<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 240.14a-11(c) or 240.14a-12
CITIZENS UTILITIES COMPANY
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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[GRAPHIC OMITTED]
Administrative Offices
High Ridge Park, Stamford, CT 06905
(203) 614-5600
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March 22, 1999
Dear Fellow Stockholder:
I am pleased to invite you to attend the 1999 Annual Meeting of the
Stockholders of Citizens Utilities Company which will be held at the Wyndham
Anatole Hotel, Dallas, Texas, on Thursday, May 20, 1999 at 10:00 a.m., Central
Time.
At last year's Annual Meeting, almost 85 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,
[GRAPHIC OMITTED]
Leonard Tow
Chairman and Chief Executive Officer
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
Administrative Offices
High Ridge Park, Stamford, CT 06905
(203) 614-5600
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March 22, 1999
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 Wyndham Anatole Hotel, Dallas, Texas, on
Thursday, May 20, 1999 at 10:00 a.m., Central Time, for the following purposes:
1. To elect directors; and
2. To transact such other business as may properly be brought before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 22, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment or postponement thereof.
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 Citizens
Communications, Three Northpark East, 8800 North Central Expressway, Suite 800,
Dallas, TX 75231 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" or
"Citizens") 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, 1999.
Only holders of record of the Company's common stock, par value $.25 per
share (the "Common Stock"), as of the close of business on March 22, 1999 (the
"Record Date"), will be entitled to notice of and to vote at the annual
meeting. As of the Record Date, there were 259,698,972 shares of Common Stock
outstanding, each of which is entitled to one vote at the annual meeting. As of
the Record Date, an additional 68,480 shares of Common Stock were outstanding
and held by the Company as treasury shares. The Company has no other class of
voting securities issued and outstanding. The presence in person or by proxy of
the holders of a majority of the outstanding shares of Common Stock will be
necessary to constitute a quorum for the transaction of business at the annual
meeting.
Directors will be elected by a plurality vote of the shares of Common
Stock present or represented by proxy at the meeting and entitled to vote at
the meeting. Abstentions will have the effect of a negative vote with respect
to the election of directors. Brokers who hold shares in street name for
customers do not have discretionary authority to vote on certain items when
they have not received instructions from beneficial owners; shares represented
by proxies indicating that the broker has not voted the shares on such matters
are "broker non-votes". Under applicable Delaware law, a broker non-vote would
be counted for purposes of determining a quorum, but would not be counted for
purposes of determining the outcome of the vote for any proposal. Under the
rules of the New York Stock Exchange (the "NYSE"), brokers who hold shares in
street name for customers that have not given instructions to such brokers do
have the authority to vote on the election of directors. Stockholders may not
cumulate their votes. Unless contrary instructions are given, all proxies
received pursuant to this solicitation will be voted in favor of the election
of the nominees. Stockholders who execute proxies may revoke them at any time
before they are voted.
<PAGE>
Stock Ownership of Directors and Executive Officers
No person or "group" of persons is known by the Company to own
beneficially more than 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, 1999 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. Except as otherwise described below, each of the persons
named in the table has sole voting and investment power with respect to the
securities beneficially owned.
<TABLE>
<CAPTION>
Common Acquirable Percentage
Stock Within Of Common
Name Position Owned(1) 60 Days(2) Stock(3)
- ---- ------------------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Norman I. Botwinik Director 89,947(4) 65,734 *
Robert J. DeSantis CFO, Vice President and 264,164 219,877 *
Treasurer
Daryl A. Ferguson President and COO 609,749(5) 519,814 *
Aaron I. Fleischman Director 105,889 70,204 *
James C. Goodale Director 44,766 32,366 *
Stanley Harfenist Director 84,160 70,204 *
Andrew N. Heine Director 70,364 70,205 *
O. Lee Jobe Vice President -- 96,898 26,507 *
Communications Sector
John L. Schroeder Director 75,803 70,204 *
David B. Sharkey President 46,262(5) 45,174 *
Electric Lightwave, Inc.
Robert Siff Director 67,809(6) 61,626 *
Robert A. Stanger Director 72,743 70,204 *
Charles H. Symington, Jr. Director 65,295 59,516
Edwin Tornberg Director 22,424(7) 13,376 *
Claire L. Tow Director 9,842,705(5,8,9) 3,299,457(10) 3.66%
Leonard Tow Chairman and CEO 9,842,705(5,8,11) 3,299,457(12) 3.66%
All Executive Officers and 11,796,689 5,156,073 4.39%
Directors as a group
(20 persons)
</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, 1999 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, 1999 or within 60 days thereafter under the Company's
Management Equity Incentive Plan, the Equity Incentive Plan (the "EIP"),
or the Non-employee Directors' Deferred Fee Equity Plan (the "Directors'
Plan"), as applicable.
(3) Based on number of shares outstanding at, or acquirable within 60 days of,
February 28, 1999.
(4) Includes 11,322 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
125,000 shares of Class A Common Stock of ELI, respectively, representing
approximately 1.7%, 1.4% and 1.4% of the outstanding shares of Class A
Common Stock of Electric Lightwave, Inc., a subsidiary of the Company
("ELI"). A portion of these shares are restricted performance shares.
Claire Tow also is deemed to beneficially own the foregoing shares of
Class A Common Stock of ELI held by Leonard Tow but disclaims beneficial
ownership of all such shares owned by Leonard Tow.
(6) Includes 6,183 shares of Common Stock owned by Sidebore Limited Partnership
Trust.
2
<PAGE>
(7) Includes 651 shares of Common Stock owned by Mr. Tornberg's wife. Mr.
Tornberg disclaims beneficial ownership of such shares.
(8) Includes 4,647,389 shares of Common Stock owned by Century Investors Inc.,
a wholly-owned subsidiary of Century Communications Corp. ("Century"), 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 set forth in Rule 13d-3 under the
Securities Exchange Act of 1934. 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 and therefore each of
Leonard Tow and Claire Tow is deemed to have an indirect beneficial
interest in such 4,647,389 shares of Common Stock of the Company. Claire
and Leonard Tow have shared voting and investment power with respect to
the 4,647,389 shares of Common Stock owned by Century Investors, Inc.
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. The Company owns 5.5% of the Class A common stock of
Century, representing approximately 2.4% of the total outstanding common
stock of Century. See "Certain Other Relationships and Related
Transactions."
(9) Includes 18,607 shares of Common Stock held by Claire Tow as custodian for
her minor grandchildren; 1,160,242 shares of Common Stock owned by her
husband, Leonard Tow; and 2,038 shares of Common Stock held in an
individual retirement account for the benefit of her husband, Leonard Tow.
Claire Tow disclaims beneficial ownership of all such shares.
(10) Includes 3,229,253 shares of Common Stock acquirable by Leonard Tow within
60 days. Claire Tow disclaims beneficial ownership of all such shares.
(11) Includes 18,607 shares of Common Stock held by his wife, Claire Tow, as
custodian for her minor grandchildren and 1,590 shares of Common Stock
held in an individual retirement account for the benefit of his wife,
Claire Tow. Leonard Tow disclaims beneficial ownership of all such shares.
(12) Includes 70,204 shares of Common Stock acquirable by Claire Tow within 60
days. Leonard Tow disclaims beneficial ownership of all such shares.
ELECTION OF DIRECTORS
At the meeting, 11 directors are to be elected to hold office until the
next annual meeting and until their successors have been elected and qualified.
All of the nominees are currently serving as directors of the Company. James
Goodale, a current director, has decided not to stand for re-election.
Directors will be elected by a plurality 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>
<CAPTION>
<S> <C> <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., a Director Since 1989
Washington, DC law firm specializing in regulatory,
corporate-securities and litigation matters for tele-
communications, regulated utility and transportation
companies, since 1976. Director, Southern Union
Company. Age 60.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 Operat-
ing Officer and Director of Players International,
Inc., 1985 to 1993; Officer, Sega Enterprises, 1982
to 1984; and Officer, Knickerbocker Toy Company,
Inc., 1978 to 1982. Director of ELI. Age 66.
Andrew N. Heine Of Counsel, Gordon Altman Butowsky Weitzen Sha- Director Since 1975
lov & Wein, September 1995 to present; practicing
attorney/investor, 1989 to present; Of Counsel, Cur-
tis Mallet-Prevost, Colt & Mosle, October 1987 to
1989; Director, FPA Group. Age 70.
John L. Schroeder Director, Morgan Stanley Dean Witter Funds, 1994 Director Since 1980
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; Presi-
dent and Director, USF&G Investment Management
Group, Inc., 1990 to 1991. Age 68.
Robert D. Siff Consultant, Regional Banks, 1987 to present; Direc- Director Since 1989
tor, Century Communications Corp., 1987 to 1997.
Age 74.
Robert A. Stanger Chairman, Robert A. Stanger & Company, invest- Director Since 1992
ment banking and consulting services, 1978 to
present. Publisher, The Stanger Report. Director,
Callon Petroleum Company, Inc., exploration and
production of oil and natural gas. Director, ELI. Age
59.
Charles H. Symington, Jr. Director, 3i Corporation, an investment company; Director Since 1995
Director, NASDAQ Stock Market Education Foun-
dation; until April 1998, Director, INA Life Insur-
ance of New York, a subsidiary of CIGNA; until
1997, Director, S.G. Warburg & Co., Inc., an invest-
ment bank; and until 1997, Director, Camping
World, Inc. Age 68.
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. (India-
napolis, Ind.), 1959 to present. Chairman and Direc-
tor, 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 Director Since 1993
and Director since 1988 of Century Communications
Corp., a cable television company. Age 68.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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, ELI. Director, Hungarian Telephone and
Cable Corp. Director, United States Telephone Asso-
ciation, Age 70.
</TABLE>
The Board of Directors of the Company recommends that you vote "for" the
election of all nominees for director.
The Board of Directors held 12 meetings in 1998. Each director attended at
least 75% of such meetings and at least 75% of the total number of meetings
held by all committees of the Board on which he or she served as described
below under "Committees of the Board."
Committees of the Board
The Board has standing Executive, Audit, Compensation, Nominating and
Retirement Plan Committees.
Executive Committee. The Executive Committee is composed of Dr. Tow as
Chairman and Messrs. Harfenist, Fleischman and Stanger. In 1998 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 Chairman
and Messrs. Goodale, Schroeder, Siff, Stanger and Symington. The Committee met
3 times in 1998. 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 and is authorized to
review potential conflicts.
Compensation Committee. The Compensation Committee is composed of Mr.
Stanger as Chairman and Messrs. Botwinik, Harfenist, Symington and Tornberg.
The Committee met 7 times in 1998. 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 Fleischman are its other members. In 1998,
the Committee did not meet. 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 Chairman and Mrs. Tow and Messrs. Botwinik, Symington and
Tornberg. The Committee oversees the retirement plans of the Company. The
Committee met twice in 1998.
5
<PAGE>
DIRECTORS' COMPENSATION
Each non-employee Director is entitled to a $20,000 annual retainer and
fee of $2,000 plus reasonable expenses 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 payable in cash and are eligible
for deferral until termination of service. Directors fees are also payable, at
the election of the directors, and in whole or in part, in stock options or
stock plan units acquired under the Directors' Plan. Deferred cash amounts are
credited with an interest component. Directors also receive an annual stock
option award under the Directors' Plan 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 ELI 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 the first trading day of each year.
Commencing in 1999, each non-employee director of ELI can elect, in lieu of
cash compensation, to have any portion of the annual retainer and fees payable
for meetings attended paid in shares of Class A Common Stock of the Company or
stock units to acquire Class A Common Stock of the Company under the EIP. At
this time, Messrs. Stanger and Harfenist are non-employee directors of both the
Company and ELI. In connection with the initial public offering (the "IPO") of
ELI in 1997, 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 IPO price.
Directors who are also employees of the Company or ELI are not entitled to
receive compensation for services rendered as directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
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 Compensation Committee oversees and approves incentive plan
design, costs and administration. This report discusses the Compensation
Committee's activities as well as its development and implementation of
policies regarding compensation paid to the Company's executive officers for
1998.
COMPENSATION OF THE EXECUTIVE GROUP
This section discusses the Company's 1998 strategy for its compensation
program. The compensation of the Company's Chief Executive Officer is discussed
separately in this report.
COMPENSATION STRATEGY
The Compensation 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 of executives to the performance of the Company.
To competitively compensate executives by matching the diverse businesses
in which the Company operates with a diverse portfolio of compensation and
benefits so that the Company can attract, motivate and retain executives of
outstanding ability.
6
<PAGE>
To target base salaries at about the 50th percentile and total annual cash
incentive between the 50th and 75th percentile 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
option 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.
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.
Annual Cash Incentives
To retain and incent employees, the Citizens Incentive Plan (CIP) offers a
competitive mix of total cash compensation relative to comparable industry
norms. Under 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 and
individual performance, each of which is assigned a relative weight. For 1998,
the Communications sector had one additional measure, which was customer
satisfaction. Goals are established no later than the 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 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: individual performance and, for 1998 in the
case of the Communications sector, customer satisfaction improvement. Executive
employees are subject to stricter application of financial performance
standards than other employees. For performance above goal, additional cash
incentive compensation may be granted.
The CIP has a voluntary deferral option for certain executive employees,
who can elect to defer all or part of their cash incentive each year into an
interest-bearing account. The Compensation Committee approved the addition of a
second investment option, a phantom high-yield bond fund, and may approve
others.
1997 Annual Cash Incentive Awarded in 1998
The annual at-risk cash incentives approved by the Compensation Committee
in April 1998 were based on 1997 performance. The Company did not achieve its
financial goals and the Compensation Committee, recognizing the Company's need
to continue to motivate and retain its employees, used its discretion to award
partial bonus pools. The guidance that was applied was that those closest to
influencing the performance of the Company should be rewarded less than those
further from influencing such performance. Therefore, management employees
received a lower percentage of their potential awards than non-management
employees.
Overall the pools were funded at 68.5% of the total target pool. Awards
for executive officers were handled on a case-by-case basis with awards
averaging approximately 50% of target. The President and Chairman received no
awards. One thousand, three hundred forty nine employees received CIP awards,
representing 99% of the employees eligible to receive an award.
1998 Annual Cash Incentive Awards and Other Cash Incentives
The Compensation Committee will consider CIP Awards for 1998 performance
in the spring of 1999.
7
<PAGE>
For 1999, the CIP criteria are financial and individual performance. The
financial measures that will be used to determine payout are the consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the
Company and all of its subsidiaries other than ELI and free cash flow.
The Company announced in May of 1998 its intention to separate into two
companies, a communications company and public utilities company. The company
designed a cash retention incentive plan for key executives in order to secure
commitment through separation. See "Agreements with ELI -- Separation
Agreement".
Common Stock Long-Term Incentives
The purpose of the Equity Incentive Plan (EIP) is to provide common
stock-related compensation to ensure that the Company can effectively attract,
motivate and retain executives and employees in its business sectors. Stock
options awarded in 1998 were granted in accordance with the EIP. All stock
options awarded are non-qualified, awarded at fair market value, and vest over
a period of three years.
Within the EIP, there are two separate award programs, the Management
Stock Option Plan (MSOP) and the Outstanding Citizen Award (OCA). The MSOP is
designed to grant stock options to executives and other key management
employees for individual contributions toward achievement of goals. Target
awards are based on salary grade and are designed to compensate Citizens
employees within the range of 50% to 150% of the long-term incentive
compensation of companies in comparable industries based on individual
performance.
The OCA is designed to recognize and reward key employees below the
management level who are considered to have high potential and who have made
significant contributions. The target award is 1,500 stock options and
recommendations are designed to be within the range of 750 to 2,500 options.
Recommendations are at the discretion of the employee's manager.
In April 1998, the Compensation Committee granted stock option awards to
162 executives/managers under the MSOP. Four hundred eighty one employees
received stock option awards under the OCA, representing 15% of the eligible
employees. Awards for executive officers were reduced based on 1997 performance
and averaged approximately 80% of target.
On October 19, 1998, performance shares were granted with vesting
provisions contingent upon the achievement of a 15-month cumulative operating
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) goal.
If the performance goal is not met, the performance shares will be forfeited.
Performance shares were granted to eight officers, including the chairman and
president, and represent a total of 397,000 shares. See footnote (3) to
"Summary Compensation Table."
The Committee will consider EIP Awards for 1998 performance in the spring
of 1999.
The Compensation Committee gave all active option holders (excluding
executive officers) the opportunity to exchange certain existing stock options
for fewer options at the fair market value on December 11, 1998. An economic
value exchange was done using the Black-Scholes Option pricing model to
determine exchange rates.
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."
8
<PAGE>
In 1998, Dr. Tow was not awarded an Annual Cash Incentive for 1997
performance by the Compensation Committee as a result of the Company's below
target 1997 performance.
The Compensation Committee will consider the Annual Cash Incentive and EIP
for 1998 performance in the spring of 1999.
In reviewing Dr. Tow's compensation for 1998, the Compensation Committee
also will consider 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 Compensation Committee has been advised that the compensation paid to
the named executive officers in 1998, 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 Compensation Committee has been advised
that Section 162(m) does not apply to stock options outstanding as of December
31, 1998. 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. Outstanding awards made under the CIP which, in conjunction with other
outstanding compensation paid in 1998, 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. Awards made under the CIP, in conjunction
with other compensation expected to be payable in 1999, will most likely cause
the Section 162(m) limitation to be exceeded for that year. 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 Compensation 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, Norman I. Botwinik, Stanley Harfenist, Charles H.
Symington, Jr., Edwin Tornberg
EMPLOYMENT AGREEMENT
In 1996 the Company and Dr. Tow entered into a new employment agreement
(the "1996 Agreement") which replaced the then effective 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.
9
<PAGE>
The 1996 Agreement included a performance share grant of 500,000 shares of
Common Stock which shares are restricted. 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 awarded to, earned by or
paid to the Company's Chief Executive Officer and the four other most highly
compensated executive officers for services rendered to the Company and its
subsidiaries for each of the fiscal years ended December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
Annual Compensation
--------------------
Other
Annual
Name and Position Year Salary Bonus(1) Compensation
- ------------------------ ------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
L. Tow ................. 1998 $ 900,000 $ -- $ 0
C.E.O. and 1997 900,000 0 140,837(6)
Chairman 1996 1,325,416(9) 1,000,000 50,000(6)
D. A. Ferguson ......... 1998 439,583 --(14) 0
C.O.O. and 1997 414,585 0 11,683
President, 1996 391,678 550,000 8,333
D. B. Sharkey(15) ...... 1998 229,167 -- 0
C.O.O. and 1997 183,333 100,000(16) 0
President, 1996 155,833 80,000 0
Electric Lightwave,
Inc.
R.J. DeSantis .......... 1998 195,833 --(14) 0
Chief Financial 1997 167,083 33,000 0
Officer, 1996 159,375 98,017 0
Vice President
and Treasurer
O. Lee Jobe ............ 1998 269,765 --(14) 0
Vice President- 1997 162,930 55,000 0
Communications
Sector
Long-term Compensation
-----------------------------------------------
Awards Payouts
--------------- ------------------------------
Securities
Underlying Long-term
Restricted Options/ Incentive
Stock SARs Plan All Other
Name and Position Awards (#)(2) Payouts Compensation
- ------------------------ --------------- ------------------ ---------- --------------------------
<S> <C> <C> <C> <C>
L. Tow ................. $ (3) $ -- $0 $ 333,377(4)(5)
C.E.O. and (7) 202,000 0 27,000(8)
Chairman (10) 434,215(11) 0 662,003(12)(13)
D. A. Ferguson ......... (3) -- 0 91,250(4)
C.O.O. and (7) 136,350 0 85,879(8)
President, 112,185 0 81,813(13)
D. B. Sharkey(15) ...... -- 0 33,759(4)
C.O.O. and (7) 40,400 0 30,036(8)
President, 17,950 0 27,790(13)
Electric Lightwave,
Inc.
R.J. DeSantis .......... (3) 40,906 0 59,491(4)
Chief Financial 40,000 0 56,212(8)
Officer, 39,750 0 48,006(13)
Vice President
and Treasurer
O. Lee Jobe ............ (3)(17) 51,133 0 60,892(4)
Vice President- 45,000 0 39706(18)
Communications
Sector
</TABLE>
<PAGE>
- ------------
(1) All amounts in the column, unless otherwise indicated, were paid under the
Incentive Deferred Compensation Plan ("IDCP") for 1996 and the CIP for
1997. Amounts granted under each of these plans are for performance for
the stated Salary Year, but are determined and awarded in the subsequent
year. Awards for 1998 will be considered by the Compensation Committee in
the spring of 1999.
(2) Number of shares underlying options adjusted to reflect subsequent stock
dividends. All awards shown are options; the Company has not awarded any
SARs.
(3) On October 19, 1998, Drs. Tow and Ferguson were granted 141,655 and 70,828
performance shares, respectively, and Messrs. DeSantis and Jobe were
granted 31,535 and 43,323 performance shares, respectively. As of December
31, 1998, the total number of restricted or performance shares held by
each of Drs. Tow and Ferguson and Messrs. DeSantis and Jobe were 701,629,
70,828, 31,535 and 55,935, respectively, with a market value as of
December 31, 1998 of $5,613,032, $566,624, $252,280 and $447,480,
respectively. Performance shares granted on October 19, 1998 (except those
granted to Dr. Tow) will vest if a specified Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) goal for the period of
October 1, 1998 through December 31, 1999 is achieved. The goal consists
of EBITDA targets for the Communications and Public Services sectors and
does not include ELI. Performance shares granted to Dr. Tow on July 11,
1996 will vest on January 1, 2001 if a specified EBITDA goal is attained.
Recipients of performance shares have the right to vote and receive
dividends, if paid, on such shares.
(4) Represents the Company's matching contribution to each named executive
officer's 401(k) plan and for Dr. Tow, Dr. Ferguson and Mr. DeSantis also
represents the matching contribution to the Company's executive Deferred
Savings Plan of $22,500, $5,958 and $250, respectively. Additionally,
$80,292, $55,892, $28,759 and $54,241, respectively, represent the 1998
economic benefit of split-dollar life insurance for Dr. Ferguson and
Messrs. Jobe, Sharkey and DeSantis. There was no economic benefit of
split-dollar life insurance for Dr. Tow in 1998.
11
<PAGE>
(5) $305,877 of this amount represents the pretax cost to the Company pursuant
to Dr. Tow's employment agreements of the term portion of split-dollar
insurance arrangements. See footnote 12 to the Summary Compensation Table
and "Employment Agreement."
(6) $50,000 of the amount shown in this column for 1996 and 1997 represents
payment for expenses pursuant to Dr. Tow's employment agreement; $90,837
for 1997 represents reimbursement pursuant to his employment agreement of
legal and accounting fees incurred by Dr. Tow in 1994-1996.
(7) In connection with the ELI IPO, on November 24, 1997 each of Drs. Tow and
Ferguson and Mr. Sharkey was granted 125,000 restricted performance shares
of Class A Common Stock of ELI. As of December 31, 1998, the total number
of performance shares of Common Stock of ELI held by each of Drs. Tow and
Ferguson and Mr. Sharkey was 125,000, with a market value as of December
31, 1998 of $1,023,750. One third of the shares granted to Dr. Ferguson and
Mr. Sharkey will vest on the later of November 24 of each year following
the date of grant or the achievement of a specified twelve-month revenue
goal. The restrictions on Dr. Tow's 125,000 shares will lapse only if ELI
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. Recipients of restricted shares have the right to vote and to receive
dividends, if paid, on such shares.
(8) Represents the Company's matching contribution to each named executive
officer'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 and $51,462, respectively, represent the 1997 economic benefit of
split-dollar life insurance for Dr. Ferguson, Mr. Sharkey and Mr. DeSantis.
There was no economic benefit of split-dollar life insurance for Dr. Tow in
1997.
(9) Includes salary of $1,288,416 and director's fees of $37,000 for 1996.
(10) Covers restricted shares of Common Stock of the Company. As of December
31, 1998 the number of restricted or performance shares held by Dr. Tow
pursuant to such grant was 559,974 shares, with a market value as of
December 31, 1998 of $4,479,792. Recipients of restricted stock have the
right to receive dividends. See "Employment Agreement."
(11) Includes an option for 220,193 shares of Common Stock granted in 1996 for
1994 performance.
(12) $536,653 of this amount 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 entered into on June 21, 1996 that led to the settlement of
certain stockholder litigation as a substitution for supplemental
retirement benefits which resulted in a reversal of accruals as previously
reported. The insurance arrangements purchased by 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.
(13) Represents the Company's matching contribution to each executive's 401(k)
plan and in the instance of Drs. Tow and Ferguson also represents the
matching contribution of the Company Executive Deferred Savings Plan.
Additionally $71,063, $25,453 and $48,006, respectively, represent the 1996
economic benefit of split-dollar life insurance for Dr. Ferguson, Mr.
Sharkey and Mr. DeSantis. There was no economic benefit of split-dollar
life insurance for Dr. Tow in 1996.
(14) In the event that the proposed separation of the Company's
telecommunications businesses and public services businesses into two-stand
alone, publicly traded companies is completed, a Cash Retention Incentive
of $250,000, $125,000 and $162,500 is required to be paid to Dr. Ferguson
and Messrs. DeSantis and Jobe, respectively. See "Compensation Committee
Report on Executive Compensation-Compensation Strategy-1998 Annual Cash
Incentive Award and other Cash Incentives."
(15) The full amount of Mr. Sharkey's compensation is attributable to services
rendered to ELI and is paid by or charged to ELI.
(16) Reflects amount paid by ELI in 1998 for 1997 performance.
(17) Mr. Jobe was granted restricted shares of Common Stock of the Company on
June 30, 1997. As of December 31, 1998, the number of restricted shares
held by Mr. Jobe pursuant to such grant was 12,612 shares,
12
<PAGE>
with a market value as of December 31, 1998 of $100,896. The first half of
these shares will vest on June 30, 1999, and the second half will vest on
June 30, 2000. Mr. Jobe has the right to vote and to receive dividends, if
paid, on such shares. For the aggregate market value of restricted and
performance shares held by Mr. Jobe as of December 31, 1998, see footnote 3
to the Summary Compensation Table.
(18) Represents moving expenses paid to Mr. Jobe in 1997.
1998 OPTION GRANTS
The following table sets forth certain information concerning options
granted to the named executive officers in 1998. No stock appreciation rights
were granted in 1998. Option totals are as of the grant date.
<TABLE>
<CAPTION>
% of Total
Number of Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted(#)(1) Fiscal Year ($/Sh)(2) Date Value $(3)
---- ---------------------- -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
R. DeSantis ......... 40,000 1.60% 10.46875 4/2/08 159,200
O. Lee Jobe ......... 50,000 2.00% 10.46875 4/2/08 199,000
</TABLE>
- ------------
(1) All options become exercisable at the rate of 33.3% per year on April 3 of
1999, 2000 and 2001.
(2) These options were granted on April 13, 1998 and the exercise price is
$10.24.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised, so that there is no assurance
the value realized, if any, by an executive will be at or near the value
estimated by the Black-Scholes model. The estimated values under that
model are based on arbitrary assumptions as to variables such as interest
rates, stock price volatility and future dividend yield. The pricing model
assumes a dividend yield of 0.00%, a riskless rate of return of 5.49%, a
six-year term of exercise and volatility of .260422.
AGGREGATED 1998 OPTION EXERCISES AND VALUE OF
OUTSTANDING OPTIONS AT DECEMBER 31, 1998
The following table sets forth certain information concerning options
exercised by the named executive officers during 1998 and the number and value
of options held by them at December 31, 1998. There were no outstanding stock
appreciation rights at December 31, 1998.
<TABLE>
CAPTION>
Value of Unexercised
Number of Unexercised In-the-money
Options/SARs at Options/SARs at
Fiscal Year-End(#) Fiscal Year-End ($)
------------------------------ -----------------------------
Shares Acquired
On Exercise(#) Value
Name Common Stock Realized Exercisable Unexercisable Exercisable Unexercisable
---- ---------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
L. Tow ................. 0 0 3,185,323 315,108 153,284 --
D. A. Ferguson ......... 0 0 496,695 187,608 66,290 --
D. B. Sharkey .......... 0 0 41,475 43,893 -- --
R. DeSantis ............ 0 0 197,054 103,350 41,221 --
O. Lee Jobe ............ 0 0 9,459 88,969 -- --
</TABLE>
All numbers are as of December 31, 1998 and reflect adjustment for stock
splits and stock dividends paid subsequent to the date of grant. The closing
price of the Common Stock on the NYSE on December 31, 1998 was $8.00 per share.
Dollar amounts shown under all columns other than "Value Realized" have not
been, and may never be, realized. The underlying options have not been, and may
never be, exercised, and actual gains, if any, on exercise will depend on the
value of the Company's stock on the date of exercise.
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 Electric 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 1998, this limit
was $160,000. For this reason remuneration above $160,000 has not been included
in the table below.
Pension Plan Table
Remuneration
(in thousands) Years of Service
-------------- ----------------------------------------------
5 10 15 20 25 35
- -- -- -- -- --
$160...................... $12 $25 $37 $49 $62 $74
Full years of credited service for individuals participating in the plan
and listed in the Summary Compensation Table are seven for Dr. Tow, eight for
Dr. Ferguson, four for Mr. Sharkey, thirteen for Mr. DeSantis and one for Mr.
Jobe.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Stanger as Chairman
and Messrs. Botwinik, Harfenist, Symington and Tornberg. No executive officer
of the Company served as: (i) a member of the compensation committee (or other
board committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the compensation committee of the Company; (ii) a
director of another entity, one of whose executive officers served on the
compensation committee of the Company; or (iii) a member of the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another
entity, one of whose executive officers served as a director of the Company.
14
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CITIZENS UTILITIES COMPANY,
THE DOW JONES INDUSTRIAL AVERAGE INDEX
AND THE DOW JONES UTILITIES AVERAGE INDEX
<TABLE>
<CAPTION>
12/93 12/94 12/95 12/96 12/97 12/98
<S> <C> <C> <C> <C> <C> <C>
Citizens Utilities Company $100 73 79 72 67 57
Dow Jones Industrial Average $100 105 144 185 231 273
Dow Jones Utilities Average $100 85 112 122 150 178
</TABLE>
*$100 INVESTED ON 12/31/93 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
The chart above compares the Company's Common Stock performance with the
performance on the Dow Jones Industrial Average Index (the "DJIA") and the Dow
Jones Utilities Average Index (the "DJUA") by valuing the annual changes in
common stock prices from December 31, 1993 through December 31, 1998, as
required by Securities and Exchange Commission rules. The chart above assumes
in each case an initial investment of $100 on December 31, 1993 and that all
quarterly dividends were reinvested at the average of the closing stock prices
at the beginning and end of the quarter.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the company's directors,
executive officers and persons holding more than 10% of a registered class of
the Company's equity securities to file with the Securities and Exchange
Commission and the New York Stock Exchange initial reports of ownership,
reports of changes in ownership and annual reports of ownership of Common Stock
and other equity securities of the Company. Such directors, officers, and 10%
stockholders are also required to furnish the Company with copies of all such
filed reports.
Based solely upon a review of the copies of such reports furnished to the
Company, or representations that no reports were required, the Company believes
that, except as hereinafter described, all of its directors, executive officers
and 10% shareholders complied with all filing requirements under Section 16(a)
in 1998. A Statement of Changes in Beneficial Ownership on Form 4 for one
transaction was filed late by Mr. Livingston Ross.
15
<PAGE>
AGREEMENTS WITH ELI
General
The Company owns 100% of the outstanding Class B Common Stock of ELI,
which represents approximately 97% of the combined voting power of all of the
outstanding Common Stock of ELI. Leonard Tow, Chairman of the Board and Chief
Executive Officer of the Company, is the Chairman of the Board of ELI. Daryl A.
Ferguson, President and Chief Operating Officer of ELI is Vice Chairman and
Chief Executive Officer of the Company. Robert J. DeSantis, Chief Financial
Officer of the Company, is Chief Financial Officer of ELI. David B. Sharkey, an
executive officer of the Company, is the President and Chief Operating Officer
and a Director of ELI. Stanley Harfenist and Robert Stanger, Directors of the
Company, are Directors of ELI.
The Company's relationship with ELI is governed by agreements entered into
with ELI in connection with the IPO, including an Administrative Services
Agreement, a Tax Sharing Agreement, an Indemnification Agreement, a Customers
and Service Agreement and a Registration Rights Agreement, the material terms
of which are described below.
Administrative Services Agreement
The Administrative Services Agreement (the "Administrative Services
Agreement") provides for the Company to render certain financial management
services, information services, legal and contract services, human resources
services and corporate planning services to ELI. Under the terms of the
Administrative Services Agreement, all of the services are rendered by the
Company subject to the oversight, supervision and approval of ELI, acting
through its Board of Directors.
The administrative costs payable by ELI to the Company pursuant to the
Administrative Services Agreement are not expected to exceed the fees that
would be paid if such services were to be provided by an independent third
party.
The Administrative Services Agreement will terminate on December 31, 2005,
unless earlier terminated by the Company or ELI. The Administrative Services
Agreement will be automatically renewed for additional terms of two years
unless either party gives at least six months' written notice prior to a
scheduled termination date. The Administrative Services Agreement can be
terminated upon a material breach and will be terminated upon a change of
control of ELI. Pursuant to the Administrative Services Agreement, in 1998 the
Company received fees of $4,827,000 from ELI, excluding reimbursements for
costs.
Tax Sharing Agreement
As ELI is included in the Company's consolidated income tax group, ELI's
federal income tax liability is included in the consolidated federal income tax
liability of the Company and its subsidiaries. ELI is also included with
certain subsidiaries of the Company in combined, consolidated or unitary income
tax groups for state and local tax purposes. ELI and the Company are parties to
a federal, state and local tax-sharing agreement (the "Tax Sharing Agreement").
Pursuant to the Tax Sharing Agreement, the Company and ELI make payments
between them such that, with respect to any period, the amount of taxes to be
paid by ELI, subject to certain adjustments, will generally be determined as
though ELI were to file separate federal, state and local income or franchise
tax returns (including, except as provided below, any amounts determined to be
due as a result of a re-determination of the tax liability of the Company
arising from an audit or otherwise). ELI is responsible for any tax liability
due any foreign jurisdiction arising from its business activities. The Tax
Sharing Agreement will remain in effect so long as any taxing jurisdiction
requires the filing of a combined tax return by both ELI and the Company.
The Company has sole and exclusive responsibility for (i) preparing any
tax returns (including amended returns or claims for refund) of ELI; (ii)
representing ELI with respect to any tax audit or tax contest; (iii) engaging
outside counsel and accountants with respect to tax matters regarding ELI; and
(iv) performing such other acts and duties with respect to ELI's tax returns as
the Company determines is appropriate. The amounts that ELI will pay the
Company under the Administrative Services Agreement will encompass
reimbursement to the Company for all direct and indirect costs and expenses
incurred with respect to ELI's share of the overall costs and expenses incurred
by the Company with respect to tax related services.
16
<PAGE>
Each member of a consolidated group is jointly and severally liable for
the federal income tax liability of each other member of the consolidated
group. Accordingly, although the Tax Sharing Agreement allocates tax
liabilities between the Company and ELI, during the period in which ELI is
included in the Company's consolidated group, ELI could be liable in the event
that any federal tax liability is incurred, but not discharged, by any other
member of the Company's consolidated group.
Indemnification Agreement
The Company and ELI are parties to an indemnification agreement (the
"Indemnification Agreement"). The Indemnification Agreement provides that ELI
will indemnify the Company for any liabilities incurred by the Company under
any guarantees of ELI's obligations or liabilities of ELI and that ELI will pay
the Company for its direct costs, if any, of maintaining such guarantees.
Registration Rights Agreement
The Company and ELI are parties to a Registration Rights Agreement (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that, upon the request of the Company, ELI, at its expense, will use its best
efforts to effect the registration under the applicable federal and state
securities laws of any of the shares of Common Stock (and any other securities
issued in respect of or in exchange therefor) held by the Company for sale in
accordance with ELI's intended method of disposition thereof and will take such
other actions necessary to permit the sale thereof in other jurisdictions,
subject to certain specified limitations. The Company will also have the right,
at its expense, to include the shares of Common Stock held by it in certain
other registrations of common equity securities of ELI initiated by ELI on its
own behalf or on behalf of its other shareholders.
Customers and Service Agreement
The Company and ELI are parties to a Customers and Service Agreement (the
"Customers and Service Agreement"). The Customers and Service Agreement
contains provisions prohibiting ELI from competing with the Company for
customers in the Company's existing service areas and in certain new lower
density territories which the Company was or will be first to enter after the
IPO. The Company has agreed that it will not compete with ELI in the service
territories in which the Company provided services prior to the IPO and in
certain new higher density territories which ELI was or will be first to
provide services after the IPO. Neither the Company nor ELI may solicit an
existing wholesale customer of the other company for services which such
customer is currently receiving under contract from the other company. The
relevant provisions were intended to permit ELI to continue all activities in
which it engaged prior to the IPO, and to expand into related markets. The
Customers and Service Agreement will remain in effect until the Company ceases
to own a majority of the voting interest of the capital stock of ELI or its
designees cease to constitute a majority of the directors.
Citizens' Guarantees of the Company's Obligations
Lease
In June 1995, ELI entered into agreements to lease certain equipment to be
constructed for ELI (the "Lease"). The lessor has agreed to commit up to a
maximum of $110,000,000 of the cost of purchasing and installing the equipment.
Rental obligations for the equipment commenced in June 1995, and, with renewal
options, will expire on April 30, 2002. The Company has guaranteed all
obligations of ELI under the Lease and ELI is required to pay the Company a
guarantee fee of 3.25% per annum of the amount of the lessor's investment in
the leased assets. At December 31, 1998, $110,000,000 was outstanding on the
Lease.
Credit Facility
On November 2, 1997, the Company and ELI entered into a five-year, $400
million revolving Credit Facility with Citibank, as agent for a group of
lending banks. The Company has agreed to guarantee all debt obligations under
the Credit Facility. The Credit Facility requires that the Company maintain a
minimum net worth of
17
<PAGE>
at least $1 billion and continue to own at least 51% of the outstanding Common
Stock of ELI. ELI has agreed to pay the Company a guarantee fee at a rate of
3.25% per annum based on the average balance outstanding. At December 31, 1998,
ELI had outstanding loans payable to Citibank in the amount of $284 million.
For 1998, the amount payable to the Company by ELI was $8,614,000 in fees
for guarantees to ELI under the Lease and the revolving Credit Facility.
Refinancing of Obligations
The Company and ELI have agreed that, if the Company intends to reduce its
economic interest in ELI to less than 51%, the Company will be entitled to
request ELI to refinance its obligations under the Lease and the Credit
Facility and ELI shall be obligated to use its best efforts to do so. This
refinancing would occur when the Company reduces its economic interest in the
Company to less than 51%.
Telecommunications Services
The Company has leased long term rights to fiber optic lines from ELI for
which the Company has agreed to pay an annual fee of $360,000. Also, the
Company and ELI have agreed to combine their purchases of long-haul services in
an arrangement with a long distance company in order to receive a lower unit
cost. ELI has agreed to reimburse the Company for the cost of ELI's usage and
pay an additional fee consisting of 5% of such cost. The agreement was replaced
effective May 1, 1997 with a 24-month term agreement which removed the 5%
additional fee.
The Company's Communications segment ("Citizens Communications") has
transactions in the normal course of business with ELI. Citizens Communications
is an Incumbent Local Exchange Carrier ("ILEC") in certain markets in which ELI
provides services. In order to provide services in those markets, ELI purchases
access from Citizens Communications. ELI is charged the full-tariff rate for
those services, which was $4,790,000 in 1998, representing usage based charges
for the services provided. Citizens Communications purchases certain services
from ELI at prevailing market rates. In 1998, ELI recognized revenue in the
amount of $2,882,000 for such related party transactions.
Separation Agreement
On May 18, 1998, the Company announced its plans to separate its
telecommunications businesses and public services businesses into two
stand-alone publicly-traded companies. The Company intends to establish and
transfer to a new company ("Newco") all of its telecommunications businesses,
including its approximate 83% interest in ELI. This separation is subject to
federal and state regulatory approvals and final Board approval, and is
expected to be carried out through a distribution in the stock of the new
company to the Company's shareholders. The public services businesses will
continue to operate as Citizens Utilities Company and intend to provide gas
transmission and distribution, electric transmission and distribution, water
distribution and wastewater treatment services. This separation is being made
in recognition of the different investment features, performance criteria,
capital structures, dividend policies, customers' requirements and regulatory
designs of each business, and would allow each business to pursue its own
strategy and compete more effectively in its respective markets. The separation
will strengthen both businesses and enable each of them to take full advantage
of opportunities to enhance value.
The Company received an order from the Federal Energy Regulatory
Commission that granted an approval necessary to proceed with its separation
plans. The Company filed a request with the Internal Revenue Service for a
private letter ruling that the transaction is not subject to federal income
tax. The Company has filed petitions with numerous state regulatory agencies
for the approvals necessary to proceed with its separation plans and to date
has received the necessary approval from a number of these agencies. An
application with the Federal Communications Commission for the transfer of
certain licenses and filings with the Securities and Exchange Commission will
also be made during the separation process. The transaction is expected to be
completed in the second half of 1999.
18
<PAGE>
Although the Company continues to aggressively pursue its separation
plans, changing market conditions and new business opportunities may require it
to consider other methods to enhance shareholder value, including the sale or
other disposition of certain businesses and the acquisition of businesses
similar to those that the Company retains.
In the event that the separation occurs, the Company anticipates that all
of its intercompany agreements with ELI would be assigned to Newco.
Other
In the future, additional transactions (such as the separation described
above) may occur and agreements may be reached between the Company and ELI in a
number of areas relating to their past and ongoing relationships, including
potential acquisitions of businesses or properties or other corporate
opportunities, potential competitive business activities, payment of dividends,
incurrence of indebtedness, guarantees, tax matters, financial commitments,
marketing functions, indemnity arrangements, registration rights,
administrative and services arrangements, and issuances or sales of capital
stock of ELI.
CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1999, Adelphia Communications Corporation ("Adelphia") and
Century announced the signing of a definitive agreement for the merger of
Century with Adelphia. The Company currently owns 1,807,095 shares of Century
Class A Common Stock. Pursuant to the Merger Agreement, each Century Class A
Common share will be exchanged for cash of $9.16 and .6122 of a share of
Adelphia Class A Common Stock (for a total market value of $44.14 per Century
Class A Common share based on Adelphia's March 4, 1999 closing price of
$57 1/8).
A subsidiary of the Company, in a joint venture with a subsidiary of
Century, acquired and operates four cable television systems in southern
California serving approximately 91,000 basic subscribers. 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. See "Stock Ownership of Directors and Executive Officers."
A management board on which the Company and Century are equally represented
governs the joint venture. A subsidiary of Century (the "Manager") manages 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. The Manager is obligated to pass through to the joint venture
any discount, up to 5%, off the published prices of services or assets
purchased for the joint venture for use in the systems. The Manager is entitled
to retain any discount in excess of 5%. The Company accounts for the joint
venture following the equity method of accounting. It is expected that these
properties will become part of a strategic larger partnership with
Tele-Communications, Inc., a cable operator in California, and Century. Upon
consummation, the Company will own 5.5% of this partnership, which will serve
772,000 customers in the Los Angeles basin. The Company's 50% ownership in the
joint venture is expected to be sold to Adelphia at a value of approximately
$3,500 per subscriber.
In January 1999, the Centennial Cellular Corp. ("Centennial"), was
acquired as a result of its merger with CCW Acquisition Corp., a company
organized at the direction of Welsh, Carson, Anderson & Stowe. The Company was
a holder of 1,982,294 shares of Centennial Class B Common Stock. In addition,
as a holder of 102,187 shares of Mandatorily Redeemable Convertible Preferred
Stock (the "Preferred Security") of Centennial, the Company was required to
convert the Preferred Security into approximately 2,972,000 shares of Class B
Common Stock. In exchange for all of its common stock interests, the Company
received approximately $223,100,000 in cash, of which approximately $17,500,000
related to accrued dividends on the preferred stock. The Company recorded a
pre-tax gain of approximately $69,500,000 on this transaction in January 1999.
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 1998
approximately $714,355. The Company proposes to retain Fleischman and Walsh
during the current year.
19
<PAGE>
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 2000 annual meeting, they must be received by November 22,
1999. 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, 2000 nor later than February 15, 2000.
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
20
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See Advance Registration Form on back cover.
<PAGE>
Citizens Utilities Company
1999 Annual Meeting of Stockholders
10:00 a.m., Central Time, May 20, 1999
Wyndham Anatole Hotel
Dallas, Texas
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 BULK RATE
C/O ILLINOIS STOCK TRANSFER CO. U.S. POSTAGE
209 WEST JACKSON BLVD., SUITE 903 PAID
CHICAGO, ILLINOIS 60606-6905 PERMIT #20
SANFORD, ME
04073
--------------
MAIL TO:
PROXY FOR CITIZENS UTILITIES COMPANY ANNUAL MEETING OF STOCKHOLDERS
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways: 1. By Internet
2. By Phone
3. By Mail
See the reverse side of this sheet for instructions.
IF YOU ARE NOT VOTING BY INTERNET OR BY TELEPHONE, COMPLETE BOTH SIDES OF PROXY
CARD, DETACH AND RETURN IN THE ENCLOSED ENVELOPE TO:
ILLINOIS STOCK TRANSFER CO.
209 WEST JACKSON BOULEVARD, SUITE 903
CHICAGO, ILLINOIS 60606
................................................................................
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 to Thursday, May 20, 1999, at 10:00 a.m., Central 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: ________________________, 1999
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.
- --------------------------------------------------------------------------------
<PAGE>
VOTE BY INTERNET
Your Internet vote is quick, confidential and your vote is immediately
submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet Voting Site at http://www.eproxyvote.com/czn and follow
the instructions on the screen.
3. When prompted for yor Voter Control Number, enter the number printed in the
box labeled Voter Control Number on the front of the proxy card.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m., Central Time, May 19, 1999.
Your Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated and returned the proxy card.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR PROXY BY MAIL.
- --------------------------------------------------------------------------------
VOTE BY TELEPHONE
Your telephone vote is quick, confidential and immediate. Just follow these
easy steps:
1. Read the accompanying Proxy Statement.
2. Using a Touch-Tone telephone, call Toll Free 1.800.555.8140 and follow the
instructions.
3. When asked for your Voter Control Number, enter the number printed in the box
labeled Voter Control Number on the front of the proxy card.
Please note that all votes cast by telephone must be submitted prior to 5:00
p.m., Central Time, May 19, 1999.
Your telephone vote authorizes the named proxies to vote your shares to the
same extent as if you marked, signed, dated and returned the proxy card.
IF YOU VOTE BY TELEPHONE, PLEASE DO NOT RETURN YOUR PROXY BY MAIL.
- --------------------------------------------------------------------------------
VOTE BY MAIL
To vote by mail, complete both sides, sign and date the proxy card below. Detach
the card and return it in the envelope provided.
THANK YOU FOR YOUR VOTE
................................................................................
<TABLE>
<CAPTION>
<S> <C>
Nominees: Proposal 1 - Election of Directors
----------
01 Norman I. Botwinik [ ] For [ ] Withheld [ ] For, except vote withheld from the following Nominee(s)
02 Aaron I. Fleischman
03 Stanley Harfenist _______________________________________________________
04 Andrew Heine
05 John L. Schroeder _______________________________________________________
06 Robert D. Siff
07 Robert A. Stanger
08 Charles H. Symington, Jr.
09 Edwin Tornberg
10 Claire L. Tow
11 Leonard Tow
</TABLE>
