Frontier Communications 2010 Annual Report Download - page 83

In addition, prior to October 1, 2010, each non-employee director was entitled to receive an annual
retainer, which he or she had the option of receiving in the form of 5,760 stock units or a cash payment of
$40,000. Each non-employee director was also entitled to receive a fee of $2,000 for each in-person meeting of
the board of directors or committee of the board attended and $1,000 for each telephonic meeting of the board
of directors or committee of the board attended. Additionally, the Lead Director received an annual stipend of
$15,000, the chair of the Audit Committee received an annual stipend of $25,000, the chair of the
Compensation Committee received an annual stipend of $20,000, the chair of the Nominating and Corporate
Governance Committee received an annual stipend of $7,500 and the chair of the Retirement Plan Committee
received an annual stipend of $7,500.
Beginning October 1, 2010, each non-employee director is entitled to receive an annual retainer of (1)
$75,000 in cash, which he or she has the option of receiving in the form of stock units, and (2) $75,000 in the
form of stock units. In addition, the Lead Director, the chair of the Audit Committee and the chair of the
Compensation Committee each receives an annual stipend of $20,000, the chair of the Nominating and
Corporate Governance Committee receives an annual stipend of $10,000 and the chair of the Retirement Plan
Committee receives an annual stipend of $7,500. Directors no longer receive meeting fees.
All fees paid to the non-employee directors in 2010 were paid quarterly. Directors are required to
irrevocably elect by December 31 of the prior year to receive stock units in lieu of cash. If the director elected
stock units, the number of units credited to the director’s account is determined as follows: the total cash value
of the fees payable to the director are divided by 85% of the closing prices of Frontier common stock on the
last business day of the calendar quarter in which the fees or stipends were earned. Units are credited to the
director’s account quarterly. Directors must also elect to convert the units to either common stock (convertible
on a one-to-one basis) or cash upon retirement or death.
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. Dividends on stock units are paid in the form of additional stock
units.
The number of shares of common stock authorized for issuance under the Directors’ Equity Plan is
2,540,761, which includes 540,761 shares that were available for grant under the Deferred Fee Plan on the
effective date of the Directors’ Equity Plan. In addition, if and to the extent that any “plan units” outstanding
on May 25, 2006 under the Deferred Fee Plan are forfeited or if any option granted under the Deferred Fee
Plan terminates, expires, or is cancelled or forfeited, without having been fully exercised, shares of common
stock subject to such “plan units” or options cancelled shall become available under the Directors’ Equity Plan.
At December 31, 2010, there were 1,956,812 shares available for grant. There were 14 directors participating in
the Directors’ Plans during all or part of 2010. In 2010, the total options granted and plan units earned were
30,000 and 95,695, respectively. In 2009, the total options granted and plan units earned were 0 and 76,326,
respectively. In 2008, the total options granted and plan units earned were 0 and 102,673, respectively. Options
granted prior to the adoption of the Directors’ Equity Plan were granted under the 2000 EIP. At December 31,
2010, 172,246 options were outstanding and exercisable under the Director Plans at a weighted average
exercise price of $11.52.
For purposes of determining compensation expense, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model which requires the use of various assumptions
including expected life of the option, expected dividend rate, expected volatility, and risk-free interest rate. The
expected life (estimated period of time outstanding) of stock options granted was estimated using the historical
exercise behavior of employees. The risk free interest rate is based on the U.S. Treasury yield curve in effect at
the time of the grant. Expected volatility is based on historical volatility for a period equal to the stock option’s
expected life, calculated on a monthly basis.
To the extent directors elect to receive the distribution of their stock unit account in cash, they are
considered liability-based awards. To the extent directors elect to receive the distribution of their stock unit
accounts in common stock, they are considered equity-based awards. Compensation expense for stock units that
are considered equity-based awards is based on the market value of our common stock at the date of grant.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements