SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CINCINNATI BELL INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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/ / 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.
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[LOGO]
201 EAST FOURTH STREET
P.O. BOX 2301
CINCINNATI, OHIO 45201
NOTICE OF 1999 ANNUAL MEETING
AND PROXY STATEMENT
- ------------------------------------------------------------
NOTICE OF ANNUAL MEETING
To The Shareholders:
The annual meeting of shareholders of Cincinnati Bell Inc. (the "Company")
will be held in the SPRINGER AUDITORIUM OF MUSIC HALL, 1243 Elm Street,
Cincinnati, Ohio, on Monday, April 26, 1999, at 11:30 A.M. for the following
purposes:
1. To elect three directors (Class III) for three-year terms ending in
2002;
2. To amend Article Four of the Company's Amended Articles of Incorporation
to reduce the par value of common shares to $0.01 and to reduce the
stated capital of the Company;
3. To approve the appointment of PricewaterhouseCoopers LLP as independent
accountants to audit the financial statements of the Company for the year
1999;
4. To act on a shareholder proposal relating to the annual election of all
directors; and
5. To act upon such other matters as may properly come before the meeting.
Shareholders of record at the close of business on February 26, 1999 will be
entitled to vote at the meeting and any adjournment thereof.
The vote of each shareholder is important, whatever the number of shares
held. Whether or not you plan to attend the meeting, please sign and return the
accompanying proxy card promptly in the enclosed envelope. PLEASE NOTE THAT YOUR
VOTE CANNOT BE COUNTED UNLESS YOU SIGN AND RETURN THE PROXY CARD OR ATTEND THE
MEETING AND VOTE BY BALLOT.
Thomas E. Taylor
Secretary
March 24, 1999
PROXY STATEMENT (QUESTIONS & ANSWERS)
QUESTION: WHY HAVE I RECEIVED THIS PROXY STATEMENT?
The Board of Directors has sent this proxy statement, on or about March 24,
1999, to ask for your vote as a shareholder of Cincinnati Bell Inc. (the
"Company") on certain matters to be voted upon at the upcoming annual
shareholders' meeting.
QUESTION: WHEN AND WHERE IS THE UPCOMING ANNUAL SHAREHOLDERS' MEETING?
Date: April 26, 1999
Time: 11:30 a.m.
Place: Springer Auditorium
Music Hall
1243 Elm Street
Cincinnati, Ohio
QUESTION: WHAT AM I VOTING ON?
You will be able to vote on the following four matters and any other matter
that may properly be presented at the meeting:
1. The election of three directors (Class III) for three-year terms ending
in 2002.
2. The amendment to Article Four of the Company's Amended Articles of
Incorporation to reduce the par value of common shares to $0.01 and to
reduce the stated capital of the Company.
3. The approval of the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for 1999.
4. A shareholder proposal.
QUESTION: DO I NEED TO ATTEND THE ANNUAL MEETING IN ORDER TO VOTE?
No. You can vote either in person by ballot at the annual meeting or by
completing and mailing the enclosed proxy card.
QUESTION: WHO IS ENTITLED TO VOTE?
If you owned shares of the Company as of the close of business on February
26, 1999 (the "Record Date"), you are entitled to vote. You are entitled to one
vote for each common share, $1.00 par value (a "Common Share"), you owned on the
Record Date.
QUESTION: HOW DO I VOTE ANY COMMON SHARES HELD IN ANY OF THE COMPANY'S EMPLOYEE
STOCK OWNERSHIP PLAN (ESOP), RETIREMENT SAVINGS PLAN OR SAVINGS AND
SECURITY PLAN AND CREDITED TO MY ACCOUNT UNDER ANY SUCH PLAN?
If you are a participant in any such plans and the accounts are registered
in your name, the proxy will serve as voting instructions to the trustees of
these plans. All of these plans, except the ESOP, provide that the trustee shall
vote plan shares represented by proxy cards that are not signed and returned in
the same proportion as shares for which signed cards are returned. Common Shares
in the ESOP are not voted unless the proxy card is signed and returned.
QUESTION: HOW MANY COMMON SHARES ARE ENTITLED TO VOTE?
As of the Record Date, 137,357,138 Common Shares were entitled to vote at
the annual meeting.
QUESTION: WHAT CONSTITUTES A QUORUM?
A "quorum" refers to the number of Common Shares that must be in attendance
at a meeting to lawfully conduct business. Pursuant to the Company's Amended
Regulations, at all meetings of shareholders, a quorum consists of the holders
of a majority of the Common Shares issued and outstanding and entitled to vote
at such meeting, present in person or by proxy. However, no action required by
law, the
Company's Amended Articles of Incorporation or the Company's Amended Regulations
to be authorized or taken by a designated proportion of the Common Shares may be
authorized or taken by a lesser proportion. An abstention from voting and Common
Shares held by custodians that do not have the discretionary authority to vote
on certain matters ("broker non-votes") will be included in determining the
presence of a quorum.
QUESTION: WHAT HAPPENS IF I SIGN AND RETURN MY PROXY CARD BUT DO NOT MARK MY
VOTE?
If you do not provide different voting instructions, your Common Shares will
be voted as follows:
1. FOR the election of the Class III directors;
2. FOR the amendment to Article Four of the Company's Amended Articles
of Incorporation to reduce the par value on the Common Shares to
$0.01 and to reduce the stated capital of the Company;
3. FOR the approval of PricewaterhouseCoopers LLP as independent
accountants;
4. AGAINST the shareholder proposal; and
5. Regarding any other matter to properly come before the meeting, in
accordance with the judgments of the persons voting the proxies.
QUESTION: CAN I CHANGE MY VOTE AFTER I HAVE RETURNED MY PROXY CARD?
Yes. You have the power to revoke your proxy and change your vote in one of
the following ways:
- Send your new proxy card to Thomas E. Taylor, Secretary of the Company,
at Cincinnati Bell Inc., 201 East Fourth Street, P.O. Box 2301,
Cincinnati, Ohio 45201.
- Notify the Company in writing that you want to revoke your earlier
proxy. This written notice should be sent to Thomas E. Taylor,
Secretary of the Company, Cincinnati Bell Inc., 201 East Fourth Street,
P.O. Box 2301, Cincinnati, Ohio 45201.
- Attend the annual meeting, give notice of your proxy revocation in open
meeting and vote in person.
QUESTION: WHO WILL COUNT THE VOTES?
The Fifth-Third Bank, our transfer agent and registrar, will count the votes
and act as inspector of the elections.
QUESTION: WHAT PERCENTAGE OF THE COMPANY'S VOTES DO DIRECTORS AND OFFICERS OWN?
Approximately 1.75% of our vote as of the Record Date is owned by directors
and officers. See page 6 for more details.
2
QUESTION: DO ANY SHAREHOLDERS OWN MORE THAN 5% OF THE COMPANY?
As of the Record Date, the only shareholder of the Company holding more than
5% of the outstanding Common Shares was:
AMOUNT
AND
NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER (a) OWNERSHIP CLASS
- --------------- ------------------------------------ --------- -----------
Common Shares The Western and Southern 12,905,392(b) 9.40%
Life Insurance Company
("Western Southern")
400 Broadway
Cincinnati, Ohio 45202
- ------------------------
(a) The Securities and Exchange Commission has defined "beneficial owner" of a
security to include any person who has or shares voting power or investment
power with respect to any such security or has the right to acquire
beneficial ownership of any such security within 60 days.
(b) Western Southern has advised the Company that 8,000,000 of these Common
Shares may be transferred, at its option, to Salomon Inc upon the maturity
of Salomon's 6 1/4% Exchangeable Notes due February 1, 2001.
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. Although they are not involved in day-to-day operating details,
Directors keep informed of the Company's business by various reports and
documents sent to them. The Chairman, Chief Executive Officer and other officers
also present operating and financial reports at Board and Committee meetings.
The Board schedules meetings approximately eight times a year. In addition,
the Board holds an organizational meeting following the annual meeting of
shareholders. The Board holds other meetings whenever needed.
In 1998, the Board of the Company held 20 meetings. Each director attended
at least 81% of the total number of the Board meetings and Committee meetings of
which he or she was a member.
3
COMMITTEES OF THE BOARD
The Board establishes committees to help it in the discharge of its
responsibilities.
During 1998, the following seven Committees of the Board existed:
- AUDIT COMMITTEE: This Committee consisted of six persons, none of whom was
an officer. The Committee reviewed the Company's auditing, accounting,
financial reporting and internal control functions and recommended the
appointment of the independent auditors, subject to approval by the
Company's shareholders. During its review, the Committee met with the
independent accountants and with appropriate Company financial personnel
and internal auditors. Both the independent accountants and the internal
auditors had unrestricted access to the Committee. The Committee met four
times in 1998.
- COMPENSATION COMMITTEE: This Committee consisted of four persons, none of
whom was an officer. The Committee reviewed the Company's executive
compensation and employee benefit plans and programs, including their
establishment, modification and administration. The Committee met six
times in 1998.
- CORPORATE RESPONSIBILITY COMMITTEE: This Committee consisted of four
persons, none of whom was an officer. The Committee reviewed the Company's
policies and conduct as a corporate citizen. The Committee met four times
in 1998.
- CORPORATE STRATEGY COMMITTEE: This Committee consisted of six persons, one
of whom was an officer. The Committee met from time to time to discuss the
Company's corporate strategies and plans. The Committee met two times in
1998.
- EXECUTIVE COMMITTEE: This Committee consisted of six persons, three of
whom were officers. The Committee acted on behalf of the Board in certain
matters when necessary during the intervals between Board meetings. The
Committee met three times in 1998.
- FINANCE COMMITTEE: This Committee consisted of six persons, none of whom
was an officer. The Committee reviewed the Company's financial affairs,
including its capital structure, its borrowing limits, its financing of
corporate acquisitions, its dividend policy and the performance of its
benefit plans. The Committee met five times in 1998.
- GOVERNANCE AND NOMINATING COMMITTEE: This Committee consisted of seven
persons, one of whom was an officer. The Committee reviewed the
performance of the Company's senior management, recommended nominees for
the election of directors and officers, monitored the performance of the
other Board committees and suggested shareholder concerns to the Board.
The Committee met two times in 1998.
In connection with the completion of the December 31, 1998 spin-off of
Convergys Corporation (the "Convergys Spin-Off") and the resignations of seven
directors, the current Board reorganized the seven Committees into three
Committees. The Board disbanded the Corporate Responsibility Committee, the
Corporate Strategy Committee and the Governance and Nominating Committee, and
the Board will undertake the responsibilities of those committees. The Board
combined the Audit Committee and the Finance Committee into a single committee.
As a result, the current committees of the Board are listed below.
- AUDIT AND FINANCE COMMITTEE: This Committee consists of four persons, none
of whom is an officer. The Committee reviews the Company's financial
affairs, including its capital structure, borrowing limits, financing of
corporate acquisitions, dividend policy and the performance of its benefit
plans. The Committee also reviews the Company's auditing, accounting,
financial reporting and internal control functions and recommends the
appointment of the independent auditors, subject to approval by the
Company's shareholders. During its audit review, the Committee meets with
the independent accountants and with appropriate Company financial
personnel and internal auditors.
4
Both the independent accountants and the internal auditors have
unrestricted access to the Committee. The Committee currently consists of
William A. Friedlander (Chairman), Phillip R. Cox, Karen M. Hoguet and
Mary D. Nelson.
- COMPENSATION COMMITTEE: This Committee consists of three persons, none of
whom is an officer. The Committee reviews the Company's executive
compensation and employee benefit plans and programs, including their
establishment, modification and administration. The Committee currently
consists of David B. Sharrock (Chairman), Phillip R. Cox and Robert P.
Hummel.
- EXECUTIVE COMMITTEE: This Committee consists of three persons, one of whom
is an officer. The Committee acts on behalf of the Board in certain
matters when necessary during the intervals between Board meetings. The
Committee currently consists of James D. Kiggen (Chairman), William A.
Friedlander and John T. LaMacchia.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no additional
compensation for serving on the Board or its Committees other than their normal
salary.
Non-employee directors receive a $16,000 annual retainer and $1,000 for each
Board and Committee meeting attended. Also, in 1998 the chairpersons of the
Audit Committee, the Compensation Committee, the Corporate Responsibility
Committee and the Finance Committee were paid an additional $3,000 annually. In
1999 the chairpersons of the Compensation Committee and the Audit and Finance
Committee will be paid an additional $3,000 annually.
In lieu of the annual retainer and individual meeting fees, Mr. Mechem, as
former Chairman of the Board, received for 1998 a fee of $300,000 and
supplemental medical insurance, the cost of which was approximately $1,941.
In lieu of the annual retainer and individual meeting fees, Mr. Kiggen, as
Chairman of the Board, will receive for 1999 a fee of $200,000 and supplemental
medical insurance, the cost of which is approximately $1,941.
The Cincinnati Bell Inc. Deferred Compensation Plan for Outside Directors
(the "Directors Deferred Compensation Plan") allows non-employee directors to
choose to defer receipt of all or a part of their fees and retainers. All
deferred amounts earn interest, compounded quarterly, at a rate equal to the
average interest rate for ten-year United States Treasury notes for the previous
quarter. Each non-employee director on January 1, 1998 had his or her share
account credited with an amount equivalent in value to 500 Common Shares and
each non-employee director on the first business day of 1999 or any later
calendar year will have his or her share account credited with an amount
equivalent to the value on such day of 1,163 Common Shares (the product of
multiplying 500 Common Shares by 2.326, which adjusts such value for the
Convergys Spin-Off). In addition, in conjunction with the Convergys Spin-Off,
the Company credited (a) as of January 4, 1999 an amount equivalent in value to
6,784 Common Shares (or in the case of the Chairman of the Board 13,568 Common
Shares) to a non-employee director's share account, which amount shall be
forfeited and not paid if such director fails to remain a director continuously
from January 4, 1999 through January 3, 2003 for any reason other than death or
retirement; and (b) an amount equivalent in value to a number of Convergys
common shares equal to the number of Common Shares which are assumed to be in
such account as of December 31, 1998. All amounts credited to a director's share
account will be invested and reinvested in Common Shares. If the director leaves
the Board (other than by reason of death or a change in control) prior to
completing at least five years service as a non-employee director, all amounts
credited to that director's share account are subject to forfeiture. Otherwise,
a director's account under the Directors Deferred Compensation Plan are paid out
in cash, either in one lump sum or up to ten annual installments, when the
director leaves the Board.
The Company grants non-employee directors stock options to purchase Common
Shares pursuant to the 1997 Stock Option Plan for Non-Employee Directors (the
"Directors Stock Option Plan"). At the time of initial election or appointment
to the Board, each non-employee director is granted an option to
5
purchase 25,000 Common Shares. The Company grants options for an additional
9,000 Common Shares to each non-employee director at each subsequent annual
meeting, if such director continues in office subsequent to that year's annual
meeting of shareholders. (The foregoing Common Share numbers reflect adjustments
made pursuant to the plan by reason of the Convergys Spin-Off). The exercise
price for each option granted is 100% of the fair market value of the Common
Shares on the date of grant. In addition, options to purchase Convergys Common
Shares ("Spin-Off Options") were granted to all holders of previously granted
Company stock options, including the directors and named executive officers.
The Company also provides non-employee directors with certain
telecommunications services. The cost of such services was approximately $686
per non-employee director in 1998.
SHARE OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth the beneficial ownership of Common Shares as
of February 26, 1999 by each director and named executive officer and by all
directors and officers of the Company as a group. As of that date, all directors
and officers of the Company as a group owned beneficially 2,405,109 Common
Shares or 1.75% of the Common Shares outstanding.
SHARES
BENEFICIALLY
OWNED AS OF PERCENT OF
FEB. 26, 1999 (a) COMMON SHARES
----------------- ---------------------
Phillip R. Cox........................................................... 32,638 0.02%
Richard G. Ellenberger................................................... 338,550 0.25%
William A. Friedlander (b)(c)............................................ 228,292 0.17%
Karen M. Hoguet.......................................................... 25,000 0.02%
Robert P. Hummel, M.D. (b)............................................... 43,002 0.03%
James D. Kiggen (b)...................................................... 77,916 0.06%
John T. LaMacchia........................................................ 1,439,647 1.05%
Mary D. Nelson........................................................... 32,000 0.02%
David B. Sharrock........................................................ 30,802 0.02%
William D. Baskett III (d)............................................... 162,357 0.12%
Brian C. Henry (d)....................................................... 33,035 0.02%
Robert J. Marino (d)..................................................... 70,944 0.05%
James F. Orr (d)......................................................... 119,697 0.09%
All directors and officers as a group (consisting of 11 persons,
including those named above) (b)(e).................................... 2,405,109 1.75%
- ------------------------
(a) Includes Common Shares subject to outstanding options under the 1997
Cincinnati Bell Long Term Incentive Plan and the Directors Stock Option Plan
which are exercisable by such individuals within 60 days. The following
options are included in the totals: 1,198,900 Common Shares for Mr.
LaMacchia; 160,250 for Mr. Baskett; 84,200 for Mr. Orr; 70,300 for Mr.
Marino; 36,000 Common Shares for each of Messrs. Friedlander, Hummel and
Kiggen; 30,600 Common Shares for Mr. Cox; 28,000 Common Shares for Mrs.
Nelson; 25,000 Common Shares for Mrs. Hoguet; 24,000 Common Shares for Mr.
Sharrock; 13,550 Common Shares for Mr. Ellenberger.
(b) Includes Common Shares held directly by members of the director's or
officer's family who have the same home as the director or officer but as to
which the director or officer disclaims beneficial ownership: 8,200 for Mr.
Friedlander; 3,802 for Dr. Hummel; 3,597 for Mr. Kiggen and 200 for other
officers.
(c) Includes 138,400 Common Shares as to which Mr. Friedlander disclaims
beneficial ownership. Mr. Friedlander has sole investment power as to these
138,400 Common Shares.
(d) As of December 31, 1998 (March 1, 1998, in the case of Mr. Henry) and in
conjunction with the Convergys Spin-Off, Messrs. Orr, Baskett, Marino and
Henry are no longer officers of the Company.
(e) This group does not include Messrs. Orr, Baskett, Marino and Henry because
on February 26, 1999 they were neither directors nor officers of the
Company.
6
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
In conjunction with the completion of the Convergys Spin-Off on December 31,
1998, the membership of the Board changed. James D. Kiggen was elected Chairman
of the Board replacing Charles H. Mechem, Jr., who, as planned, resigned from
the Board along with six other Company directors. In addition to Mr. Kiggen, the
continuing members of the Board are Phillip R. Cox, William A. Friedlander, Dr.
Robert P. Hummel (who will not stand for re-election), John T. LaMacchia, Mary
D. Nelson and David B. Sharrock. Richard G. Ellenberger was appointed as a
director in November 1998, and Karen M. Hoguet was appointed as a director in
February 1999. In addition to Mr. Mechem, the directors who resigned were John
F. Barrett, Judith G. Boynton, Roger L. Howe, Steven G. Mason, James F. Orr and
Brian H. Rowe. The resigning Board members are now members of the Board of
Directors of Convergys Corporation, with Mr. Mechem serving as chairman.
The Board of the Company presently consists of nine members, two of whom are
officers of the Company. The Company's Amended Articles of Incorporation require
that the directors be divided into three classes. At each annual meeting of
shareholders, directors constituting a class are elected for three-year terms.
The terms of the Class III directors expire in 1999. Dr. Robert P. Hummel, a
director of the Company since 1983, is not standing for re-election pursuant to
the Company's policy that directors are not eligible for re-election after
attaining age 68. The Board has nominated James D. Kiggen and Mary D. Nelson,
both of whom are incumbent directors, and Daniel J. Meyer, for election as
directors in Class III to serve until the 2002 annual meeting of shareholders.
The three nominees for Class III director receiving the greatest number of votes
will be elected. The three directors in Class I continue to serve until the 2000
annual meeting of shareholders and the three directors in Class II continue to
serve until the 2001 annual meeting of shareholders. The directors of each class
will serve until their respective successors are elected and qualified.
It is intended that shares represented by the accompanying form of proxy
will be voted for the election of the nominees, unless contrary instructions are
indicated as provided on the proxy card. (If you do not wish your shares to be
voted for particular nominees, please so indicate on the proxy card.) If one or
more of the nominees should at the time of the meeting be unavailable or unable
to serve as a candidate, the shares represented by the proxies will be voted to
elect the remaining nominees and any substitute nominee or nominees designated
by the Board. The Board knows of no reason why any of the nominees will be
unavailable or unable to serve.
For each director of the Company, including those nominated for election,
there follows a brief listing of principal occupation during at least the past
five years, other major affiliations and age on the date of this Proxy
Statement.
NOMINEES FOR CLASS III DIRECTORS
(TERMS EXPIRE IN 2002)
James D. Kiggen, Chairman of the Board of the Company since
[PHOTO] January 1, 1999; Chairman of the Board of Xtek, Inc.
(manufacturer of engineered steel products for heavy industry)
since 1985; Chief Executive Officer of Xtek, Inc., 1985-1998;
President of Xtek, Inc., 1985-1995. Director of Fifth Third
Bancorp and its subsidiary, The Fifth Third Bank, and The United
States Playing Card Company. Director of the Company since 1983;
Chairman of the Executive Committee. Age 67.
7
Daniel J. Meyer, Chairman, President and Chief Executive Officer
[PHOTO] of Milacron, Inc. (a manufacturer of metal working and plastics
processing machinery and systems); President since 1998;
Chairman since 1991; Chief Executive Officer since 1990.
Director of The E.W. Scripps Company and Hubbell Incorporated.
Age 62.
Mary D. Nelson, President of Nelson & Co. (consulting actuaries)
[PHOTO] since 1975. Director of Blount International, Inc. and its
subsidiary, Blount Inc., and The Union Central Life Insurance
Company. Director of the Company since 1994; member of the Audit
and Finance Committee. Age 65.
CLASS I DIRECTORS
(TERMS EXPIRE IN 2000)
Richard G. Ellenberger, President and Chief Executive Officer of
[PHOTO] the Company since March 1, 1999; Chief Operating Officer of the
Company since July 1, 1998; President, Chief Executive Officer
and a Director of Cincinnati Bell Telephone Company since 1997.
Director of the Company since November 1998. Age 46.
Karen M. Hoguet, Chief Financial Officer, Senior Vice President
[PHOTO] and Treasurer of Federated Department Stores, Inc. (owner and
operator of retail department stores); Senior Vice President
since 1991; Treasurer since 1992; Chief Financial Officer since
1997. Director of the Company since February 1999; member of the
Audit and Finance Committee. Age 42.
David B. Sharrock, Consultant since 1994. Executive Vice
[PHOTO] President and Chief Operating Officer of Marion Merrell Dow Inc.
(researcher, manufacturer and seller of pharmaceutical
products), 1989-1993; President and Chief Operating Officer of
Merrell Dow Pharmaceuticals Inc., 1988-1989. Director of
Interneuron Pharmaceuticals Inc., Intercardia, Inc. and Praecis
Pharmaceutical, Inc. Director of the Company since 1987;
Chairman of the Compensation Committee. Age 62.
8
CLASS II DIRECTORS
(TERMS EXPIRE IN 2001)
Phillip R. Cox, President and Chief Executive Officer of Cox
[PHOTO] Financial Corporation (financial planning) since 1972. Director
of Federal Reserve Bank of Cleveland, Cinergy Corp., BDM
International, Touchstone Mutual Funds and PNC Bank, Ohio, N.A.
Director of the Company since 1993; member of the Audit and
Finance Committee and the Compensation Committee. Age 52.
William A. Friedlander, Chairman of Bartlett & Co. (a registered
[PHOTO] investment advisor) since 1989; Chief Executive Officer,
1966-1989. Director of The Union Central Life Insurance Company.
Director of the Company since 1986; Chairman of the Audit and
Finance Committee and member of the Executive Committee. Age 66.
John T. LaMacchia, President and Chief Executive Officer of the
[PHOTO] Company, 1993-February 28, 1999; President of the Company,
1988-February 28, 1999; Chairman of Cincinnati Bell Telephone
Company, 1993-February 28, 1999; Chairman of Cincinnati Bell
Information Systems Inc., 1988-1996; Chief Operating Officer of
the Company, 1988-1993. Director of The Kroger Co., Burlington
Resources Inc. and FORE Systems. Director of the Company since
1985; member of the Executive Committee. Age 57.
PROPOSAL TO AMEND ARTICLE FOUR OF THE AMENDED ARTICLES OF INCORPORATION TO
REDUCE THE PAR VALUE OF COMMON SHARES AND TO REDUCE STATED CAPITAL
(ITEM 2 ON THE PROXY CARD)
At present the Company's Amended Articles of Incorporation authorize the
issuance of 480,000,000 Common Shares with a par value of $1.00 per share. On
February 1, 1999, the Board proposed the amendment of the Company's Amended
Articles of Incorporation, subject to the approval of the shareholders, to: (a)
reduce the par value from $1.00 per share to $0.01 per share and (b) reduce the
stated capital of the Company to an amount equal to the aggregate par value (as
so reduced) of all outstanding Common Shares. No other changes in the express
terms of the Common Shares are contained in this proposal. The Board proposes
that the first paragraph of Article Four of the Amended Articles of
Incorporation be amended to read as follows:
FOURTH: The number of shares that the corporation is authorized to have
outstanding is 480,000,000 common shares (classified as "Common Shares"),
4,000,000 voting preferred shares without par value (classified as "Voting
Preferred Shares") and 1,000,000 non-voting preferred shares without par
value (classified as "Non-Voting Preferred Shares"). The preferred shares of
both classes are collectively referred to herein as "Preferred Shares". The
par value of each Common Share is hereby reduced from $1.00 per share to
$0.01 per share, and the stated capital of the Common Shares is reduced to
an amount equal to the aggregate par value (as so reduced) of all
outstanding Common Shares. The express terms of the shares of each of such
classes are as follows:
9
Under current Ohio corporate law, par value is an artificial figure as it
relates to common shares. Under prior Ohio corporate law, par value served
several functions. The par value was the price at which common shares were
offered to shareholders and was meant to provide shareholders with assurance
that others who purchased shares in a company would not pay less than the
original shareholders. Since the par value represented the price actually paid
for shares, the par value was a measure of the capital necessary to begin or
expand a business, and a creditor could decide whether or not to lend funds to
the entity based upon the capital represented by the par value.
Although par value generally does not serve the corporate purposes for which
it was originally intended, it remains a factor under Ohio corporate law in
determining the funds available for use by the Company in paying dividends and
making other distributions to shareholders and in determining the extent of any
permissible corporate repurchases of common shares. The Company is required to
maintain a stated capital account at least equal to the total number of shares
issued multiplied by the par value per share. With a $1.00 par value, at
February 26, 1999, the Company was required to maintain a stated capital account
of at least $137.4 million. To pay dividends to its shareholders or repurchase
common shares, the Company must have surplus as calculated in accordance with
Ohio law. Surplus is the excess of the Company's assets over its liabilities,
less stated capital. As of February 26, 1999, the Company had a surplus of $15.6
million.
The Board believes that the reduction in the par value of the Common Shares
is desirable to provide the Company with greater flexibility in managing its
corporate funds, such that share dividends or share distributions can be
accomplished without the Company transferring a substantial sum from its
retained earnings account to its stated capital account. At a par value of
$0.01, any required contribution to the Company's stated capital account is
substantially reduced, thereby providing the Company with greater flexibility in
managing its corporate funds for share dividends and share distributions. The
reduction in par value of the Common Shares will not cause any change in the
aggregate value of the Common Shares.
If the proposed amendment is approved, the Company's capital accounts must
be adjusted to reflect the reduction of par value of the Common Shares on the
Company's balance sheet in a manner consistent with Section 1701.30 of the Ohio
Revised Code. Under Shareholders' Equity, the Common Shares, $1 Par Value
Account on the Company's balance sheet will be renamed as Common Shares, $0.01
Par Value Account. The value of the Common Shares, $0.01 Par Value Account will
be reduced to an amount equal to the aggregate par value (as so reduced) of all
outstanding Common Shares. At the same time, a corresponding increase will be
made in the Additional Paid In Capital Account under Shareholders' Equity. The
Total Shareowners' Equity as shown on the Company's balance sheet will be
unchanged. As of February 26, 1999, the balance of the Common Shares, $1 Par
Value Account was $137.4 million and the balance of the Additional Paid In
Capital Account was $14.5 million. If the amendment had been effective on
February 26, 1999, the balance of these accounts would have changed to $1.4
million and $150.5 million respectively. It is intended that the balance sheet
adjustments would be effective no later than June 30, 1999, the end of the
Company's second quarter.
The reduction of the par value of Common Shares will not have any effect on
the rights of existing shareholders. Under Ohio law, common shares cannot be
issued for consideration less than the par value of the stock, and, therefore,
currently the Board cannot issue common shares for less than $1.00 per share. If
the amendment to the Articles of Incorporation is adopted by the shareholders,
the Board could issue common shares at any price that it determines which is
equal to or greater than $0.01, subject to requirements of applicable law. At
the present time, the Board does not intend to issue common shares except as it
has in the past in connection with share dividends and distributions and benefit
programs.
RECOMMENDATION
ADOPTION OF THIS PROPOSED AMENDMENT TO ARTICLE FOUR REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF TWO-THIRDS OF THE ISSUED AND OUTSTANDING COMMON SHARES OF
THE COMPANY. ACCORDINGLY, ABSTENTIONS FROM VOTING AND BROKER NON-VOTES WILL HAVE
THE EFFECT OF A VOTE AGAINST THE PROPOSED AMENDMENT. THE BOARD RECOMMENDS A VOTE
FOR THE PROPOSED AMENDMENT.
10
EFFECT OF MANAGEMENT VOTE ON PROPOSAL
Since the directors and officers of the Company own beneficially 2,405,109
Common Shares, or 1.75% of the outstanding voting shares, their votes are not
likely to have a material impact on whether this proposal is adopted.
APPROVAL OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 3 ON THE PROXY CARD)
Upon the Audit and Finance Committee's recommendation, the Board has
re-appointed the firm of PricewaterhouseCoopers LLP as independent accountants
to audit the financial statements of the Company for the year 1999.
PricewaterhouseCoopers LLP has audited the financial statements of the Company
for many years. One or more members of the firm of PricewaterhouseCoopers LLP
will attend the annual meeting, will have an opportunity to make a statement and
will be available to answer questions.
The Company needs shareholder approval of its appointment of
PricewaterhouseCoopers LLP. If the shareholders do not approve this appointment,
the Audit and Finance Committee will recommend and the Board will appoint
different independent accountants to audit the financial statements of the
Company for the year 1999.
OUR RECOMMENDATION
APPROVAL OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE COMMON SHARES PRESENT OR
REPRESENTED AND ENTITLED TO VOTE AT THE MEETING. THE BOARD RECOMMENDS A VOTE FOR
SUCH APPROVAL.
SHAREHOLDER PROPOSAL REQUESTING NECESSARY STEPS TO CAUSE
ANNUAL ELECTION OF ALL DIRECTORS
(ITEM 4 ON THE PROXY CARD)
The following proposal was submitted for inclusion in this Proxy Statement
by the SEIU Master Trust, 1313 L Street, N.W., Washington, D.C. 20005. As of the
date the proposal was submitted, SEIU owned approximately 46,400 Common Shares.
SHAREHOLDER PROPOSAL
"BE IT RESOLVED: That the shareholders of Cincinnati Bell, Inc.
("Company") urge that the Board of Directors take the necessary steps, in
compliance with state law, to declassify the Board of Directors for the
purpose of director elections. The Board declassification shall be done in a
manner that does not affect the unexpired terms of directors previously
elected."
SUPPORTING STATEMENT OF SHAREHOLDER MAKING THE PROPOSAL
"The election of corporate directors is the primary avenue in the American
corporate governance system for shareholders to influence corporate affairs and
exert accountability on management. We strongly believe that our Company's
financial performance is closely linked to its corporate governance policies and
procedures, and the level of management accountability they impose. Therefore,
as shareholders concerned about the value of our investment, we are very
disturbed by our Company's current system of electing only one-third of the
board of directors each year. We believe this staggering of director terms
prevents shareholders from annually registering their views on the performance
of the board collectively and each director individually.
Concerns that the annual election of all directors would leave our Company
without experienced Board members in the event that all incumbents are voted out
is unfounded. If the owners should choose to replace the entire board, it would
be obvious that the incumbent directors' contributions were not valued.
Additionally, concerns that the annual election of all directors would expose
shareholders to takeover attempts at below full value is also unfounded. It is
our belief that the staggered Board insulates directors
11
and senior executives from the consequences of poor performance by denying
shareholders the opportunity to replace an entire Board which is pursuing failed
policies. We believe that allowing shareholders to annually register their views
on the performance of the Board collectively is one of the best method's [sic]
to insure that our Company will be managed in the best interests of the
shareholders.
We [SEIU] urge your vote 'FOR' the Proposal."
* * * * *
BOARD OF DIRECTORS RECOMMENDATION AND STATEMENT
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL.
The Company's Board of Directors is divided into three classes, with
staggered three-year terms. The Company's shareholders adopted this structure in
1984 by an affirmative vote of over 80% of the shares then outstanding and
entitled to vote. This structure represents a careful balancing of two important
shareholder concerns: (1) the ability of shareholders to evaluate the Board's
performance each year, and (2) the ability of the Board to properly deal with
the Company's long-term strategic objectives. The Board believes that retention
of the current structure best serves both of these objectives and is a sound
application of respected principles of corporate governance.
In the opinion of the Board, your Company's record of success in producing
long-term shareholder value is a function of careful strategic planning and the
consistent application of financial and managerial resources over time. Keeping
a classified board facilitates the continuity and stability that are necessary
for planning and executing strategies essential to increasing shareholder value.
One example of a carefully thought out initiative executed over a period of
time, and designed to enhance shareholder value, is the Company's recent
distribution of certain of its former subsidiaries to its shareholders. The
Board believes that a classified board is better able to meet the long-term
objectives that are important to shareholders.
The Board also believes that a classified board helps in effectively
recruiting and retaining as board members experienced individuals familiar with
the corporation and its business. This is especially important in our rapidly
evolving industry, where the pace of change is accelerating and the need for
specialized knowledge and judgment is expanding. Keeping a classified board
helps assure that individuals who are familiar with these unique demands will
continue to serve the Company as directors over time.
Additionally, the Board still believes that a classified board protects the
continued effectiveness of the Company's Shareholder Rights Plan, which the
Board reviewed and reconfirmed most recently in 1997. In the opinion of the
Board, a classified board helps assure that the Shareholder Rights Plan cannot
be unfairly avoided by a bidder seeking to elect designees who would cause
shareholder rights to be redeemed in a manner that is detrimental to the best
interests of the Company's shareholders.
As current headlines indicate, no company, regardless of size, is safe from
takeover attempts that may, or may not, be in the best interest of its
shareholders. In the opinion of the Board, a classified board encourages any
person who desires to obtain control of the Company to engage in arms-length,
meaningful discussion with the Board, because the entire Board cannot be
replaced in a single proxy contest. The Board believes that a system that
encourages such discussions benefits the Company's shareholders.
Finally, the Board believes that meaningful accountability of the board of
directors is present under the current classified system. Annual elections by
class still take place, and regardless of the length of each individual
director's term, his or her legal and other duties to the Company and its
shareholders remain unchanged.
Accordingly, the Board believes that the current classified system is
valuable to the Company and its shareholders, and recommends that you vote
AGAINST the proposal.
12
EFFECT OF ADOPTION
Adoption of this proposal would not, in any event, declassify the board of
directors and initiate the annual election of directors. It would merely
constitute a recommendation that the Board take the necessary steps to cause
annual election of all directors. If this proposal is adopted, and if the Board
subsequently agrees with the recommendation, implementation of the proposal
would still require submission at a future shareholders' meeting of an
appropriate amendment to the Company's Amended Articles of Incorporation. That
amendment would then require the affirmative vote of the holders of two-thirds
of the issued and outstanding Common Shares to be adopted. A vote in favor of
this proposal, therefore, constitutes an advisory recommendation to the Board.
RECOMMENDATION
THE BOARD RECOMMENDS A VOTE AGAINST THE PROPOSAL.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL
Because the directors and officers of the Company own beneficially 2,405,109
Common Shares, or 1.75% of the outstanding voting shares, their votes are not
likely to have a material impact on whether this proposal is adopted.
13
THE FOLLOWING COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND
RELATED DISCLOSURE, INCLUDING THE PERFORMANCE GRAPH, SHALL NOT BE DEEMED
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee that set and approved the executive compensation
paid in 1998 consisted of James D. Kiggen (Chairman), John F. Barrett, Brian H.
Rowe and David B. Sharrock. Due to the Convergys Spin-Off and the resignation of
several directors, including two members of the Compensation Committee for 1998,
the Compensation Committee is currently comprised of different members than
those listed above. The current Compensation Committee, consisting of David B.
Sharrock (Chairman), Phillip R. Cox and Robert P. Hummel, has created and
approved this report on executive compensation for 1998 based upon its review of
verifiable accounts and minutes of Compensation Committee meetings that occurred
during 1998.
COMPENSATION PHILOSOPHY
The principles of the executive compensation program established by the
Compensation Committee are that:
- Compensation must be competitive with other companies to attract and
retain high quality executives;
- A significant portion of executive compensation should be "at risk" and
tied to the achievement of specific short- and long-term performance
objectives, principally the Company's earnings and the performance of the
Company's Common Shares, thereby linking executive compensation with the
returns realized by shareholders; and
- Emphasis should be given to the long-term incentive component of each
executive's compensation package, rather than to base salary or annual
incentives.
The Compensation Committee has the responsibility to administer executive
compensation programs, policies and practices and recommends to the Board
compensation for the executive officers of the Company as well as the
compensation for the chief executive officers of the Company's principal
subsidiaries, which in 1998 were Cincinnati Bell Telephone Company ("CBT"),
Convergys Information Management Group Inc. (formerly known as Cincinnati Bell
Information Systems, Inc. ("CIMG")) and Convergys Customer Management Group Inc.
(formerly known as MATRIXX Marketing, Inc. ("CMCG")).
As previously explained, the Company formed Convergys Corporation, as a
wholly owned subsidiary of the Company, as part of the Company's plan to
distribute its information management and customer management businesses to its
shareholders. Following the Convergys initial public offering in August 1998
(the "Convergys IPO"), the Company completed the Convergys Spin-Off on December
31, 1998 when it distributed all of the Convergys common shares that it owned to
the Company's shareholders.
The Company's executive compensation program consists of three elements:
base salary, annual incentive compensation and long-term incentive compensation.
The Compensation Committee targets each executive's total direct
compensation (base salary, annual incentive compensation and long-term incentive
compensation) to be competitive with the revenue-adjusted median of the
marketplace, using information from general industry surveys conducted by
outside consultants. In addition, proxy materials of a comparison group
consisting of twenty-five (25) companies, including the Telephone Peer Group
Companies identified on page 28, in the communications, information systems and
telephone marketing industries are also reviewed as an additional comparison for
the Chief Executive Officer of the Company.
BASE SALARY
Based upon its review of the market data, the Compensation Committee
recommended base salary increases from 1.56% to 12.16% for the named executive
officers, both to ensure equity with the market
14
and, where appropriate, based upon subjective analysis of each officer's
individual performance and responsibilities. Because of the Convergys Spin-Off,
these base salary increases applied to Messrs. Orr, Baskett, Marino, and Henry
(collectively, the "Convergys executives") through August 12, 1998. For the
period from August 13, 1998, the date of the Convergys IPO, through December 31,
1998, the Convergys executives' base salaries were set by Convergys'
Compensation and Benefits Committee.
ANNUAL INCENTIVE COMPENSATION
The Company's short-term incentive plan, in which all of the above-named
executives participated, was one of the means by which the Compensation
Committee encouraged the Company's management to enhance shareholder value. As
in the case of base salary, short-term award targets under this plan were
benchmarked against market data. For Messrs. LaMacchia, Baskett or Henry to
receive a short-term award, the Company must have achieved certain levels of
"earnings per share" ("EPS"). In addition to a Company EPS component, the
short-term awards for the Chief Executive Officers of the Company's principal
subsidiaries were based upon the achievement of certain subsidiary operating
income levels, revenue levels (in the case of CIMG and CMCG) and customer
satisfaction levels (in the case of CBT). For 1998, 103% of the Company's EPS
goal was achieved, 115% of the CBT operating income goal and 100% of the
customer satisfaction goals were achieved.
LONG-TERM INCENTIVE COMPENSATION
The Company's executive compensation program currently includes two
long-term elements that are used on a systematic basis, stock options and
performance unit awards, both of which are intended to more closely align the
interests of the Company's executives with those of the Company's shareholders.
Stock options and performance unit awards are awarded under the Company 1997
Long Term Incentive Plan ("LTIP"). The present value of the stock options
awarded to each executive has generally been targeted to represent approximately
two-thirds of the present value of the executive's total long-term incentives,
with the present value of performance unit award targets constituting the
remaining one-third. The options granted to the named executive officers during
1998 are shown in the "Grants of Stock Options" table on page 19.
Certain executives have had the opportunity to earn performance unit awards,
each equivalent in value to a Common Share, based upon the extent to which the
Company's total shareholder return ("TSR"), which includes dividends and share
price appreciation, for a three-year performance period, compares with a
comparison group mean TSR for the same period.
No performance unit awards will be awarded at the end of the performance
period if the Company's TSR is negative. If the Company's TSR is 80% of the
comparison group mean TSR, 50% of the target number of performance unit awards
will be awarded. If the Company's TSR is greater than 80% of the comparison
group mean TSR, up to 200% of the target number of performance unit awards will
be awarded, with 100% being awarded if the Company's TSR is 100% of the
comparison group mean TSR and 200% being awarded if the Company's TSR is 140% of
the comparison group mean TSR. The first three-year performance period ended on
December 31, 1998, while the next two performance periods, one originally
scheduled to cover a 1997-1999 time period and the other originally scheduled to
cover a 1998-2000 time period, were both shortened and also deemed to end as of
December 31, 1998 because of the effect of the Convergys Spin-Off.
In cases of certain special events (such as the grant of restricted stock to
certain Company executives in early 1999 in order to provide additional
incentive to such executives to manage the Company after the Convergys
Spin-Off), the Compensation Committee has granted under the LTIP Company
restricted stock to executives.
To reflect the reduction in value of Common Shares caused by the Convergys
Spin-Off, Spin-Off Options were granted to all holders of previously granted
Company stock options, including the named executive officers. In addition, for
each outstanding Company restricted stock grant, a restricted stock grant of
Convergys common shares ("Spin-Off Restricted Shares") was made under the LTIP.
These grants were intended to preserve the value of the grants previously made.
15
STOCK OWNERSHIP GUIDELINES
To further align the interests of the executives and the Company's
shareholders, the Compensation Committee has established Common Share ownership
guidelines for its executive officers. The Chief Executive Officer is expected
to have approximately three times his base salary in Common Shares and other
officers are expected to have approximately one and one-half times their base
salary in Common Shares. These shares can include shares acquired on the open
market or through Company plans, including the Retirement Savings Plan.
Executives are given a reasonable amount of time to satisfy these guidelines.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. LaMacchia served in the capacity of President and Chief Executive
Officer throughout 1998. As President and Chief Executive Officer, in accordance
with the policies discussed, his base salary for 1998 was $600,000 and he
received a short term award of $537,000. He received a stock option grant for
69,700 Common Shares and a performance unit award target of 11,000 Common
Shares.
COMPENSATION LIMITATION
Section 162(m) of the Internal Revenue Code limits the available tax
deduction for compensation paid to the Company's named executives. The
Compensation Committee intends to maximize the amount of compensation expense
that is deductible by the Company when it is appropriate and in the best
interests of the Company and its shareholders. However, compensation decisions
will continue to be based primarily on the extent to which performance goals
have been achieved.
Compensation Committee
David B. Sharrock, Chairman
Phillip R. Cox
Robert P. Hummel
16
EXECUTIVE COMPENSATION
I. SUMMARY COMPENSATION TABLE
The following table shows the compensation of the Chief Executive Officer
and the other four most highly compensated executive officers of the Company or
any of its subsidiaries for services to the Company and its subsidiaries in all
capacities. Messrs. LaMacchia, Orr and Ellenberger served as directors of the
Company but received no separate compensation in that capacity. With respect to
Messrs. Orr, Baskett, Marino and Henry, amounts stated below include
compensation paid by both the Company and Convergys Corporation.
LONG-TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- -------------------------- ----------
OTHER SECURITIES LONG-TERM
NAME AND ANNUAL RESTRICTED UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION (a) YEAR ($) ($) ($) ($) (#) ($) ($) (b)
- ----------------- --- --------- --------- ------- ------------ ---------- ---------- -------------
John T. LaMacchia 1998 $ 600,000 $ 537,000 (c) $ 0 139,400 (d) $ 0 $ 5,776
President & CEO 1997 $ 550,000 $ 461,500 (c) $ 0 125,200 (e) $ 0 $ 6,400
1996 $ 525,000 $ 472,500 (c) $ 0 157,200 (f) $ 0 $ 9,500
James F. Orr 1998 $ 509,647 $ 393,509 (c) $4,012,500 (g) 623,800 (d) $ 0 $ 31,340
Chief Operating 1997 $ 370,000 $ 284,000 (c) $ 0 87,600 (e) $ 0 $ 31,344
Officer 1996 $ 304,375 $ 415,144 (c) $ 340,018 (h) 822,400 (f) $ 0 $ 14,585
Richard G.
Ellenberger 1998 $ 345,000 $ 293,490 (c) $ 436,407 (g) 54,400 (d) $ 0 $ 0
President & CEO 1997 $ 180,603 $ 135,452 $95,574(i) $ 329,219 (j) 54,000 (e) $ 0 $ 0
of CBT 1996 -- -- -- -- -- -- --
William D.
Baskett III 1998 $ 275,000 $ 158,889 (c) $ 675,000 (g) 116,000 (d) $ 0 $ 3,408
General Counsel 1997 $ 0 $ 85,200 (c) $ 0 60,000 (e) $ 0 $ 0
& Secretary 1996 $ 0 $ 0 -- $ 0 80,000 (f) $ 0 $ 0
Robert J. Marino 1998 $ 298,863 $ 70,036 (c) $1,125,000 (g) 215,900 (d) $ 0 $ 17,664
President & CEO 1997 $ 270,000 $ 177,601 (c) $ 0 54,000 (e) $ 0 $ 9,500
of CBIS 1996 $ 240,000 $ 206,974 (c) $ 0 40,000 (f) $ 0 $ 10,435
Brian C. Henry 1998 $ 320,000 $ 104,409 (c) $1,577,725 (g) 107,200 (d) $ 0 $ 13,101
Executive Vice 1997 $ 320,000 $ 170,400 (c) $ 0 56,800 (e) $ 0 $ 19,719
President & CFO
(k) 1996 $ 310,000 $ 172,500 (c) $ 0 269,200 (f) $ 0 $ 22,392
(a) In conjunction with the Convergys Spin-Off on December 31, 1998, Convergys
Corporation is no longer a subsidiary of the Company and Messrs. Orr,
Baskett, Marino and Henry are no longer executive officers of the Company.
As of January 1, 1999, the executive officers of the Company were John T.
LaMacchia, President and CEO, Richard G. Ellenberger, Chief Operating
Officer, President-elect and CEO-elect of the Company and President and CEO
of Cincinnati Bell Telephone Company, Kevin W. Mooney, Chief Financial
Officer, and Thomas E. Taylor, General Counsel and Secretary. In addition,
Mr. LaMacchia resigned as President and Chief Executive Officer of the
Company effective February 28, 1999, and Mr. Ellenberger became President
and CEO.
(b) Represents Company contributions to defined contribution savings plans and
to the Executive Deferred Compensation Plan described on page 26 and
Convergys Corporation contributions to its defined contribution savings plan
and to its Deferred Compensation Plan.
(c) 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 that year.
17
(d) Includes, for Mr. LaMacchia, options to purchase 69,700 Common Shares and
69,700 Spin-Off Options; for Mr. Orr, options to purchase 44,400 Common
Shares, 44,400 Spin-Off Options and options to purchase 535,000 Convergys
common shares granted by the Convergys Corporation in conjunction with the
Convergys IPO; for Mr. Ellenberger, options to purchase 27,200 Common Shares
and 27,200 Spin-Off Options; for Mr. Baskett, options to purchase 21,000
Common Shares, 21,000 Spin-Off Options and options to purchase 74,000
Convergys common shares granted by the Convergys Corporation in conjunction
with the Convergys IPO; for Mr. Marino, options to purchase 27,200 Common
Shares, 27,200 Spin-Off Options and options to purchase 161,500 Convergys
common shares granted by the Convergys Corporation in conjunction with the
Convergys IPO; and for Mr. Henry, options to purchase 28,600 Common Shares,
28,600 Spin-Off Options, and options to purchase 50,000 Convergys common
shares granted by the Convergys Corporation in conjunction with the
Convergys IPO.
(e) Includes, for Mr. LaMacchia, options to purchase 62,600 Common Shares and
62,600 Spin-Off Options; for Mr. Orr, options to purchase 43,800 Common
Shares and 43,800 Spin-Off Options; for Mr. Ellenberger, options to purchase
27,000 Common Shares and 27,000 Spin-Off Options; for Mr. Baskett, options
to purchase 30,000 Common Shares and 30,000 Spin-Off Options; for Mr.
Marino, options to purchase 27,000 Common Shares and 27,000 Spin-Off
Options; and for Mr. Henry, options to purchase 28,400 Common Shares and
28,400 Spin-Off Options.
(f) Includes, for Mr. LaMacchia, options to purchase 78,600 Common Shares and
78,600 Spin-Off Options; for Mr. Orr, options to purchase 411,200 Common
Shares and 411,200 Spin-Off Options; for Mr. Baskett, options to purchase
40,000 Common Shares and 40,000 Spin-Off Options; for Mr. Marino, options to
purchase 20,000 Common Shares and 20,000 Spin-Off Options; and for Mr.
Henry, options to purchase 134,600 Common Shares and 134,600 Spin-Off
Options.
(g) Restricted stock holdings valued as of January 4, 1999 with respect to the
Common Shares and as of December 31, 1998 with respect to the Spin-Off
Restricted Shares and the Convergys common shares: for Mr. Orr, 267,500
Convergys common shares, granted by Convergys Corporation in conjunction
with the Convergys IPO, with a value of $5,542,333; for Mr. Ellenberger,
25,000 Common Shares with a value of $418,750 and 25,000 Spin-Off Restricted
Shares with a value of $517,975; for Mr. Baskett, 20,000 Common Shares,
which were surrendered for a credit under the Executive Deferred
Compensation Plan, and 45,000 Convergys common shares, granted by the
Convergys Corporation in conjunction with the Convergys IPO, with a value of
$932,355; for Mr. Marino, 75,000 Convergys common shares, granted by
Convergys Corporation in conjunction with the Convergys IPO, with a value of
$1,553,925; and for Mr. Henry, 25,000 Common Shares with a value of
$418,750, and 25,000 Spin-Off Restricted Shares and 45,000 Convergys common
shares, granted by the Convergys Corporation in conjunction with the
Convergys IPO, with a value of $1,450,330. In the case of Mr. Henry, the
25,000 Common Shares and the 25,000 Spin-Off Restricted Shares each vest as
follows: 15,000 shares on February 28, 2001; 5,000 shares on February 29,
2002 and 5,000 shares on February 28, 2003. Dividends will be paid on all
restricted stock of the Company.
(h) The Company awarded Mr. Orr 20,844 Common Shares in 1996, vesting one year
from date of grant; 29,546 Common Shares in 1995, vesting one year from date
of grant; and 40,000 Common Shares in 1994, vesting 24,000 Common Shares in
1996, 8,000 Common Shares in 1997 and 8,000 Common Shares in 1998. Dividends
are paid on all restricted stock of the Company.
(i) Includes $74,677 of relocation expenses. Other amounts were less than 25% of
the total perquisites and other personal benefits reported for Mr.
Ellenberger.
(j) The Company awarded Mr. Ellenberger 25,000 Common Shares, vesting four years
from the date of grant. Dividends are paid on all restricted stock of the
Company.
(k) Mr. Henry served as Chief Financial Officer of the Company through September
1, 1998. Although Mr. Henry did not serve as an officer of the Company at
the end of the year, the Company is required to report Mr. Henry's full year
compensation data because he would have been one of the four most highly
compensated executive officers, other than the CEO, if he had remained an
officer of the Company at the end of the year.
18
II. GRANTS OF STOCK OPTIONS
The following table shows all individual grants by the Company of stock
options to purchase Common Shares and by Convergys Corporation of stock options
to purchase Convergys Corporation common shares granted to the named executive
officers of the Company during the fiscal year ended December 31, 1998.
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
NUMBER OF OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR
OPTIONS GRANTED TO OR BASE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#)(a) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------------- ----------- ------------- --------- ----------- --------- ----------
John T. LaMacchia 69,700(b) 4.26% $ 13.155(c) 1/2/08 $ 576,280(d) $1,460,842(d)
69,700(e) 0.74% $ 17.439 1/2/08 $ 763,982(f) $1,936,824(f)
James F. Orr 44,400(b) 2.71% $ 13.155(c) 1/2/08 $ 367,099(d) $ 930,579(d)
535,000(g) 5.71% $ 15.000 8/13/08 $5,043,980(f) $12,787,570(f)
44,400(e) 0.47% $ 17.439 1/2/08 $ 486,668(f) $1,233,787(f)
Richard G. 27,200(b) 1.66% $ 13.155(c) 1/2/08 $ 224,890(d) $ 570,085(d)
Ellenberger 27,200(e) 0.29% $ 17.439 1/2/08 $ 298,139(f) $ 755,834(f)
William D. Baskett 21,000(b) 1.28% $ 13.155(c) 1/2/08 $ 173,628(d) $ 440,139(d)
III 74,000(g) 0.79% $ 15.000 8/13/08 $ 697,672(f) $1,768,748(f)
21,000(e) 0.22% $ 17.439 1/2/08 $ 230,181(f) $ 583,548(f)
Robert J. Marino 27,200(b) 1.66% $ 13.155(c) 1/2/08 $ 224,889(d) $ 570,084(d)
161,500(g) 1.72% $ 15.000 8/13/08 $1,522,622(f) $3,860,173(f)
27,200(e) 0.28% $ 17.439 1/2/08 $ 298,139(f) $ 755,833(f)
Brian C. Henry 28,600(b) 1.75% $ 15.090(c) 4/21/08 $ 271,242(d) $ 687,658(d)
50,000(g) 0.53% $ 15.000 8/13/08 $ 471,400(f) $1,195,100(f)
28,600(e) 0.30% $ 20.004 4/21/08 $ 359,645(f) $ 911,596(f)
- ------------------------
(a) The material terms of the options granted are: grant type, non-incentive;
exercise price, fair market value on grant date; generally exercisable 25%
after one year, an additional 25% after the second year and the remaining
50% after the third year; term of grant, 10 years; except in case of
retirement, disability or death, any unexercisable options are generally
cancelled upon termination of employment.
(b) Options to purchase Common Shares granted by the Company in January 1998
(April 1998, in the case of Mr. Henry) as the annual grant.
(c) The Exercise or Base Price ($/sh) is the exercise price of the Company
options as of January 4, 1999, the first day of trading after the completion
of the Convergys Spin-Off on December 31, 1998 and the date established by
contract for the valuation of all outstanding Company options to reflect the
changes in value resulting from the Convergys Spin-Off. On December 31,
1998, the value of a Common Share on the New York Stock Exchange (based on
the average of the high and low) was $38.876 per share, and the value of a
Common Share, on a "when-issued" basis, (based on the average of the high
and low) was $17.063 per share.
(d) 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 grant to the end of the option
term (ten years from the date of grant) at annualized rates of 5% and 10%
(total appreciation of 62.8% and 159.3%) resulting in values of
approximately $21.42 and $34.11 for all options expiring on January 2, 2008
and in values of approximately $24.57 and $39.13 for all options expiring on
April 21, 2008. 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
19
executive officers, during fiscal 1998 was approximately 1.20% of the total
Common Shares outstanding as of December 31, 1998. 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 the Company 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, the Company's management does not believe there is a reliable
method of computing the present value of such stock options for proxy
disclosure purposes.
(e) These Spin-Off Options were granted to reflect the reduction in value,
caused by the Convergys Spin-Off, of the options to purchase Common Shares
granted by the Company in January 1998 (April 1998, in the case of Mr.
Henry) as the annual grant. The Spin-Off Options to purchase Convergys
common shares were granted to all holders of previously granted Company
stock options, including the named executive officers.
(f) As required by rules of the Securities and Exchange Commission, potential
values stated are based on the prescribed assumption that the Convergys
common shares will appreciate in value from the date of grant to the end of
the option term (ten years from the date of grant) at annualized rates of 5%
and 10% (total appreciation of 62.8% and 159.3%) resulting in values of
approximately $28.40 and $45.22 for all options expiring on January 2, 2008,
in values of approximately $32.57 and $51.87 for all options expiring on
April 4, 2008 and in values of approximately $24.42 and $38.90 for all
options expiring on August 13, 2008. They are not intended, however, to
forecast possible future appreciation, if any, in the price of the Convergys
common shares. The total of all stock options granted to employees,
including executive officers, during fiscal 1998 was approximately 6.10% of
the total Convergys common chares outstanding during the year. As an
alternative to the assumed potential realizable values stated in the above
table, the Securities and Exchange Commission rules would permit stating the
present value of such options at date of grant. Methods of computing present
values suggested by different authorities can produce significantly
different results. Moreover, since stock options granted by Convergys
Corporation are not transferable, there are no objective criteria by which
any computation of present value can be verified. Consequently, the
Company's management does not believe there is a reliable method of
computing the present value of such stock options for proxy disclosure
purposes.
(g) Options to purchase Convergys common shares granted by Convergys Corporation
in conjunction with the Convergys IPO.
20
III. AGGREGATE OPTION EXERCISES
The following table shows aggregate option exercises for Common Shares and
Convergys common shares in the last fiscal year and fiscal year-end values:
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT
VALUE (#) FY-END ($) (a)
SHARES ACQUIRED REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME ON EXERCISE (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- --------------------- --------------- --------- ----------------- ------------------
John T. LaMacchia 0 $ 0 (E) 704,950(b) (E) $8,697,449
(U) 155,950(c) (U) $ 800,090
James F. Orr 60,000(d) $1,355,620 (E) 83,100(b) (E) $ 625,805
(U)1,450,700(c) (U) $7,114,137
Richard G. 0 $ 0 (E) 6,750(b) (E) $ 24,172
Ellenberger (U) 47,450(c) (U) $ 170,299
William D. Baskett 0 $ 0 (E) 255,000(b) (E) $3,286,468
III (U) 201,000(c) (U) $1,142,644
Robert J. Marino 0 $ 0 (E) 93,500(b) (E) $ 974,767
(U) 276,400(c) (U) $1,466,679
Brian C. Henry 40,000(d) $ 825,625 (E) 198,800(b) (E) $2,566,793
(U) 384,400(c) (U) $1,605,341
(a) Values stated for the Company are based on the fair market value (average of
the high and low) of $16.75 per share of the Common Shares on the New York
Stock Exchange on January 4, 1999, the first trading day after the
completion of the Convergys Spin-Off on December 31, 1998. On December 31,
1998, the value of a Common Share on the New York Stock Exchange (based on
the average of the high and low) was $38.876 per share, and the value of a
Common Share, on a "when-issued" basis, (based on the average of the high
and low) was $17.063 per share. Values stated for Convergys Corporation are
based on the fair market value (average of the high and low) of $20.719 per
share of the Convergys common shares on the New York Stock Exchange on
December 31, 1998.
(b) For Mr. LaMacchia, 704,950 Common Shares; for Mr. Orr, 41,550 Common Shares
and 41,550 Convergys common shares; for Mr. Ellenberger, 6,750 Common
Shares; for Mr. Baskett, 127,500 Common Shares and 127,500 Convergys common
shares; for Mr. Marino, 46,750 Common Shares and 46,750 Convergys common
shares; and for Mr. Henry, 99,400 Common Shares and 99,400 Convergys common
shares.
(c) For Mr. LaMacchia, 155,950 Common Shares; for Mr. Orr, 457,850 Common Shares
and 992,850 Convergys common shares; for Mr. Ellenberger, 47,450 Common
Shares; for Mr. Baskett, 63,500 Common Shares and 137,500 Convergys common
shares; for Mr. Marino, 57,450 Common Shares and 218,950 Convergys common
shares; and for Mr. Henry, 167,200 Common Shares and 217,200 Convergys
common shares.
(d) Common Shares of the Company.
21
IV. LONG TERM INCENTIVE PLAN AWARDS--LAST FISCAL YEAR
The following table provides information concerning performance unit awards
granted to the named executive officers during 1998 under the LTIP. Each
performance unit is equivalent in value to a Common Share, based upon the extent
to which the Company's total shareholder return ("TSR"), which includes
dividends and share price appreciation, for a three-year performance period,
compares with a comparison group mean total shareholder return for the same
period. No performance unit awards will be awarded at the end of the performance
period if the Company's TSR is negative. If the Company's TSR is 80% of the
comparison group mean TSR, 50% of the target number of performance unit awards
will be awarded. If the Company's TSR is greater than 80% of the comparison
group mean TSR, up to 200% of the target number of performance unit awards will
be awarded, with 100% being awarded if the Company's TSR is 100% of the
comparison group mean TSR and 200% being awarded if the Company's TSR is 140% of
the comparison group mean TSR.
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
OR PERIOD UNTIL PRICE-BASED PLANS
OTHER RIGHTS MATURATION -------------------------------------------
NAME (#) OR PAYOUT (A) THRESHOLD (#) TARGET (#) MAXIMUM (#)
- ------------------- --------------- ------------------ --------------- ----------- -------------
John T. LaMacchia 11,000 1998-2000 5,500 11,000 22,000
James F. Orr 7,100 1998-2000 3,550 7,100 14,200
Richard G.
Ellenberger 4,300 1998-2000 2,150 4,300 8,6000
William D. Baskett
III 3,300 1998-2000 1,650 3,300 6,600
Robert J. Marino 4,300 1998-2000 2,150 4,300 8,600
Brian C. Henry 4,500 1998-2000 2,250 4,500 9,000
(a) The three-year performance period originally scheduled to cover the
1998-2000 time period was shortened and deemed to end as of December 31,
1998 as a result of the Convergys Spin-Off.
V. DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
All of the named executive officers of the Company, except Mr. Baskett,
participated in both the Cincinnati Bell Management Pension Plan (the
"Management Pension Plan") and a non-tax-qualified pension plan known as the
Cincinnati Bell Inc. Pension Program (the "Pension Program"). Mr. Baskett
participated in the Management Pension Plan but not the Pension Program.
Under the Pension Program, a participant's pension at retirement generally
is paid in the form of a single life annuity, in an amount equal to the
difference between a percentage of the participant's average monthly
compensation and the sum of the participant's benefits payable under the
Management Pension Plan, including amounts which are intended to supplement or
be in lieu of benefits under the Management Pension Plan and Social Security
benefits. For Class I Senior Managers (admitted prior to March 3, 1997), the
applicable pension percentage is 68%, the compensation averaging period is the
12-month period during the 36-month period preceding retirement that produces
the highest compensation amount, there is a reduction of 5% for each year by
which the participant's age at retirement is less than 60 and there is a
reduction of 3.3% for each year by which the participant's years of service at
retirement total less than 30. For Class II Senior Managers (admitted on or
after March 3, 1997), the applicable pension percentage is 50%, the compensation
averaging period is the 36-month period during the 60-month period preceding
retirement that produces the highest compensation amount, there is a reduction
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 prior to attaining age 55 and
completing at least 10 years of service.
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
22
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 $160,000 for each of 1998 and 1999). To the
extent that a participant's plan compensation exceeds the Social Security old
age retirable 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:
ATTAINED AGE PENSION CREDITS
- ------------------------------ ---------------------------------------------------------------------------
Less than 30 years 2.50% of total plan compensation plus 2.50% of excess compensation
30 but less than 35 years 2.75% of total plan compensation plus 2.75% of excess compensation
35 but less than 40 years 3.25% of total plan compensation plus 3.25% of excess compensation
40 but less than 45 years 4.00% of total plan compensation plus 4.00% of excess compensation
45 but less than 50 years 5.25% of total plan compensation plus 5.25% of excess compensation
50 but less than 55 years 6.50% of total plan compensation plus 6.50% of excess compensation
55 or more years 8.00% of total plan compensation plus 8.00% of excess compensation
At the end of each year, a participant's account is also credited with
assumed interest at the rate of 8.125% per annum through December 31, 1998,
7.75% per annum for 1999 and 3.5% per annum for subsequent years. At retirement
or other termination of employment, an amount equivalent to the balance then
credited to the account is payable to the participant in the form of an
immediate or deferred lump sum or annuity. (In the case of a participant who was
a participant in the Management Pension Plan on December 31, 1993, the
participant's account also was credited with pension credits equivalent to the
participant's accrued benefit on that date.)
As a Class I Senior Manager under the Pension Program with more than 30
years of service, if Mr. LaMacchia continued in employment and retired at the
normal retirement age of 65, his estimated single life annuity annual pension
amount under both the Management Pension Plan and the Pension Program combined,
prior to deduction for Social Security benefits, would be $746,500. Mr.
LaMacchia's pension would be reduced if he retires prior to age 60. (Since Mr.
LaMacchia, age 57, has retired effective February 28, 1999, prior to the age of
60, he is entitled to a lump sum payment of $505,861 under the Company
Management Pension Plan and an annual amount of $636,931 under the Pension
Program.)
As a Class II Senior Manager under the Pension Program, if Mr. Ellenberger
continues in employment and retires at the normal retirement age of 65, his
estimated single life annuity annual pension amounts under both the Management
Pension Plan and the Pension Program combined, prior to deduction for Social
Security benefits, would be: $319,900. Mr. Ellenberger's (age 46 and one year of
service) annual pension amount would be reduced, if he retires prior to age 60.
In conjunction with the Convergys Spin-Off and Messrs. Orr, Baskett, Marino
and Henry ceasing to be employees of the Company, the Company transferred to the
Convergys Pension Plan the pension assets for all employees that moved from the
Company to Convergys Corporation, including those of the named executive
officers. Consequently, the Company is no longer responsible for the pensions of
these individuals who became Convergys Corporation employees in conjunction with
the Convergys Spin-Off.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In December 1987, the Company entered into an Executive Employment Agreement
with Mr. LaMacchia. The Agreement was not a typical employment agreement in that
Mr. LaMacchia's term of employment under the Agreement did not commence until
the date of a "change in control" (as defined in the Agreement) of the Company.
Under the Agreement, Mr. LaMacchia (i) continued to be employed in the same
position that he had on the day preceding the change in control with the
responsibilities and
23
authorities that executives in comparable companies possess and (ii) received
the same level of compensation (with annual cost of living increases) and
benefits in effect immediately prior to the change in control. After a change in
control, he could terminate his employment, with or without reason, upon one
month's prior written notice. The Company could terminate his employment without
breach of his Agreement only upon his death, disability or for "cause" (as
defined in the Agreement). If, after a change in control of the Company, the
Company terminated his employment in a breach of his Agreement or he voluntarily
terminated his employment, he was entitled to receive as severance pay in cash
an amount equal to five times his "base amount" within the meaning of section
280G of the Internal Revenue Code.
Effective January 1, 1999, the Company entered into a new Employment
Agreement with Mr. LaMacchia that superceded the December 1987 Executive
Employment Agreement described above. The Employment Agreement with Mr.
LaMacchia provided for the employment and retention of Mr. LaMacchia for a term
commencing on January 1, 1999 and terminating on December 31, 1999 or such
earlier date as may be agreed upon by the Company and Mr. LaMacchia. The
Employment Agreement provided for a minimum base salary of $600,000 per year; a
minimum bonus target of $358,000 per year; a grant of an option to purchase
200,000 Common Shares; a restricted stock award of 200,000 Common Shares and an
annual grant of long term incentives with a present value of not less than
$810,000; continued participation in the Company pension plan and medical
benefits and retiree medical benefits. The Employment Agreement provided that,
if Mr. LaMacchia's employment terminated following a change in control of the
Company, Mr. LaMacchia would receive a lump sum payment equal to three times his
annual base salary and bonus target on the date of termination, plus continued
medical, dental, vision and life insurance coverage as well as retiree medical
benefits. In the event that the Company terminated Mr. LaMacchia's employment
(other than for cause or disability or as a result of a change in control), Mr.
LaMacchia would receive a lump sum payment equal to the greater of (a) two times
his base salary rate and bonus target or (b) the base salary rate and bonus
target for the remainder of the term, plus the medical benefits and retiree
medical benefits described above. In addition, to the extent that Mr. LaMacchia
is deemed to have received an "excess parachute payment" by reason of a change
in control, the Company would pay Mr. LaMacchia an additional sum sufficient to
pay (i) any taxes imposed under Section 4999 of the Internal Revenue Code plus
(ii) any federal, state and local taxes applicable to any taxes imposed under
Section 4999 of the Internal Revenue Code.
Pursuant to Mr. LaMacchia's January 1, 1999 Employment Agreement, upon the
termination of Mr. LaMacchia's employment for any reason (other than for cause)
(i) all stock options granted would become immediately exercisable, (ii) all
restrictions applicable to any restricted stock grant would immediately lapse,
and (iii) for purposes of computing Mr. LaMacchia's benefit under the Company's
Pension Program, the reduction for age would be waived. Effective February 28,
1999, Mr. LaMacchia resigned as President and CEO of the Company.
In August 1994, the Company entered into an Employment Agreement with Mr.
Orr which provided for the employment and retention of Mr. Orr for a term
commencing on January 1, 1995 and terminating on December 31, 1999. The
Employment Agreement provided for a minimum base salary of $240,000 per year; a
minimum bonus target of $170,000 per year; an annual grant of options to
purchase at least 40,000 Common Shares (giving effect to a two-for-one split in
Common Shares); if he remained employed through December 31, 1999, a minimum
pension of $40,000 per year; retiree medical benefits; and benefits and
perquisites consistent with the treatment of similarly situated employees. The
Employment Agreement provided that, if Mr. Orr's employment terminated following
a change in control of the Company, Mr. Orr would receive a lump sum payment
equal to the greater of $720,000 or 2.99 times his annual base salary and bonus
target on the date of termination, plus the minimum pension and retiree medical
benefits described above, but not less than the amount called for in the event
of a termination without cause. In the event that the Company terminated Mr.
Orr's employment (other than for cause or disability), Mr. Orr would receive a
lump sum severance payment equal to the greater of (a) two times his base salary
rate and bonus target or (b) the base salary rate and bonus target for the
remainder of the term, plus the minimum pension and retiree medical benefits
described above. In connection with the Covergys IPO, the Company's Employment
Agreement with Mr. Orr terminated on August 12, 1998, and Covergys Corporation
has entered into an Employment Agreement with Mr. Orr as described below.
24
In June 1997, CBT entered into an Employment Agreement with Mr. Ellenberger
which provided for the employment and retention of Mr. Ellenberger for a term
commencing on June 9, 1997 and ending on June 8, 2002. The Employment Agreement
provided for: a minimum base salary of $320,000 per year; a minimum bonus target
of $160,000 per year; a performance share target; and benefits and perquisites
consistent with the treatment of similarly situated employees. The Employment
Agreement stated that, if Mr. Ellenberger's employment terminated following a
change in control of the Company or CBT, Mr. Ellenberger would receive a lump
sum payment equal to 2.99 times his base salary. In the event that CBT
terminated Mr. Ellenberger's employment (other than for cause or disability),
Mr. Ellenberger would receive a lump sum severance payment equal to two times
his then current base salary. In conjunction with the Convergys IPO, and upon
his becoming Chief Operating Officer of the Company, Mr. Ellenberger's salary
was increased to $365,000 per year.
Effective January 1, 1999, the Company entered into a new Employment
Agreement with Mr. Ellenberger that superceded the Employment Agreement
described above. The new Employment Agreement provides for the employment and
retention of Mr. Ellenberger for a four-year term commencing on January 1, 1999,
subject to automatic one year extensions unless terminated prior to the
beginning of the final year. The Employment Agreement provides that, effective
the day after Mr. LaMacchia's retirement as President and Chief Executive
Officer, Mr. Ellenberger will become President and Chief Executive Officer of
the Company (which occurred March 1, 1999). The Employment Agreement provides
for a minimum base salary of $550,000 per year; a minimum bonus target of
$360,000 per year; a grant of options to purchase 300,000 Common Shares which
options will become exercisable as to 75,000 Common Shares on January 1 of each
year commencing January 1, 2000; a restricted stock award of 300,000 Common
Shares which will vest on December 31, 2002; and annual grants of long-term
incentives with a present value of not less than $750,000. The Executive
Employment Agreement provides that, if Mr. Ellenberger's employment terminates
following a change in control of the Company, Mr. Ellenberger will receive a
lump sum payment equal to three times his annual base salary and bonus target on
the date of termination, plus continued medical, dental, vision and life
insurance coverage as well as retiree medical benefits. In the event that the
Company terminates Mr. Ellenberger's employment (other than for cause or
disability), Mr. Ellenberger will receive a lump sum payment equal to the
greater of (a) two times his base salary rate and bonus target or (b) the base
salary rate and bonus target for the remainder of the term, plus the medical
benefits and retiree medical benefits described above. In addition, to the
extent that Mr. Ellenberger is deemed to have received an excess parachute
payment by reason of a change in control, the Company shall pay Mr. Ellenberger
an additional sum sufficient to pay (i) any taxes imposed under Section 4999 of
the Internal Revenue Code plus (ii) any federal, state and local taxes
applicable to any taxes imposed under Section 4999 of the Internal Revenue Code.
In January 1998, the Company entered into an Employment Agreement with Mr.
Baskett which provided for the employment and retention of Mr. Baskett for a
term commencing January 1, 1998 and ending on December 31, 2003. The Employment
Agreement provided for: a minimum base salary of $275,000 per year; a minimum
bonus target of $125,000 per year; a lump sum bonus payment otherwise payable to
the Company's outside counsel for Mr. Baskett's dedicated service to the Company
in 1997; a restricted stock award of 20,000 Common Shares; and benefits and
perquisites consistent with the treatment of similarly situated employees. In
the event that the Company terminated Mr. Baskett's employment (other than for
cause or disability), Mr. Baskett would receive a lump sum severance payment
equal to two times his then current base salary plus his non-vested benefits
under the various deferred compensation plans of the Company. In connection with
the Convergys IPO, the Company's Employment Agreement with Mr. Baskett
terminated on August 12, 1998, and Convergys Corporation has entered into an
Employment Agreement with Mr. Baskett as described below.
In September 1995, Convergys Information Management Group Inc. ("CIMG"),
formerly known as Cincinnati Bell Information Systems Inc., entered into an
Employment Agreement with Mr. Marino which provided for the employment and
retention of Mr. Marino for a term commencing on October 1, 1995 and terminating
on September 30, 2000. The Employment Agreement provided for a minimum base
salary of $240,000 per year, which is subject to annual performance reviews and
increases consistent with his performance and the treatment of similarly
situated employees; a minimum bonus target of $110,000 per
25
year; a supplemental pension equal to that portion of his accrued pension under
the Management Pension Plan attributable to his first 10 years of service and
benefits and perquisites consistent with the treatment of similarly situated
employees of CIMG. In the event that CIMG terminated Mr. Marino's employment
(other than for cause or disability), Mr. Marino would receive a lump sum
severance payment equal to two times his then current base salary. In connection
with the Convergys IPO, the Company's Employment Agreement with Mr. Marino
terminated on August 12, 1998, and Convergys Corporation has entered into an
Employment Agreement with Mr. Marino as described below.
Convergys Corporation has entered into Employment Agreements with Messrs.
Orr, Baskett and Marino which provide for their employment and retention for
four-year terms commencing on August 13, 1998, subject to one year extensions
unless terminated prior to the beginning of the final year. For years after
1998, the Employment Agreements provide a minimum annual base salary, a minimum
annual bonus target and annual grants of long-term incentives with a minimum
present value. If their employment is terminated within two years after a change
in control or if they elect to leave within 90 days after a change in control,
they will receive lump sum payments equal to three times the sum of their base
salary and bonus targets and benefits will continue to be provided for three
years. If their employment is terminated by Convergys Corporation without cause,
they will receive lump sum severance payments equal to their base salary and
bonus targets for the remainder of the Employment Agreement terms (but no less
than two times the sum of their base salary and bonus targets) and benefits will
continue to be provided for the remainder of the Employment Agreement terms (or,
if longer, for two years).
In March 1993, the Company entered into an Executive Employment Agreement
with Mr. Henry which provided for the employment and retention of Mr. Henry for
a term commencing on March 29, 1993 and terminating on March 29, 1999. The
Executive Employment Agreement provided for a minimum base salary of $270,000
per year; the opportunity to earn a bonus under the Short Term Incentive Plan; a
supplemental pension equal to that portion of his accrued pension under the
Management Pension Plan attributable to his first 10 years of service; and
benefits and perquisites consistent with the treatment of similarly situated
employees of the Company. The Executive Employment Agreement provided that, if
Mr. Henry's employment terminated following a change in control of the Company,
Mr. Henry would receive a lump sum payment equal to the greater of $810,000 or
three times his annual base salary on the date of termination. In the event that
the Company terminated Mr. Henry's employment (other than for cause or
disability) after March 29, 1995, Mr. Henry would receive a lump sum severance
payment equal to his previous 12 months base salary.
The foregoing Employment Agreement with Mr. Henry terminated effective March
1, 1998 when CIMG entered into an Employment Agreement with Mr. Henry which
provides for the employment and retention as Chief Operating Officer of Mr.
Henry for a five-year term commencing on March 1, 1998, subject to automatic one
year extensions unless terminated prior to the beginning of the final year. The
Employment Agreement provides for a minimum base salary of $320,000 per year and
a minimum bonus target of $120,000 per year. If Mr. Henry's employment is
terminated within two years after a change in control or if Mr. Henry elects to
leave within 90 days after a change in control, he will receive a lump sum
payment equal to 2.99 times his base salary. If Mr. Henry's employment is
terminated by CIMG without cause, he will receive a lump sum severance payment
equal to two times his base salary.
The Executive Deferred Compensation Plan was adopted effective January 1,
1994 to permit executives to defer receipt of up to 75% of their base salary, up
to 100% of their cash bonuses (including annual incentive awards and cash awards
under the LTIP) and up to 100% of any Common Share awards (other than stock
options and restricted stock) under the LTIP. For participating employees who
are not Class I Senior Managers under the Pension Program, there will be a
Company "match" which is established by the Compensation Committee. For 1998,
the "match" was $0.666 for each dollar deferred, with a maximum match of 4% of
the participant's compensation in excess of $160,000. Amounts deferred by
participants (and the related Company "match") are assumed to have been invested
in various mutual funds and other investments (including Common Shares) as
designated by the participant. In addition, in conjunction with the Convergys
Spin-Off, on December 31, 1998 each participant in the Executive Deferred
Compensation Plan had his or her account under the plan credited with an amount
equal to the value of a common share of Convergys Corporation for each Common
Share then assumed to be held in such account as of such
26
date, and such amount is assumed to be invested in Common Shares. Upon
termination of employment, the amounts then credited to the participant's
account are distributed in two to ten annual installments (in cash and/or Common
Shares). The 1998 "match" of any benefits accrued for Messrs. Orr, Henry,
Baskett, and Marino is reflected in the Summary Compensation Table under the
"All Other Compensation" column. Messrs. LaMacchia and Ellenberger did not
participate in the Executive Deferred Compensation Plan during 1998.
Under the LTIP, 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.
27
PERFORMANCE GRAPH
The following Performance Graph compares the yearly percentage change of the
cumulative total shareholder return on the Company's Common Shares with the
cumulative total return, assuming reinvestment of dividends, of (i) the S&P
500-Registered Trademark- Stock Index and (ii) the Telephone Peer Group.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE TOTAL RETURN
BASED ON AN INITIAL INVESTMENT OF
$100 ON DECEMBER 31, 1993
WITH DIVIDENDS REINVESTED
CINCINNATI S&P 500 TELEPHONE PEER
BELL INC. -REGISTERED TRADEMARK- GROUP
Dec-93 $100 $100 $100
Dec-94 $99 $101 $95
Dec-95 $209 $139 $143
Dec-96 $374 $171 $146
Dec-97 $382 $229 $204
Dec-98 $472 $294 $304
SOURCE: GEORGESON & COMPANY INC.
The Telephone Peer Group consists of ALLTEL Corp., Ameritech Corp., Bell
Atlantic Corp., BellSouth Corp., Frontier Corp., GTE Corp., NYNEX Corp. (through
6/30/97), Pacific Telesys Group (through 3/31/97), SBC Communications Inc.,
Southern New England Telecommunications Corp. (through 9/30/98), Sprint Corp.,
and U S West Inc.--Communications Group.
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 and
Cincinnati Stock Exchanges. 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, 1998 and ending
December 31, 1998, all such persons complied on a timely basis with the filing
requirements of Section 16(a) except as follows: Thomas E. Taylor's Form 3 was
inadvertently filed late after he became an executive officer of the Company and
all non-employee directors failed to report awards under the Directors Deferred
Compensation Plan because they were unaware that such awards were reportable.
28
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
Shareholder proposals intended for inclusion in next year's Proxy Statement
should be sent to Thomas E. Taylor, Secretary, 201 East Fourth Street, P.O. Box
2301, Cincinnati, Ohio 45201, and must be received by November 25, 1999. Any
such proposal must comply with Rule 14a-8 promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
Any shareholder who intends to propose any other matter to be acted upon at the
2000 Annual Meeting of Shareholders must inform the Company no later than
February 8, 2000. If notice is not provided by that date, the persons named in
the Company's proxy for the 2000 Annual Meeting will be allowed to exercise
their discretionary authority to vote upon any such proposal without the matter
having been discussed in the proxy statement for the 2000 Annual Meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
At the time this Proxy Statement was released for printing on March 17,
1999, the Company knew of no other matters which might be presented for action
at the meeting. If any other matters properly come before the meeting, it is
intended that the Common Shares represented by proxies will be voted with
respect thereto in accordance with the judgment of the persons voting them.
The Company will pay the costs of soliciting proxies. We expect to solicit
proxies mainly by mail. Some directors, officers and regular employees of the
Company may also solicit proxies in person or by telephone, make additional
requests for the return of proxies and may receive proxies on behalf of the
Company. We will reimburse brokers, nominees, fiduciaries and other custodians
for their reasonable expenses incurred to forward soliciting material to the
beneficial owners of Common Shares. The Company also has hired Georgeson &
Company Inc. to help it solicit proxies. The Company will pay Georgeson &
Company Inc. an estimated fee of $10,000 plus reimbursement of out-of-pocket
expenses for its services.
FINANCIAL STATEMENTS AVAILABLE
The 1998 Annual Report 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 1998 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission, please write to Thomas E. Taylor, Secretary, 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
Thomas E. Taylor
Secretary
March 24, 1999
29
[LOGOS]
PRINTED ON RECYCLED PAPER
[LOGO]
CINCINNATI BELL INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 26, 1999
The undersigned hereby appoints Phillip R. Cox, Richard G. Ellenberger and
William A. Friedlander, and each or any of them, proxies, with full power of
substitution, to represent and to vote all common shares of Cincinnati Bell Inc.
held of record by the undersigned on February 26, 1999, at the annual meeting of
shareholders to be held on April 26, 1999, at 11:30 A.M. in Springer Auditorium
of Music Hall in Cincinnati, Ohio, and at any adjournment thereof, notice of
which meeting together with the related proxy statement has been received. The
proxies are directed to vote the shares the undersigned would be entitled to
vote if personally present.
ITEM 1 Authority to vote for the FOR / / WITHHELD / /
election of Class III ALL NOMINEES LISTED AUTHORITY TO VOTE
directors whose terms (EXCEPT AS MARKED TO
expire in 2002: THE CONTRARY BELOW
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
James D. Kiggen Daniel J. Meyer Mary D. Nelson
ITEM 2 To Amend the Company's FOR / / AGAINST / / ABSTAIN / /
Amended Articles of
Incorporation,
ITEM 3 To approve the FOR / / AGAINST / / ABSTAIN / /
appointment of
PricewaterhouseCoopers
LLP as independent
accountants to examine
the financial statements
of the Company for the
year 1999,
ITEM 4 To vote on a shareholder FOR / / AGAINST / / ABSTAIN / /
proposal if properly
presented,
ITEM 5 To transact such other business as may be properly brought before the
meeting.
(CONTINUED ON REVERSE SIDE)
[LOGO]
CINCINNATI BELL INC.
C/O CORPORATE TRUST SERVICES
MAIL DROP 1090FS--4129
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
Please vote, date and sign below and return this proxy form promptly in the
enclosed envelope. If you attend the meeting and wish to change your vote, you
may do so automatically by casting your vote at the meeting. This proxy form,
when properly executed, will be voted in accordance with the directions given by
the shareholder. If no directions are given hereon, the proxy form will be voted
FOR the election of directors, FOR the amendment of the Amended Articles of
Incorporation, FOR the approval of the independent accountants and AGAINST the
shareholder proposal. This proxy delegates discretionary authority with respect
to any other matters which may come before the meeting.
Dated ________________________, 1999
---------------------------------------------
SIGNATURE
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SIGNATURE IF SHARES HELD JOINTLY
Please sign exactly as name appears opposite.
Executors, trustees, administrators and other
fiduciaries should so indicate.