Frontier Communications 2006 Annual Report Download - page 93

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
case. In addition, 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 and 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. We cannot at this time determine what amount we may recover
from third parties or insurance carriers.
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 were cooperating with the patent
holder to determine if we are using or have used any of the processes that are protected by its patents but
received no correspondence in this regard from late 2004 through January 2007. In January 2007, we received a
letter from counsel to Katz Technology asking to meet with us to discuss Katz Technology’s continuing offer of
a license under Katz Technology’s patents. We are continuing to investigate whether we are utilizing Katz
Technology’s patented technology, and will discuss Katz Technology’s license offer with them, as and when
appropriate.
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 2004 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.
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.
We conduct certain of our operations in leased premises and also lease certain equipment and other assets
pursuant to operating leases. The lease arrangements have terms ranging from 1 to 99 years and several contain
rent escalation clauses providing for increases in monthly rent at specific intervals. When rent escalation clauses
exist, we record total expected rent payments on a straight-line basis over the lease term. Certain leases also have
renewal options. Renewal options that are reasonably assured are included in determining the lease term. Future
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