UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): May 13, 2009
Frontier
Communications Corporation
(Exact
name of registrant as specified in its charter)
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Delaware
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001-11001
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06-0619596
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer
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of
incorporation)
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Identification
Number)
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3
High Ridge Park, Stamford, Connecticut
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06905
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (203) 614-5600
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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x
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Written communications pursuant
to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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ITEM
1.01 ENTRY INTO A MATERIAL
DEFINITIVE AGREEMENT
On May
13, 2009, Frontier Communications Corporation (the “Company”) entered
into an Agreement and Plan of Merger (the “Merger Agreement”)
with Verizon Communications Inc. (“Verizon”) and New Communications
Holdings Inc. (“Spinco”), a newly
formed, wholly owned subsidiary of Verizon, under
which the Company will acquire approximately 4.8 million access lines (and
certain related assets) currently owned by subsidiaries of Verizon in
Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio,
Oregon, South Carolina, Washington, Wisconsin and West Virginia as well as
portions of California bordering Arizona, Nevada and Oregon (the “Territory”). Pursuant
to the terms of the
Merger Agreement and the related Distribution Agreement (the “Distribution
Agreement”), dated as of May 13, 2009, between Verizon and
Spinco, Verizon
will transfer to Spinco certain specified assets relating to Verizon’s incumbent
local exchange carrier business in the Territory and certain long distance
origination, internet access and other related services, together with certain
liabilities relating to such assets and businesses (collectively, the “Business”), in
exchange for which Verizon will receive cash and debt relief of approximately
$3.333 billion in the form of cash proceeds from new debt financing to be
incurred by Spinco, new Spinco debt securities (if applicable) to be issued
to Verizon that may be used by Verizon to exchange for existing Verizon debt,
and the assumption by Spinco of certain existing debt related to the
Business (the “Contribution”). Following the
Contribution, and subject to the adoption of the Merger Agreement (and
approval of other related transactions) by Company stockholders and the
satisfaction of other closing conditions (including receipt of regulatory
approvals and proceeds from financing), Verizon will distribute
to its stockholders all of the shares of Spinco common stock (the “Distribution”), and
then Spinco will immediately be merged with and into the Company (the “Merger”), with the
Company continuing as the surviving corporation (the “Surviving
Corporation”). The
transaction is valued at approximately $8.6 billion and is intended to be
tax-free to the stockholders of Verizon and the Company (except for any cash in
lieu of fractional shares).
In
connection with the Merger Agreement, on May 13, 2009, the Company also entered
into (i) an Employee Matters Agreement (the “Employee Matters
Agreement”) with Verizon and Spinco and (ii) a Tax Sharing Agreement (the
“Tax Sharing
Agreement”) with Verizon, Spinco and certain other Verizon
affiliates.
The
foregoing agreements are described in greater detail below. These
descriptions of the terms that the Company believes are material in the Merger
Agreement, the Distribution Agreement, the Employee Matters Agreement and the
Tax Sharing Agreement are qualified in their entirety by reference to the full
text of such agreements, copies of which are filed, respectively, as Exhibit
2.1, Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 hereto and incorporated herein
by reference.
Merger
Agreement
Upon the
completion of the Merger, all of the issued and outstanding shares of common
stock of Spinco will be automatically converted into an aggregate number of
shares of common stock of the Company equal to (i) $5,247,000,000, divided by
(ii) the average of the volume weighted average of the trading prices of the
Company’s common stock for the 30 consecutive trading days ending three trading
days before closing (the “Company Average
Price”). However, the Merger Agreement provides that if such
average price exceeds $8.50, then the Company Average Price will be $8.50, and
if such average price is less than $7.00, then the Company Average Price will be
$7.00. Depending on the trading prices of the Company’s common stock prior to
the closing, Verizon stockholders will own between approximately
66% and 71% of the Surviving Corporation, and the Company stockholders
will own approximately 29% to 34% of the Surviving Corporation.
Additionally, the amount referred in clause (i) is subject to increase by any
amounts paid, refunded, deferred, escrowed or foregone by Verizon or its
subsidiaries pursuant to orders or settlements to obtain governmental approvals
in the Territory to complete the Merger. There are no dissenters’
(or appraisal) rights.
The
parties to the Merger Agreement have made to each other certain representations
and warranties. The representations and warranties and pre-closing
covenants made by the parties in the Merger Agreement do not survive the closing
of the Merger and the Merger Agreement does not contain any post-closing
indemnification obligations with respect to these representations and warranties
or pre-closing covenants.
The
parties have agreed to certain covenants and agreements, including with respect
to confidentiality, cooperation, regulatory approvals and other regulatory
matters, the Spinco financing, the conduct of Spinco’s and the Company’s
businesses (including the operation thereof) prior to the completion of the
Merger, public announcements and similar matters. The parties have
also agreed that the board of directors of the Surviving Corporation shall
consist of twelve directors, nine of whom shall be designated by the Company and
three of whom shall be designated by Verizon. Verizon’s director
nominees may not be employees of Verizon, its affiliates or Verizon Wireless or
any of its subsidiaries, and must satisfy the independence rules of the
Securities and Exchange Commission (the “SEC”) and the New York
Stock Exchange.
Verizon
has agreed to indemnify the Company for (i) failure to satisfy its liabilities
(other than those relating to the Business and assumed by Spinco) or to perform
its obligations under the Merger Agreement or the Distribution Agreement, (ii)
the actual amount of existing Verizon debt assumed by Spinco at closing
exceeding the estimated amount of such indebtedness used to calculate the amount
of cash proceeds to be paid to Verizon by Spinco prior to
the closing and (iii) misstatements or omissions (based on information
provided by Verizon) in registration statements or related proxy
statement/prospectus to be prepared in connection with the transactions
contemplated by the Merger Agreement and the Distribution Agreement (the “SEC Filings”). The
Company has agreed to indemnify Verizon for (i) failure to satisfy the
liabilities assumed by Spinco relating to the Business or to perform its
obligations under the Merger Agreement or Distribution Agreement and (ii)
misstatements or omissions (except for those based on information provided by
Verizon) in the SEC Filings.
Under the
Merger Agreement, the Company and its subsidiaries are prohibited from
soliciting competing acquisition proposals and may not discuss or negotiate a
competing acquisition proposal unless the board of directors of the Company (the
“Board”) determines in good
faith that the proposal, among other things, would reasonably be expected to
lead to a superior proposal and that the failure of the Board to consider such
proposal would reasonably be expected to result in a breach of the Board’s
fiduciary duties. If the Board makes such determination, the Company
may engage in discussions and negotiations with the prospective acquirer,
provided that, prior to providing any non-public information or entering into
discussions or negotiations over such proposal, the Company notifies Verizon of
the competing acquisition proposal. The Company must also keep
Verizon reasonably informed as to the status and material terms of such
proposal, on a reasonably prompt basis (and in any event within 24 hours
following receipt of a proposal or changes thereto) and provide to
Verizon any information given to the prospective acquirer that was not
previously provided to Verizon. The Board may change its
recommendation of the Merger prior to receiving stockholder approval if the
Board concludes in good faith, after consultation with legal advisors, that
failing to change its recommendation would result in a breach of its fiduciary
duties. However, the Company is required to submit the Merger
Agreement to a stockholder vote even if the Board changes its recommendation of
the Merger (including in connection with a superior proposal), and the Company
may not terminate the Merger Agreement to accept a superior proposal. In
addition, prior to any recommendation change, the Company must provide Verizon
five business days’ advance notice and the opportunity for Verizon to submit a
revised proposal to the Board within such five business day period.
The
Merger Agreement may be terminated in certain circumstances, including, among
others: (i) by any of the parties if the Merger has not been completed by July
31, 2010 (such date may be extended in certain circumstances by either
Verizon or the Company for one month periods that shall not exceed 120 days in
order to obtain outstanding regulatory consents or one month and two month
periods not to exceed 150 days in order to complete certain financing
transactions) (the “End Date”), (ii) by
any of the parties if the stockholders of the Company do not approve the Merger,
(iii) by Verizon if the Board withdraws or modifies its recommendation of
the Merger or recommends a competing acquisition proposal or if the Company
fails to hold the stockholders’ meeting within 60 days after the SEC clears the proxy statement/prospectus for
mailing to the Company’s stockholders, (iv) by Verizon or the Company in the
event of certain material breaches of the Merger Agreement by the other party
not curable by the End Date and (v) by Verizon if the average of the volume of
weighted averages of the trading prices of the Company’s common stock for any
period of 60 consecutive trading days prior to closing is below
$3.87.
In the
event that (a) Verizon and Spinco terminate the Merger Agreement as a result
of the Board withdrawing or modifying its recommendation of the Merger or
recommending a competing acquisition proposal or the Company failing to hold the
stockholders’ meeting within 60 days after the SEC clears the proxy
statement/prospectus for mailing to the Company’s stockholders, or (b)(1) the
Company receives a competing acquisition proposal and one of the parties
terminates the Merger Agreement due to the passing of the End Date
or Verizon terminates the Merger Agreement because the Company breaches
certain specified provisions of the Merger Agreement, or a competing acquisition
proposal has been publicly announced prior to the stockholders’ meeting and the
Company’s stockholders fail to approve the Merger and (2) within 12 months after
such termination of the Merger Agreement, the Company consummates a business
combination transaction or enters into a definitive agreement with respect to
such a transaction, then the Company shall pay to Verizon a termination fee of
$80 million.
Consummation
of the Merger is subject to the satisfaction of certain conditions, including
the availability of financing with certain term and maturity requirements and
the payment of the proceeds thereof plus certain debt relief equal to $3.333
billion to Verizon and the absence of a governmental order that would
constitute a materially adverse regulatory condition. Other
conditions to the Merger include (i) the receipt of applicable regulatory
consents and the expiration or termination of the requisite waiting period under
the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, (ii) the
receipt of certain rulings from the Internal Revenue Service and certain tax
opinions, (iii) the approval of the stockholders of the Company, and (iv) the
absence of a material adverse effect on the parties.
Distribution
Agreement
Subject
to the terms and conditions set forth in the Distribution Agreement, Verizon
will transfer or cause to be transferred certain assets related to the Business
to Spinco. Spinco will enter into agreements associated with certain financing
transactions to be consummated by Spinco and distribute to Verizon the cash
proceeds thereof in an amount not to exceed (i) the lesser of (a) $3.333 billion
and (b) Verizon’s estimate of its tax basis in Spinco, less (ii) the amount of
existing Verizon debt assumed by Spinco (the “Special Payment”). To the
extent that the amount of the Special Payment, plus the amount of existing
Verizon debt assumed by Spinco, is less than $3.333 billion, Spinco
will issue to
Verizon new Spinco debt securities having a principal amount equal to such
shortfall, which Spinco debt securities may be used by Verizon, at its election,
to exchange for existing Verizon debt prior to closing. The
covenants and economic terms of the new Spinco debt securities will be (i)
subject to certain requirements set forth in the Distribution Agreement and (ii)
in a form that would reasonably be expected to result in the new Spinco debt
securities being exchanged for Verizon obligations in equal principal
amount. Verizon will then distribute all of the issued and
outstanding shares of common stock of Spinco to holders of the outstanding
shares of common stock of Verizon on the date of the Distribution.
The
parties to the Distribution Agreement have agreed that, within 90 days after
closing, Verizon shall cause to be prepared and delivered to the Surviving
Corporation a statement setting forth the working capital of Spinco and its
subsidiaries as of the opening of business on the date of the Distribution (the
“Distribution Date
Working Capital”). If the amount of the Distribution Date
Working Capital is less than $0, Verizon shall pay the Surviving Corporation an
amount equal to such deficit.
Employee Matters
Agreement
The
Employee Matters Agreement governs the rights and obligations of Verizon and the
Company with respect to current and former employees of the Verizon companies
whose duties relate primarily to the Business. Under the Employee
Matters Agreement, (i) Verizon will generally retain all liabilities with
respect to former employees of the Business who do not remain employees of the
Business as a result of the Merger and (ii) the Company will generally assume
all liabilities with respect to employees of the Business who will remain
employees of the Business immediately following the Merger and its subsidiaries
upon consummation of the Merger (“Spinco Employees”),
with the exception of liabilities relating to certain claims arising in respect
of Spinco Employees prior to the Merger under Verizon’s employee benefit plans
and programs. With respect to the Spinco Employees, the Employee
Matters Agreement addresses matters including the assumption of any collective
bargaining agreements governing the employment of the Spinco Employees, the
establishment of employee benefit plans and arrangements for the Spinco
Employees, the transfer of pension plan assets from Verizon’s pension plans to
pension plans established for the benefit of the Spinco Employees, and the
treatment of equity and incentive plan awards held by the Spinco
Employees. The Employee Matters Agreement also addresses Verizon’s
and the Company’s rights to indemnification in respect of liabilities that may
arise with respect to current or former employees of the
Business.
Tax Sharing
Agreement
The Tax
Sharing Agreement will govern the respective rights, responsibilities, and
obligations of Verizon and the Company after the Distribution and Merger with
respect to tax liabilities and benefits, tax attributes, tax contests and other
tax matters regarding income taxes, other taxes and related tax
returns.
In
general, Verizon will be responsible for all taxes for periods before the
Distribution that are reportable on any tax return that includes Verizon or one
of its non-Spinco subsidiaries, on the one hand, and Spinco or one of its
subsidiaries, on the other hand. Spinco will be responsible for all
taxes reportable on any tax return that includes Spinco and/or its subsidiaries
but does not include any non-Spinco subsidiaries.
Different
rules apply to tax liability arising on account of the Distribution and certain
related transactions. While those transactions are intended to be
tax-free, significant tax liability could arise if they are not. The Tax Sharing
Agreement allocates this tax liability between Verizon and the
Company. In general, the Company is liable if the Distribution is
taxable as a result of (i) its actions or changes in ownership not caused by
Verizon, (ii) its failure to take any reasonably required action to prevent the
Distribution from being taxable, if the Company is aware of, or has been
notified by Verizon, of the need for such action or (iii) its breach of a
representation or covenant. If the Distribution is taxable as a
result of certain actions by both parties, the liability is shared
equally. Verizon is liable in all other cases.
To
preserve the tax-free status of the Distribution, the Tax Sharing Agreement
provides for certain restrictions on the Company's ability to pursue strategic
or other transactions. In some cases, these transactions will be permitted if
(a) the Company delivers to Verizon a legal opinion, satisfactory to Verizon,
stating that the intended transaction will not prevent the Distribution and
related transactions from being tax-free or (b) the parties obtain a letter
ruling, satisfactory to Verizon, from the IRS to this effect. However, these
exceptions will not relieve the Company of its obligation to indemnify Verizon
if its actions cause the Distribution and related transactions to be
taxable.
Rights Agreement
Amendment
On May
12, 2009, the Company and Mellon Investor Services LLC, as rights agent, entered
into an amendment (“Amendment No. 2”) to
the Rights Agreement, dated as of March 6, 2002, as amended by a first
amendment to the Rights Agreement, dated as of January 16, 2003 (as so
amended, the “Rights
Agreement”). Amendment No. 2 provides that the transactions associated
with the Merger will not trigger the rights issued under the Rights
Agreement.
ITEM
3.03 MATERIAL MODIFICATION
TO RIGHTS OF SECURITY HOLDERS
The
information set forth under Item 1.01 is incorporated here by
reference.
Cautionary
Statement
The
agreements herein have been included to provide investors with information
regarding their terms. Except for their status as the contractual document
that established and governs the legal relations amongst the parties thereto
with respect to the transactions described above, the agreements included herein
are not intended to be a source of factual, business or operational information
about the parties. The representations, warranties and covenants made by
the parties in the agreements included herein are qualified as described in such
agreements. Representations and warranties may be used as a tool to
allocate risks among the parties, including where the parties do not have
complete knowledge of all facts. Investors are not third party
beneficiaries under the agreements included herein and should not rely on the
representations, warranties or covenants or any description hereof as
characterization of the actual state of facts or condition of Verizon, Spinco
and the Company, or any of their respective affiliates.
Forward-Looking
Language
This
report contains forward-looking statements that are made pursuant to the safe
harbor provisions of The Private Securities Litigation Reform Act of
1995. These statements speak only as of the date of this report and
are made on the basis of management’s views and assumptions regarding future
events and business performance. Words such as “believe,”
“anticipate,” “expect” and similar expressions are intended to identify
forward-looking statements. Forward-looking statements (including
oral representations) involve risks and uncertainties that may cause actual
results to differ materially from any future results, performance or
achievements expressed or implied by such statements. These risks and
uncertainties are based on a number of factors, including but not limited
to: delays in
consummating the transaction; the failure to obtain our stockholders’ approval;
the receipt of an IRS ruing approving the tax-free status of the
transaction; reductions in the number of our access lines and
high-speed internet subscribers; the effects of competition from cable, wireless
and other wireline carriers (through voice over internet protocol (VOIP) or
otherwise); reductions in switched access revenues as a result of regulation,
competition and/or technology substitutions; the effects of greater than
anticipated competition requiring new pricing, marketing strategies or new
product offerings and the risk that we will not respond on a timely or
profitable basis; the effects of changes in both general and local economic
conditions on the markets we serve, which can impact demand for our products and
services, customer purchasing decisions, collectibility of revenue and required
levels of capital expenditures related to new construction of residences and
businesses; our ability to effectively manage service quality; our ability to
successfully introduce new product offerings, including our ability to offer
bundled service packages on terms that are both profitable to us and attractive
to our customers; our ability to sell enhanced and data services in order to
offset ongoing declines in revenue from local services, switched access services
and subsidies; changes in accounting policies or practices adopted voluntarily
or as required by generally accepted accounting principles or regulators; the
effects of ongoing changes in the regulation of the communications industry as a
result of federal and state legislation and regulation, including potential
changes in state rate of return limitations on our earnings, access charges and
subsidy payments, and regulatory network upgrade and reliability requirements;
our ability to effectively manage our operations, operating expenses and capital
expenditures, to pay dividends and to reduce or refinance our debt; adverse
changes in the credit markets and/or in the ratings given to our debt securities
by nationally accredited ratings organizations, which could limit or restrict
the availability and/or increase the cost of financing; the effects of
bankruptcies and home foreclosures, which could result in
increased
bad debts; the effects of technological changes and competition on our capital
expenditures and product and service offerings, including the lack of assurance
that our ongoing network improvements will be sufficient to meet or exceed the
capabilities and quality of competing networks; the effects of increased
medical, retiree and pension expenses and related funding requirements; changes
in income tax rates, tax laws, regulations or rulings, and/or federal or state
tax assessments; further declines in the value of our pension plan assets, which
could require us to make contributions to the pension plan beginning in 2010, at
the earliest; the effects of state regulatory cash management policies on our
ability to transfer cash among our subsidiaries and to the parent company; our
ability to successfully renegotiate union contracts expiring in 2009 and
thereafter; our ability to pay a $1.00 per common share dividend annually prior
to closing, which may be affected by our cash flow from operations, amount of
capital expenditures, debt service requirements, cash paid for income taxes
(which will increase in 2009) and our liquidity; the effects of significantly
increased cash taxes in 2009 and thereafter; the effects of any unfavorable
outcome with respect to any of our current or future legal, governmental, or
regulatory proceedings, audits or disputes; the possible impact of adverse
changes in political or other external factors over which we have no control;
and the effects of hurricanes, ice storms or other severe
weather. These and other uncertainties related to our business are
described in greater detail in our filings with the Securities and Exchange
Commission (SEC), including our reports on Forms 10-K and 10-Q. There
also can be no assurance that the proposed transaction will in fact be
consummated. We undertake no obligation to publicly update or revise
any forward-looking statement or to make any other forward-looking statements,
whether as a result of new information, future events or otherwise unless
required to do so by securities laws.
Additional
Information and Where to Find it
This
report is not a substitute for the prospectus/proxy statement the Company will
file with the SEC. We urge investors to read the prospectus/proxy
statement, which will contain important information, including detailed risk
factors, when it becomes available. The prospectus/proxy statement
and other documents which will be filed by the Company with the SEC will be
available free of charge at the SEC’s website, www.sec.gov, or by
directing a request when such a filing is made to Frontier Communications
Corporation, 3 High Ridge Park, Stamford, CT 06905-1390,
Attention: Investor Relations.
This
report shall not constitute an offer to sell or the solicitation of an offer to
buy securities, nor shall there be any sale of securities in any jurisdiction in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of such jurisdiction.
The
Company and certain of its directors, executive officers and other members of
management and employees may, under SEC rules, be deemed to be “participants” in
the solicitation of proxies in connection with the proposed
transactions. Information about the directors and executive officers
of the Company is set forth in the proxy statement for the Company's 2009 annual
meeting of stockholders filed with the SEC on April 6, 2009.
This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means
of a prospectus meeting the requirements of Section 10 of the Securities
Act.
ITEM
9.01 FINANCIAL STATEMENTS
AND EXHIBITS
(d) Exhibit The
following exhibits are filed as part of this report on Form 8-K:
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Exhibit
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Description
of Exhibit
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2.1
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Agreement
and Plan of Merger, dated as of May 13, 2009, by and among Verizon
Communications Inc., New Communications Holdings Inc. and Frontier
Communications Corporation
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4.1
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Amendment
No. 2 to the Rights Agreement dated as of May 12, 2009, between Frontier
Communications Corporation and Mellon Investor Services
LLC
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10.1
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Distribution
Agreement, dated as of May 13, 2009, by and among Verizon Communications
Inc. and New Communications Holdings Inc.
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10.2
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Employee
Matters Agreement, dated as of May 13, 2009, by and among Verizon
Communications Inc., New Communications Holdings Inc. and Frontier
Communications Corporation
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10.3
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Tax
Sharing Agreement, dated as of May 13, 2009, by and among Verizon
Communications Inc., New Communications Holdings Inc. and Frontier
Communications Corporation
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SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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FRONTIER COMMUNICATIONS
CORPORATION |
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(Registrant) |
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Date:
May 14, 2009
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By:
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/s/ Robert
J. Larson |
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Name: Robert J.
Larson |
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Title:
Senior Vice President and |
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Chief Accounting Officer |
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