Exhibit 10.7
FRONTIER COMMUNICATIONS CORPORATION
NON-EMPLOYEE DIRECTORS' DEFERRED FEE EQUITY PLAN
(Pre-2007 Plan, with Amendments for Section 409A)
ARTICLE 1
PURPOSES OF THE PLAN
1.1 Purposes.
The Frontier Communications Corporation Non-Employee Directors' Deferred
Fee Equity Plan (the "Plan") was effective for the period beginning June 28,
1994 and ending May 25, 2006. During this period, its purpose was to provide
each Director with an opportunity to defer some or all of the Director's Fees
and receive compensation for services in the form of options to purchase
Frontier's Common Stock or in Plan Units which are equivalent to Frontier's
Common Stock. The Plan implemented corporate policy that all employees, officers
and directors are to be encouraged to share in the Company's long-term prospects
by taking part of their compensation in Common Stock and options.
1.2 Introduction.
The Plan, as amended, is comprised of three separate plans that were
combined into the Plan for administrative convenience.
The Plan consists of an option plan (referred to as the "Option Plan")
through which a Director could elect to receive his or her Fees in an equivalent
amount of options to purchase Common Stock. The provisions of Articles 3 and 4
of the Plan apply exclusively to the Option Plan.
The Plan also includes a separate stock plan through which a Director could
elect (a "Stock Plan Election") to receive his or her Fees for the next calendar
year (or a shorter period in the case of 1994 or a newly elected Director) in an
equivalent amount of Plan Units paid out upon termination of directorship (the
"Stock Plan"). The provisions of Articles 5, 6 and 7 apply exclusively to the
Stock Plan.
The Plan also includes a formula stock option plan under which each
Director was automatically granted an option to purchase shares of Common Stock
on January 1 of each year, starting with 1997 (the "Formula Plan"). The
provisions of Article 12 apply exclusively to the Formula Plan.
In December 2008, the Plan was amended to allow certain deferrals under the
Plan that were earned or vested after 2004 to comply with the requirements of
Code Section 409A, effective as of January 1, 2005. All grants made under the
Option Plan and the Formula Stock Plan were earned and vested prior to 2005 and,
therefore, are grandfathered under Code Section 409A, except to the extent
materially modified.
1
ARTICLE 2
DEFINITIONS
As used herein, the following words shall have following meanings unless
otherwise specifically provided:
2.1 "Accounting Date" means, for purposes of the Stock Plan, each January
1, April 1, July 1 and October 1, except that the first Accounting Date in 1995
shall be February 1.
2.2 "Administrator" means the person or persons appointed by the Board of
Directors to represent the Company in the administration of the Plan pursuant to
the provisions of Article 10.1.
2.3 "Act" means the Securities Act of 1933.
2.4 "Applicable Rate of Interest" means, as of any date, 120% of the
then-applicable Federal rate of interest pursuant to the Code. The Federal
short-term rate of interest shall be the interest component applicable to
deferred Fees from the date of deferral until the date of investment in Plan
Units under the Stock Plan. The Federal medium term rate of interest shall apply
to distributions in annual installments deferred after Separation from Service
pursuant to the Stock Plan.
2.5 "Beneficiary" means the person or persons designated in writing by the
Participant as entitled to receive a Stock Plan Participant's Account upon his
death, or to exercise an Option Plan Participant's Option upon his death, or
failing such designation, the person or persons who, upon the death of a
Participant, shall have acquired by will, or the laws of descent and
distribution, the right to receive the benefits specified under this Plan.
Beneficiary designations shall be made in writing and delivered to the
Administrator and shall comply with any applicable state law relating to
testamentary dispositions and other requirements. A Participant may designate a
new Beneficiary or Beneficiaries at any time by notifying the Administrator. The
last such designation received by the Administrator shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Administrator prior to the Participant's
death, and in no event shall it be effective as of a date prior to such receipt.
"Beneficiary" shall include the person or persons who, upon the disability or
incompetence of a Participant, shall have acquired on behalf of the Participant,
by legal proceeding or otherwise, the right to receive the benefits specified in
this Plan on behalf of the Participant.
2.6 "Board of Directors" means the Board of Directors of the Company.
2.7 "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.)
2.8 "Company" means Frontier Communications Corporation and its successors
and assigns.
2
2.9 "Common Stock" means Common Stock Series B, par value $.25 per share,
of the Company or any successor Common Stock.
2.10 "Director" means any director of the Company who is not a full-time
employee of the Company. For the purposes of the Plan, an individual who is both
a full-time employee of the Company and a director of the Company and therefore
ineligible to participate in the Plan and who ceases to be a full-time employee
but remains in office as a director shall become eligible to participate in the
Plan as a Director as of the termination of his or her service as a full-time
employee.
2.11 "Effective Date" means, for Option Plan Elections before July 20,
1994, August 1, 1994; and for other Option Plan Elections, the next January 1.
2.12 "Exchange Act" means the Securities Exchange Act of 1934. "Rule 16b-3"
shall mean such rule promulgated by the Securities and Exchange Commission under
the Exchange Act and, unless the circumstances require otherwise, shall include
any other rule or regulation adopted under Sections 16(a) or 16(b) of the
Exchange Act relating to compliance with, or an exemption from, Section 16(b).
Reference to any section of the Exchange Act or any rule promulgated thereunder
shall include any successor section or rule.
2.13 "Fair Market Value" means, unless another reasonable method for
determining fair market value is specified by the Committee, the average of the
high and low sales prices of a share of the Common Stock as reported by the New
York Stock Exchange (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 date on which sales prices were quoted.
2.14 "Family Entity," "Family Member Transfer," "Family Transferee" and
"Family Trust" mean such terms as defined in Section 4.8.
2.15 "Option Plan Committee" means the Committee described in Section 10.1
hereof to administer the Option Plan.
2.16 "Option Plan Election" is an election to receive Options equivalent in
value to Option Plan Fees to be earned during the period August 1 - December 31,
1994 or during one or more subsequent Plan Years.
2.17 "Option Plan Fees" are those Directors' Fees which may be the subject
of an Option Plan Election. These are limited to future retainer fees at the
rate in effect in the year in which the Option Plan Election is made and board
and committee meeting fees, up to a maximum of $30,000 per year. Option Plan
Fees for 1994 shall be limited to $12,500.
2.18 "Option Plan Participant" means a Director who has elected to receive
Directors' Fees in the form of Options.
3
2.19 "Option Value" - For each Option Plan Election, the options granted
hereunder shall be in an amount equivalent to the value of the Directors' Fees
subject to such Option Plan Election. In order to implement this standard, the
Board of Directors has determined at the time of adoption of the Plan that the
"Option Value" of an Option with the terms and conditions of the Option
described herein to purchase one share of Common Stock of the Company is 20% of
the Fair Market Value of such share on the Effective Date of the Option in
question.
2.20 "Plan" means this Frontier Communications Corporation Pre-2007
Non-Employee Directors Deferred Fee Equity Plan With Amendments for Code Section
409A.
2.21 "Plan Unit" shall mean a credit established in a Participant's Stock
Plan Account reflecting the number of shares of Common Stock which could be
purchased at Fair Market Value as of each Accounting Date as provided in Section
6.1. A Plan Unit shall be deemed to be the equivalent of a share of Common Stock
and shall be subject to adjustment in the event of change in Common Stock as
provided in Section 11.5.
2.22 "Plan Year" means the fiscal year of the Company, currently the
twelve-month period ended December 31.
2.23 "Separation from Service" means a Stock Plan Participant's separation
from service with the Company, within the meaning of Code Section
409A(a)(2)(A)(i) and taking into account the special rules for directors in
Treasury Regulation ss. 1.409A-1(h)(5). The term may also be used as a verb
(i.e., "Separates from Service") with no change in meaning.
2.24 "Stock Plan Account" shall mean the account established for each
Participant to reflect the amount of Fees which such Participant has elected to
defer under the Stock Plan, any interest component, all Plan Units which have
been acquired with such Fees and interest component and any Plan Units provided
under Section 6.4 of Article 6.
2.25 "Stock Plan Committee" means the Committee described in Section 10.1
hereof to administer the Stock Plan.
2.26 "Stock Plan Election" means a Stock Plan Participant's delivery of a
written notice of election to the Administrator (a) electing to defer payment of
his or her Fees, and (b) further electing to receive payment of his or her Stock
Plan Account either (i) at Time of Distribution in either (A) Common Stock or
(B) cash, or (ii) in installments in cash annually over a five-year period. All
such elections shall be irrevocable except as otherwise provided in this Plan.
2.27 "Stock Plan Fees", "Director Fees" and "Fees" each mean the retainer
fees and Board of Directors and committee meeting attendance fees unless the
context otherwise requires.
2.28 "Stock Plan Participant" means (i) a Director who has elected to defer
payment of all or a portion of his or her Stock Plan Fees or (ii) a Director who
has been awarded Plan Units under Section 6.4 of Article 6.
4
2.29 "Termination" means retirement from the Board of Directors or
termination of service as a Director for death, disability or any other reason.
2.30 "Time of Distribution" means a date ten calendar days after
Termination (or Separation from Service, with respect to the portion of a Stock
Plan Account that is subject to Code Section 409A), except as may be otherwise
specified in Article 7; provided that, if payment is to be made in cash and the
Time of Distribution is within six months after the date of acquisition or
crediting of Plan Units within the contemplation of Rule 16b-3(c)(1) or any
successor rule under the Exchange Act, the Time of Distribution shall be
delayed, solely for such Plan Units, until more than six months shall have
elapsed from the date of acquisition or crediting of such Plan Units.
2.31 "Trust Agreement" means any Trust Agreement entered into between the
Company and any Trustee in connection with the Plan.
2.32 "Trustee" means any entity named as Trustee in the Trust Agreement, or
any successor corporate Trustee thereunder.
ARTICLE 3
ELECTIONS BY OPTION PLAN PARTICIPANTS
3.1 Directors may elect to receive Fees in the form of Options.
Option Plan Fees to be earned by Directors for the Plan Years 1995 through
1999 may, at the election of a Director, be received as Options as herein
provided. Option Plan Fees to be earned by Directors for the period August 1,
1994 through December 31, 1994 may also, at the election of a Director, be
received as Options.
3.2 Annual Option Plan Elections.
On or before December 15 of each year (except for 1994 when the Option Plan
Election must be made on or before July 20, 1994) a Director may deliver to the
Administrator his or her Option Plan Election to receive a stated percentage of
his or her Option Plan Fees for one or more of the Plan Years 1995 through 1999
or the period August 1 - December 31, 1994, in Options to purchase the number of
shares of Common Stock specified in Section 4.1.
For example: the annual Option Plan Election may cover the Plan Year or
Years set forth below (to the extent not theretofore the subject of an Option
Plan Election).
Plan Years or Periods for
Which Option Plan Fees May
Date of Option Plan Election Be Elected
On or Before July 20, 1994 August 1 - December 31, 1994
On or Before July 20, 1994 1995 - 1999
On or Before December 15, 1995 1996 - 1999
On or Before December 15, 1996 1997 - 1999
On or Before December 15, 1997 1998 - 1999
On or Before December 15, 1998 1999
5
Elections must include the earliest Plan Year for which unelected Fees exist and
(if additional years are included in the Election) consecutive successive years.
An Option Plan Election covering Option Plan Fees for this period shall preclude
a Stock Plan Election purporting to cover the same Fees.
3.3 Effective Date.
Option Plan Elections made on or before July 20, 1994 shall become
effective on August 1, 1994. Later years' Option Plan Elections shall become
effective as of the next Option Plan Effective Date.
3.4 Adjustment for Actual Fees Earned.
If by the end of any Plan Year a Director shall not have earned the amount
of Option Plan Fees elected by him or her to be received in Options, the number
of shares of Common Stock covered by Options granted for such Plan Year shall be
diminished pro rata. Any Option Plan Fees earned which have not been the subject
of an Option Plan Election shall be paid in cash in accordance with the normal
payment practices of the Company for Directors' Fees. If a Participant's
directorship shall terminate during a Plan Year which has been the subject of an
Option Plan Election, the portion of the Option which related to Option Plan
Fees earned by the Participant prior to termination of directorship shall remain
in effect and the portion of the Option which relates to Option Plan Fees which
are unearned shall terminate.
3.5 Cancellation of Election.
At any time an Option Plan Participant may cancel one or more Options or
installments of Options held by him or her which relate to future Plan Years and
consequently have not been earned as of the date of such cancellation.
Cancellation shall be effected by delivering a written notice of cancellation to
the Administrator. Such cancellation shall not affect any options held by the
Participant relating to the year in which cancellation occurs or to any prior
year. Option Plan Fees to be earned by a Director covered by a canceled Election
shall thenceforth be paid in cash in accordance with the Company's practices,
and may not thereafter become the subject of an Option Plan Election.
6
ARTICLE 4
TERMS OF OPTIONS
4.1 Number of Shares covered by an Option.
The number of shares of Common Stock covered by an Option resulting from an
Option Plan Election shall be equal to the Option Plan Fees covered by the
Election divided by the Option Value.
4.2 Maximum Duration.
The maximum exercise period for each Option granted under the Option Plan
shall be ten years from the Effective Date of the Option.
4.3 Initial Exercisability in Installments.
Options representing Option Plan Fees to be earned in one Plan Year shall
become exercisable on January 1 of the following Plan Year.
Options which relate to Fees to be earned in more than one Plan Year shall
become exercisable in installments on the January 1 of the year following the
year in which Fees represented by the installment are earned. For example: An
Election covering the years 1996, 1997 and 1998 would become exercisable: as to
shares representing 1996 Fees, on January 1, 1997; as to shares representing
1997 Fees, on January 1, 1998; as to the remainder of the shares, on January 1,
1999. An Election covering Fees to be earned in 1999 will first become
exercisable on January 1, 2000.
Options relating to the period August 1, 1994 - December 31, 1994 shall
first become exercisable on February 1, 1995.
4.4 Exercise Price.
The Exercise Price for all shares of Common Stock purchasable upon exercise
of an Option shall be 90% of the Fair Market Value as of the Effective Date
applicable to the Option exercised.
4.5 Notice of Exercise.
An Option Plan Participant wishing to exercise an Option may do so by
giving written notice of exercise in the form adopted for the Option Plan.
4.6 Payment of Purchase Price.
At the choice of the holder of the Option, the Purchase Price may be paid
either in cash, or in shares of Common Stock valued at Fair Market Value on the
trading day immediately preceding the date of exercise specified in the notice
of exercise.
7
4.7 Exercisability Continuing after Termination.
If the directorship of a Participant who has not either reached age 60 or
rendered three years of service terminates for any reason, the portion of the
Option which relates to Option Plan Fees earned by a Participant prior to
termination of directorship shall continue to be exercisable by the Participant
or his or her Family Trustee or Beneficiary for a period of twelve months after
termination of directorship. If the directorship of a Participant who has either
reached age 60 or rendered three years or more of service terminates for any
reason, the portion of the Option which relates to Option Plan Fees earned by a
Participant prior to termination of directorship shall continue to be
exercisable by the Participant or his or her Family Trustee or Beneficiary for
the remainder of the stated term of the Option. In no event shall the exercise
date be later than the date specified in Section 4.2.
4.8 Options not transferable; Exceptions.
No Option granted under the Option Plan shall be transferable other than by
will or the laws of descent or distribution except pursuant to a domestic
relations order as defined by the Internal Revenue Code or Title I of the
Employee Retirement Income Security Act ("ERISA") or the rules thereunder and
except that, with the consent of the Committee acting in its sole discretion, an
Option Plan or Formula Plan Participant may transfer (a "Family Member
Transfer") an Option to (i) a member of the Participant's immediate family
(which for the purposes of the Plan shall have the same meaning as defined in
Rule 16a-1 promulgated under the Exchange Act); (ii) a trust (the "Family
Trust") the beneficiaries of which consist exclusively of members of the
Participant's immediate family; and (iii) a partnership, limited partnership or
other limited liability entity ("Family Entity") the members of which consist
exclusively of members of the Participant's immediate family, Family Trusts and
Family Entities; provided that no consideration is paid for the transfer and
that each Family Member Transferee execute an instrument agreeing to be bound by
the provisions of the Plan and the restrictions as to its transferability of the
Option. During the lifetime of a Participant, an Option shall be exercisable
only by the Participant or his or her Family Transferee or beneficiary. A
("Family Transferee") is transferee that is a member of the immediate family of
a Participant or a Family Trust or Family Entity.
ARTICLE 5
ELECTIONS BY STOCK PLAN PARTICIPANTS
5.1 Directors may elect to receive Fees in the form of Plan Units.
Directors may elect to receive Directors' Fees (to the extent such
Directors' Fees are not the subject of an Option Plan Election) in the form of
Plan Units.
5.2 Stock Plan Election to Defer.
A Director of the Company may become a Stock Plan Participant by electing,
on an annual basis and prior to December 31 of a Plan Year, to defer receipt of
all or a portion of the Stock Plan Fees payable to such Director for the next
ensuing Plan Year; provided, that no Fees may be allocated to any Director's
Stock Plan Account after May 22, 2007. An Election shall be effective upon the
delivery by a Stock Plan Participant to the Administrator of a written Stock
Plan Election to evidence his or her decision. Such Stock Plan Election shall
indicate the portion of Directors' Fees to be deferred and credited to his or
her Stock Plan Account.
8
The following special provisions shall apply to Directors' Fees for 1994
and 1995: On or before July 20, 1994, a Director may deliver a Stock Plan
Election to the Administrator in which he or she elects to defer receipt of all
or a portion of the Directors' Fees payable to such Director for services during
the period August 1, 1994 through December 31, 1994. In such a case, all
deferred Fees will be held by the Company in the Participant's Stock Plan
Account and will not be invested in Plan Units until February 1, 1995. An
election to defer Fees to be accrued during the period January 1, 1995 through
December 31, 1995 shall be made on or before July 20, 1994 as provided herein
except that the first Accounting Date for investment of such Fees shall be April
1, 1995.
If a person becomes a Director after the beginning of any Plan Year, he or
she may elect to defer receipt of Fees for future services in such Plan Year.
Such Stock Plan Election must be made in writing and delivered to the
Administrator within twenty days after the individual becomes a Director and
will take effect as of the first calendar quarter to start after the date of
such Stock Plan Election. In such a case, deferred Fees will be held by the
Company in the Participant's Stock Plan Account and will not be invested in
Common Stock or Plan Units until the first Accounting Date which is at least six
months after the date that such Stock Plan Election is first delivered to the
Administrator.
5.3 Effectiveness of Elections.
Elections for each Plan Year shall be effective and irrevocable upon the
delivery of a Stock Plan Election to the Administrator, except as specifically
provided in this Plan. Fees deferred pursuant to such Stock Plan Election shall
be credited to the Participant's Stock Plan Account and distributed at the times
and in the manner set forth in such Election.
In the absence of an effective Stock Plan Election to take effect on the
Time of Distribution as to the time and/or manner of distribution, the payout of
a Stock Plan Account shall be in one lump sum cash payment at the Time of
Distribution.
ARTICLE 6
STOCK PLAN ACCOUNTS AND PLAN UNITS
6.1 Crediting Stock Plan Accounts.
The Stock Plan Account of each Stock Plan Participant shall be credited as
of each Accounting Date with Plan Units equal to the total cash value of fees
earned in a quarter divided by 85% of the average of the high and low prices of
the stock on the first trading day of the year the election is in effect
("Initial Market Value"). Plan Units will be credited to the director's account
as of the first business day of the fiscal quarter following the fiscal quarter
in which such Stock Plan Fees were earned. The quarterly crediting of the Plan
Units has been established for administrative convenience. As of the date of any
payment of a stock dividend or stock split by the Company, a participant's Stock
Plan Account will be credited with Plan Units equal to the number of shares of
Common Stock (including fractional share entitlements) which are payable by the
Company with respect to the number of shares (including fractional share
entitlements) equal to the number of Plan Units credited to the Participant's
Stock Plan Account on the record date for such stock dividend or stock split. As
of the date of any dividend in cash or property or other distribution payable to
holders of Common Stock, the Participant's Stock Plan Account shall be credited
with additional Plan units equal to the number of shares of Common Stock
(including fractional share entitlements) that could have been purchased at the
Fair Market Value as of such payment date with the amount which would have been
received as a dividend or distribution on the number of shares (including
fractional share entitlements) equal to the Plan Units credited to the
Participant's Stock Plan Account as of the record date.
9
6.2 Establishment of Stock Plan Accounts.
The Company, Administrator or the Trustee, as appropriate, shall establish
a separate "Stock Plan Account" for each Stock Plan Participant who defers Stock
Plan Fees pursuant to the Plan, and credit each Participant's Stock Plan Account
with his or her entitlement to deferred Fees, an interest component at the
Applicable Rate of Interest and Plan Units.
6.3 Adjustment of Stock Plan Accounts.
As of each Accounting Date of each Plan Year and on such other dates as the
Administrator directs, the value of each Stock Plan Account shall be determined
by the Company, the Administrator, or the Trustee, as appropriate.
6.4 Automatic Director Stock Plan Unit Awards.
On the first business day of each Plan Year, starting with the calendar
year 2005, and continuing through 2007, 3,500 Plan Units shall be awarded to
each Director in office on such date, without the need for further corporate
action. Individuals who are not Directors on the first day of a Plan Year but
who become Directors of the Company shall be awarded, without need for further
corporate action, 3,500 Plan Units; the grant date for such Plan Units shall be
the date upon which such individual first becomes a Director.
ARTICLE 7
PAYMENT OF STOCK PLAN ACCOUNTS
7.1 Time and Method of Distribution.
Distribution of a Participant's Stock Plan Account shall commence at Time
of Distribution. Distribution shall be made in a lump sum or in equal annual
cash installments over a period of five years, as specified in a Stock Plan
Election.
10
If a distribution is to be made in a lump sum it may be made either in
shares of Common Stock or in cash. If a distribution is to be made in cash, it
shall be in an amount equal to the Fair Market Value as of the Time of
Distribution (or such later date as may be required to continue an exemption
under Rule 16b-3) of all Plan Units credited to a Participant's Stock Plan
Account plus any uninvested deferred Stock Plan Fees and related interest
component. The distribution shall be paid to the Stock Plan Participant or his
or her Beneficiary.
If a distribution is to be made in shares of Common Stock, the distribution
shall be such number of shares of Common Stock as shall equal the Plan Units
credited to such Participant's Stock Plan Account plus shares of Common Stock
equivalent in Fair Market Value to the amount of any accumulated uninvested
deferred Fees and interest component in such Participant's Stock Plan Account as
of the Time of Distribution. Any remaining fractional interest shall be paid in
cash.
If a distribution is made in annual installments, each annual installment
shall be in cash and equal to one-fifth of the amount of the lump sum payable as
of the Time of Distribution or later date as aforesaid, with interest on each
unpaid installment at the Applicable Rate of Interest in effect on the date of
Separation from Service by a Director of his directorship.
7.2 Election of Method of Distribution.
At the time that a Director first makes a Stock Plan Election to defer Fees
for a Plan Year, such Director may elect whether the payments to be made at the
Time of Distribution for that Plan Year shall be distributed in a lump sum or in
five equal annual cash installments.
At the same time, any Stock Plan Participant electing lump sum payment may
also elect for the payment of such lump sum to be in shares of Common Stock
credited to the Stock Plan Account or in cash. A Stock Plan Participant may, in
connection with his or her retirement, death or disability, change his or her
Stock Plan Election as to the method of payment (shares or cash) of any lump sum
distribution from time to time.
With respect to that portion of a Stock Plan Participant's Stock Plan
Account that is not subject to Code Section 409A, and subject to the provisions
of Articles 9 and 10, the Committee, in its sole discretion, may direct the
distribution of the Director's entitlement in a lump sum or in annual
installments, and the Committee may take into account, but need not take into
account, any request by a Director concerning the period over which his
entitlement will be distributed. The portion of a Stock Plan Participant's Stock
Plan Account that is subject to Code Section 409A shall be distributed as
elected by the Director under the first paragraph of this Section 7.2.
11
7.3 Merger, consolidation, sale of assets or tender for shares.
In the event of a proposed merger or consolidation in which the Company
will not be the surviving corporation, or a sale of a majority of the assets of
the Company, or in the case of a tender offer or the Company's Common Stock or a
similar corporate transaction which is expected in the view of the Committee to
result in another company, firm, or group acquiring 20% or more of the voting
power of the Company's outstanding securities, the Plan shall take steps to
convert Plan Units held by participants into shares of Common Stock. The Plan
shall obtain such shares with a view to making the same available for
participation by Stock Plan Participants in the transaction (subject to the
fourth from last sentence of this Section). Such shares may be obtained by the
Plan from the "Deferred Fee Stock Plan for Non-Employee Directors Account," any
trust account for the benefit of Plan Participants, the Company, or any other
source, including authorized and unissued, or issued and reacquired, shares of
Common Stock. In the event that shares of Common Stock are convertible into or
otherwise exchangeable for securities of another corporation, or cash or other
property without the need for action or tender by an individual shareholder, the
Company shall take all necessary steps to carry out such conversion or exchange
and shall deliver to each Stock Plan Participant the securities, cash or other
property into which his or her shares have been exchanged or converted. In the
event of a tender offer or similar event in which an individual shareholder of
the Company may elect to tender shares or otherwise take steps to receive
securities, cash or other property, the Company shall so advise the Participants
and take such action, including tender, or shall refrain from action, as
directed in writing by each Stock Plan Participant. Prior to the completion of
such tender offer or similar event, no Participant shall have any entitlement to
any shares, and if such event is not completed each participant shall be
entitled to Plan Units and not shares of Common Stock. Upon the completion of
such tender offer or similar event, the Company shall distribute to each Stock
Plan Participant any shares of Common Stock, securities, cash or other property
held by the Plan for his or her Stock Plan Account. The Administrator may delay
such distribution to any Stock Plan Participant in order to comply with, or
continue the availability of an exemption under, the Act or Exchange Act. Upon
the completion of such distribution, the Stock Plan shall terminate with respect
to that portion of all Stock Plan Accounts that are not subject to Code Section
409A. Notwithstanding anything in this Plan to the contrary, to the extent any
provision of this Plan would cause a payment of deferred compensation that is
subject to Code Section 409A to be made upon a transaction as specified above,
then such payment shall not be made unless such transaction 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 this Section 7.3.
7.4 Change in Tax Law.
The Stock Plan is intended to be treated as an unfunded deferred
compensation plan under the Code. It is the intention of the Company that the
amounts deferred pursuant to this Plan shall not be included in the gross income
of the Participants or their Beneficiaries until such time as the deferred
amounts are distributed from the Plan. If, at any time, it is determined or
claimed by the Internal Revenue Service ("Service") that amounts deferred in
earlier plan Years have become currently taxable to the Participants or their
Beneficiaries, the Committee may, in its discretion, terminate the Plan and
distribute amounts credited to Stock Plan Participants' Accounts that are not
subject to Code Section 409A to the Stock Plan Participants or their
Beneficiaries. Such determination shall be based on a ruling or publicly
available Pronouncement from the Service, or on the position taken by the
Service in audit, or a written opinion from tax counsel.
12
ARTICLE 8
CREDITORS AND INSOLVENCY
8.1 Unfunded Status.
Any and all payments made to a Stock Plan Participant pursuant to the Plan
shall be made from the general assets of the Company or assets available to its
general creditors. Any payments made in good faith under the terms of the Plan
to a Stock Plan Participant or his Beneficiary shall fully discharge the Plan,
the Company, the Trustee, if any, the Administrator and the Committee from all
further obligations with respect to such payments. The Company intends that the
Plan shall be considered unfunded for all purposes, including tax purposes and
purposes of Title I of ERISA.
8.2 Claims of the Company's Creditors.
All assets held pursuant to the provisions of this Plan shall be subject to
the claims of general creditors of the Company, including judgment creditors and
bankruptcy creditors. The rights of a Stock Plan Participant or Beneficiary to
any assets of the Plan or Trust shall be no greater than the rights of an
unsecured creditor of the Company.
No Stock Plan Participant shall have any claim or entitlement to any shares
of Common Stock which have been purchased, acquired or held by the Company or
any Trustee. Any and all such shares shall be the property of the Company and
shall only represent funds or assets available to the Company which it shall
have designated to match its obligations and accruals with respect to the Plan.
8.3 Notification of Trustee, if any.
If the Company has appointed a Trustee for the Plan, the following
provisions shall apply : in the event the Company becomes insolvent, the Board
of Directors and the Chief Executive Officer of the Company shall immediately
notify the Trustee of that fact. The Trustee shall not make any payments from
the Trust to any Stock Plan Participant or any Beneficiary under the Plan after
such notification is received or at any time after the Trustee has knowledge of
such insolvency. Under any such circumstances, the Trustee shall make available
any property held in the Trust to satisfy the claims of the Company's general
creditors or, upon satisfaction of such claims and to the extent otherwise due
under the terms of this Plan, to the Participants, as a court of competent
jurisdiction may direct. For purposes of this Plan, the Company shall be deemed
to be insolvent if the Company is subject to a pending voluntary or involuntary
proceeding as a debtor under the United States Bankruptcy Code, or is unable to
pay its debts as they mature. All trust assets shall be subject to the claims of
general creditors of the Company to the fullest extent contemplated by Revenue
Procedure 92-64.
13
ARTICLE 9
PAYMENT OF SHARES
9.1 Delivery of Certificates for Stock.
At the Time of Distribution, subject to the fourth paragraph of this
Section, the Company shall deliver to a Stock Plan Participant who has elected
to receive shares of Common Stock or to his Beneficiary a certificate for the
shares of Common Stock to which he or she is entitled. At the time of exercise
of an Option, subject to the fourth paragraph of this Section, the Company shall
deliver to the Option Plan Participant or his or her Beneficiary a certificate
for shares of Common Stock to which he or she is entitled. Such certificates
shall be registered in the name of the Participant or Beneficiary, as
applicable.
The Company shall not be required to issue or deliver any certificates for,
or make book-entry reflecting, shares of Common Stock prior to (a) the listing
of such shares on any stock exchange or quotation system on which the Common
Stock may then be listed or quoted and (b) the completion of any registration,
qualification, approval or authorization of such shares under any federal or
state law, or any ruling or regulation or approval or authorization of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
All certificates for shares of Common Stock delivered under the Plan, and
book entries reflecting such shares, shall be subject to such restrictions as
the Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed and any applicable federal or state
securities laws.
If the registration of ownership of Common Stock is then being maintained
by the Company or its transfer agent in book-entry form, then the delivery of
shares of Common Stock to the Participant or his Beneficiary shall be evidenced
by book entry. If the Participant or Beneficiary requests issuance of a
certificate of shares in writing, the actual certificate will be delivered to
him as soon as practicable after such request.
9.2 Taxes.
The Company or the Trustee, as appropriate, shall deduct the amount of any
taxes, if so required by law, from any payments made pursuant to the Plan and
shall transmit the withheld amounts to the appropriate taxing authority, and
provide the Stock Plan Participant or any Beneficiary of appropriate evidence of
withholding. In the case of exercise of an Option under the Option Plan or
payment in shares of Common Stock under the Stock Plan, the Participant may
request the Company to accept payment of any related withholding taxes in the
form of shares of Common Stock valued at Fair Market Value on the trading day
immediately prior to the related exercise of the Option or payment in shares of
Common Stock, as the case may be.
14
9.3 Payment to Beneficiary, Exercise of Option by Beneficiary.
Upon the death of a Stock Plan Participant, the Stock Plan Account of the
deceased Stock Plan Participant shall be paid to the Beneficiary in a lump sum;
provided, however, that in their sole discretion, the Committee or the
Administrator may elect to have payment of the Stock Plan Account that is not
subject to Code Section 409A occur in the same manner as it would have been paid
to the Stock Plan Participant. Upon the death of an Option Plan Participant, the
Beneficiary may exercise any Option to the extent exercisable on the date of
death.
9.4 Redesignation of Beneficiary.
Amendments which serve only to change the Beneficiary designation shall be
permitted at any time and as often as necessary.
ARTICLE 10
ADMINISTRATION
10.1 Appointment of Committee and Administrator
The Board of Directors shall appoint a Stock Plan Committee and an Option
Plan Committee (which may be the same Committee), each consisting of not less
than two persons, to administer and interpret the Plan. Members of a Committee
shall hold office at the pleasure of the Board of Directors and may be dismissed
at any time with or without cause.
The Board of Directors shall also designate one or more officers or
employees of the Company to be the Administrator to have the primary
administrative responsibility with respect to the Stock Plan and the Option
Plan, in coordination with and under the direction of the Committee.
10.2 Powers of the Administrator and the Committee.
The Stock Plan and Option Plan Committees and the Administrator shall
together administer the Plan. The Committees shall not, under any circumstances,
have authority to select those Directors who will be eligible to participate in
the Plan or to make decisions concerning the timing, pricing or amount of any
benefit, Plan Unit, share of Common Stock or Option under the Plan. All such
matters are determined solely by the provisions of the Plan. The Committees
shall interpret or supplement the provisions of the Plan where desirable or
necessary and may resolve ambiguities or omissions or adopt procedures for the
administration of the Plan consistent with the purpose and provisions of the
Plan and any rules adopted by the Committee. Whenever directions, designations,
applications, requests or other notices are to be given by a Participant under
the Plan, they shall be filed with the Administrator.
Except as provided in the next paragraph, all decisions, determinations or
actions of a Committee made or taken pursuant to grants of authority under the
Plan shall be made or taken in the sole discretion of a Committee and shall be
final, conclusive and binding on all persons for all purposes.
15
If the taking of any action or the making of any determination by a
Committee or Administrator shall jeopardize the effectiveness of the deferral of
Fees or of credits in Participants' Stock Plan Accounts or Options for federal
income tax purposes or any exemption of any plan of the Company from Section
16(a) and (b) of the Exchange Act, the Committee or Administrator, as the case
may be, shall be deemed to be without the power to take such action or make such
determination.
10.3 Rendering of Quarterly Plan Accounts.
After the close of each quarter, the Administrator will deliver to each
Participant a statement showing the Plan Units which have been credited to his
or her account as of the end of such quarter and any accumulated deferred Fees.
The accounting shall also indicate the price per unit for all Plan Units
credited since the end of the previous account. The statement will also show the
Options held and/or elected by a Participant and the terms of such Options.
10.4 Both Elections may apply to a Plan Year.
Subject to the limitations contained in each Plan, a Director may elect to
include all or any portion of his Fees to be earned in any future Plan Year in
one or both of the Stock Plan and the Option Plan, but without duplication. If a
Director has delivered an Option Plan Election and a Stock Plan Election for the
same Plan Year or period, the Fees covered by such Elections shall be allocated
as specified in such Elections or in other instructions from the Director. In
the event of a conflict in instructions from a Director, the Administrator shall
advise the Director.
10.5 Advance Notification by Administrator.
On or before May 31 of each year, the Administrator shall notify each
Director that he or she must deliver a written Stock Plan Election to the
Administrator prior to June 30 (or any later cut-off date permitted by the
Administrator) in order to defer Fees during the next calendar year. On or
before November 30 of each year, the Administrator shall notify each Director
that he or she must deliver a written Option Plan Election to the Administrator
prior to December 15 (or any later cut-off date permitted by the Administrator)
in order to elect to receive Options in payment for future services as a
Director in upcoming Plan Years.
ARTICLE 11
MISCELLANEOUS
11.1 Term of Plan.
The Plan shall become effective as provided in Section 11.9 and the Stock
Plan shall continue unless earlier terminated. However, no Plan Units may be
awarded under the Plan (whether on account of Fee deferrals or otherwise) on or
after May 26, 2006.
16
11.2 Shares Subject to the Plan.
As of any date the maximum number of shares of Common Stock which the Plan
may be obligated to deliver pursuant to the Stock Plan and the maximum number of
shares of Common Stock which shall have been purchased by Participants pursuant
to Options and which may be issued pursuant to outstanding Options under the
Option Plan shall not be more than one percent of the total outstanding shares
of Common Stock of the Company as of June 30, 2003, subject to adjustment in the
event of changes in the corporate structure of the Company affecting capital
stock. Any Common Stock transferred by the Company to a Stock Plan Account or to
the Trustee or delivered by the Company upon exercise of an Option hereunder may
consist, in whole or in part, of authorized and unissued shares or treasury
shares as the Company shall determine. Cash transferred to the Trustee may be
used to purchase Common Stock in the open market or from the Company.
In the event that the total number of shares of Common Stock subject to, or
issued pursuant to, the Plan at any one time is in excess of the above-stated
limit, the number need not be reduced if such excess has resulted from a
reduction in the amount of issued and outstanding shares of Common Stock
subsequent to the time that such Options were granted or such shares were
issued. If any shares of Common Stock subject to purchase by a Participant under
an Option under the Plan are not purchased, such shares of Stock shall be deemed
not to have been purchased pursuant to the Plan for purposes of this Section.
Shares of Common Stock received or retained by the Company in payment of the
exercise price of Options or in payment, or in lieu of payment, of withholding
taxes shall not reduce the number of shares deemed to have been purchased
pursuant to the Plan.
11.3 Non-alienation of Benefits.
The rights of a Stock Plan Participant to the payment of deferred
compensation, to funds or shares as provided in this Plan and with respect to
amounts credited to his or her Stock Plan Account and the rights of an Option
Plan Participant with respect to an Option or to purchase shares of Common Stock
upon exercise of an Option are not transferable by a Participant other than by
will or the laws of descent and distribution and shall not be assigned,
transferred, pledged or encumbered or be subject in any manner to alienation or
anticipation, except that an Option Plan Participant and Formula Plan
Participant may make a Family Member Transfer. No Participant may borrow against
his or her Stock Plan Account or Options. No Stock Plan Account or Option shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, whether voluntary or involuntary, including, but not limited to, any
liability which is for alimony or other payments for the support of a spouse or
former spouse, or for any other relative of a Participant, except that an Option
Plan Participant and Formula Plan Participant may make a Family Member Transfer.
Neither a Participant's Stock Plan Account or Option hereunder nor a
Participant's rights to benefits hereunder may be assigned to any other party by
means of a judgment, decree or order (including approval of a property
settlement agreement) relating to the provision of child support, alimony
payments, or marital property rights of a spouse, former spouse, child or other
dependent of the Participant. As contemplated by Revenue Procedure 92-65 under
the Code, a Stock Plan Participant's rights to benefit payments under the Plan
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Participant or the Participant's Beneficiary.
17
This Plan shall not in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any persons entitled to benefits
hereunder.
In the event that, notwithstanding the foregoing, any Participant's
benefits are garnisheed or attached by order of any court, the Administrator may
elect to bring an action for a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid by the
Plan. During the pendency of said action, any benefits that become payable may
be paid into the court as they become payable, to be distributed by a court to
the recipient as it deems proper at the close of said action.
In addition, a Participant or Beneficiary shall have no rights against or
security interest in the assets of the Company or Trust, if any, and shall have
only the Company's unsecured promise to pay benefits. All assets of the Trust,
if any, shall remain subject to the claims of the Company's general creditors.
11.4 Participants' Rights.
Nothing contained in this Plan shall be construed as giving any Participant
the right to be retained as a Director of the Company. Nothing contained in this
Plan shall be construed as limiting, in any way, any right that any party or
parties may have to remove a Participant as a Director of the Company or to
appoint or to elect another individual to replace a Participant as a Director of
the Company. Nothing contained in this Plan shall be construed as giving any
Participant the right to receive any benefit not specifically provided by the
Plan. Any other provision of the Plan notwithstanding, a Stock Plan Participant
shall not have any interest in the amounts credited to his Stock Plan Account
until such Stock Plan Account is distributed in accordance with the provisions
of Article 7, and all deferred Fees, and all earnings, gains and losses with
respect thereto shall remain subject to the claims of the Company's general
creditors in accordance with the provisions of the Stock Plan. With respect to
amounts credited to a Participant's Stock Plan Account, the rights of the Stock
Plan Participant, the Beneficiary of the Participant or any other person
claiming through the Participant under this Stock Plan shall be solely those of
unsecured general creditors of the Company, and the obligations of the Company
hereunder shall be purely contractual. Such benefits shall be paid from the
general assets of the Company. As contemplated by Revenue Procedure 92-65 under
the Code, Participants shall have the status of general unsecured creditors of
the Company and each Plan, and all rights thereunder, shall constitute a mere
promise of the Company to make benefit payments in the future.
11.5 Adjustments in Event of Change in Common Stock.
Subject to the provisions of Sections 6.1 and 7.3, in the event of any
stock dividend, stock split, recapitalization, or reclassification of shares of
Common Stock, merger or consolidation of the Company or sale by the Company of
all or a portion of its assets, or tender offer for its securities, or other
event which could distort the implementation of the Plan or the realization of
its objectives, the Administrator shall make such appropriate adjustments in the
number and kind of securities which a Plan Unit will represent or which may be
paid out under the Plan, and in the number of shares of Common Stock or other
securities or number and kind of securities, and the purchase price therefor,
for which an Option may be exercisable or in terms, conditions or restrictions
on securities as the Administrator deems equitable.
18
In the event of a stock split or stock dividend, the number of shares
purchasable upon exercise of an Option shall be increased to the new number of
shares which result from the shares covered by the Option immediately before the
split or dividend. The purchase price per share shall be reduced proportionately
and the total purchase price will remain the same. In the case of a distribution
in property other than cash the number of shares covered shall be increased to
reflect, in shares valued at the then-current Fair Market Value, the fair value
of the distribution.
All events occurring between the Effective Date of the Option and its
exercise shall result in an adjustment to the Option terms.
11.6 Amendments; Other.
The Board or the Committee may amend the Plan to the extent necessary or
appropriate to effect compliance with Rule 16b-3 in order to continue or provide
an exemption from Section 16(a) and (b) of the Exchange Act for either Plan or
any other equity plan of the Company, and the Administrator may change the
cut-off dates for Elections or the dates of effectiveness of transactions or
other events under the Plan to the same end; provided that no such amendments or
change shall materially increase the benefits to or adversely affect the rights
of the Participants.
In addition, the Board may amend the Plan in any other manner, provided,
however, that no amendment shall adversely and materially affect the rights of a
Participant, taken as a whole, to amounts previously credited to his or her
Stock Plan Account or to Options which have been granted unless such amendment
is required by Rule 16b-3 in order to continue or provide an exemption from
Section 16(b) of the Exchange Act for either the Plan or any other equity plan
of the Company, or for the deferral of Directors' Fees until the year of payout
or exercise of Options under the Plan for Federal income tax purposes.
Amendments may not be made more frequently than permitted by Rule 16b-3. No
amendment shall require shareholder approval unless required under Rule 16b-3.
If shareholders' approval is necessary or desirable for the continued validity
of the Plan or if the failure to obtain such approval would adversely affect the
compliance of the Plan with Rule 16b-3, no such amendment shall become effective
unless approved by affirmative vote of the Company's shareholders.
Transactions under each Plan are intended to comply with applicable
conditions of Rule 16b-3, except that a purchase under the Option Plan may be
deemed to occur on an Effective Date. To the extent any provision of each Plan
intended to comply with applicable law, or action by the Administrator, fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
declared advisable by the Administrator.
19
11.7 Notices.
All elections, designations, requests, notices, instructions and other
communications from a Director, Participant, Beneficiary or other person to the
Administrator, required or permitted under the Plan, shall be in such form as is
prescribed from time to time by the Administrator and shall be mailed by first
class mail, delivered by facsimile or otherwise delivered to such location as
shall be specified by the Administrator.
11.8 Binding Effect.
The terms of the Plan shall be binding upon the Company and its successors
and assigns.
11.9 Effective Date of Plan.
The Plan shall be effective as of June 28, 1994, subject to approval by the
shareholders of the Company. All deferrals or credits to a Stock Plan Account,
and all Options, made prior to such shareholder approval shall be contingent on
such approval. The existing Citizens Utilities Company Deferred Compensation
Plan for Directors shall continue to be available for compensation deferrals and
shall not be affected by the adoption of this Plan.
ARTICLE 12
FORMULA PLAN
12.1 Eligibility.
All Directors of the Company shall automatically participate in the Formula
Plan.
12.2 Grant.
Effective with the calendar year 2005, options to purchase common stock of
the Company shall no longer be granted pursuant to the Formula Plan.
ARTICLE 13
COMPLIANCE WITH CODE SECTION 409A
13.1 Specified Employees.
With respect to Stock Plan Participants who are "specified employees" (with
such status determined by the Company in accordance with rules established by
the Company in writing in advance of the "specified employee identification
date" that relates to the date of Participant's Separation from Service or, if
later, by December 31, 2008, or in the absence of such rules established by the
Company, under the default rules for identifying specified employees under Code
Section 409A), a distribution due to Separation from Service may not be made
before the date that is six months after the date of Separation from Service
(or, if earlier, the date of death of the Stock Plan Participant), except as may
be otherwise permitted pursuant to Code Section 409A. To the extent that a Stock
Plan Participant is subject to this section, the Stock Plan Participant shall be
paid, during the seventh month following Separation from Service, the aggregate
amount of payment he would have received but for the application of this
section.
20
13.2 In General.
The Plan is intended to be treated as an unfunded deferred compensation
plan under the Code and is intended to comply in form and operation with the
requirements of Code Section 409A. It is the intention of the Company that the
amounts deferred pursuant to this Plan shall not be included in the gross income
of the Participants or their Beneficiaries until such time as the deferred
amounts are distributed from the Plan. At all times, this Plan shall be
interpreted and operated (i) in accordance with the requirements of Section
409A, unless an exemption from Section 409A is available and applicable, and
(ii) to preserve the grandfathered status of any deferrals under the Plan to the
fullest possible extent. To the extent there is a conflict between the
provisions of the Plan relating to compliance with Section 409A and the
provisions of any award agreement issued under the Plan, the provisions of the
Plan control. Moreover, any discretionary authority with respect to awards,
which may exist under the terms of the award or the other terms of this Plan,
shall not be applicable to an award that is subject to Section 409A to the
extent such discretionary authority would conflict with Section 409A. In the
event that any award shall be deemed not to comply with Section 409A, then
neither the Company, the Board of Directors, the Committee, the Administrator
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 the 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 protected party.
21