<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box: [ ] Confidential, for Use of the Commission
[ ] Preliminary Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CITIZENS UTILITIES COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid 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:
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(4) Date Filed:
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<PAGE>
CITIZENS UTILITIES
LOGO Administrative Offices
High Ridge Park, Stamford, CT 06905
(203) 329-8800
- -------------------------------------------------------------------------------
March 28, 1997
Dear Fellow Stockholder:
I am pleased to invite you to attend the 1997 Annual Meeting of the
Stockholders of Citizens Utilities Company which will be held at The Sagamore,
Bolton Landing, New York, on Thursday, May 22, 1997 at 10:00 a.m., Eastern
Time.
At last year's Annual Meeting, more than 83 percent of Citizens' outstanding
shares were represented. We hope that the percentage will be even higher at
the forthcoming meeting. It is important that your shares be represented
whether or not you attend the meeting. In order to insure that you will be
represented, we ask that you sign, date, and return the enclosed proxy. If
present, you may revoke your proxy and vote in person.
Attendance at the Annual Meeting will be limited to employees and to
stockholders as of the record date or their authorized representative. Because
of space limitations, admission to the Annual Meeting will be by ticket only.
Registered stockholders planning to attend the meeting should complete and
return the advance registration form on the back page of this Proxy Statement.
An admission card will be mailed to you about two weeks before the meeting. If
your shares are held through an intermediary such as a bank or broker, you
should request a ticket by writing to Shareholder Services, Citizens Utilities
Company, High Ridge Park, Stamford, CT 06905. Please include proof of
ownership such as a bank or brokerage firm account statement or a letter from
the broker, trustee, bank or nominee holding the stock confirming your
beneficial ownership.
We look forward to seeing and meeting with you at the annual meeting.
Cordially,
/s/Leonard Tow
Leonard Tow
Chairman and Chief Executive Officer
LOGO
Printed on recycled paper
<PAGE>
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Citizens Utilities Company ( the "Company" ) to
be voted at the annual meeting of stockholders of the Company referred to in
the foregoing notice. The mailing address of the administrative offices of the
Company is High Ridge Park, P.O. Box 3801, Stamford, Connecticut 06905. The
approximate date on which this proxy statement and form of proxy are first
being sent or given to stockholders is March 31, 1997.
Directors will be elected by a majority of the shares of Common Stock Series
A and Series B, acting together, present or represented by proxy at the
meeting and entitled to vote at the meeting. Approval of the amendments to the
1992 Employee Stock Purchase Plan, the Non-Employee Directors Deferred Fee
Equity Plan and the 1996 Equity Incentive Plan (the "Plans") each require the
affirmative vote of a majority of the votes cast at the meeting. Abstentions
will have the effect of a negative vote with respect to the election of
directors and the amendment to the 1996 Equity Incentive Plan. Under the rules
of the New York Stock Exchange, brokers who hold shares in street name for
customers have the authority to vote on certain items when they have not
received instructions from beneficial owners. Pursuant to such rules, brokers
not receiving instruction are entitled to vote on the election of directors
and the amendments to the Plans. Under applicable Delaware law, a broker non-
vote would have no effect on the outcome of the election of directors or the
amendments to the Plans. Unless contrary instructions are given, all proxies
received pursuant to this solicitation will be voted in favor of the election
of the nominees and for approval of the amendments to the Plans. Stockholders
who execute proxies may revoke them at any time before they are voted.
The Company had outstanding 154,012,203 shares of Common Stock Series A and
85,153,706 shares of Common Stock Series B, each of which is entitled to one
vote at the annual meeting by stockholders of record at the close of business
on March 24, 1997.
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
No person or "group" of persons is known by the Company to own as much as 5%
of the Common Stock of Company.
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, 1997 by each director of the Company,
each of the executive officers named in the Summary Compensation Table
included elsewhere herein, and the current directors and all executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Acquirable Percentage
Series A Series B Within of Common
Name Position Owned Owned 60 Days(1) Stock(2)
- ---- -------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Norman I. Botwinik Director 16,582(3) 29,859(3) 23,950 *
Daryl A. Ferguson President 27,303 291,338 300,338 *
Aaron I. Fleischman Director 32,898 28,663 28,663 *
James C. Goodale Director 2,131 *
Stanley Harfenist Director 8,080 31,872 27,081 *
Andrew N. Heine Director 148 28,663 28,663 *
J. Michael Love Vice President 7,458 60,118(4) 62,134 *
Robert L. O'Brien Vice President 6,393 199,911 *
Elwood A. Rickless Director 6,939 33,067 28,663 *
John L. Schroeder Director 5,166 28,663 28,663 *
Robert D. Siff Director 4,736,761(5) 30,407(6) 24,709(6) 2.0%
Ronald E. Spears Vice President 9,163 13,303 20,162 *
Robert A. Stanger Director 31,007 28,663 *
Charles J. Symington,
Jr. Director 18,557 13,230 *
Edwin Tornberg Director 8,352(7) *
Claire L. Tow Director 5,307,778(5)(8)(9) 3,371,725(8)(9) 2,712,145(9) 3.6%
Leonard Tow Chairman and CEO 5,307,778(5)(8) 3,371,725(8)(10) 2,712,145(10) 3.6%
All Officers and
Directors as a group 5,452,146(11) 4,522,891(11) 3,574,373(11) 4.2%
</TABLE>
- --------
* Represents less than 1% of the Company's outstanding common stock.
(1) Reflects number of shares that could be purchased by exercise of options
available as of February 28, 1997 or within 60 days thereafter under the
Company's stock option plans. Pursuant to the definition of beneficial
ownership of the Securities and Exchange Commission, said shares are also
included in the column "Series A Owned" or "Series B Owned" as
appropriate.
(2) Based on number of shares outstanding at, or acquirable within 60 days of,
February 28, 1997.
(3) Includes 4,685 shares of Common Stock Series A and 5,909 shares of Common
Stock Series B owned by Mr. Botwinik's wife. Mr. Botwinik disclaims
beneficial ownership of such shares.
(4) Includes 1,196 shares of Common Stock Series B owned by Mr. Love's wife.
Mr. Love disclaims beneficial ownership of such shares.
(5) Includes 4,736,761 shares of Common Stock Series A owned by Century
Investors Inc., a wholly owned subsidiary of Century Communications Corp.
of which Robert Siff is a Director, Leonard Tow is Chairman of the Board,
Chief Executive Officer and a Director and Claire Tow is Senior Vice
President and a Director. Claire Tow is the wife of Leonard Tow. The same
shares of Common Stock Series A are included in the above table for Robert
Siff, Leonard Tow and Claire Tow as required by the definition of
beneficial ownership of the Securities and Exchange Commission. By reason
of the definition of beneficial ownership, Leonard Tow and Claire Tow are
deemed to have an approximate 88% ownership interest in the common stock
of Century Communications Corp. and thereby both Leonard Tow and Claire
Tow have an
2
<PAGE>
indirect beneficial interest in such 4,736,761 shares of Common Stock
Series A of the Company. Except to the extent of such indirect interest,
both Leonard Tow and Claire Tow disclaim beneficial ownership of any of
these shares of Common Stock of the Company. Certain of the common stock of
Century Communications Corp. previously referred to is held jointly by
Leonard Tow and Claire Tow, or solely by Claire Tow, in a fiduciary
capacity for the benefit of members of their family. Leonard Tow and Claire
Tow each disclaims any beneficial ownership of shares held solely by the
other. Robert Siff and members of his family have no beneficial ownership
of these shares of Common Stock of the Company. Citizens owns 2.98% of the
Class A common stock of Century Communications Corp.
(6) Includes shares and options to acquire shares held by a family partnership
of which Mr. Siff is a general partner.
(7) Includes 609 shares of Common Stock Series B owned by Mr. Tornberg's wife.
Mr. Tornberg disclaims beneficial ownership of such shares.
(8) Includes 12,932 shares of Common Stock Series A held by Claire Tow as
custodian for her minor grandchildren; 4,231 shares of Common Stock Series
B held by Claire Tow as custodian for her minor grandchildren; 778,618
shares of Common Stock Series A and 516,128 shares of Common Stock Series
B owned by her husband, Leonard Tow; and 1,881 shares of Common Stock
Series B held in an individual retirement account for the benefit of her
husband, Leonard Tow. Claire Tow disclaims beneficial ownership of all
such shares.
(9) Includes 40,490 shares of Common Stock Series A and 2,642,992 shares of
Common Stock Series B acquirable by Leonard Tow within 60 days. Claire Tow
disclaims beneficial ownership of said shares.
(10) Includes 28,663 shares of Common Stock Series B acquirable by Claire Tow
within 60 days. Leonard Tow disclaims beneficial ownership of said
shares.
(11) Share information is qualified as described in the previous footnotes.
Common Stock Series A is convertible into Common Stock Series B on a share-
for-share basis. Under the definition of beneficial ownership of the
Securities and Exchange Commission, each owner of Series A shares may be
deemed to be the owner of the same number of Series B shares. If any such
conversion were to occur, the number of shares of Common Stock owned by, and
the percentage ownership of Common Stock of, a stockholder would not change.
ELECTION OF DIRECTORS
At the meeting, 13 directors are to be elected to hold office until the next
annual meeting and until their successors have been elected and qualified.
Directors will be elected by a majority of the votes of the holders of shares
of Common Stock Series A and Series B, voting together, 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 such nominee
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 by them to the
Company. Leonard Tow and Claire Tow are husband and wife. There are no other
family relationships between any of the nominees.
<TABLE>
<C> <S> <C>
Norman I. Botwinik President, Botwinik Brothers, Inc., Director since 1968
machine tool sales, 1957-1983;
Director, Executive Re, Inc. 1990-
1993; and Director Emeritus, Board
of Governors, University of New
Haven. Age 81.
Aaron I. Fleischman Senior Partner of Fleischman and Director since 1989
Walsh, L.L.P., a Washington, D.C.
law firm specializing in regulatory,
corporate-securities and litigation
matters for telecommunications,
regulated utilities and
transportation companies; Director,
Southern Union Company. Age 58.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S> <C>
James C. Goodale Of Counsel, Debevoise & Director since 1996
Plimpton, a New York City law
firm, 1994 to 1996; Partner,
Debevoise & Plimpton 1980-
1994. Age 63.
Stanley Harfenist President and Chief Executive Director since 1992
Officer of Adesso, Inc.,
manufacturer of hardware for
the Macintosh computer;
President, Chief Operating
Officer and Director of
Players International, Inc.,
1985 to 1993; Officer, Sega
Enterprises, 1982 to 1984; and
Officer, Knickerbocker Toy
Company, Inc., 1978 to 1982.
Age 66.
Andrew N. Heine Of Counsel, Gordon Altman Director since 1975
Butowsky Weitzen Shalov &
Wein, September 1995 to
present; Practicing
attorney/investor 1989 to
present; Of Counsel, Curtis,
Mallet-Prevost, Colt & Mosle,
October 1987 to 1989;
Director, The Olsten
Corporation and FPA Group.
Age 68.
Elwood A. Rickless Of Counsel to, 1996 to Director since 1989
present, and Managing Partner
of, 1984 to 1996, London,
England office of law firm of
Whitman Breed Abbott & Morgan;
Partner, law firm of Graham &
James, London, England, 1973
to 1983; during 35 years of
practice has specialized in
the field of international
corporate, tax, financing, and
copyright law and litigation;
residence in Santa Fe, New
Mexico. Age 67.
John L. Schroeder Director, Dean Witter Funds, Director since 1980
1994 to present; Executive
Vice President and Chief
Investment Officer, The Home
Insurance Company, 1991 to
1995; Chairman of the Board
and Chief Investment Officer,
Axe-Houghton Management, Inc.,
and Axe-Houghton Funds, 1983
to 1990; President and
Director, USF&G Investment
Management Group, Inc., 1990
to 1991. Age 67.
Robert D. Siff Consultant, CoreStates Director since 1989
Financial Corp., 1987 to
present; Consultant, Citizens
Utilities Company, 1990 to
1991; Director, Century
Communications Corp. Age 72.
Robert A. Stanger Chairman, Robert A. Stanger & Director since 1992
Company, investment banking
and consulting services.
Publisher, The Stanger Real
Estate Report. Director,
Callon Petroleum Company,
Inc., exploration and
production of oil and natural
gas. Age 58.
Charles H. Symington, Jr. Director, 3i Corporation, an Director since 1995
investment company, since
1987; Director, INA Life
Insurance Company of New York,
a subsidiary of CIGNA, since
1969; Director, Camping World
Inc., since 1993; Director,
NASDAQ Stock Market Education
Foundation, since 1994;
Director, S.G. Warburg & Co.,
Inc., an investment bank, 1984
to 1996. Age 66.
Edwin Tornberg President and Director, Edwin Director since 1992
Tornberg & Company, brokers,
management consultants and
appraisers serving the
communications industry;
President and Director, Radio
780, Inc. (Washington D.C.);
Vice President and Director,
Radio One Five Hundred, Inc.
(Indianapolis, Ind.); Chairman
and Director, New World Radio,
Inc. (Washington, D.C.). Age
71
Claire L. Tow Senior Vice President since Director since 1993
1992 and Vice President and
Director since 1988 of Century
Communications Corp., a cable
television company. Claire L.
Tow is the wife of Leonard
Tow. Age 65.
Leonard Tow Chairman, Chief Executive Director since 1989
Officer and Chief Financial
Officer, Citizens Utilities
Company, 1990 to present;
Chairman of the Board, Chief
Executive Officer and Director
of Century Communications
Corp., a cable television
company, since its
organization in 1973 to
present, and President from
1973 to 1989; Director, United
States Telephone Association,
1996. Leonard Tow is the
husband of Claire L. Tow. Age
68
</TABLE>
The Board of Directors held 11 meetings in 1996. All directors attended at
least 75% of Board and appropriate committee meetings.
4
<PAGE>
COMMITTEES OF THE BOARD
The Board has standing Executive, Audit, Compensation, Nominating and
Retirement Plan Committees. The following special committees are currently
functioning: Diversity in the Work Force, Investor Relations, Marketing and
Development and Strategic Planning.
EXECUTIVE COMMITTEE. The Executive Committee is composed of Dr. Tow as Chair
and Messrs. Harfenist, Fleischman and Schroeder. In 1996 the Committee met
once. During intervals between meetings of the Board, the Executive Committee
has the power and authority of the Board over the management of the business
affairs and property of the Company, except for powers specifically reserved
by Delaware law or by the Company's Restated Certificate of Incorporation.
AUDIT COMMITTEE. The Audit Committee is composed of Mr. Heine as Chair and
Messrs. Goodale, Schroeder, Siff and Stanger. The Committee met three times in
1996. The Committee's functions are to review the arrangements for and scope
of the independent accountants' audit, as well as to review the adequacy of
the system of internal accounting controls and recommend improvements thereto.
The Committee discusses and reviews, with management and the independent
accountants, the Company's draft annual report on Form 10-K and other major
accounting, reporting and audit matters. The Committee also has oversight over
the Company's Internal Audit Department.
COMPENSATION COMMITTEE. The Compensation Committee is composed of Mr.
Stanger as Chair and Messrs. Harfenist, Rickless, Symington and Tornberg. The
Committee met four times in 1996. The Committee reviews the Company's general
compensation strategies, acts as the Committee for the Company's Incentive
Deferred Compensation Plan, the Management Equity Incentive Plan, the Equity
Incentive Plan, the Employee Stock Purchase Plan and the Non-Employee
Directors Deferred Fee Equity Plan and establishes and reviews compensation
for the Chief Executive Officer and other executive officers of the Company.
NOMINATING COMMITTEE. The Nominating Committee is chaired by Mr. Harfenist,
and Messrs. Botwinik and Tornberg are its other members. The Committee met
twice in 1996. The Committee's function is to recommend candidates for
election to the Board of Directors. The Nominating Committee will entertain
suggestions for nominees from stockholders.
RETIREMENT COMMITTEE. The Retirement Committee is composed of Mr. Schroeder
as Chair and Mrs. Tow and Messrs. Botwinik, Symington and Tornberg. The
Committee oversees the retirement plans of the Company. The Committee met
three times in 1996.
SPECIAL COMMITTEES. Special committees of the Board have been established to
focus on issues of current importance to the Company where it is believed that
the Board of Directors should have involvement in and oversight of processes.
The Diversity in the Work Force Committee is chaired by Claire Tow and its
other members are Messrs. Harfenist and Rickless. The Investor Relations
Committee is chaired by Mr. Harfenist and its other members are Messrs.
Fleischman, Goodale, Rickless, Stanger and Symington. The Marketing and
Development Committee is chaired by Mr. Harfenist and Mr. Tornberg is the
other member. The Strategic Planning Committee is chaired by Mr. Goodale and
its other members are Messrs. Harfenist, Heine, Schroeder and Stanger.
5
<PAGE>
DIRECTORS' COMPENSATION
Each Director is entitled to a $20,000 annual retainer and fee of $2,000 for
each Board meeting attended in person and $1,000 for each Board meeting
attended telephonically. Committee chairs of the Audit and Compensation
Committees are paid a fee of $4,000, chairs of the other committees a fee of
$2,000 and committee members $1,000 for each meeting attended. All such fees
are eligible for deferral until termination of service either in cash or, in
the instance of non-employee directors, also in stock options or stock plan
units acquired under the Non-Employee Directors Deferred Fee Equity Plan.
Deferred cash amounts are credited with an interest component. Directors who
are not Citizens employees and who have completed five years of service become
participants in the Directors' Retirement Plan. At termination of service, a
participant receives benefits for a term of years following the termination of
directorship equal to the sum of 50% of average compensation as a Director for
the three most highly compensated years plus 2.5% of such average compensation
for each year of service in excess of ten years, but not in excess of twenty
years. Generally, the annual benefit will be payable over a period of years
equal to a participant's years of service or may be paid in a discounted lump
sum at the participant's election. See page 17 of this proxy statement for
discussion of an amendment to the Non-Employee Directors Deferred Fee Equity
Plan that provides for the grant of stock options to non-employee members of
the Board which is being submitted to the stockholders for approval.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") 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 executive officers of the Company. The
following report represents the actions of the Committee and the Board
regarding compensation paid to the named executive officers during 1996.
COMPENSATION OF THE SENIOR EXECUTIVE GROUP
The following section discusses the Company's 1996 strategy underlying the
compensation program, excluding the Company's Chief Executive Officer, whose
compensation is discussed separately later in this report.
EXECUTIVE COMPENSATION STRATEGY.
The Committee's executive compensation policy has the following objectives:
. To align the interests of its senior executives and other key employees
with those of the Company's customers, shareholders, employees and the
strategic objectives of the Company.
. To link compensation to the performance of the Company and to the
individual contribution of each executive to that performance.
. To compensate executives at a level that is competitive in the
marketplace so that the Company can continue to attract, motivate and
retain executives of outstanding ability.
. To establish Base Salaries at about the 50th percentile and Total Annual
Cash Compensation (Base Salary plus Annual Cash Incentive) at about the
75th percentile of three "Comparison Groups" (general industrial
companies of similar revenue size, telecommunications companies and
utilities) recommended by its compensation consultant. The three
Comparison Groups were selected to represent the labor markets in which
the
6
<PAGE>
Company competes. Since these three groups represent more industries than
the Dow Jones Utilities, the companies used as labor market peers are not
the same as the companies used as an element of the performance graph set
forth later in this proxy statement. Within each labor market, the Company
looks at the compensation offered by Comparison Groups for jobs of similar
responsibility levels. In addition, the Company considers other factors,
such as the relative cost of living in job locations, which are taken into
account in attracting and retaining a highly competent key employee and
senior executive group.
. To offer significant levels of at-risk compensation in the form of stock
options and/or restricted and performance stock grants so that the long-
term rewards available to the Company's executive officers will parallel
shareholder returns.
BASE SALARY
The Compensation Committee reviews recommendations and sets the salary
levels of executive officers in the spring of each year. This review is based
upon the duties and responsibilities which the Company expects each executive
to discharge during the current year and upon the executive's performance
during the previous year. The criteria the Company uses are internal equity
and external market comparison based upon individual job responsibility.
AT-RISK INCENTIVE COMPENSATION
The Company's Annual Cash Incentives (the Incentive Deferred Compensation
Plan, "IDCP") and Long-term Incentives (the "Equity Plans") introduce elements
of risk into the executive compensation program.
ANNUAL CASH INCENTIVES
The review and determination of awards under the IDCP for all employees are
based upon performance for the previous year. In 1996, 1,037 employees
received IDCP awards. The incentive awards made in 1996 were based upon 1995
performance.
The awards were based on the Company's financial performance and individual
contributions toward customer and employee satisfaction. The Company assesses
performance against predetermined goals for financial (net income and sector
operating income before interest and taxes) and customer and employee
satisfaction improvements. Customer and employee satisfaction improvements are
measured by confidential surveys conducted by an independent surveyor. In
1995, the Company and all of its sectors exceeded their financial goals and
80% of business units achieved their customer and employee satisfaction goals.
Individual awards were determined based upon sector and business unit results
and each executive's contributions toward financial, customer and employee
satisfaction results.
The Company sets its targeted Total Annual Cash Compensation (the total of
Base Salary and Annual Cash Incentives) levels up to the 75th percentile of
the Comparison Groups. Each executive is assigned a bonus opportunity which,
if fully realized, when combined with Base Salary, will approximately result
in the targeted Total Annual Cash Compensation level.
LONG-TERM INCENTIVES
The Company's equity-based incentives are awarded under the Equity Plans.
These awards are intended to provide incentives for high performance and
productivity and a close identification with the Company's financial
performance and image by enabling employees, including senior executives, to
participate as stockholders. All employees of the Company are eligible to
participate in the Equity Plans. In 1996, awards were granted to the named
executive officers, the Chief Executive Officer and to a total of 632 other
employees.
7
<PAGE>
The criteria for the Equity Plans awards determined by the Committee include
the Company's financial performance for the prior year compared to corporate
and sector targeted returns on investment. The Committee has targeted a range
for senior executive Total Direct Compensation, which includes Base Salary,
Annual Cash Incentives and Long-term Incentives, up to the 75th to the 90th
percentile of the three Comparison Groups with individual awards dependent on
the executive's and Company's achievement of performance goals. The Committee
selection of this range reflects the Company's five year growth in annual
earnings per share, which was 12%, ranking the Company as 105th of the Fortune
1000 companies (1991--1995), the latest available period. Within the
guidelines, the Committee judgmentally determines the awards given to each of
the executives considering experience and performance.
Throughout 1996, the Company has been studying its total compensation
strategy (including compensation and benefits) in order to ensure that the
compensation plans support the strategic direction of the Company, and it has
analyzed competitive practices of the industries in which it operates to
ensure it can continue to attract, retain and motivate executives in its
business sectors. The Committee is currently finalizing design changes to
annual and long-term incentive strategies and these will be discussed in the
1997 report of the Compensation Committee.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The elements of the 1996 compensation for the Chief Executive Officer were
established by the employment agreement as of July 1, 1990, negotiated between
Dr. Tow's attorney and the Compensation Committee. Although Dr. Tow had been a
Director of the Company prior to July 1, 1990, he had not been an employee of
the Company and had not assumed the responsibilities of Chief Executive
Officer.
Compensation elements for 1996 set according to the agreement included a
base salary of $1,288,408 and certain items included in the "Other Annual
Compensation" and the "All Other Compensation" columns in the compensation
table. Other Annual Compensation is personal expenses of $50,000 and the All
Other Compensation column includes $536,653 for the economic benefit of split
dollar life insurance required by the terms of the Memorandum of Understanding
that led to the settlement of certain stockholder litigation referred to in
prior proxy statements, and embodied in an amendment to the 1990 employment
agreement, which negates previously required supplemental retirement benefits
by substitution of split-dollar life insurance.
The Compensation Committee deferred consideration of 1994 and 1995 IDCP and
1994 MEIP awards to Dr. Tow in compliance with the Memorandum of
Understanding.
The Committee made awards in 1996 to Dr. Tow recognizing his 1993 and 1994
achievements which would have been recognized in 1994 and 1995 absent the
requirements of the Memorandum of Understanding. The Compensation Committee
recognizes Dr. Tow's continuing achievements in carrying out the Board of
Directors' mandate to expand and enlarge the Company's activities and to alter
the Company's business strategies so as to take advantage of competitive
opportunities and to improve efficiencies. These achievements, which include
the ongoing program of prudent growth through acquisitions, such as the
Louisiana General Services, Southern Union Gas, GTE and ALLTEL transactions,
the development of Electric Lightwave, and the "Target: Excellence" program,
have produced and continue to produce outstanding successes and are viewed by
the Compensation Committee as vital to the Company.
The employment agreement referred to in this section expired on December 31,
1996. A new employment agreement has been entered into between Dr. Tow and the
Company and it is summarized in a later section of the proxy statement under
the heading "Employment Agreement".
8
<PAGE>
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
The Committee has been advised that the compensation paid to the named
executive officers in 1996, including the CEO, met the conditions required for
full deductibility under Section 162(m) of the Internal Revenue Code (the
"Code"). Section 162(m) of the 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 other most highly compensated executive
officers. Section 162(m) provides that qualifying performance-based
compensation will not be subject to the tax deduction limit if certain
requirements are met. The Committee has been advised that Section 162(m) does
not apply to stock options outstanding on December 31, 1996. The Company
currently intends to structure grants under future stock-based programs in a
manner that provides for an exemption from Section 162(m). Outstanding awards
made under the IDCP which, in conjunction with other outstanding compensation
paid, could have caused the Section 162(m) limitation to be exceeded have been
structured so they should be exempt from Section 162(m) by reason of the
deferral of payment until after the retirement of the covered executive
officer. If the CEO's employment terminates prior to the end of the Term,
payments required to be made to him are expected to exceed $1 million but,
depending on the year of payment and depending on deferral arrangements, may
not be subject to the limitation on tax deductibility. The Committee also
recognizes that, in certain instances, it may be in the best interests of the
Company to provide compensation that is not deductible.
Robert Stanger Stanley Harfenist Elwood A. Rickless Charles H. Symington,
Jr. Edwin Tornberg
Chairman
9
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company for each
of the last three years to its Chief Executive Officer and the four other most
highly compensated executive officers.
<TABLE>
<CAPTION>
Long-term Compensation
---------------------------------
Annual Compensation Awards Payouts
--------------------------------------- --------------------- ---------
Securities Long-
Under- term
Restricted lying Incentive All
Other Annual Stock Options/ Plan Other
Name and Salary Bonus(1) Compensation Awards (2) SARs(3) Payouts Compensation(4)
Position Year $ $ $ $ (#) $ $
- ------------------------ ---- --------- -------- ------------ ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L. Tow.................. 1996 1,325,416(5) 0 50,000(6) 0 412,367(7) 0 662,003(8)
C.E.O., C.F.O. 1995 1,210,296(5) 800,000 63,790(6) 0 0 0 4,620
and Chairman 1994 1,103,808(5) 780,000 62,180(6) 0 0 0 4,620
D. A. Ferguson.......... 1996 391,678 0 8,333 0 106,549 0 81,813
C.O.O and 1995 374,076 400,000 5,000 0 0 0 52,879
President 1994 343,742 300,000 5,000 0 113,316 0 48,031
R. E. Spears............ 1996 255,846 0 -- 0 45,818 0 57,768
Vice President 1995 144,078 97,500 -- 100,000 54,996 0 0
1994 -- -- -- -- -- 0 --
R. L. O'Brien........... 1996 233,466 0 -- 0 31,966 0 37,819
Vice President 1995 231,588 100,000 -- 0 0 0 25,678
1994 227,018 40,000 -- -- 29,462 0 23,157
J. M. Love.............. 1996 157,393 0 -- 0 37,294 0 49,012
Vice President 1995 151,576 120,000 -- 0 0 0 45,410
1994 146,450 35,000 -- 0 29,462 0 42,545
</TABLE>
- --------
(1) All amounts in the column, except for 1995 awards of $50,000 each for
Messrs. O'Brien and Love and $25,000 for Mr. Spears, were paid under the
IDCP. Amounts granted under the Plan are for performance for the stated
Salary Year, and are determined and awarded in the subsequent year based
upon prior years' results.
(2) Recipients of restricted stock have rights to receive dividends. Value
shown in table is as of date of grant. As of December 31, 1996, the number
of restricted or performance shares held by each executive officer listed
above was 516,128 shares, held by Dr. Tow. As of such date, the total
number of restricted or performance shares held by all executive officers
as a group was 516,128. These shares are shown in the table entitled
"Long-Term Incentive Plans--Awards in 1996" below.
(3) Options/SARs adjusted to reflect subsequent stock dividends. All awards
shown are options.
(4) Represents the Company's matching contribution to each executive's 401(k)
plan and in the instance of Dr. Tow, Dr. Ferguson and Mr. O'Brien also
represents the matching contribution to the Company's Executive Deferred
Savings Plan. Additionally, $71,063, $53,931, $32,485 and $44,291
represent the 1996 economic benefit of split-dollar life insurance for Dr.
Ferguson and Messrs. Spears, O'Brien and Love, respectively.
(5) Includes salary of $1,288,416 and director's fees of $37,000 for 1996,
$1,171,291 and $39,000 for 1995, and $1,064,808 and $39,000 for 1994,
respectively.
(6) $50,000 of the amount shown in this column for 1994, 1995 and 1996
represents payment for expenses pursuant to Dr. Tow's employment
agreement; and $12,180 for 1994 and $13,790 for 1995 represent
reimbursement for the cost of term life insurance.
(7) Includes an option for 209,910 shares of Common Stock granted in 1996 for
1994 performance that was deferred in grant as a result of the Memorandum
of Understanding referred to in the Compensation Committee report.
(8) The amount of $536,653 included in the 1996 column represents the pretax
cost to the Company pursuant to Dr. Tow's employment agreements of the
term portion of split-dollar insurance arrangements for the three year
period commencing with 1995. The split-dollar insurance arrangements are
required under the Memorandum of Understanding as a
10
<PAGE>
substitution for supplemental retirement benefits which resulted in a
reversal of accruals shown in prior proxy statements, including an accrual
of $3,500,000 shown in the Summary Compensation table for 1994. The
insurance arrangements purchased by the Company have been structured so
that all of the Company's costs, including the time value of funds, in
providing such benefits should be recovered from insurance proceeds.
1996 OPTION GRANTS AND STOCK APPRECIATION RIGHTS
The following table sets forth options granted to the named executive
officers in 1996. No stock appreciation rights were granted in 1996.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Options/SARs Employees in Price at Expiration Present
Name Granted (#)(1) Fiscal Year Grant ($/Sh)(2) Date Value $ (3)
---- -------------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
L. Tow.................. 202,454 7.12% $11.44 02/15/06 $305,706
209,910 7.39% 11.47 12/13/04 316,969
D. A. Ferguson.......... 106,549 3.99% 11.44 02/15/06 160,889
R. E. Spears............ 45,818 1.72% 11.44 02/15/06 69,185
R. L. O'Brien........... 31,966 1.20% 11.44 02/15/06 48,268
J. M. Love.............. 37,294 1.40% 11.44 02/15/06 56,314
</TABLE>
- --------
(1) All options, except options of 209,910 shares, are for Common Stock Series
A and become exercisable at the rate of 20% per year on February 15, 1997,
1998, 1999, 2000 and 2001. The options for 209,910 shares granted to
Leonard Tow are options to acquire Common Stock Series B. 40% of the
options became exercisable on February 13, 1997 and one third of the
remaining options become exercisable on each of February 13, 1998, 1999
and 2000. See footnote 7 to the Summary Compensation table.
(2) Fair Market Price at time of grant.
(3) 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 of the stock price over the exercise
price on the date the option is exercised, so that there is no assurance
the value realized, if any, by an executive will be at or near the value
estimated by the Black-Scholes model. The estimated values under that
model are based on arbitrary assumptions as to variables such as interest
rates, stock price volatility and future dividend yield. The pricing model
assumes a dividend yield of 6.2%, a riskless rate of return of 5.5%, a
seven-year term of exercise and volatility of 0.198.
11
<PAGE>
AGGREGATED 1996 OPTION/SAR EXERCISES AND VALUE OF
OUTSTANDING OPTIONS/SARS AT DECEMBER 31, 1996
The following table sets forth option and stock appreciation rights
exercised by the named executive officers during 1996 and the number and value
of options held by them at December 31, 1996. There were no outstanding stock
appreciation rights at December 31, 1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Unexercised In-the-money
Acquired on Options/SARs at Options/SARs at
Exercise (#) Value Fiscal Year-End (#) Fiscal Year-end ($)
Series B Realized ---------------------------- ----------------------------
Name Common Stock $ Exercisable Unexercisable(2) Exercisable Unexercisable(2)
- ---- ------------ -------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
L. Tow.................. 62,170 $199,566(1) 2,642,992 392,430 $736,241 $ 0
D. A. Ferguson.......... 20,300 113,069 273,035 228,202 318,394 0
R. L. O'Brien........... 9,799 72,365 130,664 69,687 215,801 0
R. E. Spears............ 0 0 10,999 89,814 10,482 41,928
J. M. Love.............. 20,940 67,746 54,676 73,507 0 0
</TABLE>
- --------
(1) Shares acquired on exercise have been retained by Dr. Tow except for
shares utilized to meet tax withholding. Dollar value shown represents
gain on date of exercise.
(2) All options are for Series B except for certain options granted in 1996
which are for Series A.
All numbers are as of December 31, 1996 and reflect adjustment for stock
splits and stock dividends paid subsequent to the date of grant. The closing
prices of Common Stock Series A and Series B on December 31, 1996 were $10 7/8
and $11 1/8, respectively. 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 the Company's stock on the date of
exercise.
LONG-TERM INCENTIVE PLANS--AWARDS IN 1996
<TABLE>
<CAPTION>
Estimated Future Payouts
Number of Performance or Under Non-Stock Price-Based Plans
Shares, Units Other Period -------------------------------------------
or Other Rights Until Maturation Threshold Target Maximum
Name (#) (1 & 2) or Payout (#) Number of Shares Number of Shares
- ---- --------------- ---------------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
L. Tow.................. 516,128 1997-2000 -0- 516,128 516,128
D. A. Ferguson.......... -- -- -- -- --
R. L. O'Brien........... -- -- -- -- --
R. E. Spears............ -- -- -- -- --
J. M. Love.............. -- -- -- -- --
</TABLE>
- --------
(1) Pursuant to his 1996 employment agreement, Dr. Tow was granted 500,000
performance shares of Series A Common Stock, subject to performance
standards. See "Employment Agreement." If, at the expiration of the
employment Term or in certain other circumstances, there has been no
increase in net income, excluding extraordinary or non-recurring items,
and increased by interest, depreciation, amortization, income taxes, and
adjusted for other non-cash items ("EBIDTA") for the year of termination
compared to 1996, the performance shares will be canceled, or, if the
increase in EBIDTA for the year of termination compared to 1996 is less
than the performance goals, the number of shares will be reduced.
(2) Shares shown in table adjusted and subject to future adjustment to reflect
stock dividends and stock splits.
12
<PAGE>
CITIZENS UTILITIES COMPANY PENSION PLAN
The Company has a noncontributory qualified retirement plan covering
substantially all employees that provides benefits based on formulas related
to base salary and years of service. Benefits shown are not subject to
reduction for Social Security payments. The following table illustrates the
estimated annual plan pension benefits (ten years certain for those who became
participants prior to 1976) available to all covered employees (other than
Kauai Division employees, Louisiana Gas Division employees and certain
telecommunications bargaining unit employees covered by separate benefit
formulas) upon retirement at age 65 assuming a preretirement death benefit
election of 100% joint and survivorship benefits. The remuneration
classifications are based on the highest five-year average annual salary and
the years of service represent years of credited service. Under federal tax
law, remuneration above a specified annual limit may not be credited in the
computation of retirement benefits under qualified plans. For 1996, this limit
was $150,000. For this reason remuneration above $150,000 has not been
included in the table below.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Remuneration ----------------
(000 Omitted) 5 10 15 20 25 30
------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
$150.............................................. $11 $23 $35 $46 $58 $69
</TABLE>
Full years of credited service for individuals participating in the plan and
listed in the Summary Compensation Table are five for Dr. Tow, six for Dr.
Ferguson, twenty for Mr. O'Brien, none for Mr. Spears, and eleven for Mr.
Love.
13
<PAGE>
CITIZENS UTILITIES COMPANY
Comparison of Five Year Comulative Total Return
[GRAPH]
The annual changes for the five year period shown on the graph are based on
the assumption that $100 had been invested in Citizens stock (weighted average
of Series A and Series B) and in each index on December 31, 1991 as required
by SEC rules, and that all quarterly dividends were reinvested at the average
of the closing stock prices at the beginning and end of the quarter. The total
cumulative dollar return shown on the graph represents the value that such
investment would have had on December 31, 1996. The year-end cumulative total
return for the DJIA and the DJUA for calendar years 1992, 1993, 1994, 1995 and
1996 were respectively $107, $126, $132, $181 and $232, and $104, $114, $97,
$128 and $139. Return for the Company is shown on the graph. It should be
noted that the cumulative return of the DJIA and the DJUA does not take into
account the fact that a large majority of investors would be required to pay
federal and state income taxes on cash dividends received and thus not have
the total proceeds of the dividends to reinvest. Unlike most of the companies
constituting the indices, Citizens has paid stock dividends during the period
1992-1996. As there was no income tax payable upon the receipt of dividends
paid by Citizens, the value that would be realized upon receipt of dividends
by holders of the DJIA and DJUA after taxation would be diminished as compared
to holders of Citizens. For illustration's sake, the year-end cumulative
returns of the DJIA and DJUA have been recalculated to reflect after-tax
reinvestment assuming the maximum federal tax rate payable by individuals.
These rates were 31% for 1991 and 1992, and 36% for 1993 through 1996. State
income tax has not been taken into account. The adjusted cumulative total
returns for the DJIA and DJUA for calendar years 1992, 1993, 1994, 1995 and
1996 are $106, $123, $128, $174 and $222 and $102, $110, $91, $118 and $126,
respectively.
14
<PAGE>
EMPLOYMENT AGREEMENT
In 1996 the Company and Dr. Tow entered into an employment agreement (the
"1996 Agreement") which extended and modified the provisions of the existing
1990 employment agreement. The following constitutes a summary of certain of
the provisions of the 1996 Agreement. The 1996 Agreement provides for Dr.
Tow's service as Chairman and Chief Executive Officer of the Company for the
Term of employment, January 1, 1997 through the end of 2000, and as a
consultant for an additional five-year Advisory Period. Dr. Tow has agreed to
accept an annual base salary of $900,000 for the Term, which is substantially
reduced from his 1996 base salary under the 1990 employment agreement, and to
accept more of his remuneration in risk-based compensation. After the Term he
will receive compensation for advisory services at one-half of his former base
salary. If employment terminates for any reason, except for termination by the
Company for good cause or voluntary resignation by Dr. Tow, he will receive a
commuted lump sum equivalent to 150% of his base salary for the remainder of
the Term and 100% of cash compensation during the Advisory Period as well as
the annual bonuses and benefit plan contributions for the remainder of the
Term, and all then existing benefits including share-base compensation. If Dr.
Tow terminates employment because of a breach of the 1996 Agreement by the
Company, he will receive $1 million. Dr. Tow is eligible to participate in all
employee benefit and compensation plans.
The 1996 Agreement includes a performance share grant of 500,000 shares of
Series A Common Stock. Restrictions on transfer will lapse at the end of the
Term, or upon death, earlier termination of employment or certain corporate
events. If employment ends at the end of 2000, or through resignation by Dr.
Tow after February 1999 or termination by the Company for good cause, and
there has been no increase in EBIDTA, as defined, for the year of termination
compared to 1996, the performance shares will be canceled, or, if the increase
in EBIDTA for the year of termination compared to that for 1996 is less than
the performance goals, the shares will be reduced under a formula. (See "Long-
Term Incentive Plans--Awards in 1996"). In the event that Dr. Tow's
entitlements are deemed to constitute excess parachute payments for tax
purposes, the Company will pay any taxes resulting to him. Dr. Tow's continued
employment by and association with Century Communications Corp. is
acknowledged under the 1996 Agreement. His employee and retirement benefits
are nonforfeitable except in certain circumstances which are materially
detrimental to the Company. In lieu of supplemental pension and retirement
benefits designed to reflect the extension of the period during which Dr. Tow
will render services, the 1996 Agreement provides for life insurance coverage
of $7,500,000, or equivalent, provided through a program of split-dollar
arrangements payable to his estate or family or a trust for their benefit, in
addition to that provided under the 1990 employment agreement. In addition, a
$3,000,000 first-to-die split-dollar policy required by the 1990 employment
agreement was converted to a $6,000,000 second-to-die policy which will permit
the Company to recover its costs. All of the insurance arrangements purchased
by the Company have been structured so that all of the Company's costs,
including the time value of funds, in providing such benefits should be
recovered from insurance proceeds. (See report of Compensation Committee). Dr.
Tow and his wife during their lifetimes will continue to participate in the
Company's health and other benefit plans, and, after retirement from full-time
employment, the Company will provide offices and support staff.
If a threatened or actual change of control, as defined, shall occur, which
includes, among other events, the acquisition by a person or group of 9% or
more of the Company's voting securities and certain changes in the Board of
Directors, Dr. Tow shall thereafter have the option exercisable by notice to
the Company to acquire up to 6,000,000 shares of Common Stock at a price per
share equal to the fair market value of the stock on the date notice is given.
All shares covered by the 1996 Agreement will be adjusted to reflect the
occurrence after June 27, 1996 of stock dividends, stock splits, or new
issuances to holders of common stock of options, warrants, rights to acquire
additional shares, or similar events.
15
<PAGE>
CERTAIN TRANSACTIONS
Fleischman and Walsh, of which Aaron Fleischman (a Director) is Senior
Partner, performed legal services for the Company for which it paid in 1996
approximately $1,025,000. The Company proposes to retain Fleischman and Walsh
during the current year.
In 1995, the Company advanced, for up to a five year period, to Ronald E.
Spears, Vice President of the Company, $400,000 for the purpose of purchasing
a primary residence. As of December 31, 1996, $280,000 remains outstanding.
Interest is payable at the applicable Federal Rate and the loan is secured by
a mortgage on his primary residence.
APPROVAL OF AMENDMENT TO THE 1992 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors is submitting for stockholder approval an amendment
to the 1992 Employee Stock Purchase Plan which will increase the number of
shares of Common Stock Series B which may be issued under the Plan from
1,914,124 shares, reflecting stock dividends and splits since the adoption of
the Plan, to 6,000,000 shares, also subject to adjustment for stock dividends,
stock splits and other changes in the Company's capital stock. The Company has
issued or reserved for issuance 1,883,980 shares of Common Stock under the
Plan through February 28, 1997, and an increase in the number of shares
provided by the amendment is necessary to continue the Plan in effect. The
extent of the participation in the Plan and the number of shares purchased
under the Plan demonstrates its success in achieving its goals and the
desirability of extending its life. The purpose of the Plan, which was
approved by the stockholders in 1992, is to enable Eligible Employees (which
generally includes all full-time employees of the Company and its
subsidiaries) to acquire a proprietary interest in the Company through
ownership of Common Stock. It is believed that employees who participate in
the Plan have a closer identification with the Company by virtue of their
ability to participate as stockholders in the Company's growth and earnings. A
copy of the Plan as amended is available upon request in writing or by
telephone from Shareholder Services, Citizens Utilities Company, High Ridge
Park, Stamford, CT 06905 (203) 329-8800, and the following description is
qualified in its entirety by the full text of the Plan as amended.
As of February 28, 1997, approximately 5,500 employees of the Company were
eligible to participate in the Plan. 2,166 employees subscribed to the Plan
during the Purchase Period ending in November 1996. Executive officers have
subscribed to a total of 9,044 shares, including Dr. Tow who subscribed to the
maximum amount (2,164 shares) permitted for the one year period.
A committee of the Board of Directors authorizes the making of offers to
sell shares of Common Stock to Eligible Employees under the Plan and, for each
offer, will specify the number of shares to be made available for purchase,
the length of the Subscription Period (the period during which Eligible
Employee may elect to purchase shares), the length of the Purchase Period (the
period during which payroll deductions will be made in an amount calculated to
cover the purchase price of the stock) and all other terms and conditions. The
purchase of shares by the Eligible Employee takes place at the end of the
Purchase Period. The length of the Subscription Period and the Purchase Period
may not together exceed twenty-seven months. During the Subscription Period,
Eligible Employees will be advised of the terms of the offer and given an
opportunity to indicate if they wish to participate or continue to participate
in the offer. Beginning on the first day of the Purchase Period, participants
may subscribe to purchase shares of Common Stock at a price of 85% of the
average of the high and low prices of said Common Stock on the first or last
day of the Purchase Period, whichever price is lower. The purchase price for
such shares is paid through uniform payroll deductions over the Purchase
Period. The maximum number of whole shares which may be purchased by a
participant in a Purchase Period will be fixed by dividing the purchase price
per share into the total payroll deductions of the employee, subject to a
maximum number of shares per participant which will be determined by the
16
<PAGE>
committee. In no event may a participant subscribe to purchase shares (i)
totaling in any one year more than 20% of annual salary rate on the first day
of the Purchase Period, (ii) if, after giving effect to the purchase of such
shares, the participant will have more than 5% of the combined voting power of
all outstanding shares of the capital stock of the Company, or (iii) totaling
in any one year, together with any other shares purchasable under any other
employee stock option plan under Section 423 of the Code, more than $25,000
(determined as of the first day of the Purchase Period). Participants may
cancel their subscription to purchase at any time prior to the end of the
Purchase Period and receive in cash the amount credited to their account or
apply such amounts to the purchase of shares at 85% of the average market
price on the first day of the Purchase Period.
FEDERAL TAX CONSEQUENCES
Generally, the Company's grant to an Eligible Employee of an option under
the Plan to purchase shares and the subsequent transfer of shares to a
participant pursuant to the participant's exercise of the option will have no
immediate tax consequences for the Company or the participant.
A participant who disposes of the shares after holding them for a period
which is at least two years after the date of the granting of the option and
at least one year after the date the shares are received, or a participant who
dies while holding the shares, will recognize as compensation income, taxable
at ordinary rates, an amount equal to the lesser of (i) the excess of the fair
market value of the shares at the time of disposition or death over the amount
paid for the shares under the option or (ii) the excess of the fair market
value of the shares at the time the option was granted over the option price.
Any additional gain recognized upon the disposition will be a long-term
capital gain, a portion of which might be subject to an alternative minimum
tax on items of tax preference. When the aforementioned holding period
requirement is met, the Company will receive no deduction for amounts taxable
to the employee. If the holding period requirements are not satisfied, then,
upon disposition of shares purchased pursuant to the Plan, a participant would
realize ordinary income to the extent of the difference between the option
price and the fair market value of the shares on the date of exercise of the
option and any subsequent gain or loss would be capital gain or loss. The
Company would generally be entitled to a deduction equal to the difference
between the option price and the fair market value of the shares on the date
of the exercise of the option in such event.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors recommends a vote to amend the Plan to increase the
number of shares of Common Stock which may be issued under the Plan to
6,000,000 shares, subject to adjustment for stock dividends, stock splits and
other future changes in the Company's capital stock. The proposed amendment to
the Plan is necessary to continue the Plan in effect, which the Board of
Directors believes enhances employee identification with the Company and with
the interests of the other stockholders. Approval of the amendment to the 1992
Employee Stock Purchase Plan requires the favorable vote of holders of a
majority of the votes cast on the amendment at the annual meeting.
APPROVAL OF AMENDMENT TO NON-EMPLOYEE
DIRECTORS' DEFERRED FEE EQUITY PLAN
The Board of Directors is submitting for stockholders' approval the adoption
of an amendment to the Non-Employee Directors' Deferred Fee Equity Plan which
was originally approved by the stockholders at the 1995 Annual Meeting. The
amendment would provide for the automatic grant of options (the "Formula
Plan") to purchase shares of Series B Common Stock to each eligible director
on the first day of the Company's fiscal year. As adopted in 1995, the Plan
provided each non-employee director with an opportunity to elect to defer some
or all of his or her director's fees otherwise payable in cash and receive
director's compensation in the form of stock units
17
<PAGE>
equivalent to Common Stock (the "Stock Election") or in the form of options to
purchase Common Stock (the "Option Election"). As amended, the Plan comprises
three subplans: the Stock Election plan, the Option Election plan and the new
Formula Plan.
The Plan and the amendment are intended to further the Company's corporate
policy that all employees, officers and directors are to be encouraged to
share in the Company's long-term prospects by receiving or electing to receive
part of their compensation in the form of securities of the Company. A
description of the amendment and the operation of the Plan as amended is set
forth below and is qualified in its entirety by the full text of the Plan as
amended. The operative section of the amendment is attached hereto as Exhibit
A. A copy of the Plan as amended may be obtained from Shareholder Services,
Citizens Utilities Company, High Ridge Park, Stamford, CT 06905 (203) 329-8800
upon request.
SUMMARY OF THE TERMS OF THE FORMULA PLAN
Under the Formula Plan, on the first day of each year, starting with
calendar 1997 and continuing through 2002 (and for successive years thereafter
if the Plan is extended by the Board of Directors), options to purchase 5,000
of shares of Common Stock, as adjusted, shall be awarded to each non-employee
director (an "eligible director") then in office on such date without the need
of further corporate action. The grant date of each option is the first day of
each year. In addition, on September 1, 1996, options to purchase 2,500 shares
of Common Stock were granted to each director then in office. In each Plan
year, the Board may change the number of shares of Common Stock, up to an
annual maximum of 10,000 shares, as adjusted, which will be subject to
purchase upon exercise of the options to be awarded in the succeeding Plan
year. The stockholder approval being sought at the annual meeting shall
include approval of this increased number of shares.
Individuals who are not directors on the first day of the year, but become
directors of the Company on or before the date of the annual meeting of
stockholders for the election of directors, shall be awarded options to
purchase 5,000 shares of Common Stock, as adjusted. On February 28, 1997,
there were twelve eligible directors.
EXERCISE PRICE
The purchase price per share of Common Stock for which each option is
exercisable shall be 100% of the fair market value per share of Common Stock.
Fair market value for each grant is the average of the daily high and low
prices of shares of Common Stock reported on a composite tape for securities
listed on the New York Stock Exchange or, if such shares are not listed for
trading on such exchange or any other established securities market for which
quotations are readily available, on the third, fourth, fifth and sixth
trading days of each January.
The Plan provides that in the event of a stock dividend or stock split or
other stock change, such change shall be reflected in the number of shares
purchasable upon exercise of an option and the purchase price per share on its
date of grant.
EXERCISABILITY AND TERM OF OPTION
Each option will vest and become exercisable six months after the grant
date, provided that the participant is a director at that time, or on such
earlier date that a participant ceases to be a director by reason of
retirement, death, or disability. Each option shall remain exercisable until
the 10th anniversary of its grant date.
The period during which option awards may be made under the Formula Plan
shall terminate on December 31, 2002, subject to the right of the Board of
Directors of the Company to extend the effectiveness of the Formula Plan for
an additional six-year period until December 31, 2008
18
<PAGE>
without any additional approval of the stockholders of the Company being
required; it being understood that the stockholder approval being sought at
the annual meeting shall include approval of the Plan as so extended by the
Board of Directors.
THE EXISTING STOCK ELECTION AND OPTION ELECTION PLANS
GENERAL
Under the original Plan, two alternative elections are offered to eligible
directors who wish to defer receipt of their directors' fees otherwise payable
in cash and receive these fees, or a portion thereof, in equivalent amounts of
securities. Under the Stock Election plan, eligible directors may make a Stock
Election to receive equivalent stock units in payment of directors' fees.
Under the Option Election plan, eligible directors may make an Option Election
to receive options to purchase shares of Common Stock in payment of directors'
fees. An eligible director, subject to certain limitations, may elect to
include all or any portion of his fees to be earned in future Plan years in
one or both elections under the Plan, but without duplication. As indicated
above, no election by an eligible director is required for him or her to
participate in the Formula Plan.
STOCK ELECTION
Pursuant to the Stock Election, eligible directors may elect to defer
receipt of up to 100% of their directors' fees otherwise payable in cash and
receive instead equivalent stock units. The election, which must be made
annually, to defer receipt of fees payable to a director for a Plan year must
be made prior to the end of the previous year. The investment in equivalent
stock units is made immediately after the end of each calendar quarter, when
110% of the amount of the fees deferred for the quarter just ended is credited
to the participating director's Stock Election account. The price at which the
equivalent stock units are credited to a participant's account is based on the
fair market value (defined as described above) each January, April, July and
October. Elections under the Stock Election are irrevocable. Distribution of
stock or cash, as previously selected by the participant,under the Stock
Election commences upon termination of directorship pursuant to death,
disability or retirement. The Stock Election will continue to be available
through Plan year 2014.
TAX TREATMENT
The amounts deferred under to the Stock Election are not intended to be
included in the gross income of the directors until such time as the deferred
amounts are distributed to the participant or his or her estate. The Company
will be entitled to a deduction for tax purposes for compensation paid in the
same amount and at the same time as income is recognized by the participant.
OPTION ELECTION
Under the Option Election, eligible directors may elect to have the
equivalent of up to five years and five months of annual directors' fees, for
one or more annual periods, subject to a maximum of $30,000 per annum, paid to
them in the form of options to purchase Common Stock. Elections to receive
options for future Plan years must be made during a preceding year and may
also include succeeding Plan years in addition to the next Plan year
immediately following the election. As of the effective date of elections (the
first January 1st following an election), each electing director is granted an
option covering that number of shares which is the product of (a) the number
of shares which could be purchased at fair market value on the effective date
with the amount of fees elected by the director for participation in a Plan
year times (b) a valuation factor of five. The exercise price of each option
is 90% of the fair market value on the effective date of the option. A
participating director may cancel one or more of the options or installments
of options held by him or her which relate to future Plan years. Options will
generally terminate ten
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<PAGE>
years after their effective date, and upon expiration of directorship will be
exercisable only to the extent exercisable on the date of termination of
directorship.
TAX MATTERS APPLICABLE TO OPTIONS UNDER THE FORMULA PLAN AND OPTION
ELECTION PLAN
At the time an option is granted, the director will not recognize any
taxable income and the Company will not be entitled to any deduction. When a
director exercises an option, he or she will generally recognize ordinary
income in an amount equal to the excess of the fair market value of the Common
Stock received on the date of exercise over the option exercise price.
Generally, the Company will be entitled to a deduction in an amount equal to
the income recognized by the director. Upon exercise of an option under the
Option Election, the participant may request the Company to accept payment of
the exercise price in the form of shares of Common Stock. The tax basis of
shares received upon the exercise of an option will be the exercise price paid
plus the amount recognized by the director as taxable income attributable to
such shares as a result of the exercise. When a director sells shares acquired
by the exercise of an option, the difference between the amount received and
the adjusted tax basis of the shares will be a capital gain or loss, if such
shares constitute a capital asset in the hands of the director.
GENERAL PROVISIONS
Options and Stock Election awards are nontransferable and non-assignable
except for transfers by will or devise or, as provided by the amendment, with
the consent of the Committee, by gift to members of the immediate family of
the participant or entities made up entirely of family members. The Plan is
administered and interpreted by a committee consisting of not less than two
persons, and an administrator. The Committee shall make appropriate adjustment
in the event of any stock dividend, stock split, recapitalization, merger or
similar corporate event.
The maximum total number of shares of Common Stock which the Plan may be
obligated to deliver pursuant to the Plan is unchanged by the addition of the
new Formula Plan. As of any date, the total number of shares of Common Stock
which the Plan is obligated to deliver, or has delivered, pursuant to
equivalent Stock Elections, have been purchased by directors pursuant to
options, or may be issued pursuant to outstanding options under the Plan shall
not be more than a maximum of one percent of the total issued and outstanding
shares of the Company's Common Stock Series A and Series B as of such date. As
of the date hereof, the total number of shares that could be issued under the
Plan would be approximately 2.4 million. The Board of Directors of the Company
or the Committee may amend the Plan to effect compliance with, or to provide
an exemption from, Rule 16b-3 of the Securities Exchange Act of 1934 for
either the Plan or any other equity plan of the Company. The Board may amend
the Plan in any other manner, subject to certain provisos.
The Plan was adopted by the Board of Directors on June 28, 1994 and was
approved by the stockholders on May 19, 1995. The amendment was adopted by the
Board of Directors on August 20, 1996 and became effective on that date,
subject to the approval of the stockholders of the Company (which approval
shall also constitute authorization for the Board to extend the effectiveness
of the Formula Plan to the year 2008 and to increase the number of shares
subject to an individual award to 10,000 from 5,000). All awards under the
Formula Plan are contingent upon stockholder and any necessary regulatory
approval of the amendment, and Formula Plan options already awarded under the
amendment will be void if such approvals are not obtained.
BENEFITS FROM 1996-97 FORMULA GRANTS
Under the Formula Plan, options to purchase 2,500 shares of Common Stock at
$10.91 per share were granted on September 1, 1996, and Options to purchase
5,000 shares of Common Stock at $11.59 per share were granted on January 1,
1997, subject to stockholder approval, to the eligible directors.
20
<PAGE>
OPTIONS AND STOCK UNITS ACQUIRED IN LIEU OF 1996 FEES
<TABLE>
<CAPTION>
1996 Fees Deferred
to Acquire Options
Options Stock Units and Stock Units
------- ----------- ------------------
<S> <C> <C> <C>
All non-executive directors as a
group............................. 104,780 13,524 $443,500
</TABLE>
As the Plan is restricted to non-employee directors, no other persons have
received or will receive any benefits from the Formula Plan. Ten Directors
have elected to receive a portion of their directors' compensation in the form
of options.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of the Company believes that the addition of the
Formula Plan to the Plan, as contemplated by the proposed amendment, is in the
best interests of the Company and its stockholders and recommends that
stockholders vote their shares for the approval of the amendment. Approval of
the amendment requires the favorable vote of holders of a majority of the
votes cast on the amendment at the annual meeting.
APPROVAL OF AMENDMENT TO 1996 EQUITY INCENTIVE PLAN
The Board of Directors is submitting for stockholders' approval an amendment
to the Citizens Utilities Company 1996 Equity Incentive Plan which was
originally approved by the stockholders at the 1996 Annual Meeting. The
amendment makes a number of changes to the portions of the Plan covering
Performance Shares, including certain modifications intended to ensure that
Performance Share awards are not subject to the deduction limitation imposed
under Section 162(m) of the Code. The amendment provides that the performance
objectives determined by the Committee for each Performance Share award shall
be based on stock price; market share; sales; earnings per share; operating
cash flow; free cash flow; net income or loss; net income or loss adjusted to
exclude specified items such as gain or losses from extraordinary or non-
recurring items and non-cash expense and income and before specified expense
items such as interest, depreciation, amortization and income taxes; EBITDA;
revenues; return on equity or assets; cost control; or a combination of any of
the foregoing. The amendment provides and specifies a dollar limit on the
aggregate of the dollar value denominated performance awards granted to an
individual in any calendar year, see below under "Shares Subject to the Plan."
A copy of the amendment is set forth as Exhibit B hereto. A copy of the Plan
as amended is available upon request from Shareholder Services, located at the
Company's Administrative Offices (203) 329-8800 and the following description
of the Plan as amended is qualified in its entirety by the full text of the
Plan as amended.
PURPOSE OF THE PLAN
The purpose of the Plan is to provide additional incentives for high levels
of performance and productivity by employees of the Company. The Plan is
intended to strengthen the Company's existing operations through its ability
to attract and retain outstanding employees upon whose judgment, initiative
and efforts the continued efficiency, productivity, growth and development of
the Company is dependent.
SHARES SUBJECT TO THE PLAN
Awards granted under the Plan will relate to shares of the Company's Series
A or Series B Common Stock. The maximum number of shares of Common Stock which
may be issued pursuant to awards at any time will not be affected by the
amendment and will continue to be no more than 11.3 million shares. Under the
Plan as amended, no individual shall be granted shares denominated performance
awards in any calendar year covering more than 500,000 shares and dollar value
denominated performance awards in any calendar year covering more than
$500,000
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in dollar value. Awards of shares may be divided among the various components
of the Plan in such manner as the Compensation Committee shall determine or
authorize. No awards will be granted more than ten years after the effective
date of the Plan.
The limits on the amounts and kind of securities which may be issued under
the Plan or to an individual in a calendar year are subject to adjustment
based on stock dividends, stock splits, recapitalizations, reorganizations and
other corporate capital stock events occurring after the effective date of the
Plan. The amount and kind of securities which may be granted or acquired upon
exercise of a grant or satisfaction of its conditions is subject to similar
adjustments to reflect such events occurring after the date of grant to
prevent enlargement or dilution of rights resulting from such events.
Any shares of Common Stock which were issued and have been forfeited or were
subject to awards under the Plan which have expired or terminated for any
reason will remain available for issuance with respect to the granting of
awards during the term of the Plan, except as may otherwise be provided by
applicable law. Shares of Common Stock received by the Company in connection
with the exercise of an award shall also be available for issuance under the
Plan.
PARTICIPATION
All employees of the Company or any of its subsidiaries are eligible for
selection to participate in the Plan. Directors who are not employees of the
Company or its subsidiaries are ineligible.
As of February 28, 1997, approximately 5,500 employees of the Company were
eligible to participate in the Plan. Options to purchase 40,000 shares of
Common Stock under the Plan have been granted to five employees and non-
executive officers. No awards have been made to executive officers. No dollar
value denominated awards have been granted.
The quoted closing prices of the Company's Series A and Series B Common
Stock on February 28, 1997 were $11.75 and $11.875, respectively.
ADMINISTRATION
The Plan is administered by the Committee consisting of members of the Board
of Directors. Subject to the express provisions of the Plan or its rules and
regulations., the Committee is authorized to (a) determine those eligible
employees to whom awards may be granted; (b) grant awards to eligible
employees; (c) determine the terms and conditions of each award; (d) establish
and modify performance objectives; (e) modify or amend any award or waive any
restrictions or conditions applicable to any award or the exercise or
realization thereof (except if the effect thereof adversely and materially
affects the rights of any recipient); (f) prescribe and rescind rules,
regulations and policies for the administration of the Plan; (g) interpret,
construe and administer the Plan and any related award agreement and define
the terms employed therein; and (h) make all of the determinations necessary
or advisable with respect to the Plan or any award granted thereunder.
AWARDS
STOCK OPTIONS
A Stock Option, which may be a nonqualified or an incentive stock option,
may be granted either alone or in conjunction with one or more other awards.
The option price, except in the discretion of the Committee in the case of new
employees, shall be equal to or greater than the fair market value of the
underlying Common Stock on the date of grant. The term of each Stock Option is
also determined by the Committee but may not exceed ten years from the date of
grant.
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<PAGE>
Upon exercise, the option price of each Stock Option is payable by the
option holder in cash or, in the sole discretion of the Committee, through the
delivery of shares of the Company's Common Stock valued at their fair market
value, or in a combination of cash and shares. The Committee may grant a
replacement Stock Option to an option holder to replace the shares which the
option holder delivered to Company in payment of the option price in a stock-
for-stock exercise or for any withholding taxes. The option price of any
replacement Stock Option may not be less than 100% of the fair market value of
the Common Stock delivered to the Company on the date of such payment. The
Committee may also accept the surrender of the right to exercise any Stock
Option for alternative settlement by payment to the option holder of an amount
not to exceed the difference between the option price and the then fair market
value of the shares as to which such right of exercise is surrendered. Such
payment may be made in cash or in shares of the Company's Common Stock (valued
at the then fair market value) or any combination thereof. The Committee may
also grant stock appreciation rights, free standing or in tandem with Stock
Options, which entitle the holder thereof to receive a similar payment at his
or her election.
OTHER STOCK-BASED AWARDS
The Plan also authorizes the Committee to grant other stock-based awards to
eligible employees, which consist of awards that are valued in whole or in
part by reference to, or otherwise based on, the Company's Common Stock and
may include, but are not limited to, restricted stock, performance shares and
deferred stock. Subject to the terms of the Plan, the Committee may determine
any and all terms and conditions of other stock-based awards. Payment or
settlement of other stock-based awards will be in cash or in shares of the
Company's Common Stock or in any combination thereof as the Committee
determines in its sole discretion. The Committee may permit the payment of
withholding taxes due in connection with awards under the Plan by the
withholding of shares to be issued under the award or by the employee's
delivery of other shares of Common Stock of the Company.
"CHANGE IN CONTROL" PROVISIONS
Awards may include terms which provide that any or all of the following
actions may occur as a result of, or in anticipation of, any "Change in
Control" (as defined below) to assure fair and equitable treatment of
employees: (i) acceleration of time periods for purposes of vesting, or
realizing gain from, any outstanding award; (ii) purchase of any outstanding
award from the holder for its equivalent value, as determined by the
Committee; and (iii) adjustments or modifications to outstanding awards,
including the modification or elimination of performance goals, as the
Committee deems appropriate to maintain and protect the rights and interests
of participants. A "Change in Control" is defined to mean the occurrence of
any of the following events: (i) a person or group becomes the owner of stock
having 20% or more of the total number of votes that may be cast for the
election of directors of the Board or 20% or more of the fair market value of
the Company's issued and outstanding stock; (ii) a consolidation or merger or
sale of assets in which the Company is not the surviving corporation or
pursuant to which the Company's stock will be converted into cash, securities
or other property or a sale, lease, exchange or other transfer of all or
substantially all the assets of the Company; or (iii) as a result of any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions, the
persons who are members of the Board before the transaction shall cease to
constitute a majority of the Board of the Company. These provisions in the
Plan allowing the Committee to award accelerated vesting upon a Change in
Control could in some circumstances have the effect of an "antitakeover"
defense because, as a result of these provisions, a Change in Control of the
Company could be more difficult or costly.
AMENDMENT, TERMINATION AND EXPIRATION
The Plan is subject to suspension, amendment, modification or termination at
any time by the Company's Board of Directors.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to awards under
the Plan.
STOCK OPTIONS
Under the Plan, the Committee may grant options which either qualify or do
not qualify as "incentive stock options" as defined in Section 422 of the
Code. No taxable income will be realized by an option holder and no deduction
will be available to the Company upon the grant of either type of option.
However, the tax consequences of the exercise of the option and subsequent
disposition of the shares received upon exercise will depend upon which type
of option is granted or when the disposition occurs.
INCENTIVE STOCK OPTIONS
No regular taxable income will be realized by an option holder upon the
exercise of an incentive stock option if the holding period and employment
requirements contained in the Code are met. However, the spread between the
exercise price and the fair market value on the date of exercise will be an
item of tax preference which may give rise to alternative minimum tax
liability at the time of exercise. In order to receive capital gains treatment
certain holding requirements must be met. Under the holding requirements, the
option holder must not dispose of the shares within two years of the date the
option was granted nor within one year from the time of exercise; and the
option holder generally must exercise the option while employed by the Company
or its subsidiaries or within three months after the termination of such
employment.
Upon the subsequent disposition of shares acquired through the exercise of
an incentive stock option after satisfaction of the above holding period and
employment requirements, any gain or loss realized upon such disposition will
be long-term capital gain or loss; and the Company will not be entitled to any
income tax deduction in respect to the exercise of the option or the
disposition of the shares received upon exercise. For purposes of determining
the amount of such gain or loss, the option holder's tax basis in the shares
will be the option price. If the holding period or employment requirements are
not met, special rules apply.
NONQUALIFIED STOCK OPTIONS
At the time of exercise of a nonqualified option, an option holder will
recognize ordinary income at ordinary income tax rates, and the Company will
be entitled to a tax deduction in the amount by which the then fair market
value of the shares purchased exceeds the option price of the shares. The
option holder may be subject to the withholding requirements of the tax law.
Upon the subsequent disposition of shares received upon exercise of a
nonqualified option, an option holder will also realize income or loss in an
amount equal to the difference between the sales price of the shares and the
fair market value of the shares used for computing ordinary income or loss
realized in connection with the exercise of the option. The income or loss
will be long or short-term capital gain or loss depending upon the length of
time since the exercise of the option.
STOCK APPRECIATION RIGHTS
The exercise of a stock appreciation right will result in ordinary income to
the holder in the year the stock appreciation right is exercised. The amount
of income recognized will be equal to the total value of all cash and the fair
market value of the Common Stock received pursuant to the exercise of the
stock appreciation right. The Company will be entitled to a corresponding
income tax deduction equal to such amount. The tax treatment of a stock
appreciation right is the same whether the stock appreciation right is
exercised in conjunction with an incentive stock option or a nonqualified
stock option.
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<PAGE>
ALL STOCK OPTIONS
If an option holder tenders shares of the Company's Common Stock in partial
or full payment of the option price for shares to be acquired through the
exercise of an option, the option holder generally will not recognize any
taxable gain or loss on the tendered shares. However, if the shares tendered
were previously acquired upon the exercise of an incentive stock option and
such exercise occurs prior to satisfaction of the holding period requirement
for the tendered shares, the tender of such shares will be an early
disposition with the tax consequences described above for an early disposition
of shares acquired upon exercise of an incentive stock option. In the case of
a tender of shares in partial or full payment of the option price, the option
holder's tax basis in the shares received upon exercise of the option is not
uniform. The number of shares acquired that equals the number of shares
tendered will take the tax basis of the tendered shares including the effect
of the tax consequences of any early disposition. The additional shares
acquired in excess of the number of shares tendered will have a tax basis
generally equal to the fair market value of such shares at the time of the
option exercise. In the case of an incentive stock option the tax basis in the
additional shares will be zero.
OTHER STOCK-BASED AWARDS
An employee will not realize any taxable income upon the grant of an award
of restricted stock subject to substantial restrictions, such as a requirement
of continued performance or the attainment of performance objectives, unless
the employee elects to be taxed at that time in accordance with Section 83 of
the Code. Upon the lapse of restrictions on restricted stock which occur in
accordance with terms of such restriction, the employee will realize taxable
income and the Company will be entitled to a corresponding deduction equal to
the excess of the fair market value of the shares at that time over any amount
paid for the shares. The employee may be subject to the withholding
requirements of the tax law.
Generally, upon the grant of stock-based awards which are not subject to
restrictions on transfer or the achievement of goals, an employee will realize
compensation taxable as ordinary income, and the Company will be entitled to a
corresponding deduction, in an amount equal to the sum of any cash received by
the employee plus the fair market value of any shares of Common Stock received
by the employee.
The foregoing federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Code.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of the Company believes that the proposed amendment
to the 1996 Equity Incentive Plan is in the best interests of the Company and
its stockholders and recommends that stockholders vote their shares for the
approval of the amendment. Approval of the amendment requires the favorable
vote of holders of a majority of the votes cast on the amendment (abstentions
being counted as "against" votes) at the annual meeting.
GENERAL INFORMATION
A subsidiary of the Company and a subsidiary of Century Communications Corp.
("Century") entered into a joint venture agreement for the purpose of
acquiring, for approximately $89 million, and operating two cable television
systems in Southern California (the "Systems"). The joint venture is governed
by a management board on which the Company and Century are equally
represented. The joint venture has entered into an agreement pursuant to which
a subsidiary of Century (the "Manager") will manage the day-to-day operations
of the Systems. The Manager will not receive a management fee but will be
reimbursed only for the actual costs it incurs on behalf of the joint venture.
With respect to the purchase of any service or asset for the joint venture for
use in the Systems, the Manager is obligated to pass through to the joint
venture any discount,
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<PAGE>
up to 5%, off the published prices of vendors and is entitled to retain any
discount in excess of 5%. On September 30, 1994, the joint venture acquired
one of the Systems serving approximately 24,000 subscribers. The purchase of
the second of the Systems, serving approximately 21,000 subscribers, took
place on December 1, 1995. The joint venturers are negotiating to expand the
scope of their venture which would involve the acquisition of additional
systems in California from an unrelated third party. One system, serving
Oxnard and Walnut Valley, has a total of approximately 58,500 subscribers and
the aggregate purchase price is $104 million (subject to adjustment) and the
other system, serving Yorba Linda with approximately 16,900 subscribers, is to
be acquired at a purchase price of approximately $36 million (subject to
adjustment). The Company may contribute its two cable systems that have
approximately 6,300 subscribers to the joint venture to partially satisfy its
obligations to the joint venture in conjunction with its funding of the
acquisition of the to be acquired systems. It is expected that subject to
regulatory approvals, these transactions will close during 1997. The Company
holds 102,187 shares of Convertible Redeemable Preferred Stock (convertible
into 2,972,335 shares of common stock) and 1,982,294 shares of common stock
(7% of the outstanding shares of common stock) in Centennial Cellular Corp. A
subsidiary of Century owns 8,561,820 shares of common stock of Centennial. See
"Stock Ownership of Directors and Executive Officers".
GENERAL
Representatives of KPMG Peat Marwick LLP, the Company's independent public
accountants, are expected to be present at the annual meeting with an
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
OTHER MATTERS
The 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 1998 annual meeting, they must be received by December 1, 1997.
The entire cost of soliciting management proxies will be borne by the
Company. Proxies will be solicited by mail and may be solicited personally by
directors, officers or regular employees of the Company, who will not be
compensated for such services. Morrow & Co. has been retained to assist in
soliciting proxies at a fee of $7,500, plus distribution costs and other
expenses.
By Order of the Board of Directors
Charles J. Weiss
Secretary
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<PAGE>
EXHIBIT A
AMENDMENT TO NON-EMPLOYEE
DIRECTORS' DEFERRED FEE EQUITY PLAN
THE NON-EMPLOYEE DIRECTORS' DEFERRED FEE EQUITY PLAN IS PROPOSED TO BE
AMENDED BY THE ADDITION OF THE FOLLOWING ARTICLE 12:
ARTICLE 12 FORMULA PLAN
12.1 ELIGIBILITY. All Directors of the Company shall automatically
participate in the Formula Plan.
12.2 SHARES SUBJECT TO THE FORMULA PLAN. Shares of Common Stock which shall
have been purchased or which may be issued upon the exercise of the
Options under the Formula Plan shall be included as shares "which
shall have been purchased by Participants pursuant to Options and
which may be issued pursuant to outstanding Options under the Option
Plan" for purposes of the maximum share limitation of Section 11.2.
12.3 TERMS, CONDITIONS AND FORM OF OPTIONS. Each Option granted under the
Formula Plan shall be evidenced by written agreement in such form and
containing such terms, consistent with the Plan, as the Committee
shall from time to time approve. All Options and said agreements shall
be subject to the terms and conditions set forth in this Article 12
and to the other applicable terms and conditions of the Plan.
12.4 GRANT. On the first day of each Plan Year starting with the calendar
1997 and continuing through 2002 (and for successive years thereafter
if the Plan is extended by the Board of Directors), Options to
purchase 5,000 shares of Common Stock, as adjusted pursuant to Section
11.5, shall be awarded to each Director in office on such date,
without the need for further corporate action. The Grant Date for such
Options shall be the first day of each year. In addition, on September
1, 1996, Options to purchase 2,500 shares of Common Stock shall be
granted to each Director of the Company in office on such date. In
each Plan Year, the Board of Directors may change the number of shares
of Common Stock which will be subject to purchase upon exercise of the
Options to be awarded during the succeeding Plan Year subject to a
maximum of 10,000 shares of Common Stock per year, as adjusted
pursuant to Section 11.5.
12.5 SUBSEQUENTLY ELECTED DIRECTORS. For years subsequent to 1996,
individuals who are not Directors on the first day of a Plan Year but
who become Directors of the Company on or before the date of the
annual meeting of stockholders for the election of directors shall be
awarded, as of the Grant Date, without need for further corporate
action, Options to purchase 5,000 shares of Common Stock. The Grant
Date for such Options shall be the date upon which such individual
first becomes a Director. Individuals who become a Director or who
become eligible to participate in the Plan during a Plan Year, but
after the date of the annual meeting of stockholders, shall not be
eligible to receive options until the first day of the next Plan Year.
12.6 EXERCISE PRICE. The purchase price per share of Common Stock for which
each Option is exercisable shall be 100% of the Fair Market Value per
share of Common Stock on the Grant Date for such Option. "Fair Market
Value" shall have the meaning as defined in Article 2 assuming that
the Grant Date is a date specified in the definition.
12.7 EXERCISABILITY; TERM OF OPTIONS. Each Option under the Formula Plan
will vest and become exercisable six months after the Grant Date
(provided that the Participant is a Director at that time) or on such
earlier date that a Participant ceases to be a Director by reason of
retirement (which for these purposes shall mean retirement pursuant to
Board policy), death or disability. Except as otherwise provided in
this Section, each Option granted under the Formula Plan shall remain
exercisable until the 10th anniversary of its Grant Date.
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12.8 OTHER. To the extent not inconsistent with the provisions set forth in
this Article 12, Options awarded pursuant to the Formula Plan,
Participant's rights and the Company's obligations shall be subject to
the provisions of Sections 4.5, 4.6, 4.7 and 4.8 and Articles 2, 9, 10
and 11 of the Plan.
12.9 COMPLIANCE WITH LAW. All Options granted pursuant to the Formula Plan
will be subject to compliance with all applicable laws, rules and
regulations of any regulatory or other governmental body having
jurisdiction, and with any rules or policies of any stock exchange on
which shares of Common Stock may be listed, and each option agreement
shall provide that the validity of the Options and the Company's
obligation to issue Shares of Common Stock upon exercise of the Option
are subject to such compliance.
12.10 DURATION OF THE FORMULA PLAN; EFFECTIVE DATE. Amendment No. 1 to the
Plan shall become effective on August 20, 1996, provided that the
effectiveness of the Formula Plan and the amendment to the Plan
modifying Section 4.7 shall be subject to approval of the stockholders
of the Company at the first annual meeting of the stockholders held
after the end of the 1996 to the extent, in each case, that such
approval is called for by the rules or policies of the New York Stock
Exchange or is otherwise deemed advisable by the Company. The period
during which Option awards may be made under the Formula Plan shall
terminate on December 31, 2002. Such termination shall not effect the
terms of any then outstanding Options. The Board of Directors of the
Company shall have the right to extend the effectiveness of the
Formula Plan, with such amendments to the Plan as they may deem
appropriate, for an additional six-year period until December 31, 2008
without any additional approval by the stockholders of the Company
being required, it being understood that if any approval of
stockholders of the Company is obtained during 1997, such approval
shall include the Plan as and if so extended by the Board of
Directors.
CERTAIN PROVISIONS OF THE PLAN WHICH ARE REFERRED TO IN PROPOSED ARTICLE 12
READ AS FOLLOWS:
"2.10 "DIRECTOR" means any director of the Company who is not a full-time
employee of the Company. For the purposes of the Plan, an individual who is
both a full-time employee of the Company and a director of the Company and
therefore ineligible to participate in the Plan and who ceases to be a
full-time employee but remains in office as a director shall become
eligible to participate in the Plan as a Director as of the termination of
his or her service as a full-time employee."
"2.13 "FAIR MARKET VALUE" of the Common Stock as of any . . . Effective
Date . . . shall be the average of the daily high and low prices of shares
of Common Stock reported on a composite tape for securities listed on The
New York Stock Exchange or, if such shares are not listed for trading on
such exchange, on any other established securities market for which
quotations are readily available, for the third, fourth, fifth and sixth
trading days of the month which follow each . . . Effective Date . . .
Participants will be credited with fractional share interests. If required,
an appropriate adjustment will be made for record dates, payment dates and
ex-distribution trading. The . . . Option Plan Committee or the Board of
Directors may select in advance different trading days of the month for
determining Fair Market Value, in their discretion."
"11.2 SHARES SUBJECT TO THE PLAN.
As of any date the maximum number of shares of Common Stock which the
Plan may be obligated to deliver pursuant to the Stock Plan and the maximum
number of shares of Common Stock which shall have been purchased by
Participants pursuant to Options and
A-2
<PAGE>
which may be issued pursuant to outstanding Options under the Option Plan
shall not be more than one (1%) percent of the total outstanding shares of
Common Stock Series A and Series B of the Company as of such date, subject
to adjustment in the event of changes in the corporate structure of the
Company affecting capital stock. Any Common Stock transferred by the
Company to a Stock Plan Account or to the Trustee or delivered by the
Company upon exercise of an Option hereunder may consist, in whole or in
part, of authorized and unissued shares or treasury shares as the Company
shall determine. Cash transferred to the Trustee may be used to purchase
Common Stock in the open market or from the Company.
In the event that the total number of shares of Common Stock subject to,
or issued pursuant to, the Plan at any one time is in excess of the above-
stated limit, the number need not be reduced if such excess has resulted
from a reduction in the amount of issued and outstanding shares of Common
Stock subsequent to the time that such Options were granted or such shares
were issued. If any shares of Common Stock subject to purchase by a
Participant under an Option under the Plan are not purchased, such shares
of Stock shall be deemed not to have been purchased pursuant to the Plan
for purposes of this Section. Shares of Common Stock received or retained
by the Company in payment of the exercise price of Options or in payment,
or in lieu of payment, of withholding taxes shall not reduce the number of
shares deemed to have been purchased pursuant to the Plan."
"11.5 ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK.
Subject to the provisions of Sections 6.1 and 7.3, in the event of any
stock dividend, stock split, recapitalization, or reclassification of
shares of Common Stock, merger or consolidation of the Company or sale by
the Company of all or a portion of its assets, or tender offer for its
securities, or other event which could distort the implementation of the
Plan or the realization of its objectives, the Administrator shall make
such appropriate adjustments in the number and kind of securities which a
Plan Unit will represent or which may be paid out under the Plan, and in
the number of shares of Common Stock or other securities or number and kind
of securities, and the purchase price therefor, for which an Option may be
exercisable or in terms, conditions or restrictions on securities as the
Administrator deems equitable.
In the event of a stock split or stock dividend, the number of shares
purchasable upon exercise of an Option shall be increased to the new number
of shares which result from the shares covered by the Option immediately
before the split or dividend. The purchase price per share shall be reduced
proportionately and the total purchase price will remain the same. In the
case of a distribution in property other than cash the number of shares
covered shall be increased to reflect, in shares valued at the then current
market, the fair value of the distribution.
All events occurring between the Effective Date of the Option and its
exercise shall result in an adjustment to the Option terms."
THE FOLLOWING PROVISIONS OF THE PLAN REFERRED TO IN PROPOSED ARTICLE 12 ARE
OMITTED HEREIN. THEY ARE CONTAINED IN THE PLAN, A COPY OF WHICH CAN BE
OBTAINED FROM THE COMPANY AS DESCRIBED IN THE PROXY STATEMENT:
SECTION 4.5 dealing with notice of exercise; SECTION 4.6 covering the
payment of the Purchase Price for an Option either in cash or in shares of
Common Stock; SECTION 4.7 covering the exercisability of an Option upon
termination of a Participant's directorship; SECTION 4.8 covering the non-
transferability of an Option and the exceptions thereto; ARTICLE 9 covering
Option exercise matters; ARTICLE 10 covering administrative matters; and
ARTICLE 11 covering term of the Plan, the non-alienation of benefits under
the Plan, and amendments of the Plan.
A-3
<PAGE>
EXHIBIT B
AMENDMENT TO THE
CITIZENS UTILITIES COMPANY
1996 EQUITY INCENTIVE PLAN
THE 1996 EQUITY INCENTIVE PLAN IS PROPOSED TO BE AMENDED BY THE RESTATEMENT
OF SUBSECTIONS 6(A) AND 6(B). THE REMAINING SUBSECTIONS OF SECTION 6 ARE TO BE
UNCHANGED, BUT ARE SET FORTH FOR THE READER'S CONVENIENCE. SECTION 6, AS
PROPOSED TO BE AMENDED, IS SET FORTH BELOW:
SECTION 6. PERFORMANCE SHARES
(a) The Committee may award Performance Shares to Participants under the Plan,
which may be denominated in Stock or in dollars. The Committee shall
determine the performance periods (the "Performance Periods") and the
performance objectives relating to each Performance Share Award.
Performance objectives may vary from Participant to Participant and
between groups of Participants, and shall only be based upon any one or
more of the following performance criteria, any combination and/or
specifics of which shall be determined by the Committee as it may deem
appropriate: (i) stock price; (ii) market share; (iii) sales;
(iv) earnings per share; (v) operating cash flow; (vi) free cash flow;
(vii) net income or loss; (viii) net income or loss adjusted to exclude
specified items such as gain or losses from extraordinary or non-recurring
items and non-cash expense and income, and before specified expense items
such as interest, depreciation, amortization and income taxes; (ix)
EBITDA; (x) revenues; (xi) return on equity or assets; or (xii) cost
control. Performance objectives may be in respect to the performance of
the Company and its subsidiaries or a particular subsidiary or division
and may be expressed in absolute terms or in relation to another company
or companies or a division thereof. Performance Periods may overlap and
Participants may participate simultaneously with respect to Performance
Shares for which different Performance Periods are prescribed.
(b) At the beginning of each Performance Period, (but in any event prior to
the earlier of the elapsing of 90 days or 25% of such Performance Period)
the Committee shall determine and set forth in writing for each
Participant or group of Participants the number of Performance Shares or
the dollar value of the Performance Share Awards made and the applicable
performance objectives, each of which may be fixed or may be expressed in
terms of a progression within a specified range. At the end of each
Performance Period, the Committee shall certify in writing the extent to
which the prescribed performance objectives have been satisfied. An
Eligible Employee shall be eligible to be awarded, in any calendar year,
Performance Share Awards up to the maximum number of shares contemplated
in Section 4(e) and shall also be eligible to be awarded Performance Share
Awards denominated in dollars subject to a maximum limitation of $500,000
for all such dollar-denominated Awards granted to any Eligible Employee in
any calendar year.
(c) If during the course of a Performance Period there shall occur significant
events as determined by the Committee, including, but not limited to, a
reorganization of the Company, which the Committee expects to have a
substantial effect on a performance objective during such period, the
Committee may revise such objective.
(d) If a Participant terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, or a
significant event, as determined by the Committee, that Participant shall
be entitled to payment in settlement of each Performance Share for which
the Performance Period was prescribed (i) based upon the performance
objectives satisfied at the end of such period and (ii) prorated for the
portion of the Performance Period during which the Participant was
employed by any Participating
B-1
<PAGE>
Company; provided, however, the Committee may provide for an earlier
payment in settlement of such Performance Share in such amount and under
such terms and conditions as the Committee deems appropriate or desirable
with the consent of the Participant. If a Participant terminates service
with all Participating Companies during a Performance Period for any other
reason, then such Participant shall not be entitled to any payment with
respect to that Performance Period unless the Committee shall otherwise
determine.
(e) Each Performance Share may be paid in whole shares of Stock, including
Restricted Stock or Deferred Stock (together with any cash representing
fractional shares of Stock), or cash, or a combination of Stock and cash
either as a lump sum payment or in annual installments, all as the
Committee shall determine, at the time of grant of the Performance Share
or otherwise, commencing as soon as practicable after the end of the
relevant Performance Period. Any dividends or distributions payable on
Performance Shares (or the equivalent as specified in the grant), other
than cash dividends representing the periodic distribution of profits
which shall be retained by the Company, shall be paid over to the
Participant when and if payment is made of the underlying Performance
Shares, unless the grant provides otherwise.
Except as otherwise provided in this Section 6, no Performance Shares
awarded to Participants shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Performance Period unless
the Committee determines that an Award may be transferred to a Family
Member or Family Trust or other transferee.
A COPY OF THE PLAN AS AMENDED MAY BE OBTAINED FROM THE COMPANY AS DESCRIBED
IN THE PROXY STATEMENT.
B-2
<PAGE>
CITIZENS UTILITIES COMPANY
1997 ANNUAL MEETING OF STOCKHOLDERS
10:00 A.M., EASTERN TIME, MAY 22, 1997
THE SAGAMORE
BOLTON LANDING, NEW YORK
ADVANCE REGISTRATION FORM
(FOR REGISTERED STOCKHOLDERS ONLY)*
Please send your completed and signed proxy form in the enclosed envelope.
Include this Advance Registration Form in the envelope if you plan to attend
or send a representative to the Annual Meeting.
Attendance at the Annual Meeting is limited to Citizens' stockholders, or
their authorized representative, and guests and employees of the Company.
CUT OFF AT DOTTED LINE.
- -------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Stockholder's
Name __________________________________________________________________________
Address _______________________________________________________________________
_______________________________________________________________________________
City _____________________________________________ State ________ Zip _________
I am a Citizens stockholder. My representative at the Annual Meeting will be:
- -------------------------------------------------------------------------------
(Admission card will be returned c/o the stockholder's address.)
- -------------------------------------------------------------------------------
Stockholder's Signature
* if your shares are held in the name of any intermediary, please see
instructions in the Chairman's letter (front cover of this proxy statement)
<PAGE>
CITIZENS UTILITIES COMPANY 3RD CLASS
CORPORATE BENEFITS DEPARTMENT
HIGH RIDGE PARK BULK RATE
STAMFORD, CT 06905 US POSTAGE PAID
PERMIT # 20
SANFORD, ME
04073
MAIL TO:
Please complete both sides of the Proxy Card,
detach and return in the enclosed envelope.
CITIZENS UTILITIES
DETACH PROXY CARD HERE
CITIZENS UTILITIES 401(K) SAVINGS PLAN
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby authorizes and directs PNC Bank, as the Trustee under the
Citizens Utilities 401(k) Savings Plan, to vote all shares of stock allocable to
the undersigned under the provisions of the Plan and to appoint John L.
Schroeder, Robert D. Siff and Robert A. Stanger, or any of them, with full power
of substitution, proxies to vote at the Annual Meeting of Stockholders of
Citizens Utilities Company (the "Company") to be held on Thursday, May 22, 1997,
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.
Signature:_____________________________
Date:____________________________, 1997
Note: Please sign exactly as name
appears hereon. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such.
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"
ALL DIRECTORS, "FOR" PROPOSAL 2, "FOR" PROPOSAL 3 AND "FOR" PROPOSAL 4.
<PAGE>
Proposal 1
- ---------------------------
Election of Directors
For Withheld
For, except vote withheld from the following Nominee(s)
___________________________
Nominees:
Norman I. Botwinik
Aaron I. Fleischman
James C. Goodale
Stanley Harfenist
Andrew N. Heine
Elwood A. Rickless
John L. Schroeder
Robert D. Siff
Robert A. Stanger
Charles H. Symington, Jr.
Edwin Tornberg
Claire L. Tow
Leonard Tow
Proposal 2
- ---------------------------
Approve an amendment to the 1992 Employee Stock Purchase Plan to increase the
number of shares available for sale under the Plan to 6,000,000.
For Against Abstain
Proposal 3
- ---------------------------
Approve an amendment to the Non-Employee Directors' Deferred Fee Equity Plan to
provide for grants of stock options to non-employee directors.
For Against Abstain
Proposal 4
- ---------------------------
Approve an amendment to the 1996 Equity Incentive Plan to provide for
performance criteria and dollar limits on certain awards.
For Against Abstain
<PAGE>
CITIZENS UTILITIES 3RD CLASS
CORPORATE BENEFITS DEPARTMENT
HIGH RIDGE PARK BULK RATE
STAMFORD, CT 06905 US POSTAGE PAID
PERMIT # 20
SANFORD, ME
04073
MAIL TO:
Please complete both sides of the Proxy Card,
detach and return in the enclosed envelope.
CITIZENS UTILITIES
DETACH PROXY CARD HERE
CUC 401(K) EMPLOYEE BENEFIT PLAN
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby authorizes and directs PNC Bank, as the Trustee under the
CUC 401(k) Employee Benefit Plan, to vote all shares of stock allocable to the
undersigned under the provisions of the Plan and to appoint John L. Schroeder,
Robert D. Siff and Robert A. Stanger, or any of them, with full power of
substitution, proxies to vote at the Annual Meeting of Stockholders of Citizens
Utilities Company (the "Company") to be held on Thursday, May 22, 1997, 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.
Signature:__________________________________
Date: _____________________________________,1997
Note: Please sign exactly as name appears
hereon. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
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"
all directors, "For" Proposal 2, "For" Proposal 3 and "For" Proposal 4.
<PAGE>
Proposal 1
- ---------------------------
Election of Directors
For Withheld
For, except vote withheld from the following Nominee(s)
__________________________
Nominees:
Norman I. Botwinik
Aaron I. Fleischman
James C. Goodale
Stanley Harfenist
Andrew N. Heine
Elwood A. Rickless
John L. Schroeder
Robert D. Siff
Robert A. Stanger
Charles H. Symington, Jr.
Edwin Tornberg
Claire L. Tow
Leonard Tow
Proposal 2
- -------------------------
Approve an amendment to the 1992 Employee Stock Purchase Plan to increase the
number of shares available for sale under the Plan to 6,000,000.
For Against Abstain
Proposal 3
- -------------------------
Approve an amendment to the Non-Employee Directors' Deferred Fee Equity Plan to
provide for grants of stock options to non-employee directors.
For Against Abstain
Proposal 4
- -------------------------
Approve an amendment to the 1996 Equity Incentive Plan to provide for
performance criteria and dollar limits on certain awards.
For Against Abstain
<PAGE>
C/O ILLINOIS STOCK TRANSFER CO. 3RD CLASS
223 W. JACKSON BLVD - SUITE 1210
CHICAGO, ILL. 60606 BULK RATE
US POSTAGE PAID
PERMIT # 20
SANFORD, ME
04073
MAIL TO:
Please complete both sides of the Proxy Card,
detach and return in the enclosed envelope.
CITIZENS UTILITIES
DETACH PROXY CARD HERE
CITIZENS UTILITIES COMPANY
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints John L. Schroeder, Robert D. Siff and Robert A.
Stanger, or any of them, with full power of substitution, proxies to vote at the
Annual Meeting of Stockholders of Citizens Utilities Company (the "Company") to
be held on Thursday, May 22, 1997, 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.
Signature:__________________________________
Signature:__________________________________
Date: _________________________________,1997
Note: Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
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"
all directors, "For" Proposal 2, "For" Proposal 3 and "For" Proposal 4.
<PAGE>
Proposal 1
- ---------------------------
Election of Directors
For Withheld
For, except vote withheld from the following Nominee(s)
__________________________
Nominees:
Norman I. Botwinik
Aaron I. Fleischman
James C. Goodale
Stanley Harfenist
Andrew N. Heine
Elwood A. Rickless
John L. Schroeder
Robert D. Siff
Robert A. Stanger
Charles H. Symington, Jr.
Edwin Tornberg
Claire L. Tow
Leonard Tow
Proposal 2
- -------------------------
Approve an amendment to the 1992 Employee Stock Purchase Plan to increase the
number of shares available for sale under the Plan to 6,000,000.
For Against Abstain
Proposal 3
- -------------------------
Approve an amendment to the Non-Employee Directors' Deferred Fee Equity Plan to
provide for grants of stock options to non-employee directors.
For Against Abstain
Proposal 4
- -------------------------
Approve an amendment to the 1996 Equity Incentive Plan to provide for
performance criteria and dollar limits on certain awards.
For Against Abstain
<PAGE>
Composite Copy
CITIZENS UTILITIES COMPANY
1992 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED BY
AMENDMENT NOS. 1 AND 2
1. Purpose
The purpose of the 1992 Employee Stock Purchase Plan (the "Plan") is to
enable eligible employees of Citizens Utilities Company (the "Company") to
acquire proprietary interests in the Company through the ownership of common
stock of the Company. The Company believes that employees who participate in the
Plan will have a closer identification with the Company by virtue of their
ability as stockholders to participate in the Company's growth and earnings. It
is the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986 (the
"Code"). Accordingly, the provisions of the Plan shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.
2. Definitions
The following terms have the following meanings:
(a) "Common Stock" shall mean shares of the $.25 par value Series B common
stock of the Company.
(b) "Subsidiary" shall mean any present or future corporation which is or
would be a "subsidiary corporation" of the Company as the term is defined in
Section 424 of the Code.
(c) "Eligible Employee" shall mean a person regularly employed by the
Company or a Subsidiary on the effective date of any offering of stock pursuant
to the Plan; provided, however, that no person shall be considered an Eligible
Employee unless that person is customarily employed by the Company or a
Subsidiary for more than twenty hours per week and more than five months in a
calendar year; and provided further, that the Board of Directors may exclude the
employees of any specified Subsidiary from any offering under the Plan.
(d) "Purchase Period" shall mean the period set by the Committee for each
offering commencing on the date on which options are granted pursuant to such
offering to participating Eligible Employees and ending on the last date on
which installment payments for stock to be purchased under the Plan for such
offering may be made.
(e) "Option" shall mean the right granted to Eligible Employees to purchase
the Company's Common Stock under an offering made under the Plan.
<PAGE>
(f) "Subscription Period" shall mean that period of time prescribed in any
offer of stock under the Plan beginning on the first day employees may elect to
purchase shares and ending on the last day such elections to purchase are
authorized to be received and accepted.
(g) "Average Market Price" shall mean the mean between the high and low
prices for the Company's shares of Common Stock on the New York Stock Exchange
as reported by such exchange, or if the Company's Common Stock is not traded on
the New York Exchange but is traded on the American Stock Exchange, as reported
by such exchange, or if the Company's Common Stock is not traded on such
exchanges, the high and low prices for the Company's shares of Common Stock in
the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or other quotation
service.
(h) "Annual Pay" shall mean an amount equal to the annual basic rate of pay
of an Eligible Employee as determined from the payroll records of the Company or
a Subsidiary on the effective date of an offer of stock made pursuant to the
Plan.
3. Shares Reserved For Plan
The shares of the Company's Common Stock to be sold to Eligible Employees
under the Plan may, at the election of the Company, be either treasury shares or
shares originally issued for such purpose. The maximum number of shares of
Common Stock which shall be reserved and made available for sale under the Plan
shall be 6,000,000. The shares reserved may be issued and sold pursuant to one
or more offerings under the Plan. With respect to each offering, the Committee
referred to in Paragraph 4 will specify the number of shares to be made
available, the length of the Subscription Period, the length of the Purchase
Period and such other terms and conditions not inconsistent with the Plan as may
be appropriate. In no event shall the Subscription Period and the Purchase
Period together exceed 27 months for any offering.
In the event of a subdivision or combination of the Company's shares,
including a stock dividend, stock split or similar event, the maximum number of
shares which may thereafter be issued and sold under the Plan and the number of
shares under elections to purchase at the time of such subdivision or
combination will be proportionately increased or decreased, the terms relating
to the price at which shares under elections to purchase will be sold will be
appropriately adjusted, and such other action will be taken as in the opinion of
the Board of Directors is appropriate under the circumstances. In case of a
reclassification or other change in the Company's shares, the Board of Directors
also will make appropriate adjustments.
4. Administration Of The Plan
The Plan shall be administered by a Committee consisting of not less than
three directors of the Company who shall be appointed by the Board of Directors.
Each Committee member shall be a "disinterested person" as such term is defined
in Rule
2
<PAGE>
16b-3 of the rules of the Securities and Exchange Commission. The Committee
shall be vested with full authority to make, administer and interpret such rules
and regulations regarding the Plan or to make amendments to the Plan itself as
it may deem advisable; provided, however, that no such amendment shall increase
the maximum number of shares available for sale under the Plan, otherwise than
as required to reflect a subdivision or a combination as provided in Paragraph 3
hereof, nor shall any such amendment act to expand the persons eligible to
participate in the Plan beyond the employees of the Company and its
Subsidiaries. Any determination, decision, or action of the Committee in
connection with the construction, interpretation, administration, or application
of the Plan shall be binding upon all Eligible Employees and all persons
claiming under an Eligible Employee.
5. Participation In The Plan
Options to purchase the Company's Common Stock under the Plan shall be
granted only to Eligible Employees. Options to purchase shares shall be granted
to all Eligible Employees of the Company or any of its subsidiaries whose
Eligible Employees are granted such rights; provided, however, that the
Committee may determine that any offering of Common Stock under the Plan will
not be extended to highly compensated employees of the Company or its
Subsidiaries as defined in Code Section 414(q), and provided further that in no
event may an employee be granted an option under this Plan if such employee,
immediately after the option is granted, owns stock possessing 5% or more of the
total combined voting power or value of all classes of capital stock of the
Company or of a parent or subsidiary corporation, all within the meaning of
Section 423(b) of the Code. For the purpose of determining stock ownership under
this paragraph, the rules of Section 424(d) of the Code shall apply and stock
which the employee may purchase under all outstanding options shall be treated
as stock owned by the employee. For each Purchase Period the Committee shall
determine the maximum number of shares which may be purchased by an Eligible
Employee.
6. Purchase Price
The purchase price for shares of Common Stock purchased pursuant to the
Plan (except as otherwise provided herein) will be the lesser of 85% of the
Average Market Price on the first day of the Purchase Period or 85% of the
Average Market Price on the last day of the Purchase Period, or if no shares
were traded on that day, on the last day prior thereto on which shares were
traded.
7. Method Of Payment
Payment for shares purchased pursuant to the Plan shall be made in
installments through payroll deductions, with no right of prepayment except as
provided in Paragraphs 15 and 16 hereof. Each Eligible Employee electing to
purchase shares will authorize the Company to withhold a designated amount from
the Employee' s regular weekly, biweekly, semimonthly or monthly pay for each
payroll period during the Purchase Period. All such payroll deductions made for
an Eligible
3
<PAGE>
Employee shall be credited to the Employee's account under the Plan. At the end
of the Purchase Period, each Eligible Employee shall receive in cash the balance
remaining in the Employee's account, if any, after the purchase of the number of
shares covered by the option to purchase shares.
8. Employee's Election To Purchase-Grant Of Options
In order to participate in the Plan, an Eligible Employee must sign an
election to purchase shares on a form provided by the Company stating the
Eligible Employee's desire to purchase shares under the Plan and showing the
amount which the Eligible Employee elects to have withheld from the Employee's
pay for such payroll period during the Purchase Period designated by the
Committee. Before each new Purchase Period designated by the Committee, each
Eligible Employee shall have the right to either continue the payroll
withholding in effect from the previous Purchase Period or increase or decrease
such withholding, subject to the limitations of the Plan or such other
limitations set by the Committee for such offering. If an Eligible Employee
fails to make a new election within the period specified by the Committee for
such new offering, the Eligible Employee shall be deemed to have elected to
continue the same payroll withholding that he or she elected for the previous
Purchase Period. The election to purchase shares must be delivered on or
before the last day of the Subscription Period to the person or office
designated to receive and accept such elections. Subject to the limitations set
forth in Paragraph 9, each participating Eligible Employee shall be granted an
option to purchase a number of shares determined by the following procedure:
Step 1 Determine the aggregate amount which will be withheld from the Eligible
Employee's pay during the Purchase Period;
Step 2 Determine the figure which represents 85% of the lower of the Average
Market Price on the first day of the Purchase Period or the last day of
the Purchase Period;
Step 3 Divide the figure determined in Step 1 by the figure determined in Step
2 and round off the quotient to the nearest whole number. This figure
shall be the number of shares which the Eligible Employee may purchase
pursuant to the option, subject to the limitations set forth in
Paragraph 9(a), (b), (c) and (d).
The date on which the option is granted to each participating Eligible
Employee shall be the first day of the Purchase Period. Notice that an option
has been granted shall be given to each participating Eligible Employee and
shall show the amount to be withheld periodically from such Eligible Employee's
pay for each payroll period during the Purchase Period.
In the event the total maximum number of shares resulting from all
elections to purchase under any offering of shares under the Plan exceeds the
number of shares offered, the Company reserves the right to reduce the maximum
number of
4
<PAGE>
shares which Eligible Employees may purchase pursuant to their elections to
purchase, to allot the shares available in such manner as it shall determine,
but generally pro rata to subscriptions received, and to grant options to
purchase only for such reduced number of shares.
All shares included in any offering under the Plan in excess of the
total number of shares which all Eligible Employees elect to purchase and all
shares with respect to which elections to purchase are canceled as provided in
Paragraph 12 shall continue to be reserved for the Plan and shall be available
for inclusion in any subsequent offering under the Plan.
9. Limitations On Number Of Shares Which May Be Purchased
The following limitations shall apply with respect to the number of
shares which may be purchased by each Eligible Employee who elects to
participate in an offering under the Plan.
(a) No Eligible Employee may purchase shares during any one offering
pursuant to the Plan for an aggregate purchase price (which shall be computed on
an annual basis in the event the Purchase Period is more or less than 12 months)
in excess of 20% of the Employee's Annual Pay; and
(b) No Eligible Employee shall be granted an option to purchase shares
under the Plan if of such option, immediately after the option is granted, would
violate the 5% limitation of the Code described in the second proviso contained
in Paragraph 5 hereof; and
(c) No Eligible Employee may be granted an option to purchase shares
which permits the Employee's rights to purchase stock under the Plan and all
other stock option plans of the Company and of any Subsidiary pursuant to
Section 42 Code to accrue at a rate which exceeds in any one calendar year
$25,000 of the fair market value of such stock (determined on the date the
option to purchase is granted).
(d) No Eligible Employee may purchase more shares pursuant to an option
granted for a Purchase Period than the maximum for an Eligible Employee
established by the Committee for such Purchase Period.
An Eligible Employee may elect to purchase less than the total number
of shares which he or she is entitled to elect to purchase.
10. Rights As Stockholder
An Eligible Employee will become a stockholder of the Company with
respect to shares for which payment has been completed at the close of business
on the last business day of the Purchase Period or on such earlier date on which
the Eligible Employee has completed payment of the purchase plan shares. An
Eligible
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Employee will have no rights as a stockholder with respect to shares under an
election to purchase shares until the Employee has become a stockholder as
provided above. A certificate for the shares purchased will be issued as soon as
practicable after an Eligible Employee becomes a stockholder.
11. Rights To Purchase Shares Not Transferable
All rights of an Eligible Employee under the Plan may be exercised only
by the Eligible Employee during his or her lifetime. An Eligible Employee's
rights under an election to purchase shares may not be sold, pledged, assigned
or transferred in any manner otherwise than by will or the laws of descent and
distribution. If this provision is violated the right of the Eligible Employee
to purchase shares shall terminate and the only right remaining under such
Eligible Employee's election to purchase will be to have paid over to the person
entitled thereto the amount then credited to the Eligible Employee's account.
12. Cancellation Of Election To Purchase
An Eligible Employee who has elected to purchase shares may cancel that
election in its entirety or may partially cancel that election by reducing the
amount which he or she has authorized the Company to withhold from his or her
pay for each payroll period during the Purchase Period. Any such full or partial
cancellation shall be effective upon the delivery by the Eligible Employee of
written notice of cancellation to the office or person designated to receive
elections. Such notice of cancellation must be so delivered before the close of
business on the last business day of the Purchase Period. If an Eligible
Employee partially cancels an original election by reducing the amount
authorized to be withheld from the Employee's pay, he or she shall continue to
make installment payments at the reduced rate for the remainder of the Purchase
Period. Only one partial cancellation may be made during a Purchase Period.
An Eligible Employee's rights upon the full or partial cancellation of
an election to purchase shares shall be limited to the following:
(a) The Employee may receive in cash, as soon as practicable after
delivery of the notice of cancellation, the amount then credited to the
Employee's account, except, in the case of a partial cancellation, the Employee
must retain in his or her account an amount equal to the amount of the new
payroll deduction times the number of payroll periods in the Purchase Period
through the date of cancellation, or
(b) The Employee may have the amount credited to the Employee's account
at the time the cancellation becomes effective applied to the purchase of the
number of shares such amount will then purchase at a purchase price equal to 85%
of the Average Market Price on the first day of the Purchase Period.
If option (b) is elected, installment payments must be continued for
the month in which the notice of cancellation is given. The cancellation and
purchase of
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shares will become effective at the close of business on the last day of
business of such month. The purchase price of the shares so purchased will be
85% of the Average Market Price on the first day of the Purchase Period. The
credit in an Employee's account shall be the aggregate of the amounts withheld
from the Employee's pay and any amounts paid pursuant to Paragraphs 13, 14, 15
and 16.
13. Leave Of Absence Or Layoff
An Eligible Employee purchasing stock under the Plan who is granted a
leave of absence (including a military leave) during the Purchase Period and
such absence is for a period of 90 days or less (or if for a period in excess of
90 days, the Employee's right of reemployment with the Company is guaranteed
either by statute or by contract) may during such period of absence make
payments in cash to the Company in amounts equal to what such payments would
have been pursuant to corresponding payroll deductions.
14. Effect Of Failure To Make Payments When Due
If in any payroll period, for any reason not set forth in Paragraph 13,
an Eligible Employee who has filed an election to purchase shares under the Plan
has no pay or the Employee's pay is insufficient (after other authorized
deductions) to permit deduction of the installment payment, such payment may be
made in cash at the time. If not so made, the Eligible Employee, when his or her
pay is again sufficient to permit the resumption of installment payments, must
pay in cash the amount of the deficiency in his or her account or arrange for
uniformly increased installment payments so that, assuming the maximum purchase
price per share, payment for the maximum number of shares covered by the
Employee's option will be completed in the last month of the Purchase Period. If
the Eligible Employee elects to make increased installment payments, he or she
may, nevertheless, at any time make up the remaining deficiency by a lump sum
payment.
Subject to the above and other provisions of the Plan permitting
postponement, the Company may treat the failure by an Eligible Employee to make
any payment as a cancellation of his or her election to purchase shares. Such
cancellation will be effected by mailing notice to the Employee at the
Employee's last known business or home address. Upon such mailing, the
Employee's only right will be to receive in cash the amount credited to his or
her account.
15. Retirement
If an Eligible Employee retires in accordance with Company policy and
has an election to purchase shares in effect at the time of the Employee's
retirement, he or she may, within three months after the date of retirement (but
in no event later than the end of the Purchase Period), by delivering written
notice to the office or person designated to receive elections, elect to:
(a) Complete the remaining installment payments in cash,
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(b) Make a lump sum payment in the amount of any deficiency for the
remaining portion of the Purchase Period, or
(c) Cancel the election to purchase shares in accordance with the
provisions of Paragraph 12.
If no such notice is given within such period, the election will be
deemed canceled as of the date of retirement and the only right of the Eligible
Employee will be to receive in cash the amount credited to his or her account.
16. Death
If an Eligible Employee, including a retired Eligible Employee, dies
and has an election to purchase shares in effect at the time of death, the legal
representative of the deceased Eligible Employee may, within three months from
the date of death (but in no event later than the end of the Purchase Period),
by delivering written notice to the office or person designated to receive
elections, elect to:
(a) Complete the remaining installment payments in cash,
(b) Make a lump sum payment in the amount of any deficiency for the
remaining portion of the Purchase Period, or
(c) Cancel the election to purchase shares in accordance with the
provisions of Paragraph 12.
If no such notice is given within such period, the election will be
deemed canceled as of the date of death, and the only right of such legal
representative will be to receive in cash the amount credited to the deceased
Eligible Employee's account.
17. Termination Of Employment Other Than For Retirement Or Death
If an Eligible Employee is terminated for any reason other than
retirement or death prior to the end of the Purchase Period, the Employee's
election to purchase shall thereupon be deemed canceled as of the date on which
employment ended. In such an event, no further payments under such election will
be permitted, and the Eligible Employee's only right will be to receive in cash
the amount credited to his or her account.
18. Application Of Funds
All funds received by the Company in payment for shares to be purchased
under the Plan and held at any time by the Company may be used for any valid
corporate purpose.
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19. Refund of Funds Received
In the event, that after the Average Market Price on the last day of
the Purchase Period is known, the number of shares made available by the
Committee for the Purchase Period ("Designated Shares") is less than the number
of shares elected to be purchased by the participating Eligible Employees under
the Plan with the amounts credited to their accounts as of the last day of the
Purchase Period the Company shall as soon as is administratively possible:
(a) Allocate the Designated Shares on a pro rata basis among the
participating Eligible Employees in proportion to the number of shares otherwise
purchasable by each participating Eligible Employee prior to the allocation
contemplated by this Paragraph; and
(b) Return to each participating Eligible Employee any amount credited
to their accounts which is not utilized to purchase shares. Interest at a rate
to be set by the Committee shall be paid on all amounts returned to Eligible
Employees pursuant to this Paragraph 19(b) only. For the purpose of computing
interest, it will be assumed that shares were purchased with the earlier credits
or payments and that all to-be-returned funds resulted from payments closest to
the end of the Purchase Period.
20. Governmental Approvals Or Consents
The Plan shall not be effective unless it is approved by the
stockholders of the Company within 12 months after the Plan is proposed for
approval by the Board of Directors of the Company. The Plan and any offerings
and sales to Eligible Employees under it are subject to any governmental
approvals or consents that may be or become applicable in connection therewith.
The Board of Directors of the Company may make such changes in the Plan and
include such terms in any offering under the Plan as may be necessary or
desirable, in the opinion of counsel, so that the Plan will comply with the
rules and regulations of any governmental authority and so that Eligible
Employees participating in the Plan will be eligible for tax benefits under the
United States Internal Revenue Code or the laws of any state.
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COMPOSITE COPY
CITIZENS UTILITIES COMPANY
1996 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Citizens Utilities Company 1996 Equity Incentive Plan
(the "Plan") is to provide compensation incentives for high levels of
performance and productivity by employees of the Company. The Plan is intended
to strengthen the Company's existing operations and its ability to attract and
retain outstanding employees upon whose judgment, initiative and efforts the
continued success, growth and development of the Company is dependent, as well
as encourage such employees to have a greater personal financial investment in
the Company through ownership of its common stock.
SECTION 2. DEFINITIONS
When used herein, the following terms have the following meanings:
(a) "AFFILIATE" means any company controlled by the Company, controlling
the Company or under common control with the Company.
(b) "AWARD" means an award granted to any Eligible Employee in accordance
with the provisions of the Plan.
(c) "AWARD AGREEMENT" means the written agreement or certificate
evidencing the terms of the Award granted to an Eligible Employee
under the Plan.
(d) "BENEFICIARY" means the beneficiary or beneficiaries designated
pursuant to Section 11 to receive the amount, if any, payable under
the Plan upon the death of an Eligible Employee.
(e) "BOARD" means the Board of Directors of the Company.
(f) A "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events with respect to the Company.
(i) (A) a third "person" (other than an employee benefit plan
of the Company), including a "group", as those terms are used in
Section 13(d) of the Exchange Act, is or becomes the beneficial owner
(as that term is used in said Section 13(d)) of stock having twenty
percent (20%) or more of the total number of votes that may be cast
for the election of members of the Board or twenty percent (20%) or
more of the fair market value of the Company's issued and outstanding
stock, or (B) the receipt by the Company of any report, schedule,
application or other document filed with a state or federal
governmental agency or commission disclosing such ownership or
proposed ownership.
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(ii) approval by the stockholders of the Company of any (1)
consolidation or merger or sale of assets of the Company in which the
Company is not the continuing or surviving corporation or pursuant to
which shares of stock the Company would be converted into cash,
securities or other property, other than a consolidation or merger of
the Company in which holders of its common stock immediately prior to
the consolidation or merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately
after the consolidation or merger as they held immediately before, or
(2) sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
or businesses of the Company;
(iii) as a result of, or in connection with, any cash tender
offer, exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who are members of the
Board before the Transaction shall cease to constitute a majority of
the Board or any successor to the Company.
(g) "CITIZENS PENSION PLANS" means any of the Company's non-contributory
defined-benefit qualified retirement plans in effect and applicable on
the date in question.
(h) "CODE" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to Sections of the Code are to such
Sections as they are currently designated and reference to such
Sections shall include the provisions thereof as they may from time to
time be amended or renumbered as well as any successor provisions and
any applicable regulations.)
(i) "COMPANY" means Citizens Utilities Company, and its successors and
assigns.
(j) "COMMITTEE" means the Compensation Committee of the Board of Directors
of the Company.
(k) "DEFERRED STOCK" means Stock credited to an Eligible Employee under
the Plan subject to the requirements of Section 8 and such other terms
and restrictions as the Committee deems appropriate or desirable.
(l) "EFFECTIVE DATE" means May 23, 1996.
(m) "ELIGIBLE EMPLOYEE" means an employee of any Participating Company
whose responsibilities and decisions in the judgment of the Committee
foster the management, growth, performance or profitability of any
Participating Company. Where required by the context, "Eligible
Employee" includes an individual who has been granted an Award but is
no longer an employee of any Participating Company.
(n) "FAIR MARKET VALUE" means, unless another reasonable method for
determining fair market value is specified by the Committee, the
average of the high and low sales prices of a share of the appropriate
Series of Stock as reported by the New York Stock Exchange (or if such
shares are listed on another national stock exchange or national
quotation system, as reported or quoted by such exchange or system) on
the
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date in question or, if no such sales were reported for such date, for
the most recent date on which sales prices were quoted.
(o) "FAMILY MEMBER" AND "FAMILY TRUST" shall have the same meanings as are
employed from time to time by the SEC for the purpose of the exception
to the rules promulgated by the SEC which limit transferability of
stock options and stock awards for purposes of Section 16 of the
Exchange Act and/or the use of Form S-8 under the Securities Act. For
the purposes of the Plan, the phrases "Family Member" and "Family
Trust" shall be further limited, if necessary, so that neither the
transfer to a Family Member or Family Trust nor the ability of a
Participant to make such a transfer shall have adverse consequences to
the Company or a Participant by reason of Section 162(m) of the Code.
(p) "OPTION" means an option to purchase Stock, including Restricted Stock
or Deferred Stock, if the Committee so determines, subject to the
applicable provisions of Section 5 and awarded in accordance with the
terms of the Plan and which may be an incentive stock option qualified
under Section 422 of the Code or a nonqualified stock option.
(q) "PARTICIPATING COMPANY" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for incentive stock
options only, "Participating Company" means the Company, any
corporation or other entity which at the time such option is granted
under the Plan qualifies as a subsidiary of the Company under the
definition of "subsidiary corporation" contained in Section 425(f) of
the Code.
(r) "PARTICIPANT" means an Eligible Employee who has been or is being
granted an Award. When required by the context, the definition of
Participant shall include an individual who has been granted an Award
but is no longer an employee of any Participating Company.
(s) "PERFORMANCE SHARE" means a performance share subject to the
requirements of Section 6 and awarded in accordance with the terms of
the Plan.
(t) "PLAN" means the Citizens Utilities Company Equity Incentive Plan, as
the same may be amended, administered or interpreted from time to
time.
(u) "RESTRICTED STOCK" means Stock delivered under the Plan subject to the
requirements of Section 7 and such other terms and restrictions as the
Committee deems appropriate or desirable.
(v) "SAR" means a stock appreciation right subject to the appropriate
requirements under Section 5 and awarded in accordance with the terms
of the Plan.
(w) "SEC" means the Securities and Exchange Commission. "Exchange Act"
means the Securities Exchange Act of 1934. "Rule 16b-3" shall mean
such rule promulgated by the SEC under the Exchange Act and, unless
the circumstances require otherwise, shall include any other rule or
regulation adopted under Sections 16(a) or 16(b) of the Exchange Act
relating to compliance with, or an exemption from, Section 16(b).
"Securities Act" means the Securities Act of 1933. Reference to any
section of the
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Securities Act, Exchange Act or any rule promulgated thereunder shall
include any successor section or rule.
(x) "STOCK" means the Series A or Series B Common Stock of the Company and
any successor Common Stock.
(y) "TERMINATION WITHOUT CAUSE" means termination of employment with a
Participating Company by the employer for any reason other than death,
Total Disability or termination for deliberate, willful or gross
misconduct, and also means voluntary termination of employment by
employee.
(z) "TOTAL DISABILITY" means the complete and permanent inability of an
Eligible Employee to perform all of his or her duties under the terms
of his or her employment with any Participating Company, as determined
by the Committee upon the basis of such evidence, including
independent medical reports and data, as the Company deems appropriate
or necessary.
SECTION 3. SHARES SUBJECT TO THE PLAN
(a) Subject to adjustment as provided in Section 14 hereof, 11,300,000
shares of Stock are hereby reserved for issuance pursuant to Awards
under the Plan. Shares reserved for issuance under the Plan shall be
made available either from authorized and unissued shares, shares held
by the Company in its treasury or reacquired shares. The term
"issued" shall include all deliveries to a Participant of shares of
Stock pursuant to Awards under the Plan. The Committee may, in its
discretion, decide to award other shares issued by the Company that
are convertible into Stock or make such shares subject to purchase by
an option, in which event the maximum number of shares of Stock into
which such shares may be converted shall be used in applying the
aggregate share limit under this Section 3 and all provisions of the
Plan relating to Stock shall apply with full force and effect with
respect to such convertible shares.
(b) If, for any reason, any shares of Stock awarded or subject to purchase
or issuance under the Plan are not delivered or are reacquired by the
Company for reasons including, but not limited to, a forfeiture of
Restricted Stock or Deferred Stock or termination, expiration or a
cancellation of an Option, SAR or a Performance Share, such shares of
Stock shall be deemed not to have been issued pursuant to Awards under
the Plan, or to have been subject to the Plan; provided, however, that
the counting of shares of Stock subject to Awards granted under the
Plan against the number of shares available for further Awards shall
in all cases conform to the requirements of Rule 16b-3 under the
Exchange Act.
(c) With respect to any Award constituting an Option or SAR granted to any
Eligible Employee who is a "covered employee" as defined in Section
162(m) of the Code that is canceled, the number of shares of Stock
originally subject to such Award shall continue to count in accordance
with Section 162(m) of the Code.
(d) Unless the Committee otherwise determines, shares of Stock received by
the Company in connection with the exercise of Options by delivery of
shares or in connection with the payment of withholding taxes shall
reduce the number of shares deemed to have
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been issued pursuant to Awards under the Plan for the limit set forth
in Section 3(a) hereof.
SECTION 4. GRANT OF AWARDS AND AWARD AGREEMENTS
(a) Subject to and in furtherance of the provisions of the Plan, the
Committee shall (i) determine and designate from time to time those
Eligible Employees or groups of Eligible Employees to whom Awards are
to be granted; (ii) grant Awards to Eligible Employee; (iii) determine
the form or forms of Award to be granted to any Eligible Employee;
(iv) determine the amount or number of shares of Stock, including
Restricted Stock or Deferred Stock if the Committee so determines,
subject to each Award; (v) determine the terms and conditions (which
need not be identical) of each Award; (vi) determine the rights of
each Participant after employment has terminated and the periods
during which such rights may be exercised; (vii) establish and modify
performance objectives; (viii) determine whether and to what extent
Eligible Employees shall be allowed or required to defer receipt of
any Awards or other amounts payable under the Plan to the occurrence
of a specified date or event; (ix) determine the price at which shares
of Stock may be offered under each Award which price may, except in
the case of Options, be zero; (x) permit cashless exercise of Options
and other Awards of a sale, loan or other nature covering exercise
prices and/or income taxes; (xi) interpret, construe and administer
the Plan and any related Award Agreement and define the terms employed
therein; and (xii) make all of the determinations necessary or
advisable with respect to the Plan or any Award granted thereunder.
Awards granted to different Eligible Employees or Participants need
not be identical and, in addition, may be modified in different
respects by the Committee.
(b) Each Award granted under the Plan shall be evidenced by a written
Award Agreement, in a form approved by the Committee. Such agreement
shall be subject to and incorporate the express terms and conditions,
if any, required under the Plan or as required by the Committee for
the form of Award granted and such other terms and conditions as the
Committee may specify.
(c) The Committee may modify or amend any Awards (by cancellation and
regrant or substitution of Awards or otherwise and with terms and
conditions more or less favorable to Eligible Employees) or waive any
restrictions or conditions applicable to any Awards or the exercise or
realization thereof (except that the Committee may not undertake any
such modifications, amendments or waivers if the effect thereof, taken
as a whole, adversely and materially affects the rights of any
recipient of previously granted Awards without his or her consent,
unless such modification, amendment or waiver is necessary or
desirable for the continued validity of the Plan or its compliance
with Rule 16b-3 or any other applicable law, rule or regulation or
pronouncement or to avoid any adverse consequences under Section
162(m) of the Code or any requirement of a securities exchange or
association or regulatory or self-regulatory body).
(d) The Committee may permit the voluntary surrender of all or a portion
of any Award granted under the Plan to be conditioned upon the
granting of a new Award or may require such voluntary surrender as a
condition to a grant of a new Award. Any such new Award shall be
subject to such terms and conditions as are specified by the
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Committee at the time the new Award is granted, determined in
accordance with the provisions of the Plan without regard to the terms
of the surrendered Award.
(e) In any calendar year, no Eligible Employee may receive Awards covering
more than 500,000 shares of the Company's Stock. Such number of
shares shall be adjusted in accordance with Section 14 hereof.
SECTION 5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
(a) With respect to the Options and SARs, the Committee shall (i)
authorize the granting of incentive stock options, nonqualified stock
options, SARs or a combination of incentive stock options,
nonqualified stock options and SARs; (ii) determine the number of
shares of Stock subject to each Option or the number of shares of
Stock that shall be used to determine the value of a SAR; (iii)
determine whether such Stock shall be Restricted Stock or, with
respect to nonqualified stock options, Deferred Stock; (iv) determine
the time or times when and the manner in which each Option shall be
exercisable and the duration of the exercise period; and (v) determine
whether or not all or part of each Option may be canceled by the
exercise of a SAR; provided, however, that the aggregate Fair Market
Value (determined as of the date of Option is granted) of the Stock
(disregarding any restrictions in the case of Restricted Stock) for
which incentive stock options granted to any Eligible Employee under
this Plan may first become exercisable in any calendar year shall not
exceed $100,000. Notwithstanding the foregoing, to the extent that
Options intended to be incentive stock options granted to an Eligible
Employee under this Plan for any reason exceed such limit on
exercisability, such excess Options shall be treated as nonqualified
stock options as provided under Section 422(d) of the Code, but shall
in all other respects remain outstanding and exercisable in accordance
with their terms.
(b) The exercise period for a nonqualified stock option or SAR shall be 10
years from the date of grant or such shorter period as may be
specified by the Committee at the time of grant. The exercise period
for an incentive stock option and any related SAR, including any
extension which the Committee may from time to time decide to grant,
shall not exceed 10 years from the date of grant; provided, however,
that, in the case of an incentive stock option granted to an Eligible
Employee who, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company (a "10% Stockholder"), such period, including extensions,
shall not exceed five years from the date of grant.
(c) The Option or SAR price per share shall be determined by the Committee
at the time any Option is granted and shall be not less than the Fair
Market Value, or, in the case of an incentive stock option granted to
a 10% Stockholder and any related tandem SARs, 110 percent of the Fair
Market Value, disregarding any restrictions in the case of Restricted
Stock or Deferred Stock, on the date the Option is granted, as
determined by the Committee; provided, however, that such price shall
be at least equal to the par value of one share of Stock; provided
further, however, that in the discretion of the Committee in the case
of a nonstatutory stock option, the Option or SAR price per share may
be less than the Fair Market Value in the case of an Option or SAR
granted in order to induce an individual to become an employee of a
Participating Company or in the case of an Option or SAR granted to a
new or
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prospective employee in order to replace stock options or other long-
term incentives under a program maintained by a prior employer which
are forfeited or cease to be available to the new employee by reason
of his termination of employment with his prior employer.
(d) No part of any Option or SAR may be exercised (i) until the
Participant who has been granted the Award shall have remained in the
employ of a Participating Company for such period after the date on
which the Option or SAR is granted as the Committee may specify and
(ii) until achievement of such performance or other criteria, if any,
by the Participant, as the Committee may specify. A SAR and a related
Option shall commence to be exercisable no earlier than six months
following the date the Option and SAR are granted. The Committee may
further require that an Option or SAR become exercisable in
installments.
(e) Except as otherwise provided in the Plan, the purchase price of the
shares as to which an Option shall be exercised shall be paid to the
Company at the time of exercise either in cash or in such other
consideration as the Committee deems appropriate, including, Stock, or
with respect to nonqualified options, Restricted Stock or Deferred
Stock, already owned by the optionee (subject to any minimum holding
period specified by the Committee), having a total Fair Market Value,
as determined by the Committee, equal to the purchase price, or a
combination of cash and such other consideration having a total Fair
Market Value, as so determined, equal to the purchase price; provided,
however, that if payment of the exercise price is made in whole or in
part in the form of Restricted Stock or Deferred Stock, the Stock
received upon the exercise of the Option shall be Restricted Stock or
Deferred Stock, as the case may be, at least with respect to the same
number of shares and subject to the same restrictions or other
limitations as the Restricted Stock or Deferred Stock paid on the
exercise of the Option. The Committee may provide that a Participant
who delivers shares of Stock to the Company, or sells shares of Stock
and applies all of the proceeds, (a) to pay, or reimburse the payment
of the exercise price of shares of Stock acquired under an employee
stock option or SAR or to purchase shares of Stock under an employee
award or grant, an employee purchase plan or program or any other
stock-based employee benefit or incentive plan, (whether or not such
award or grant is under this Plan) and/or (b) to pay federal or state
income taxes resulting from the exercise of such options or SARs or
the purchase of shares of Stock pursuant to any such grant, award,
plan or program, shall receive a replacement Option under this Plan to
purchase a number of shares of Stock equal to the number of shares of
Stock delivered to the Company, or sold, the proceeds of the sale of
which are applied as aforesaid in this sentence. The replacement
Option shall have an exercise price equal to Fair Market Value on the
date of such payment and shall include such other terms and conditions
as the Committee may specify.
(f) (i) Upon the Termination Without Cause of a Participant holding
Options or SARs who is not immediately eligible to receive benefits
under the terms of the Citizens Pension Plans, his or her Options and
SARs may be exercised to the extent exercisable on the date of
Termination Without Cause, at any time and from time to time within
the three months of the date of such Termination. The Committee,
however, in its discretion, may provide that any Option or SAR of such
a Participant which is not exercisable by its terms on the date of
Termination Without Cause will become exercisable in accordance with a
schedule (which may extend the time limit
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referred to above, but not later than the final expiration date
specified in the Option or SAR Award Agreement) to be determined by
the Committee at any time during the period that any other Options or
SARs held by the Participant are exercisable.
(ii) Upon the death or Total Disability (during a Participant's
employment or within 3 months after termination of employment for any
reason other than termination for cause) of a Participant holding an
Option or SAR who is not immediately eligible to receive benefits
under the terms of the Citizens Pension Plans, his or her Options and
SARs may be exercised only to the extent exercisable at the time of
death or Total Disability (or such earlier termination of employment)
from time to time (A) in the event of death or Total Disability,
within the 12 months following death or Total Disability or (B) in the
event of such termination of employment followed by death or Total
Disability within the 3 months after such termination, within the 12
months following such termination. The Committee, however, in its
discretion, may provide that any Options or SAR's outstanding but not
exercisable at the date of the first to occur of death or, Total
Disability will become exercisable in accordance with a schedule
(which may extend the limits referred to above, but not to a date
later than the final expiration date specified in such Option or SAR
Award Agreement) to be determined by the Committee at any time during
the period while any other Option or SARs held by the Participant are
exercisable.
(iii) Upon death, Total Disability or Termination Without Cause of
a Participant holding an Option(s) or SAR(s) who is immediately
eligible to receive benefits under the terms of the Citizens Pension
Plans, his or her Options or SARs may be exercised in full as to all
shares or SAR rights covered by Options and SAR Award Agreements
(whether or not then exercisable) at any time, or from time to time,
but no later than the expiration date specified in such Option or SAR
Award Agreement as specified in Section 5(b) above or, in the case of
incentive Options, within 12 months following such death, Total
Disability or Termination Without Cause.
(iv) If the employment of a Participant holding an Option or SAR
is terminated for deliberate, willful or gross misconduct, as
determined by the Company, all rights of such Participant and any
Family Member or Family Trust or other transferee to which such
Participant has transferred his or her Option or SAR shall expire upon
receipt by the Participant of the notice of such termination.
(v) In the event of the death of a Participant, his or her Options
and SARs may be exercised by the person or persons to whom the
Participant's rights under the Option or SAR pass by will, or if no
such person has such right, by his or her executors or administrators
or Beneficiary. The death of a Participant after Total Disability or
Termination Without Cause will not adversely effect the rights of a
Participant or anyone entitled to the benefits of such Option or SAR.
(g) Except as otherwise determined by the Committee, no Option or SAR
granted under the Plan shall be transferable other than by will or by
the laws of descent and distribution, unless the Committee determines
that an Option or SAR may be transferred by a Participant to a Family
Member or Family Trust or other transferee. Such transfer shall be
evidenced by a writing from a grantee to the Committee or Committee's
designee on a form established by the Committee. Absent an authorized
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transfer during the lifetime of the Participant, an Option shall be
exercisable only by him or her by his or her guardian or legal
representative.
(h) With respect to an incentive stock option, the Committee shall specify
such terms and provisions as the Committee may determine to be
necessary or desirable in order to qualify such Option as an incentive
stock option within the meaning of Section 422 of the Code.
(i) Upon exercise of a SAR, the Participant shall be entitled, subject to
such terms and conditions as the Committee may specify at any time, to
receive upon exercise thereof all or a portion of the excess of (i)
the Fair Market Value of a specified number of shares of Stock at the
time of exercise, as determined by the Committee, over (ii) a
specified amount which shall not, subject to Section 5(j), be less
than the Fair Market Value of such specified number of shares of Stock
at the time the SAR is granted. Upon exercise of a SAR, payment of
such excess shall be made as the Committee shall specify (A) in cash,
(B) through the issuance or transfer to the Participant of whole
shares of Stock, including Restricted Stock or Deferred Stock, with a
Fair Market Value, disregarding any restrictions in the case of
Restricted Stock or Deferred Stock, at such time equal to any such
excess, or (C) a combination of cash and shares of Stock with a
combined Fair Market Value at such time equal to such excess, all as
determined by the Committee; provided, however, a fractional share of
Stock shall be paid in cash equal to the Fair Market Value of the
fractional share of Stock, disregarding any restrictions in the case
of Restricted Stock or Deferred Stock, at such time.
(j) If the Award granted to a Participant allows the Participant to elect
to cancel all or any portion of an unexercised Option by exercising a
related SAR, then the Option price per share of Stock shall be used as
the specified price in Section 5(i), to determine the value of the SAR
upon such exercise; and, in the event of the exercise of such SAR, the
Company's obligation in respect of such Option or such portion thereof
will be discharged by payment of the SAR so exercised.
(k) If authorized by the Committee in its sole discretion, the Company may
accept the surrender of the right to exercise any Option granted under
the Plan (whether or not granted with a related SAR) as to all or any
of the shares of Stock as to which the Option is then exercisable, in
exchange for payment to the optionee (in cash or shares of Stock
valued at the then Fair Market Value) of an amount not to exceed the
difference between the option price and the then Fair Market Value of
the shares as to which such right to exercise is surrendered.
SECTION 6. PERFORMANCE SHARES
(a) The Committee may award Performance Shares to Participants under the
Plan, which may be denominated in Stock or in dollars. The Committee
shall determine the performance periods (the "Performance Periods")
and the performance objectives relating to each Performance Share
Award. Performance objectives may vary from Participant to
Participant and between groups of Participants, and shall only be
based upon any one or more of the following performance criteria, any
combination and/or specifics of which shall be determined by the
Committee as it may deem appropriate: (i) stock price; (ii) market
share; (iii) sales; (iv) earnings per share; (v) operating cash
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flow; (vi) free cash flow; (vii) net income or loss; (viii) net
income or loss adjusted to exclude specified items such as gain or
losses from extraordinary or non-recurring items and non-cash expense
and income, and before specified expense items such as interest,
depreciation, amortization and income taxes; (ix) EBITDA; (x)
revenues; (xi) return on equity or assets; or (xii) cost control.
Performance objectives may be in respect of the performance of the
Company and its subsidiaries or a particular subsidiary or division
and may be expressed in absolute terms or in relation to another
company or companies or a division thereof. Performance Periods may
overlap and Participants may participate simultaneously with respect
to Performance Shares for which different Performance Periods are
prescribed.
(b) At the beginning of each Performance Period, (but in any event prior
to the earlier of the elapsing of 90 days or 25% of such Performance
Period) the Committee shall determine and set forth in writing for
each Participant or group of Participants the number of Performance
Shares or the dollar value of the Performance Share Awards made and
the applicable performance objectives, each of which may be fixed or
may be expressed in terms of a progression within a specified range.
At the end of each Performance Period, the Committee shall certify in
writing the extent to which the prescribed performance objectives have
been satisfied. An Eligible Employee shall be eligible to be awarded,
in any calendar year, Performance Share awards up to the maximum
number of shares contemplated in Section 4(e) and shall also be
eligible to be awarded Performance Share awards denominated in dollars
subject to a maximum limitation of $500,000 for all such dollar-
denominated awards granted to any Eligible Employee in any calendar
year.
(c) If during the course of a Performance Period there shall occur
significant events as determined by the Committee, including, but not
limited to, a reorganization of the Company, which the Committee
expects to have a substantial effect on a performance objective during
such period, the Committee may revise such objective.
(d) If a Participant terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, or a
significant event, as determined by the Committee, that Participant
shall be entitled to payment in settlement of each Performance Share
for which the Performance Period was prescribed (i) based upon the
performance objectives satisfied at the end of such period and (ii)
prorated for the portion of the Performance Period during which the
Participant was employed by any Participating Company; provided,
however, the Committee may provide for an earlier payment in
settlement of such Performance Share in such amount and under such
terms and conditions as the Committee deems appropriate or desirable
with the consent of the Participant. If a Participant terminates
service with all Participating Companies during a Performance Period
for any other reason, then such Participant shall not be entitled to
any payment with respect to that Performance Period unless the
Committee shall otherwise determine.
(e) Each Performance Share may be paid in whole shares of Stock, including
Restricted Stock or Deferred Stock (together with any cash
representing fractional shares of Stock), or cash, or a combination of
Stock and cash either as a lump sum payment or in annual installments,
all as the Committee shall determine, at the time of grant of the
Performance Share or otherwise, commencing as soon as practicable
after the end of the relevant Performance Period. Any dividends or
distributions payable on
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Performance Shares (or the equivalent as specified in the grant),
other than cash dividends representing the periodic distribution of
profits which shall be retained by the Company, shall be paid over to
the Participant when and if payment is made of the underlying
Performance Shares, unless the grant provides otherwise.
Except as otherwise provided in this Section 6, no Performance Shares awarded to
Participants shall be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of during the Performance Period unless the Committee
determines that an Award may be transferred to a Family Member or Family Trust
or other transferee.
SECTION 7. RESTRICTED STOCK
(a) Restricted Stock may be received by a Participant either as an Award
or as the result of an exercise of an Option or SAR or as payment for
a Performance Share. Restricted Stock shall be subject to a
restriction period (after which restrictions shall lapse)which shall
mean a period commencing on the date the Award is granted and ending
on such date or upon the achievement of such performance or other
criteria as the Committee shall determine (the "Restriction Period").
The Committee may provide for the lapse of restrictions in
installments where deemed appropriate.
(b) Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period unless the Committee determines that an Award may
be transferred by a Participant to a Family Member or Family Trust or
other transferee; provided, however, the Restriction Period for any
Participant shall expire and all restrictions on shares of Restricted
Stock shall lapse upon the Participant's (i) death, (ii) Total
Disability or (iii) Termination Without Cause where the Participant is
immediately eligible to receive benefits under the terms of Citizens
Pension Plans, or with the consent of the Company, or upon some
significant event, as determined by the Committee, including, but not
limited to, a reorganization of the Company.
(c) If a Participant terminates employment with all Participating
Companies for any reason other than under the circumstances referred
to in clause (b) before the expiration of the Restriction Period, all
shares of Restricted Stock still subject to restriction shall, unless
the Committee otherwise determines within 90 days after such
termination, be forfeited by the Participant and shall be reacquired
by the Company, and, in the case of Restricted Stock purchased through
the exercise of an Option, the Company shall refund the purchase price
paid on the exercise of the Option.
(d) The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Restricted Stock
delivered under the Plan may be held in custody until the Restriction
Period expires or until restrictions thereon otherwise lapse, and may
require as a condition of any receipt of Restricted Stock that the
Participant shall have delivered a stock power endorsed in blank
relating to the Restricted Stock.
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(e) Nothing in this Section 7 shall preclude a Participant from exchanging
any shares of Restricted Stock subject to the restrictions contained
herein for any other shares of Stock that are similarly restricted.
(f) Unless the Award Agreement provides otherwise, amounts equal to any
cash dividends representing the periodic distributions of profits
declared and payable during the Restriction Period with respect to the
number of shares of Restricted Stock credited to a Participant shall
be paid to the Participant within 30 days after each dividend becomes
payable, unless, at the time of the Award, the Committee determines
that the dividends should be reinvested in additional shares of
Restricted Stock, in which case additional shares of Restricted Stock
shall be credited to the Participant based on the Stock's Fair Market
Value at the time of each such dividend, or unless the Committee
specifies otherwise. All dividends or distributions payable on shares
(other than cash dividends representing periodic distributions of
profits) of Restricted Stock (or the equivalent as specified in the
grant) shall be paid over to the Participant when and if as
restrictions lapse on the underlying shares of Restricted Stock,
unless the grant provides otherwise.
SECTION 8. DEFERRED STOCK
(a) Deferred Stock may be credited to an Eligible Employee either as an
Award or as the result of an exercise of an Option or SAR or as
payment for a Performance Share. Deferred Stock shall be subject to a
deferral period which shall mean a period commencing on the date the
Award is granted and ending on such date or upon the achievement of
such performance or criteria as the Committee shall determine (the
"Deferral Period"). The Committee may provide for the expiration of
the Deferral Period in installments where deemed appropriate.
(b) Except as otherwise provided in this Section 8, no Deferred Stock
credited to Participant shall be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of during the Deferral
Period unless the Committee determines that an Award may be
transferred to a Family Member or Family Trust or other transferee;
provided, however, the Deferral Period for any Participant shall
expire upon the Participant's (i) death, (ii) Total Disability or
(iii) Termination Without Cause where the Participant is immediately
eligible to receive benefits under the terms of Citizens Pension
Plans, or an earlier age with the consent of the Company, or upon some
significant event, as determined by the Committee, including, but not
limited to, a reorganization of the Company.
(c) At the expiration of the Deferral Period, the Participant shall be
entitled to receive a certificate pursuant to Section 10 for the
number of shares of Stock equal to the number of shares of Deferred
Stock credited on his or her behalf. Unless the Award Agreement
provides otherwise, amounts equal to any cash dividends representing
the periodic distributions of profits declared and payable during the
Deferral Period with respect to the number of shares of Deferred Stock
credited to a Participant shall be paid to such Participant within 30
days after each dividend becomes payable unless, at the time of the
Award, the Committee determined that such dividends should be
reinvested in additional shares of Deferred Stock, in which case
additional shares of Deferred Stock shall be credited to the
Participant based on the Stock's Fair Market
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Value at the time of each such dividend, or unless the Committee
specifies otherwise. All dividends or distributions payable on shares
(other than cash dividends representing periodic distributions of
profits) of Deferred Stock (or the equivalent as specified in the
grant) shall be paid over to the Participant when the Deferral Period
ends, unless the grant provides otherwise.
(d) If a Participant terminates employment with all Participating
Companies for any reason other than under the circumstances referred
to in clause (b) before the expiration of the Deferral Period, all
shares of Deferred Stock shall, unless the Committee otherwise
determines within 90 days after such termination, be forfeited by the
Participant, and, in the case of Deferred Stock purchased through the
exercise of an Option, the Company shall refund the purchase price
paid on the exercise of the Option.
SECTION 9. OTHER STOCK-BASED AWARDS
The Committee may grant other Awards under the Plan which are denominated
in stock units or pursuant to which shares of Stock may be acquired, including
Awards valued using measures other than market value or Fair Market Value, if
deemed by the Committee in its discretion to be consistent with the purposes of
the Plan. Subject to the terms of the Plan, the Committee shall determine the
form of such Awards, the number of shares of Stock to be granted or covered
pursuant to such Awards and all other terms and conditions of such Awards.
SECTION 10. CERTIFICATES FOR AWARDS OF STOCK
(a) Subject to Section 7(d), each Participant entitled to receive shares
of Stock under the Plan shall be issued a certificate for such shares
or have their shares registered for their account in book entry form
by the Company's transfer agent. In the instance of a certificate,
such certificate shall be registered in the name of the Participant,
and shall bear an appropriate legend reciting the terms, conditions
and restrictions, if any, applicable to such shares and shall be
subject to appropriate stop-transfer orders.
(b) The Company shall not be required to issue or deliver any shares or
certificates for shares of Stock prior to (i) the listing of such
shares on any stock exchange or quotation system on which the Stock
may then be listed or quoted, and (ii) the completion of any
registration, qualification, approval or authorization of such shares
under any federal or state law, or any ruling or regulation or
approval or authorization of such shares under any governmental body
which the Company shall, in its sole discretion, determine to be
necessary or advisable.
(c) All shares and certificates for shares of Stock delivered under the
Plan shall also be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the SEC, any stock exchange
upon which the Stock is then listed and any applicable federal or
state securities or regulatory laws, and the Committee may cause a
legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. The foregoing provisions
of this Section 10(c) shall not be effective if and to the extent that
the shares of Stock delivered under the Plan are covered by an
effective
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and current registration statement under the Securities Act, or if the
Committee determines that application of such provisions is no longer
required or desirable. In making such determination, the Committee
may rely upon an opinion of counsel for the Company.
(d) Except for the restrictions on Restricted Stock under Section 7, each
Participant who receives an award of Stock shall have all of the
rights of a stockholder with respect to such shares, including the
right to vote the shares and receive dividends and other
distributions. No Participant awarded an Option, a SAR, or
Performance Share or Deferred Stock shall have any right as a
stockholder with respect to any shares subject to such Award prior to
the date of issuance to him or her of certificate or certificates for
such shares.
SECTION 11. BENEFICIARY
(a) Each Eligible Employee shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be
entitled to receive the Award, if any, payable under the Plan upon his
or her death. An Eligible Employee may from time to time revoke or
change his or her Beneficiary designation without the consent of any
prior Beneficiary by filing a new designation with the Committee. The
last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to
the Eligible Employee's death, and in no event shall it be effective
as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of an
Employee's death, or if no designated Beneficiary survives the
Eligible Employee or if such designation conflicts with law, the
Eligible Employee's estate shall be entitled to receive the Award, if
any, payable under the Plan upon his or her death. If the Committee
is in doubt as to the right of any person to receive such Award, the
Company may retain such Award, without liability for any interest
thereon, until the Committee determines the right thereto, or the
Company may pay such Award into any court of appropriate jurisdiction
and such payment shall be a complete discharge of the liability of the
Company therefor.
SECTION 12. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee, as appointed by the
Board and serving at the Board's pleasure. Each member of the
Committee shall be both a member of the Board and shall satisfy the
"disinterested administration" or similar requirements, if any, of
Rule 16b-3 under the Exchange Act and the "outside director" or
similar successor requirements, if any, of Section 162(m) of the Code
and the regulations promulgated thereunder.
(b) All decisions, determinations or actions of the Committee made or
taken pursuant to grants of authority under the Plan shall be made or
taken in the sole and absolute discretion of the Committee and shall
be final, conclusive and binding on all persons for all purposes.
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(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof and any related
Award Agreement and define the terms employed in the Plan or any agreement, and
its interpretations and constructions thereof and actions taken thereunder shall
be final, conclusive and binding on all persons for all purposes.
(d) The Committee shall have full power, discretion and authority to
prescribe and rescind rules, regulations and policies for the
administration of the Plan.
(e) The Committee's decisions and determinations under the Plan and with
respect to any Award granted thereunder need not be uniform and may be
made selectively among Awards, Participants or Eligible Employees,
whether or not such Awards are similar or such Participants or
Eligible Employees are similarly situated.
(f) The Committee shall keep minutes of its actions under the Plan. The
act of a majority of the members present at a meeting duly called and
held shall be the act of the Committee. Any decision or determination
reduced to writing and signed by all members of the Committee shall be
fully as effective as if made by unanimous vote at a meeting duly
called and held.
(g) The Committee may employ such legal counsel, including without
limitation independent legal counsel and counsel regularly employed by
the Company, consultants and agents as the Committee may deem
appropriate for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any
computations received from any such consultant or agent. All expenses
incurred by the Committee in interpreting and administering the Plan,
including without limitation, meeting fees and expenses and
professional fees, shall be paid by the Company.
(h) No member or former member of the Committee or the Board shall be
liable for any action or determination made in good faith with respect
to the Plan or any Award granted under it. Each member or former
member of the Committee or the Board shall be indemnified and held
harmless by the Company against all cost or expense (including counsel
fees and expenses) or liability (including any sum paid in settlement
of a claim with the approval of the Board) arising out of any act or
omission to act in connection with the Plan unless arising out of such
member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights to indemnification
or insurance the members or former member may have as directors or
under the by-laws of the Company or otherwise.
(i) The Committee's determination that an Option, SAR, Performance Share,
Restricted Stock, Deferred Stock or other Stock-based Awards may be
transferred by a Participant to a Family Member or Family Trust or
other transferee may be set forth in: determinations pursuant to
Section 12(c), rules and regulations of general application adopted
pursuant to Section 12(d), in the written Award Agreement, or by a
writing delivered to the Participant made any time after the relevant
Award or Awards have been granted, on a case-by-case basis, or
otherwise. In any event, the transferee or Family Member or Family
Trust shall agree in writing to be bound by all the provisions of the
Plan and the Award Agreement, and in no event shall any
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such transferee have greater rights under such Award than the
Participant effecting such transfer.
(j) With respect to credits, shares, cash or other property credited to a
Participant by reason of dividends or distributions, if the Committee
shall so determine, all such credits, shares, cash or other property
to a Participant shall be paid to the Participant periodically at the
end of the applicable period, whether or not the performance,
employment or other standards (or lapse of time) upon which such Award
is conditioned have been satisfied. In addition, the Committee may
determine to include in Award Agreements granting Options and SARs a
provision to the effect that (a) an amount equal to any dividends
(payable in cash or other property) paid after the grant of the Option
or SAR and before to the exercise of such Option or SAR with respect
to the number of shares of Stock subject to such Option or SAR shall
be credited to a Participant and, if the Award Agreement so provides,
thereafter paid to such Participant within 30 days after each dividend
becomes payable or, (b) if the Committee so determines, such Award
shall be reinvested in additional shares of Stock, in which case such
additional shares of Stock shall be credited to the Participant based
on the Stock's Fair Market Value at the time of payment of each such
dividend. In the latter event, if the Committee so determines, such
additional shares of Stock shall be delivered to the Participant
(whether or not such Option or SAR is exercised) at the time that such
Option or SAR ceases to be exercisable in accordance with its terms or
otherwise.
SECTION 13. AMENDMENT OR DISCONTINUANCE
The Board may, at any time, amend or terminate the Plan. The Plan may also
be amended by the Committee, provided that all such amendments shall be reported
to the Board. No amendments shall become effective unless approved by
affirmative vote of the Company's stockholders if such approval is necessary or
desirable for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
or any successor rule under the Exchange Act or Section 162(m) of the Code or
any other rule or regulation. No amendment or termination shall, when taken as
a whole, adversely and materially affect the rights of any Participant who has
received a previously granted Award without his or her consent unless the
amendment or termination is necessary or desirable for the continued validity of
the Plan or its compliance with Rule 16b-3 or any other applicable law, rule or
regulation or pronouncement or to avoid any adverse consequences under Section
162(m) of the Code or any requirement of a securities exchange or association or
regulatory or self-regulatory body).
SECTION 14. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
In the event of a change in corporate capitalization, stock split or stock
dividend, the number of shares purchasable upon exercise of an Option or SAR
shall be increased to the new number of shares which result from the shares
covered by the Option or SAR immediately before the change, split or dividend.
The purchase price per share shall be reduced proportionately and the total
purchase price will remain the same.
In the event of any other change in corporate capitalization, or a
corporate transaction, such as any merger of a corporation into another
corporation, any consolidation of two or more
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corporations into another corporation, any separation of a corporation
(including a spinoff or other distribution of stock or property by a
corporation), any reorganization of a corporation (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code), or any partial or complete liquidation by a corporation or other similar
event which could distort the implementation of the Plan or the realization of
its objectives, the Committee shall make an appropriate adjustment in the number
of shares of Stock (i) which are covered by the Plan, (ii) which may be granted
to any one Eligible Employee and which are subject to any Award, and the
purchase price therefor, and in terms, conditions or restrictions on securities
as the Committee deems equitable, with the objective that the securities covered
under the Plan or an Award shall be those securities which a Participant would
have received if he or she had exercised his or her Option or SAR prior to the
event or been entitled to his or her Restricted or Deferred Stock or Performance
Shares.
All such events occurring between the effective date of the Option and its
exercise shall result in an adjustment to the Option terms.
SECTION 15. CHANGE IN CONTROL
Awards may include, or may incorporate from any relevant guidelines adopted
by the Committee, terms which provide that any or all of the following actions
or consequences, with any modifications adopted by the Committee, may occur as a
result of, or in anticipation of, any Change in Control to assure fair and
equitable treatment of Participants:
(a) Any Options outstanding at least six months as of the date of Change
in Control shall, if held by a current employee of the Company, become
immediately exercisable in full. In addition, all Participants may,
regardless of whether still an employee of the Company, elect to
cancel all or any portion of any Option or Award no later than 90 days
after the Change in Control, in which event the Company shall pay to
such electing Participant, an amount in cash equal to the excess, if
any, of the Current Market Value (as defined below) of the shares of
Stock, including Performance Shares, Restricted Stock or Deferred
Stock, subject to the Option or of the portion thereof so canceled
over the option price for such shares; provided, however, that no
Participant shall have the right to elect cancellation unless and
until at least 6 months have elapsed after the date of grant of the
Option.
(b) Any Performance Periods shall end and the Company shall pay each
Participant an amount in cash equal to the value of such Participant's
performance shares, if any, based upon the Stock's Current Market
Value in full settlement of such performance shares.
(c) Any Restriction Periods shall end and the Company shall pay each
Participant an amount in cash equal to the Current Market Value of the
Restricted Stock held by, or on behalf of, each Participant in
exchange for such Restricted Stock.
(d) Any Deferral Period shall end and the Company shall pay to each
Participant an amount in cash equal to the Current Market Value of the
number of shares of Stock equal to the number of shares of Deferred
Stock credited to such Participant in full settlement of any Deferred
Stock Award.
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(e) The Company shall pay to each Participant all amounts due, if any,
deferred by or payable under Awards granted to such Participant under
the Plan which are not Performance Shares, Restricted Stock or
Deferred Stock, in accordance with the terms provided by the Committee
at the time of deferral or grant.
(f) For purpose of this Section 15, "Current Market Value" means the
highest Fair Market Value during the period commencing 30 days prior
to the Change in Control and ending 30 days after the Change in
Control (the "reference period"); provided that, if the Change in
Control occurs as a result of a tender offer or exchange offer, or a
merger, purchase of assets or stock, or another transaction approved
by shareholders of the Company, Current Market Value means the higher
of (i) the highest Fair Market Value during the reference period, or
(ii) the highest price paid per share of Stock pursuant to such tender
offer, exchange offer or transaction.
SECTION 16. MISCELLANEOUS
(a) Nothing in this Plan or any Award granted hereunder shall confer upon
any employee any right to continue in the employ of any Participating
Company or interfere in any way with the right of any Participating
Company to terminate his or her employment at any time.
(b) No Award payable under the Plan shall be deemed salary or compensation
for the purpose of computing benefits under any employee benefit plan
or other arrangement of any Participating Company for the benefit of
its employees unless the Company shall determine otherwise.
(c) No Eligible Employee or Participant shall have any claim to an Award
until it is actually granted under the Plan. To the extent that any
person acquires a right to receive payments from the Company under
this Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company. All payments of Awards
provided for under the Plan shall be paid by the Company either by
issuing shares of Stock or by delivering cash from the general funds
of the Company or other property of the Company; provided, however,
that such payments shall be reduced by the amount of any payments made
to the Participant or his or her dependents, beneficiaries or estate
from any trust or special or separate fund established in connection
with this Plan. The Company shall not be required to establish a
special or separate fund or other segregation of assets to assure such
payments, and, if the Company shall make any investments to aid it in
meeting its obligations hereunder, the Participant shall have no
right, title, or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate written
instrument relating to such investments.
(d) Absence on leave approved by a duly constituted officer of the Company
shall not be considered interruption or termination of employment for
any purposes of the Plan; provided, however, that no Award may be
granted to an employee while he or she is absent on leave.
(e) If the Committee shall find that any person to whom any Award, or
portion thereof, is payable under the Plan is unable to care for his
or her affairs because of illness or
A-18
<PAGE>
accident, or is a minor, then any payment due him or her (unless a
prior claim therefor has been made by a duly appointed legal
representative) may, if the Committee so directs the Company, be paid
to his or her spouse, a child, a relative, an institution maintaining
or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment shall be a complete discharge
of the liability of the Company therefor.
(f) The right of any Participant or other person to any Award payable
under the Plan may not be assigned, transferred, pledged or
encumbered, either voluntarily or by operation of law, except as
provided in Section 11 with respect to the designation of a
Beneficiary or as may otherwise be required by law or pursuant to a
qualified domestic relations order as defined by the Code or Title I
of the Employee Retirement Income Security Act, or the rules
thereunder or unless the Committee determines that an Award may be
transferred to a Family Member or Family Trust or other transferee.
If, by reason of any attempted assignment, transfer, pledge, or
encumbrance or any bankruptcy or other event happening at any time,
any amount payable under the Plan would be made subject to the debts
or liabilities of the Participant or his or her Beneficiary or would
otherwise devolve upon anyone else and not be enjoyed by the
Participant or his or her Beneficiary or transferees, Family Trust or
Family Member, then the Committee may terminate such person's interest
in any such payment and direct that the same be held and applied to or
for the benefit of the Participant, his or her Beneficiary, taking
into account the expressed wishes of the Participant (or, in the event
of his or her death, those of his or her Beneficiary) in such manner
as the Committee may deem proper.
(g) Copies of the Plan and all amendments, administrative rules and
procedures and interpretations shall be made available for review to
all Eligible Employees at all reasonable times at the Company's
administrative offices.
(h) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the
Participant or his or her Beneficiary, for the withholding of any
federal, state, local or foreign taxes. The Committee may in its
discretion permit the payment of such withholding taxes by authorizing
the Company to withhold shares of Stock to be issued, or the
Participant to deliver to the Company shares of Stock owned by the
Participant or Beneficiary, in either case having a Fair Market Value
equal to the amount of such taxes or otherwise permit a cashless
exercise.
(i) All elections, designations, requests, notices, instructions and other
communications from an Eligible Employee, Participant, Beneficiary or
other person to the Committee, required or permitted under the Plan,
shall be in such form as is prescribed from time to time by the
Committee and shall be mailed by first class mail or transmitted by
facsimile copy or delivered to such location as shall be specified by
the Committee.
(j) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
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<PAGE>
(k) Captions preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of
any provision hereof.
(l) The Plan and the grant, exercise and carrying out of Awards shall be
subject to all applicable federal and state laws, rules, and
regulations and to all required or otherwise appropriate approvals and
authorizations by any governmental or regulatory agency or commission.
The Company shall have no obligation of any nature hereunder to any
Eligible Employee, Participant or any other person in the absence of
all necessary or desirable approvals or authorizations and shall have
no obligation to seek or obtain the same.
(m) Whenever possible, each provision of this Plan and any Award Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any such provision is held to be ineffective,
invalid, illegal or unenforceable in any respect under the applicable
laws or regulations of the United States or any state, such
ineffectiveness, invalidity, illegality or unenforceability will not
affect any other provision but this Plan and any such agreement will
be reformed, construed and enforced so as to carry out the intent
hereof or thereof and as if any invalid or illegal provision had never
been contained herein.
(n) The Committee, in its discretion, may defer the payment of an Award,
if such payment would cause the annual remuneration of a Participant,
who is a covered employee under Section 162(m) of the Code, to exceed
$1,000,000.
(o) The Plan shall be construed and governed under the laws of the State
of Delaware.
SECTION 17. EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Effective Date of the Plan shall be May 23, 1996, subject to approval
by the holders of a majority of the Company's common stock at the 1996 Annual
Meeting. Any Awards granted prior to May 23, 1996 will be subject to the
receipt of such approval. No Awards will be granted under the Plan after the
expiration of ten years from the Effective Date.
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<PAGE>
COMPOSITE COPY
CITIZENS UTILITIES COMPANY
NON-EMPLOYEE DIRECTORS' DEFERRED FEE EQUITY PLAN
ARTICLE 1
PURPOSES OF THE PLAN
1.1 PURPOSES.
The purpose of this Citizens Utilities Company Deferred Fee Equity Plan For
Non-Employee Directors (the "Plan") is to provide each Director with an
opportunity to defer some or all of the Director's Fees and receive compensation
for services in the form of options to purchase Citizens' Common Stock or in
Plan Units which are equivalent to Citizens' Common Stock. The Plan will
implement corporate policy that all employees, officers and directors are to be
encouraged to share in the Company's long-term prospects by taking part of their
compensation in Common Stock and options.
1.2 INTRODUCTION.
The Plan is comprised of two separate plans. Because a number of
administrative and procedural provisions of each of the plans are similar or
identical, the plans have been combined in a single plan for convenience.
The Plan consists of an option plan through which a director may elect to
receive his or her Fees for a period of up to five years (or a shorter period in
the case of 1994) in an equivalent amount of options to purchase Common Stock.
This plan is referred to as the Option Plan. The provisions of Articles 3 and 4
apply exclusively to the Option Plan.
The Plan also includes a separate stock plan through which a director may
elect (a "Stock Plan Election") to receive his or her Fees for the next calendar
year (or a shorter period in the case of 1994 or a newly elected director) in an
equivalent amount of Plan Units. Upon termination of directorship, a Stock Plan
Participant will receive the value of his Plan Units in either stock or cash or
installments of cash as selected by the Participant. At the time of the related
Stock Plan Election. The provisions of Articles 5, 6 and 7 apply exclusively to
the Stock Plan.
As defined below, the term "Plan" will include both the Stock Plan and
Option Plan; the term "Participant" includes an Option Plan Participant and a
Stock Plan Participant; the term "Election" includes an Option Plan Election and
a Stock Plan Election; and the term "Committee" includes an Option Plan
Committee and the Stock Plan Committee; unless, in each case, the context
requires otherwise.
ARTICLE 2
DEFINITIONS
As used herein, the following words shall have following meanings unless
otherwise specifically provided:
2.1 "Accounting Date" means, for purposes of the Stock Plan, each January
1, April 1, July 1 and October 1, except that the first Accounting Date in 1995
shall be February 1.
<PAGE>
2.2 "Administrator" means the person or persons appointed by the Board of
Directors to represent the Company in the administration of each Plan pursuant
to the provisions of Article 10.1.
2.3 "Act" means the Securities Act of 1933.
2.4 "Applicable Rate of Interest" means, as of any date, 120% of the then
applicable Federal rate of interest pursuant to the Internal Revenue Code. The
Federal short term rate of interest shall be the interest component applicable
to deferred Fees from the date of deferral until the date of investment in Plan
Units under the Stock Plan. The Federal medium term rate of interest shall
apply to distributions in annual installments deferred after Termination
pursuant to the Stock Plan.
2.5 "Beneficiary" means the person or persons designated in writing by the
Participant as entitled to receive a Stock Plan Participant's Account upon his
death, or to exercise an Option Plan Participant's Option upon his death, or
failing such designation, the person or persons who, upon the death of a
Participant, shall have acquired by will, or the laws of descent and
distribution, the right to receive the benefits specified under this Plan.
Beneficiary designations shall be made in writing and delivered to the
Administrator and shall comply with any applicable state law relating to
testamentary dispositions and other requirements. A Participant may designate a
new Beneficiary or Beneficiaries at any time by notifying the Administrator.
The last such designation received by the Administrator shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Administrator prior to the Participant's
death, and in no event shall it be effective as of a date prior to such receipt.
"Beneficiary" shall include the person or persons who, upon the disability or
incompetence of a Participant, shall have acquired on behalf of the Participant,
by legal proceeding or otherwise, the right to receive the benefits specified in
this Plan on behalf of the Participant.
2.6 "Board of Directors" means the Board of Directors of the Company.
2.7 "Code" means the Internal Revenue Code of 1986.
2.8 "Company" means Citizens Utilities Company and its successors and
assigns.
2.9 "Common Stock" means Common Stock Series B, par value $.25 per share,
of the Company or any successor Common Stock.
2.10 "Director" means any director of the Company who is not a full-time
employee of the Company. For the purposes of the Plan, an individual who is
both a full-time employee of the Company and a director of the Company and
therefore ineligible to participate in the Plan and who ceases to be a full-time
employee but remains in office as a director shall become eligible to
participate in the Plan as a Director as of the termination of his or her
service as a full-time employee.
2.11 "Effective Date" means, for Option Plan Elections before July 20,
1994, August 1, 1994; and for other Option Plan Elections, the next January 1.
2.12 "Exchange Act" means the Securities Exchange Act of 1934. "Rule 16b-
3" shall mean such rule promulgated by the Securities and Exchange Commission
under the Exchange Act and, unless the circumstances require otherwise, shall
include any other rule or regulation adopted under Sections 16(a) or 16(b) of
the Exchange Act relating to compliance with, or an exemption from,
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<PAGE>
Section 16(b). Reference to any section of the Exchange Act or any rule
promulgated thereunder shall include any successor section or rule.
2.13 "Fair Market Value" of the Common Stock as of any Accounting Date or
Time of Distribution for the purposes of the Stock Plan, and as of any Effective
Date for purposes of the Option Plan, shall be the average of the daily high and
low prices of shares of Common Stock reported on a composite tape for securities
listed on The New York Stock Exchange or, if such shares are not listed for
trading on such exchange, on any other established securities market for which
quotations are readily available, for the third, fourth, fifth and sixth trading
days of the month which follow each Accounting Date or Time of Distribution or
Effective Date, as the case may be. Participants will be credited with
fractional share interests. If required, an appropriate adjustment will be made
for record dates, payment dates and ex-distribution trading. The Stock Plan
Committee, the Option Plan Committee or the Board of Directors may select in
advance different trading days of the month for determining Fair Market Value,
in their discretion.
2.13A "Family Entity," "Family Member Transfer," "Family Transferee" and
"Family Trust" mean such terms as defined in Section 4.8.
2.14 "Option Plan Committee" means the Committee described in Section 10.1
hereof to administer the Option Plan.
2.15 "Option Plan Election" is an election to receive Options equivalent
in value to Option Plan Fees to be earned during the period August 1-December
31, 1994 or during one or more subsequent Plan Years.
2.16 "Option Plan Fees" are those Directors' Fees which may be the subject
of an Option Plan Election. These are limited to future retainer fees at the
rate in effect in the year in which the Option Plan Election is made and board
and committee meeting fees, up to a maximum of $30,000 per year. Option Plan
Fees for 1994 shall be limited to $12,500.
2.17 "Option Plan Participant" means a Director who has elected to receive
Directors' Fees in the form of Options.
2.18 "Option Value"--For each Option Plan Election, the options granted
hereunder shall be in an amount equivalent to the value of the Directors' Fees
subject to such Option Plan Election. In order to implement this standard, the
Board of Directors has determined at the time of adoption of the Plan that the
"Option Value" of an Option with the terms and conditions of the Option
described herein to purchase one share of Common Stock of the Company is 20% of
the Fair Market Value of such share on the Effective Date of the Option in
question.
2.19 "Plan" means this Citizens Utilities Company Deferred Fee Equity Plan
For Non-Employee Directors.
2.20 "Plan Unit" shall mean a credit established in a Participant's Stock
Plan Account reflecting the number of shares of Common Stock which could be
purchased at Fair Market Value as of each Accounting Date as provided in Section
6.1. A Plan Unit shall be deemed to be the equivalent of a share of Common
Stock and shall be subject to adjustment in the event of change in Common Stock
as provided in Section 11.5.
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<PAGE>
2.21 "Plan Year" means the fiscal year of the Company, currently the
twelve-month period ended December 31.
2.22 "Stock Plan Account" shall mean the account established for each
Stock Plan Participant to reflect the amount of Fees which such Participant has
elected to defer under the Stock Plan, any interest component and all Plan Units
which have been acquired with such Fees and interest component.
2.23 "Stock Plan Committee" means the Committee described in Section 10.1
hereof to administer the Stock Plan.
2.24 "Stock Plan Election" means a Stock Plan Participant's delivery of a
written notice of election to the Administrator (a) electing to defer payment of
his or her Fees, and (b) further electing to receive payment of his or her Stock
Plan Account either (i) at Time of Distribution in either (A) Common Stock or
(B) cash, or (ii) in installments in cash annually over a five-year period. All
such elections shall be irrevocable except as otherwise provided in the Stock
Plan.
2.25 "Stock Plan Fees" and "Fees" each mean the retainer fees and Board of
Directors and committee meeting attendance fees unless the context otherwise
requires.
2.26 "Stock Plan Participant" means a Director who has elected to defer
payment of all or a portion of his or her Stock Plan Fees and to establish a
Stock Plan Account.
2.27 "Termination" means retirement from the Board of Directors or
termination of service as a Director for death, disability or any other reason.
2.28 "Time of Distribution" means a date ten (10) calendar days after
Termination, except as may be otherwise specified in Article 7; provided that,
if payment is to be made in cash and the Time of Distribution is within six
months after the date of acquisition or crediting of Plan Units within the
contemplation of Rule 16b-3(c)(1) or any successor rule under the Exchange Act,
the Time of Distribution shall be delayed, solely for such Plan Units, until
more than six months shall have elapsed from the date of acquisition or
crediting of such Plan Units.
2.29 "Trust Agreement" means any Trust Agreement entered into between the
Company and any Trustee in connection with the Plan.
2.30 "Trustee" means any entity named as Trustee in the Trust Agreement,
or any successor corporate Trustee thereunder.
The term "Plan" shall mean the original Plan as amended by Amendment No. 1.
The terms "Plan" and "Option Plan" shall include the Formula Plan; "Option"
shall include a Formula Plan Option; "Option under the Option Plan" shall
include an Option under the Formula Plan; and "Participant" shall include a
Formula Plan Participant.
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<PAGE>
ARTICLE 3
ELECTIONS BY OPTION PLAN PARTICIPANTS
3.1 DIRECTORS MAY ELECT TO RECEIVE FEES IN THE FORM OF OPTIONS.
Option Plan Fees to be earned by Directors for the Plan Years 1995 through
1999 may, at the election of a Director, be received as Options as herein
provided. Option Plan Fees to be earned by Directors for the period August 1,
1994 through December 31, 1994 may also, at the election of a Director, be
received as Options.
3.2 ANNUAL OPTION PLAN ELECTIONS.
On or before December 15 of each year (except for 1994 when the Option Plan
Election must be made on or before July 20, 1994) a Director may deliver to the
Administrator his or her Option Plan Election to receive a stated percentage of
his or her Option Plan Fees for one or more of the Plan Years 1995 through 1999
or the period August 1-December 31, 1994, in Options to purchase the number of
shares of Common Stock specified in Section 4.1.
For example: the annual Option Plan Election may cover the Plan Year or
Years set forth below (to the extent not theretofore the subject of an Option
Plan Election).
<TABLE>
<CAPTION>
Plan Years or Periods
for Which Option Plan
Date of Option Plan Election Fees May Be Elected
<S> <C>
On or Before July 20, 1994 August 1-December 31, 1994
On or Before July 20, 1994 1995-1999
On or Before December 15, 1995 1996-1999
On or Before December 15, 1996 1997-1999
On or Before December 15, 1997 1998-1999
On or Before December 15, 1998 1999
</TABLE>
Elections must include the earliest Plan Year for which un-elected Fees
exist and (if additional years are included in the Election) consecutive
successive years. An Option Plan Election covering Option Plan Fees for this
period shall preclude a Stock Plan Election purporting to cover the same Fees.
3.3 EFFECTIVE DATE.
Option Plan Elections made on or before July 20, 1994 shall become
effective on August 1, 1994. Later years' Option Plan Elections shall become
effective as of the next Option Plan Effective Date.
3.4 ADJUSTMENT FOR ACTUAL FEES EARNED.
If by the end of any Plan Year a Director shall not have earned the amount
of Option Plan Fees elected by him or her to be received in Options, the number
of shares of Common Stock covered by Options granted for such Plan Year shall be
diminished pro rata. Any Fees earned which have not been subject of an Option
Plan Election shall be paid in cash in accordance with the normal
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<PAGE>
payment practices of the Company for Directors' Fees. If a Participant's
directorship should terminate during a Plan Year which has been the subject of
an Option Plan Election, all Fees (including Option Plan Fees) earned by a
Director prior to termination shall be paid to him or her or his or her
Beneficiary, in cash, on January 15 of the next calendar year (and the related
Option shall terminate as elsewhere herein provided).
3.5 CANCELLATION OF ELECTION.
At any time an Option Plan Participant may cancel one or more Options or
installments of Options held by him or her which relate to future Plan Years and
consequently have not been earned as of the date of such cancellation.
Cancellation shall be effected by delivering a written notice of cancellation to
the Administrator. Such cancellation shall not affect any options held by the
Participant relating to the year in which cancellation occurs or to any prior
year. Option Plan Fees to be earned by a Director covered by a canceled
Election shall thenceforth be paid in cash in accordance with the Company's
practices, and may not thereafter become the subject of an Option Plan Election.
ARTICLE 4
TERMS OF OPTIONS
4.1 NUMBER OF SHARES COVERED BY AN OPTION.
The number of shares of Common Stock covered by an Option resulting from an
Option Plan Election shall be equal to the Option Plan Fees covered by the
Election divided by the Option Value.
4.2 MAXIMUM DURATION.
The maximum exercise period for each Option granted under the Option Plan
shall be ten years from the Effective Date of the Option.
4.3 INITIAL EXERCISABILITY IN INSTALLMENTS.
Options representing Option Plan Fees to be earned in one Plan Year shall
become exercisable on January 1 of the following Plan Year.
Options which relate to Fees to be earned in more than one Plan Year shall
become exercisable in installments on the January 1 of the year following the
year in which Fees represented by the installment are earned. For example: An
Election covering the years 1996, 1997 and 1998 would become exercisable: as to
shares representing 1996 Fees-January 1, 1997; as to shares representing 1997
Fees-January 1, 1998; as to the remainder of the shares-January 1, 1999. An
Election covering Fees to be earned in 1999 will first become exercisable on
January 1, 2000.
Options relating to the period August 1, 1994-December 31, 1994 shall first
become exercisable on February 1, 1995.
4.4 EXERCISE PRICE.
The Exercise Price for all shares of Common Stock purchasable upon exercise
of an Option shall be 90% of the Fair Market Value as of the Effective Date
applicable to the Option exercised.
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<PAGE>
4.5 NOTICE OF EXERCISE.
An Option Plan Participant wishing to exercise an Option may do so by
giving written notice of exercise in the form adopted for the Option Plan.
4.6 PAYMENT OF PURCHASE PRICE.
At the choice of the holder of the Option, the Purchase Price may be paid
either in cash, or in shares of Common Stock valued at Fair Market Value on the
trading day immediately preceding the date of exercise specified in the notice
of exercise.
4.7 EXERCISABILITY CONTINUING AFTER TERMINATION.
If a Participant's directorship terminates for any reason, the Option shall
continue to be exercisable by the Participant or his or her Family Transferee or
Beneficiary to the extent that the Option is or becomes exercisable in
accordance with its terms. In no event shall the exercise date be later than
the date specified in Section 4.2."
4.8 OPTIONS NOT TRANSFERABLE; EXCEPTIONS.
No Option granted under the Option Plan shall be transferable other than by
will or the laws of descent or distribution except pursuant to a domestic
relations order as defined by the Internal Revenue Code or Title I of the
Employee Retirement Income Security Act ("ERISA") or the rules thereunder and
except that, with the consent of the Committee acting in its sole discretion, an
Option Plan or Formula Plan Participant may transfer (a "Family Member
Transfer") an Option to (i) a member of the Participant's immediate family
(which for the purposes of the Plan shall have the same meaning as defined in
Rule 16a-1 promulgated under the Exchange Act); (ii) a trust (the "Family
Trust") the beneficiaries of which consist exclusively of members of the
Participant's immediate family; and (iii) a partnership, limited partnership or
other limited liability entity ("Family Entity") the members of which consist
exclusively of members of the Participant's immediate family, Family Trusts and
Family Entities; provided that no consideration is paid for the transfer.
During the lifetime of a Participant, an Option shall be exercisable only by the
Participant or his or her Family Transferee or Beneficiary. A ("Family
Transferee") is transferee that is a member of the immediate family of a
Participant or a Family Trust or Family Entity."
ARTICLE 5
ELECTIONS BY STOCK PLAN PARTICIPANTS
5.1 DIRECTORS MAY ELECT TO RECEIVE FEES IN THE FORM OF PLAN UNITS.
Directors may elect to receive Directors' Fees (to the extent such
Directors' Fees are not the subject of an Option Plan Election) in the form of
Plan Units.
5.2 STOCK PLAN ELECTION TO DEFER.
A Director of the Company may become a Stock Plan Participant by electing,
on an annual basis and prior to June 30 of a Plan Year, to defer receipt of all
or a portion of the Stock Plan Fees payable to such Director for the next
ensuing Plan Year. An Election shall be effective upon the delivery by a Stock
Plan Participant to the Administrator of a written Stock Plan Election to
evidence
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<PAGE>
his or her decision. Such Stock Plan Election shall indicate the portion of
Directors' Fees to be deferred and credited to his or her Stock Plan Account.
The following special provisions shall apply to Directors' Fees for 1994
and 1995: On or before July 20, 1994, a Director may deliver a Stock Plan
Election to the Administrator in which he or she elects to defer receipt of all
or a portion of the Directors' Fees payable to such Director for services during
the period August 1, 1994 through December 31, 1994. In such a case, all
deferred Fees will be held by the Company in the Participant's Stock Plan
Account and will not be invested in Plan Units until February 1, 1995. An
election to defer Fees to be accrued during the period January 1, 1995 through
December 31, 1995 shall be made on or before July 20, 1994 as provided herein
except that the first Accounting Date for investment of such Fees shall be April
1, 1995.
If a person becomes a Director after the beginning of any Plan Year, he or
she may elect to defer receipt of Fees for future services in such Plan Year.
Such Stock Plan Election must be made in writing and delivered to the
Administrator within twenty days after the individual becomes a Director and
will take effect as of the first calendar quarter to start after the date of
such Election. In such a case, deferred Fees will be held by the Company in the
Participant's Stock Plan Account and will not be invested in Common Stock or
Plan Units until the first Accounting Date which is at least six (6) months
after the date that such Stock Plan Election is first delivered to the
Administrator.
5.3 EFFECTIVENESS OF ELECTIONS.
Elections for each Plan Year shall be effective and irrevocable upon the
delivery of a Stock Plan Election to the Administrator, except as specifically
provided in this Plan. Fees deferred pursuant to such Stock Plan Election shall
be credited to the Participant's Stock Plan Account and distributed at the times
and in the manner set forth in such Election.
In the absence of an effective Stock Plan Election to take effect on the
Time of Distribution as to the time and/or manner of distribution, the payout of
a Stock Plan Account shall be in one lump sum cash payment at the Time of
Distribution or as soon thereafter as possible, as provided by Section 2.28.
ARTICLE 6
STOCK PLAN ACCOUNTS AND PLAN UNITS
6.1 CREDITING STOCK PLAN ACCOUNTS.
The Stock Plan Account of each Stock Plan Participant shall be credited as
of each Accounting Date with Plan Units equal to the number of shares of Common
Stock (including fractional share entitlements) that could have been purchased
with 110% of the amount credited to his or her Stock Plan Account by reason of
the Fees deferred for the quarter ended on the day before the Accounting Date
and any interest component at the Applicable Rate of Interest. The quarterly
crediting of the Plan Units with deferred Fees has been established for
administrative convenience. As of the date of any payment of a stock dividend
or stock split by the Company, a participant's Stock Plan Account will be
credited with Plan Units equal to the number of shares of Common Stock
(including fractional share entitlements) which are payable by the Company with
respect to the number of shares (including fractional share entitlements) equal
to the number of Plan Units credited to the Participant's Stock Plan Account on
the record date for such stock dividend or stock split. As of the date of any
dividend in cash or property or other distribution payable to holders of Common
Stock, the Participant's Stock Plan Account shall be credited with additional
Plan units equal to the
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<PAGE>
number of shares of Common Stock (including fractional share entitlements) that
could have been purchased at the Fair Market Value as of such payment date with
the amount which would have been received as a dividend or distribution on the
number of shares (including fractional share entitlements) equal to the Plan
Units credited to the Participant's Stock Plan Account as of the record date.
On a quarterly basis, or as otherwise appropriate to match increases in
Plan Units held in the Plan, the Company may, but shall not be required to,
purchase Common Stock on the open market and hold the same in the "Deferred Fee
Stock Plan for Non-Employee Directors Account." Also, the Company may enter
into a Trust Agreement with a Trustee and may, but shall not be required to,
transfer to the Trustee either (a) the number of shares of Common Stock
approximately equal in Fair Market Value as of the last Accounting Date to the
aggregate dollar amount of credits in the Participants' Stock Plan Accounts for
Stock Plan Fees deferred by the Directors and any interest component on such
Accounting Date, or (b) cash with instructions to purchase shares of Common
Stock either from the Company or in the open market, as determined by the
Company. Purchases in the open market by the Trustee shall not be subject to
any direct or indirect control or influence over the times when, or the prices
at which, or the broker or dealer through which, the Trustee shall buy such
shares.
6.2 ESTABLISHMENT OF STOCK PLAN ACCOUNTS. The Company, Administrator or the
Trustee, as appropriate, shall establish a separate "Stock Plan Account" for
each Stock Plan Participant who defers Stock Plan Fees pursuant to the Plan, and
credit each Participant's Stock Plan Account with his or her entitlement to
deferred Fees, an interest component at the Applicable Rate of Interest and Plan
Units.
6.3 ADJUSTMENT OF STOCK PLAN ACCOUNTS. As of each Accounting Date of each Plan
Year and on such other dates as the Administrator directs, the value of each
Stock Plan Account shall be determined by the Company, the Administrator, or the
Trustee, as appropriate.
ARTICLE 7
PAYMENT OF STOCK PLAN ACCOUNTS
7.1 TIME AND METHOD OF DISTRIBUTION. Distribution of a Participant's Stock
Plan Account shall commence at Time of Distribution. Distribution shall be made
in a lump sum or in equal annual cash installments over a period of five years.
If a distribution is to be made in a lump sum it may be made either in
shares of Common Stock or in cash. If a distribution is to be made in cash, it
shall be in an amount equal to the Fair Market Value as of the Time of
Distribution (or such later date as may be required to continue an exemption
under Rule 16b-3) of all Plan Units credited to a Participant's Stock Plan
Account plus any uninvested deferred Stock Plan Fees and related interest
component. The distribution shall be paid to the Stock Plan Participant or his
or her Beneficiary.
If a distribution is to be made in shares of Common Stock, the distribution
shall be such number of shares of Common Stock as shall equal the Plan Units
credited to such Participant's Stock Plan Account plus shares of Common Stock
equivalent in Fair Market Value to the amount of any accumulated uninvested
deferred Fees and interest component in such Participant's Stock Plan Account as
of the Time of Distribution. Any remaining fractional interest shall be paid in
cash.
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If a distribution is made in annual installments, each annual installment
shall be in cash and equal to one-fifth of the amount of the lump sum payable as
of the Time of Distribution or later date as aforesaid, with interest on each
unpaid installment at the Applicable Rate of Interest in effect on the date of
Termination by a Director of his directorship.
7.2 ELECTION OF METHOD OF DISTRIBUTION.
At the time that a Director first makes a Stock Plan Election to defer Fees
for a Plan Year, such Director may elect whether the payments to be made at the
Time of Distribution for that Plan Year shall be distributed in a lump sum or in
five equal annual cash installments.
At the same time, any Stock Plan Participant electing lump sum payment may
also elect for the payment of such lump sum to be in shares of Common Stock
credited to the Stock Plan Account or in cash. A Stock Plan Participant may, in
connection with his or her retirement, death or disability, change his or her
Stock Plan Election as to the method of payment (shares or cash) of any lump sum
distribution from time to time.
Subject to the provisions of Articles 9 and 10, either the Committee or the
Administrator, in their sole discretion, may direct the distribution of the
Director's entitlement in a lump sum or in annual installments, and the
Committee or Administrator may take into account, but need not take into
account, any request by a Director concerning the period over which his
entitlement will be distributed.
7.3 MERGER, CONSOLIDATION, SALE OF ASSETS OR TENDER FOR SHARES.
In the event of a proposed merger or consolidation in which the Company
will not be the surviving corporation, or a sale of a majority of the assets of
the Company, or in the case of a tender offer for the Company's Common Stock or
a similar corporate transaction which is expected in the view of the Committee
to result in another company, firm, or group acquiring 20% or more of the voting
power of the Company's outstanding securities, the Plan shall take steps to
convert Plan Units held by Participants into shares of Common Stock. The Plan
shall obtain such shares with a view to making the same available for
participation by Stock Plan Participants in the transaction (subject to the
fourth from last sentence of this Section). Such shares may be obtained by the
Plan from the "Deferred Fee Stock Plan for Non-Employee Directors Account," any
trust account for the benefit of Plan Participants, the Company, or any other
source, including authorized and unissued, or issued and reacquired, shares of
Common Stock. In the event that shares of Common Stock are convertible into or
otherwise exchangeable for securities of another corporation, or cash or other
property without the need for action or tender by an individual shareholder, the
Company shall take all necessary steps to carry out such conversion or exchange
and shall deliver to each Stock Plan Participant the securities, cash or other
property into which his or her shares have been exchanged or converted. In the
event of a tender offer or similar event in which an individual shareholder of
the Company may elect to tender shares or otherwise take steps to receive
securities, cash or other property, the Company shall so advise the Participants
and take such action, including tender, or shall refrain from action, as
directed in writing by each Stock Plan Participant. Prior to the completion of
such tender offer or similar event, no Participant shall have any entitlement to
any shares, and if such event is not completed each participant shall be
entitled to Plan Units and not shares of Common Stock. Upon the completion of
such tender offer or similar event, the Company shall distribute to each Stock
Plan Participant any shares of Common Stock, securities, cash or other property
held by the Plan for his or her Stock Plan Account. The Administrator may delay
such distribution to any Stock Plan Participant
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in order to comply with, or continue the availability of an exemption under, the
Act or Exchange Act. Upon the completion of such distribution the Stock Plan
shall terminate.
7.4 CHANGE IN TAX LAW.
The Stock Plan is intended to be treated as an unfunded deferred
compensation plan under the Code. It is the intention of the Company that the
amounts deferred pursuant to this Plan shall not be included in the gross income
of the Participants or their Beneficiaries until such time as the deferred
amounts are distributed from the Plan. If, at any time, it is determined or
claimed by the Internal Revenue Service ("Service") that amounts deferred in
earlier plan Years have become currently taxable to the Participants or their
Beneficiaries, the Committee may, in its discretion, terminate the Plan and
distribute amounts credited to the Stock Plan Participants or their
Beneficiaries. Such determination shall be based on a ruling or publicly
available Pronouncement from the Service, or on the position taken by the
Service in audit, or a written opinion from tax counsel.
ARTICLE 8
CREDITORS AND INSOLVENCY
8.1 UNFUNDED STATUS.
Any and all payments made to a Stock Plan Participant pursuant to the Plan
shall be made from the general assets of the Company or assets available to its
general creditors. Any payments made in good faith under the terms of the Plan
to a Stock Plan Participant or his Beneficiary shall
fully discharge the Plan, the Company, the Trustee, if any, the Administrator
and the Committee from all further obligations with respect to such payments.
The Company intends that the Plan shall be considered unfunded for all purposes,
including tax purposes and purposes of Title I of ERISA.
8.2 CLAIMS OF THE COMPANY'S CREDITORS.
All assets held pursuant to the provisions of this Plan shall be subject to
the claims of general creditors of the Company, including judgment creditors and
bankruptcy creditors. The rights of a Stock Plan Participant or Beneficiary to
any assets of the Plan or Trust shall be no greater than the rights of an
unsecured creditor of the Company.
No Stock Plan Participant shall have any claim or entitlement to any shares
of Common Stock which have been purchased, acquired or held by the Plan, Company
or any Trustee. Any and all such shares shall be the property of the Company
and shall only represent funds or assets available to the Company which it shall
have designated to match its obligations and accruals with respect to the Plan.
8.3 NOTIFICATION OF TRUSTEE, IF ANY.
If the Company has appointed a Trustee for the Plan, the following
provisions shall obtain: In the event the Company becomes insolvent, the Board
of Directors and the Chief Executive Officer of the Company shall immediately
notify the Trustee of that fact. The Trustee shall not make any payments from
the Trust to any Stock Plan Participant or any Beneficiary under the Plan after
such notification is received or at any time after the Trustee has knowledge of
such insolvency. Under any such circumstances, the Trustee shall make available
any property held in the Trust to satisfy the claims of the Company's general
creditors or, upon satisfaction of such claims, to the Participants, as
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a court of competent jurisdiction may direct. For purposes of this Plan, the
Company shall be deemed to be insolvent if the Company is subject to a pending
voluntary or involuntary proceeding as a debtor under the United States
Bankruptcy Code, or is unable to pay its debts as they mature. All trust assets
shall be subject to the claims of general creditors of the Company to the
fullest extent contemplated by Revenue Procedure 92-64.
ARTICLE 9
PAYMENT OF SHARES
9.1 DELIVERY OF CERTIFICATES FOR STOCK.
At the Time of Distribution or as soon thereafter as practicable, subject
to the fourth paragraph of this Section, the Company shall deliver to a Stock
Plan Participant who has elected to receive shares of Common Stock or to his
Beneficiary a certificate for the shares of Common Stock to which he or she is
entitled. At the time of exercise of an Option, subject to the fourth paragraph
of this Section, the Company shall deliver to the Option Plan Participant or his
or her Beneficiary a certificate for shares of Common Stock to which he or she
is entitled. Such certificates shall be registered in the name of the
Participant or Beneficiary.
The Company shall not be required to issue or deliver any certificates for,
or make book-entry reflecting, shares of Common Stock prior to (a) the listing
of such shares on any stock exchange or quotation system on which the Common
Stock may then be listed or quoted and (b) the completion of any registration,
qualification, approval or authorization of such shares under any federal or
state law, or any ruling or regulation or approval or authorization of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
All certificates for shares of Common Stock delivered under the Plan, and
book entries reflecting such shares, shall be subject to such restrictions as
the Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed and any applicable federal or state
securities laws.
If the registration of ownership of Common Stock is then being maintained
by the Company or its transfer agent in book-entry form, then the delivery of
shares of Common Stock to the Participant or his Beneficiary may be evidenced by
book entry, unless the Participant or Beneficiary requests otherwise in writing.
9.2 TAXES.
The Company or the Trustee, as appropriate, shall deduct the amount of any
taxes, if so required by law, from any payments made pursuant to the Plan and
shall transmit the withheld amounts to the appropriate taxing authority, and
provide the Stock Plan Participant or any Beneficiary of appropriate evidence of
withholding. In the case of exercise of an Option under the Option Plan or
payment in shares of Common Stock under the Stock Plan, the Participant may
request the Company to accept payment of any related withholding taxes in the
form of shares of Common Stock valued at Fair Market Value on the trading day
immediately prior to the related exercise of the Option or payment in shares of
Common Stock, as the case may be.
9.3 PAYMENT TO BENEFICIARY, EXERCISE OF OPTION BY BENEFICIARY.
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Upon the death of a Stock Plan Participant, the Stock Plan Account of the
deceased Stock Plan Participant shall be paid to the Beneficiary either (i) in
the same manner as it would have been paid to the Stock Plan Participant or (ii)
in a lump sum settlement, as determined by the Committee or the Administrator in
their sole discretion, consistent with the guidelines referred to in Article 10.
Upon the death of a Option Plan Participant, the Beneficiary may exercise any
Option to the extent exercisable on the date of death.
9.4 REDESIGNATION OF BENEFICIARY.
Amendments which serve only to change the Beneficiary designation shall be
permitted at any time and as often as necessary.
ARTICLE 10
ADMINISTRATION
10.1 APPOINTMENT OF COMMITTEE AND ADMINISTRATOR.
The Board of Directors shall appoint a Stock Plan Committee and an Option
Plan Committee (which may be the same Committee), each consisting of not less
than two persons, to administer and interpret the Plan. Members of a Committee
shall hold office at the pleasure of the Board of Directors and may be dismissed
at any time with or without cause.
The Board of Directors shall also designate one or more officers or
employees of the Company to be the Administrator to have the primary
administrative responsibility with respect to each Plan, in coordination with
and under the direction of the Committee.
10.2 POWERS OF THE ADMINISTRATOR AND THE COMMITTEE.
The Stock Plan and Option Plan Committees and the Administrator shall
together administer the Plan. The Committees shall not, under any
circumstances, have authority to select those Directors who will be eligible to
participate in the Plan or to make decisions concerning the timing, pricing or
amount of any benefit, Plan Unit, share of Common Stock or Option under the
Plan. All such matters are determined solely by the provisions of the Plan.
The Committees shall interpret or supplement the provisions of the Plan where
desirable or necessary and may resolve ambiguities or omissions or adopt
procedures for the administration of the Plan consistent with the purpose and
provisions of the Plan and any rules adopted by the Committee. Whenever
directions, designations, applications, requests or other notices are to be
given by a Participant under the Plan, they shall be filed with the
Administrator.
Except as provided in the next paragraph, all decisions, determinations or
actions of a Committee made or taken pursuant to grants of authority under the
Plan shall be made or taken in the sole discretion of a Committee and shall be
final, conclusive and binding on all persons for all purposes.
If the taking of any action or the making of any determination by a
Committee or Administrator shall jeopardize the effectiveness of the deferral of
Fees or of credits in Participants' Stock Plan Accounts or Options for federal
income tax purposes or any exemption of any plan of the Company from Section
16(a) and (b) of the Exchange Act, the Committee or Administrator, as the
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case may be, shall be deemed to be without the power to take such action or make
such determination.
10.3 RENDERING OF QUARTERLY PLAN ACCOUNTS.
After the close of each quarter, the Administrator will deliver to each
Participant a statement showing the Plan Units which have been credited to his
or her account as of the end of such quarter and any accumulated deferred fees.
The accounting shall also indicate the price per unit for all Plan Units
credited since the end of the previous account. The statement will also show
the Options held and/or elected by a Participant and the terms of such Options.
10.4 BOTH ELECTIONS MAY APPLY TO A PLAN YEAR. Subject to the limitations
contained in each Plan, a Director may elect to include all or any portion of
his Fees to be earned in any future Plan Year in one or both of the Plans, but
without duplication. If a Director has delivered an Option Plan Election and a
Stock Plan Election for the same Plan Year or period, the Fees covered by such
Elections shall be allocated as specified in such Elections or in other
instructions from the Director. In the event of a conflict in instructions from
a Director, the Administrator shall advise the Director.
10.5 ADVANCE NOTIFICATION BY ADMINISTRATOR.
On or before May 31 of each year, the Administrator shall notify each
Director that he or she must deliver a written Stock Plan Election to the
Administrator prior to June 30 (or any later cut-off date permitted by the
Administrator) in order to defer Fees during the next calendar year. On or
before November 30 of each year, the Administrator shall notify each Director
that he or she must deliver a written Option Plan Election to the Administrator
prior to December 15 (or any later cut-off date permitted by the Administrator)
in order to elect to receive Options in payment for future services as a
Director in upcoming Plan Years.
ARTICLE 11
MISCELLANEOUS
11.1 TERM OF PLAN.
The Plan shall become effective as provided in Section 11.9 and the Stock
Plan shall continue through the Plan Year 2014 unless earlier terminated
pursuant to Sections 7.3 or 7.4.
11.2 SHARES SUBJECT TO THE PLAN.
As of any date the maximum number of shares of Common Stock which the Plan
may be obligated to deliver pursuant to the Stock Plan and the maximum number of
shares of Common Stock which shall have been purchased by Participants pursuant
to Options and which may be issued pursuant to outstanding Options under the
Option Plan shall not be more than one (1%) percent of the total outstanding
shares of Common Stock Series A and Series B of the Company as of such date,
subject to adjustment in the event of changes in the corporate structure of the
Company affecting capital stock. Any Common Stock transferred by the Company to
a Stock Plan Account or to the Trustee or delivered by the Company upon exercise
of an Option hereunder may consist, in whole or in part, of authorized and
unissued shares or treasury shares as the Company shall determine. Cash
transferred to the Trustee may be used to purchase Common Stock in the open
market or from the Company.
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In the event that the total number of shares of Common Stock subject to, or
issued pursuant to, the Plan at any one time is in excess of the above-stated
limit, the number need not be reduced if such excess has resulted from a
reduction in the amount of issued and outstanding shares of Common Stock
subsequent to the time that such Options were granted or such shares were
issued. If any shares of Common Stock subject to purchase by a Participant
under an Option under the Plan are not purchased, such shares of Stock shall be
deemed not to have been purchased pursuant to the Plan for purposes of this
Section. Shares of Common Stock received or retained by the Company in payment
of the exercise price of Options or in payment, or in lieu of payment, of
withholding taxes shall not reduce the number of shares deemed to have been
purchased pursuant to the Plan.
11.3 NON-ALIENATION OF BENEFITS.
The rights of a Stock Plan Participant to the payment of deferred
compensation, to funds or shares as provided in this Plan and with respect to
amounts credited to his or her Stock Plan Account and the rights of an Option
Plan Participant with respect to an Option or to purchase shares of Common Stock
upon exercise of an Option are not transferable by a Participant other than by
will or the laws of descent and distribution and shall not be assigned,
transferred, pledged or encumbered or be subject in any manner to alienation or
anticipation, except that an Option Plan Participant and Formula Plan
Participant may make a Family Member Transfer. No Participant may borrow
against his or her Stock Plan Account or Options. No Stock Plan Account nor
Option shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution or
levy of any kind, whether voluntary or involuntary, including, but not limited
to, any liability which is for alimony or other payments for the support of a
spouse or former spouse, or for any other relative of a Participant, except that
an Option Plan Participant and Formula Plan Participant may make a Family Member
Transfer. Neither a Participant's Stock Plan Account or Option hereunder nor a
Participant's rights to benefits hereunder may be assigned to any other party by
means of a judgment, decree or order (including approval of a property
settlement agreement) relating to the provision of child support, alimony
payments, or marital property rights of a spouse, former Spouse, child or other
dependent of the Participant. As contemplated by Revenue Procedure 92-65 under
the Code, a Stock Plan Participant's rights to benefit payments under the Plan
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Participant or the Participant's Beneficiary.
This Plan shall not in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any persons entitled to benefits
hereunder.
In the event that, notwithstanding the foregoing, any Participant's
benefits are garnisheed or attached by order of any court, the Administrator may
elect to bring an action for a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid by the
Plan. During the pendency of said action, any benefits that become payable may
be paid into the court as they become payable, to be distributed by a court to
the recipient as it deems proper at the close of said action.
In addition, a Participant or Beneficiary shall have no rights against or
security interest in the assets of the Plan, Company or Trust, if any, and shall
have only the Company's unsecured promise to pay benefits. All assets of the
Trust, if any, shall remain subject to the claims of the Company's general
creditors.
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11.4 PARTICIPANTS' RIGHTS.
Nothing contained in this Plan shall be construed as giving any Participant
the right to be retained as a Director of the Company. Nothing contained in
this Plan shall be construed as limiting, in any way, any right that any party
or parties may have to remove a Participant as a Director of the Company or to
appoint or to elect another individual to replace a Participant as a Director of
the Company. Nothing contained in this Plan shall be construed as giving any
Participant the right to receive any benefit not specifically provided by the
Plan. Any other provision of the Plan notwithstanding, a Stock Plan Participant
shall not have any interest in the amounts credited to his Stock Plan Account
until such Stock Plan Account is distributed in accordance with the provisions
of Article 7, and all deferred Fees, and all earnings, gains and losses with
respect thereto shall remain subject to the claims of the Company's general
creditors in accordance with the provisions of the Stock Plan. With respect to
amounts credited to a Participant's Stock Plan Account, the rights of the Stock
Plan Participant, the Beneficiary of the Participant or any other person
claiming through the Participant under this Stock Plan shall be solely those of
unsecured general creditors of the Company, and the obligations of the Company
hereunder shall be purely contractual. Such benefits shall be paid from the
general assets of the Company. As contemplated by Revenue Procedure 92-65 under
the Code, Participants shall have the status of general unsecured creditors of
the Company and each Plan, and all rights thereunder, shall constitute a mere
promise of the Company to make benefit payments in the future.
11.5 ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK.
Subject to the provisions of Sections 6.1 and 7.3, in the event of any
stock dividend, stock split, recapitalization, or reclassification of shares of
Common Stock, merger or consolidation of the Company or sale by the Company of
all or a portion of its assets, or tender offer for its securities, or other
event which could distort the implementation of the Plan or the realization of
its objectives, the Administrator shall make such appropriate adjustments in the
number and kind of securities which a Plan Unit will represent or which may be
paid out under the Plan, and in the number of shares of Common Stock or other
securities or number and kind of securities, and the purchase price therefor,
for which an Option may be exercisable or in terms, conditions or restrictions
on securities as the Administrator deems equitable.
In the event of a stock split or stock dividend, the number of shares
purchasable upon exercise of an Option shall be increased to the new number of
shares which result from the shares covered by the Option immediately before the
split or dividend. The purchase price per share shall be reduced
proportionately and the total purchase price will remain the same. In the case
of a distribution in property other than cash the number of shares covered shall
be increased to reflect, in shares valued at the then current market, the fair
value of the distribution.
All events occurring between the Effective Date of the Option and its
exercise shall result in an adjustment to the Option terms.
11.6 AMENDMENTS; OTHER.
The Board or the Committee may amend the Plan to the extent necessary or
appropriate to effect compliance with Rule 16b-3 in order to continue or provide
an exemption from Section 16(a) and (b) of the Exchange Act for either Plan or
any other equity plan of the Company, and the Administrator may change the cut-
off dates for Elections or the dates of effectiveness of transactions
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or other events under the Plan to the same end; provided that no such amendments
or change shall materially increase the benefits to or adversely affect the
rights of the Participants.
In addition, the Board may amend the Plan in any other manner, provided,
however, that no amendment shall adversely and materially affect the rights of a
Participant, taken as a whole, to amounts previously credited to his or her
Stock Plan Account or to Options which have been granted unless such amendment
is required by Rule 16b-3 in order to continue or provide an exemption from
Section 16(b) of the Exchange Act for either Plan or any other equity plan of
the Company, or for the deferral of Directors' Fees until the year of payout or
exercise of Options under either Plan for Federal income tax purposes.
Amendments may not be made more frequently than permitted by Rule 16b-3.
No amendment shall require shareholder approval unless required under Rule 16b-
3. If shareholders' approval is necessary or desirable for the continued
validity of the Plan or if the failure to obtain such approval would adversely
affect the compliance of the Plan with Rule 16b-3, no such amendment shall
become effective unless approved by affirmative vote of the Company's
shareholders.
Transactions under each Plan are intended to comply with applicable
conditions of Rule 16b-3, except that a purchase under the Option Plan may be
deemed to occur on an Effective Date. To the extent any provision of each Plan
intended to comply, or action by the Administrator, fails to so comply, it shall
be deemed null and void, to the extent permitted by law and declared advisable
by the Administrator.
11.7 NOTICES.
All elections, designations, requests, notices, instructions and other
communications from a Director, Participant, Beneficiary or other person to the
Administrator, required or permitted under the Plan, shall be in such form as is
prescribed from time to time by the Administrator and shall be mailed by first
class mail, delivered by facsimile or otherwise delivered to such location as
shall be specified by the Administrator.
11.8 BINDING EFFECT.
The terms of the Plan shall be binding upon the Company and its successors
and assigns.
11.9 EFFECTIVE DATE OF ORIGINAL PLAN.
The Plan shall be effective as of June 28, 1994, subject to approval by the
shareholders of the Company. All deferrals or credits to a Stock Plan Account,
and all Options, made prior to such shareholder approval shall be contingent on
such approval. The existing Citizens Utilities Company Deferred Compensation
Plan for Directors shall continue to be available for compensation deferrals and
shall not be affected by the adoption of this Plan.
ARTICLE 12
FORMULA PLAN
12.1 ELIGIBILITY.
All Directors of the Company shall automatically participate in the Formula
Plan.
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12.2 SHARES SUBJECT TO THE FORMULA PLAN.
Shares of Common Stock which shall have been purchased or which may be
issued upon the exercise of the Options under the Formula Plan shall be included
as shares which shall have been purchased by Participants pursuant to Options
and which may be issued pursuant to Options under the Option Plan for purposes
of the maximum share limitation of Section 11.2.
12.3 TERMS, CONDITIONS AND FORM OF OPTIONS.
Each Option granted under the Formula Plan shall be evidenced by written
agreement in such form and containing such terms, consistent with the Plan, as
the Committee shall from time to time approve. All Options and said agreements
shall be subject to the terms and conditions set forth in this Article 12 and to
the other applicable terms and conditions of the Plan.
12.4 GRANT.
On the first day of each Plan Year starting with the calendar 1997 and
continuing through 2002 (and for successive years thereafter if the Plan is
extended by the Board of Directors), Options to purchase 5,000 shares of Common
Stock, as adjusted pursuant to Section 11.5, shall be awarded to each Director
in office on such date, without the need for further corporate action. The
Grant Date for such Options shall be the first day of each year. In addition,
on September 1, 1996, Options to purchase 2,500 shares of Common Stock shall be
granted to each Director of the Company in office on such date. In each Plan
Year, the Board of Directors may change the number of shares of Common Stock
which will be subject to purchase upon exercise of the Options to be awarded
during the succeeding Plan Year subject to a maximum of 10,000 shares of Common
Stock per year, as adjusted pursuant to Section 11.5.
12.5 SUBSEQUENTLY ELECTED DIRECTORS.
For years subsequent to 1996, individuals who are not Directors on the
first day of a Plan Year but who become Directors of the Company on or before
the date of the annual meeting of stockholders for the election of directors
shall be awarded, as of the Grant Date, without need for further corporate
action, Options to purchase 5,000 shares of Common Stock. The Grant Date for
such Options shall be the date upon which such individual first becomes a
Director. Individuals who become a Director or who become eligible to
participate in the Plan during a Plan Year, but after the date of the annual
meeting of stockholders, shall not be eligible to receive options until the
first day of the next Plan Year.
12.6 EXERCISE PRICE.
The purchase price per share of Common Stock for which each Option is
exercisable shall be 100% of the Fair Market Value per share of Common Stock on
the Grant Date for such Option. "Fair Market Value" shall have the meaning as
defined in Article 2 assuming that the Grant Date is a date specified in the
definition.
12.7 EXERCISABILITY; TERM OF OPTIONS.
Each option under the Formula Plan will vest and become exercisable six
months after the Grant Date (provided that the Participant is a Director at that
time) or on such earlier date that a Participant ceases to be a Director by
reason of retirement (which for these purposes shall mean retirement pursuant to
Board policy), death or disability. Except as otherwise provided in this
Section, each Option granted under the Formula Plan shall remain exercisable
until the 10th anniversary of its Grant Date.
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12.8 OTHER.
To the extent not inconsistent with the provisions set forth in this
Article 12, Options awarded pursuant to the Formula Plan, Participant's rights
and the Company's obligations shall be subject to the provisions of Sections
4.5, 4.6, 4.7 and 4.8 and Articles 2, 9, 10 and 11 of the Plan.
12.9 COMPLIANCE WITH LAW.
All Options granted pursuant to the Formula Plan will be subject to
compliance with all applicable laws, rules and regulations of any regulatory or
other governmental body having jurisdiction, and with any rules or policies of
any stock exchange on which shares of Common Stock may be listed, and each
option agreement shall provide that the validity of the Options and the
Company's obligation to issue Shares of Common Stock upon exercise of the Option
are subject to such compliance."
12.10 DURATION OF THE FORMULA PLAN; EFFECTIVE DATE.
Amendment No. 1 to the Plan shall become effective on August 20, 1996,
provided that the effectiveness of the Formula Plan and the amendment to the
Plan modifying Section 4.7 shall be subject to approval of the stockholders of
the Company at the first annual meeting of the stockholders held after the end
of the 1996 to the extent, in each case, that such approval is called for by the
rules or policies of the New York Stock Exchange or is otherwise deemed
advisable by the Company. The period during which Option awards may be made
under the Formula Plan shall terminate on December 31, 2002. Such termination
shall not effect the terms of any then outstanding Options. The Board of
Directors of the Company shall have the right to extend the effectiveness of the
Formula Plan, with such amendments to the Plan as they may deem appropriate, for
an additional six-year period until December 31, 2008 without any additional
approval by the stockholders of the Company being required, it being understood
that if any approval of stockholders of the Company is obtained during 1997,
such approval shall include the Plan as and if so extended by the Board of
Directors.
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