<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:
[ ] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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 previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO]CITIZENS
Administrative Offices
High Ridge Park, Stamford, CT 06905
(203) 614-5600
- -------------------------------------------------------------------------------
March 24, 1998
Dear Fellow Stockholder:
I am pleased to invite you to attend the 1998 Annual Meeting of the
Stockholders of Citizens Utilities Company which will be held at the Heathman
Lodge, Vancouver, Washington, on Thursday, May 21, 1998 at 10:00 a.m., Pacific
Time.
At last year's Annual Meeting, about 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 admission
card only. Registered stockholders planning to attend the meeting should
complete and return the advance registration form on the back page of this
Proxy Statement. 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 an admission card 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>
[LOGO]CITIZENS
Administrative Offices
High Ridge Park, Stamford, CT 06905
(203) 329-8800
- -------------------------------------------------------------------------------
March 24, 1998
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
To the Stockholders of
CITIZENS UTILITIES COMPANY:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Citizens
Utilities Company will be held at the Heathman Lodge, Vancouver, Washington,
on May 21, 1998 at 10:00 am., Pacific Time, for the following purposes:
1. To elect directors;
2. To approve an amendment to the Restated Certificate of Incorporation
of the Company to eliminate reference to the two series capitalization and
to provide for a single series of common stock;
3. To transact such other business as may properly be brought before the
meeting.
The Board of Directors has fixed the close of business on March 23, 1998 as
the record date for the determination of stockholders entitled to notice of
and to vote at the meeting.
A complete list of stockholders entitled to vote at the meeting will be open
to the examination of stockholders during ordinary business hours, for a
period of ten days prior to the meeting, at the office of the Company, High
Ridge Park, Stamford, CT and at the site of the meeting on the meeting date.
By Order of the Board of Directors
Charles J. Weiss
Secretary
<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, 1998.
Directors will be elected by a majority of the shares of Common Stock
present or represented by proxy at the meeting and entitled to vote at the
meeting. Approval of the amendment to the Restated Certificate of
Incorporation requires the affirmative vote of a majority of the outstanding
stock entitled to vote thereon. Abstentions will have the effect of a negative
vote with respect to the election of directors and the amendment to the
Restated Certificate of Incorporation of the Company. 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 instructions are entitled to vote on both the election of directors
and the amendment to the Restated Certificate of Incorporation of the Company.
Under applicable Delaware law, a broker non-vote would not have the same
effect as an abstention or a vote against the outcome of the election of
directors or the amendment to the Restated Certificate of Incorporation of the
Company. 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 amendment to the Restated Certificate of Incorporation
of the Company. Stockholders who execute proxies may revoke them at any time
before they are voted.
The Company had outstanding 251,062,986 shares of Common Stock each of which
is entitled to one vote at the annual meeting by stockholders of record at the
close of business on March 23, 1998.
<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 the 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, 1998 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. Ownership by certain of the directors
includes ownership in a family trust or family partnership.
<TABLE>
<CAPTION>
Common Acquirable Percentage
Stock Within Of Common
Owned (1) 60 Days (2) Stock (3)
<S> <C> ---------- ----------- ----------
Name Position
---- --------
Norman I. Botwinik Director 71,272(4) 48,080 *
Daryl A. Ferguson President 413,152(5) 374,392 *
Aaron I. Fleischman Director 85,319 50,681 *
James C. Goodale Director 27,199 15,162 *
Stanley Harfenist Director 64,228 50,681 *
Andrew N. Heine Director 50,808 50,653 *
J. Michael Love Vice President 98,713(6) 86,137 *
L. Russell Mitten Vice President 92,968 74,654 *
John L. Schroeder Director 56,117 50,681 *
David B. Sharkey President 22,357(5) 21,375 *
Electric Lightwave, Inc.
Robert Siff Director 50,406 44,407 *
Ronald E. Spears Former Vice President 36,392 24,754
Robert A. Stanger Director 53,418 50,681 *
Charles H. Symington,
Jr. Director 43,446 37,836
Edwin Tornberg Director 16,768(7) 7,982 *
Claire L. Tow Director 8,835,506(5,8,9,10,11) 2,964,809(10)
Leonard Tow Chairman and CEO 8,835,506(5,8,9,10,11) 2,964,809(11) 3.45%
All Executive Officers 10,362,237 4.05%
and Directors as a
group (12)
</TABLE>
- --------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) Pursuant to rules of the Securities and Exchange Commission, includes
shares acquirable as further described in footnote (2). Shares owned as of
February 28, 1998 may be determined by subtracting the number under
"Acquirable Within 60 Days" from that under "Common Stock Owned."
(2) Reflects number of shares that could be purchased by exercise of options
as of February 28, 1998 or within 60 days thereafter under the Company's
stock option plans.
(3) Based on number of shares outstanding at, or acquirable within 60 days of,
February 28, 1998.
(4) Includes 11,155 shares of Common Stock owned by Mr. Botwinik's wife. Mr.
Botwinik disclaims beneficial ownership of such shares.
(5) Leonard Tow, Daryl Ferguson and David Sharkey also own 150,000, 125,000
and 135,000 shares of Class A Common Stock of the Company's subsidiary,
Electric Lightwave, Inc., respectively. A portion of these shares are
restricted performance shares and are referred to in the "Long-Term
Incentive Plans--Awards in 1997" table below. These restricted/performance
shares require Electric Lightwave, Inc. stockholder approval at that
company's 1998 Annual Meeting to become effective. Percentages of total
ownership of Electric Lightwave, Inc. Class A Common Stock for Leonard
Tow, Daryl Ferguson and David Sharkey, respectively, are 1.8%, 1.5% and
1.6%. Claire Tow disclaims beneficial ownership of such shares owned by
Leonard Tow.
(6) Includes 341 shares of Common Stock owned by Mr. Love's wife. Mr. Love
disclaims beneficial ownership of such shares.
2
<PAGE>
(7) Includes 635 shares of Common Stock owned by Mr. Tornberg's wife. Mr.
Tornberg disclaims beneficial ownership of such shares.
(8) Includes 4,510,545 shares of Common Stock owned by Century Investors
Inc., a wholly owned subsidiary of Century Communications Corp., of which
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. These shares of Common Stock are included
in the above table for Leonard Tow and Claire Tow as required by the
definition of beneficial ownership 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 91% voting interest
in the common stock of Century Communications Corp. and therefore each
Leonard Tow and Claire Tow is deemed to have an indirect beneficial
interest in such 4,510,545 shares of Common Stock 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. Citizens owns 2.98% of the Class A common stock of Century
Communications Corp.
(9) Includes 18,063 shares of Common Stock held by Claire Tow as custodian
for her minor grandchildren; 1,260,080 shares of Common Stock owned by
her husband, Leonard Tow; and 1980 shares of Common Stock held in an
individual retirement account for the benefit of her husband, Leonard
Tow. Claire Tow disclaims beneficial ownership of all such shares.
(10) Includes 42,625 shares of Common Stock acquirable by Leonard Tow within
60 days. Claire Tow disclaims beneficial ownership of said shares.
(11) Includes 50,651 shares of Common Stock acquirable by Claire Tow within 60
days. Leonard Tow disclaims beneficial ownership of said shares.
(12) Share information is qualified as described in the previous footnotes.
Shares shown for Ronald E. Spears are based on upon information contained
in Company records.
ELECTION OF DIRECTORS
At the meeting, 12 directors are to be elected to hold office until the next
annual meeting and until their successors have been elected and qualified.
Directors will be elected by a majority of the votes of the holders of shares
of Common Stock, present in person or represented by proxy at the meeting and
entitled to vote at the meeting. It is the intention of the persons named in
the enclosed proxy to vote for the election as directors of the nominees
specified. In case any 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., machine tool Director Since 1968
sales, 1957-1983; Director,
Executive Re, Inc. 1990-
1993; and Director Emeritus, Board of Governors,
University of New Haven. Age 82.
Aaron I. Fleischman Senior Partner of Fleischman and Walsh, L.L.P., Director Since 1989
a Washington, DC law firm
specializing in regulatory, corporate-securities
and litigation matters for
telecommunications, regulated utility and
transportation companies, since 1976.
Director, Southern Union Company. Age 59.
James C. Goodale Lawyer, Debevoise & Plimpton, a New York City Director Since 1996
law firm. Of Counsel, 1994 to 1996; Partner,
1980-1994. Vice Chairman and General Counsel,
New York Times, 1967-1980. Producer and Host of
The Telecommunications and Information
Revolution, Channel 25, New York City, 1995 to
present. Age 64.
Stanley Harfenist President and Chief Executive Officer of Adesso, Director Since 1992
Inc., manufacturer of hardware for the Macintosh
computer, 1993 to present; President, Chief
Operating Officer and Director of Players
International, Inc.,1985 to 1993;Officer, Sega
Enterprises, 1982 to 1984; and Officer,
Knickerbocker Toy Company, Inc., 1978 to
1982. Director of Electric Lightwave, Inc. Age
66.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S> <C>
Andrew N. Heine Of Counsel, Gordon Altman Butowsky Weitzen Shalov & Director Since 1975
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 69.
John L. Schroeder Director, Dean Witter Funds, 1994 to present; Executive Director Since 1980
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 68.
Robert D. Siff Consultant, Regional Banks, 1987 to present; Director, Director Since 1989
Century Communications Corp., 1987 to 1997. Age 73.
Robert A. Stanger Chairman, Robert A. Stanger & Company, investment Director Since 1992
banking and consulting services, 1978 to present.
Publisher, The Stanger Report. Director, Callon
Petroleum Company, Inc., exploration and production of
oil and natural gas. Director, Electric Lightwave, Inc.
Age 59.
Charles H. Symington, Jr. Director, 3i Corporation, an investment company; Director Since 1995
Director, INA Life Insurance of New York, a subsidiary
of CIGNA; Director, NASDAQ Stock Market Education
Foundation; and until 1997 Director, S.G. Warburg &
Co., Inc., an investment bank, and Director, Camping
World, Inc. Age 67.
Edwin Tornberg President and Director, Edwin Tornberg & Company, Director Since 1992
brokers, management consultants and appraisers serving
the communications industry, 1957 to present. President
and Director, Radio 780, Inc. (Washington, DC), 1977 to
present. Vice President and Director, Radio One Five
Hundred, Inc. (Indianapolis, Ind.), 1959 to present.
Chairman and Director, New World Radio Inc.
(Washington, DC), 1992 to present. Chairman, Treasurer
and Director, Global Radio, LLC. (Philadelphia, PA),
1997 to present. Age 72.
Claire L. Tow Senior Vice President since 1992 and Vice President and Director Since 1993
Director since 1988 of Century Communications Corp., a
cable television company. Age 67.
Leonard Tow Chairman and Chief Executive Officer, Citizens Director Since 1989
Utilities Company, 1990 to present; Chief Financial
Officer, 1991 to 1997. Chief Executive Officer and
Director of Century Communications Corp., a cable
television company, since its organization in 1973 to
present, Chairman of the Board since 1989 and Chief
Financial Officer, 1973 to 1996. Chairman of the Board,
Electric Lightwave, Inc., Director, Hungarian Telephone
and Cable Corp. Director, United States Telephone
Association, Age 69.
</TABLE>
The Board of Directors held 11 meetings in 1997. 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 Workforce, 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 1997 the Committee did not
meet. 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 4 times in
1997. 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, Symington and Tornberg. The Committee
met 9 times in 1997. The Committee reviews the Company's general compensation
strategies, acts as the Committee for Citizens Incentive 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
recommended election of the current directors to the Board in 1997. 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, which should be made in writing, addressed to Mr.
Harfenist, c/o the Company, on or before the date specified under "Stockholder
Proposals" and include a description of the qualifications of the suggested
nominee and any information concerning the suggested nominee and his or her
interests, direct or indirect, by securities holdings or otherwise, in the
Company, called for by the regulations of the Securities and Exchange
Commission.
RETIREMENT PLAN COMMITTEE. The Retirement Plan 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
3 times in 1997.
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 member is Mr. Harfenist. The Investor Relations Committee is chaired by
Mr. Harfenist and its other members are Messrs. Fleischman, Goodale, 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.
DIRECTORS' COMPENSATION
Each non-employee 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,
5
<PAGE>
and committee members $1,000 for each meeting attended. All such fees are
payable in cash and eligible for deferral until termination of service.
Directors fees are also payable 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 also receive an
annual stock option award which is currently fixed at 5,000 shares. Directors
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. Each director of Electric Lightwave, Inc. ("ELI"), a
subsidiary of the Company, who is not an employee of either the Company or ELI
is entitled to receive an annual retainer of $20,000, payable in shares of
Class A Common Stock of ELI and cash, an additional $1,000 plus reasonable
expenses for attending each meeting of the ELI Board of Directors, or
committee meeting, $2,000 for each meeting which such director serves as
chairman and an annual grant of options for 7,500 shares of Class A Common
Stock of ELI, exercisable at an exercise price per share equal to the market
price of the Class A Common Stock on January 27, 1998 or, for later years, on
the first trading day of each year. At this time, Messrs. Stanger and
Harfenist are non-employee directors of both the Company and ELI. In
connection with the initial public offering of ELI, Mr. Stanger received a
grant of options of 10,000 shares and Mr. Harfenist 90,000 shares, both of
Class A Common Stock of ELI at the public offering price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four 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. In
addition, the Committee approves all incentive plan design and associated
costs. The following report represents the actions of the Committee and the
Board regarding compensation paid to the executive officers during 1997.
COMPENSATION OF THE EXECUTIVE GROUP
The following section discusses the Company's 1997 strategy underlying its
compensation program. The Compensation of the Company's Chief Executive
Officer is discussed separately later in this report.
COMPENSATION STRATEGY
The Committee's executive compensation policy has the following objectives:
. To align the interests of its 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 competitively compensate executives by matching the diverse businesses
the Company operates in with a diverse portfolio of compensation and
benefits so that the Company can attract and motivate executives of
outstanding ability.
. To target Base Salaries at about the 50th percentile and Total Annual
Cash Incentives between the 50th and the 75th percentiles for each
executive as compared to his or her industry-specific peers.
. To offer significant levels of at-risk compensation in the form of stock
options and/or restricted and performance share grants so that the long-
term rewards available to the Company's executive officers will have a
direct correlation to shareholder value.
6
<PAGE>
BASE SALARY
The Compensation Committee reviews recommendations and sets the salary
levels of executive officers in the spring of each year. This review is based
on the duties and responsibilities which the Company expects each executive to
discharge during the current year and upon the executive's performance during
the previous year. The Company performs external market comparisons, relative
to industry-specific peers, based on individual job responsibility.
AT-RISK INCENTIVE COMPENSATION
The 1997 calendar year was a transition period for the Company with regard
to compensation strategy. In May of 1997, the Compensation Committee of the
Board of Directors approved a new Citizens Incentive Plan, ("CIP" ). Under
this plan, appropriate variable cash compensation will be reviewed and
determined for 1997 business results and individual performance. The
Compensation Committee also approved design enhancements to the existing long-
term stock incentive plan, the Citizens Utilities Equity Incentive Plan,
("EIP"). All non-hourly employees of the Company not participating in any
sales or other incentive plans are eligible to participate in the CIP, and all
employees (including non-exempt and bargaining unit) are eligible to receive
awards under the EIP. These changes are in the nature of fine tuning the
existing plans and continue the current practice of increasing the levels of
at-risk compensation to correspond to total compensation.
1996 ANNUAL CASH INCENTIVES AWARDED IN 1997
The annual at-risk cash incentives approved by the Compensation Committee in
March of 1997 were based on 1996 performance. The cash awards were granted in
accordance with the former Incentive Deferred Compensation Plan ("IDCP"). IDCP
cash bonuses were paid based on the achievement of financial goals and
improvements in customer satisfaction levels. In March, 1997, 1,307 employees
received IDCP awards, representing 98% of the population eligible to receive
an award. The IDCP awards for 1996 reflected the successful performance of the
Company in achieving 100% of its financial targets in that year. CIP awards
for 1997 performance will be considered by the Committee in the spring of
1998.
ANNUAL CASH INCENTIVES UNDER THE NEW CIP FOR FUTURE YEARS
To retain and incent employees, the CIP offers a competitive mix of total
cash compensation relative to comparable industry norms. Under the CIP, target
incentives are assigned for each salary grade based on a continuous analysis
of incentive pay practices in the various industries in which the Company
operates. The CIP plan criteria are financial performance, customer
satisfaction improvement and individual performance, each of which is assigned
a relative weight. Goals are established no later than first quarter of the
year for the full year. The plan criteria may be modified in a given year
based on changes in the Company's business strategy.
If 100% of the pre-determined financial goal is not met, the Compensation
Committee may use its judgment to determine if there will be any cash
incentive payout based on the other criteria: customer satisfaction
improvement and individual performance. Executive employees are subject to
more strict application of financial performance standards than other
employees. For performance above goal, additional cash incentive compensation
may be granted.
COMMON STOCK LONG-TERM INCENTIVES
The purpose of the EIP is to grant common stock related compensation for
performance. Except as noted below, stock options awarded in 1997 were based
on the 1996 performance year and were granted in accordance
with the EIP. All common stock related compensation is non-qualified, awarded
at fair market value, and vests over a period of three years.
In 1997, the Company performed a comprehensive review of the EIP. The
competitive practices of the industries in which the Company operates were
analyzed to ensure the Company can effectively attract and motivate executives
and employees in each business sector.
7
<PAGE>
Within the EIP, two separate award programs were created, the Management
Stock Option Program (MSOP) and the Outstanding Citizen Award (OCA). The MSOP
is designed to grant common stock related incentive compensation to executives
and other key management employees for individual contributions towards
achievement of goals. Target grants are based on salary grade and compensation
levels in comparable industries. Grants are designed to compensate Citizens'
employees within the range of 50% to 150% of long term incentive compensation
of comparable industries based on individual performance.
The OCA is designed to recognize and reward any key employee below the
management level who is considered to have high potential and who has made
significant contributions. The target number of shares is not tied to salary
grade. Award recommendations are designed to be within the range of 750 and
2,500 options. Recommendations are at the discretion of the employee's
manager.
COMMON STOCK LONG-TERM INCENTIVES AWARDED FOR 1996 PERFORMANCE
The Compensation Committee granted stock incentive compensation for 1996
performance in September 1997. In 1996, the Company and each business sector
exceeded financial goals (net income, sector operating income before interest
and taxes). Bonuses established by the Compensation Committee reflected this
superior performance. At the time of the grant of stock related incentive
compensation, the Company's financial performance during 1997 was
substantially below budget. Consistent with the Company's overall compensation
strategy to make stock related incentives based on performance and in exercise
of the Committee's discretion, the awards made to the executive group (other
than the Chief Executive Officer, whose compensation is discussed below) was
on average 62% of the 1996 awards called for under the EIP, even though the
executive group qualified for 100% of such awards.
192 executives/managers received MSOP stock option grants under the EIP for
1996 performance. 566 employees received OCA stock option grants for 1996
performance, representing 11% of the eligible employees.
ELECTRIC LIGHTWAVE, INC. STOCK RELATED INCENTIVE COMPENSATION
In 1997, ELI adopted an Equity Incentive Plan under which it granted stock
options and restricted performance shares to its officers, directors and key
employees, which included various executive officers of ELI who are also
executive officers of the Company, and to officers and directors of the
Company who are expected to render services to ELI and be instrumental in
ELI's future achievements. The incentive arrangements for Messrs. Ferguson,
Sharkey and Tow are described in the compensation tables below.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The employment agreement dated July, 1996 between Dr. Tow and the Company
establishes the base annual salary of $900,000 and other items included in the
"Other Annual Compensation" and "All Other Compensation" columns in the
Summary Compensation Table or referred to under the caption "Employment
Agreement."
Dr. Tow's Annual Cash Incentive for 1996 performance was awarded by the
Compensation Committee in March of 1997 and reflected the Company's
achievement in exceeding the target financial goals for the Company and for
all business sectors as described above. The determination of Dr. Tow's stock
option award for the 1996 performance year under the EIP was made by the
compensation Committee in September 1997. As noted above, at the time of the
grant of stock related incentive Compensation it was apparent that the
Company's financial performance during 1997 would be substantially below
target. Pursuant to the Compensation Committee's exercise of its discretion
and consistent with the Company's compensation strategy to make incentive
awards to the Chief Executive Officer based on performance, the stock option
award was approximately 44% of the 1996 award called for under the EIP, even
though Dr. Tow qualified for 100% of the award under the plan.
8
<PAGE>
In reviewing Dr. Tow's compensation for 1996, the Compensation Committee
also considered the implementation of the long-term objectives for the Company
established by the Board of Directors. Principal among these is the mandate to
expand and enlarge the Company's activities through merger, viewed by the
Board as vital to the Company's success. The employment agreement referred to
in this section is summarized in a later section of the proxy statement under
the heading "Employment Agreement".
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
The Committee has been advised that the compensation paid to the named
executive officers in 1997, 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 as of December 31, 1997. The Company
currently structures grants under stock-based programs in a manner that
provides for an exemption from Section 162(m). Outstanding awards made under
the CIP 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, Chairman Stanley Harfenist Charles H. Symington, Jr. Edwin
Tornberg
9
<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 then in
effect 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-based 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 included a performance share grant of 500,000 shares of
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. 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. Dr. Tow and his wife during their lifetimes
will continue to participate in the Company's health and other benefit plans,
and, after his 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.
10
<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>
Annual Compensation Long-term Compensation
------------------------------------- -----------------------------------
Awards Payouts
----------------------- ---------
Securities
Under- Long-term
Restricted lying Incentive
Stock Options/ Plan All Other
Other Annual Awards SARs(2) Payouts Compensation
Name and Position Year Salary $ Bonus(1)$ Compensation $ $ (#) $ $
----------------- ---- --------- --------- -------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L. Tow................. 1997 900,000 -- 140,837(3) (4) 202,000 0 27,000(5)
C.E.O. and Chairman 1996 1,325,416(6) 1,000,000 50,000(3) (7) 434,215(8) 0 662,003(9)
1995 1,210,296(6) 800,000 63,790(3) 0 0 0 4,620
D. A. Ferguson......... 1997 414,585 -- 11,683 666,667(4) 136,350 0 85,879(5)
C.O.O. and President 1996 391,678 550,000 8,333 0 112,185 0 81,813
1995 374,076 400,000 5,000 0 0 0 52,879
D. S. Sharkey.......... 1997 183,333 -- 0 666,667(4) 40,400 0 30,036(5)
C.O.O. and President, 1996 155,833 80,000 0 0 17,950 0 27,790
Electric Lightwave,
Inc. 1995 150,000 75,000 0 0 0 0 0
J. M. Love............. 1997 183,958 -- 0 0 35,350 0 52,231(5)
Vice President 1996 157,393 70,000 0 0 39,271 0 49,012
1995 151,576 120,000 0 0 0 0 45,410
L.R. Mitten............ 1997 184,200 -- 0 0 30,300 0 62,716(5)
Vice President 1996 177,801 53,600 0 0 33,650 0 58,123
and General Counsel 1995 172,261 90,000 0 0 0 0 55,000
R. E. Spears........... 1997 282,338 0 0 0 44,800 0 53,800(5)
Vice President until 1996 255,846 150,000 0 0 45,818 0 57,768
October, 1997 1995 144,078 97,500 0 100,000 54,996 0 0
</TABLE>
- --------
(1) All amounts in the column, except for amounts of $50,000 each for Messrs.
Mitten and Love and $75,000 for Mr. Sharkey paid in 1995, were paid under
the IDCP for 1995 awards and for the 1996 awards. 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. Awards for
1997 will be considered by the Compensation Committee in the spring of 1998.
(2) Options/SARs adjusted to reflect subsequent stock dividends. All awards
shown are options.
(3) $50,000 of the amount shown in this column for 1995, 1996 and 1997
represents payment for expenses pursuant to Dr. Tow's employment agreement;
$13,790 for 1995 represents reimbursement for the cost of term life
insurance and $90,837 for 1997 represents reimbursement pursuant to his
employment agreement of legal and accounting fees incurred by Dr. Tow in
1994-1996.
(4) Covers restricted shares of Class A Common Stock of ELI. Amount in table
represents the one-third portion of a performance share grant made in
connection with the initial public offering of ELI that may be subject to
vesting in 1998. Value shown in table is as of the date of grant. As of
December 31, 1997, the total number of restricted or performance shares of
ELI held by the named executive officers of the Company was 375,000 shares
with a market value as of December 31, 1997 of $5,206,250. 125,000 shares
were held by each of Mr. Ferguson, Mr. Sharkey and Dr. Tow. Recipients of
restricted stock have the right to receive dividends. See "Long-Term
Incentive Plans--Awards in 1997."
(5) Represents the Company's matching contribution to each executive's 401(k)
plan and in the instance of Dr. Tow and Dr. Ferguson also represents the
matching contribution to the Company's Executive Deferred Savings Plan of
$22,250 and $4,958 respectively. Additionally, $76,179, $27,286, $47,481,
$58,111 and $49,550 respectively represent the 1997 economic benefit of
split-dollar life insurance for Dr. Ferguson and Messrs. Sharkey, Love,
Mitten and Spears. There was no economic benefit of split-dollar life
insurance for Dr. Tow in 1997.
(6) Includes salary of $1,288,416 and director's fees of $37,000 for 1996 and
$1,171,291 and $39,000 for 1995, respectively.
11
<PAGE>
(7) Covers restricted stock of the Company. As of December 31, 1997 the total
number of restricted or performance shares held by Dr. Tow was 543,485
shares, with a market value as of December 31, 1997 of $5,231,043.
Recipients of restricted stock have the right to receive dividends. See
"Employment Agreement."
(8) Includes an option for 220,193 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 in the 1997
proxy statement.
(9) 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 (see footnote 8 above) as a
substitution for supplemental retirement benefits which resulted in a
reversal of accruals shown in prior proxy statements, including an accrual
of $3,500,000 shown in the Summary Compensation table for 1994. The
insurance arrangements purchased by the Company have been structured so that
all of the Company's costs, including the time value of funds, in providing
such benefits should be recovered from insurance proceeds.
1997 OPTION GRANTS AND STOCK APPRECIATION RIGHTS
The following table sets forth options granted to the named executive
officers in 1997. No stock appreciation rights were granted in 1997. Option
totals are as of grant date.
<TABLE>
<S> <C> <C> <C> <C> <C>
<CAPTION>
% of Total Exercise
Number of Securities Options/SARs or Base
Underlying Granted to Price at Grant Date
Options/SARs Granted Employees in Grant Expiration Present
Name (#)(1) Fiscal Year ($/Sh)(2) Date Value $(3)
---- -------------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
L. Tow.................. 200,000 5.45% 8.875 9/24/07 850,000
D. A. Ferguson.......... 135,000 3.68% 8.875 9/24/07 573,750
D. S. Sharkey........... 40,000 1.09% 8.875 9/24/07 170,000
J. M. Love.............. 35,000 .95% 8.875 9/24/07 148,750
L. R. Mitten............ 30,000 .82% 8.875 9/24/07 127,500
R. E. Spears............ 56,000 1.21% 8.875 9/24/07 238,000
</TABLE>
- --------
(1) All options become exercisable at the rate of 33.3% per year on September
25 of 1998, 1999 and 2000.
(2) Fair Market Price at time of grant.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized, if any, by an executive will be at or near the value estimated by
the Black-Scholes model. The estimated values under that model are based on
arbitrary assumptions as to variables such as interest rates, stock price
volatility and future dividend yield. The pricing model assumes a dividend
yield of 0%, a riskless rate of return of 6.14%, a seven-year term of
exercise and volatility of .32.
12
<PAGE>
AGGREGATED 1997 OPTION/SAR EXERCISES AND VALUE OF
OUTSTANDING OPTIONS/SARS AT DECEMBER 31, 1997
The following table sets forth option and stock appreciation rights
exercised by the named executive officers during 1997 and the number and value
of options held by them at December 31, 1997. There were no outstanding stock
appreciation rights at December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)
------------------------- -------------------------
SHARES ACQUIRED VALUE
ON EXERCISE (#) REALIZED
NAME COMMON STOCK $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
L. Tow.................. 0 0 2,922,172 431,925 $469,181 $144,026
D. A. Ferguson.......... 0 0 371,332 292,812 67,051 97,218
D. S. Sharkey........... 0 0 18,296 64,564 0 28,805
J. M. Love.............. 0 0 84,571 85,757 0 25,205
L. R. Mitten............ 0 0 77,079 76,210 4,226 28,805
R.E. Spears............. 0 0 21,020 128,615 0 42,420
</TABLE>
- --------
All numbers are as of December 31, 1997 and reflect adjustment for stock
splits and stock dividends paid subsequent to the date of grant. The closing
prices of Common Stock on December 31, 1997 was $9.625. 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 1997
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLAN
--------------------------------- ---
NUMBER OF SHARES, PERFORMANCE OR OTHER TARGET MAXIMUM
UNITS OR OTHER PERIOD UNTIL MATURATION NUMBER OF NUMBER OF
NAME RIGHTS (#)(1) OR PAYOUT (1) THRESHOLD (#) SHARES SHARES
- ---- ----------------- ----------------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
L. Tow.................. 125,000 2001 - 2005 0 125,000 125,000
D. A. Ferguson.......... 125,000 1998 - 2000 0 125,000 125,000
D. S. Sharkey........... 125,000 1998 - 2000 0 125,000 125,000
J. M. Love.............. 0 0 0 0 0
L. R. Mitten............ 0 0 0 0 0
R. E. Spears............ 0 0 0 0 0
</TABLE>
- --------
(1) In connection with the initial public offering of ELI, Mr. Ferguson, Mr.
Sharkey and Dr. Tow were each granted 125,000 performance shares of Series
A Common Stock of ELI, subject to performance standards. In the case of Mr.
Sharkey and Mr. Ferguson's holdings, the restrictions will lapse as to one-
third of the shares on the later of the first anniversary of the grant date
or the attainment of at least $100 million of revenues in a trailing 12-
month period, as to the second third on the later of the second anniversary
of the grant date or the attainment of at least $125 million of revenues,
and as to the remaining third on the later of the third anniversary of the
grant date or the attainment of at least $155 million of revenues, provided
the officer is employed on the lapse date. The restrictions on Dr. Tow's
shares will lapse only if the Company attains revenues of at least $170
million for the thirteen months ended June 30, 2001 or for any thirteen
month period thereafter until January 2005. Dr. Tow's continued employment
on the lapse date is not a condition to the lapse of restrictions.
13
<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 1997, this limit
was $160,000. For this reason remuneration above $160,000 has not been
included in the table below.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION
(000 OMITTED) YEARS OF SERVICE
------------- -----------------------
5 10 15 20 25 30
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
$160.................................................... $12 $25 $37 $49 $62 $74
</TABLE>
Full years of credited service for individuals participating in the plan and
listed in the Summary Compensation Table are six for Dr. Tow, seven for Dr.
Ferguson, three for Mr. Sharkey, twelve for Mr. Love and seven for Mr. Mitten.
14
<PAGE>
CITIZENS UTILITIES COMPANY
Comparison of Five Year Cumulative Total Return*
AMONG CITIZENS UTILITIES COMPANY, THE DOW JONES INDUSTRIAL AVERAGE INDEX
AND THE DOW JONES UTILITIES AVERAGE INDEX
[LINE GRAPH]
<TABLE>
<CAPTION>
12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C>
CITIZENS UTILITIES COMPANY $100 $130 $ 95 $103 $ 94 $ 86
DOW JONES INDUSTRIAL AVERAGE 100 117 123 168 217 270
DOW JONES UTILITIES AVERAGE 100 110 93 123 134 164
</TABLE>
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
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 and in each index
on December 31, 1992 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, 1997.
The year-end cumulative total return for the DJIA and the DJUA for calendar
years 1993, 1994, 1995,1996 and 1997 were respectively $117, $123, $168, $217
and $270, and $110, $93, $123, $134 and $164. Return for the Company is shown
on the graph.
CERTAIN TRANSACTIONS
Fleischman and Walsh LLP, of which Aaron Fleischman (a Director) is Senior
Partner, performed legal services for the Company for which it was paid in 1997
approximately $894,000. The Company proposes to retain Fleischman and Walsh
during the current year.
In 1995, the company advanced, for a period of up to five years, to Ronald E.
Spears, formally Vice President of the Company, $400,000 for purpose of
purchasing a primary residence. As of December 31, 1997 $210,000 was
outstanding. Interest accrues at the applicable Federal Rate, the full unpaid
amount plus accrued interest is payable on December 31, 1999 and the obligation
is secured by a mortgage on the property.
APPROVAL OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors is submitting for stockholder approval an amendment to
the Restated Certificate of Incorporation of the Company which will delete
reference to the two series capitalization and provide that the single series
and class of Common Stock now outstanding shall be designated Common Stock, not
Series B Common Stock.
15
<PAGE>
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors recommends a vote to amend the Restated Certificate
of Incorporation of the Company. Approval of the amendment to the Restated
Certificate of Incorporation of the Company requires the favorable vote of
holders of a majority of the outstanding stock entitled to vote on the
amendment at the annual meeting.
In August of 1997, pursuant to Board of Director action as provided for in
the Restated Certificate of Incorporation, all outstanding shares of Series A
Common Stock were exchanged for an equal number of Series B Common Stock and
only shares of Series B remained outstanding. The Board of Directors took the
action of combining the two series to increase the float of the Company's
stock as it trades on the New York Stock Exchange and to eliminate market and
stockholder confusion that resulted from two series of stock that had become
identical substantively, except for the rights of the holders of Series A
shares to convert into Series B shares and the opportunity of the Series B
holders to participate in the Dividend Sales Plan. The historical benefits to
the Company and its stockholders of a two series capitalization became
unavailable in 1989 when grandfathered tax regulations expired. As a result of
the 1997 exchange the rights of the holders of all outstanding shares have
become completely identical.
The amendment removes from the Restated Certificate of Incorporation all
provisions relating to the former two series capitalization, including the
provision for conversion of Series A to Series B as well as the respective
rights of each series when a dividend was declared on the other series. The
amendment does not have any adverse or other effect on the rights of
stockholders. Each outstanding certificate bearing the designation of Common
Stock Series B or Common Stock Series A will represent a like number of shares
of Common Stock and shall for all purposes be deemed to evidence of the
ownership of a like number of shares of Common Stock. Stockholders shall not
be required at this time to surrender their certificates in exchange for
certificates of Common Stock, but, as certificates are surrendered, the
Company shall cause to be issued certificates representing shares of Common
Stock. The amendment is attached hereto as Exhibit A.
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 and operating cable television systems in Southern California (the
"Systems"). Century is a cable television company of which Leonard Tow, the
Chairman and Chief Executive Officer of the Company, is Chairman and Chief
Executive Officer. In addition, Claire Tow, a Director of the Company, is a
Senior Vice President and a director of Century. 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 does not receive a management fee but is
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, up to 5%, off the published prices of vendors and is
entitled to retain any discount in excess of 5%. The joint venturers agreed to
expand the scope of their venture through the acquisition of additional
systems in California from an unrelated third party. One system, serving
Walnut Valley and having a total of approximately 20,000 subscribers, was
acquired in 1997 for $33 million and the other system, serving Yorba Linda
with approximately 18,000 subscribers, is to be acquired in the spring of 1998
at a purchase price of approximately $36 million (subject to adjustment). The
proposed transaction to acquire the Oxnard system discussed in the prior
year's proxy statement has been terminated. The joint venture plans to join in
a strategic partnership with TCI Communications Inc. that will result in
combined cable systems in Southern California serving more than 800,000
subscribers. The details of the strategic partnership have not yet been
negotiated. The Company is negotiating the sale to the joint venture of its
two cable systems that have approximately 6,300 subscribers.
16
<PAGE>
A subsidiary of the Company is a dealer in telephony switching and other
equipment. During 1997 it sold equipment to a subsidiary of Century at a price
of about $400,000. The equipment was drop shipped and was priced with the
usual markup for such equipment. The Company and Century are both shareholders
of Centennial Cellular Corp., a cellular telephone company. 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 (7.7%
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
also "Stock Ownership of Directors and Executive Officers". Centennial,
Century and the Company have entered into a conflicts/non-compete agreement
restricting the Company's acquisition of wireless telephone businesses.
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 1999 annual meeting, they must be received by November 24, 1998. Under
the Company's Bylaws, if any stockholder intends to propose a nominee for
director or the adoption or approval of any other matter by the stockholders
at the annual meeting the proponent must give written notice to the Company
not earlier than January 1, 1999 nor later than February 15, 1999.
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 $7,500, plus distribution costs and other
expenses.
By Order of the Board of Directors
Charles J. Weiss
Secretary
17
<PAGE>
EXHIBIT A
AMENDMENT TO ARTICLE FOURTH OF THE RESTATED
CERTIFICATE OF INCORPORATION OF CITIZENS UTILITIES COMPANY
"FOURTH" (a) The total number of shares of stock which this corporation
shall have authority to issue is six hundred and fifty million (650,000,000)
shares of which fifty million (50,000,000) shares shall be shares of Preferred
Stock with a par value of one cent ($.01) each, amounting in the aggregate to
five hundred thousand dollars ($500,000), and six hundred million
(600,000,000) shares shall be shares of Common Stock, par value of twenty-five
cents ($.25) each, amounting in the aggregate to one hundred and fifty million
dollars ($150,000,000).
(b) The Preferred Stock may be issued from time to time in one or more
series, and in such amounts as may be determined by the Board of Directors.
The designation, powers, preferences and relative, participating optional,
conversion and other rights, and the qualifications, limitations and
restrictions thereof, of the Preferred Stock of each series, which shall not
be fixed by the Certificate of Incorporation, shall be such as may be fixed or
altered by resolution or resolutions by the Board of Directors (authority so
to do being hereby expressly granted to, and vested in, the Board of
Directors) to the full extent now or hereafter permitted by the laws of
Delaware.
(c) Each holder of Common Stock shall at every meeting of the stockholders
be entitled to one vote in person or by written proxy signed by him for each
full share of Common Stock owned by him and shall be entitled to vote upon all
such matters as may come before the stockholders including without limitation
the election of directors, which shall be decided by majority vote of the
Common Stock present or represented by proxy and entitled to vote at the
meeting. The stockholders of this corporation shall have no preemptive right
to subscribe to any issue of shares of stock of this corporation not or
hereafter made.
(d) Each full share of the Common Stock Series B with the par value of
twenty-five cents ($.25) each ("Common Stock Series B") which shall be
outstanding immediately prior to the time when this Article FOURTH shall
become effective, shall, upon effectiveness, automatically and without any
further action on the part of the holder thereof, be redesignated as "Common
Stock". Each certificate bearing the designation of Common Stock Series B
(including those certificates bearing the designation of the former Common
Stock Series A) shall thereafter represent a like number of shares of Common
Stock and shall for all purposes be deemed to evidence the ownership of a like
number of shares of Common Stock. As such certificates are surrendered, this
corporation shall cause to be issued certificates reflecting the designation
of such shares as Common Stock.
A-1
<PAGE>
CITIZENS UTILITIES COMPANY
1998 ANNUAL MEETING OF STOCKHOLDERS
10:00 A.M., PACIFIC TIME, MAY 21, 1998
HEATHMAN LODGE
VANCOUVER, WASHINGTON
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
Please complete both sides of the Proxy Card,
detach and return in the enclosed envelope.
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Andrew N. Heine, John L. Schroeder and Robert D.
Siff or any of them with full power of substitution, proxies to vote at the
Annual Meeting of Stockholders of Citizens Utilities Company (the "Company") to
be held on Thursday, May 21, 1998, at 10:00 a.m., Pacific 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:-----------------, 1998
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"
PROPOSAL 1 AND "FOR" PROPOSAL 2.
...............................................................................
PROPOSAL 1 PROPOSAL 2
- ---------- ----------
Election of Directors Approve an amendment to the Restated
Certificate of Incorporation of Citizens
Utilities Company to eliminate reference
Nominees: to the two Series Capitalization and to
provide for a single series of Common
Stock.
For Withheld Norman I. Botwinik
Aaron I. Fleischman For [ ] Against [ ] Abstain [ ]
[ ] [ ] James C. Goodale
Stanley Harfenist
Andrew N. Heine
For, except vote John L. Schroeder
withheld from Robert D. Siff
the following Robert A. Stanger
Nominee(s) Charles H. Symington, Jr.
Edwin Tornberg
- ---------------- Claire L. Tow
Leonard Tow
<PAGE>
CITIZENS UTILITIES COMPANY
Please complete both sides of the Proxy Card,
detach and return in the enclosed envelope.
DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
CITIZENS 401(K) SAVINGS PLAN
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby authorizes and directs Putnam Fiduciary Trust Company, as
the Trustee under the Citizens 401(k) Savings Plan, to vote all shares of stock
allocable to the undersigned under the provisions of the Plan and appoints
Andrew N. Heine, John L. Schroeder and Robert D. Siff or any of them with full
power of substitution, proxies to vote at the Annual Meeting of Stockholders of
Citizens Utilities Company (the "Company") to be held on Thursday, May 21, 1998,
at 10:00 a.m., Pacific 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:----------------------
Signature:----------------------
Date:-----------------, 1998
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"
PROPOSAL 1 AND "FOR" PROPOSAL 2.
...............................................................................
PROPOSAL 1 PROPOSAL 2
- ---------- ----------
Election of Directors Approve an amendment to the Restated
Certificate of Incorporation of
Citizens Nominees: Utilities Company
Nominees: to eliminate reference to the two
Series Capitalization and to provide
for a single series of Common Stock.
For Withheld Norman I. Botwinik
Aaron I. Fleischman For Against Abstain
[ ] [ ] James C. Goodale [ ] [ ] [ ]
Stanley Harfenist
Andrew N. Heine
For, except vote John L. Schroeder
withheld from Robert D. Siff
the following Robert A. Stanger
Nominee(s) Charles H. Symington, Jr.
Edwin Tornberg
- ---------------- Claire L. Tow
Leonard Tow
