-----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, RsIgPmcvzeWpvYkbUwoJhxILlQ2HR9ZMMXqcFxdhKjph3Ma0SmW9DlmhedMxjps1 CIenelj8wCm7VLBYbpKptA== 0000084567-96-000011.txt : 19960515 0000084567-96-000011.hdr.sgml : 19960515 ACCESSION NUMBER: 0000084567-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER CORP /NY/ CENTRAL INDEX KEY: 0000084567 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 160613330 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04166 FILM NUMBER: 96563691 BUSINESS ADDRESS: STREET 1: ROCHESTER TEL CENTER STREET 2: 180 S CLINTON AVE CITY: ROCHESTER STATE: NY ZIP: 14646-0995 BUSINESS PHONE: 7167771000 FORMER COMPANY: FORMER CONFORMED NAME: ROCHESTER TELEPHONE CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 From the transition period from to Commission file number 1-4166 FRONTIER CORPORATION (Exact name of registrant as specified in its charter) New York 16-0613330 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 180 South Clinton Avenue, Rochester, NY 14646-0700 (Address of principal executive offices) (Zip Code) (716) 777-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $1.00 Par Value Common Stock 162,490,268 shares as of April 30, 1996 FRONTIER CORPORATION Form 10-Q Index Page Number Part I. FINANCIAL INFORMATION Item 1. Financial Statements Business Segment Information for the three months ended March 31, 1996 and March 31, 1995 3 Consolidated Statements of Income for the three months ended March 31, 1996 and March 31, 1995 4 Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and March 31, 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 21 Signature 22 Index to Exhibits 23 FRONTIER CORPORATION Business Segment Information (Unaudited) 3 Months Ended March 31, In thousands of dollars 1996 1995 - ---------------------------------------------------------------- Long Distance Communications Services Revenues $ 486,102 $ 297,879 Operating Income: Operating Income Before Acquisition $ 63,255 $ 47,153 Related Charges Acquisition Related Charges - (4,750) - ---------------------------------------------------------------- Total Operating Income $ 63,255 $ 42,403 Depreciation and Amortization $ 19,263 $ 11,069 Capital Expenditures $ 37,230 $ 3,984 Identifiable Assets (1) $1,181,384 $ 549,573 ================================================================ Local Communications Services Revenues: Rochester, NY Operations $ 81,674 $ 77,481 Regional Operations 76,768 75,216 - ---------------------------------------------------------------- Total Revenues $ 158,442 $ 152,697 Operating Income: Rochester, NY Operations $ 19,608 $ 20,050 Regional Operations 31,243 27,988 - ---------------------------------------------------------------- Total Operating Income $ 50,851 $ 48,038 Depreciation and Amortization: Rochester, NY Operations $ 12,834 $ 14,055 Regional Operations 11,582 12,179 - ---------------------------------------------------------------- Total Depreciation and Amortization $ 24,416 $ 26,234 Capital Expenditures $ 19,462 $ 13,981 Identifiable Assets (1) $1,148,764 $ 1,228,274 ================================================================ Corporate Operations and Other Revenues $ 10,605 $ 8,464 Operating Income (Loss) (2,254) (3,160) Depreciation and Amortization $ 2,009 $ 888 Capital Expenditures $ 5,308 $ 3,279 Identifiable Assets (1) $ 330,196 $ 642,296 ================================================================ Consolidated Revenues $ 655,149 $ 459,040 Operating Income: Operating Income Before Acquisition $ 111,852 $ 92,031 Related Charges Acquisition Related Charges - (4,750) - ---------------------------------------------------------------- Total Operating Income $ 111,852 $ 87,281 Depreciation and Amortization $ 45,688 $ 38,191 Capital Expenditures $ 62,000 $ 21,244 Identifiable Assets $2,154,715 $ 2,118,313 ================================================================ (1) Includes intercompany accounts that are eliminated in consolidation of $505,629, and $301,830 in 1996 and 1995, respectively. See accompanying Notes to Consolidated Financial Statements FRONTIER CORPORATION Consolidated Statements of Income (Unaudited) 3 Months Ended March 31, In thousands, except per share data 1996 1995 - -------------------------------------------------------------------- Revenues $655,149 $459,040 - -------------------------------------------------------------------- Costs and Expenses Operating expenses 485,828 317,205 Depreciation and amortization 45,688 38,191 Taxes other than income taxes 11,781 11,613 Acquisition related charges - 4,750 - -------------------------------------------------------------------- Total Costs and Expenses 543,297 371,759 - -------------------------------------------------------------------- Operating Income 111,852 87,281 Interest expense 11,638 13,547 Other income and expense: Gain on sale of assets 4,976 4,826 Equity earnings from unconsolidated wireless interests 1,455 396 Interest income 523 3,975 Other expense 727 602 - -------------------------------------------------------------------- Income Before Taxes and Cumulative Effect of Change in Accounting Principle 106,441 82,329 Income taxes 41,300 30,679 - -------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Principle 65,141 51,650 Cumulative effect of change in accounting principle for the impairment of long-lived assets and for long-lived assets to be disposed of (8,018) - - -------------------------------------------------------------------- Net Income 57,123 51,650 Dividends on preferred stock 293 297 - -------------------------------------------------------------------- Income Applicable to Common Stock $ 56,830 $ 51,353 ==================================================================== Dividends declared on common stock $ 34,480 $ 16,989 ==================================================================== Earnings Per Common Share Income before cumulative effect of change in accounting principle $ .40 $ .32 Cumulative effect of change (.05) in accounting principle - -------------------------------------------------------------------- Earnings Per Common Share $ .35 $ .32 ==================================================================== Average Common Shares Outstanding (in thousands) 163,527 160,924 ==================================================================== See accompanying Notes to Consolidated Financial Statements. FRONTIER CORPORATION Consolidated Balance Sheets March 31, December 31, 1996 1995 In thousands of dollars, except share data (Unaudited) - ---------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 24,060 $ 31,449 Accounts receivable, (less allowance for uncollectibles of $29,288 and $28,515, respectively) 434,654 404,081 Materials and supplies 15,284 12,928 Deferred income taxes 31,748 43,588 Prepayments and other 32,668 31,089 - ---------------------------------------------------------- Total Current Assets 538,414 523,135 Property, plant and equipment,net 895,223 881,309 Goodwill and customer base 557,166 550,081 Deferred and other assets 163,912 154,067 - ---------------------------------------------------------- Total Assets $2,154,715 $2,108,592 ========================================================== LIABILITIES AND SHAREOWNERS' EQUITY Current Liabilities Accounts payable $ 405,230 $ 381,680 Dividends payable 34,137 33,247 Debt due within one year 5,723 14,871 Taxes accrued 15,406 26,842 Other liabilities 26,450 47,561 - ---------------------------------------------------------- Total Current Liabilities 486,946 504,201 Long-Term debt 611,059 618,867 Deferred income taxes 4,999 15,644 Deferred employee benefits obligation 61,077 58,385 - ---------------------------------------------------------- Total Liabilities 1,164,081 1,197,097 - ---------------------------------------------------------- Shareowners' Equity Preferred stock 22,769 22,769 Common stock, par value $1.00, authorized 300,000,000 shares; 162,329,827 shares and 158,063,387 shares issued in 1996 and 1995 162,330 158,063 Capital in excess of par value 476,354 420,172 Retained earnings 339,251 317,149 - ---------------------------------------------------------- 1,000,704 918,153 Less - Treasury stock, 6,375 shares in 1996 and 1995, at cost 147 147 Unearned compensation - restricted stock plan 9,923 6,511 - ---------------------------------------------------------- Total Shareowners' Equity 990,634 911,495 - ---------------------------------------------------------- Total Liabilities and Shareowners' Equity $2,154,715 $2,108,592 ========================================================== See accompanying Notes to Consolidated Financial Statements. FRONTIER CORPORATION Consolidated Statements of Cash Flows (Unaudited) 3 Months Ended March 31, In thousands of dollars 1996 1995 - ------------------------------------------------------------------------ Operating Activities Net income $57,123 $ 51,650 - ------------------------------------------------------------------------ Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle 12,396 - Acquisition related charges - 4,750 Depreciation and amortization 45,688 38,191 Gain on sale of assets (4,976) (4,826) Equity earnings from unconsolidated wireless interests (1,455) (396) Other, net 950 107 Changes in operating assets and liabilities, exclusive of impacts of purchase acquisitions: Increase in accounts receivable (30,451) (15,223) Increase in materials and supplies (2,356) (616) (Increase) decrease in prepayments and other assets (2,282) 2,663 Increase in deferred and other assets (5,349) (7,029) Increase (decrease) in accounts payable 20,541 (15,648) Increase in taxes accrued and other liabilities 5,475 32,171 Increase in deferred employee benefits obligation 2,692 3,402 Increase (decrease) in deferred income taxes 1,195 (1,057) - ------------------------------------------------------------------------ Total adjustments 42,068 36,489 - ------------------------------------------------------------------------ Net cash provided by operating activities 99,191 88,139 - ------------------------------------------------------------------------ Investing Activities Expenditures for property, plant and equipment (61,708) (21,299) Decrease in short-term investments - 8,750 Investment in cellular partnerships (19,102) (470) Proceeds from asset sales 10,441 - Purchase of companies, net of cash acquired (4,868) (78,138) Other investing activities - (195) - ------------------------------------------------------------------------ Net cash used in investing activities (75,237) (91,352) - ------------------------------------------------------------------------ Financing Activities Proceeds from issuance of long-term debt - 44,568 Repayments of debt (16,280) (52,984) Dividends paid (33,883) (15,733) Treasury stock, net - (10,041) Issuance of common stock, net 18,820 (239) Distribution to shareowners of pooled company - (2,287) - ------------------------------------------------------------------------ Net cash used in financing activities (31,343) (36,716) - ------------------------------------------------------------------------ Net Decrease in Cash and Cash Equivalents (7,389) (39,929) Cash and Cash Equivalents at Beginning of Period 31,449 359,309 - ------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period $24,060 $319,380 ======================================================================== See accompanying Notes to Consolidated Financial Statements. Note 1: Consolidation The consolidated financial information includes the accounts of Frontier Corporation and its affiliates (the "Company" or "Frontier"). In the opinion of management, the financial statements reflect all adjustments of a normal and recurring nature which are necessary to present fairly the financial positions, results of operations and cash flows for the interim periods. In the beginning of 1996, Frontier simplified its business segment reporting to reflect the predominance of its two major operating segments, long distance and local communications services. The Company now reports its operating results in three segments: Long Distance Communications Services, Local Communications Services and Corporate Operations and Other. The Company's majority interest in two wireless properties, which were previously reported as a Wireless Communications Segment, have been consolidated under Corporate Operations and Other. The change in the definition of the Company's segments has been made to better reflect the changing scope of the businesses in which Frontier operates. All historical data have been restated accordingly to conform with the new presentation. Certain prior year amounts have been reclassified to conform to the current year presentation. Note 2 : Pooling of Interests Transactions On August 16, 1995, the shareowners of the Company and ALC Communications Corporation (ALC) approved a merger of the two companies. ALC, through its subsidiary Allnet Communication Services, Inc. (renamed Frontier Communications Services), provides long distance products and services primarily to small and medium-sized business customers and carrier customers nationwide. Under the terms of the merger agreement, the Company exchanged two shares of its common stock for each of ALC's common shares. The total shares issued by the Company to effect the merger were 69.2 million. At the time of the merger, ALC had 3.9 million stock options and 3.3 million stock warrants outstanding providing for the purchase of an equal number of its shares on exercise. As a result of the merger, each of these options and warrants was converted into an option or warrant for two shares of the Company's stock. The transaction has been accounted for as a pooling of interests and the consolidated financial statements have been restated for all periods prior to the merger to include the accounts and operations of ALC. On March 17, 1995, the Company acquired American Sharecom, Inc. (ASI), a long distance company headquartered in Minneapolis, Minnesota. ASI's sales operations are concentrated in the Midwest, Northwest and California. The Company acquired all of the outstanding shares of ASI in exchange for approximately 8.7 million shares of Frontier common stock. Subsequent to the acquisition, 117,336 shares of Frontier common stock were returned to the Company in settlement of a pre-acquisition liability and retired. The transaction has been accounted for as a pooling of interests and the consolidated financial statements have been restated for all periods prior to the merger to include the accounts and operations of ASI. Note 3: Purchase Acquisitions In March 1996, the Company acquired a 55 percent interest in the New York RSA No. 3 Cellular Partnership (RSA No. 3). RSA No. 3 is a provider of cellular mobile telephone service in the New York State Rural Service Area No. 3. RSA No. 3 encompasses much of the Southern Tier Area of New York State. The Company's interest in RSA No. 3 is managed by Frontier Cellular, a 50/50 owned joint venture with Bell Atlantic/NYNEX Mobile and the operating results are reported using the equity method of accounting. The Company paid $19.1 million in cash for its interest in RSA No. 3. In November 1995, the Company acquired the assets of LINK-VTC, Inc. (LINK-VTC), a Boulder, Colorado based telecommunications company specializing in video conferencing services. The Company will pay a total cash purchase price in the range of approximately $12.4 million to $17.9 million, depending on the 1996 financial performance of LINK-VTC. In August 1995, Frontier acquired Schneider Communications, Inc. (SCI) and SCI's 80.8 percent interest in LinkUSA Corporation (LinkUSA) for $130 million in cash. SCI provides telecommunication services in the Midwest. LinkUSA develops software applications for telecommunications firms. On February 2, 1996, the Company acquired the remaining 19.2 percent interest in LinkUSA for $2.3 million in cash. In July 1995, the Company completed its purchase of Enhanced TeleManagement, Inc. (ETI), a privately-held telecommunications company specializing in the integration and resale of local, long distance, and ancillary telephone services to small and medium-sized business customers. ETI provides service in the Midwest and Northwest states. Frontier paid approximately $29 million in cash for ETI. In May 1995, the Company completed its purchase of WCT Communications, Inc. WCT is a facilities-based long distance carrier providing commercial and residential services in 45 states. The Company paid approximately $80 million for all of the outstanding shares of WCT. In March 1995, the Company, through ALC, completed its acquisition of ConferTech International, Inc. (ConferTech), a telecommunications company specializing in teleconferencing services and audio bridge equipment. ALC paid approximately $66 million in cash for ConferTech. In March 1995, the Company completed its purchase of Minnesota Southern Cellular Telephone Company (MSCTC). A total of approximately 867,000 shares of Frontier common stock were reissued from treasury in exchange for all of the shares of MSCTC. The treasury shares were acquired from the sale of Ontonagon County Telephone Company and open market purchases. MSCTC is the non-wireline provider of cellular service in Minnesota Rural Service Area No. 10. Note 4 : Acquisition Related Charges In connection with the August 1995 merger with ALC, Frontier recorded a one-time pre-tax acquisition related charge of $109.5 million in the third quarter of 1995. A one-time pre-tax acquisition charge of $4.8 million was recorded in the first quarter of 1995 as a result of the acquisition of ASI. The integration of the acquired companies over the last year has resulted in instances of redundant facilities, equipment and staffing. The acquisition related charges include investment banker fees, legal fees and other direct costs resulting from the merger with ALC and the ASI transaction. The acquisition related charges were reported as a separate component of operating expenses for the 1995 results. Through a combination of attrition and force reductions, the Company has reduced its number of employees in the Long Distance and Administrative areas by more than 300 thus far during the integration process. As of March 31, 1996, 205 employees have been paid $7.7 million in severance benefits which were charged to the reserve. The Company believes that the reserve balance of $55.5 million is adequate for the completion of those activities. The accrual for acquisition related charges is included in "Other liabilities" and "Property, plant and equipment" on the consolidated balance sheets. The Company projects that the integration of the companies acquired should be substantially completed during 1996. Note 5 : Long - Lived Assets to Be Disposed Of Effective January 1, 1996, the Company adopted Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". FAS 121 requires that certain long-lived assets and identifiable intangibles be written down to fair value whenever an impairment review indicates that the carrying value cannot be recovered on an undiscounted cash flow basis. The statement also requires that certain long-lived assets and identifiable intangibles to be disposed of be reported at fair value less selling costs. The Company's adoption of this standard resulted in a non-cash charge of $8.0 million (net of a tax benefit of $4.4 million) and is reported in the Consolidated Statement of Income as a cumulative effect of a change in accounting principle. The charge represents the cumulative adjustment required by FAS 121 to remeasure the carrying amount of certain assets held for disposal as of January 1, 1996. These assets held for disposal consist principally of telephone switching equipment in the Company's Local Communications Services segment as a result of management's commitment, in late 1995, to a central office switch consolidation project primarily at the Rochester Telephone and Frontier Communications of New York subsidiaries. Note 6 : Discontinuance of Regulatory Accounting As of September 30, 1995, the Company discontinued the application of FAS 71, "Accounting for the Effects of Certain Types of Regulation" for its local communications companies. The Company discontinued the use of FAS 71 because of changes in regulation and increasingly rapid advancements in telecommunications technology. The discontinuance of regulatory accounting methods resulted in a post-tax extraordinary charge of $112.1 million, net of applicable income taxes of $68.3 million, primarily caused by the reduction in the recorded value of long- lived telephone plant assets. Note 7: Gain on Sale of Assets In March 1996, Frontier sold its minority investment in a Canadian long distance company for a pre-tax gain of $5.0 million. In March 1995, the Company sold Ontonagon County Telephone Company in Michigan and its subsidiary, Midway Telephone Company. The sale, which was based on the Company's plans to expand in areas other than Michigan's Upper Peninsula, resulted in a non-taxable gain of $4.8 million or $.03 per share. The Company received 437,158 shares of its stock as a result of the transaction. Note 8: Cash Flows For purposes of the Statement of Cash Flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash flows from financing activities includes $18.8 million of cash proceeds from stock options and warrants exercised during the first quarter of 1996. The resultant tax benefit realized from the exercise of stock options of $38.5 million is reflected as an adjustment to capital in excess of par value and taxes accrued. Actual interest paid was $10.7 million and $12.5 million for the three month period ended March 31, 1996, and March 31, 1995, respectively. In addition, actual income taxes paid were $3.5 million for the three months ended March 31, 1996, and $5.7 million for the three months ended March 31, 1995. Note 9: Major Customer The Company's 1996 revenues include the impact of a major carrier customer whose revenues comprise approximately 17 percent of consolidated revenues for the quarter ended March 31, 1996. Note 10: Commitments and Contingencies It is anticipated that the Company will expend approximately $175 million to $200 million for additions to property, plant and equipment during 1996. In connection with this capital program, the Company has made certain commitments for the purchase of material and equipment. In addition, the Company is considering entering certain commitments in the near future for the purchase or construction of additional network facilities not included in the $175 million to $200 million. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1996 and 1995 DESCRIPTION OF BUSINESS Frontier Corporation (the "Company" or "Frontier") is a diversified telecommunications company, serving more than 2 million customers throughout the United States and in several foreign countries. Frontier Corporation's principal lines of business are long distance and local communications. The Company's other lines of business include cellular and paging operations and telecommunications equipment sales. RESULTS OF OPERATIONS Consolidated Revenues for the first quarter of 1996 were $655.1 million, up $196.1 million or 42.7% over the comparable period in 1995. The increase in revenue is primarily driven by significant growth in the Company's long distance segment. Operating income was $111.9 million for the three months ended March 31, 1996, up $24.6 million or 28.2% from the same three months in 1995. The improvement in operating income is attributable to revenue growth and improved operating efficiencies. Revenue growth is driven by the significant increase in traffic volume in the long distance segment and from billable minutes and access line growth in the local communications segment. The Company has targeted significant operating synergies from the restructuring of the long distance operations. As a result of the significant traffic growth in the long distance segment during 1996, Frontier has experienced some delay in the integration of its long distance switch network. The Company continues to anticipate that total operating synergies of $40 million will be achieved during 1996. Income before the cumulative effect of adopting Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" for the first quarter of 1996 amounted to $65.1 million, a $13.5 million increase, or 26.1%, over the comparable period in 1995. Earnings per share before the adoption of FAS 121 were $.40 in 1996 versus $.32 in 1995. The financial results for 1996 and 1995 include certain one time events. During the quarter ended March 31, 1996, the Company sold its minority investment in a Canadian long distance company for a pre-tax gain of $5.0 million. This gain was offset by higher operating costs in the Company's largest telephone subsidiary related to increased labor and related expenses in connection with work stoppage preparation costs for a bargaining unit contract. The Company recorded a $4.8 million pre-tax charge for costs related to the acquisition of a long distance company in March 1995. Earnings per share normalized for these one time events amounted to $.39 and $.31 for the periods ended March 31, 1996 and 1995, respectively. Business Segments The Company simplified its business segment reporting at the beginning of 1996 to reflect the predominance of its two major operating segments, long distance and local communications services. The Company now reports its operating results in three segments: Long Distance Communications Services, Local Communications Services and Corporate Operations and Other. The company's majority interests in two wireless properties, which were previously reported as a Wireless Communications Services segment, have been consolidated under Corporate Operations and Other. A review of the 1996 and 1995 first quarter results of each business segment follows. Long Distance Communications Services Long Distance Communications Services continues to be the Company's largest segment in terms of size and growth. It accounted for 74% of the Company's 1996 first quarter revenues as compared to 65% for the same period in 1995. Long distance revenues totaled $486.1 million in the first quarter of 1996, a $188.2 million, or 63.2%, increase over the same quarter in 1995. The increase in long distance revenues is attributed to significant traffic growth. Traffic in long distance reached nearly 3.6 billion minutes in the first quarter, an increase of 86.6% over the same quarter in 1995. Revenue growth was also impacted by the continued success of Frontier's unified product set, Clear Value, which was introduced to small and mid-sized businesses nationwide in October 1995. Reported revenue growth was also aided by the impact of 1995 purchase acquisitions. Adjusting for the impact of these acquisitions, consolidated revenues grew approximately 31% in the quarter. Revenue growth was also positively impacted by a major carrier customer whose traffic has increased substantially throughout the year and represents 17% of consolidated revenues in the first quarter of 1996. The Company believes that this customer may be installing its own long distance switching capacity and may be diversifying its traffic distribution to one or more additional carriers this year. This could result in a portion of the traffic moving to the customer's network or to another carrier's network facilities. However, the customer has entered into a three year agreement with the Company effective April 1, 1995, amended October 27, 1995 and amended again April 27, 1996 to address these and other issues. The Company expects to retain significant traffic volumes and has contractual provisions regarding exclusivity and minimums that it views as favorable. The Company expects to continue the process of integrating the operations of its recently acquired long distance businesses throughout 1996. The integration process has been delayed primarily as a result of the significant traffic growth experienced during the past six months. This restructuring process will minimize redundant facilities and staffing. Costs and expenses for long distance operations, excluding nonrecurring charges, increased $172.1 million in the first quarter of 1996. This increase is primarily the result of increased traffic volumes due to internal growth and purchase acquisitions. Operating costs excluding purchase acquisitions increased by $105.2 million over the comparable period in 1995. Cost of access represented 62.2% of total revenue for the first quarter of 1996, a five percent increase over the prior quarter. Selling and marketing expenses accounted for $16.6 million of the increased operating costs. Operating income for long distance, excluding nonrecurring charges, rose 34.1% to $63.3 million for the three months ended March 31, 1996. Operating margin as a percent of revenue decreased from 15.8% in the first quarter of 1995 to 13.0% for the current quarter. The reduction in operating margin in the first quarter is partially the result of a contract with the Company's major customer which was amended in the fourth quarter of 1995 to give the customer lower prices as a result of the increased volume of traffic carried. Additionally, the Company made several purchase acquisitions in 1995 that impact year over year comparisons. Also contributing to the decrease in operating margin is an operating loss incurred by a start up long distance business in the United Kingdom. As the network is integrated, the Company anticipates that operating margin will improve; however, this cannot be assured given competitive conditions in the long distance communications market. Local Communications Services Local Communications Services includes the Company's local telephone operations, consisting of the Rochester, New York operation and the regional telephone operations, which are comprised of 33 telephone operating subsidiaries in 13 states. Also included with the Rochester, New York operation are the local service revenues and associated expenses generated from the efforts of Frontier Communications of Rochester, a competitive telecommunications company formed on January 1, 1995 that provides an array of services on a retail basis in the Rochester marketplace. Consequently, the Local Communications Services segment includes both wholesale and retail local service associated with the Rochester, New York market. Revenues for Local Communications Services were $158.4 million in the three month period ended March 31, 1996, an increase of $5.7 million or 3.8% over the comparable period in 1995. This segment accounted for 24.2% of consolidated revenues in the first quarter of 1996. Adjusting revenue for the sale of Ontonagon County Telephone and its subsidiary, Midway Telephone, which occurred in March 1995, revenues for Local Communications Services rose 4.2% in the first quarter of 1996. This increase is the result of a 3.9% increase in access lines, an 8.6% increase in minutes of use and ongoing sales of enhanced features and services. The Rochester market continued its solid growth with a 5.4% increase in revenues over the first quarter of the prior year. This growth is attributable in part to aggressive marketing and to a higher demand for services in the open market environment. See discussion of the Open Market Plan on page 18 through 19. Excluding nonrecurring charges, costs and expenses in the first quarter of 1996 for Local Communications Services were $104.7 million, consistent with the first quarter in 1995. The Rochester telephone operation experienced increased costs and expenses related to higher labor expenses resulting from work stoppage preparation costs. These expenses, which were incurred in connection with contract negotiations with Communications Workers of America, Local 1170, were necessary to ensure continued high standards of customer service in the event of a work stoppage. The contract negotiations are currently at an impasse and the Rochester company has implemented the terms of its final offer as of April 9, 1996. The increased costs and expenses at the Rochester telephone operation were partially offset by reduced costs and expenses at the regional telephone operations as a result of continued operating efficiencies. Normalized operating income for the first quarter of 1996 was $53.7 million, an increase of $5.7 million, or 11.8% over the first quarter of 1995. Normalized operating margins for the three month period improved from 31.5% in 1995 to 33.9% in 1996, driven by improvements in the Regional Operations, whose operating margin increased to 40.7% for the quarter. During late 1995, management committed to a major switch consolidation plan at its Rochester Telephone and Frontier Communications of New York subsidiaries. The three-year plan to consolidate host switches by over 60% is projected to improve network efficiency and reduce the cost of maintenance and software upgrades. Corporate Operations and Other Corporate Operations is comprised of the expenses traditionally associated with a holding company, including executive and board of directors expenses, corporate finance and treasury, investor relations, corporate planning, legal services and business development. The Other category is comprised of the Company's majority ownership interest in wireless operations and Frontier Network Systems ("FNS"). As of March 31, 1996, wireless operations included the Alabama RSAs No. 4 and No. 6, in which the Company has a 70% interest, and Minnesota RSA No. 10, in which the Company acquired a 100% interest in late March 1995. This latter acquisition was accounted for as a purchase transaction. FNS markets and installs telecommunications systems and equipment. Other Income Statement Items Interest Expense Interest expense was $11.6 million in the first quarter of 1996, a $1.9 million decline from 1995. This decrease is attributed to lower debt levels and a higher proportion of variable rate debt outstanding. The Company refinanced over $140 million of 9% fixed rate debt in the third and fourth quarters of 1995 with variable rate debt, currently at a lower interest rate, which had a positive effect on interest expense in the first quarter of 1996. Gain on Sale of Assets During March 1996, the Company recorded a pretax gain of $5.0 million related to the sale of its minority interest in the stock of a Canadian long distance company. The $4.8 million gain in 1995 resulted from the sale of Ontonagon County Telephone and its subsidiary, Midway Telephone. The Company received shares of its own common stock in the transaction in a nontaxable exchange for all the shares of Ontonagon and Midway. Equity Earnings from Unconsolidated Wireless Interests The Company's minority interests in wireless operations and its 50% interest in the Frontier Cellular joint venture with Bell Atlantic/NYNEX Mobile in upstate New York are accounted for using the equity method. This method of accounting results in the Company's proportionate share of earnings being reflected in a single line item below operating income. Equity earnings from the Company's interests in wireless partnerships in the first quarter of 1996 were $1.5 million, an increase of $1.1 million over 1995. The increase over the prior year is the result of significant customer growth and increased minutes of use. A portion of the growth is attributable to the expansion of the Frontier Cellular joint venture in other areas of New York State. Adjusting for the recent expansion of the network into these additional properties, customer base grew approximately 51.0% and revenues increased 60.0% over the first quarter of 1995. Interest Income Interest income in the first quarter of 1996 amounted to $.5 million, a decrease of $3.5 million from first quarter 1995. This decrease is due to lower cash balances as a result of the Company's long distance acquisition program subsequent to the first quarter of 1995. Income Taxes The effective income tax rate for the first quarter of 1996 is 38.8% versus 37.3% for the first quarter of 1995. The increase in the effective rate is primarily due to the nontaxable gain on the sale of Ontonagon Telephone in March 1995. FINANCIAL CONDITION Review of Cash Flow Activity At March 31, 1996, the Company had $24.1 million in cash and cash equivalents compared with $319.4 million at March 31, 1995, a decrease of $295.3 million. Cash generated from operations amounted to $99.2 million for the three months ended March 31, 1996 as compared to $88.1 million for the same period in 1995. Offsetting the cash provided by operating activities in 1996 was a $75.2 million outflow for investing activities (mainly capital expenditures of $61.7 million, investment in cellular properties of $19.1 million and purchase acquisitions of $4.9 million) and a $31.3 million outflow for financing activities including debt retirements ($16.3 million), dividend payments ($33.9 million) and proceeds from stock option exercises ($18.8 million). Cash flow from operations generated in the first quarter of 1995 was offset by a $91.4 million use of cash for investing activities (primarily capital expenditures of $21.2 million and purchase acquisitions of $78.1 million reduced by a decrease in short term investments of $8.8 million) and a $36.7 million outflow for financing activities including debt retirements ($53 million), dividend payments ($15.7 million) and purchases of treasury stock ($10.0 million) offset by proceeds from the issuance of long-term debt ($44.6 million). Also, see Note 3 to the Financial Statements for cash spent on acquisitions during 1995 and 1996. EBITDA Earnings before interest, taxes, depreciation and amortization (EBITDA) is a common measurement of a company's ability to generate cash flow from operations. EBITDA should be used as a supplement to, not in place of, cash from operating activities. The Company's EBITDA was $157.5 million and $125.5 million for the periods ending March 31, 1996 and 1995, respectively. The increase in EBITDA is primarily attributable to growth in the long distance segment. Debt At March 31, 1996, the Company's total debt amounted to $616.8 million, a decrease of $17.0 million from December 31, 1995. This decrease is mainly the result of a $6.4 million net reduction in long-term revolving bank debt, the repayment of an $8.0 million note payable related to the November 1995 purchase of Link-VTC, Inc. and the repayment of approximately $1.0 million of various issues of Rural Utilities Service (RUS) and Rural Telephone Bank (RTB) debt. Debt Ratio and Interest Coverage The Company's debt ratio (total debt as a percent of total capitalization) was 38.4% at March 31, 1996, as compared with 41.0% at December 31, 1995. Pre-tax interest coverage, excluding nonrecurring charges, was 10.0 times for the three months ended March 31, 1996, as compared with 6.9 times for the same period in 1995. Capital Spending Through March 1996, gross capital expenditures amounted to approximately $62.0 million as compared to $21.2 million in the prior year. The Company plans to spend a total of approximately $175 million to $200 million on its capital program during the full year in 1996. The full year capital program could represent an increase of up to $37.4 million over 1995. The increase is largely driven by capital requirements associated with the growth and integration of the long distance segment. A primary network strategy of the Company in recent years has been to obtain capacity through leases of facilities on a fixed price basis. Due to rapid growth in its traffic volumes and changes in the long distance market, the Company has been reassessing the relative advantages of owning facilities in comparison to leasing capacity from other carriers. The Company's assessment of strategic and financial considerations may lead it to enter into agreements for ownership rights to circuits in place or to facilities to be built on long distance routes, if the Company concludes that, on balance, such ownership will better contribute to long term competitiveness in critical areas such as transmission cost, new service provision, broadband applications or overall quality of service. Dividends On March 18, 1996, the Board of Directors declared the first quarter 1996 dividend of 21.25 cents per share on the Company's common stock, payable May 1, 1996 to shareowners of record on April 15, 1996. OTHER ITEMS Open Market Plan The Rochester, New York subsidiary (Rochester Telephone) began its second year of operations under the Open Market Plan. The Open Market Plan promotes telecommunications competition in the Rochester, New York market by providing for (1) interconnection of competing local networks including reciprocal compensation for terminating traffic, (2) equal access to network databases, (3) access to local telephone numbers and (4) service provider telephone number portability. The inherent risk associated with opening the Rochester market to competition is that some customers are able to purchase services from competitors, which reduces the number of retail customers and potentially causes a decrease in the revenues and profitability for Rochester Telephone. However, results in 1995 and in the first quarter of 1996, indicate that a stimulation of demand in the use of the network and new product revenue can offset the loss of retail customers. Increased competition may also lead to additional price decreases for services, adversely impacting Rochester Telephone's margins. During the seven year period of the Open Market Plan Agreement, rate reductions of $21.0 million, $11.5 million of which occurred through 1995 and an additional $2.5 million which will occur during 1996, will be implemented for Rochester area consumers and rates charged for residential and business telephone service may not be increased. The Open Market Plan does not require Rochester Telephone to rebate any additional earnings achieved through operating efficiencies that previously would have been shared with customers. AT&T Communications of New York filed a complaint with the PSC for reconsideration of the Open Market Plan on October 3, 1995. The complaint primarily seeks changes in the wholesale discount, the minutes of use surcharge and changes in a number of operational and support activities. Some of these issues are also being considered in other states in other unrelated local competition proceedings. On February 2, 1996, the NYSPSC issued an Order reconvening the parties to the Open Market Plan. Pursuant to this Order, a number of issues will be litigated before the NYSPSC in the Open Market proceeding and a related proceeding, including the wholesale discount, the minutes of use surcharge and other operational issues. The Company cannot predict the outcome of this matter. Part II - Other Information Item 1 - Legal Proceedings On June 11, 1992, after incurring environmental response costs of approximately $1.5 million pursuant to a consent decree with the United States Environmental Protection Agency (the "EPA"), a group of five corporate plaintiffs commenced an action in the United States District Court for the Northern District of New York seeking contribution from 15 corporate defendants, including Rotelcom Inc., a wholly-owned subsidiary of the registrant held through intervening subsidiaries (now named Frontier Network Systems Inc. or "FNS"). Two additional defendants were named in 1994. The plaintiffs' consent decree concerned the clean-up of an environmental Superfund site located in Cortland, New York. It is alleged that the corporate defendants disposed of hazardous substances at the site and are therefore liable under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). The Company anticipates that a final Record of Decision will be issued by the EPA which will prescribe the remediation requirements for the site. The total cost of remediation at the site is uncertain, although estimates have recently ranged from $25 million to $100 million. There has been no allocation of liability among or between the plaintiffs or defendants. The extent to which plaintiffs can recover any of these costs from the defendants, including FNS, will be determined at a trial. FNS has been vigorously defending this lawsuit. The Company believes that it will ultimately be successful, but it is unable to predict the outcome with any certainty at this time. From February 1994 to October 1995, a total of nine complaints were filed in Hennepin County (Minnesota) District Court by various former shareowners of ASI. Included among the defendants are ASI, its former principal shareowners Steven Simon and James Weinert, ASI legal counsel and Frontier. Class action suits allege generally that Simon and Weinert, with and through ASI, embarked upon a scheme to gain control of ASI and acquire all of its stock through common law fraud, breach of fiduciary duty and certain violations of the Minnesota Business Corporation Act. This Act requires shareowners in a closely held corporation to act fairly to one another and refrain from misappropriation. Some of the complaints assert shareowner derivative rights. The one complaint that names Frontier alleges that Frontier holds the ASI stock and that it should be found to control certain Frontier stock that was issued to Messrs. Simon and Weinert in Frontier's acquisition of ASI in trust for the benefit of the plaintiffs. Although it is too early to determine the outcome of these suits, Frontier, ASI and the other defendants each are contesting the claims asserted, and the parties have had discussions to resolve the litigation. To date, no settlement has been reached. In connection with the acquisition of ASI by Frontier, Simon and Weinert agreed to indemnify the Company for these claims. On April 10 and 11, 1995, three lawsuits were commenced against ALC Communications Corporation as a result of its announced merger with the Company. In two of those actions, each filed in the Court of Chancery of the State of Delaware, in and for New Castle County by Martin Mayers and Mordecai Cohen, respectively, Frontier Corporation was named as a defendant, although it has not yet been served with process. The lawsuits purport to be class actions brought on behalf of all ALC stockholders against ALC and its directors. Among other things, the complaints sought to enjoin the business combination and/or to obtain an award of damages. On June 9, 1995, the Delaware Court entered an order consolidating the three cases for all purposes. Under the terms of that order, Mayers v. Irwin, et al., C.A. No. 14196 is designated as the consolidated complaint and the defendants are required to respond to the consolidated complaint. On July 10, 1995, ALC and its directors answered the consolidated complaint. The Company believes these actions to be without merit and will defend vigorously the claims asserted in the consolidated suit. The Open Market Plan discussion in the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this document is incorporated herein by reference. Item 6 - Exhibits and Reports on Form 8-K (a) See Exhibit Index (b) Reports on Form 8-K filed during the quarter: SEC Filing Date Item No. Financial Statements January 26, 1996 4 None March 26, 1996 5 None The Company filed the following reports on Form 8-K subsequent to the quarter ended March 31, 1996: SEC Filing Date Item No. Financial Statements April 2, 1996 5 None April 16, 1996 5 None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FRONTIER CORPORATION (Registrant) Dated: May 14, 1996 /s/Richard A. Smith By:---------------------------- Richard A. Smith Vice President and Controller (principal accounting officer) INDEX TO EXHIBITS Exhibit Number Description 3 Bylaws Filed herewith 10.25 Executive contract with supporting offer letter for Mr. Barrett Filed herewith 10.26 Executive contract with supporting offer letter and note for Mr. Bennis Filed herewith 10.27 Restated Directors Stock Incentive Plan (April 24, 1996) Filed herewith 10.28 Employees' Stock Option Plan Filed herewith 10.29 Amendment No. 1 to restated Management Pension Plan Filed herewith 11 Statement re: Computation of Earnings per Share of Common Stock on a Fully Diluted Basis (Unaudited) Filed herewith 27 Financial Data Schedule Filed herewith EX-3 2 EXH 3 BYLAWS 1 EXHIBIT 3 FRONTIER CORPORATION By-Laws As Revised Effective 4/30/96 ARTICLE I SHAREHOLDERS Section 1 - Annual Meeting. An annual meeting of shareholders for the election of Directors and the transaction of other business shall be held at such time on any day in the month of April in each year or on such other date as shall be fixed by the Board of Directors. Section 2 - Special Meetings. Special Meetings of the shareholders may be called by the Board of Directors. Such meeting shall be held at such time as may be fixed in the notice of meeting. Section 3 - Place of Meeting. Meetings of shareholders shall be held at such place, within or without the State of New York, as may be fixed in the notice of meeting. Section 4 - Notice of Meeting. Notice of each meeting of shareholders shall be in writing and shall state the place, date and hour of the meeting and the purpose or purposes for which the meeting is called. 2 A copy of the notice of any meeting shall be given, personally, or by mail, not less than ten or more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at the shareholder's address as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary of the Corporation a written request that notices be mailed to some other address, then directed to the shareholder at such other address. Section 5 - Inspectors of Election. The Board of Directors, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders' meeting may, and on the request of any shareholder entitled to vote at such meeting shall, appoint two inspectors. Each inspector, before entering upon the discharge of the inspector's duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of the inspector's ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote at such meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. 3 Section 6 - List of Shareholders at Meeting. A list of shareholders as of the record date, certified by the Secretary or any Assistant Secretary or by the Transfer Agent, if any, shall be produced at the meeting of shareholders upon the request of any shareholder at such meeting or prior thereto. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding at such meeting, shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote at such meeting may vote at such meeting. Section 7 - Qualification of Voters. Every shareholder of record of common stock of the Corporation shall be entitled at every meeting of shareholders to one vote for every share of common stock held by the shareholder in the shareholder's name on the record of shareholders, subject, however, to the voting rights granted to the holders of Cumulative Preferred Stock of the Corporation upon default in dividends thereon. Section 8 - Quorum of Shareholders. The holders of a majority of the shares entitled to vote at such meeting shall constitute a quorum at a meeting of shareholders for the transaction of any business, provided that when a specified item of business is required to be voted on by a class or series, voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum for the transaction of such specified item of business. The shareholders present, in person or by proxy, and entitled to vote may, by a majority of votes cast, adjourn the meeting despite the absence of a quorum. Section 9 - Vote of Shareholders. Directors shall, except as otherwise required by law, or by the certificate of incorporation as permitted by law, be elected 4 by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law, or by the certificate of incorporation as permitted by law, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. Section 10 - Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for that shareholder by proxy. Every proxy must be signed by the shareholder or the shareholder's attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it except in those cases where an irrevocable proxy permitted by statute has been given. Section 11 - Fixing Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. Section 12 - Order of Business. The order of business at each meeting of shareholders shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such 5 rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. At any special meeting of shareholders, only such business may be transacted which is related to the purpose or purposes set forth in the notice of such meeting. At any annual meeting of shareholders, only such business (other than the nomination or election of directors) shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the chairman of the meeting or (ii) by any shareholder who is a holder of record at the time of the giving of the notice provided for in this Section 12, who is or will be entitled to vote at the meeting and who complies with the procedures set forth in this Section 12. For business (other than the nomination or election of directors) properly to be brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary. To be timely, a shareholder's notice must be addressed to the Secretary and delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the shareholder to be timely must be so delivered or received not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. To be in proper written form, a shareholder's notice to the Secretary shall set forth in writing as to each matter the 6 shareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder; (iv) a representation that the shareholder is or will be entitled to vote at such annual meeting and intends to appear in person (or send a qualified representative) or by proxy to present such proposal at the meeting; and (v) any material interest of the shareholder in such business. The foregoing notice requirements shall be deemed satisfied by a shareholder if the shareholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such shareholder's proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided, however, that if such shareholder does not appear in person (or send a qualified representative) or by proxy to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 12. The chairman of an annual meeting shall, if the facts warrant, determine that business was not properly brought before the annual meeting in accordance with the provisions of this Section 12 and, if he should so determine, he shall so declare to the annual meeting and any such business not properly brought before the annual meeting shall not be transacted and any proposal contemplated by such business shall be void. 7 ARTICLE II BOARD OF DIRECTORS Section 1 - Power of Board and Qualification of Directors. The business of the Corporation shall be managed under the direction of its Board of Directors, each of whom shall be at least twenty-one years of age. Section 2 - Number of Directors. At the annual meeting of shareholders, the shareholders shall elect twelve directors. Section 3 - Election, Term and Qualifications of Directors. At each annual meeting of shareholders, Directors shall be elected to hold office until the next annual meeting and until their successors have been elected and qualified. No person shall be eligible for election or reelection to the Board of Directors after reaching seventy years of age, or in the case of a retired Chairman of the Board of Directors or a retired President of the Corporation, after reaching sixty-seven years of age. The term of any Director who is also an Officer of the Corporation or any subsidiary of the Corporation, other than the Chairman of the Board or the President of the Corporation, shall end on the date of termination from active employment and such officer shall thereafter be ineligible for reelection to the Board of Directors. Section 4 - Quorum of the Board: Action by the Board. One-third of the entire Board of Directors shall constitute a quorum for the transaction of business, and the vote of a majority of the Directors present at the time of such vote, if a quorum is then present, shall be the act of the Board. Section 5 - Action Without a Meeting. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or of the committee consent in writing to the adoption of the resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. 8 Section 6 - Participation in Board Meetings by Conference Telephone. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 7 - Meetings of the Board. An annual meeting of the Board of Directors shall be held in each year directly after adjournment of the annual shareholders' meeting. Regular meetings of the Board shall be held at such times as may from time to time be fixed by resolution of the Board. Special meetings of the Board may be held at any time upon the call of the Chairman of the Board of Directors, if such there be, the President or any two Directors. Meetings of the Board of Directors shall be held at such place, within or without the State of New York, as from time to time may be fixed by resolution of the Board for annual and regular meetings and in the notice of meeting for special meetings. If no place is so fixed, meetings of the Board shall be held at the office of the Corporation in Rochester, New York. No notice need be given of annual or regular meetings of the Board of Directors. Notice of each special meeting of the Board shall be given by oral, telegraphic or written notice, duly given or sent or mailed to each Director not less than one (1) day before such meeting. Section 8 - Resignation. Any Director may resign at any time by giving written notice to the Chairman of the Board of Directors, if such there be, to the President or to the Secretary. Such resignation shall take effect at the time specified in such written notice, or if no time be specified, then on delivery. Unless otherwise specified in the written notice, the acceptance of such resignation by the Board of Directors shall not be needed to make it effective. 9 Section 9 - Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors may be filled by vote of the Board. If the number of the directors then in office is less than a quorum, such newly created directorships and vacancies may be filled by vote of a majority of the directors then in office. A director elected to fill a vacancy shall be elected to hold office for the unexpired term of such director's predecessor. Section 10 - Executive and Other Committees of Directors. The Board of Directors, by resolution, adopted by a majority of the entire Board, shall designate from among its members an Executive Committee consisting of three or more Directors, a majority of whom are outside directors. The Executive Committee shall have all the authority of the Board, except that it shall not have authority as to the following matters: (1) The submission to shareholders of any action that needs shareholders' approval; (2) The filling of vacancies in the Board or in any committee; (3) The amendment or repeal of the By-Laws, or the adoption of new By-Laws; (4) The amendment or repeal of any resolution of the Board which, by its terms, shall not be so amendable or repealable; (5) The fixing of compensation of the directors for serving on the Board or on any Committee; (6) The fixing or amendment of the compensation, benefits and perquisites of the chief executive officer. 10 The Board of Directors, by resolution by a majority of the entire Board, may designate from among its members an Audit Committee consisting of three or more outside directors. The Audit Committee shall, among other things, review the scope of audit activities, review with management significant issues concerning litigation, contingencies or other material matters which may result in either potential liability of the Company or significant exposure to the Company, review significant matters of corporate ethics, review security methods and procedures, review the financial reports and notes, and make reports and recommendations with respect to audit activities, findings, and reports of the independent public accountants and the internal audit staff of the Company. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members a Committee on Directors consisting of three or more outside directors. The Committee on Directors shall, among other things, review performance of incumbent directors, act as a nominating committee, and consider and report to the entire Board of Directors on all matters relating to the selection, qualification, compensation and duties of the members of the Board of Directors and any committees of the Board of Directors. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members a Committee on Management consisting of three or more outside directors. The Committee on Management shall, among other things, fix or amend the compensation, benefits and perquisites of all executive officers of the Company and recommend such for the chief executive officer, select and administer executive compensation plans and employee benefit plans which have Company stock as an investment option, review succession planning for the Company and review with management significant human resources issues. The compensation, benefits and perquisites of the chief executive officer shall be set by the outside directors of the full Board upon the recommendation of the Committee on Management. 11 The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members other committees each consisting of three or more directors. Unless a greater proportion is required by the resolution designating a committee of the Board of Directors, a quorum for the transaction of business of a committee shall consist of (a) a majority of the entire authorized number of members of the Executive Committee or (b) one-third of the entire authorized number of members of any other committee of the Board of Directors, but in no event fewer than two persons. The vote of a majority of the members of a committee present at the time of the vote concerning the transaction of business of that committee or of any specified item of business of that committee if a quorum is present at such time, shall be the act of such committee. Any committee may fix the time and place of holding its regular meetings and, if so fixed, no notice of such regular meeting shall be necessary. Special meetings of any committee may be called at any time by the Chairman of the Board of Directors, if such there be, by the chief executive officer, by the President, by the Chairperson of that committee, or by any two members of that committee. Notice of each special meeting of any committee shall be given by oral, telegraphic or written notice, including notice via facsimile machine, duly given or sent or mailed to each member of that committee not less than one day before such meeting. Section 11 - Compensation of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any capacity. Section 12 - Indemnification. (a) Generally. To the full extent authorized or permitted by law, the Corporation shall indemnify any person ("indemnified Person") made, or threatened to be made, a party to any action or proceeding, whether civil, at law, in equity, criminal, 12 administrative, investigative or otherwise, including any action by or in the right of the Corporation, by reason of the fact that he, his testator or intestate, ("Responsible Person"), whether before or after adoption of this Section 12, (1) is or was a director or officer of the Corporation, or (2), if a director or officer of the Corporation, is serving or served, in any capacity, at the request of the Corporation, any other corporation, or any partnership, joint venture, trust, employee benefit plan or other enterprise, or (3), if not a director or officer of the Corporation, is serving or served, at the request of the Corporation, as a director or officer of any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, against all judgments, fines, penalties, amounts paid in settlement (provided the Corporation shall have given its prior consent to such settlement, which consent shall not be unreasonably withheld by it) and reasonable expenses, including attorneys' fees, incurred by such Indemnified Person with respect to any such threatened or actual action or proceeding, and any appeal therein, provided only that (x) acts of the Responsible Person which were material to the cause of action so adjudicated or otherwise disposed of were not (i) committed in bad faith or (ii) were not the result of active and deliberate dishonesty, and (y) the Responsible Person did not personally gain in fact a financial profit or other advantage to which he was not legally entitled. (b) Advancement of Expenses. All expenses reasonably incurred by an Indemnified Person in connection with a threatened or actual action or proceeding with respect to which such person is or may be entitled to indemnification under this Section 12 shall be advanced or promptly reimbursed by the Corporation to him in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by him or on his behalf to repay the amount of such advances, if any, as to which he is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent such advances exceed the indemnification to which he is entitled. Such person shall cooperate in good faith with any request by the Corporation that common counsel be used by the parties to an action or proceeding who are similarly situated unless to do so would be inappropriate due to an actual or potential conflict of interest. 13 (c) Procedure for Indemnification. (1) Not later than thirty (30) days following final disposition of an action or proceeding with respect to which the Corporation has received written request by an Indemnified Person for indemnification pursuant to this Section 12, if such indemnification has not been ordered by a court, the Board of Directors shall meet and find whether the Responsible Person met the standard of conduct set forth in paragraph (a) of this Section 12, and, if it finds that he did, or to the extent it so finds, shall authorize such indemnification. (2) Such standard shall be found to have been met unless (a) a judgment or other final adjudication adverse to the Indemnified Person establishes that subparagraphs (x) or (y) of paragraph (a) of this Section 12 were violated, or (b) if the action or proceeding was disposed of other than by judgment or other final adjudication, the Board finds in good faith that, if it had been disposed of by judgment or other final adjudication, such judgment or other final adjudication would have been adverse to the Indemnified Person and would have established a violation of subparagraphs (x) or (y) of paragraph (a) of this Section 12. (3) If indemnification is denied, in whole or part, because of an adverse finding by the Board in the absence of a judgment or other final adjudication, or because the Board believes the expenses for which indemnification is requested to be unreasonable, such action by the Board shall in no way affect the right of the Indemnified Person to make application therefor in any court having jurisdiction thereof, and in such action or proceeding the issue shall be whether the Responsible Person met the standard of conduct set forth in paragraph (a) of this Section 12, or whether the expenses were reasonable, as the case may be (not whether the finding of the Board with respect thereto was correct) and the determination of such issue shall not be affected by the Board's finding. If the judgment or other final adjudication in such action or proceeding establishes that the Responsible Person met the standard set forth in paragraph (a) of this Section 12, or that the disallowed expenses were reasonable, or to the extent that it does, the Board shall then find such standard to have been met or the expenses to be reasonable, and shall grant such indemnification, and shall also grant to the 14 Indemnified Person indemnification of the expenses incurred by him in connection with the action or proceeding resulting in the judgment or other final adjudication that such standard of conduct was met, or if pursuant to such court determination such person is entitled to less than the full amount of indemnification denied by the Corporation, the portion of such expenses proportionate to the amount of such indemnification so awarded. (4) A finding by the Board pursuant to this paragraph (c) that the standard of conduct set forth in paragraph (a) of this Section 12 has been met shall mean a finding of the Board or shareholders as provided by law. (d) Contractual Article. This Section 12 shall be deemed to constitute a contract between the Corporation and each person who is a Responsible Person at any time while this Section 12 is in effect. No repeal or amendment of this Section 12, insofar as it reduces the extent of the indemnification of any person who could be a Responsible Person shall without his written consent be effective as to such person with respect to any event, act or omission occurring or allegedly occurring prior to (1) the date of such repeal or amendment if on that date he is not serving in any capacity for which he could be a Responsible Person, or (2) the thirtieth (30th) day following delivery to him of written notice of such repeal or amendment as to any capacity in which he is serving on the date of such repeal or amendment, other than as a director or officer of the Corporation, for which he could be a Responsible Person, or (3) the later of the thirtieth (30th) day following delivery to him of such notice or the end of the term of office (for whatever reason) he is serving as director or officer of the Corporation when such repeal or amendment is adopted, with respect to being a Responsible Person in that capacity. No amendment of the Business Corporation Law shall, insofar as it reduces the permissible extent of the right of indemnification of a Responsible Person under this Section 12, be effective as to such person with respect to any event, act or omission occurring or allegedly occurring prior to the effective date of such amendment irrespective of the date of any claim or legal action 15 in respect thereto. This Section 12 shall be binding on any successor to the Corporation, including any corporation or other entity which acquires all or substantially all of the Corporation's assets. (e) Non-exclusivity. The indemnification provided by this Section 12 shall not be deemed exclusive of any other rights to which any person covered hereby may be entitled other than pursuant to this Section 12. The Corporation is authorized to enter into agreements with any such person or persons providing them rights to indemnification or advancement of expenses in addition to the provisions therefor in this Section 12 to the full extent permitted by law. Section 13 - Notification of Nominations. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of Directors may be made by the Board of Directors or by any shareholder who is a shareholder of record at the time of the giving of the notice of nomination provided for in this Section 13 and who is entitled to vote for the election of Directors. Any shareholder of record who is or will be entitled to vote for the election of Directors at a meeting may nominate persons for election as Directors only if timely written notice of such shareholder's intent to make such nomination is given to the Secretary. To be timely, a shareholder's notice must be addressed to the Secretary and delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at an annual meeting of shareholders, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the shareholder to be timely must be so delivered or received not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public 16 announcement of the date of such meeting is first made and (ii) with respect to an election to be held at a special meeting of shareholders for the election of Directors, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees to be elected at such meeting. Each such notice shall set forth: (a) the name and address, as they appear on the Corporation's books, of the shareholder who intends to make the nomination, and the name and address of the person or persons to be nominated; (b) the class and number of shares of the Corporation which are beneficially owned by the shareholder: (c) a representation that the shareholder is or will be entitled to vote at the meeting and intends to appear in person (or send a qualified representative) or by proxy at the meeting to nominate the person or persons specified in the notice; (d) a description of all arrangements or understandings between the shareholder and such nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (e) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; and (f) the consent of each nominee to serve as a Director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made after compliance with the foregoing procedure. Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to serve as Directors of the Corporation and any purported nomination or purported election not made in accordance with the procedures set forth in this Section 13 shall be void. ARTICLE III OFFICERS Section 1 - Officers. The Board of Directors, as soon as may be practicable after the annual election of directors, may elect a Chairman of the 17 Board of Directors and shall elect a President, one or more Vice Presidents (one or more of whom may be designated Executive Vice President), a Secretary and a Treasurer, and such other officers as it may determine. Any two or more offices may be held by the same person, except the office of President and Secretary. Section 2 - Term of Office and Removal. Each officer shall hold office for the term for which each officer is elected or appointed, and until a successor has been elected or appointed and qualified. Section 3 - Powers and Duties. The officers of the Corporation shall each have such powers and authority and perform such duties in the management of the Corporation as set forth in these By-Laws and as from time to time prescribed by the Board of Directors. To the extent not set forth in these By-Laws or so prescribed by the Board of Directors, they shall each have such powers and authority and perform such duties in the management of the Corporation, subject to the control of the Board, as generally pertain to their respective offices. In addition to the powers and authority above, each officer has the powers and duties set out below. (a) Chairman of the Board of Directors The Chairman of the Board of Directors, if such there be, shall preside at all meetings of the Board. The Chairman of the Board of Directors may be the chief executive officer of the Corporation, and if so designated, may preside at all meetings of shareholders. (b) President The President shall be the chief operating officer and shall have responsibility for the general management of the business of the Corporation, subject only to the supervision of the Board of Directors, the Executive Committee and the Chairman of the Board of Directors, as chief executive 18 officer, if such there be. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not the chief executive officer, then the President shall be the chief executive officer of the Corporation. The President may preside at all meetings of shareholders, when present, and at meetings of the Board of Directors in the absence of the Chairman of the Board, if such there be. (c) Executive Vice President The Executive Vice President or the Executive Vice Presidents, if such there be, shall assist the President in the management of the Corporation and, as may be designated by the Board of Directors, in the event of the death, resignation, removal, disability or absence of the President, an Executive Vice President shall possess the powers and perform the duties of the President for the period of such disability or absence or until the Board of Directors elects a President. (d) Vice President Each Vice President shall assist the President in the management of the Corporation and, in the absence or incapacity of the President and Executive Vice Presidents, and in order as fixed by the Board, possess the powers and perform the duties of the President for the period of such absence or incapacity, and shall possess such other powers and perform such other duties as the Board of Directors may prescribe. (e) Secretary The Secretary shall issue notices of all meetings of shareholders and directors where notices of such meetings are required by law or these By-Laws, and shall keep the minutes of such meetings. The Secretary shall sign such instruments and attest such documents as require signature or attestation and affix the corporate seal thereto where appropriate and shall possess such other powers and perform such other duties as usually pertain to the office or as the Board of Directors may prescribe. 19 (f) Treasurer The Treasurer shall have general charge of, and be responsible for, the fiscal affairs of the Corporation and shall sign all instruments and documents as require such signature, and shall possess such other powers and perform such other duties as usually pertain to the office or as the Board of Directors may prescribe. (g) Assistant Officers Any Assistant Officer elected by the Board of Directors shall assist the designated officer and shall possess that officer's powers and perform that officer's duties as designated by that officer, and shall possess such other powers and perform such other duties as the Board of Directors may prescribe. Section 4 - Records. The Corporation shall keep (a) correct and complete books and records of account; (b) minutes of the proceedings of the shareholders, Board of Directors and any committees of the Board; and (c) a current list of the directors and officers and their residence addresses. The Corporation shall also keep at its office in the State of New York or at the office of its transfer agent or registrar in the State of New York, if any, a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. Section 5 - Checks and Similar Instruments. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes and all acceptances, obligations and other instruments, for the payment of money, shall be signed by facsimile or otherwise on behalf of the Corporation by such officer or officers or agent or agents as shall be thereunto authorized from time to time by the Board of Directors. 20 Section 6 - Voting Shares Held by the Corporation. Either the President or the Secretary may vote shares of stock held by the Corporation in other corporations and may execute proxies for and on behalf of the Corporation for such purpose. ARTICLE IV SHARE CERTIFICATES AND LOSS THEREOF - TRANSFER OF SHARES Section 1 - Form of Share Certificate. The shares of the Corporation shall be represented by certificates, in such forms as the Board of Directors may from time to time prescribe, signed by the Chairman of the Board if such there be, or the President or a Vice President, and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer at the date of issue. Section 2 - Lost, Stolen or Destroyed Share Certificates. No certificate or certificates for shares of the Corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of the loss, theft or destruction, and upon such indemnification and payment of costs of the Corporation and its agents to such extent and in such manner as the Board of Directors may from time to time prescribe. The Board of Directors, in its discretion, and as a condition precedent to the issuance of any new certificate, may require the owner of any 21 certificate alleged to have been lost, stolen or destroyed to furnish the Corporation with a bond, in such sum and with such surety or sureties as it may direct, as indemnity against any claim that may be made against the Corporation in respect of such lost, stolen or destroyed certificate. Section 3 - Transfer of Shares. Shares of the Corporation shall be transferable on the books of the Corporation by the registered holder thereof in person or by the registered holder's duly authorized attorney, by delivery for cancellation of a certificate or certificates for the same number of shares, with proper endorsement consisting of either a written assignment of the certificate or a power of attorney to sell, assign or transfer the same or the shares represented thereby, signed by the person appearing by the certificate to be the owner of the shares represented thereby, either written thereon or attached thereto, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. Such endorsement may be either in blank or to a specified person, and shall have affixed thereto all stock transfer stamps required by law. Except as otherwise provided by law, not more than twenty percent of the aggregate number of shares of stock of the Corporation outstanding in any class or series shall at any time be owned of record or beneficially or voted by or for the account of aliens (as defined below). Shares of stock shall not be transferable on the books of the Corporation to any alien if, as a result of such transfer, the aggregate number of shares of stock in any class or series owned by or for the account of aliens shall be twenty percent or more of the number of shares of stock then outstanding in such class or series. The Board of Directors may make such rules and regulations as it shall deem necessary or appropriate so that accurate records may be kept of the shares of stock of the Corporation owned of record or beneficially or voted by or for the account of aliens or to otherwise enforce the provisions of this Section 3. 22 As used in this Section 3, the word "alien" shall mean the following and their representatives: any individual not a citizen of the United States of America; a partnership, unless a majority of the partners are non-aliens and a majority interest in the partnership profits is held by nonaliens; a foreign government; a corporation, joint-stock company or association organized under the laws of a foreign country; any other corporation of which any officer or more than one-fourth of the directors are aliens, or of which more than one-fourth of any class or series of stock is owned of record or voted by or for the account of aliens; and any other corporation, joint-stock company or association controlled directly or indirectly by one or more of the above. ARTICLE V OTHER MATTERS Section 1 - Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and such other appropriate legend as the Board of Directors may from time to time determine. In lieu of the corporate seal, when so authorized by the Board, a facsimile thereof may be affixed or impressed or reproduced in any other manner. Section 2 - Amendments. By-Laws of the Corporation may be amended, repealed or adopted by vote of the holders of the shares at the time entitled to vote in the election of any directors. By-Laws may also be amended, repealed, or adopted by the Board of Directors, but any By-Law adopted by the Board may be amended or repealed by the shareholders entitled to vote thereon as hereinabove provided. If any By-Law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the By-Law so adopted, amended or repealed, together with a concise statement of the changes made. EX-10 3 EXH 10.25 1 FRONTIER CORPORATION 180 South Clinton Avenue Rochester, New York 14646 March 25, 1996 Mr. Robert L. Barrett 6152 Grey Friar Way Dublin, Ohio 43017 Dear Mr. Barrett: The Board of Directors (the "Board") of Frontier Corporation, on behalf of Frontier and its subsidiaries and affiliates (together, the "Company") has determined that it is in the best interests of the Company and its shareowners to be able to avail itself of your continued dedication and service to the Company in the immediate future and in case of Change of Control, as defined later in this letter agreement ("Agreement"). It is therefore the intent of this Agreement to encourage your complete dedication to the Company by providing you with compensation and benefits arrangements while you fulfill your duties now and during the pendency of a Change of Control, should such an event occur, which provide you with a measure of security commensurate with your importance to the Company. Therefore, upon your signature on a counterpart of this Agreement, the following terms and conditions shall become effective as of March 26, 1996. However, this Agreement does not supersede any stock option agreements or restricted stock grant agreements dated as of March 26, 1996 between the Company and you, all of which shall remain in full force and effect. 1. Employment. 1.1 Term. The Company shall employ you in a senior executive management capacity as the Company, with your consent, may from time to time designate. This Agreement shall become effective as of March 26, 1996 and shall continue until March 31, 1999, unless earlier terminated or extended in accordance with its terms. Beginning on April 1, 1998 and on each anniversary of 2 that date thereafter, the term of this Agreement (the "Term") shall automatically be extended for one additional year unless either the Company or you has given written notice to the other no later than December 31 of the preceding year that the giver of the notice does not elect to extend the Term. Even if the Company has given you such a notice, if a Change of Control has occurred during the Term and you have met your obligations in the next paragraph of this Section 1.1, the Term will be automatically extended and this Agreement will remain in full force and effect until the last day of the 36th month following the month in which the Change of Control occurs. You acknowledge that, except as set forth in this Agreement, your employment is "at will". If, during the Term, a person (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) commences any action that, if consummated, would result in a Change of Control of the Company, or if any person publicly announces an intention or proposal to commence any such action, you agree that you will not leave the Company's employ (other than as a result of death or Disability) and will render the services contemplated in this Agreement for the reasonable duration of the Company's defense against such action and until such action has been abandoned or terminated or a Change in Control has occurred. Any termination of your employment during the Term for reasons other than your death shall be evidenced by a written Notice of Termination, which shall specify the provision of this Agreement relied upon for such termination and describe with reasonable detail the facts and circumstances claimed by the sender of such Notice of Termination to provide the basis for termination. Any such Notice of Termination shall also specify the effective date of termination (the "Termination Date"). If you die during the Term the Termination Date shall be the date of your death. 1.2 Duties. You shall perform all duties incidental to your position with the Company, or as may be assigned to you by the Chief Executive Officer of the Company or the Board. You agree to use your best efforts in the business of the Company and to devote your full time attention and energy to the business of 3 the Company. You agree not to work, either on a part-time or independent contracting or consulting basis, with or without compensation, for any other business or enterprise during the Term without the Company's prior consent. Such consent shall not be unreasonably withheld in the case of service on the boards of directors of other corporations and community organizations. 1.3 Base Compensation. The Company shall pay you as base compensation an annual salary of $300,000, in installments in accordance with the Company's policies from time to time in effect, until January 1, 1997. Thereafter, your annual salary may be adjusted by the Company consistent with the Company's results and your performance during the prior year. However, unless the annual salaries of all senior executives of the Company are reduced across-the-board, your annual salary in any year shall not be less than your annual salary during the prior year. 1.4 Incentive Compensation. The Company shall establish and review with you from time to time the performance goals ("Performance Goals") for the Company and you individually, and a methodology for calculating the amount of incentive compensation to be paid upon achievement of such Performance Goals. Incentive compensation shall be payable to you at such time or times as are established under the Company's policies (including the Company's Executive Compensation Program) in effect from time to time. 1.5 Benefits; Perquisites. You shall be entitled to receive the benefits and perquisites provided by the Company under its Executive Compensation program in effect from time to time for executives at the Executive Vice President level. 1.6 Expenses. You shall be reimbursed for any reasonable expenses you incur in connection with your employment during the Term, upon presentation to the Company of an itemized account and receipts of such expenses as required by the Company's policies from time to time in effect. 2. Developments and Intellectual Property. You acknowledge that all developments, including but not limited to trade secrets (including strategies, business plans and customer lists), discoveries, improvements, ideas and writings which either 4 directly or indirectly relate to or may be useful in the business of the Company (the "Developments") which you, either alone or in conjunction with any other person or persons, shall conceive, make, develop, acquire or acquire knowledge of during the Term are the sole and exclusive property of the Company. You will cooperate with the Company's reasonable requests to obtain or maintain rights or protections under United States or foreign law with respect to all Developments. The Company will reimburse you for all reasonable expenses incurred by you in order to comply with this provision of this Agreement, regardless of when such expenses may be incurred. 3. Confidential Information. You acknowledge that by reason of your employment by the Company, especially as a senior executive thereof, you may now or will in the future have access to information of the Company that the Company deems to be confidential and/or proprietary, including but not limited to, information about the Company's strategies, plans, products and services, methods of operation, employees, sales, profits, expenses, customer lists and the relationships between the Company and its customers, suppliers and others who have business dealings with the Company. You covenant and agree that during the Term and thereafter, you will not disclose any such information to any person without the prior written authorization of the Chief Executive Officer or the Board. 4. Non-Competition. 4.1 Covenant. In consideration of the benefits provided to you under this Agreement, which you acknowledge are independent consideration, you covenant and agree that during the Restricted Period (as defined below), you will not, directly or indirectly, without the Company's prior consent: (i) own, manage, operate, finance, join, control or participate in the ownership or control of, or be associated as an officer, director, executive, partner or principal, agent, representative, consultant or otherwise with, or use or permit your name to be used in connection with, any enterprise that directly or indirectly competes (as defined below) with the business of the Company in a Restricted Area (as defined below); or (ii) offer or provide employment to, or solicit, interfere with or attempt to entice away from the Company any individual who either is 5 employed by the Company at the time of such offer, employment, solicitation, interference or enticement or has been so employed by the Company within 12 months prior to such offer, employment, solicitation, interference or enticement. This Section shall not be construed to prohibit the ownership by you of not more than 1% of any class of securities of any corporation which competes with the Company and which has a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 4.2 Definitions. 4.2.1 "Competes" means the production, marketing or selling of any product or service of any person or entity other than the Company which resembles or competes with a product or service produced, marketed or sold by the Company (or to your knowledge was under development by the Company) during the period of your employment by the Company (whether under this Agreement or otherwise). 4.2.2 "Restricted Area" means: (a) The Standard Metropolitan Statistical Area (or the equivalent) in which any office, place of employment, business address or POP maintained by the Company is located; or (b) Any state of the United States, any province of Canada or any foreign country from which the Company or any of its material subsidiaries or affiliates derives 5% or more of its annual net income. 4.2.3 "Restricted Period" means: (a) The period of your employment by the Company (whether under this Agreement or otherwise), if your employment is terminated because of your death or Disability; 6 (b) The period of your employment by the Company (whether under this Agreement or otherwise) and 24 months thereafter, if your employment is terminated by the Company for Cause or without Cause (and not by the Company following Change of Control); (c) The period of your employment by the Company (whether under this Agreement or otherwise) and, if this Agreement is still in effect at the Termination Date, the number of months remaining in the Term at the Termination Date or 12 months, whichever is longer (but in no event more than 24 months), if you terminate your employment voluntarily (and not for Good Reason); or (d) The period of your employment by the Company under this Agreement, if your employment is terminated by you for Good Reason or by the Company following Change of Control. 4.3 Savings Clause. If any of the provisions of this Section 4 are ever determined by a court to exceed the time, geographic scope or other limitations permitted by applicable law in any jurisdiction, then such excessive provisions shall be deemed reduced, in such jurisdiction only, to the maximum time, geographic scope or other limitation permitted in such jurisdiction. 5. Equitable Relief. You acknowledge that the restrictions contained in Sections 2, 3 and 4 of this Agreement are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that any violation of the provisions of those Sections will result in irreparable injury to the Company. You also acknowledge that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, and to an equitable accounting of all earnings, profits and other benefits arising from such violation. These rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. You agree to submit to the jurisdiction of any New York State court located in Monroe County or the United States District Court for the Western District of New York or of the state court or the federal court 7 located in or presiding over the county in which the Company has its corporate headquarters at the applicable time in any action, suit or proceeding brought by the Company to enforce its rights under Sections 2, 3 and/or 4 of this Agreement. 6. Company's Obligations upon Termination. The sole obligations of the Company upon the termination of your employment prior to the failure of either you or the Company to extend the Term in accordance with Section 1.1 of this Agreement are as set forth in this Section 6. Any and all amounts to be paid to you in connection with your termination shall be paid in a lump sum promptly after the Termination Date, but not more than 30 days thereafter. 6.1 Termination upon Disability or Death. If your employment with the Company ends by reason of your death or Disability (as defined later in this Agreement), the Company shall pay you all amounts earned or accrued through the Termination Date but not paid as of the Termination Date, including: 6.1.1 Base compensation; 6.1.2 Reimbursement for reasonable and necessary expenses incurred by you on behalf of the Company during the Term; 6.1.3 Pay for earned but unused vacation and floating holidays; 6.1.4 All compensation you previously deferred (if any) to the extent not yet paid; and 6.1.5 An amount equal to your "Pro Rata Bonus". Your Pro Rata Bonus shall be determined by multiplying the "Bonus Amount" (as defined below) by a fraction, the numerator of which is the number of days in the fiscal year through the Termination Date and the denominator of which is 365. The term "Bonus Amount" means: (i) a bonus calculated using the performance metrics of the Company's results and your individual performance for the fiscal year ended prior to the year in which the Termination Date occurs, applied to 8 the payouts set forth under the incentive compensation program in effect for the year in which the Termination Date occurs; or (ii) if the Termination Date occurs after the end of a fiscal year but before any bonus related thereto was paid, the bonus you would have received for that fiscal year. The amounts described in Sections 6.1.1 through 6.1.4, inclusive, are called elsewhere in this Agreement, collectively, the "Accrued Compensation". Except as otherwise provided in this Section 6.1, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 6.2 Termination Without Cause. If the Company terminates your employment without Cause (as defined later in this Agreement), the Company shall pay you: 6.2.1 All Accrued Compensation; 6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5 above); and 6.2.3 Severance ("Severance") equal to: (a) twice the sum of (i) the annual base compensation you would have received for the entire fiscal year in which the Termination Date occurs plus (ii) the Bonus Amount plus (iii) $25,000 (being the agreed cash equivalent of the annual value of the perquisites provided to you under the Company's Executive Compensation Program) plus (iv) the Company contributions which would have been made on your behalf to the 401(k) retirement savings plan maintained by the Company (b) reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986 as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by you upon termination of your employment under any severance plan, policy or arrangement of the Company. 9 In addition, the Company shall continue to provide to you and your family at the Company's expense, for 24 months following the Termination Date, the life insurance, disability, medical, dental, vision and hospitalization benefits provided to you and your family immediately prior to the Termination Date. Except as otherwise provided in this Section 6.2, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 6.3 Termination for Cause or Voluntary Termination. If your employment is terminated for Cause (as defined later in this Agreement), or if you voluntarily terminate your employment other than for Good Reason, the Company shall pay you all Accrued Compensation. Except as otherwise provided in this Section 6.3, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 6.4 Termination for Good Reason or by Company Following Change of Control. If you terminate your employment for Good Reason or the Company terminates your employment following a Change of Control, the Company shall pay you: 6.4.1 All Accrued Compensation; 6.4.2 A Pro Rata Bonus; and 6.4.3 Severance equal to: (a) three times the sum of (i) the annual base compensation you would have received for the entire fiscal year in which the Termination Date occurs plus (ii) the Bonus Amount plus (iii) $25,000 (being the agreed cash equivalent of the annual value of the perquisites provided to you under the Company's Executive Compensation Program) plus (iv) the Company contributions which would have been made on your behalf to the 401(k) retirement savings plan maintained by the Company (b) reduced by the present value (determined as provided in Section 280G(d)(4) of the Code or any other amount of severance relating to salary or bonus continuation to be received by you upon termination of your employment under 10 any severance plan, policy or arrangement of the Company. In addition, the Company shall continue to provide to you and your family at the Company's expense, for 36 months following the Termination Date, the life insurance, disability, medical, dental, vision and hospitalization benefits provided to you and your family immediately prior to the Termination Date. The Company shall reimburse you for all reasonable legal fees and expenses which you may incur following a Change of Control as a result of the Company's attempts to contest the validity or enforceability of this Agreement or your attempts to obtain or enforce any right or benefit provided to you under this Agreement, unless a court determines your actions to be frivolous. Except as otherwise provided in this Section 6.4, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 7. Gross-Up Payment. Notwithstanding anything else in this Agreement, if it is found that any or all of the payments made to you, including but not limited to payments made by the Company, or under any plan or arrangement maintained by the Company, to you or for your benefit (other than any additional payments required under this Section 7) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Code or you incur any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively the "Excise Tax"), then you are entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after you pay all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, you will retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The procedures for the calculation and contesting of any claim that such Excise Tax is due are set forth in the Addendum. 11 8. No Obligation to Mitigate Damages. You are not required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and the amounts to be paid to you under Section 6 of this Agreement shall not be reduced by any compensation you may earn from other sources. However, if, during any period that you would otherwise be entitled to receive any payments or benefits under this Agreement, you breach your obligations under Section 2, 3 or 4 of this Agreement, the Company may immediately terminate any and all payments and the provision of benefits (to the extent permitted by law and the terms of the benefit plans maintained by the Company from time to time) hereunder. 9. Successor to Company. The Company will require any successor or assignee to all or substantially all of the business and/or assets of the Company, whether by merger, sale of assets or otherwise, by agreement in form and substance reasonably satisfactory to you, to assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform them if such succession or assignment had not taken place. Such agreement of assumption must be express, absolute and unconditional. If the Company fails to obtain such an agreement within three business days prior to the effective date of such succession or assignment, you shall be entitled to terminate your employment under this Agreement for Good Reason. 10. Survival. Notwithstanding the expiration or termination of this Agreement, except as otherwise specifically provided herein, your obligations under Sections 2, 3 and 4 of this Agreement and the obligations of the Company under this Agreement shall survive and remain in full force and effect. This Agreement shall inure to the benefit of, and be enforceable by, your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amounts are still payable to you, all such amounts, unless otherwise provided in this Agreement, shall be paid in accordance with the terms of this Agreement to your devisee(s), legatee(s) or other designee(s) or, if there is no such designee(s), to your estate. 12 11. Definitions. Whenever used in this Agreement, the following terms shall have the meanings below: 11.1 "Cause" means: 11.1.1 You have willfully and continually failed to substantially perform your duties (other than due to an incapacity resulting from physical or mental illness or due to any actual or anticipated failure after you have given a Notice of Termination for Good Reason) after a written demand for substantial performance is delivered to you by the Chief Executive Officer or the Board which specifically identifies the manner in which it is believed that you have not substantially performed your duties; or 11.1.2 You have willfully engaged in conduct which is demonstrably and materially injurious to the Company (monetarily or otherwise); or 11.1.3 You have willfully engaged in conduct which is illegal or in violation of the Company's Code of Ethics; or 11.1.4 You have been convicted of a felony; or 11.1.5 You have violated the provisions of Section 2 and/or Section 3 and/or Section 4 of this Agreement and, in any of the events described in Sections 11.1.1 through 11.1.5 above, the Board adopts a resolution finding that in the good faith opinion of the Board you were culpable for the conduct set forth in any of Sections 11.1.1 through 11.1.5 and specifying the particulars thereof in detail. For the purposes of this Agreement, no act or failure to act on your part shall be considered willful unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interests of the Company. Any such resolution of the Board must receive the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose of considering the issue, and you must receive reasonable notice of the meeting and have an opportunity, with your counsel, to present your case to the Board. 13 11.2 "Change of Control" means: 11.2.1 The consummation of a consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the shares of the Company's common, voting equity are to be converted into cash, securities or other property. For the purposes of this Agreement, a consolidation or merger with a corporation which was a wholly-owned direct or indirect subsidiary of the Company immediately before the consolidation or merger is not a Change of Control; or 11.2.2 The sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Company's assets; or 11.2.3 The approval by the Company's shareowners of any plan or proposal for the liquidation or dissolution of the Company; or 11.2.4 Any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, a direct or indirect wholly-owned subsidiary of the Company or any other company owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of the Company's common, voting equity), is or becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the Company's then outstanding common, voting equity; or 11.2.5 During any period of two consecutive years, individuals who at the beginning of such period constitute the Board, including for this purpose any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in this Section 11.2.5) whose election or nomination for election by the Company's shareowners was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of 14 the period or whose election or nomination for election was previously so approved (the "Incumbent Board"), cease for any reason to constitute a majority of the Board. 11.3 "Disability" means: 11.3.1 Your absence from your duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness; or 11.3.2 A physical or mental condition which prevents you from satisfactorily performing your duties with the Company and such incapacity or condition is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to you and/or your legal representative. 11.4 "Good Reason" means: 11.4.1 Without your express written consent, after a Change of Control, the assignment to you of duties with the Company or with a person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company materially diminished from the duties assigned to you immediately prior to a Change of Control; or 11.4.2 Without your express written consent, after a Change of Control, any reduction by the Company or any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company in your annual base compensation or annual bonus at Standard (or equivalent) rating from the amounts of such compensation and/or bonus in effect immediately before and during the fiscal year in which the Change of Control occurred (except that this Section 11.4.2 shall not apply to across-the-board salary or bonus reductions similarly affecting all executives of the Company and all executives of any person in control of the Company); or 11.4.3 Without your express written consent, after a Change of Control, the failure by the Company or any person, as that term is used in Section 13(d) and 14(d) of the 15 Exchange Act, in control of the Company to increase your annual base compensation or annual bonus at Standard (or equivalent) rating at the times and in comparable amounts as they are increased for similarly situated senior executive officers of the Company and of any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company; or 11.4.4 Without your express written consent, after a Change of Control, the failure by the Company or by any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company to continue in effect any benefit or incentive plan or arrangement (except any benefit plan or arrangement which expires by its own terms then in effect upon the occurrence of a Change of Control) in which you are participating at the time of the Change of Control, unless a replacement plan or arrangement with at least substantially similar terms is provided to you; or 11.4.5 Without your express written consent, after a Change of Control, the taking of any action by the Company or by any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company which would adversely affect your participation in or materially reduce your benefits under any benefit plan or arrangement or deprive you of any other material benefit (including any miscellaneous benefit which is not represented and protected by a written plan document or trust) enjoyed by you at the time of a Change of Control; or 11.4.6 You terminate your employment (other than because of your death or Disability) by giving the Company a Notice of Termination with a Termination Date not later than the first anniversary of the Change of Control; or 11.4.7 Any failure by the Company to comply with any of its material obligations under this Agreement, after you have given notice of such failure to the Company and the Company has not cured such failure promptly after its receipt of such notice. 16 12. Notice. All notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed given when mailed by certified mail, return receipt requested, or by nationally recognized overnight courier, receipt requested, when addressed to you at your official business address when employed by the Company or at your home address as reflected in the Company's records from time to time and when addressed to the Company at its corporate headquarters, to the attention of the Board, with a required copy to the Company's Corporate Counsel. 13. Amendment and Assignment. This Agreement cannot be changed, modified or terminated except in a writing. You may not assign your duties with the Company to any other person. 14. Severability. If any provision of this Agreement or the application of this Agreement to anyone or under any circumstances is determined by a court to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be effective without the invalid or unenforceable provision or application, and such invalidity or unenforceability shall not invalidate or render unenforceable such provision in any other jurisdiction. 15. Remedies Cumulative; No Waiver. No remedy conferred on you or on the Company by this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or later existing at law or in equity. No delay or omission by you or by the Company in exercising any right, remedy or power under this Agreement or existing at law or inequity shall be construed as a waiver of such right, remedy or power, and any such right, remedy or power may be exercised by you or the Company from time to time and as often as is expedient or necessary. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to any applicable conflicts of laws. 17 17. Counterparts. This Agreement may be signed by you and on behalf of the Company in one or more counterparts, each of which shall be one original but all of which together will constitute one and the same instrument. If this Agreement correctly sets forth our agreement on its subject matter, please sign and return to me the enclosed copy of this Agreement. Please keep the other copy for your records. Sincerely, FRONTIER CORPORATION By: /s/Ronald L. Bittner --------------------------------------- Ronald L. Bittner Chairman and CEO Agreed to on /s/ Robert L. Barrett ----------------------------------- Robert L. Barrett 18 ADDENDUM TO LETTER AGREEMENT DATED , 1996 The following provisions shall apply to the calculation and procedures relating to the Gross-Up Payment in accordance with Section 7 of the Agreement. 1. The Company's independent auditors in the fiscal year in which the Change of Control occurs (the "Accounting Firm") shall determine whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be used in making such determination. The Accounting Firm shall provide detailed supporting calculations, together with a written opinion with respect to the accuracy of such calculations, to you and the Company within 15 business days of the receipt of a written request from either you or the Company. If the Accounting Firm is serving (or has served within the three years preceding the Change in Control) as accountant or auditor for the person in control of the Company following the Change of Control or any affiliate thereof, you may appoint another nationally recognized accounting firm to make the determinations required in connection with the Gross-Up Payment and the substitute accounting firm shall then be referred to as the Accounting Firm). The Company shall pay you any Gross-Up Payment, determined in accordance with this Addendum, within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that you will not be liable for any Excise Tax, it shall furnish you with a written opinion that your failure to report the Excise Tax on the applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon you and the Company. 2. If there is uncertainty about how Section 4999 is to be applied when the Accounting Firm makes its initial determination, and as a result the Gross-Up Payment made to you by the Company is determined (after following the procedures set forth in this Addendum) to be less than it should have been made (an "Underpayment"), and you are thereafter required to pay any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment and any such Underpayment shall be promptly paid by the Company to you or for your benefit. 19 3. You shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the Company to pay you the Gross-Up Payment. Your notice shall be given as soon as practicable but no later than ten business days after you have been informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. You shall not pay such claim prior to the expiration of the 30 day period following the date on which you gave such notice to the Company (or any shorter period, if the taxes claimed are due sooner). If the Company notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (a) give the Company any information reasonably requested by it relating to such claim, (b) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (c) cooperate with the Company in good faith in order effectively to contest such claim, and (d) permit the Company to participate in any proceedings relating to such claim. 4. The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in connection with the claim and may, at its sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute the contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine. 5. Any extension by the Company of the statute of limitations relating to payment of taxes for the taxable year for which such contested amount is claimed to be due shall be limited solely to such contested amount. The Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable under this Agreement and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 20 6. If the Company directs you to pay such claim and sue for a refund, the Company shall advance the amount of such payment to you, on an interest-free basis, and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. 7. If you receive a refund of any amount advanced to you by the Company, you will promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If the Company advanced to you any amounts and a determination is made that you will not be entitled to any refund with respect to such claim and the Company does not notify you in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and you will not be required to be repay it. The amount of such advance shall offset the amount of the Gross-Up Payment required to be paid. 8. The Company shall pay all fees and expenses of the Accounting Firm. The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 21 FRONTIER CORPORATION 180 SOUTH CLINTON AVENUE ROCHESTER, NY 14646 March 1, 1996 Mr. Robert L. Barrett 6152 Grey Friar Way Dublin, Ohio 43017 Dear Mr. Barrett: On behalf of Ronald L. Bittner, Chairman & Chief Executive Officer, it is my pleasure to extend to you an offer of employment for the position of President, Frontier Network Systems & Services at Frontier Corporation, reporting directly to the Chief Executive Officer, and effective April 1, 1996. As President, Frontier Network Systems & Services, you will lead all long distance network development, maintenance and operations, as well as all corporate information systems. Your assignment is currently based out of Frontier's corporate headquarters location at 180 South Clinton Avenue, Rochester, New York. This position carries with it an annual base salary of $300,000.00. Short term (annual) incentive payout for your position will be prorated for your actual 1996 time worked in Frontier, and is based upon the following 1996 Corporate objectives: OBJECTIVES THRESHOLD STANDARD PREMIER EPS $ 1.55 $1.72 $ 1.81 EPITDA $ 645.0 (M) $ 695.0 (M) $ 720.0 (M) PAYOUT IN % 27.5% 55.0% 96.5% In addition to the base and annual short term incentive opportunities, you shall receive, upon approval of Frontier's Committee on Management, the following additional compensation items: 1. 200,000 Stock Option Grants which will be granted at the Frontier stock price of April 1, 1996, and will vest: A) 66,666 upon first anniversary of date of grant B) 66,666 upon second anniversary of date of grant C) 66,668 upon third anniversary of date of grant 2. 50,000 shares restricted stock which vest based upon the price of Frontier stock, close of business, on April 1, 1996: 22 A) 16,666 at a pre-determined share price based on 16% stock price growth plus continued employment on the first anniversary of grant date B) 16,666 at a pre-determined share price based on 32% stock price growth plus continued employment on the second anniversary of grant date C) 16,668 at a pre-determined share price based on 48% stock price growth plus continued employment on the third anniversary of grant date 3. Three year Employment & Change in Control Contract to include "non-compete" language, and safeguards for company confidential & proprietary information. (Attachment "A") 4. A signing bonus of $80,000.00, payable July 1, 1996. 5. Up to one year temporary housing in Rochester, New York, and reasonable return visits to Columbus, Ohio. 6. Full relocation support for your transfer to Frontier corporate headquarters within one calendar year of your start date. 7. Standard perks at Executive Vice President level (Attachment "B"). Of necessity, this offer is contingent upon the following: A) Positive reference check and credential verification B) Successful completion of a pre-employment physical and drug screening test C) Proof of your identity and authorization to work in the United States (Immigration Law of 1986) D) Completion of the enclosed Employment Contract E) Start date no later than April 1, 1996 23 Please contact Dr. Gregory Riley, 220 Alexander Street, Suite 501, Rochester, New York 14607 at (716) 454-6700 to arrange for your physical and drug screening. Please let me know the date and time of your appointment. Bob, these are exciting times for Frontier. Our future success lies in leaders like you who have the energy, enthusiasm and talent to take Frontier into the next century. Your experience in the competitive marketplace, expertise in networks and technology, and your approach to leadership and success will accelerate Frontier's growth and establish our position among the major players in telecommunications. Ron would like to arrange a public announcement of your appointment at a mutually agreeable time later this month. Also, if you decide to accept this offer, let Ron or me know your availability the weekends of March 16, 1996 or March 23, 1996. Call him at home at (716) 385-3077 or at the office at (716) 777-8007. If, in addition, there are concerns or terms we failed to cover, please give either Ron or me a call. Please acknowledge your acceptance of this offer by signing below and returning it in the enclosed, self-addressed envelope no later than March 11, 1996. Sincerely, /s/ Janet F. Sansone Janet F. Sansone Vice President Human Resources Frontier Corporation JFS:pd 24 I accept the terms and conditions of this offer. /s/ Robert L. Barrett - ------------------------------------- Signature - ------------------------------------- Date ###-##-#### - ------------------------------------- Social Security Number 11/3/41 - ------------------------------------- Date of Birth April 1, 1996 - ------------------------------------- Start Date EX-10 4 EXH 10.26 EXEC CONT 1 FRONTIER CORPORATION 180 South Clinton Avenue Rochester, New York 14646 March 25, 1996 Mr. Kevin J. Bennis 1834 Ballybunion Drive Duluth, Georgia 30155 Dear Mr. Bennis: The Board of Directors (the "Board") of Frontier Corporation, on behalf of Frontier and its subsidiaries and affiliates (together, the "Company") has determined that it is in the best interests of the Company and its shareowners to be able to avail itself of your continued dedication and service to the Company in the immediate future and in case of Change of Control, as defined later in this letter agreement ("Agreement"). It is therefore the intent of this Agreement to encourage your complete dedication to the Company by providing you with compensation and benefits arrangements while you fulfill your duties now and during the pendency of a Change of Control, should such an event occur, which provide you with a measure of security commensurate with your importance to the Company. Therefore, upon your signature on a counterpart of this Agreement, the following terms and conditions shall become effective as of March 26, 1996. However, this Agreement does not supersede any stock option agreements or restricted stock grant agreements dated as of March 26, 1996 between the Company and you, all of which shall remain in full force and effect. 1. Employment. 1.1 Term. The Company shall employ you in a senior executive management capacity as the Company, with your consent, may from time to time designate. This Agreement shall become effective as of March 26, 1996 and shall continue until March 31, 1999, unless earlier terminated or extended in accordance with its terms. Beginning on April 1, 1998 and on each anniversary of 2 that date thereafter, the term of this Agreement (the "Term") shall automatically be extended for one additional year unless either the Company or you has given written notice to the other no later than December 31 of the preceding year that the giver of the notice does not elect to extend the Term. Even if the Company has given you such a notice, if a Change of Control has occurred during the Term and you have met your obligations in the next paragraph of this Section 1.1, the Term will be automatically extended and this Agreement will remain in full force and effect until the last day of the 36th month following the month in which the Change of Control occurs. You acknowledge that, except as set forth in this Agreement, your employment is "at will". If, during the Term, a person (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) commences any action that, if consummated, would result in a Change of Control of the Company, or if any person publicly announces an intention or proposal to commence any such action, you agree that you will not leave the Company's employ (other than as a result of death or Disability) and will render the services contemplated in this Agreement for the reasonable duration of the Company's defense against such action and until such action has been abandoned or terminated or a Change in Control has occurred. Any termination of your employment during the Term for reasons other than your death shall be evidenced by a written Notice of Termination, which shall specify the provision of this Agreement relied upon for such termination and describe with reasonable detail the facts and circumstances claimed by the sender of such Notice of Termination to provide the basis for termination. Any such Notice of Termination shall also specify the effective date of termination (the "Termination Date"). If you die during the Term the Termination Date shall be the date of your death. 1.2 Duties. You shall perform all duties incidental to your position with the Company, or as may be assigned to you by the Chief Executive Officer of the Company or the Board. You agree to use your best efforts in the business of the Company and to devote your full time attention and energy to the business of 3 the Company. You agree not to work, either on a part-time or independent contracting or consulting basis, with or without compensation, for any other business or enterprise during the Term without the Company's prior consent. Such consent shall not be unreasonably withheld in the case of service on the boards of directors of other corporations and community organizations. 1.3 Base Compensation. The Company shall pay you as base compensation an annual salary of $325,000, in installments in accordance with the Company's policies from time to time in effect, until January 1, 1997. Thereafter, your annual salary may be adjusted by the Company consistent with the Company's results and your performance during the prior year. However, unless the annual salaries of all senior executives of the Company are reduced across-the-board, your annual salary in any year shall not be less than your annual salary during the prior year. 1.4 Incentive Compensation. The Company shall establish and review with you from time to time the performance goals ("Performance Goals") for the Company and you individually, and a methodology for calculating the amount of incentive compensation to be paid upon achievement of such Performance Goals. Incentive compensation shall be payable to you at such time or times as are established under the Company's policies (including the Company's Executive Compensation Program) in effect from time to time. 1.5 Benefits; Perquisites. You shall be entitled to receive the benefits and perquisites provided by the Company under its Executive Compensation program in effect from time to time for executives at the Executive Vice President level. 1.6 Expenses. You shall be reimbursed for any reasonable expenses you incur in connection with your employment during the Term, upon presentation to the Company of an itemized account and receipts of such expenses as required by the Company's policies from time to time in effect. 2. Developments and Intellectual Property. You acknowledge that all developments, including but not limited to trade secrets (including strategies, business plans and customer lists), discoveries, improvements, ideas and writings which either 4 directly or indirectly relate to or may be useful in the business of the Company (the "Developments") which you, either alone or in conjunction with any other person or persons, shall conceive, make, develop, acquire or acquire knowledge of during the Term are the sole and exclusive property of the Company. You will cooperate with the Company's reasonable requests to obtain or maintain rights or protections under United States or foreign law with respect to all Developments. The Company will reimburse you for all reasonable expenses incurred by you in order to comply with this provision of this Agreement, regardless of when such expenses may be incurred. 3. Confidential Information. You acknowledge that by reason of your employment by the Company, especially as a senior executive thereof, you may now or will in the future have access to information of the Company that the Company deems to be confidential and/or proprietary, including but not limited to, information about the Company's strategies, plans, products and services, methods of operation, employees, sales, profits, expenses, customer lists and the relationships between the Company and its customers, suppliers and others who have business dealings with the Company. You covenant and agree that during the Term and thereafter, you will not disclose any such information to any person without the prior written authorization of the Chief Executive Officer of the Company or the Board. 4. Non-Competition. 4.1 Covenant. In consideration of the benefits provided to you under this Agreement, which you acknowledge are independent consideration, you covenant and agree that during the Restricted Period (as defined below), you will not, directly or indirectly, without the Company's prior consent: (i) own, manage, operate, finance, join, control or participate in the ownership or control of, or be associated as an officer, director, executive, partner or principal, agent, representative, consultant or otherwise with, or use or permit your name to be used in connection with, any enterprise that directly or indirectly competes (as defined below) with the business of the Company in a Restricted Area (as defined below); or (ii) offer or provide employment to, or solicit, interfere with or attempt to entice away from the Company any individual who either is 5 employed by the Company at the time of such offer, employment, solicitation, interference or enticement or has been so employed by the Company within 12 months prior to such offer, employment, solicitation, interference or enticement. This Section shall not be construed to prohibit the ownership by you of not more than 1% of any class of securities of any corporation which competes with the Company and which has a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 4.2 Definitions. 4.2.1 "Competes" means the production, marketing or selling of any product or service of any person or entity other than the Company which resembles or competes with a product or service produced, marketed or sold by the Company (or to your knowledge was under development by the Company) during the period of your employment by the Company (whether under this Agreement or otherwise). 4.2.2 "Restricted Area" means: (a) The Standard Metropolitan Statistical Area (or the equivalent) in which any office, place of employment, business address or POP maintained by the Company is located; or (b) Any state of the United States, any province of Canada or any foreign country from which the Company or any of its material subsidiaries or affiliates derives 5% or more of its annual net income. 4.2.3 "Restricted Period" means: (a) The period of your employment by the Company (whether under this Agreement or otherwise), if your employment is terminated because of your death or Disability; 6 (b) The period of your employment by the Company (whether under this Agreement or otherwise) and 24 months thereafter, if your employment is terminated by the Company for Cause or without Cause (and not by the Company following Change of Control); (c) The period of your employment by the Company (whether under this Agreement or otherwise) and, if this Agreement is still in effect at the Termination Date, the number of months remaining in the Term at the Termination Date or 12 months, whichever is longer (but in no event more than 24 months), if you terminate your employment voluntarily (and not for Good Reason); or (d) The period of your employment by the Company under this Agreement, if your employment is terminated by you for Good Reason or by the Company following Change of Control. 4.3 Savings Clause. If any of the provisions of this Section 4 are ever determined by a court to exceed the time, geographic scope or other limitations permitted by applicable law in any jurisdiction, then such excessive provisions shall be deemed reduced, in such jurisdiction only, to the maximum time, geographic scope or other limitation permitted in such jurisdiction. 5. Equitable Relief. You acknowledge that the restrictions contained in Sections 2, 3 and 4 of this Agreement are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that any violation of the provisions of those Sections will result in irreparable injury to the Company. You also acknowledge that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, and to an equitable accounting of all earnings, profits and other benefits arising from such violation. These rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. You agree to submit to the jurisdiction of any New York State court located in Monroe County or the United States District Court for the Western District of New York or of the state court or the federal court 7 located in or presiding over the county in which the Company has its corporate headquarters at the applicable time in any action, suit or proceeding brought by the Company to enforce its rights under Sections 2, 3 and/or 4 of this Agreement. 6. Company's Obligations upon Termination. The sole obligations of the Company upon the termination of your employment prior to the failure of either you or the Company to extend the Term in accordance with Section 1.1 of this Agreement are as set forth in this Section 6. Any and all amounts to be paid to you in connection with your termination shall be paid in a lump sum promptly after the Termination Date, but not more than 30 days thereafter. 6.1 Termination upon Disability or Death. If your employment with the Company ends by reason of your death or Disability (as defined later in this Agreement), the Company shall pay you all amounts earned or accrued through the Termination Date but not paid as of the Termination Date, including: 6.1.1 Base compensation; 6.1.2 Reimbursement for reasonable and necessary expenses incurred by you on behalf of the Company during the Term; 6.1.3 Pay for earned but unused vacation and floating holidays; 6.1.4 All compensation you previously deferred (if any) to the extent not yet paid; and 6.1.5 An amount equal to your "Pro Rata Bonus". Your Pro Rata Bonus shall be determined by multiplying the "Bonus Amount" (as defined below) by a fraction, the numerator of which is the number of days in the fiscal year through the Termination Date and the denominator of which is 365. The term "Bonus Amount" means: (i) a bonus calculated using the performance metrics of the Company's results and your individual performance for the fiscal year ended prior to the year in which the Termination Date occurs, applied to 8 the payouts set forth under the incentive compensation program in effect for the year in which the Termination Date occurs; or (ii) if the Termination Date occurs after the end of a fiscal year but before any bonus related thereto was paid, the bonus you would have received for that fiscal year. The amounts described in Sections 6.1.1 through 6.1.4, inclusive, are called elsewhere in this Agreement, collectively, the "Accrued Compensation". Except as otherwise provided in this Section 6.1, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 6.2 Termination Without Cause. If the Company terminates your employment without Cause (as defined later in this Agreement), the Company shall pay you: 6.2.1 All Accrued Compensation; 6.2.2 A Pro Rata Bonus (as defined in Section 6.1.5 above); and 6.2.3 Severance ("Severance") equal to: (a) twice the sum of (i) the annual base compensation you would have received for the entire fiscal year in which the Termination Date occurs plus (ii) the Bonus Amount plus (iii) $25,000 (being the agreed cash equivalent of the annual value of the perquisites provided to you under the Company's Executive Compensation Program) plus (iv) the Company contributions which would have been made on your behalf to the 401(k) retirement savings plan maintained by the Company (b) reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986 as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by you upon termination of your employment under any severance plan, policy or arrangement of the Company. 9 In addition, the Company shall continue to provide to you and your family at the Company's expense, for 24 months following the Termination Date, the life insurance, disability, medical, dental, vision and hospitalization benefits provided to you and your family immediately prior to the Termination Date. Except as otherwise provided in this Section 6.2, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 6.3 Termination for Cause or Voluntary Termination. If your employment is terminated for Cause (as defined later in this Agreement), or if you voluntarily terminate your employment other than for Good Reason, the Company shall pay you all Accrued Compensation. Except as otherwise provided in this Section 6.3, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 6.4 Termination for Good Reason or by Company Following Change of Control. If you terminate your employment for Good Reason or the Company terminates your employment following a Change of Control, the Company shall pay you: 6.4.1 All Accrued Compensation; 6.4.2 A Pro Rata Bonus; and 6.4.3 Severance equal to: (a) three times the sum of (i) the annual base compensation you would have received for the entire fiscal year in which the Termination Date occurs plus (ii) the Bonus Amount plus (iii) $25,000 (being the agreed cash equivalent of the annual value of the perquisites provided to you under the Company's Executive Compensation Program) plus (iv) the Company contributions which would have been made on your behalf to the 401(k) retirement savings plan maintained by the Company (b) reduced by the present value (determined as provided in Section 280G(d)(4) of the Code or any other amount of severance relating to salary or bonus continuation to be received by you upon termination of your employment under 10 any severance plan, policy or arrangement of the Company. In addition, the Company shall continue to provide to you and your family at the Company's expense, for 36 months following the Termination Date, the life insurance, disability, medical, dental, vision and hospitalization benefits provided to you and your family immediately prior to the Termination Date. The Company shall reimburse you for all reasonable legal fees and expenses which you may incur following a Change of Control as a result of the Company's attempts to contest the validity or enforceability of this Agreement or your attempts to obtain or enforce any right or benefit provided to you under this Agreement, unless a court determines your actions to be frivolous. Except as otherwise provided in this Section 6.4, your entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. 7. Gross-Up Payment. Notwithstanding anything else in this Agreement, if it is found that any or all of the payments made to you, including but not limited to payments made by the Company, or under any plan or arrangement maintained by the Company, to you or for your benefit (other than any additional payments required under this Section 7) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Code or you incur any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively the "Excise Tax"), then you are entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after you pay all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, you will retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The procedures for the calculation and contesting of any claim that such Excise Tax is due are set forth in the Addendum. 11 8. No Obligation to Mitigate Damages. You are not required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and the amounts to be paid to you under Section 6 of this Agreement shall not be reduced by any compensation you may earn from other sources. However, if, during any period that you would otherwise be entitled to receive any payments or benefits under this Agreement, you breach your obligations under Section 2, 3 or 4 of this Agreement, the Company may immediately terminate any and all payments and the provision of benefits (to the extent permitted by law and the terms of the benefit plans maintained by the Company from time to time) hereunder. 9. Successor to Company. The Company will require any successor or assignee to all or substantially all of the business and/or assets of the Company, whether by merger, sale of assets or otherwise, by agreement in form and substance reasonably satisfactory to you, to assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform them if such succession or assignment had not taken place. Such agreement of assumption must be express, absolute and unconditional. If the Company fails to obtain such an agreement within three business days prior to the effective date of such succession or assignment, you shall be entitled to terminate your employment under this Agreement for Good Reason. 10. Survival. Notwithstanding the expiration or termination of this Agreement, except as otherwise specifically provided herein, your obligations under Sections 2, 3 and 4 of this Agreement and the obligations of the Company under this Agreement shall survive and remain in full force and effect. This Agreement shall inure to the benefit of, and be enforceable by, your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amounts are still payable to you, all such amounts, unless otherwise provided in this Agreement, shall be paid in accordance with the terms of this Agreement to your devisee(s), legatee(s) or other designee(s) or, if there is no such designee(s), to your estate. 12 11. Definitions. Whenever used in this Agreement, the following terms shall have the meanings below: 11.1 "Cause" means: 11.1.1 You have willfully and continually failed to substantially perform your duties (other than due to an incapacity resulting from physical or mental illness or due to any actual or anticipated failure after you have given a Notice of Termination for Good Reason) after a written demand for substantial performance is delivered to you by the Chief Executive Officer or the Board which specifically identifies the manner in which it is believed that you have not substantially performed your duties; or 11.1.2 You have willfully engaged in conduct which is demonstrably and materially injurious to the Company (monetarily or otherwise); or 11.1.3 You have willfully engaged in conduct which is illegal or in violation of the Company's Code of Ethics; or 11.1.4 You have been convicted of a felony; or 11.1.5 You have violated the provisions of Section 2 and/or Section 3 and/or Section 4 of this Agreement and, in any of the events described in Sections 11.1.1 through 11.1.5 above, the Board adopts a resolution finding that in the good faith opinion of the Board you were culpable for the conduct set forth in any of Sections 11.1.1 through 11.1.5 and specifying the particulars thereof in detail. For the purposes of this Agreement, no act or failure to act on your part shall be considered willful unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interests of the Company. Any such resolution of the Board must receive the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose of considering the issue, and you must receive reasonable notice of the meeting and have an opportunity, with your counsel, to present your case to the Board. 13 11.2 "Change of Control" means: 11.2.1 The consummation of a consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the shares of the Company's common, voting equity are to be converted into cash, securities or other property. For the purposes of this Agreement, a consolidation or merger with a corporation which was a wholly-owned direct or indirect subsidiary of the Company immediately before the consolidation or merger is not a Change of Control; or 11.2.2 The sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Company's assets; or 11.2.3 The approval by the Company's shareowners of any plan or proposal for the liquidation or dissolution of the Company; or 11.2.4 Any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, a direct or indirect wholly-owned subsidiary of the Company or any other company owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of the Company's common, voting equity), is or becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the Company's then outstanding common, voting equity; or 11.2.5 During any period of two consecutive years, individuals who at the beginning of such period constitute the Board, including for this purpose any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in this Section 11.2.5) whose election or nomination for election by the Company's shareowners was approved by a vote of at least two-thirds of the directors 14 then still in office who were directors at the beginning of the period or whose election or nomination for election was previously so approved (the "Incumbent Board"), cease for any reason to constitute a majority of the Board. 11.3 "Disability" means: 11.3.1 Your absence from your duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness; or 11.3.2 A physical or mental condition which prevents you from satisfactorily performing your duties with the Company and such incapacity or condition is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to you and/or your legal representative. 11.4 "Good Reason" means: 11.4.1 Without your express written consent, after a Change of Control, the assignment to you of duties with the Company or with a person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company materially diminished from the duties assigned to you immediately prior to a Change of Control; or 11.4.2 Without your express written consent, after a Change of Control, any reduction by the Company or any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company in your annual base compensation or annual bonus at Standard (or equivalent) rating from the amounts of such compensation and/or bonus in effect immediately before and during the fiscal year in which the Change of Control occurred (except that this Section 11.4.2 shall not apply to across-the-board salary or bonus reductions similarly affecting all executives of the Company and all executives of any person in control of the Company); or 15 11.4.3 Without your express written consent, after a Change of Control, the failure by the Company or any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company to increase your annual base compensation or annual bonus at Standard (or equivalent) rating at the times and in comparable amounts as they are increased for similarly situated senior executive officers of the Company and of any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company; or 11.4.4 Without your express written consent, after a Change of Control, the failure by the Company or by any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company to continue in effect any benefit or incentive plan or arrangement (except any benefit plan or arrangement which expires by its own terms then in effect upon the occurrence of a Change of Control) in which you are participating at the time of the Change of Control, unless a replacement plan or arrangement with at least substantially similar terms is provided to you; or 11.4.5 Without your express written consent, after a Change of Control, the taking of any action by the Company or by any person, as that term is used in Section 13(d) and 14(d) of the Exchange Act, in control of the Company which would adversely affect your participation in or materially reduce your benefits under any benefit plan or arrangement or deprive you of any other material benefit (including any miscellaneous benefit which is not represented and protected by a written plan document or trust) enjoyed by you at the time of a Change of Control; or 11.4.6 You terminate your employment (other than because of your death or Disability) by giving the Company a Notice of Termination with a Termination Date not later than the first anniversary of the Change of Control; or 11.4.7 Any failure by the Company to comply with any of its material obligations under this Agreement, after you 16 have given notice of such failure to the Company and the Company has not cured such failure promptly after its receipt of such notice. 12. Notice. All notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed given when mailed by certified mail, return receipt requested, or by nationally recognized overnight courier, receipt requested, when addressed to you at your official business address when employed by the Company or at your home address as reflected in the Company's records from time to time and when addressed to the Company at its corporate headquarters, to the attention of the Board, with a required copy to the Company's Corporate Counsel. 13. Amendment and Assignment. This Agreement cannot be changed, modified or terminated except in a writing. You may not assign your duties with the Company to any other person. 14. Severability. If any provision of this Agreement or the application of this Agreement to anyone or under any circumstances is determined by a court to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be effective without the invalid or unenforceable provision or application, and such invalidity or unenforceability shall not invalidate or render unenforceable such provision in any other jurisdiction. 15. Remedies Cumulative; No Waiver. No remedy conferred on you or on the Company by this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or later existing at law or in equity. No delay or omission by you or by the Company in exercising any right, remedy or power under this Agreement or existing at law or inequity shall be construed as a waiver of such right, remedy or power, and any such right, remedy or power may be exercised by you or the Company from time to time and as often as is expedient or necessary. 17 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to any applicable conflicts of laws. 17. Counterparts. This Agreement may be signed by you and on behalf of the Company in one or more counterparts, each of which shall be one original but all of which together will constitute one and the same instrument. If this Agreement correctly sets forth our agreement on its subject matter, please sign and return to me the enclosed copy of this Agreement. Please keep the other copy for your records. Sincerely, FRONTIER CORPORATION By: /s/Ronald L. Bittner ------------------------------------------- Ronald L. Bittner Chairman and CEO Agreed to on /s/ Kevin J. Bennis - ------------------------------ Kevin J. Bennis 18 ADDENDUM TO LETTER AGREEMENT DATED , 1996 The following provisions shall apply to the calculation and procedures relating to the Gross-Up Payment in accordance with Section 7 of the Agreement. 1. The Company's independent auditors in the fiscal year in which the Change of Control occurs (the "Accounting Firm") shall determine whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be used in making such determination. The Accounting Firm shall provide detailed supporting calculations, together with a written opinion with respect to the accuracy of such calculations, to you and the Company within 15 business days of the receipt of a written request from either you or the Company. If the Accounting Firm is serving (or has served within the three years preceding the Change in Control) as accountant or auditor for the person in control of the Company following the Change of Control or any affiliate thereof, you may appoint another nationally recognized accounting firm to make the determinations required in connection with the Gross-Up Payment and the substitute accounting firm shall then be referred to as the Accounting Firm). The Company shall pay you any Gross-Up Payment, determined in accordance with this Addendum, within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that you will not be liable for any Excise Tax, it shall furnish you with a written opinion that your failure to report the Excise Tax on the applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon you and the Company. 2. If there is uncertainty about how Section 4999 is to be applied when the Accounting Firm makes its initial determination, and as a result the Gross-Up Payment made to you by the Company is determined (after following the procedures set forth in this Addendum) to be less than it should have been made (an "Underpayment"), and you are thereafter required to pay any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment and any such Underpayment shall be promptly paid by the Company to you or for your benefit. 19 3. You shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the Company to pay you the Gross-Up Payment. Your notice shall be given as soon as practicable but no later than ten business days after you have been informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. You shall not pay such claim prior to the expiration of the 30 day period following the date on which you gave such notice to the Company (or any shorter period, if the taxes claimed are due sooner). If the Company notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (a) give the Company any information reasonably requested by it relating to such claim, (b) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (c) cooperate with the Company in good faith in order effectively to contest such claim, and (d) permit the Company to participate in any proceedings relating to such claim. 4. The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in connection with the claim and may, at its sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute the contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine. 5. Any extension by the Company of the statute of limitations relating to payment of taxes for the taxable year for which such contested amount is claimed to be due shall be limited solely to such contested amount. The Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable under this Agreement and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 20 6. If the Company directs you to pay such claim and sue for a refund, the Company shall advance the amount of such payment to you, on an interest-free basis, and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. 7. If you receive a refund of any amount advanced to you by the Company, you will promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If the Company advanced to you any amounts and a determination is made that you will not be entitled to any refund with respect to such claim and the Company does not notify you in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and you will not be required to be repay it. The amount of such advance shall offset the amount of the Gross-Up Payment required to be paid. 8. The Company shall pay all fees and expenses of the Accounting Firm. The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 21 FRONTIER CORPORATION 180 SOUTH CLINTON AVENUE ROCHESTER, NY 14646 February 23, 1996 Mr. Kevin Bennis 1834 Ballybunion Drive Duluth, Georgia 30136 Dear Mr. Bennis, On behalf of Ronald L. Bittner, Chairman & Chief Executive Officer, it is my pleasure to extend to you an offer of employment for the position of President, Frontier Communications at Frontier Corporation, reporting directly to the Chief Executive Officer, and effective April 1, 1996. As President, Frontier Communications, you will lead all Long Distance Sales, including domestic wholesale, international operations and long distance call centers, and corporate marketing for all products and divisions. At a mutually agreed upon date, your responsibilities will expand to include all cellular and local telephone sales & customer services. Your assignment is currently based out of Frontier's corporate headquarters location at 180 South Clinton Avenue, Rochester, New York. This position carries with it an annual base salary of $325,000.00. Short term (annual) incentive payout for your position is based upon the following 1996 Corporate objectives: OBJECTIVES THRESHOLD STANDARD PREMIER EPS $ 1.55 $1.72 $ 1.81 EPITDA $ 645.0 (M) $ 695.0 (M) $ 720.0 (M) PAYOUT IN % 27.5% 55.0% 96.25% Although your Short Term Incentive will be prorated for the actual 1996 time worked in Frontier, we have ample flexibility within the Incentive Program to reward outstanding achievement. 22 In addition to the base and annual short term incentive opportunities, you shall receive, upon approval of Frontier's Committee on Management, the following additional compensation items: 1. 200,000 Stock Option Grants which will be granted at the Frontier stock price of April 1, 1996, and will vest: A) 66,666 upon first anniversary of date of grant B) 66,666 upon second anniversary of date of grant C) 66,668 upon third anniversary of date of grant 2. 50,000 shares restricted stock which vest based upon the price of Frontier stock, close of business, on April 1, 1996: A) 16,666 at a pre-determined share price based on 16% stock price growth plus continued employment on the first anniversary of grant date B) 16,666 at a pre-determined share price based on 32% stock price growth plus continued employment on the second anniversary of grant date C) 16,668 at a pre-determined share price based on 48% stock price growth plus continued employment on the third anniversary of grant date 3. Three year Employment & Change in Control Contract to include "non-compete" language, and safeguards for company confidential & proprietary information. (Attachment "A") 4. A loan in the amount of $250,000, forgivable at $50,000 per year for five years. Should you leave the company for any reason before the end of the five year period, the balance remaining will be payable immediately with accrued interest from April 1, 1996 at a rate of prime + 1%. (Attachment "B") 5. Up to one year temporary housing in Rochester, New York, and reasonable return visits to Atlanta, GA. 6. Full relocation support for your transfer to Frontier corporate headquarters within one calendar year of your start date. 23 7. Standard perks at Executive Vice President level (Attachment "C"). Of necessity, this offer is contingent upon the following: A) negotiated out B) Successful completion of a pre-employment physical and drug screening test C) Proof of your identity and authorization to work in the United States (Immigration Law of 1986) D) Completion of the enclosed Employment Contract E) Start date no later than April 1, 1996 Please contact Dr. Gregory Riley, 220 Alexander Street, Suite 501, Rochester, New York 14607 at (716) 454-6700 to arrange for your physical and drug screening. Please let me know the date and time of your appointment. Kevin, these are exciting times for Frontier. Our future success lies in leaders like you who have the energy, enthusiasm and talent to take Frontier into the next century. Your experience in the competitive marketplace, expertise in marketing and sales, and your fresh approach to leadership and success will accelerate Frontier's growth and establish our position among the major players in telecommunications. Ron would like to arrange a public announcement of your appointment at a mutually agreeable time. At your earliest convenience, please call him at home at (716) 385-3077 or at the office at (716) 777-8007. If, in addition, there are concerns or terms we failed to cover, please give either Ron or me a call. Please acknowledge your acceptance of this offer by signing below and returning it in the enclosed, self-addressed envelope no later than March 4, 1996. Sincerely, /s/ Janet F. Sansone Janet F. Sansone Vice President Human Resources Frontier Corporation JFS:pd 24 I accept the terms and conditions of this offer. /s/ Kevin J. Bennis - ----------------------------------- Signature March 5, 1996 - ----------------------------------- Date ###-##-#### - ----------------------------------- Social Security Number 9/8/53 - ----------------------------------- Date of Birth April 1, 1996 - ----------------------------------- Start Date 25 PROMISSORY NOTE $250,000 April 1, 1996 FOR VALUE RECEIVED, Kevin J. Bennis, residing at 1834 Ballybunion Drive, Duluth, Georgia 30155 ("Maker") promises to pay to the order of Frontier Corporation, at its office and principal place of business at 180 South Clinton Avenue, Rochester, New York 14646-0700 ("Payee"), the principal amount of Two Hundred Fifty Thousand Dollars ($250,000). On the condition that Maker remains an employee of Payee or one of its subsidiaries or affiliates, beginning in 1997, the principal amount of this Note shall be deemed paid in equal annual installments of Eighty-three Thousand Three Hundred Thirty-three and 33/100's Dollars ($83,333.33) each on each of the first through third anniversaries of the date hereof, with interest thereon at the applicable federal rate for the month of April 1996. If Maker ceases to be employed by Payee or any of its subsidiaries or affiliates for any reason whatsoever, the principal amount of this Note then outstanding and interest thereon since the last accrual date at the rate of the prime rate then charged by The Chase Manhattan Bank, N.A. plus one percent shall become immediately due and payable without notice, presentation or demand of any kind, all of which are hereby waived. No failure or delay on the part of Payee in the exercise of any power or right in this Note shall operate as a waiver thereof, and no exercise or waiver of any single power or right, or the partial exercise thereof, shall affect Payee's rights with respect to any and all other rights and powers. Maker waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note. The provisions of this Note shall inure to the benefit of and extend to Payee or any holder hereof or any assigns of Payee. 26 Any notice given pursuant to this Note shall be in writing and shall be deemed to have been given when delivered by hand or deposited for certified mail delivery in the United States mail with postage prepaid or recognized overnight service and addressed to the party for whom it is intended at the address for such party set forth above or at such other address as to which the parties may from time to time notify each other in like manner. This Note shall be governed by and construed under the laws of the State of New York, without reference to and regardless of the application of any of its principles of conflicts of law. In the event that this Note is placed in the hands of an attorney for the collection hereof, Maker agrees to pay all reasonable costs of collection, including reasonable attorneys' fees. IN WITNESS WHEREOF, Maker has executed and issued this Note on the day and year first set forth above. /s/ Kevin J. Bennis ------------------------- Kevin J. Bennis STATE OF NEW YORK ) COUNTY OF MONROE ) ss.: On the 27th day of March, 1996, before me personally came Kevin J. Bennis, to me known and known to me to be the same person described in and who executed the foregoing instrument, and he duly acknowledged to me that he executed the same. /s/ Karen L. Markle ------------------------- Notary Public EX-10 5 EXH 10.27 DSIP EXHIBIT 10.27 4/24/96 FRONTIER CORPORATION DIRECTORS STOCK INCENTIVE PLAN This Frontier Corporation Directors Stock Incentive Plan (the "Plan") was last amended and restated effective as of January 1, 1995. The Plan is hereby continued, amended and restated, effective January 1, 1996, for the purpose of increasing the number of stock grants awarded to eligible directors as follows: 1. PURPOSE The purpose of the Plan is to enable Frontier Corporation (the "Company") and its subsidiaries to attract and retain outside directors and provide them with an incentive to maintain and enhance the Company's long-term performance record. It is intended that this purpose will best be achieved by granting eligible directors non-qualified stock options ("options") and/or stock grants (collectively options and stock grants are referred to as "awards") under this Plan pursuant to the rules set forth in Section 83 of the Internal Revenue Code, as amended from time to time. 2. ADMINISTRATION The Plan shall be administered by the Company's Board of Directors (the "Board"). Subject to the provisions of the Plan, the Board shall possess the authority, in its discretion, (a) to prescribe the form of the stock option and stock grant agreements including any appropriate terms and conditions applicable to these awards and to make any amendments to such agreements or awards; (b) to interpret the Plan; (c) to make and amend rules and regulations relating to the Plan; and (d) to make all other determinations necessary or advisable for the administration of the Plan. The Board's determinations shall be conclusive and binding. No member of the Board shall be liable for any action taken or decision made in good faith relating to the Plan or any award granted hereunder. 3. ELIGIBLE DIRECTORS Members of the Board of Directors of the Company and its subsidiaries who are not also employees of the Company or its subsidiaries are eligible to participate in this Plan. Eligible directors are entitled to receive both options and stock grants. Beneficial owners of more than five percent of the Common Stock of the Company are not eligible to receive any awards under this Plan. 4. SHARES AVAILABLE An aggregate of 1,000,000 shares of the Common Stock (par value $1.00 per share) of the Company (subject to substitution or adjustment as provided in Section 9 hereof) shall be available for the grant of awards under the Plan. Such shares may be authorized and unissued shares. If an option expires, terminates or is cancelled without being exercised, new options may thereafter be granted covering such shares. No award may be granted more than ten years after the effective date of the Plan. 5. TERMS AND CONDITIONS OF OPTIONS Each option granted under the Plan shall be evidenced by an option agreement in such form as the Board shall approve from time to time, which agreement shall conform with this Plan and contain the following terms and conditions: (a) Number of Shares. At the date each year when new members are elected to the Company's Board, each eligible director who will be serving on the new Board (whether newly elected or continuing as a carryover director) shall receive an option to purchase 4000 shares of the Company's Common Stock. For an eligible director of a subsidiary's board, the option shall be for 3000 shares. An eligible director who begins Board service on a date other than the date when new members are normally elected to the Board shall receive a pro rata grant to cover the partial year remaining until the next Board election. The number of shares subject to such option shall be 4000 (3000 in the case of a director of a subsidiary) multiplied by a fraction the numerator of which is the number of full or partial months in the period commencing on the first day of the month following the new Board member's appointment and ending on the next following date when new members are elected to the Board and the denominator of which is 12. Any fractional share shall be rounded up to the next highest whole number of shares. (b) Exercise Price. The exercise price under each option shall equal the fair market value of the Common Stock at the time such option is granted. For this purpose, fair market value shall equal the closing price of the Company's Common Stock on the New York Stock Exchange on the date an option is granted, or, if there was no trading in such stock on the date of such grant, the closing price on the last preceding day on which there was such trading. (c) Duration of Option. Each option by its terms shall not be exercisable after the expiration of ten years from the date such option is granted. (d) Options Nontransferable. Each option by its terms shall not be transferable by the participant otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the participant's lifetime, only by the participant, the participant's guardian or the participant's legal representative. (e) Exercise Terms. Each option granted under the Plan shall become exercisable with respect to 33 1/3 percent of the shares subject thereto on the first anniversary of the date of grant and with respect to an additional 33 1/3 percent of such shares on each of the second and third anniversaries of such date of grant. Options may be partially exercised from time to time during the period extending from the time they first become exercisable until the tenth anniversary of the date of grant. (f) Payment of Exercise Price. An option shall be exercised upon written notice to the Company accompanied by payment in full for the shares being acquired. The payment shall be made in cash, by check or, if the option agreement so permits, by delivery of shares of Common Stock of the Company registered in the name of the participant, duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so delivered shall be deemed to have a value per share equal to the fair market value of the shares on such date. For this purpose, fair market value shall equal the closing price of the Company's Common Stock on the New York Stock Exchange on the date the option is exercised, or, if there was no trading in such stock on the date of such exercise, the closing price on the last preceding day on which there was such trading. 6. TERMS AND CONDITIONS OF STOCK GRANTS Each stock grant awarded under the Plan shall be evidenced by a stock grant agreement in such form as the Board shall approve from time to time, which agreement shall conform with the Plan and the following terms and conditions: (a) Number of Shares. (i) Frontier Directors. At the date each year when new members are elected to the Company's Board, each eligible director of the Company who will be serving on the new Board (whether newly elected or continuing as a carryover director) shall be granted 1200 shares of the Company's Common Stock. If an eligible director is a chair of any Board committee on the date of grant, the number of shares shall be 1500 instead of 1200. An eligible director who begins Board service on a date other than the date when new members are normally elected to the Board shall receive a pro rata grant to cover the partial year remaining until the next Board election. The number of shares subject to such grant shall be 1200 (1500 for committee chairs) multiplied by a fraction the numerator of which is the number of full or partial months in the period commencing on the first day of the month following the new Board member's appointment and ending on the next following date when new members are elected to the Board and the denominator of which is 12. Any fractional share shall be rounded up to the next highest whole number of shares. Effective for years after 1996, at the date each year when new members are elected to the Company's Board, each eligible director shall receive the greater of 1200 shares of the Company's Common Stock (1500 for chairs of Board Committees) or the number of shares of Common Stock (rounded to the nearest whole share) having a fair market value on the trading day immediately preceeding such date equal to the annual cash retainer for members of the Board (or chairs of Board Committees), exclusive of meeting fees. Fair market value shall have the same meaning as in Section 5(b). In addition to the shares awarded pursuant to the foregoing paragraphs of this Section 6(a)(i), an eligible director of the Company who begins his or her first service on the Company's Board, whether such service commences on the date of the Annual Meeting or on another date, shall be granted 1000 shares of the Company's Common Stock. (ii) Subsidiary Directors. At the date each year when new members are elected to a subsidiary's board, each eligible director of the subsidiary who will be serving on the new board (whether newly elected or continuing as a carryover director) shall be granted the next highest whole number of shares of the Company's Common Stock having an aggregate fair market value of $18,000 ($25,000 in the case of directors carried over from the old Rochester Telephone Corporation board). If an eligible director is a chair of any subsidiary board committee, the fair market value of the shares to be granted shall be $21,000 instead of $18,000 ($29,000 instead of $25,000 in the case of chairs who were on the old Rochester Telephone Corporation board). For this purpose, fair market value shall have the same meaning as in Section 5(b). An eligible director of a subsidiary who begins board service on a date other than the date when new members are normally elected to the board shall receive a pro rata grant to cover the partial year remaining until the next board election. The dollar value of shares subject to such grant shall be determined by multiplying $18,000 ($21,000 if the new director is chair of a board committee) by a fraction the numerator of which is the number of full or partial months in the period commencing on the first day of the month following the new board member's appointment and ending on the next following date when new members are elected to the board and the denominator of which is 12. The number of shares granted shall equal the dollar amount obtained above divided by the fair market value of the Company's Common Stock on the date of grant. Any fractional share shall be rounded up to the next highest whole number of shares. (b) Vesting. All shares shall be fully and immediately vested at the date of grant. (c) Restriction on Transferability. The 1,000 shares granted to a first time director (including additional shares obtained through dividend reinvestment) of the Company may not be sold, gifted or otherwise transferred while the director remains on the Board of the Company unless the Board in its sole and absolute discretion determines otherwise. All other shares granted to an eligible director of the Company or of a subsidiary are free of transfer restrictions under the terms of this Plan. (d) Custody of Share Certificates. Certificates for all shares subject to the transferability restriction under subsection (c) above shall be held by the Company for the benefit of the director who shall deliver to the Company a stock power executed in blank covering such shares. Except for this custody restriction, the holder of a stock grant shall possess all the rights of a holder of the Company's Common Stock, including voting and dividend rights, provided that all dividends shall be automatically reinvested in additional shares of Company Common Stock rather than paid in cash. (e) Miscellaneous. All other provisions of the Plan not inconsistent with this Section 6 shall apply to stock grants and the holder thereof unless otherwise determined by the Board. Stock grants shall be considered as directors fees for purposes of any plan of deferred compensation that permits the deferral of directors fees. 7. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES The Company shall not be required to deliver any certificate upon the grant of any award, the exercise of an option or the satisfaction of any condition with respect to any award until it has been furnished with such opinion, representation or other document as it may reasonably deem necessary to insure compliance with any law or regulation of the Securities and Exchange Commission or any other governmental authority having jurisdiction under this Plan. Certificates delivered upon such grant, exercise or satisfaction of any condition may bear a legend restricting transfer absent such compliance. Each award shall be subject to the requirement that, if at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the shares subject to such award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares thereunder, such award may not be granted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors in the exercise of its reasonable judgment. 8. TERMINATION OF EMPLOYMENT (a) Options. If a director dies, either before or after termination as a director, resigns from the Board as a result of a conflict of interest or is removed from the Board for cause, any option may be exercised by the director or by the director's personal representative, as the case may be, at any time prior to the earlier of the expiration date of the option or the first anniversary of the director's date of death, resignation or removal but only if, and to the extent that, the director was entitled to exercise the option at the date of death, resignation or removal. If a director's employment as a director terminates for any reason other than death, resignation due to a conflict or removal for cause, option rights shall continue to vest in accordance with the terms of the option agreement without regard to the termination of employment and may be exercised by the director pursuant to the terms of that agreement. (b) Stock Grants. Upon a director's termination of employment as a director for any reason, all certificates for shares of Common Stock held by the Company on account of the restriction on the transfer of stock grants during service on the Board shall be delivered to the director. In the event termination of employment is caused by the director's death such certificates shall be delivered to the director's personal representative. All such deliveries of certificates shall be made as soon as reasonably practicable on or following the date a director terminates employment as a director of the Company. 9. ADJUSTMENT OF SHARES In the event of any change in the Common Stock of the Company by reason of any stock dividend, stock split, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of shares, or rights offering to purchase Common Stock at a price substantially below fair market value, or of any similar change affecting the Common Stock, the number and kind of shares authorized under Section 4, the number and kind of shares which thereafter are subject to an award under the Plan and the number and kind of shares set forth in options under outstanding agreements and the price per share shall be adjusted automatically consistent with such change to prevent substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan. 10. NO EMPLOYMENT RIGHTS The Plan and any awards granted under the Plan shall not confer upon any director any right with respect to continuance as a director of the Company or any subsidiary, nor shall they interfere in any way with any right the Company or its subsidiaries may have to terminate the director's position as a director at any time. 11. RIGHTS AS A SHAREOWNER The recipient of any option under the Plan shall have no rights as a shareowner with respect thereto unless and until certificates for shares of Common Stock are issued to the recipient. The recipient of a stock grant shall have all rights of a shareowner except for the nontransferability and dividend reinvestment requirements. 12. AMENDMENT AND DISCONTINUANCE This Plan may be amended, modified or terminated by the shareowners of the Company or by the Company's Board of Directors, provided that Plan provisions relating to the amount, price and timing of awards may not be amended more than once every six months other than to comport with changes in the Internal Revenue Code or the regulations thereunder and provided further that the Board may not, without approval of the shareowners, materially increase the benefits accruing to participants under the Plan, increase the maximum number of shares as to which awards may be granted under the Plan, change the minimum exercise price, change the class of eligible persons, extend the period for which options may be granted or exercised, or withdraw the authority to administer the Plan from the Board or a Committee of the Board. Notwithstanding the foregoing, to the extent permitted by law, the Board may amend the Plan without the approval of shareowners, to the extent it deems necessary to cause the Plan to comply with Securities and Exchange Commission Rule 16b-3 or any successor rule, as it may be amended from time to time. Except as required by law, no amendment, modification, or termination of the Plan may, without the written consent of a director to whom any award shall theretofore have been granted, adversely affect the rights of such director under such option. 13. CHANGE IN CONTROL (a) Notwithstanding other provisions of the Plan, in the event of a change in control of the Company (as defined in subsection (c) below), all of a participant's options shall become immediately vested and exercisable and all of a participant's certificates held by the Company under a stock grant shall be immediately delivered to the participant, unless directed otherwise by a resolution of the Board adopted prior to and specifically relating to the occurrence of such change in control. (b) In the event of a change in control each participant holding an exercisable option (i) shall have the right at any time thereafter during the term of such option to exercise the option in full notwithstanding any limitation or restriction in any option agreement or in the Plan, and (ii) may, subject to Board approval and after written notice to the Company within 60 days after the change in control, or during the period beginning on the third business day and ending the twelfth business day following the first release for publication by the Company after such change of control of a quarterly or annual summary statement of earnings, which release occurs at least six months following grant of the option, whichever period is longer, receive, in exchange for the surrender of the option or any portion thereof to the extent the option is then exercisable in accordance with clause (i), an amount of cash equal to the difference between the fair market value (as determined by the Board) on the date of surrender of the Common Stock covered by the option or portion thereof which is so surrendered and the option price of such Common Stock under the option. (c) For purposes of this section "change in control" means: 1) there shall be consummated i. any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which any shares of the Company's common stock are to be converted into cash, securities or other property, provided that the consolidation or merger is not with a corporation which was a wholly-owned subsidiary of the Company immediately before the consolidation or merger; or ii. any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or 2) the shareowners of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or 3) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the Company's then outstanding common stock, provided that such person shall not be a wholly-owned subsidiary of the Company immediately before it becomes such 30% beneficial owner; or 4) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareowners, was approved by a vote of at least three quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (d), considered as though such person were a member of the Incumbent Board. 14. EFFECTIVE DATE The effective date of this restated Plan is January 1, 1996. 15. DEFINITIONS Any terms or provisions used herein which are defined in Section 83 of the Internal Revenue Code as amended, or the regulations thereunder or corresponding provisions of subsequent laws and regulations in effect at the time options are made hereunder, shall have the meanings as therein defined. 16. GOVERNING LAW To the extent not inconsistent with the provisions of the Internal Revenue Code that relate to non-qualified stock options and stock grants, this Plan and any agreement adopted pursuant to it shall be construed under the laws of the State of New York. Dated 4/24/96 FRONTIER CORPORATION /s/ Josephine S. Trubek By ------------------------- Josephine S. Trubek Corporate Secretary EX-10 6 EXH 10.28 ESOP 1 EXHIBIT 10.28 [3/25/96] FRONTIER CORPORATION EMPLOYEES' STOCK OPTION PLAN 1. PURPOSE The purpose of the Frontier Corporation Employees' Stock Option Plan (the "Plan") is to enable the Company and its subsidiaries to attract and retain valued employees and provide them with an incentive to maintain and enhance the Company's long-term performance record. It is intended that this purpose will best be achieved by granting eligible employees non-qualified stock options ("options") under this Plan pursuant to the rules set forth in Section 83 of the Internal Revenue Code, as amended from time to time. 2. ADMINISTRATION The Plan shall be administered by the Company's Committee on Management (the "Committee"). This Committee shall consist of at least two members of the Company's Board of Directors, none of whom during the twelve months prior to commencement of service on the Committee, or during such service, has been granted or optioned any equity security or derivative security of the Company pursuant to the Plan or, except as permitted by Rule 16b-3(c)(2)(i), or any successor provision, promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any other plan of the Company. Subject to the provisions of the Plan, the Committee shall possess the authority, in its discretion, (a) to determine the employees of the Company to whom, and the time or times at which options shall be granted; (b) to determine at the time of grant the number of shares to be subject to each option; (c) to prescribe the form of the option agreements and any appropriate terms and conditions applicable to the options and to make any amendments to such agreements or options; (d) to interpret the Plan; (e) to make and amend rules and regulations relating to the Plan; and (f) to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations shall be conclusive and binding. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any option granted hereunder. The Committee may delegate to a Stock Option Committee any portion of its authority. In this event, the term "Committee" as used herein shall include the Stock Option Committee with respect to the delegated authority. Notwithstanding any such delegation of authority, the Committee on Management shall retain overall responsibility for the operation of the Plan. The Stock Option Committee shall not make awards under the Plan to persons described in Rule 16a-1(f) of the Exchange Act and any such persons eligible to receive options under the Plan shall be selected, all options granted, and terms established by the Committee. 3. ELIGIBLE EMPLOYEES All employees of the Company and its subsidiaries are eligible to receive options except: (1) senior officers and (2) employees within a unit covered by a collective bargaining agreement unless the award of options under this Plan has been bargained for. For this purpose, subsidiaries include all corporations of which at least fifty percent of the voting stock is owned by the Company directly or through one or more corporations at least fifty percent of the voting stock of which is so owned, and partnerships of which the Company has, either directly or indirectly, at least a fifty percent interest in the partnership's capital or profits. 4. SHARES AVAILABLE The total number of shares of the Company's Common Stock (par value of $1.00 per share) available in the aggregate for options under this Plan shall not exceed 8 million shares, including treasury shares. Shares to be granted may be authorized and unissued shares or may be treasury shares. If an option expires, terminates or is cancelled without being exercised or becoming vested, new options may thereafter be granted under the Plan covering such shares unless Rule 16b-3 provides otherwise. No options may be granted more than 10 years after the effective date of the Plan. 5. TERMS AND CONDITIONS OF OPTIONS All options granted under this Plan shall be non-qualified options. Each option shall be evidenced by an option agreement in such form as the Committee shall approve from time to time, which agreement shall conform with this Plan and contain the following terms and conditions: (a) Exercise Price. The exercise price under each option shall equal the fair market value of the Common Stock at the time such option is granted. For this purpose, fair market value shall equal the closing price of the Company's Common Stock on the New York Stock Exchange on the date the option is granted, or, if there was no trading in such stock on the date of such grant, the closing price on the last preceding day on which there was such trading. (b) Duration of Option. Each option by its terms shall not be exercisable after the expiration of ten years from the date such option is granted. (c) Options Nontransferable. Each option by its terms shall not be transferable by the participant otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a domestic relations order, or (iii) to the extent permitted under the option agreement or interpretation of the Committee, by gift to family members or entities beneficially owned by family members or other permitted transferees under Rule 16b-3 promulgated under the Exchange Act, and shall be exercisable, during the participant's lifetime, only by the participant, the participant's guardian or the participant's legal representative, the participant's transferee under a domestic relations order or other permitted transferee under this section. To the extent required for the option grant and/or exercise to be exempt under Rule 16b-3, options (or the shares of Common Stock underlying the options) must be held by the participant for at least six months following the date of grant. (d) Exercise Terms. Each option granted under the Plan shall first become exercisable on the second anniversary of the date of grant. Options may be partially exercised from time to time during the period extending from the time they first become exercisable until the tenth anniversary of the date of grant. No outstanding option may be exercised by any person if the employee to whom the option is granted is, or at any time after the date of grant has been, in competition with the Company or an affiliated company or partnership. The Committee has the sole discretion to determine whether an employee's actions constitute competition with the Company or an affiliated company or partnership. The Committee may impose such other terms and conditions on the exercise of options as it deems appropriate to serve the purposes for which this Plan has been established. (e) Payment of Exercise Price. An option shall be exercised upon written notice to the Company accompanied by payment in full for the shares being acquired. The payment shall be made in cash, by check or, if the option agreement so permits, by delivery of shares of Common Stock of the Company beneficially owned by the participant, duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so delivered shall be deemed to have a value per share equal to the fair market value of the shares on such date. For this purpose, fair market value shall equal the closing price of the Company's Common Stock on the New York Stock Exchange on the date the option is exercised, or, if there was no trading in such stock on the date of such exercise, the closing price on the last preceding day on which there was such trading. 6. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES The Company shall not be required to deliver any certificate upon the grant, vesting or exercise of any option until it has been furnished with such opinion, representation or other document as it may reasonably deem necessary to insure compliance with any law or regulation of the Securities and Exchange Commission or any other governmental authority having jurisdiction under this Plan. Certificates delivered upon such grant or exercise may bear a legend restricting transfer absent such compliance. Each option shall be subject to the requirement that, if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such options or the issue or purchase of shares thereunder, such options may not vest or be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee in the exercise of its reasonable judgment. 7. IMPACT OF TERMINATION OF EMPLOYMENT If the employment of a participant terminates by reason of the participant's (a) retirement pursuant to the terms of a defined benefit plan or, if he or she is not a participant in a defined benefit plan, at or after age 55, (b) disability or (c) death, any option may be exercised, in the case of retirement or disability, by the participant or, in the case of death, the participant's designated beneficiary (or personal representative if there is no designated beneficiary) at any time prior to the earlier of the expiration date of the option or the expiration of one year after the date of retirement, disability or death, but only if, and to the extent that the participant was entitled to exercise the option at the date of retirement, disability or death. Upon termination of the participant's employment for any reason other than retirement, disability or death, all options held by the participant, whether vested or not, shall be forfeited. In addition, an option may not be exercised after retirement if the Committee reasonably determines that the termination of employment of such participant resulted from willful acts, or failure to act, by the participant detrimental to the Company or any of its subsidiaries. Unless otherwise determined by the Committee, an authorized leave of absence shall not constitute a termination of employment for purposes of this Plan. In addition, participants who transfer employment within the Frontier Group of companies, including an affiliated partnership, shall not be considered to have terminated employment. Any such transferred participants shall remain eligible to exercise previously granted options in accordance with their terms as if no termination occurred and shall be eligible to receive additional options pursuant to the terms of employment with their new employer. 8. ADJUSTMENT OF SHARES In the event of any change in the Common Stock of the Company by reason of any stock dividend, stock split, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of shares, or rights offering to purchase Common Stock at a price substantially below fair market value, or of any similar change affecting the Common Stock, the number and kind of shares authorized under Section 4, the number and kind of shares which thereafter are subject to an option under the Plan and the number and kind of unexercised options under outstanding option agreements and the price per share shall be adjusted automatically consistent with such change to prevent substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan. 9. WITHHOLDING TAXES Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state and/or local income and employment withholding tax requirements prior to the delivery of any certificate or certificates for such shares or to take any other appropriate action to satisfy such withholding requirements. Notwithstanding the foregoing, subject to such rules as the Committee may promulgate and compliance with any requirements under Rule 16b-3, the recipient may satisfy such obligation in whole or in part by electing to have the Company withhold shares of Common Stock from the shares to which the recipient is otherwise entitled. 10. NO EMPLOYMENT RIGHTS The Plan and any options granted under the Plan shall not confer upon any participant any right with respect to continuance as an employee of the Company or any subsidiary, nor shall they interfere in any way with the right of the Company or any subsidiary to terminate the participant's position as an employee at any time. 11. RIGHTS AS A SHAREHOLDER The recipient of any option under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for the underlying shares of Common Stock are issued to the recipient. 12. AMENDMENT AND DISCONTINUANCE This Plan may be amended, modified or terminated by the Committee or by the shareowners of the Company, except that the Committee may not, without approval of the shareholders, materially increase the benefits accruing to participants under the Plan, increase the maximum number of shares as to which options may be granted under the Plan, change the minimum exercise price of options, change the class of eligible persons, extend the period for which options may be granted or exercised, or withdraw the authority to administer the Plan from the Committee. Notwithstanding the foregoing, to the extent permitted by law, the Committee may amend the Plan without the approval of shareholders, to the extent it deems necessary to cause the Plan to comply with Securities and Exchange Commission Rule 16b-3 or any successor rule, as it may be amended from time to time. Except as required by law, no amendment, modification, or termination of the Plan may, without the written consent of a participant to whom any option shall theretofore have been granted, adversely affect the rights of such participant under such option. 13. CHANGE IN CONTROL (a) Notwithstanding other provisions of the Plan, in the event of a change in control of the Company (as defined in subsection (c) below), all of a participant's options shall become immediately vested and exercisable, unless directed otherwise by a resolution of the Committee adopted prior to and specifically relating to the occurrence of such change in control. (b) In the event of a change in control, each participant holding an exercisable option (i) shall have the right at any time after the change in control, but prior to the expiration date of the option, to exercise the option in full notwithstanding any limitation or restriction in any option agreement or in the Plan, and (ii) may, subject to Committee approval and after written notice to the Company within 60 days after the change in control, or, if the participant is an officer subject to Section 16 of the Exchange Act and to the extent required to exempt the transaction under Rule 16b-3, during the period beginning on the third business day and ending on the twelfth business day following the first release for publication by the Company after such change of control of a quarterly or annual summary statement of earnings, which release occurs at least six months following grant of the option, whichever period is longer, receive, in exchange for the surrender of the option or any portion thereof to the extent the option is then exercisable in accordance with clause (i), an amount of cash equal to the difference between the fair market value (as determined by the Committee) on the date of surrender of the Common Stock covered by the option or portion thereof which is so surrendered and the option price of such Common Stock under the option. (c) For purposes of this section, "change in control" means: 1) there shall be consummated i. any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which any shares of the Company's common stock are to be converted into cash, securities or other property, provided that the consolidation or merger is not with a corporation which was a wholly-owned subsidiary of the Company immediately before the consolidation or merger; or ii. any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or 2) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or 3) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the Company's then outstanding common stock, provided that such person shall not be a wholly-owned subsidiary of the Company immediately before it becomes such 30% beneficial owner; or 4) individuals who constitute the Company's Board of Directors on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (d), considered as though such person were a member of the Incumbent Board. 14. EFFECTIVE DATE The effective date of the Plan shall be the date this Plan is approved by the affirmative vote of the owners of a majority of the Company's outstanding shares of Common Stock. 15. DEFINITIONS Any terms or provisions used herein which are defined in Sections 83 or 421 of the Internal Revenue Code as amended, or the regulations thereunder or corresponding provisions of subsequent laws and regulations in effect at the time options are made hereunder, shall have the meanings as therein defined. 16. GOVERNING LAW To the extent not inconsistent with the provisions of the Internal Revenue Code that relate to options, this Plan and any option agreement adopted pursuant to it shall be construed under the laws of the State of New York. Dated: 4/29/96 FRONTIER CORPORATION /s/ Josephine S. Trubek By -------------------------- Josephine S. Trubek Corporate Secretary Date of Shareholder Approval: April 24, 1996 EX-10 7 EXH 10.29 AMEND NO. 1 MPP EXHIBIT 10.29 FRONTIER CORPORATION MANAGEMENT PENSION PLAN Amendment No. 1 to 1995 Restatement Pursuant to Article XI, the Plan is amended, effective December 31, 1995, as follows: 1. The following new Article XVI is added after Article XV: ARTICLE XVI Freeze of Plan Benefits Except for effective dates otherwise noted below, the Plan is frozen, effective as of December 31, 1996, pursuant to the following terms and conditions: Eligibility: No person not already a Participant on December 31, 1995, shall be eligible to commence participation in the Plan, provided that persons may become Participants through the merger of other frozen plans of Affiliated Companies into this Plan. Benefits Freeze: All Accrued Benefits under the Plan shall be frozen as of December 31, 1996, and no further Plan benefits shall accrue after this date. Post-Freeze Service: No service with the Employer or any Affiliated Company after December 31, 1996 shall be taken into account under this Plan for the purpose of calculating the amount of a person's Accrued Benefit but shall be taken into account for purposes of determining eligibility for benefits. Vesting: All Accrued Benefits on and after August 16, 1995 shall become or shall remain 100 percent vested. Compensation Definition: Effective with respect to all Participants on the active payroll (or on the inactive payroll but receiving benefits under the Employer's Long Term Disability Benefit Plan) on or after August 16, 1995, the definition of "Compensation" in Section 2.11 shall be revised by replacing the first paragraph in this provision with the following: "Compensation" means the total W-2 income paid by the Employer to an Employee during a Plan Year plus amounts contributed to the Employer's Tel Flex Plan and its Employees' Retirement Savings Plan during a Plan Year on behalf of an Employee pursuant to a salary reduction agreement. Compensation does not include contributions made to this Plan or to any other plan of deferred compensation (other than ERSP) nor does it include an Employee's compensation in excess of $150,000 (adjusted for cost of living increases under the Code) per year. Average Compensation Definition: Effective with respect to all Participants on the active payroll (or on the inactive payroll but receiving benefits under the Employer's Long Term Disability Benefit Plan) on or after August 16, 1995, the benefit formula in Section 4.1 shall be applied to compute average compensation on a three year basis by replacing the word "five" with the word "three" each place the former word appears in Section 4.1. 20% Benefit Increase: Each Plan Participant who is on the active payroll (or on the inactive payroll but receiving benefits under the Employer's Long Term Disability Benefit Plan) on or after August 16, 1995, who has five or more Years of Service under this Plan upon the earlier of (1) termination of employment or (2) December 31, 1996, shall have his or her Accrued Benefit at the earlier of (1) termination of employment or (2) December 31, 1996 increased by 20 percent. For this purpose, an eligible Participant's Accrued Benefit shall include the 3 year average and compensation changes described above. Eligibility for Retirement Benefits: For purposes of determining whether a Participant has met the age and service requirements for unreduced and reduced early retirement benefits, the age requirements and the service requirements shall be reduced by three for each Participant on the active payroll (or on the inactive payroll but receiving benefits under the Employer's Long Term Disability Benefit Plan) on or after August 16, 1995. For example, if an unreduced benefit is normally available for Participants who have reached age 55 and have 20 Years of Service, under this enhancement, the requirement shall be reduced to age 52 with 17 years of service. Death Benefits: The ancillary death benefit under Section 7.4 is eliminated December 31, 1996 except for the death of pensioners who retire on or prior to December 31, 1996. Preservation of Accrued Benefits: None of the above changes shall diminish or eliminate a Participant's Accrued Benefit in effect immediately prior to December 31, 1995. For this purpose, the Plan's death benefit is not part of a Participant's Accrued Benefit. Other: Except as modified above, the Plan shall remain in effect, shall be administered according to its terms and shall pay benefits as they become due. 2. Effective December 31, 1995, Article V is amended by adding at the end thereof the following new Section 5.20: Benefit SECTION 5.20 Except for a person receiving Supplement a deferred vested benefit or a contingent for Retirees annuitant of such person, a Participant who retired prior to January 1, 1994 shall have his or her monthly benefit increased by $50 per month and a contingent annuitant of a Participant who retired prior to January 1, 1994 shall have his or her monthly benefit increased by $25 per month. This increase in the monthly benefit shall be effective with the first benefit payment due after December 31, 1995 and shall continue for as long as the recipient is entitled to receive Plan benefits. 3. Effective as of December 31, 1995, the Frontier Communications of Minnesota, Inc. Retirement Pension Plan (the "Minnesota Plan") shall be merged into this Plan (the pre-merger portion of this Plan is herein referred to as the "Rochester Plan") pursuant to the following terms and conditions (the merged Plan is hereinafter referred to as "the merged Plan") - the merged assets and liabilities of the Minnesota Plan and the Rochester Plan (together with assets of related plans that now constitute a single plan under Code section 414(1) with respect to the Minnesota and Rochester Plans) shall, as of December 31, 1995, constitute a single "plan" as this term is defined in Code section 414(1). All assets of the merged Plan shall be available at all times to pay benefits on an ongoing basis to participants covered by the merged Plan; - the Rochester Plan and the Minnesota Plan shall continue to be maintained pursuant to separate plan documents, i.e., a participant's eligibility, vesting, benefits and other matters will all be determined by reference to the separate plan documents governing such participant; - the merged Plan shall be administered by the Employees' Benefit Committee of the Rochester Plan provided that administrative responsibilities relating to participants in the Minnesota Plan may be delegated to the plan administrator of the Minnesota Plan: - each participant in the merged Plan shall (if the merged Plan then terminated) receive a benefit immediately after the merger which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger (if the constituent plan then terminated). IN WITNESS WHEREOF, the Employer has caused its duly authorized officer to execute this amendment on its behalf this 14th day of December 1995. FRONTIER CORPORATION /s/ Barbara J. LaVerdi By ------------------------ Barbara J. LaVerdi Its: Assistant Secretary EX-11 8 COMP OF EPS OF COM STOCK Exhibit 11 Frontier Corporation Computation of Earnings per Share of Common Stock on a Fully Diluted Basis (Unaudited) 3 Months Ended March 31, - ------------------------------------------------------------ (In thousands, except per share data) 1996 1995 - ------------------------------------------------------------- Income applicable to common stock $ 56,830 $ 51,353 Add: Interest on convertible debentures 139 139 - ------------------------------------------------------------- 56,969 51,492 Less: Increase in related federal income taxes 49 49 - ------------------------------------------------------------- Adjusted income applicable to common stock $ 56,920 $ 51,443 ============================================================= Average Common Shares Outstanding (excluding common stock equivalents) 160,178 149,298 Adjustments for: Convertible Debentures 503 503 Stock Options 3,420 11,688 - ------------------------------------------------------------- Adjusted common shares assuming conversion of outstanding Convertible Debentures and Stock Options at beginning of each period 164,101 161,489 ============================================================= Earnings per share of common stock on a fully diluted basis $ .35 $ .32 ============================================================= EX-27 9 FDS SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FRONTIER CORPORATION'S FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000084567 FRONTIER CORPORATION 1,000 3-MOS DEC-31-1996 MAR-31-1996 24,060 0 463,942 29,288 15,284 538,414 2,133,386 1,238,163 2,154,715 486,946 611,059 0 22,769 162,330 805,535 2,154,715 0 655,149 12,028 543,297 0 0 11,638 106,441 41,300 65,141 0 0 (8,018) 57,123 .35 .35
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