<PAGE>
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
Commonwealth Telephone Enterprises, Inc.
- --------------------------------------------------------------------------------
(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):
[_] 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.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF CTE COMMONWEALTH TELEPHONE ENTERPRISES APPEARS HERE]
100 CTE Drive
Dallas, Pennsylvania 18612
(570) 674-2700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 13, 1999
The Annual Meeting of Shareholders of Commonwealth Telephone Enterprises,
Inc., ("CTE" or the "Company") will be held at the Nassau Inn, 10 Palmer
Square, Princeton, New Jersey, 08542, on Thursday, May 13, 1999, at 11:00
A.M., local time. The meeting will be held for the following purposes:
1. To elect five (5) Directors to Class III to serve for a term of three
(3) years;
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999;
3. To consider and act upon a proposal by a shareholder to request the
Board of Directors to pay a cash dividend; and
4. To act upon such other matters as may properly come before the meeting
or any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 25, 1999, will
be entitled to vote at the meeting either in person or by proxy. Each of these
shareholders is cordially invited to be present and vote at the meeting in
person.
In order to insure that your shares are represented and are voted in
accordance with your wishes, IT WILL BE APPRECIATED IF YOU WILL DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. If you
attend the meeting, you may personally vote your shares regardless of whether
you have signed a proxy.
/s/ John J. Jones
John J. Jones,
Executive Vice President,
General Counsel and Corporate
Secretary
Dated: April 22, 1999
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
100 CTE Drive
Dallas, Pennsylvania 18612
---------------------
PROXY STATEMENT
---------------------
Annual Meeting of Shareholders to be Held on Thursday, May 13, 1999
This Proxy Statement is being mailed to shareholders on or about April 22,
1999, in connection with the solicitation of proxies by the Board of Directors
of Commonwealth Telephone Enterprises, Inc. ("CTE" or the "Company") for use
at the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Thursday, May 13, 1999, at 11:00 A.M., local time, at the Nassau Inn, 10
Palmer Square, Princeton, New Jersey, 08542, and at any adjournment or
postponement thereof.
At the Annual Meeting, shareholders of CTE eligible to vote will consider
and vote upon proposals: (i) to elect five (5) Class III Directors to serve
for a term of three (3) years; (ii) to ratify the appointment of
PricewaterhouseCoopers LLP as independent auditors of CTE for the fiscal year
ending December 31, 1999; (iii) to consider and act upon a proposal by a
shareholder to request the Board of Directors to pay a cash dividend; and (iv)
to transact such other business as may properly come before the meeting.
Any proxy may be revoked at any time prior to its exercise by notifying the
Corporate Secretary in writing, by delivering a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement in connection with the
solicitation made hereby, and if given or made, such information or
representation should not be relied upon as having been authorized by CTE.
----------------
The date of this Proxy Statement is April 22, 1999.
<PAGE>
THE ANNUAL MEETING
Time, Date and Place
The Annual Meeting will be held at the Nassau Inn, 10 Palmer Square,
Princeton, New Jersey, 08542, on Thursday, May 13, 1999, at 11:00 AM, local
time.
Purpose of the Annual Meeting
Shareholders of CTE will consider and vote upon proposals: (i) to elect five
(5) Class III Directors to each serve for a term of three (3) years; (ii) to
ratify the appointment of PricewaterhouseCoopers LLP as independent auditors
of CTE for the fiscal year ending December 31, 1999; (iii) to consider and act
upon a proposal by a shareholder to request the Board of Directors to pay a
cash dividend; and (iv) to transact such other business as may properly come
before the meeting.
Record Date, Quorum, Required Vote
The close of business on March 25, 1999 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at,
the Annual Meeting and at any adjournment or postponement thereof. On March
25, 1999, there were outstanding 19,621,144 shares of Common Stock of CTE
("CTE Common Stock") and 2,460,355 shares of Class B Common Stock ("CTE Class
B Common Stock," and together with the CTE Common Stock, the "CTE Common
Equity"). The presence at the Annual Meeting, in person or by proxy, of
shareholders entitled to cast a majority of the votes entitled to be cast at
the Annual Meeting shall constitute a quorum at the Annual Meeting.
Shareholders will be entitled to one vote per share of CTE Common Stock and
fifteen (15) votes per share of CTE Class B Common Stock on all matters to be
submitted to a vote at the Annual Meeting. Shareholders have cumulative voting
rights with respect to the election of Directors. Under cumulative voting, a
shareholder's total vote (the number of votes to which such shareholder is
entitled multiplied by the number of Directors to be elected) may be cast
entirely for one candidate or distributed among two or more candidates. The
persons named in the accompanying Proxy may, at their discretion, cumulate the
votes which they are authorized to cast. Holders of CTE Common Stock and
holders of CTE Class B Common Stock will vote as a single class on all
matters.
In accordance with Pennsylvania law, a shareholder entitled to vote for the
election of Directors can withhold authority to vote for all nominees of
Directors or can withhold authority to vote for certain nominees of Directors.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. Abstentions and broker non-votes are not treated as votes cast, and
thus will not be the equivalent of votes against the election of a nominee.
The approval of each of Proposal 2 (regarding ratification of the
appointment of independent auditors) and Proposal 3 (regarding a shareholder
proposal to request the Board of Directors to pay a cash dividend) requires
the affirmative vote of a majority of the votes entitled to be cast by the
holders of CTE Common Stock and CTE Class B Common Stock voting together as a
single class. Abstentions and broker non-votes, because they are not treated
as votes cast, will not be the equivalent of votes against Proposal 2 or
Proposal 3.
2
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three (3) classes and is
currently comprised of thirteen (13) members. One class is elected each year
for a three-year term. Class III Directors whose term will expire at the
Annual Meeting include the following nominees, all of whom are presently
Directors of the Company: James Q. Crowe, Bruce C. Godfrey, Stuart E. Graham,
Richard R. Jaros and Michael J. Mahoney. These five (5) nominees, if elected
at the 1999 Annual Meeting, will serve for a term of three (3) years expiring
at the Annual Meeting of Shareholders to be held in 2002.
It is not anticipated that any of the above nominees will become unavailable
for any reason, but, if any of the nominees should become so unavailable
before the Annual Meeting, the persons named on the enclosed Proxy reserve the
right to substitute another person of their choice as nominee in place of such
unavailable person, or to vote for such lesser number of Directors as may be
prescribed by the Board of Directors.
The Board of Directors recommends that the shareholders vote FOR the
election of these five (5) nominees as Class III Directors to serve for a term
of three (3) years.
DIRECTOR INFORMATION
Information as of April 2, 1999, concerning the nominees for election as
Class III Directors and the other current Directors is set forth below.
<TABLE>
<CAPTION>
Director
Name of Director Age Since
---------------- --- --------
<S> <C> <C> <C>
James Q. Crowe 49 President and Chief Executive Officer of Level 1993
3 Communications, Inc., the majority
shareholder of the Company ("Level 3"),
formerly known as Peter Kiewit Sons', Inc., an
affiliate of the Company ("PKS") since August
1997 and a Director since June 1993; President
and Chief Executive Officer of MFS
Communications Company, Inc. ("MFS/WorldCom")
from June 1993 to June 1997 and Chairman of
the Board of Directors of MFS/WorldCom from
1992 to 1996. Mr. Crowe is a Director of RCN
Corporation, an affiliate of the Company,
("RCN") and Inacom Communications, Inc., since
1997 and Chairman of the Board of Directors of
WorldCom, Inc. ("WorldCom") from December 1996
to June 1997.
Bruce C. Godfrey 43 Executive Vice President and Chief Financial 1996
Officer of the Company from April 1994 to
December 1998 and Corporate Secretary from
September 1997 to August 1998; Director,
Executive Vice President and Chief Financial
Officer of RCN since September 1997; Director
and Corporate Secretary of Cable Michigan
Inc., formerly an affiliate of the Company,
("Cable Michigan"), from September 1997 to
November 1998; Executive Vice President and
Chief Financial Officer of Mercom Inc.,
formerly an affiliate of the Company,
("Mercom"), from April 1994 to October 1997,
Director of Mercom from May 1994 to November
1998 and Corporate Secretary from October 1997
to November 1998; Senior Vice President and
Principal of Daniels and Associates from
January 1984 to April 1994.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Director
Name of Director Age Since
---------------- --- --------
<S> <C> <C> <C>
Michael I. Gottdenker 34 President and Chief Executive Officer of 1997
the Company since December 1998;
President and Chief Operating Officer of
the Company since September 1997 to
December 1998; Executive Vice President
of the Company from September 1995 to
September 1997; Executive Vice President
of Commonwealth Communications Services
Group from August 1996 to September 1997;
Vice President of New Business
Development at Revlon Consumer Products
Corporation ("Revlon") from 1994 to 1995;
General Manager of Revlon's State Beauty
Supply from 1993 to 1994; Director of
Corporate Finance at Revlon from 1992 to
1993; Associate, Real Estate Finance
Department at Salomon Brothers Inc from
1988 to 1991; and Financial Analyst,
Corporate Finance Department at Salomon
Brothers Inc from 1986 to 1988.
Stuart E. Graham 53 President of Skanska USA Inc. since 1994; 1990
CEO of several Skanska USA subsidiaries,
including Sordoni Skanska, Slattery
Skanska and Skanska E & C; Director of
RCN, since September 1997.
Frank M. Henry 65 Chairman, Frank Martz Coach Company since 1980
1995 and President of Frank Martz Coach
Company from 1964 to 1995; President,
Gold Line, Inc., since 1975 and Director
of First Union Corporation; Mr. Henry was
a Director of Cable Michigan, from
September 1997 to November 1998.
Richard R. Jaros 47 President of Level 3 from 1996 to 1997 1993
and Executive Vice President of PKS, from
1993 to 1997; Chief Financial Officer of
PKS from 1995 to 1997; Chairman of
CalEnergy Company, Inc. ("CECI") from
1993 to 1994 and President of CECI from
1992 to 1993. Mr. Jaros served in various
capacities at PKS between 1980 and 1993;
Mr. Jaros is a Director of Level 3, CECI,
RCN, and was a Director of DTN
Corporation from May 1998 until March
1999.
Daniel E. Knowles 69 President of Cambridge Human Resources 1995
since 1989; Vice President of Personnel
and Administration, Grumman Corporation,
from 1963 to 1989; Director of Cable
Michigan, from September 1997 to November
1998.
Michael J. Mahoney 48 President and Chief Operating Officer as 1995
well as a Director of RCN, since
September 1997; President and Chief
Operating Officer of the Company from
February 1994 to September 1997;
President and Chief Operating Officer of
Mercom, from February 1994 to September
1997 and a Director of Mercom from
January 1994 to November 1998; Executive
Vice President of the Company's Cable
Television Group from June 1991 to
February 1994; Executive Vice President
of Mercom from December 1991 to February
1994.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Director
Name of Director Age Since
---------------- --- --------
<S> <C> <C> <C>
David C. McCourt 42 Chairman of the Company since October 1993; 1993
Chairman and Chief Executive Officer of RCN,
since September 1997; Chief Executive Officer
of the Company from October 1993 to December
1998; Chairman, Director and Chief Executive
Officer of Cable Michigan from September 1997
to November 1998; President and Director of
Level 3 Telecom Holdings, Inc., an affiliate
of the Company ("LTH"); Chairman, Director
and Chief Executive Officer of Mercom, from
October 1993 to November 1998; Director of
MFS/WorldCom from July 1990 to December 1996;
President and Director of Metropolitan Fiber
Systems/McCourt, Inc., a subsidiary of MFS
Telecom, Inc., since 1988; Director of Cable
Satellite Public Affairs Network ("C-SPAN")
since June 1995; Director of WorldCom from
December 1996 to March 1998; and Director of
Level 3 since March 1998.
David C. Mitchell 57 Former President of Rochester Telephone 1993
Corporation's Telephone Group, Corporate
Executive Vice President and Director of
Rochester Telephone Corporation ("RTC"), now
Frontier Corporation; Since 1963, Mr.
Mitchell held various positions throughout
RTC encompassing virtually all disciplines of
the company; Director of Lynch Corporation,
USN Communications and Marine Midland Bank
Advisory Board; Director of Cable Michigan,
from September 1997 to November 1998.
Eugene Roth 63 Senior Partner at Rosenn, Jenkins and 1989
Greenwald L.L.P. (Attorneys) since 1964 and
Director of the Pennsylvania Regional Board
of Directors of First Union National Bank,
Director of RCN, since September 1997 and a
Director of Geisinger Wyoming Valley Medical
Center.
Walter Scott, Jr. 67 Chairman of Level 3 since 1979 and Director 1993
since April 1964; Chairman and Chief
Executive Officer of PKS for over nineteen
years; Director of Berkshire Hathaway, Inc.,
Burlington Resources, Inc., CECI, ConAgra,
Inc., U.S. Bancorp and Valmont Industries,
Inc., Director of RCN, since 1997. Mr. Scott
served as a Director of WorldCom from
December 1996 to July 1997.
John J. Whyte 58 President of Whyte Worldwide PCE 1997
(Professional Corporate Executive Firm);
Partner of Stavisky, Shapiro & Whyte,
Certified Public Accountants, since 1981.
</TABLE>
- --------
The Board of Directors is divided into three (3) classes. James Q. Crowe,
Bruce C. Godfrey, Stuart E. Graham, Richard R. Jaros and Michael J. Mahoney
are members of Class III whose term will expire at the Annual Meeting. Daniel
E. Knowles, David C. McCourt, David C. Mitchell, and Walter Scott, Jr. are
members of Class I with terms expiring in 2000. Michael I. Gottdenker, Frank
M. Henry, Eugene Roth and John J. Whyte are members of Class II with terms
expiring in 2001.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company
Set forth below is certain information regarding the beneficial ownership of
CTE Common Stock and CTE Class B Common Stock as of April 2, 1999, held by
each Director of the Company, the named executive officers below and by all
persons, who are currently Directors or executive officers of the Company, as
a group. Because the shares of CTE Class B Common Stock are convertible at the
option of the holder into shares of Common Stock on a one-for-one basis at any
time and from time to time, the "Assuming Conversion" columns in the stock
table reflect the total shares of CTE Common Stock which would be beneficially
owned by such group assuming no other conversions. The "Percent of Class of
Outstanding Shares" columns represent ownership, not voting interest. Shares
of CTE Common Stock have one vote per share and shares of CTE Class B Common
Stock have fifteen (15) votes per share. Each Director or named executive
officer has sole investment and voting power over the shares listed opposite
his name except as set forth in the footnotes hereto:
<TABLE>
<CAPTION>
CTE Class B
CTE Common Stock(1) Common Stock Assuming Conversion
---------------------------- ---------------------------- ----------------------------
Number of Shares Percent of Number of Shares Percent of Number of Shares Percent of
Beneficially Outstanding Beneficially Outstanding Beneficially Outstanding
Name of Beneficial Owner Owned(2) Shares(2) Owned Shares Carried(2) Shares(2)
- ------------------------ ---------------- ----------- ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Donald P. Cawley(3).......... 14,447 * -- -- 14,447 *
James Q. Crowe(4)............ 14,696 * -- -- 14,696 *
James DePolo(5).............. 15,022 * -- -- 15,022 *
Bruce C. Godfrey(6).......... 59,333 * -- -- 59,333 *
Michael I. Gottdenker(7)(8).. 86,666 * -- -- 86,666 *
Stuart E. Graham(4).......... 3,592 * 3,101 * 6,693 *
Frank M. Henry(4)............ 38,685 * 15,398 * 54,083 *
Richard R. Jaros(4).......... 2,953 * -- -- 2,953 *
Stuart L. Kirkwood(9)........ 16,669 * -- -- 16,669 *
Daniel E. Knowles(4)......... 3,551 * -- -- 3,551 *
Michael Loftus(10)........... 9,650 * -- -- 9,650 *
Michael J. Mahoney(11)....... 80,913 * -- -- 80,913 *
David C. McCourt(7)(12)(13).. 341,309 * 3,333 * 344,642 *
David C. Mitchell(4)......... 3,840 * -- -- 3,840 *
Eugene Roth(4)............... 3,238 * 3,999 * 7,237 *
Walter Scott, Jr.(4)......... 108,814 * -- -- 108,814 *
John J. Whyte(4)............. 2,747 * -- -- 2,747 *
All Directors and Executive
Officers as a group (26
persons).................... 860,955 4% 25,831 1% 886,786 4%
Level 3 Telecom Holdings,
Inc.(14).................... 9,466,326 48% 1,190,061 48% 10,656,387 48%
Mario J. Gabelli Group(15)... 1,421,872 7% 264,370 11% 1,686,242 8%
</TABLE>
- --------
* Less than one percent of the outstanding shares of the class.
(1) The CTE Class B Common Stock is convertible, at the option of the holder,
into shares of CTE Common Stock on a one-for-one basis at any time and
from time to time. The CTE Common Stock column has been prepared assuming
that no shares of CTE Class B Common Stock are converted into CTE Common
Stock.
(2) Includes shares of CTE Common Stock acquired with respect to Matching
Shares.
(3) Includes options to purchase 8,336 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
6
<PAGE>
(4) Includes options to purchase 2,000 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(5) Includes options to purchase 14,000 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(6) Includes options to purchase 46,690 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(7) Under the CTE Executive Stock Purchase Plan ("ESPP"), participating
executive officers who forgo current compensation are credited with "Share
Units" with a value equal to the amount of the foregone pretax
compensation. The value of a Share Unit is based on the value of a share
of CTE Common Stock. The Company also credits each participant's matching
account under the ESPP with 100 percent of the number of Share Units
credited based on the participant's elective contributions. Share Units
credited to participants' elective contribution accounts are fully and
immediately vested. Share Units credited to participants' matching
accounts generally vest on the third anniversary of the date they are
credited, subject to continued employment. Share Units credited to a
participant's matching account become fully vested on a change in control
of the Company, or on the participant's death or disability while actively
employed. If the CTE Common Stock pays dividends, a dividend equivalent is
deemed paid with respect to Share Units and credited to participants'
accounts in the form of additional Share Units. The Company has
established a grantor trust to hold Common Stock corresponding to the
number of Share Units credited to participants' accounts in the ESPP.
Participants do not have the right to vote Share Units, provided that the
Company may, but is not required to, make arrangements for participants to
direct the trustee of the grantor trust as to how to vote a number of
shares held by the grantor trust corresponding to the number of Share
Units credited to the participants' matching account. The holdings
indicated below include all Share Units credited under the ESPP, whether
or not vested. The table below shows with respect to each named executive
officer, the Share Units relating to the CTE Common Stock acquired by each
such named executive officer in lieu of current compensation, and the
forfeitable Share Units credited to the ESPP account of each such
executive officer, as of December 31, 1998:
<TABLE>
<CAPTION>
Share Units
Acquired Under Total Shares
the ESPP In Total Shares Purchased,
Lieu of Current Purchased Acquired and
Name Compensation And Acquired Share Units Share Units
---- --------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
David C. McCourt........ 12,652 61,857 12,652 74,509
Michael I. Gottdenker... 6,525 17,461 6,525 23,986
</TABLE>
(8) Includes options to purchase 62,680 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(9) Includes options to purchase 8,401 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(10) Includes options to purchase 5,000 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(11) Includes options to purchase 66,700 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(12) Includes 150 shares of CTE Common Stock which are owned by Mr. McCourt's
wife. Mr. McCourt disclaims beneficial ownership of such shares.
(13) Includes options to purchase 266,800 shares of Common Stock exercisable
within 60 days after the date of this Proxy Statement.
(14) As a result of PKS separating its construction and mining management
businesses ("Construction Group") from its other businesses on March 31,
1998 (the "Split-Off"), PKS no longer owns any interest in the
Construction Group. Following the Split-Off, PKS changed its name to
"Level 3 Communications, Inc." and the company formed in the Split-Off to
hold the Construction Group's business, changed its name to "Peter Kiewit
Sons', Inc." Level 3 holds 90% of the common stock of LTH and all of the
preferred stock of LTH. David C. McCourt owns the remaining 10% of the
common stock of LTH. The address of Level 3 is 3555 Farnam Street, Omaha,
Nebraska 68131. The address of LTH is 100 Peter Kiewit Plaza, Omaha,
Nebraska 68131.
7
<PAGE>
(15) Based on information obtained from Schedule 13Ds and amendments thereto
for the CTE Common Stock and the CTE Class B Common Stock filed through
April 9, 1999, with the Securities and Exchange Commission (the "SEC") by
Mario J. Gabelli, together with GAMCO Investors, Inc., Gabelli Funds,
Inc., Gabelli Performance Partnership, L.P., Gabelli International
Limited, Gabelli International II Limited and Gabelli & Company, Inc.,
the address of each is One Corporate Center, Rye, New York 10580-1434.
The information set forth above and in "Director Information" does not give
effect to the ownership of Company securities in LTH. Certain executive
officers or Directors of the Company are directly or indirectly affiliated
with LTH. For information with respect to the beneficial ownership of
securities in LTH, see footnote 14, on page 7.
Level 3 Communications, Inc.
Set forth below is certain information regarding the beneficial ownership of
shares of Common Stock of Level 3 ("Level 3 Common Stock") as of January 31,
1999, held by each Director, the named executive officers and by all persons,
who are currently Directors and executive officers of the Company, as a group.
<TABLE>
<CAPTION>
Number Percent
Name of Shares of Shares
- ---- ---------- ---------
<S> <C> <C>
Donald P. Cawley......................................... -- --
James Q. Crowe........................................... 11,327,614 3.7
James DePolo............................................. 2,000 *
Bruce C. Godfrey......................................... -- --
Michael I. Gottdenker.................................... 500 *
Stuart E. Graham......................................... -- --
Frank M. Henry........................................... -- --
Richard R. Jaros (1)..................................... 3,497,498 1.1
Stuart L. Kirkwood....................................... -- --
Daniel E. Knowles........................................ -- --
Michael Loftus........................................... 1,100 *
Michael J. Mahoney....................................... 2,000 *
David C. McCourt......................................... 115,000 *
David C. Mitchell........................................ -- --
Eugene Roth.............................................. -- --
Walter Scott, Jr. (2).................................... 34,980,455 11.3
John J. Whyte............................................ -- --
All Directors and Executive Officers as a Group (26
persons)................................................ 49,924,167 16.1
</TABLE>
- --------
* Less than one percent of the outstanding shares of the class.
(1) Includes 370,000 shares of Level 3 Common Stock held by the Jaros Family
Limited Partnership. Includes 1,200,000 shares of Level 3 Common Stock
held by Mr. Jaros and 800,000 shares of Level 3 Common Stock, subject to
options held by a grantor trust, of which Mr. Jaros is the residual
beneficiary.
(2) Includes 99,700 shares of Level 3 Common Stock held by the Suzanne Scott
Irrevocable Trust as to which Mr. Scott shares voting and investment
powers.
8
<PAGE>
COMPENSATION INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ending December 31,
1998, 1997 and 1996, the cash compensation, as well as certain other
compensation, paid or accrued to the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
---------------------- ---------------------------------
Compen- Share Securities All Other
sation/ Units Underlying Compen-
Name and Position Year Salary ($) Bonus ($) ($)(1) Options (#) sation ($)(2)
- ----------------- ---- ---------- --------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt ...... 1998 (3) (3) (3) -- (3)
Chairman 1997 500,000 1,400,000 380,000 -- 8,144
1996 491,154 700,000 238,333 -- 13,638
Michael I. Gottdenker.. 1998 269,999 275,000 104,000 180,000 6,454
President and Chief 1997 209,038 250,000 64,808 -- 6,563
Executive Officer 1996 198,673 115,000 59,750 6,670 31,549
James DePolo(4) ....... 1998 229,000 125,000 -- 70,000 --
Executive Vice 1997 138,713 45,000 -- -- --
President 1996 (5) (5) -- -- (5)
Donald P. Cawley....... 1998 101,134 37,500 -- 15,000 3,847
Vice President and 1997 92,230 30,000 -- -- --
Controller 1996 (5) (5) -- -- (5)
Stuart L. Kirkwood..... 1998 110,000 25,000 -- 12,000 4,685
Vice President, 1997 (5) (5) -- -- (5)
Technology 1996 (5) (5) -- -- (5)
Michael Loftus......... 1998 104,980 30,000 -- 25,000 4,568
Vice President, 1997 (5) (5) -- -- (5)
Business Development 1996 (5) (5) -- -- (5)
</TABLE>
- --------
(1) Represents the market value on the date of grant of Share Units. In
connection with the distribution of CTE Common Stock as well as RCN Stock
and Cable Michigan Stock to holders of C-TEC common equity in September
1997 (the "Distribution"), shares of restricted CTE Common Stock purchased
under the ESPP and Share Units awarded under the ESPP that relate to CTE
Common Stock were adjusted so that, following the Distribution, each such
participant was credited with an aggregate equivalent value of restricted
shares of common stock of CTE, RCN and Cable Michigan. On October 1, 1997,
the shareholders voted to approve a 2-for-3 reverse stock split. Share
Units have been retroactively restated to reflect the reverse split. As of
December 31, 1998, the aggregate holdings and value of Share Units for CTE
Common Stock were as follows:
Shares Aggregate
Name Units Value ($)
---- ------ ---------
David C. McCourt.......................................... 25,304 847,684
Michael I. Gottdenker..................................... 13,050 437,175
James DePolo.............................................. -- --
Donald P. Cawley.......................................... -- --
Stuart L. Kirkwood........................................ -- --
Michael Loftus............................................ -- --
Vesting of Share Units is accelerated upon a change in control of the
Company. Dividends, if any, are paid on restricted shares. Subject to
continued employment, Share Units credited to participants' accounts
generally vest in three (3) calendar years following the date on which the
Share Units were initially credited to the participant's account.
9
<PAGE>
(2) Includes the following amounts for the last fiscal year:
(i) David C. McCourt: None; (ii) Michael I. Gottdenker: $854--Company
paid life insurance; $5,600--401(k) Company match; (iii) James DePolo:
None; (iv) Donald P. Cawley: $308--Company paid life insurance;
$3,539--401(k) Company match; (v) Stuart L. Kirkwood: $835--Company
paid life insurance; $3,850--401(k) Company match; (vi) Michael Loftus
$894--Company paid life insurance; $3,674--401(k) Company match.
(3) Mr. McCourt received no direct compensation from the Company for 1998. He
is an employee of and is compensated by RCN, and his compensation is
determined by the compensation committee of RCN. The Company pays a
management fee to RCN in respect of the services provided by RCN to the
Company, which includes the services of Mr. McCourt.
(4) Mr. DePolo is employed as an independent consultant for the Company.
(5) The information is not required since the named executive was not an
executive officer.
CTE Option Grants in Fiscal Year 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted Exercise Appreciation for
Options to Emp. In Or Base Option Term
Granted Fiscal Yr. Price Expiration ---------------------
Name (#) 1998 ($/sh) Date 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt........ -- -- -- -- -- --
Michael I. Gottdenker... 180,000 29.5 24.63 2/5/08 2,788,141 7,065,698
James DePolo............ 70,000 11.5 24.63 2/5/08 1,084,277 2,747,771
Donald P. Cawley........ 15,000 2.5 24.63 2/5/08 232,345 588,808
Stuart L. Kirkwood...... 12,000 2.0 24.63 2/5/08 185,876 471,047
Michael Loftus.......... 25,000 4.1 24.63 2/5/08 387,242 981,347
</TABLE>
FY-End Option Values(1)
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-The-Money Options
Underlying at December 31, 1998 at December 31, 1998(2)
---------------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) ($) ($)
- ---- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
David C. McCourt........ 233,450 100,050 5,688,610 2,451,625
Michael I. Gottdenker... 26,680 200,010 628,213 2,066,002
James DePolo............ -- 70,000 -- 621,250
Donald P. Cawley........ 4,002 21,003 94,243 268,757
Stuart L. Kirkwood...... 5,001 17,003 118,915 220,303
Michael Loftus.......... -- 25,000 -- 221,875
</TABLE>
- --------
(1) No stock options were exercised by the named executive officers during the
fiscal year ending December 31, 1998.
(2) The fair market value of CTE Common Stock at December 31, 1998, was $33.50
per share.
10
<PAGE>
Pension Benefits
The following table shows the estimated annual benefits payable under the
Company's pension plan upon retirement for the named executive officers based
upon the compensation and years of service classifications indicated:
<TABLE>
<CAPTION>
Years of Service
Average --------------------------------------
Compensation 5 10 15 20 25
------------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000.............................. $5,895 $11,790 $17,685 $23,580 $29,475
$125,000.............................. 7,583 15,165 22,748 30,330 37,913
$150,000.............................. 9,270 18,540 27,810 37,080 46,350
$160,000--$250,000.................... 9,945 19,890 29,835 39,780 49,725
</TABLE>
Pensions are computed on a single straight life annuity basis and are not
reduced for social security or other offset amounts. Participants receive a
pension based upon average compensation multiplied by the number of years of
service. Average compensation is computed on the basis of the average of the
employee's highest five (5) consecutive annual base salaries in the ten (10)
years immediately preceding retirement. The compensation covered by this plan
is generally based upon the compensation disclosed as salary in the Summary
Compensation Table.
11
<PAGE>
COMPENSATION COMMITTEE REPORT
The compensation programs for the Company's executive officers are
administered by the Compensation Committee ("Compensation Committee") of the
Company's Board of Directors. The Compensation Committee makes recommendations
and/or determinations with respect to all executive compensation matters.
The Compensation Committee submits the following report on compensation for
the Company's executive officers for the 1998 fiscal year:
Compensation Philosophy
In connection with the September 30, 1997 distribution of 100 percent of the
outstanding shares of common stock of RCN and Cable Michigan to the
shareholders of a predecessor to the Company (the "Distribution"), certain
principal executive officers of RCN provided certain services to the Company.
These officers of RCN were also executive officers of the Company, but
received no compensation from the Company including the Chief Executive
Officer (until December 1998), the Chief Financial Officer (until November
1998), the General Counsel, and certain other officers. Such RCN executive
officers, (including Messrs. McCourt and Godfrey) were compensated by RCN or
one of its affiliates.
The philosophy of the Company's compensation program, is, generally, to
provide a performance-based executive compensation program that rewards
executives whose efforts enable the Company to achieve its business objectives
and enhance shareholder value. The Company's compensation plan policies and
philosophies are to:
1. Establish and implement the concept of Total Direct Compensation
("TDC"), which is intended to provide a base salary slightly below that
of the Company's peer group, a short-term bonus opportunity equivalent
to that of the Company's peer group, and a long-term bonus opportunity
above that of the Company's peer group.
2. Establish market-based levels or "bands" for the executive group and
develop a TDC profile for each band. An executive's placement in the
bands will be based on individual performance, level and scope of
responsibility, and impact on decision-making.
3. Make a greater portion of an executive's potential total compensation
opportunity conditional on attainment of performance incentives, with a
smaller portion derived from base salary, as an executive's level of
responsibility increases.
4. Align the interests of executives with the interests of shareholders
through ownership of Company stock.
For the executive officers of the Company, the Chief Executive Officer, with
the review and approval of the Compensation Committee, determines base
salaries and makes recommendations with respect to short-term incentive grants
and stock option grants as they deem appropriate and consistent with the TDC
guidelines and the compensation philosophy of the Company.
To further align the interests of the Company's executives with that of
shareholders, the Company encourages executives to acquire and maintain a
significant equity stake in the Company. To assist executives in accumulating
this equity position on a pre-tax basis, the Company implemented the ESPP
pursuant to which an executive may purchase Company stock through deferral of
earned and otherwise payable compensation, which is matched by the Company.
12
<PAGE>
Executive Officer Compensation
The salaries paid to executive officers by the Company for 1998 were
targeted to be slightly below that of executive officers in the Company's peer
group and were based upon the consideration of certain employment data, an
assessment of the Company's and the officers' performance during the prior
year, and certain subjective criteria.
The amount of cash bonuses paid to executive officers for 1998 pursuant to
the bonus plan as adopted by the Company was determined through a combination
of factors including the attainment of certain corporate, business unit and
individual objectives (financial and non-financial), the compensation
practices of the Company's peer group, results of corporate and business unit
financial performances and certain subjective criteria. Special emphasis was
placed on the officers' contribution to the outstanding results at the Company
and CTSI, Inc.
Stock options were granted to certain executive officers named in the
Summary Compensation Table. The Compensation Committee believes that stock
options provide an incentive for retention of executive talent and the
creation of shareholder value in the long term since the full benefit of the
compensation package cannot be realized unless the price of the Company's
stock appreciates over a specified number of years and the executive continues
to perform services for the Company. The number of stock options granted to
each executive officer and/or mid-level management employee was based on the
individual's salary band, title and the evaluation of each executive's
individual performance and contribution to the Company's performance presented
to the Compensation Committee.
Chief Executive Officer Compensation
Mr. McCourt was paid a base salary and bonus of $500,000 and $1,250,000,
respectively, for services rendered to the Company, RCN and Cable Michigan in
1998. This compensation was paid by RCN. Mr. McCourt's compensation for 1998
was structured so that his base compensation was slightly below the level paid
to persons holding similar positions at similarly situated companies. Mr.
McCourt's short-term incentive award for 1998, which was earned under the
short-term plan adopted by the Company, reflects the extraordinary corporate
activity that took place in 1998, the accomplishment of certain strategic
corporate objectives, and the attainment of certain financial and non-
financial goals.
On December 10, 1998, Michael I. Gottdenker was appointed President and
Chief Executive Officer of the Company. Mr. Gottdenker's base salary is
$350,000. Mr. Gottdenker's compensation for 1998 was structured so that his
base compensation was slightly below the level paid to persons holding similar
positions at similarly situated companies. Mr. Gottdenker's short-term
incentive award for 1998, which was earned under the short-term plan adopted
by the Company, reflects the extraordinary corporate activity that took place
in 1998, the accomplishments of certain strategic corporate objectives, and
the attainment of certain financial and non-financial goals.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
denies a deduction by an employer for certain compensation in excess of $1
million per year paid by a publicly traded corporation to the chief executive
officer and the four (4) most highly compensated executive officers other than
the chief executive officer, unless such compensation is awarded pursuant to a
qualified performance-based program. Subject to the needs of the Company, the
Company's compensation plans are generally intended to qualify for such
qualified performance-based exemption. The Company adopted the 1996 Bonus
Plan, which is intended to serve as a qualified performance-based compensation
program under Section 162(m).
COMPENSATION COMMITTEE
Eugene Roth, Esq., Chairman
Daniel E. Knowles
John J. Whyte
Dated: April 8, 1999
13
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Eugene Roth, Esq., Chairman,
Daniel E. Knowles, and John J. Whyte.
Eugene Roth, Esq. is a Senior Partner at Rosenn, Jenkins and Greenwald,
which serves as counsel to the Company from time to time.
OTHER RELATED INFORMATION
Level 3, the Company's controlling shareholder, and/or its affiliates, has a
substantial stock ownership in LTH and the Company. These companies share
mutual director representation on their respective boards.
For information regarding certain potential or contemplated transactions
between the Company, including its subsidiaries, and other affiliates of Level
3, see Transactions with Management and Certain Concerns.
14
<PAGE>
Performance Graph
The following performance graph compares the performance of CTE Common Stock
and CTE Class B Common Stock to the NASDAQ Stock Market (U.S.) Index and the
NASDAQ Telecommunications Index. The graph assumes that the value of the
investment in CTE's Common Stock, CTE Class B Common Stock and each index was
$100 at December 31, 1993. The CTE Common Stock and CTE Class B Common Stock
includes the reinvestment of dividends.
Comparison of Five Year Cumulative Total Return
Among Commonwealth Telephone Enterprises, Inc.,
The NASDAQ Stock Market (U.S.) Index and The NASDAQ Telecommunications Index
.
CTCO CTCOB NASDAQ Stock NASDAQ Telecommunications
Market (U.S.) Index Index
---- ----- ------------------- ------------------------
- -
Dec-93 11.82813 13.20313 249.861 518.902
Dec-94 8.26563 7.67188 244.244 433.063
Dec-95 12.90625 12.15625 345.448 566.935
Dec-96 10.09375 9.45313 424.801 579.712
Dec-97 25.87500 25.00000 521.159 858.435
Dec-98 33.50000 31.50000 732.615 1401.836
.
CTCO CTCOB NASDAQ Stock NASDAQ Telecommunications
Market (U.S.) Index Index
---- ----- ------------------- ------------------------
- -
Dec-93 100 100 100 100
Dec-94 70 58 98 83
Dec-95 109 92 138 109
Dec-96 85 72 170 112
Dec-97 219 189 209 165
Dec-98 283 239 293 270
15
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND CERTAIN CONCERNS
The Company entered into an agreement with RCN Long Distance whereby
Commonwealth Long Distance Company ("CLD") and CTSI, Inc. ("CTSI") purchased
long-distance service from RCN Long Distance for resale to customers of CLD
and CTSI. In 1998, CLD and CTSI incurred approximately $13,000,000 of expenses
associated with this long-distance resale agreement and related customer
service expenses. This agreement is the result of arm's length negotiations
and fees are paid to RCN Long Distance based on usage.
RCN has agreed to provide or cause to be provided to CTE certain specified
services (management services) for a transitional period after the
Distribution. The transitional services to be provided are the following: (i)
accounting, (ii) payroll, (iii) management supervision, (iv) cash management,
(v) human resources and benefit plan administration, (vi) insurance
administration, (vii) legal, (viii) tax, (ix) internal audit, and (x) other
miscellaneous administrative services. The fee per year for these services was
3.5% of the first $175 million of revenue of the Company and 1.75% of any
additional revenue. The total fee for 1998 and 1997 was approximately
$7,016,000 and $8,283,000, respectively. During 1998, certain transitional
services were transferred to CTE from RCN. The Company anticipates the
majority of the remaining services to be transitioned to CTE by the end of
1999.
CTE has agreed to provide or cause to be provided to RCN, financial data
processing applications, lockbox services, storage facilities, Local Area
Network and Wide Area Network support services, building maintenance and other
miscellaneous administrative services for a transitional period after the
Distribution. The fees for such services and arrangements will be an allocated
portion (based on relative usage) of the cost incurred by the Company to
provide such services and arrangements. In 1998, RCN incurred approximately
$500,000 of expenses associated with such services provided by CTE.
During 1998 Commonwealth Telephone Company ("CT") leased certain facilities
owned by RCN. CT paid rent on such facilities totaling approximately $206,000
in 1998.
CT and CTSI received approximately $1,600,000 in access charges from RCN
Long Distance as a result of RCN originating and terminating traffic on CT and
CTSI's networks. CT also received approximately $300,000 in long-distance
switch rental revenue from RCN Long Distance. In addition, CT and CTSI
received approximately $500,000 in local service, telephone access, toll and
vertical service revenue from related parties, primarily RCN companies.
CTE, doing business as Commonwealth Communications ("CC"), the Company's
engineering design and consulting service business, received approximately
$700,000 in 1998 from such services provided to various RCN companies. CC also
provided contracted services to First Union Corporation in the amount of
approximately $300,000.
A three-year promissory note and security agreement dated December 29, 1998
was entered into by Michael I. Gottdenker and in favor of CTE in the amount of
$250,000 at an interest rate of 4.28 percent per annum.
16
<PAGE>
OTHER MATTERS
On October 1, 1998, the Company filed a report on Form 8-K to announce a
Common Stock Rights Offering whereby 3,678,612 shares of Common Stock were
offered to shareholders. Each shareholder of record of the Company's Common
Stock and Class B Common Stock at the close of business on September 25, 1998
received one transferable subscription right for every five (5) shares of
Common Stock or Class B Common Stock held. Rights holders were allowed to
purchase one (1) share of Common Stock for each right held at a subscription
price of $21.25 per share. Level 3, which owns approximately 48% percent of
the outstanding Common Stock and approximately 48% of the outstanding Class B
Common Stock, entered into an agreement with the Company and exercised all of
the rights it received with respect to the shares it holds. Messrs. Walter
Scott, Jr., James Q. Crowe and David C. McCourt exercised the rights they
received and entered into an agreement to oversubscribe for all other shares
that were offered for sale in the rights offering. Mr. Scott oversubscribed to
105,153 shares for a value of $2,235,000, Mr. Crowe oversubscribed to 11,172
shares for a value of $237,000 and Mr. McCourt oversubscribed to 38,456 shares
for a value of $817,000. Level 3 and Messrs. Scott, Crowe and McCourt paid the
same subscription price ($21.25 per share) as the price that any other holder
that exercised rights. Messrs. Scott, Crowe and McCourt are Directors of the
Company and Level 3, and Mr. McCourt is Chairman of the Company. The rights
offering and the transactions with Level 3, and Messrs. Scott, Crowe and
McCourt were approved by a special committee of the Board of Directors
composed solely of independent Directors.
On October 28, 1998, the Company filed a report on Form 8-K to announce the
expiration of its Common Stock Rights Offering on October 23, 1998.
On February 8, 1999, the Company filed a report on Form 8-K to announce the
redemption on February 8, 1999 of the Preferred Stock Series A and Preferred
Stock Series B at their stated value, an aggregate of $52 million, plus
accrued dividends.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board of Directors of the Company held five (5) meetings during 1998,
the Audit Committee met four (4) times and the Compensation/Pension Committee
met three (3) times. The Company currently does not have a nominating
committee.
Executive Committee
The Executive Committee exercises, to the maximum extent permitted by law,
all powers of the Board of Directors between board meetings, except those
functions assigned to specific committees. The current Executive Committee
consists of David C. McCourt, Chairman, Michael I. Gottdenker, James Q. Crowe,
Bruce C. Godfrey and Walter Scott, Jr.
Audit Committee
The Audit Committee reviews the service provided by the Company's
independent auditors, consults with the independent auditors and reviews the
need for internal auditing procedures and the adequacy of internal controls.
The current Audit Committee consists of John J. Whyte, Chairman, Stuart E.
Graham and Frank M. Henry.
Compensation/Pension Committee
The Compensation/Pension Committee made recommendations to the Board of
Directors concerning the salaries and incentive compensation awards for the
top levels of management of the Company and its subsidiaries and established
compensation policy. The Committee also administered the Company's Short-Term
Incentive Plan, 1994 Stock Option Plan, 1996 Equity Incentive Plan, as well as
the ESPP. The Committee reviewed and evaluated the investment performance of
the various pension investment funds and monitored the performance of the
administrators, investment managers and trustees of such funds, as well as
reviewed the actuarial assumptions used in setting the Company's funding
policies for such funds. The current Compensation/Pension Committee consists
of Eugene Roth, Esq., Chairman, Daniel E. Knowles and John J. Whyte.
17
<PAGE>
Directors' Compensation
Directors of CTE who are employees of the Company and its subsidiaries
receive no Directors' fees. Non-employee Directors of the Company receive an
annual Directors' fee of $9,000 in CTE Common Stock based upon the average
fair market value of the CTE Common Stock during the 10 trading days prior to
the grant date, plus $750 per Board of Directors meeting. The Committee
Chairman and other committee members are paid $1,000 and $750, respectively,
for each committee meeting attended. Pursuant to the 1997 Non-Management
Directors Compensation Plan, each non-employee Director will receive an annual
grant of a non-qualified option covering 2,000 shares of CTE Common Stock on
the date of the annual meeting of shareholders (based upon the average fair
market value of the CTE Common Stock during the ten (10) trading days prior to
such date). The following fees were paid in 1998: James Q. Crowe $3,750,
Stuart E. Graham $3,750, Frank M. Henry $6,000, Richard R. Jaros $3,750,
Daniel E. Knowles $6,000, David C. Mitchell $6,750, Eugene Roth $7,500, Walter
Scott, Jr. $4,500, and John J. Whtye $8,000.
PROPOSAL 2:
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the shareholders to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending December 31, 1999.
If the shareholders do not ratify this appointment, other independent
auditors will be considered by the Board of Directors. Notwithstanding the
shareholders' ratification of the selection of the independent auditors, the
Board reserves the right to select other independent auditors at its
discretion.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they
desire to do so and will be able to respond to appropriate questions.
Ratification of PricewaterhouseCoopers LLP as the Company's independent
auditors for the year ending December 31, 1999, requires the affirmative vote
of a majority of the holders of CTE Common Stock and CTE Class B Common Stock
voting together as a single class.
The Board of Directors recommends that the shareholders vote FOR the
proposal to ratify the appointment of PricewaterhouseCoopers LLP to serve as
independent auditors of the Company for the fiscal year ending December 31,
1999.
PROPOSAL 3:
STOCKHOLDER REQUEST OF PAYMENT OF DIVIDEND
The Company received a request to include the following shareholder approval
in this proxy statement:
"Most companies in the local telephone business pay an annual cash dividend
to its stockholders. This is true of every Baby Bell company and several
independent local telephone companies including Southern New England
Telephone, Alltel, and GTE. Like utility companies, these telephone companies
provided investors with a combination of opportunities for long-term growth
while providing income in the form of a cash dividend payments.
Commonwealth Telephone Enterprises, Inc. has failed to pay its common
stockholders any cash dividends since 1989. The payment of cash dividends is
at the discretion of the Board of Directors. The declaration of any dividends
and amount thereof depends on a number of factors including the Company's
financial condition, capital requirements, future business prospects, etc.
Since the tri-vestiture of the Company into Cable Michigan, RCN and
Commonwealth Telephone Enterprises in 1996, the high-growth, high-capital
businesses are no longer a part of the Company. The Company now looks much
more like a local telephone company and as such, ought to be paying dividends
to its stockholders."
18
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 3.
The Board of Directors unanimously recommends a vote AGAINST the proponent's
proposal to request the Board of Directors to pay a cash dividend on CTE
Common Stock because it is not in CTE's or its shareholders' best interests.
The Board of Directors believes that CTE's cash should be retained for the
growing capital needs of CTE's business and for the future growth
opportunities which may become available to CTE. The proponent incorrectly
states that CTE looks "more like a local telephone company and as such, ought
to be paying a dividend to its stockholders." Unlike a traditional local
telephone company, CTE has been rapidly expanding its businesses. CTE's
incumbent telephone operator, Commonwealth Telephone Company, has been growing
at industry-leading rates primarily from adding second phone lines which
requires capital. In addition, during 1997 and 1998, CTE's competitive local
exchange carrier, CTSI, began operations in four regional markets: Wilkes-
Barre/Scranton, Pennsylvania; Harrisburg, Pennsylvania; Lancaster/Reading,
Pennsylvania and Binghamton, New York. In January of 1999, CTSI announced an
expansion into a fifth regional market in southeastern Pennsylvania comprising
of portions of Bucks, Chester and Montgomery counties. Since 1997, CTSI has
deployed roughly $90 million of cumulative gross capital and has grown to
serve over 43,000 switched access lines. CTSI continues to have great
opportunities to build and expand its business, but in order to take advantage
of these opportunities, CTSI will continue to require capital. Furthermore,
dividends are a very tax inefficient way to reward shareholders, since
dividends are taxed as ordinary income. Consequently, the Board of Directors
believes that CTE's cash should be employed, as appropriate, to build CTE's
businesses rather than to pay dividends.
Under applicable state law, dividend policy is appropriately left to the
discretion of the Board of Directors, whose members are elected by the
shareholders to exercise sound judgment in deciding such matters based upon
the comprehensive information made available to such Directors. The Board of
Directors considers Proposal 3 to be inappropriate under the circumstances and
believes that the Directors, as elected fiduciaries of the shareholders, are
in the best position to determine CTE's dividend policy.
OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
GENERAL INFORMATION
Financial Information
A copy of the Company's 1998 Annual Report to Shareholders containing the
Consolidated Financial Statements of the Company, including the report thereon
dated February 25, 1999 of PricewaterhouseCoopers LLP, independent
accountants, accompanies this Proxy Statement.
Upon the written request of any person who on March 25, 1999, was a record
owner of CTE Common Stock or CTE Class B Common Stock, or who represents in
good faith that he was on such date a beneficial owner of such stock entitled
to vote at the Annual Meeting, the Company will furnish, without charge, a
copy of the Company's 1998 annual report on Form 10-K, including the financial
statements, schedules, and exhibits, filed with the SEC. Written requests for
the Annual Report should be directed to: Investor Relations Department,
Commonwealth Telephone Enterprises, Inc., 100 CTE Drive, Dallas, Pennsylvania
18612, Attn: David G. Weselcouch, Vice President of Investor Relations, e-
mail: [email protected].
19
<PAGE>
Solicitation of Proxies
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mail, proxies may be solicited by officers, Directors and
regular employees of the Company, personally or by telephone, telecopy or
telegraph, and the Company may reimburse persons holding stock in their names
or those of their nominees for their expenses in forwarding soliciting
materials to their principals.
It is important that proxies be returned promptly. Therefore, shareholders
are urged to promptly fill in, date, sign and return the enclosed proxy in the
enclosed envelope, to which no postage need be affixed if mailed in the United
States.
Shareholders' Proposals
Any shareholder who desires to submit a proposal to be considered for
inclusion in the proxy statement and proxy of the Company relating to the 2000
Annual Meeting of Shareholders must submit such proposal in writing to the
Company by December 17, 1999. Any proposal submitted after March 8, 2000 will
be considered untimely. Such proposals should be hand delivered or mailed,
return receipt requested, to the Secretary of the Company.
By order of the Board of Directors.
/s/ John J. Jones
John J. Jones
Executive Vice President,
General Counsel and Corporate
Secretary
Dated: April 22, 1999
20
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
109 CTE DRIVE
DALLAS, PENNSYLVANIA 18612-9774
PROXY - Annual Meeting of Shareholders - May 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby revoking any contrary proxy previously given,
hereby appoints David C. McCourt, James Q. Crowe and Richard R. Jaros, and each
of them, his true and lawful agents and proxies, with full power of substitution
and revocation, to vote as indicated below, all the Common Stock and Class B
Common Stock of the undersigned in COMMONWEALTH TELEPHONE ENTERPRISES, INC. (the
"Company") entitled to vote at the Annual Meeting of Shareholders of the Company
to be held at The Nassau Inn, at Palmer Square, 10 Palmer Square, Princeton, New
Jersey, on May 13, 1999, at 11:00 a.m., local time, and at any adjournment or
postponement thereof, all as set forth in the related notice and proxy
statements for the 1999 Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS ONE (1),
TWO(2) AND FOUR(4), AND AGAINST PROPOSAL THREE(3). THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR PROPOSALS ONE(1), TWO(2) AND FOUR(4), AND A VOTE AGAINST
PROPOSAL THREE(3).
(Continued, and to be Signed and Dated, on Reverse Side)
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Please mark
your votes as [X]
indicated in
this example
1. To elect five (5) Directors to (Instructions: to withhold authority to vote for any 2. To ratify the selection of
Class III to serve for a term Individual nominee, strike a line through the PricewaterhouseCoopers L.L.P.,
of three (3) years, and nominee's name in the list below.) as independent auditors of the
Company for the fiscal year ending
FOR all nominees WITHHOLD James Q. Crowe, Bruce C. Godfrey, Stuart E. Graham December 31, 1999;
listed to the AUTHORITY Richard R. Jaros, and Michael J. Mahoney
right (except as to vote for all FOR AGAINST ABSTAIN
marked to the nominees listed [_] [_] [_]
contrary) the right
[_] [_]
3. To consider and act upon a proposal by a shareholder to 4. To act upon such other matters as may properly come before
request the Board of Directors to pay a cash dividend; and the meeting or any adjournment or postponement thereof.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[_] [_] [_] [_] [_] [_]
The undersigned acknowledges receipt of the notice
and proxy statement relating to the 1999 Annual Meeting
and the Company's annual report for 1998.
Dated: _________________________________________________
________________________________________________________
(Signature)
________________________________________________________
Signature, if held jointly
PLEASE MARK, SIGN AND DATE THIS PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
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