SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<Table>
/ / Preliminary Information Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
/X/ Definitive Information Statement
</Table>
BROADWING COMMUNICATIONS INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
BROADWING COMMUNICATIONS INC. NOTICE OF ACTION BY WRITTEN
1122 Capital of Texas Highway South CONSENT OF SHAREHOLDER
Austin, Texas 78746
- --------------------------------------------------------------------------------
To our Shareholders:
Broadwing Inc. is the holder of all of the outstanding shares of common
stock, $.01 par value, of Broadwing Communications Inc. (the "Company") and has
approved in writing the re-election of Richard G. Ellenberger as a director of
the Company for a one-year term ending in 2003. The re-election of Mr.
Ellenberger as a director shall not become effective until at least 20 days
after the mailing of the enclosed Information Statement.
Your consent is not required and is not being solicited in connection with
this action. Pursuant to Section 228 of the Delaware General Corporation Law,
you are hereby being provided with notice of the approval by less than the
unanimous written consent of the eligible voting shareholders of the Company.
Pursuant to the Securities Exchange Act of 1934, you are hereby being furnished
with an Information Statement relating to this action.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. THE ATTACHED INFORMATION STATEMENT IS BEING SENT TO YOU FOR INFORMATION
PURPOSES ONLY.
By Order of the Board of Directors
Jeffrey C. Smith
Secretary
April 30, 2002
Broadwing Communications Inc.
1122 Capital of Texas Highway South
Austin, Texas 78746
Information Statement Relating to the
Election of Richard G. Ellenberger as a Director
For a One-Year Term Ending in 2003
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Approximate Date of Mailing of this Information Statement is
April 30, 2002
This Information Statement is being furnished by Broadwing Communications
Inc., a Delaware corporation (the "Company"), to the holders of the Company's 12
1/2% Series B Junior Exchangeable Preferred Stock Due 2009, $.01 par value (the
"Preferred Shares"), in connection with the election of Richard G. Ellenberger
as a director of the Company for a one-year term ending in 2003.
The director who receives the greatest number of votes is elected to the
Board of Directors. Broadwing Inc. ("Broadwing") is the holder of all of the
outstanding Common Stock, $.01 par value, of the Company (the "Common Shares")
and has consented in writing to the election of Richard G. Ellenberger as a
director for a one-year term ending in 2003. Broadwing's approval constitutes
over 90% of the votes entitled to be cast on the election of Mr. Ellenberger as
a director. Mr. Ellenberger has served as the sole director of the Company since
November 9, 1999.
Accordingly, all corporate actions necessary to elect Mr. Ellenberger as a
director for a one-year term ending in 2003 have been taken. Pursuant to the
regulations promulgated under the Securities Exchange Act of 1934, the
re-election of Mr. Ellenberger as a director shall not become effective until at
least 20 days after the Company has mailed this Information Statement to the
holders of the Preferred Shares.
The Company has asked brokers and other custodians and fiduciaries to
forward this Information Statement to the beneficial owners of the Preferred
Shares held of record by such persons. The Company will reimburse such persons
for out-of-pocket expenses incurred in forwarding such materials.
The executive offices of the Company are located at 1122 Capital of Texas
Highway South, Austin, Texas 78746. All holders of record of the Preferred
Shares at the close of business on March 5, 2002 will receive this Information
Statement.
VOTING SECURITIES
The Company's Board of Directors has fixed the close of business on March
5, 2002, as the record date (the "Record Date") for the determination of
shareholders entitled to vote. As of the Record Date, 500,000 Common Shares and
395,120 Preferred Shares were entitled to vote. The Company's parent, Broadwing
Inc. ("Broadwing") owns 100% of the Common Shares and is entitled to one vote
for each Common Share. Preferred shareholders are entitled to one-tenth of one
vote for each Preferred Share owned on the Record Date. The Preferred Shares
vote with the Common Shares as one class.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is not aware of any directors or officers that own any equity
securities of the Company. The Company has only limited information concerning
the beneficial ownership of the Preferred Shares because substantially all of
the Preferred Shares are registered in the name of nominees.
The following table sets forth certain information as of the record date
regarding the only shareholder of the Company known by the Company to be the
beneficial owner of more than 5% of any class of the Company's voting
securities:
Amount and
Nature of Percent
Title of Class Name and Address of Ownership of Class
-------------- ------------------- --------- --------
Beneficial Owner
-----
Common Shares Broadwing Inc. 500,000 100%
201 East Fourth Street
P.O. Box 2301
Cincinnati, Ohio 45201
BOARD OF DIRECTORS
GENERAL INFORMATION
The Board of Directors of the Company (the "Board") is responsible for
establishing broad corporate policies and for the overall performance of the
Company. On November 9, 1999, Mr. Ellenberger became the sole member of the
Board. As the Chief Executive Officer of the Company, Mr. Ellenberger is
involved in day-to-day operating details and is also kept informed of the
Company's business by various operating and financial reports and documents.
Since the Company has one director, the Board does not ordinarily hold
official meetings. The sole director takes action by written consent in lieu of
meeting whenever needed. The Company does not have any Board committees.
In 2001, the Board did not hold any meetings.
2
COMPENSATION OF DIRECTORS
Mr. Ellenberger does not receive any separate compensation for serving on
the Board of the Company.
SHARE OWNERSHIP OF DIRECTORS AND OFFICERS
The Company is not aware of any directors or named executive officers that
own any equity securities of the Company. The following table sets forth the
beneficial ownership of common shares of Broadwing as of March 5, 2002 by each
director and each executive officer named in the Summary Compensation Table on
page 7 and by all directors and officers of the Company as a group.
Broadwing Common
Shares Beneficially
Owned as of
March 5, 2002 Percent of Broadwing Common Shares
------------- ----------------------------------
Richard G. Ellenberger (a) 1,043,970 .48
Kevin W. Mooney (a) (b) 287,597 .13
Richard S. Pontin (a) 295,810 .14
Jeffrey C. Smith (a)(c) 396,995 .18
Michael R. Jones (a) (d) 128,265 .06
Maxine L. Moreau (a) 151,243 .07
All directors and officers as a group 2,516,268 1.15
(consisting of 9 persons, including
those named above)
- -----------
(a) Includes Broadwing Common Shares subject to outstanding options which
are exercisable by such individuals within 60 days. The following
options are included in the totals: 868,250 Broadwing Common Shares
for Mr. Ellenberger; 212,700 Broadwing Common Shares for Mr. Mooney;
236,800 Broadwing Common Shares for Mr. Pontin; 148,350 Broadwing
Common Shares for Ms. Moreau; 127,692 Broadwing Common Shares for Mr.
Jones; and 366,647 Broadwing Common Shares for Mr. Smith.
(b) Includes 210 Broadwing Common Shares held directly by Mr. Mooney or by
a person with whom Mr. Mooney has a duty of trust or confidence such
as a spouse, parents, children or siblings, but as to which Broadwing
Common Shares Mr. Mooney disclaims beneficial ownership.
(c) Includes 4,400 Broadwing Common Shares held directly by Mr. Smith or
by a person with whom Mr. Smith has a duty of trust or confidence such
as a spouse, parents, children or siblings, but as to which Broadwing
Common Shares Mr. Smith disclaims beneficial ownership.
3
(d) Includes 173 Broadwing Common Shares held directly by Mr. Jones or by
a person with whom Mr. Jones has a duty of trust or confidence such as
a spouse, parents, children or siblings, but as to which Broadwing
Common Shares Mr. Jones disclaims beneficial ownership.
ELECTION OF DIRECTORS
The Board of the Company presently consists of one director, Richard G.
Ellenberger, Chief Executive Officer of the Company, and Chairman of the Board
and Chief Executive Officer of Broadwing. The director is elected for a one-year
term. The Board has nominated Mr. Ellenberger, who is an incumbent director, as
a director, to serve until his successor is elected and qualified. Broadwing has
approved the election of Mr. Ellenberger as a director for a one-year term
ending in 2003 and until his successor is duly elected and qualified.
For Mr. Ellenberger, there follows a brief listing of his principal
occupation during at least the past five years, other major affiliations and his
age on the date of this Information Statement.
DIRECTOR
Mr. Ellenberger is currently Chairman and CEO of Broadwing and has been
President and Chief Executive Officer of the Company since November 9,
1999; Chief Operating Officer of Broadwing Inc. since July 1, 1998;
President and Chief Executive Officer of Cincinnati Bell Telephone Company
from 1997-1998. He served as Chief Executive Officer of XLConnect from
1996-1997. He served as President, Business Services of MCI
Telecommunications, from 1995-1996; Senior Vice President, Worldwide Sales
of MCI Telecommunications, 1994-1995; Senior Vice President, Branch
Operations of MCI Telecommunications, 1993-1994; and Vice President,
Southeast Region of MCI Telecommunications, 1992-1993. Age 49.
4
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The Company currently does not have a compensation committee. Mr.
Ellenberger, the sole director of the Company, is responsible for administering
executive compensation policies for the officers of the Company, other than for
the named executive officers who are also officers of Broadwing Inc. The
Broadwing Compensation Committee administers the compensation of Messrs.
Ellenberger, Mooney and Smith. In 2001, Broadwing paid the compensation of
Messrs. Ellenberger, Mooney and Smith, and the Company paid the compensation of
Mr. Pontin, Ms. Moreau and Mr. Jones.
COMPENSATION PHILOSOPHY
The Company's executive compensation program consists of three elements:
base salary, annual incentive compensation and long term incentive compensation
and targets each executive's total direct compensation to be competitive with
the revenue adjusted median of the marketplace, using information from general
industry, telecommunications and high-technology surveys conducted by outside
consultants.
BASE SALARIES. Base salaries have been established at ranges that are
comparable to similar positions at other companies based upon the Company's
market data. The Company intends to adjust salaries based upon individual
performance and upon the results of the Company's market data. The salaries of
the named executive officers appear in the "Summary Compensation Table."
ANNUAL INCENTIVES. The annual incentives of the named executive officers,
other than Ms. Moreau and Mr. Jones, were determined by the Broadwing
Compensation Committee. The annual incentives of Ms. Moreau and Mr. Jones were
determined by the Company. The annual bonuses of the named executive officers
appear in the "Summary Compensation Table."
LONG TERM INCENTIVES. The long term incentives of the named executive
officers of the Company include stock options, restricted stock and performance
unit awards under Broadwing's benefit plans. The stock option grants to the
named executive officers are shown in the "Grants of Stock Options" table.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. In 2001, Mr. Ellenberger served in
the capacity of Chief Executive Officer of the Company. He has served as the
President and Chief Executive Officer of Broadwing since March 1, 1999. Mr.
Ellenberger is compensated by Broadwing as set forth in the "Summary
Compensation Table."
5
COMPENSATION LIMITATION. Section 162(m) of the Internal Revenue Code (the
"Code") generally limits the available deduction to the Company for compensation
paid to any of the Company's named executives to $1,000,000, except for
performance-based compensation that meets certain technical requirements. Mr.
Ellenberger and the Broadwing Compensation Committee desire to maximize the
amount of compensation expense that is deductible by the Company when it is
appropriate and in the best interests of the Company and its shareholders.
However, compensation decisions will continue to be based primarily on the
extent to which performance goals have been achieved and on the effectiveness of
each type of compensation for incenting results.
Sole Director:
Richard G. Ellenberger
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company currently does not have a compensation committee. Mr.
Ellenberger, the Chief Executive Officer of the Company, is also the sole
director of the Company. During 2001, Mr. Ellenberger, in his capacity as the
sole director of the Company, made decisions concerning executive officer
compensation, other than for Messrs. Mooney and Smith. During 2001, Mr. Pontin,
the President and Chief Operating Officer of the Company, made decisions
concerning Ms. Moreau's and Mr. Jones' compensation.
6
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
The following table shows the compensation of the Chief Executive Officer
and the other four most highly compensated executive officers of the Company or
any of its subsidiaries (plus Mr. Pontin who separated from employment in 2001)
for services to the Company during fiscal year 2001, as well as their
compensation for each of the fiscal years ending December 31, 2000 and December
31, 1999. Mr. Ellenberger served as a director of the Company but received no
separate compensation in that capacity. All compensation for Messrs.
Ellenberger, Mooney and Smith is paid by Broadwing and not the Company. A
portion of Broadwing's expenses are passed through to the Company as part of an
overall management fee charged by Broadwing.
- ------------------------- -------------------------------------- --------------------------------------- --------------
LONG-TERM COMPENSATION
---------------------------------------
AWARDS PAYOUTS
--------------------------- -----------
ANNUAL COMPENSATION RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL YEAR $ $ $ ($) (n) (#) ($) ($) (a)
POSITION
- ------------------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
Richard G. 2001 $802,885 $675,000 (b) $ 0 1,000,000 $322,189 $ 6,800
Ellenberger 2000 $700,000 $610,000 (b) $ 800,000(c) 98,100 $ 0 $ 6,832
President and 1999 $550,000 $576,000 (b) $5,025,000(d) 2,028,000 $ 0 $ 0
Chief Executive
Officer
- ------------------ ------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
Kevin W. Mooney 2001 $415,385 $225,000 (b) $ 0 750,000 $89,136 $6,800
Chief Operating 2000 $320,000 $320,000 (b) $ 410,000(e) 20,000 $ 0 $17,631
Officer 1999 $226,640 $240,000 (b) $ 837,500(f) 815,700 $ 0 $6,400
- ------------------ ------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
Richard S. Pontin 2001 $400,000(g) $ 350,000 (b) $ 0 80,000 $ 0 $27,217
President and 2000 $300,000 $350,000 (b) $ 400,000(h) 25,000 $ 0 $17,246
Chief Operating 1999 $190,320 $208,000 (b) $1,190,375(i) 669,900 $ 0 $ 1,820
Officer-
- ------------------ ------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
Jeffrey C. Smith 2001 $277,885 $150,000 (b) $ 0 400,000(j) $ 0 $14,836
Chief Human 2000 $222,115 $183,000 (b) $ 275,000(k) 20,000 $ 0 $6,800
Resources 1999 $207,904 $106,083 (b) $ 0 100,400 $ 0 $ 6,200
Officer, General
Counsel and
Secretary
- ------------------ ------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
Maxine L. Moreau 2001 $221,923 $189,750 (b) $0 75,000 $ 0 $6,800
Chief Services 2000 $199,602 $133,200 (b) $200,000(l) 20,000 $ 0 $6,800
Officer 1999 $189,652 $107,666 (b) $ 0 159,468 $ 0 $6,200
- ------------------ ------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
Michael R. Jones 2001 $227,308 $139,699 (b) $ 0 140,000 $ 0 $6,800
Chief Technology 2000 $181,086 $181,086 (b) $220,000(m) 122,450 $ 0 $6,800
Officer 1999 $128,914 $128,914 (b) $ 0 85,304 $ 0 $ 6,342
- ------------------ ------ ------------ ---------- -------------- ------------- ------------- ----------- --------------
(a) Represents Broadwing contributions to defined contribution savings
plans and to the Executive Deferred Compensation Plan described on
page 12.
7
(b) Does not include the value of perquisites and other personal benefits
because the total amount of such compensation, if any, does not exceed
the lesser of $50,000 or 10% of the total amount of the annual salary
and bonus for the individual for the year.
(c) Broadwing awarded Mr. Ellenberger a restricted stock grant of 32,570
common shares, with restrictions lapsing for 50% of the shares on
December 13, 2001 and for the remaining 50% on December 13, 2002. The
value of these shares as of December 31, 2001, based on the average of
the high and low price of the common shares on the NYSE on such date,
was $302,412.
(d) Broadwing awarded Mr. Ellenberger a restricted stock grant of 300,000
common shares, with restrictions lapsing for 25% of such shares on
each of December 31, 1999, December 31, 2000 and December 31, 2001,
and December 31, 2002. The value of these shares as of December 31,
2001, based on the average of the high and low price of the common
shares on the NYSE on such date, was $2,785,500.
(e) Broadwing awarded Mr. Mooney a restricted stock grant of 16,693 common
shares, with restrictions lapsing for 50% of the shares on December
13, 2001 and for the remaining 50% on December 13, 2002. The value of
these shares as of December 31, 2001, based on the average of the high
and low price of the common shares on the NYSE on such date, was
$154,945.05.
(f) Broadwing awarded to Mr. Mooney a restricted stock grant of 50,000
common shares, with restrictions lapsing for all of the shares on
December 31, 2002. As of December 31, 2001, the value of the 50,000
shares awarded under each such grant, based on the average of the high
and low price of the common shares on the NYSE on such date, was
$464,250.
(g) $18,461.54 of this amount represents payments made subsequent to
separation of employment.
(h) Broadwing awarded to Mr. Pontin a restricted stock grant of 16,285
common shares, with restrictions lapsing for 50% of the shares on
December 13, 2001 and for the remaining 50% on December 13, 2002. The
value of these shares as of December 31, 2001, based on the average of
the high and low price of the common shares on the NYSE on such date,
was $151,206.23.
(i) Broadwing awarded Mr. Pontin a restricted stock grant of 53,500 common
shares, with restrictions lapsing for 25% of such shares on the first
anniversary of the grant and each anniversary thereafter. The value of
these shares as of December 31, 2001, based on the average of the high
and low price of the common shares on the NYSE, on such date, was
$496,748.
(j)This total represents the annual grant of 315,000 stock options and
85,000 stock appreciation rights ("SARs").
8
(k) Broadwing awarded to Mr. Smith a restricted stock grant of 11,198
common shares, with restrictions lapsing for 50% of the shares on
December 13, 2001 and for the remaining 50% on December 13, 2002. The
value of these shares as of December 31, 2001, based on the average of
the high and low price of the common shares on the NYSE on such date,
was $103,973.43.
(l) Broadwing awarded to Ms. Moreau a restricted stock grant of 8,143
common shares, with restrictions lapsing for 50% of the shares on
December 13, 2001 and for the remaining 50% on December 13, 2002. The
value of these shares as of December 31, 2001, based on the average of
the high and low price of the common shares on the NYSE on such date,
was $75,607.76.
(m) The Company awarded Mr. Jones a restricted stock grant of 8,957 common
shares, with restrictions lapsing for 50% of the shares on December
13, 2001 and for the remaining 50% on December 13, 2002. The value of
these shares as of December 31, 2001, based on the average of the high
and low price of the common shares on the NYSE on such date, was
$83,165.75.
(n) Restricted shares are eligible for dividends, although Broadwing does
not pay dividends on its common shares and does not currently foresee
the payment of dividends in the future.
II. GRANTS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS IN LAST FISCAL YEAR
The Company did not grant stock options to purchase Common Shares in 2001.
The following table shows all individual grants by Broadwing of stock options to
purchase Broadwing Common Shares granted to the named executive officers of the
Company during the fiscal year ended December 31, 2001.
- --------------------------- -------------- ----------------- ------------- ------------ -----------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS/SARS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR OPTION
OPTIONS/SARS EMPLOYEES IN EXERCISE OR TERM(b)
GRANTED FISCAL YEAR BASE PRICE EXPIRATION -----------------------------
NAME (#)(a) ($/SH) DATE 5%($) 10%($)
- --------------------------- -------------- ----------------- ------------- ------------
9
Richard G. Ellenberger 400,000(c) 2.896% $22.8438 1/2/11 $5,746,480 $13,762,480
600,000(c) 4.343% $ 9.6450 12/4/11 $3,639,000 $9,225,000
Kevin W. Mooney 100,000(c) 0.724% $22.8438 1/2/11 $1,436,620 $3,440,620
650,000(c) 4.705% $ 9.6450 12/4/11 $3,942,250 $9,993,750
Richard S. Pontin 80,000(c) 0.579% $22.8438 1/2/11 $1,149,296 $2,752,496
Jeffrey C. Smith 65,000(c) 0.471% $22.8438 1/2/11 $ 933,803 $2,236,403
250,000(c) 1.810% $ 9.6450 12/4/11 $ 1,516,250 $3,843,750
85,000(d) 0.615% $25.4063 9/17/09 N/A N/A
Michael R. Jones 40,000(c) 0.290% $22.8438 1/2/11 $574,648 $ 1,456,248
100,000(c) 0.724% $ 9.6450 12/4/11 $606,500 $ 1,537,500
42,500(d) .3075% $25.4063 9/17/09 N/A N/A
Maxine L. Moreau 40,000(c) .0290% $22.8438 1/2/11 $574,648 $1,456,248
35,000(c) 0.250% $9.645 12/11/11 $212,275 $538,125
85,000(d) 0.615% $25.4063 9/17/09 N/A N/A
- --------------------------- -------------- ----------------- ------------- ------------ ----------------- -----------------
(a) The material terms of the options granted are: grant type: non-incentive;
exercise price: fair market value on grant date; exercise period: generally
exercisable 28% after one year, and 3% per month for the next 24 months
thereafter; term of grant, 10 years; termination: except in case of
retirement, disability, death or change in control of Broadwing, any
unexercisable options are generally cancelled upon termination of
employment
(b) As required by rules of the Securities and Exchange Commission, potential
values stated are based on the prescribed assumption that the common shares
will appreciate in value from the date of the grant to the end of the
option term (ten years from the date of the grant) at annualized rates of
5% and 10% (total appreciation of 62.8% and 159.3%) resulting in values of
approximately $37.21 and $59.25 for all options expiring on January 2,
2011; and $15.71 and $25.02 for all options expiring on December 4, 2011;
$42.9621 and $68.410 for all options expiring on May 7, 2011; and $39.745
and $63.2873 for all options expiring on June 1, 2011. They are not
intended, however, to forecast possible future appreciation, if any, in the
price of the common shares. The total of all stock options granted to
employees, including executive officers, during fiscal 2001 was
approximately 4.8% of the total number of common shares outstanding as of
December 31, 2001. As an alternative to the assumed potential realizable
values stated in the above table, the Securities and Exchange Commission
rules would permit stating the present value of such options at date of
grant. Methods of computing present values suggested by different
authorities can produce significantly different results. Moreover, since
stock options granted by Broadwing are not transferable to persons other
than family members, there are no objective criteria by which any
computation of present value can be verified. Consequently, Broadwing's
management does not believe there is a reliable method of computing the
present value of such stock options for information statement disclosure
purposes.
(c) Options to purchase common shares granted by Broadwing in January 2001 and
December 2001, respectively, as the annual grant.
(d) Broadwing granted SARs with the allowable appreciation capped at $8.625 per
SAR.
10
III. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
There are no outstanding options to purchase Common Shares of the Company.
The following table shows aggregate option exercises for Broadwing Common Shares
in the last fiscal year by each of the named executive officers and fiscal
year-end values of each such officer's unexercised options at December 31, 2001:
- ----------------------------------- ------------------ ------------- ------------------------- -----------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY-END OPTIONS/SARS AT
SHARES ACQUIRED VALUE (#) EXERCISABLE FY-END ($) (A)
NAME ON EXERCISE (#) REALIZED ($) (E)/UNEXERCISABLE (U) EXERCISABLE
(E)/UNEXERCISABLE (U)
- ----------------------------------- ------------------ ------------- ----- ------------------- ----- -----------------
Richard G. Ellenberger 0 $0 (E) 607,475 (E) 0
(U) 2,572,825 (U) 0
Kevin W. Mooney 40,000 $335,298 (E) 139,100 (E) 18,135
(U) 1,435,600 (U) 0
Richard S. Pontin 0 $0 (E) 146,000 (E) 0
(U) 658,900 (U) 0
Jeffrey C. Smith 0 $0 (E) 333,296 (E) 0
(U) 415,400 (U) 0
Maxine L. Moreau 0 $0 (E) 147,150 (E) 0
(U) 189,926 (U) 0
Michael R. Jones 0 $0 (E) 105,680 (E) 0
(U) (U) 0
295,284
- ----------------------------------- ------------------ ------------- ----- ------------------- ----- -----------------
(a) On December 31, 2001, the value of a common share on the NYSE (based on the
average of the high and low price of the common shares on such date) was
$9.285 per share.
IV. LONG TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
None granted.
11
EXECUTIVE DEFERRED COMPENSATION PLAN
The Broadwing Executive Deferred Compensation Plan permits, for any
calendar year, each employee of Broadwing and any subsidiary of Broadwing whose
base pay and targeted bonus for the immediately preceding calendar year was at
least $150,000 (a "key employee") to defer receipt of up to 75% of his or her
base salary, up to 100% of his or her cash bonuses (including annual incentive
awards and cash awards under the Long Term Incentive Plan) and up to 100% of any
Broadwing Common Share awards (not including awards of stock options or
restricted stock) provided him or her under the Long Term Incentive Plan. In
addition, any key employee who has received a restricted stock award under the
Long Term Incentive Plan may generally elect to surrender any of the restricted
shares of such award as long as such surrender is at least six months prior to
the date on which the restrictions applicable to such shares would otherwise
have lapsed. For all key employees who participate in the Broadwing Executive
Deferred Compensation Plan, there is also a Broadwing "match" on the amount of
base salary and cash bonuses deferred under the plan for any calendar year. In
general, to the extent a participating key employee's base salary and cash
bonuses for the applicable year do not exceed a certain annual compensation
limit prescribed by the Code for tax-qualified plans (which limit is $170,000
for 2001 and $200,000 for 2002), the match is 4% of the base salary and cash
bonuses deferred by the employee under the plan. To the extent a participating
key employee's base salary and cash bonuses for the applicable year exceed the
appropriate annual compensation limit, the match is generally equal to the
lesser of 66 2/3 % of the base salary and cash bonuses deferred by the key
employee under the plan or 4% of the key employee's base salary and cash bonuses
for the applicable year that are in excess of such annual compensation limit.
Amounts deferred or surrendered by any participating key employee under the
Broadwing Executive Deferred Compensation Plan and any related Broadwing "match"
are credited to the account of the participant under the plan and are assumed to
be invested in various mutual funds or other investments (including Broadwing
Common Shares) as designated by the participant; except that any restricted
stock that is surrendered under the plan is generally assumed to be invested in
Broadwing Common Shares until at least six months after the date on which the
restrictions applicable to such shares would otherwise have lapsed and that any
Broadwing Common Share awards that are deferred under the plan are assumed to be
invested in Broadwing Common Shares.
The accounts under the Broadwing Executive Deferred Compensation Plan are
not funded, and benefits are paid from the general assets of Broadwing and its
subsidiaries.
Upon the termination of employment of any participant under the Broadwing
Executive Deferred Compensation Plan, the amounts then credited to the
participant's account are generally distributed, as so elected by the
participant, in two to ten annual installments (in cash and/or Broadwing Common
Shares); except that any amounts credited to his or her account under the plan
that are attributable to his or her surrender of restricted stock (not including
amounts that were credited to such account as assumed cash dividends on such
stock) are forfeited if the
12
restricted stock would have been forfeited at the time of the participant's
termination of employment had such stock not been surrendered under the plan. In
addition, as a special rule, in the event of a change in control of Broadwing,
all of the amounts then credited under the plan to a participant's account under
the plan are generally paid in a lump sum on the day after the change in
control.
The 2001 "match" for Messrs. Pontin and Smith and Ms. Moreau under the
Broadwing Executive Deferred Compensation Plan is reflected in the Summary
Compensation Table under the "All Other Compensation" column. Messrs.
Ellenberger, Mooney and Jones did not participate in the Broadwing Executive
Deferred Compensation Plan during 2001.
V. DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
All of the named executive officers of the Company participated during 2001
in the Broadwing Pension Plan (the "Management Pension Plan"), which was
formerly named the Cincinnati Bell Management Pension Plan and is a
tax-qualified defined benefit pension plan. Messrs. Ellenberger and Mooney also
participated in a non-tax-qualified pension plan known as the Cincinnati Bell
Inc. Pension Program (the "Pension Program").
The basic benefit formula under the Management Pension Plan is a cash
balance formula. Under this formula, each participant has an account to which
pension credits are allocated at the end of each year based upon the
participant's attained age and plan compensation for the year (with such plan
compensation being subject to a maximum legal annual compensation limit, which
limit is $170,000 for 2001 and $200,000 for 2002). To the extent that a
participant's plan compensation exceeds the Social Security old age retirement
taxable wage base, additional pension credits are given for such excess
compensation. The following chart shows the annual pension credits which are
given at the ages indicated:
13
- -----------------------------------------------------------------------------------------
ATTAINED AGE PENSION CREDITS
------------ ---------------
- -----------------------------------------------------------------------------------------
Less than 30 years 2.75% of total plan compensation plus 2.75% of excess
compensation for 2001
- -----------------------------------------------------------------------------------------
30 but less than 35 years 3.00% of total plan compensation plus 3.00% of excess
compensation for 2001
- -----------------------------------------------------------------------------------------
35 but less than 40 years 3.50% of total plan compensation plus 3.50% of excess
compensation for 2001
- -----------------------------------------------------------------------------------------
40 but less than 45 years 4.25% of total plan compensation plus 4.25% of excess
compensation for 2001
- -----------------------------------------------------------------------------------------
45 but less than 50 years 5.25% of total plan compensation plus 5.25% of excess
compensation for each of 2000 and 2001
- -----------------------------------------------------------------------------------------
50 but less than 55 years 6.50% of total plan compensation plus 6.50% of excess
compensation for each of 2000 and 2001
- -----------------------------------------------------------------------------------------
55 or more years 8.00% of total plan compensation plus 8.00% of excess
compensation for each of 2000 and 2001
- -----------------------------------------------------------------------------------------
A participant's account under the Management Pension Plan is also generally
credited with assumed interest for each calendar year at a certain interest
rate. Such interest rate is 6.5% per annum for 2002 with respect to a
participant while he or she is still employed by Broadwing or a Broadwing
subsidiary and 3.5% (or 4% if a participant elects out of a pre-retirement death
benefit) for a participant while he or she is not so employed. (In the case of a
participant who was a participant in the Management Pension Plan on December 31,
1993 or who has benefits transferred from other plans to the Management Pension
Plan, the participant's account also was credited with pension credits
equivalent to the participant's accrued benefit on that date or when such
benefits are transferred, as the case may be.)
After retirement or other termination of employment, a participant under
the Management Pension Plan is entitled to elect to receive a benefit under the
plan in the form of a lump sum payment or as an annuity, generally based on the
balance credited to the participant's cash balance account under the plan when
the benefit begins to be paid (but also subject to certain transition or special
benefit formula rules in certain situations).
Under the Pension Program, each current active participant's pension at
retirement, if paid in the form of a single life annuity, generally will be an
amount equal to the difference between 50% of the participant's average monthly
compensation (for the 36-month period that occurs during the 60-month period
preceding retirement that produces the highest compensation amount) and the sum
of the participant's benefits payable under the Management Pension Plan
(including for this purpose amounts which are intended to supplement or be in
lieu of benefits under the Management Pension Plan) and Social Security
benefits. Also, there is a reduction in
14
such pension amount of 2.5% for each year by which the sum of the participant's
years of age and years of service at retirement total less than 75, and no
benefits are payable if the participant terminates employment (other than by
reason of his or her death) prior to attaining age 55 and completing at least 10
years of service credited for the purposes of the plan.
Estimated single life annuity pension amounts under the Management Pension
Plan (plus the Pension Program for Messrs. Ellenberger and Mooney) for each of
the named executive officers prior to deduction for social security benefits are
as follows: $875,000 for Mr. Ellenberger; $387,500 for Mr. Mooney; $166,280 for
Mr. Smith; $159,554 for Ms. Moreau; and $116,472 for Mr. Jones. This assumes
annual compensation for all years subsequent to 2002 will be the same as their
targeted compensation for 2002, and further assuming continuation of employment
and retirement at age 65. Annual pension amounts may be reduced if the named
executive retires prior to age 65.
401(K) PLAN
Broadwing's 401(k) Plan (the "401(k) Plan") is a tax-qualified retirement
plan. During 2001, in general, all employees of the Company who had attained age
20 1/2 were eligible to participate in the Broadwing 401(k) Plan. Participants
were able to make pre-tax contributions to the 401(k) Plan in an amount not to
exceed $10,500 for 2001.
EFFECT OF CHANGE IN CONTROL ON CERTAIN EXECUTIVE COMPENSATION PLANS
Under the Long Term Incentive Plan, in the event of a change in control,
all outstanding stock options will become immediately exercisable, all
restrictions applicable to restricted stock awards will lapse and a pro rata
portion of all accrued incentive awards will be paid in cash. Under the
Executive Deferred Compensation Plan, the present value of all deferred amounts
will be paid in cash in the event of a change in control. The present values of
all accrued unfunded benefits under the Management Pension Plan and the Pension
Program will be funded within five days after a change in control.
15
VI. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Employment Agreement with Mr. Jones
Effective October 11, 2000, the Company entered into an employment
agreement with Mr. Jones which provides for the employment and retention of Mr.
Jones for a one-year term commencing on October 11, 2000. The employment
agreement provides for a minimum base salary of $220,000 per year; a minimum
bonus target of $80,000 per year; a grant of options to purchase 100,000 common
shares with three year vesting plus an amount to be determined each year for
subsequent years.
The employment agreement provides that, if Mr. Jones' employment is
terminated by Employee within one year following a change in control of the
Company, Mr. Jones will receive a lump sum payment equal to one times his annual
base salary and bonus target on the date of termination, plus certain continued
medical, dental, vision and life insurance benefits.
Employment Agreement with Ms. Moreau
Effective January 1, 2000, the Company entered into an employment agreement
with Ms. Moreau containing substantially similar terms to those contained in Mr.
Jones' Employment Agreement except that it provides for a minimum base salary of
$200,000 per year; a minimum bonus target of $100,000 per year; and a grant of
options to purchase 100,000 common shares, plus an amount to be determined each
year for subsequent years.
PERFORMANCE GRAPH
The Performance Graph is not relevant since the Company has not had a class
of common stock registered under Section 12 of the Securities Exchange Act of
1934 since 1999.
OTHER MATTERS
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Officers, directors and greater than 10% shareholders are required by
regulations of the Securities and Exchange Commission to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it, the Company believes that, during the
period commencing January 1, 2001 and ending December 31, 2001, all such persons
complied on a timely basis with any filings required under the filing
requirements of Section 16(a).
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time the Company engages in transactions with its parent
company, Broadwing, and/or Broadwing's other subsidiaries. In particular, these
entities perform certain oversight and management functions for the Company,
including but not limited to general management, payroll processing, cash
management, and benefit plan management. In addition, certain of the executive
officers of the Company are compensated directly by Broadwing. The Company also
engages in commercial transactions with Broadwing subsidiaries in which these
entities sell to third parties services provided by the Company. The Company is
also a party to an intercompany note obligation between itself and Broadwing for
money borrowed from Broadwing. Any of these transactions either individually or
in the aggregate may or do exceed $60,000 in value per annum. All of these
transactions are performed under terms and conditions (including compensation)
that are equivalent to or better than those that the Company could obtain on an
arms-length basis from unaffiliated third parties.
FINANCIAL STATEMENTS AVAILABLE
The 2001 Form 10-K of the Company to shareholders includes the financial
statements for the Company and its subsidiaries. If you would like a copy of the
Company's 2001 Form 10-K as filed with the Securities and Exchange Commission,
please write to Jeffrey C. Smith, Secretary, Broadwing Communications Inc., 201
East Fourth Street, P.O. Box 2301, Cincinnati, Ohio 45201, and the Company will
send you one free of charge.
By Order of the Board of Directors
Jeffrey C. Smith
Secretary
April 30, 2002
17