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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 under Rule 14a-12
----------------
Citizens Communications Company
(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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Administrative Offices
[Citizens Communications Logo] Three High Ridge Park, Stamford, CT 06905
(203) 614-5600
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March 23, 2001
Dear Fellow Stockholder:
I am pleased to invite you to attend the 2001 Annual Meeting of the
Stockholders of Citizens Communications Company which will be held at the
Hotel Inter-Continental, 505 North Michigan Avenue, Chicago, IL, on Thursday,
May 17, 2001, at 10:00 a.m., Central Time.
At last year's Annual Meeting, almost 87 percent of Citizens' outstanding
shares were represented. We hope that the percentage will be even higher at
the forthcoming meeting. It is important that your shares be represented
whether or not you attend the meeting. In order to insure that you will be
represented, we ask that you sign, date, and return the enclosed proxy. If
present, you may revoke your proxy and vote in person.
Attendance at the Annual Meeting will be limited to employees and
stockholders as of the record date or their authorized representative. Because
of space limitations, admission to the Annual Meeting will be by admission
card only. Registered stockholders planning to attend the meeting should
complete and return the advance registration form on the back page of this
Proxy Statement or you may send us an electronic mail message to
citizensproxy@czn.com. If your shares are held through an intermediary such as
a bank or broker, complete and return the advance registration form on the
back page of this Proxy Statement and mail it to Shareholder Services,
Citizens Communications Company, Three High Ridge Park, Stamford, CT 06905.
Please include proof of ownership such as a bank or brokerage firm account
statement or a letter from the broker, trustee, bank or nominee holding the
stock confirming your beneficial ownership.
We look forward to seeing and meeting with you at the annual meeting.
Cordially,
/s/ Leonard Tow
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Leonard Tow
Chairman and Chief Executive Officer
[graphic]
Administrative Offices
[citizens communications logo] Three High Ridge Park, Stamford, CT 06905
(203) 614-5600
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March 23, 2001
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To the Stockholders of
CITIZENS COMMUNICATIONS COMPANY:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Citizens
Communications Company will be held at the Hotel Inter-Continental, 505 North
Michigan Avenue, Chicago, IL, on Thursday, May 17, 2001, at 10:00 a.m.,
Central Time, for the following purposes:
1. To elect directors;
2. To approve the Citizens Communications Company Amended and Restated
2000 Equity Incentive Plan; and
3. To transact any other business that may properly be brought before the
meeting or any adjournment or postponement of the meeting.
The board of directors has fixed the close of business on March 19, 2001, as
the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment or postponement of the meeting.
A complete list of stockholders entitled to vote at the meeting will be open
to the examination of stockholders during ordinary business hours, for a
period of ten days prior to the meeting, at the offices of Illinois Stock
Transfer Company, 209 West Jackson Boulevard, Suite 903, Chicago, IL 60606 and
at the site of the meeting on the meeting date.
By Order of the Board of Directors
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L. Russell Mitten
Secretary
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the board of directors of Citizens Communications Company to be voted at
our annual meeting of stockholders. The mailing address of our administrative
offices is Three High Ridge Park, P.O. Box 3801, Stamford, CT 06905. The
approximate date on which this proxy statement and form of proxy are first
being sent or given to stockholders is March 31, 2001.
Only holders of record of our common stock, par value $0.25 per share, as of
the close of business on March 19, 2001, the record date, will be entitled to
notice of and to vote at the annual meeting. As of the record date, there were
263,279,841 shares of common stock outstanding, each of which is entitled to
one vote at the annual meeting. As of the record date, an additional 3,116,877
shares of common stock were outstanding and held by us as treasury shares. We
have no other class of voting securities issued and outstanding. The presence
in person or by proxy of the holders of a majority of the outstanding shares
of common stock will be necessary to constitute a quorum for the transaction
of business at the annual meeting.
Directors will be elected by a majority vote of the shares of common stock
present or represented by proxy at the meeting and entitled to vote at the
meeting. Approval of the 2000 Equity Incentive Plan also requires the
affirmative vote of a majority of the shares of common stock present or
represented by proxy at the meeting and entitled to vote at the meeting.
Abstentions will have the effect of a negative vote with respect to the
election of directors and the approval of the 2000 Equity Incentive Plan.
Under the rules of the New York Stock Exchange, brokers who hold shares in
street name for customers that have not given instructions to such brokers
have the authority to vote on the election of directors and the approval of
the 2000 Equity Incentive Plan; accordingly, unless contrary instructions are
given, all proxies received pursuant to this solicitation will be voted in
favor of the election of the nominees and the approval of the 2000 Equity
Incentive Plan. Stockholders may not cumulate their votes. Stockholders who
execute proxies may revoke them at any time before they are voted.
Stock Ownership of Certain Beneficial Owners, Directors and Executive Officers
As of February 28, 2001, no person or group of persons, except for FMR Corp.
and Wallace R. Weitz & Company, is known by us to own beneficially more than
5% of our common stock. All information regarding the number of our shares
beneficially owned, and regarding voting and investment power with respect
thereto, by any person or group that owns beneficially more than 5% of our
common stock is based solely on our review of Schedules 13G filed with the
Securities and Exchange Commission as of February 28, 2001.
According to the Schedule 13G jointly filed by FMR Corp., Edward C. Johnson,
3rd, Abigail P. Johnson, and Fidelity Management & Research Company on
February 13, 2001, FMR Corp., Edward C. Johnson, 3rd, and Abigail P. Johnson,
with offices at 82 Devonshire Street, Boston, Massachusetts 02109 beneficially
own an aggregate of 18,035,701 shares of our common stock, representing
approximately 6.9% of our outstanding common stock. Members of the Edward C.
Johnson, 3rd, family hold approximately 49% of the voting power of FMR Corp.
Mr. Johnson, 3rd, owns 12% and Abigail Johnson owns 24.5% of the outstanding
stock of FMR Corp. Mr. Johnson, 3rd, is Chairman of FMR Corp. and Abigail
Johnson is a director. Approximately 6.0% of our outstanding common stock, or
15,786,161 of the 18,035,701 shares, is held by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR Corp. Mr. Johnson, 3rd, and FMR
Corp. each have sole investment power with respect to those shares. Fidelity
Management & Research Company has the sole power to vote these shares.
Approximately 0.8% of our outstanding common stock, or 2,177,240 of the
18,035,701 shares, is held by Fidelity Management Trust Company, a wholly-
owned subsidiary of FMR Corp. Mr. Johnson, 3rd, and FMR Corp. each has sole
investment power with respect to all of these shares and sole power to vote
1,690,140 shares and no power to vote 487,100 shares. Approximately 0.03% of
our outstanding common stock, or 72,300 of the 18,035,701 shares, is held by
Fidelity International Limited, approximately 40% of the voting stock of which
is controlled by Mr. Johnson, 3rd, and members of his family. Fidelity
International Limited has sole investment power and sole voting power with
respect to these shares.
According to the Schedule 13G that Wallace R. Weitz & Company and Wallace R.
Weitz, President and Primary Owner of Wallace R. Weitz & Company, jointly
filed with the Securities and Exchange Commission on February 2, 2001, Wallace
R. Weitz & Company and Wallace R. Weitz, with offices at 1125 South 103rd
Street, Suite 600, Omaha, Nebraska 68124-6008, beneficially owned 14,149,300
shares of our common stock,
1
representing approximately 5.3% of our outstanding common stock. Wallace R.
Weitz & Company and Wallace R. Weitz hold shared dispositive power and shared
voting power over these shares, and they disclaim beneficial ownership of
these shares under Rule 13d-4 of the Securities Exchange Act of 1934.
The following table reflects shares of common stock beneficially owned (or
deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) as of February 28, 2001, by each of our directors, each
of the executive officers named in the Summary Compensation Table included
elsewhere herein, and all of our current directors and all our executive
officers as a group. Except as otherwise described below, each of the persons
named in the table has sole voting and investment power with respect to the
securities beneficially owned.
Common Acquirable Percentage
Stock Within Of Common
Name Position Owned (1) 60 Days (2) Stock (3)
- ---- ------------------------ ---------- ----------- ----------
Norman I. Botwinik .................................. Director 113,472(4) 89,275 *
John H. Casey, 3rd .................................. Vice President, 218,579(5) 16,666 *
Telecommunications Sector
Aaron I. Fleischman ................................. Director 128,754 93,069 *
Rudy J. Graf(6) ..................................... Vice Chairman, President, and 347,708(7) 83,333 *
COO
Stanley Harfenist(6) ................................ Director 107,024(8) 93,069 *
Andrew N. Heine ..................................... Director 103,228 103,069 *
John L. Schroeder ................................... Director 97,204 90,203(8) *
David B. Sharkey .................................... Former Vice President and 2,052 0 *
Former President,
Electric Lightwave, Inc.
Scott N. Schneider(6) ............................... Vice Chairman and Executive 173,009(9) 83,333 *
Vice President
Robert D. Siff ...................................... Director 98,530(8) 92,346(8) *
Robert A. Stanger(6) ................................ Director 105,607 103,068 *
Charles H. Symington, Jr. ........................... Director 90,679 84,900 *
Edwin Tornberg ...................................... Director 42,424(10) 33,376(8) *
Claire L. Tow(6) .................................... Director 9,217,970(11)(12) 2,425,948(13) 3.5%
Leonard Tow(6) ...................................... Chairman and CEO 9,217,970(11)(14) 2,425,948(15) 3.5%
All Executive Officers and Directors
as a group (25 persons) (16) ........................ 11,941,241 4,022,236 4.5%
- ---------------
* Represents less than 1% of our outstanding common stock.
(1) Pursuant to rules of the Securities and Exchange Commission, includes
shares acquirable as further described in footnote (2). Shares owned as
of February 28, 2001, may be determined by subtracting the number under
"Acquirable Within 60 Days" from that under "Common Stock Owned."
(2) Reflects number of shares that could be purchased by exercise of options
as of February 28, 2001, or within 60 days thereafter under our
Management Equity Incentive Plan, the Equity Incentive Plan, the 2000
Equity Incentive Plan or the Non-Employee Directors' Deferred Fee Equity
Plan, as applicable.
(3) Based on number of shares outstanding at, or acquirable within 60 days
of, February 28, 2001.
(4) Includes 11,406 shares of common stock owned by Mr. Botwinik's wife. Mr.
Botwinik disclaims beneficial ownership of such shares.
(5) Includes 133,333 restricted shares over which Mr. Casey has sole voting
power but no dispositive power.
(6) Citizens (through its wholly-owned subsidiary CU Capital Corp.) owns
2,287,644 shares or approximately 24% voting interest in the Class A
Common Stock of Electric Lightwave Inc. ("ELI"), one of our
subsidiaries, and 41,165,000 shares or approximately 97.9% of the voting
interest in the Class B Common Stock of ELI. By reason of the definition
of beneficial ownership, each of Rudy J. Graf, Stanley Harfenist,
2
Scott N. Schneider, Robert A. Stanger, Leonard Tow and Claire Tow is
deemed to have an indirect beneficial interest in the 2,287,644 shares
of ELI Class A Common Stock and the 41,165,000 shares of ELI Class B
Common Stock. Except to the extent of such indirect interest, each of
the named individuals disclaims beneficial ownership of any of the
2,287,644 shares of Class A Common Stock and the 41,165,000 shares of
Class B Common Stock. Along with the beneficial ownership described
above, each of Stanley Harfenist, Robert A. Stanger, and Leonard Tow,
together with Claire Tow, also has beneficial ownership interest in
125,947, 50,447 and 255,504 shares of ELI Class A Common Stock,
respectively.
(7) Includes 200,000 restricted shares over which Mr. Graf has sole voting
power but no dispositive power.
(8) Each of Messrs. Harfenist, Schroeder, Siff, and Tornberg has transferred
all or a portion of these stock options or shares of common stock to
family limited partnerships or trusts beneficially owned by him. Mr.
Siff disclaims beneficial ownership of the 6,183 shares of common stock
and all of the 92,346 options held by M.R. Sidebore Limited Partnership
which is beneficially owned by him.
(9) Includes 66,666 restricted shares over which Mr. Schneider has sole
voting power but no dispositive power.
(10) Includes 651 shares held by Mr. Tornberg's wife. Mr. Tornberg disclaims
beneficial ownership of such shares.
(11) Includes 5,344,211 shares of common stock owned by Lantern Partners LLC,
of which Leonard Tow is the sole member. Claire Tow is the wife of
Leonard Tow. These shares of common stock are included in the above
table for Leonard Tow and Claire Tow as required by the definition of
beneficial ownership in Rule 13d-3 under the Securities Exchange Act of
1934. Therefore, each of Leonard Tow and Claire Tow is deemed to have a
beneficial interest in these 5,344,211 shares of our common stock.
Claire and Leonard Tow have shared voting and investment power with
respect to the 5,344,211 shares of our common stock owned by Lantern
Partners LLC. Except to the extent of this interest, both Leonard Tow
and Claire Tow disclaim beneficial ownership of any of these shares of
our common stock.
(12) Includes 18,607 shares of common stock held by Claire Tow as custodian
for her minor grandchildren; 1,422,749 shares of common stock owned by
her husband, Leonard Tow, 559,974 shares of which are restricted shares
over which Leonard Tow has sole voting power but no dispositive power;
and 2,038 shares of common stock held in an individual retirement
account for the benefit of her husband, Leonard Tow. Claire Tow
disclaims beneficial ownership of all of these shares.
(13) Includes 2,332,879 shares of common stock acquirable by Leonard Tow
within 60 days. Claire Tow disclaims beneficial ownership of all of
these shares.
(14) Includes 18,607 shares of common stock held by his wife, Claire Tow, as
custodian for her minor grandchildren and 2,827 owned by his wife,
Claire Tow; and 1,590 shares of common stock held in an individual
retirement account for the benefit of his wife, Claire Tow. Leonard Tow
disclaims beneficial ownership of all of these shares.
(15) Includes 93,069 shares of common stock acquirable by Claire Tow within
60 days. Leonard Tow disclaims beneficial ownership of all of these
shares.
(16) All of our directors and executive officers as a group also own
beneficially 138,849 shares of ELI Class A Common Stock (49,800 of which
are acquirable within 60 days), which represents less than 1% of ELI
Class A Common Stock outstanding as of February 28, 2001 or acquirable
within 60 days thereafter.
3
ELECTION OF DIRECTORS
Nominees
At the meeting, 12 directors are to be elected to hold office until the next
annual meeting and until their successors have been elected and qualified. All
of the nominees are currently serving as our directors. Charles H. Symington,
Jr., who is currently a director and a member of our Audit Committee,
Compensation Committee and Retirement Committee is retiring from the board of
directors and from each such committee and accordingly is not standing for re-
election. Directors will be elected by a majority of the votes of the holders
of shares of common stock, present in person or represented by proxy at the
meeting and entitled to vote at the meeting. It is the intention of the
persons named in the enclosed proxy to vote for the election as directors of
the nominees specified. In case any of these nominees should become
unavailable for any reason, the proxy holders reserve the right to substitute
another person of their choice. The information concerning the nominees and
their security holdings has been furnished to us by the nominees. Leonard Tow
and Claire Tow are husband and wife. There are no other family relationships
between any of the nominees.
Norman I. Botwinik Director Emeritus, Board of Governors, University Director Since 1968
of New Haven; President, Botwinik Brothers, Inc.,
machine tool sales, 1957-1983; Director, Executive
Re, Inc. 1990-1993. Age 84.
Aaron I. Fleischman Senior Partner of Fleischman and Walsh, L.L.P., a Director since 1989
Washington, DC, law firm specializing in
regulatory, corporate-securities, legislative, and
litigation matters for telecommunications,
regulated utility and transportation companies,
since 1976. Director, Southern Union Company. Age
62.
Rudy J. Graf Vice Chairman of the Board of Directors of Citizens Director since 2000
Communications Company since 2001; President, Chief
Operating Officer of Citizens Communications
Company, 1999 to present; Chief Executive Officer
of Electric Lightwave, Inc., 1999 to present;
Director, President and Chief Operating Officer,
Centennial Cellular Corp., 1990 to 1999; Director,
ELI. Age 52.
Stanley Harfenist President and Chief Executive Officer of Adesso, Director since 1992
Inc., manufacturer of hardware for the Macintosh
computer, 1993 through 1999; President, Chief
Operating Officer and Director of Players
International, Inc., 1985 to 1993; Officer, Sega
Enterprises, 1982 to 1984; and Officer,
Knickerbocker Toy Company, Inc., 1978 to 1982.
Director of ELI. Age 69.
Andrew N. Heine Private investor; Of Counsel, Gordon Altman Director since 1975
Butowsky Weitzen Shalov & Wein, September 1995 to
December 1999; practicing attorney/investor, 1989
to present; Of Counsel, Curtis Mallet-Prevost, Colt
& Mosle, October 1987 to 1989; Director, FPA Group.
Age 72.
4
Scott N. Schneider Vice Chairman of the Board of Directors of Citizens Director since 2000
Communications Company since 2001; Executive Vice
President of Citizens Communications Company and of
Electric Lightwave, Inc. since 1999; Director from
1996 to October 1999, Chief Financial Officer from
1996 to October 1999 and Senior Vice President and
Treasurer of Century Communications Corp. from 1991
to October 1999; Director, Chief Financial Officer,
Senior Vice President and Treasurer of Centennial
Cellular Company, 1991 to 1999; Director, ELI. Age
43.
John L. Schroeder Director, Morgan Stanley Dean Witter Funds, 1994 to Director since 1980
present; Executive Vice President and Chief
Investment Officer, The Home Insurance Company,
1991 to 1995; Chairman of the Board and Chief
Investment Officer, Axe-Houghton Management, Inc.,
and Axe-Houghton Funds, 1983 to 1990; Chartered
Financial Analyst. Age 70.
Robert D. Siff Consultant, Regional Banks, 1987 to 1999; Director, Director since 1989
Century Communications Corp. 1987 to 1997. Age 76.
Robert A. Stanger Chairman, Robert A. Stanger & Company, investment Director since 1992
banking and consulting services, 1978 to present;
Publisher, The Stanger Report; Director, Callon
Petroleum Company, Inc., exploration and production
of oil and natural gas; Director, ELI. Age 61.
Edwin Tornberg President and Director, Edwin Tornberg & Company, Director since 1992
brokers, management consultants and appraisers
serving the communications industry, 1957 to
present. President and Director, Radio 780, Inc.
(Washington, DC), 1977 to present. Vice President
and Director, Radio One Five Hundred, Inc.
(Indianapolis, IN), 1959 to present. Chairman and
Director, New World Radio Inc. (Washington, DC),
1992 to present. Chairman, Treasurer and Director,
Global Radio, LLC. (Philadelphia, PA), 1997 to
present, Chairman and Director, Nations Radio LLC
(Annapolis, MD) since 1999. Age 75.
Claire L. Tow President, The Tow Foundation; Until October 1999, Director since 1993
Senior Vice President since 1992 and Vice President
and Director since 1988 of Century Communications
Corp., a cable television company. Age 70.
Leonard Tow Chairman and Chief Executive Officer, Citizens Director since 1989
Communications Company, 1990 to present; Chief
Financial Officer, 1991 to 1997. Chief Executive
Officer and Director of Century Communications
Corp., a cable television company, since its
organization in 1973 to October 1999, and Chairman
of the Board 1989 to October of 1999 and Chief
Financial Officer, 1973 to 1996; Chairman of the
Board, ELI. Director, Hungarian Telephone and Cable
Corp. Director, United States Telephone
Association. Age 72.
5
Our board of directors recommends that you vote "for" the election of all
nominees for director.
The board of directors held 11 meetings in 2000. Each director attended at
least 75% of the aggregate of these meetings and the total number of meetings
held by all committees of the board on which he or she served as described
below under "Committees of the Board."
Committees of the Board
The board has standing Executive, Audit, Compensation, Management
Development, Nominating, and Retirement Plan Committees.
Executive Committee. Our Executive Committee is composed of Dr. Tow as
Chairman and Messrs. Harfenist, Fleischman, and Stanger. The Executive
Committee held one meeting in 2000. During intervals between meetings of the
board, the Executive Committee has the power and authority of the board over
the management of our business affairs and property, except for powers
specifically reserved by Delaware law or by our Restated Certificate of
Incorporation.
Audit Committee. Our Audit Committee is composed of five directors and
operates under a written charter adopted by the board of directors, a copy of
which is included in this proxy statement as Appendix A. The members of the
Audit Committee are Mr. Heine as Chairman and Messrs. Schroeder, Siff, Stanger
and Symington, each of whom is independent as required by the listing
standards of the New York Stock Exchange. The Audit Committee met nine times
in 2000.
The Audit Committee recommends to the board of directors, the selection of
our independent accountants. Management is responsible for our internal
controls and the financial reporting process. Our independent accountants are
responsible for performing an independent audit of our consolidated financial
statements in accordance with generally accepted auditing standards, for
issuing a report thereon and for reviewing our Quarterly Reports on Form 10-Q.
The Audit Committee's responsibility is to review these processes.
Compensation Committee. The Compensation Committee is composed of Mr.
Stanger as Chairman and Messrs. Botwinik, Harfenist, Symington and Tornberg.
The Compensation Committee met five times in 2000. The Committee reviews our
general compensation strategies, acts as the Committee for the Citizens
Incentive Plan, the Management Equity Incentive Plan, the Equity Incentive
Plan, the 2000 Equity Incentive Plan, the Employee Stock Purchase Plan, and
the Non-Employee Directors Deferred Fee Equity Plan and establishes and
reviews compensation for our Chief Executive Officer and other executive
officers.
Management Development Committee. The Management Development Committee is
chaired by Mrs. Tow and Messrs. Harfenist and Siff are its other members. Its
function is to foster a high level of cooperation and exchange among members
of the management team. The committee met once in 2000.
Nominating Committee. The Nominating Committee is chaired by Mr. Harfenist,
and Messrs. Botwinik and Fleischman are its other members. In 2000, the
Nominating Committee did not meet. The committee's function is to recommend
candidates for election to the board of directors. The Nominating Committee
will entertain written suggestions for nominees from stockholders so long as
they are addressed to Mr. Harfenist at our address, on or before the date
specified under "Stockholder Proposals" and include a description of the
qualifications of the suggested nominee and any information that is required
by the regulations of the Securities and Exchange Commission concerning the
suggested nominee and his or her direct or indirect securities holdings, or
other interests, in us.
Retirement Plan Committee. The Retirement Plan Committee is composed of Mr.
Schroeder as Chairman, and Mrs. Tow and Messrs. Botwinik, Symington and
Tornberg. The Retirement Committee oversees our retirement plans. The
committee met two times in 2000.
6
AUDIT COMMITTEE REPORT
The Audit Committee has met and held discussions with management and our
independent accountants and has reviewed and discussed the audited
consolidated financial statements with management and our independent
accountants.
The Audit Committee has also discussed with our independent accountants the
matters required to be discussed by Statement on Auditing Standards No. 61
(Codification of Statements on Auditing Standards, AU Section 380).
Our independent accountants also provided the Audit Committee with the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), and the Audit Committee discussed with our
independent accountants that firm's independence.
Based upon the review and discussions referred to above, the Audit Committee
recommended to the board of directors that the audited consolidated financial
statements be included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 for filing with the Securities and Exchange
Commission.
Submitted by:
Andrew N. Heine, Chairman
John L. Schroeder
Robert D. Siff
Robert A. Stanger
Charles H. Symington, Jr.
7
DIRECTORS' COMPENSATION
Prior to June 30, 2000, each non-employee director was entitled to receive
an annual retainer of $30,000, payable quarterly, and a fee of $2,000 plus
reasonable expenses for each board meeting attended in person and $1,000 for
each board meeting attended by telephone. In addition, Committee chairs of the
Audit and Compensation Committees were paid a fee of $4,000, chairs of the
other committees a fee of $2,000, and all committee members $1,000 for each
committee meeting attended, plus reasonable expenses. Each non-employee
director elected to have either 50% or 100% of his or her fee compensation
payable in cash, shares of our common stock, or stock units. If a director
elected payment of his or her fee compensation in shares of our common stock,
those shares would be purchased at the average of the high and low prices on
the first trading day of the year in which they were earned, subject to
adjustment. If a director elected payment of his or her compensation in stock
units, those units would be purchased at 85% of the average high and low
prices on the first trading day of the year in which they were earned, subject
to adjustment. These stock units, which are payable in either cash or in
shares of our common stock at the director's irrevocable election, are held by
us until the earlier of the director's retirement or death at which time they
will be paid to the director in accordance with his or her election. Directors
also received an annual stock option award under the Non-Employee Directors'
Deferred Fee Equity Plan in the amount of 5,000 options.
Effective June 30, 2000, the annual retainer was eliminated and the non-
employee director compensation for the remainder of year 2000 was payable, at
the director's election, in the form of either 2,500 stock units or 10,000
stock options. In addition, the previous fee structure for meetings attended
was eliminated and each non-employee director became entitled to receive a fee
of $2,000 plus reasonable expenses for each meeting attended in person or by
telephone. Committee chairs are paid an annual retainer of $5,000. The Audit
Committee Chair was also paid $5,000 for his additional time and effort
expended in drafting and adopting the Audit Committee Charter. The
Compensation Committee Chair was also paid $5,000 for his time and effort
expended in negotiating a new employment agreement with Dr. Tow.
Non-employee director compensation for the year 2001 also became effective
June 30, 2000. Each non-employee director is entitled to receive annual
compensation in the form of either 5,000 stock units or 20,000 stock options.
In addition, each non-employee director will continue to receive a fee of
$2,000 plus reasonable expenses for each meeting attended in person or by
telephone and Committee chairs will be entitled to a $5,000 retainer. A
director may continue to elect to have either 50% or 100% of his or her fees,
or in the case of committee chairs their annual retainer, payable in cash,
shares of our common stock, or stock units. If a director elects payment of
his or her fees in shares of our common stock, those shares will be purchased
at the average of the high and low prices on the first trading day of the year
in which they are earned, subject to adjustment. If a director elects payment
of his or her fees in stock units, those units will be purchased at 85% of the
average of the high and low prices on the first trading day of the year in
which they are earned, subject to adjustment. These stock units, which are
payable either in cash or in shares of our common stock, as per the director's
irrevocable election, will be held by us until the earlier of the director's
retirement or death at which time they will be paid to the director in
accordance with his or her election. Directors will continue to receive an
annual stock option award under the Non-Employee Directors' Deferred Fee
Equity Plan which is currently fixed at 5,000 options.
At this time, Messrs. Stanger and Harfenist are non-employee directors of
both us and ELI. Directors who are also our employees or employees of ELI are
not entitled to receive compensation for services rendered as directors. Prior
to June 30, 2000, each director of ELI who was neither our employee nor an
employee of ELI was entitled to receive an annual retainer of $30,000, an
additional fee of $1,000 plus reasonable expenses for attending each meeting
of the ELI board of directors, or committee meeting, and a fee of $2,000 for
each meeting for which that director served as chairman. Effective June 30,
2000, each director of ELI who is neither our employee nor an employee of ELI
became entitled to receive annual compensation for the remainder of the year
2000 in the form of either 2,500 stock units representing Class A Common Stock
of ELI or options for 10,000 shares of Class A Common Stock of ELI. For the
year 2001, such directors are entitled to receive either 5,000 stock units or
20,000 stock options. The awards of stock units and stock options are made
pursuant to ELI's Equity Incentive Plan. In addition to the stock units or
stock options, each non-employee director is entitled to receive a fee of
$2,000 plus reasonable expenses for each meeting attended in person or by
telephone. Committee chairs are paid an annual retainer of $5,000. All of
these fees, or in the case of committee chairs, the annual
8
retainers, are payable in cash, shares of Class A Common Stock of ELI, or
stock units representing Class A Common Stock of ELI similar to those stock
units representing our common stock for our directors' compensation described
above. If a director elects payment of his fees or retainer in stock or stock
units, those shares or units will be purchased at 85% of the fair market value
subject to adjustment. Each director of ELI who is not our employee or an
employee of ELI will also receive an annual grant of options for 7,500 shares
of Class A Common Stock of ELI, exercisable at an exercise price per share
equal to the market price of the Class A Common Stock on the first trading day
of each year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the board of directors is composed of five
independent directors who are responsible for setting and administering
compensation, including base salaries, annual incentives and stock-based
awards paid or awarded to our executive officers. The Compensation Committee
oversees and approves incentive plan design, costs and administration. This
report discusses the Compensation Committee's activities as well as its
development and implementation of policies regarding compensation paid to our
executive officers for 2000.
COMPENSATION OF THE EXECUTIVE GROUP
This section discusses our 2000 strategy for our compensation programs. The
compensation of our Chief Executive Officer is discussed separately in this
report.
COMPENSATION STRATEGY
o Offer a competitive mix of total compensation relative to the
communications industry.
o Ensure plans enable us to attract and retain employees of outstanding
ability by having flexibility based on the various labor market demands
for critical skill sets.
o Align the compensation plans across the company in order to recognize
that achievement of financial goals contribute to our overall success.
o Continue to increase performance-based compensation so that rewards to
employees have a direct correlation to shareholder value. In 2000, begin
transitioning to more pay at risk for certain levels in the organization
by holding base salaries flat and increasing the cash incentive
opportunities at certain levels of the organization.
o Create stock ownership at all levels in the organization.
Base Salary
The Compensation Committee reviews recommendations and sets the salary
levels of executive officers in the spring of each year. This review is based
on the duties and responsibilities which we expect each executive to discharge
during the current year, the executive's performance during the previous year
and the executive's total cash compensation opportunity. We perform external
market comparisons relative to industry-specific peers, based on individual
job responsibility.
Annual Cash Incentives
To retain and incent employees, the Citizens Incentive Plan offers a
competitive mix of total cash compensation relative to comparable industry
norms. Under the Citizens Incentive Plan, target incentives are assigned for
each level based on an analysis of incentive pay practices in the various
industries in which we operate. The criteria for payout of awards is our
financial performance. The financial measures used are revenue and earnings
before interest, taxes, depreciation and amortization (EBITDA). The Public
Services sector uses one
9
additional measure, which is safety. Goals are established no later than the
first quarter of the year for the full year. The plan criteria may be revised
each year to reflect changes in our business strategy.
The Citizens Incentive Plan has a voluntary deferral option for employees
deemed to be highly compensated under Department of Labor guidelines. These
employees can elect to defer all or part of their cash incentives each year
into an interest-bearing account.
1999 Annual Cash Incentive Awarded in 2000
The annual cash incentives approved by the Compensation Committee in March
2000 were based on 1999 performance. We achieved our financial goals and
overall the incentive pools were funded at 112.5% of the total target pool.
1,727 employees received Citizens Incentive Plan awards, representing 99% of
the employees eligible to receive an award.
2000 Annual Cash Incentive Awarded in 2001
The annual cash incentives approved by the Compensation Committee in March
2001 were based on 2000 performance. We achieved our financial goals and
overall the incentive pools were funded at 90% of the total target pool. 1,809
employees received Citizens Incentive Plan awards, representing 99% of the
employees eligible to receive an award.
Common Stock Long-Term Incentives
The purpose of the Equity Incentive Plan is to provide common stock-related
compensation to ensure that we can effectively attract, motivate, and retain
executives and employees in our business sectors. Stock options awarded in
2000 were granted in accordance with the Equity Incentive Plan. All stock
options awarded are non-qualified and are awarded at fair market value.
Beginning in 2001, vesting has changed from three years to four years.
Within the Equity Incentive Plan, there are two separate award programs: the
Management Stock Option Plan and the Outstanding Citizen Award. The Management
Stock Option Plan is designed to grant stock options to executives and other
key management employees for individual contributions toward achievement of
financial goals. Target awards are based on job level and are designed to
compensate our employees consistent with the long-term incentive compensation
of companies in comparable industries.
The Outstanding Citizen Award is designed to recognize and reward key
employees below the management level who are considered to have high potential
and who have made exceptional contributions. Recommendations can be made for
up to 10% of the eligible population and are at the discretion of the
employee's manager.
In October 2000, the Compensation Committee granted stock option awards to
169 executives/managers under the Management Stock Option Plan based on 1999
performance. A total of 555 employees received stock option awards under the
Outstanding Citizen Award representing 12.6% of the eligible employees.
The Compensation Committee will consider Equity Incentive Plan Awards for
2000 performance in the spring of 2001. Beginning with 2000 awards, Equity
Incentive Plan Awards will only be distributed if the prior year's EBITDA
target is achieved.
In May 2000, the Compensation Committee approved the 2000 Equity Incentive
Plan, and, as amended, on March 20, 2001, which is subject to shareholder
approval. Such plan is described elsewhere in this proxy statement and the
full text thereof is included as Appendix B hereto. Awards of options to
purchase an aggregate of 2,141,067 shares of our common stock have been
granted under the new plan.
Other
The Compensation Committee approves terms of employment offers to new
executives and other officers.
10
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
A new employment agreement effective as of October 1, 2000 between Dr. Tow
and us establishes the base annual salary and other items included in the
"Other Annual Compensation" and "All Other Compensation" columns in the
Summary Compensation Table or referred to under the caption "Employment
Agreement."
In 2000, in lieu of an Annual Cash Incentive for 1999 performance, the
Compensation Committee agreed to grant Dr. Tow 72,727 shares of our common
stock which will be awarded on January 1 of the year after his retirement. On
January 1, 2001, Dr. Tow was granted an additional 250,000 options to purchase
shares of our common stock. The options vest at a rate of 33 1/3% per year
beginning on January 1, 2002 with an exercise price of $12.9070 per share. The
options expire December 31, 2010. The Compensation Committee in 2000 also
agreed to grant Dr. Tow 1,518,750 shares of our common stock which will be
awarded on January 1 of the year after his retirement. Such award is in
recognition of Dr. Tow's investment foresight that enabled us to realize
significant gains on our investments in certain cable television and cellular
telephone companies.
The Compensation Committee will consider awards under the 2000 Equity
Incentive Plan for 2000 performance in the spring of 2001.
In reviewing Dr. Tow's incentive compensation for 2000, the Compensation
Committee also will consider the implementation of our long-term objectives as
established by the board of directors. Principal among these is the mandate to
expand and enlarge the scope and size of our communications activities through
acquisitions, viewed by the board as vital to our success. The employment
agreement referred to in this section is summarized in a later section of the
proxy statement under the heading "Employment Agreement."
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
company's chief executive officer or any of the four most highly compensated
executive officers (other than the chief executive officer). Section 162(m)
provides that qualifying performance-based compensation will not be subject to
the tax deduction limit if certain requirements are met. While our incentive
compensation programs are designed to facilitate compliance with Section
162(m), and in most cases the Compensation Committee intends to maximize the
corporate tax deduction, the Committee believes that the Company must attract
and retain qualified executives to manage the Company and that in some
instances, the Compensation Committee may need the flexibility to offer
compensation that exceeds the Section 162(m) threshold for deductibility.
Total compensation paid to Dr. Tow in 2000, and total compensation scheduled
to be paid to Dr. Tow and Mr. Graf in 2001, may cause the Section 162(m)
limitation to be exceeded for those years. In addition, if Dr. Tow's
employment terminates prior to the end of the term of employment, payments
required to be made to him are expected to exceed $1 million but, depending on
the year of payment and depending on deferral arrangements, may not be subject
to the limitation on tax deductibility.
Robert A. Stanger, Chairman
Norman I. Botwinik
Stanley Harfenist
Charles H. Symington, Jr.
Edwin Tornberg
11
EMPLOYMENT AGREEMENT
Effective as of October 1, 2000, we and Dr. Tow entered into a new
employment agreement which replaced the then effective 1996 employment
agreement. The 2000 agreement provides for Dr. Tow's continuing service as our
Chairman and Chief Executive Officer for the term of employment, October 1,
2000 through the end of 2005, and as an advisor-consultant for an additional
five-year advisory period. Dr. Tow will be paid an annual base salary of
$900,000 for the term, which is the same base salary provided under the 1996
agreement. The 2000 agreement also provides for Dr. Tow to receive additional
risk-based compensation as described below. Dr. Tow is eligible to participate
in all employee benefit and compensation plans.
After the term, he will receive compensation of $500,000 per year for
advisory services during the advisory period. We may elect to eliminate the
advisory period and the requirement of making such annual payments during such
period and instead provide life insurance coverage of $7 million through a
program of split-dollar arrangements payable to his estate or family or a
trust for their benefit. In lieu of such coverage, we would be required to pay
Dr. Tow the sum of $3.2 million.
The 1996 agreement included a performance share grant of 500,000 shares (now
559,974 shares due to stock dividends) of common stock, which shares are
restricted. In consideration of Dr. Tow entering into the 2000 agreement,
these restricted shares are to be increased by 250,000 to 809,974 and an
additional 750,000 restricted shares are to be granted to Dr. Tow.
Restrictions on transfer will lapse at the end of the term, or upon death,
earlier termination of employment, or certain corporate events. The restricted
shares are subject to reduction under certain circumstances based on our
EBITDA, as defined in the 2000 agreement, for the year of termination in
accordance with a formula and to further proportionate reductions as set forth
below. We also granted to Dr. Tow options to purchase 2,500,000 shares of
common stock. Such options vest at the rate of 250,000 shares per year
beginning on December 31, 2000, which vesting would accelerate upon expiration
of the term or earlier termination for any reason other than good cause. The
options have a 10 year term. The exercise price for the first 500,000 shares
is the fair market value on October 1, 2000 and the exercise price for each
additional 500,000 shares is $2.00 above the exercise price of the immediately
preceding installment.
To compensate for the inability to take into account under the company's
pension plan compensation paid to Dr. Tow in excess of $170,000 per year, the
2000 agreement provides for additional life insurance coverage of $15,000,000
provided through a program of split-dollar arrangements payable to his estate
or family or a trust for their benefit. Such coverage is in addition to a
$6,000,000 second-to-die policy provided for in the 1996 agreement which
continues in effect (and which will permit us to recover our costs). In the
event Dr. Tow and/or his wife are not accepted for said insurance by reason of
medical conditions, then in lieu of such insurance we are to pay to Dr. Tow or
his estate the sum of $7 million subject to reduction if the Agreement is
terminated for good cause. All of the insurance arrangements purchased by us
have been structured so that all of our costs, including the time value of
funds, in providing such benefits should be recovered from insurance proceeds.
Dr. Tow is restricted from engaging in competition materially detrimental to
us. He is, however, permitted to be a director, non-working partner, non-
working officer or stockholder of other businesses. During their lifetimes,
Dr. Tow and his wife will continue to participate in our health and other
benefit plans, and, after his retirement from full-time employment, we will
provide offices and support staff.
All payments due to Dr. Tow will accelerate in the event we merge,
consolidate with or transfer all or substantially all of our assets or stock
to another entity with net worth lower than ours immediately preceding such
transaction. Additionally, Dr. Tow may terminate the agreement in the event of
a merger in which we are not the surviving company or in the event of a
consolidation or transfer of all or substantially all of our assets or stock.
If an actual change of control, as defined in the 2000 agreement, occurs,
which includes, among other events, the acquisition by a person or group of
15% or more of our voting securities and certain changes in the board of
directors, Dr. Tow will thereafter have the option exercisable by notice to us
to acquire up to 10,000,000 shares of common stock at a price per share equal
to the fair market value of the stock on the date notice is given. All shares
covered by the 2000 agreement will be adjusted to reflect the occurrence after
October 1, 2000 of stock dividends, stock splits, or new issuances to holders
of common stock of options, warrants, rights to acquire additional shares, or
similar events.
12
If Dr. Tow's employment is terminated for good cause, as defined in the 2000
agreement, he will be entitled to receive his base salary through termination.
His vested options as of termination shall be exercisable and restrictions on
a proportionate number of his restricted shares shall lapse, based on duration
of term through termination and the EBITDA test. Dr. Tow's split-dollar life
insurance benefits would continue to be available, subject to certain
reductions. If Dr. Tow's employment terminates for any reason other than good
cause, he would also be entitled to receive his base salary for the remainder
of the term plus a bonus for the remainder of the term based on average annual
bonus paid prior to termination. All of his unvested options would immediately
vest and all restrictions on his restricted shares would lapse. In addition,
if we terminate the advisory period for any reason other than good cause, we
would be required to pay Dr. Tow $3.2 million less the amount of all advisory
payments made to him through termination. In the event that Dr. Tow's
entitlements are deemed to constitute excess parachute payments for tax
purposes, we will pay any taxes resulting to him.
EXECUTIVE RETIREMENT AGREEMENT
In connection with David B. Sharkey's resignation as President and Chief
Operating Officer of ELI and as one of our Vice Presidents, we have entered
into a severance agreement with Mr. Sharkey dated February 1, 2001. Pursuant
to such agreement, ELI made a payment to Mr. Sharkey of $125,000 along with an
additional payment of $125,000 for Mr. Sharkey's assistance in transitioning
his duties to his replacement and for Mr. Sharkey's reasonable availability to
management of Citizens and ELI to provide them with information concerning the
business and financial operations of ELI. ELI also paid Mr. Sharkey the
present value of his split dollar life insurance policy, which amounted to
$300,000. ELI also agreed to provide continuing medical, dental and vision
insurance for Mr. Sharkey for a period up to eighteen months and the same
coverage for his family for a period up to twelve months from the date his
employment terminated. Such coverage shall cease upon Mr. Sharkey's obtaining
similar insurance from a subsequent employer. Any stock options granted to Mr.
Sharkey pursuant to either ELI's or our equity incentive plans which otherwise
would have been forfeited upon termination of employment, became exercisable
upon the date of the agreement.
13
SUMMARY COMPENSATION TABLE
The following table sets forth, for services rendered to us and our
subsidiaries for each of the fiscal years ended December 31, 2000, 1999 and
1998, the compensation awarded to, earned by or paid to (i) our Chief
Executive Officer; and (ii) the four other most highly compensated executive
officers for 2000 who were serving as our executive officers on December 31,
2000.
Annual Compensation Long-term Compensation
----------------------------------------- ------------------------------------
Awards Payouts
---------- ---------
Securities
Underlying Long-term
Other Restricted Options/ Incentive
Annual Stock SARs Plan All Other
Name and Position Year Salary Bonus (1) Compensation Awards (#)(2) Payouts Compensation
- ----------------------------- ---- -------- --------- ------------ ---------- ---------- --------- ------------
L. Tow ...................... 2000 $900,000 $ 0 $0 $(3) 2,500,000 $0 $485,501(4)(5)
CEO and Chairman 1999 900,000 0 0 (3) 350,000 0 162,631(6)
1998 900,000 0 0 (3) 0 0 333,377(7)(8)
Rudy J. Graf ................ 2000 $500,000 $475,000 $0 $(3) 100,000 $0 $ 11,539(4)
Vice Chairman, President 1999 150,000 $600,000 0 (3) 250,000 0 0
and COO
Scott N. Schneider .......... 2000 $300,000 $285,000 $0 $(3) 100,000 $0 $ 0
Vice Chairman and Executive 1999 50,000 300,000 0 (3) 250,000 0 0
Vice President
D.B. Sharkey(9) ............. 2000 $256,250 $ 0 $0 $(3) 0 $0 $ 36,704(4)
Former Vice President 1999 259,375 203,438(10) 0 (3) 0 0 32,295(6)
and Former President, 1998 229,167 150,000(10) 0 (3) 0 0 33,759(7)
Electric Lightwave, Inc.
John H. Casey, 3rd .......... 2000 $236,538 $237,500 $0 $(3) 112,500 $0 $ 0
Vice President and Chief 1999 26,923 210,000 0 (3) 50,000 0 0
Operating Officer,
Telecommunications Sector
- ---------------
(1) All amounts in the column, unless otherwise indicated, were paid under
the Citizens Incentive Plan. Amounts granted are for performance for the
stated Salary Year, but are determined and awarded in the subsequent
year.
(2) Number of shares underlying options adjusted to reflect subsequent stock
dividends. All awards shown are options; we have not awarded any SARs.
(3) On October 19, 1998, Dr. Tow was granted 141,655 performance shares. As
of December 31, 2000, the total number of restricted or performance
shares held by Dr. Tow was 559,974 with a market value as of December
31, 2000 of $7,349,659. Performance shares granted on October 19, 1998,
have vested because we have achieved the EBITDA goal for the period from
October 1, 1998, through December 31, 1999. The goal consisted of EBITDA
targets for the Communications and Public Services sectors and did not
include ELI. On September 9, 1999, Mr. Graf was granted 300,000
restricted shares which vest in three equal installments beginning on
September 9, 2000. As of December 31, 2000, the total number of
restricted shares held by Mr. Graf was 200,000 shares with a market
value of $2,625,000. On November 1, 1999, Mr. Schneider was granted
100,000 restricted shares which vest in three equal installments
beginning on November 1, 2000. As of December 31, 2000, the total number
of restricted shares held by Mr. Schneider was 66,666 shares with a
market value of $874,991. On November 1, 1999, Mr. Casey was granted
200,000 restricted shares which vest in three equal installments
beginning on November 1, 2000. As of December 31, 2000, the total number
of restricted shares held by Casey was 133,333 shares with a market
value of $1,749,996. Recipients of performance shares have the right to
vote and receive dividends, if paid, on such shares.
(4) Represents our matching contribution to the named executive officer's
401(k) plan ($5,100 for each executive officer) and also includes the
matching contribution to our Executive Deferred Savings Plan of $23,145,
$6,489, and $1,754, for Dr. Tow, Mr. Graf and Mr. Sharkey, respectively.
Also included is the 2000 economic benefit of split-dollar life
insurance for Dr. Tow and Mr. Sharkey of $155,093 and $29,850,
respectively. We used the premium ratio method to calculate the economic
benefit of split-dollar life
14
insurance for 2000. We calculated the economic benefit of split dollar
life insurance for 1998 that is set forth in footnote (7) to the Summary
Compensation Table using the adjusted prorated unit credit method.
(5) Includes $226,050 which represents the pretax cost to us under Dr. Tow's
employment agreement of the term portion of split-dollar insurance
arrangements. See footnote 7 to the Summary Compensation Table. Includes
$76,113 which represents a financial services payment to Dr. Tow.
(6) Represents our matching contribution to the named executive officer's
401(k) plan ($4,800 for each executive officer so noted) and for Dr. Tow
also represents the matching contribution to our Executive Deferred
Savings Plan of $22,200. Additionally, $135,631 and $27,495 represent
the 1999 economic benefit of split-dollar life insurance for Dr. Tow and
Mr. Sharkey, respectively. We used the premium ratio method to calculate
the economic benefit of split dollar life insurance for 1999. We
calculated the economic benefit of split-dollar life insurance for 1998
that is set forth in footnote (7) to the Summary Compensation Table
using the adjusted prorated unit credit method.
(7) Represents our matching contribution to each named executive officer's
401(k) and also represents the matching contribution to our Executive
Deferred Savings Plan of $22,500 for Dr. Tow. Additionally, $28,759
represents the 1998 economic benefit of split-dollar life insurance for
Mr. Sharkey. There was no economic benefit of split-dollar life
insurance for Dr. Tow in 1998.
(8) Includes $305,877 which represents the pretax cost to us under Dr. Tow's
employment agreements of the term portion of split-dollar insurance
arrangements for the three year period commencing with 1995. The split-
dollar insurance arrangements are required under the Memorandum of
Understanding entered into on June 21, 1996 that led to the settlement
of certain stockholder litigation as a substitution for supplemental
retirement benefits which resulted in a reversal of accruals as
previously reported. The insurance arrangements purchased by us have
been structured so that all of our costs, including the time value of
funds, in providing such benefits should be recovered from insurance
proceeds.
(9) The full amount of Mr. Sharkey's compensation was attributable to
services rendered to ELI and was paid by or charged to ELI. Mr. Sharkey
resigned as an executive officer of both us and ELI effective as of
February 1, 2001.
(10) Reflects amount paid by ELI in 1999 for 1998 performance and paid in
2000 for 1999 performance.
15
2000 OPTION GRANTS
The following table sets forth certain information concerning all options to
purchase our common stock granted to named executive officers in 2000. No
stock appreciation rights were granted in 2000. Option totals are as of the
grant date.
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Name Options/SARs Employees Price Expiration Present
- ---- Granted(#) Fiscal Year ($/Sh) Date Value $(1)
------------ ------------ -------- ---------- ----------
L. Tow .......................... 2,500,000(2) 45.28% (2) 9/30/10 15,860,200
Rudy J. Graf .................... 100,000(3) 1.81% 12.97(4) 10/17/10 534,900
Scott N. Schneider .............. 100,000(3) 1.81% 12.97(4) 10/17/10 534,900
D.B. Sharkey .................... 0 0 0 -- 0
John H. Casey, 3rd .............. 62,500(3) 1.13% 12.97(4) 10/17/10 334,300
- ---------------
(1) Based on the Black-Scholes option pricing model adapted for use in
valuing executive stock options. The actual value, if any, an executive
may realize will depend on the excess, if any, of the stock price over
the exercise price on the date the option is exercised, so that there is
no assurance the value realized, if any, by an executive will be at or
near the value estimated by the Black-Scholes model. The estimated
values under that model are based on arbitrary assumptions as to
variables such as interest rates, stock price volatility and future
dividend yield. The pricing model assumes a dividend yield of 0.00%, a
riskless rate of return of 5.87%, a six-year term to exercise and
volatility of 0.298757.
(2) A total of 250,000 of Dr. Tow's options have vested. Dr. Tow's remaining
options granted in 2000 become exercisable at a rate of 10% per year
beginning December 31, 2001 and ending December 31, 2009. The exercise
prices are $13.47 for 2001, $15.47 for 2002 and 2003, $17.47 for 2004
and 2005, $19.47 for 2006 and 2007 and $21.47 for the years 2008 and
2009.
(3) All options become exercisable at the rate of 33 1/3% per year on
October 18 of 2001, 2002 and 2003.
(4) These options were granted on October 18, 2000.
AGGREGATED 2000 OPTION EXERCISES AND VALUE OF
OUTSTANDING OPTIONS AT DECEMBER 31, 2000
The following table sets forth certain information concerning options
exercised by the named executive officers during 2000 and the number and value
of options held by them at December 31, 2000. There were no outstanding stock
appreciation rights at December 31, 2000.
Value Unexercised
Shares Number of Unexercised In-the-money-Options/SARs
Acquired Options/SARs at at
On Fiscal Year End(#) Fiscal Year End($)
Exercise(#) --------------------------- ---------------------------
Name Common Value
- ---- Stock Realized Exercisable Unexercisable Exercisable Unexercisable
----------- ---------- ----------- ------------- ----------- -------------
L. Tow .................................. 1,651,873(1) $4,331,211 2,216,213 2,733,333 4,417,825 1,314,108
Rudy J. Graf ............................ 0 0 83,333 266,667 150,835 301,669
Scott N. Schneider ...................... 0 0 83,333 266,667 125,001 249,999
D.B. Sharkey ............................ 0 0 0 0 0 0
John H. Casey, 3rd ...................... 0 0 66,667 200,000 25,000 50,000
- ---------------
(1) These shares of common stock are held by Lantern Partners LLC, of which
Leonard Tow is the sole member.
All numbers are as of December 31, 2000 and reflect adjustment for stock
splits and stock dividends paid subsequent to the date of grant. The fair
market value of the common stock on December 29, 2000 was $12.907 per share.
Dollar amounts shown under all columns other than "Value Realized" have not
been, and may never be, realized. The underlying options have not been, and
may never be, exercised, and actual gains, if any, on exercise will depend on
the value of our stock on the date of exercise.
16
CITIZENS COMMUNICATIONS COMPANY PENSION PLAN
We have a noncontributory qualified retirement plan covering substantially
all employees that provides benefits based on formulas related to base salary
and years of service. Benefits shown are not subject to reduction for Social
Security payments. The following table illustrates the estimated annual plan
pension benefits (ten year certain for those who became participants prior to
1976) available to all covered employees (other than Kauai Electric Division
employees, Louisiana Gas Division employees, and certain telecommunications
bargaining unit employees covered by separate benefit formulas) upon a
participant's retirement at age 65 with a spouse age 62 or older. The table
also assumes a preretirement death election of 100% joint and survivorship
benefits. The remuneration classifications are based on the highest five-year
average annual salary and the years of service represent years of credited
service. Under federal tax law, remuneration above a specified annual limit
may not be credited in the computation of retirement benefits under qualified
plans. For 2000, this limit was $170,000. For this reason remuneration above
$170,000 has not been included in the table below.
Pension Plan Table
Remuneration (in thousands) Years of Service
--------------------------- -----------------------------------
5 10 15 20 25 30
--- --- --- --- --- ---
$170.............................. $13 $26 $39 $52 $65 $78
The number of full years of credited service for individuals participating
in the plan and listed in the Summary Compensation Table are nine for Dr. Tow,
zero for Mr. Graf, zero for Mr. Schneider, six for Mr. Sharkey and zero for
Mr. Casey.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Stanger as Chairman and
Messrs. Botwinik, Harfenist, Symington and Tornberg. None of our executive
officers served as: (i) a member of the Compensation Committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on our Compensation Committee; (ii) a director of
another entity, one of whose executive officers served on our Compensation
Committee; or (iii) a member of the Compensation Committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served as our director.
17
STOCK PRICE PERFORMANCE GRAPH
CITIZENS COMMUNICATIONS CO
Cumulative Total Return
------------------------------------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
CITIZENS COMMUNICATIONS COMPANY 100.00 91.55 83.40 71.43 126.67 117.18
DOW JONES INDUSTRIAL AVERAGE 100.00 128.71 160.73 189.86 241.52 229.81
DOW JONES UTILITIES AVERAGE 100.00 109.10 134.19 159.52 149.91 226.01
The chart above compares our common stock performance with the performance
of the Dow Jones Industrial Average Index and the Dow Jones Utilities Average
Index by valuing the annual changes in common stock prices from December 31,
1995, through December 31, 2000, as required by Securities and Exchange
Commission rules. The chart above assumes in each case an initial investment
of $100 on December 31, 1995, and that all quarterly dividends were reinvested
at the average of the closing stock prices at the beginning and end of the
quarter.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, officers and
persons holding more than 10% of a registered class of our equity securities
to file with the Securities and Exchange Commission and the New York Stock
Exchange initial reports of ownership, reports of changes in ownership and
annual reports of ownership of common stock and our other equity securities.
Such directors, officers, and 10% stockholders are also required to furnish us
with copies of all such filed reports.
Based solely upon a review of the copies of such reports furnished to us, or
representations that no reports were required, we believe that with the
exception of one amended Form 4 filed on March 12, 2001 by Dr. Tow, all of our
directors, officers and 10% shareholders timely filed all required reports
under Section 16(a) in 2000. The amended Form 4 filed by Dr. Tow reflected
three transactions.
18
AGREEMENTS WITH ELI
General
We own, through our wholly-owned subsidiary CU Capital Corp., 100% of the
outstanding Class B Common Stock of ELI and 2,287,644 shares of Class A Common
Stock of ELI. CU Capital Corp. acquired the shares of Class A Common Stock in
the open market through brokerage transactions in the ordinary course of
business, solely as an investment, and to insure that we maintain a sufficient
economic interest in ELI to permit the continued filing of consolidated tax
returns. Leonard Tow, our Chairman of the Board and Chief Executive Officer,
is the Chairman of the Board of ELI. Rudy J. Graf, our President and Chief
Operating Officer and Vice Chairman of our board of directors, is also the
Chief Executive Officer and a director of ELI. Scott N. Schneider, our
Executive Vice President and Vice Chairman of our board of directors, is
Executive Vice President and a director of ELI. Robert Braden, our Vice
President and Chief Operating Officer of the Electric Lightwave Sector, is
also President and Chief Operating Officer and a director of ELI. L. Russell
Mitten, our Vice President, General Counsel and Secretary, is also the
Secretary of ELI. Stanley Harfenist and Robert Stanger, our directors, are
also directors of ELI.
Our relationship with ELI is governed by agreements entered into with ELI in
connection with its initial public offering and certain other agreements, the
material terms of which are described below.
Administrative Services Agreement
The Administrative Services Agreement provides for us to render certain
financial management services, information services, legal and contract
services, human resources services and corporate planning services to ELI.
Under the terms of the Administrative Services Agreement, all of the services
are rendered by us subject to the oversight, supervision and approval of ELI,
acting through its board of directors.
The administrative costs payable by ELI to us pursuant to the Administrative
Services Agreement are not expected to exceed the fees that would be paid if
such services were to be provided by an independent third party.
The Administrative Services Agreement will terminate on December 31, 2005,
unless earlier terminated by us or by ELI. The Administrative Services
Agreement will be renewed automatically for additional terms of two years
unless either party gives at least six months written notice before a
scheduled termination date. The Administrative Services Agreement can be
terminated upon a material breach and will be terminated upon a change of
control of ELI. Pursuant to the Administrative Services Agreement, $7,413,000
in fees were payable to us for 2000 by ELI, excluding reimbursements for
costs.
Tax Sharing Agreement
As ELI is included in our consolidated income tax group, ELI's federal
income tax liability is included in the consolidated federal income tax
liability of us and our subsidiaries. ELI is also included with some
subsidiaries in combined, consolidated or unitary income tax groups for state
and local tax purposes. We and ELI are parties to a federal, state and local
tax sharing agreement. Pursuant to the Tax Sharing Agreement, we and ELI make
payments between us such that, with respect to any period, the amount of taxes
to be paid by ELI, subject to certain adjustments, will generally be
determined as though ELI were to file separate federal, state and local income
or franchise tax returns (including, except as provided below, any amounts
determined to be due as a result of a re-determination of our tax liability
arising from an audit or otherwise). ELI is responsible for any tax liability
due any foreign jurisdiction arising from its business activities. The Tax
Sharing Agreement will remain in effect so long as any taxing jurisdiction
requires the filing of a combined tax return by both ELI and us.
19
We have sole and exclusive responsibility for (i) preparing any tax returns
(including amended returns or claims for refund) of ELI; (ii) representing ELI
with respect to any tax audit or tax contest; (iii) engaging outside counsel
and accountants with respect to tax matters regarding ELI; and (iv) performing
such other acts and duties with respect to ELI's tax returns as we determine
is appropriate. The amounts that ELI will pay under the Administrative
Services Agreement will encompass reimbursement to us for all direct and
indirect costs and expenses incurred with respect to ELI's share of the
overall costs and expenses incurred by us with respect to tax related
services.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax Sharing Agreement allocates tax liabilities
between us and ELI, during the period in which ELI is included in our
consolidated group, ELI could be liable in the event that any federal tax
liability is incurred, but not discharged, by any other member of our
consolidated group.
Indemnification Agreement
We and ELI are parties to an indemnification agreement. The Indemnification
Agreement provides that ELI will indemnify us for any liabilities incurred by
us under any guarantees of ELI's obligations or liabilities of ELI and that
ELI will pay us for our direct costs, if any, of maintaining such guarantees.
Registration Rights Agreement
We and ELI are parties to a Registration Rights Agreement. The Registration
Rights Agreement provides that, upon our request, ELI, at its expense, will
use its best efforts to effect the registration under the applicable federal
and state securities laws of any of the shares of common stock (and any other
securities issued in respect of or in exchange therefor) held by us for sale
in accordance with ELI's intended method of disposition thereof and will take
such other actions necessary to permit the sale thereof in other
jurisdictions, subject to certain specified limitations. We will also have the
right, at our expense, to include the shares of common stock held by us in
certain other registrations of common equity securities of ELI initiated by
ELI on its own behalf or on behalf of its other shareholders.
Customers and Service Agreement
We and ELI are parties to a Customers and Service Agreement. The Customers
and Service Agreement contains provisions prohibiting ELI from competing with
us for customers in our existing service areas and in certain new lower
density territories which we were or will be first to enter after ELI's
initial public offering. We have agreed that we will not compete with ELI in
the service territories in which we provided services prior to ELI's initial
public offering and in certain new higher density territories which ELI was or
will be first to provide services after ELI's initial public offering. Neither
we nor ELI may solicit an existing wholesale customer of the other company for
services which such customer is currently receiving under contract from the
other company. The relevant provisions were intended to permit ELI to continue
all activities in which it engaged prior to its initial public offering, and
to expand into related markets. The Customers and Service Agreement will
remain in effect until we cease to own a majority of the voting interest of
the capital stock of ELI or our designees cease to constitute a majority of
ELI's directors.
Citizens' Guarantees of ELI's Obligations
Lease
In June 1995, ELI entered into agreements to lease certain equipment to be
constructed for ELI. The lessor has agreed to commit up to a maximum of
$110,000,000 of the cost of purchasing and installing the equipment. Rental
obligations for the equipment commenced in June 1995, and, with renewal
options, will expire on April 30, 2002. We have guaranteed all obligations of
ELI under the Lease and ELI is required to pay us a guarantee fee of 3.25% per
year of the amount of the lessor's investment in the leased assets. At
December 31, 2000, $110,000,000 was outstanding on the lease.
20
Credit Facility
On November 2, 1997, ELI entered into a five-year, $400 million revolving
credit facility with Citibank, as agent for a group of lending banks. We have
agreed to guarantee all debt obligations under the credit facility. The credit
facility requires that we maintain a minimum net worth of at least $1 billion
and continue to own at least 51% of the outstanding common stock of ELI. ELI
has agreed to pay us a guarantee fee at a rate of 3.25% per year based on the
average balance outstanding. At December 31, 2000, ELI had outstanding loans
payable to Citibank in the amount of $400 million.
ELI Senior Unsecured Notes
In April 1999, ELI completed an offering of $325 million of five-year senior
unsecured notes. The notes have an annual interest rate of 6.05% and will
mature on May 15, 2004. We have guaranteed the payment of principal, any
premium, and interest on the notes when due. ELI has agreed to pay us a
guarantee fee at a rate of 4.0% per year based on the average outstanding
balance. At December 31, 2000, ELI had $325 million principal amount of these
notes outstanding.
For 2000, the amount payable to us by ELI was $27.8 million in fees for
guarantees to ELI under the lease, the revolving credit facility and the
senior unsecured notes.
License Agreement Guaranty
ELI has entered into a license agreement with the Bonneville Power
Administration whereby ELI will obtain a license to use fiber optic cable on
Bonneville's transmission system. On May 15, 2000, we entered into a guaranty
agreement with Bonneville under which we guaranty the payment of the license
fee, annual maintenance fee and any liquidated damages provided for in the
license agreement.
Refinancing of Obligations
We and ELI have agreed that, if we intend to reduce our economic interest in
ELI to less than 51%, we will be entitled to request ELI to refinance its
obligations under the lease and the credit facility and ELI will be obligated
to use its best efforts to do so. This refinancing would occur when we reduce
our economic interest in ELI to less than 51%.
Telecommunications Services
Citizens Communications has transactions in the normal course of business
with ELI. Our communications sector is an Incumbent Local Exchange Carrier
("ILEC") in certain markets in which ELI provides services. In order to
provide services in those markets, ELI purchases access from our
communications segment. ELI is charged the full-tariff rate for those
services, which was $1,750,000 in 2000, representing usage-based charges for
the services provided. Our communications segment purchases certain services
from ELI at prevailing market rates. In 2000, ELI recognized revenue in the
amount of $2,995,000 for these related party transactions.
Network Capacity Lease
In 1996, ELI entered into an agreement to lease rights to fiber optic lines
on ELI's network to us over 10 years for a monthly fee of $30,000.
In 1999, ELI entered into an agreement to lease certain capacity on its
network to us over 20 years. Performance under this agreement began when
services were activated during 2000. We paid ELI $6.5 million under this
agreement in 2000.
Intercompany Agreement
We, along with ELI, desire to provide compensation incentives for certain
employees of ELI for high levels of performance and productivity. Therefore,
we entered into an Intercompany Agreement dated as of September 11, 2000 with
ELI whereby we granted to certain employees of ELI an aggregate of 205,000
shares of our common stock in the form of restricted stock awards pursuant to
the Citizens Communications Company Equity
21
Incentive Plan and in consideration for our restricted stock awards, ELI has
agreed to grant us 263,425 shares of restricted ELI Class B Common Stock. The
263,425 shares of restricted ELI Class B Common Stock had on September 11,
2000 a fair market value equivalent to the fair market value of our restricted
stock awards. The restrictions on a proportionate number of ELI Class B Common
Stock will lapse with the lapse of restrictions on our stock. Our Compensation
Committee and the Compensation Committee of ELI have approved the Intercompany
Agreement.
Intercompany Revolving Credit Agreement
On October 30, 2000, we entered into a revolving credit facility with ELI
for $450 million with an interest rate of 15% and a final maturity of October
30, 2005. Funds of $260 million for general corporate purposes are available
to be drawn by ELI until March 31, 2002. The remaining balance may be drawn by
ELI to pay interest expense due under the facility. In 2000, we advanced $38
million to ELI.
Other
In the future, additional transactions may occur and agreements may be
reached between us and ELI in a number of areas relating to our past and
ongoing relationships, including potential acquisitions of businesses or
properties or other corporate opportunities, potential competitive business
activities, payment of dividends, incurrence of indebtedness, guarantees, tax
matters, financial commitments, marketing functions, indemnity arrangements,
registration rights, administrative and services arrangements, and issuances
or sales of capital stock of ELI.
CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
Fleischman and Walsh LLP, of which Aaron Fleischman (a director) is Senior
Partner, performed legal services for us for which it was paid approximately
$2.2 million in 2000. We propose to retain Fleischman and Walsh during the
current year.
Mr. Livingston E. Ross, our Vice President, Reporting and Audit, is
currently indebted to us in the amount of $150,000, which was the largest
amount outstanding in 2000. The rate of interest on such indebtedness is 5%.
APPROVAL OF THE CITIZENS COMMUNICATIONS COMPANY
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
The board of directors is submitting for stockholders' approval the Citizens
Communications Company Amended and Restated 2000 Equity Incentive Plan (the
"2000 Plan"). The purpose of the 2000 Plan is to provide compensation
incentives for high levels of performance and productivity. The 2000 Plan is
intended to strengthen our existing operations through its ability to attract
and retain outstanding individuals upon whose judgment, initiative and efforts
we depend for our continued efficiency, productivity, growth and development.
The 2000 Plan is substantially similar to our 1996 Equity Incentive Plan, with
certain differences including the following. Individuals other than employees
are eligible to participate in the 2000 Plan, including directors and other
service providers. The 2000 Plan provides for grants of phantom stock either
as awards under the 2000 Plan or as a result of an exercise of an option.
Further, the 2000 Plan does not provide for grants of stock appreciation
rights. Lastly, the 2000 Plan does not permit options to be modified to reduce
the option price per share.
The 2000 Plan was originally adopted by the board of directors on May 18,
2000, and, as amended, on March 20, 2001. If the 2000 Plan is approved by the
stockholders, it will become effective as of May 18, 2000. Appendix B to this
proxy statement contains the complete text of the 2000 Plan.
22
Description of the 2000 Plan
Shares Subject To The 2000 Plan
Awards granted under the 2000 Plan will relate to shares of our common
stock. The maximum number of shares of common stock that will be issued
pursuant to awards at any time will be no more than 12,500,000 shares. In the
event of any changes in the number or kind of outstanding shares of stock by
reason of a merger, recapitalization, reorganization, stock split, stock
dividend or other corporate capital stock event, the Compensation Committee of
the board of directors may make equitable adjustments to the price and other
terms of any award previously granted or that may be granted under the 2000
Plan.
Shares of common stock that were issued and have been forfeited or that were
subject to awards that have expired or terminated will remain available for
issuance. We can also issue shares of common stock that we received in
connection with the exercise of an award.
No individual will be granted awards in any calendar year covering more than
2,000,000 shares or with a dollar value in excess of $750,000. No awards will
be granted more than ten years after the effective date of the 2000 Plan.
Participation
All of our directors, officers and employees or those of any of our
subsidiaries or other affiliates are eligible for selection to participate in
the 2000 Plan. Other individuals who perform services directly or indirectly
for us as a consultant or otherwise may also be selected to participate.
As of February 28, 2001, approximately 6,200 of our employees and employees
of our subsidiaries were eligible to participate in the 2000 Plan, including
approximately 13 executive officers. In addition, nine directors are eligible
to participate in the 2000 Plan.
The quoted closing price of our common stock on February 28, 2001 on the
NYSE was $15.46.
Administration
The 2000 Plan is administered by the Compensation Committee consisting of
selected members of the board of directors. Subject to the express provisions
of the 2000 Plan, the Compensation Committee is authorized to: (a) determine
those eligible employees to whom awards may be granted; (b) grant awards to
eligible employees; (c) determine the terms and conditions of each award; (d)
establish and modify performance objectives; (e) modify or amend any award or
waive any restrictions or conditions applicable to any award or the exercise
or realization thereof (except if the effect would be to reduce the exercise
price of any stock option or to adversely and materially affect the rights of
any recipient); (f) prescribe and rescind rules, regulations and policies for
the administration of the 2000 Plan; (g) interpret, construe and administer
the 2000 Plan and any related award agreement and define the terms used in the
2000 Plan; and (h) make all of the determinations necessary or advisable with
respect to the 2000 Plan or any award granted under the 2000 Plan.
Stock Option Awards
A stock option, which may be a nonqualified or an incentive stock option,
may be granted either alone or in conjunction with one or more other awards.
The option price, except in the discretion of the Compensation Committee in
the case of new employees, shall be equal to or greater than the fair market
value of the underlying common stock on the date of grant. The term of each
stock option is also determined by the Compensation Committee but may not
exceed ten years from the date of grant.
Upon exercise, the option price of each stock option is payable by the
option holder in cash or, in the sole discretion of the Compensation
Committee, by delivering shares of our common stock valued at the then fair
market value, or in a combination of cash and shares.
The Compensation Committee may grant a replacement stock option to an option
holder to replace the shares which the option holder delivered to us in
payment of the option price in a stock-for-stock exercise or of
23
any withholding taxes. The option price of any replacement stock option may
not be less than 100% of the fair market value of the common stock we received
on the date of the payment.
The Compensation Committee may also authorize the holder of a stock option
to surrender the right to exercise the stock option in exchange for payment
(in cash or in shares) that does not exceed the difference between the option
price and the fair market value at that time of the shares for which the right
to exercise is being surrendered. Such payment may be made in cash or in
shares of our common stock (valued at the then fair market value) or any
combination thereof.
Other Stock-based Awards
The 2000 Plan also authorizes the Compensation Committee to grant other
stock-based awards to eligible individuals, which may consist of awards that
are valued in whole or in part by reference to, or otherwise based on, our
common stock and may include such awards as restricted stock, phantom stock,
performance shares and deferred stock. These other stock-based awards cannot
exceed 2,500,000 shares in total. Subject to the terms of the 2000 Plan, the
Compensation Committee may determine any and all terms and conditions of other
stock-based awards. The performance objectives determined by the Compensation
Committee for each performance share award shall be based on: stock price;
market share; sales; earnings per share; operating cash flow; free cash flow;
net income or loss; net income or loss adjusted to exclude specified items
such as gains or losses from extraordinary or non-recurring items and non-cash
expense and income, and before specified expense items such as interest
depreciation, amortization and income taxes; EBITDA; revenues; return on
equity or assets; cost control; or a combination of any of the foregoing.
Payment or settlement of other stock-based awards will be in cash or in
shares of our common stock or in any combination of these as the Compensation
Committee determines in its sole discretion. The Compensation Committee may
permit payment of withholding taxes due in connection with awards under the
2000 Plan by withholding shares to be issued under the award or by delivery of
other shares of our common stock.
"Change in Control" Provisions
Awards may include terms that provide for certain changes in the terms of an
award as a result of, or in anticipation of, any change in control involving
us (as defined below): (i) time periods for purposes of vesting, or realizing
gain from, any outstanding award may be accelerated; (ii) we may purchase any
outstanding award from the holder for its equivalent value, as determined by
the Compensation Committee; or (iii) the Compensation Committee may adjust or
modify outstanding awards, including modifying or eliminating performance
goals, to maintain and protect the rights and interests of participants.
A change in control is defined to mean the occurrence of any of the
following events: (i) a person or group becomes the owner of stock having 20%
or more of the total number of votes that may be cast for the election of
directors of the board or 20% or more of the fair market value of our issued
and outstanding stock; (ii) a consolidation or merger or sale of assets in
which we are not the surviving corporation or pursuant to which our stock will
be converted into cash, securities or other property or a sale, lease,
exchange or other transfer of all or substantially all our assets; or (iii) as
a result of any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions, the persons who are members of the board before the
transaction shall cease to constitute a majority of the board of Citizens
Communications.
These provisions in the 2000 Plan allowing the Compensation Committee to
accelerate vesting upon a change in control could in some circumstances have
the effect of an "anti-takeover" defense because, as a result of these
provisions, a change in control involving us could be more difficult or
costly.
Amendment, Termination and Expiration
The 2000 Plan will terminate on the earliest of (a) May 18, 2010, (b) the
date when all shares of stock reserved for issuance under the 2000 Plan have
been acquired through the exercise of options granted under the Plan or
otherwise awarded, or (c) any earlier date as may be determined by the board
of directors. The board of directors may amend or modify the 2000 Plan at any
time. However, no amendment or modification would
24
become effective unless approved by affirmative vote of our stockholders if
such approval is necessary or desirable for the continued validity of the 2000
Plan or its compliance with Rule 16b-3 or any successor rule under the
Securities Exchange Act of 1934 or any other rule or regulation.
Federal Income Tax Consequences
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to awards under
the 2000 Plan.
Stock Options
Under the Plan, the Compensation Committee may grant options that either
qualify or do not qualify as "incentive stock options" as defined in Section
422 of the Internal Revenue Code. An option holder will realize no taxable
income and no deduction will be available to us upon the grant of either type
of option. However, the tax consequences of the exercise of the option and
subsequent disposition of the shares received upon exercise will depend upon
which type of option is granted and when the disposition occurs.
Incentive Stock Options
No regular taxable income will be realized by an option holder upon the
exercise of an incentive stock option if the holding period and employment
requirements contained in the Internal Revenue Code are met. However, the
spread between the exercise price and the fair market value on the date of
exercise will be an item of tax preference that may give rise to alternative
minimum tax liability at the time of exercise. In order to receive capital
gains treatment, certain holding requirements must be met. Under the holding
requirements, the option holder must not dispose of the shares within two
years of the date the option was granted nor within one year from the time of
exercise; and the option holder generally must exercise the option while
employed by us or our subsidiaries or within three months after the
termination of such employment.
Upon the subsequent disposition of shares acquired through the exercise of
an incentive stock option after satisfaction of the above holding period and
employment requirements, any gain or loss realized upon such disposition will
be long-term capital gain or loss; and we will not be entitled to any income
tax deduction in respect to the exercise of the option or the disposition of
the shares received upon exercise. For purposes of determining the amount of
such gain or loss, the option holder's tax basis in the shares will be the
option price.
If the holding period or employment requirements are not met, the option
will be treated as one which does not meet the requirements of the Internal
Revenue Code for incentive stock options and the option holder will recognize
ordinary income at the time of disposition of the shares, generally in an
amount equal to the excess, if any, of the fair market value of the stock at
exercise, over the option price. The balance of the gain realized, if any,
will be long-term or short-term capital gain, depending upon whether or not
the shares were sold more than one year after the option was exercised. If the
option holder sells the shares prior to the satisfaction of the holding period
requirements but at a price below the fair market value of the shares at the
time the option was exercised, the amount of ordinary income will be limited
to the amount realized on the sale over the exercise price of the option. We
and our subsidiaries will be allowed a tax deduction to the extent the option
holder recognizes ordinary income.
Nonqualified Stock Options
At the time of exercise of a nonqualified option, an option holder will
realize income taxable at ordinary income tax rates, and we will be entitled
to a tax deduction, in the amount by which the then fair market value of the
shares purchased exceeds the option price of the shares. The option holder may
be subject to the withholding requirements of the tax law.
Upon the subsequent disposition of shares received upon exercise of a
nonqualified option, an option holder will also realize income or loss in an
amount equal to the difference between the sales price of the shares and the
fair market value of the shares used for computing ordinary income or loss
realized in connection with the exercise of the option. The income or loss
will be long- or short-term capital gain or loss depending upon the
25
length of time the shares have been held from the date as of which ordinary
income or loss was recognized in connection with the exercise of the option.
All Stock Options
If an option holder tenders shares of our common stock in part or in full
payment of the option price for shares to be acquired through the exercise of
an option, the option holder generally will not recognize any taxable gain or
loss on the tendered shares. However, if the shares tendered were previously
acquired upon the exercise of an incentive stock option and such exercise
occurs prior to satisfaction of the holding period requirement for the
tendered shares, the tender of such shares will be an early disposition with
the tax consequences described above for an early disposition of shares
acquired upon exercise of an incentive stock option.
In the case of a tender of shares in partial or full payment of the option
price, the option holder's tax basis in the shares received upon exercise of
the option is not uniform. The number of shares acquired equal to the number
of shares tendered will take the tax basis of the tendered shares including
the effect of the tax consequences of any early disposition. The additional
shares acquired in excess of the number of shares tendered will have a tax
basis generally equal to the fair market value of such shares at the time of
the option exercise. In the case of an incentive stock option, the tax basis
in the additional shares will be zero.
Cash payments by us to an option holder upon surrender of the right to
exercise any stock option are taxable to the option holder at ordinary income
tax rates and deductible by us at the time of payment. When such payments are
made in shares of our common stock, the fair market value of the shares at the
time of payment are taxable to the option holder at ordinary income tax rates
and deductible to us. Upon the disposition of the shares received, taxable
income or loss also will be realized in an amount equal to the difference
between the sales price of the shares and the fair market value of the shares
on the date they were taxable to the option holder. The income or loss will be
a long- or short-term capital gain or loss depending upon the period of time
the shares have been held by the option holder.
Other Stock-based Awards
An employee will not realize any taxable income upon the grant of an award
of restricted stock subject to substantial restrictions, such as a requirement
of continued performance or the attainment of performance objectives, unless
the employee elects to be taxed at that time in accordance with Section 83 of
the Internal Revenue Code. Upon the lapse of restrictions on restricted stock
which occur in accordance with terms of such restriction, the employee will
realize taxable income and we will be entitled to a corresponding deduction
equal to the excess of the fair market value of the shares at that time over
any amount paid for the shares. The employee may be subject to the withholding
requirements of the tax law.
Generally, upon the grant of stock-based awards which are not subject to
restrictions on transfer or the achievement of goals, an employee will realize
compensation taxable as ordinary income, and we will be entitled to a
corresponding deduction, in an amount equal to the sum of any cash received by
the employee plus the fair market value of any shares of common stock received
by the employee.
The above federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Internal
Revenue Code.
RECOMMENDATION AND VOTE REQUIRED
The board of directors believes that the proposed 2000 Plan is in the best
interests of Citizens Communications and its stockholders and recommends that
stockholders vote their shares for the approval of the 2000 Plan. Approval of
the 2000 Plan requires the affirmative vote of holders of a majority of the
shares of common stock present or represented by proxy at the annual meeting
and entitled to vote (abstentions being counted as "against" votes) at the
annual meeting.
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INDEPENDENT PUBLIC ACCOUNTANTS
Audit and Other Fees
The aggregate fees paid to KPMG LLP, our independent public accountants, for
professional services rendered for the audit of our annual consolidated
financial statements for 2000 and for the reviews of our quarterly financial
statements included in our Forms 10-Q for 2000 were approximately $1,525,000
(including $175,000 of fees for the stand-alone audit of the annual financial
statements and reviews of the quarterly financial statements of Electric
Lightwave, Inc., the Company's publicly traded consolidated subsidiary). All
other fees paid to KPMG LLP were approximately $2,197,000, which fees included
audit-related services of $1,031,000 and non-audit-related services of
$1,166,000. Audit-related services generally included fees for regulatory
audits, business acquisitions, accounting consultations and employee benefit
plans. Non-audit-related services included fees for tax services, management
advisory services and information technology services.
Information technology fees approximated $107,000 and such fees were paid
for services performed by KPMG LLP employees who are now employed by KPMG
Consulting, Inc., an independent systems integration consulting business that
was spun off from KPMG LLP in February 2001.
General
Our Audit Committee has considered whether the provision of KPMG LLP's
services other than for the annual audit and quarterly reviews is compatible
with KPMG LLP's independence.
One or more representatives of KPMG LLP will be present at our annual
meeting of stockholders. The representatives will have an opportunity to make
a statement if they desire to do so and will be available to respond to
appropriate questions.
OTHER MATTERS
Our management does not know of matters other than the foregoing that will
be presented for consideration at the meeting.
STOCKHOLDER PROPOSALS
For proposals, if any, to be considered for inclusion in the proxy materials
for the 2002 annual meeting, they must be received by November 24, 2001. Under
our Bylaws, if any stockholder intends to propose at the annual meeting a
nominee for director or the adoption or approval of any other matter by the
stockholders, other than matters included in the proxy statement in accordance
with the foregoing sentence, the proponent must give written notice to us not
earlier than January 1, 2002, nor later than February 15, 2002.
The entire cost of soliciting management proxies will be borne by us.
Proxies will be solicited by mail and may be solicited personally by our
directors, officers or regular employees, who will not be compensated for
these services. Morrow & Co. has been retained to assist in soliciting proxies
at a fee of $7,500, plus distribution costs and other expenses.
By Order of the Board of Directors
------------------------------------
L. Russell Mitten
Secretary
27
Appendix A
CITIZENS COMMUNICATIONS COMPANY
Audit Committee Charter
Status
The Audit Committee is a committee of the Board of Directors.
Membership
The Committee shall consist of three or more directors all of whom in the
judgment of the Board of Directors shall be independent. Each member shall
have the ability to read and understand the Company's basic financial
statements or shall at the time of appointment undertake training for that
purpose. At least one member of the Committee shall, in the judgment of the
Board of Directors, have accounting or financial management expertise.
Independence and financial ability is to be determined by the Board of
Directors in its business judgment.
Powers and Responsibilities
1. Receive from the outside auditors on a periodic basis, as required by
Independence Standards, a written report delineating all relationships
between the auditors and the Company and discuss with the outside
auditors any disclosed relationships or services that may impact their
objectivity and independence, and recommend that the Board of Directors
take necessary action in response to this report to satisfy the Board of
the outside auditors' independence. The Audit Committee is to be the
Company's principal agent in monitoring this independence.
2. Review with members of the Company's outside auditing firm, the scope of
the prospective audit, the estimated fees therefor, the extent to which
Company resources were or can be used in the future, and such other
matters pertaining to such audit as the Committee may deem appropriate.
Receive copies of the annual comments from the outside auditors on
accounting procedures and systems of internal control and audit, and
review with them the significant matters and any suggestions they may
have relating to the systems of internal control and audit.
3. Review, at least annually, the then current and future programs of the
Company's internal audit department, including the procedure for assuring
implementation of accepted recommendations made by the auditors and the
department. Receive summaries of all formal audit reports issued by the
internal audit department; and review the significant matters contained
in such reports.
4. Make or cause to be made, from time to time, such other examinations or
reviews as the Committee may deem necessary with respect to the
accounting practices and systems of internal control of the Company and
with respect to current accounting trends and developments, and recommend
such action with respect thereto as may be deemed necessary.
5. Recommend annually the public auditing firm to be outside auditors for
the Company and recommend their compensation, for approval by the Board
of Directors. Among the Board of Directors, Audit Committee and the
outside auditors, the outside auditors are ultimately accountable to the
Board of Directors. The Board of Directors has the ultimate authority and
responsibility to select, evaluate and, when appropriate, replace the
outside auditors (or, if the outside auditors are approved by the
stockholders, to nominate the outside auditors to be proposed for
shareholder approval in any proxy statement).
6. Review with management and the outside auditors for the Company the
annual and quarterly financial statements of the Company and any material
changes in accounting principles or practices used in preparing the
financial statements incorporated in Form 10-K and Form 10-Q prior to the
filing of these forms with the Securities and Exchange Commission (SEC).
Such review is to include items brought to the Committee's attention as
required by Auditing Standards.
7. Review matters that have come to the attention of the Committee through
reports of management, legal counsel and others, that relate to the
status of compliance and anticipated future compliance with laws,
28
regulations, internal controls, and that may be expected to be material
to the Company's financial statements.
8. Recommend to the Board the retention of persons with professional or
expert competence, or with special knowledge or experience.
Meetings
The Committee shall meet at least four times each year and at such other
times as it deems necessary to fulfill its responsibilities.
Reports and Other Requirements
The Committee shall prepare all reports concerning this charter and the
activities of the Committee required by regulations of the SEC or the New York
Stock Exchange ("NYSE"). The Company acknowledges that the Company and the
Committee operate under regulations promulgated by the SEC and the NYSE.
Amendment
This Charter may be amended only by the affirmative vote of the Board of
Directors.
29
Appendix B
CITIZENS COMMUNICATIONS COMPANY
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
SECTION 1
PURPOSE
-------
The purpose of the Citizens Communications Company Amended and Restated 2000
Equity Incentive Plan (the "Plan") is to provide compensation incentives for
high levels of performance and productivity by individuals who provide
services to the Company. The Plan is intended to strengthen the Company's
existing operations and its ability to attract and retain outstanding
individuals upon whose judgment, initiative and efforts the continued success,
growth and development of the Company is dependent, as well as encourage such
individuals to have a greater personal financial investment in the Company
through ownership of its common stock.
SECTION 2
DEFINITIONS
-----------
When used herein, the following terms have the following meanings:
(a) "AFFILIATE" means any company controlled by the Company, controlling the
Company or under common control with the Company.
(b) "AWARD" means an award granted to any Eligible Individual in accordance
with the provisions of the Plan.
(c) "AWARD AGREEMENT" means the written agreement or certificate evidencing
the terms of the Award granted to an Eligible Individual under the Plan.
(d) "BENEFICIARY" means the beneficiary or beneficiaries designated pursuant
to Section 11 to receive the amount, if any, payable under the Plan upon the
death of an Eligible Individual.
(e) "BOARD" means the Board of Directors of the Company.
(f) A "CHANGE IN CONTROL" shall mean the occurrence of any of the following
events with respect to the Company:
(i) (A) a third "person" (other than an employee benefit plan of the
Company), including a "group", as those terms are used in Section
13(d) of the Exchange Act, is or becomes the beneficial owner (as that
term is used in said Section 13(d)) of stock having twenty percent
(20%) or more of the total number of votes that may be cast for the
election of members of the Board or twenty percent (20%) or more of
the fair market value of the Company's issued and outstanding stock,
or (B) the receipt by the Company of any report, schedule, application
or other document filed with a state or federal governmental agency or
commission disclosing such ownership or proposed ownership.
(ii) approval by the stockholders of the Company of any (1) consolidation
or merger or sale of assets of the Company in which the Company is not
the continuing or surviving corporation or pursuant to which shares of
stock the Company would be converted into cash, securities or other
property, other than a consolidation or merger of the Company in which
holders of its common stock immediately prior to the consolidation or
merger have substantially the same proportionate ownership of common
stock of the surviving corporation immediately after the consolidation
or merger as they held immediately before, or (2) sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets or businesses of
the Company;
(iii) as a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing
transactions (a
30
"Transaction"), the persons who are members of the Board before the
Transaction shall cease to constitute a majority of the Board or any
successor to the Company.
(g) "CITIZENS PENSION PLANS" means any of the Company's non-contributory
defined-benefit qualified retirement plans in effect and applicable on the
date in question.
(h) "CODE" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to Sections of the Code are to such Sections
as they are currently designated and reference to such Sections shall include
the provisions thereof as they may from time to time be amended or renumbered
as well as any successor provisions and any applicable regulations.)
(i) "COMPANY" means Citizens Communications Company and its successors and
assigns.
(j) "COMMITTEE" means the Compensation Committee of the Board of Directors
of the Company.
(k) "DEFERRED STOCK" means Stock credited to an Eligible Individual under
the Plan subject to the requirements of Section 8 and such other terms and
restrictions as the Committee deems appropriate or desirable.
(l) "EFFECTIVE DATE" means May 18, 2000.
(m) "ELIGIBLE INDIVIDUAL" means a director, officer, or employee of any
Participating Company or an individual who performs services for the Company
directly or indirectly as a director, consultant or otherwise whose judgment,
initiative and efforts, in the judgment of the Committee, foster the continued
efficiency, productivity, growth and development of any Participating Company.
Where required by the context, "Eligible Individual" includes an individual
who has been granted an Award but is no longer performing services for any
Participating Company.
(n) "FAIR MARKET VALUE" means, unless another reasonable method for
determining fair market value is specified by the Committee, the average of
the high and low sales prices of a share of the appropriate Series of Stock as
reported by the New York Stock Exchange (or if such shares are listed on
another national stock exchange or national quotation system, as reported or
quoted by such exchange or system) on the date in question or, if no such
sales were reported for such date, for the most recent date on which sales
prices were quoted.
(o) "FAMILY MEMBER" AND "FAMILY TRUST" shall have the same meanings as are
employed from time to time by the SEC for the purpose of the exception to the
rules promulgated by the SEC which limit transferability of stock options and
stock awards for purposes of Section 16 of the Exchange Act and/or the use of
Form S-8 under the Securities Act. For the purposes of the Plan, the phrases
"Family Member" and "Family Trust" shall be further limited, if necessary, so
that neither the transfer to a Family Member or Family Trust nor the ability
of a Participant to make such a transfer shall have adverse consequences to
the Company or a Participant by reason of Section 162(m) of the Code.
(p) "OPTION" means an option to purchase Stock, including Restricted Stock
or Deferred Stock, if the Committee so determines, subject to the applicable
provisions of Section 5 and awarded in accordance with the terms of the Plan
and which may be an incentive stock option qualified under Section 422 of the
Code or a nonqualified stock option.
(q) "PARTICIPATING COMPANY" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for incentive stock options only,
"Participating Company" means the Company, any corporation or other entity
which at the time such option is granted under the Plan qualifies as a
subsidiary of the Company under the definition of "subsidiary corporation"
contained in Section 425(f) of the Code.
(r) "PARTICIPANT" means an Eligible Individual who has been or is being
granted an Award. When required by the context, the definition of Participant
shall include an individual who has been granted an Award but is no longer an
employee of any Participating Company.
(s) "PERFORMANCE SHARE" means a performance share subject to the
requirements of Section 6 and awarded in accordance with the terms of the
Plan.
(t) "PHANTOM STOCK" means a unit whose value is determined solely by
reference to the value of one or more shares of Stock. Awards of Phantom Stock
may be made pursuant to Section 9.
31
(u) "PLAN" means the Citizens Communications Company 2000 Equity Incentive
Plan, as the same may be amended, administered or interpreted from time to
time.
(v) "RESTRICTED STOCK" means Stock delivered under the Plan subject to the
requirements of Section 7 and such other terms and restrictions as the
Committee deems appropriate or desirable.
(w) "SEC" means the Securities and Exchange Commission. "Exchange Act" means
the Securities Exchange Act of 1934. "Rule 16b-3" shall mean such rule
promulgated by the SEC under the Exchange Act and, unless the circumstances
require otherwise, shall include any other rule or regulation adopted under
Sections 16(a) or 16(b) of the Exchange Act relating to compliance with, or an
exemption from, Section 16(b). "Securities Act" means the Securities Act of
1933. Reference to any section of the Securities Act, Exchange Act or any rule
promulgated thereunder shall include any successor section or rule.
(x) "STOCK" means the Common Stock of the Company and any successor Common
Stock.
(y) "TERMINATION WITHOUT CAUSE" means termination of employment with a
Participating Company by the employer for any reason other than death, Total
Disability or termination for deliberate, willful or gross misconduct, and
also means voluntary termination of employment by employee.
(z) "TOTAL DISABILITY" means the complete and permanent inability of an
Eligible Individual to perform all of his or her duties under the terms of his
or her employment with any Participating Company,
as determined by the Committee upon the basis of such evidence, including inde-
pendent medical reports and data, as the Company deems appropriate or neces-
sary.
SECTION 3
SHARES SUBJECT TO THE PLAN
--------------------------
(a) Subject to adjustment as provided in Section 14 hereof, 12,500,000
shares of Stock are hereby reserved for issuance pursuant to Awards under the
Plan. Awards of Phantom Stock or share units that, by the terms of such
Awards, are payable solely in cash shall not be subject to such limit;
provided, however, that such Awards shall be subject to a separate limit such
that the value of all such Awards granted under the Plan shall be determined
by reference to no more than 1,000,000 shares of Stock. In addition, Awards of
Performance Shares, Restricted Stock, Deferred Stock or Phantom Stock payable
in Stock or other stock-based awards shall not exceed 2,500,000 shares of
Stock. Shares of Stock reserved for issuance under the Plan shall be made
available either from authorized and unissued shares, shares held by the
Company in its treasury or reacquired shares. The term "issued" shall include
all deliveries to a Participant of shares of Stock pursuant to Awards under
the Plan. The Committee may, in its discretion, decide to award other shares
issued by the Company that are convertible into Stock or make such shares
subject to purchase by an option, in which event the maximum number of shares
of Stock into which such shares may be converted shall be used in applying the
aggregate share limit under this Section 3 and all provisions of the Plan
relating to Stock shall apply with full force and effect with respect to such
convertible shares.
(b) If, for any reason, any shares of Stock awarded or subject to purchase
or issuance under the Plan are not delivered or are reacquired by the Company
for reasons including, but not limited to, a forfeiture of Restricted Stock or
Deferred Stock or termination, expiration or a cancellation of an Option or a
Performance Share, such shares of Stock shall be deemed not to have been
issued pursuant to Awards under the Plan, or to have been subject to the Plan;
provided, however, that the counting of shares of Stock subject to Awards
granted under the Plan against the number of shares available for further
Awards shall in all cases conform to the requirements of Rule 16b-3 under the
Exchange Act.
(c) With respect to any Award constituting an Option granted to any Eligible
Individual who is a "covered employee" as defined in Section 162(m) of the
Code that is canceled, the number of shares of Stock originally subject to
such Award shall continue to count in accordance with Section 162(m) of the
Code.
(d) Unless the Committee otherwise determines, shares of Stock received by
the Company in connection with the exercise of Options by delivery of shares
or in connection with the payment of withholding taxes shall
32
reduce the number of shares deemed to have been issued pursuant to Awards
under the Plan for the limit set forth in Section 3(a) hereof.
SECTION 4
GRANT OF AWARDS AND AWARD AGREEMENTS
------------------------------------
(a) Subject to and in furtherance of the provisions of the Plan, the
Committee shall (i) determine and designate from time to time those Eligible
Individuals or groups of Eligible Individuals to whom Awards are to be
granted; (ii) grant Awards to Eligible Individual; (iii) determine the form or
forms of Award to be granted to any Eligible Individual; (iv) determine the
amount or number of shares of Stock, including Restricted Stock or Deferred
Stock if the Committee so determines, subject to each Award; (v) determine the
terms and conditions (which need not be identical) of each Award; (vi)
determine the rights of each Participant after employment has terminated and
the periods during which such rights may be exercised; (vii) establish and
modify performance objectives; (viii) determine whether and to what extent
Eligible Individuals shall be allowed or required to defer receipt of any
Awards or other amounts payable under the Plan to the occurrence of a
specified date or event; (ix) determine the price at which shares of Stock may
be offered under each Award which price may, except in the case of Options, be
zero; (x) permit cashless exercise of Options and other Awards of a sale, loan
or other nature covering exercise prices and/or income taxes; (xi) interpret,
construe and administer the Plan and any related Award Agreement and define
the terms employed therein; and (xii) make all of the determinations necessary
or advisable with respect to the Plan or any Award granted thereunder. Awards
granted to different Eligible Individuals or Participants need not be
identical and, in addition, may be modified in different respects by the
Committee.
(b) Each Award granted under the Plan shall be evidenced by a written Award
Agreement, in a form approved by the Committee. Such agreement shall be
subject to and incorporate the express terms and conditions, if any, required
under the Plan or as required by the Committee for the form of Award granted
and such other terms and conditions as the Committee may specify.
(c) The Committee may, prospectively or retroactively, modify or amend the
terms of any Award granted under the Plan or waive any restrictions or
conditions applicable to any Award or the exercise or realization thereof
(except that the Committee may not undertake any such modifications,
amendments or waivers if the effect thereof, taken as a whole, adversely and
materially affects the rights of any recipient of previously granted Awards
without his or her consent, unless such modification, amendment or waiver is
necessary or desirable for the continued validity of the Plan or its
compliance with Rule 16b-3 or any other applicable law, rule or regulation or
pronouncement or to avoid any adverse consequences under Section 162(m) of the
Code or any requirement of a securities exchange or association or regulatory
or self-regulatory body). Notwithstanding the foregoing, no such amendment,
modification or waiver may alter the terms of any Option to reduce the Option
price per share. Further, the Committee may not, without the approval of
shareholders, cancel any outstanding Option and replace it with a new Option
with a lower Option price where the economic effect would be the same as
reducing the Option price of the cancelled Option.
(d) In any calendar year, no Eligible Individual may receive Awards covering
more than 2,000,000 shares of the Company's Stock if the Award is denominated
in or valued by reference to a number of shares, or if the Award is
denominated in dollars, $750,000 in dollar value. Such number of shares shall
be adjusted in accordance with Section 14 hereof.
SECTION 5
STOCK OPTIONS
-------------
(a) With respect to the Options, the Committee shall (i) authorize the
granting of incentive stock options, nonqualified stock options, or a
combination of incentive stock options and nonqualified stock options; (ii)
determine the number of shares of Stock subject to each Option; (iii)
determine whether such Stock shall be Restricted Stock or, with respect to
nonqualified stock options, Deferred Stock; and (iv) determine the time or
33
times when and the manner in which each Option shall be exercisable and the
duration of the exercise period; provided, however, that the aggregate Fair
Market Value (determined as of the date of Option is granted) of the Stock
(disregarding any restrictions in the case of Restricted Stock) for which
incentive stock options granted to any Eligible Individual under this Plan may
first become exercisable in any calendar year shall not exceed $100,000.
Notwithstanding the foregoing, to the extent that Options intended to be
incentive stock options granted to an Eligible Individual under this Plan for
any reason exceed such limit on exercisability, such excess Options shall be
treated as nonqualified stock options as provided under Section 422(d) of the
Code, but shall in all other respects remain outstanding and exercisable in
accordance with their terms.
(b) The exercise period for a nonqualified stock option shall be 10 years
from the date of grant or such shorter period as may be specified by the
Committee at the time of grant. The exercise period for an incentive stock
option, including any extension which the Committee may from time to time
decide to grant, shall not exceed 10 years from the date of grant; provided,
however, that, in the case of an incentive stock option granted to an Eligible
Individual who, at the time of grant, owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company (a "10%
Stockholder"), such period, including extensions, shall not exceed five years
from the date of grant.
(c) The Option price per share shall be determined by the Committee at the
time any Option is granted and shall be not less than the Fair Market Value,
or, in the case of an incentive stock option granted to a 10% Stockholder, 110
percent of the Fair Market Value, disregarding any restrictions in the case of
Restricted Stock or Deferred Stock, on the date the Option is granted, as
determined by the Committee; provided, however, that such price shall be at
least equal to the par value of one share of Stock; provided further, however,
that in the discretion of the Committee in the case of a nonstatutory stock
option, the Option price per share may be less than the Fair Market Value in
the case of an Option granted in order to induce an individual to become an
employee of a Participating Company or in the case of an Option granted to a
new or prospective employee in order to replace stock options or other long-
term incentives under a program maintained by a prior employer which are
forfeited or cease to be available to the new employee by reason of his
termination of employment with his prior employer.
(d) No part of any Option may be exercised (i) until the Participant who has
been granted the Award shall have remained in the employ of a Participating
Company for such period after the date on which the Option is granted as the
Committee may specify and (iii) until achievement of such performance of other
criteria, if any, by the Participant, as the Committee may specify. An Option
shall commence to be exercisable no earlier than six months following the date
the Option is granted. The Committee may further require that an Option become
exercisable in installments.
(e) Except as otherwise provided in the Plan, the purchase price of the
shares as to which an Option shall be exercised shall be paid to the Company
at the time of exercise either in cash or in such other consideration as the
Committee deems appropriate, including, Stock, or with respect to nonqualified
options, Restricted Stock or Deferred Stock, already owned by the optionee
(subject to any minimum holding period specified by the Committee), having a
total Fair Market Value, as determined by the Committee, equal to the purchase
price, or a combination of cash and such other consideration having a total
Fair Market Value, as so determined, equal to the purchase price; provided,
however, that if payment of the exercise price is made in whole or in part in
the form of Restricted Stock or Deferred Stock, the Stock received upon the
exercise of the Option shall be Restricted Stock or Deferred Stock, as the
case may be, at least with respect to the same number of shares and subject to
the same restrictions or other limitations as the Restricted Stock or Deferred
Stock paid on the exercise of the Option. The Committee may provide that a
Participant who delivers shares of Stock to the Company, or sells shares of
Stock and applies all of the proceeds, (a) to pay, or reimburse the payment of
the exercise price of shares of Stock acquired under an employee stock option
or to purchase shares of Stock under an employee award or grant, an employee
purchase plan or program or any other stock-based employee benefit or
incentive plan, (whether or not such award or grant is under this Plan) and/or
(b) to pay federal or state income taxes resulting from the exercise of such
options or the purchase of shares of Stock pursuant to any such grant, award,
plan or program, shall receive a replacement Option under this Plan to
purchase a number of shares of Stock equal to the number of shares of Stock
delivered to the Company, or sold, the proceeds of the sale of which are
applied as aforesaid in this sentence. The replacement Option shall have an
exercise price equal to Fair Market Value on the date of such payment and
shall include such other terms and conditions as the Committee may specify.
34
(f) (i) Upon the Termination Without Cause of a Participant holding
Options who is not immediately eligible to receive benefits
under the terms of the Citizens Pension Plans, his or her
Options may be exercised to the extent exercisable on the date
of Termination Without Cause, at any time and from time to time
within the three months of the date of such Termination. The
Committee, however, in its discretion, may provide that any
Option of such a Participant which is not exercisable by its
terms on the date of Termination Without Cause will become
exercisable in accordance with a schedule (which may extend the
time limit referred to above, but not later than the final
expiration date specified in the Option Award Agreement) to be
determined by the Committee at any time during the period that
any other Options held by the Participant are exercisable.
(ii) Upon the death or Total Disability (during a Participant's
employment or within 3 months after termination of employment
for any reason other than termination for cause) of a
Participant holding an Option who is not immediately eligible
to receive benefits under the terms of the Citizens Pension
Plans, his or her Options may be exercised only to the extent
exercisable at the time of death or Total Disability (or such
earlier termination of employment) from time to time (A) in the
event of death or Total Disability, within the 12 months
following death or Total Disability or (B) in the event of such
termination of employment followed by death or Total Disability
within the 3 months after such termination, within the 12
months following such termination. The Committee, however, in
its discretion, may provide that any Options outstanding but
not exercisable at the date of the first to occur of death or,
Total Disability will become exercisable in accordance with a
schedule (which may extend the limits referred to above, but
not to a date later than the final expiration date specified in
such Option Award Agreement) to be determined by the Committee
at any time during the period while any other Option held by
the Participant is exercisable.
(iii)Upon death, Total Disability or Termination Without Cause of a
Participant holding an Option(s) who is immediately eligible to
receive benefits under the terms of the Citizens Pension Plans,
his or her Options may be exercised in full as to all shares
covered by Option Award Agreements (whether or not then
exercisable) at any time, or from time to time, but no later
than the expiration date specified in such Option Award
Agreement as specified in Section 5(b) above or, in the case of
incentive Options, within 12 months following such death, Total
Disability or Termination Without Cause.
(iv) If the employment of a Participant holding an Option is
terminated for deliberate, willful or gross misconduct, as
determined by the Company, all rights of such Participant and
any Family Member or Family Trust or other transferee to which
such Participant has transferred his or her Option shall expire
upon receipt by the Participant of the notice of such
termination.
(v) In the event of the death of a Participant, his or her Options
may be exercised by the person or persons to whom the
Participant's rights under the Option pass by will, or if no
such person has such right, by his or her executors or
administrators or Beneficiary. The death of a Participant after
Total Disability or Termination Without Cause will not
adversely effect the rights of a Participant or anyone entitled
to the benefits of such Option.
(g) Except as otherwise determined by the Committee, no Option granted under
the Plan shall be transferable other than by will or by the laws of descent
and distribution, unless the Committee determines that an Option may be
transferred by a Participant to a Family Member or Family Trust or other
transferee. Such transfer shall be evidenced by a writing from a grantee to
the Committee or Committee's designee on a form established by the Committee.
Absent an authorized transfer during the lifetime of the Participant, an
Option shall be exercisable only by him or her by his or her guardian or legal
representative.
(h) With respect to an incentive stock option, the Committee shall specify
such terms and provisions as the Committee may determine to be necessary or
desirable in order to qualify such Option as an incentive stock option within
the meaning of Section 422 of the Code.
35
(i) If authorized by the Committee in its sole discretion, the Company may
accept the surrender of the right to exercise any Option granted under the
Plan as to all or any of the shares of Stock as to which the Option is then
exercisable, in exchange for payment to the optionee (in cash or shares of
Stock valued at the then Fair Market Value) of an amount not to exceed the
difference between the option price and the then Fair Market Value of the
shares as to which such right to exercise is surrendered.
SECTION 6
PERFORMANCE SHARES
------------------
(a) The Committee shall determine a performance period (the "Performance
Period") of one or more years and shall determine the performance objectives
for grants of Performance Shares. Performance objectives may vary from
Participant to Participant and between groups of Participants and shall be
based upon such performance criteria or combination of factors as the
Committee may deem appropriate. The performance objectives determined by the
Committee for each performance share award shall be based on: stock price;
market share; sales; earnings per share; operating cash flow; free cash flow;
net income or loss; net income or loss adjusted to exclude specified items
such as gain or losses from extraordinary or non-recurring items and non-cash
expense and income, and before specified expense items such as interest,
depreciation, amortization and income taxes; EBITDA; revenues; return on
equity or assets; cost control; or a combination of any of the foregoing.
Performance Periods may overlap and Participants may participate
simultaneously with respect to Performance Shares for which different
performance periods are prescribed.
(b) At the beginning of a Performance Period, the Committee shall determine
for each Eligible Individual or group of Eligible Individuals with respect to
that Performance Period the range of dollar values, if any, which may be fixed
or may vary in accordance with such performance or other criteria specified by
the Committee, which shall be paid to an Eligible Individual as an Award if
the relevant measure of Company performance for the Performance Period is met.
(c) If during the course of a Performance Period there shall occur
significant events as determined by the Committee, including, but not limited
to, a reorganization of the Company, which the Committee expects to have a
substantial effect on a performance objective during such period, the
Committee may revise such objective.
(d) If a Participant terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, or a
significant event, as determined by the Committee, that Participant shall be
entitled to payment in settlement of each Performance Share for which the
Performance Period was prescribed (i) based upon the performance objectives
satisfied at the end of such period and (ii) prorated for the portion of the
Performance Period during which the Participant was employed by any
Participating Company; provided, however, the Committee may provide for an
earlier payment in settlement of such Performance Share in such amount and
under such terms and conditions as the Committee deems appropriate or
desirable with the consent of the Participant. If a Participant terminates
service with all Participating Companies during a Performance Period for any
other reason, then such Participant shall not be entitled to any payment with
respect to that Performance Period unless the Committee shall otherwise
determine.
(e) Each Performance Share may be paid in whole shares of Stock, including
Restricted Stock or Deferred Stock (together with any cash representing
fractional shares of Stock), or cash, or a combination of Stock and cash
either as a lump sum payment or in annual installments, all as the Committee
shall determine, at the time of grant of the Performance Share or otherwise,
commencing as soon as practicable after the end of the relevant Performance
Period. Any dividends or distributions payable on Performance Shares (or the
equivalent as specified in the grant), other than cash dividends representing
the periodic distribution of profits which shall be retained by the Company,
shall be paid over to the Participant when and if payment is made of the
underlying Performance Shares, unless the grant provides otherwise.
Except as otherwise provided in this Section 6, no Performance Shares
awarded to Participants shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Performance Period unless the
Committee determines that an Award may be transferred to a Family Member or
Family Trust or other transferee.
36
SECTION 7
RESTRICTED STOCK
----------------
(a) Restricted Stock may be received by a Participant either as an Award or
as the result of an exercise of an Option or as payment for a Performance
Share. Restricted Stock shall be subject to a restriction period (after which
restrictions shall lapse) which shall mean a period commencing on the date the
Award is granted and ending on such date or upon the achievement of such
performance or other criteria as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse of restrictions
in installments where deemed appropriate.
(b) Except as otherwise provided in this Section 7, no shares of Restricted
Stock received by a Participant shall be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of during the Restriction Period
unless the Committee determines that an Award may be transferred by a
Participant to a Family Member or Family Trust or other transferee; provided,
however, the Restriction Period for any Participant shall expire and all
restrictions on shares of Restricted Stock shall lapse upon the Participant's
(i) death, (ii) Total Disability or (iii) Termination Without Cause where the
Participant is immediately eligible to receive benefits under the terms of
Citizens Pension Plans, or with the consent of the Company, or upon some
significant event, as determined by the Committee, including, but not limited
to, a reorganization of the Company.
(c) If a Participant terminates employment with all Participating Companies
for any reason other than under the circumstances referred to in clause (b)
before the expiration of the Restriction Period, all shares of Restricted
Stock still subject to restriction shall, unless the Committee otherwise
determines within 90 days after such termination, be forfeited by the
Participant and shall be reacquired by the Company, and, in the case of
Restricted Stock purchased through the exercise of an Option, the Company
shall refund the purchase price paid on the exercise of the Option.
(d) The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Restricted Stock delivered
under the Plan may be held in custody until the Restriction Period expires or
until restrictions thereon otherwise lapse, and may require as a condition of
any receipt of Restricted Stock that the Participant shall have delivered a
stock power endorsed in blank relating to the Restricted Stock.
(e) Nothing in this Section 7 shall preclude a Participant from exchanging
any shares of Restricted Stock subject to the restrictions contained herein
for any other shares of Stock that are similarly restricted.
(f) Unless the Award Agreement provides otherwise, amounts equal to any cash
dividends representing the periodic distributions of profits declared and
payable during the Restriction Period with respect to the number of shares of
Restricted Stock credited to a Participant shall be paid to the Participant
within 30 days after each dividend becomes payable, unless, at the time of the
Award, the Committee determines that the dividends should be reinvested in
additional shares of Restricted Stock, in which case additional shares of
Restricted Stock shall be credited to the Participant based on the Stock's
Fair Market Value at the time of each such dividend, or unless the Committee
specifies otherwise. All dividends or distributions payable on shares (other
than cash dividends representing periodic distributions of profits) of
Restricted Stock (or the equivalent as specified in the grant) shall be paid
over to the Participant when and if as restrictions lapse on the underlying
shares of Restricted Stock, unless the grant provides otherwise.
SECTION 8
DEFERRED STOCK
--------------
(a) Deferred Stock may be credited to an Eligible Individual either as an
Award or as the result of an exercise of an Option or as payment for a
Performance Share. Deferred Stock shall be subject to a deferral period which
shall mean a period commencing on the date the Award is granted and ending on
such date or upon the achievement of such performance or criteria as the
Committee shall determine (the "Deferral Period"). The Committee may provide
for the expiration of the Deferral Period in installments where deemed
appropriate.
37
(b) Except as otherwise provided in this Section 8, no Deferred Stock
credited to Participant shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Deferral Period unless the
Committee determines that an Award may be transferred to a Family Member or
Family Trust or other transferee; provided, however, the Deferral Period for
any Participant shall expire upon the Participant's (i) death, (ii) Total
Disability or (iii) Termination Without Cause where the Participant is
immediately eligible to receive benefits under the terms of Citizens Pension
Plans, or an earlier age with the consent of the Company, or upon some
significant event, as determined by the Committee, including, but not limited
to, a reorganization of the Company.
(c) At the expiration of the Deferral Period, the Participant shall be
entitled to receive a certificate pursuant to Section 10 for the number of
shares of Stock equal to the number of shares of Deferred Stock credited on
his or her behalf. Unless the Award Agreement provides otherwise, amounts
equal to any cash dividends representing the periodic distributions of profits
declared and payable during the Deferral Period with respect to the number of
shares of Deferred Stock credited to a Participant shall be paid to such
Participant within 30 days after each dividend becomes payable unless, at the
time of the Award, the Committee determined that such dividends should be
reinvested in additional shares of Deferred Stock, in which case additional
shares of Deferred Stock shall be credited to the Participant based on the
Stock's Fair Market Value at the time of each such dividend, or unless the
Committee specifies otherwise. All dividends or distributions payable on
shares (other than cash dividends representing periodic distributions of
profits) of Deferred Stock (or the equivalent as specified in the grant) shall
be paid over to the Participant when the Deferral Period ends, unless the
grant provides otherwise.
(d) If a Participant terminates employment with all Participating Companies
for any reason other than under the circumstances referred to in clause (b)
before the expiration of the Deferral Period, all shares of Deferred Stock
shall, unless the Committee otherwise determines within 90 days after such
termination, be forfeited by the Participant, and, in the case of Deferred
Stock purchased through the exercise of an Option, the Company shall refund
the purchase price paid on the exercise of the Option.
SECTION 9
OTHER STOCK-BASED AWARDS
------------------------
Phantom Stock may be credited to an Eligible Individual either as an Award
or as the result of an exercise of an Option or as payment for a Performance
Share. Each share of Phantom Stock may be paid in whole shares of Stock,
including Restricted Stock or Deferred Stock (together with any cash
representing fractional shares of Stock), or cash, or a combination of Stock
and cash either as a lump sum payment or in annual installments, all as the
Committee shall determine, at the time of grant of the Phantom Stock or
otherwise, commencing as soon as practicable after the payment date designated
by the Committee. Any dividends or distributions payable on Phantom Stock (or
the equivalent as specified in the grant), other than cash dividends
representing the periodic distribution of profits which shall be retained by
the Company, shall be paid over to the Participant when and if payment is made
of the underlying Phantom Stock, unless the grant provides otherwise.
Except as otherwise provided in this Section 9, no Phantom Stock awarded to
Participants shall be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of unless the Committee determines that an Award may be
transferred to a Family Member or Family Trust or other transferee.
The Committee may grant other Awards under the Plan which are denominated in
stock units or pursuant to which shares of Stock may be acquired, including
Awards valued using measures other than market value or Fair Market Value, if
deemed by the Committee in its discretion to be consistent with the purposes
of the Plan. Subject to the terms of the Plan, the Committee shall determine
the form of such Awards, the number of shares of Stock to be granted or
covered pursuant to such Awards and all other terms and conditions of such
Awards.
38
SECTION 10
CERTIFICATES FOR AWARDS OF STOCK
--------------------------------
(a) Subject to Section 7(d), each Participant entitled to receive shares of
Stock under the Plan shall be issued a certificate for such shares or have
their shares registered for their account in book entry form by the Company's
transfer agent. In the instance of a certificate, such certificate shall be
registered in the name of the Participant, and shall bear an appropriate
legend reciting the terms, conditions and restrictions, if any, applicable to
such shares and shall be subject to appropriate stop-transfer orders.
(b) The Company shall not be required to issue or deliver any shares or
certificates for shares of Stock prior to (i) the listing of such shares on
any stock exchange or quotation system on which the Stock may then be listed
or quoted, and (ii) the completion of any registration, qualification,
approval or authorization of such shares under any federal or state law, or
any ruling or regulation or approval or authorization of such shares under any
governmental body which the Company shall, in its sole discretion, determine
to be necessary or advisable.
(c) All shares and certificates for shares of Stock delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the SEC, any stock exchange upon which the Stock is then
listed and any applicable federal or state securities or regulatory laws, and
the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. The foregoing
provisions of this Section 10(c) shall not be effective if and to the extent
that the shares of Stock delivered under the Plan are covered by an effective
and current registration statement under the Securities Act, or if the
Committee determines that application of such provisions is no longer required
or desirable. In making such determination, the Committee may rely upon an
opinion of counsel for the Company.
(d) Except for the restrictions on Restricted Stock under Section 7, each
Participant who receives an award of Stock shall have all of the rights of a
stockholder with respect to such shares, including the right to vote the
shares and receive dividends and other distributions. No Participant awarded
an Option, a Performance Share or Deferred Stock shall have any right as a
stockholder with respect to any shares subject to such Award prior to the date
of issuance to him or her of certificate or certificates for such shares.
No Participant awarded Phantom Stock or other share units shall have any
right as a stockholder with respect to any shares whose value is used to
determine the value of such Phantom Stock or share units; provided, however,
that this sentence shall not preclude any Award of Phantom Stock or share
units from providing dividend equivalent rights or payouts to the Participant
in the form of shares of the Company's Stock (and the Participant shall have
full stockholder rights with respect to any such paid out shares).
SECTION 11
BENEFICIARY
-----------
(a) Each Eligible Individual shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the Award, if any, payable under the Plan upon his or her death. An
Eligible Individual may from time to time revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by filing
a new designation with the Committee. The last such designation received by
the Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Eligible Individual's death, and in no event shall it
be effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of an
Employee's death, or if no designated Beneficiary survives the Eligible
Individual or if such designation conflicts with law, the Eligible
Individual's estate shall be entitled to receive the Award, if any, payable
under the Plan upon his or her death. If the Committee is in doubt as to the
right of any person to receive such Award, the Company may retain such Award,
without liability for any interest thereon, until the Committee determines the
right thereto, or the Company may
39
pay such Award into any court of appropriate jurisdiction and such payment
shall be a complete discharge of the liability of the Company therefor.
SECTION 12
ADMINISTRATION OF THE PLAN
--------------------------
(a) The Plan shall be administered by the Committee, as appointed by the
Board and serving at the Board's pleasure. Each member of the Committee shall
be both a member of the Board and shall satisfy the "non-employee director" or
similar successor requirements, if any, of Rule 16b-3 under the Exchange Act
and the "outside director" or similar successor requirements, if any, of
Section 162(m) of the Code and the regulations promulgated thereunder.
(b) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in the
sole and absolute discretion of the Committee and shall be final, conclusive
and binding on all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof and any
related Award Agreement and define the terms employed in the Plan or any
agreement, and its interpretations and constructions thereof and actions taken
thereunder shall be final, conclusive and binding on all persons for all
purposes.
(d) The Committee shall have full power, discretion and authority to
prescribe and rescind rules, regulations and policies for the administration
of the Plan.
(e) The Committee's decisions and determinations under the Plan and with
respect to any Award granted thereunder need not be uniform and may be made
selectively among Awards, Participants or Eligible Individuals, whether or not
such Awards are similar or such Participants or Eligible Individuals are
similarly situated.
(f) The Committee shall keep minutes of its actions under the Plan. The act
of a majority of the members present at a meeting duly called and held shall
be the act of the Committee. Any decision or determination reduced to writing
and signed by all members of the Committee shall be fully as effective as if
made by unanimous vote at a meeting duly called and held.
(g) The Committee may employ such legal counsel, including without
limitation independent legal counsel and counsel regularly employed by the
Company, consultants and agents as the Committee may deem appropriate for the
administration of the Plan and may rely upon any opinion received from any
such counsel or consultant and any computations received from any such
consultant or agent. All expenses incurred by the Committee in interpreting
and administering the Plan, including without limitation, meeting fees and
expenses and professional fees, shall be paid by the Company.
(h) No member or former member of the Committee or the Board shall be liable
for any action or determination made in good faith with respect to the Plan or
any Award granted under it. Each member or former member of the Committee or
the Board shall be indemnified and held harmless by the Company against all
cost or expense (including counsel fees and expenses) or liability (including
any sum paid in settlement of a claim with the approval of the Board) arising
out of any act or omission to act in connection with the Plan unless arising
out of such member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights to indemnification or
insurance the members or former member may have as directors or under the by-
laws of the Company or otherwise.
(i) The Committee's determination that an Option, Performance Share,
Restricted Stock, Deferred Stock or other Stock-based Awards may be
transferred by a Participant to a Family Member or Family Trust or other
transferee may be set forth in: determinations pursuant to Section 12(c),
rules and regulations of general application adopted pursuant to Section
12(d), in the written Award Agreement, or by a writing delivered to the
Participant made any time after the relevant Award or Awards have been
granted, on a case-by-case basis, or otherwise. In any event, the transferee
or Family Member or Family Trust shall agree in writing to be bound by
40
all the provisions of the Plan and the Award Agreement, and in no event shall
any such transferee have greater rights under such Award than the Participant
effecting such transfer.
(j) With respect to credits, shares, cash or other property credited to a
Participant by reason of dividends or distributions, if the Committee shall so
determine, all such credits, shares, cash or other property to a Participant
shall be paid to the Participant periodically at the end of the applicable
period, whether or not the performance, employment or other standards (or
lapse of time) upon which such Award is conditioned have been satisfied. In
addition, the Committee may determine to include in Award Agreements granting
Options a provision to the effect that (a) an amount equal to any dividends
(payable in cash or other property) paid after the grant of the Option and
before to the exercise of such Option with respect to the number of shares of
Stock subject to such Option shall be credited to a Participant and, if the
Award Agreement so provides, thereafter paid to such Participant within 30
days after each dividend becomes payable or, (b) if the Committee so
determines, such Award shall be reinvested in additional shares of Stock, in
which case such additional shares of Stock shall be credited to the
Participant based on the Stock's Fair Market Value at the time of payment of
each such dividend. In the latter event, if the Committee so determines, such
additional shares of Stock shall be delivered to the Participant (whether or
not such Option is exercised) at the time that such Option ceases to be
exercisable in accordance with its terms or otherwise.
SECTION 13
AMENDMENT OR DISCONTINUANCE
---------------------------
The Board may, at any time, amend or terminate the Plan. The Plan may also
be amended by the Committee, provided that all such amendments shall be
reported to the Board. No amendments shall become effective unless approved by
affirmative vote of the Company's stockholders if such approval is necessary
or desirable for the continued validity of the Plan or if the failure to
obtain such approval would adversely affect the compliance of the Plan with
Rule 16b-3 or any successor rule under the Exchange Act or Section 162(m) of
the Code or any other rule or regulation. No amendment or termination shall,
when taken as a whole, adversely and materially affect the rights of any
Participant who has received a previously granted Award without his or her
consent unless the amendment or termination is necessary or desirable for the
continued validity of the Plan or its compliance with Rule 16b-3 or any other
applicable law, rule or regulation or pronouncement or to avoid any adverse
consequences under Section 162(m) of the Code or any requirement of a
securities exchange or association or regulatory or self-regulatory body).
SECTION 14
ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
----------------------------------------------
In the event of a change in corporate capitalization, stock split or stock
dividend, the number of shares purchasable upon exercise of an Option shall be
increased to the new number of shares which result from the shares covered by
the Option immediately before the change, split or dividend. The purchase
price per share shall be reduced proportionately and the total purchase price
will remain the same.
In the event of any other change in corporate capitalization, or a corporate
transaction, such as any merger of a corporation into another corporation, any
consolidation of two or more corporations into another corporation, any
separation of a corporation (including a spinoff or other distribution of
stock or property by a corporation), any reorganization of a corporation
(whether or not such reorganization comes within the definition of such term
in Section 368 of the Code), or any partial or complete liquidation by a
corporation or other similar event which could distort the implementation of
the Plan or the realization of its objectives, the Committee shall make an
appropriate adjustment in the number of shares of Stock (i) which are covered
by the Plan, (ii) which may be granted to any one Eligible Individual and
which are subject to any Award, and the purchase price therefor, and in terms,
conditions or restrictions on securities as the Committee deems equitable,
with the objective that the securities covered under the Plan or an Award
shall be those securities which a Participant would have received if
41
he or she had exercised his or her Option prior to the event or been entitled
to his or her Restricted or Deferred Stock or Performance Shares.
All such events occurring between the effective date of the Option and its
exercise shall result in an adjustment to the Option terms.
SECTION 15
CHANGE IN CONTROL
-----------------
Awards may include, or may incorporate from any relevant guidelines adopted
by the Committee, terms which provide that any or all of the following actions
or consequences, with any modifications adopted by the Committee, may occur as
a result of, or in anticipation of, any Change in Control to assure fair and
equitable treatment of Participants:
(a) Any Options outstanding at least six months as of the date of Change in
Control shall, if held by a current employee of the Company, become
immediately exercisable in full. In addition, all Participants may, regardless
of whether still an employee of the Company, elect to cancel all or any
portion of any Option or Award no later than 90 days after the Change in
Control, in which event the Company shall pay to such electing Participant, an
amount in cash equal to the excess, if any, of the Current Market Value (as
defined below) of the shares of Stock, including Performance Shares,
Restricted Stock or Deferred Stock, subject to the Option or of the portion
thereof so canceled over the option price for such shares; provided, however,
that no Participant shall have the right to elect cancellation unless and
until at least 6 months have elapsed after the date of grant of the Option.
(b) Any Performance Periods shall end and the Company shall pay each
Participant an amount in cash equal to the value of such Participant's
performance shares, if any, based upon the Stock's Current Market Value in
full settlement of such performance shares.
(c) Any Restriction Periods shall end and the Company shall pay each
Participant an amount in cash equal to the Current Market Value of the
Restricted Stock held by, or on behalf of, each Participant in exchange for
such Restricted Stock.
(d) Any Deferral Period shall end and the Company shall pay to each
Participant an amount in cash equal to the Current Market Value of the number
of shares of Stock equal to the number of shares of Deferred Stock credited to
such Participant in full settlement of any Deferred Stock Award.
(e) The Company shall pay to each Participant all amounts due, if any,
deferred by or payable under Awards granted to such Participant under the Plan
which are not Performance Shares, Restricted Stock or Deferred Stock, in
accordance with the terms provided by the Committee at the time of deferral or
grant.
(f) For purpose of this Section 15, "Current Market Value" means the highest
Fair Market Value during the period commencing 30 days prior to the Change in
Control and ending 30 days after the Change in Control (the "reference
period"); provided that, if the Change in Control occurs as a result of a
tender offer or exchange offer, or a merger, purchase of assets or stock, or
another transaction approved by shareholders of the Company, Current Market
Value means the higher of (i) the highest Fair Market Value during the
reference period, or (ii) the highest price paid per share of Stock pursuant
to such tender offer, exchange offer or transaction.
SECTION 16
MISCELLANEOUS
-------------
(a) Nothing in this Plan or any Award granted hereunder shall confer upon
any employee any right to continue in the employ of any Participating Company
or interfere in any way with the right of any Participating Company to
terminate his or her employment at any time.
(b) No Award payable under the Plan shall be deemed salary or compensation
for the purpose of computing benefits under any employee benefit plan or other
arrangement of any Participating Company for the benefit of its employees
unless the Company shall determine otherwise.
42
(c) No Eligible Individual or Participant shall have any claim to an Award
until it is actually granted under the Plan. To the extent that any person
acquires a right to receive payments from the Company under this Plan, such
right shall be no greater than the right of an unsecured general creditor of
the Company. All payments of Awards provided for under the Plan shall be paid
by the Company either by issuing shares of Stock or by delivering cash from
the general funds of the Company or other property of the Company; provided,
however, that such payments shall be reduced by the amount of any payments
made to the Participant or his or her dependents, beneficiaries or estate from
any trust or special or separate fund established in connection with this
Plan. The Company shall not be required to establish a special or separate
fund or other segregation of assets to assure such payments, and, if the
Company shall make any investments to aid it in meeting its obligations
hereunder, the Participant shall have no right, title, or interest whatever in
or to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments.
(d) Absence on leave approved by a duly constituted officer of the Company
shall not be considered interruption or termination of employment for any
purposes of the Plan; provided, however, that no Award may be granted to an
employee while he or she is absent on leave.
(e) If the Committee shall find that any person to whom any Award, or
portion thereof, is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, then any payment due
him or her (unless a prior claim therefor has been made by a duly appointed
legal representative) may, if the Committee so directs the Company, be paid to
his or her spouse, a child, a relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be a complete discharge of the liability of the Company
therefor.
(f) The right of any Participant or other person to any Award payable under
the Plan may not be assigned, transferred, pledged or encumbered, either
voluntarily or by operation of law, except as provided in Section 11 with
respect to the designation of a Beneficiary or as may otherwise be required by
law or pursuant to a qualified domestic relations order as defined by the Code
or Title I of the Employee Retirement Income Security Act, or the rules
thereunder or unless the Committee determines that an Award may be transferred
to a Family Member or Family Trust or other transferee. If, by reason of any
attempted assignment, transfer, pledge, or encumbrance or any bankruptcy or
other event happening at any time, any amount payable under the Plan would be
made subject to the debts or liabilities of the Participant or his or her
Beneficiary or would otherwise devolve upon anyone else and not be enjoyed by
the Participant or his or her Beneficiary or transferee, Family Trust or
Family Member, then the Committee may terminate such person's interest in any
such payment and direct that the same be held and applied to or for the
benefit of the Participant, his or her Beneficiary, taking into account the
expressed wishes of the Participant (or, in the event of his or her death,
those of his or her Beneficiary) in such manner as the Committee may deem
proper.
(g) Copies of the Plan and all amendments, administrative rules and
procedures and interpretations shall be made available for review to all
Eligible Individuals at all reasonable times at the Company's administrative
offices.
(h) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the
Participant or his or her Beneficiary, for the withholding of any federal,
state, local or foreign taxes. The Committee may in its discretion permit the
payment of such withholding taxes by authorizing the Company to withhold
shares of Stock to be issued, or the Participant to deliver to the Company
shares of Stock owned by the Participant or Beneficiary, in either case having
a Fair Market Value equal to the amount of such taxes, or otherwise permit a
cashless exercise.
(i) All elections, designations, requests, notices, instructions and other
communications from an Eligible Individual, Participant, Beneficiary or other
person to the Committee, required or permitted under the Plan, shall be in
such form as is prescribed from time to time by the Committee and shall be
mailed by first class mail or transmitted by facsimile copy or delivered to
such location as shall be specified by the Committee.
(j) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
(k) Captions preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of any
provision hereof.
43
(l) The Plan and the grant, exercise and carrying out of Awards shall be
subject to all applicable federal and state laws, rules, and regulations and
to all required or otherwise appropriate approvals and authorizations by any
governmental or regulatory agency or commission. The Company shall have no
obligation of any nature hereunder to any Eligible Individual, Participant or
any other person in the absence of all necessary or desirable approvals or
authorizations and shall have no obligation to seek or obtain the same.
(m) Whenever possible, each provision of this Plan and any Award Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any such provision is held to be ineffective, invalid,
illegal or unenforceable in any respect under the applicable laws or
regulations of the United States or any state, such ineffectiveness,
invalidity, illegality or unenforceability will not affect any other provision
but this Plan and any such agreement will be reformed, construed and enforced
so as to carry out the intent hereof or thereof and as if any invalid or
illegal provision had never been contained herein.
(n) The Committee, in its discretion, may defer the payment of an Award, if
such payment would cause the annual remuneration of a Participant, who is a
covered employee under Section 162(m) of the Code, to exceed $1,000,000.
(o) The Plan shall be construed and governed under the laws of the State of
Delaware.
SECTION 17
EFFECTIVE DATE AND STOCKHOLDER APPROVAL
---------------------------------------
The Effective Date of the Plan shall be May 18, 2000, subject to approval by
the holders of a majority of the Company's common stock at the 2001 Annual
Meeting. Any Awards granted prior to the 2001 Annual Meeting will be subject
to the receipt of such approval. No Awards will be granted under the Plan
after the expiration of ten years from the Effective Date.
44
See Advance Registration Form on back cover.
45
Citizens Communications Company
3 High Ridge Park
Stamford, CT 06905
2001 Annual Meeting of Stockholders
10:00 a.m., Central Time, May 17, 2001
Hotel Inter-Continental
Chicago, Illinois
ADVANCE REGISTRATION FORM
Attendance at the Annual Meeting is limited to Citizens' stockholders, or
their authorized representatives, and our guests and employees. If you plan to
attend or send a representative to the Annual Meeting, please notify us by
completing the advance registration form below and mailing it, along with your
proxy, in the enclosed envelope or to the address above, or by sending us an
electronic mail message to citizensproxy@czn.com.
You may view this proxy statement and our Annual Report at the following
Internet web site: www.onlineproxy.com/citizens/index.asp. An advance
registration form may be submitted (for registered stockholders only)* by
selecting the proxy statement, the advance registration form and then clicking
on the submit button once you have completed the form.
Cut off at dotted line.
...............................................................................
(Please type or print)
Stockholder's
Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
_______________________________________________________________________________
City _________________________ State _______________________ Zip ____________
I am a Citizens stockholder. I am sending the following person as my
representative:
_______________________________________________________________________________
Stockholder's Signature
*If your shares are held in the name of any intermediary, please see
instructions in the Chairman's letter (front cover of this proxy statement).
CITIZENS
communications
C/O PROXY SERVICES
P.O. BOX 9142
FARMINGDALE, NY 11735
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site. You will be prompted to
enter your 12-digit Control Number, which is
located below, to obtain your records and to
create an electronic voting instruction
form.
VOTE BY PHONE -1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in
hand when you call. You will be prompted to
enter your 12-digit Control Number, which is
located below, and then follow the simple
instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and
return it in the postage-paid envelope we
have provided or return it to Citizens
Communications Company, c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE CITC0M KEEP THIS PORTION FOR YOUR RECORDS
OR BLACK INK AS FOLLOWS -----------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
----------------------------------------------------
CITIZENS COMMUNICATIONS COMPANY
Proposal 1 - Election of Directors
Nominees:
For Withhold For All To withhold authority to vote for
01) Norman I. Botwinik 07) John L. Schroeder All All Except individual(s), mark "For All Except
02) Aaron I. Fleischman 08) Robert D Siff and write the numbers) of the
03) Rudy J. Graf 09) Robert A. Stanger O O O nominees) on the line below.
04) Stanley Harfenist 10) Edwin Tornberg
05) Andrew N. Heine 11) Claire L. Tow --------------------------------------
06) Scott N. Schneider 12) Leonard Tow
Proposa1 2 For Against Abstain
/ / / / / /
Approve the Citizens Communications
Company Amended and Restated 2000
Equity Incentive Plan.
This proxy when properly executed will be voted in
the manner directed by the signatory stockholder. If
no direction is made, this proxy will be voted in the
same proportion as the voted shares in the Citizens
401(k) Savings Plan. Abstentions are counted as
"Against" votes for Proposal 2.
Note: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney
executor, administrator, trustee or guardian, please
give full title as such. See reverse far additional
Proxy information
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
CITIZENS communications
Information about Delivery of Shareholder Materials
"Householding"
In an effort to minimize costs and the amount of duplicate material a household
receives, we are sending one annual report to accounts sharing the same last
name and address. A copy of Citizens' 2000 Annual Report, if not included in
this package, has been sent to your address in another proxy package and should
have already arrived. If you have not yet received an annual report, would like
another copy, and/or wish to receive financial reports for each account in your
household in the future, please contact Citizens' shareholder services
department by phone at 1.800.248.8845, by mail at 3 High Ridge Park, Stamford,
Conn., 06905, or by email at Cittzens@czn.com.
Vote Your Proxy Online
To vote your shares via the Internet, visit www.proxyvote.com. Enter the
12-digit control number located on thereverse of this proxy card to access your
information and complete your electronic voting instructions. There is no charge
to you for this service, but there may be costs associated with access to the
Internet, such as usage charges for your Internet service provider and/or
telephone companies.
Electronic Delivery of Future Proxy Material
After submitting your proxy vote online, you may elect to receive future proxy
material (annual report, proxy statement, etc.) from Citizens electronically.
Before exiting www.proxyvote.com, click the button for "Electronic Delivery" and
enter your email address. Then click the button indicating your consent to
receive future information in an electronic format. Next year, you will receive
an email providing information about where to locate the annual report and proxy
statement online and how to vote your shares.
401(k) SAVINGS PLAN
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby authorizes and directs Putnam Fiduciary Trust Company, as
the Trustee under the Citizens 401 (k) Savings Plan, to vote all shares of stock
allocable to the undersigned under the provisions of the Plan and appoints
Andrew N. Heine, John L. Schroeder and Robert D. Siff or any of them with full
power of substitution, proxies to vote at the Annual Meeting of Stockholders of
Citizens Communications Company (the "Company") to be held on Thursday, May 17,
2001, at 10:00 a.m. Central Daylight Time, and at any adjournments thereof. Said
Trustee is authorized and directed to execute and deliver a written proxy
appointing such individuals to act as proxies as directed.
CITIZENS
communications
C/O PROXY SERVICES VOTE BY INTERNET -www.proxyvote.com
P.O. BOX 9142
FARMINGDALE, NY 11735 Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site. You will be prompted to
enter your 12-digit Control Number, which is
located below, to obtain your records and to
create an electronic voting instruction
form.
VOTE BY PHONE-1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in
hand when you call. You will be prompted to
enter your 12-digit Control Number, which is
located below, and then follow the simple
instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and
return it in the postage-paid envelope we
have provided or return it to Citizens
Communications Company, c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE CITC03 KEEP THIS PORTION FOR YOUR RECORDS
OR BLACK INK AS FOLLOWS -----------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
----------------------------------------------------
CITIZENS COMMUNICATIONS COMPANY
Proposal 1 - Election of Directors
Nominees:
---------
01) Norman I. Botwinik 07) John L. Schroeder For Withhold For All To withhold authority to vote for
02) Aaron I. Fleischman OS) Robert D. Siff All All Except individual(s), mark "For All Except
03) Rudy J. Graf 09) Robert A. Stanger and write the numbers) of the
04) Stanley Hartenist 10) Edwin Tornberg O O O nominees) on the line below.
06) Andrew N. Heine 11) Claire L. Tow
06) Scott N. Schneider 12) Leonard Tow --------------------------------------
Proposa1 2 For Against Abstain
/ / / / / /
Approve the Citizens Communications
Company Amended and Restated 2000
Equity Incentive Plan.
This proxy when properly executed will be voted in
the manner directed by the signatory stockholder. If
no direction is made, this proxy will be voted "For"
Proposal 1 and "For" Proposal 2. Abstentions are
counted as "Against" votes for Proposal 2.
Note: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such. See reverse for additional
Proxy information.
Signature [PLEASE SIGN WITHIN BOX] Date Signature (JointOwners) Date
CITIZENS
communications(SM)
Information about Delivery of Shareholder Materials
"Householding"
In an effort to minimize costs and the amount of duplicate material a household
receives, we are sending one annual report to accounts sharing the same last
name and address. A copy of Citizens' 2000 Annual Report, if not included in
this package, has been sent to your address in another proxy package and should
have already arrived. If you have not yet received an annual report, would like
another copy, and/or wish to receive financial reports for each account in your
household in the future, please contact Citizens' shareholder services
departmentby phone at 1.800.248.8845, by mail at 3 High Ridge Park, Stamford,
Conn., 06905, or by email at Citizens aczn.com.
Vote Your Proxy Online
To vote your shares via the Internet, visit www.proxyvote.com. Enter the
12-digit control number located on there verse of this proxy card to access your
information and complete your electronic voting instructions. There is no charge
to you for this service, but there may be costs associated with access to the
Internet, such as usage charges for your Internet service provider and/or
telephone companies.
Electronic Delivery of Future Proxy Material
After submitting your proxy vote online, you may elect to receive future proxy
material (annual report, proxy statement, etc.) from Citizens electronically.
Before exiting www,proxyvote.com, click the button for "Electronic Delivery" and
enter your email address. Then click the button indicating your consent to
receive future information in an electronic format. Next year, you will receive
an email providing information about where to locate the annual report and proxy
statement online and how to vote your shares.
CITIZENS COMMUNICATIONS COMPANY
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints Andrew N. Heine, John L. Schroeder and Robert D.
Siff or any of them with full power of substitution, proxies to vote at the
Annual Meeting of Stockholders of Citizens Communications Company (the
"Company") to be held on Thursday, May 17, 2001, at 10:00 a.m., Central Daylight
Time, and at any adjournments thereof, hereby revoking any proxies heretofore
given, to vote all shares of common stock of the Company held or owned by the
undersigned as directed, and in their discretion upon such other matters as may
come before the meeting.