reasonably deems necessary to provide such services to such customer and (iii) such Company or Company Subsidiary has failed to timely commit to the provision of such services on the reasonable terms and conditions sought by such Seller or Subsidiary or, if it has made such commitment, has failed to timely provide such services on the terms and conditions to which it has committed. (e) For purposes of this Section 4.15, a Seller or a Subsidiary shall not be deemed to compete with a Company or Company Subsidiary if it provides any retail long distance service or retail data service to a customer when: (i) it has expressed in writing to a Company or Company Subsidiary a firm interest in seeking to win a bid or otherwise to establish the terms and conditions for the provision of services on a regional, national, or global basis to a customer or prospective customer that is headquartered in a Restricted Area, (ii) it has sought from a Company or Company Subsidiary a commitment to team to win the bid or otherwise to provide services offered by the Company or Company Subsidiary to such customer and (iii) such Company or Company Subsidiary has failed to timely provide to the Seller or Subsidiary the right to include such services in a bid on a right of first refusal basis. (f) This Section 4.15 shall not be deemed to prohibit the provision by Seller or a Subsidiary of any wireless service licensed on a multistate basis by the FCC. (g) This Section 4.15 shall not be construed to prohibit any activity by an entity in which a Seller or one of its Subsidiaries has an equity ownership of not more than 15%, or the preexisting operations of any entity that may acquire a Seller or any of its Affiliates. (h) This Section shall not be construed to prohibit the acquisition by Seller or one of its Subsidiaries of any business if, upon such acquisition by a Seller or any of its Subsidiaries, such Seller or Subsidiary uses its reasonable best efforts to divest or dispose as promptly as practicable on commercially reasonable terms that portion of such acquired business that may otherwise cause a breach under this Section 4.15, and the Buyer shall not commence, or if commenced, will immediately discontinue, any efforts to enforce the foregoing covenants with respect to such acquisition by suit, petition for injunction or otherwise, so long as such divestiture or disposal is being pursued in good faith by such Seller or Subsidiary. (i) The Sellers and the Buyer agree that this covenant not to compete and its specific limitations constitute a reasonable covenant under the circumstances and is supported by adequate consideration. 4.16 Transition Plan. Within 30 days after the date hereof, the Buyer shall deliver to the Sellers a list of five proposed representatives to a joint transition team, which shall include expertise from various functional specialties associated or involved in providing billing, payroll and other support services to be provided to the Frontier LEC Business after the Closing. The Sellers will add their five representatives to such team within 15 days after receipt of the Buyer's list. Such team will be responsible for preparing as soon as reasonably practicable after the date hereof but at least 60 days prior to the Closing Date a transition plan which will identify and describe substantially all of the various transition activities that the parties plan to complete before and after the Closing and any other transfer of control matters that any party reasonably believes should be addressed in such transition plan. The Buyer and the Sellers shall use reasonable efforts to cause their representatives on such transition team to cooperate in good faith and take all reasonable steps necessary to develop a mutually acceptable transition plan during such period. Article 5. Conditions to Obligations of the Buyer. -------------------------------------- The obligations of the Buyer to consummate the transactions contemplated by this Agreement are, at its option, subject to satisfaction of each of the following conditions: 5.1 Representations and Warranties. (a) The representations and warranties of the Sellers contained herein (other than the Special Representations) shall be true and correct in all material respects (other than those representations and warranties that are qualified by Material Adverse Effect, which shall be true and correct in all respects) at and as of the Closing Date as though each such representation and warranty were made at and as of such time, other than such representations and warranties as are made as of a specific date, in each case except for changes that are expressly contemplated by this Agreement, and except for such failures to be true and correct that (without regard to materiality concepts therein once such failure is established) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) The representations and warranties of the Sellers contained in Sections 2.4(a), 2.4(c), 2.4(d), 2.5 and 2.6 and the first sentence of Section 2.4(b) (collectively, the "Special Representations") shall be true and correct in all respects at and as of the Closing Date. 5.2 Performance by the Sellers. All of the covenants and agreements to be complied with and performed by the Sellers on or before the Closing Date shall have been complied with or performed in all material respects. 5.3 Certificate. The Sellers shall have delivered to the Buyer a certificate, dated as of the Closing Date, executed on behalf of the Sellers by their duly authorized officers to the effect of Sections 5.1 and 5.2. 5.4 Consents; No Objections. (a) The applicable waiting periods (and any extension thereof) under the HSR Act shall have ex- pired or been terminated; and (b) All approvals for the Sale from the FCC and PUCs, and all material consents from third parties, shall have been obtained and become final and non-appealable (provided that if any appeal or a petition for reconsideration is filed after any such approval has been obtained, such approval shall be deemed to be final and non-appealable unless the Buyer shall have delivered to the Sellers an opinion of counsel rendered in good faith that it is probable that such approval will be reversed and/or vacated upon any such appeal or petition for reconsideration) (i) other than those the failure of which to be obtained would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) without the imposition of conditions that would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or a Buyer Material Adverse Effect. 5.5 No Proceedings or Litigation. No preliminary or permanent injunction or other order issued by any United States federal or state Governmental Authority, nor any Law promulgated or enacted by any United States federal or state Governmental Authority, that restrains, enjoins or otherwise prohibits the transactions contemplated hereby or limits the ability in any respect of the rights of any Company or Company Subsidiary to hold its assets and conduct the Frontier LEC Business as it is being conducted as of the Closing Date such as to have a Material Adverse Effect or a Buyer Material Adverse Effect, or imposes civil or criminal penalties on any stockholder, director or officer of the Buyer if such transactions are consummated, shall be in effect; provided, however, that the provisions of this Section 5.5 shall not be available to any party whose failure to fulfill its obligations pursuant to Section 4.4 shall have been the cause of, or shall have resulted in, such order or injunction. 5.6 No Material Events. Since the date hereof, there have not been any circumstances, changes in or effects on the Frontier LEC Business that, individually or in the aggregate, had or would in the reasonably foreseeable future have a Material Adverse Effect. Article 6. Conditions to Obligations of the Seller. --------------------------------------- The obligations of the Seller to consummate the transactions contemplated by this Agreement are, at its option, subject to satis- faction of each of the following conditions: 6.1 Representations and Warranties. The representations and warranties of the Buyer contained herein shall be true and correct in all material respects (other than those representations and warranties that are qualified by Material Adverse Effect, which shall be true and correct in all respects) at and as of the Closing Date as though each such representation and warranty were made at and as of such time, other than such representations and warranties as are made as of a specific date, in each case except for changes that are expressly contemplated by this Agreement, and except for such failures to be true and correct that (without regard to materiality concepts therein once such failure is established) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the business, results of operations or financial condition of the Buyer and its Subsidiaries, taken as a whole. 6.2 Performance by the Buyer. All of the covenants and agreements to be complied with and performed by the Buyer on or prior to the Closing Date shall have been complied with or performed in all material respects. 6.3 Certificate. The Buyer shall have delivered to the Sellers a certificate, dated as of the Closing Date, executed on behalf of the Buyer by its duly authorized officers to the effect of Sections 6.1 and 6.2. 6.4 Consents; No Objections. (a) The applicable waiting periods (and any extension thereof) under the HSR Act shall have ex- pired or been terminated; and (b) All approvals for the Sale from the FCC and PUCs, and all material consents from third parties, shall have been obtained and become final and non-appealable (provided that if any appeal or a petition for reconsideration is filed after any such approval has been obtained, such approval shall be deemed to be final and non-appealable unless the Seller shall have delivered to the Buyer an opinion of counsel rendered in good faith that it is probable that such approval will be reversed and/or vacated upon any such appeal or petition for reconsideration) (i) other than those the failure of which to be obtained would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and (ii) without the imposition of conditions that would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or an adverse effect (other than an immaterial effect) in the business, results of operations or financial condition of the Sellers or their Subsidiaries (other than the Companies and the Company Subsidiaries). 6.5 No Proceedings or Litigation. No preliminary or permanent injunction or other order issued by any United States federal or state Governmental Authority, nor any Law promulgated or enacted by any United States federal or state Governmental Authority, that restrains, enjoins or otherwise prohibits the transactions contemplated hereby or limits the ability in any respect of the rights of any Company to hold its assets and conduct the Frontier LEC Business as it is being conducted as of the Closing Date such as to have a Material Adverse Effect or an adverse effect (other than an immaterial effect) in the business, results of operations or financial condition of the Sellers or their Subsidiaries (other than the Companies and the Company Subsidiaries), or imposes civil or criminal penalties on any stockholder, director or officer of the Buyer if such transactions are consummated, shall be in effect; provided, however, that the provisions of this Section 5.5 shall not be available to any party whose failure to fulfill its obligations pursuant to Section 4.4 shall have been the cause of, or shall have resulted in, such order or injunction. 6.6 Purchase Price Adjustment Limitation. The Performance Adjustment component of the Estimated Adjustment, if any, shall not ex- ceed $200,000,000. Article 7. Tax Matters. ----------- 7.1 Liability for Taxes. (a) The Sellers shall be liable for and shall indemnify the Buyer as the case may be, for (i) all Taxes (as defined below) imposed on the Companies or Company Subsidiaries, or for which the Companies or Company Subsidiaries may otherwise be liable, for any taxable year or period that ends on or before the Closing Date ("Pre-Closing Tax Periods") and, with respect to any portion of a taxable year or period beginning before and ending after the Closing Date ("Straddle Period"), the portion of such Straddle Period ending on and including the Closing Date, and (ii) all liabilities imposed on the Companies or Company Subsidiaries on or before the Closing Date under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law) for Taxes of the Sellers or any other corporation which is affiliated with Sellers (other than the Companies and Company Subsidiaries). (b) The Buyer shall be liable for, and shall indemnify the Sellers and their Affiliates for, all Taxes imposed on the Sellers or any of their Affiliates with respect to the Companies and Company Subsidiaries for any taxable year or period that begins after the Closing Date and, with respect to a Straddle Period, the portion of such Straddle Period beginning after the Closing Date. (c) For purposes of this Section 7.1, whenever it is necessary to determine the liability for Taxes of the Companies and Company Subsidiaries for a portion of a Straddle Period: (i) real, personal and intangible property Taxes ("property Taxes") for the Pre-Closing Tax Period shall equal to the amount of such property Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in the Pre-Closing Tax Period and the denominator of which is the number of days in the Straddle Period; and (ii) all other Taxes for the Pre-Closing Tax Period shall be determined by assuming that the Companies and Company Subsidiaries had a taxable year or period that ended at the close of the Closing Date. (d) The Buyer covenants that it will not cause or permit any Company or Company Subsidiary or any Affiliate of the Buyer (i) to take any action on the Closing Date other than in the ordinary course of business, including but not limited to the distribution of any dividend or the effectuation of any redemption, that could give rise to any Tax liability or reduce any Tax attribute of the Sellers or any affiliated group of which the Sellers are members or (ii) to make or change any Tax election, amend any Tax Return or take any Tax position on any Tax Return, take any action, omit to take any action or enter into any transaction that results in any increased Tax liability or reduction or any Tax attribute of the Sellers or any affiliated group of which the Sellers are members in respect of any Pre-Closing Tax Period. The Buyer agrees that the Sellers or any affiliated group of which the Sellers are members shall have no Tax liability or reduction of any Tax attribute resulting from any action referred to in the preceding sentence and agrees to indemnify and hold harmless the Sellers or any affiliated group of which the Sellers are members against any such Tax and any loss, liability, claim, damage, expense or Tax in connection therewith. 7.2 Tax Refunds. The Sellers shall be entitled to any refund or credit of any Taxes of the Companies and Company Subsidiaries, including interest paid thereon, with respect to Pre-Closing Tax Periods or the portion of any Straddle Periods ending on and including the Closing Date. The Sellers shall have the right to determine whether any claim for refund for such Taxes shall be made on behalf of the Sellers by the Companies or Company Subsidiaries. If the Sellers elect to make a claim for refund, the Buyer, the Companies and the Company Subsidiaries shall cooperate fully in connection therewith. Notwithstanding the foregoing, the Sellers shall not be entitled to make any claim for refund of Taxes which would materially adversely affect the liability for Taxes of the Buyer, the Companies or the Company Subsidiaries for any period after the Closing Date without the prior written consent of the Buyer; provided, however, that such consent shall not be unreasonably withheld and such consent shall not be necessary to the extent that the Sellers have indemnified the Buyer against the effects of any such settlement. The Sellers shall reimburse the Buyer, the Companies and the Company Subsidiaries for reasonable out-of-pocket expenses incurred in providing such cooperation. 7.3 Adjustment to Purchase Price. The Buyer and the Sellers agree to report any indemnification payment made by the Sellers under Section 7.1 as an adjustment to purchase price, contribution to capital, or other non-taxable amount to the extent that there is substantial authority for such reporting position under applicable law. 7.4 Amended Returns. The Sellers shall be responsible for filing any amended consolidated, combined or unitary Tax Returns for any Pre-Closing Tax Period or Straddle Period of the Company and Company Subsidiaries which are required as a result of examination adjustments made by the Internal Revenue Service or by the applicable state, local or foreign taxing authorities for such taxable years or periods as finally determined; provided, however, that such Tax Returns, to the extent they relate to the Companies or Company Subsidiaries shall be prepared in a manner consistent with past practices to the extent that preparing them in such a manner is permissible by the Internal Revenue Service or by the applicable state, local or foreign taxing authorities. The Sellers shall provide notice to the Buyer of all such provided returns to the extent they relate to the Companies or Company Subsidiaries. For those jurisdictions in which separate Tax Returns are filed by the Company or Company Subsidiaries for any Pre-Closing Tax Period or Straddle Period, any required amended returns resulting from such examination adjustments, as finally determined, shall be prepared by the Sellers and furnished to the Buyer for review and comment ten days prior to the due date for filing such returns and the Sellers shall incorporate all reasonable comments of the Buyer. Buyer shall cause to be executed all waivers of statute of limitations or powers of attorney as may be necessary for Sellers to exercise their rights under this Section. 7.5 Tax Returns. The Sellers shall prepare, or cause to be prepared, and file or cause to be filed when due, including extensions thereof, all Tax Returns that are required to be filed with respect to the Companies and Company Subsidiaries for Pre-Closing Tax Periods and shall pay any Taxes due in respect of such Tax Returns, and the Buyer shall file or cause to be filed when due all Tax Returns that are required to be filed subsequent to the Closing with respect to the Companies and Company Subsidiaries for taxable years or periods beginning and ending after the Closing Date and shall timely pay any Taxes due in respect of such Tax Returns. The Sellers shall have the right to prepare or cause to be prepared all unitary, combined, or consolidated Tax Returns that are required to be filed with respect to the Companies and Company Subsidiaries for any Straddle Period. Buyer shall prepare or cause to be prepared any other Straddle Period Tax Returns. Any such Straddle Period Tax Return (regardless of which party prepares it) shall be prepared in a manner consistent with past practices and without a change of any election or accounting method and shall be submitted by the preparing party to the other party (together with schedules, statements and supporting documentation) at least 30 days prior to the due date (including extension of such Tax Return), provided, however, that with respect to sales tax returns, such returns shall be submitted by the preparing party to the other party at least five days prior to the due date. Such other party shall have the right to review all work papers and procedures used to prepare any such Tax Return solely to the extent that such work papers and procedures relate to the Companies and the Company Subsidiaries. If such other party, within ten Business Days after delivery of any such Tax Return, notifies the preparing party in writing that it objects to any of the items in such Tax Return solely to the extent that such items relate to the Companies or the Company Subsidiaries, the preparing party shall attempt in good faith to resolve the dispute and, if they are unable to do so, the disputed items shall be resolved (within a reasonable time, taking into account the deadline for filing such Tax Return) by an internationally recognized independent accounting firm chosen by and mutually acceptable to both the Buyer and the Sellers. Upon resolution of all such items, the relevant Tax Return shall be adjusted to reflect such resolution and shall be binding upon the parties without further adjustment. The costs, fees and expenses of such accounting firm shall be born equally by the Buyer and the Sellers. 7.6 Tax Contest Provisions. Whenever the Buyer receives a notice of any pending or threatened Tax audit or assessment for any Pre-Closing Tax Period or Straddle Period, the Buyer shall promptly inform the Sellers in writing. The Sellers shall have the right to control, at their own cost, any resulting proceedings respect to any Pre-Closing Tax Period and to determine whether and when to settle any such claim, assessment or dispute. The Buyers and the Sellers shall jointly control any resulting proceedings with respect to any Straddle Period and shall jointly determine whether and when to settle any such claim, assessment or dispute. Notwithstanding the foregoing, the Sellers shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which would materially adversely affect the liability for Taxes of the Buyer, the Companies or the Company Subsidiaries for any period after the Closing Date without the prior written consent of the Buyer. Such consent shall not be unreasonably withheld, and shall not be necessary to the extent that the Sellers have indemnified the Buyer against the effects of any such settlement. Whenever any taxing authority sends a notice of an audit, initiates an examination of any Company or Company Subsidiary or otherwise asserts a claim, makes an assessment or disputes the amount of Taxes for any taxable period beginning after the Closing Date, the Sellers shall promptly inform the Buyer in writing, and the Buyer shall have the right to control, at its cost, any resulting proceedings and to determine whether and when to settle any such claim, assessment or dispute. Notwithstanding the foregoing, the Buyer shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which would materially adversely affect the liability for Taxes of the Sellers without the prior written consent of the Sellers, provided that such consent shall not be unreasonably withheld. The Buyer shall cause to be executed all waivers of statute of limitations or power of attorneys as may be necessary for the Sellers to exercise their rights under this Section. The Buyer shall not execute any waivers of the statute of limitations for the Companies or Company Subsidiaries for any Pre-Closing Period without the consent of the Sellers. 7.7 Termination of Tax Allocation Agreements. Any and all tax allocation or sharing agreements or arrangements, whether or not written, that may have been entered into by and between the Sellers and its affiliates, on the one hand, and the Companies and Company Subsidiaries, on the other hand, shall be terminated as to the Companies and Company Subsidiaries as of the Closing Date, and no payments which are owed by or to the Companies or Company Subsidiaries pursuant thereto shall be made thereunder. After the Closing Date, this Agreement shall be the sole Tax sharing agreement relating to the Companies and Company Subsidiaries for all Pre-Closing Tax Periods. 7.8 Assistance and Cooperation. Each of the Buyer and the Sellers will provide the other with such assistance as may reasonably be requested by each of them in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each provide the other with any records or information which may be relevant to such Tax Return, audit or examination, proceedings or determination. Such assistance shall include making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder and shall include providing copies of any relevant Tax Return and supporting work schedules. The party requesting assistance hereunder shall reimburse the other for reasonable expense incurred in providing such assistance. 7.9 Transfer and Conveyance Taxes. The Sellers, on the one hand, and the Buyer, on the other hand, shall each be liable for and shall pay one-half of all applicable sales, transfer, recording, deed, stamp and other similar taxes, including, without limitation, any real property transfer or gains taxes (if any), resulting from the consummation of the transactions contemplated by this Agreement. 7.10 Global Crossing Options. (a) The Sellers shall be entitled to claim any and all deductions (the "Option Deductions"), for all federal, state, local and foreign purposes, attributable to the exercise by any of the employees of the Frontier LEC Business of any Global stock options, and the Buyer shall not take, nor permit the Companies or Company Subsidiaries to take, any position or action (including, without limitation, the filing of any Tax Returns) which would interfere with, or be inconsistent with, the Sellers claiming the Option Deductions. (b) If, pursuant to a final determination (within the meaning of Section 1313 of the Code), the Sellers are not entitled to claim all or any portion of the Option Deductions, then (i) the Buyer shall, at the Sellers' expense, take all actions, including without limitation, promptly filing, or causing the Companies or Company Subsidiaries to file, amended Tax Returns, as are necessary to allow the Companies or Company Subsidiaries to claim the Option Deductions, and (ii) shall pay, or cause the Companies or Company Subsidiaries to pay, to the Sellers all refunds or credits received by the Sellers or the Companies or Company Subsidiaries attributable to the Option Deductions within ten days after receipt of such refund (or, in the case of a credit, within ten days after the credit is allowed or applied against any other Tax liability). 7.11 Carryback of Net Operating Losses. The Buyer, the Companies and the Company Subsidiaries shall make any and all elections under Section 172(b)(3) of the Code and any corresponding provisions of state, local or foreign law to relinquish the entire carryback period with respect to any net operating loss attributable to the Companies or the Company Subsidiaries in any taxable period beginning after the Closing Date that could be carried back to a taxable year of the Companies or the Company Subsidiaries ending on or before the Closing Date. 7.12 Survival. Claims for indemnification under Section 7.1 shall survive until the expiration of the applicable statute of the limitations (including any extensions or waivers of such statutes). Article 8. Employee Benefit and Labor Matters. ---------------------------------- 8.1 Continuation of Employee Benefits. From and after the Closing Date and except as otherwise expressly provided in this Article 8, the Buyer shall, and shall cause the Companies and Company Subsidiaries to: (a) Provide, until three years after the Closing Date (the "Benefit Continuation Period"), benefits that in the aggregate are no less favorable than the benefits provided, in the aggregate, under the Employee Benefit Plans to the current employees of the Frontier LEC Business (the "Business Employees") immediately prior to the Closing. For purposes of this Agreement, "Business Employees" shall refer only to those individuals who are actively employed by the Frontier LEC Business on the Closing Date, or who are on vacation, disability, family leave, layoff or other leaves of absence which have been agreed or consented to (or protected by applicable law) on such Closing Date and who in any case where they are not actively employed on the Closing Date actually return to active service with the Surviving Corporation of the Buyer within 12 months (or such longer period protected by applicable law) after the Closing Date. Not in limitation of the foregoing but for clarification, during the Benefit Continuation Period the Buyer shall, or shall cause the Companies and Company Subsidiaries, to maintain a severance program that provides payments and benefits to Business Employees whose employment terminates during such period that are not less than the payments and benefits provided for under the Change in Control Severance Plan for Salary Band Levels 25 and above, as maintained by GCNA (the "Severance Plan") (assuming, for purposes of such plan, that a change of control has already occurred) for the same type of termination. Notwithstanding the foregoing, nothing herein shall require (i) the continuation of any particular employee benefit plan or contribution levels or prevent any amendment or termination thereof (subject to the maintenance, in the aggregate, of the benefits as provided in the preceding sentence) or (ii) require the Buyer to continue or maintain any stock purchase or other equity plan related to the equity of Global or the Buyer. Notwithstanding the foregoing, until September 29, 2001, the Buyer shall, or shall cause the Company and the Company Subsidiaries to, maintain benefits that are equivalent to the benefits provided under the Employee Telecommunications Benefit program, the Educational Assistance Fund, the Educational Assistance Program and the Executive Perquisite program; provided, however, that Sellers shall assume or retain all liabilities with respect to benefits accrued or payable under the foregoing four programs to the extent incurred as of the Closing Date (which for purposes of the Educational Assistance Fund shall mean that any four-year scholarship awarded prior to the Closing Date shall be deemed incurred with respect to all four years of such scholarship so long as the student remains eligible for such scholarship under the terms of such Fund). In the event of any sale, transfer or other disposition by the Buyer of all or any part of the Frontier LEC Business or of the Companies and/or the Company Subsidiaries (whether by merger, sale of stock or assets or otherwise) (any such event, a "Sale") prior to the end of the Benefit Continuation Period, the Buyer shall cause any such purchaser to assume and perform all obligations of the Buyer under this Section 8.1(a) for not less than the balance of the Benefit Continuation Period. (b) (i) Waive any limitations to pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Business Employees under any welfare benefit plan in which such employees may be eligible to participate after the Closing to the extent that such limitations did not apply or had been satisfied by such Business Employees and their covered dependents, (ii) provide each Business Employee with credit for any co-payments and deductibles paid prior to the Closing for the year in which the Closing occurs in satisfying any applicable deductible or out-of- pocket requirements under any welfare benefit plan in which such employees may be eligible to participate after the Closing, and (iii) recognize all service of the Business Employees rendered as employees of the Sellers, and during the period that the Companies and the Company Subsidiaries were Subsidiaries of the Sellers, for all purposes (including, without limitation, purposes of eligibility to participate, vesting credit, entitlement for benefits, and benefit accrual (except for purposes of benefit accrual under any defined benefit cash balance pension plan) in any benefit plan in which such employees may be eligible to participate after the Closing, to the same extent taken into account under a comparable Employee Benefit Plan immediately prior to the Closing Date. 8.2 Termination of Participation in Employee Benefit Plans; Defined Benefit Pension Plans. Except as set forth herein, the Buyer shall not, and shall cause the Companies and Company Subsidiaries not to, assume any Employee Benefit Plans maintained or sponsored by the Sellers. Effective as of the Closing Date, the Business Employees shall cease to participate in any of the Employee Benefit Plans maintained or sponsored by the Sellers, and the Companies and Company Subsidiaries shall cease to be contributing employers under any Employee Benefit Plan. In addition, with respect to any Employee Benefit Plan that is a defined benefit pension plan (collectively, the "Sellers' Pension Plans"), the Sellers shall not transfer any assets or liabilities with respect to any Business Employees who participated in any such plans immediately prior to the Closing Date; provided, however, that the Sellers shall cause the applicable Sellers' Pension Plans to recognize all service provided by the Business Employees after the Closing Date to the Buyer, the Companies and the Company Subsidiaries (collectively, the "Buyer Group") for purposes of eligibility for the commencement of benefits thereunder; and provided, further, in connection with the foregoing, (i) Buyer shall, or shall cause the applicable member of the Buyer Group, to provide the Sellers with written notice of the termination of employment occurring after the Closing Date of any Business Employee who participated in the Sellers' Pension Plan prior to the Closing Date (a "Termination Notice") and (ii) in the event of any Sale whereby the Business Employees are transferred from Buyer or otherwise outside of the Buyer Group, (x) Buyer shall, or shall cause the applicable member of the Buyer Group to continue to provide such Termination Notice even after such Sale or (y) Buyer shall cause the acquiring entity to agree to provide such Termination Notice after such Sale. 8.3 Defined Contribution Plan. (a) As soon as reasonably practicable after the Closing Date, the Buyer shall, or shall cause the Buyer Group to, provide a defined contribution plan for the benefit of the Business Employees (which plan may be an existing plan or plans of the Buyer) (the "Successor 401(k) Plan"), that has those features that are provided for in the Sellers' 401(k) Plan, which are required by Section 411(d)(6) of the Code to be provided by the Successor 401(k) Plan (the "Protected Benefits"). In addition, the Buyer shall, or shall cause the Buyer Group to, take all necessary actions, if any, to qualify such plan under the applicable provisions of the Code and shall make any and all filings and submissions to the appropriate governmental agencies required to be made by it in connection with the transfer of assets described below. As soon as reasonably practicable following the delivery to the Sellers of a favorable determination letter from the Internal Revenue Service regarding the qualified status of the Successor 401(k) Plan (or, if earlier, the delivery of an opinion of the Buyer's counsel, reasonably satisfactory to the Sellers, to such effect), the Sellers shall cause the trustee of the Sellers' 401(k) Plan to transfer, in the form of cash and marketable securities (or such other form as may be agreed by the Buyer and the Sellers) (the "Assets"), the full account balances of the Business Employees (which account balances shall be fully vested) under the Sellers' 401(k) Plan (which account balances will have been credited with appropriate earnings attributable to the period from the Closing Date to the date of transfer described herein), reduced by any necessary benefit or withdrawal payments to or in respect of Business Employees occurring during the period from the Closing Date to the date of transfer described herein, to the appropriate trustee as designated by the Buyer under the trust agreement forming a part of the Successor 401(k) Plan. With respect to that portion of the Assets that is comprised of shares of capital stock of Global ("Global Stock"), Buyer shall cause the trustee of the Successor 401(k) Plan to hold such shares in trust for the benefit of the Business Employees until such time as any such employee elects to dispose of his or her shares; and provided, further, that in no event shall the Successor 401(k) Plan be required to permit participants to otherwise invest in Global Stock, whether with additional contributions made into such plan, reallocation of other Assets of a participant's account, or otherwise. In consideration for the transfer of assets described herein, the Buyer shall, or shall cause the Buyer Group to, effective as of the date of transfer described herein, assume all of the obligations of the Sellers in respect of the account balances accumulated by Business Employees under the Sellers' 401(k) Plans on or after the Closing Date. (b) Notwithstanding anything provided in Section 8.3(a) to the contrary, in the event that the provision of the Protected Benefits would impose upon the Buyer or the Buyer Group material costs and expenses of administration that the parties reasonably agree would impose an unreasonable and substantial burden on the Buyer (or the Buyer Group, as applicable), the trustee of the Successor 401(k) Plan shall not be required to accept the transfer of account balances from the Sellers' 401(k) Plan pursuant to Section 8.3(a); provided, however, the parties agree that it would constitute an unreasonable and substantial burden on Buyer or the Buyer Group if the Buyer were required, solely for the purposes of accepting the trustee-to-trustee transfer of Assets (pursuant to Section 8.3(a), above), to establish a new and separate defined contribution plan. In lieu of such trustee-to-trustee transfer, the Sellers shall take any actions reasonably necessary to provide for a distribution to the Business Employees of their vested account balances pursuant to Section 401(k)(10) of the Code, to the extent that such employees elect to receive such distributions, and the Buyer shall, or shall cause the Buyer Group to, take any actions reasonably necessary to cause the Successor 401(k) Plan to receive any such distributions (in cash and in shares of Global Stock, as applicable) which any such Business Employee may elect to roll over into such 401(k) plan. In addition, in the event any such Business Employee elects to roll over his or her vested account balances into the Successor 401(k) Plan, the Buyer shall take all actions necessary to permit such Business Employee to roll over any loan balance outstanding under the Sellers 401(k) Plan prior to the Closing Date, to the extent permitted by applicable Law. (c) Notwithstanding anything in this Agreement to the contrary, in no event shall the Sellers transfer, or cause to be transferred, the assets, if any, of, or liabilities with respect to the Business Employees under, either the Supplemental Management Pension Plan or the Supplemental Retirement Savings Plan. 8.4 Post-Retirement Benefits. (a) Sellers shall retain or assume the liability for all post-retirement medical and/or life insurance benefits (the "Post Retirement Welfare Benefits") for (i) any former employee of the Frontier LEC Business who, as of the Closing Date, was either retired or otherwise terminated employment with the Sellers prior to the Closing Date and was entitled to Post-Retirement Welfare Benefits from the Sellers at such time, or (ii) is a non-Union Employee, whether or not eligible for post-retirement welfare benefits as of the Closing Date (even if they continue their employment with the Buyer or the Buyer Group after the Closing Date); provided, however, that the foregoing benefits shall be secondary to any medical or life insurance benefit coverage that such a person described in clauses (i) or (ii), above may otherwise be eligible to receive under any plan, program or arrangement provided by the Buyer or any member of the Buyer Group or pursuant to any Assumed CBAs. (b) With respect to any Business Employee who is a Union Employee as of the Closing Date, the Buyer shall assume all liabilities, obligations and responsibilities with respect to providing Post-Retirement Welfare Benefits, if any, to such employees under any Assumed CBAs or any Post-Retirement Welfare Benefits programs which the Buyer or the Buyer Group maintain for such employees after the Closing Date. (c) As soon as practicable on or after the Closing Date, the Sellers shall transfer any assets that are dedicated or otherwise allocated exclusively for the purpose of funding and determining the accrued liability with respect to the Post-Retirement Welfare Benefits of the Union Employees assumed by the Buyer pursuant to Section 8.4(b), above. To the extent such transfer occurs after the Closing Date, the amount of the transfer shall equal the assets as of the Closing Date plus the interest on such assets accrued from the Closing Date to the date the assets are transferred hereunder, at a rate equal to the assumed discount rate used to value the foregoing liability as of the Closing Date (as set forth in the Buck Consulting Report), adjusted by any contributions made by, or payments made to, the Union Employees in respect of the Post-Retirement Welfare Benefits prior to the date the foregoing assets are transferred. 8.5 Collective Bargaining Agreements. Effective on and after the Closing Date, the Buyer shall assume all of the collective bargaining agreements (including, without limitation, pursuant to the specified provisions of the collective bargaining agreements set forth in Section 8.5 of the Disclosure Schedule) (all such agreements, the "Assumed CBAs") and other labor contracts with respect to any Business Employees existing immediately prior to the Closing Date (including, without limitation, the obligation, if any, to contribute to any multiemployer pension or welfare plans) and to continue, to the extent required under such agreements and other contracts, to employ all of the Business Employees covered by such agreements, whether or not then actively at work, including, without limitation, any Business Employees who are on vacation leave, leave of absence, sick leave or disability leave for the periods set forth therein. The Buyer shall also honor any reemployment rights of any current or former Business Employees including, but not limited to, any such persons who are receiving long-term disability benefits as of the Closing Date. 8.6 WARN. On and for 90 days after the Closing Date, the Buyer shall not, and shall cause the Companies and Company Subsidiaries not to, implement any employment terminations, layoffs or hours reductions or take any other action which could result in a "plant closing" or "mass layoff", as those terms are defined in the Worker Adjustment and Retraining Notification Act of 1988 ("WARN") or similar events under applicable state law, affecting in whole or in part any facility, site of employment or operating unit, or any employee employed by any Company or Company Subsidiary, or which could require either Seller, any Company or Company Subsidiary or the Buyer to give notice or take any other action required by WARN or applicable state law. 8.7 Annual Incentive Compensation. On the Closing Date, the Sellers shall pay, or cause to be paid, to all Business Employees a pro rata portion of any bonuses otherwise payable in respect of the fiscal year in which the Closing Date occurs (the "Bonuses") pursuant to the Sellers' annual incentive compensation plans. The amount of such Bonuses shall be calculated based on the amounts accrued in respect of such Bonuses on the books and records of the Frontier LEC Business as of the end of the month immediately preceding the month in which the Closing Date occurs, which Bonuses would otherwise be payable after the end of the applicable fiscal year. Article 9. Indemnification. --------------- 9.1 Indemnification by the Sellers. Subject in all respects to the provisions of this Article 8, the Sellers hereby agree jointly and severally to indemnify and hold harmless the Buyer and its Affiliates, officers, directors, employees, agents and representatives after the Closing Date from and against any Claims and Damages incurred by them arising out of or resulting from (a) any breach on the part of the Sellers of (i) any representation or warranty made by the Sellers in Article 2 hereof (other than those set forth in Section 2.17) or in any certificate delivered pursuant to this Agreement or (ii) any covenant or agreement made by the Sellers in this Agreement; or (b) any matter on the Probable Liabilities List to the extent that the amount of the expense and/or loss for such matter becomes capable of being "reasonably estimated" (within the meaning of such term under GAAP and determined on a basis consistent with that used to determine the Probable Liabilities List) within 18 months after the Closing Date (a "Liability Claim"). 9.2 Indemnification by the Buyer. Subject in all respects to the provisions of this Article 8, the Buyer hereby agrees, and shall cause the Companies and Company Subsidiaries, jointly and severally to indemnify and hold harmless the Sellers and their respective Affiliates, officers, directors, employees, agents and representatives after the Closing Date from and against any Claims and Damages incurred by them arising out of or resulting from (a) any breach on the part of the Buyer of (i) any representation or warranty made by the Buyer in Article 3 hereof or in any certificate delivered pursuant to this Agreement or (ii) any covenant or agreement made by the Buyer in this Agreement; or (b) any obligation or liability reflected in the Combined Liabilities or Combined Working Capital used to adjust the Purchase Price pursuant to Section 1.3 to the extent so reflected. 9.3 Limitations on Indemnification Claims and Liability. (a) The respective representations and warranties of the Sellers and the Buyer set forth in this Agreement or in any certificate delivered pursuant to this Agreement, and the opportunity to make a claim for indemnification, or otherwise be indemnified or held harmless, under this Article 9 with respect thereto or with respect to (i) any covenant or agreement relating to any action required by this Agreement to be taken prior to or at the Closing or (ii) any Liability Claim shall survive until, and expire with, and be terminated and extinguished upon, the date that is 18 months after the Closing Date. Any and all covenants and agreements relating to any action required by this Agreement to be taken after the Closing and the obligation of the Buyer with respect to Section 9.2(b) shall survive the Closing forever and shall not expire with, and be terminated and extinguished upon, the Closing. (b) The Sellers shall not be obligated to indemnify or hold harmless any Indemnified Party under Section 9.1 (i) for any Claims or Damages incurred by such Indemnified Party in connection with any individual occurrence or related series of occurrences that do not exceed $25,000 or (ii) unless and until Claims or Damages in respect of the indemnification obligations of the Sellers under Section 9.1 exceed in the aggregate $50,000,000, following which (subject to the provisions of this Article 9) the Sellers shall be obligated to indemnify or hold harmless an Indemnified Party only for such Claims or Damages which, when aggregated with all other Claims and Damages indemnified under Section 9.1, exceed such threshold amount or (iii) to the extent that Claims or Damages, when aggregated with all other Claims and Damages indemnified under Section 9.1, exceed $200,000,000 or (iv) for any matter reflected in the Combined Liabilities or Combined Working Capital to the extent used to adjust the Purchase Price pursuant to Section 1.3. For purposes of this Section 9.3(b), the amount of any Claims and Damages shall be computed as set forth in Section 9.4. (c) In addition to the foregoing limitations and any other limitations under this Agreement, the Sellers shall not be obligated to indemnify or hold harmless any Indemnified Party under Section 9.1(b) unless and until Claims or Damages in respect of Liability Claims exceed in the aggregate the aggregate amount of all matters on the Probable Assets List for which the asset values of such matters have become capable of being "reasonably estimated" (within the meaning of such term under GAAP and determined on a basis consistent with that used to determine the Probable Assets Lists) within 18 months after the Closing Date. To the extent that any matter or any additional matter on the Probable Asset List becomes so capable of being "reasonably estimated" after an indemnification payment has been made with respect to a Liability Claim, the Buyer or its Affiliate shall promptly repay to the GCNA such amount of the indemnification payment as would not have been paid had the asset value of such matter reduced the original payment (and any such repayment shall be a credit against any applicable indemnification threshold or limitation set forth in Section 9.3(b) hereof) at such time or times and to the extent such matters become so estimable. (d) Notwithstanding anything to the contrary in this Agreement, the indemnifications in Sections 9.1 and 9.2 hereof will be the sole and exclusive remedies available to the Buyer or the Sellers, or any of their respective Affiliates, officers, directors, employees, agents or representatives, after the Closing for breaches of any representations or warranties in this Agreement, or any certificate delivered pursuant to this Agreement, or any covenants or agreements contained in this Agreement (other than with respect to any covenant or agreement relating to any action required by this Agreement to be taken after the Closing or to obligations or liabilities reflected in Combined Liabilities or Combined Working Capital), or otherwise in connection with this Agreement (other than as provided by Articles 1, 7 and 8). Any claim for indemnification must be made as provided in Sections 9.5, 9.6 and 9.7 hereof. 9.4 Computation of Claims and Damages. Whenever an Indemnifying Party is required to indemnify and hold harmless an Indemnified Party from and against and hold the Indemnified Party harmless from, or to reimburse the Indemnified Party for, any item of Claim or Damage under this Agreement, the Indemnifying Party will, subject to the provisions of this Article 9, pay the Indemnified Party the amount of the Claim or Damage (i) reduced by any amounts to which the Indemnified Party actually recovers from third parties in connection with such Claim or Damage ("Reimbursements"), (ii) reduced by the Net Proceeds of any insurance policy payable to the Indemnified Party with respect to such Claim or Damage and (iii) reduced appropriately to take into account any Tax Benefit to the Indemnified Party with respect to such Claim or Damage, net of all income Taxes resulting from the indemnification payment. For purposes of this Section 9.4, (x) "Net Proceeds" shall mean the insurance proceeds actually paid, less any deductibles, co-payments, premium increases, retroactive premiums or other payment obligations (including attorneys' fees and other costs of collection) that relates to or arises from the making of the claim for indemnification and (y) "Tax Benefit" shall mean any benefit actually realized by the Indemnified Party in connection with the Claim or Damage. The Indemnified Party shall use reasonable best efforts to pursue Reimbursements or Net Proceeds that may reduce or eliminate Claims and Damages and otherwise to mitigate Claims and Damages. If any Indemnified Party receives any Reimbursement or Net Proceeds, or realizes a Tax Benefit, after an indemnification payment is made which relates thereto, the Indemnified Party shall promptly repay to the Indemnifying Party such amount of the indemnification payment as would not have been paid had the Reimbursement, Net Proceeds or Tax Benefit reduced the original payment (and any such repayment shall be a credit against any applicable indemnification threshold or limitation set forth in Section 9.3(b) hereof) at such time or times as and to the extent that such Reimbursement or Net Proceeds is actually received or such Tax Benefit is actually realized. The Indemnified Party shall make available to the Indemnifying Party and its agents and representatives all pertinent records, materials and information, and provide reasonable access during normal business hours to the Indemnified Party's employees, properties, books and records, and shall otherwise cooperate with and assist the Indemnifying Party and its agents and representatives in reviewing the propriety and the amount of any Claims or Damages, including, without limitation, the availability and/or amounts of Reimbursements, Net Proceeds and Tax Benefits. 9.5 Notice of Claims. Upon obtaining actual knowledge of any Claim or Damage which has given rise to, or could reasonably give rise to, a claim for indemnification hereunder, the party seeking indemnification (the "Indemnified Party") shall, as promptly as reasonably practicable (but in no event later than 30 days) following the date the Indemnified Party has obtained such knowledge, give written notice (a "Notice of Claim") of such claim to the party or parties from which indemnification is or will be sought under this Article 9 (the "Indemnifying Party"). The Indemnified Party shall furnish to the Indemnifying Party in good faith and in reasonable detail such information as the Indemnified Party may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). No failure or delay by the Indemnified Party in the performance of the foregoing shall reduce or otherwise affect the obligation of the Indemnifying Party to indemnify and hold the Indemnified Party harmless, except to the extent that such failure or delay shall have materially adversely affected the Indemnifying Party's ability to defend against, settle or satisfy any liability, damage, loss, claim or demand for which such Indemnified Party is entitled to indemnification hereunder. For purposes of this Section 9.5, (i) a Notice of Claim given in good faith must include to the extent then practicable a good faith estimate of the amount of the claim and (ii) a Notice of Claim shall be deemed to have been given as of the date the Probable Liabilities List is agreed upon or otherwise determined with respect to Liability Claims. Notwithstanding anything to the contrary in this Agreement, no identification of any party as an "Indemnifying Party" for purposes of any of the provisions of this Agreement shall constitute any acknowledgment by such party that it is liable to any Person under this Article 9. 9.6 Defense of Third Party Claims. If any claim set forth in the Notice of Claim given by an Indemnified Party pursuant to Section 9.5 hereof is a claim asserted by a third party, the Indemnifying Party shall have 30 days after the date that the Notice of Claim is given or deemed given by the Indemnified Party to notify the Indemnified Party in writing of the Indemnifying Party's election to defend such third party claim on behalf of the Indemnified Party. If the Indemnifying Party elects to defend such third party claim, the Indemnified Party shall make available to the Indemnifying Party and its agents and representatives all witnesses, pertinent records, materials and information in the Indemnified Party's possession or under the Indemnified Party's control as is reasonably required by the Indemnifying Party and shall otherwise cooperate with and assist the Indemnifying Party in the defense of such third party claim. Regardless of which party is defending such third party claim, the Indemnified Party shall not pay, settle or compromise such third party claim without the consent of the Indemnifying Party. If the Indemnifying Party elects to defend such third party claim, the Indemnified Party shall have the right to participate in the defense of such third party claim, at the Indemnified Party's own expense. In the event, however, that the Indemnified Party reasonably determines that representation by counsel to the Indemnifying Party of both the Indemnifying Party and the Indemnified Party may present such counsel with a conflict of interest, then such Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and the Indemnifying Party will, subject to the provisions of this Article 9, pay the reasonable fees and disbursements of such counsel when due under such counsel's customary billing practices. If the Indemnifying Party does not elect to defend such third party claim or does not defend such third party claim in good faith, the Indemnified Party shall have the right, in addition to any other right or remedy it may have hereunder, at the Indemnifying Party's expense, to defend such third party claim; provided, however, that such Indemnified Party's defense of or its participation in the defense of any such third party claim shall not in any way diminish or lessen the indemnification obligations of the Indemnifying Party under this Article 9. If the Indemnifying Party subsequently reasonably determines that the Indemnified Party is not defending such third party claim in good faith, the Indemnifying Party shall have the right, in addition to any other right or remedy it may have hereunder, to elect to assume the defense of such third party claim and, to the extent that the Indemnified Party has not defended such third party claim in good faith, and whether or not the Indemnifying Party shall have subsequently assumed the defense thereof, the indemnification obligations of the Indemnifying Party under this Article 9 shall be reduced or eliminated to the extent that such failure to defend in good faith shall have materially adversely affected the Indemnifying Party's ability to defend against, settle or satisfy any liability, damage, loss, claim or demand for which such Indemnified Party is otherwise entitled to indemnification hereunder. 9.7 Special Indemnification Procedures with Respect to Environmental Matters. (a) Notwithstanding anything to the contrary in this Agreement, with respect to any potential claim for indemnification in connection with, arising out of or resulting from any breach on the part of the Sellers of (i) any representation or warranty made by the Sellers in Section 2.13 hereof, or in any other section of this Agreement or in any certificate delivered pursuant to this Agreement relating to matters relating to Environmental Laws or Hazardous Materials, (ii) any covenant or agreement made by the Sellers in this Agreement relating to matters relating to Environmental Laws or Hazardous Materials or (iii) any Liability Claim relating to matters relating to Environmental Laws or Hazardous Materials, which claim relates to the costs of remediation of environmental conditions (each, a "Remediation Claim"), the Notice of Claim given to the Sellers pursuant to Section 9.5 hereof shall be required to set forth the condition requiring such remediation, the proposed remedial actions (including the scope of work to be performed) (each, a "Remediation Action") and an estimate of the cost of such remediation. The Sellers shall be given the right to consult with the Buyer of the Remediation Action covered under this Section 9.7. The Indemnified Party shall consult in good faith with the Sellers and their representatives with respect to all aspects of the proposed Remediation Claim specified in the Notice of Claim, including, without limitation, the form and substance of any communications plan, report or submission to be given to any Governmental Authority with respect to any Remediation Action. The costs of any environmental surveys or testing, geologic testing or engineering tests conducted in connection with any potential or proposed Environmental Claim (other than those required by a Governmental Authority in connection with an identified potential or proposed Environmental Claim), including laboratory and analytical fees, or any consultants or engineers engaged to assist in any review related thereto, shall be paid for by the party conducting such surveys, testing or tests or engaging such consultants or engineers. (b) With respect to any Remediation Actions in excess of $500,000 in the aggregate, the Indemnified Party shall, to the fullest extent practicable, seek in good faith competitive written bids from at least three qualified sources prior to having any of such Remediation Actions performed. To the extent that any Indemnified Party will be seeking indemnification under the provisions of this Article 9, with respect to a Remediation Action, indemnification with respect to such Remediation Action shall be limited to that required to comply with Environmental Laws and the Indemnified Party shall use its reasonable best efforts to minimize the amount of any Remediation Claim in connection therewith. (c) The procedures specified in Sections 9.7(a) and 9.7(b) above are provided solely for the purpose of determining the amount of the indemnification to which an Indemnified Party is entitled under Section 9.1 hereof with respect to a Remediation Claim. Nothing herein shall be construed to restrict or limit in any way the remedial actions actually undertaken or costs of remediation actually incurred with respect thereto. 9.8 Probable Liabilities and Assets Lists. (a) Pursuant to the procedures and in accordance with the time schedules set forth in Section 1.4, the parties shall agree upon (or in the case of a Neutral Auditor Determination, there shall be determined for the parties pursuant to Section 1.4) a list (the "Probable Liabilities List") of matters (the "Probable Liabilities") that both (i) with respect to which, as of the Closing Date, it is "probable" (within the meaning of such term under GAAP consistently applied and on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) and as set forth in Schedule 1.3 hereto) that a liability has been incurred and (ii) would have been reflected in the Combined Liabilities for purposes of determining the Liabilities Adjustment or in Combined Working Capital for purposes of determining the Working Capital Adjustment, in each case pursuant to Section 1.3(a) in conformity with GAAP (including, without limitation, the materiality concepts thereof) consistently applied and on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) and as set forth in Schedule 1.3 hereto, but for the fact that, as of the Closing Date, the amount of the expense and/or loss for such matter cannot be "reasonably estimated" (within the meaning of such term under GAAP). (b) Pursuant to the procedures and in accordance with the time schedules set forth in Section 1.4, the parties shall agree upon (or in the case of a Neutral Auditor Determination, there shall be determined for the parties pursuant to Section 1.4) a list (the "Probable Assets List") of matters (the "Probable Assets") that both (i) with respect to which, as of the Closing Date, it is "probable" (within the meaning of such term under GAAP consistently applied and on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) and as set forth in Schedule 1.3 hereto) that a current or long-term receivable of the Companies or Company Subsidiaries exists and (ii) would have been reflected in the books and records of the Frontier LEC in conformity with GAAP (including, without limitation, the materiality concepts thereof) consistently applied and on the basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of section 2.6(a) and as set forth in Schedule 1.3 hereto, but for the fact that, as of the Closing Date, the value of such asset cannot be "reasonably estimated" (within the meaning of such term under GAAP). Article 10. Definitions. ----------- Unless otherwise stated in this Agreement, the following capitalized terms have the following meanings: Access Line means a physical circuit over which calls are switched in the telephone central offices, and over which calls can be directed to other Access Lines on the Public Switched Network or received from other Access Lines connected to the Public Switched Network. In counting the number of Access Lines, (i) each digital T1 circuit (which can be channelized into 24 separate voice-grade equivalent lines) is counted as 24 Access Lines by the Companies and Company Subsidiaries in Rochester, New York; Illinois; Michigan; and Wisconsin, (ii) each PRI circuit (a T1 circuit used to provision ISDN service) is counted as 23 Access Lines, (iii) both retail and wholesale market segments are included in the Access Line counts in the Rochester, New York market and (v) telephone lines used for internal business purposes ("official" lines) are excluded from Access Line counts. Action means any action, suit, claim, arbitration, or proceeding or investigation (of which the Sellers or the Buyer, as the case may be, have knowledge) commenced by or pending before any Governmental Authority. Adjustment has the meaning set forth in Section 1.4 hereof. Affiliate means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such specified Person. Agreement or this Agreement means this Purchase Agreement dated as of the date first above written (including the Annexes and Exhibits hereto and the Disclosure Schedule) and all amendments hereto made in accordance with the provisions of Section 11.7 hereof. Asset Purchase Agreement has the meaning set forth in Section 2.21 hereof. Buck Consulting Report means the report dated March 23, 2000 by Buck Consulting relating to the January 1, 1999 valuation of the post-retirement non-pension benefits of Global Crossing Telecommunications. Business Day means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York. Business Employee has the meaning set forth in Section 8.1 hereof. Buyer has the meaning specified in the introductory paragraph to this Agreement. Buyer Material Adverse Effect means a material adverse effect on the business, results of operations or financial condition of the Buyer and its Subsidiaries (not including the Companies and the Company Subsidiaries), taken as a whole; provided that, for such purpose, "material adverse effect" shall be determined on the basis of the same magnitude of effect as that used to determine a Material Adverse Effect. Buyer Group has the meaning set forth in Section 8.2 hereof. Capital Expenditure Cash Fund has the meaning set forth in Section 4.13 hereof. Carrier Services Agreement has the meaning set forth in Section 2.21 hereof. CERCLA means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. Claims and Damages means, except as otherwise expressly provided in this Agreement, any and all losses, claims, demands, liabilities, obligations, actions, suits, orders, statutory or regulatory compliance requirements, or proceedings asserted by any Person (including, without limitation, Governmental Authorities), and all damages, costs, expenses, assessments, judgments, recoveries and deficiencies, including, to the extent required pursuant to Article 8, reasonable attorneys' fees and costs, incurred by or awarded against a party to the extent indemnified in accordance with Article 8 hereof, but shall not include any consequential, special, multiple, punitive or exemplary damages, except to the extent such damages have been recovered by a third party and are the subject of a third party claim for which indemnification is available under the express terms of Article 8 hereof. Closing has the meaning set forth in Section 1.6 hereof. Closing Cash Payment has the meaning set forth in Section 1.3 hereof. Closing Date has the meaning set forth in Section 1.6 hereof. Closing Statement has the meaning set forth in Section 1.4 hereof. Code means the Internal Revenue Code of 1986, as amended. Combined Liabilities means all long-term liabilities (which does not include contra asset accounts including, but not limited to, accumulated deprecation or allowance for uncollectible accounts) properly recorded on a combined balance sheet for the Company and the Company Subsidiaries excluding the following: (i) deferred taxes to the extent they reflect timing differences, (ii) deferred investment tax credits, (iii) minority interests (to the extent they are non-cash in nature and permitted under this Agreement), (iv) deferred revenues, (v) any amount included in the definition of "Working Capital," (vi) all accrued employee benefit or pension obligations (A) with respect to which assets will be transferred to the Buyer or Buyer Group, or obligations are assumed by the Sellers, pursuant to Article 8 or (B) which have been established by or at the direction of the Buyer, (vii) liabilities created from or in connection with the obtaining of any Required Consents or other consents or approvals for the Sale from third parties or under Regulatory Law (provided that one-half of any liabilities accrued as of the date of the combined balance sheet in conformity with GAAP consistently applied that were created from or in connection with the obtaining of Required Consents from PUCs (other than where the Companies or Company Subsidiary receive a corresponding asset) shall be included in Combined Liabilities up to a maximum, when aggregated together with any current liabilities created from or in connection with the obtaining of such Required Consents from PUCs included in the calculation of Combined Working Capital, of $15,000,000), (viii) any other "non-cash" liabilities, (ix) Taxes to the extent they are subject to Article 7 and (x) all intercompany liabilities (other than those that are not canceled pursuant to Section 4.13(a)), all of the foregoing as determined on a combined basis for the Companies or Company Subsidiaries in conformity with GAAP consistently applied and on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) or as expressly required in this definition. For purposes of determining Combined Liabilities, the liability attributable to the long-term portion of the Post-Retirement Welfare Benefits of Union Employees shall be calculated using the same actuarial assumptions that were used to determine the financial statement disclosures as of December 31, 1999 in the Buck Consulting Report. To the extent that, due to tax timing differences, any Tax deduction relating to any liability included in Combined Liabilities will not be available in a Pre-Closing Tax Period, Combined Liabilities shall be reduced appropriately to take into account any Tax Benefit (as defined in Section 9.4) actually realized at or prior to the time of calculation of the Adjustment to the Buyer with respect to such liability; and if the Buyer actually realizes a Tax Benefit after the Adjustment has been determined, the Buyer shall promptly pay to GCNA such additional amount as would have been paid as Purchase Price had the Tax Benefit reduced the original calculation of Combined Liabilities, at such time or times as and to the extent that such Tax Benefit is actually realized. Combined Working Capital means, without duplication, the aggregate of (i) all cash and cash equivalents (other than the Capital Expenditure Cash Fund), accounts receivables and other receivables (less the reserve for uncollectible accounts), prepaid expenses (including prepaid Taxes), security deposits, inventories, supplies, any other current assets and deferred income Taxes recorded as a current asset (but excluding any intercompany accounts) less (ii) all accounts payable, accrued expenses and current liabilities, other accruals, salaries, bonuses and commissions payable, the current portion of long-term Indebtedness and deferred income Taxes recorded as a current liability (but excluding (1) any intercompany accounts (other than intercompany payables that are not canceled pursuant to Section 4.13(a)), (2) all accrued employee benefit obligations (A) with respect to which assets will be transferred to the Buyer or Buyer Group, or obligations are assumed by the Sellers, pursuant to Article 8 or (B) which have been established by or at the direction of the Buyer, (3) Taxes to the extent they are subject to Article 7 and (4) liabilities created from or in connection with the obtaining of any Required Consent or other consents or approvals for the Sale of third parties or under any Regulatory Law (provided that one-half of any current liabilities accrued as of the date of the combined balance sheet in conformity with GAAP consistently applied that were created from or in connection with the obtaining of Required Consents from PUCs (other than where the Companies or Company Subsidiaries receive a corresponding asset) shall be included in the calculation of Combined Working Capital up to a maximum, when aggregated together with any long-term liabilities created from or in connection with the obtaining of such Required Consents from PUCs included in the calculation of Combined Liabilities, of $15,000,000)), all as determined on a combined basis for the Companies and Company Subsidiaries in conformity with GAAP consistently applied and on a basis consistent with the basis used in preparing the financial data and information described in clauses (ii) and (iii) of Section 2.6(a) or as expressly required by this definition. For purposes of determining Combined Working Capital, the liability, if any, attributable to the current portion of the Post-Retirement Welfare Benefits of Union Employees shall be calculated using the same actuarial assumptions that were used in preparing the Buck Consulting Report. To the extent that, due to tax timing differences, any Tax deduction relating to any liability included in the calculation of Combined Working Capital will not be available in a Pre-Closing Tax Period, Combined Working Capital shall be increased appropriately to take into account any Tax Benefit (as defined in Section 9.4) actually realized at or prior to the time of calculation of the Adjustment to the Buyer with respect to such liability; and if the Buyer actually realizes a Tax Benefit after the Adjustment has been determined, the Buyer shall promptly pay to GCNA such additional amount as would have been paid as Purchase Price had the Tax Benefit increased the original calculation of Combined Working Capital, at such time or times as and to the extent that such Tax Benefit is actually realized. Confidentiality Agreement means the confidentiality agreement dated June 7, 2000 between the Buyer and Global. control (including the terms "controlled by" and "under common control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or to cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person. Debt Adjustment has the meaning set forth in Section 1.3 hereof. Disclosure Schedule means the Disclosure Schedule, dated as of the date hereof, delivered to the Buyer by the Seller in connection with this Agreement. DOJ has the meaning set forth in Section 4.4 hereof. Employee Benefit Plans means all "employee benefit plans" within the meaning of Section 3(3) of ERISA, all bonus, stock option, stock purchase, incentive, deferred compensation, retirement, supplemental retirement, severance and other employee benefit plans, programs, policies or arrangements, and all employment, retention, change of control or compensation agreements, in each case for the benefit of, or relating to, any current employee or former employee of any of the Companies or Company Subsidiaries, other than any de minimis, fringe or unwritten benefit plans, programs, policies or arrangements, the costs of which, to the Sellers, are not material. Encumbrance means any security interest, pledge, mortgage, lien (including, without limitation, tax liens), charge, encumbrance, easement, adverse claim, preferential arrangement, restriction or defect in title that adversely affects the use of the property in the manner it is being used prior to the Closing Date or the value of the property as measured in the context of the current uses thereof. Environmental Claims means any and all actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations, proceedings, consent orders or consent agreements relating in any way to any Environmental Law, any Environmental Permit, Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation (a) by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any Person for damages, contributions, indemnification, cost recovery, compensation or injunctive relief. Environmental Law means any Law relating to the environment, health, safety or Hazardous Materials, in force and effect on the date hereof or, in the case of the Sellers' certificate to be delivered in accordance with the provisions of Section 5.3 hereof, on the Closing Date (exclusive of any amendments or changes to such Law or any regulations promulgated thereunder or orders, decrees or judgments issued pursuant thereto which are enacted, promulgated or issued after the date hereof, or in the case of such certificate, on or after the Closing Date), including but not limited to, CERCLA; the Resource Conservation and Recovery Act of 1986 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss. ss. 6901 et seq.; the Hazardous Materials Transportation Act, 49 ------ U.S.C.ss.ss.6901 et seq.; the Clean Water Act, 33 U.S.C.ss.ss.1251 et seq.; the ------ ------ Toxic Substances Control Act of 1976, 15 U.S.C.ss.ss.2601 et seq.; ------ the Clean Air Act of 1966, as amended, 42 U.S.C.ss.ss.7401 et seq.; ------ the Safe Drinking Water Act, 42 U.S.C.ss.ss.300f et seq.; the Atomic Energy Act, ------ 42 U.S.C.ss.ss.2011 et seq.; the Federal Insecticide, Fungicide and Rodenti- ------- cide Act, 7 U.S.C.ss.ss.136 et seq.; and the Emergency Planning and Community ------ Right-to-Know Act of 1986, 42 U.S.C.ss.ss.1101 et seq. ------ Environmental Permits means all permits, approvals, identification numbers, licenses and other authorizations required under any applicable Environmental Law. Equipment means all of the tangible personal property, machinery, equipment, vehicles, rolling stock, furniture, and fixtures of the Frontier LEC Business in which any Company or Company Subsidiary has an interest, by ownership or lease, together with any replacements thereof, or additions thereto made in the ordinary course of business between the date hereof and the Closing Date. ERISA means the Employee Retirement Income Security Act of 1974, as amended. Estimated Adjustment has the meaning set forth in Section 1.3 hereof. FCC means the Federal Communications Commission. Financing Commitments has the meaning set forth in Section 3.6 hereof. Frontier LEC Business means the local exchange carrier operations of Global and its Subsidiaries, and the cable television operations and wireless and cellular telephone operations of the Companies and Company Subsidiaries, including, without limitation, the incumbent and competitive local exchange carrier operations of Frontier Telephone of Rochester, Inc., the rural local exchange carrier operations of the other Companies and the Company Subsidiaries and the retail Internet access, Web hosting, data services (IP frame relay and asynchronous transfer mode) and directory services operations currently provided by the Companies and Company Subsidiaries, but excluding (i) competitive local exchange carrier and resold cellular and other wireless operations other than those conducted by the Companies or the Company Subsidiaries immediately prior to the Closing, (ii) long distance service operations other than (x) the retail long distance customer base purchased by the Companies and the Company Subsidiaries and/or (y) marketing, sales, customer service, and billing and collection services performed by the Companies and the Company Subsidiaries on an agency or contract basis relating to long distance services not purchased by the Companies and Company Subsidiaries, (iii) the assets and services identified in Section 2.5 of the Disclosure Schedule as excluded from the Frontier LEC Business and (iv) Sellers' non-LEC marketed long distance services (such as 800 services marketed nationally to families with college students). For purposes for this definition, "local exchange carrier operations" means the provision in the relevant geographic area of (A) wireline local exchange, digital subscriber line, exchange access and (to the extent not provided by Subsidiaries of the Sellers other than the Companies and Company Subsidiaries) intra-LATA toll telecommunications services to end users, (B) wireline exchange access telecommunications services to interexchange carriers and other local exchange carriers, (C) retail sales of telephone equipment and products (subject to the non-compete agreement disclosed in Section 2.11 of the Disclosure Schedule) and (D) non-tariffed public communications (pay telephones), commercial telecommunications services facilities leasing and certain other non-regulated services and products. GAAP means United States generally accepted accounting principles and practices as in effect from time to time. GCNA has the meaning set forth in the introductory paragraph to this Agreement. Global has the meaning set forth in the introductory paragraph to this Agreement. Governmental Authority means any United States federal, state or local government or any foreign government, any governmental, regulatory, legislative, executive or administrative authority, agency or commission or any court, tribunal, or judicial body. Governmental Order means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. Governmental Orders shall not include Permits. Hazardous Materials means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, and any other chemicals, materials, or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any Environmental Law. HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. Indebtedness means obligations with regard to borrowed money and leases classified or accounted for as capital or financing leases on financial statements, but shall expressly not include either accounts payable or accrued liabilities that are incurred in the ordinary course of business or obligations under operating leases classified or accounted for as such on financial statements. Indemnified Party has the meaning set forth in Section 9.5 hereof. Indemnifying Party has the meaning set forth in Section 9.5 hereof. Intellectual Property means all patents, trademarks, trade names, domain names, service marks and copyrights, and applications for any of the foregoing, and other intellectual property, including, without limitation, computer software and programs, of the Frontier LEC Business, whether owned or used by, or licensed to, any Company or Company Subsidiary. knowledge with respect to the Sellers means, exclusively, information of which the Chief Executive Officer, the Chief Financial Officer or any other employee of a Seller of Salary Band Level 35 or above in GCNA's pay scale has knowledge after reasonable inquiry of the appropriate managerial employee of the Frontier LEC Business having supervisory responsibility for the matter concerned. Law means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order or other requirement or rule of law. Liability Claim has the meaning set forth in Section 9.1 hereof. Material Adverse Effect means any circumstance, change in, or effect on the Companies or Company Subsidiaries that has a material adverse effect on the business, results of operations or financial condition of the Frontier LEC Business taken as a whole; provided, however, that Material Adverse Effect shall not include adverse effects relating to or resulting from (or, in the case of effects that have not yet occurred, reasonably likely to result from) (i) the execution of this Agreement or the announcement of agreement among the parties with respect to the transactions contemplated by this Agreement, (ii) general economic or industry conditions that have a similar effect on other participants in the industry or (ii) regional economic or industry conditions that have a similar effect on other participants in the industry in such region. Material Contracts means the written agreements, contracts, policies, plans, mortgages, understandings, arrangements or commitments primarily relating to the Frontier LEC Business to which any Company or Company Subsidiary is a party or by which any of the assets of the Frontier LEC Business are bound as described below: (i) any agreement or contract providing for payments by the Companies or Company Subsidiaries to any Person in excess of $10,000,000 per year or $30,000,000 in the aggregate over the five-year period commencing on the date hereof; (ii) any employment agreement or consulting agreement or similar contract providing for payments to any Person in excess of $350,000 per year or $1,500,000 in the aggregate over the five-year period commencing on the date hereof; (iii) any retention or severance agreement or contract with respect to any officer of the Frontier LEC Business who is to be employed by any Company or Company Subsidiary following the Closing Date; (iv) any lease of Equipment or Real Property or license with respect to Intellectual Property (other than licenses granted in connection with the purchase of equipment or other assets) by the Frontier LEC Business from another Person providing for payments to another Person in excess of $10,000,000 per year or $30,000,000 in the aggregate over the five-year period commencing on the date hereof; (v) any lease of Equipment or Real Property or license with respect to Intellectual Property (other than licenses granted in connection with the purchase of equipment or other assets) by the Frontier LEC Business to another Person providing for payments to the Seller or any Company or Company Subsidiary in excess of $10,000,000 per year or $30,000,000 in the aggregate over the five-year period commencing on the date hereof; (vi) any joint venture, partnership or similar agreement or contract of the Frontier LEC Business; (vii) any agreement or contract under which any Company or Company Subsidiary, or a Seller in connection with the Frontier LEC Business, has borrowed or loaned any money in excess of $25,000,000 or issued or received any note, bond, indenture or other evidence of indebtedness in excess of $25,000,000 or directly or indirectly guaranteed indebtedness, liabilities or obligations of others in an amount in excess of $25,000,000; (viii) any covenant not to compete or contract or agreement, understanding, arrangement or any restriction whatsoever limiting in any respect the ability of any Company or Company Subsidiary to compete in any line of business or with any Person or in any area; (ix) any agreement or contract with any officer, director or employee of either Seller or any Company or Company Subsidiary (other than employment agreements covered in clause (i) or agreements or contracts containing terms substantially similar to terms available to employees generally) or agreement or contract with either Seller or any Subsidiary of Global that is neither a Company or Company Subsidiary providing for payments in excess of $10,000,000 per year or $30,000,000 in the aggregate over the five-year period commencing on the date hereof; and (x) any resale, co-location or interconnection agreement. Material Contracts shall not include any and all (w) contracts, purchase orders, purchase commitments, leases and agreements entered into in the ordinary course of business and relating to the Frontier LEC Business (other than those described in clauses (iii), (iv), (v) or (vi) above) that (A) are terminable at will without payment of premium or penalty by any Company or Company Subsidiary or (B) are terminable on not more than 60 days' written notice without payment of premium or penalty and do not involve the obligation of any Company or Company Subsidiary to make payments in excess of $25,000,000 during the 60-day period commencing on the Closing Date; (x) contracts, sales orders, purchase orders, purchase commitments and agreements entered into in the ordinary course of business and relating to integrated marketing services or related services of the Frontier LEC Business. Neutral Auditor has the meaning set forth in Section 1.4 hereof. Neutral Auditor Determination has the meaning set forth in Section 1.4 hereof. Notice of Claim has the meaning set forth in Section 9.5 hereof. Option Deductions has the meaning set forth in Section 7.10 hereof. Performance Adjustment has the meaning set forth in Section 1.3 hereof. Permits has the meaning set forth in Section 2.12 hereof. Permitted Exceptions means each of the following: (a) mortgages, security interests or other Encum- brances described in Section 2.11 of the Disclosure Schedule; (b) liens for taxes, assessments and governmental charges or levies not yet due and payable or the validity of which is being contested in good faith by appropriate proceedings; (c) Encumbrances imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar liens, arising in the ordinary course of business; (d) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (e) survey exceptions, rights of way, easements, reciprocal easement agreements and other Encumbrances on title to real property that do not, individually or in the aggregate, materially adversely affect the use of such property in the conduct of the Frontier LEC Business as it is being conducted prior to the Closing Date; (f) zoning laws and other land use restrictions that do not materially detract from the value or impair the use of the property subject thereto, or materially impair the operation of the Frontier LEC Business; (g) security interests in favor of suppliers of goods for which payment has not been made in the ordinary course of business consistent with past practice; (h) Encumbrances on the interests of the lessors of properties in which the Frontier LEC Business holds a lease- hold interest; and (i) any and all other Encumbrances that would be im- material to the Frontier LEC Business. Person means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. Pre-Closing Tax Period has the meaning set forth in Section 7.1 hereof. Probable Assets has the meaning set forth in Section 9.8. Probable Assets List has the meaning set forth in Section 9.8. Probable Assets Statement has the meaning set forth in Section 1.4. Probable Liabilities has the meaning set forth in Section 9.8. Probable Liabilities List has the meaning set forth in Section 9.8. Probable Liabilities Statement has the meaning set forth in Section 1.4. Proposed Adjustment has the meaning set forth in Section 1.4 hereof. PUC means any state public service commission or similar regulatory body. Purchase Price has the meaning set forth in Section 1.3 hereof. Real Property means the real property and related mineral rights owned by, and all easements, rights-of-way and other possessory interests in real estate of, the Frontier LEC Business, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Frontier LEC Business attached or appurtenant thereto, and all easements, licenses, rights and appurtenances relating to the foregoing. Regulatory Law has the meaning set forth in Section 4.4(b). Release means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like into or upon any land or water or air or otherwise entering into the environment. Required Consents means any consents, approvals, orders, authorizations, registrations, declarations and filings required under or in relation to (a) the HSR Act, (b) the Communications Act of 1934, as amended, and any rules and regulations promulgated by the FCC, (c) state securities or "blue sky" laws, (d) the Securities Act of 1933, as amended, (e) the Securities Exchange Act of 1934, as amended, (f) laws, rules, regulations, practices and orders of any state or PUCs, local franchising authorities, foreign telecommunications regulatory agencies or similar state or foreign regulatory bodies, or the Federal Energy Regulatory Commission, (g) rules and regulations of The Nasdaq Stock Market and The New York Stock Exchange, Inc. and (h) antitrust or other competition Laws of other jurisdictions. S&P means Standard & Poor's Corporation. Sale has the meaning set forth in the recitals hereto. Sellers has the meaning set forth in the introductory paragraph to this Agreement. Shares has the meaning set forth in Section 1.1 hereof. Special Representations has the meaning set forth in Section 5.1 hereof. Straddle Period has the meaning set forth in Section 7.1 hereof. Subsidiary of any Person means (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation is owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, limited partnership, limited liability company, associates, joint venture or other entity in which such Person directly or indirectly through Subsidiaries has more than a 50% equity interest. Tax or Taxes means any and all taxes, fees, withholdings, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any government or taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth, taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added or gains taxes, license, registration and documentation fees, and customs duties, tariffs and similar charges. Tax Return means any report, return, document, declaration or other information or filing required to be supplied to any Tax authority or jurisdiction (foreign or domestic) with respect to Taxes, including, without limitation, information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. Union Employee means a Business Employee whose terms and conditions of employment are governed by the terms of any Assumed CBA (as defined in Section 8.5). Working Capital Adjustment has the meaning set forth in Section 1.3 hereof. Article 11. Miscellaneous Provisions. ------------------------ 11.1 Termination Rights. (a) Grounds for Termination. This Agreement may be terminated: (1) by mutual consent of the parties; (2) by either the Sellers or the Buyer, provided such party or parties are not then in material default hereunder, upon written notice to the other party or parties, if the Closing hereunder has not occurred on or before December 31, 2001; provided that if all Required Consents have been obtained but have not become final and non-appealable as of such date, then such date shall be extended to March 31, 2002; or (3) by either the Sellers or the Buyer, upon written notice to the other party or parties, if any Governmental Authority shall have issued a statute, rule, regulation, order, decree or injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting the purchase and sale contemplated by this Agreement and such statute, rule, regulation, order, decree or injunction or other action shall have become final and nonappealable. (b) Post-Termination Liability. If this Agreement is terminated pursuant to Subsection 11.1(a) hereof, this Agreement shall thereupon become void and of no further effect whatsoever, and the parties shall be released and discharged of all obligations under this Agreement, except (i) to the extent of a party's liability for willful material breaches of this Agreement prior to the time of such termination, (ii) as set forth in Section 4.5 hereof and (iii) the obligations of each party for its own expenses incurred in connection with the transactions contemplated by this Agreement as provided herein. 11.2 Expenses. Except as otherwise specifically provided in this Agreement, all out-of-pocket costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred. 11.3 Notices. Any notice, demand, claim, notice of claim, request or communication required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered in person, (ii) on the date of mailing if mailed by registered or certified mail, postage prepaid and return receipt requested, (iii) on the date of delivery to a national overnight courier service, or (iv) upon transmission by facsimile (if such transmission is confirmed by the addressee) if delivered through such services to the following addresses, or to such other address as any party may request by notifying in writing all of the other parties to this Agreement in accordance with this Section 11.3. If to the Sellers: Global Crossing Ltd. 360 North Crescent Drive Beverly Hills, California 90210 Attention: James Gorton, Esq. Senior Vice President and General Counsel Facsimile No.: (310) 281-5820 and Global Crossing North America, Inc. 180 South Clinton Avenue Rochester, New York 14646 Attention: Joseph P. Clayton Chief Executive Officer Facsimile No.: (716) 325-7639 with copies to: Global Crossing North America, Inc. 180 South Clinton Avenue Rochester, New York 14646 Attention: Martin T. McCue, Esq. Senior Vice President and General Counsel Facsimile No.: (716) 546-7823 and Robert E. Spatt, Esq. Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017-3954 Facsimile No.: (212) 455-2502 If to the Buyer: Citizens Communications Company High Ridge Park Stamford, Connecticut 06905 Attention: Scott N. Schneider Executive Vice President Facsimile No.: (203) 614-5201 with copies to: Citizens Communications Company High Ridge Park Stamford, Connecticut 06905 Attention: L. Russell Mitten, Esq. Vice President and General Counsel Facsimile No.: (203) 614-4651 and Jeffrey L. Hardin, Esq. Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W. Suite 600 Washington, D.C. 20036 Facsimile No.: (202) 387-3467 Any such notice shall be deemed to have been received on the date of personal delivery, the date set forth on the Postal Service return receipt, or the date of delivery shown on the records of the overnight courier, as applicable. 11.4 Benefit and Assignment. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. There shall be no assignment of any interest under this Agreement by any party except that the Buyer may assign its rights hereunder to any wholly owned subsidiary of the Buyer; provided, however, that no such assignment shall relieve the assignor of its obligations under this Agreement. Nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 11.5 Waiver. Any party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of any other party, (b) waive any inaccuracies in the representations and warranties of any other party contained herein or in any document delivered by any other party pursuant hereto or (c) waive compliance with any of the agreements or conditions of any other party contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any such rights. 11.6 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. 11.7 Amendment. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Seller and the Buyer or (b) by a waiver in accordance with Section 11.5 hereof. 11.8 Effect and Construction of this Agreement. This Agreement embodies the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings, whether written or oral, relating to matters provided for herein; provided, however, that the Confidentiality Agreement shall remain in effect until the Closing. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual agreement, and this Agreement shall not be deemed to have been prepared by any single party hereto. Disclosure of any fact or item in the Disclosure Schedule referenced by a particular paragraph or section in this Agreement shall, should the existence of the fact or item be relevant to any other paragraph or section, be deemed to be disclosed with respect to that other paragraph or section whether or not a specific cross reference appears to the extent that the fact or item disclosed is reasonably clearly applicable to such other paragraph or section. Disclosure of any fact or item in the Disclosure Schedule shall not necessarily mean that such item or fact, individually or in the aggregate, is material to the business, results of operations or financial condition of the Frontier LEC Business or that it is probable that any impairment or liability will result therefrom. The headings of the sections and subsections of this Agreement are inserted as a matter of convenience and for reference purposes only and in no respect define, limit or describe the scope of this Agreement or the intent of any section or subsection. This Agreement may be executed in one or more counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable to contracts executed in and to be performed entirely within that State. 11.9 Specific Performance. Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (i) waive, in any action for specific performance, the defense of adequacy of a remedy at law and (ii) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement in any action instituted in any state or federal court sitting in New York, New York. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. GLOBAL CROSSING LTD. By: /s/ THOMAS J. CASEY ---------------------------------- Name: Thomas J. Casey Title: Vice Chairman GLOBAL CROSSING NORTH AMERICA, INC. By: /s/ MARTIN T. MCCUE ---------------------------------- Name: Martin T. McCue Title: Senior Vice President CITIZENS COMMUNICATIONS COMPANY By: /s/ SCOTT N. SCHNEIDER ----------------------------------- Name: Scott N. Schneider Title: Executive Vice President
ANNEX I THE COMPANIES ------------- 772 shares of Common Stock Frontier Telephone of Rochester, Inc. 6 shares of Common Stock Frontier Communications of Rochester, Inc. 357 shares of Common Stock Frontier Subsidiary Telco Inc. 200 shares of Common Stock Frontier Communications of Sylvan Lake, Inc. 100 shares of Common Stock Frontier Communications of Seneca-Gorham, Inc. 506,758 shares of Common Stock Frontier Communications of New York, Inc. 21,742 shares of Common Stock Frontier Communications of AuSable Valley, Inc.
ANNEX II THE COMPANY SUBSIDIARIES Company Subsidiary Class of Stock Number of Shares and Record Owner - ---------------------------------------------------------------------------------------------- ----------------------------------- Frontier Communications of DePue, Inc. Common Stock 554 shares owned by Frontier Subsidiary Telco Inc. DePue Communications, Inc. Common Stock 1,000 shares owned by Frontier Communications of DePue, Inc. Frontier Communications of Illinois, Inc. Common Stock 26,313 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Indiana, Inc. Common Stock 3,000 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Iowa, Inc. Common Stock 100 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Lakeside, Inc. Common Stock 53,000 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications - Midland, Inc. Common Stock 36,447.5 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Mt. Pulaski, Inc. Common Stock 340 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications - Prairie, Inc. Common Stock 67,800 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications - Schuyler, Inc. Common Stock 5,000 shares owned by Frontier Subsidiary Telco Inc. Schuyler Cellular, Inc. Common Stock 100 shares owned by Frontier Communications - Schuyler, Inc. Frontier Communications of Thorntown, Inc. Common Stock 9,483 shares owned by Frontier Subsidiary Telco Inc. Frontier Cable of Indiana, Inc. Common Stock 343 shares owned by Frontier Communications of Thorntown, Inc. Frontier Communications of Alabama, Inc. Common Stock 1,299 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Fairmount, Inc. Common Stock 10,405 shares owned by Frontier Subsidiary Telco Inc. Fairmount Cellular, Inc. Common Stock 100 shares owned by Frontier Communications of Fairmount, Inc. Frontier Communications of Georgia, Inc. Common Stock 3,600 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Lamar County, Inc. Common Stock 250 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Mississippi, Inc. Common Stock 1,743.5 shares owned by Frontier Subsidiary Telco Inc. Frontier Cable of Mississippi, Inc. Common Stock 1,000 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of the South, Inc. Common Stock 5,000 shares owned by Frontier Subsidiary Telco Inc. Frontier Cellular of Alabama, Inc. Common Stock 250 shares owned by Frontier Communications of the South, Inc. 166 shares owned by Frontier Communications of Alabama, Inc. 84 shares owned by Frontier Communications of Lamar County, Inc. Frontier Communications of Breezewood, Inc. Common Stock 1,000 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Canton, Inc. Common Stock 1,980 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Lakewood, Inc. Common Stock 5,080 shares owned by Frontier Communications of Canton, Inc. Frontier Communications of Oswayo River, Inc. Common Stock 3,623 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Pennsylvania, Inc. Common Stock 120,000 shares owned by Frontier Subsidiary Telco Inc. Frontier InfoServices, Inc. Common Stock 100 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of America, Inc. Common Stock 200 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Michigan, Inc. Common Stock 1,621,850 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Minnesota, Inc. Common Stock 100 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Mondovi, Inc. Common Stock 1,365 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Orion, Inc. Common Stock 100 shares owned by Frontier Subsidiary Telco Inc. O.T. Cellular Telephone Company Common Stock 100 shares owned by Frontier Communications of Orion, Inc. Frontier Communications - St. Croix, Inc. Common Stock 119,520 shares owned by Frontier Subsidiary Telco Inc. Frontier Cable of Wisconsin, Inc. Common Stock 1,635 shares owned by Frontier Communications - St. Croix, Inc. Frontier Communications of Viroqua, Inc. Common Stock 8,000 shares owned by Frontier Subsidiary Telco Inc. Frontier Communications of Wisconsin, Inc. Common Stock 1,233,935 shares owned by Frontier Subsidiary Telco Inc.
EX-27 4 0004.txt FDS FOR THE PERIOD ENDED 9/30/00
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000020520 CITIZENS COMMUNICATIONS COMPANY 1,000 9-MOS DEC-31-2000 SEP-30-2000 PER-BOOK 3,255,120 147,457 1,027,119 181,800 172,301 6,420,053 66,223 1,613,693 273,393 1,849,104 201,250 0 2,925,680 0 0 0 84,187 0 0 0 1,359,832 6,420,053 1,150,140 2,298 81,926 1,056,073 94,067 27,308 121,375 116,288 11,804 4,657 11,804 0 0 269,141 .04 .04 REPRESENTS INVESTMENT FUNDS. REPRESENTS REGULATORY ASSETS. REPRESENTS DEFERRED DEBITS AND OTHER ASSETS. INCLUDES $1,169,898 OF ASSETS OF DISCONTINUED OPERATIONS AND $466,358 OF EXCESS OF COST OVER NET ASSETS ACQUIRED. COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST, THE SOLE ASSETS OF WHICH ARE SECURITIES OF A SUBSIDIARY PARTNERSHIP, SUBSTANTIALLY ALL THE ASSETS OF WHICH ARE CONVERTIBLE DEBENTURES OF THE COMPANY. INCLUDES $332,545 OF LIABILITIES OF DISCONTINUED OPERATIONS. REPRESENTS NETWORK ACCESS EXPENSES. INCLUDES $13,672 OF INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX. EPS BASIC AND DILUTED INCLUDES $.05 OF INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE. INCLUDES $498,290 OF NET ASSETS HELD FOR SALE AND $224,655 OF SHORT-TERM INVESTMENTS. INCLUDES $50,031 OF TREASURY STOCK AND $54,174 OF ACCUMULATED OTHER COMPREHENSIVE LOSS. INCLUDES $24,130 OF ACQUISITION ASSIMILATION EXPENSE.
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