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| 401 Merritt 7, Norwalk, CT 06851 (203) 614-5600 |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
VIRTUAL MEETING OF STOCKHOLDERS VIA LIVE WEBCAST
Time and Date: | 10:00 a.m., Eastern Time, on May 10, 2017 | ||
Items of Business: | • To elect 10 directors; | ||
FRONTIER COMMUNICATIONS CORPORATION
PROXY STATEMENTAND2014 ANNUAL REPORT
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April 3, 2015
Dear Fellow Shareholder:
2014 was a year of significant accomplishment for Frontier, both in operating our continuing business and in growing the Company through strategic transactions.
This letter highlights our 2014 performance in the areas that we call the “three Ps” — People, Product and Profit. Our progress in these areas, combined with the completion of our $2 billion Connecticut acquisition, and the negotiation of an even larger acquisition in California, Florida and Texas, positions the Company for strong future success. In 2014, our investors experienced a robust total shareholder return of 54 percent, and our Board voted to increase our dividend by 5 percent.
People
In October, we completed our acquisition of AT&T’s wireline and U-verse® operations in Connecticut and welcomed more than 2,400 former AT&T employees to Frontier, ensuring the continuity of existing customer relationships as well as a trained and trusted workforce. Throughout our footprint, employees live and work in the areas we serve. They are Frontier’s best ambassadors.
Frontier’s workforce remains 100 percent U.S.-based, and a large percentage of our employees are veterans or reservists and their family members. Frontier continues to be an award-winning military friendly employer.
Product
In 2014, we maintained our focus on broadband Internet as the core component of our service offerings, either bundled with voice and/or video, or on a standalone basis, for residential and business customers. We invested significantly in our network to expand our broadband capabilities and to upgrade our premium Ethernet service offerings.
A series of exciting new strategic relationships also played a key role in our success in 2014. Frontier Texting, a partnership with Zipwhip, allows Frontier customers to text, or receive a text from, a business’ existing landline or toll free number. Under a strategic relationship with TiVo®, Frontier will market co- branded versions of TiVo’s suite of video products in multiple markets. DISH Network and CoBank joined Frontier in sponsoring a $10 million contest to identify America’s Best Communities in our markets. And strategic relationships with Intuit®, The UPS Store®, and William Raveis Real Estate, Inc. were particularly instrumental in the rapid growth of our Frontier Secure business.
Profit
2014 was another highly successful year in driving higher broadband penetration. Frontier gained nearly 400,000 new broadband customers as a result of the Connecticut acquisition and, in other states, delivered net broadband additions of 108,000. During the year, we gained residential broadband market share in approximately 80 percent of our markets.
Likewise, the Company made strong strides in keeping customers. Residential retention improved as customer losses narrowed by 20 percent in 2014 as compared to 2013. Viewed through the same lens, business retention improved by 3 percent. Keeping more customers continues to be a major focus.
Profitability is a bright spot for Frontier. In 2014, the Company maintained industry-leading margins, with an adjusted EBITDA margin of 44 percent.
Improving Average Revenue per Customer (ARPC) also drove profitability. For the year, Residential ARPC increased 3 percent over 2013, propelled by an increasing mix of broadband customers, a higher mix of video revenue, our broadband customers’ moving to higher speeds, and the greater attachment rates of the Frontier Secure suite of products. Business ARPC increased by 1 percent for the year as compared to 2013.
What Lies Ahead
In February 2015 Frontier announced a $10.54 billion agreement to acquire Verizon’s wireline operations providing services to residential, commercial, and wholesale customers in California, Florida and Texas. Upon completion of this acquisition, which is expected in the first half of 2016, Frontier will execute a flash-cut conversion of these properties onto Frontier’s systems. The transaction is expected to be free cash flow accretive in the first full year, will improve Frontier’s dividend payout ratio by 13 percent, will double the size of the Company, and dramatically expand our service offering capabilities. Of particular note is the fact that fully 54 percent of the network being acquired is FiOS® enabled. We are confident that this acquisition will create significant shareholder value.
CEO Succession
Finally, we are pleased to share that, effective today, Dan McCarthy became President and Chief Executive Officer and Maggie Wilderotter became Executive Chairman.
On a personal note, Maggie remarks, “Dan is a strong leader. He has been President and Chief Operating Officer of Frontier since 2012, and led the team negotiating the terms of our current Verizon transaction. It has been my privilege to lead Frontier for the past ten and a half years and I look forward to leading the Board of Directors as Executive Chairman. The Frontier Communications of today, a national Internet and telecom services provider with operations in 28 states and nearly 8.5 million addressable households, bears little resemblance to the regional telephone company I joined to lead in 2004.”
Thank you again for your support of Frontier. We look forward to discussing our 2014 performance and going-forward plans at the annual meeting to be held on May 13, 2015 at 10 a.m. in our corporate headquarters in Stamford, Connecticut.
Sincerely,
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April 3, 2015
NOTICE OF ANNUAL MEETING OF STOCKHOLDERSTo Be Held May 13, 2015
To the Stockholders ofFRONTIER COMMUNICATIONS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Frontier Communications Corporation will be held at the Company’s offices, Three High Ridge Park, Stamford, Connecticut 06905, on Wednesday, May 13, 2015, at 10:00 a.m., Eastern Daylight Savings Time, for the following purposes:
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• To approve a proposal to adopt Frontier’s 2017 Equity Incentive Plan; | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• To approve a proposal to adopt an amendment to Frontier’s Restated Certificate of Incorporation to: (i) effect a reverse stock split of the issued shares of Frontier common stock, at a reverse stock split ratio of not less than 1-for-10 and not more than 1-for-25, and to reduce the total number of shares of common stock that Frontier is authorized to issue from 1,750,000,000 to 175,000,000; | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The board of directors fixed the close of business on March 17, 2015 as the record date for determining stockholders entitled to notice of and to vote at the meeting or any adjournment or postponement of the meeting. At the close of business on March 17, 2015, there were 1,000,897,026 shares of our common stock entitled to vote at the meeting.
A complete list of stockholders entitled to vote at the meeting will be open to the examination of stockholders on the meeting date and for a period of ten days prior to the meeting at our offices at Three High Ridge Park, Stamford, Connecticut 06905, during ordinary business hours.
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Your vote is very important. On or about March 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials (the Notice). The Notice includes instructions on how to access our Proxy Statement and 2016 Annual Report and vote online. Stockholders who received a printed copy of our proxy materials may also vote by mail by signing, dating and returning the proxy card in the envelope provided. Voting now will not limit your right to change your vote or participate in the meeting.
This year’s Annual Meeting will be a virtual meeting, which means that you will be able to participate in the Annual Meeting via live webcast by visiting www.virtualshareholdermeeting.com/FTR2017.Because the Annual Meeting this year is virtual and being conducted electronically, stockholders will not be able to attend the Annual Meeting in person.
By Order of the Board of Directors
Mark D. Nielsen
Executive Vice President and Chief Legal Officer
March 28, 2017
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be held on May 13, 2015.10, 2017.
The proxy statementProxy Statement and 20142016 Annual Report are available atwww.proxyvote.com.
PROXY SUMMARY
This summary highlights information contained elsewhere in this Proxy Statement about Frontier Communications Corporation. You should read the entire Proxy Statement carefully before voting.
2017 Annual Meeting
Date May 10, 2017 |
10:00 a.m., Eastern Time | |
Record Date March 13, 2017 | Via the internet www.virtualshareholdermeeting.com/FTR2017 |
Meeting Agenda and Voting Matters
| Proposal | Board Vote Recommendation | Page Reference (for more information) | ||
Item 1– Election of Directors | FOR each nominee | 12 | ||
Item 2– Advisory Vote to Approve Executive Compensation (Say-on-Pay) | FOR | 54 | ||
Item 3– Advisory Vote on the Frequency of Compensation Proposal (Say-on-Frequency) | FOR | 55 | ||
Item 4– Vote to Approve Frontier’s 2017 Equity Incentive Plan | FOR | 56 | ||
Item 5– Vote to Approve Amendment to Certificate of Incorporation To Effect Reverse Stock Split and Reduction of the Authorized Number of Shares of Common Stock | FOR | 67 | ||
Item 6– Ratification of Selection of Independent Registered Public Accounting Firm | FOR | 76 |
Director Nominees
| Name/Age* | Independent | Director Since | Occupation/Career Highlights | Committee Membership | ||||||
Leroy T. Barnes, Jr., 65 | Yes | 2005 | Retired, Vice President and Treasurer, PG&E Corp. | Audit Retirement Plan (Chair) | ||||||
Peter C.B. Bynoe, 66 | Yes | 2007 | Managing Director, Equity Group Investments | Compensation Nom. and Corp. Gov. (Chair) | ||||||
Diana S. Ferguson, 53 | Yes | 2014 | Principal, Scarlett Investments, LLC | Audit Nom. and Corp. Gov. | ||||||
Edward Fraioli, 70 | Yes | 2010 | Retired, Partner, Ernst & Young | Audit (Chair) Retirement Plan | ||||||
Daniel J. McCarthy, 52 | No | 2014 | President and CEO, Frontier Communications | |||||||
| Yes | 2010 |
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| Yes | 2013 | Retired, Executive Vice President, Verizon Communications | Compensation (Chair) Retirement Plan | ||||||
Howard L. Schrott,62 | Yes | 2005 | Principal, Schrott Consulting | Audit Nom. and Corp. Gov. | ||||||
Mark Shapiro, 47 | Yes | 2010 | Co-President, WME/IMG | Retirement Plan | ||||||
Myron A. Wick, III, 73 | Yes | 2005 | Retired, Director General, Hola Television Group | Compensation Nom. and Corp. Gov. |
| * | Age is as of the date of the Annual Meeting. |
Ms. Larraine Segil, who served on the Frontier Board since 2005, is not standing for re-election at our Annual Meeting.
All of our directors attended over 75% of the meetings of the Board and committees
on which they served in 2016.
| Frontier Communications Corporation | 1 | 2017 Proxy Statement |
PROXY SUMMARY
FRONTIER COMMUNICATIONS CORPORATIONThree High Ridge ParkStamford, Connecticut 06905Board Characteristics
We believe that diversity in its many forms, and the breadth of perspective that it brings, enhances the effectiveness of the Board.
PROXY STATEMENTCorporate Governance Highlights
The Board is committed to exercising good corporate governance practices. This includes:
| ✓ | All of our directors (other than our CEO) are independent |
| ✓ | An independent Chairman of the Board with extensive duties |
| ✓ | Each standing committee is composed exclusively of independent directors |
| ✓ | Annual elections of all directors (not a staggered Board) |
| ✓ | Frequent executive sessions of independent directors |
| ✓ | Majority voting for our director elections |
| ✓ | Stock ownership guidelines for executive officers and non-management directors |
| ✓ | Annual Board and committee self-evaluations |
| ✓ | A robust clawback policy |
2015 Annual Meeting of Stockholders2016 Review
2016 was a year that was both transformational and challenging for Frontier.
On April 1, 2016, we completed the acquisition of Verizon’s wireline properties in California, Texas and Florida for a purchase price of $10.54 billion in cash and assumed debt, which allows us to provide services to residential, commercial and wholesale customers in those areas (the California, Texas and Florida Acquisition). In the past three years, and culminating with the close of the California, Texas and Florida Acquisition, we have more than doubled in size and scale, improved the quality of our assets, substantially diversified our revenue streams and geographic footprint, and expanded the sophistication and attractiveness of our product offerings.
In addition, we implemented a new customer-focused organizational structure in December 2016, which is designed to improve the customer experience, streamline processes and reduce costs. As part of this new organizational structure, we realigned into two groups: consumer sales and commercial sales. This allows us to better serve the different needs of consumer and business customers. Non-customer facing functions such as finance, human resources, marketing, engineering, information technology and communications that had been regionalized were integrated and centralized to support both segments. This eliminated organizational layers, duplicative roles and costs.
| Frontier Communications Corporation | 2 | 2017 Proxy Statement |
PROXY SUMMARY
During 2016, we paid $493 million in common stock dividends and $214 million in preferred stock dividends, while continuing to invest in the expansion and upgrade of our network and product offerings.
In November 2016, R. Perley McBride became our Executive Vice President and Chief Financial Officer. Mr. McBride has more than 20 years of experience in financial roles in the communications industry, including more than a decade at Frontier earlier in his career.
However, Frontier also faced challenges that negatively impacted revenue and profitability in 2016. As a result, our stock price declined significantly. Despite these challenges, our Board of Directors believes in the future of Frontier as a provider of quality communications services and has utmost confidence in Frontier’s management and its ability to rebuild stockholder value.
Reverse Stock Split and Authorized Share Count Reduction
The Board of Directors has adopted a resolution approving an amendment to our Restated Certificate of Incorporation and is recommending that our stockholders adopt such amendment to (i) effect a reverse stock split of the issued shares of Frontier common stock at a reverse stock split ratio of not less than 1-for-10 and not more than 1-for-25 (the exact reverse stock split ratio to be determined by the Board of Directors), and (ii) reduce the total number of shares of Frontier common stock that Frontier is authorized to issue from 1,750,000,000 to 175,000,000.
The main reasons for proposing the reverse stock split are to increase the trading price for Frontier common stock and to attract a broader investor base. For additional information about this proposal, see page 67.
Executive Compensation
Our Compensation Committee sets executive compensation each year based upon the following philosophy:
Establish clear alignment between the interests of our executives and those of our stockholders by rewarding performance measured by key financial metrics, strategic objectives and relative total stockholder return, and through the use of equity awards, rather than cash, as a significant component of annual compensation.
Reinforce our performance culture for our Named Executive Officers (NEOs) by making a majority of their compensation at risk, i.e., contingent upon achievement of specified company and individual performance goals.
Hire and retain talented executives by having a compensation program that is competitive in relation to comparable companies based on size, overall complexity and the nature of our business.
Ensure company goals are fully aligned throughout the organization. Each year, we establish company-wide goals to achieve Frontier’s business plan for the year. Our NEOs are compensated to the extent they are successful in leading Frontier to achieve these goals for each year.
In light of the challenges we faced in 2016 and the resulting decline in the price of our common stock, Frontier paid no annual cash bonuses for 2016 performance. As in past years, the Compensation Committee elected to grant executives restricted stock awards and performance share awards (but not as replacement for the annual cash bonus), which tie the interests of our executives and our stockholders because the value of these awards will depend on Frontier’s common stock price when the vested and earned shares are sold by such executives.
93.7% of the votes cast on our 2016 Say-On-Pay proposal were in favor of our executive compensation program.
For additional information about our executive compensation practices, see our “Compensation Discussion and Analysis” on page 26.
Frontier believes that our compensation program is a sound reflection of our compensation philosophy and, as such, our Board recommends that stockholders voteFOR our 2017 Say-On-Pay proposal.
| Frontier Communications Corporation | 3 | 2017 Proxy Statement |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
IntroductionWhy did I receive these proxy materials?
This proxy statementProxy Statement is being furnished to the stockholders of Frontier Communications Corporation, a Delaware corporation,you in connection with the Board’s solicitation of proxies by our board of directors for useto be voted at our 2015 annual meeting2017 Annual Meeting of stockholders and at any adjournments thereof.
Date, Time and Place
The meeting will beStockholders, which is being held on May 13, 2015,10, 2017, at 10:00 a.m., Eastern Daylight Savings Time, via the internet at our offices locatedwww.virtualshareholdermeeting.com/FTR2017, and at Three High Ridge Park, Stamford, Connecticut 06905.any adjournments thereof (the Annual Meeting).
Internet Availability of Proxy MaterialsWhat is included in our proxy materials?
ThisOur proxy statement and our Annual Report for the fiscal year ended December 31, 2014, containing financial and other information concerning our company,materials, which are available on the Investor Relations page of our website,www.frontier.com. Additionally,, include:
Our Notice of Annual Meeting of Stockholders;
Our Proxy Statement; and in accordance with Securities and Exchange Commission (“SEC”) rules,
Our 2016 Annual Report to Stockholders
If you may accessreceived printed versions of these materials by mail (rather than through electronic delivery), these materials also included a proxy card or voting instruction form.
The information on our website is not incorporated herein by reference.
How is Frontier distributing proxy statement atwww.proxyvote.com.materials?
Under rules adopted by the SEC,Securities and Exchange Commission (the SEC), we have elected to furnish the proxy statement and Annual Reportmaterials to many of our stockholders via the Internet instead of mailing printed materials to each stockholder. We believe this is in the best interests of our stockholders because we can provide our stockholders with the information they need, while lowering the cost of delivery and reducing the environmental impact.
Internet. On or about April 3, 2015,March 28, 2017, we began mailing to holders of our common stock (other than those who previously requested electronic or paper delivery) a “NoticeNotice of Internet Availability of Proxy Materials” (the “Notice”).Materials. If you received the Notice, by mail, you will not automatically receive a printed copy of thisthe proxy statement and our Annual Reportmaterials in the mail. Instead, the Notice instructs you on how to access and review all of the important information contained in the proxy materials online.materials. The Notice also instructs you on how you may submit your proxy via the Internet. Stockholders who do not receive the Notice will continue to receive either a paper or electronic copy of our Proxy Statement and 2016 Annual Report, which will be sent on or about March 29, 2017.
If you previously requested electronic delivery, you will receive an e-mail providing you with thereceived a Notice by mail and if you previously requested paper delivery, you willwould like to receive a paper copy of theour proxy materials, by mail.follow the instructions (contained in the Notice) regarding how you may request to receive your materials electronically or in printed form on a one-time or ongoing basis. We encourage you to receive all future proxy materials in the future electronically to help us save printing costs and postage fees, as well as natural resources in producing and distributing these materials. If you wish to receive these materials electronically next year, please follow the instructions on the proxy card or on the Investor Relations page of our website,www.frontier.com.
You can receive a copy of our proxy materials by following the instructions (contained in the Notice) regarding how you may request to receive your materials electronically or in printed form on a one-time or ongoing basis. Requests for printed copies of the proxy materials can be made byvia the Internet atwww.proxyvote.com, by telephone at 1-800-579-1639 (or, for callers without touch-tone phones, 1-866-232-3037) or by email atsendmaterial@proxyvote.com by sending a blank email with your control number (the 12 digit identifying number in the box on the Notice) in the subject line.
| Frontier Communications Corporation | 4 | 2017 Proxy Statement |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Matters to be Considered
At the meeting, stockholdersWhat matters will be asked to elect 12 directors, to consider andvoted on at the Annual Meeting?
The following matters are scheduled for vote upon an advisory proposal to approve executive compensation and to ratifyby stockholders at the Annual Meeting:
| 1 | Elect the 10 nominees named in this Proxy Statement to serve as directors | |
| 2 | Approve, on an advisory basis, Frontier’s executive compensation | |
| 3 | Approve, on an advisory basis, the frequency of Frontier’s executive compensation proposal | |
| 4 | Approve Frontier’s 2017 Equity Incentive Plan | |
| 5 | Approve the Amendment to Frontier’s Restated Certificate of Incorporation to effect the reverse stock split and a reduction of the authorized number of shares of common stock | |
| 6 | Ratify the selection of KPMG LLP as Frontier’s independent registered public accounting firm for 2017 | |
| 7 | Transact any other business that may properly be brought at the Annual Meeting or any adjournment or postponement thereof | |
Who can vote at our Annual Meeting?
You can vote your shares of common stock at our independent registered public accounting firm. See “ELECTION OF DIRECTORS,” “ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION” and “RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.” The board of directors does not know of any matters to be brought before the meeting other than as set forth in the notice of meeting. If any other matters properly come before the meeting, the persons named in the form of proxy or their substitutes will vote in accordance with their best judgment on such matters.
Record Date; Shares Outstanding and Entitled to Vote; Quorum
Stockholders as of the record date,i.e.,Annual Meeting if you were a stockholder at the close of business on March 17, 2015, are entitled to notice of and to vote at the meeting. As of13, 2017, the record date for our Annual Meeting. As of March 13, 2017, there were 1,000,897,0261,177,978,011 shares of common stock outstanding, and entitled to vote, with each share entitled to one vote.
How can I participate in the Annual Meeting?
Stockholders may participate in the Annual Meeting virtually via the internet at www.virtualshareholdermeeting.com/FTR2017. In order to vote or submit a question during the meeting, you will need to follow the instructions posted at www.virtualshareholdermeeting.com/FTR2017 and will need the control number provided on your Notice, proxy card or voting instructions. Broadridge Financial Solutions is hosting our virtual annual meeting and, on the date of the Annual Meeting, will be available via telephone at 1-855-449-0991 to answer your questions regarding how to participate in the Annual Meeting virtually via the internet.
What is the quorum requirement for our Annual Meeting?
Holders of a majority of the outstanding shares of common stock entitled to vote must be present in person or represented by proxy in order for action to be taken at the meeting.
Required Votes
Election of Directors. Under our by-laws, the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxyAnnual Meeting. Abstentions and entitled to vote at the meeting is required to elect each director. Consequently, only shares thatbroker non-votes are voted in favor of a particular nominee will be counted toward the nominee’s achievement of a majority. Shares present at the meeting that are not voted for a particular nominee or shares present by proxy where the stockholder properly withholds authority to vote for the nominee will have the same effecttreated as a vote against the nominee. Brokers are not permitted to vote shares on the election of directors if they do not receive voting instructions from the beneficial owners of such shares. Such “broker non-votes” will be considered present for purposes of establishing a quorum but will not be considered in determining the number of votes necessary for approval and will have no effect on the outcome of the vote on election of directors.
Under Delaware law, an incumbent director who fails to receive the required vote “holds over,” or continues to serve as a director until his or her successor is elected and qualified. To address this “hold-over” issue, we have adopted a policy under which, in non-contested elections, if a director fails to win a majority of affirmative votes for his or her election, the director must immediately tender his or her resignation from the board, and the board will decide, through a process managed by the Nominating and Corporate Governance Committee and excluding the nominee in question, whether to accept the resignation at its next regularly scheduled meeting.
Advisory Proposal on Executive Compensation. Approval of the advisory proposal on executive compensation requires the affirmative vote of the holders of a majority of the common stock present or represented by proxy and entitled to vote at the meeting. Abstentions will have the same effect as a vote against approving the advisory proposal. Brokers are not permitted to vote shares on this matter if they do not receive voting instructions from the beneficial owners of such shares. Such “broker non-votes” will be considered present for purposes of establishing a quorum, but will not be considered in determining the number of votes necessary for approval and will have no effect on the outcome of the vote on the advisory proposal. Because the vote is advisory, it will not be binding upon the board of directors. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
Selection of Auditors. The ratification of the selection of KPMG LLP as our independent registered public accounting firm is being submitted to stockholders because we believe that this action follows sound corporate practice and is in the best interests of the stockholders. If the stockholders do not ratify the selection by the affirmative vote of the holders of a majority of the common stock present or represented by proxy and entitled to vote at the meeting, the Audit Committee of the board of directors will reconsider the selection of the independent registered public accounting firm, but such a vote will
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not be binding on the Audit Committee. If the stockholders ratify the selection, the Audit Committee, in its discretion, may still direct the appointment of a new independent registered public accounting firm at any time during the year if they believe that this change would be in our and our stockholders’ best interests. Abstentions will have the same effect as a
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
How do I vote against ratification of the auditors.
Voting Recommendationsmy shares?
The board of directors recommends that you vote FOR each nominee for director named, FOR the advisory proposal on executive compensation and FOR ratification of the selection of our independent registered public accounting firm for 2015.
Voting and Revocation of Proxies
Stockholders who hold shares in their own name are requested to vote by proxy in one of three ways:
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Common stock represented by properly executed proxies, received by us or voted by telephone or via the Internet, which are not revoked will be voted at the meeting in accordance with the instructions contained therein. Subject to the broker non-vote rules discussed above under “Required Votes,” if instructions are not given, proxies will be voted:
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Voting instructions, including instructions for both telephonic and Internet voting, are provided in the Notice or, if you received a printed proxy card, on the proxy card. The *Internet and telephone voting procedures are designed to authenticate stockholder identities, to allow stockholders to give voting instructions and to confirm that stockholders’ instructions have been recorded properly. A control number, located on the Notice and proxy card, will identify stockholders and allow them to vote their shares and confirm that their voting instructions have been properly recorded. Stockholders voting via the Internet or telephone should understand that there may be costs associated with electronic access,voting via the Internet or telephone, such as usage charges from Internet access providers and telephone companies, which must be borne by the stockholder. If you do vote by Internet or telephone, it will not be necessary to return a proxy card.
If your shares are held in the name of a bank or broker, follow the voting instructions on the form you receive from your record holder. The availability of Internet and telephone voting will depend on their voting procedures.
If a stockholder neither returns a signed proxy card, votes byvia the Internet or by telephone, nor attendsparticipates in the meetingAnnual Meeting and votes in person,via the internet, his or her shares will not be voted.
AnyCan I change my mind after I have voted?
You can revoke your proxy signed and returned by a stockholder or voted by telephone or via the Internet may be revoked at any time before it is exercisedthe Annual Meeting by giving written notice of revocation to our Secretary, at our address set forth herein,stated on the cover page of this Proxy Statement, by executing and delivering a later-dated proxy, either in writing, by telephone or via the Internet, or by participating in the Annual Meeting and voting virtually via the internet at www.virtualshareholdermeeting.com/FTR2017. Participation in person at the meeting. Attendance at the meetingAnnual Meeting will not alone constitute revocation of a proxy.
“Householding”Do I hold my shares as a registered stockholder or in street name?
If your shares of common stock are owned directly in your name, as shown in the records of our transfer agent, Computershare Investor Services, you are considered a registered holder of those shares.
If your shares of common stock are held by a broker, bank or other nominee, you hold those shares in street name. Your broker, bank or other nominee will vote your shares as you direct.
If I hold my shares in street name, does my broker need instructions in order to vote my shares?
If you hold shares of common stock in street name and you do not submit specific voting instructions to your broker, bank or other nominee, how your shares may be voted will depend on the type of proposal. Brokers, banks and other nominees generally will have discretion to vote your shares on routine matters, but will not have discretion to vote your
| Frontier Communications Corporation | 6 | 2017 Proxy Statement |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
shares on non-routine matters. When the broker, bank or other nominee is unable to vote on a proposal because the proposal is not routine and you do not provide voting instructions, a “broker non-vote” occurs and, as a result, your shares will not be voted on these proposals.
| • | The ratification of the appointment of KPMG LLP as our independent registered public accountant for 2017 (Proposal No. 6) and the approval of the amendment to the Restated Certificate of Incorporation to effect a reverse stock split and reduction of the authorized number of shares of common stock (Proposal No. 5) are consideredroutine under applicable rules. Your broker, bank or other nominee may vote in their discretion without instruction from you. |
| • | All other matters to be voted on at the Annual Meeting are considerednon-routine under applicable rules. Your broker, bank or other nominee will not be able to vote without instruction from you. |
If I hold my shares as a registered stockholder but do not give specific voting instructions, how will my shares be voted?
If you sign, date and return a proxy card but do not give specific voting instructions, then the proxy holders will vote your shares in the manner recommended by our Board on all matters presented in this Proxy Statement, and the proxy holders may determine in their discretion how to vote your shares on any other matters properly presented for a vote at our Annual ReportMeeting. Although our Board does not anticipate that any of the director nominees will be unable to stand for election as a director nominee at our Annual Meeting, if this occurs, proxies will be voted in favor of such other person or persons as may be nominated by our Board.
What vote is required for adoption or approval of each matter to be voted on, and Proxy Materialshow does the Board recommend that I vote?
| Proposal | Vote Required | Board Recommendation | ||
Election of Directors | Majority of the shares present in person or represented by proxy (for each director nominee) | FOR all nominees Unless a contrary choice is specified, proxies received by our Board will be voted FOR the election of our director nominees | ||
Advisory Vote to Approve Executive Compensation (Say-on-Pay) | Majority of the shares present in person or represented by proxy | FOR Unless a contrary choice is specified, proxies received by our Board will be voted FOR the proposal | ||
Advisory Vote on Frequency of Frontier’s Executive Compensation Proposal (Say-on-Frequency) | Majority of the shares present in person or represented by proxy | 1 YEAR Unless a contrary choice is specified, proxies received by our Board will be voted 1 YEAR the proposal | ||
Approval of Frontier’s 2017 Equity Incentive Plan | Majority of the votes cast | FOR Unless a contrary choice is specified, proxies received by our Board will be voted FOR the proposal | ||
Approval of Amendment to Certificate of Incorporation to Effect Reverse Stock Split and Reduction of Authorized Number of Shares of Common Stock | Majority of the outstanding shares | FOR Unless a contrary choice is specified, proxies received by our Board will be voted FOR the proposal | ||
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2017 | Majority of the shares present in person or represented by proxy | FOR Unless a contrary choice is specified, proxies received by our Board will be voted FOR the ratification of the appointment |
| Frontier Communications Corporation | 7 | 2017 Proxy Statement |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
We have adopted a policy under which, in non-contested elections, if a director fails to win a majority of votes, the director must immediately tender his or her resignation from the Board, and the Board then decides at its next regularly scheduled meeting, through a process managed by the Nominating and Corporate Governance Committee and excluding the nominee in question, whether to accept the resignation.
What are my choices for casting my vote on each matter to be voted on?
| Proposal | Voting Options | Effect of Abstentions | Broker Discretionary Voting Allowed? | Effect of Broker Non-Votes | ||||
Election of Directors | FOR, AGAINST OR ABSTAIN (for each director nominee) | Treated as a vote AGAINST the nominee | No | No effect | ||||
Advisory Vote to Approve Executive Compensation | FOR, AGAINST OR ABSTAIN | Treated as a vote AGAINST the proposal | No | No effect | ||||
Advisory Vote on Frequency of Frontier’s Executive Compensation Proposal (Say-on-Frequency) | 1 YEAR, 2 YEARS, 3 YEARS OR ABSTAIN | Treated as a vote AGAINST the proposal | No | No effect | ||||
Approval of Frontier’s 2017 Equity Incentive Plan | FOR, AGAINST OR ABSTAIN | No effect | No | No effect | ||||
Approval of Amendment to Restated Certificate of Incorporation to Effect Reverse Stock Split and Reduction of Authorized Number of Shares of Common Stock | FOR, AGAINST OR ABSTAIN | Treated as a vote AGAINST the proposal | Yes | Not applicable | ||||
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2017 | FOR, AGAINST OR ABSTAIN | Treated as a vote AGAINST the proposal | Yes | Not applicable |
What is “Householding”?
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name will receive only one copy of our
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Proxy Statement and Annual Report and proxy statement unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees.
Stockholders who participate in householding will continue to receive separate proxy cards. Also, householdingHouseholding will not in any way affect dividend check mailings.
| Frontier Communications Corporation | 8 | 2017 Proxy Statement |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
If you are eligible for householding,your household received a single set of proxy materials, but you and other stockholderswould prefer to receive a separate copy of record with whom you share an address currently receive multiple copies of thethis Proxy Statement and Annual Report, and/or the proxy statement, or if you hold in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact our transfer agent, Computershare Investor Services (in writing: P.O. Box 43078, Providence, RI 02940-3078; by telephone: in the U.S., Puerto Rico and Canada, 1-877-770-0496; outside the U.S., Puerto Rico and Canada, 1-781-575-2382).
If we are householding materials to your address and you wish to receive a separate copy of the Annual Report or this proxy statement, or if you do not wish to participateStockholders who hold their shares in householding and prefer to receive separate copies of these documents in the future, please contact Computershare Investor Services as indicated above.
Beneficial stockholdersstreet name can request information about householding from their banks, brokers or other holdersnominees.
Who bears the cost of record.
Proxy Solicitationsoliciting votes for the Annual Meeting?
We will bear the costs of solicitation of proxies for the meeting.Annual Meeting. In addition to solicitation by mail, directors, officers and our regular employees may solicit proxies from stockholders by telephone, personal interview or otherwise. These directors, officers and employees will not receive additional compensation, but may be reimbursed for out-of-pocket expenses in connection with this solicitation. In addition to solicitation by our directors, officers and employees, we have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a base fee of $20,000,$28,000, plus customary disbursements. Brokers,Banks, brokers, other nominees, fiduciaries and other custodians have been requested, with respect to shares of record held by them, to forward soliciting material to the beneficial owners of common stock, held of record by them, and these custodians will be reimbursed for their reasonable expenses.
Independent Registered Public Accounting Firm
We have been advised that representatives of KPMG LLP, our independent registered public accounting firm for 2014, will attendHow do I contact the meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions of stockholders.
Transfer AgentAgent?
Our transfer agent is Computershare Investor Services. You should contact the transfer agent, at the phone number or addresses listed below, if you have questions concerning stock certificates, dividend checks, transfer of ownership or other matters pertaining to your stock account.
If Byby First Class Mail:
Computershare Investor Services
P.O. Box 43078
Providence, RI 02940-3078
If Byby Overnight Courier:
Computershare Investor Services
250 Royall Street
Canton, MA 02021-1011
website:www.computershare.com/investor
Telephone: (877) 770-0496 (in the U.S., Puerto Rico and Canada)
or (781) 575-2382 (outside the U.S., Puerto Rico and Canada)
4
| Frontier Communications Corporation | 9 | 2017 Proxy Statement |
Set forth below is certain information as of March 17, 20151, 2017(a)(b) with respect to the beneficial ownership of our common stock (as determined under the rules of the SEC) by (1) each person who, to our knowledge, is the beneficial owner of more than 5% of our outstanding shares of common stock, which is our only class of voting securities, (2) each director and nominee for director, (3) each of the executive officers named in the Summary Compensation Table under “Executive Compensation,”Compensation” and (4) all of our directors and executive officers as a group. Except as otherwise stated, the business address of each person listed is c/o Frontier Communications Corporation, Three High Ridge Park, Stamford,401 Merritt 7, Norwalk, Connecticut 06905.06851. Except as otherwise described below, each of the persons named in the table has sole voting and investment power with respect to the common stock beneficially owned and has not pledged such common stock as security for any obligations.
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Name and Address | Number of Shares | Percent |
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The Vanguard Group, Inc. (a) |
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| 8.6 | % |
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BlackRock, Inc. (b) |
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| 62,565,020 |
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Leroy T. Barnes, Jr. |
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| 148,295 | (c) |
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Peter C.B. Bynoe |
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| 143,922 | (d) |
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Diana S. Ferguson |
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| 8,092 | (e) |
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Edward Fraioli |
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| 122,917 | (f) |
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Lois Hedg-peth (g) |
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| 168,501 |
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John M. Jureller |
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| 634,366 | (h) |
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Daniel J. McCarthy |
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| 1,410,853 | (i) |
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Cecilia K. McKenney |
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| 835,693 | (j) |
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Pamela D.A. Reeve |
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| 99,648 | (k) |
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Virginia P. Ruesterholz |
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| 30,930 | (l) |
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Howard L. Schrott |
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| 182,013 | (m) |
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Larraine D. Segil |
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| 195,426 | (n) |
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Mark Shapiro |
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| 199,848 | (o) |
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Myron A. Wick, III |
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| 252,833 | (p) |
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Mary Agnes Wilderotter |
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| 3,853,930 | (q) |
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All directors and executive officers as a group (18 persons) |
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| 8,960,917 | (r) |
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| Name and Address of Beneficial Owner | Number of Shares and Nature of Beneficial Ownership | Percent of Class | ||||||
The Vanguard Group(a) | 119,330,581 | 10.17 | % | |||||
BlackRock, Inc.(b) | 114,642,867 | 9.5 | % | |||||
Kathleen Q. Abernathy | 811,633 | (c) | * | |||||
Leroy T. Barnes, Jr. | 221,022 | (d) | * | |||||
Peter C.B. Bynoe | 223,009 | (e) | * | |||||
Diana S. Ferguson | 63,846 | (f) | * | |||||
Edward Fraioli | 212,240 | (g) | * | |||||
Steve Gable | 422,645 | (h) | ||||||
John M. Jureller | — | (i) | * | |||||
John J. Lass | 620,310 | (j) | ||||||
R. Perley McBride | 474,164 | (k) | ||||||
Daniel J. McCarthy | 2,986,686 | (l) | * | |||||
Cecilia K. McKenney | 1,377,847 | (m) | * | |||||
Pamela D.A. Reeve | 171,003 | (n) | * | |||||
Virginia P. Ruesterholz | 135,060 | (o) | * | |||||
Howard L. Schrott | 264,123 | (p) | * | |||||
Larraine D. Segil | 284,833 | (q) | * | |||||
Mark Shapiro | 271,203 | (r) | * | |||||
Myron A. Wick, III | 347,752 | (s) | * | |||||
All directors and executive officers as a group (21 persons) | 10,398,725 | (t) | * | |||||
| * | Less than 1%. |
| (a) |
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| Information is as of January 31, 2017 and based on a Schedule 13G filed on February 10, 2017 by The Vanguard Group, Inc. The business address of this beneficial owner is 100 Vanguard Blvd., Malvern, PA 19355. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (b) |
| Information is as of December 31, 2016 and based on a Schedule 13G filed on January 24, 2017 by BlackRock, Inc. The business address of this beneficial owner is 55 East 52nd Street, New York, NY |
| (c) | Includes 155,448 restricted shares over which Ms. Abernathy has sole voting power but no dispositive power. |
| (d) |
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| (e) |
| Includes 10,000 shares that may be acquired upon the exercise of currently exercisable stock options and |
| (f) |
| Consists of |
| 10 | 2017 Proxy Statement |
OWNERSHIP OF COMMON STOCK
| (g) | Includes 10,000 shares that may be acquired upon the exercise of currently exercisable stock options and |
| (h) |
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| (i) | As previously disclosed, Mr. Jureller left Frontier on November 4, 2016. We are unaware of his current holdings. |
| (j) |
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| (k) | Consists of restricted shares over which Mr. McBride has sole voting power but no dispositive power. |
| (l) | Includes |
| (m) |
| Includes |
| (n) |
| Includes |
| (o) |
| Consists of |
| (p) |
| Includes |
| (q) |
| Consists of |
| (r) |
| Includes 10,000 shares that may be acquired upon the exercise of currently exercisable stock options and |
| (s) |
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who beneficially own more than 10% of our common stock, to file reports of ownership and changes in ownership with the SEC. Such directors, officers and greater than 10% stockholders are also required to furnish us with copies of all such filed reports.
Based solely upon a review of the copies of such reports furnished to us, or representations that no reports were required, we believe that during the year ended December 31, 2014,2016, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis.
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| Frontier Communications Corporation | 11 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)PROPOSAL 1: ELECTION OF DIRECTORS
Each director is elected at the annual stockholder meeting 12 directors are to be elected to servehold office until the next annual stockholder meeting or until their successors havehis or her successor has been elected and qualified. Each of the following nominees is currently serving as a director. Directors will beare elected by a majority of the votes of the holders of shares of common stock present in person or represented by proxy at the meeting and entitled to vote at the meeting.
The persons named in the enclosed form of proxy have advised that, unless contrary instructions are received, they intend to vote FOR the 12 nominees named by the board of directors and listed on the following table. In caseIf any of thesethe Board’s nominees should becomebecomes unavailable for any reason, the persons named in the enclosed form of proxy have advised that they will vote for such substitute nominees as the board of directors may propose. Since last year’s annual meeting, the board of directors elected Diana S. Ferguson, effective September 19, 2014, to fill a vacancy on the board.
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The board of directors recommends that you vote FOR the election of all nominees for director.
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The following table sets forth compensation information for 2014 for each person who served as a non-employee member of our board of directors during 2014. Mary Agnes Wilderotter, our Chairman and Chief Executive Officer, and Daniel J. McCarthy, our President and Chief Operating Officer, are not included in this table as they are employees of the Company and thus receive no compensation for their services as directors. The compensation received by Mrs. Wilderotter and Mr. McCarthy as employees of the Company is shown in the Summary Compensation Table elsewhere in this proxy statement.
2014 Director Compensation
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Name | Fees Earned or | Stock | Total | ||||||||||||||||||
Leroy T. Barnes, Jr. |
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| $ |
| 90,000 |
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| $ |
| 90,000 |
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| $ |
| 180,000 | ||||||
Peter C.B. Bynoe |
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| $ |
| 105,000 |
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| $ |
| 90,000 |
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| $ |
| 195,000 | ||||||
Diana S. Ferguson |
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| $ |
| 22,500 |
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| $ |
| 22,500 |
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| $ |
| 45,000 | ||||||
Jeri B. Finard (2) |
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| $ |
| 33,750 |
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| $ |
| 33,750 |
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| $ |
| 67,500 | ||||||
Edward Fraioli |
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| $ |
| 96,250 |
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| $ |
| 108,750 |
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| $ |
| 205,000 | ||||||
James S. Kahan (2) |
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| $ |
| 33,750 |
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| $ |
| 33,750 |
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| $ |
| 67,500 | ||||||
Pamela D.A. Reeve |
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| $ |
| 110,000 |
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| $ |
| 90,000 |
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| $ |
| 200,000 | ||||||
Virginia P. Ruesterholz |
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| $ |
| 90,000 |
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| $ |
| 90,000 |
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| $ |
| 180,000 | ||||||
Howard L. Schrott |
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| $ |
| 115,000 |
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| $ |
| 90,000 |
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| $ |
| 205,000 | ||||||
Larraine D. Segil |
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| $ |
| 90,000 |
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| $ |
| 90,000 |
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| $ |
| 180,000 | ||||||
Mark Shapiro |
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| $ |
| 90,000 |
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| $ |
| 90,000 |
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| $ |
| 180,000 | ||||||
Myron A. Wick, III |
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| $ |
| 100,000 |
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| $ |
| 90,000 |
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| $ |
| 190,000 | ||||||
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Non-Employee Director Compensation Program
Directors who are also our employees receive no remuneration for service as a member of our board of directors or any committee of the board.
In 2014, Fredric W. Cook & Co., Inc., the Compensation Committee’s independent executive compensation consultant, was engaged by the Compensation Committee to conduct a review of the non-employee director compensation program. After considering Cook’s findings, the Compensation Committee recommended, and the full board of directors approved, a revised non-employee director compensation program as follows, effective January 1, 2015:
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Each director is required to irrevocably elect by December 31 of the prior year whether to receive the cash portion of his or her retainer and/or his or her stipend in stock units.
For 2014, the non-employee director compensation program was identical to the revised program with the following exceptions:
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Stock units are issued under the Non-Employee Directors’ Equity Incentive Plan (the “Directors Plan”). PriorAnnual Meeting to the adoption of the Directors Plan on May 25, 2006, stock units were issued under the Non-Employee Directors’ Deferred Fee Equity Plan (the “Predecessor Plan”). Directors are also entitled to reimbursement for reasonable expenses they incur in connection with meetings of the board of directors they attend in person.
Prior to October 1, 2010, upon commencement of servicesserve as a director, each non-employee director was granted options to purchase 10,000 shares of common stock at an exercise price equal to the closing price of our common stock onBoard may select a replacement nominee or reduce the date the director was elected to the board. The option grants were made under the Directors Plan and prior to adoption of the Directors Plan, under our Amended and Restated 2000 Equity Incentive Plan. These options became exercisable six months after the grant date and expire on the tenth anniversary of the grant date or, if earlier, on the first anniversary of a director’s termination of service with respect to options granted after May 25, 2006. Since October 1, 2010, directors are no longer eligible to receive stock option grants upon joining the board.
In addition, each member of the boardnumber of directors and his or her spouse is eligible to participate in our medical, dental and vision plans atbe elected. The proxy holders will vote the same contribution ratesshares for which they serve as our management employees. Retired directors and their spouses who were participating in these plans atproxy for any replacement candidate nominated by the time of their retirement from our board may continue to participate in the plans, but generally are required to pay 100% of the cost. Commencing August 1, 2015, neither active nor retired directors will be eligible to participate in our medical, dental or vision plans.
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Stock units are credited in an amount that is equal to the cash payment the director otherwise would have received, based upon a formula where the cash payment amount is the numerator and the “Initial Market Value” of our common stock is the denominator. The Initial Market Value is equal to the closing price of the common stock on the grant date of the units. Prior to October 1, 2013, the Initial Market Value was equal to 85% of the closing price of the common stock on the grant date of the units. Stock units for fees and stipends are earned quarterly and credited to the director’s account on the last business day of the quarter in which the fees and stipends are earned; stock units for the retainer are earned quarterly and credited to the director’s account on the first business day of the quarter in which the retainer is earned. We hold all stock units until a director’s termination of service, at which time the units are redeemable, at the director’s election, in either cash or in shares of our common stock.
Ms. Finard and Mr. Kahan retired from the board of directors in May 2014. Each elected to receive cash in settlement of their stock unit account. Accordingly, they received cash equal to the fair market value of the stock units in their stock unit accounts. Fair market value of a stock unit is equal to the fair market value of a share of our common stock (a) on the date of retirement, with respect to stock units awarded under the Directors Plan and (b) on the tenth day following the date of retirement, with respect to stock units awarded under the Predecessor Plan.Board.
CORPORATE GOVERNANCENominations
We maintain corporate governance policies and practices that reflect what the board of directors believes are “best practices,” as well as those that we are required to comply with pursuant to the Sarbanes-Oxley Act of 2002 and the rules of the SEC and the NASDAQ Stock Market (“NASDAQ”) on which our common stock has been listed since December 16, 2011. Our common stock was previously listed on the New York Stock Exchange. A copy of our Corporate Governance Guidelines is available upon request to our Secretary, or may be viewed or downloaded from the Investor Relations page of our website,www.frontier.com.
Leadership Structure
Our Corporate Governance Guidelines provide that we will have a Chairman who will chair board meetings and perform such other duties as set forth in our charter and in the Corporate Governance Guidelines or as are otherwise assigned to him or her by the board. The Chairman and the CEO may be the same person; however, the board may separate these two positions if it deems it to be in the best interests of our company and our stockholders to do so. The Corporate Governance Guidelines provide for a Lead Director if the Chairman and CEO is the same person and the Lead Director will perform such duties as are assigned to him or her by the independent directors, including those set forth below. The independent directors as a group, acting through a resolution approved by a majority of all independent directors, will determine, based upon the recommendation of the Nominating and Corporate Governance Committee which one ofevaluates and recommends to the independent directors will serve as Lead Director. A director must have served onBoard candidates for nomination to the board for a minimum of one yearBoard in order to be eligible to be a Lead Director. At any time when the Chairman is an independent director, the Chairman can be the Lead Director if the independent directors, acting through a resolution approved by a majority of all independent directors, determine to have a Lead Director under such circumstances.
As set forth inaccordance with our Corporate Governance Guidelines the Lead Director will:
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Effective April 3, 2015, Mary Agnes Wilderotter stepped down as our Chief Executive Officer and became Executive Chairman. On such date, Daniel J. McCarthy assumed the role as our Chief Executive Officer. Howard L. Schrott serves as our Lead Director and will continue in that role, as Mrs. Wilderotter will not be an independent director. As Executive Chairman, Mrs. Wilderotter will continue to chair the Board of Directors and will report to the Board. In addition, she will advise the Chief Executive Officer, help set strategy for the Company and will represent the Company at events that further the Company’s goals and interests.
Chief Executive Officer Succession
The Nominating and Corporate Governance Committee has the responsibility to identify successors to the Chief Executive Officer and reviews and assesses succession programs and development plans for the Chief Executive Officer. Additionally, one of the factors considered in connection with the annual assessment of the performance of the Chief Executive Officer is the adequacy and effectiveness of the Company’s succession plan for the Chief Executive Officer.
In 2014, Mrs. Wilderotter, our Chairman and Chief Executive Officer, advised the Board of her intention to retire as Chief Executive Officer upon the expiration of her contract in March 2015. While the Nominating and Governance Committee has the responsibility to identify successors to the Chief Executive Officer, the Board of Directors had as one of its primary objectives CEO succession planning. Mr. McCarthy had been the lead candidate to succeed Mrs. Wilderotter since 2011 and the Board of Directors worked closely with Mrs. Wilderotter to develop Mr. McCarthy to assume the CEO role. Additionally Mr. McCarthy was elected to the Board of Directors in May 2014. The Board of Directors evaluated Mr. McCarthy’s readiness for the CEO role on a regular basis. The Board of Directors met at the February 2015 board meeting and accepted Mrs. Wilderotter’s resignation as the CEO and elected Mr. McCarthy as the President and CEO of the Company effective April 3, 2015.
Director Independence
The board of directors is required to affirmatively determine that a majority of our directors is independent under NASDAQ listing standards. The board of directors undertakes an annual review of director independence. As a result of this review, the board of directors affirmatively determined that, other than Mrs. Wilderotter and Mr. McCarthy, all of the current directors are independent under NASDAQ rules. In determining director independence, the board of directors reviewed not only relationships between the director and our company, but also relationships between our company and the organizations with which the director is affiliated. After considering the relevant facts and circumstances, the board of directors determined that none of these individuals has a material relationship with our company (either directly or as a partner, shareholder or officer of an organization that has a relationship with our company), other than as a director of our company, and that each of
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these directors is free from any relationship with our company that would impair the director’s ability to exercise independent judgment. The board determined that the following relationships are not material and therefore do not affect the independence determination:
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Risk Management and Board Oversight
Management is responsible for the Company’s risk management activities, including the annual enterprise risk management (“ERM”) process which is jointly administeredmembership guidelines adopted by our Chief Financial Officer and Vice President, Internal Audit. The ERM process entails having each member of senior management and their direct reports participate in an annual identification, assessment and evaluation of risks. The individual risks are aggregated across the Company to help management determine our enterprise level risks. For each such risk, one or more mitigation strategies are developed and implemented to minimize that risk. During the course of the year, periodic monitoring, self-assessment and reporting to the Audit Committee are performed by senior management to:
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Our Corporate Governance Guidelines specify that the board of directors maintains overall responsibility for risk management oversight and may delegate a portion of that responsibility to specific board committees to enhance the effectiveness of their review. The board of directors has delegated the review and monitoring of risk management exposures, guidelines and policies, as well as the ERM process, to the Audit Committee, as set forth in the Audit Committee Charter.
Political Contributions
Corporate political contributions are subject to complex rules and regulations. To safeguard our reputation, we are not permitted to make any political contributions without the express approval of the General Counsel, who will ensure that Frontier complies with all federal, state, local, and foreign laws governing political contributions. Such contributions will be disclosed on the Investor Relations page of our website,www.frontier.com.
Meetings of the Board of Directors
In 2014, the board of directors held seven meetings (and took action on three other occasions) and committees of the board held 22 meetings, for a total of 29 meetings. Average attendance at these meetings by members of the board in 2014 exceeded 97%. Each incumbent director attended at least 92.3% of the aggregate of these board meetings and the total number of meetings held by all committees of the board on which he or she served. It is our policy that the directors attend the annual meeting of stockholders. All of the directors who were members of the board of directors at the time of last year’s annual meeting of stockholders attended that meeting.
Committees of the Board
The board of directors has four standing committees: Audit, Compensation, Nominating and Corporate Governance, and Retirement Plan. Each committee is composed of independent directors and operatesdescribed under a written charter adopted by the board of directors. A copy of each Charter is available upon request to our Secretary, or may be viewed or downloaded from the Investor Relations
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page of our website,www.frontier.com. The following table shows the current membership of each of the committees and the number of meetings held by each committee in 2014:
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Audit Committee. Each member of the Audit Committee meets the financial literacy requirements of the NASDAQ Listing Rules. In addition, the board of directors has determined that each of Messrs. Barnes, Fraioli and Schrott and Ms. Ferguson meets the standard of an “audit committee financial expert” under the rules of the SEC. Mr. Barnes is a member of four public company audit committees, including our Audit Committee. We do not limit the number of audit committees on which our Audit Committee members may serve. However, our board of directors considered Mr. Barnes’ ability to serve on the Audit Committee and determined that his service on the other audit committees would not impair his ability to effectively serve on our Audit Committee.
The Audit Committee is responsible for the selection, compensation and oversight of our independent registered public accounting firm and participates in the selection of the firm’s lead audit partner. Management is responsible for our internal controls and financial reporting process. The Audit Committee assists the board of directors in undertaking and fulfilling its responsibilities in monitoring:
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In accordance with the Sarbanes-Oxley Act of 2002, the rules of the SEC and the Audit Committee Charter, the Audit Committee pre-approves all auditing and permissible non-auditing services that will be provided by KPMG LLP, our independent registered public accounting firm. The
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Audit Committee considers non-auditing services when assessing the independence of our independent registered public accounting firm.
In accordance with the rules of the SEC, the Audit Committee has established procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
Compensation Committee. Each member of the Compensation Committee is an “outside director” under Section 162(m) of the Internal Revenue Code and a “non-employee director” for purposes of Rule 16b-3 of the Securities Exchange Act of 1934. The Compensation Committee reviews our general compensation strategies; acts as the committee for our incentive compensation plans; and reviews and approves compensation for the Chief Executive Officer and other executive officers. The Compensation Committee also oversees and approves compensation policy and incentive plan design, costs and administration.
The Compensation Committee’s responsibilities, which are set forth in its charter, include, among other duties, the responsibility to:
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The compensation for the other senior officers is determined by the Compensation Committee taking into account the recommendation of Mrs. Wilderotter.
The Committee may form, and delegate any of its responsibilities to, a subcommittee so long as such subcommittee is solely comprised of one or more members of the Committee. The Compensation Committee engages compensation consultants from time to time to assist the Committee in evaluating the design and assessing the competitiveness of its executive compensation program and for individual benchmarking. For more detailed information on the role of compensation consultants, see “Compensation Discussion and Analysis—Roles and Responsibilities” and “—Market and Peer Group Reviews” elsewhere in this proxy statement.
Nominating and Corporate Governance Committee. One of the committee’s functions is to recommend candidates for election to the board of directors. The Nominating and Corporate Governance Committee uses a variety of means of identifying nominees for director, including recommendations from current board members and from stockholders. In determining whether to nominate a candidate, the Nominating and Corporate Governance Committee will consider the current composition and capabilities of serving board members, as well as additional capabilities considered necessary or desirable in light of our existing needs and then assess the need for new or additional members to provide those capabilities. In addition, the Nominating and Corporate Governance Committee takes a leadership role in shaping our corporate governance, including making recommendations on matters relating to the composition of the board of directors and its various committees and our Corporate Governance Guidelines.“Director Qualifications,” below.
Stockholders may propose director candidates for consideration by the Nominating and Corporate Governance Committee. Any such recommendationsrecommendation should include the nominee’s name and qualifications for membership toon the board of directorsBoard and should be directed to our Secretary at the address of our principal executive offices. To nominate an individual for election at an annual
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stockholder meeting, the stockholder must give timely notice to our Secretary in accordance with our bylaws, which, in general, require that the notice be received by our Secretary not less than 90 days nor more than 120 days before the anniversary date of the immediately prior annual stockholders meeting, unless the annual meeting is moved by more than 30 days before or after the anniversary of the prior year’s annual meeting, in which case the notice must be received not less than a reasonable time, as determined by our board,Board, prior to the printing and mailing of proxy materials for the applicable annual meeting. The notice should include a description of the qualifications of the suggested nominee and any information that is required by the regulations of the SEC concerning the suggested nominee and his or her direct or indirect securities holdings or other interests in our company.Frontier. See “Proposals by Stockholders” for the deadline for nominating persons for election as directors for the 20162018 annual meeting.meeting of stockholders.
Decisions regarding the renomination of directors are made by the Board, upon the recommendation of the Nominating and Corporate Governance Committee, which annually evaluates each director’s performance and contribution to the Board. Under our Corporate Governance Guidelines, a non-employee director will not ordinarily be renominated if he or she has served on the Board for 15 years, but the Nominating and Corporate Governance Committee may recommend to the Board for renomination a director regardless of the length of his or her service if, in the judgment of the Nominating and Corporate Governance Committee, such renomination is in the best interests of Frontier and our stockholders.
Each candidate for nomination as a director, including each person recommended by stockholders, is evaluated in accordance with our Corporate Governance Guidelines. In addition,Guidelines and additional guidelines adopted by our Board. The additional guidelines set forth specific characteristics that each nominee must possess, set forth below.
A reputation for integrity, honesty, fairness, responsibility, good judgment and high ethical standards.
Broad experience at a senior, policy-making level in business, government, education, technology or public interest.
The ability to provide insights and practical wisdom based on the boardnominee’s experience and expertise.
An understanding of directors has adopteda basic financial statement.
Comprehension of the role of a public company director, particularly the fiduciary obligation owed to Frontier and our stockholders.
Commitment to understanding Frontier and its industry and to spending the time necessary to function effectively as a director.
An absence of a conflict of interest (or appearance of a conflict of interest) that will impair the nominee’s ability to fulfill his or her responsibilities as a director.
| Frontier Communications Corporation | 12 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
Under the additional guidelines, to be used by the Nominating and Corporate Governance Committee in selecting candidates for membership to the board of directors. These guidelines set forth general criteria for selection, including thatalso evaluates whether the background and qualifications of the directors, as a group, should beis diverse, and awhether each individual nominee should possesspossesses a depth of experience, knowledge and abilitiesability that will enable him or her to assist the other directors in fulfilling the board’sBoard’s responsibilities to our companyFrontier and our stockholders. In addition, aEach nominee must also be willing to commit that he or she will comply with our director stock ownership guidelines,guidelines. For 2016, the Nominating and Corporate Governance Committee utilized a third party facilitator to assist with the evaluation process.
In addition, a nominee should be “independent,” as discussed below. The guidelines also includedefined by the following special criteria forSEC and the selectionNasdaq Listing Rules. To the extent permitted by applicable law and our bylaws, nominees who do not qualify as independent may be nominated when, in the opinion of director nominees:
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Although we do not have a formal policy regarding boardBoard diversity, when evaluating candidates for nomination as a director, the Nominating and Corporate Governance Committee does consider diversity in its many forms, including among others, experience, skills, ethnicity, race and gender. We believe a diverse board,Board, as so defined, provides for different points of view and robust debate among our board members and enhances the effectiveness of the board. We believe we have a very diverse board of directors, whichBoard. Currently, the Board includes one or more current and/or former CEOs, CFOs, investment bankers, experts in communications, marketing and strategy, auditors and business people and individuals of different race, gender, ethnicity and background.
Decisions regarding the renomination of directors for additional terms on the board of directors are governed by the general and specific criteria described above and by the Nominating and Corporate Governance Committee’s evaluation of the directors’ performance and contribution to the board. In addition, as a general rule, a non-employee director will not be renominated if he or she has served 15 years as a member of the board of directors. The Nominating and Corporate Governance
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Director Nominees
Committee reservesAt the rightAnnual Meeting, 10 nominees are to renominate any director regardless ofbe elected and each will hold office until the length ofnext annual stockholder meeting or until his or her service if, insuccessor has been elected and qualified. The Board, upon the judgmentrecommendation of the Nominating and Corporate Governance Committee, such renominationhas nominated the 10 individuals listed below, each of whom is in our company’s and our stockholders’ best interests.
The information containedcurrently serving as a director. Each nominee has agreed to be named in this proxy statement with respectProxy Statement and to serve if elected.
Ms. Larraine Segil will not seek re-election at the Annual Meeting. Ms. Segil has served on the Board since 2005, and Frontier extends its gratitude to Ms. Segil for her dedication and valuable service.
The Board unanimously recommends that you voteFOR the election of the following director nominees:
Leroy T. Barnes, Jr.
Age: 65 Independent Director Director Since: May 2005 Board Committees: Audit Retirement Plan (Chair) | Background Prior to his retirement, Mr. Barnes was Vice President and Treasurer of PG&E Corp., a holding company for energy-based businesses (2001 to 2005) and Vice President and Treasurer of Gap Inc., a clothing retailer (1997 to 2001). Before joining Gap, he held various executive positions with Pacific Telesis Group/SBC Communications, a Regional Bell Operating Company. Qualifications Mr. Barnes’ experience as an executive at PG&E, Gap and Pacific Telesis, as well as his service on the boards of other public companies, allows him to contribute valuable insight in the areas of corporate finance and risk management. Other Directorships The McClatchy Company; Principal Funds, Inc. (three investment company directorships) Past Directorships Herbalife Ltd. (December 2004 to February 2015) | |
| Frontier Communications Corporation | 13 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
Peter C.B. Bynoe
Age:66 Independent Director Director Since: October 2007 Board Committees: Compensation Nominating and Corporate Governance (Chair) | Background Mr. Bynoe is a Managing Director of Equity Group Investments, a private investment fund. Prior to joining Equity Group Investments in October 2014, Mr. Bynoe served as Chief Executive Officer of Rewards Network, Inc., a merchant cash advance and marketing services company (September 2013 to October 2014), and in multiple capacities, including as a partner, with Loop Capital Markets LLP, an investment bank (February 2009 to September 2013). In addition, Mr. Bynoe was associated with the international law firm DLA Piper US LLP from March 1995 to December 2016. He is also Chairman of Telemat Ltd., a business consulting firm he founded in 1982. Qualifications Mr. Bynoe provides the Board with extensive business, legal and public policy expertise. Mr. Bynoe has experience serving on the boards of other public companies, including as a nominating and governance committee member and chair, and as a compensation committee member and chair. Other Directorships Covanta Holding Corporation; Real Industry, Inc. | |
Diana S. Ferguson
Age: 53 Independent Director Director Since: October 2014 Board Committees: Audit Nominating and Corporate Governance | Background Ms. Ferguson has been Principal of Scarlett Investments, LLC, a firm that invests in and advises middle market businesses, since August 2013. Ms. Ferguson served as Chief Financial Officer of the Chicago Board of Education (February 2010 to May 2011) and as Senior Vice President and Chief Financial Officer of The Folgers Coffee Company, a maker of coffee products (April 2008 to November 2008), until Folgers was sold in 2008. Prior to joining Folgers, Ms. Ferguson was Executive Vice President and Chief Financial Officer of Merisant Worldwide, Inc., a maker of table- top sweeteners and sweetened food products (April 2007 to March 2008). Ms. Ferguson also served as Chief Financial Officer of Sara Lee Foodservice, a division of Sara Lee Corporation (June 2006 to March 2007), and in a number of leadership positions at Sara Lee Corporation including Senior Vice President of Strategy and Corporate Development and Treasurer. Qualifications Ms. Ferguson’s broad experience and executive leadership allow her to provide the Board with valuable perspectives on financial, corporate and strategic matters. Past Directorships TreeHouse Foods, Inc. (2008 – 2016) | |
| Frontier Communications Corporation | 14 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
Edward Fraioli
Age: 70 Independent Director Director Since: July 2010 Board Committees: Audit (Chair) Retirement Plan | Background Mr. Fraioli currently acts as a business consultant, which he has done since his retirement in July 2010. Prior to his retirement, Mr. Fraioli was a partner at Ernst & Young, a public accounting firm, since 1983. During his tenure at Ernst & Young, he served as Professional Practice Director for Ernst & Young’s Private Equity practice (2008 to July 2010), Global Vice Chairman for Independence Matters within Global Quality and Risk Management (2005 to 2008) and as lead audit partner on a number of public and global companies. Qualifications Mr. Fraioli’s over 35 years of accounting and business experience at Ernst & Young provide the Board with substantial expertise in the areas of public accounting, risk management and corporate finance. | |
Daniel J. McCarthy
Age: 52 Director Since: May 2014 | Background Mr. McCarthy is the President and Chief Executive Officer of Frontier Communications Corporation and has been with Frontier since December 1990. Prior to becoming President and Chief Executive Officer in April 2015, Mr. McCarthy held other positions of responsibility at Frontier, including President and Chief Operating Officer (April 2012 to April 2015), Executive Vice President and Chief Operating Officer (January 2006 to April 2012) and Senior Vice President, Field Operations (December 2004 to December 2005). Mr. McCarthy also serves on the Board of Directors of the Western Connecticut Health Network, and is a Trustee of Sacred Heart University in Fairfield, Connecticut, and of Foundations in Education. Qualifications Mr. McCarthy has been with Frontier for over 25 years in positions of increasing responsibility and as such he is able to provide the Board with critical insight into our business, operations, history, industry and strategic opportunities. Other Directorships Constellation Brands, Inc. | |
| Frontier Communications Corporation | 15 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
Pamela D.A. Reeve (Chairman)
Age:67 Independent Director Director Since: July 2010 | Background From November 1989 to August 2004, Ms. Reeve held various executive positions, including President and Chief Executive Officer, and was a director at Lightbridge, Inc., a global provider of mobile business software and technology solutions. Prior to joining Lightbridge, Ms. Reeve spent 11 years as a consultant and in a series of executive positions at the Boston Consulting Group, Inc. Qualifications Ms. Reeve provides the Board with leadership, operational and financial expertise, particularly in the communications and technologies industries. In addition, her experience on the boards of other public companies provides the Board with important perspectives on corporate governance and risk management. Other Directorships American Tower Corporation; Sonus Networks, Inc. Past Directorships LiveWire Mobile, Inc. (1997 to November 2009) | |
Virginia P. Ruesterholz
Age: 55 Independent Director Director Since: August 2013 Board Committee: Compensation (Chair) Retirement Plan | Background During her 28 year career with Verizon Communications, a broadband and telecommunications company, and its predecessors, Ms. Ruesterholz held various executive positions, including Executive Vice President of Verizon Communications (January to July 2012) and President of Verizon Services Operations (2009 to 2011). Earlier she served as President of Verizon Telecom, President of Verizon Partner Solutions and President of Verizon Wholesale Markets. She also serves as Chairman of the Board of Trustees of Stevens Institute of Technology. Qualifications Through her substantial experience as a senior executive at Verizon, Ms. Ruesterholz provides the Board with valuable knowledge of the telecommunications industry, large scale operations, risk management and information technology. Other Directorships The Hartford Financial Services Group, Inc. | |
| Frontier Communications Corporation | 16 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
Howard L. Schrott
Age: 62 Independent Director Director Since: July 2005 Board Committees: Audit Nominating and Corporate Governance | Background Mr. Schrott is a Principal in Schrott Consulting, a management consulting firm servicing broadcasting, telecommunications and technology companies which he founded in February 2006. Prior to founding Schrott Consulting, he was Chief Financial Officer of the Liberty Corporation, a television broadcaster, from 2001 until Liberty’s sale in February 2006. Mr. Schrott also serves as a Trustee of Butler University and a Governor of the Indianapolis Museum of Art. Qualifications Mr. Schrott provides the Board with an extensive understanding of the telecommunications industry. In addition, his experience in executive and director roles provides the Board with important knowledge of financial and operational matters. Past Directorships Media General, Inc. (November 2013 to December 2014); Time Warner Telecom Holdings Inc. (2004 to 2006) | |
Mark Shapiro
Age: 47 Independent Director Director Since: July 2010 Board Committee: Retirement Plan | Background Mr. Shapiro is the Co-President of WME/IMG, a global leader in sports, fashion, entertainment and media. Prior to joining WME/IMG in September 2014, he served as Chief Executive Officer and an Executive Producer of Dick Clark Productions, an independent producer of television programming (May 2010 to September 2014), and as a Director, President and Chief Executive Officer of Six Flags, Inc., a family-oriented entertainment company (December 2005 to May 2010). Prior to joining Six Flags, Mr. Shapiro spent 12 years at ESPN, Inc., where he served in various capacities, including Executive Vice President, Programming and Production. Qualifications Mr. Shapiro provides the Board with valuable knowledge of operations, strategy and consumer services. His experience as a senior-level executive at WME/IMG, Dick Clark Productions and Six Flags provides him with important perspectives on content creation, marketing and branding. Other Directorships Live Nation Entertainment, Inc.; Equity Residential; Papa John’s International, Inc. | |
| Frontier Communications Corporation | 17 | 2017 Proxy Statement |
PROPOSAL 1: ELECTION OF DIRECTORS
Myron A. Wick, III
Age:73 Independent Director Director Since: March 2005 Board Committees: Compensation Nominating and Corporate Governance | Background Mr. Wick is currently serving as a business consultant. Previously, he co-founded and was a managing director of McGettigan & Wick, Co., an investment banking firm (1988 to 2009), a principal of Proactive Partners, L.P., a merchant banking fund (1989 to 2010), and Director General of Hola Television Group, a private Spanish media company (September 2009 to January 2012). In addition, in 1989, Mr. Wick co-founded CTC Media (formerly StoryFirst Communications), which operates Russian television networks, and served as a director of CTC until 2006, when it was taken public. Qualifications Mr. Wick’s investment banking and executive experience allows him to provide the Board with important perspectives on management, operations and strategic transactions. | |
| Frontier Communications Corporation | 18 | 2017 Proxy Statement |
DIRECTOR COMPENSATION
Frontier uses cash and stock-based compensation to attract and retain qualified non-employee members of our Board. Mr. McCarthy, the only employee director, receives no remuneration for service as a member of our Board.
Annual Retainer and Stipend – Paid in Cash or Stock Units
Each non-employee director is paid an annual $95,000 retainer. In addition, in 2016, the Lead Director and committee chairs were each paid a stipend ($25,000 for Lead Director, $25,000 for the Audit Committee, Charter,$20,000 for the Compensation Committee, Charter,$15,000 for the Retirement Plan Committee and $15,000 for the Nominating and Corporate Governance Committee CharterCommittee).
Effective April 1, 2016, we eliminated the position of Lead Director and established the position of independent Chairman of the Board, who is paid an additional annual stipend of $175,000, 45% in cash and 55% in stock units.
Directors may elect, by December 31 of the prior year, whether to receive the retainer and stipend, if any, in stock units. Directors are also entitled to reimbursement for reasonable expenses they incur in connection with Board meetings they attend in person. The annual retainer (in cash or stock units) is payable in advance in equal quarterly installments on the first business day of each quarter. Stipends (in cash or stock units) are payable in arrears in equal quarterly installments on the last business day of each quarter.
Annual Fee – Paid in Stock Units
Non-employee directors receive additional compensation in the form of stock units. In 2016, each non-employee director received a $120,000 fee in the form of stock units. Stock units for fees are earned quarterly and credited to the director’s account on the last business day of the quarter in which the fees are earned.
The number of stock units credited equals the amount of the retainer, stipend or fee (as appropriate) divided by the closing price of our common stock on the credit date of the stock units. We hold all stock units until a director’s termination of service, at which time the units are redeemable, at the director’s election, in either cash or in shares of our common stock.
The following table sets forth compensation information earned for 2016 by each non-employee director.
| Name | Director Compensation Paid in Cash ($) | Stock Unit Awards ($ value)1 | Total ($) | |||||||||
Leroy T. Barnes, Jr. | $ | 110,000 | $ | 120,000 | $ | 230,000 | ||||||
Peter C.B. Bynoe | $ | 110,000 | $ | 120,000 | $ | 230,000 | ||||||
Diana S. Ferguson | $ | 95,000 | $ | 120,000 | $ | 215,000 | ||||||
Edward Fraioli | $ | 95,000 | $ | 145,000 | $ | 240,000 | ||||||
Pamela D.A. Reeve | $ | 160,313 | $ | 192,187 | $ | 352,500 | ||||||
Virginia P. Ruesterholz | $ | 0 | $ | 235,000 | $ | 235,000 | ||||||
Howard L. Schrott | $ | 95,000 | $ | 120,000 | $ | 215,000 | ||||||
Larraine D. Segil | $ | 95,000 | $ | 120,000 | $ | 215,000 | ||||||
Mark Shapiro | $ | 95,000 | $ | 120,000 | $ | 215,000 | ||||||
Myron A. Wick, III | $ | 95,000 | $ | 120,000 | $ | 215,000 | ||||||
| (1) | The amounts shown in this column represent the grant date fair value in accordance with Financial Accounting Standards Board ASC Topic 718 of the stock units granted to directors in 2016. For a discussion of valuation assumptions, see Note 11 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. Dividends are paid on stock units held by directors at the same rate and at the same time as we pay dividends on shares of our common stock. No above-market or preferential dividends were paid with respect to any stock units. Dividends on stock units are paid in the form of additional stock units. |
| Frontier Communications Corporation | 19 | 2017 Proxy Statement |
DIRECTOR COMPENSATION
| At December 31, 2016, Mr. Bynoe, Mr. Fraioli and Mr. Shapiro each held 10,000 stock options. The stock options held by Mr. Bynoe, Mr. Fraioli and Mr. Shapiro were granted at an exercise price equal to the closing price of our common stock on the date each director was elected to the Board. These options became exercisable six months after the grant date and expire on the tenth anniversary of the grant date or, if earlier, on the first anniversary of a director’s termination of service. Since October 1, 2010, directors are no longer eligible to receive stock option grants upon joining the Board. |
| Frontier Communications Corporation | 20 | 2017 Proxy Statement |
CORPORATE GOVERNANCE
We maintain corporate governance policies and practices that reflect what the Board believes provide appropriate oversight, leadership and independence as well as those required by the Sarbanes-Oxley Act of 2002 and the independencerules of the SEC and the Nasdaq Stock Market (Nasdaq), on which our common stock is listed. A copy of our Corporate Governance Guidelines is available upon request to our Secretary, or may be viewed or downloaded from the Investor Relations page of our website,www.frontier.com.
On April 1, 2016, Pamela D.A. Reeve became our independent, non-executive Chairman of the Board of Directors. Ms. Reeve had previously held the position of Lead Director and has been an independent member of our Board since 2010. The Board has determined that it would be in the best interests of our stockholders at this time to separate the role of CEO and Chairman given the recent completion of our CEO succession plan. The Board will continue to evaluate our leadership structure based on the best interests of Frontier and our stockholders.
| The Role of the Chairman: |
• Call meetings of the Board and non-management directors (including those to be attended only by independent directors) when appropriate and preside at such meetings. Following each executive session, the Chairman will discuss with the CEO any issues arising in such executive session. • Coordinate the flow of information to and among independent directors and, if any, other non-management directors. • Collaborate with the CEO to set Board meeting agendas and review and approve Board meeting schedules to ensure that there is sufficient time for discussion of all agenda items. All Board members are encouraged to communicate to the Chairman any additional agenda items that they deem necessary or appropriate in carrying out their duties. • Periodically solicit from other independent and non-management directors comments or suggestions related to Board operations, including the flow of information to directors, the setting of meeting agendas and the establishment of the schedule of Board meetings, and communicate those suggestions to the CEO. The Chairman shall also seek to ensure that there is: (a) an efficient and adequate flow of information to the independent and non-management directors; (b) adequate time for the independent and non-management directors to consider all matters presented to them for action; and (c) appropriate attention paid to all matters subject to oversight and actions by the independent and non-management directors. • Attend all committee meetings, as appropriate. The Chairman shall work with each committee chair to ensure that each committee is effectively functioning and providing ongoing reports to the Board. • Serve as the liaison between the independent and non-management directors, on the one hand, and the CEO, on the other, and as the representative of the independent and non-management directors in communications with the CEO and management outside of regular Board meetings. • Serve as liaison and provide direction to advisers and consultants retained by the independent directors. |
Our Board does not have a policy as to whether the roles of Chairman and CEO should be separate or combined. However, if the roles are combined, the Board will also have a Lead Director. Our Nominating and Corporate Governance Committee annually reviews our leadership structure to determine whether the existing structure is in the best interests of Frontier and its stockholders.
Chief Executive Officer Succession
The Board is actively engaged in managing executive talent and succession planning. The Nominating and Corporate Governance Committee reviews and considers succession development plans for the CEO and the development of executive talent. The Board also evaluates the adequacy and effectiveness of Frontier’s succession plan for the CEO in connection with its annual assessment of the performance of the CEO.
| Frontier Communications Corporation | 21 | 2017 Proxy Statement |
CORPORATE GOVERNANCE
The Board is required to affirmatively determine that a majority of the directors qualify as independent under Nasdaq listing standards. The Board undertakes an annual review of director independence by reviewing relationships between Frontier and each director as well as Frontier and the organizations with which each director is affiliated.
After considering the relevant facts, the Board has determined that no director, other than Mr. McCarthy, has a material relationship with Frontier (either directly or as a partner, stockholder or officer of an organization that has a relationship with Frontier) that would impair the director’s ability to exercise independent judgment in carrying out his or her responsibilities as a director. Therefore, all of our directors, other than Mr. McCarthy, are independent under Nasdaq listing standards.
Mr. Shapiro, who serves on our Retirement Plan Committee, is the Co-President of WME/IMG. During 2016, Frontier engaged WME/IMG to assist in the negotiation and entry into certain sponsorship and content arrangements. The Nominating and Corporate Governance Committee and the Board reviewed this business relationship and determined that the value of the engagement is immaterial to WME/IMG given WME/IMG’s gross revenues and that Mr. Shapiro’s independence is not impaired.
| The Board has determined that 9 of our 10 director nominees are independent |
Risk Management and Board Oversight
The Board is responsible for oversight of Frontier’s risk management process, and the full Board regularly discusses exposure to various potentially material risks. In accordance with our Corporate Governance Guidelines, the Audit Committee also reviews risk exposures and the guidelines and policies governing management’s assessment and management of exposure to risk, including the enterprise risk management (ERM) process.
Management is responsible for Frontier’s risk management activities, including the annual ERM process, which is jointly administered by the Chief Financial Officer and the Senior Vice President, Internal Audit. As part of the ERM process, each member of senior management and his or her direct reports participate in an annual identification, assessment and evaluation of risks. The individual risks are aggregated across Frontier to help management determine our enterprise level risks. For each such risk, one or more mitigation strategies are developed and implemented to minimize or manage that risk. During the course of the year, periodic monitoring, self-assessment and reporting to the Audit Committee are performed by senior management to:
Update the trending of each risk, compared to the latest annual ERM review;
Identify/consider new and emerging risks;
Assess the implementation status/effectiveness of each mitigation strategy; and
Identify changes to mitigation strategies, if necessary.
In 2016, the Board held 8 meetings and committees of the Board held a total of 24 meetings. Average attendance at these meetings exceeded 98% and each director attended at least 90% of the aggregate number of meetings of the Board and those committees on which he or she served during 2016. In accordance with our policy, all members of the boardBoard attended last year’s annual meeting of directors shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall the information be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference in a filing.stockholders.
| Frontier Communications Corporation | 22 | 2017 Proxy Statement |
CORPORATE GOVERNANCE
Retirement Plan Committee. The Retirement Plan Committee oversees our company’s retirement plans, including reviewing the investment strategies and asset performanceCommittees of the plans, compliance withBoard
The Board has four standing committees: Audit, Compensation, Nominating and Corporate Governance, and Retirement Plan. Each committee is composed solely of independent directors and operates under a written charter adopted by the plansBoard (available on the Investor Relations page of our website,www.frontier.com).
| Audit Committee | Number of Meetings in 2016: 7 | |
Chair: Edward Fraioli Other Committee Members: Leroy T. Barnes, Jr. Diana S. Ferguson Howard L. Schrott | Primary Responsibilities: • Responsible for the selection, compensation and oversight of our independent auditors • Assists the Board in its oversight of our financial statements, compliance with legal and regulatory requirements, the independence, performance and qualifications of our independent auditors, the qualifications of our internal auditors and internal audit function performance • Pre-approves all audit and permissible non-audit services, if any, provided by our independent auditors • Prepares the Audit Committee Report • Oversees risk assessment and risk management | |
Each Audit Committee member is independent Each meets the standard of an “audit committee financial expert” under SEC rules Each meets the financial literacy requirements of the Nasdaq Listing Rules | ||
Mr. Barnes is on the audit committee of The McClatchy Company and the overall qualityeach of the asset managers, plan administrators and communications with employees.Principal Funds, Inc. investment companies of which he is a board member. We do not formally limit the number of audit committees on which our Audit Committee members may serve, but instead review on a case-by-case basis. After careful consideration, our Board determined that Mr. Barnes’ service on the other audit committees would not impair his ability to effectively serve on our Audit Committee.
| Compensation Committee | Number of Meetings in 2016: 9 | |
Chair: Virginia P. Ruesterholz Other Committee Members: Peter C.B. Bynoe Larraine D. Segil* Myron A. Wick, III | Primary Responsibilities: • Reviews our general compensation strategies and policy • Evaluates at least annually the performance of the CEO and other senior executives against corporate goals and objectives and determines and approves executive compensation (including any discretionary incentive awards) based on this evaluation • Reviews and makes recommendations to the Board regarding director compensation • Prepares the Compensation Committee Report • Oversees and approves incentive compensation plans and equity-based compensation plans | |
Each Compensation Committee member is independent Each is an “outside director” under Section 162(m) of the Internal Revenue Code Each is a “non-employee director” for purposes of Rule 16b-3 of the Exchange Act | ||
* Through the date of the Annual meeting.
| Frontier Communications Corporation | 23 | 2017 Proxy Statement |
CORPORATE GOVERNANCE
| Nominating and Corporate Governance Committee | Number of Meetings in 2016: 4 |
Chair: Peter C.B. Bynoe Other Committee Members: Diana S. Ferguson Howard L. Schrott Myron A. Wick, III | Primary Responsibilities: • Conducts annual evaluation of the Board and its committees • Recommends candidates for nomination, election or appointment to the Board and its committees • Engages in CEO succession planning efforts and executive talent development • Takes a leadership role in shaping our corporate governance, including developing and recommending to the Board our Corporate Governance Guidelines | |
| Each Nominating and Corporate Governance committee member is independent | ||
| Retirement Plan Committee | Number of Meetings in 2016: 4 |
Chair: Leroy T. Barnes, Jr. Other Committee Members: Edward Fraioli Virginia P. Ruesterholz Larraine D. Segil* Mark Shapiro | Primary Responsibilities: • Oversees our retirement plans, which includes review of the investment strategies and asset performance of the plans, compliance with the plans and the overall quality of the asset managers, plan administrators and communications with employees | |
| Each Retirement Plan Committee member is independent | ||
* Through the date of the Annual meeting.
Director Stock Ownership GuidelinesGuideline
Each non-management director is expected to own shares of our common stock having a minimum value of five (5) times the cash portion of the annual non-management director retainer (which currently equates to $475,000) by the later of February 15, 2017 and five years after joining the Board. Stock unit grants are counted for purposes of fulfilling this guideline.
Executive Sessions of the Board of Directors
Our independent directors have regularly scheduled executive sessions in which they meet outside the presence of management. Howard L. Schrott has been electedPamela D.A. Reeve, in her role as the Lead Director by our independent directors. Mr. SchrottChairman, presides at executive sessions of the board.Board.
Communications with the Board of Directors
Any stockholder or interested party who wishes to communicate with the board of directorsBoard or any specific director, including the Lead Director, any non-management director, the non-management directors as a group, any independent director or the independent directors as a group, may do so by writing to such director or directors at: Frontier Communications Corporation, Three High Ridge Park, Stamford,401 Merritt 7, Norwalk, Connecticut 06905.06851. This communication will be forwarded to the director or directors to whom it is addressed. This information regarding contacting the board of directorsBoard is also posted on the Investor Relations page of our website,www.frontier.com.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics (the “CodeCode of Conduct”)Conduct) to which all employees, executive officers and directors which(which for purposes of the Code of Conduct we collectively refer to as “employees,”“employees”) are required to adhere in addressing the legal and ethical issues encountered in conducting their work. The Code of Conduct requires that all employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity. Employees are required to report any conduct that they believe in good faith, is an actual or apparent violation of the Code of Conduct and may do so anonymously by using our Ethics Hotline. Specific
| Frontier Communications Corporation | 24 | 2017 Proxy Statement |
CORPORATE GOVERNANCE
provisions applicable to our principal executive officer and senior financial officers are in the Specific Code of Business Conduct and Ethics Provisions for Certain Officers (the “Executive Code”)Executive Code). We disclose on our website any amendment to, or waiver of, any provision of our Code of Conduct or Executive Code that is required to be disclosed pursuant to securities laws. Copies of the Code of Conduct and the Executive Code are available upon request to our Secretary, or may be viewed or downloaded from the Investor Relations page of our website,www.frontier.com.
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Related Person Transactions Policy
The board of directorsBoard adopted a policy addressing our procedures with respect to the review, approval and ratification of “related person transactions” that are required to be disclosed pursuant to SEC regulations. The policy provides that any transaction, arrangement or relationship, or series of similar transactions, into which we are involved,a party, that exceeds $120,000 in the aggregate, with a “related person” (as defined in the SEC regulations) who has or will have a direct or indirect material interest and which exceeds $120,000 in the aggregate shall be subject to review, approval or ratification by the Nominating and Corporate Governance Committee. In its review of related person transactions, the Nominating and Corporate Governance Committee shall review the material facts and circumstances of the transaction and shall take into account certainspecified factors, where appropriate, based on the particular facts and circumstances, including (i) the nature of the “related person’s” interest in the transaction, (ii) the significance of the transaction to us and to the “related person” and (iii) whether the transaction is likely to impair the judgment of the “related person” to act in the best interest of our company.Frontier.
No member of the Nominating and Corporate Governance Committee may participate in the review, approval or ratification of a transaction with respect to which he or she is a “related person” provided thatperson,” although such persondirector can be counted for purposes of a quorum and shall provide such information with respect to the transaction as may be reasonably requested by other members of the committeeCommittee or the board.
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Board.
| Frontier Communications Corporation | 25 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This section provides information regarding the 2014 compensation program in place for Mary Agnes Wilderotter, our Chairman and Chief
Named Executive Officer during 2014 (our “CEO”), our Chief Financial Officer (our “CFO”) and our three most highly-compensated executive officers other than our CEO and CFO. These individuals, referred to as the “named executive officers” or “NEOs,” are:Officers
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Daniel J. McCarthy | President and Chief Executive Officer | |
| Executive Vice President and Chief Financial Officer | |
| Executive Vice President | |
Cecilia K. McKenney | Executive Vice President | |
John J. Lass | Executive Vice President, Customer Operations | |
Kathleen Q. Abernathy** | Senior Advisor and Former Executive Vice President, External Affairs | |
John M. Jureller* | Former Executive Vice President and Chief Financial Officer |
On April 3, 2015, Mrs. Wilderotter stepped down as
| * | Mr. McBride assumed the role of Executive Vice President and Chief Financial Officer on November 4, 2016, at which time Mr. Jureller ceased to be an employee of Frontier. All references to “CFO” in the following Compensation Discussion and Analysis section refer to Mr. McBride for 2016. All references to “NEO” refer to each other NEO, other than Mr. Jureller, whose compensation is discussed separately. |
| ** | Ms. Abernathy stepped down as Frontier’s Executive Vice President, External Affairs, on November 18, 2016. At that time, she retained her role as Chair, America’s Best Communities Prize Campaign, and assumed the position of Senior Advisor until her planned retirement in April 2017. |
Executive Officer and Mr. McCarthy assumed that role. All references to “CEO” in the following Compensation Discussion and Analysis section refer to Mrs. Wilderotter for 2014.Summary
This section includes information regardingThe purpose of our executive compensation philosophy, the overall objectives of our compensation program and each component of compensation that we provide. It also describes the material factors the Compensation Committee considered in determining the compensation for the named executive officers in 2014.
The Company’s executive compensation philosophy is firmly based on aligningto align the goals and interests of itsour executives towith those of Frontier and its stockholders by rewarding our leadership team for delivering on both short-term and long-term goals. Our program emphasizes stockholder value creation by using a mix of pay components, the majority of which are “at risk” and contingent upon performance against specified company and individual goals and tied to annual and sustained performance over a multi-year period.
2016 Review
2016 was a year that was both transformational and challenging for Frontier.
On April 1, 2016, we completed the acquisition of Verizon’s wireline properties in California, Texas and Florida for a purchase price of $10.54 billion in cash and assumed debt, which allows us to provide services to residential, commercial and wholesale customers in those areas (the California, Texas and Florida Acquisition). In the past three years, and culminating with the close of the California, Texas and Florida Acquisition, we have more than doubled in size and scale, improved the quality of our assets, substantially diversified our revenue streams and geographic footprint and expanded the sophistication and attractiveness of our product offerings.
In addition, we implemented a new customer-focused organizational structure in December 2016, which is designed to improve the customer experience, streamline processes and reduce costs. As part of this new organizational structure, we realigned into two groups: consumer sales and commercial sales. This allows us to better serve the different needs of consumer and business customers. Non-customer facing functions such as finance, human resources, marketing, engineering, information technology and communications that had been regionalized were integrated and centralized to support both segments. This eliminated organizational layers, duplicative roles and costs.
In November 2016, R. Perley McBride became our Executive Vice President and Chief Financial Officer. Mr. McBride has more than 20 years of experience in financial roles in the communications industry, including more than a decade at Frontier earlier in his career.
However, Frontier also faced challenges that negatively impacted revenue and profitability in 2016. As a result, our stock price declined significantly. Despite these challenges, the Compensation Committee and our Board of Directors believe in the future of Frontier as a provider of quality communications services and have utmost confidence in Frontier’s management and its ability to rebuild stockholder value.
| Frontier Communications Corporation | 26 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
The Compensation Committee continues to believe that the best way to align the interests of our executives and our stockholders is to reward success when we build stockholder value and limit compensation when stockholder value declines.
Consistent with this approach, due to Frontier’s financial performance in 2016, Frontier did not pay annual cash bonuses to any employees, including our NEOs, for the year.
Total Stockholder Return
Total stockholder return (TSR) is a measure of gains or losses realized by awardingcommon stockholders over time. TSR combines price appreciation and dividends paid to show the total return to a common stockholder as an annualized percentage. Frontier had a one year TSR of -20.4% for 2016, which was approximately in the 5th percentile relative to our Global Industry Classification Standard (GICS) industry group, the Integrated Telecommunications Services Group (GICS Code 50101020), and a three year TSR of -7.5%, which was approximately in the 27th percentile. We paid $493 million in common stock dividends and $214 million in preferred stock dividends in 2016 while continuing to invest in expanding and upgrading our network and product offerings.
CEO Pay at a Glance
The Compensation Committee awarded Mr. McCarthy total direct compensation based(TDC) for 2016 performance as set forth below. A significant portion of his compensation is in the form of restricted stock and performance shares, the value of which is dependent on our stock price and the achievement of company performance. We regularly reviewand individual performance targets. The Compensation Committee followed the process described on page 40 to determine Mr. McCarthy’s TDC and considered multiple factors, including:
The closing of the California, Texas and Florida Acquisition
The hiring of a new Chief Financial Officer, Perley McBride
The implementation of a new organizational structure that allows Frontier to better serve its consumer and business customers
Financial and stock performance of Frontier
| Compensation Element | Amount | Note | |||||
Base Salary | $ | 1,000,000 | |||||
Annual Cash Bonus | $ | 0 | No annual cash bonuses were paid for 2016 | ||||
Restricted Stock Awards | $ | 3,598,000 | This represents the value of the grant of restricted stock awards for 2016 performance on the grant date, which will vest ratably over a three-year period | ||||
Performance Share Awards | $ | 1,760,000 | This represents the value of the target number of performance shares awarded on the grant date. The actual number of shares of common stock that will be earned will be based on 2016-2018 performance and the value of such earned shares will be determined on the date earned | ||||
Total Direct Compensation | $ | 6,358,000 | |||||
Transaction Bonus
In 2016, the Compensation Committee also determined to award bonuses to certain Frontier employees in connection with the California, Texas and Florida Acquisition. The inclusion of an employee and the amount of his or her payment was determined by an evaluation of the employee’s contribution to the planning, approval and execution of the transaction and integration of the acquired business following the closing thereof. In particular, the Committee recognized Messrs. Gable and Lass for their efforts to enable the transition of newly acquired customers and the provision of stable service following the closing, Ms. McKenney for the transfer of customer billing and call center operations and Ms. Abernathy for securing regulatory approval in multiple jurisdictions. Mr. McCarthy volunteered to forego being considered for a transaction bonus.
| NEO | Transaction Bonus | ||||
Steve Gable | $ | 1,000,000 | |||
Cecilia K. McKenney | $ | 459,600 | |||
John J. Lass | $ | 415,200 | |||
Kathleen Q. Abernathy | $ | 840,000 | |||
| Frontier Communications Corporation | 27 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Key Features of our Executive Compensation Program
Key executive compensation plans for continued alignment with our business strategy, and human resource objectives, as well as best practices. These best practices are summarized below as “what we do”below. We believe these practices promote good governance and “what we don’t do:”are in the best interests of Frontier and its stockholders:
What We Do
| What We Do | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Employ a pay-for-performance executive compensation program whereby | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Pay a majority of compensation in the form of long-term incentive awards to defer a portion of pay based on future company performance and tie compensation payout levels to our stock performance. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Use | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Require our executives to own Frontier stock equal to a multiple of base | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Use double-trigger change-in-control severance arrangements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Hold an annual stockholder vote on our executive compensation program. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Have a recoupment, or “clawback,” policy to recover both cash and equity compensation from executives, including in the case of misconduct that results in a restatement of our financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ✓Engage an independent compensation consultant to provide advice to our Compensation Committee. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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What We Don’t Do
| What We Don’t Do | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ÄPermit our executives to hedge or pledge | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ÄReward our executives with | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ÄPay dividends on unearned performance shares. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ÄMake tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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In 2014, Company performance and compensation-related highlights were as follows:
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On February 5, 2015, the Company announced that it entered into an agreement with Verizon Communications Inc. (Verizon) to acquire Verizon’s wireline operations that provide services to residential, commercial and wholesale customers in California, Texas and Florida for a purchase price of $10.54 billion in cash (the Verizon Transaction). As of the date of the announcement, these Verizon properties included 3.7 million voice connections, 2.2 million broadband connections, and 1.2 million FiOS video connections. The network being acquired is the product of substantial capital investments made by Verizon and is 54% FiOS enabled. Subject to regulatory approval, the transaction is expected to close in the first half of 2016.
In order to enhance transparency regarding executive compensation actually received by each of our named executive officers, we have included again this year a Realized Pay table to supplement the information provided in the Summary Compensation Table. See “2014 Realized Pay” below.
Executive Compensation Philosophy
The Company’s executive compensation philosophy is designed to achieve a number of objectives:
Establish clear alignment between the interests of our executives and those of our stockholders. Our executive compensation program is designed to align the interests of our executives with those of our stockholders by rewarding performance measured by certain key financial metrics, including revenue; EBITDA; operating cash flow (EBITDA less capital expenditures for business operations); and capital expenditures, and specific operating goals. For annual awards, these metrics and goals are derived from the Company’s annual business plan and are discussed in more detail below.
Additionally, we align our executives’ interests with our stockholders’ interests through the use of equity awards, rather than cash, as a significant component of annual compensation. Restricted stock awards and performance share awards under the LTIP, which takes into account our Total Shareholder Return relative to a group of integrated telecommunications services companies over a three-year period, encourage our executives to focus on decisions that emphasize long-term returns for our stockholders. We also maintain minimum stock ownership guidelines for our CEO and her direct reports who are members of our Senior Leadership Team and prohibit our executives from hedging or pledging Company stock owned by them.
Reinforce our performance culture. Given the intensely competitive environment in the communications services industry, we believe that it is important that we have a culture that rewards performance with respect to critical strategic, financial and operational goals. Our executive compensation program is designed to reward superior performance over both the short- and long-term. We accomplish this goal by making a majority of our named executive officers’compensation at risk, i.e., contingent upon achievement of specified company and individual performance goals, and by not having any executive employment arrangements with guaranteed minimum provisions, other than base salary. See “Compensation Mix” below. The following components of executive compensation are at risk:
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The Company reinforces its performance culture by not offering entitlement-based benefits and perquisites. Our executives are eligible to participate in a comprehensive healthcare benefit plan, although we require them to pay a higher percentage of the costs than other employees. The only retirement benefit the Company offers to executives is a 401(k) match, which is available on the same basis to all non-union, full-time employees who participate in the Company’s 401(k) plan. The Company does not offer any active pension benefits or post-retirement medical benefits to executive officers because we do not believe in rewarding our executives with tenure-based benefits.
Hire and retain talented executives. The quality of the individuals we employ at all levels of the organization is an important driver of our performance as a company, both in the short-term and in the long-term. We employ “utility players” or “athletes”—executives with an interdisciplinary set of skills who can fill many roles and whose responsibilities often extend beyond the traditional scope indicated by their titles. Accordingly, it is critical for us to be able to hire and retain the best executive talent in the marketplace and one of the important tools to do so is to pay competitive total compensation.
In order for us to hire and retain high performing executives with the skills critical to the long-term success of our Company, we have implemented a compensation program that is competitive in comparison to comparable companies based on size, overall complexity and the nature of our business. We differentiate compensation opportunities among our named executive officers to reflect a variety of factors, including market compensation rates as well as the individual executive’s experience in the position, skill set, importance to the Company, sustained performance over time, readiness for promotion to a higher level and role in the overall succession planning process. We have also established multi-year vesting schedules for restricted stock and LTIP awards that are designed to help us retain valuable executives notwithstanding the competition for talent.
Ensure company goals are fully aligned throughout the organization. Each year, we establish goals in three broad categories that we refer to as the “3Ps” (People, Product and Profit) to achieve the Company’s business plan for the year. These goals reflect the performance objectives that we have established for the relevant year for all employees, including the named executive officers. In the fourth quarter of 2013, our CEO and top Company leaders developed the Company’s business plan for 2014, which was adopted by the board of directors. The 3Ps for 2014, which were reviewed by the Compensation Committee and adopted by our board of directors, were derived from the 2014 business plan. Following their approval, the 3P goals were communicated to all employees in the first quarter of 2014. The named executive officers are accountable for leading the Company to achieve the 3P goals each year and are rewarded based on achieving specified 3P goals that are the core priorities for our business.
Compensation Program Design
To achieve the objectives described above, we offer a straightforward executive compensation program that rewards our executives for both annual and long-term performance. For 2014, four
27
primary components of compensation were available to our executives: base salary, an annual cash bonus opportunity, annual restricted stock awards and performance share awards under the LTIP. Of these components, only base salary represents fixed compensation. Each of the other components is variable based on the performance of both the Company and the individual executive, measured against specific pre-established goals and targets. In addition, transaction bonuses were awarded to the Senior Leadership Team in February 2015 in connection with the AT&T transaction, as more fully described below under “February 2015 Named Executive Officer Compensation Actions.”
The Compensation Committee considers many factors in determining the amount of total compensation and the individual components of that compensation for each named executive officer, including the executive’s experience level, value to the organization, scope of responsibility and company and individual performance. Since the market for talented executives is highly competitive, the Compensation Committee also considers the compensation that is paid to executives in comparable companies with whom we compete for talent, which we refer to as our “peer group.” The Compensation Committee also considers general industry survey data for comparably-sized companies. For more information about our peer group and the survey data, see “Market and Peer Group Reviews” below. This information provides valuable comparative insights and is among many factors considered by the Compensation Committee in setting executive compensation. In general, it is our aim to offer total compensation (excluding the special one-time transaction bonuses) to our executives that would place them, on average, in the median range relative to market practice. Under this approach, newly promoted executives and those new to their role may be below the median to reflect their limited experience and evolving skill set. Executives with significant experience and, therefore, above-market skills, or those executives who have sustained high performance and are most critical to the Company’s long-term success, may be above the median. We believe that this strategy enables us to successfully hire, motivate and retain talented executives while simultaneously ensuring a reasonable overall compensation cost structure relative to our peers.
In making its compensation decisions, the Compensation Committee reviews tally sheets setting forth all components of compensation paid to the named executive officers for the past five years, along with targeted compensation for those years, including base salary, bonus, grant date values of restricted stock awards and LTIP awards and the value of dividends paid on unvested restricted shares. These tally sheets also show the executives’ holdings of unvested restricted stock and performance shares from prior years’ awards and the current value of those shares. The Compensation Committee uses these tally sheets to (i) review the total annual compensation of the named executive officers over the past five years, (ii) assess the executive officers’ compensation against their individual and company performance over that period and (iii) assure that the Committee has a comprehensive view of our compensation programs.
Impact of 20142016 Say-on-Pay Vote
The Compensation Committee considers the results of the annual stockholder vote on our executive compensation program, in addition to other input from our stockholders, when evaluating and determining compensation policies and the compensation for theour CEO and the other named executive officers.NEOs. The 20142016 stockholder vote affirmed the Compensation Committee’s decisions for 2013,2015, with a 92.8%93.7% stockholder approval of our executive compensation program. In light of this strong stockholder support, up seven percentage points from the prior year, the Compensation Committee concluded that no significant revisions were necessary to the Company’sour executive compensation program in 2016, although the Compensation Committee did implement refinements to the program. Consistent with best practice,program, discussed below.
2016 Compensation Changes
We evaluate our compensation program and practices on an ongoing basis and implemented the Compensation Committee determinedfollowing changes in 2016:
| • | Re-aligned performance measures. We revised the company performance measures used to determine the bonus pool under the Frontier Bonus Plan in order to align executive interests with Frontier’s business objectives following the California, Texas and Florida Acquisition. |
| • | Reduced duplicative metrics across equity award types. We removed the overlap in financial metrics used to grant restricted stock awards and performance share awards, which incentivizes our executives to focus on Frontier’s overall financial performance. |
| Frontier Communications Corporation | 28 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Our Pay and Performance Alignment
A key tenet of our compensation philosophy is to increaselink the amountinterests of our executives and our stockholders. Approximately 84% of our CEO’s TDC for 2016 performance shareswas at risk, i.e., contingent upon performance against specified company and individual goals. For the other NEOs as a percentagegroup, on average, approximately 78% of total equitytheir TDC for 2015, thereby further aligning executive2016 performance was at risk. This directly links our executives’ pay to Frontier’s financial performance, execution of strategic initiatives and stockholder interests.TSR. See page 33 for a description of our compensation components.
Roles and Responsibilities
The
In order to enhance transparency regarding the compensation actually received by each of our NEOs, we have included a Realized Pay Table to supplement the information provided in the Summary Compensation CommitteeTable. See “2016 Realized Pay” below.
Executive Compensation Program Structure
Philosophy
Establish clear alignment between the interests of our executives and those of our stockholders by rewarding performance measured by key financial metrics, strategic objectives and relative TSR and through the use of equity awards, rather than cash, as a significant component of annual compensation. Reinforce our performance culture for our NEOs by making a majority of their compensation at risk, i.e., contingent upon achievement of specified company and individual performance goals. Hire and retain talented executives by having a compensation program that is competitive in relation to comparable companies based on size, overall complexity and the nature of our business. Ensure company goals are fully aligned throughout the organization. Each year, we establish company-wide goals to achieve Frontier’s business plan for the year. Our NEOs are compensated to the extent they are successful in leading Frontier to achieve these goals for each year. |
Compensation Program Design
To achieve the board of directors is responsible for approving and overseeingobjectives described above, our executive compensation philosophyprogram rewards our executives for both annual and long-term performance. For 2016, the primary components of executive compensation programs, as well as determiningwere: base salary and approvingrestricted stock awards and performance share awards under the compensation for our CEO and other senior executives. At the beginning of each year, the Compensation Committee reviews and approves the 3Ps that apply to the
28
senior executives, as well as individualperformance goals for the named executive officers, and approves the target levels for each2013 Equity Incentive Plan. Of these components, only base salary represents fixed compensation. Each of the compensationother components that apply tois variable based on the namedperformance of both Frontier and the individual executive officersforbecause they are measured against specific pre-established goals and targets. In addition, certain of our NEOs received a cash bonus in connection with the upcoming year. Each year, atclosing of the California, Texas and Florida Acquisition and the integration of the acquired assets. No annual cash bonuses were awarded.
At its February 2016 meeting, the Compensation Committee assessesset maximum individual payouts under our CEO’sumbrella bonus pool and the Operating Cash Flow performance goal for the year, the achievement of which would permit the funding of
| Frontier Communications Corporation | 29 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
the maximum payouts. It was also agreed at that time that the Operating Cash Flow goal would be increased pursuant to a pre-established formula if the California, Texas and Florida Acquisition closed at the beginning of the second quarter of 2016. The Company Performance Goals and financial targets used to determine bonuses under the Frontier Bonus Plan, and restricted stock awards and performance share awards under the 2013 Equity Incentive Plan, all of which are awarded under our umbrella bonus pool, were set at our second quarter Compensation Committee meeting based on management’s estimate of consolidated financial performance for the full year, just endedtaking into account the anticipated impact of the California, Texas and Florida Acquisition.
In order to determine the appropriate awardamount and mix of compensation components for each componentNEO, the Compensation Committee considers many factors, including experience, value provided to Frontier, scope of her total compensation. responsibility, company and individual performance, benchmark data based on our peer group and general industry survey data for comparably sized companies.
| Component | Purpose | Performance Measures | ||
Base Salary (Fixed) | • Attract and retain executives | • Job scope and experience • Market pay (we target the median of market using peer group and survey data) See page 33. | ||
Annual Cash Bonus (At Risk) | • Attract and retain executives • Incents and rewards executives for achievement of pre-established, measurable annual performance goals | • Company Performance Goals: • Financial targets (revenue, Adjusted EBITDA, Adjusted Free Cash Flow Per Share) • Customer experience improvements • Product improvements • Workforce preparation and development targets • Individual Performance Goals See page 34. | ||
Restricted Stock Awards (At Risk) | • Attract and retain executives • Incents and rewards executives for achievement of pre-established, measurable annual performance goals • Aligns value with stock price because vest ratably over three years | • Company Performance Goals • Individual Performance Goals See page 36. | ||
Performance Share Awards (At Risk) | • Attract and retain executives • Aligns executive pay with financial performance and TSR over three-year Measurement Periods | • Operating Cash Flow targets set annually • Three-year TSR “modifier” (Frontier TSR as compared to industry peers) • �� Individual must maintain satisfactory performance rating throughout period See page 37. |
| Frontier Communications Corporation | 30 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Market and Peer Group Reviews
The Compensation Committee, then reviews its recommendations for our CEO with the other non-management directors and considers any additional input from them before finalizing its decision.
Our CEO annually reviews the performance of the other senior executives for the year just ended, including the named executive officers, and presents to the Compensation Committee her performance assessments and compensation recommendations, including the award for each component of the executive’s total compensation. Mrs. Wilderotter’s review consists of an assessment of the executive’s performance against company-level and individual goals and targets. The Compensation Committee then follows a review process with respect to these executives similar to that undertaken for Mrs. Wilderotter. After review and any adjustments, as appropriate, the Compensation Committee approves the compensation decisions for these executives.
The Compensation Committee has the sole authority to retain, compensate, direct, oversee and terminate outside counsel, compensation consultants and other advisors to assist it in carrying out its responsibilities and who are accountable to the Committee. The Compensation Committee retains an independent executive compensation consultant, establishes Frontier’s peer group for use in benchmarking and market comparison purposes. The peer group set forth below was used to assist in the developmentset compensation for 2016. When comparing financial metrics of compensation programs, evaluation of compensation practices and the determination of compensation awards. The role of the compensation consultant is to provide objective third-party data, advice and expertise in executive compensation matters. The decisions made by the Compensation Committee are the responsibility of the Compensation Committee and reflect factors and considerations in addition to the information and recommendations provided by the compensation consultant and outside counsel.
In December 2014, the Compensation Committee re-engaged Frederic W. Cook & Co., Inc. (“Cook”) as its independent executive compensation consultant for 2015. Cook has been engaged by the Compensation Committee as its independent executive compensation consultant since 2010. In 2014, Cook provided to the Compensation Committee advice and insights on compensation matters, including with respect to the peer group, benchmarking of compensation levels, director compensation, compensation-related succession mattersFrontier was at the 25th percentile for market capitalization, 45thpercentile for enterprise value, 39th percentile for revenue, 59th percentile for employee count, 55th percentile for total assets and Mrs. Wilderotter’s employment agreement, and reviewed this Compensation Discussion and Analysis. Cook provides no other services to the Company. Pursuant to SEC rules, the Compensation Committee is required to consider any conflicts of interest raised by the work of the Compensation Committee’s compensation consultants. After considering the relevant factors,62nd percentile for EBITDA.
| 2016 Peer Group | ||
• American Tower Corporation • Anixter International Inc. • Cablevision Systems Corporation • CenturyLink, Inc. • Charter Communications, Inc. • Cincinnati Bell Inc. • Crown Castle International Corp. • DIRECTV • DISH Network Corporation | • Gannett Co., Inc. • Harris Corporation • Juniper Networks, Inc. • Level 3 Communications, Inc. • Sirius XM Holdings Inc. • Telephone & Data Systems Inc. • TELUS Corporation • Time Warner Cable Inc. • United States Cellular Corporation • Windstream Holdings, Inc. | |
In November 2015 the Compensation Committee determined that it was appropriate to revise Frontier’s peer group to reflect our size and scale following the close of the California, Texas and Florida Acquisition. The new peer group set forth below was used to set compensation for 2017. When comparing financial metrics of the post-acquisition peer group, on a pro forma basis, Frontier was at the 24th percentile for market capitalization, 36thpercentile for enterprise value, 65th percentile for revenue, 55th percentile for employee count, 65th percentile for total assets and 80th percentile for EBITDA.
| 2017 Peer Group | ||
Companies listed in bold were added to the peer group. The following companies were removed from the peer group due to smaller size or M&A activity: American Tower Corporation, Cincinnati Bell Inc., Crown Castle International Corp., DIRECTV, Gannett Co., Inc., Sirius XM Holdings Inc., Telephone & Data Systems Inc., United States Cellular Corporation. | ||
• Anixter International Inc. •ADP, LLC • Cablevision Systems Corporation • CenturyLink, Inc. • Charter Communications, Inc. • DISH Network Corporation •First Data Corporation • Harris Corporation • Juniper Networks, Inc. • Level 3 Communications, Inc. | •Priceline Group Inc. •Rogers Communications Inc. •R. R. Donnelley & Sons Company •Sprint Corporation • TELUS Corporation •Thomson Reuters Corporation • Time Warner Cable Inc. •T-Mobile US, Inc. • Windstream Holdings, Inc. • Xerox Corporation | |
| Frontier Communications Corporation | 31 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
General industry survey data, as described below, was also considered in determining the compensation levels of the NEOs and other executives. In the case of executives for whom there was no conflictspublicly available data or no comparable position at the peer group companies, the results from proprietary general industry executive compensation surveys were analyzed to assess competitiveness.
As an initial step in the consideration of interestsurvey data, the survey is size-adjusted based on our annual revenue. The 2015 survey data used to determine 2016 compensation was size-adjusted to approximately $6.0 billion, which reflected Frontier’s estimated size following our acquisition of the wireline properties of AT&T in Connecticut (the AT&T Acquisition). Similarly, in 2016, the survey data used to determine 2017 compensation was size-adjusted to $10.4 billion to approximate Frontier’s 2016 revenue, adjusted as if the California, Texas and Florida Acquisition had closed on January 1, 2016. The analyses included examining how each executive’s compensation compared to the results in the surveys for base salary, target bonus, target total annual compensation (consisting of base salary and target bonus), target long term incentives and target TDC (consisting of base salary, target annual bonus opportunity and target long-term incentives). Some of our NEOs have responsibilities that extend beyond the traditional scope indicated by their titles. As a result, directly comparable roles in the survey data were raised by the work of Cook. The Company andnot always available. In these cases, the Compensation Committee have instituted policies to avoid conflicts of interest raised bytook into account data from these third-party surveys and the workimportance of the Compensation Committee’srole to Frontier when determining the commensurate total compensation consultant.
Thelevels for the NEO. In considering the survey data, the Compensation Committee reviews on a periodic basis the Company’s management compensation programs, including any management incentive compensation plans, to determine whether they are appropriate, properly coordinated and achieve their intended purpose(s), and recommends to the board any modifications or new plans or programs.
Compensation Mix
Consistent with our philosophy of having a majoritydid not review nor is it aware of the named executive officers’ compensation at risk and contingent upon specified company and individual performance goals,specific companies that are included in the following charts show the proportion of each of the principal compensation components to total compensation for the CEO and for the other named executive officers as a group for 2014. For Mrs. Wilderotter, 91% of her 2014 total compensation was at risk, and 85% was at risk for the other named executive officers as a group. The percentage of total compensation at risk is greater for the CEO than for the other named executive officers because the CEO has ultimate responsibility for the Company’s performance.surveys.
29
Therefore, to ensure alignment with stockholders’ interests, a larger portion of the CEO’s total compensation is variable, or at risk.
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CEO 2014 | Other NEOs* as a Group | |||||
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Fixed | At Risk | Fixed | At Risk | |||
9% | 91% | 15% | 85% | |||
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| * The named executive officers other than the CEO | |||
20142016 Realized Pay
The table below supplements the Summary Compensation Table that appears later in this proxy statement.Proxy Statement. The Realized Pay Table shows the compensation actually received by each current named executive officerNEO in 2014, 20132016, 2015 and 2012.2014. Realized pay for a named executive officeran NEO for any given year may be greater or less than the compensation reported in the Summary Compensation Table for that year depending on fluctuations in stock prices on the grant and vesting dates, differences in equity grant values from year to year and SEC reporting requirements, as described below.
The primary difference between the Realized Pay Table and the Summary Compensation Table is the method used to value restricted stock awards and performance shares under the LTIP.share awards. SEC rules require that the grant date fair value of all restricted stock awards and performance share awards under the LTIP be reported in the Summary Compensation Table for the year in which they were granted. As a result, a significant portion of the total compensation amounts reported in the Summary Compensation Table relates to restricted stock awards and performance shares that have not vested or been earned, for which the value is therefore uncertain and which may end up having no value at all. In contrast, the table belowRealized Pay Table includes only restricted stock and performance shares that vested or were earned during the applicable year and shows the value of those awards as of the applicable vesting date.
There is no assurance that the named executive officersNEOs will actually realize the value attributed to these awards even in this Realized Pay Table, since the ultimate value of the restricted stock and performance shares will depend on the price of Frontier’s common stock when the vested and earned shares are sold by the officers and the price of the Company’s common stock at that time.executives. Our executives are subject to periodic stock sale restrictions and our stock ownership guidelines, which also limit their ability to sell CompanyFrontier stock received as compensation. Realized pay increased for 2014 over 2013 primarily as a result of the increase in our stock price and the first payout under the LTIP (for the 2012-2014 Measurement Period).
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| Frontier Communications Corporation | 32 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
20142016 Realized Pay Table
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Name | Year | Salary | Annual | Restricted | Performance | All Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Mary Agnes Wilderotter |
|
| 2014 |
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| $ |
| 1,110,417 |
|
| $ |
| 1,672,646 |
|
| $ |
| 3,362,685 |
|
| $ |
| 1,729,618 |
|
| $ |
| 1,813 |
|
| $ |
| 7,877,179 | ||||||||||||||||
|
|
| 2013 |
|
| $ |
| 1,020,833 |
|
| $ |
| 1,537,116 |
|
| $ |
| 2,543,679 |
|
| — |
|
| $ |
| 44,972 |
|
| $ |
| 5,146,600 | ||||||||||||||||||
|
| 2012 |
|
| $ |
| 1,000,000 |
|
| $ |
| 1,241,460 |
|
| $ |
| 2,203,770 |
|
| — |
|
| $ |
| 2,685 |
|
| $ |
| 4,447,915 | |||||||||||||||||||
Daniel J. McCarthy |
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| 2014 |
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| $ |
| 658,333 |
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| $ |
| 667,575 |
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| $ |
| 989,196 |
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| $ |
| 648,624 |
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| $ |
| 9,055 |
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| $ |
| 2,972,783 | ||||||||||||||||
|
| 2013 |
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| $ |
| 566,667 |
|
| $ |
| 574,856 |
|
| $ |
| 602,734 |
|
| — |
|
| $ |
| 8,955 |
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| $ |
| 1,753,212 | |||||||||||||||||||
|
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| 2012 |
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| $ |
| 503,125 |
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| $ |
| 482,790 |
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| $ |
| 376,479 |
|
| — |
|
| $ |
| 9,197 |
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| $ |
| 1,371,591 | ||||||||||||||||||
John M. Jureller (5) |
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| 2014 |
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| $ |
| 531,250 |
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| $ |
| 506,863 |
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| $ |
| 249,500 |
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| — |
|
| $ |
| 8,855 |
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| $ |
| 1,296,468 | ||||||||||||||||||
|
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| 2013 |
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| $ |
| 492,424 |
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| $ |
| 485,925 |
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| — |
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| — |
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| $ |
| 8,829 |
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| $ |
| 987,178 | ||||||||||||||||||||
Lois Hedg-peth (6) |
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| 2014 |
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| $ |
| 520,000 |
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| $ |
| 480,700 |
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| $ |
| 572,041 |
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| $ |
| 391,956 |
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| $ |
| 9,240 |
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| $ |
| 1,973,937 | ||||||||||||||||
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| 2013 |
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| $ |
| 506,250 |
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| $ |
| 480,235 |
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| $ |
| 100,500 |
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| — |
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| $ |
| 9,251 |
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| $ |
| 1,096,236 | ||||||||||||||||||
Cecilia K. McKenney |
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| 2014 |
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| $ |
| 370,833 |
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| $ |
| 370,875 |
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| $ |
| 549,621 |
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| $ |
| 324,322 |
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| $ |
| 8,855 |
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| $ |
| 1,624,506 | ||||||||||||||||
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| 2013 |
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| $ |
| 345,834 |
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| $ |
| 349,913 |
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| $ |
| 394,986 |
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| — |
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| $ |
| 8,855 |
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| $ |
| 1,099,588 | ||||||||||||||||||
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| 2012 |
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| $ |
| 325,000 |
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| $ |
| 298,870 |
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| $ |
| 304,128 |
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| — |
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| $ |
| 8,819 |
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| $ |
| 936,817 | |||||||||||||||||||
| Name | Year | Salary(1) | Transaction Bonus(2) | Actual Cash Incentive Bonus(3) | Restricted Stock Awards Vested(4) | Performance Earned(5) | All Other Compensation(6) | Total | ||||||||||||||||||||||||||||||||
Daniel J. McCarthy | 2016 | $ | 981,251 | — | — | $ | 1,934,451 | $ | 386,314 | $ | 10,800 | $ | 3,312,816 | |||||||||||||||||||||||||||
| 2015 | $ | 862,500 | — | $ | 1,165,500 | $ | 2,524,118 | $ | 557,668 | $ | 9,105 | $ | 5,118,891 | |||||||||||||||||||||||||||
| 2014 | $ | 658,333 | $ | 250,000 | $ | 667,575 | $ | 989,196 | $ | 648,624 | $ | 9,055 | $ | 3,222,783 | ||||||||||||||||||||||||||
R. Perley McBride(7) | 2016 | $ | 199,432 | — | — | — | — | $ | 109,489 | $ | 308,921 | |||||||||||||||||||||||||||||
Steve Gable(8) | 2016 | $ | 458,750 | $ | 1,000,000 | — | $ | 78,324 | $ | 18,029 | $ | 9,884 | $ | 1,564,987 | ||||||||||||||||||||||||||
Cecilia K. McKenney | 2016 | $ | 483,906 | $ | 459,600 | — | $ | 933,898 | $ | 160,966 | $ | 9,805 | $ | 2,048,175 | ||||||||||||||||||||||||||
| 2015 | $ | 445,833 | — | $ | 457,800 | $ | 1,336,964 | $ | 278,836 | $ | 9,105 | $ | 2,528,538 | |||||||||||||||||||||||||||
| 2014 | $ | 370,833 | $ | 175,000 | $ | 370,875 | $ | 549,621 | $ | 324,322 | $ | 8,855 | $ | 1,799,506 | ||||||||||||||||||||||||||
John J. Lass(9) | 2016 | $ | 436,156 | $ | 415,200 | — | $ | 318,947 | $ | 48,419 | $ | 9,836 | $ | 1,228,558 | ||||||||||||||||||||||||||
Kathleen Q. Abernathy(10) | 2016 | $ | 415,000 | $ | 840,000 | — | $ | 719,518 | $ | 96,580 | $ | 10,202 | $ | 2,081,300 | ||||||||||||||||||||||||||
| 2015 | $ | 397,247 | — | $ | 403,200 | $ | 1,094,837 | $ | 209,127 | $ | 9,000 | $ | 2,113,411 | |||||||||||||||||||||||||||
John M. Jureller | 2016 | $ | 493,864 | — | — | $ | 1,018,373 | — | $ | 286,904 | $ | 1,799,141 | ||||||||||||||||||||||||||||
| 2015 | $ | 568,750 | — | $ | 548,550 | $ | 1,102,623 | $ | 487,959 | $ | 9,105 | $ | 2,716,987 | |||||||||||||||||||||||||||
| 2014 | $ | 531,250 | $ | 200,000 | $ | 506,863 | $ | 249,500 | — | $ | 8,855 | $ | 1,496,468 | |||||||||||||||||||||||||||
| (1) | Amounts shown in this column equal the amounts reported in the “Salary” column of the Summary Compensation Table. |
| (2) | Amounts shown in this column equal the amounts reported in the “Bonus” column of the Summary Compensation Table and reflect bonuses granted in connection with the closing of the AT&T Acquisition in October 2014 and the closing of the California, Texas and Florida Acquisition in April 2016. |
| (3) |
| Amounts shown in this column equal the amounts reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. |
| (4) |
| Amounts shown in this column represent the aggregate value of all restricted stock that vested during the applicable year. The value of restricted stock realized upon vesting is based on the closing price of |
| (5) |
| Amounts in this column represent the value of performance shares that were earned for the |
| (6) |
| Amounts shown in this column equal the amounts reported in the “All Other Compensation” column of the Summary Compensation Table. |
| (7) |
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| Information for | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (8) | Information for Mr. Gable is not provided for 2014 or 2015 because he was not an NEO for those years. |
| (9) | Information for Mr. Lass is not provided for 2014 or 2015 because he was not an NEO for those years. |
| (10) | Information for Ms. Abernathy is not provided for 2014 because she was not |
Components of the Executive2016 Total Direct Compensation Programfor NEOs
The following describes the components that comprise our executive compensation program and post-employment compensation, the rationale for each component and how awards were determined for 2014.Cash Compensation
Cash Compensation
Base Salary. Base salary levelssalaries for our executives, on average,including our NEOs, are set at approximatelyby the median for comparable executives within our peer group. We believe a salary scaleCompensation Committee after consideration of various factors, including individual performance, executive experience and skill set, at this level, when considered together with the other components of compensation, is sufficientability to attract and retain talented executives. We conduct an annual merit review of our executives generally held in February of each year, where each executive’s performance for the year just ended is reviewed against his or her individual and company goals. The overall budget for merit increases is set by managementusing an average of the merit increase percentages in national compensation surveysin each year andmarket data.
31
consideration of the Company’s performance. Executives are eligible for increases to their base salary based on individual performance.
An executive may also receive an increaseif there is a change in base salary when promoted, if the executive is given increased responsibility or if the executive’sindividual’s base salary is determined to be belownot in line with desired market position. We generally target the median of our peer group.peers when setting base salary, but any increases or decreases are ultimately at the discretion of the Compensation Committee.
| Frontier Communications Corporation | 33 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Effective April 1, 2016, in order to bring certain base salaries in line with the desired market position, and in view of Frontier having nearly doubled in size with the closing of the California, Florida and Texas Acquisition, the Compensation Committee approved the following increases:
| NEO | 2016 Base Salary | Change from 2015 Base Salary | |||||
Daniel J. McCarthy | $ | 1,000,000 | 8.1% | ||||
Steve Gable | $ | 470,000 | 10.6% | ||||
Cecilia K. McKenney | $ | 487,000 | 2.5% | ||||
John J. Lass | $ | 440,000 | 3.5% | ||||
Kathleen Q. Abernathy | $ | 420,000 | 5.0% | ||||
Bonus. The Compensation Committee determines all changes to the base salary of Mrs. Wilderotter. Changes to the base salary for our other named executive officers are determined by the Compensation Committee, taking into account the recommendations of Mrs. Wilderotter. Base salary is targeted to represent between 15 and 20 percent of total compensation for 2014 for the CEO and between 20 and 30 percent of each other named executive officer (for this purpose, total compensation consists of base salary, the annual cash bonus target and the target value of restricted stock awards and performance share awards). This is consistent with our philosophy of having a majority of the named executive officer’s compensation at risk and contingent upon specified company and individual performance goals.
Annual Bonus. The named executive officers participate inuses the Frontier Bonus Plan which our stockholders approved at our 2013 Annual Meetingto provide cash incentives to executives, including the NEOs, based on the achievement of Stockholders. This is the same bonus plan in which all eligible non-union employees participate. This component of executive compensation is designed to incentcertain company metrics (Company Performance Goals) and reward our executives for achieving pre-established and measurable annualindividual performance goals. Target bonuses are established atThe bonus pool is funded based solely on achievement of Company Performance Goals, and the beginningfunded pool is allocated based on achievement of each yearCompany Performance Goals and are setindividual performance goals. For 2016, the results of the Company Performance Goals were to represent 60% of the funded bonus, and the results of the individual performance evaluations were to represent 40% of the funded bonus. An NEO’s “target bonus opportunity” is expressed as a percentage of his or her annual base salary and represents the named executive officer’samount the NEO would receive if performance metrics are achieved at target. For 2016, each NEO, other than Mr. McCarthy, had a target bonus opportunity equal to 100% of his or her base salary; Mr. McCarthy’s target bonus opportunity was 130% of his base salary. ThePotential bonus payouts could be from 0% for below-threshold performance, up to a maximum of 156% for outstanding performance, of each NEO’s target bonus for each named executive officer, other than Mrs. Wilderotter, is 100%opportunity. Achievement of threshold performance would result in a payout of 70% of the officer’s base salary. Under the terms of her employment agreement, Mrs. Wilderotter’s target bonus opportunity, subject to the discretion of the Compensation Committee to award no bonuses even if threshold performance is 150% of her base salary. The terms of Mrs. Wilderotter’s employment agreement are described below under “Executive Compensation—Employment Arrangements; Potential Payments upon Termination or Change-in-Control.” The annual cash bonus is targeted to represent between 15 and 20 percent of total compensation for 2014 for the CEO and between 20 and 30 percent for each other named executive officer.achieved.
TheIndividual performance goals for 2016 were tailored to each NEO’s role and responsibilities. For 2016, the Frontier Bonus Plan are based on our 3P goals (which, as previously stated, are our company-wide People, Product and Profit goals) and also include individual goals for each executive, which are consistent with our overall 3P goals. The performance goals are “stretch” goals that are designedCompensation Committee determined to incent our executives to drive high performance and achieve the Company’s strategic,operational and financial objectives. As a result, we believe the goals will be difficult to achieve but are attainable with significant effort and skilled execution of the business plan. In the last three years,revise the Company has performed at varying levels of the established 3P goals, but in each year the bonus pool has been less than 100% of the target.
Bonuses may be paid upon partial or full achievement of company and individual goals. For 2014, the goals and corresponding weightingsPerformance Goals from those used in determining bonus payouts forprior years in order to align executive interests with Frontier’s business objectives following the named executive officersCalifornia, Texas and Florida Acquisition. The Company Performance Goals were weighted in relation to their importance to Frontier’s overall success (the Weighted Company Performance Goals).
| 2016 Weighted Company Performance Goals | Weighting to Set Bonus Pool | ||||
(1) Financial Targets — Revenue, Adjusted EBITDA, Adjusted Free Cash Flow Per Share (equally weighted) | 60 | % | |||
(2) Customer Experience Improvements | 10 | % | |||
(3) Product Improvements — Product Quality Score Improvements — Video Market Penetration — Expand Broadband Availability — Speed Enhancements | 15 | % | |||
(4) Prepare and Develop Future Workforce — Increased Training and Certification — Improve Customer Operations Metrics — Promote and Develop Diverse Workforce | 15 | % | |||
| 100 | % | ||||
Specified financial targets are shownincluded in the following table and narrative. The weightings used reflect the relative importance of the goals to the overall success of the Company. We refer to the first three goals shown
32
in the table below, namely achievement of financialWeighted Company Performance Goals because Frontier uses these targets achievement of broadband market share and achievement of key 3P deliverables, as the “weighted 3Ps.”
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2014 Bonus Goals | Weighting to Set | Payout | ||||||||||||
(1) Achievement of financial targets |
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| 50 | % |
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| 37 | % |
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— Revenue, EBITDA, Operating Cash Flow, Capital Expenditures (equally weighted) |
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(2) Deliver broadband market share |
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| 25 | % |
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| 19 | % |
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(3) Achievement of key 3P deliverables |
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| 25 | % |
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| 19 | % |
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— Customer process improvements (20%) |
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— Performance reviews (10%) |
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— Revenue assurance/Product migration rationalization (20%) |
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— Net residential and commercial customers (25%) |
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— Connecticut acquisition close and integration (25%) |
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(4) Leadership and individual performance |
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| — |
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| 25 | % |
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| 100 | % |
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| 100 | % |
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We use the above financial goals to measure executive performance because management uses them to assess the overall financial health of the Company, assist in analyzing the Company’s underlying financial performance, to evaluate the financialand performance of our business units,Frontier, to analyze and evaluate strategic and operational decisions and to assist management in understanding the Company’s ability to generateunderstand cash flow. flow generation.
| Frontier Communications Corporation | 34 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
We include Customer Experience Improvements in the achievement of a capital expenditure goalWeighted Company Performance Goals because capital expense management is critical to our network performance and our ability to compete for broadband market share andcustomer experience drives revenue. We also to achieving our cash flow goals to sustain our dividend. We include the achievement of broadband market share becausevarious measures of the importancequality and availability of this objective to the Company. We use the achievement of the key 3P deliverablesour products in order to more closely alignincent management to improve them. Specifically, in 2016 we targeted the executive’s performance withexpansion of our video product into new markets, the Company’s objectives.capability to deliver broadband to additional households and the delivery of faster speed to existing customers. The key 3P deliverables consist of targets for customer process improvements, revenue assurance/product migration rationalization, and achieving specific numbers of residential and commercial customers, as well as the execution of the performance management review process. For 2014, we included the closing and integration of the Connecticut acquisition because of the magnitude and importance of the acquisitionability to the Company. All ofexecute on these goals were identified bywill be important in driving revenue. Because Frontier is committed to attracting, developing and retaining a strong workforce, we also included metrics designed to promote enhanced training and improved customer operations and support diversity initiatives.
At its February 2017 meeting, the Compensation Committee as critical to the successreviewed Frontier’s performance against each of the Company. In addition, 25% of the executive’s bonusfinancial targets for 2016, which was as follows:
| ($ in millions, except per share amounts) | |||||||||||||||||||||||||
| Financial Target | Threshold (approx. 90% of Target) | Target | Outstanding (approx. | Result | Percentage of Target | ||||||||||||||||||||
Revenue | $ | 8,585 | $ | 9,539 | $ | 10,493 | $ | 8,896 | 93.3 | % | |||||||||||||||
Adjusted EBITDA | $ | 3,269 | $ | 3,632 | $ | 3,995 | $ | 3,525 | 97.1 | % | |||||||||||||||
Adjusted Free Cash Flow Per Share | $ | 0.69 | $ | 0.77 | $ | 0.85 | $ | 0.79 | 102.6 | % | |||||||||||||||
Payout for performance between levels is based on the assessment of the executive’s leadership and performance against individual goals that are tailored to the specific executive based on the executive’s role and responsibilities and are directly linked to the overall company 3P goals.determined using linear interpolation.
The bonus pool for 2014 was determined based on the Company’s performance on the weighted 3Ps. The bonus pool (and the maximum individual allocations established under the plan) represents the maximum amount of bonus awards that the Compensation Committee may approve under the Frontier Bonus Plan as “qualified performance-based compensation” for tax purposes pursuant to Section 162(m), but is not a guarantee of payment to any individual.
The bonus payout can be from 0%, for below-threshold performance, to up to 130%, for outstanding performance, of each executive’s target bonus opportunity. The Compensation Committee set a minimumalso reviewed 2016 performance threshold corresponding to 90%, on average,against each of the revenue, EBITDA, operating cash flowmetrics set for the year and capital expenditure goals,determined the following:
Frontier’s customer experience improvements, which were designed to increase value for our customers, were accomplished at 38.7% of target.
Product improvement initiatives, which included the introduction of video services under our Vantage brand into five new markets, the increase in broadband availability and the deployment of speed enhancements, were accomplished at 100% of target.
We developed a maximumstronger workforce through the enhanced training of technicians, internet help desk representatives and other customer-facing personnel and supported our diversity initiatives. Performance against our workforce targets was 100% of target.
After assessing performance thresholdunder each of 110%, on average, of such goals. We employthe Weighted Company Performance Goals, we apply a 3 to 3:1 leverage factorpower ratio for results between the threshold 90%(90%) and the maximum 110%(110%), meaning that for each 1%one percent that performance is above or below the target (100%), the bonus payout increases or decreases by three percentage points.
Performance against the 2016 Weighted Company Performance Goals is summarized in the following table:
| 2016 Weighted Company Performance Goals | 2016 Performance | ||||
(1) Financial Targets(60%) | 97.7 | % | |||
(2) Customer Experience Improvements(10%) | 38.7 | % | |||
(3) Product Improvements(15%) | 100 | % | |||
(4) Prepare and Develop Future Workforce(15%) | 100 | % | |||
Total Weighted Company Performance | 92.5 | % | |||
Total Weighted Company Performance Percentage with 3:1 Power Ratio | 77 | % | |||
After applying the 3:1 power ratio, the performance percentage is calculated. The remainderfunded bonus pool is determined accordingly. The performance percentage is applied to each participant’s target bonus award, and each participant’s actual bonus is equal to 60% of the performance-adjusted target bonus opportunity (25%) is based on the assessmentplus an individual performance factor times 40% of the executive’s leadershipperformance-adjusted target bonus. Individuals can earn 0% to 150% of the individual performance factor, depending on performance. To determine this factor, the Compensation Committee evaluates each NEO’s performance against the
| Frontier Communications Corporation | 35 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
individual’s 2016 performance goals, which are tailored to each NEO’s role and responsibilities and objectives for the year. For each NEO (other than Mr. McCarthy), the Compensation Committee considers Mr. McCarthy’s analysis and recommendations in evaluating each NEO’s performance and determining his or her bonus. For Mr. McCarthy, the Compensation Committee independently evaluates his performance.
Despite many successes, the Compensation Committee recognized that Frontier also faced challenges that negatively impacted revenue and profitability in 2016. As a result, stockholder value declined significantly. Consistent with our approach to align executive pay with stockholder interests, due to Frontier’s performance in 2016, the Compensation Committee elected to exercise negative discretion and (i) not pay annual cash bonuses to our employees, including our NEOs, for the year, and (ii) reduce the performance percentage for restricted stock and performance againstshare grants to 74% of target.
At its February 2017 meeting, the executive’s individual goals, subjectCompensation Committee also set the 2017 Company Performance Goals for our Senior Leadership Team, including our NEOs, which are intended to the same payout factor used for the weighted 3P payout.focus senior leadership on driving financial goals.
| 2017 Company Performance Goals | Weighting to Bonus Pool | ||||
(1) Revenue | 12.5 | % | |||
(2) Adj. EBITDA | 50 | % | |||
(3) Operating Cash Flow | 25 | % | |||
(4) Net Experience Score (a measure of customer experience) | 12.5 | % | |||
Equity Compensation
The Compensation Committee may use discretionprovides long-term incentives to decrease, but not increase, the actual bonus payout for Mrs. Wilderotter (subject to the same 0-130% range), which is known as “negative
33
discretion.” Bonus payouts for the other named executive officers are determined by the Compensation Committee, taking into account the recommendations of Mrs. Wilderotter, and any negative discretion.
In determining bonus payouts for the named executive officers for 2014, the Company’s performance against the financial targets was as follows (dollars in millions) (Connecticut results not included in targets or actual):
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2014 Financial Targets | Threshold | Target | Maximum | Actual | Performance | ||||||||||||||||||||||||||||||
Revenue |
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| $ |
| 4,535 |
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| $ |
| 4,774 |
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| $ |
| 5,012 |
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| $ |
| 4,557 |
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| 95.4 | % |
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EBITDA (1) |
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| $ |
| 1,954 |
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| $ |
| 2,219 |
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| $ |
| 2,516 |
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| $ |
| 1,988 |
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| 89.6 | % |
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Operating cash flow (2) |
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| $ |
| 1,324 |
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| $ |
| 1,619 |
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| $ |
| 1,931 |
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| $ |
| 1,441 |
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| 89.0 | % |
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Capital expenditures |
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| $ |
| 630 |
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| $ |
| 600 |
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| $ |
| 585 |
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| $ |
| 548 |
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| 108.7 | % |
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For the broadband market share objective and key 3P deliverables, the Company’s performance against the quantifiable goals was measured as a percentage of achievement versus the targets for those goals. The Compensation Committee measured the performance against the goal to deliver broadband market share at 63.5% of target. This was based on 108,397 net total residential and business broadband adds achieved versus the target of 170,770 net total residential and business broadband adds.
The Compensation Committee assessed the performance of the key 3P deliverables based on the performance against each goal as shown in the table below. The goal for customer process improvements was assessed to be at 125% based on the Company’s performance against eight specific initiatives,our employees, including deployment of a new chat platform, improvements to the frontier.com portal to enhance customer self-service, launching of technologies to enhance broadband technical support, doubling the frequency of IT upgrades to core systems and improvements to data center performance, security and disaster recovery plans. The performance reviews as executed and tracked were assessed to be at 115% based on over 3,000 new hires, increased employee diversity, new military hires and the execution of on-time performance reviews. The revenue assurance/product migration rationalization goal was calculated to be at 280% (although capped at 200% pursuant to the terms of the Frontier Bonus Plan) based on the revenue performance against specific initiatives, each of which had revenue growth goals. These goals included implementing increased controls for billing credits, product pricing actions, new product revenues and migration of customers from old bundles to new ones. The total growth target was $37.1 million versus a performance of $104.0 million. The Compensation Committee measured the net residential and commercial customer goals based on the performance of the Company’s customer acquisitions versus deactivations. The Connecticut acquisition close and integration goal was assessed at 133% based on the successful financing at more favorable rates than expected, the lower negative carrying costs associated with the financing, the positive labor relations agreement with the local CWA in Connecticut, the timely achievement of necessary regulatory approvals and the on-time closing and systems cut-over.
34
The performance against the weighted 3P goals was as follows:
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Weighted 3P Goals | 2014 | ||||||
Financial Targets (50%) (equally weighted) |
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Revenue |
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| 95.4 | % |
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EBITDA |
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| 89.6 | % |
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Operating Cash Flow |
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| 89.0 | % |
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Capital Expenditures |
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| 108.7 | % |
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Performance |
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| 95.7 | % |
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Deliver Broadband Market Share (25%) |
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| 63.5 | % |
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Key 3P Deliverables (25%) |
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Customer process improvements (20%) |
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| 125.0 | % |
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Performance reviews (10%) |
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| 115.0 | % |
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Revenue assurance/Product migration rationalization (20%) |
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| 200.0 | %(1) |
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Net residential and commercial customers (25%) |
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| 96.9 | % |
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Connecticut acquisition close and integration (25%) |
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| 133.0 | % |
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Performance |
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| 134.0 | % |
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Total Weighted 3P Performance (100%) |
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| 97.2 | % |
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Total Weighted 3P Payout with Leverage |
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| 92.0 | % |
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Applying the leverage factor to the 97.2% total weighted 3P performance, the total weighted 3P payout was 92.0%.
After the determination of the amount an executive has earned pursuant to the weighted 3Ps, the executive’s individual performance is then assessed, which accounts for 25% of the executive’s total bonus opportunity. For each named executive officer (other than Mrs. Wilderotter), the Compensation Committee takes into account a performance evaluation provided by Mrs. Wilderotter against the executive’s individual goals, including a qualitative assessment of the executive’s contributions and effectiveness on an individual basis and as a leader in the organization. For Mrs. Wilderotter, the Compensation Committee performs a similar assessment. The amount of the bonus payout for each named executive officer was determined using the executive’s base salary as of December 31, 2014. The payouts for these individual goals, subject to the same payout factor used for the weighted 3P payout, and total bonus payouts (i.e., the sum of the total weighted 3P payout and individual goal payout), as a percentage of the executives’ targets were as follows:
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Name | Individual Goal | Total | ||||||||||||
Mary Agnes Wilderotter |
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| 29.9 | % |
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| 98.9 | % |
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Daniel J. McCarthy |
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| 29.9 | % |
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| 98.9 | % |
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John M. Jureller |
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| 25.3 | % |
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| 94.3 | % |
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Lois Hedg-peth |
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| 23.0 | % |
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| 92.0 | % |
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Cecilia K. McKenney |
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| 29.9 | % |
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| 98.9 | % |
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35
For 2015, the goals and corresponding weightings to be used in determining bonus payouts for the named executive officers are shown in the following table and narrative.
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2015 Bonus Goals | Weighting to Set | Payout | ||||||||||||
(1) Achievement of financial targets |
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| 36 | % |
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— Revenue, EBITDA, Operating Cash Flow, Capital Expenditures (equally weighted) |
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(2) Achieve broadband and market share targets |
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| 20 | % |
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| 12 | % |
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(3) Achievement of key 3P deliverables |
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| 20 | % |
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| 12 | % |
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— Process/Network improvements (20%) |
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— Verizon Transaction Financing/Approvals/Integration deliverables (25%) |
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— Product migration/Revenue assurance (20%) |
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— Performance reviews/Talent Management (10%) |
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— New residential/business customers (25%) |
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(4) Leadership and individual performance |
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| 40 | % |
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| 100 | % |
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| 100 | % |
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The bonus pool for 2015 for the Senior Leadership Team will be established based on the Company’s performance on the first three categories shown in the table above, namely achievement of financial targets, achievement of broadband market share and achievement of key 3P deliverables, using the weightings shown. Under the bonus plan for 2015, the bonus payout can be from 0%, for below threshold performance, to 156%, for outstanding performance, of each executive’s target bonus opportunity.
Equity Compensation
Equity compensation consists ofour NEOs, through a combination of restricted stock and performance share awards granted under our 2013 Equity Incentive Plan.
In 2016, the LTIP. The value of equity awards is targetedCompensation Committee revised the financial metrics used to represent between 60 and 70 percent of total compensation for 2014 for the CEO and between 45 and 60 percent for each other named executive officer, which is consistent with our philosophy of having a majority of the named executive officer’s compensation at risk and contingent upon specified company and individual performance goals. With the introduction of LTIP awards in 2012, we reduced restricted stock award targets to maintain the targeted compensation level and mix. From 2012 to 2014,make restricted stock awards, which eliminated the overlap with the metrics used to make performance share awards. This change further aligns stockholder and LTIP awards comprised approximately 75% and 25%, respectively,executive interests by incentivizing executive officers to focus on Frontier’s overall financial performance.
In February of total annual target equity compensation value, except in certain cases where an executive’s total compensation is beloweach year, the median or as otherwise approved by the Compensation Committee. Starting in 2015, the LTIP component will be increased to approximately 33% of total annual target equity compensation value.
The Compensation Committee sets a target dollar range forvalue of total equity awards for each named executive officer based onNEO for that year to fulfill the target percentile ranges discussedpurposes described above and the factors described under “Compensation Program Design.” In making this determination, the Compensation Committee considers peer group information and survey data (see page 31 for additional information), as well as the need to align each NEO’s interests with those of our stockholders.
For 2016, the Compensation Committee determined that one-third of long-term incentive awards should be in the form of performance shares and two-thirds in the form of restricted stock awards. The ranges, however, do not imply aCommittee believes that this mix is appropriate at this time because it aligns stockholder value and executive interests by linking compensation to long-term performance and stockholder returns. There is no minimum guaranteed level of equity awarded.awards. In February 2014,2016, the Compensation Committee set the following target dollar rangestargets for total2016 equity awards for 2014 performance for each named executive officer, of which approximately 75% will be in the form ofNEO, other than Mr. McBride, whose target was set when he joined Frontier:
| Name | 2016 Target Value of Restricted Stock Awards | 2016 Target Value of Performance Share Awards | 2016 Target Value of Awards | ||||||||||||
Daniel J. McCarthy | $ | 3,740,000 | $ | 1,760,000 | $ | 5,500,000 | |||||||||
R. Perley McBride | $ | 1,450,000 | $ | 760,000 | $ | 2,210,000 | |||||||||
Steve Gable | $ | 850,000 | $ | 400,000 | $ | 1,250,000 | |||||||||
Cecilia K. McKenney | $ | 1,105,000 | $ | 520,000 | $ | 1,625,000 | |||||||||
John J. Lass | $ | 850,000 | $ | 400,000 | $ | 1,250,000 | |||||||||
Kathleen Q. Abernathy | $ | 680,000 | $ | 320,000 | $ | 1,000,000 | |||||||||
Restricted Stock Awards. The Compensation Committee uses restricted stock awards and 25% will be in the form(RSAs) as a component of LTIP awards:
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Restricted Stock Awards. We use restricted stock awardscompensation because RSAs encourage our NEOs to achieve three primary objectives:
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Restricted stock awardsfocus attention on decisions that emphasize long-term returns for stockholders. RSAs are granted each year to the Senior Leadership Team, including the CEO and the other named executive officers, and Regional Presidents, Senior Vice Presidents, Vice Presidents and approximately 35% of Regional Vice Presidents, Assistant Vice Presidents, Directors and General Managers based on performance. In 2014, annual restricted stock awards were granted to 165 employees, or 0.9% of our total workforce.
The restricted stock plan has a minimum financial performance threshold in order for any restricted stock grants to be awarded. The Compensation Committee set a minimum average performance threshold of 90% for the four financial targets included in the weighted 3Ps, namely, revenue, EBITDA, operating cash flow and capital expenditures. This ensures that the Company only rewards executives for performance standards that warrant equity awards. The actual dollar value of restricted stock that is awarded is based on 75% of the midpoint of each executive’s range for total equity awards (the other 25% being for LTIP awards) and the Company’s performance against the weighted 3Ps, as adjusted for individual performance. The restricted stock awards can be from 0%, for below-threshold performance, to up to 130%, for outstanding performance, of each executive’s target award opportunity. For example, Mrs. Wilderotter’s target range for total equity awards for 2014 was $4,500,000 to $7,500,000. Accordingly, the target midpoint for annual restricted stock awards for Mrs. Wilderotter would be $4,500,000 (the midpoint of $6,000,000 x 75%). For 2013, the target midpoint for annual restricted stock awards for Mrs. Wilderotter was $3,750,000 and the actual restricted stock payout in February 2014, based on the Company payout factor of 93% and her individual performance factor of 125%, as described in detail in the 2014 proxy statement, was approximately $4.3 million. This amount is shown in the Grants of Plan-Based Awards Table elsewhere in this proxy statement. The dollar amount is then converted to a number of shares of restricted stock based on the market price of the Company’s common stock on the date of grant. Restricted stock awards granted after 2012 vest inratably over three equal annual installments commencing one year after the date of approval by the Compensation Committee. All outstanding annual restricted stock awards for named executive officers granted prior to 2013 vest in 25% increments over four years. The change to a three year vesting schedule was done to align the vesting schedule for restricted stock awards with the three year measurement periods for LTIP awards.
The Compensation Committee assesses Mrs. Wilderotter’s individual performance and determines the actual amount of the restricted stock award. Restricted stock awards for the other executives, including the other named executive officers, are determined by the Compensation Committee, taking into account the recommendations of Mrs. Wilderotter. For 2014, restricted stock awards were subject to the same payout factor used for the weighted 3P payout. In February 2015, the Compensation Committee approved restricted stock awards for the named executive officers as set forth below under “February 2015 Named Executive Officer Compensation Actions.”
The Compensation Committee follows a general practice of makinggenerally makes all restricted stock awardsRSA grants to our executives, including the named executive officers, on a single dateour NEOs, at its regularly scheduled meeting each year,February, with the exception of awards to eligible new hires, which are awarded as of the date of hire. Typically,
| Frontier Communications Corporation | 36 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
In accordance with the restricted stock plan, in order for any RSAs to be granted, the Compensation Committee makes these restricted stockset a minimum performance threshold of an average of 90% for the three financial targets included in the Weighted Company Performance Goals (Revenue, Adjusted EBITDA and Adjusted Free Cash Flow Per Share) under the Bonus Plan.
The Compensation Committee determines the dollar value of RSA grants based upon the target set at its regularly scheduled meetingthe beginning of the year, which is then adjusted based on attainment of the Weighted Company Performance Goals and assessment of individual performance at the end of such year. There is no guarantee that an NEO will receive an RSA grant, meaning that an NEO could receive 0% of his or her target RSA opportunity for below-threshold performance. The maximum dollar value of potential RSA grants varies by NEO, with the highest being 169% of the value of such NEO’s target RSA opportunity, in cases of outstanding performance. The Compensation Committee assesses Mr. McCarthy’s individual performance and determines his RSA grant. RSA grants for the other NEOs are determined by the Compensation Committee, taking into account the recommendations of Mr. McCarthy.
In February 2016, the Compensation Committee determined that the minimum performance threshold was met for 2015 and assigned each FebruaryNEO the dollar amounts shown in the Grants of Plan-Based Awards Table on page 46. The dollar amount was then converted to a number of RSAs based on the prior year’s results.average of the high and low price of Frontier’s common stock on the date of grant.
Long-Term Incentive Plan Awards.In February 2012,2017, the Compensation Committee in consultation withapproved RSA grants based on 2016 performance of the other non-management directorsNEOs as set forth below under “February 2017 NEO Compensation Actions.”
Performance Share Awards. Performance share awards are an important component of compensation because they encourage a focus on long-term financial performance and the Committee’s independent executive compensation consultant, adopted an LTIP in order toTSR, further alignaligning the interests of our stockholdersNEOs and our executives. We believe the use of LTIP awards asstockholders.
The NEOs receive a component of compensation is consistent with best practices, balancing the focus on short- and long-term financialtarget performance and reinforcing our performance culture by subjectingshare award each year at a portion of targeted compensation to long-term performance and taking into account the performance of our stock relative to an industry group, all as more fully discussed below. LTIP participants consist of senior vice presidents and above, including the named executive officers. In 2014, LTIP awards were granted to 36 employees, or 0.2% of our total workforce. The LTIP is designed to incent and reward our senior executives if they achieve operating cash flow
37
goals over three-year Measurement Periods, and specified relative levels of Total Shareholder Return over the three-year periods. LTIPregularly scheduled Compensation Committee meeting. Performance share awards are granted inthen earned at the formend of performance shares and have both performance and time-vesting conditions.
Beginning in 2012, during the first 90 days of a three-year Measurement Period a target number of performance shares are awardedapplicable to each LTIP participant with respect tothese awards based on the Measurement Period. The performance metrics under the LTIP, as approved by the Compensation Committee, are:following:
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• Our TSR relative to the Integrated Telecommunications Services Group (GICS Code 50101020) for the three-year Measurement |  | Creates direct link to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
We use
| Frontier Communications Corporation | 37 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Annual operating cash flow as the performance metric for the LTIPtargets are used because it is an important measure in analyzing our underlying financialwould not be feasible to set and calculate multi-year performance evaluating the financial performance of our business units, analyzing and evaluating strategic and operational decisions and in understanding our ability to generate cash flow and, as a result, to plan for future capital and operational decisions. We usegiven Frontier’s significant acquisition activity. A three-year relative TSR in our LTIP designmodifier is applied in order to link executive compensationmeasure Frontier’s execution on its strategic goals over a multi-year period relative to stockholder results.
our industry peers. The Operating cash flow performanceCash Flow and TSR modifiers for results that fall in between levels is determined at the end of each year and the annual results are averaged at the end ofusing straight line interpolation.
An executive must remain employed by Frontier throughout the three-year Measurement Period and also must maintain a satisfactory performance rating throughout the Measurement Period in order for the award to determine the preliminary number of shares earned under the LTIP award. As described below, the Company’s relative TSR performance over the three-year period is then applied to determine the final number of shares earned. LTIPvest. Performance share awards, to the extent earned, will be paid out in the form of common stock on a one-to-one basis, plus accrued dividends on such earned shares, shortly following the end of the three-year Measurement Period.
For the 2014-2016 Measurement Period, the Compensation Committee determined that the payout of each participant’s LTIP award can be from 0%, for below-threshold performance, to 130%, for outstanding performance. The Compensation Committee set a minimum average-performance threshold of 70% of targeted operating cash flow and a maximum average-performance limit of 130%, as described in the following table:
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Performance Level | Operating Cash Flow | Operating | |||||||
Maximum | 130% or above |
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Target | 100% |
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Threshold | 70% |
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Below Threshold | Below 70% |
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Average operating cash flow performance between these ranges will be interpolated on a straight-line basis. The TSR performance measure adds another performance threshold and is applied to decrease or increase payouts based on the Company’s three-year relative TSR performance (earned shares will be reduced 25% for 25th percentile or lower relative TSR performance, no change to earned shares for 50th percentile relative TSR performance, and earned shares will be increased 25% for 75th percentile and above relative TSR performance), as described in the following table:
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Relative TSR performance between these ranges will be interpolated on a straight-line basis. As a result, depending on the average annual operating cash flow results over the three-year Measurement Period and the three-year relative TSR performance, executives will earn shares of common stock at the end of the 2014-2016 Measurement Period ranging from 0% to 162.5% (130% of the maximum performance award increased by 25% for 75th percentile or above relative TSR performance) of the
38
number of performance shares awarded. Shares awarded under the LTIP are intended to be “qualified performance-based compensation” for tax purposes pursuant to Section 162(m).
OnIn February 18, 2014,2016, the Compensation Committee approved target performance share awards under the LTIP for each of the named executive officersNEOs for the 2014-20162016-2018 Measurement Period, and set the performance goals for the first year in that Measurement Period (which also applies to the second year of the 2013-2015 Measurement Period and the third year of the 2012-2014 Measurement Period).Period. These awards are described in the Grants of Plan-Based Awards Table and the narrative that follows that table. Actual amountsshares earned will be determined by the Compensation Committee in February 2019 and will be subject to increase or decrease (including forfeiture of the entire award)award for below threshold performance with respect to operating cash flow) as set forth above. An executive must maintain a satisfactory performance rating duringin the Measurement Period and must be employed bydiagram above.
In February 2017, following the Company at the endcompletion of the three-year Measurement Period in order for the award to vest. The Compensation Committee will determine the number of shares earned for the 2014-2016 Measurement Period, in February 2017.
As previously stated under “Annual Bonus,” the Company’s performance against the operating cash flow target of $1,619 million for 2014 was 89.0%. However, the number of performance shares, if any, for the 2014-2016 Measurement Period that will ultimately be earned depends on the operating cash flow results for 2015 and 2016 and relative TSR performance over the three-year period, which are not determinable until the end of 2016.
In February 2015, the Compensation Committee determined the number of shares of common stock earned for the 2012-2014that period. The 2014-2016 Measurement Period based on the average operating cash flow results for each of the three years and the relative TSR performance over the three-year period. The operating cash flow results were as follows (dollars in millions):follows:
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2013 |
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| 1,603 |
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2014 |
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| 1,619 |
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| 1,441 |
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Average |
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The Company’s TSR performance for the three year period from January 1, 2012 to December 31, 2014 was calculated using the difference between our share price at the beginning of the period ($5.15) and the end of the period ($6.67), together with dividends paid on our common stock during the period. The absolute TSR for the three year period was 67.6% and relative to the LTIP peer group was at the 68th percentile. Accordingly, number of earned shares based on operating cash flow performance was increased 18%, from 92.5% to 109.3%.
Operating Cash Flow Results (dollars in millions) | ||||||||||
| Year | Target | Actual | Performance as % of Target | |||||||
2014 | $1,619 | $1,441 | 89.0% | |||||||
2015 | $1,713 | $1,603 | 93.5% | |||||||
2016 | $2,342 | $2,266 | 96.7% | |||||||
Average | 93.1% | |||||||||
TSR Performance Modifier | 77% (27th percentile) | |||||||||
Number of shares earned as % of target performance share awards | 71.7% | |||||||||
The number of shares of common stock earned by each of the named executive officersNEOs for the 2012-20142014-2016 Measurement Period is set forth below under “February 2015 Named Executive Officer2017 NEO Compensation Actions.”
In February 2015,2017, the Compensation Committee also granted target performance share awards for the 2015-20172017-2019 Measurement Period for the named executive officersNEOs as set forth below under “February 2015 Named Executive Officer2017 NEO Compensation Actions.” At that time, the Compensation Committee alsoActions” and set the relative TSR performance modifier for thatthe 2017-2019 Measurement Period and the operating cash flow goal for 2015, which applies to the first year of the 2015-2017 Measurement Period, the second year of the 2014-2016 Measurement Period and the third year of the 2013-2015 Measurement Period. The design of the LTIP for the 2015-2017 Measurement Period is the same as for the prior Measurement Periods. For 2015, approximately 33% of equity awards to executive officers will be in the form of performance shares under the LTIP.
Dividends on performance shares will be accrued and paid out at the end of the three-year Measurement Periods only with respect to the performance shares that are earned by the participant.
Stock Ownership Guidelines.To further align our executives’ interests with those of our stockholders, our board of directors established stock ownership guidelines for the CEO and the other members of the Senior Leadership Team, and reviews the guidelines annually. The CEO is expected to own shares of the Company’s common stock having a minimum value of five times (5x) her base salary and each other member of the Senior Leadership Team is expected to own shares of the Company’s common stock having a minimum value of two and one-half times (2.5x) his or her base salary. Unvested restricted stock awards and unearned performance shares are not counted for
39
purposes of fulfilling this requirement. At such times as a member of the Senior Leadership Team does not meet his or her ownership guideline, the executive will be required to hold 50% of the Company’s stock that the executive acquires after that date through the Company’s equity compensation programs, excluding shares sold to pay related taxes. The Compensation Committee administers these stock ownership guidelines.
Hedging and Pledging Prohibition. Executives are prohibited from hedging or pledging shares of Company stock owned by them.
Other Compensation
Perquisites and Other Benefits.Benefits
As an inducement to accept employment with Frontier, Mr. McBride received $75,000 for relocation assistance, which includes household goods transfer, closing costs and temporary housing, and a tax gross up for taxes related to such services equal to $34,312. There were no other reportable perquisites in 20142016 for the CEO or the other named executive officers.NEOs.
We provide other benefits to our named executive officersNEOs on the same basis as all of our non-union, full-time employees, although we require the executives to pay a higher percentage of the costs than other employees. These benefits consist of medical, dental and vision insurance, basic life and disability insurance and matching contributions to our 401(k) plan for employees who participate in the plan. The Company-paidFrontier-paid life insurance benefit for all employees, including the named executive officers,NEOs, is one-timeone-times annual base salary, up to a maximum of $50,000.
Post-Employment Compensation
Messrs. McCarthy, McBride and Lass are our only NEOs with vested benefits under the Frontier Pension Plan. This defined benefit pension planPlan, which was frozen for all non-union participants in 2003 (and, for some participants, earlier than 2003 depending on the participant’s employment history). The plan was frozen both with respect to participation and benefit accruals. Daniel McCarthy, President and Chief Operating Officer, is the only named executive officer who has vested benefits under the Frontier Pension Plan.2003.
Retiree Medical Benefits. Executives are not eligible for retiree medical benefits.
| Frontier Communications Corporation | 38 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Compensation for Mr. Jureller
Frontier and Mr. Jureller entered into a Separation Agreement and Release dated September 12, 2016, pursuant to which Mr. Jureller agreed to continue to serve in transitional capacities through November 4, 2016. As consideration for Mr. Jureller’s compliance with the terms of the Separation Agreement, the Compensation Committee agreed to pay Mr. Jureller $1,500,000 (paid in two installments), and to pay COBRA premiums for 15 months. The compensation arrangements in place for Mr. Jureller prior to his departure in November 2016 were established in accordance with the general processes outlined above for our NEOs. Upon his departure, Mr. Jureller forfeited his outstanding cash and unvested equity incentive awards. See below under “Employment Arrangements; Potential Payments Upon Termination or Change-in-Control” for additional information.
February 2017 NEO Compensation Actions
In February 2017, the Compensation Committee met to evaluate the performance of our CEO and the other NEOs to determine base salaries for 2017, annual cash bonus payouts for 2016 performance, RSA grants related to 2016 performance, performance share awards earned for the 2014-2016 Measurement Period and target performance share awards granted for the 2017-2019 Measurement Period. As part of its compensation determinations, the Committee considered competitive market data provided by its independent compensation consultant.
The Committee evaluated Mr. McCarthy based upon Frontier’s 2016 financial performance (as measured by Revenue, Adjusted EBITDA and Adjusted Free Cash Flow Per Share), his leadership with respect to the achievement of the Company Performance Goals and his 2016 individual performance goals, which included the execution of near-term and long-term strategic initiatives. Specifically, the Committee recognized his leadership with respect to:
The closing of the California, Texas and Florida Acquisition
The hiring of a new Chief Financial Officer, Perley McBride
The implementation of a new organizational structure that allows Frontier to better serve its consumer and business customers
Financial and stock performance of Frontier
For the other NEOs, whose performance was evaluated based on the same Company Performance Goals as Mr. McCarthy, the Compensation Committee reviewed Mr. McCarthy’s performance assessments and compensation recommendations. The Committee then discussed its assessment of each NEO and approved RSA grants related to 2016 performance, performance share awards earned for the 2014-2016 Measurement Period and target performance share awards granted for the 2017-2019 Measurement Period, in each case as set forth in the table below. At this meeting, the Compensation Committee elected to use its negative discretion and no annual bonuses were awarded for 2016 performance. The Compensation Committee also elected not to increase base salaries for our NEOs in 2017. In furtherance of the purposes of our compensation program, including retention of talented individuals and the alignment of stockholder and executive interests, the Committee approved RSA grants for our NEOs based on attainment of the Weighted Company Performance Goals at 74% of target and an individual performance factor of 130%.
| Name | 2017 Base Salary (no change from 2016) ($) | 2016 Incentive Bonus Payout ($) | Restricted Stock Awarded (#) | Performance Share Awards Earned(1) (#) | Target Performance Share Awards Granted(2) (#) | ||||||||||||||||||||||||||||||||||||||||
Daniel J. McCarthy | $ | 1,000,000 | $ | 0 | 1,082,070 | 114,294 | 721,805 | ||||||||||||||||||||||||||||||||||||||
R. Perley McBride | $ | 650,000 | $ | 0 | 419,519 | — | 300,752 | ||||||||||||||||||||||||||||||||||||||
Steve Gable | $ | 470,000 | $ | 0 | 245,925 | 5,334 | 180,452 | ||||||||||||||||||||||||||||||||||||||
Cecilia K. McKenney | $ | 487,000 | $ | 0 | 319,703 | 47,623 | 180,452 | ||||||||||||||||||||||||||||||||||||||
John J. Lass | $ | 440,000 | $ | 0 | 245,925 | 14,325 | 120,301 | ||||||||||||||||||||||||||||||||||||||
Kathleen Q. Abernathy(3) | $ | 420,000 | $ | 0 | — | 28,574 | — | ||||||||||||||||||||||||||||||||||||||
| (1) | The amounts in this column represent the number of performance shares earned for the 2014-2016 Measurement Period, 71.7% of target. |
| (2) | The amounts in this column represent the target number of shares awarded in February 2017 for the 2017-2019 Measurement Period. |
| (3) | Ms. Abernathy stepped down from her executive officer role in November 2016 and assumed the position of Senior Advisor until her planned retirement in April 2017. |
| Frontier Communications Corporation | 39 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Roles and Responsibilities
The Compensation Committee
The Compensation Committee is responsible for approving and overseeing our executive compensation philosophy and programs, as well as determining and approving the compensation for our senior executives, which includes our NEOs. Each year, at its February meeting, the Compensation Committee reviews the Company Performance Goals and the individual performance goals for the NEOs and approves the target levels for each of the compensation components that apply to the NEOs for the upcoming year. At that same meeting, the Compensation Committee assesses the performance of our NEOs for the year just ended. With respect to CEO compensation, the Compensation Committee reviews its recommendations with the other independent directors and considers any additional input from them before finalizing its decision.
In making its compensation decisions, the Compensation Committee reviews tally sheets setting forth all components of compensation paid to the NEOs for the past five years, along with target compensation for those years, including base salary, bonus, grant date values of RSAs and performance share awards and the value of dividends paid on unvested restricted shares. These tally sheets also show the executives’ holdings of unvested RSAs and performance share awards from prior years’ awards and the current value of those awards. The Compensation Committee uses these tally sheets to (i) review the total annual compensation of the NEOs over the past five years, (ii) assess the executive officers’ compensation against their individual and company performance over that period and (iii) assure that the Committee has a comprehensive view of our compensation programs.
The Compensation Committee reviews on a periodic basis management compensation programs, including any management incentive compensation plans, to determine whether they are appropriate, properly coordinated and achieve their intended purpose(s), and recommends to the Board any modifications or new plans or programs.
The Chief Executive Officer
Our CEO annually reviews the performance and contributions of our senior executives, including our NEOs, and presents to the Compensation Committee his performance assessments and compensation recommendations, including the proposed award for each component of the executive’s total compensation. Mr. McCarthy’s review consists of an assessment of the executive’s performance against company-level and individual goals and targets. The Compensation Committee then conducts a separate review process with respect to these executives and, after making any adjustments, approves the compensation for these executives.
The CEO has no involvement in setting his own compensation.
The Compensation Consultant
The Compensation Committee retains an independent executive compensation consultant that provides services solely to the Compensation Committee and not Frontier. Since 2010, the Compensation Committee has engaged Frederic W. Cook & Co., Inc. to assist the Committee in the development of compensation programs, evaluation of compensation practices and the determination of compensation awards. In addition, in 2016 the compensation consultant provided advice and insights on additional compensation matters, including with respect to the peer group, benchmarking of executive compensation levels and director compensation, incentive plan design review and our stock incentive plan, and reviewed this Compensation Discussion and Analysis.
The Compensation Committee considers the compensation consultant’s input and advice but reaches its own independent decisions on compensation matters. Importantly, the Compensation Committee has sole authority to retain and terminate the compensation consultant.
The compensation consultant provides no other services to Frontier and the Compensation Committee has instituted policies to avoid conflicts of interest raised by the work of the compensation consultant. Pursuant to SEC rules, the Compensation Committee is required to consider any conflicts of interest raised by the work of the Compensation Committee’s compensation consultants. After considering the relevant factors, the Compensation Committee determined that no conflicts of interest were raised by the work of the compensation consultant in 2016.
| Frontier Communications Corporation | 40 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Additional Compensation Features and Policies
Stock Ownership Guidelines
To further align our executives’ interests with those of our stockholders, our Board established stock ownership guidelines for the CEO and the other members of the Senior Leadership Team, and reviews the guidelines annually. The CEO is expected to own shares of Frontier stock having a minimum value of five times (5x) base salary, the CFO is expected to own shares of Frontier stock having a minimum value of three and one-half times (3.5x) base salary and each other member of the Senior Leadership Team is expected to own shares of Frontier stock having a minimum value of two and one-half times (2.5x) base salary. Unvested restricted stock awards and unearned performance shares are not counted for purposes of fulfilling this requirement. At such times as a member of the Senior Leadership Team does not meet the applicable ownership guideline, the executive will be required to hold 50% of Frontier stock that the executive acquires after that date through the Frontier equity compensation programs, excluding shares sold to pay related taxes. The Compensation Committee administers these stock ownership guidelines.
Hedging and Pledging Prohibition
Executives are prohibited from hedging or pledging their shares of Frontier stock.
Termination of Employment and Change-in-Control Arrangements.Arrangements
To attract talented executives, support retention objectives and ensure that executives review potential transactionsperform their work with objectivity, and independence, we provide certain post-employment benefits to the named executive officers. Effective April 3, 2015, the Compensation Committee adopted theNEOs. In addition, Frontier has a Senior Leadership Team Severance Plan (the “Severance Plan”)Severance Plan), which covers, among others, membersour NEOs.
We also maintain change-in-control arrangements with our NEOs to promote the unbiased efforts of our executives to maximize stockholder value before, during and after a change-in-control that may impact the employment status of the Senior Leadership Team (other than Mrs. Wilderotter). Asexecutives. The Compensation Committee set the severance amounts based on peer group reviews. The change-in-control arrangements are subject to “double-trigger” vesting and do not include gross-up payments for excise taxes imposed under Section 280G of the Internal Revenue Code as a result of severance payouts.
For further discussion of these severance arrangements, see “Employment Arrangements; Potential Payments Upon Termination or Change-in-Control” that follows this Compensation Discussion and Analysis.
Clawback Policies
Since 2010, Frontier has included in all of its equity compensation awards, including to the adoptionNEOs, a recoupment or “clawback” provision. This provision requires that unvested equity awards be forfeited if the Compensation Committee determines that the employee engaged in certain defined types of misconduct, including engaging in acts considered to be contrary to the best interests of Frontier, commission of felonies or other serious crimes, or engaging in any activity which constitutes gross misconduct. The provision also provides that the Compensation Committee may in its sole discretion require the employee to return all stock that vested within the twelve month period immediately prior to the misconduct, or if no longer held by the employee, to pay to Frontier any and all gains realized from such stock.
Effective December 11, 2014, we adopted an enhanced clawback policy that is triggered if Frontier is required to restate its financial statements due to material noncompliance with any financial reporting requirement under the securities laws that was contributed to by the fraud or intentional misconduct of an executive officer, including an NEO. If the policy is triggered, the Compensation Committee will require reimbursement or forfeiture of any cash and equity incentive compensation awarded to or received by the executive officer in question during the three year period preceding the date on which Frontier is required to prepare the restatement. The amount to be recovered would be the excess of the Severance Plan, individual severance arrangementsincentive compensation obtained by the executive officer based on the erroneous data over the amount that would have been obtained by the executive officer had it been based on the restated results, as determined by the Compensation Committee. We will review the terms of this recovery policy in light of the requirements under the Dodd-Frank Act and will make any necessary changes to be in compliance with these namedfinal regulations when issued.
| Frontier Communications Corporation | 41 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Tax Implications—Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to the chief executive officer or any of the three most highly compensated executive officers (other than the chief financial officer). Section 162(m) provides that “qualified performance-based compensation” will not be subject to the tax deduction limit if certain requirements are met. The Compensation Committee believes it is important to maximize the corporate tax deduction, thereby minimizing our tax liabilities. Accordingly, the 2013 Frontier Bonus Plan, the 2013 Equity Incentive Plan, the 2009 Equity Incentive Plan and the amended 2000 Equity Incentive Plan, as designed by the Compensation Committee, are intended to make compensation awarded under these plans deductible under Section 162(m) as “qualified performance-based compensation.”
While we believe preserving tax deductibility is an important objective, there can be no assurance that compensation arrangements will ultimately be tax deductible and the Compensation Committee reserves the flexibility to approve compensation arrangements that are not fully tax deductible, taking into account the primary objective of the specific program and the best interests of Frontier and our stockholders.
| Frontier Communications Corporation | 42 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee of our Board of Directors has submitted the following report for inclusion in this proxy statement:
Our Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on our Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, our Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K.
The foregoing report is provided by the following directors, who constitute the Committee:
Submitted by:
Virginia P. Ruesterholz, Chair
Peter C.B. Bynoe
Larraine D. Segil
Myron A. Wick, III
| Frontier Communications Corporation | 43 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation awarded to, earned by, or paid to our CEO, CFO, the three other most highly compensated executive officers at fiscal year-end, one additional employee who would have been an NEO had she been an executive officer at fiscal year-end, and our former CFO in 2016, 2015 and 2014.
| Name and Principal Position | Year | Salary | Bonus(1) | Stock Awards(2) | Non-Equity Compensation(3) | All Other Compensation(4) | Total | ||||||||||||||||||||||||||||
Daniel J. McCarthy President and CEO | 2016 | $ | 981,251 | — | $ | 4,455,065 | | — | $ | 10,800 | $ | 5,447,115 | |||||||||||||||||||||||
| 2015 | $ | 862,500 | — | $ | 4,170,022 | $ | 1,165,500 | $ | 9,105 | $ | 6,207,127 | ||||||||||||||||||||||||
| 2014 | $ | 658,333 | $ | 250,000 | $ | 2,394,276 | $ | 667,575 | $ | 9,055 | $ | 3,979,239 | |||||||||||||||||||||||
R. Perley McBride Executive Vice President and CFO(5)(6) | 2016 | $ | 199,432 | — | $ | 253,553 | | — | $ | 109,489 | $ | 562,474 | |||||||||||||||||||||||
Steve Gable Executive Vice President and CTO(6) | 2016 | $ | 458,750 | $ | 1,000,000 | $ | 471,904 | | — | $ | 9,884 | 1,940,538 | |||||||||||||||||||||||
Cecilia K. McKenney Executive Vice President and Chief Customer Officer | 2016 | $ | 483,906 | $ | 459,600 | $ | 1,660,754 | | — | $ | 9,805 | $ | 2,614,065 | ||||||||||||||||||||||
| 2015 | $ | 445,833 | — | $ | 1,755,945 | $ | 457,800 | $ | 9,105 | $ | 2,668,683 | ||||||||||||||||||||||||
| 2014 | $ | 370,833 | $ | 175,000 | $ | 1,174,090 | $ | 370,875 | $ | 8,855 | $ | 2,099,653 | |||||||||||||||||||||||
John J. Lass Executive Vice President, Customer Operations(6) | 2016 | $ | 436,156 | $ | 415,200 | $ | 629,257 | | — | $ | 9,836 | $ | 1,490,449 | ||||||||||||||||||||||
Kathleen Q. Abernathy Senior Advisor and Former Executive Vice President, External Affairs(6) | 2016 | $ | 415,000 | $ | 840,000 | $ | 1,020,479 | | — | $ | 10,202 | $ | 2,285,681 | ||||||||||||||||||||||
| 2015 | $ | 397,247 | — | $ | 1,089,142 | $ | 403,200 | $ | 9,000 | $ | 1,898,589 | ||||||||||||||||||||||||
John M. Jureller Former Executive Vice President and CFO(5) | 2016 | $ | 493,864 | — | $ | 2,200,973 | — | $ | 286,904 | $ | 2,981,741 | ||||||||||||||||||||||||
| 2015 | $ | 568,750 | — | $ | 2,605,451 | $ | 548,550 | $ | 9,105 | $ | 3,731,856 | ||||||||||||||||||||||||
| 2014 | $ | 531,250 | $ | 200,000 | $ | 1,714,896 | $ | 506,863 | $ | 8,855 | $ | 2,961,864 | |||||||||||||||||||||||
| (1) | Amounts in this column represent special non-recurring bonuses granted in connection with the closing of the AT&T Acquisition in October 2014 and the closing of the California, Texas and Florida Acquisition in April 2016. |
| (2) | The stock awards referred to in this column consist of grants of restricted stock and grants of performance shares under the 2013 Equity Incentive Plan. The amounts shown in this column represent the grant date fair value, pursuant to Financial Accounting Standards Board ASC Topic 718, of the stock awards granted in the applicable year or, with respect to multi-year performance share awards where performance conditions are set at the beginning of each year, the fair value of the shares subject to the performance conditions for the applicable year. In the latter case, accounting standards provide that each annual establishment of performance conditions during a multi-year vesting period constitutes a separate “grant date.” As a result, the grant date fair value of the performance share awards granted in 2016 is calculated using only the first tranche of the grant for the 2016-2018 Measurement Period; the second and third tranches of the 2016-2018 Measurement Period are not included because the performance conditions for those tranches had not been set in 2016. With respect to the grant for the 2015-2017 Measurement Period, the grant date fair value is calculated using the second tranche, as the grant date fair value for the first tranche was reported last year and the performance conditions for the third tranche were not set in 2016. With respect to the grant for the 2014-2016 Measurement Period, the grant date fair value is calculated using the third tranche, as the grant date fair values for the first two tranches were reported in prior years. Further, in calculating the grant date fair value of such performance shares in the table, the target number of shares was used. Frontier uses Monte Carlo simulations to value performance share awards. The value of such performance shares assuming that the highest level of operating cash flow and TSR performance will be achieved (using the methodology described above) would be as follows: McCarthy: $1,738,270; Gable: $257,643; McKenney: $595,317; Lass: $308,712; Abernathy: $363,873; and Jureller: $855,711. For a discussion of valuation assumptions, see Note 11 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. For additional details regarding the stock awards, see the Grants of Plan-Based Awards table below and the accompanying narrative. |
| (3) | The amounts shown in this column represent cash awards made under the Frontier Bonus Plan. Awards for each year are generally paid in March of the following year. |
| (4) | The All Other Compensation column includes premiums for life insurance coverage paid for by Frontier and a 401(k) match. The SEC requires us to identify and quantify any individual item of compensation exceeding $10,000, except with respect to perquisites and other personal benefits, disclosure of which may be omitted for an NEO if they aggregate less than $10,000 in the fiscal year. Other than as set forth below, no perquisites or personal benefits are included in this column for 2016: |
Amounts shown for Mr. McBride include the payment of $75,000 for relocation assistance, which includes household goods transfer, closing costs and temporary housing, plus a tax gross up for taxes related to such services equal to $34,312, each as an inducement to accept employment with Frontier.
Amounts shown for Ms. Abernathy consist of premiums for life insurance coverage paid for by Frontier and a 401(k) match.
Amounts shown for Mr. Jureller consist of payments for life insurance coverage, a 401(k) match and $250,000 in severance and $27,000 in accrued vacation time paid in connection with his departure from Frontier in November 2016.
| Frontier Communications Corporation | 44 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
| (5) | Mr. McBride assumed the role of Executive Vice President and Chief Financial Officer on November 4, 2016, at which time Mr. Jureller ceased to be a Frontier employee. All references to “CFO” in the compensation tables and accompanying narrative refer to Mr. McBride. |
| (6) | Information for Messrs. McBride, Gable and Lass is not provided for 2014 and 2015 because they were not NEOs for those years. Information for Ms. Abernathy is not provided for 2014 because she was not an NEO for that year. |
| Frontier Communications Corporation | 45 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards
The following table sets forth information with respect to awards granted to each of our NEOs during the 2016 fiscal year.
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock Awards(1) | |||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||
| Name | Grant Date | ($) | ($) | ($) | (#) | (#) | (#) | (#) | ($) | |||||||||||||||||||||||||||
Daniel J. McCarthy | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 2/11/16 | $ | 910,000 | $ | 1,300,000 | $ | 2,028,000 | |||||||||||||||||||||||||||||
Performance share award (2016-2018) | 2/11/16 | 73,950 | 140,857 | 228,892 | $ | 584,847 | ||||||||||||||||||||||||||||||
Performance share award (2015-2017) | 2/11/16 | 29,825 | 56,809 | 92,315 | $ | 246,867 | ||||||||||||||||||||||||||||||
Performance share award (2014-2016) | 2/11/16 | 27,896 | 53,135 | 86,344 | $ | 237,992 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/11/16 | 811,837 | $ | 3,385,360 | ||||||||||||||||||||||||||||||||
R. Perley McBride(2) | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 9/12/16 | $ | 455,000 | $ | 650,000 | $ | 1,014,000 | |||||||||||||||||||||||||||||
Restricted stock award | 9/12/16 | 54,645 | $ | 253,553 | ||||||||||||||||||||||||||||||||
Steve Gable | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 2/11/16 | $ | 329,000 | $ | 470,000 | $ | 733,200 | |||||||||||||||||||||||||||||
Performance share award (2016-2018) | 2/11/16 | 16,807 | 32,013 | 52,021 | $ | 132,920 | ||||||||||||||||||||||||||||||
Performance share award (2015-2017) | 2/11/16 | 1,755 | 3,342 | 5,431 | $ | 14,523 | ||||||||||||||||||||||||||||||
Performance share award (2014-2016) | 2/11/16 | 1,302 | 2,480 | 4,029 | $ | 11,106 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/11/16 | 75,145 | $ | 313,355 | ||||||||||||||||||||||||||||||||
Cecilia McKenney | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 2/11/16 | $ | 340,813 | $ | 487,000 | $ | 759,525 | |||||||||||||||||||||||||||||
Performance share award (2016-2018) | 2/11/16 | 21,849 | 41,617 | 67,627 | $ | 172,795 | ||||||||||||||||||||||||||||||
Performance share award (2015-2017) | 2/11/16 | 11,404 | 21,721 | 35,297 | $ | 94,390 | ||||||||||||||||||||||||||||||
Performance share award (2014-2016) | 2/11/16 | 11,623 | 22,140 | 35,977 | $ | 99,164 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/11/16 | 310,409 | $ | 1,294,406 | ||||||||||||||||||||||||||||||||
John J. Lass | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 2/11/16 | $ | 308,000 | $ | 440,000 | $ | 686,400 | |||||||||||||||||||||||||||||
Performance share award (2016-2018) | 2/11/16 | 16,807 | 32,013 | 52,021 | $ | 132,920 | ||||||||||||||||||||||||||||||
Performance share award (2015-2017) | 2/11/16 | 3,289 | 6,266 | 10,182 | $ | 27,228 | ||||||||||||||||||||||||||||||
Performance share award (2014-2016) | 2/11/16 | 3,496 | 6,660 | 10,822 | $ | 29,829 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/11/16 | 105,343 | $ | 439,280 | ||||||||||||||||||||||||||||||||
Kathleen Q. Abernathy | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 2/11/16 | $ | 294,000 | $ | 420,000 | $ | 655,200 | |||||||||||||||||||||||||||||
Performance share award (2016-2018) | 2/11/16 | 13,445 | 25,610 | 41,617 | $ | 106,336 | ||||||||||||||||||||||||||||||
Performance share award (2015-2017) | 2/11/16 | 7,018 | 13,367 | 21,721 | $ | 58,087 | ||||||||||||||||||||||||||||||
Performance share award (2014-2016) | 2/11/16 | 6,974 | 13,284 | 21,587 | $ | 59,499 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/11/16 | 191,021 | $ | 796,558 | ||||||||||||||||||||||||||||||||
John M. Jureller | ||||||||||||||||||||||||||||||||||||
Cash bonus award | 2/11/16 | $ | 409,500 | $ | 585,000 | $ | 912,600 | |||||||||||||||||||||||||||||
Performance share award (2016-2018) | 2/11/16 | 31,597 | 60,184 | 97,800 | $ | 249,890 | ||||||||||||||||||||||||||||||
Performance share award (2015-2017) | 2/11/16 | 16,491 | 31,412 | 51,045 | $ | 136,503 | ||||||||||||||||||||||||||||||
Performance share award (2014-2016) | 2/11/16 | 18,597 | 35,423 | 57,563 | $ | 158,661 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/11/16 | 397,103 | $ | 1,655,920 | ||||||||||||||||||||||||||||||||
| (1) | See footnote (2) to the Summary Compensation Table for a description of the methods used to determine the grant date fair value of stock awards. |
| (2) | Mr. McBride assumed the role of Executive Vice President and Chief Financial Officer on November 4, 2016 and so did not receive plan-based awards during 2016. |
| Frontier Communications Corporation | 46 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Cash awards under the Frontier Bonus Plan for 2016 performance shown under the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards columns would have been paid in March 2017 based on performance metrics set for 2016 and achievement of individual goals, as described above under “Compensation Discussion and Analysis—2016 Total Direct Compensation for NEOs—Cash Compensation—Annual Bonus.” Target awards under the Frontier Bonus Plan are set as a percentage of base salary. Targets awards were terminated. Severance arrangementsset at 100% of 2016 base salary for Mrs. Wilderottereach of the NEOs, other than Mr. McCarthy, whose target award was set at 130% of 2016 base salary. Payouts can be 0% of target for below-threshold performance, up to 70% of target for threshold performance, and up to 156% of target for outstanding performance. The Compensation Committee elected to exercise negative discretion and to not pay annual cash bonuses for 2016 to any Frontier employees, including the NEOs, as reported above in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”
The awards shown under the Estimated Future Payouts Under Equity Incentive Plan Awards columns are performance shares deemed to have been granted in 2016 in accordance with Financial Accounting Standards Board ASC Topic 718 (i.e., the first tranche of the 2016-2018 Measurement Period, the second tranche of the 2015-2017 Measurement Period and the third tranche of the 2014-2016 Measurement Period). See footnote (2) to the Summary Compensation Table. The amounts shown represent the range of shares that may be issued at the end of the applicable Measurement Period for such grants assuming achievement of threshold, target or maximum performance. If our operating cash flow performance is, on average, below threshold for the three-year Measurement Period, no shares will continuebe issued at the end of the period. Dividends on performance shares will be accrued and paid out at the end of the three-year Measurement Period only with respect to shares that are earned and issued. See the discussion of performance share awards under “Compensation Discussion and Analysis—2016 Total Direct Compensation for NEOs—Equity Compensation—Performance Share Awards.”
The stock awards shown under the All Other Stock Awards column in the above table are grants of restricted stock. The grants represent annual restricted stock awards and vest in three equal annual installments commencing one year after the date of approval by the Compensation Committee, February 11, 2016. All such grants of restricted stock were made under our 2013 Equity Incentive Plan based on 2015 performance. Each of the NEOs is entitled to receive dividends on shares of restricted stock at the same rate and at the same time we pay dividends on shares of our common stock. The annual common stock dividend rate for 2016 was $0.42 per share, paid quarterly. No above-market or preferential dividends were paid with respect to any restricted shares. See the discussion of restricted stock awards under “Compensation Discussion and Analysis—2016 Total Direct Compensation for NEOs—Equity Compensation—Restricted Stock Awards.”
| Frontier Communications Corporation | 47 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by each of the NEOs atyear-end.
| Stock Awards | ||||||||||||||||||||
| Name | Number of Shares of Stock or Units That Have Not Vested(1) (#) | Market Value of Shares of Stock or Units That Have Not Vested(2) ($) | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested(3) (#) | Equity Incentive Plan Awards: Market Value of Unearned Shares That Have Not Vested(2) ($) | ||||||||||||||||
Daniel J. McCarthy | 1,160,189 | $ | 3,921,439 | 592,997 | $ | 2,004,330 | ||||||||||||||
R. Perley McBride | 54,645 | $ | 184,700 | — | — | |||||||||||||||
Steve Gable | 92,983 | $ | 314,283 | 106,065 | $ | 358,450 | ||||||||||||||
Cecilia K. McKenney | 465,850 | $ | 1,574,573 | 190,013 | $ | 642,244 | ||||||||||||||
John J. Lass | 145,029 | $ | 490,198 | 114,836 | $ | 388,146 | ||||||||||||||
Kathleen Q. Abernathy | 287,992 | $ | 973,413 | 116,932 | $ | 395,230 | ||||||||||||||
John M. Jureller | — | — | — | — | ||||||||||||||||
| (1) | The amounts shown in this column represent shares of restricted stock held by the named executive officers as of December 31, 2016. The shares of restricted stock vest as follows: |
Mr. McCarthy: 123,539 restricted shares vest on February 18, 2017; 224,813 restricted shares vest in two equal annual installments commencing February 25, 2017; and 811,837 restricted shares vest in three equal annual installments commencing February 11, 2017.
Mr. McBride: 54,645 restricted shares vest in three equal annual installments commencing November 4, 2017.
Mr. Gable: 8,147 restricted shares vest on February 18, 2017; 9,691 restricted shares vest in two equal annual installments commencing February 25, 2017; and 75,145 restricted shares vest in three equal annual installments commencing February 11, 2017.
Ms. McKenney: 61,769 restricted shares vest on February 18, 2017; 93,672 restricted shares vest in two equal annual installments commencing February 25, 2017; and 310,409 restricted shares vest in three equal annual installments commencing February 11, 2017.
Mr. Lass: 17,004 restricted shares vest on February 18, 2017; 22,682 restricted shares vest in two equal annual installments commencing February 25, 2017; and 105,343 restricted shares vest in three equal annual installments commencing February 11, 2017.
Ms. Abernathy: 40,768 restricted shares vest on February 18, 2017; 56,203 restricted shares vest in two equal annual installments commencing February 25, 2017; and 191,021 restricted shares vest in three equal annual installments commencing February 11, 2017. Unvested restricted stock and performance shares are forfeited on Ms. Abernathy’s planned retirement in April 2017.
| (2) | The market value of shares of common stock reflected in the table is based upon the closing price of the common stock on December 30, 2016, which was $3.38 per share. |
| (3) | The amounts shown in this column represent the number of performance shares that may be earned by the NEOs, as follows, in each case assuming achievement of target performance, in accordance with SEC regulations. Assuming they are earned, the performance shares would be paid out as follows: |
Mr. McCarthy: 170,427 shares on December 31, 2017 and 422,570 shares on December 31, 2018.
Mr. Gable: 10,026 shares on December 31, 2017 and 96,039 shares on December 31, 2018.
Ms. McKenney: 65,163 shares on December 31, 2017 and 124,850 shares on December 31, 2018.
Mr. Lass: 18,797 shares on December 31, 2017 and 96,039 shares on December 31, 2018.
Ms. Abernathy: 40,101 shares on December 31, 2017 and 76,831 shares on December 31, 2018. Unvested restricted stock and performance shares are forfeited on Ms. Abernathy’s planned retirement in April 2017.
| Frontier Communications Corporation | 48 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Option Exercises and Stock Vested
The following table sets forth information regarding the shares of restricted stock and performance shares that vested for each of the NEOs in 2016. No NEO acquired any shares upon the exercise of stock options in 2016. The value of restricted stock realized upon vesting is based on the closing price of the shares on the applicable vesting dates and the value of performance shares earned is based on the closing price of the shares on December 30, 2016, the last day of the three-year Measurement Period.
| Stock Awards | ||||||||
| Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||
Daniel J. McCarthy | 507,415 | $ | 2,320,765 | |||||
R. Perley McBride | — | — | ||||||
Steve Gable | 23,328 | $ | 96,353 | |||||
Cecilia K. McKenney | 238,687 | $ | 1,094,864 | |||||
John J. Lass | 80,000 | $ | 367,365 | |||||
Kathleen Q. Abernathy | 189,419 | $ | 816,098 | |||||
John M. Jureller | 211,416 | $ | 1,018,373 | |||||
Pension Benefits
| Name | Plan Name | Number of Years (#) | Present ($) | Payments During ($) | ||||
Daniel J. McCarthy | Frontier Pension Plan | 10 | $185,631 | — | ||||
R. Perley McBride | Frontier Pension Plan | 5 years, 8 mo | $52,840 | — | ||||
Steve Gable | — | — | — | — | ||||
Cecilia K. McKenney | — | — | — | — | ||||
John J. Lass | Frontier Pension Plan | 21 years, 1 mo | $492,826 | — | ||||
Kathleen Q. Abernathy | — | — | — | — | ||||
John M. Jureller | — | — | — | — |
We have a noncontributory, qualified retirement plan, the Frontier Pension Plan, covering certain of our employees. The plan provides benefits that, in most cases, are based on formulas related to base salary and years of service. The plan was amended to provide that, effective February 1, 2003, no further benefits will be accrued under the plan by most non-union participants (including all executive officers), and is referred to as “frozen.” Messrs. McCarthy, McBride and Lass are the only NEOs with vested benefits under the plan. The estimated annual pension benefits (assumed to be governed by her employment agreement. See “Employmentpaid in the normal form of an annuity) for Mr. McCarthy is $22,641, for Mr. McBride is $6,885 and for Mr. Lass is $45,438. This amount is calculated under the plan based on Mr. McCarthy’s 10 years of service, Mr. McBride’s five years, eight months of service and Mr. Lass’s 21 years, one month of service credit at the time the plan was frozen and the compensation limits established in accordance with federal tax law in the computation of retirement benefits under qualified plans. Benefits are not subject to reduction for Social Security payments or other offset amounts. For a discussion of valuation assumptions, see Note 17 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.
As noted in this Proxy Statement, Mr. McBride was named Executive Vice President and Chief Financial Officer in November 2016, but he previously worked for Frontier before the Frontier Pension Plan was frozen.
Employment Arrangements; Potential Payments upon Termination or Change-in-Control-Mary Agnes Wilderotter.”Change-in-Control
Employment Agreements and Arrangements
Frontier is party to an employment agreement with each of the NEOs, and each agreement has been publicly filed with the SEC. In accordance with best practices, the agreements do not provide for a set term of employment.
| Frontier Communications Corporation | 49 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Each NEO receives a base salary and is entitled to participate in the Frontier Bonus Plan and the 2013 Equity Incentive Plan. In addition, each NEO is entitled to severance benefits under the Severance Plan.
The employment agreement for Mr. Jureller is discussed separately below.
Potential Payments upon Termination of Employment or Change-in-Control as of 12/31/2016
Under the terms of the Severance Plan, if the CEO’s executive’s employment is terminated without “cause” or by the CEO with “good reason” (each as defined in the Severance Plan), we would be required to pay the CEO an amount equal to the non-change in control severance factor applicable to the CEO (as set forth below) multiplied by the sum of his or her base salary and target bonus. In addition, all of the CEO’s restricted stock would vest, and all performance sharesshare awards granted to the CEO under the LTIP or any other performance incentive plan pursuant to a performance-based vesting schedule would be vested with respect to any service requirement, but the number of shares earned would be based on actual performance against the pre-established goals. In addition, in such circumstances, the CEO would be entitled to an amount equal to 18 times the monthly COBRA charge for the type of employer-provided health coverage in effect for the CEO.
With respect to other covered members of the Senior Leadership Team, which includes our NEOs other than our CEO, if the executive’s employment is terminated without “cause,“cause” or by the NEO with “good reason,” we would be required to pay the executive an amount equal to the non-change in control severance factor applicable to the executive (as set forth below) multiplied by his or her base salary. The executive would also be entitled to continued employer-provided healthpurchase from Frontier three months COBRA coverage at the active employee rates for three months.rate.
If the CEO’s employment is terminated due to his or her death or in connection with a disability, the CEO or his or her estate would be entitled to payment of six months’ base salary (paid in installments as salary continuation pursuant to our standard payroll practices) and a prorated
40
portion of his or her target bonus for the year of termination.termination (paid in lump sum). In addition, all restricted stock would vest, and performance shares would vest pro-rata, based on time served through the date of termination at the target level of shares granted. The CEO, or his or her spouse, in the event of the CEO’s death, would also be entitled to an amount equal to 18 times the monthly COBRA charge for the type of employer-provided coverage in effect for the CEO.
In the event the CEO’s employment is terminated without “cause” or by the CEO with “good reason” in connection with a “change in control” (as defined in the Severance Plan), the CEO would be entitled to the amounts he or she would receive in connection with a termination by us without cause or by him or her with good reason in a non-change in control context, except that (a) the change in control severance factor would apply as set forth below and (b) the number of earned performance shares would be based on actual performance as of the date of the change in control (if determinable), otherwise based on target performance, and these earned shares would vest at the time of the qualifying termination. In addition, if the successor following a change in control declines to assume Frontier’s obligations with respect to the CEO’s performance shares, the earned performance shares would vest upon the change in control.control, regardless of whether or not employment was terminated.
In the event another covered member of the Senior Leadership Team’s (which includes all NEOs) employment is terminated without “cause” or by the executive with “good reason” (as defined in the Severance Plan) in connection with a change in control, the executive would be entitled to the amounts he or she would receive in connection with a termination by us without cause in a non-change in control context, except that (a) the change in control severance factor would apply as set forth below and the executive’s target bonus would be included in the severance pay calculation, (b) the executive’s restricted stock would vest in full rather than on a pro-rata basis, and (c) the number of earned performance shares would be earned based on actual performance as of the date of the change in control (if determinable), otherwise based on target performance, and these earned shares would vest at the time of the qualifying termination. In addition, if the successor following a change in control declines to assume Frontier’s obligations with respect to the executive’s performance shares, the earned performance shares would vest upon the change in control.control, regardless of whether or not employment was terminated.
To the extent an executive would be subject to any excise taxes under Section 280G of the Internal Revenue Code, the amounts he or she would be entitled to receive would be “capped” to avoid any excise tax unless the total payments to be received by him or her without regard to a cap would result in a higher after-tax benefit. The executive would be responsible to payfor paying any required excise tax.
| Frontier Communications Corporation | 50 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
The severance factors are as follows:
|
|
|
|
| |||||
Executive Level | Severance | Severance Factor | |||||||
Chief Executive Officer | 2.25 |
|
| 3.00 | |||||
Chief Financial Officer and Chief Operating Officer | Up to 1.25 |
|
| 2.00 | |||||
Other members of the Senior Leadership Team | Up to 1.00 |
|
| 1.50 | |||||
| Executive Level | Maximum Severance Factor in Non- Change in Control Situations | Severance Factor in | ||
Chief Executive Officer | 2.25 | 3.00 | ||
Chief Financial Officer and Chief Operating Officer (if any) | 1.25 | 2.00 | ||
Other members of the Senior Leadership Team | 1.00 | 1.50 |
The Company’s change-in-control arrangements promote the unbiased and disinterested efforts of our executives to maximize stockholder value before, during and after a change-in-control of the Company that may impact the employment status of the executives. The Compensation Committeefollowing tables set the severance amounts based on peer group reviews. The change-in-control arrangements are subject to “double-trigger” vesting and do not include gross-upforth certain potential payments for excise taxes imposed under Section 280G of the Code as a result of severance payouts.
Clawback Policies
Since 2010, the Company has included in all of its equity compensation awards, including to the named executive officers, a recoupment or “clawback” provision. This provision requires that unvested equity awards be forfeited if the Compensation Committee determines that the employee engaged in certain defined types of misconduct, including engaging in acts considered to be contrary to the best interests of the Company, commission of felonies or other serious crimes, or engaging in any activity which constitutes gross misconduct. The provision also provides that the Compensation Committee may in its sole discretion require the employee to return all stock that vested within the twelve month
41
period immediately prior to the misconduct, or if no longer held by the employee, to pay to the Company any and all gains realized from such stock.
Effective December 11, 2014, the Company adopted an enhanced clawback policy that is triggered if the Company is required to restate its financial statements due to material noncompliance with any financial reporting requirement under the securities laws that was contributed to by the fraud or intentional misconduct of an executive officer, including a named executive officer. If the policy is triggered, the Compensation Committee will require reimbursement or forfeiture of any cash and equity incentive compensation awarded to or received by the executive officer in question during the three year period preceding the date on which the Company is required to prepare the restatement. The amount to be recovered would be the excess of the incentive compensation obtained by the executive officer based on the erroneous data over the amount that would have been obtained by the executive officermade to each NEO had it been based on the restated results, as determined by the Compensation Committee. We will review the terms of this recovery policy in light of the requirements under the Dodd-Frank Act and will make any necessary changes to be in compliance with those regulations once final regulations have been issued.
Market and Peer Group Reviews
In 2013, the Compensation Committee directed Cook, its independent executive compensation consultant, to develop a peer group for 2014 to assess the competitiveness of our executive compensation program to reflect the then size and scale of the Company and then conduct a comprehensive study with respect to the compensation of the Senior Leadership Team. The study included comparing the compensation of certain senior executives to the compensation of executives holding comparable positions at companies in the peer group as reported in publicly-available documents. The peer group was developed using companies in our industry, companies of similar size (based on revenue and market capitalization), our competitors for customers, executive talent and investor capital, companies with similar business model characteristics, including having asset intensive operations, a technology focus, subscription-based revenue generation and U.S.-based operations. Taking into account the advice of its compensation consultant, the Compensation Committee determined that the size of the peer group should include between 12 to 20 companies to ensure data reliability. The 2013 peer group was updated for 2014 by removing Leap Wireless and MetroPCS, because they were acquired by AT&T Inc. and T-Mobile USA, respectively. In 2014, the Compensation Committee directed Cook to develop a peer group for 2015 to reflect the anticipated size and scale of the Company following the pending AT&T transaction and to increase the size of the peer group because it was at the low end of the desired range of a statistically meaningful peer set. Based on the advice of Cook, the Compensation Committee determined to revise the peer group for 2015 by adding American Tower Corporation, Anixter International Inc., Crown Castle International Corp., Gannett Co., Inc., Harris Corporation, Juniper Networks, Inc., Sirius XM Holdings Inc. and TELUS Corporation.
As a result of these changes, the peer group consisted of twelve companies for 2014 and increased to twenty companies for 2015, which provides a broader competitive benchmark. When comparing the financial metrics (i.e., revenue, total assets, market capitalization, EBITDA, enterprise value, employee count) of the 2014 peer group below, the Company was positioned between the 30th and 76th percentile and in 2015, between the 32nd and 71st percentile in these metrics.
The peer group companies for 2014 consisted of:
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42
For 2015, the following companies were added to the peer group:
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General industry survey data, as described below, was also considered in determining the executive compensation levels of the named executive officers and other senior officers. In the case of executives for whom there was no publicly available datahis or no comparable position at the companies in the peer group, the results from proprietary general industry executive compensation surveys were analyzed to assess competitiveness.
To determine the best job match for the positions evaluated, the 2014 survey data was size-adjusted to approximately $5.0 billion in revenues and the 2015 survey data was size-adjusted to approximately $6.0 billion in post-AT&T transaction revenue. The analyses included examining how each executive’s compensation compared to the results in the surveys for base salary, target total cash compensation, long term incentives and target total direct compensation. Many of our named executive officers have responsibilities that extend beyond the traditional scope indicated by their titles. As a result, it was difficult to match comparable roles in the survey data (e.g., for 2014, Ms. McKenney was responsible for Human Resources, Marketing/Public Relations and the Frontier Secure business). In these cases, the Compensation Committee took into account data from these third-party surveys and the importance of additional responsibilities to the Company when determining the commensurate total compensation levels for the named executive officer. In considering the survey data, the Compensation Committee did not review nor is it aware of the specific companies that are included in the surveys.
The peer review study used to make decisions at the February 2014 Compensation Committee meeting indicated that the target total direct compensation (i.e., base salary, target bonus and market value for long-term awards) for all of the named executive officers was below the median using the proxy data and above the median using the survey data. The total direct compensation for Mrs. Wilderotter, Mr. McCarthy and Mr. Jureller was 20 percentage points or more below the median for the proxy data and, for Mr. McCarthy, was below the 25th percentile for proxy data. The Compensation Committee reviewed and considered the results of the study and other factors as described above under “Compensation Program Design” in determining our CEO’s compensation and that of the Senior Leadership Team for performance in 2014.
As a result of the market adjustments made in 2014 (as reported in the 2014 proxy statement), the peer review study used to make decisions at the February 2015 Compensation Committee meeting (as described below) indicated that the target total direct compensation for the named executive officers in the aggregate now approximates the median of the proxy data.
February 2015 Named Executive Officer Compensation Actions
In February 2015, the Compensation Committee met to evaluate the performance of our CEO and the other named executive officers, to determine merit increases to 2014 base salaries, annual cash bonus payouts, restricted stock awards related to 2014 performance, shares earned under the LTIP for the 2012-2014 Measurement Period and LTIP target awards for the 2015-2017 Measurement Period. In addition, the Compensation Committee determined transaction bonuses for the Senior Leadership Team in connection with the AT&T transaction.
For Mrs. Wilderotter, the Compensation Committee reviewed our financial performance (as measured by revenue, EBITDA, operating cash flow and capital expenditures), our performance on the weighted 3P goals and her performance against her 2014 individual goals, including leadership for and execution of the Company’s long-term strategic plan plus development/succession of senior leaders. The Committee recognized Mrs. Wilderotter’s key accomplishments for 2014: The Committee recognized the Company’s key accomplishments for 2014 under Mrs. Wilderotter’s leadership:
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43
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The Committee also assessed Mrs. Wilderotter’s leadership developing her senior management team. She developed Mr. McCarthy to succeed her as the CEO of the Company. Mrs. Wilderotter also successfully hired and transitioned a new General Counsel and continued to develop the capabilities of her direct reports and other key leaders, giving the Company bench strength for growth. The Committee also took into account competitive market data provided by its independent executive compensation consultant.Based on this review and the factors discussed above under “Components of the Executive Compensation Program,” the Committee, in consultation with the other non-management directors, approved for Mrs. Wilderotter an annual cash incentive bonus payout and a restricted stock unit award for 2014 performance and determined the number of shares earned for her LTIP award for the 2012-2014 Measurement Period, in each case in the amount set forth in the table below. In connection with her pending transition to Executive Chairman in April 2015, Mrs. Wilderotter did not receive a merit increase to her base salary nor a LTIP award for the 2015-2017 Measurement Period.
For the other named executive officers whose performance was evaluated based on the same 3P criteria as Mrs. Wilderotter, the Compensation Committee reviewed Mrs. Wilderotter’s performance assessments for each executive and her recommendations with respect to merit increases in base salary, annual cash incentive bonus payouts and restricted stock and LTIP awards. The Committee then discussed their assessments of each named executive officer and approved the base salaries for 2015, the annual cash bonus payouts and restricted stock and LTIP awards and determined the number of shares earned for the LTIP awards for the 2012-2014 Measurement Period, in each case as set forth in the table below.
The Compensation Committee also approved transaction bonuses for the named executive officers in connection with the successful closing of the AT&T transaction based on the significant leadership contributions the officers made in achieving key milestones towards the closing of the AT&T transaction, including due diligence, financing, system cut-overs, and regulatory approvals. The transaction bonuses for the named executive officers were paid in cash in March 2015, as set forth in the table below. The Compensation Committee considered a number of factors to determine the amounts of the transaction bonuses, including their assessment of each named executive officer’s contribution to achieve the milestones cited above. The transaction bonus awards were approved by the Compensation Committee based on the same process described above for the other actions taken in February 2015.
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Name | 2015 | Change | 2014 Incentive | Transaction | Restricted | Performance | Performance | ||||||||||||||||||||||||||||||||||||||||||
| ($) | (%) | ($) | ($) | (#) | (#) | (#) | ||||||||||||||||||||||||||||||||||||||||||
Mrs. Wilderotter |
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| $ |
| 1,000,000 |
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| (11.3 | )% |
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| $ |
| 1,672,646 |
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| $ |
| 500,000 |
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| 899,249 |
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| — |
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| 259,313 | ||||||||||||||||||||
Mr. McCarthy |
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| $ |
| 925,000 |
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| 37.0 | % |
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| $ |
| 667,575 |
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| $ |
| 250,000 |
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| 337,219 |
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| 170,427 |
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| 97,245 | ||||||||||||||||||||
Mr. Jureller |
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| $ |
| 575,000 |
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| 7.0 | % |
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| $ |
| 506,863 |
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| $ |
| 200,000 |
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| 198,873 |
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| 94,236 |
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| — | ||||||||||||||||||||
Ms. Hedg-peth |
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| — |
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| N/A |
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| $ |
| 480,700 |
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| — |
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| — |
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| — |
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| 58,764 | ||||||||||||||||||||||||||
Ms. McKenney |
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| $ |
| 425,000 |
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| 13.3 | % |
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| $ |
| 370,875 |
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| $ |
| 175,000 |
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| 140,508 |
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| 65,163 |
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| 48,624 | ||||||||||||||||||||
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44
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For 2015, LTIP awards will comprise approximately 33% of total annual target equity compensation value. This will further promote the alignment of stockholder and executive interests by linking a larger percentage of executive compensation to the achievement of operating cash flow targets over a three- year time horizon and taking into account our Total Shareholder Return over that period relative to an industry group comprised of the integrated telecommunications services companies.
Internal Revenue Code Section 162(m) Policy
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to the chief executive officer or any of the three most highly compensated executive officers (other than the chief financial officer). Section 162(m) provides that “qualified performance-based compensation” will not be subject to the tax deduction limit if certain requirements are met. The Compensation Committee believes it is important to maximize the corporate tax deduction, thereby minimizing the Company’s tax liabilities. Accordingly, the 2013 Frontier Bonus Plan, the 2013 Equity Incentive Plan, the LTIP, the 2009 Equity Incentive Plan and the amended 2000 Equity Incentive Plan, as designed by the Compensation Committee, are intended to make compensation awarded under these plans deductible under Section 162(m) as “qualified performance-based compensation.”
We may award amounts that are not deductible under Section 162(m) if the Compensation Committee determines that it is in the best interests of the Company and our stockholders to do so.
45
The Compensation Committee of our board of directors has submitted the following report for inclusion in this proxy statement:
Our Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on our Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, our Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K.
The foregoing report is provided by the following directors, who constitute the Committee:
Submitted by:
Pamela D.A. Reeve, ChairPeter C.B. BynoeVirginia P. RuesterholzLarraine D. SegilMyron A. Wick, III
The information contained in the foregoing report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall the information be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference in a filing.
46
The following table sets forth the compensation awarded to, earned by, or paid to our Chief Executive Officer, our Chief Financial Officer and each of our other three most highly compensated executive officers in 2014, 2013 and 2012.
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Name and | Year | Salary | Bonus (1) | Stock | Non-Equity | All Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Mary Agnes Wilderotter |
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| 2014 |
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| $ |
| 1,110,417 |
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| $ |
| 500,000 |
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| $ |
| 5,874,031 |
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| $ |
| 1,672,646 |
|
| $ |
| 1,813 |
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| $ |
| 9,158,907 | ||||||||||||||||
Executive Chairman and |
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| 2013 |
|
| $ |
| 1,020,833 |
|
| — |
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| $ |
| 4,001,911 |
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| $ |
| 1,537,116 |
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| $ |
| 44,972 |
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| $ |
| 6,604,832 | ||||||||||||||||||
former Chairman of |
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| 2012 |
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| $ |
| 1,000,000 |
|
| — |
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| $ |
| 3,909,507 |
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| $ |
| 1,241,460 |
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| $ |
| 2,685 |
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| $ |
| 6,153,652 | ||||||||||||||||||
the Board of Directors |
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and Chief Executive |
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Officer (5) |
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Daniel J. McCarthy |
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| 2014 |
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| $ |
| 658,333 |
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| $ |
| 250,000 |
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| $ |
| 2,394,276 |
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| $ |
| 667,575 |
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| $ |
| 9,055 |
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| $ |
| 3,979,239 | ||||||||||||||||
President and Chief |
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| 2013 |
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| $ |
| 566,667 |
|
| — |
|
| $ |
| 1,461,247 |
|
| $ |
| 574,856 |
|
| $ |
| 8,955 |
|
| $ |
| 2,611,725 | ||||||||||||||||||
Executive Officer and |
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| 2012 |
|
| $ |
| 503,125 |
|
| — |
|
| $ |
| 1,243,662 |
|
| $ |
| 482,790 |
|
| $ |
| 9,197 |
|
| $ |
| 2,238,774 | ||||||||||||||||||
former President and |
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Chief Operating Officer (5) |
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John M. Jureller |
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| 2014 |
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| $ |
| 531,250 |
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| $ |
| 200,000 |
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| $ |
| 1,714,896 |
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| $ |
| 506,863 |
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| $ |
| 8,855 |
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| $ |
| 2,961,864 | ||||||||||||||||
Executive Vice President |
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| 2013 |
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| $ |
| 492,424 |
|
| — |
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| $ |
| 772,815 |
|
| $ |
| 485,925 |
|
| $ |
| 8,829 |
|
| $ |
| 1,759,993 | ||||||||||||||||||
and Chief Financial |
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Officer (6) |
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Lois Hedg-peth |
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| 2014 |
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| $ |
| 520,000 |
|
| — |
|
| $ |
| 1,285,900 |
|
| $ |
| 480,700 |
|
| $ |
| 9,240 |
|
| $ |
| 2,295,840 | ||||||||||||||||||
Executive Vice President, |
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| 2013 |
|
| $ |
| 506,250 |
|
| — |
|
| $ |
| 499,155 |
|
| $ |
| 480,235 |
|
| $ |
| 9,251 |
|
| $ |
| 1,494,891 | ||||||||||||||||||
Strategy (6) |
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Cecilia K. McKenney |
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| 2014 |
|
| $ |
| 370,833 |
|
| $ |
| 175,000 |
|
| $ |
| 1,174,090 |
|
| $ |
| 370,875 |
|
| $ |
| 8,855 |
|
| $ |
| 2,099,653 | ||||||||||||||||
Executive Vice President, |
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| 2013 |
|
| $ |
| 345,834 |
|
| — |
|
| $ |
| 730,624 |
|
| $ |
| 349,913 |
|
| $ |
| 8,855 |
|
| $ |
| 1,435,226 | ||||||||||||||||||
Frontier Secure and |
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| 2012 |
|
| $ |
| 325,000 |
|
| — |
|
| $ |
| 688,552 |
|
| $ |
| 298,870 |
|
| $ |
| 8,819 |
|
| $ |
| 1,321,241 | ||||||||||||||||||
Administration |
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47
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48
The following table sets forth information concerning cash awards under our non-equity incentive compensation plan (the Frontier Bonus Plan) for 2014 and grants of stock made during 2014 to the named executive officers.
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Name | Grant Date | Estimated Possible Payouts | Estimated Future Payouts | All | Grant Date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($) | ($) | ($) | (#) | (#) | (#) | (#) | ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mary Agnes Wilderotter |
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Cash bonus award |
|
| 2/18/14 |
|
| $ |
| 1,183,875 |
|
| $ |
| 1,691,250 |
|
| $ |
| 2,198,625 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
LTIP award (2014-2016) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 55,792 |
|
| 106,270 |
|
| 172,689 |
|
|
|
| $ |
| 553,231 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2013-2015) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 53,419 |
|
| 101,750 |
|
| 165,344 |
|
|
|
| $ |
| 548,790 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2012-2014) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 41,518 |
|
| 79,083 |
|
| 128,509 |
|
|
|
| $ |
| 426,532 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award |
|
| 2/18/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 926,541 |
|
| $ |
| 4,345,477 | ||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Daniel J. McCarthy |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Cash bonus award |
|
| 2/18/14 |
|
| $ |
| 472,500 |
|
| $ |
| 675,000 |
|
| $ |
| 877,500 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
LTIP award (2014-2016) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 27,896 |
|
| 53,135 |
|
| 86,344 |
|
|
|
| $ |
| 276,616 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2013-2015) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 21,368 |
|
| 40,700 |
|
| 66,138 |
|
|
|
| $ |
| 219,517 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2012-2014) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 15,569 |
|
| 29,656 |
|
| 48,191 |
|
|
|
| $ |
| 159,950 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award |
|
| 2/18/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 370,617 |
|
| $ |
| 1,738,194 | ||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John M. Jureller |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Cash bonus award |
|
| 2/18/14 |
|
| $ |
| 376,250 |
|
| $ |
| 537,500 |
|
| $ |
| 698,750 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
LTIP award (2014-2016) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 18,597 |
|
| 35,423 |
|
| 57,563 |
|
|
|
| $ |
| 184,410 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2013-2015) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 18,697 |
|
| 35,613 |
|
| 57,871 |
|
|
|
| $ |
| 192,077 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award |
|
| 2/18/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 285,375 |
|
| $ |
| 1,338,409 | ||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lois Hedg-peth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Cash bonus award |
|
| 2/18/14 |
|
| $ |
| 365,750 |
|
| $ |
| 522,500 |
|
| $ |
| 679,250 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
LTIP award (2014-2016) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 9,299 |
|
| 17,712 |
|
| 28,781 |
|
|
|
| $ |
| 92,205 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2013-2015) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 10,684 |
|
| 20,350 |
|
| 33,069 |
|
|
|
| $ |
| 109,760 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2012-2014) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 9,409 |
|
| 17,921 |
|
| 29,122 |
|
|
|
| $ |
| 96,657 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award |
|
| 2/18/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 148,247 |
|
| $ |
| 695,278 | ||||||||||||||||||||||||||||||||||||||||
Common stock award |
|
| 7/1/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50,000 |
|
| $ |
| 292,000 | ||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cecilia K. McKenney |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Cash bonus award |
|
| 2/18/14 |
|
| $ |
| 262,500 |
|
| $ |
| 375,000 |
|
| $ |
| 487,500 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
LTIP award (2014-2016) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 11,623 |
|
| 22,140 |
|
| 35,977 |
|
|
|
| $ |
| 115,257 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2013-2015) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 10,684 |
|
| 20,350 |
|
| 33,069 |
|
|
|
| $ |
| 109,760 | ||||||||||||||||||||||||||||||||||||||
LTIP award (2012-2014) |
|
| 2/18/14 |
|
|
|
|
|
|
|
| 7,785 |
|
| 14,828 |
|
| 24,096 |
|
|
|
| $ |
| 79,975 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award |
|
| 2/18/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 185,309 |
|
| $ |
| 869,099 | ||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash awards under the Frontier Bonus Plan for 2014 shown under the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards columns were paid in March 2015 based on performance metrics set for 2014 and achievement of individual goals, as described above under “Compensation Discussion and Analysis—Components of the Executive Compensation Program—Cash Compensation—Annual Bonus.” Target awards under the Frontier Bonus Plan are set as a percentage of base salary. Targets for 2014 were set at 100% of base salary for each of the named executive officers other than Mrs. Wilderotter. In accordance with her employment agreement in effect for 2014, Mrs. Wilderotter’s target award was set at 150% of base salary for 2014. Payouts can be 0%, for below-threshold performance, up to 70%, for threshold performance, and up to 130%, for outstanding performance, of the target. The actual amounts of these awards for 2014 for the named executive officers are reported above in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”
The awards shown under the Estimated Future Payouts Under Equity Incentive Plan Awards columns are performance shares under the LTIP deemed to have been granted in 2014 in accordance with Topic 718 (i.e., the first tranche of the 2014-2016 Measurement Period, the second tranche of the
49
2013-2015 Measurement Period and the third tranche of the 2012-2014 Measurement Period). See footnote (1) to the Summary Compensation Table. The amounts shown represent the range of shares that may be released at the end of the applicable Measurement Period for such grants assuming achievement of threshold, target or maximum performance. If our operating cash flow performance is, on average, below threshold for the three-year Measurement Period, no shares will be released at the end of the period. Dividends on performance shares will be accrued and paid out at the end of the three-year Measurement Period only with respect to shares that are earned and released. See the discussion of LTIP awards under “Compensation Discussion and Analysis—Components of the Executive Compensation Program—Equity Compensation—Long-Term Incentive Plan Awards.”
Except as noted below, the stock awards shown under the All Other Stock Awards column in the above table are grants of restricted stock. The grants represent annual restricted stock awards and vest in three equal annual installments commencing one year after the date of approval by the Compensation Committee, February 18, 2014. All such grants of restricted stock were made under our 2013 Equity Incentive Plan in 2014. Each of the named executive officers is entitled to receive dividends on shares of restricted stock at the same rate and at the same time we pay dividends on shares of our common stock. The annual common stock dividend rate for 2014 was $0.40 per share, paid quarterly. No above-market or preferential dividends were paid with respect to any restricted shares. For Ms. Hedg-peth, the July 1, 2014 common stock award was in accordance with her employment letter agreement. See “Employment Arrangements; Potential Payments upon Termination or Change-in-Control-Lois Hedg-peth.”
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by the named executive officers at year-end.
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Name | Stock Awards | |||||||||||||||||||||||||||
Number of | Market Value | Equity | Equity | |||||||||||||||||||||||||
| (#) | ($) | (#) | ($) | ||||||||||||||||||||||||
Mary Agnes Wilderotter |
|
| 1,974,861 |
|
| $ |
| 13,172,323 |
|
| 624,061 |
|
| $ |
| 4,162,487 | ||||||||||||
Daniel J. McCarthy |
|
| 712,701 |
|
| $ |
| 4,753,716 |
|
| 281,506 |
|
| $ |
| 1,877,645 | ||||||||||||
John J. Jureller |
|
| 385,375 |
|
| $ |
| 2,570,451 |
|
| 213,108 |
|
| $ |
| 1,421,430 | ||||||||||||
Lois Hedg-peth |
|
| 251,972 |
|
| $ |
| 1,680,653 |
|
| 114,186 |
|
| $ |
| 761,621 | ||||||||||||
Cecilia K. McKenney |
|
| 369,135 |
|
| $ |
| 2,462,130 |
|
| 127,470 |
|
| $ |
| 850,225 | ||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
50
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Option Exercises and Stock Vested
The following table sets forth information regarding the shares of restricted stock and performance shares that vested for each of the named executive officers in 2014. For Ms. Hedg-peth, the table also includes a grant of 50,000 shares of common stock in July 2014 in accordance with her employment letter agreement. No named executive officer acquired any shares upon the exercise of stock options in 2014. The value of restricted stock realized upon vesting is based on the closing price of the shares on the applicable vesting dates and the value of performance shares earned is based on the closing price of the shares on December 31, 2014, the last day of the three-year Measurement Period.
|
|
|
|
| ||||||||||
Name | Stock Awards | |||||||||||||
Number of Shares | Value Realized | |||||||||||||
| (#) | ($) | ||||||||||||
Mary Agnes Wilderotter |
|
| 960,754 |
|
| $ |
| 5,092,303 | ||||||
Daniel J. McCarthy |
|
| 302,473 |
|
| $ |
| 1,637,820 | ||||||
John M. Jureller |
|
| 50,000 |
|
| $ |
| 249,500 | ||||||
Lois Hedg-peth |
|
| 160,626 |
|
| $ |
| 963,997 | ||||||
Cecilia K. McKenney |
|
| 162,995 |
|
| $ |
| 873,943 | ||||||
51
|
|
|
|
|
|
|
|
| ||||||||||
Name | Plan Name | Number of Years | Present | Payments During | ||||||||||||||
|
|
| (#) | ($) | ($) | |||||||||||||
Mary Agnes Wilderotter | — |
|
| — | — |
|
| — | ||||||||||
Daniel J. McCarthy | Frontier Pension Plan |
|
| 10.0 | $174,719 |
|
| — | ||||||||||
John M. Jureller | — |
|
| — | — |
|
| — | ||||||||||
Lois Hedg-peth | — |
|
| — | — |
|
| — | ||||||||||
Cecilia K. McKenney | — |
|
| — | — |
|
| — | ||||||||||
We have a noncontributory, qualified retirement plan, the Frontier Pension Plan, covering certain of our employees. The plan provides benefits that, in most cases, are based on formulas related to base salary and years of service. The plan was amended to provide that, effective February 1, 2003, no further benefits will be accrued under the plan by most non-union participants (including all executive officers), and is referred to as “frozen.” Mr. McCarthy is the only named executive officer with vested benefits under the plan. The estimated annual pension benefits (assumed to be paid in the normal form of an annuity) for Mr. McCarthy is $22,641. This amount is calculated under the plan based on his 10 years of service credit at the time the plan was frozen and the compensation limits established in accordance with federal tax law in the computation of retirement benefits under qualified plans. Benefits are not subject to reduction for Social Security payments or other offset amounts. For a discussion of valuation assumptions, see Note 16 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Employment Arrangements; Potential Payments Upon Termination or Change-in-Control
Mary Agnes Wilderotter
We are party to an employment agreement, originally dated as of November 1, 2004, with Mary Agnes Wilderotter, our Chairman of the Board and Chief Executive Officer. The agreement was amended in December 2008 in connection with the deferred compensation rules imposed by Section 409A of the Internal Revenue Code (“Section 409A”), amended and restated in March 2010 (the “2010 Amendment”) and again amended and restated in March 2013 (the “2013 Amendment”). The employment agreement had an initial term of five years, which expired in November of 2009, and the 2010 Amendment had a three-year term, which was scheduled to expire in April 2013. The 2013 Amendment extended the term of the employment agreement for an additional two years to March 2015. Under the terms of the 2013 Amendment, Mrs. Wilderotter’s base salary initially was $1,025,000, which amount can be and has been increased by the Compensation Committee from time to time. Mrs. Wilderotter is also eligible to earn a target bonus equal to at least 150% of her base salary. Mrs. Wilderotter is eligible to participate in the Company’s equity incentive plans and receive awards at the discretion of the Compensation Committee.
In February 2015, the agreement was again amended (the “2015 Amendment”) to provide that effective April 3, 2015, Mrs. Wilderotter will step down from her role as Chief Executive Officer and become the Company’s Executive Chairman of the Board through March 31, 2016. Under the terms of the 2015 Amendment, commencing on April 3, 2015, Mrs. Wilderotter’s base salary will be $1,000,000 and she will be eligible to earn a target bonus equal to at least 200% of her base salary. In addition, Mrs. Wilderotter was granted 899,249 restricted stock units for 2014 performance, which will vest in three equal annual installments commencing one year after the date of grant. Mrs. Wilderotter will not be eligible for any equity grants for 2015 or 2016.
If Mrs. Wilderotter’s employment is terminated without “cause” or by Mrs. Wilderotter with “good reason” (each as defined in the employment agreement), we would be required to pay Mrs. Wilderotter an amount equal to her base salary through the date of termination and any bonus earned but unpaid as of the date of termination for any previously completed fiscal year, the sum of three times her base salary and two times her target bonus (generally payable in equal installments over 36 months, but
52
with installments payable by March of the following year accelerated and paid as a lump sum) and one times her bonus for the year of termination (payable based on actual performance in a lump sum within 2-1/2 months following the end of the calendar year of termination). In addition, all of her restricted stock will vest, and all performance shares granted to her under the LTIP or other performance incentive plan pursuant to a performance-based vesting schedule will be vested with respect to any service requirement, but the number of shares earned will be based on actual performance against the pre-established goals. Mrs. Wilderotter is also entitled to receive reimbursement for any unreimbursed business expenses, any accrued but unpaid vacation and to elect and pay the cost for continued medical, dental and other health benefits and extended life insurance until the end of the severance period (or if earlier, the date on which Mrs. Wilderotter becomes eligible to receive comparable benefits from any subsequent employer), for which we will provide a lump sum to her to offset the cost of these benefits.
The 2015 Amendment provides that if Mrs. Wilderotter is not re-nominated and elected to serve as a member of the Board, and if, as a result, she is unable to perform her duties as Executive Chairman of the Board, she will be deemed to have been terminated by the Company for purposes of the 2015 Amendment.
If Mrs. Wilderotter’s employment is terminated at the end of the term of the 2015 Amendment, the vesting of restricted stock will be determined as if her service with the Company continued for an additional 12 months, and performance shares will vest pro rata and be paid at the conclusion of the performance period based on actual performance.
If Mrs. Wilderotter’s employment is terminated due to her death or in connection with a disability, she or her estate will be entitled to payment of base salary for six months following the termination and a prorated portion of her bonus based on actual performance. In addition, all restricted stock will vest, and all performance shares will vest at the target level of shares granted.
In the event of a ���constructive termination” following a “change in control” (each as defined in the employment agreement), Mrs. Wilderotter will be entitled to the amounts she would receive in connection with a termination by us without cause or by her with good reason, except that (a) the installments over 36 months will be converted to a lump sum if permissible under Section 409A, and (b) performance shares will vest at the target level of shares granted. In addition, if the successor following a change in control declines to assume Mrs. Wilderotter’s equity awards (restricted stock and performance shares) and declines to replace them with equivalent awards, her equity awards will vest upon the change in control. To the extent Mrs. Wilderotter would be subject to any excise taxes under Section 280G of the Internal Revenue Code, the amounts she would be entitled to receive will be “capped” to avoid any excise tax unless the total payments to be received by her without regard to a cap would result in a higher after-tax benefit. Mrs. Wilderotter is responsible to pay any required excise tax.
The following table sets forth the severance amounts Mrs. Wilderotter would have been entitled to from us under the terms of her employment agreement (as then in effect) had her employment been terminated as of December 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Termination Event | Base Salary (1) | Bonus (1) | Value of | Value of | Benefits (4) | Total | ||||||||||||||||||||||||||||||||||||
Without cause or for good reason |
|
| $ |
| 3,382,500 |
|
| $ |
| 5,073,750 |
|
| $ |
| 13,172,323 |
|
| $ |
| 4,162,487 |
|
| $ |
| 51,312 |
|
| $ |
| 25,842,372 | ||||||||||||
Death |
|
| $ |
| 563,750 |
|
| $ |
| 1,691,250 |
|
| $ |
| 13,172,323 |
|
| $ |
| 4,162,487 |
|
| $ |
| 15,305 |
|
| $ |
| 19,605,115 | ||||||||||||
Disability |
|
| $ |
| 563,750 |
|
| $ |
| 1,691,250 |
|
| $ |
| 13,172,323 |
|
| $ |
| 4,162,487 |
|
| $ |
| 33,925 |
|
| $ |
| 19,623,735 | ||||||||||||
Change-in-control |
|
| $ |
| 3,382,500 |
|
| $ |
| 5,073,750 |
|
| $ |
| 13,172,323 |
|
| $ |
| 4,162,487 |
|
| $ |
| 51,312 |
|
| $ |
| 25,842,372 | ||||||||||||
Non-renewal of agreement |
|
| — |
|
| — |
|
| $ |
| 5,955,550 |
|
| $ |
| 2,066,170 |
|
| — |
|
| $ |
| 8,021,720 | ||||||||||||||||||
With cause or without good reason |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — | ||||||||||||||||||||||||
532016 under various scenarios, including a change in control. The table for Messrs. McCarthy and Lass do not include their pension benefits, which are set forth under “Pension Benefits.”
Each NEO would be required to enter into a separate agreement in which the NEO releases claims against Frontier in order to receive the payments under the Severance Plan.
Because payments to be made to an NEO depend on several factors, actual amounts to be paid out upon an NEO’s termination of employment can only be determined at the time of separation from Frontier.
| Payment Type | D. McCarthy | R. P. McBride | S. Gable | C. McKenney | J. Lass | K. Abernathy | ||||||||||||||||||
Termination without Cause or Resignation for Good Reason (no CIC) | ||||||||||||||||||||||||
Base Salary(1) | $ | 2,250,000 | $ | 812,500 | $ | 470,000 | $ | 486,875 | $ | 439,875 | $ | 420,000 | ||||||||||||
Bonus(1) | $ | 2,812,500 | — | — | — | — | — | |||||||||||||||||
Value of Accelerated Restricted Stock(2) | $ | 3,921,439 | — | — | — | — | — | |||||||||||||||||
Value of Accelerated Performance Shares(3) | $ | 2,004,330 | — | — | — | — | — | |||||||||||||||||
Other Benefits(4) | $ | 31,495 | $ | 3,330 | $ | 3,105 | $ | 3,105 | $ | 2,304 | — | |||||||||||||
Total | $ | 11,019,764 | $ | 815,830 | $ | 473,105 | $ | 489,980 | $ | 442,179 | $ | 420,000 | ||||||||||||
Death or Disability | ||||||||||||||||||||||||
Base Salary | $ | 500,000 | — | — | — | — | — | |||||||||||||||||
Bonus | $ | 1,250,000 | — | — | — | — | — | |||||||||||||||||
Value of Accelerated Restricted Stock(2) | $ | 3,921,439 | — | — | — | — | — | |||||||||||||||||
Value of Accelerated Performance Shares(3) | $ | 2,004,330 | — | — | — | — | — | |||||||||||||||||
Other Benefits(4) | $ | 31,495 | — | — | — | — | — | |||||||||||||||||
Total | $ | 7,707,264 | — | — | — | — | — | |||||||||||||||||
Termination without Cause or Resignation for Good Reason (in connection with CIC) | ||||||||||||||||||||||||
Base Salary(5) | $ | 3,000,000 | $ | 1,300,000 | $ | 705,000 | $ | 730,313 | $ | 659,813 | $ | 630,000 | ||||||||||||
Bonus(5) | $ | 3,750,000 | $ | 1,300,000 | $ | 705,000 | $ | 730,313 | $ | 659,813 | $ | 630,000 | ||||||||||||
Value of Accelerated Restricted Stock(2) | $ | 3,921,439 | $ | 184,700 | $ | 314,283 | $ | 1,574,573 | $ | 490,198 | $ | 973,413 | ||||||||||||
Value of Accelerated Performance Shares(6) | $ | 860,124 | $ | 0 | $ | 130,796 | $ | 287,498 | $ | 150,560 | $ | 176,924 | ||||||||||||
Other Benefits(4) | $ | 31,495 | $ | 3,330 | $ | 3,105 | $ | 3,105 | $ | 2,304 | — | |||||||||||||
Total | $ | 11,563,058 | $ | 2,788,030 | $ | 1,858,183 | $ | 3,325,801 | $ | 1,962,687 | $ | 2,410,337 | ||||||||||||
| (1) | For Mr. McCarthy, the amount shown is equal to 2.25 times his 2016 base salary and bonus opportunity. The portion of this amount related to the bonus opportunity would be paid in lump sum at the time bonus payments are made to other executives under the Frontier Bonus Plan. The remaining portion is payable to Mr. McCarthy in installments as salary continuation pursuant to our standard payroll practices. For Mr. McBride, the amount shown is equal to 1.25 times his 2016 base salary. For Messrs. Gable and Lass, Ms. McKenney and Ms. Abernathy, the amount shown is equal to 1.00 times his or her 2016 base salary. Amounts payable to each NEO (other than Mr. McCarthy) are payable in installments as salary continuation pursuant to our standard payroll practices. |
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| 2017 Proxy Statement |
EXECUTIVE COMPENSATION
| (2) | For Mr. McCarthy, all restricted stock vests upon termination without cause or by him with good reason, whether the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| not, and upon death or disability. For each other NEO, all restricted stock vests upon termination without cause or | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (3) | Dollar value of the 592,997 performance shares held by Mr. McCarthy on December 31, 2016 based on the closing price of $3.38 per share of our common stock on December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Daniel J. McCarthy
In February 2015, the Company entered into a letter agreement with Daniel J. McCarthy, our President and Chief Operating Officer, pursuant to which, effective April 3, 2015, Mr. McCarthy became President and Chief Executive Officer of the Company. Under the terms of the new letter agreement, commencing on April 1, 2015, Mr. McCarthy’s base salary will be $925,000 and he will be eligible to earn a target bonus equal to 125% of his base salary. In addition, Mr. McCarthy will be entitled to annual target equity grants of $4,250,000, payable in restricted stock awards and performance shares. Mr. McCarthy’s letter agreement does not provide for a set term of employment in accordance with best practices.
Mr. McCarthy is entitled to severance arrangements under the Senior Leadership Team Severance Plan commencing April 3, 2015. The following table sets forth the severance amounts Mr. McCarthy would have been entitled to from us had his employment been terminated as of December 31, 2014 following a change in control. Mr. McCarthy would not have been entitled to any severance amounts upon termination for any other reason. In addition, Mr. McCarthy is also entitled to his pension benefit as set forth under “Pension Benefits.”
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| 1,350,000 |
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John M. Jureller
We are party to a letter agreement with John M. Jureller, our Executive Vice President and Chief Financial Officer, dated December 18, 2012. The letter agreement provides for a target annual incentive bonus of 100% of his base salary.
Mr. Jureller is entitled to severance arrangements under the Senior Leadership Team Severance Plan commencing April 3, 2015.
The following table sets forth the severance amounts Mr. Jureller would have been entitled to from us had his employment been terminated as of December 31, 2014 following a change in control. Mr. Jureller would not have been entitled to any severance amounts upon termination for any other reason.
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Termination Event | Base Salary (1) | Bonus (1) | Value of | Value of | Total | ||||||||||||||||||||||||||||||
Change in control |
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| 1,075,000 |
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Lois Hedg-peth
Lois Hedg-peth resigned as Executive Vice President, Strategy effective January 2, 2015. In recognition of Ms. Hedg-peth’s contributions to the Company, the Company provided Ms. Hedg-peth with a Separation Agreement pursuant to which she received her earned 2014 bonus at the time when bonuses were paid to all other eligible employees in March 2015, the amount being based on her individual performance and the weighted 3P payout factor, as reported elsewhere in this proxy statement. She also received a payout of her earned 2012-2014 LTIP grant, based on the Company’s performance for the three- year measurement period, in February 2015. Further, the restrictions on 49,416 shares of restricted stock held by Ms. Hedg-peth lapsed on February 18, 2015 and restrictions on 23,815 shares of restricted stock held by her lapsed on February 27, 2015. All other unvested restricted stock and unearned performance shares held by Ms. Hedg-peth as of her departure from the Company were cancelled and the Company has no further obligations to Ms. Hedg-peth under her employment arrangement.
Pursuant to a letter agreement with Ms. Hedg-peth dated April 10, 2012, Ms. Hedg-peth’s target annual incentive bonus for 2014 was 100% of her base salary. Additionally, Ms. Hedg-peth was granted 50,000 shares of common stock on July 1, 2014.
Cecilia K. McKenney
We are party to a letter agreement with Cecilia K. McKenney, our Executive Vice President, Frontier Secure and Administration, dated January 13, 2006 and amended in December 2008 in connection with the deferred compensation rules imposed by Section 409A. The letter agreement provides for a target annual incentive bonus of 60% of her base salary, which was increased to 75% commencing in 2008 and to 100% commencing in 2010.
Ms. McKenney is entitled to severance arrangements under the Senior Leadership Team Severance Plan commencing April 3, 2015.
55
The following table sets forth the severance amounts Ms. McKenney would have been entitled to from us had her employment been terminated as of December 31, 2014 following a change in control. Ms. McKenney would not have been entitled to any severance amounts upon termination for any other reason.
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| (4) | Under the Severance Plan, Mr. McCarthy is entitled to an amount equal to 18 times the monthly COBRA charge for the type of employer-provided health coverage in effect for the CEO. This amount will be paid in lump sum within 60 days following termination. All other NEOs are entitled to purchase from Frontier up to three months COBRA coverage at the active employee rate. |
| (5) | Amounts shown are payable in lump sum upon termination of the NEO without cause or by the NEO with good reason in connection with a change of control pursuant to the Severance Plan. For Mr. McCarthy, the amount is equal to 3.00 times his 2016 base salary and bonus opportunity. For Mr. McBride, the amount is equal to 2.00 times his 2016 base salary and bonus opportunity. For Messrs. Gable and Lass, Ms. McKenney and Ms. Abernathy, the amount is equal to 1.50 times his or her 2016 base salary and bonus opportunity. |
| (6) | Amounts shown represent the dollar value of performance shares earned based on actual performance by each NEO as of December 31, 2016 based on the closing price of $3.38 per share of common stock on December 31, 2016. The number of earned performance shares used for this purpose is based upon the target level of shares granted. Does not include the value of performance shares that were earned and issued on December 31, 2016 upon completion of the 2014-2016 Measurement Period. |
Mr. Jureller
Frontier and Mr. Jureller entered into a Separation Agreement and Release dated September 12, 2016, pursuant to which Mr. Jureller agreed to continue to serve in transitional capacities through November 4, 2016 (the Separation Date). As consideration for Mr. Jureller’s compliance with the terms of the Separation Agreement, the Compensation Committee agreed to pay Mr. Jureller $1,500,000 (paid in two installments), and to pay COBRA premiums for 15 months. The compensation arrangements in place for Mr. Jureller prior to his departure in November 2016 were established in accordance with the general processes outlined above for our NEOs. Upon his departure, Mr. Jureller forfeited his outstanding cash and equity incentive awards.
The value of Mr. Jureller’s severance benefits upon termination of employment on November 4, 2016 were as follows:
| Severance Payment | Bonus | Benefits(1) | Total | |||
| $1,500,000 | — | $47,848 | $1,547,848 |
| (1) | The amount equal to 15 times the monthly COBRA charge for the type of employer-provided health coverage in effect for employees in the same group plus $27,000 in accrued vacation time. |
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Ms. Reeve,Ruesterholz, as Chair, Messrs. Bynoe and Mr. Bynoe, Ms. Ruesterholz,Wick, and Ms. Segil, and Mr. Wick.who is not standing for re-election at the Annual Meeting. None of our executive officers served as: (i) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation Committee; (ii) a director of another entity, one of whose executive officers served on our Compensation Committee; or (iii) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as one of our directors.
| Frontier Communications Corporation | 52 | 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Compensation Policy Risk Analysis
Management annually reviews our compensation policies and practices applicable to all of our employees, including the named executive officers,NEOs, for the purpose of evaluating the risks to our companyFrontier arising from such policies and practices. Each component of the Company’sour compensation program is evaluated for any risks to the CompanyFrontier associated with such compensation. Included in these evaluations is an analysis of the likelihood that such compensation components would influence behaviors or decision-making and impact the Company’sour risk profile. For 2014,2016, risk controls, both entity-level and compensation-related, were identified and evaluated. These controls included:
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Corporate governance and Enterprise Risk Management policies;
Oversight of our compensation practices and policies by the Compensation Committee, including the ability to reduce incentive payouts based on factors such as earnings and individual performance;
Frontier’s compensation program design, including the mix of cash and equity compensation, short- and long-term incentive compensation, “fixed” and “variable” compensation and company-wide and individual goals and targets, the use of multiple performance metrics based on the Company Performance Goals, which include financial and other quantitative and qualitative measurements, the use of modest multipliers, and maximum payout limits (in terms of dollars and percentages of base salary);
Performance goals that are set at levels that are sufficiently high to encourage strong performance and support the resulting compensation expense, but within reasonably attainable parameters to discourage pursuit of excessively risky business strategies; and
Meaningful risk mitigators, including substantial stock ownership guidelines, claw-back provisions, anti-hedging/pledging policies, independent Compensation Committee oversight and engagement of an independent consultant that does no other work for Frontier or management.
In February 2015,2017, management reviewed its findings with the Compensation Committee at a meeting at which the Compensation Committee and management engaged in an in-depth discussion of the findings. Based on its review of management’s risk assessment of our company’sFrontier’s compensation policies, practices and controls and the Compensation Committee’s evaluation of management’s assessment, the Compensation Committee determined that such policies and practices are not reasonably likely to have a material adverse effect on our company.
57
Frontier.
| Frontier Communications Corporation | 53 | 2017 Proxy Statement |
PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION(Item 2 on the Proxy Card)
PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION
The CompanyFrontier and its board of directorsBoard are committed to excellence in governance and recognize the interests that our stockholders have expressed in our executive compensation program. As part of our commitment, in 2009, the board of directorsBoard voluntarily adopted a Corporate Governance Guideline, commonly known as “Say-on-Pay,” to annually provide stockholders with the opportunity to endorse or not endorse compensation paid to the Company’s named executive officersNEOs through consideration of the following non-binding advisory resolution:
“Resolved, that the compensation paid to the Company’sFrontier’s named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and accompanying narrative discussion, is hereby approved.”
We believe that our executive compensation philosophy and programs reinforce our pay for performance culture and are strongly aligned with the long-term interests of our stockholders. The Compensation Committee, which oversees and approves the compensation philosophy and programs, engages in an extensive process to align executive pay, both short- and long-term, with the Company’sFrontier’s performance and the interests of our stockholders. The Compensation Discussion and Analysis section of this proxy statementProxy Statement provides a comprehensive review of the Company’sour executive compensation philosophy and programs and the rationale for executive compensation decisions, and the accompanying tables and narrative provide details on the compensation paid to the Company’s named executive officers.our NEOs. We urge you to read this disclosure prior to voting on this proposal.
Our existing say on paySay-on-Pay policy is consistent with Section 14A of the Securities Exchange Act of 1934 adopted in July 2010 as part of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which now requires the proposal.Act. Because your vote is advisory, it will not be binding upon the board.Board. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. Stockholders who wantwish to communicate with our boardBoard or any specific director, including the Lead Director,Chairman, any non-management director, the non- managementnon-management directors as a group, any independent director or the independent directors as a group, on executive compensation or any other matter of stockholder concern, can do so by writing to such director or group of directors at: Frontier Communications Corporation, Three High Ridge Park, Stamford,401 Merritt 7, Norwalk, Connecticut 06905.06851. Any communication will be forwarded to the director or directors to whom it is addressed.
In accordance with the wishes of our stockholders and best practices, we will provide a say on pay vote annually and the next say on pay voteSay-on-Pay proposal will be included in our 20162018 proxy statement.
The boardBoard unanimously recommends that you voteFOR this proposal.
| Frontier Communications Corporation | 54 | 2017 Proxy Statement |
PROPOSAL 3: ADVISORY VOTE ON FREQUENCY OF EXECUTIVE COMPENSATION PROPOSAL
PROPOSAL 3: ADVISORY VOTE ON FREQUENCY OF EXECUTIVE COMPENSATION PROPOSAL
We are providing our stockholders with a separate advisory vote on the frequency of directorsthe advisory vote on executive compensation. By voting on this proposal, stockholders may indicate whether they would prefer an advisory vote on executive compensation every year, every two years, or every three years. Stockholders also have the option to abstain from voting on this matter.
It is important that our executive compensation policies and procedures are aligned with the best interests of our stockholders and our company. Consequently, the Board has determined that an annual advisory vote on executive compensation is the most appropriate alternative at this time given our existing compensation program, which focuses on annual performance goals. Consistent with this view, in 2009 the Board adopted an annual “Say-on-Pay” Corporate Governance Guideline to provide stockholders with the opportunity to endorse or not endorse Frontier’s executive compensation policies and procedures through consideration of Proposal 2, above. We continue to believe that for 2017 an annual advisory vote on executive compensation best aligns with our existing compensation program, but we will periodically reconsider this determination should changes in our compensation program or other circumstances warrant a less frequent vote.
This proposal is required to be presented to stockholders at least once every six years pursuant to Section 14A of the Securities Exchange Act of 1934 adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Board values the opinion of our stockholders and will take into account the outcome of the vote when considering the frequency of the advisory vote. Because your vote is advisory, it will not be binding upon the Board and the Board may decide it is in the best interests of our company and our stockholders to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.
The Board unanimously recommends a vote for presenting the advisory proposal on executive compensationFOREVERY YEAR.this proposal.
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| Frontier Communications Corporation | 55 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
SECURITIES AUTHORIZED FOR ISSUANCEUNDERPROPOSAL 4: APPROVAL OF 2017 EQUITY COMPENSATION PLANSINCENTIVE PLAN
On March 2, 2017, upon the recommendation of the Compensation Committee, our Board approved the Frontier Communications Corporation 2017 Equity Incentive Plan (the “2017 Plan”), subject to approval of our stockholders at the Annual Meeting.
The 2017 Plan will replace our 2013 Equity Incentive Plan (the “2013 Plan”). The 2017 Plan is substantially similar to the 2013 Plan, except that we have added a number of new compensation governance provisions (described below) that reflect best practices. The 2013 Plan is the only Frontier compensation plan under which equity-based compensation may currently be awarded to our executives, directors and other employees. If the 2017 Plan is approved, no awards will be made under the 2013 Plan; however, awards currently outstanding under the 2013 Plan will continue to remain outstanding in accordance with their terms. If the 2017 Plan is approved by our stockholders, the 2017 Plan will become effective on May 10, 2017 (the “Effective Date”). If our stockholders do not approve the 2017 Plan, the 2013 Plan will remain in effect in its current form.
A description of the 2017 Plan is set forth below. This description is qualified in its entirety by reference to the full text of the 2017 Plan, a copy of which is included in this proxy statement as Annex A.
Executive Summary
Purpose of the 2017 Plan | As of December 31, 2016, the 2013 Plan had 7,324,000 shares available for future grants. If the 2017 Plan is not approved by our stockholders, we will not have sufficient shares to grant an appropriate level of equity awards in the next annual award cycle in 2018. The 2017 Plan will allow us to continue to utilize equity awards, including performance awards, to incentivize high levels of performance and productivity by individuals who provide services to Frontier and to further align the interests of our employees with those of Frontier and our stockholders. The use of our common stock as part of our compensation program fosters a pay-for-performance culture that is an important element of our overall compensation philosophy. Our equity compensation is also used to retain our officers and other employees and promote a focus on sustained enhancement through improved performance. We also are requesting stockholder approval of the material terms of the 2017 Plan, including performance measures and individual award limits, in order to allow awards granted under the 2017 Plan, which are intended to be “performance-based compensation” under Section 162(m) of the Internal Revenue Code (“Section 162(m)”), to be exempt from the tax deduction limits of Section 162(m) if they meet the other requirements of Section 162(m). | ||||
Proposed Share Reserve | A total of 65,000,000 shares of common stock may be subject to awards granted under the 2017 Plan, less one share for every one share granted under the 2013 Plan after December 31, 2016. | ||||
Effect of Reverse Stock Split | The proposed share reserve is subject to adjustment for certain events as more fully described below. Specifically, in the event that Frontier’s stockholders approve the reverse stock split (see Proposal 5, beginning on page 67), the number of shares of common stock that may be subject to awards granted under the 2017 Plan will be adjusted proportionately. The following table illustrates the effects of the reverse stock split at certain exchange ratios within the 1-for-10 and 1-for-25 range: | ||||
| No Reverse Stock Split | 65,000,000 | ||||
| Post 1-for-10 Reverse Split | 6,500,000 | ||||
| Post 1-for-25 Reverse Split | 2,600,000 | ||||
| Frontier Communications Corporation | 56 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
Impact on Dilution and Expected Duration | Our Board recognizes the impact of dilution on our stockholders and has evaluated this share request very carefully in the context of the need to motivate and retain our leadership team and ensure they are focused on our strategic and long-term growth priorities. Equity is an important component of a compensation program that aligns with our strategy of achieving long-term, sustainable growth. The total potential voting power dilution as a result of the proposed share reserve is 6.3%1, which is below the median of our executive compensation peer group. Our Board believes that the increase in shares of common stock available for issuance represents a reasonable amount of potential equity dilution given our strategic and long-term growth priorities. Based on our historical share usage and our current stock price, we currently expect the proposed share reserve will enable us to make equity awards for the next 3 to 4 years. | ||||
The 2017 Plan incorporates certain compensation governance provisions that reflect best practices. | Governance Highlights of 2017 Plan: • No “liberal” change in control definition (new to 2017 Plan); • “Double-trigger” vesting for change in control benefits (new to 2017 Plan); • No excise tax gross-up on change in control benefits; • Non-employee director limits (new to 2017 Plan); • Clawback provisions; • No “liberal” share recycling of stock options or stock appreciation rights; • Minimum vesting period of one year from the date of grant for options and stock appreciation rights, subject to certain limited exceptions (new to 2017 Plan); • Minimum 100% fair market value exercise price for options and stock appreciation rights; • No repricing of options or stock appreciation rights and no cash buyout of underwater options and stock appreciation rights without stockholder approval; • No dividend equivalents on options or stock appreciation rights (new to 2017 Plan); and • No evergreen provision. | ||||
Expiration of 2017 Plan: | May 10, 2027, unless terminated earlier by the Board, but awards granted prior to such date may extend beyond that date. | ||||
| (1) | Total potential voting power dilution is calculated as (equity awards outstanding + shares available for grant + additional requested shares) / (common stock outstanding + equity awards outstanding + shares available for grant + additional requested shares). |
The following table includes information regarding outstanding equity awards and shares available for future awards under the 2013 Plan as of December 31, 2016 (and without giving effect to approval of the 2017 Plan under this Proposal).
Stock Options Outstanding | 40,000 | ||||
Wtd. Avg. Ex Price of Stock Options Outstanding | $ | 8.81 | |||
Wtd. Avg. Remaining Term of Stock Options Outstanding (in years) | 2.83 | ||||
Full-Value Shares Outstanding (number includes 1,881,460 deferred stock units to non-Employee Directors) | 13,096,711 | ||||
Wtd. Avg. Basic Common Shares Outstanding | 1,164,099,000 |
| Frontier Communications Corporation | 57 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
Burn Rate
The following table provides information regarding awards granted, and the average burn rate over the last three years under the 2013 Plan. The burn rate has been calculated as the quotient of (i) the sum of (x) all stock options/stock appreciation rights (“SARs”) granted in such year, plus (y) time-based restricted share awards granted plus (z) the number of performance-based awards earned in such year, divided by (ii) the weighted average number of shares of common stock outstanding at the end of such year. The full-value restricted stock and performance share awards are calculated on an “options equivalent” basis using a multiplier of 2.0 options per share (based on the methodology used by Institutional Stockholder Services (“ISS”) and Frontier’s 3-year average volatility).
| Fiscal Year | Stock Options Granted | Time-Vested RSAs Granted | Stock-Settled Earned | Wtd. Avg. CSO | ISS Burn Rate | ||||||||||||||||||||
2016 | 0 | 5,936,491 | 738,344 | 1,164,099,000 | 1.15 | % | |||||||||||||||||||
2015 | 0 | 2,815,000 | 743,000 | 1,084,606,000 | 0.66 | % | |||||||||||||||||||
2014 | 0 | 4,314,000 | 0 | 994,818,000 | 0.87 | % | |||||||||||||||||||
FTR 3-Year Average Burn Rate | 0.89 | % | |||||||||||||||||||||||
Frontier’s three-year average annual burn rate was 0.89%, which is well below the ISS burn rate benchmark of 2.0% for our GICS code S&P 500 Telecommunications Services.
We believe our burn rate is reasonable in relation to our industry and reflects a prudent use of equity for compensation purposes while furthering our compensation philosophy of aligning stockholder and executive interests.
The 2017 Plan is not a qualified deferred compensation plan under Section 401(a) of the Code and is not intended to be an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended.
Overview of 2017 Plan Awards
The following types of awards or any combination of them may be granted under the 2017 Plan: restricted stock, restricted stock units, performance shares, performance units, non-qualified stock options (“NQSOs”), incentive stock options (“ISOs”), stock appreciation rights (“SARs”) and other stock-based awards. Each award will be evidenced by an award agreement setting forth the applicable terms and conditions.
Plan Administration
The Compensation Committee (or such other committee as the Board may appoint) will administer the 2017 Plan. So long as our stock is traded on the Nasdaq Global Select Market, all of the members of the Compensation Committee must be “independent directors” as defined in the Nasdaq Listing Rules. If any member of the Compensation Committee does not qualify as (i) a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) an “outside director” within the meaning of Section 162(m), the Board will appoint a subcommittee of the Compensation Committee, consisting of at least two members of the Board, to grant awards to individuals who are subject to the limitations of Section 162(m) (“Covered Employees”) and to officers and members of the Board who are subject to Section 16 of the Exchange Act (“Insiders”), and each member of such subcommittee must satisfy the requirements of (i) and (ii) above. References to the Compensation Committee in this summary include and, as appropriate, apply to any such subcommittee.
Subject to the express provisions of the 2017 Plan, the Compensation Committee is authorized to do all things that it determines to be necessary or appropriate in connection with the administration of the 2017 Plan. The Compensation Committee may delegate its authority to one or more of its members (but not less than two members with respect to Covered Employees and Insiders). To the extent permitted by law, the Compensation Committee may also delegate its authority to one or more persons who are not members of the board of directors, except that no such delegation will be permitted with respect to Covered Employees and Insiders.
Eligible Participants
The Compensation Committee may grant awards under the 2017 Plan to our employees as well as employees of our subsidiaries and other affiliates, non-employee members of the board of directors, and other natural persons (including consultants and advisors) who provide bona fide services to us or any of our subsidiaries or other affiliates not in
| Frontier Communications Corporation | 58 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
connection with the offer or sale of securities in a capital raising transaction and whose judgment, initiative and efforts, in the judgment of the Compensation Committee, foster our continued efficiency, productivity, growth and development or that of any of our subsidiaries or other affiliates. We granted annual awards to 280 employees and each of our non-employee directors in 2016 under the 2013 Plan.
Shares Subject to the Plan
Subject to certain adjustments set forth in the 2017 Plan, 65,000,000 shares of our common stock may be made subject to awards granted under the 2017 Plan (5.2% of total shares outstanding on a fully diluted basis as of December 31, 2014 regarding compensation plans (including individual compensation arrangements,2016) and shall consist of authorized but unissued shares, shares held as treasury shares, or shares purchased in the open market or in private transactions. SARs, restricted stock units, performance shares, performance units and other awards that, by the terms of such awards, may not including qualified employee benefit plansbe settled in shares will not count against the number of shares available for issuance under the 2017 Plan. Any shares granted under the 2013 Plan between December 31, 2016 and plansthe Effective Date of the Plan will count against the 2017 Plan share reserve.
Only shares awarded or subject to issuance pursuant to awards under the 2017 Plan that are reacquired or are not issued due to the forfeiture, cancellation or expiration of such awards without having been exercised or settled in shares, shares that were covered by an award under the 2017 Plan that was settled in cash instead of shares, and shares withheld by us to satisfy any tax withholding obligations with respect to full-value awards granted under the 2017 Plan, will again be available for issuance under the Plan. The following shares will not again be available for issuance: (1) shares tendered in payment of the option price, (2) shares withheld by us to stockholderssatisfy any tax withholding obligation with respect to a stock option or SAR and (3) shares covered by an SAR, to the extent that it is exercised and settled in shares, and whether or not shares are actually issued to the participant upon exercise of the SAR.
If, after December 31, 2016, shares awarded or subject to issuance pursuant to awards under the 2013 Equity Incentive Plan, the 2009 Equity Incentive Plan, the 2000 Equity Incentive Plan, the Non-Employee Directors’ Deferred Fee Equity Plan or the Non-Employee Directors’ Equity Incentive Plan (together, the “Prior Plans”) are reacquired by us or are not issued due to the forfeiture, cancellation or expiration of such awards without having been exercised or settled in shares, those shares will be available for issuance pursuant to awards under the 2017 Plan.
Restricted Stock and Restricted Stock Units. The Compensation Committee will specify the terms of a pro rata basis)restricted stock or restricted stock unit award in the award agreement, including: the purchase price, if any, to be paid for such restricted stock/unit, which may be more than, equal to, or less than fair market value of a share and may be zero, subject to such minimum consideration as may be required by applicable law; any restrictions applicable to the restricted stock/unit such as continued service or achievement of performance objectives; the length of the restriction period and whether any circumstances, such as death, disability, or a change in control, will shorten or terminate the restriction period; and the rights of the participant during the restriction period to vote and receive dividends in the case of restricted stock or to receive dividend equivalents in the case of restricted stock units that accrue dividend equivalents; and whether restricted stock units will be settled in cash, shares or a combination of both. Any dividends or distributions payable on restricted stock units subject to performance objectives will be paid only to the extent the underlying shares are awarded. The restriction period with respect to a grant of restricted stock/units to a non-employee director may be of any duration. The Compensation Committee may provide in the restricted stock/unit agreement for lapse of the restriction period in monthly or longer installments over the course of the restriction period.
Performance Shares and Units. The Compensation Committee will set performance objectives in its discretion which, depending on the extent to which they are met, will determine the number or value of the performance shares or units that will be paid out to the participant. The Compensation Committee may also set non-performance terms for performance shares and units. The Compensation Committee may provide for payment of earned performance shares/units in cash or in shares or in the form of other awards granted under which our equity securitiesthe 2017 Plan that have a fair market value equal to the value of the earned performance shares/units at the close of the applicable performance period.
Performance shares and units will not possess voting rights and will accrue dividend equivalents only to the extent provided in the agreement relating to the award; provided, however, that rights to dividend equivalents are authorized for issuance.permitted only to the extent they comply with, or are exempt from, Section 409A of the Code (“Section 409A”). Any rights to dividend
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|
|
|
|
|
| |||||||||||||||
| (a) | (b) | (c) | ||||||||||||||||||
Plan Category | Number of securities to be issued | Weighted-average exercise | Number of securities remaining | ||||||||||||||||||
Equity compensation plans approved by security holders |
|
| 3,972,345 |
|
| $ |
| 7.53 |
|
| 14,253,934 | ||||||||||
Equity compensation plans not approved by security holders |
|
| — |
|
| — |
|
| — | ||||||||||||
|
|
|
|
|
|
| |||||||||||||||
Total |
|
| 3,972,345 |
|
| $ |
| 7.53 |
|
| 14,253,934 | ||||||||||
|
|
|
|
|
|
| |||||||||||||||
|
| 2017 Proxy Statement |
59
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
equivalents will be subject to the same restrictions on vesting and payment as the underlying award. With respect to Covered Employees, the Compensation Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to performance shares/units such that the dividends or performance shares/units maintain eligibility for the performance-based compensation exception under Section 162(m).
Stock Options. The Compensation Committee may grant both NQSOs and ISOs under the 2017 Plan. ISOs may be granted only to employees of Frontier or its subsidiaries. The tax treatment of NQSOs is different from the tax treatment of ISOs, as explained in “Certain Federal Income Tax Consequences” below. The Compensation Committee will determine and specify in the award agreement whether the option is an NQSO or ISO, the number of shares subject to the option, the exercise price of the option and the period of time during which the option may be exercised (including the impact of a termination of employment). No option can be exercisable more than ten years after the date of grant and, subject to the following sentence, the exercise price of a stock option must be at least equal to the fair market value of a share on the date of grant of the option. With respect to an ISO granted to a participant who holds more than 10% of our total voting stock, the ISO cannot be exercisable more than five years after the date of grant and the exercise price must be at least equal to 110% of the fair market value of a share on the date of grant.
A participant may pay the exercise price under an option in cash or in such other consideration as the Compensation Committee deems appropriate. The Compensation Committee may also allow cashless exercises as permitted under the Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means that the Compensation Committee determines to be consistent with the 2017 Plan’s purpose and applicable law. No certificate representing a share will be delivered until the full option price has been paid.
The 2017 Plan prohibits the Compensation Committee from repricing stock options without the approval of our stockholders. Stock options are not eligible for dividends or dividend-equivalent rights.
SARs. An SAR entitles the participant to receive cash, shares, a combination thereof, or such other consideration as the Compensation Committee may determine, in an amount equal to the excess of the fair market value of a share on the exercise date over the exercise price for the SAR, after certain conditions have been met. The Compensation Committee will determine and specify in the SAR award agreement the number of shares subject to the SAR, the SAR price (which must be at least equal to the fair market value of a share on the date of grant of the SAR) and the period of time during which the SAR may be exercised (including the impact of a termination of employment). No SAR can be exercisable more than ten years after the date of grant. SARs may be granted in tandem with a stock option or independently. If an SAR is granted in tandem with a stock option, the participant may exercise the stock option or the SAR, but not both.
The 2017 Plan prohibits the Compensation Committee from repricing SARs without the approval of our stockholders. SARs are not eligible for dividends or dividend-equivalent rights.
Other Awards. The Compensation Committee may grant other forms of equity-based or equity-related awards that the Compensation Committee determines to be consistent with the purpose of the 2017 Plan. These other awards may provide for cash payments based in whole or in part on the value or future value of shares, for the acquisition or future acquisition of shares, or any combination thereof. Where the value of such an award is based on the difference in the value of a share on different dates, the grant or exercise price must not be less than 100% of the fair market value of a share on the date of grant.
Performance Objectives
For awards under the 2017 Plan that are intended to qualify under the performance-based compensation exception of Section 162(m) (“Section 162(m) Awards”), the performance objective or objectives to be used for purposes of such awards must be chosen from among the following: earnings; consolidated pre-tax earnings; net earnings; earnings before or after deduction for all or any portion of interest, taxes, depreciation, and/or amortization; cash and cash equivalent balance; cash flow measures (including but not limited to operating cash flow; free cash flow; free cash flow per share; and cash flow return); earnings per share; economic value added; revenue; average revenue per customer; net income; operating income; profit; economic profit; capitalized economic profit; after-tax profit; pre-tax profit; operating profit; operating efficiency; operating expenses; operating margin; profit margin; gross margin; market value added; market share; return measures (including but not limited to total stockholder return; return on total capital; return on equity; return on common equity; return on assets; return on net assets; return on investment; and return on capital
| Frontier Communications Corporation | 60 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
employed); debt/capital ratio; cost; unit cost; cost control; attainment of budget goals; sales; sales volume; assets; inventory turnover ratio; productivity ratios; the Company’s common stock price; expense targets or ratios; charge-off levels; customer satisfaction; working capital; debt; debt to equity ratio; capital expenditures; capital targets; consummation of acquisitions, dispositions, projects, strategic or operational initiatives, or other specific events or transactions; price/earnings growth ratio; and book value per share. Unless otherwise determined by the Committee, Performance Objectives that are financial metrics will be determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”) or may be adjusted to include or exclude any items otherwise includable or excludable under GAAP as the Committee may determine from time to time.
The performance objectives may be measured individually, alternatively or in any combination, and they may be established based on company-wide objectives or objectives related to a specific division, subsidiary, affiliate, department, region or function in which the employee is employed. For each Section 162(m) Award, the Compensation Committee must specify a written definition of each applicable performance objective as well as the period over which the performance objective will be measured.
The Compensation Committee may establish other performance objectives for awards that are not Section 162(m) Awards.
For Section 162(m) Awards, the Compensation Committee may also specify that the performance objectives, or the manner in which performance will be measured against the performance objectives, will be adjusted to reflect the impact of specified corporate transactions (such as a stock split or stock dividend), special charges, accounting or tax law changes, extraordinary items or other items that are determined by the Compensation Committee to be unusual or non-recurring, provided such awards would not be adversely affected under Section 162(m). Within 60 days following the end of the relevant performance measurement period, the Compensation Committee must determine and certify in writing whether the specified performance objectives for a Section 162(m) Award were satisfied. The Compensation Committee has the discretion to adjust downward the determinations of the degree of attainment of the pre-established performance objectives for a Section 162(m) Award; Section 162(m) Awards may not be adjusted upward.
Participant Limits
Subject to certain adjustments set forth in the 2017 Plan, the following limits will apply to awards of the specified type granted to any one Participant in any single calendar year:
Awards denominated in or valued by reference to number of shares: 4,000,000 shares; and
Performance units and other awards that are denominated in dollars and payable in cash: $2,000,000 for each calendar year during the applicable performance period (i.e., no more than $6,000,000 in respect of a three year performance period)
These limitations will not apply to the extent the Compensation Committee determines that an award to an individual who is a Covered Employee is not intended to comply with the performance-based compensation exception of Section 162(m) (and may be excluded from these limits without adversely affecting the application of the performance-based compensation exception with respect to awards that are intended to comply with it). These limitations will be applied to awards that provide for a range of payouts based on the maximum amount that could be paid under each such award.
Non-Employee Director Limits
The maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director, excluding the non-executive chair of the Board, taken together with any cash fees paid to such non-employee director during the fiscal year, shall not exceed $600,000 in total value (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes). The Compensation Committee may make exceptions to this limit for a non-executive chair of the Board or, in extraordinary circumstances, for other individual non-employee directors, as the Committee may determine in its discretion, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.
| Frontier Communications Corporation | 61 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
Transferability
In general, awards granted under the 2017 Plan are non-transferable other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. However, the Compensation Committee may permit an individual to transfer an award, but no award may be transferred by a participant for value. Additionally, if an award is payable upon the death of an individual, payment will be made to the beneficiary that was designated by the individual in a writing filed with the Compensation Committee.
Change in Control Provisions
The 2017 Plan generally provides the Compensation Committee with flexibility to determine the effects of a “change in control” (as defined in the 2017 Plan) on outstanding awards. Such provisions may include, but are not limited to the following actions or consequences: (i) the purchase or cancellation of such awards, for an amount of cash, if any, equal to the amount that could have been obtained upon the exercise or realization of such rights had such awards been currently exercisable or payable; (ii) adjustments as the Committee deems appropriate to reflect such transaction (including the acceleration of vesting); and/or (iii) causing the awards to be assumed, or new rights substituted therefore, by the successor corporation or organization in such change in control.
Amendment and Termination
The 2017 Plan will terminate on the earliest of (a) May 10, 2027, (b) the date on which all shares authorized and all shares otherwise available for issuance under the 2017 Plan have been issued pursuant to the exercise of NQSOs, ISOs and SARs granted under the 2017 Plan or settled in respect of other awards granted under the 2017 Plan, or (c) any earlier date as may be determined by our board of directors in its sole and absolute discretion. Our board of directors or the Compensation Committee may amend the 2017 Plan at any time. However, if an amendment (i) would materially increase the benefits accruing to participants, (ii) would materially increase the number of securities that may be issued under the 2017 Plan, (iii) would materially modify the requirements for participation in the 2017 Plan or (iv) must otherwise be approved by our stockholders in order to comply with applicable law or the rules of the Nasdaq Stock Market (or other national securities exchange on which the stock is traded or quoted), then the amendment will not be effective unless and until stockholder approval has been obtained. In addition, no amendment or termination of the 2017 Plan may adversely and materially affect the rights of any participant who was previously granted an award under the 2017 Plan without his or her consent, unless the amendment or termination is necessary or desirable for the continued validity of the 2017 Plan or its compliance with any applicable law, rule or regulation, or to avoid any adverse consequences under Sections 162(m) of the Code, Section 409A, or any requirement of an applicable securities exchange or association or regulatory or self-regulatory body (each a “Permitted Exception”).
The Compensation Committee may amend an outstanding award agreement in a manner not inconsistent with the terms of the 2017 Plan, but the amendment will not be effective without the participant’s written consent if the amendment does not come within a Permitted Exception and is adverse to the participant (as the Compensation Committee shall determine in good faith in its discretion). However, the Compensation Committee cannot reprice a stock option or SAR except in accordance with the adjustment provisions of the 2017 Plan (as described above) or to the extent our stockholders approve the repricing. For this purpose, a repricing is an amendment to the terms of an outstanding stock option or SAR that would reduce the option exercise price or SAR price or a cancellation, exchange, substitution, buyout or surrender of an outstanding stock option or SAR in exchange for cash, another award or stock option or SAR with an option exercise price or SAR price that is less than the option exercise price or SAR price of the original stock option or SAR or that would otherwise be considered a repricing as defined within U.S. generally accepted accounting practices or any applicable stock exchange rule.
Adjustments
In the event of any change in corporate capitalization such as a stock split, reverse stock split, or stock dividend, or a corporate transaction involving Frontier, such as any merger of a corporation into another corporation, any consolidation of two or more corporations into another corporation, any separation of a corporation (including a spin-off, split-off, spin-out, split-up or other distribution of stock or property by a corporation), or any reorganization of a corporation (whether or not such reorganization comes within the definition of such term in Section 368 of the Code), or Frontier’s sale or other disposition of all or a material portion of its assets, or any other change in Frontier’s corporate structure, or any distribution
| Frontier Communications Corporation | 62 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
to stockholders (other than an ordinary cash dividend) or any partial or complete liquidation by Frontier, or any other corporate transaction or event having an effect similar to any of the foregoing that results in the outstanding shares of stock (or any securities exchanged therefore or received in their place) being exchanged for a different number or class of shares or other securities of Frontier or for shares of stock or other securities of any other corporation, or new, different or additional shares or other securities of Frontier or of any other corporation being received by the holders of outstanding shares, the Compensation Committee shall make equitable adjustments, as it determines are necessary and appropriate, in:
the number and class of stock or other securities available for issuance pursuant to awards under the 2017 Plan;
the number and class of stock or other securities which are subject to any award;
the limitations on the aggregate number of awards that may be granted in any one fiscal year to any one eligible individual;
the option price under each outstanding stock option and the SAR price under each outstanding SAR; and
the terms, conditions or restrictions of any award;
with the objective that the securities covered under the 2017 Plan or an award shall be those securities that a participant would have received if he or she had exercised his or her stock option or SAR prior to the event or been entitled at that time to his or her restricted stock or performance shares or number of shares covered by other awards. Moreover, in the event of any such transaction or event or in the event of a change in control, the Compensation Committee, in its discretion, may provide in substitution for any or all outstanding awards such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A. In addition, for each stock option or SAR with an option price or SAR price greater than the consideration offered in connection with any such termination or event or change in control, the Compensation Committee may in its sole discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR.
Clawback
Notwithstanding anything to the contrary, any award that is subject to recovery under any law, government regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any clawback policy adopted by Frontier pursuant to any such law, government regulation or stock exchange listing requirement).
Withholding Taxes
The Compensation Committee may make, as a condition precedent to the payment of any award, or otherwise, appropriate arrangements with the participant or his or her beneficiary, for the withholding of any federal, state, local or foreign taxes. The Compensation Committee may in its discretion permit the payment of such withholding taxes by having Frontier withhold shares of stock to be issued, or the participant to deliver to Frontier shares of stock owned by the participant or beneficiary, having a fair market value equal to the amount of such taxes not paid by cash withholding, or otherwise permit a cashless exercise.
Certain Federal Income Tax Consequences
The following is intended only as a brief summary of the federal income tax rules relevant to the primary types of awards available for issuance under the 2017 Plan and is based on the Code as currently in effect. The applicable statutory provisions are highly technical and subject to change in the future (possibly with retroactive effect), as are their interpretations and applications. Because federal income tax consequences may vary as a result of individual circumstances, participants are encouraged to consult their personal tax advisors with respect to their tax consequences. The following summary is limited only to United States federal income tax treatment. It does not address state, local, gift, estate, social security, employment or foreign tax consequences, which may be substantially different.
| Frontier Communications Corporation | 63 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
Awards of Shares; Restricted Stock Awards
A participant generally will recognize taxable ordinary income upon the receipt of shares as a result of a stock award or restricted stock award if the shares are not subject to a substantial risk of forfeiture. The income recognized will be equal to the fair market value of the shares at the time of receipt less any purchase price paid for the shares. If the shares are subject to a substantial risk of forfeiture, the participant generally will recognize taxable ordinary income when the substantial risk of forfeiture lapses. If the substantial risk of forfeiture lapses in increments over several years, the participant will recognize income in each year in which the substantial risk of forfeiture lapses as to an increment. If the participant cannot sell the shares without being subject to suit under Section 16(b) of the Exchange Act (the short swing profits rule), the shares will be treated as being subject to a substantial risk of forfeiture until the short swing profits rule no longer applies with respect to such shares. The income recognized upon lapse of a substantial risk of forfeiture will be equal to the fair market value of the shares determined as of the time that the substantial risk of forfeiture lapses less any purchase price paid for the shares. Frontier generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant.
Alternatively, if the shares are subject to a substantial risk of forfeiture, the participant may make a timely election under Section 83(b) of the Code (“Section 83(b)”) to recognize ordinary income for the taxable year in which the participant received the shares in an amount equal to the fair market value of the shares at that time. That income will be taxable at ordinary income tax rates. If a participant makes a timely Section 83(b) election, the participant will not recognize income at the time the substantial risk of forfeiture lapses with respect to the shares. At the time of disposition of the shares, a participant who has made a timely Section 83(b) election will recognize gain in an amount equal to the difference between the amount received on the disposition of the shares, and the amount taken into income as a result of the Section 83(b) election plus the purchase price, if any. The gain will be taxable at the applicable capital gains rate. If the participant forfeits the shares after making a Section 83(b) election, the participant is not entitled to a deduction with respect to the income recognized as a result of the election. To be timely, the Section 83(b) election must be made within 30 days after the participant receives the shares. Frontier will generally be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant at the time of the election.
Restricted Stock Units
A participant generally is not taxed upon the grant of a restricted stock unit. Generally, if a restricted stock unit is designed to be paid on or shortly after the restricted stock unit is no longer subject to a substantial risk of forfeiture, then the participant will recognize ordinary income equal to the amount of cash and the fair market value of the shares received by the participant, and the company will be entitled to an income tax deduction for the same amount. However, if a restricted stock unit is not designed to be paid on or shortly after the restricted stock unit is no longer subject to a substantial risk of forfeiture, the restricted stock unit may be deemed a nonqualified deferred compensation plan under Section 409A. In that case, if the restricted stock unit is designed to meet the requirements of Section 409A, and actually meets those requirements, then the participant will recognize ordinary income equal to the amount of cash and the fair market value of the shares received by the participant, and the company will be entitled to an income tax deduction for the same amount. However, if the restricted stock unit does not meet the requirements of Section 409A, the participant will be subject to ordinary income tax when the substantial risk of forfeiture lapses as well as an additional twenty-percent (20%) excise tax plus penalty interest, and additional tax could be imposed each following year.
Performance Share/Unit Awards; Stock Appreciation Rights (“SARs”)
A participant generally is not taxed upon the grant of a performance share/unit or SAR. The participant will recognize taxable income at the time of settlement of the performance share/unit or at the time of exercise of the SAR in an amount equal to the amount of cash and the fair market value of the shares received upon settlement or exercise. However, if the participant is subject to suit under Section 16(b) of the Exchange Act (the short swing profits rule), the participant will recognize taxable income in an amount equal to the amount of cash received at the time of receipt, plus the fair market value when the shares are no longer subject to the short swing profits rule, unless the participant makes a timely election under Section 83(b)) of the shares received upon such settlement or exercise. The income recognized will be taxable at ordinary income tax rates. The company generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant. Any gain or loss recognized upon the disposition of the shares acquired pursuant to settlement of a performance share/unit or exercise of an SAR will qualify as long-term capital gain or loss if the shares have been held for more than one year after settlement or exercise.
| Frontier Communications Corporation | 64 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
Nonqualified Stock Options (“NQSOs”)
A participant generally is not taxed upon the grant of an NQSO. However, the participant must recognize ordinary income upon exercise of the NQSO in an amount equal to the difference between the NQSO exercise price and the fair market value of the shares acquired on the date of exercise. The company generally will have a deduction in an amount equal to the amount of ordinary income recognized by the participant in the company’s tax year during which the participant recognizes ordinary income.
Upon the sale of shares acquired pursuant to the exercise of an NQSO, the participant will recognize capital gain or loss to the extent that the amount realized from the sale is greater than the fair market value of the shares on the date of exercise. This gain or loss will be long-term capital gain or loss if the shares have been held for more than one year after exercise.
Incentive Stock Options (“ISOs”)
A participant is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares covered by the ISO on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If a participant holds the shares acquired upon exercise of an ISO for at least two years following the ISO grant date and at least one year following ISO exercise, the participant’s gain, if any, upon a subsequent disposition of the shares is long-term capital gain. The amount of the gain is the difference between the proceeds received on disposition and the participant’s basis in the shares (which generally equals the ISO exercise price). If a participant disposes of shares acquired pursuant to exercise of an ISO before satisfying these holding periods, the participant may recognize both ordinary income and capital gain in the year of disposition. The company is not entitled to a federal income tax deduction on the grant or exercise of an ISO or on the participant’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, the company will be entitled to a deduction in the year the participant disposes of the shares in an amount equal to the ordinary income recognized by the participant.
In order for an option to qualify as an ISO for federal income tax purposes, the grant of the option must satisfy various other conditions specified in the Code. In the event an option intended to be an ISO fails to qualify as an ISO, it will be taxed as an NQSO as described above.
Golden Parachute Payments
The terms of the agreement evidencing an award under the 2017 Plan may provide for accelerated vesting or accelerated payout of the award in connection with a change in ownership or control of the company. In such event, certain amounts with respect to the award may be characterized as “parachute payments” under the golden parachute provisions in Section 280G of the Code. Under Section 280G of the Code, no federal income tax deduction is allowed to the company for “excess parachute payments” made to “disqualified individuals,” and receipt of such payments subjects the recipient to a 20% excise tax under Section 4999 of the Code. For this purpose, “disqualified individuals” are generally officers, stockholders or highly compensated individuals performing services for the company, and the term “excess parachute payments” includes payments in the nature of compensation that are contingent on a change in ownership or effective control of the company, to the extent that such payments (in present value) exceed three times the recipient’s average annual taxable compensation from the company for the previous five years. Certain payments for reasonable compensation for services rendered after a change in control and payments from tax-qualified plans are generally not included in determining “excess parachute payments.” If payments or accelerations occur with respect to awards granted under the 2017 Plan, certain amounts in connection with such awards may possibly constitute “parachute payments” and be subject to these “golden parachute” tax provisions, although the amount of such parachute payments may be cut back to avoid making excess parachute payments.
Registration with the SEC
We intend to file a Registration Statement on Form S-8 relating to the issuance of shares of our common stock under the 2017 Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as is practicable after approval of the 2017 Plan by our stockholders.
| Frontier Communications Corporation | 65 | 2017 Proxy Statement |
PROPOSAL 4: APPROVAL OF 2017 EQUITY INCENTIVE PLAN
New Plan Benefits
Because awards to be approved in the future under the 2017 Plan are at the discretion of the Compensation Committee, it is not possible to determine the additional benefits or amounts to be received under the 2017 Plan in the future by our directors, officers or employees.
For 2017, we granted 3,816,904 shares of restricted stock and performance shares under the 2013 Plan to our named executive officers and 4,988,433 shares of restricted stock and performance share awards under the 2013 Plan to our employees other than named executive officers.
The Board unanimously recommends that you voteFOR this proposal.
| Frontier Communications Corporation | 66 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED NUMBER OF SHARES
We are asking stockholders to approve the Certificate of Amendment to Frontier’s Restated Certificate of Incorporation to (i) effect a reverse stock split of the issued shares of Frontier common stock, par value $0.25 per share (Common Stock), at a reverse stock split ratio of not less than 1-for-10 and not more than 1-for-25, the exact reverse stock split ratio to be determined by the Board of Directors and publicly announced prior to the filing of the Certificate of Amendment to the Restated Certificate of Incorporation, and (ii) reduce the total number of shares of Common Stock that Frontier is authorized to issue from 1,750,000,000 to 175,000,000 shares.
If the proposal is adopted by the stockholders, the reverse stock split and the authorized share count reduction will be accomplished by the filing with the Secretary of State of the State of Delaware of the Certificate of Amendment to the Restated Certificate of Incorporation. The Certificate of Amendment that is filed will contain the reverse stock split ratio determined by the Board of Directors to be in the best interests of Frontier and its stockholders, which determination shall be made within 90 days after the date of the Annual Meeting.
Except for adjustments that may result from the treatment of fractional shares as described below, each stockholder will hold the same percentage of Common Stock outstanding immediately following the reverse stock split as that stockholder held immediately before the reverse stock split.
The form of the Certificate of Amendment to the Restated Certificate of Incorporation that will accomplish the reverse stock split and authorized share count reduction is attached to this Proxy Statement as Annex B. The following discussion is qualified in its entirety by the full text of the proposed Certificate of Amendment, which is hereby incorporated by reference.
Reasons for the Reverse Stock Split
In determining to seek authorization for the reverse stock split, the Board of Directors considered that implementation of the reverse stock split is likely to increase the trading price of our Common Stock from its pre-reverse split level. The Board of Directors believes that the increased trading price of our Common Stock expected as a result of the reverse stock split may improve marketability and liquidity of our Common Stock and further encourage interest and trading in our Common Stock.
For example, the Board of Directors believes that some institutional investors and investment funds may be reluctant to invest, and in some cases may be prohibited by their investing guidelines from investing in lower priced stocks, and that brokerage firms may be reluctant to recommend lower-priced stocks to their retail clients. The reverse stock split could increase our trading price to a level that would be viewed more favorably by potential investors. Further, brokerage commissions, as a percentage of the total transaction, tend to be higher for lower-priced stocks. As a result, certain investors may also be dissuaded from purchasing lower-priced stock. A higher stock price after the reverse stock split may reduce this concern.
Reasons for the Authorized Share Count Reduction
Although we are not required under Delaware law to change the authorized number of shares of Frontier Common Stock upon implementation of a reverse stock split, the Board of Directors has determined to recommend a reduction in the authorized number of shares. In making this decision, the Board of Directors considered the number of shares that would be available for issuance if we did not reduce our total authorized shares of Common Stock from the current limit, as compared to the number of shares that would be available following a reduction to 175,000,000 shares of Common Stock. The Board of Directors also considered the potential for future stock issuances to raise capital, satisfy obligations under Frontier’s convertible securities, effect acquisitions and other transactions and provide equity incentives to employees.
The Board of Directors believes that the proposed reduction is appropriate as compared to the total amount currently permitted.
| Frontier Communications Corporation | 67 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
Board of Directors’ Discretion to Implement Reverse Stock Split and Determine the Ratio
If the Certificate of Amendment is adopted by our stockholders, it will become effective, if at all, only upon a determination by the Board of Directors, within 90 days after the Annual Meeting, of the reverse stock split ratio to be used and that the actions contemplated by the Certificate of Amendment are in the best interests of Frontier and its stockholders. Notwithstanding approval by the stockholders, the Board of Directors may, in its sole discretion, abandon the proposed Certificate of Amendment and determine not to effect any reverse stock split and the authorized share count reduction. If the Board of Directors elects not to implement the reverse stock split approved by the stockholders, stockholder approval would again be required prior to implementing any subsequent reverse stock split.
The ratio of the reverse stock split, if approved and implemented, will be a ratio of not less than 1-for-10 and not more than 1-for-25, as determined by the Board of Directors in its sole discretion. In determining the reverse stock split ratio, the Board of Directors will consider numerous factors, including:
the historical and projected performance of our Common Stock;
prevailing market conditions;
general economic and other related conditions prevailing in our industry and in the marketplace;
our capitalization (including the number of shares of Common Stock and Preferred Stock issued and outstanding);
the prevailing trading price for our Common Stock and the volume level thereof; and
the potential devaluation of our market capitalization as a result of the reverse stock split.
Our purpose for requesting authorization to implement the reverse stock split at a ratio to be determined by the Board of Directors, as opposed to a ratio that is fixed in advance, is to give the Board of Directors the flexibility to take into account then-current market conditions and changes in the price of our Common Stock and to respond to any other developments that may be relevant when considering the appropriate ratio.
The Board of Directors will determine the exact reverse stock split ratio within the stated range prior to filing the Certificate of Amendment with the Secretary of State of the State of Delaware and such reverse stock split ratio will be publicly announced prior to such filing.
Certain Risks Associated with Reverse Stock Split
A reverse stock split could result in a significant devaluation of our market capitalization and the trading price of our Common Stock.
Although the Board of Directors expects that the reverse stock split will result in an increase in the trading price of Frontier’s Common Stock, it cannot assure you that the reverse stock split, if implemented, will increase the trading price of the Common Stock in proportion to the reduction in the number of shares of the Common Stock outstanding or result in a permanent increase in the trading price. Accordingly, the total market capitalization of Frontier’s Common Stock after the proposed reverse stock split may be lower than the total market capitalization before the proposed reverse stock split and, in the future, the trading price of the Common Stock following the reverse stock split may not exceed or remain higher than the trading price prior to the proposed reverse stock split.
The effect of the reverse stock split upon the trading price of our Common Stock cannot be predicted with any certainty, and the history of similar reverse stock splits is varied. The trading price of the Common Stock is dependent on many factors, including our business and financial performance, general market conditions, prospects for future success and other factors detailed from time to time in the reports we file with the SEC. If the reverse stock split is implemented and the trading price of our Common Stock declines, the decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the reverse stock split.
| Frontier Communications Corporation | 68 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
The reverse stock split will result in some stockholders owning “odd lots” that may be more difficult to sell or require greater transaction costs per share to sell.
The reverse stock split will result in some stockholders owning “odd lots” of less than 100 shares of our Common Stock on a post-split basis. These odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “round lots” of even multiples of 100 shares.
The reverse stock split may not generate additional investor interest.
While the Board of Directors believes that a higher stock price may help generate additional investor interest, there can be no assurance that the reverse stock split will result in a per share price that will attract institutional investors, investment funds or retail investors or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our Common Stock may not necessarily improve.
The reduced number of shares of Common Stock resulting from a reverse stock split could adversely affect the liquidity of our Common Stock.
Although the Board of Directors believes that the decrease in the number of shares of the Common Stock outstanding as a consequence of the reverse stock split and the anticipated increase in the trading price of our Common Stock could encourage interest in our Common Stock and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split.
Anticipated Effects of Reverse Stock Split
Effect on Authorized and Outstanding Shares of Common Stock.
Currently, we are authorized to issue up to a total of 1,750,000,000 shares of Common Stock. Upon effectiveness of the reverse stock split: (i) the authorized number of shares of Common Stock will be reduced to 175,000,000; (ii) the number of shares that are issued or outstanding will be reduced by the reverse stock ratio; and (iii) the number of shares that are not issued or outstanding will be reduced so that it will equal the difference between 175,000,000 shares and the number of shares that are issued or outstanding post reverse stock split. Accordingly, if the final reverse stock split ratio is greater than 1-for 10, the percentage reduction of shares described in clause (iii) above will be less than the percentage reduction of shares described in clause (ii). As of the date of this Proxy Statement, we do not have any current plans, agreements, understandings, etc. with respect to the authorized shares that will be available for issuance after the reverse stock split has been implemented. As of March 1, 2017, there were 1,170,990,241 shares of Common Stock outstanding. The following table illustrates the effects of the reverse stock split at certain exchange ratios within the 1-for-10 and 1-for-25 range on our outstanding shares of Common Stock as of March 1, 2017, without giving effect to any adjustments for fractional shares of Common Stock, and the conversion rate of our outstanding shares of 11.125% Mandatorily Convertible Preferred Stock, Series A (the “Series A Preferred Stock”):
As of March 1, 2017 (Pre-Reverse Stock Split) | 1-for-10 | 1-for-25 | ||||
Common Stock | 1,170,990,241 | 117,099,024 | 46,839,610 | |||
Series A Preferred Stock
19,250,000 outstanding on March 1, 2017 | Conversion rate: 1:20 (20 shares of common stock for each 1 share of preferred stock) based on Frontier stock price of $2.92 | Conversion rate: 1:2 | Conversion rate: 1:0.8 | |||
As-converted basis: 385,000,000 shares of Common Stock | As-converted basis: 38,500,000 shares of Common Stock | As-converted basis: 15,400,000 shares of Common Stock |
Our Common Stock is currently registered under Section 12(b) of the Exchange Act, and Frontier is subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect the registration of our Common Stock under the Exchange Act. If the proposed reverse stock split is implemented, we currently expect that the Common Stock will continue to be traded on the Nasdaq Global Market under the symbol “FTR,” although it will be considered a new listing with a new CUSIP number.
| Frontier Communications Corporation | 69 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
Effect on Preferred Stock
Pursuant to our Restated Certificate of Incorporation, our capital stock consists of 50,000,000 shares of preferred stock, par value of $0.01 per share, and 1,750,000,000 shares of Common Stock. The proposed reverse stock split would not impact the total authorized number of shares of preferred stock or the par value of either the Common Stock or the preferred stock.
As of March 1, 2017, Frontier had 19,250,000 shares of Series A Preferred Stock outstanding. Under the terms of the Certificate of Designation governing the Series A Preferred Stock, the conversion rate will be adjusted on the Effective Date to reduce the number of shares of Common Stock into which each share of Series A Preferred Stock will be converted, using the reverse stock split ratio to make that adjustment.
Effect on Outstanding Stock Awards; Stock Plans.
The reverse stock split, when implemented, will affect outstanding restricted stock awards and options to purchase our Common Stock. The proposed reverse stock split will also reduce the number of shares of Common Stock issuable under our 2013 Equity Incentive Plan, if Proposal 4 is not adopted, or our 2017 Equity Incentive Plan, if Proposal 5 is adopted (the plan in effect following the Annual Meeting is referred to as our “Equity Incentive Plan”). The per share exercise price of all outstanding option awards will be increased proportionately, and the number of shares of Common Stock issuable upon the exercise of all outstanding option awards and the number of unvested shares of restricted stock will be reduced proportionately. These adjustments will result in approximately the same aggregate exercise price being required to be paid for all outstanding option awards upon exercise.
Effect on Existing Stockholders.
The number of shares of Common Stock held by each stockholder will be reduced as a result of the reverse stock split. For example, as a result of a 1-for-10 reverse stock split, a stockholder holding 1,000 shares of Common Stock before the reverse stock split would hold 100 shares of Common Stock immediately after the reverse stock split. No fractional shares will be issued and any stockholder that holds a fractional share interest will receive payment as described below under “Treatment of Fractional Shares.”
Effect on the Company.
We expect our business and operations to continue as they currently are being conducted, and the reverse stock split is not anticipated to have any effect upon the conduct of such business. We expect to incur expenses of approximately $1,850,000 to effect the reverse stock split.
Accounting Consequences
The par value per share of our Common Stock will remain unchanged at $0.25 per share after the reverse stock split. As a result of the reduction in the number of issued shares of Common Stock, on the effective date of the reverse split, the stated capital on the Company’s balance sheet attributable to our Common Stock will be reduced proportionately from its present amount, and the additional paid in capital account will be credited with the amount by which the stated capital is reduced. The per-share Common Stock net income or loss and net book value will be increased because there will be fewer shares of Common Stock outstanding. The Company does not anticipate that any other accounting consequences would arise as a result of the reverse stock split.
Treatment of Fractional Shares
No fractional shares of Common Stock will be issued in connection with the reverse stock split. At the effective time of the Certificate of Amendment (the “Effective Time”), the aggregate of all fractional shares otherwise issuable to the record holders of shares of Common Stock prior to the Effective Time, will be issued to our transfer agent, as agent, for the accounts of all record holders of such shares otherwise entitled to have fractional shares issued to them. The sale of all fractional interests will be effected by the transfer agent as soon as practicable after the Effective Time on the basis of prevailing market prices of the Common Stock at the time of sale. After such sale and upon the surrender of the certificates representing Common Stock outstanding immediately prior to the Effective Time, the transfer agent will pay to
| Frontier Communications Corporation | 70 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
such holders of record their pro rata share of the net proceeds derived from the sale of the fractional interests. No transaction costs will be assessed to stockholders for the sale or the cash payment. Stockholders will not be entitled to receive interest for the period of time between the Effective Date and the date payment is made for fractional shares.
After the reverse stock split, then current stockholders will have no further interest in Frontier with respect to fractional shares. Such stockholders will only be entitled to receive the cash payment described above. Such cash payments may reduce the number of post-split stockholders; however, this is not the purpose of the reverse stock split.
Stockholders should be aware that under the escheat laws of the relevant jurisdictions, cash payments not timely claimed after the Effective Time may be required to be paid to designated agents for the relevant jurisdictions, without interest.
Effect on Registered Certificated Shares
Some registered stockholders hold their shares of Common Stock in certificate form or a combination of certificate and book-entry form. If any of your shares of Common Stock are held in certificate form, you will receive a letter of transmittal from our transfer agent as soon as practicable after the Effective Time. The letter of transmittal will contain instructions on how to surrender your certificate(s) representing your pre-split shares to the transfer agent. Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued the appropriate number of shares either in certificate form or electronically in book-entry form under the new direct registration system. If you are entitled to a payment in lieu of any fractional share interest, payment will be made as described above under “Treatment of Fractional Shares.” No new stock certificates or payments in lieu of fractional shares will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) to the transfer agent.
After the Effective Time, each certificate representing pre-reverse stock split shares of Common Stock will be deemed for all corporate purposes to evidence ownership of the post-reverse stock split number of shares of Common Stock.
STOCKHOLDERS SHOULD NOT DESTROY ANY PRE-SPLIT STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL THEY ARE REQUESTED TO DO SO.
Effect on Registered Book-Entry Holders
Registered stockholders may hold some or all of their shares electronically in book-entry form under the direct registration system for securities. These stockholders will not have stock certificates evidencing their ownership of our Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
If you hold shares in book-entry form, you do not need to take any action to receive your post-split shares or your cash payment in lieu of any fractional share interest, if applicable. If you are entitled to post-split shares, a transaction statement will automatically be sent to your address of record indicating the number of shares you hold.
If you are entitled to a payment in lieu of any fractional share interest, a check will be mailed to you at your registered address as soon as practicable after our transfer agent completes the aggregation and sale described above in “Treatment of Fractional Shares.” By signing and cashing this check, you will warrant that you owned the shares for which you receive a cash payment.
U.S. Federal Income Tax Consequences
No gain or loss should be recognized by a U.S. Holder upon such holder’s receipt of post-reverse split shares of Common Stock in place of pre-reverse stock split shares pursuant to the reverse stock split, except with respect to cash, if any, received in lieu of fractional shares, as described below. The aggregate tax basis of the post-reverse stock split shares received in the reverse stock split will be the same as the holder’s aggregate tax basis in the pre-reverse stock split shares exchanged therefor (excluding any amount allocable to a fractional share for which cash is received). The holder’s holding period for the post-reverse stock split shares will include the period during which the stockholder held the pre-reverse stock split shares surrendered in the reverse stock split.
| Frontier Communications Corporation | 71 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
In general, the receipt of cash by a U.S. Holder in lieu of a fractional share of post-reverse stock split Common Stock—which, by definition, is less than the price of a single share of post-reverse stock split Common Stock— will result in a taxable gain or loss to such U.S. Holder for U.S. federal income tax purposes. The amount of the taxable gain or loss to the U.S. Holder will be determined based upon the difference between the amount of cash received by such U.S. Holder and the amount of pre-reverse stock split basis allocable to the fractional share. The gain or loss recognized will constitute capital gain or loss and will constitute long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year. There are limitations on the deductibility of capital losses under the Code.
The preceding is a general summary of certain U.S. federal income tax consequences of the reverse stock split to our stockholders. This summary does not purport to be a complete discussion of all of the possible U.S. federal income tax consequences of the reverse stock split and is included for general information only. Further, it does not address any state, local or foreign income or other tax consequences. Also, it does not address the tax consequences to stockholders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers, tax-exempt entities, entities or arrangements treated as partnerships for U.S. federal income tax purposes, and stockholders owning large positions in our Common Stock. Other stockholders may also be subject to special tax rules, including, but not limited to, stockholders that received Common Stock as compensation for services or pursuant to the exercise of an employee stock option, or stockholders who have held, or will hold, stock as part of a straddle, hedging or conversion transaction for U.S. federal income tax purposes. This summary also assumes that you are a U.S. Holder (defined below) who has held, and will hold, shares of Common Stock as a “capital asset,” as defined in the Internal Revenue Code of 1986, as amended (the “Code”), i.e., generally, property held for investment. Finally, the preceding discussion does not address the tax consequences of transactions occurring prior to or after the reverse stock split (whether or not such transactions are in connection with the reverse stock split), including, without limitation, the exercise of options or rights to purchase Common Stock in anticipation of the reverse stock split.
The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of such stockholder. You should consult with your own tax advisor with respect to the tax consequences of the reverse stock split. As used herein, the term “U.S. Holder” means a stockholder that is, for U.S. federal income tax purposes: a citizen or resident of the United States; a corporation or other entity taxed as a corporation created or organized in or under the laws of the United States or any state, including the District of Columbia; an estate the income of which is subject to U.S. federal income tax regardless of its source; or a trust that (i) is subject to the primary supervision of a U.S. court and the control of one of more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
The preceding discussion is based on the Code, applicable Treasury Regulations, judicial authority and administrative rulings and practice, all as of the date hereof. The Internal Revenue Service could adopt a contrary position. In addition, future legislative, judicial or administrative changes or interpretations could adversely affect the accuracy of the statements and conclusions set forth herein. Any such changes or interpretations could be applied retroactively and could affect the tax consequences described herein. No ruling from the Internal Revenue Service or opinion of counsel has been obtained in connection with the reverse stock split.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES.
No Dissenters’ Rights
The holders of shares of Common Stock will have no dissenters’ rights of appraisal under Delaware law, the Restated Certificate of Incorporation or the Bylaws with respect to the proposed Certificate of Amendment to accomplish the reverse stock split and reduction in authorized shares.
| Frontier Communications Corporation | 72 | 2017 Proxy Statement |
PROPOSAL 5: APPROVAL OF REVERSE STOCK SPLIT AND REDUCTION OF AUTHORIZED SHARES
Approval Required
The affirmative vote of a majority of the shares of Frontier Common Stock entitled to vote thereon, voting as a single class, are required to adopt the Certificate of Amendment.
The Board unanimously recommends that you voteFOR this proposal.
| Frontier Communications Corporation | 73 | 2017 Proxy Statement |
AUDIT COMMITTEE REPORT
The Audit Committee consists of four independent directors, each of whom has been determined by the Board to meet the heightened independence criteria applicable to Audit Committee members and to satisfy the financial literacy requirements of the Nasdaq Listing Rules and the applicable rules of the SEC. The Audit Committee is responsible, under its charter, for oversight of our independent registered public accounting firm, which reports directly to the Audit Committee. The Audit Committee has the authority to retain and terminate the independent registered public accounting firm, to review the scope and terms of the audit and to approve the fees to be charged. The Audit Committee monitors our system of internal control over financial reporting, and management’s certifications as to disclosure controls and procedures and internal controls for financial reporting. Our management and independent registered public accounting firm, not the Audit Committee, are responsible for the planning and conduct of the audit of our consolidated financial statements and determining that the consolidated financial statements are complete and accurate and prepared in accordance with U.S. generally accepted accounting principles.
The Audit Committee has met and held discussions with management, our senior internal auditor and our independent registered public accounting firm (with and without management and our senior internal auditor present) and has reviewed and discussed the audited consolidated financial statements and related internal control over financial reporting with management and our independent registered public accounting firm.
The Audit Committee has also discussed with our independent registered public accounting firm the matters required to be discussed by PCAOB Auditing Standard No. 16, Communications with Audit Committees.
Our independent registered public accounting firm also provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with our independent registered public accounting firm that firm’s independence.
Based upon the review and discussions referred to above, the Audit Committee recommended to the boardBoard of directorsDirectors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20142016 for filing with the SEC. The Audit Committee selected KPMG LLP as our independent registered public accounting firm for the fiscal year ended December 31, 2015,2017, which is being presented to stockholders at the meeting for ratification.
Submitted by:
Edward Fraioli, Chair
Leroy T. Barnes, Jr.
Diana S. Ferguson
Howard L. Schrott
The information contained in the foregoing report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall the information be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference in a filing.
60
| Frontier Communications Corporation | 74 | 2017 Proxy Statement |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
In accordance with the Sarbanes-Oxley Act of 2002, the rules of the SEC and the Audit Committee Charter, the pre-approval of the Audit Committee pre-approvesis required for all auditingaudit and permissible non-auditingnon-audit services that will be provided by KPMG LLP, our independent registered public accounting firm. Frontier paid no fees to KPMG in 2016 in connection with engagements that were not pre-approved by the Audit Committee.
The following table sets forth the fees for professional audit services paid by us to KPMG LLP, our independent registered public accounting firm:
|
|
|
|
| ||||||||||
| 2014 | 2013 | ||||||||||||
Audit Fees |
|
| $ |
| 4,480,000 |
|
| $ |
| 3,700,000 | ||||
Audit-Related Fees |
|
| 240,000 |
|
| 165,000 | ||||||||
Tax Fees |
|
| 77,271 |
|
| 67,382 | ||||||||
All Other Fees |
|
| 181,682 |
|
| 641,129 | ||||||||
|
|
|
|
| ||||||||||
Total |
|
| $ |
| 4,978,953 |
|
| $ |
| 4,573,511 | ||||
|
|
|
|
| ||||||||||
| 2016 | 2015 | |||||||||
Audit Fees | $ | 5,955,000 | $ | 4,610,000 | ||||||
Audit-Related Fees | 80,000 | 570,000 | ||||||||
Tax Fees | 123,400 | 76,764 | ||||||||
All Other Fees | — | 589,933 | ||||||||
Total | $ | 6,158,400 | $ | 5,846,697 | ||||||
Audit Fees
Audit fees relate to professional services rendered in connection with the audit of our annual consolidated financial statements included in our Annual Report on Form 10-K and internal control over financial reporting, the review of our quarterly financial statements included in our Quarterly Reports on Form 10-Q, the audit of our captive insurance company and audit services provided in connection with other subsidiary audit reports. These fees were approved by the Audit Committee.
Audit-Related Fees
Audit-related
For 2015, audit-related fees for 2014primarily relate to professional services rendered in connection with Frontier’s equity and 2013debt offerings.
For 2016, audit-related fees primarily relate to professional services rendered in connection with the Company’s registered debt offerings during those years.review of pro forma financials and a registration statement filed.
Tax Fees
Tax fees for 20142016 and 20132015 primarily relate to professional services rendered in connection with the preparation of transactional tax filings.
All Other Fees
For 2014, fees are for professional services rendered in connection with certain compliance audits.
For 2013,2015, fees are for professional services rendered in connection with the pending acquisition of the AT&T properties in Connecticut.California, Texas and Florida Acquisition.
61
| Frontier Communications Corporation | 75 | 2017 Proxy Statement |
PROPOSAL 6: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The boardratification of directorsthe selection of KPMG LLP as our independent registered public accounting firm for 2017 is being submitted to stockholders because we believe that this action follows sound corporate practice and is in the best interests of the stockholders. If the stockholders do not ratify the selection by the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy and entitled to vote at the meeting, the Audit Committee will reconsider the selection of the independent registered public accounting firm, but such a vote will not be binding on the Audit Committee. If the stockholders ratify the selection, the Audit Committee, in its discretion, may still direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee believes that this change would be in our and our stockholders’ best interests.
The Board recommends that the stockholders ratify the selection of KPMG LLP, registered public accounting firm, as the independent registered public accounting firm to audit our accounts and those of our subsidiaries for 2015.2017. KPMG has served as our independent registered public accounting firm since 1936 and the Audit Committee believes that the continued retention of KPMG as our independent registered public accounting firm is in the best interests of Frontier and our stockholders. The Audit Committee approved the selection of KPMG LLP as our independent registered public accounting firm for 2015.2017.
A representative of KPMG LLP is currently our independent registered public accounting firm.
The board of directors recommendsexpected to participate at the Annual Meeting and will have the opportunity to make a voteFOR this proposal.statement and be available to respond to appropriate questions.
The Board unanimously recommends that you voteFOR this proposal.
| Frontier Communications Corporation | 76 | 2017 Proxy Statement |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2016 regarding compensation plans (including individual compensation arrangements, but not including qualified employee benefit plans and plans available to stockholders on a pro rata basis) under which our equity securities are authorized for issuance.
| (a) | (b) | (c) | ||||||||||
| Plan Category | Number of securities to be issued upon exercise of | Weighted-average exercise price of outstanding options, warrants and rights(1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1) | |||||||||
Equity compensation plans approved by security holders | 4,780,531 | $ | 3.49 | 7,324,000 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 4,780,531 | $ | 3.49 | 7,324,000 | ||||||||
| (1) | Columns (a) and (c) reflect the number of performance shares that may be issued at the end of the 2014-2016, 2015-2017 and 2016-2018 Measurement Periods assuming achievement of target performance. The weighted-average exercise price shown in column (b) does not take these performance shares into account. |
| Frontier Communications Corporation | 77 | 2017 Proxy Statement |
ANNUAL REPORT AND COMPANY INFORMATION
A copy of our 20142016 Annual Report to Stockholders is being furnished to stockholders concurrently herewith. Stockholders may request another free copy of our 20142016 Annual Report from:
Frontier Communications Corporation
Attn: Investor Relations DepartmentThree High Ridge ParkStamford,
401 Merritt 7
Norwalk, Connecticut 06905
06851
Telephone: (866) 491-5249
e-mail:ir@ftr.com
| Frontier Communications Corporation | 78 | 2017 Proxy Statement |
PROPOSALS BY STOCKHOLDERS
Proposals that stockholders wish to include in our proxy statement and form of proxy for presentation at our 20162018 annual stockholders meeting must be received by us no later than December 4, 2015.November 28, 2017. Such proposals also must comply with SEC regulations under Rule 14a-8 of the Securities Exchange Act of 1934, as amended, regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:
Secretary
Frontier Communications CorporationThree High Ridge ParkStamford,
401 Merritt 7
Norwalk, Connecticut 06905
06851
Fax: (203) 614-4651
For a stockholder proposal that is not intended to be included in our 20162018 proxy statement under Rule 14a-8, our bylaws require that the stockholder’s written proposal be submitted to our Secretary at the address above:
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On or after the close of business on January 10, 2018; and
On or before the close of business on February 9, 2018.
In such a case, the notice of proposal must meet certain requirements set forth in our bylaws. Such proposals are not required to be included in our proxy materials.
| Frontier Communications Corporation | 79 | 2017 Proxy Statement |
ANNEX A
Frontier Communications Corporation 2017 Equity Incentive Plan
Section 1
Purpose
The purpose of the Plan is to provide compensation incentives for high levels of performance and productivity by individuals who provide services to the Company. This Plan is intended to strengthen the Company’s existing operations and its ability to attract and retain outstanding individuals upon whose judgment, initiative and efforts the continued success, growth and development of the Company is dependent, as well as encourage such individuals to have a greater personal financial investment in the Company through ownership of its common stock. The Plan is also designed to align the interests of those employees participating in the incentive compensation and the interests of the Company’s stockholders by awarding compensation based on performance.
Section 2
Definitions
When used herein, the following terms have the following meanings:
| (a) | “AFFILIATE” means any company controlled by the Company, controlling the Company or under common control with the Company. |
| (b) | “AWARD” means an award granted to any Eligible Individual in accordance with the provisions of the Plan. |
| (c) | “AWARD POOL” means the aggregate number of shares of Stock that are reserved for issuance pursuant to Awards under this Plan pursuant to Section 3(a). |
| (d) | “AWARD AGREEMENT” means the written agreement or certificate evidencing the terms of the Award granted to an Eligible Individual under this Plan. An Award Agreement may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless the Committee determines otherwise, need not be signed by a representative of the Company or an Eligible Individual. |
| (e) | “BENEFICIARY” means, with respect to an Eligible Individual, the beneficiary or beneficiaries that the Eligible Individual designates pursuant to Section 10 to receive the amount, if any, payable under this Plan upon the Eligible Individual’s death. |
| (f) | “BOARD” means the Board of Directors of the Company. |
| (g) | A “CHANGE IN CONTROL” shall mean the occurrence of any of the following events with respect to the Company: |
| i. | any Person (as defined in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 30% or more of the combined voting power of the Company’s then outstanding securities other than in connection with a transaction, described in clause (ii) below, that would not result in the occurrence of a Change in Control; |
| ii. | consummation of any (1) consolidation or merger, other than a consolidation or merger of the Company which would result in all or substantially all of the individuals and entities who were beneficial owners of the voting securities of the Company outstanding prior to such merger or consolidation continuing to beneficially own, directly or indirectly, voting securities, either by such securities remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, representing more than 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation in substantially the same proportions as their ownership of the voting securities of the Company outstanding prior to such merger or consolidation, or (2) sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets or businesses of the Company; |
| A-1 |
ANNEX A
| iii. | during any 24 month period, individuals who, as of the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the beginning of such period whose election, appointment or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the 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 written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected, appointed or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; or |
| iv. | the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. |
Notwithstanding anything in this Plan or any Award Agreement to the contrary, to the extent any provision of this Plan or an Award Agreement would cause a payment of deferred compensation that is subject to Section 409A to be made upon or as a result of the occurrence of a Change in Control, then such payment shall not be made unless such Change in Control also constitutes a “change in ownership”, “change in effective control” or “change in ownership of a substantial portion of the Company’s assets” within the meaning of Section 409A. Any payment that would have been made except for the application of the preceding sentence shall be made in accordance with the payment schedule that would have applied in the absence of a Change in Control.
| (h) | “CODE” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to Sections of the Code are to such Sections as they are currently designated and reference to such Sections shall include the provisions thereof as they may from time to time be amended or renumbered as well as any successor provisions and any applicable regulations. |
| (i) | “COMMITTEE” means the Compensation Committee of the Board or such other committee consisting of two or more members as the Board may appoint from time to time to administer this Plan. |
| (j) | “COMPANY” means Frontier Communications Corporation and its successors and assigns. |
| (k) | “COVERED EMPLOYEE” means any Participating Company employee whom the Committee determines is or could be subject to the deductibility limitation imposed by Section 162(m) of the Code. |
| (l) | “DATE OF GRANT” means the date on which the Committee specifies that a grant of Options, SARs, Restricted Stock, Performance Shares, Performance Units or any other Award will become effective (which date shall not be earlier than the date on which the Committee takes action with respect thereto). |
| (m) | “EFFECTIVE DATE” means the date the stockholders approves this Plan. |
| (n) | “ELIGIBLE INDIVIDUAL” means a non-employee director, officer, or employee of any Participating Company or any other natural person, including a consultant or advisor, who performs bona fide services for a Participating Company not in connection with the offer or sale of securities in a capital-raising transaction whose judgment, initiative and efforts, in the judgment of the Committee, foster the continued efficiency, productivity, growth and development of any Participating Company. Where required by the context, “Eligible Individual” includes an individual who has been granted an Award but is no longer performing services for any Participating Company. |
| (o) | “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended, and any rules and regulations promulgated thereunder. Reference to any Section of the Exchange Act or any Rule promulgated thereunder shall include any successor Section or Rule. |
| (p) | “FAIR MARKET VALUE” means, unless the Committee specifies another reasonable method for determining fair market value, the closing sales price of a share of Stock as reported by the NASDAQ Stock Market (or if such shares are listed on another national stock exchange or national quotation system, as reported or quoted by such exchange or system) on the date in question or, if no such sales were reported for such date, for the most recent prior date on which sales prices were quoted. Notwithstanding the foregoing, (i) in the case of an Option or SAR, Fair Market Value shall be determined in accordance with a definition of fair market value that permits the Option or SAR to be exempt from Section 409A; and (ii) in the case of an Option that is intended to qualify as an Incentive Stock Option under Section 422 of the Code or an Award that is intended to qualify for the Performance-Based Exception, the Committee shall determine Fair Market Value in accordance with the requirements of Section 422 of the Code or Section 162(m) of the Code, as applicable. |
| A-2 |
ANNEX A
| (q) | “FAMILY MEMBER” AND “FAMILY TRUST” shall have the same meanings that the SEC shall employ from time to time for the purpose of the exception to the SEC rules that limit transferability of stock options and stock awards for purposes of Section 16 of the Exchange Act and/or the use of Form S-8 under the Securities Act. For the purposes of this Plan, the phrases “Family Member” and “Family Trust” shall be further limited, if necessary, so that neither the transfer to a Family Member or Family Trust nor the ability of a Participant to make such a transfer shall have adverse consequences to the Company or a Participant by reason of Section 162(m) of the Code or otherwise. |
| (r) | “INCENTIVE STOCK OPTION” means an Option that the Committee designates as intended to qualify as an “incentive stock option” under Section 422 of the Code or any successor provision. |
| (s) | “OPTION” means an option to purchase shares of Stock, including Restricted Stock, if the Committee so determines, subject to the applicable provisions of Section 5 and awarded in accordance with the terms of this Plan. |
| (t) | “OPTION PRICE” means the purchase price per share of Stock payable on exercise of an Option. |
| (u) | “OTHER AWARD” means any form of equity-based or equity-related award, other than an Option, SAR, Restricted Stock, Restricted Stock Unit, Performance Stock, or Performance Unit, that is granted pursuant to Section 8. |
| (v) | “PARTICIPATING COMPANY” means the Company or any subsidiary or other Affiliate of the Company; provided, however, for Incentive Stock Options only, “Participating Company” means the Company, any corporation or other entity which at the time such Incentive Stock Option is granted qualifies as a subsidiary of the Company under the definition of “subsidiary corporation” contained in Section 424(f) of the Code; and further provided that, except for Options that are specifically designated as intended to be subject to Section 409A, “Participating Company” means the Company and any other entity in a chain of entities in which the Company or another such entity has a controlling interest (within the meaning of Treasury Regulation § 1.409A-1(b)(5)(iii)(E)) in each entity in the chain. |
| (w) | “PARTICIPANT” means an Eligible Individual to whom the Committee has granted or is granting an Award. When required by the context, the definition of Participant shall include an individual who has been granted an Award but is no longer an employee of any Participating Company. |
| (x) | “PERFORMANCE-BASED EXCEPTION” means the performance-based compensation exception to the deductibility limitation of Section 162(m) of the Code. |
| (y) | “PERFORMANCE PERIOD” means a period of time over which performance is measured in connection with an Award. |
| (z) | “PERFORMANCE OBJECTIVES” means one or more specified performance goals that the Committee uses in determining (i) whether to make, vest or pay an Award to an Eligible Individual, or (ii) the amount, size or other terms of any such Award. |
| (aa) | “PERFORMANCE SHARE” means an Award under Section 6 that is valued by reference to a share of Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Stock, or any combination thereof, upon achievement of such Performance Objectives during the relevant Performance Period as the Committee shall establish at the time of such Award or thereafter, but not later than the time permitted by Section 162(m) of the Code in the case of a Qualified Performance-Based Award. |
| (bb) | “PERFORMANCE UNIT” means an Award under Section 6 for which the Committee sets a dollar value or a valuation formula, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Stock, or any combination thereof, upon achievement of such Performance Objectives during the relevant Performance Period as the Committee shall establish at the time of such Award or thereafter, but not later than the time permitted by Section 162(m) of the Code in the case of a Qualified Performance-Based Award. |
| (cc) | “PLAN” means this Frontier Communications Corporation 2017 Equity Incentive Plan, as the same may be amended from time to time. |
| (dd) | “PRIOR PLANS” means the Frontier Communications Corporation 2000 Equity Incentive Plan, 2009 Equity Incentive Plan, 2013 Equity Incentive Plan, Non-Employee Directors’ Deferred Fee Equity Plan and Non-Employee Directors’ Equity Incentive Plan, each as may be amended from time to time (each, a “Prior Plan”). |
| (ee) | “QUALIFIED PERFORMANCE-BASED AWARD” means an Award (or a specified portion of an Award) to a Participant that the Committee intends to satisfy the requirements of the Performance-Based Exception. |
| A-3 |
ANNEX A
| (ff) | “RESTRICTED STOCK” means an Award of shares of Stock under Section 7, which shares are issued with such restrictions as the Committee, in its sole discretion, may impose, including without limitation, any restriction on the right to retain such shares, to sell, transfer, pledge or assign such shares, to vote such shares, and/or to receive any dividends with respect to such shares, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate. |
| (gg) | “RESTRICTED STOCK UNIT” means an Award under Section 7 that is valued by reference to a share of Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Stock, or any combination thereof, and that has such restrictions as the Committee, in its sole discretion, may impose, including without limitation, any restriction on the right to retain such Awards, to sell, transfer, pledge or assign such Awards, and/or to receive any dividend equivalents with respect to such Awards, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate. |
| (hh) | “RESTRICTION PERIOD” means the period when Restricted Stock or Restricted Stock Units are subject to one or more restrictions that will lapse based on the passage of time, the achievement of performance goals, or the occurrence of another event or events, as the Committee determines and specifies in the applicable Award Agreement. |
| (ii) | “RULE 16b-3” shall mean Rule 16b-3 promulgated by the SEC under the Exchange Act and, unless the circumstances require otherwise, shall include any other rule or regulation adopted under Section 16(a) or 16(b) of the Exchange Act relating to compliance with, or an exemption from, Section 16(b) of the Exchange Act. |
| (jj) | “SAR” means a right granted under Section 5 that confers on the holder thereof a right to receive in cash or Stock, at the Committee’s sole discretion, upon exercise thereof, the excess of (i) the Fair Market Value of one share of Stock on the date of exercise over (ii) the SAR Price of the right. |
| (kk) | “SAR PRICE” means the base exercise price for an SAR that the Committee specifies and sets forth in the related Award Agreement. |
| (ll) | “SEC” means the Securities and Exchange Commission. |
| (mm) | “SECTION 409A” means Section 409A of the Code and the regulations and any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. |
| (nn) | “SECURITIES ACT” means the Securities Act of 1933, as amended, and any rules and regulations promulgated thereunder. Reference to any Section of the Securities Act or any Rule promulgated thereunder shall include any successor Section or Rule. |
| (oo) | “STOCK” means the Common Stock of the Company. |
| (pp) | “SUBSTITUTE AWARD” has the meaning in Section 3(e). |
| (qq) | “TERMINATION WITHOUT CAUSE” means termination of a Participant’s employment with a Participating Company (i) that the Participating Company initiates for any reason other than the Participant’s death, Total Disability or deliberate, willful or gross misconduct, (ii) that the Participant initiates for any reason, or (iii) on such other grounds as the Committee may have specified with respect to an Award in the Award Agreement or otherwise. |
| (rr) | “TOTAL DISABILITY” means, with respect to an Incentive Stock Option, a disability as determined under Section 22(e)(3) of the Code, and with respect to any other Award, a determination that a Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve (12) months, as the Committee shall determine upon the basis of such evidence as the Committee deems appropriate or necessary. A determination that the Eligible Individual is eligible for full long-term disability payments under any long-term disability plan of the Company, as may be in effect from time to time, shall be conclusive evidence of Total Disability. Notwithstanding the foregoing, to the extent any provision of this Plan or any Award Agreement under this Plan would cause a payment of deferred compensation that is subject to Section 409A to be made upon the occurrence of a Participant’s Total Disability, then there shall not be a Total Disability that triggers payment until the date (if any) that the Participant is disabled within the meaning of Section 409A(a)(2)(C). Any payment that would have been made except for the application of the preceding sentence shall be made in accordance with the time of payment schedule that would have applied in the absence of a Total Disability. |
| A-4 |
ANNEX A
Section 3
Shares Subject to this Plan
(a) Subject to adjustment as provided in Section 13 hereof, the Award Pool shall consist of 65,000,000 shares of Stock that are hereby reserved for issuance pursuant to Awards granted under this Plan, less one share for every one share granted under any Prior Plan after December 31, 2016. Notwithstanding the foregoing, SARs, Restricted Stock Units, Performance Shares, Performance Units and Other Awards that, by the terms of such Awards, are payable solely in cash shall not be subject to such limit. Shares of Stock reserved for issuance under this Plan shall be made available either from authorized and unissued shares, shares that the Company holds in its treasury, or shares that the Company purchases in the open market or in private transactions.
(b) In any calendar year, (1) no non-employee director may be granted Awards under this Plan such that the total compensation paid to such non-employee director (which, for purposes of clarity, shall include the annual retainer or stipend fees that are paid in cash) during such calendar year exceeds $600,000 (calculating the value of any such Awards that are Stock-based based on the grant date fair value of such Awards for financial reporting purposes) and (2) no Eligible Individual may receive Awards covering more than 2,000,000 shares of Stock if the Award is denominated in or valued by reference to a number of shares of Stock or Stock-based units. Such number of shares of Stock or Stock-based units shall be adjusted in accordance with Section 13 hereof. In addition, with respect to Performance Units and Other Awards that are denominated in dollars and payable in cash, no Eligible Individual may receive Awards in excess of $2,000,000 in respect of each calendar year during the applicable Performance Period (i.e.,no more than $6,000,000 in respect of a three-year Performance Period). The limitations set forth in this Section 3(b) shall not apply to the extent the Committee determines that an Award shall not comply with the Performance-Based Exception (and may be excluded from these limits without adversely affecting the application of the Performance-Based Exception provisions with respect to Awards that are intended to comply with it). The limitations set forth in this Section 3(b) shall be applied to Awards that provide for a range of payouts based on the maximum amount that could be paid under each such Award. With respect to the limitation set forth in Section 3(b)(1), the Committee may make exceptions to this limit for a non-executive chair of the Board or, in extraordinary circumstances, for other individual non-employee directors, as the Committee may determine in its discretion, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.
(c) Upon approval of this Plan by the stockholders of the Company, no further grants may be made under any Prior Plan. However, if, for any reason after December 31, 2016, any shares of Stock awarded or subject to issuance pursuant to an award outstanding under any Prior Plan are not issued, or are reacquired by the Company from the Participant or the Participant’s transferee, for reasons including, but not limited to, forfeiture, termination, expiration, cancellation or the settlement of an award in cash in lieu of shares of Stock or the satisfaction of a tax withholding obligation by the Company withholding shares of Stock that otherwise would have been issued in settlement of such award (other than any tender of shares or withholding to cover the exercise price or tax obligation in connection with the exercise of options or stock appreciation rights under a Prior Plan), such shares of Stock shall be available for issuance pursuant to Awards under this Plan.
(d) If, for any reason, any shares of Stock awarded or subject to issuance pursuant to Awards outstanding under this Plan are not issued, or are reacquired by the Company from the Participant or the Participant’s transferee, for reasons including, but not limited to, a forfeiture of Restricted Stock or a Restricted Stock Unit or the termination, expiration or cancellation of an Option, SAR, Performance Share or Performance Unit or the settlement of an Award in cash in lieu of shares of Stock or the satisfaction of a tax withholding obligation with respect to Restricted Stock, a Restricted Stock Unit, a Performance Share or a Performance Unit by the Company withholding shares of Stock that otherwise would have been issued in settlement of such Award, such shares of Stock shall again be available for issuance pursuant to an Award under this Plan and shall be added back to the Award Pool. Notwithstanding anything to the contrary contained herein: (A) if shares of Stock are tendered or otherwise used in payment of an Option Price, the total number of shares of Stock covered by the Option being exercised shall be deducted from the Award Pool; (B) shares of Stock withheld by the Company to satisfy the tax withholding obligation with respect to an Option or SAR shall be deducted from the Award Pool; and (C) the number of shares of Stock covered by an SAR, to the extent that it is exercised and settled in shares of Stock, and whether or not shares of Stock are actually issued to the Participant upon exercise of the SAR, shall be deducted from the Award Pool.
| A-5 |
ANNEX A
(e) Notwithstanding anything to the contrary contained herein: (i) shares issued under Awards granted in assumption, substitution or exchange for previously granted awards of a company acquired by the Company (“Substitute Awards”) do not reduce the shares available under the Award Pool in Section 3(a) and will not be subject to the individual award limits under Section 3(b); and (ii) available shares under a pre-existing stockholder approved plan of an acquired company that was not adopted in contemplation of such acquisition (as appropriately adjusted to reflect the transaction) may be used for Awards under the Plan and will not reduce the shares available under Award Pool in Section 3(a) and will not be subject to the individual award limits under Section 3(b) (subject to stock exchange listing requirements), provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition, and shall only be made to individuals who were employees or directors of such acquired company before such acquisition or combination.
Section 4
Grant of Awards and Award Agreements
(a) Subject to and in furtherance of the provisions of this Plan, the Committee shall (i) determine and designate from time to time those Eligible Individuals or groups of Eligible Individuals to whom Awards are to be granted; (ii) grant Awards to Eligible Individuals; (iii) determine the form or forms of Award to be granted to any Eligible Individual; (iv) determine the amount or number of shares of Stock, including Restricted Stock if the Committee so determines, subject to each Award; (v) determine the terms and conditions (which need not be identical) of each Award including any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to clawback or recoupment with respect to an Award; (vi) determine the rights of each Participant after employment has terminated and the periods during which such rights may be exercised; (vii) establish and modify, consistent with the requirements under Section 162(m) of the Code, Performance Objectives; (viii) determine whether and to what extent Eligible Individuals shall be allowed or required to defer receipt of any Awards or other amounts payable under this Plan to the occurrence of a specified date or event; (ix) determine the price at which shares of Stock may be offered under each Award which price may, except in the case of Options or SARs, be zero; (x) permit cashless exercise of Options and other Awards; (xi) interpret, construe and administer this Plan and any related Award Agreement and define the terms employed therein; and (xii) make all of the determinations necessary or advisable with respect to this Plan or any Award granted thereunder. Awards granted to different Eligible Individuals or Participants need not be identical and, in addition, may be modified in different respects by the Committee.
(b) Each Award granted under this Plan shall be evidenced by a written or electronic Award Agreement, in a form that the Committee approves. Such Award Agreement shall be subject to and incorporate the express terms and conditions, if any, required under this Plan or by the Committee for the form of Award granted and such other terms and conditions as the Committee may specify. Except to the extent waived by the Committee, an Eligible Participant must accept an Award in such manner and during such period of time as the Committee shall specify. An Eligible Participant shall not have any rights with respect to an Award unless and until the Eligible Participant has so accepted the Award and has otherwise complied with the applicable terms and conditions of the applicable Award Agreement.
(c) Notwithstanding anything in this Section 4 to the contrary, except for Options and SARs that the Committee specifically designates as intended to be subject to Section 409A, Options and SARs may be granted only to individuals who provide direct services on the Date of Grant of the relevant Option or SAR to the Company or another entity in a chain of entities in which the Company or another such entity has a controlling interest within the meaning of Treasury Regulation § 1.409A-1(b)(5)(iii)(E) in each entity in the chain.
(d) The Committee may, in its discretion, include Performance Objectives in any Award.
(i) Performance Objectives may vary from Participant to Participant and between groups of Participants and shall be based upon such factors as the Committee may deem appropriate.
(ii) If the Committee intends to assign an opportunity to receive a Qualified Performance-Based Award to a Participant, the Committee shall designate the Award opportunity as a Qualified Performance-Based Award in writing at the time the Committee establishes the Award opportunity.
| A-6 |
ANNEX A
(iii) If the Committee assigns a Participant an opportunity to receive a Qualified Performance-Based Award, the Committee shall establish a Performance Objective with respect to the Qualified Performance-Based Award and the maximum dollar amount of compensation payable under the Qualified Performance-Based Award for attainment of the Performance Objective. The Committee may also establish lower dollar amounts of compensation payable for lower levels of achievement with respect to the Performance Objective and may also establish one or more threshold levels of achievement with respect to the Performance Objective in order for any compensation to be paid pursuant to the Qualified Performance-Based Award. If none of the threshold levels of achievement with respect to the Performance Objective established to ensure compliance with Section 162(m) of the Code are attained, no compensation may be paid pursuant to the Qualified Performance-Based Award. The Committee shall establish in writing the Performance Objective intended to ensure compliance with Section 162(m) of the Code within the first 90 days of the Performance Period and at a time when the outcome of the Performance Objective is substantially uncertain. Notwithstanding the 90-day deadline specified in the prior sentence, in the event that a Performance Period (or a Participant’s service during a Performance Period) is expected to be less than 12 months, the Committee shall establish in writing the Performance Objective intended to ensure compliance with Section 162(m) of the Code on or before the date when 25% of the Performance Period (or the Participant’s service during the Performance Period), as each is scheduled in good faith at the time the goal is established, has elapsed. In addition to specifying the Performance Objective that is intended to ensure compliance with Section 162(m) of the Code, the Committee may specify a Performance Objective, or such other conditions and criteria as it chooses, to guide the exercise of its discretion to reduce, but not increase, the amount of the Award that otherwise would be payable in connection with the attainment of the Performance Objective and thereby determine the final amount payable to the Participant under the Qualified Performance-Based Award.
(iv) In the case of a Qualified Performance-Based Award, the Performance Objective that is intended to permit the Award to satisfy the Performance-Based Exception shall be stated as levels of, or growth or changes in, or other objective specification of performance with respect to one or more of the following performance criteria: earnings; consolidated pre-tax earnings; net earnings; earnings before or after deduction for all or any portion of interest, taxes, depreciation, and/or amortization; cash and cash equivalent balance; cash flow measures (including but not limited to operating cash flow; free cash flow; free cash flow per share; and cash flow return); earnings per share; economic value added; revenue; average revenue per customer; net income; operating income; profit; economic profit; capitalized economic profit; after-tax profit; pre-tax profit; operating profit; operating efficiency; operating expenses; operating margin; profit margin; gross margin; market value added; market share; return measures (including but not limited to total stockholder return; return on total capital; return on equity; return on common equity; return on assets; return on net assets; return on investment; and return on capital employed); debt/capital ratio; cost; unit cost; cost control; attainment of budget goals; sales; sales volume; assets; inventory turnover ratio; productivity ratios; the Company’s common stock price; expense targets or ratios; charge-off levels; customer satisfaction; working capital; debt; debt to equity ratio; capital expenditures; capital targets; consummation of acquisitions, dispositions, projects, strategic or operational initiatives, or other specific events or transactions; price/earnings growth ratio; and book value per share. Unless otherwise determined by the Committee, Performance Objectives that are financial metrics will be determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”) or may be adjusted to include or exclude any items otherwise includable or excludable under GAAP as the Committee may determine from time to time. To the extent such exclusions or adjustments affect Awards intended to qualify as Qualified Performance-Based Awards, they shall be prescribed in a form and within the period of time that meets the requirements of Section 162(m).
(v) In the case of an Award other than a Qualified Performance-Based Award, the Committee may establish a Performance Objective that is based on categories of performance that are different than those set forth in Section 3(d)(iv).
(vi) If the Committee makes the opportunity to receive an Award subject to a particular Performance Objective, the Committee shall adopt or confirm a written definition of that Performance Objective at the time the Performance Objective is established, provided that the Committee retains the discretion to forgo such written definition in connection with an Award other than a Qualified Performance-Based Award. The Performance Objective for an Award may be described in terms of Company-wide objectives or objectives that are related to a specific division, subsidiary, Employer, department, region, or function in which the Participant is employed or as some combination of these (as alternatives or otherwise). A Performance Objective may be measured on an absolute basis or relative to a pre-established target, results for a previous year, the performance of other corporations, or a stock market or other index. If the Committee specifies more than one individual performance goal in defining a Performance Objective, the Committee shall also specify, in writing, whether one, all or some other number of such goals must be attained in order for the Performance Objective to be met.
| A-7 |
ANNEX A
(vii) For each Award that has been made subject to a Performance Objective, within 60 days following the end of each Performance Period, the Committee shall determine whether the Performance Objective for such Performance Period has been satisfied. With respect to the Performance Objective related to a Qualified Performance-Based Award, no Award may be granted, settled or paid out, as applicable under the Performance Objectives for such Award, until the Committee has made a final written certification that the Performance Objective established to ensure compliance with Section 162(m) of the Code has been satisfied. This may be accomplished through approved minutes of the Committee meeting (or by some other form of written certification). If a Performance Objective applicable to the opportunity to receive an Award other than a Qualified Performance-Based Award for a Performance Period is not achieved, the Committee in its sole discretion may grant all or a portion of that Award based on such criteria as the Committee deems appropriate, including without limitation individual performance or the performance of the specific division, subsidiary, Employer, department, region, or function employing the Participant. The Committee shall also have the discretion to adjust downward the determinations of the degree of attainment of any Performance Objective; Awards may not be adjusted upward.
(viii) In determining whether any Performance Objective has been satisfied, the Committee may exclude or otherwise equitably adjust for any or all specified circumstance or event that occurs during a Performance Period, including but not limited to: (i) charges, costs, gains or income associated with reorganizations or restructurings of the Company, discontinued operations, asset write-downs or impairment charges, litigation or the resolution of litigation, acquisitions or divestitures and related expenses, or currency or commodity fluctuations, (ii) the effects of changes in applicable laws, regulations or accounting principles, or (iii) any other unusual or infrequently occurring or non-recurring items or any other extraordinary, unusual, special or designated items, events or circumstances as the Committee may in its discretion determine. In addition, the Committee may adjust any Performance Objective for a year as it deems equitable to recognize unusual or non-recurring events affecting the Company, changes in tax laws or regulations or accounting procedures, mergers and acquisitions and any other factors as the Committee may determine (including adjustments that would result in the Company’s payment of non-deductible compensation under an Award). In the case of Qualified Performance-Based Awards, such exclusions and adjustments will apply only to the extent the Committee specifies in writing (not later than the time Performance Objectives are required to be established) which exclusions and adjustments the Committee will apply to determine whether a Performance Objective has been satisfied, as well as an objective manner for applying them, or to the extent that the Committee determines (if such determination is memorialized in writing) that they may apply without adversely affecting the Award’s status as a Qualified Performance-Based Award. In the event of any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, any merger, consolidation, spin-off, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities or any other corporate transaction having an effect similar to any of the foregoing, the Committee shall make or provide for such adjustments in such Performance Objective or other terms of the Award as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of the rights of Participants.
(ix) If applicable tax and/or securities laws permit Committee discretion to alter the governing Performance Objectives without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code.
Section 5
Stock Options and SARs
(a) The Committee may grant Incentive Stock Options, nonqualified stock options, SARs or a combination of Incentive Stock Options, nonqualified stock options and SARs. The Committee shall (i) determine the number of shares of Stock subject to each Option or the number of shares of Stock that shall be used to determine the value of an SAR; (ii) determine whether such Stock shall be Restricted Stock; (iii) determine the time or times when and the manner in which each Option and SAR shall be exercisable and the duration of the exercise period; (iv) determine whether or not all or part of each Option may be canceled by the exercise of an SAR; and (v) determine whether the payment due upon the exercise of an Option or SAR will be in the form of cash, shares of Stock, or a combination of cash and shares of Stock.
(b) Incentive Stock Options may only be granted to Eligible Individuals who meet the definition of “employee” under Section 3401(c) of the Code. Unless the Committee designates an Option in writing as an Incentive Stock Option, the Option shall be a nonqualified stock option.
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ANNEX A
(c) The aggregate Fair Market Value of the Stock (disregarding any restrictions in the case of Restricted Stock) for which Incentive Stock Options (within the meaning of Section 422 of the Code) granted to any Eligible Individual under this Plan may first become exercisable in any calendar year under this Plan and all other Incentive Stock Option plans of the Employer shall not exceed $100,000. For this purpose, Fair Market Value shall be determined with respect to a particular Incentive Stock Option on the date on which such Incentive Stock Option is granted. In the event that this $100,000 limit is exceeded with respect to a Participant, then Incentive Stock Options granted under this Plan to such Participant shall, to the extent and in the order required by Treasury Regulations under Section 422 of the Code, automatically become nonqualified stock options granted under this Plan. Solely for purposes of determining the limit on Incentive Stock Options that may be granted under this Plan, the provisions of Section 3(d) that replenish or forego a charge against the Award Pool shall only be applied to the extent permitted by Section 422 of the Code and regulations promulgated thereunder.
(d) SARs can be either free-standing (not granted in tandem with another Award) or granted in tandem with another Award. If an SAR is granted in tandem with another Award, the Participant may choose to exercise either the underlying Award or the SAR, but not both.
(e) The exercise period for an Option or SAR, including any extension which the Committee may from time to time decide to grant, shall be 10 years from the Date of Grant or such shorter period as the Committee may specify at the Date of Grant; provided, however, that, in the case of an Incentive Stock Option granted to an Eligible Individual who, at the Date of Grant, owns (within the meaning of Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any “parent” or “subsidiary” within the meaning of Section 424(e) or (f) of the Code, respectively (a “10% Stockholder”), such period, including extensions, shall not exceed five years from the Date of Grant.
(f) The Committee shall determine the Option Price or SAR Price, as applicable, at the time any Option or SAR is granted. The Option Price or SAR Price shall be not less than the Fair Market Value, or, in the case of an Incentive Stock Option granted to a 10% Stockholder, 110% of the Fair Market Value, disregarding any restrictions in the case of Restricted Stock, of a share of Stock on the Date of Grant of the Option or SAR, as the Committee shall determine; provided, however, that such Option Price or SAR Price, as applicable, shall be at least equal to the par value of one share of Stock. Notwithstanding the prior sentence, the Committee may grant an Option or SAR with an Option Price or SAR Price, as applicable, that is less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the Date of Grant of the Option or SAR if the Committee grants such Option or SAR as a Substitute Award in replacement for an award previously granted by an entity that the Company assumes in a business combination, provided that the Committee determines that such Option Price or SAR Price, as applicable, is appropriate to preserve the economic benefit of the replaced award and will not impair the exemption of the Option or SAR from Section 409A (unless the Committee clearly and expressly foregoes such exemption at the time the Option or SAR is granted). In all cases, the Committee shall observe the prohibition on Option and SAR repricing set forth in Section 12(d) of this Plan. Options and SARs are not eligible for dividends or dividends equivalent rights.
(g) A Participant may not exercise any portion of an Option or SAR (i) until the Participant shall have remained in the employ of a Participating Company for such period after the Date of Grant of the Option or SAR as the Committee may specify in the Award Agreement and (ii) until the Participant achieves such Performance Objectives or other criteria, if any, as the Committee may specify in the Award Agreement. Unless otherwise provided in this Plan, an Option shall not be exercisable earlier than one year following the Date of Grant of the Option. The Committee may further require that an Option or SAR become exercisable in installments.
(h) Except as otherwise provided in this Plan, the total Option Price or SAR Price shall be paid to the Company at the time of exercise either in cash or in such other consideration as the Committee deems appropriate, including Stock, having a total Fair Market Value on the date of exercise, as the Committee shall determine, equal to the total Option Price or SAR Price, as applicable, or a combination of cash and such other consideration having a total Fair Market Value on the date of exercise, as so determined, equal to the total Option Price or SAR Price, as applicable.
(i) (i) Upon the Termination Without Cause (other than in connection with a Change of Control as specified in Section 14) of a Participant holding Options or SARs, the Participant may exercise his or her Options and SARs to the extent they are exercisable on the date of Termination Without Cause, at any time and from time to time within 90 days of the date of such termination (but not later than the expiration of the overall exercise period specified in the applicable Award
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ANNEX A
Agreement). The Committee, however, in its discretion, may provide that any Option or SAR which is not exercisable by its terms on the date of Termination Without Cause will become exercisable in accordance with a schedule (which may extend the time limit referred to above, but not later than the expiration of the overall exercise period specified in the applicable Award Agreement) that the Committee shall determine.
(ii) (A) Upon the death or Total Disability (during a Participant’s employment or within three months after the termination of employment for any reason other than termination pursuant to circumstances described in clause (f)(iii) below) of a Participant holding an Option or SAR, the Participant may exercise his or her Options and SARs only to the extent they are exercisable at the time of death or Total Disability (or such earlier termination of employment), at any time and from time to time within one year after such death or Total Disability (but not later than the expiration of the overall exercise period specified in the applicable Award Agreement). The Committee, however, in its discretion, may provide that any Options or SARs outstanding but not exercisable at the date of the stockholder meetingfirst to occur of death or Total Disability will become exercisable in accordance with a schedule (which may extend the limits referred to above, but not to a date later than the expiration of the overall exercise period specified in the applicable Award Agreement) that the Committee shall determine. (B) The Committee may specify in the Award Agreement for a Participant’s Option or SAR that the Option or SAR may be exercised for an extended period after the termination of the Participant’s employment by reason of retirement (as defined by the Committee in its sole discretion), but not beyond the expiration of the overall exercise period specified in the applicable Award Agreement.
(iii) If a Participating Company terminates the employment of a Participant holding an Option or SAR for deliberate, willful or gross misconduct or on such grounds as the Committee may have specified with respect to an Award, as the Committee shall determine in good faith in its discretion, all rights of such Participant and any Family Member or Family Trust or other transferee to which such Participant has transferred the Option or SAR shall expire immediately upon the Participant’s or transferee’s receipt of the notice of such termination.
(iv) In the event of the death of a Participant, any Option or SAR outstanding to the Participant may be exercised by the person or persons to whom the Participant’s rights under the Option or SAR pass by will, or if no such person has such right, by his or her executors or administrators or Beneficiary. The death of a Participant after Total Disability or Termination Without Cause will not adversely affect the rights of a Participant or anyone entitled to the benefits of such Option or SAR.
(j) No Option or SAR granted under this Plan shall be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated other than by will or by the laws of descent and distribution or as provided in Section 10 with respect to the designation of a Beneficiary; provided, however, that the Committee may determine that a nonqualified stock option or SAR may be transferred by a Participant to a Family Member or Family Trust or other transferee. In no event shall any Participant transfer an Option or SAR for value. Any authorized transfer of a nonqualified stock option or SAR shall be evidenced by a writing from a grantee to the Committee or Committee’s designee on a form established by the Committee. Absent an authorized transfer during the lifetime of the Participant, an Option or SAR shall be exercisable during the Participant’s lifetime only by the Participant or by his or her guardian or legal representative.
(k) With respect to an Incentive Stock Option, the Committee shall specify such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify such Option as an Incentive Stock Option.
(l) If authorized by the Committee in its sole discretion, and subject to Section 12(d), so long as an Option is movedexercisable at such time, the Company may accept the surrender of the right to exercise any Option granted under this Plan as to all or any of the shares of Stock as to which the Option is then exercisable, in exchange for payment to the optionee (in cash or shares of Stock valued at the then Fair Market Value, or a combination thereof) of an amount not to exceed the difference between the Option Price and the then Fair Market Value of the shares as to which such right to exercise is surrendered.
Section 6
Performance Shares and Performance Units
(a) Subject to the terms and provisions of this Plan, the Committee may grant Performance Shares and Performance Units to Eligible Participants in such amounts and upon such terms, and at any time and from time to time, as the Committee shall determine.
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ANNEX A
(b) The Committee shall, in its discretion, set one or more Performance Objectives for each Award of Performance Shares or Performance Units, in addition to any non-performance terms applicable to the Award, which, depending on the extent to which they are met, will determine the number and/or value of the Performance Shares or Performance Units, as applicable, that will be paid out to the Participant.
(c) Subject to the terms of this Plan, after the applicable Performance Period has ended, the Participant shall be entitled to receive a payout of the number and/or value of the Performance Shares or Performance Units, as applicable, that the Participant earned over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Objectives have been achieved and any applicable non-performance terms have been met.
(d) A Participant receiving Performance Shares or Performance Units shall not possess voting rights with respect to such Performance Shares or Performance Units and shall accrue dividend equivalents on such Performance Shares or Performance Units only to the extent provided in the corresponding Award Agreement; provided, however, that rights to dividend equivalents shall only be allowed to the extent they comply with, or are exempt from, Section 409A. Any rights to dividend equivalents on Performance Shares or Performance Units shall be subject to the same restrictions on vesting and payment as the underlying Award and shall be paid to the Participant when and if payment is made on the underlying Award. In addition, with respect to Covered Employees, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to Performance Shares and Performance Units such that the dividends and/or Performance Shares or Performance Units maintain eligibility for the Performance-Based Exception.
(e) If a Participant terminates service with all Participating Companies during a Performance Period because of death or Total Disability, the Committee may provide the Participant a payment in settlement of each Performance Share or Performance Unit for which the Performance Period was prescribed (i) based upon the Performance Objectives or performance measures satisfied at the end of such Performance Period and (ii) prorated for the portion of the Performance Period during which the Participant was employed by any Participating Company; provided, however, the Committee may provide for an earlier payment in settlement of such Performance Share or Performance Unit in such amount and under such terms and conditions as the Committee deems appropriate or desirable with the consent of the Participant. If a Participant terminates service with all Participating Companies during a Performance Period for any other reason (other than in connection with a Change in Control as specified in Section 14), then such Participant shall not be entitled to any payment with respect to that Performance Period unless the Committee shall otherwise determine, subject to the requirements of Code Section 162(m) to the extent the Committee intends such Award to qualify under the Performance-Based Exception.
(f) Each Performance Share or Performance Unit may be paid in whole shares of Stock or other Awards, including but not limited to Restricted Stock, or cash, or a combination of the foregoing either as a lump sum payment or in annual installments, all as the Committee shall set forth in the Award Agreement. Notwithstanding the foregoing, to the extent a Performance Share or Performance Unit constituted deferred compensation subject to Section 409A and is subject to a substantial risk of forfeiture within the meaning of Section 409A (or will be granted upon the satisfaction of a condition that constitutes such a substantial risk of forfeiture), any compensation due under the Award (or pursuant to a commitment to grant an Award) shall be paid in full not later than the 90th day following the date there is no longer such a substantial risk of forfeiture with respect to the Award but in no event later than March 15th of the next following year (and the Participant shall have no right to designate the year of the payment), unless the Committee shall clearly and expressly provide otherwise at the time of granting the Award.
(g) Except as otherwise provided in this Section 6 or the applicable Award Agreement or as may be required by applicable law, no Performance Shares or Performance Units shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of, other than by will or by the laws of descent and distribution or as provided in Section 10 with respect to the designation of a Beneficiary, during the Performance Period unless the Committee determines that an Award may be transferred to a Family Member or Family Trust or other transferee. In no event shall Performance Shares or Performance Units be transferred by a Participant for value. Any authorized transfer of Performance Shares or Performance Units shall be evidenced by a writing from a grantee to the Committee or Committee’s designee on a form established by the Committee. Further, except as otherwise provided in the applicable Award Agreement, a Participant’s rights with respect to Performance Shares and Performance Units shall be available during the Participant’s lifetime only to the Participant or the Participant’s legal representative.
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ANNEX A
Section 7
Restricted Stock and Restricted Stock Units
(a) The Committee may grant Restricted Stock or Restricted Stock Units to a Participant either as an Award or as the result of an exercise of an Option or as payment for a Performance Share. Restricted Stock shall be subject to a Restriction Period commencing on the Date of Grant of the Award and ending on a date specified in the Award Agreement or upon the achievement of such Performance Objectives or other criteria as the Committee shall determine. The Committee may provide for the lapse of the Restriction Period in installments where deemed appropriate. To the extent that Restricted Stock is intended to qualify under the Performance-Based Exception, the grant of the Restricted Stock shall be conditioned on (or the applicable restrictions on the Restricted Stock shall include) the achievement during a Performance Period of one or more Performance Objectives. In this case, the rules in Section 4(d) for specifying and applying Performance Objectives, for establishing maximum available and lesser reward levels, and for otherwise complying with the Performance-Based Exception shall apply.
(b) Each Award of Restricted Stock or Restricted Stock Units shall be evidenced by an Award Agreement that shall set forth the terms of the Award, as the Committee shall determine, including without limitation the number of shares of Restricted Stock or the number of Restricted Stock Units granted; the purchase price, if any, to be paid for each share of Restricted Stock or Restricted Stock Unit, which may be more than, equal to, or less than Fair Market Value of a share of Stock and may be zero, subject to such minimum consideration as may be required by applicable law; any restrictions applicable to the Restricted Stock or Restricted Stock Units such as continued service or achievement of Performance Objectives; the length of the Restriction Period and whether any circumstances, such as death, Disability, or a Change in Control, will shorten or terminate the Restriction Period; and whether Restricted Stock Units will be settled in cash, shares of Stock or a combination of cash and shares of Stock. The Award may provide for lapse of the Restriction Period in monthly or longer installments over the course of the Restriction Period, as the Committee shall determine in its discretion.
(c) Except as otherwise provided in this Section 7 or an Award Agreement or as may be required by applicable law, no shares of Restricted Stock and no Restricted Stock Unit shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Restriction Period or, in the case of Restricted Stock Units, until the date of delivery of shares of Stock or other payment with respect to the Restricted Stock Units, other than by will or by the laws of descent and distribution or as provided in Section 10 with respect to the designation of a Beneficiary, unless the Committee determines that an Award may be transferred by a Participant to a Family Member or Family Trust or other transferee. In no event shall Restricted Stock or Restricted Stock Units be transferred for value. Any authorized transfer of Restricted Stock or Restricted Stock Units shall be evidenced by a writing from a grantee to the Committee or Committee’s designee on a form established by the Committee. Further, except as otherwise provided in the applicable Award Agreement, a Participant’s rights with respect to Restricted Stock or Restricted Stock Units shall be available during the Participant’s lifetime only to the Participant or the Participant’s legal representative.
(d) Upon an Award of Restricted Stock to a Participant, shares of Restricted Stock shall be recorded in the Participant’s name pursuant to Section 9.
(e) Except as provided in this Section 7 or in the Award Agreement applicable to an Award of Restricted Stock, a Participant receiving Restricted Stock shall have all of the rights of a stockholder of the Company with respect to such Restricted Stock, including the right to vote the shares of Restricted Stock to the extent, if any, such shares possess voting rights and the right to receive dividends. Unless the Award Agreement provides otherwise or the Committee specifies otherwise, dividends declared and payable during the Restriction Period with respect to the number of shares of Restricted Stock credited to a Participant shall be paid to the Participant within 30 days beforeafter each dividend becomes payable, unless, at the Date of Grant of the Award, the Committee determines that the dividends should be reinvested in additional shares of Restricted Stock subject to the same restrictions on vesting as the underlying Award or may require the Company to hold the dividends pending and subject to the same restrictions on vesting as the underlying Award. To the extent the Committee provides that cash dividends shall be reinvested in additional shares of Restricted Stock, the Company will credit additional shares of Restricted Stock to the Participant based on the Stock’s Fair Market Value at the time of each such dividend. Notwithstanding the foregoing, all dividends or distributions payable on shares of Restricted Stock (or the equivalent as specified in the grant) subject to Performance Objectives shall be paid over to the Participant when and if restrictions lapse on the underlying shares of Restricted Stock. To the extent that any dividends declared and payable with respect to shares of Restricted Stock are deferred, reinvested or otherwise not paid when such
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ANNEX A
dividends would otherwise normally be paid, (i) all terms and conditions for such delayed payment shall be included in the Award Agreement, and (ii) such deferral, reinvestment or delay in payment of the dividends shall only be allowed to the extent it complies with, or is exempt from, the requirements of Section 409A. A Participant receiving Restricted Stock Units shall not possess voting rights and shall accrue dividend equivalents on such Restricted Stock Units only to the extent provided in the Award Agreement relating to the Restricted Stock Units; provided, however, that rights to dividend equivalents shall only be allowed to the extent they comply with, or are exempt from, Section 409. The Committee shall require that any such dividend equivalents shall be subject to the same restrictions on vesting and payment as the underlying Restricted Stock Units. In addition, with respect to Covered Employees, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to Restricted Stock such that the dividends and/or Restricted Stock maintain eligibility for the Performance-Based Exception.
Section 8
Other Awards
(a) The Committee may grant other Awards under this Plan which are denominated in shares of Stock or pursuant to which shares of Stock may be acquired, including Awards valued using measures other than Fair Market Value, if the Committee in its discretion deems such Awards to be consistent with the purposes of this Plan. Subject to the terms of this Plan, the Committee shall determine the form of such Awards, the number of shares of Stock to be granted or covered pursuant to such Awards and all other terms and conditions of such Awards. Any right to dividend equivalents on an Award granted pursuant to this Section 8 shall be subject to the same restrictions on vesting and payment as the underlying Award and shall be paid to the Participant when and if payment is made on the underlying Award. Notwithstanding the foregoing, where the value of such an Award is based on the difference in the value of a share of Stock on different dates, the grant or exercise price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant of the Award. To the extent that any such Award is intended to qualify under the Performance-Based Exception, either the initial grant or the ultimate payout of the Award shall be made subject to the achievement during a Performance Period of one or more Performance Objectives. In this case, the rules in Section 4(d) for specifying and applying Performance Objectives, for establishing the maximum available and any lesser reward levels, and for otherwise complying with the Performance-Based Exception shall apply. Any compensation due under an Award (or pursuant to a commitment to grant an Award) under this Section 8 shall be provided in full not later than the 90th day following the date there is no longer such a substantial risk of forfeiture with respect to the Award but in no event later than March 15th of the next following year, unless the Committee shall clearly and expressly provide otherwise in the Award Agreement with respect to the Award.
(b) Except as otherwise provided in this Section 8 or the applicable Award Agreement or as may be required by applicable law, no Award that the Committee grants under this Section 8 shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of other than by will or by the laws of descent and distribution or as provided in Section 10 with respect to the designation of a Beneficiary, unless the Committee determines that an Award may be transferred to a Family Member or Family Trust or other transferee. In no event shall Other Awards be transferred by a Participant for value. Any authorized transfer of an Award granted under this Section 8 shall be evidenced by a writing from a grantee to the Committee or Committee’s designee on a form established by the Committee. Further, except as otherwise provided in the applicable Award Agreement, a Participant’s rights with respect to an Award granted under this Section 8 shall be available during the Participant’s lifetime only to the Participant or the Participant’s legal representative.
Section 9
Certificates for Awards of Stock
(a) When a Participant becomes entitled to receive shares of Stock under this Plan, the Company shall issue a certificate for such shares to the Participant or arrange to have the shares registered for the Participant’s account in book entry form by the Company’s transfer agent or beneficially held on the Participant’s behalf by the Company’s designee, with appropriate restrictions relating to the transfer of such shares. If a certificate is issued, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend reciting the terms, conditions and restrictions, if any, applicable to such shares of Stock and shall be subject to appropriate stop-transfer orders. The Company shall hold in custody the certificates representing shares of Restricted Stock until all restrictions thereon have lapsed and, if the Company so requires, the Participant shall deliver to the Company one or more stock powers endorsed in blank relating to the shares of Restricted Stock; if and when all restrictions on the shares of Restricted Stock have lapsed without a prior forfeiture of the shares of Restricted Stock, unrestricted certificates for such shares of Stock shall be delivered to the Participant.
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ANNEX A
(b) The Company shall not be required to issue or deliver any shares or certificates for shares of Stock prior to (i) the listing of such shares on any stock exchange or quotation system on which the Stock may then be listed or quoted, and (ii) the completion of any registration, qualification, approval or authorization of such shares of Stock under any federal or state law, or any ruling or regulation or approval or authorization of such shares of Stock under any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable.
(c) All shares and certificates for shares of Stock delivered under this Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the SEC, any stock exchange upon which the Stock is then listed and any applicable federal or state securities or regulatory laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The foregoing provisions of this Section 9(c) shall not be effective if and to the extent that the shares of Stock delivered under this Plan are covered by an effective and current registration statement under the Securities Act, or if the Committee determines that application of such provisions is no longer required or desirable. In making such determination, the Committee may rely upon an opinion of counsel for the Company.
(d) Except as provided by Section 7 with respect to Restricted Stock and Section 8 with respect to other Awards, each Participant who receives an Award of shares of Stock shall have all of the rights of a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions in accordance with the provisions of this Plan under which the Award is granted. No Participant awarded an Option, SAR, Restricted Stock Unit, Performance Share, Performance Unit or Other Award shall have any right as a stockholder with respect to any shares issuable pursuant to such Award prior to the date on which the Participant becomes the record holder of such shares; provided, however, that this sentence shall not preclude such an Award (other than an Option or SAR) from providing dividend equivalent rights or payouts to the Participant in the form of shares of Stock (and the Participant shall have full stockholder rights with respect to any such paid-out shares).
Section 10
Beneficiary
(a) Each Eligible Individual may file with the Committee a written designation of one or more persons as the Beneficiary who shall be entitled to receive the Awards, if any, payable under this Plan upon the Eligible Individual’s death. An Eligible Individual may from time to time revoke or change his or her Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation that the Committee receives shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless the Committee receives it prior to the Eligible Individual’s death, and in no event shall it be effective as of a date prior to the date on which the Committee receives it.
(b) If no such Beneficiary designation is in effect at the time of an Eligible Individual’s death, or if no designated Beneficiary survives the Eligible Individual, or to the extent an Eligible Individual’s Beneficiary designation conflicts with law, Awards payable under this Plan upon the Eligible Individual’s death shall be paid to the Eligible Individual’s estate. If the Committee is in doubt as to the right of any person to receive such Award, the Company may retain such Award, without liability for any interest thereon, until the Committee determines the right thereto, or the Company may pay such Award into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Company therefor.
Section 11
Administration of this Plan
(a) The Committee shall administer this Plan. If Stock is traded on the NASDAQ Stock Market, all of the members of the Committee shall be independent directors within the meaning of the NASDAQ Stock Market’s director independence standards. If any member of the Committee does not qualify as (i) a “non-employee director” within the meaning of Rule 16b-3 and (ii) an “outside director” within the meaning of Section 162(m) of the Code, the Board shall appoint a subcommittee of the Committee, consisting of at least two members of the Board, to grant Awards to Covered Employees and to officers and members of the Board who are subject to Section 16 of the Exchange Act; each member of such subcommittee shall satisfy the requirements of (i) and (ii) above. References to the Committee in this Plan shall include and, as appropriate, apply to any such subcommittee.
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ANNEX A
(b) All decisions, determinations or actions of the Committee made or taken pursuant to grants of authority under this Plan or with respect to any questions arising in connection with the administration and interpretation of this Plan, including the severability of any and all of the provisions thereof, shall be made or taken in the sole and absolute discretion of the Committee and shall be final, conclusive and binding on all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to interpret, construe and administer this Plan and any part thereof and any related Award Agreement and define the terms employed in this Plan or any agreement, and its interpretations and constructions thereof and actions taken thereunder shall be final, conclusive and binding on all persons for all purposes, and they shall be entitled due deference upon any review.
(d) The Committee shall have full power, discretion and authority to prescribe and rescind rules, regulations and policies for the administration of this Plan.
(e) The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or any Award Agreement in the manner and to the extent it shall deem desirable to address the matter.
(f) In the event the Company shall assume outstanding employee benefit awards or the right or obligation to make future such awards in connection with the acquisition of another corporation or business entity, the Committee may, in its discretion, make such adjustments in the terms of Awards under this Plan as it shall deem appropriate.
(g) The Committee’s decisions and determinations under this Plan and with respect to any Award granted thereunder need not be uniform and may be made selectively among Awards, Participants or Eligible Individuals, whether or not such Awards are similar or such Participants or Eligible Individuals are similarly situated.
(h) The Committee shall keep minutes of its actions under this Plan. The action of a majority of the members of the Committee present at a meeting duly called and held shall be the act of the Committee. Any decision or determination reduced to writing and signed by all members of the Committee shall be fully as effective as if made by unanimous vote at a meeting duly called and held.
(i) The Committee may employ such legal counsel, including without limitation independent legal counsel and counsel regularly employed by the Company, consultants and agents as the Committee may deem appropriate for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any computations received from any such consultant or agent. The Company shall pay all expenses incurred by the Committee in interpreting and administering this Plan, including without limitation, meeting fees and expenses and professional fees.
(j) No member or former member of the Committee or the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Award granted under it. The Company shall indemnify and hold harmless each member or former member of the Committee or the Board against all cost or expense (including counsel fees and expenses) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any act or omission to act in connection with this Plan unless arising out of such member’s or former member’s own fraud or bad faith. Such indemnification shall be in addition (without duplication) to any rights to indemnification or insurance the members or former member may have as directors or under the by-laws of the Company or otherwise.
(k) The Committee’s determination that an Option, Performance Share, Performance Unit, Restricted Stock, Restricted Stock Unit or Other Award may be transferred by a Participant to a Family Member or Family Trust or other transferee may be set forth in determinations pursuant to Section 11(c), rules and regulations of general application adopted pursuant to Section 11(d), in the written Award Agreement, or by a writing delivered to the Participant made any time after the relevant Award or Awards have been granted, on a case-by-case basis, or otherwise. In any event, the transferee or Family Member or Family Trust shall agree in writing to be bound by all the provisions of this Plan and the Award Agreement, and in no event shall any such transferee have greater rights under such Award than the Participant effecting such transfer. In no event shall a Participant transfer an Award for value.
(l) The Committee may, in its discretion, at any time and from time to time, delegate to one or more of its members such of its powers as it deems appropriate (but not less than two members with respect to Covered Employees and officers and members of the Board who are subject to Section 16 of the Exchange Act). Except with respect to Covered
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ANNEX A
Employees and officers and members of the Board who are subject to Section 16 of the Exchange Act, the Committee may, in its discretion, at any time and from time to time, delegate to one or more persons who are not members of the Committee any or all of its authority and discretion under this Section 11 to the full extent permitted by law and the rules of any exchange on which the Stock is traded.
Section 12
Amendment or Discontinuance
(a) The Board may, at any time, amend or terminate this Plan. In addition, except with respect to the amendments enumerated in this subsection (a), the Committee may amend this Plan, provided that all such amendments shall be reported to the Board. Notwithstanding the foregoing, if an amendment to this Plan (i) would materially increase the benefits accruing to Participants, (ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan, (iv) would permit a transaction that would have violated the prohibition on repricing set forth in subsection (d) below prior to such amendment, or (v) must otherwise be approved by the stockholders of the Company in order to comply with applicable law or the rules of the NASDAQ Stock Market or, if the Stock is not traded on the NASDAQ Stock Market, the principal national securities exchange on which the Stock is traded or quoted, then such amendment shall be subject to stockholder approval and will not be effective unless and until such approval has been obtained. No amendment or termination shall, when taken as a whole, adversely and materially affect the rights of any Participant who has received a previously granted Award without his or her consent unless the amendment or termination is necessary or desirable (i) for the continued validity of this Plan or its compliance with Rule 16b-3 or any other applicable law, rule or regulation or pronouncement, or (ii) to avoid any adverse consequences under Section 162(m) of the Code, Section 409A or any requirement of a securities exchange or association or regulatory or self-regulatory body.
(b) The Committee may, at any time, amend outstanding Award Agreements in a manner not inconsistent with the terms of this Plan; provided, however, except as provided in Section 14, if such amendment is materially adverse to the Participant, as the Committee shall determine in good faith in its discretion, the amendment shall not be effective unless and until the Participant consents, in writing, to such amendment. To the extent not inconsistent with the terms of this Plan, the Committee may, at any time, amend an outstanding Award Agreement in a manner that is not unfavorable to the Participant without the consent of such Participant. Notwithstanding anything else in this Section 12(b), (i) no amendment of an Award Agreement shall cause an Award to be subject to Section 409A unless the Award Agreement, as amended, complies with the requirements of Section 409A, and (ii) no amendment of an Award Agreement that is subject to Section 409A shall cause such Award Agreement (or the underlying Award) to violate Section 409A.
(c) If permitted by Section 409A, in the event of termination of employment by reason of death, Total Disability or normal or early retirement (as defined by the Committee in its sole discretion), or in the event of unforeseeable emergency or other special circumstances, of a Participant who holds an Option or SAR not immediately exercisable in full, or any shares of Restricted Stock or Restricted Stock Units as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Performance Shares or Performance Units which have not been fully earned, or any Other Awards made pursuant to Section 8 subject to any vesting schedule or transfer restriction, or who holds shares of Stock subject to any transfer restriction imposed pursuant to Section 11(k) of this Plan, the Committee may, in its sole discretion, accelerate the time at which such Option, SAR or other Award may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time at which such Performance Shares will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such Award. Notwithstanding anything to the contrary in this subsection, to the extent the Committee intends such Award (other than an Option or SAR) to qualify under the Performance-Based Exception, any such determination to accelerate such Award shall be subject to the requirements of Code Section 162(m).
(d) Except in connection with a corporate transaction or event described in Section 14, the Committee may not amend the terms of any outstanding Option or SAR to reduce the applicable Option Price or SAR Price and may not cancel, exchange, substitute, buy-out or effect the surrender of an outstanding Option or SAR at a time when the Option Price or SAR Price exceeds the Fair Market Value of a share in exchange for cash, another Award or another Option or SAR with an Option Price or SAR Price that is less than the Option Price or SAR Price of the original Option or SAR, as applicable, or otherwise effect what would be considered a repricing as defined within GAAP or any applicable stock exchange rule, without stockholder approval.
| A-16 |
ANNEX A
Section 13
Adjustments in Event of Change in Common Stock
(a) In the event of any change in corporate capitalization such as a stock split, reverse stock split, stock dividend or extraordinary cash dividend of the Company, or a corporate transaction involving the Company, such as any merger of a corporation into another corporation, any consolidation of two or more corporations into another corporation, any separation of a corporation (including a spin-off, split-off, spin-out, split-up or other distribution of stock or property by a corporation), or any reorganization of a corporation (whether or not such reorganization comes within the definition of such term in Section 368 of the Code), or the Company’s sale or other disposition of all or a material portion of its assets, or any other change in the Company’s corporate structure, or any distribution to stockholders (other than an ordinary cash dividend) or any partial or complete liquidation by a corporation, or any other corporate transaction or event having an effect similar to any of the foregoing that results in the outstanding shares of Stock (or any securities exchanged therefore or received in their place) being exchanged for a different number or class of shares or other securities of the Company or for shares of stock or other securities of any other corporation, or new, different or additional shares or other securities of the Company or of any other corporation being received by the holders of outstanding shares of Stock, the Committee shall make equitable adjustments, as it determines are necessary and appropriate, in (i) the number and class of stock or other securities which comprise the Award Pool in Section 3(a), (ii) the number and class of stock or other securities which are subject to any Award, (iii) the limitations on the aggregate number of Awards that may be granted in any one fiscal year to any one Eligible Individual as set forth in Section 3(b), (iv) the Option Price under each outstanding Option and the SAR Price under each outstanding SAR, and (v) the terms, conditions or restrictions of any Award.
(b) Moreover, in the event of any such transaction or event or in the event of a Change in Control, the Committee, in its discretion, may provide in substitution for any or all outstanding Awards such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all Awards so replaced in a manner that complies with Section 409A. Any or all Awards may be settled in exchange for cash payment based upon, to the extent relevant under the circumstances, the distribution or consideration payable to holders of shares of Stock upon or in respect of such transaction, event or Change in Control. The Committee may adopt such valuation methodologies for outstanding Awards as it deems reasonable in the event of such a cash settlement and, in the case of Options, SARs or similar rights, but without limitation on other methodologies, may base such settlement solely upon the excess (if any) of the per share amount payable upon or in respect of the Change in Control over the Option Price or SAR Price, as applicable, of the Award and may, in its sole discretion, cancel each Option or SAR with an Option Price or SAR Price greater than the per share amount payable upon or in respect of the Change in Control without any payment to the person holding such Option or SAR.
(c) It is intended that, if possible, and subject to the Committee’s discretion, any adjustments contemplated above shall be made in a manner that satisfies applicable legal requirements, as well as applicable requirements with respect to taxation (including, without limitation and as applicable in the circumstances, Section 424 of the Code, Section 409A, and Section 162(m) of the Code) and takes into consideration any accounting impact (so as to not trigger any charge to earnings with respect to such adjustment, if possible).
Section 14
Change in Control
(a) The Committee may, in its discretion, at the time an Award is made hereunder or at any time prior to, coincident with or after the anniversarytime of our annual meetinga Change in Control:
| (i) | provide for the purchase or cancellation of such Awards, for an amount of cash, if any, equal to the amount which could have been obtained upon the exercise or realization of such rights had such Awards been currently exercisable or payable; |
| (ii) | make such adjustment to the Awards then outstanding as the Committee deems appropriate to reflect such transaction or change (including the acceleration of vesting); and/or |
| (iii) | cause the Awards then outstanding to be assumed, or new rights substituted therefore, by the successor corporation or organization in such Change of Control. |
(b) The Committee may, in its discretion, include such further provisions and limitations in any Award Agreement as it may deem equitable and in the best interest of the Company,
| A-17 |
ANNEX A
(c) Any actions taken under this Section 14 shall be valid with respect to an Award that is subject to Section 409A only to the extent that such action complies with Section 409A.
(d) The obligations of the Company under the Plan or any Award shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its Affiliates, taken as a whole.
Section 15
Miscellaneous
(a) Nothing in this Plan or any Award granted hereunder shall confer upon any Eligible Individual any right to continue in a service relationship with any Participating Company or interfere in any way with the right of any Participating Company to terminate his or her service relationship at any time and for any reason.
(b) No Award payable under this Plan shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of any Participating Company for the benefit of its employees unless the Company shall determine otherwise.
(c) No Eligible Individual or Participant shall have any claim to an Award until it is actually granted under this Plan. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. The Company shall make all payments due with respect to Awards either by issuing shares of Stock or by delivering cash from the general funds of the Company or other property of the Company; provided, however, that the Company shall reduce the amount of such payments by the amount of any payments made to the Participant or his or her dependents, beneficiaries or estate from any trust or special or separate fund established in connection with this Plan. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Participant shall have no right, title, or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments.
(d) Absence on leave approved by a duly constituted officer of the Company (a “Company approved leave”) shall not be considered termination of employment for any purposes of this Plan; provided, however, that no Award may be granted to an employee while he or she is absent on leave. Notwithstanding the preceding sentence, if an Award that is subject to Section 409A is to be distributed upon “separation from service” within the meaning of Section 409A, a Company approved leave shall be considered to result in a separation from service to the extent necessary for compliance with Section 409A.
(e) If the Committee shall find that any person to whom any Award, or portion thereof, is payable under this Plan is unable to care for his or her affairs because of illness or accident, or is a minor, then any payment due him or her (unless a prior year, then noticeclaim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person that the Committee deems to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Company therefor.
(f) The right of any Participant or other person to any Award payable under this Plan may not be assigned, transferred, pledged or encumbered, either voluntarily or by operation of law, except as specifically provided otherwise in this Plan.
(g) Copies of this Plan and all amendments, administrative rules and procedures and interpretations shall be made available for review upon request to all Eligible Individuals at all reasonable times at the Company’s administrative offices.
(h) The Company shall have the power and right to deduct or withhold, or cause the Participant or his or her Beneficiary to remit to the Company, an amount sufficient to satisfy any federal, state, local or foreign taxes or similar charges (domestic or foreign) required by law or regulation to be withheld with respect to any taxable event arising as a result of or in connection with any Award. With respect to withholding required upon any taxable event arising as a result of or in
| A-18 |
ANNEX A
connection with an Award granted hereunder that is settled in shares of Stock, unless other arrangements are made with the consent of the Committee, Participants shall satisfy such withholding taxes by having the Company withhold shares of Stock to be issued having a Fair Market Value on the date the tax is to be determined equal to not more than the amount necessary to satisfy the Company’s withholding obligations at the minimum statutory withholding rates (or, if permitted by the Company, such other rate as will not cause adverse accounting consequences and is permitted under applicable IRS withholding rules). All such withholding arrangements shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
(i) Each Participant agrees to promptly give the Committee a copy of any election made by such Participant under Section 83(b) of the Code or any similar provision thereof. Notwithstanding the preceding sentence, the Committee may condition any Award on the Participant making or not making an election under Section 83(b) of the Code with respect to the Award.
(j) No fractional shares of Stock shall be issued or delivered pursuant to this Plan or any Award; in the discretion of the Committee, the Company shall forfeit the value of fractional shares or make cash payments in lieu of fractional shares.
(k) All elections, designations, requests, notices, instructions and other communications from an Eligible Individual, Participant, Beneficiary or other person to the Committee, required or permitted under this Plan, shall be in such form as the Committee shall prescribe from time to time and shall be mailed by first class mail or transmitted by facsimile copy or delivered to such location as the Committee shall specify.
(l) The terms of this Plan and all outstanding Award Agreements shall be binding upon the Company and its successors and assigns.
(m) Where the context admits, words in any gender shall include the other gender, words in the singular shall include the plural and words in the plural shall include the singular.
(n) Captions preceding the sections hereof are inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision hereof.
(o) This Plan and the grant, exercise and carrying out of Awards shall be subject to all applicable federal and state laws, rules, and regulations and to all required or otherwise appropriate approvals and authorizations by any governmental or regulatory agency or commission. The Company shall have no obligation of any nature hereunder to any Eligible Individual, Participant or any other person in the absence of all necessary or desirable approvals or authorizations and shall have no obligation to seek or obtain the same.
(p) Whenever possible, each provision of this Plan and any Award Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any such provision is held to be ineffective, invalid, illegal or unenforceable in any respect under the applicable laws or regulations of the United States or any state, such ineffectiveness, invalidity, illegality or unenforceability will not affect any other provision but this Plan and any such agreement will be reformed, construed and enforced so as to carry out the intent hereof or thereof and as if any invalid or illegal provision had never been contained herein.
(q) For any Award that is intended to qualify for the Performance-Based Exception, (i) the Committee shall interpret this Plan in light of Section 162(m) of the Code and the guidance thereunder; and (ii) the Committee, unless it determines otherwise, shall not amend the conditions on the grant or payout of the Award or amend the terms of the Award in any way that would adversely affect the availability of the Performance-Based Exception with respect to such Award.
(r) The Committee, in its discretion, may defer the payment of an Award, if such payment would cause the annual remuneration of a stockholder proposal thatParticipant who is not intendeda Covered Employee to be includednondeductible because it exceeds $1,000,000 (or such other amount allowed under Section 162(m) of the Code as a deduction). The Committee shall clearly and expressly provide for any such deferral. In the event the Committee shall permit a Participant to elect to defer any Award payable in our proxy statementthe form of cash, the Participant shall make and deliver to the Company a written, irrevocable deferral election on a form that the Company shall prescribe. All deferrals pursuant to this subsection (r) shall be made in accordance with administrative guidelines as the Committee shall establish to ensure that such deferrals comply with all applicable requirements of Section 409A.
| A-19 |
ANNEX A
(s) To the extent not preempted by federal law, this Plan and all Award Agreements shall be construed and governed under Rule 14a-8 mustthe laws of the State of Delaware, excluding any conflicts or choice or law rule or principle that might otherwise refer construction or interpretation of this Plan or an Award Agreement (as applicable) to the substantive law of any other jurisdiction. Unless otherwise provided in the applicable Award Agreement, the recipient of an Award is deemed to submit to the exclusive jurisdiction and venue of the federal and state courts of Connecticut to resolve any and all issues that may arise out of or relate to this Plan or such Award Agreement.
(t) Notwithstanding any other provisions in this Plan, any Award which is subject to recovery under any law, government regulation or stock exchange listing requirement, will be receivedsubject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any clawback policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
Section 16
Compliance with Section 409A
(a) At all times, this Plan shall be interpreted and operated (i) in accordance with Section 409A with respect to an amount payable under this Plan that constitutes deferred compensation (within the meaning of Section 409A), and (ii) to maintain the exemptions from Section 409A of Options, SARs, Restricted Stock and any Awards designed to meet the short-term deferral exception under Section 409A. Any discretionary authority that the Committee may have pursuant to this Plan shall not lessbe applicable to an amount payable under this Plan that constitutes deferred compensation (within the meaning of Section 409A) to the extent such discretionary authority would conflict with Section 409A.
(b) Neither a Participant nor any of a Participant’s creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its Affiliates.
(c) If, at the time of a Participant’s separation from service (within the meaning of Section 409A), (i) the Participant shall be a specified employee (within the meaning of Section 409A and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the first business day of the seventh month following the date of such separation from service (if the Participant dies after the date of the Participant’s separation from service but before payment has been made, payment will be made to the Participant’s Beneficiary or estate, as applicable, without regard to such six-month delay).
(d) To the extent that an Award that constitutes deferred compensation (within the meaning of Section 409A) provides for payment upon the recipient’s termination of employment as an employee or cessation of service as a non-employee director, the Award shall be deemed to require payment upon the individual’s “separation from service” within the meaning of Section 409A.
(e) Notwithstanding any provision of this Plan and grants hereunder to the contrary, the Committee reserves the right to make amendments to this Plan and Award Agreements hereunder as the Committee deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and Awards hereunder (including any taxes and penalties under Section 409A), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.
(f) In the event that any Award shall be deemed not to comply with Section 409A, then neither the Company, the Board, the Committee nor its or their designees or agents, nor any of their affiliates, assigns or successors (each a “protected party”) shall be liable to any Award recipient or other person for actions, inactions, decisions, indecisions or any other role in relation to this Plan by a protected party if made or undertaken in good faith or in reliance on the advice of counsel (who may be counsel for the Company), or made or undertaken by someone other than a reasonable time,protected party.
| A-20 |
ANNEX A
Section 17
Effective Date
This Plan will be effective as determined by our board,of the Effective Date. No grants will be made under the Prior Plans on or after the date the Company’s stockholders first approve this Plan, but outstanding awards granted under the Prior Plans will continue unaffected following the Effective Date. No Award shall be granted under this Plan more than 10 years after the Effective Date, but all Awards granted on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.
| A-21 |
ANNEX B
Certificate of Amendment of the Restated Certificate of Incorporation of Frontier Communications Corporation
Frontier Communications Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify:
FIRST: This Certificate of Amendment (the “Certificate of Amendment”) amends the provisions of the Corporation’s Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on May 22, 2000 (as amended, the “Certificate of Incorporation”).
SECOND: Article Fourth, Section (a) of the Certificate of Incorporation is hereby amended and restated in its entirety as follows:
“Upon the Certificate of Amendment becoming effective pursuant to the Delaware General Corporation Law (the “Effective Time”), the total number of shares of stock which this corporation shall have authority to issue shall be 225,000,000 shares, of which 50,000,000 shares shall be shares of preferred stock, with a par value of $0.01 each, amounting in aggregate to five hundred thousand dollars ($500,000), and 175,000,000 shares shall be shares of common stock, with a par value of $0.25 each (the “Common Stock”), amounting in the aggregate to $43,750,000.
“Upon the Effective Time, each [ ]3 shares of Common Stock, either issued and outstanding immediately prior to the printingEffective Time or issued and mailingheld in the treasury of proxy materials for the applicableCorporation immediately prior to the Effective Time, shall be automatically reclassified as, and shall be combined and changed into, one (1) validly issued, fully paid and non-assessable share of Common Stock without further action by the Corporation or the holder thereof, subject to the treatment of fractional shares of Common Stock as described below (the “Reverse Stock Split”). No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares of Common Stock shall be entitled to receive cash (without interest or deduction) from the Corporation’s transfer agent in lieu of such fractional shares upon the submission of a transmittal letter by a stockholder holding the shares in book-entry form and, where shares are held in certificated form, upon the surrender of the stockholder’s Old Certificates (as defined below), in an amount equal to the proceeds attributable to the sale of the fractional shares resulting from the aggregation and sale by the Corporation’s transfer agent of all fractional share interests attributable to the fractional shares otherwise issuable. From and after the Effective Time, certificates representing Common Stock outstanding immediately prior to the Effective Time (“Old Certificates”) shall represent the number of whole shares of Common Stock into which the Common Stock formerly represented by such Old Certificate shall have been reclassified pursuant to the foregoing provisions.”
THIRD: This Certificate of Amendment shall become effective on [ ], 2017 at [ ] [a.m./p.m.].
FOURTH: This amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware (the “DGCL”). The Board of Directors of the Corporation duly adopted resolutions setting forth and declaring advisable this Certificate of Amendment and directed that the proposed Certificate of Amendment be considered by the stockholders of the Corporation. At the annual meeting.meeting of the stockholders of the Corporation held on [ ], 2017 and called in accordance with the relevant provisions of the DGCL, the stockholders of the Corporation duly adopted this Certificate of Amendment.
62FIFTH: All other provisions of the Certificate of Incorporation shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by , its , this day of , 2017.
| By: | ||
| Name: | ||
| Title: |
| 3 | The number to be inserted here shall be a whole number between 10 and 25, inclusive, which shall have been determined by the Board of Directors of the Corporation prior to the filing of this Certificate of Amendment and within 90 days after the adoption of this Certificate of Amendment by the stockholders of the Corporation. |
| B-1 |
| ||||
Frontier Communications CorporationThree High Ridge ParkStamford, Connecticut 06905401 Merritt 7
2015Norwalk, Connecticut 06851
2017 Annual Meeting of Stockholders
10:00 a.m., Eastern Daylight Savings Time, May 13, 2015Three High Ridge ParkStamford, Connecticut 0690510, 2017
ADVANCE REGISTRATIONVirtual Meeting, visit: www.virtualshareholdermeeting.com/FTR2017
Attendance at the meeting is limited to our stockholders, or their authorized representatives, and our guests. If you plan to attend or send a representative to the meeting, please notify us by marking the Advance Registration box on your proxy.
You may view this proxy statement and our Annual Report at the following Internet web site:www.proxyvote.com. An advance registration form may be submitted (for registered stockholders only) by selecting the proxy statement, the advance registration form and then clicking on the submit button once you have completed the form.
FRONTIER COMMUNICATIONS CORPORATION 401 MERRITT 7 NORWALK, CT 06851 | VOTE BY INTERNET | |
| Before The Meeting- Go towww.proxyvote.com | ||
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | ||
During The Meeting- Go towww.virtualshareholdermeeting.com/FTR2017 | ||
You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. | ||
VOTE BY PHONE -1-800-690-6903 | ||
| Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. | ||
VOTE BY MAIL | ||
| Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
FRONTIER COMMUNICATIONS CORPORATION
3 HIGH RIDGE PARK
STAMFORD, CT 06905
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Daylight Saving Time the day before the meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via email or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Daylight Saving Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||
| E19369-P87973-Z69523 | KEEP THIS PORTION FOR YOUR RECORDS |
| DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | ||||
| FRONTIER COMMUNICATIONS CORPORATION | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the | |||||||||||||
| The Board of Directors recommends that you vote FOR the following: | number(s) of the nominee(s) on the line below. | ||||||||||||||||
| 1. | Election of Directors | o | o | o | |||||||||||||
| Nominees: | |||||||||||||||||
| 01) | Leroy T. Barnes, Jr. | 07) | Virginia P. Ruesterholz | ||||||||||||||
| 02) | Peter C.B. Bynoe | 08) | Howard L. Schrott | ||||||||||||||
| 03) | Diana S. Ferguson | 09) | Larraine D. Segil | ||||||||||||||
| 04) | Edward Fraioli | 10) | Mark Shapiro | ||||||||||||||
| 05) | Daniel J. McCarthy | 11) | Myron A. Wick, III | ||||||||||||||
| 06) | Pamela D.A. Reeve | 12) | Mary Agnes Wilderotter | ||||||||||||||
| The Board of Directors recommends you vote FOR the following proposal: | For | Against | Abstain | ||||||||||||||
| 2. | To consider and vote upon an advisory proposal on executive compensation. | o | o | o | |||||||||||||
| The Board of Directors recommends you vote FOR the following proposal: | |||||||||||||||||
| 3. | To ratify the selection of KPMG LLP as our independent registered public accounting firm for 2015. | o | o | o | |||||||||||||
| NOTE: The named proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. | |||||||||||||||||
| For address changes and/or comments, please check this box and write them on the back where indicated. | o | ||||||||||||||||
| Please indicate if you plan to attend this meeting. | o | o | |||||||||||||||
| Yes | No | ||||||||||||||||
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | |||||||||||||||||
FRONTIER COMMUNICATIONS CORPORATION | ||||||||||||||||||||||||||||||||||
| The Board of Directors recommends that you vote FOR each of the following Directors: | ||||||||||||||||||||||||||||||||||
1. | Election of Directors | |||||||||||||||||||||||||||||||||
Nominees: | For | Against | Abstain | |||||||||||||||||||||||||||||||
1a. 1b. 1c. 1d. 1e. 1f. 1g. 1h. 1i. 1j. | Leroy T. Barnes, Jr. Peter C.B. Bynoe Diana S. Ferguson Edward Fraioli Daniel J. McCarthy Pamela D.A. Reeve Virginia P. Ruesterholz Howard L. Schrott Mark Shapiro Myron A. Wick, III | ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ | ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ | ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ | The Board of Directors recommends you vote FOR the following proposal: | For | Against | Abstain | ||||||||||||||||||||||||||
2. | To consider and vote upon an advisory proposal on executive compensation. | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||||||
The Board of Directors recommends you vote 1 year on the following proposal: | 1 Year | 2 Years | 3 Years | Abstain | ||||||||||||||||||||||||||||||
3. | To consider and vote upon an advisory proposal on the frequency of the executive compensation proposal. | ☐ | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposal: | For | Against | Abstain | |||||||||||||||||||||||||||||||
4. | To adopt Frontier’s 2017 Equity Incentive Plan. | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposal: | ||||||||||||||||||||||||||||||||||
5. | To adopt an amendment to Frontier’s Restated Certificate of Incorporation to: effect a reverse stock split of the issued shares of Frontier common stock, at a reverse stock split ratio of not less than1-for-10 and not more than1-for-25, and reduce the total number of shares of Frontier common stock that Frontier is authorized to issue from 1,750,000,000 to 175,000,000. | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposal: | ||||||||||||||||||||||||||||||||||
| For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | 6. | To ratify the selection of KPMG LLP as our independent registered public accounting firm for 2017. | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||||
| Please indicate if you plan to attend this meeting. | ☐ Yes | ☐ No | NOTE:The named proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. | |||||||||||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||||||||||||||||||||
| V.1.1 |
Information about Delivery of Stockholder Material
“Householding”
In an effort to minimize costs and the amount of duplicate material a household receives, we are sending one annual report and proxy statement to accounts sharing the same last name and address. If you would like another copy, and/or wish to receive financial reports for each account in your household in the future, please contact Frontier’s investor relations departmentour transfer agent, Computershare Investor Services (in writing: P.O. Box 43078, Providence, RI 02940-3078; by phone at 1-866-491-5249; by mail at 3 High Ridge Park, Stamford, CT 06905; or by email at ir@ftr.com.
telephone: in the U.S., Puerto Rico and Canada,1-877-770-0496; outside the U.S., Puerto Rico and Canada,1-781-575-2382).
Vote Your Proxy Online
You can use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M., Eastern Daylight Saving Time, the day before the meeting date. Have your proxy card in hand when you access the website (www.proxyvote.comwww. proxyvote.com), and follow the instructions to obtain your records and to create an electronic voting instruction form. There is no charge to you for this service, but there may be costs associated with access to the Internet, such as usage charges for your Internet service provider and/or telephone companies.
Electronic Delivery of Future Proxy Material
After submitting your proxy vote online, you may elect to receive future proxy material (annual report, proxy statement, etc.) from Frontier electronically. Before exitingwww.proxyvote.com, click the button for “Electronic Delivery” and enter your email address. Then click the button indicating your consent to receive future information in an electronic format. Next year, you will receive an email providing information about where to locate the annual report and proxy statement online and how to vote these shares.
online.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Combined Document is available atwww.proxyvote.com.
M83951-P59662-Z64779
E19370-P87973-Z69523
FRONTIER COMMUNICATIONS CORPORATION
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints Leroy T. Barnes, Jr., Howard L. Schrott and Myron A. Wick, III or any of them with full power of substitution, as proxies to vote at the Annual Meeting of Stockholders of Frontier Communications Corporation (the “Company”) to be held on Wednesday, May 13, 2015,10, 2017, at 10:00 a.m. Eastern Daylight Saving Time, via the Internet at our offices at 3 High Ridge Park, Stamford, CT 06905,www.virtualshareholdermeeting.com/FTR2017, and at any adjournments thereof, hereby revoking any proxies heretofore given, to vote all shares of common stock of the companyCompany held or owned by the undersigned as directed, and in their discretion upon such other matters as may come before the meeting or any adjournment thereof.
If the undersigned holds shares of Frontier common stock under the Frontier Communications 401(k)401(K) Savings Plan the Frontier Communications Corporate Services Inc. Management 401(K) Plan, the Frontier Communications Corporate Services Inc. Savings and Security Plan for West Region Hourly Employees and/or the Frontier Communications Corporate Services Inc. Savings and Security Plan forMid-Atlantic Associates, this proxy represents the number of shares allocable to the undersigned under the Plan(s)Plans as well as other shares registered in the undersigned’s name. The undersigned hereby authorizes and directs Fidelity Investments, as the Trustee under the Plans, to vote all shares of stock allocated to the undersigned under the provisions of the Plans and appoints Leroy T. Barnes, Jr., Howard L. Schrott and Myron A. Wick, III or any of them, with full power of substitution, proxies to vote at the Annual Meeting of Stockholders of the Company to be held on Wednesday, May 13, 2015,10, 2017 at 10:00 a.m. Eastern Daylight Saving Time, via the Internet at our offices at 3 High Ridge Park, Stamford, CT 06905,www.virtualshareholdermeeting.com/FTR2017, and at any adjournments thereof. Said Trustee is authorized and directed to execute and deliver a written proxy appointing such individuals to act as proxies as directed, and, in their discretion, upon such other matters as may come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in FAVORaccordance with the Board of the election of all directors and the adoption of Proposal 2 and Proposal 3.Directors’ recommendations.
Address Changes/Comments: | ||||||
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
V.1.1