Frontier Communications 2004 Annual Report Download - page 87

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-43
the costs of cleaning up environmental contamination alleged to have resulted from the operation of a manufactured
gas plant by Bangor Gas Company, which we owned from 1948-1963. The City alleged the existence of extensive
contamination of the Penobscot River and has asserted that money damages and other relief at issue in the lawsuit
could exceed $50,000,000. The City also requested that punitive damages be assessed against us. We have filed an
answer denying liability to the City, and have asserted a number of counterclaims against the City. In addition, we
have identified a number of other potentially responsible parties that may be liable for the damages alleged by the
City and have joined them as parties to the lawsuit. These additional parties include Honeywell Corporation, the
Army Corps of Engineers, Guilford Transportation (formerly Maine Central Railroad), UGI Utilities, Inc., and
Centerpoint Energy Resources Corporation. The Court has dismissed all but two of the City’s claims including its
CERCLA claims and the claim against us for punitive damages. We are currently pursuing settlement discussions
with the other parties, but if those efforts fail a trial of the City’s remaining claims could begin as early as May 2005.
We have demanded that various of our insurance carriers defend and indemnify us with respect to the City's lawsuit,
and on December 26, 2002, we filed a declaratory judgment action against those insurance carriers in the Superior
Court of Penobscot County, Maine, for the purpose of establishing their obligations to us with respect to the City's
lawsuit. We intend to vigorously pursue this lawsuit to obtain from our insurance carriers indemnification for any
damages that may be assessed against us in the City's lawsuit as well as to recover the costs of our defense of that
lawsuit.
On June 7, 2004, representatives of Robert A. Katz Technology Licensing, LP, contacted us regarding possible
infringement of several patents held by that firm. The patents cover a wide range of operations in which telephony is
supported by computers, including obtaining information from databases via telephone, interactive telephone
transactions, and customer and technical support applications. We are cooperating with the patent holder to determine if
we are currently using any of the processes that are protected by its patents. If we determine that we are utilizing the
patent holder’s intellectual property, we expect to commence negotiations on a license agreement.
On June 24, 2004, one of our subsidiaries, Frontier Subsidiary Telco Inc., received a "Notice of Indemnity Claim"
from Citibank, N.A., that is related to a complaint pending against Citibank and others in the U.S. Bankruptcy Court
for the Southern District of New York as part of the Global Crossing bankruptcy proceeding. Citibank bases its
claim for indemnity on the provisions of a credit agreement that was entered into in October 2000 between Citibank
and our subsidiary. We purchased Frontier Subsidiary Telco, Inc., in June 2001 as part of our acquisition of the
Frontier telephone companies. The complaint against Citibank, for which it seeks indemnification, alleges that the
seller improperly used a portion of the proceeds from the Frontier transaction to pay off the Citibank credit
agreement, thereby defrauding certain debt holders of Global Crossing North America Inc. Although the credit
agreement was paid off at the closing of the Frontier transaction, Citibank claims the indemnification obligation
survives. Damages sought against Citibank and its co-defendants could exceed $1,000,000,000. In August 2004 we
notified Citibank by letter that we believe its claims for indemnification are invalid and are not supported by
applicable law. We have received no further communications from Citibank since our August letter.
We are party to other legal proceedings arising in the normal course of our business. The outcome of individual
matters is not predictable. However, we believe that the ultimate resolution of all such matters, after considering
insurance coverage, will not have a material adverse effect on our financial position, results of operations, or our cash
flows.
We have budgeted capital expenditures in 2005 of approximately $270,000,000, including $255,000,000 for ILEC and
$15,000,000 for ELI. Although we from time to time make short-term purchasing commitments to vendors with respect
to these expenditures, we generally do not enter into firm, written contracts for such activities.