SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
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CITIZENS COMMUNICATIONS COMPANY
(Name of Registrant as Specified in its Charter)
----------
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:
(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:
[CITIZENS LOGO] Administrative Offices
Three High Ridge Park, Stamford, CT 06905
(203) 614-5600
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April 1, 2003
Dear Fellow Stockholder:
I am pleased to invite you to attend the 2003 Annual Meeting of the
Stockholders of Citizens Communications Company, which will be held at the
Prudential Center for Learning and Innovation, Weed Avenue, Norwalk, CT 06850,
on Tuesday, May 13, 2003, at 10:00 a.m., Eastern Time.
At last year's Annual Meeting, 88% of Citizens' outstanding shares were
represented. We hope that the percentage will be even higher at the upcoming
meeting. It is important that your shares be represented whether or not you
attend the meeting. In order to ensure 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 stockholders as of the
record date, or their authorized representative, and employees. Registered
stockholders planning to attend the meeting should so indicate by marking the
appropriate box on the proxy.
We look forward to seeing and meeting with you at the Annual Meeting.
Cordially,
/s/ Leonard Tow
Leonard Tow
Chairman and Chief Executive Officer
[CITIZENS LOGO] Administrative Offices
Three High Ridge Park, Stamford, CT 06905
(203) 614-5600
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April 1, 2003
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
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 Prudential Center for Learning and
Innovation, Weed Avenue, Norwalk, CT 06850, on Tuesday, May 13, 2003, at 10:00
a.m., Eastern Time, for the following purposes:
1. To elect directors;
2. To approve the appointment of KPMG LLP as our independent public
accountants for 2003; 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 fixed the close of business on March 17, 2003, 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 the company, Three
High Ridge Park, Stamford, CT 06905, and at the site of the meeting on the
meeting date.
By Order of the Board of Directors
/s/ L. Russell Mitten
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, Stamford, CT 06905. The approximate date on
which this proxy statement and form of proxy are first being sent or given to
stockholders is April 1, 2003.
Only holders of record of our common stock, par value $0.25 per share, as
of the close of business on March 17, 2003, the record date, will be entitled
to notice of and to vote at the annual meeting. As of the record date, there
were 283,163,658 shares of common stock outstanding, each of which is entitled
to one vote at the annual meeting. As of the record date, an additional
11,041,967 shares of common stock were 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. The selection of our independent public accountants for 2003 will be
approved by a majority vote of the shares of common stock present or
represented by proxy and entitled to vote at the meeting. Abstentions by
stockholders present in person or by proxy will have the effect of a negative
vote with respect to the election of directors and the approval of the
appointment of our independent public accountants. 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 approval of auditors. 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
appointment of our independent public accountants. 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, 2003, no person or group of persons, except for FMR
Corp., Wallace R. Weitz & Company, and Chieftain Capital Management, Inc., is
known by us to beneficially own more than 5% of our common stock. 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, 2003. 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 beneficially owns more than 5% of
our common stock, is based solely on our review of Schedules 13G (and
amendments thereto) filed with the Securities and Exchange Commission as of
February 28, 2003. These filings contain information as of particular dates and
may not reflect current holdings of our common stock. 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 Percentage
Stock of Common
Name and Address of Beneficial Owner Owned Stock (1)
------------------------------------ ------------- ----------
FMR Corp. .................................. 42,596,344(2) 15.04%
82 Devonshire Street
Boston, MA 02109
Wallace R. Weitz & Company ................. 27,609,400(3) 9.75%
1125 South 103rd Street
Suite 600
Omaha, NE 68124-6008
Chieftain Capital Management, Inc. ......... 16,072,575(4) 5.68%
12 East 49th Street
New York, NY 10017
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(1) For each person or group, the percentage of ownership was determined by
dividing the number of shares shown in the table by 283,163,658, the number
of shares of our common stock outstanding as of the record date.
(2) Based on a Schedule 13G/A Information Statement filed by FMR Corp., Edward
C. Johnson 3d, Abigail P. Johnson, Fidelity Management & Research Company,
and FA Mid Cap Stock Fund on February 13, 2003. The address of each of
these persons is the same as FMR Corp. Such Schedule 13G/A discloses that
members of the family of Edward C. Johnson 3d hold approximately 49% of the
voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail Johnson
owns 24.5% of the outstanding stock of FMR Corp. Mr. Johnson 3d is the
Chairman of FMR Corp. and Abigail Johnson is a director of that company.
Approximately 13.82% of our outstanding common stock, or 39,128,139 shares,
is held by Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp. Mr. Johnson 3d 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
1.09% of our outstanding common stock, or 3,095,437 shares, is held by
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.
Mr. Johnson 3d and FMR Corp. each has sole investment power with respect to
all of these shares and sole power to vote 3,089,237 shares and no power to
vote 6,200 shares. Approximately 0.13% of our outstanding common stock, or
371,700 shares, is held by Fidelity International Limited, approximately
39.89% of the voting stock of which is controlled by Mr. Johnson 3d and
members of his family. Fidelity International Limited has sole investment
power and sole voting power with respect to these shares. 1,068 shares of
our outstanding common stock are held by Geode Capital Management, LLC, a
wholly-owned subsidiary of Fidelity Investors III Limited Partnership.
Fidelity Investors Management, LLC, is the general partner and investment
manager of Fidelity Investors III Limited Partnership. The managers of
Geode Capital Management, LLC, the members of Fidelity Investors
Management, LLC, and the limited partners of Fidelity Investors III Limited
Partnership are shareholders and employees of FMR Corp.
(3) Based on a Schedule 13G/A Information Statement filed by Wallace R. Weitz &
Company and Wallace R. Weitz, President and Primary Owner of Wallace R.
Weitz & Company, on January 16, 2003. The address of Wallace R. Weitz is
the same as that of Wallace R. Weitz & Company. Such Schedule 13G/A
discloses that Wallace R. Weitz & Company and Wallace R. Weitz hold shared
dispositive power and shared voting power over these shares.
(4) Based on a Schedule 13G Information Statement filed by Chieftain Capital
Management, Inc., on February 14, 2003. Such Schedule 13G discloses that
Chieftain Capital Management, Inc., holds shared dispositive power and
shared voting power over these shares.
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, 2003, by (a) each director and nominee
for director of the company, (b) the person who in 2002 was our Chief Executive
Officer, (c) the four other most highly compensated executive officers named in
the Summary Compensation Table on page 16, and (d) all of our current directors
and 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 and has an address at our
executive offices.
2
Common Acquirable Percentage
Stock Within of Common
Name Position Owned (1) 60 Days (2) Stock (3)
---- --------------------------------- --------- ----------- ----------
Norman I. Botwinik .................. Director 180,946(4) 154,110 *
Robert Braden ....................... Senior Vice President, Chief 172,670 145,834 *
Executive Officer of the Electric
Lightwave Division and
Executive Vice President of the
ILEC Division
John H. Casey, III .................. Executive Vice President; 319,186(5) 104,167 *
President and Chief Operating
Officer of the ILEC Division
Jerry Elliott ........................ Senior Vice President and Chief 17,608 10,000 *
Financial Officer
Aaron I. Fleischman ................. Director 214,199(6) 178,514 *
Rudy J. Graf ........................ Director 591,046(7) 347,917 *
Stanley Harfenist ................... Director 192,460(8) 178,504 *
Andrew N. Heine ..................... Director 218,669 218,510 *
William M. Kraus .................... Director 18,801(9) 17,083 *
Scott N. Schneider .................. Vice Chairman, President, Chief 457,958(10) 340,417 *
Operating Officer and Director
237,525 230,525 *
John L. Schroeder ................... Director
191,045 188,508 *
Robert A. Stanger ................... Director
57,424(11) 48,376 *
Edwin Tornberg ...................... Director
11,653,640(12)(13) 3,393,581(14) 4.12%
Claire L. Tow ....................... Director
11,653,640(12)(15) 3,393,581(16) 4.12%
Leonard Tow ......................... Chairman of the Board
of Directors and Chief
Executive Officer
David H. Ward ....................... Nominee for Director 0 0 0
All Executive Officers and Directors
as a group (24 persons) ............. 15,596,440 6,439,294 5.51%
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* 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, 2003, may be determined by subtracting the number under
"Acquirable Within 60 Days" from that under "Common Stock Owned." This
column does not include restricted shares issued to individuals on March
13, 2003, as part of their compensation for 2002.
(2) Reflects number of shares that could be purchased by exercise of options as
of February 28, 2003, or within 60 days thereafter under our Management
Equity Incentive Plan, the Equity Incentive Plan, the Amended and Restated
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
the record date.
(4) Includes 11,406 shares of common stock owned by Mr. Botwinik's wife. Mr.
Botwinik disclaims beneficial ownership of such shares.
(5) Includes 30,000 restricted shares over which Mr. Casey has sole voting
power but no dispositive power.
(6) Includes 30,733 shares held by the Aaron I. Fleischman Foundation of which
Mr. Fleischman is the sole trustee. Mr. Fleischman disclaims beneficial
ownership of these shares.
(7) Includes 50,000 restricted shares over which Mr. Graf has sole voting power
but no dispositive power.
3
(8) Consists of shares held by the Harfenist Family Trust of which Stanley and
Jean Lippka Harfenist are the trustees.
(9) Includes 1,718 shares held by the William M. Kraus Trust for which Mr.
Kraus is the sole trustee.
(10) Includes 50,000 restricted shares over which Mr. Schneider has sole voting
but no dispositive power.
(11) Includes 651 shares of common stock held by Mr. Tornberg's wife.
(12) Includes 5,394,022 shares of common stock owned by Lantern Investment
Company, 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 5,394,022 shares of our common stock. Leonard
Tow has sole voting and investment power with respect to the 5,394,022
shares of our common stock owned by Lantern Investment Company, 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. Includes
213 shares held in a joint account by Claire Tow and Leonard Tow.
(13) Includes 32,369 shares of common stock held by Claire Tow as custodian for
her minor grandchildren; 11,438,108 shares of common stock or options
exercisable therefor owned by her husband, Leonard Tow, 1,559,974 shares of
which are performance shares over which Leonard Tow has sole voting power
but no dispositive power; and 1,821 shares of common stock held in Dr.
Tow's individual retirement account, and 18,587 shares held in a 401(k)
account, each for the benefit of her husband, Leonard Tow. Claire Tow
disclaims beneficial ownership of all of these shares.
(14) Includes 3,215,077 shares of common stock acquirable by Leonard Tow within
60 days. Claire Tow disclaims beneficial ownership of all of these shares.
(15) Includes 32,369 shares of common stock held by his wife, Claire Tow, as
custodian for her minor grandchildren and 2,860 owned by his wife, Claire
Tow; and 1,586 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. Includes 1,559,974 performance
shares over which Leonard Tow has sole voting power but no dispositive
power.
(16) Includes 178,504 shares of common stock acquirable by Claire Tow within 60
days. Leonard Tow disclaims beneficial ownership of all of these shares.
4
ELECTION OF DIRECTORS
At the meeting, 12 directors are to be elected to hold office until the
next annual meeting or until their successors have been elected and qualified.
All of the nominees, except Mr. Ward, are currently serving as our directors.
In addition, Norman I. Botwinik, a director since 1968, will retire as a
director at the time of the annual meeting and will become, at that time,
Director Emeritus. 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. Robert Stanger has been elected as the Lead
Director by our independent directors.
Aaron I. Fleischman Senior Partner of Fleischman and Walsh, L.L.P., 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, 1990 until 2002. Age 64.
Rudy J. Graf Retired. Vice Chairman of the Board of Directors Director since 2000
of Citizens Communications Company, 2001 to
2002; President, Chief Operating Officer of
Citizens Communications Company, 1999 to 2002;
Director, President and Chief Operating Officer,
Centennial Cellular Corp., 1990 to 1999; Director,
Electric Lightwave, Inc., 1999 to 2002. Age 54.
Stanley Harfenist Retired. President and Chief Executive Officer of Director since 1992
Adesso, Inc., manufacturer of hardware for the
Macintosh computer, 1993 through 1999. Director
of Electric Lightwave, Inc., 1997 to 2002. Age 71.
Andrew N. Heine Private investor, 1989 to present; Director of Orleans Director since 1975
Home Builders, Inc., 1994 to present. Age 74.
William M. Kraus Retired. Director of Century Communications Corp. Director since 2002
and Centennial Cellular Corp, 1985 to 1999. Director
of Electric Lightwave, Inc., 2000 to 2002. Age 77.
Scott N. Schneider Vice Chairman of the Board of Directors of Director since 2000
Citizens Communications Company since 2001;
President and Chief Operating Officer of Citizens
Communications Company since 2002; 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 Corp., 1991 to 1999; Executive Vice
President and Director, Electric Lightwave, Inc.,
1999 to 2002. Age 45.
5
John L. Schroeder President, Pinecrest Management, LLC, since 2002. Director since 1980
Director, Morgan Stanley Dean Witter Funds, 1994
to 2002. Chartered Financial Analyst. Age 72.
Robert A. Stanger Chairman, Robert A. Stanger & Company, Director since 1992
investment 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, Electric
Lightwave, Inc., 1997 to 2002. Age 63.
Edwin Tornberg President and Director, Edwin Tornberg & Director since 1992
Company, brokers, management consultants and
appraisers serving the communications industry,
1957 to present. President and Director, Radio
780, Inc. (Washington, DC), 1977 to 2001;
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 77.
Claire L. Tow President, The Tow Foundation; Senior Vice Director since 1993
President from 1992 and Vice President and
Director from 1988 of Century Communications
Corp., a cable television company, in each case
until October 1999. Age 72.
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 from 1989 to 1999;
Director and Chairman of the Board, Electric
Lightwave, Inc., 1990 to 2002; Director,
Hungarian Telephone and Cable Corp. Director,
United States Telephone Association. Age 74.
David H. Ward Chief Financial Officer, Voltarc Technologies, Inc., a Nominee for Director
specialty lamp manufacturer, 2001 to present;
Principal, Lighting Technologies Holdings, Inc.
(successor to Innovative Technologies Group LLC),
a holding company owning several lighting
manufacturing companies, 1999 to present; Partner,
Buckingham Partners LLC, venture capital entity,
1998 to 1999; Partner, Deloitte & Touche, a
professional services organization, 1969 to 1983,
1985 to 1993, and during both periods Mr. Ward
supervised the audits of publicly-reporting companies.
Age 65.
6
Our board of directors recommends that you vote "FOR" the election of all
nominees for director.
The board of directors held six meetings in 2002. 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 "Governance of the Company and Committees of the Board."
The independent directors held three meetings in 2002, which all of the
independent directors attended.
Governance of the Company and Committees of the Board
We have been reviewing our corporate governance policies and practices.
This includes comparing our current policies and practices to policies and
practices of other public companies as well as to those suggested by various
groups or authorities active in corporate governance. Based upon this review,
we anticipate adopting changes to current policies and practices to reflect
what the board of directors believes are "best practices" as well as those that
are required to comply with the Sarbanes-Oxley Act of 2002 and any rule changes
made by the Securities and Exchange Commission and the New York Stock Exchange.
Code of Conduct. We have implemented a Code of Conduct. We require all
employees to adhere to the Code of Conduct in addressing the legal and ethical
issues encountered in conducting their work. The Code of Conduct requires that
our employees avoid conflicts of interest, comply with all laws and other legal
requirements, conduct business in an honest and ethical manner and otherwise
act with integrity and in the company's best interest. Going forward, all of
our employees will be required to certify that they have reviewed and
understand the Code of Conduct. In addition, all officers and senior level
executives will be required to certify as to any actual or potential conflicts
of interest involving them and the company. We also expect to provide training
for our employees on the Code of Conduct and their legal obligations.
Employees are required to report any conduct that they believe in good
faith to be an actual or apparent violation of the Code of Conduct. Under the
Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission will adopt
rules to require companies to have procedures to receive, retain and treat
complaints received regarding accounting, internal accounting controls or
auditing matters and to allow for the confidential and anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
Committees of the Board. The board has standing Executive, Audit,
Compensation, Employee Development, Nominating and Corporate Governance, and
Retirement Plan Committees.
Executive Committee. Our Executive Committee is composed of Dr. Tow, as
Chairman, and Messrs. Fleischman, Graf, Harfenist, Schneider, and Stanger. The
Executive Committee did not meet in 2002. 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 matters
requiring the approval of the independent directors and for powers specifically
reserved by Delaware law or by our Restated Certificate of Incorporation.
Audit Committee. Our Audit Committee is composed of four 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 Audit Committee
will adopt a revised written charter to comply with the Sarbanes-Oxley Act of
2002 and rule changes by the Securities and Exchange Commission and the New
York Stock Exchange when they are implemented. The members of the Audit
Committee are Mr. Heine, as Chairman, and Messrs. Kraus, Schroeder, and
Stanger, each of whom is independent and is financially literate, as required
by the listing standards of the New York Stock Exchange. The Audit Committee
met eleven times in 2002. If Mr. Ward is elected as a Director, it is
anticipated that Mr. Ward will also be elected to the Audit Committee. The
board of directors has determined that Mr. Ward meets the standard of an "audit
committee financial expert" under SEC regulations.
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 auditing standards generally accepted in the
United States of America, for issuing a report
7
thereon, and for reviewing our Quarterly Reports on Form 10-Q. The Audit
Committee's responsibility is to review these processes.
Compensation Committee. Our Compensation 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 B.
The Compensation Committee is composed of Mr. Stanger, as Chairman, and Messrs.
Botwinik, Harfenist, Kraus, and Tornberg. Mr. Kraus was appointed to the
Compensation Committee in February 2003. Mr. Botwinik is retiring as director
and from this committee effective as of the date of our annual meeting. The
Compensation Committee met five times in 2002. 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 Amended and Restated 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.
Employee Development Committee. The Employee Development Committee is
chaired by Mrs. Tow and Messrs. Graf and Harfenist are its other members. Its
function is to foster a high level of cooperation and exchange among members of
the management team. The Employee Development Committee met once in 2002.
Nominating and Corporate Governance Committee. Our Nominating and
Corporate Governance Committee is composed of three 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 C. The Nominating and Corporate
Governance Committee is chaired by Mr. Harfenist, and Messrs. Botwinik and
Fleischman were its other members during 2002. Mr. Botwinik is retiring as
director and from this committee effective as of the date of our annual
meeting. Mr. Fleischman resigned as a member effective March 31, 2003. Messrs.
Kraus and Tornberg have been elected to serve as members of the Nominating and
Corporate Governance Committee effective April 1, 2003. The Nominating and
Corporate Governance Committee met once in 2002. One of the committee's
functions is to recommend candidates for election to the board of directors.
The 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. In addition, the Nominating and Corporate Governance
Committee will take a leadership role in shaping our corporate governance,
including making recommendations on matters relating to the make-up of the
board of directors and its various committees and corporate governance
principles that are applicable to us.
Retirement Plan Committee. The Retirement Plan Committee is composed of
Mr. Schroeder, as Chairman, and Messrs. Botwinik, Graf, and Tornberg. Mr.
Botwinik is retiring as director and from this committee effective as of the
date of our annual meeting. The Retirement Plan Committee oversees our
retirement plans. The Committee met three times in 2002.
8
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, 2002, for filing with the Securities and
Exchange Commission.
Submitted by:
Andrew N. Heine, Chairman
William M. Kraus
John L. Schroeder
Robert A. Stanger
9
DIRECTORS' COMPENSATION
Each non-employee director is entitled to receive annual compensation in
the form of 5,000 stock units (which are more particularly described below),
20,000 stock options, or an annual retainer of $30,000. In addition, each
non-employee director will receive a fee of $2,000, plus reasonable expenses,
for each meeting of the board of directors and committee of the board attended
in person or by telephone. For his services as Lead Director, Mr. Stanger will
receive an additional annual retainer of $20,000. With the exception of the
Audit Committee and the Compensation Committee, committee chairs will be
entitled to an additional annual retainer of $5,000. The Audit Committee chair
will receive an additional annual retainer of $20,000 and the Compensation
Committee chair will receive an additional annual retainer of $15,000. A
director may elect to have either 50% or 100% of his or her fees, and 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, 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 (or
earlier in the case of hardship approved by the board of directors) at which
time they will be paid to the director in accordance with his or her election.
Directors will receive an annual stock option award under the Non-Employee
Directors' Deferred Fee Equity Plan, which is currently fixed at 5,000 options.
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 2002.
COMPENSATION OF THE EXECUTIVE MANAGEMENT GROUP
This section discusses our 2002 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 Provide performance-based and subjectively determined compensation so that
rewards to employees have a direct correlation to shareholder value.
o Create stock ownership at all levels in the organization.
Base Salary
The Compensation Committee reviews and approves the salary levels of our
executive management group. 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
officer's total cash compensation opportunity. We perform external market
comparisons relative to industry-specific peers, based on individual job
responsibility. No merit increases were given to the executive management group
in 2002.
10
Annual Cash Incentives
To retain and motivate 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 financial
performance. The financial measures used are revenue and adjusted Earnings
Before Interest, Taxes, Depreciation and Amortization (EBITDA). In addition to
financial measures, the Rochester Region's incentive payout is based on the
achievement of service measures, and the Public Services Sector payout is based
in part on the achievement of safety goals. 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.
In determining compensation with respect to 2002, the Compensation
Committee changed its approach to incentive compensation for our executive
management group. The quantitative approach used historically in the Citizens
Incentive Plan was a starting point. The Compensation Committee expanded its
approach to take into account and place greater emphasis on the qualitative
aspects of strategic decisions and the execution of company initiatives, and
the significant challenges that faced both the company and the
telecommunications industry in general. A more subjective focus on the quality
of management's decisions takes into account the ability of an executive
manager to adapt to unique situations and changing conditions, while balancing
short-term strategies with long-term objectives. The Compensation Committee
believes that such an approach for key executive officers will properly reward
such officers for their leadership in responding to the changing business
environment and in making strategic changes in our near and long-term business
plans in the interests of Citizens, its employees and its shareholders.
2002 Annual Cash Incentive Awarded in 2003
The annual cash incentives were developed by the Compensation Committee in
four meetings in February and March 2003, based on 2002 performance. A total of
2,900 employees received cash incentive awards, representing 95% of the
employees eligible to receive an award.
The Compensation Committee identified the following areas that presented
substantial and unique challenges to our executive management group during 2002
resulting in the need to take strategic actions to achieve longer-term
objectives: the unprecedented upheaval in the telecommunications market; the
bankruptcy of major telecommunications companies, and in particular the
bankruptcies of Global Crossing and WorldCom; significant shifts in the
financial markets; and the reorganization of our operations staff to
centralized locations in Rochester, New York, and Stamford, Connecticut.
The Compensation Committee believes that our executive management group
successfully met these requirements and responded to challenges in this
environment by revising short-term and long-term plans while substantially
meeting operating performance targets. In addition, our executive management
group completed the plans for divestiture of substantially all of our public
services assets and oversaw an ongoing de-leveraging plan that included the
repayment during 2002 of more than $1 billion of debt. In light of this, the
Compensation Committee awarded a cash bonus to the members of the executive
management group, including each of the five most highly compensated executive
officers, in excess of base targets.
In addition, a portion of the annual cash incentive awarded to the
executive management group was converted to a grant of restricted shares. In so
doing, the Compensation Committee was responding to a desire to compensate the
executive management group for their performance under adverse circumstances
while aligning their long-term interests with those of shareholders.
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. Our program is
more strongly performance oriented than most because stock options are awarded
only if the prior year's
11
adjusted EBITDA target is achieved. All stock options awarded are
non-qualified, awarded at fair market value and vest over four years.
Within the Equity Incentive Plan, there are two separate award programs:
the Management Stock Option Plan and the Distinguished Performance Award. The
Management Stock Option Plan is designed to grant stock options to executives
and other key management employees for their individual contributions toward
achievement of financial goals. Target awards are based on the employee's level
and are designed to compensate our employees consistent with the long-term
incentive compensation of companies in comparable industries.
The Distinguished Performance Award is designed to recognize and reward
key employees below the management level who are considered to have high
potential and who have made significant contributions. Recommendations can be
made for up to 10% of the eligible population and are at the discretion of the
employee's manager.
In May 2002, the Compensation Committee granted stock option awards to 393
officers/managers under the Management Stock Option Plan. 414 employees
received stock option awards under the Distinguished Performance Award
representing 10% of the eligible employees. Based on the achievement of the
prior year's adjusted EBITDA target the pool was funded at 75%.
For awards made for the year 2002, the Compensation Committee decided to
exclude the executive management group from participation in the Management
Stock Option Plan, and to replace the participation of the executive management
group in that plan with grants of restricted shares under our 2000 Equity
Incentive Plan, vesting 33-1/3% each year over a three-year period. These
restricted share grants are intended to supplement the cash incentive payments
and are based upon the executive officer's and our performance for the prior
year. The Committee considered standard valuation methodology in determining
the number of restricted shares that were granted to each executive officer in
lieu of stock options.
For the year 2003, the Compensation Committee also decided to exclude the
executive management group from participation in the Management Stock Option
Plan. Instead the executive management group will receive grants of restricted
shares under our 2000 Executive Equity Plan, which will vest ratably over a
three-year period.
Other
The Compensation Committee approves terms of employment offers to new
executive and other officers.
12
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
An employment agreement effective as of October 1, 2000, as amended on May
16, 2002, between Dr. Tow and us establishes his base annual salary. Other
benefits included in the "Other Annual Compensation" and "All Other
Compensation" columns in the Summary Compensation Table are established in the
employment agreement or by the Compensation Committee and independent
directors. The employment agreement referred to in this section is summarized
in a later section of the proxy statement under the heading "Employment
Agreement."
The Compensation Committee has made grants of restricted shares and
options to Dr. Tow as part of his incentive compensation and under his
employment agreement. In 2000, in lieu of Annual Cash Incentives 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 option to purchase
250,000 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 $12.907 per share.
The options expire on December 31, 2010. In addition, on June 18, 2001, Dr. Tow
was granted an option to purchase 195,000 shares of our common stock. The
options vest at a rate of 25% per year beginning on June 18, 2002, with an
exercise price of $12.37 per share. The options expire on June 17, 2011. Also
on June 18, 2001, Dr. Tow was granted phantom stock units for 100,000 shares of
our common stock. These phantom stock units will settle the day after Dr. Tow's
retirement and, upon settlement, Dr. Tow will receive 100,000 shares of our
common stock. 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 was 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. On
May 16, 2002, Dr. Tow was granted 150,000 restricted shares. These shares vest
on January 1, 2007. In addition, on May 16, 2002, Dr. Tow was also granted an
option to purchase 150,000 shares of our common stock. The options vest at a
rate of 25% per year beginning on May 16, 2003, with an exercise price of $9.52
per share.
Based on the criteria described under Compensation Strategy, in March 2003
the Compensation Committee made an annual cash incentive award to Dr. Tow in
the amount of $1.5 million and awarded Dr. Tow 100,000 restricted shares under
the 2000 Equity Incentive Plan vesting 33 1/3% each year over a three year
period for 2002 performance. These awards were made by applying the same
methodology to Dr. Tow as was applied to the executive management group.
Employment Agreement
We and Dr. Tow entered into a new employment agreement, dated as of
October 1, 2000, which was subsequently amended by letter agreements. The 2000
agreement replaced the then effective 1996 employment agreement and provides
for Dr. Tow to continue to serve as our Chairman and Chief Executive Officer
through the end of 2005 and as an advisor-consultant for an additional
five-year period thereafter. We and Dr. Tow entered into an amendment to this
employment agreement on May 16, 2002, that amended the term of this employment
agreement so that it shall now expire at the end of 2006. Dr. Tow will be paid
an annual base salary of $900,000 through 2006, which is the same base salary
provided under the 1996 agreement. After 2006, he will receive compensation of
$500,000 per year for advisory services. While he is performing these services,
Dr. Tow is restricted from engaging in competition that is materially
detrimental to us. He is, however, permitted to serve as a director or a
non-working partner, officer, or stockholder of other businesses. The 2000
agreement also provides for Dr. Tow to receive additional risk-based
compensation, as described below. During their lifetimes, Dr. Tow and his wife
will continue to participate in our health and other benefit plans. After his
retirement from full-time employment, we will provide Dr. Tow with offices and
support staff.
The 1996 agreement included a grant of 500,000 restricted performance
shares of common stock (which increased to 559,974 shares due to stock
dividends). In consideration of Dr. Tow entering into the 2000 agreement, we
increased these restricted shares by 250,000, to 809,974, and we granted him
750,000
13
additional restricted performance shares. Restrictions on transfer will lapse
on January 1, 2007, or upon death, earlier termination of employment by
Citizens, or certain corporate events. The restricted shares are subject to
reduction under certain circumstances in accordance with a formula based on our
EBITDA, as adjusted in accordance with the definition of EBITDA in the 2000
agreement, and to further proportionate reductions as set forth below. We also
granted to Dr. Tow options to purchase 2.5 million shares of common stock.
These options vest at the rate of 250,000 shares per year beginning on December
31, 2000, which vesting would accelerate upon early termination by Citizens of
the combined employment and advisory term for any reason other than good cause.
The exercise price for the first 500,000 options was set at $13.4690, the fair
market value of the Company's shares on October 1, 2000. The exercise price for
each additional increment of 500,000 options is $2.00 above the exercise price
of the immediately preceding increment. The options have a 10-year term.
In consideration for Dr. Tow entering into the amendment to this
employment agreement on May 16, 2002, we have also granted Dr. Tow an
additional 250,000 restricted shares of common stock. Restrictions on transfer
will lapse on January 1, 2007, or upon death, earlier termination of
employment, or certain corporate events. These shares, however, will not be
subject to the reductions related to the EBITDA test and to the further
proportionate reductions that apply to the previously issued restricted shares.
In addition, as provided in the amendment, we also granted Dr. Tow additional
options to purchase 500,000 shares of common stock. These options vested
immediately upon the execution of this amendment. The exercise price for these
options is $9.52 and they have a 10-year term.
To compensate for tax code limitations on the amount that Dr. Tow can be
paid under our company's pension plan, the 2000 agreement provides for $15
million in additional life insurance coverage through a second-to-die,
split-dollar arrangement with a trust created by Dr. Tow as beneficiary; and a
single life insurance arrangement on the first to die of Dr. Tow and his wife,
with a face amount of $5.75 million, with death benefits to be paid in part to
us and in part to the trust; provided, that the aggregate payable to the trust
under all applicable policies may not exceed $15 million. The insurance
coverage provided in the 2000 agreement is in addition to a $7.5 million
second-to-die policy that was part of the 1996 agreement and that continues in
effect. All of the insurance arrangements purchased by us have been structured
so that all premiums paid by us in providing such benefits should be recovered
from insurance proceeds.
All payments due to Dr. Tow under his employment agreement will accelerate
in the event we merge, consolidate with, or transfer all or substantially all
of our assets or stock to another entity whose net worth, immediately preceding
such transaction, is less than ours. 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 or change in control. Additionally, if an actual change of
control as defined in the 2000 agreement occurs that includes, among other
events, (1) the acquisition by a person or group of 15% or more of our voting
securities and (2) certain changes in the board of directors, then Dr. Tow will
thereafter have the option to acquire, after notice to the company, up to 10
million shares of the company's 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, new
issuances to holders of common stock or options, warrants, rights to acquire
additional shares, or similar events.
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. In addition, he will be entitled to exercise all vested options;
the restrictions on a portion of his restricted shares, which will be
determined based on duration of his employment through termination and the
adjusted EBITDA test, would lapse; and his split-dollar life insurance benefits
would continue, subject to certain reductions. If Dr. Tow's employment were to
be terminated by Citizens for any reason other than good cause, he would be
entitled to receive his base salary for the remainder of the six-year term plus
a bonus based on his average annual bonus prior to termination, all of his
unvested options would immediately vest, and all restrictions on his restricted
shares would lapse. If we
14
elect to eliminate the advisory services for any reason other than good cause,
we will be required to: (1) provide life insurance coverage of $7 million,
through a split-dollar arrangement, payable to Dr. Tow's estate, his family, or
a trust for their benefit or (2) pay Dr. Tow the sum of $3.2 million less the
sum of all advisory payments made to him through termination.
In the event that Dr. Tow's entitlements under the 2000 agreement are
deemed to constitute excess parachute payments for tax purposes, we will pay
him any tax obligation.
As of May 30, 2001, we entered into additional agreements with Dr. Tow in
which: (1) he relinquished his fully-vested interest in $6.516 million on
account in the Citizens Incentive Program; (2) a second-to-die split-dollar
life insurance arrangement was created with a face amount of $15 million with
Dr. Tow and his wife as the insured, and with a trust created by Dr. Tow as the
owner of the policies; and (3) a single life insurance arrangement was created
on Dr. Tow's life, with a face amount of $5.75 million, with death benefits to
be paid in part to us and in part to the trust; provided, that the aggregate
amount payable to the trust under all applicable policies may not exceed $15
million. In all material respects, these insurance arrangements are similar to
the split-dollar insurance arrangements provided in the 2000 agreement. As in
the 2000 agreement, the insurance arrangements have been structured so that all
premiums paid by us in providing the benefits should be recovered from
insurance proceeds.
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 cause the Section 162(m) threshold for deductibility to be
exceeded. Total compensation paid to Dr. Tow in 2002, and total compensation
scheduled to be paid to Dr. Tow, Mr. Schneider and Mr. Casey in 2003, may cause
the Section 162(m) limitation to be exceeded for those years. In addition, if
Citizens terminates Dr. Tow's employment prior to the end of the term of
employment, payments (other than qualifying performance-based compensation)
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.
Submitted by:
Robert A. Stanger, Chairman
Norman I. Botwinik
Stanley Harfenist
William M. Kraus
Edwin Tornberg
15
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, 2002, 2001 and
2000, 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
2002, who were serving as our executive officers on December 31, 2002.
Annual Compensation
-------------------------------------------
Other
Annual
Name and Current Position* Year Salary Bonus(1) Compensation
-------------------------- ---- ------ -------- ------------
Leonard Tow .................... 2002 $900,000 $1,500,000 $200,271(3)
Chairman and
Chief Executive Officer 2001 $900,000 0 $171,744(7)
2000 $900,000 0 $226,686(13)
Scott N. Schneider ............. 2002 $500,000 $ 850,000 $ 17,088(17)
Vice Chairman, 2001 $400,000 $ 350,000 $ 11,565(17)
President and Chief 2000 $300,000 $ 285,000 $ 12,384(17)
Operating Officer
John H. Casey, III ............. 2002 $400,000 $ 640,000 $ 16,554
Executive Vice President 2001 $250,000 $ 218,800 0
and President and Chief 2000 $236,538 $ 237,500 0
Operating Officer of the
ILEC Division
Robert Braden .................. 2002 $300,000 $ 460,000 $ 93,505(20)
Senior Vice President, 2001 $246,968 $ 250,000 0
Chief Executive Officer of 2000 $194,231 $ 200,000 0
the Electric Lightwave
Division and Executive
Vice President of the
ILEC Division
Jerry Elliott .................. 2002 $191,666 $ 425,000 $ 3,332
Senior Vice President and 2001 0 0 0
Chief Financial Officer 2000 0 0 0
Long-term Compensation
--------------------------------------------
Awards Payouts
---------- ---------
Securities
Underlying Long-term
Restricted Options/ Incentive
Stock SARs Plan All Other
Name and Current Position* Awards (#)(2) Payouts Compensation
-------------------------- ---------- ---------- --------- ------------
Leonard Tow .................... 500,000(4) 650,000(5) 0 $ 912,347(6)
Chairman and
Chief Executive Officer 1,000,000(8) 445,000(9)(10) 0 $ 511,265(11) (12)
0(14) 2,500,000(15) 0 $ 409,388(16)
Scott N. Schneider ............. 105,000(18) 50,000 0 0
Vice Chairman, 95,000 0 0
President and Chief 100,000 0 0
Operating Officer
John H. Casey, III ............. 65,000(19) 30,000 0 0
Executive Vice President 50,000 0 0
and President and Chief 62,500 0 0
Operating Officer of the
ILEC Division
Robert Braden .................. 28,000(21) 50,000 0 $ 8,500
Senior Vice President, 100,000 0 $ 7,492(11)
Chief Executive Officer of 75,000 0 $ 3,938(22)
the Electric Lightwave
Division and Executive
Vice President of the
ILEC Division
Jerry Elliott .................. 35,500(23) 40,000 0 $ 500
Senior Vice President and 0 0 0 0
Chief Financial Officer 0 0 0 0
----------
* Includes those who in 2002 were the Chief Executive Officer or one of the
four other most highly compensated executive officers as measured by salary
and bonus.
(1) All amounts in the column, unless otherwise indicated, were paid under the
Citizens Incentive Plan. Amounts awarded are for performance for the Salary
Year, but are determined and awarded in the subsequent year.
(2) All awards shown are stock options; we have not awarded any SARs.
(3) Includes $105,482 for financial services to Dr. Tow, $70,583 representing
the imputed benefit of Dr. Tow's use of the Citizens aircraft in 2002 and
$24,206 representing miscellaneous imputed income items.
(4) 150,000 restricted shares will vest 100% on January 1, 2007, and 250,000
restricted shares will vest 100% on January 1, 2007. In addition, 100,000
restricted shares were granted on March 13, 2003, which vest in three equal
annual installments beginning on March 13, 2004.
(5) 500,000 stock options vested 100% on May 16, 2002. 150,000 stock options
will vest in four equal installments beginning May 16, 2003.
(6) Includes our matching contribution to the 401(k) plan of $6,000 and the
matching contribution to our Executive Deferred Savings Plan of $64,004.
Also included is $257,009 which represents the 2002 economic benefit of the
split-dollar life insurance for Dr. Tow. We used the premium ratio method
to calculate the economic benefit of split-dollar life insurance for 2002.
Also includes $206,487 which represents the federal income tax paid on the
economic benefit of the split-dollar life insurance under Dr. Tow's
employment
16
agreement of the term portion of split-dollar insurance arrangements.
$428,847 is included for federal, state, income and gift taxes related to
the economic benefit of split-dollar life for 2001.
(7) Includes $82,507 payments for financial services to Dr. Tow, $56,136
representing the imputed benefit of Dr. Tow's use of the Citizens aircraft
in 2001, and $33,101 representing miscellaneous imputed income items.
(8) On May 1, 2001, Dr. Tow was granted, pursuant to his 2000 employment
agreement, 250,000 and 750,000 performance shares of common stock. The
performance shares are subject to partial reduction under certain
circumstances in accordance with a formula based on our adjusted EBITDA and
further proportionate reductions in certain circumstances.
(9) 250,000 stock options were granted on January 1, 2001 which vest in three
equal annual installments beginning on January 1, 2002. In addition,
195,000 stock options were granted on June 18, 2001, which vest in four
equal annual installments beginning June 18, 2002.
(10) In addition, on June 18, 2001, Dr. Tow was granted phantom stock units for
100,000 shares of our common stock which are not included in the table.
These phantom stock units will settle the day after Dr. Tow's retirement
and, upon settlement, Dr. Tow will receive 100,000 shares of our common
stock.
(11) Represents our matching contribution to the named executive officer's
401(k) plan ($5,100 for each executive officer so noted) and also includes
the matching contribution to our Executive Deferred Savings Plan of $23,042
and $2,392 for Dr. Tow and Mr. Braden, respectively.
(12) Includes $224,634, which represents the 2001 economic benefit of the
split-dollar life insurance for Dr. Tow. We used the premium ratio method
to calculate the economic benefit of split-dollar life insurance for 2001.
Also includes $258,489, which represents the pre-tax cost to us under Dr.
Tow's employment agreement of the term portion of split-dollar insurance
arrangements.
(13) Includes $76,113 for financial services to Dr. Tow, $49,598 representing
the imputed benefit of Dr. Tow's use of the Citizens aircraft in 2000,
$43,488 representing miscellaneous imputed income items and $57,487
representing the value of certain share units issued on January 1, 2000,
and vested on January 1, 2001, that have no voting rights but can be paid
in cash or stock at Dr. Tow's election.
(14) The Compensation Committee in 2000 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. This is not included in the table.
(15) 2,500,000 shares awarded on October 1, 2000. 250,000 shares vest on each
December 31st 2000 through 2007 and the final 500,000 vesting December 31,
2008.
(16) Represents our matching contribution to Dr. Tow's 401(k) plan of $5,100 and
the matching contribution to the Executive Deferred Savings Plan of
$23,145. Also included is the 2000 economic benefit of split-dollar life
insurance for Dr. Tow of $155,093. We used the premium ratio method to
calculate the economic benefit of split-dollar life insurance for 2000.
Also includes $226,050, which represents the pre-tax cost to us under Dr.
Tow's employment agreement of the term portion of split-dollar insurance
arrangements.
(17) Includes $7,692 which represents the imputed benefit of Mr. Schneider's use
of the Citizens aircraft in 2002, $11,565 in 2001 and $12,384 in 2000.
(18) 50,000 restricted shares were granted on May 16, 2002, which vest 100% on
May 16, 2006. In addition, 55,000 restricted shares were granted on March
13, 2003, which vest in three equal annual installments beginning on March
13, 2004.
(19) 30,000 restricted shares were granted on May 16, 2002, which vest 100% on
May 16, 2006. In addition, 35,000 restricted shares were granted on March
13, 2003, which vest in three equal annual installments beginning on March
13, 2004.
(20) Includes relocation benefits of $51,402, $16,022 representing miscellaneous
imputed income items, and $26,081 which represents the imputed benefit of
Mr. Braden's use of the Citizens aircraft in 2002.
(21) 28,000 restricted shares were granted on March 13, 2003, which vest in
three equal annual installments beginning on March 13, 2004.
(22) Represents our matching contribution to Mr. Braden's 401(k) plan.
(23) 7,500 restricted shares were granted on March 1, 2002, which vest 100% on
March 1, 2005. In addition, 28,000 restricted shares were granted on March
13, 2003, which vest in three annual installments beginning on March 13,
2004.
17
2002 OPTION GRANTS
The following table sets forth certain information concerning all options
to purchase our common stock granted in 2002 to the executive officers named in
the Summary Compensation Table. No stock appreciation rights were granted in
2002. Option totals are as of the grant date.
Number of
Securities % of Total Exercise
Underlying Options or Base Grant Date
Options Granted to Price Expiration Present
Name Granted(#)(1) Employees in 2002 ($/Sh) Date Value(2)
---- ------------- ----------------- --------- ---------- -------------
Leonard Tow .................. 650,000 21.3% $9.520 5/15/2012 $2,905,496(3)
Scott N. Schneider ........... 50,000 1.6% $9.520 5/15/2012 $255,437
John H. Casey, III ........... 30,000 1.0% $9.520 5/15/2012 $153,262
Robert Braden ................ 50,000 1.6% $9.520 5/15/2012 $255,437
Jerry Elliott ................ 40,000 1.3% $9.175 2/28/2012 $196,120
------- ---- -------------
Total ........................ 820,000 26.9% $3,765,752
---------
Total Options granted 2002 ... 3,053,900
=========
----------
(1) With the exception of the May 16, 2002, grant of 500,000 options to Dr.
Tow, which vested 100% as of the date of grant, all options become
exercisable at the rate of 25% per year, on the anniversary of their date
of grant in 2003, 2004, 2005, and 2006.
(2) 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. 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
assumptions as to variables such as interest rates, stock price volatility,
future dividend yield. The pricing model assumes a dividend yield of 0.00%,
a riskless rate of return of 4.94% for the options granted under the
Management Stock Option Plan except for options granted to Mr. Elliott
which have a rate of return of 4.82%, 4.52% for options granted to Dr. Tow
under his employment agreement, a seven-year term to exercise for options
granted under the Management Stock Option Plan, and a five-year term to
exercise for options granted to Dr. Tow under his employment agreement, and
volatility of 0.44264.
(3) Represents two separate grants for Dr. Tow on May 16, 2002. 500,000 stock
options vested 100% on May 16, 2002, granted at $9.52 and 150,000 stock
options that vest in four equal installments beginning May 16, 2003,
granted at $9.52. Both grants expire on May 15, 2012.
AGGREGATED 2002 OPTION EXERCISES AND VALUE OF
OUTSTANDING OPTIONS AT DECEMBER 31, 2002
The following table sets forth certain information concerning options
exercised by the executive officers named in the Summary Compensation Table
during 2002 and the number and value of options held by them at December 31,
2002. There were no outstanding stock appreciation rights at December 31, 2002.
Shares
Acquired Number of Unexercised Value of Unexercised
On Options/SARs at In-the-Money-Options/SARs at
Exercise(#) Fiscal Year End(#) Fiscal Year End($)
Common Value --------------------------- ---------------------------
Name Stock Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Leonard Tow ................ 0 $0 3,215,077 2,129,583 $1,688,047 $120,750
Scott N. Schneider ......... 0 $0 340,417 154,583 $0 $40,250
John H. Casey, III ......... 0 $0 104,167 88,333 $0 $24,150
Robert Braden .............. 0 $0 145,834 129,166 $0 $40,250
Jerry Elliott .............. 0 $0 0 40,000 $0 $46,000
- -- --------- --------- ---------- --------
Total ...................... 0 $0 3,805,495 2,541,665 $1,688,047 $271,400
= == ========= ========= ========== ========
18
All quantities and amounts are as of December 31, 2002, and reflect
adjustment for stock splits and stock dividends paid subsequent to the date of
grant. The fair market value, which is the average of the high and low reported
price, of the common stock on December 31, 2002, was $10.325 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.
CITIZENS PENSION PLAN
We have a noncontributory qualified retirement plan, the Citizens Pension
Plan, covering substantially all employees that provides benefits that in most
cases are based on formulas related to base salary and years of service. The
plan has been amended to provide that effective February 1, 2003, no further
benefits will be accrued under the plan by most non-union participants
(including all executive officers). Dr. Tow is the only executive officer
listed in the Summary Compensation Table who has vested benefits under the
frozen plan. His estimated annual pension benefit (assumed to be paid in the
normal form of an annuity) is $38,576 which amount is calculated under the plan
based on his 11 years of service at the time of the plan freeze and the
compensation limits established in accordance with federal tax law in the
computation of retirement benefits under qualified plans. Messrs. Schneider,
Casey, and Braden will be eligible for annual retirement benefits, estimated to
be $7,181, $7,210 and $4,534, respectively, upon their completion of five years
service (assumed to be paid in the normal form of an annuity). Benefits are not
subject to reduction for Social Security payments or other offset amounts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Stanger, as Chairman,
and Messrs. Botwinik, Harfenist, Kraus, 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 one of our directors.
19
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CITIZENS COMMUNICATIONS COMPANY, THE S & P 500 INDEX
AND THE S & P TELECOMMUNICATION SERVICES INDEX
[THE FOLLOWING MATERIAL WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
* $100 invested on 12/31/97 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
Copyright (C) 2002, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All Rights reserved.
www.researchdatagroup.com/S&P/htm
Cumulative Total Return
--------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
------- ------ ------- ------- ------- -------
CITIZENS COMMUNICATIONS COMPANY .......... $100.00 $85.64 $151.88 $140.50 $114.11 $112.94
S & P 500 ................................ 100.00 128.58 155.64 141.46 124.65 97.10
S & P TELECOMMUNICATION SERVICES ......... 100.00 152.38 181.54 111.08 97.48 64.23
The graph above compares our common stock performance with the performance
of the S&P 500 Index and the S&P Telecommunication Services Index by valuing
the annual changes in common stock prices from December 31, 1997 through
December 31, 2002, as required by Securities and Exchange Commission rules. The
chart above assumes, in each case, an initial investment of $100 on December
31, 1997, and that all quarterly dividends were reinvested at the average of
the closing stock prices at the beginning and end of the quarter.
20
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 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 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 Steven Ward, all of our directors, officers and 10% shareholders
timely filed all required reports under Section 16(a) in 2002. Steven Ward sold
5,000 shares of our common stock on December 12, 2002 at a sale price of $9.95
per share. He filed his Form 4 with respect to this transaction on December 19,
2002.
Because of a mistaken interpretation of operative formulas, we have
amended the Forms 4 and Forms 5 for each of our directors for the years
1995-2001. When the inaccuracy was discovered, we filed the appropriate
amendments with the Securities and Exchange Commission. In addition, we did not
timely file Forms 5 for each of our directors and officers who received phantom
stock units pursuant to our executive deferred compensation program for the
years 1997-2001. We have made the appropriate filings for each of our current
officers and directors.
CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
Fleischman and Walsh, LLP, of which Mr. Aaron Fleischman (a director) is
Senior Partner, performed legal services for us for which it was paid
approximately $2,785,000 in 2002. We propose to retain Fleischman and Walsh
during the current year.
In connection with relocation expenses, Mr. John H. Casey, III, Executive
Vice President and President and Chief Operating Officer of the ILEC Division,
was indebted to us in the amount of $456,930 as of December 31, 2002. This was
the largest amount outstanding during 2002. The current balance outstanding is
$31,551. The rate of interest of such indebtedness is the five-year U.S.
Treasury note rate on January 1, April 1, July 1 and December 1 of each year,
compounded quarterly. This indebtedness was incurred on July 11, 2002.
In connection with relocation expenses, Mr. Daniel J. McCarthy, Vice
President and President and Chief Operating Officer of Electric Lightwave and
Public Services Sector, was indebted to us in the amount of $87,602 as of
December 31, 2002, which amount subsequently has been fully repaid. The largest
amount outstanding in 2002 was $150,863. The annual rate of interest of such
indebtedness is 5%. This indebtedness was incurred on January 25, 2002.
On December 18, 2002, we purchased for $17,608,675 a Canadair Ltd.
Challenger aircraft that previously had been leased by us and by Blue Sky
Aviation, LLC, under two substantially identical leases, each for 50% of the
aircraft. The purchase was approved by the independent directors. The purchase
price for the aircraft was established under substantially identical
option-to-purchase provisions of the leases. Blue Sky Aviation assigned its
option to us. Blue Sky Aviation is a limited liability company, the sole member
of which is Dr. Tow. Pursuant to a corporate policy established by the
independent directors, from time to time, the aircraft is used by Dr. Tow for
business and for personal purposes. This policy requires that Dr. Tow travel,
in all circumstances, by private aircraft. The aircraft is also used by other
company personnel. In order to offset costs, the aircraft is also chartered to
third parties. Prior to the purchase of the aircraft, neither we nor Blue Sky
Aviation had any obligations with respect to the lease obligations of the other
party. Prior to the purchase of the aircraft, the unaffiliated manager of the
aircraft allocated costs of the operation and maintenance between us and Blue
Sky Aviation based on an economic sharing arrangement which differed from the
corporate policy adopted by our independent directors. As a result, less than
our share of expenses were allocated to us and excess costs on the aircraft, in
the aggregate amount of $963,490 were allocated to Blue Sky Aviation. In 2003,
we have paid $863,736 to the third party for the account of Blue Sky Aviation,
and $99,754 will be paid during April 2003.
21
In 1988 Dr. and Mrs. Tow established a private charitable foundation, The
Tow Foundation, that is dedicated to addressing juvenile justice issues in the
State of Connecticut and in Westchester County, New York, among other
charitable activities. Since 2000, Citizens has leased space and provided
office services to The Tow Foundation at company headquarters in Stamford,
Connecticut, based on our costs. Additionally, during 2002, 2001, and 2000,
Citizens provided to The Tow Foundation payroll services, including advancing
funds for the payroll. Dr. and Mrs. Tow and Scott N. Schneider, directors of
the company, are trustees of The Tow Foundation, but receive no remuneration
from it. The Tow's adult daughter is a trustee and the Executive Vice President
of the Foundation. Citizens billed The Tow Foundation for all lease and service
charges in aggregate amounts of $270,730 during 2002, $337,773 during 2001, and
$235,684 during 2000. The maximum outstanding amount due at any time from The
Tow Foundation to Citizens was $137,020 during 2002, $146,636 during 2001, and
$235,684 during 2000. Amounts billed by us were paid promptly upon presentation
of invoices. Citizens has ceased providing payroll services to The Tow
Foundation, and is paid monthly, in advance, under lease arrangements that
cover office services as well as space rental, based on Citizens' costs. During
2002, 2001, and 2000, Citizens also provided payroll services, including
advancing funds for the payroll, to Blue Sky Aviation in aggregate amounts of
$116,597 during 2002, $187,623 during 2001, and $95,438 during 2000. Blue Sky
Aviation employees provide personal services to Dr. and Mrs. Tow. The maximum
outstanding amount due from Blue Sky Aviation to Citizens was $362,543 during
2002, $187,623 during 2001, and $95,438 during 2000. Citizens has ceased
providing payroll services to Blue Sky Aviation. During 2002, 2001, and 2000 we
paid expenses of Dr. Tow in the aggregate amount of $32,674 that we
subsequently determined to be personal. All amounts due from The Tow
Foundation, Blue Sky Aviation and Dr. Tow have been paid to us.
TERMINATED OFFICER INDEBTEDNESS
In connection with a residential purchase, Mr. Livingston E. Ross, a
former Vice President of Reporting and Audit, was indebted to us in the amount
of $164,877 when he was terminated, which has not been repaid. The largest
amount outstanding in 2002 was $164,877. The rate of interest of such
indebtedness is 5%. This indebtedness was incurred on November 17, 2000.
In connection with family expenses, Mr. Kenneth L. Cohen, a former Vice
President, President and Chief Operating Officer of the Public Services Sector,
was indebted to us in the amount of $134,237 when he was terminated, which has
not been repaid. The largest amount outstanding in 2002 was $180,892. The rate
of interest of such indebtedness is 5%. This indebtedness was incurred on June
27, 2001.
INDEPENDENT PUBLIC ACCOUNTANTS
Audit Fees
KPMG LLP, our independent public accountants, has billed the company
approximately $2,690,000 and $3,661,000 in the aggregate, for professional
services for the audit of our annual consolidated financial statements for 2002
and 2001, respectively, (including fees for Electric Lightwave, Inc., the
company's previously publicly-traded consolidated subsidiary). These amounts
include fees for reviews of our quarterly financial statements included in our
Quarterly Reports on Form 10-Q, subsidiary and regulatory audit reports,
business acquisition audits, accounting consultations and securities
registrations and offerings. These fees were approved by the company's audit
committee.
Audit-Related Fees
In addition to its audit fees, KPMG LLP has billed the company
approximately $100,000 and $132,500, in the aggregate, for professional
services related to the performance of audit-related services in 2002 and 2001,
respectively. These services include audits of employee benefit plans. These
fees were approved by the company's audit committee.
22
Tax Fees
KPMG LLP has billed the company approximately $54,250 and $163,250, in the
aggregate, for professional services related to tax compliance and tax advice
in 2002 and 2001, respectively. These services relate to business relocation
assistance. These fees were approved by the company's audit committee.
All Other Fees
There were no other fees billed by KPMG LLP during 2002 and 2001.
Approval
Our appointment of KPMG LLP to be the company's independent public
accountants for 2003 will be presented for approval at the annual meeting.
Our board of directors recommends a vote "FOR" the approval of our
appointment of KPMG LLP as the company's independent public accountants for
2003.
General
We have been reviewing our procedures with respect to the approval of
auditing and non-auditing services. Based upon this review and in compliance
with the Sarbanes-Oxley Act of 2002 and the rule changes made by the Securities
and Exchange Commission, our Audit Committee will now pre-approve all auditing
and non-auditing services that will be provided by KPMG LLP.
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 2004 annual meeting, they must be received by the Secretary
at Citizens Communications Company, Three High Ridge Park, Stamford, CT 06905:
o not later than December 3, 2003, if the proposal is submitted for inclusion
in our proxy materials for that meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934; or
o on or after January 14, 2004, and on or before February 13, 2004, if the
proposal is submitted pursuant to Citizens' bylaws, in which case the
notice of the proposal must meet certain requirements set forth in our
bylaws and we are not required to include the proposal in our proxy
materials.
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. The Proxy Advisory Group of Strategic Stock Surveillance, LLC has
been retained to assist in soliciting proxies at a fee of $6,000, plus
distribution costs and other expenses.
By Order of the Board of Directors
/s/ L. Russell Mitten
L. Russell Mitten
Secretary
23
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
A-1
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, 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.
A-2
Appendix B
CITIZENS COMMUNICATIONS COMPANY
Compensation Committee Charter
Purpose
The Compensation Committee is appointed by the Board to discharge the
Board's responsibilities relating to compensation of the Company's directors
and officers. The Committee has overall responsibility for approving and
evaluating the director and officer compensation plans, policies, and programs
of the Company.
The Compensation Committee is also responsible for producing an annual
report on executive compensation that is to be included in the Company's proxy
statement.
Committee Membership
The Compensation Committee shall consist of no fewer than three members.
The members of the Compensation Committee shall meet the independence
requirements of the New York Stock Exchange.
The members of the Compensation Committee shall be appointed by the Board
on the recommendation of the Nominating and Governance Committee. Compensation
Committee members may be replaced by the Board.
Committee Authority and Responsibilities
1. The Compensation Committee shall have the sole authority to retain and
terminate any compensation consultant to be used to assist in the
evaluation of director, CEO, or senior executive compensation and shall
have sole authority to approve the consultant's fees and other retention
terms. The Compensation Committee shall also have authority to obtain
advice and assistance from internal or external legal, accounting, or other
advisors.
2. The Compensation Committee shall annually review and approve corporate
goals and objectives relevant to the CEO's compensation, evaluate the CEO's
performance in light of those goals and objectives, and recommend to the
Board the CEO's compensation levels based on this evaluation. In
determining the long-term incentive component of the CEO's compensation,
the Compensation Committee will consider the Company's performance and
relative shareholder return, the value of similar incentive awards to CEOs
at comparable companies, and the awards given to the CEO in past years.
3. The Compensation Committee shall annually review and make recommendations
to the Board with respect to the compensation of all directors, officers,
and other key executives, including incentive-compensation plans and
equity-based plans.
4. The Compensation Committee shall annually review and approve, for the CEO
and the senior executives of the Company, (a) the annual base salary level,
(b) the annual incentive opportunity level, (c) the long-term incentive
compensation opportunity level, (d) employment agreements, severance
arrangements, and change in control agreements/provisions, in each case as,
when and if appropriate, and (e) any special or supplemental benefits.
5. The Compensation Committee may form and delegate authority to
subcommittees, when appropriate.
6. The Compensation Committee shall make regular reports to the Board.
7. The Compensation Committee shall review and reassess the adequacy of this
Charter annually and recommend any proposed changes to the Board for
approval. The Compensation Committee shall annually review its own
performance.
B-1
Appendix C
CITIZENS COMMUNICATIONS COMPANY
Nominating and Corporate Governance Committee Charter
The Board of Directors of Citizens Communications Company (the "Company")
has constituted and established a Nominating and Corporate Governance Committee
(the "Committee") with the authority, responsibility, and specific duties
described in this Charter.
Membership
The Committee will consist of no fewer than three (3) directors who
satisfy the independence requirements of the New York Stock Exchange and who,
in the opinion of the Board of Directors, are independent of management and
free from any relationship that would interfere with the exercise of
independent judgment. Annually, the full Board will elect members to serve on
the Committee. The members of the Committee will elect one of the members to
serve as the chair. Each member of the Committee will serve until the next
annual meeting of the Company or until he or she resigns or is removed from the
Committee by a majority vote of the full Board. When it deems such action to be
appropriate, the Committee may conduct its business and fulfill its
responsibilities through one or more subcommittees.
Mission Statement and Responsibilities
The Committee is responsible for identifying, screening, and recommending
qualified candidates to serve on the Company's Board of Directors and for
taking a leadership role in shaping the corporate governance of the Company.
The Committee will review and report periodically to the Board on matters that
relate to the selection and qualification of members of the Board as well as
the make-up of the Board and its various committees. The Committee will also
develop and recommend to the Board a set of corporate governance principles
applicable to the Company.
The Committee will have the following specific duties:
o Develop and recommend to the Board specific guidelines and criteria
for selecting nominees to the Board;
o Review the qualifications of and recommend to the Board (i) those
persons to be nominated for election to the Board by the stockholders
at each annual meeting of stockholders, and (ii) nominees to be
elected by the Board to fill vacancies and newly created
directorships;
o Develop a pool of potential director candidates for consideration in
the event of a vacancy on the Board. To assist it in the fulfillment
of this responsibility, the Committee has the authority to select and
hire a search firm and to approve the payment of fees to such search
firm. The Committee also has the authority to obtain advice and
assistance from internal or external legal, accounting, or other
advisors;
o Evaluate the performance of incumbent members of the Board to
determine whether to recommend that they be nominated for reelection;
o Undertake studies and make recommendations to the Board concerning (i)
the size and composition of the Board, (ii) the size and composition
of each standing committee of the Board, (iii) the term of membership
on the Board and its committees, and (iv) the bases for and methods of
removing Board and committee members;
o Recommend the number of regularly scheduled meetings of the Board and
of key committees;
o Maintain oversight of Board operations and effectiveness;
o Receive periodically from the Chief Executive Officer his or her
recommendations regarding a successor, the development of other
executive talent, and the overall executive needs of the Company;
C-1
o Review the nomination of corporate officers and make recommendations
to the Board of candidates to be elected as officers, including
filling vacancies when they occur;
o Review periodically with the Company's General Counsel new
legislation, regulations, and other developments affecting the
Company's governance;
o Review the Company's Code of Conduct and, when appropriate, recommend
to the Board any changes, amendments, or modifications that the
Committee deems desirable; and
o Perform such other duties and responsibilities as the Board may, from
time to time, assign to the Committee.
Meetings
The Committee will meet as often as necessary to carry out its
responsibilities. Meetings may be called by the Chairman of the Committee
and/or the full Board. All meetings of the Committee will be held pursuant to
the Bylaws of the Company with regard to notice and waiver, and written minutes
of each meeting will be duly filed in the Company records. Reports of meetings
of the Committee will be made to the Board at its next regularly scheduled
meeting.
Annual Performance Evaluation
Annually, the Committee will evaluate its performance to determine if it
has satisfactorily achieved the objectives and met the responsibilities set
forth in this Charter. The Committee will also annually review and reassess the
adequacy of this Charter and recommend any proposed changes to the Board for
its approval.
C-2
Citizens Communications Company
Three High Ridge Park
Stamford, CT 06905
2003 Annual Meeting of Stockholders
10:00 a.m., Eastern Time, May 13, 2003
Prudential Center for Learning and Innovation
Norwalk, CT
ADVANCE REGISTRATION
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 marking the
Advance Registration box on your proxy.
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.
[CITIZENS COMMUNICATIONS LOGO]
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' 2002 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' investor relations department
by phone at 1.800.248.8845, by mail at 3 High Ridge Park, Stamford, Conn.,
06905, or by email at Citizens@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 the reverse 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.
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================================================================================
CITIZENS COMMUNICATIONS COMPANY
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints Andrew N. Heine, William M. Kraus, and John L.
Schroeder, 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 Tuesday, May 13, 2003, at 10:00 a.m., Eastern 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.
[CITIZENS COMMUNICATIONS LOGO]
9025 N. LINDBERGH DRIVE
PEORIA, IL 61615
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 OR BLACK INK AS FOLLOWS: CITIZ3 KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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
All All Except for individual(s), mark "For
01) Aaron I. Fleischman 07) John L. Schroeder All Except" and write the
02) Rudy J. Graf 08) Robert A. Stanger [ ] [ ] [ ] number(s) of the nominee(s) on
03) Stanley Harfenist 09) Edwin Tornberg the line below.
04) Andrew N. Heine 10) Claire L. Tow
05) William M. Kraus 11) Leonard Tow ______________________________
06) Scott N. Schneider 12) David H. Ward
Proposal 2 For Against Abstain
Approve the appointment of KPMG LLP as our independent public accountants for 2003. [ ] [ ] [ ]
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.
Note: Please sign exactly as name appears hereon. Yes No
Joint owners should each sign. When signing
as attorney, executor, administrator, Please indicate if you plan to attend this meeting [ ] [ ]
trustee or guardian, please give full title
as such. See reverse for additional Proxy
information.
------------------------------------------- ---------------------------------
=========================================== =================================
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
[CITIZENS COMMUNICATIONS LOGO]
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' 2002 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' investor relations department
by phone at 1.800.248.8845, by mail at 3 High Ridge Park, Stamford, Conn.,
06905, or by email at Citizens@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 the reverse 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, William M. Kraus, and John L. Schroeder, 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
Tuesday, May 13, 2003, at 10:00 a.m., Eastern 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 LOGO]
9025 N. LINDBERGH DRIVE
PEORIA, IL 61615
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 OR BLACK INK AS FOLLOWS: CITIZ1 KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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
All All Except for individual(s), mark "For
01) Aaron I. Fleischman 07) John L. Schroeder All Except" and write the
02) Rudy J. Graf 08) Robert A. Stanger [ ] [ ] [ ] number(s) of the nominee(s) on
03) Stanley Harfenist 09) Edwin Tornberg the line below.
04) Andrew N. Heine 10) Claire L. Tow
05) William M. Kraus 11) Leonard Tow ______________________________
06) Scott N. Schneider 12) David H. Ward
Proposal 2 For Against Abstain
Approve the appointment of KPMG LLP as our independent public accountants for 2003. [ ] [ ] [ ]
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.
Note: Please sign exactly as name appears hereon. Yes No
Joint owners should each sign. When signing
as attorney, executor, administrator, Please indicate if you plan to attend this meeting [ ] [ ]
trustee or guardian, please give full title
as such. See reverse for additional Proxy
Information.
------------------------------------------- ---------------------------------
=========================================== =================================
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date