-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FIEWbEN0nLDc1hlFPjHc40gKVxv8lcGqrBAVHtEWkNPaZZUqiiQgESIlQ+V+sp8H ErCJVi/PcZU59iHejOYhJA== 0000950130-98-001189.txt : 19980313 0000950130-98-001189.hdr.sgml : 19980313 ACCESSION NUMBER: 0000950130-98-001189 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980521 FILED AS OF DATE: 19980312 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS UTILITIES CO CENTRAL INDEX KEY: 0000020520 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 060619596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: SEC FILE NUMBER: 001-11001 FILM NUMBER: 98564611 BUSINESS ADDRESS: STREET 1: HIGH RIDGE PK BLDG 3 STREET 2: P O BOX 3801 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2033298800 MAIL ADDRESS: STREET 1: HIGH RIDGE PARK BLDG NO 3 CITY: STAMFORD STATE: CT ZIP: 06905 PRE 14A 1 PRELIMINARY NOTICE AND PROXY SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [X] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [_] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 CITIZENS UTILITIES COMPANY - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- Notes: LOGO Administrative Offices High Ridge Park, Stamford, CT 06905 (203) 614-5600 March 24, 1998 Dear Fellow Stockholder: I am pleased to invite you to attend the 1998 Annual Meeting of the Stockholders of Citizens Utilities Company which will be held at the Heathman Lodge, Vancouver, Washington, on Thursday, May 21, 1998 at 10:00 a.m., Pacific Time. At last year's Annual Meeting, about 83 percent of Citizens' outstanding shares were represented. We hope that the percentage will be even higher at the forthcoming meeting. It is important that your shares be represented whether or not you attend the meeting. In order to insure that you will be represented, we ask that you sign, date, and return the enclosed proxy. If present, you may revoke your proxy and vote in person. Attendance at the Annual Meeting will be limited to employees and to stockholders as of the record date or their authorized representative. Because of space limitations, admission to the Annual Meeting will be by admission card only. Registered stockholders planning to attend the meeting should complete and return the advance registration form on the back page of this Proxy Statement. An admission card will be mailed to you about two weeks before the meeting. If your shares are held through an intermediary such as a bank or broker, you should request an admission card by writing to Shareholder Services, Citizens Utilities Company, High Ridge Park, Stamford, CT 06905. Please include proof of ownership such as a bank or brokerage firm account statement or a letter from the broker, trustee, bank or nominee holding the stock confirming your beneficial ownership. We look forward to seeing and meeting with you at the annual meeting. Cordially, Leonard Tow Chairman and Chief Executive Officer Printed on recycled paper LOGO Administrative Offices High Ridge Park, Stamford, CT 06905 (203) 329-8800 March 24, 1998 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS _________________ To the Stockholders of CITIZENS UTILITIES COMPANY: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Citizens Utilities Company will be held at the Heathman Lodge, Vancouver, Washington, on May 21, 1998 at 10:00 am., Pacific Time, for the following purposes: 1. To elect directors; 2. To approve an amendment to the Restated Certificate of Incorporation of the Company to eliminate reference to the two series capitalization and to provide for a single series of common stock; 3. To transact such other business as may properly be brought before the meeting. The Board of Directors has fixed the close of business on March 23, 1998 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting. A complete list of stockholders entitled to vote at the meeting will be open to the examination of stockholders during ordinary business hours, for a period of ten days prior to the meeting, at the office of the Company, High Ridge Park, Stamford, CT and at the site of the meeting on the meeting date. By Order of the Board of Directors Charles J. Weiss Secretary PROXY STATEMENT This statement is furnished in connection with the solicitation of proxies by the Board of Directors of Citizens Utilities Company (the "Company") to be voted at the annual meeting of stockholders of the Company referred to in the foregoing notice. The mailing address of the administrative offices of the Company is High Ridge Park, P.O. Box 3801, Stamford, Connecticut 06905. The approximate date on which this proxy statement and form of proxy are first being sent or given to stockholders is March 31, 1998. Directors will be elected by a majority of the shares of Common Stock present or represented by proxy at the meeting and entitled to vote at the meeting. Approval of the amendment to the Restated Certificate of Incorporation requires the affirmative vote of a majority of the outstanding stock entitled to vote thereon. Abstentions will have the effect of a negative vote with respect to the election of directors and the amendment to the Restated Certificate of Incorporation of the Company. Under the rules of the New York Stock Exchange, brokers who hold shares in street name for customers have the authority to vote on certain items when they have not received instructions from beneficial owners. Pursuant to such rules, brokers not receiving instructions are entitled to vote on both the election of directors and the amendment to the Restated Certificate of Incorporation of the Company. Under applicable Delaware law, a broker non-vote would have the same effect as an abstention or a vote against on the outcome of the election of directors or the amendment to the Restated Certificate of Incorporation of the Company. Unless contrary instructions are given, all proxies received pursuant to this solicitation will be voted in favor of the election of the nominees and for approval of the amendment to the Restated Certificate of Incorporation of the Company. Stockholders who execute proxies may revoke them at any time before they are voted. The Company had outstanding xxx,xxx,xxx shares of Common Stock each of which is entitled to one vote at the annual meeting by stockholders of record at the close of business on March 23, 1998. STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS No person or "group" of persons is known by the Company to own as much as 5% of the Common Stock of the Company. The following table reflects shares of Common Stock beneficially owned (or deemed to be beneficially owned pursuant to the rules of the Securities and Exchange Commission) as of February 28, 1998 by each director of the Company, each of the executive officers named in the Summary Compensation Table included elsewhere herein, and the current directors and all executive officers of the Company as a group. Ownership by certain of the directors includes ownership in a family trust or family partnership.
Common Acquirable Percentage ------- Within Of Common Name Position Stock Owned (1) 60 Days (2) Stock (3) - ---- -------- --------------- -------------- ----------- Norman I. Botwinik Director 71,272 (4) 48,080 * Daryl A. Ferguson President 413,152 (5) 374,392 * Aaron I. Fleischman Director 85,319 50,681 * James C. Goodale Director 27,199 15,162 * Stanley Harfenist Director 64,228 50,681 * Andrew N. Heine Director 50,808 50,653 * J. Michael Love Vice President 98,713 (6) 86,137 * L. Russell Mitten Vice President 92,968 74,654 * John L. Schroeder Director 56,117 50,681 * David B. Sharkey President 22,357 (5) 21,375 * Electric Lightwave, Inc. Robert Siff Director 50,406 44,407 * Ronald E. Spears Former Vice President 36,392 24,754 Robert A. Stanger Director 53,418 50,681 * Charles H.Symington, Jr. Director 43,446 37,836 Edwin Tornberg Director 16,768 (7) 7,982 * Claire L. Tow Director 8,835,506 (5,8,9,10,11) 2,964,809(9) Leonard Tow Chairman and CEO 8,835,506 (5,8,9,10,11) 2,964,809(10) 3.45 % All Executive Officers and Directors 10,362,237 4.05 % as a group (12)
* 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 Febuary 28, 1998 may be determined by subtracting shares "Acquirable Within 60 Days" from "Commom Stock Owned." (2) Reflects number of shares that could be purchased by exercise of options as of February 28, 1998 or within 60 days thereafter under the Company's stock option plans. (3) Based on number of shares outstanding at, or acquirable within 60 days of, February 28, 1998. (4) Includes 11,155 shares of Common Stock owned by Mr. Botwinik's wife. Mr. Botwinik disclaims beneficial ownership of such shares. (5) Leonard Tow, Daryl Ferguson and David Sharkey also own 150,000, 125,000 and 135,000 shares of Class A Common Stock of the Company's subsidiary, Electric Lightwave, Inc. respectively. A portion of these shares are Restricted/Performance shares and are referred to in the Long-Term Incentive Plans Awards in the 1997 table below. These restricted/performance shares require Electric Lightwave, Inc. stockholder approval at that company's 1998 Annual Meeting to become effective. Percentages of total ownership of Electric Lightwave, Inc. Class A Common Stock for Leonard Tow, Daryl Ferguson and David Sharkey, respectively, are 1.8%, 1.5% and 1.6%. Claire Tow disclaims beneficial ownership of such shares owned by Leonard Tow. (6) Includes 341 shares of Common Stock owned by Mr. Love's wife. Mr. Love disclaims beneficial ownership of such shares. 2 (7) Includes 635 shares of Common Stock owned by Mr. Tornberg's wife. Mr. Tornberg disclaims beneficial ownership of such shares. (8) Includes 4,510,545 shares of Common Stock owned by Century Investors Inc., a wholly owned subsidiary of Century Communications Corp., of which Leonard Tow is Chairman of the Board, Chief Executive Officer and a Director and Claire Tow is Senior Vice President and a Director. Claire Tow is the wife of Leonard Tow. These shares of Common Stock are included in the above table for Leonard Tow and Claire Tow as required by the definition of beneficial ownership of the Securities and Exchange Commission. By reason of the definition of beneficial ownership, Leonard Tow and Claire Tow are deemed to have an approximate 91% voting interest in the common stock of Century Communications Corp. and therefore each Leonard Tow and Claire Tow is deemed to have an indirect beneficial interest in such 4,987,828 shares of Common Stock of the Company. Except to the extent of such indirect interest, both Leonard Tow and Claire Tow disclaim beneficial ownership of any of these shares of Common Stock of the Company. Citizens owns 2.98% of the Class A common stock of Century Communications Corp. (9) Includes 18,063 shares of Common Stock held by Claire Tow as custodian for her minor grandchildren; 1,260,080 shares of Common Stock owned by her husband, Leonard Tow; and 1980 shares of Common Stock held in an individual retirement account for the benefit of her husband, Leonard Tow. Claire Tow disclaims beneficial ownership of all such shares. (10) Includes 42,625 shares of Common Stock acquirable by Leonard Tow within 60 days. Claire Tow disclaims beneficial ownership of said shares. (11) Includes 50,651 shares of Common Stock acquirable by Claire Tow within 60 days. Leonard Tow disclaims beneficial ownership of said shares. (12) Share information is qualified as described in the previous footnotes. Shares shown for Ronald E. Spears are based on upon information contained in Company records. ELECTION OF DIRECTORS At the meeting, 12 directors are to be elected to hold office until the next annual meeting and until their successors have been elected and qualified. Directors will be elected by a majority of the votes of the holders of shares of Common Stock, present in person or represented by proxy at the meeting and entitled to vote at the meeting. It is the intention of the persons named in the enclosed proxy to vote for the election as directors of the nominees specified. In case any such nominee should become unavailable for any reason, the proxy holders reserve the right to substitute another person of their choice. The information concerning the nominees and their security holdings has been furnished by them to the Company. Leonard Tow and Claire Tow are husband and wife. There are no other family relationships between any of the nominees. NORMAN I. BOTWINIK President, Botwinik Brothers, Inc., machine tool sales, 1957-1983; Director, DIRECTOR SINCE 1968 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 Washington, DC law firm DIRECTOR SINCE 1989 specializing in regulatory, corporate-securities and litigation matters for telecommunications, regulated utility and transportation companies, since 1976. Director, Southern Union Company. Age 59. James C. Goodale Lawyer, Debevoise & Plimpton, a New York City law firm. Of Counsel, 1994 to DIRECTOR SINCE 1996 1996; Partner, 1980-1994. Vice Chairman and General Counsel, New York Times, 1967-1980. Producer and Host of The Telecommunications and Information Revolution, Channel 25, New York City, 1995 to present. Age 64. Stanley Harfenist President and Chief Executive Officer of Adesso, Inc., manufacturer of hardware DIRECTOR SINCE 1992 for the Macintosh computer, 1993 to present; President, Chief Operating Officer and Director of Players International, Inc., 1985 to 1993; Officer, Sega Enterprises, 1982 to 1984; and Officer, Knickerbocker Toy Company, Inc., 1978 to 1982. Director of Electric Lightwave, Inc. Age 67
3 Andrew N. Heine Of Counsel, Gordon Altman Butowsky Weitzen Shalov & Wein, September 1995 to DIRECTOR SINCE 1975 present; practicing attorney/investor, 1989 to present; Of Counsel, Curtis Mallet-Prevost, Colt & Mosle, October 1987 to 1989; Director, The Olsten Corporation and FPA Group. Age 69 John L. Schroeder Director, Dean Witter Funds, 1994 to present; Executive Vice President and DIRECTOR SINCE 1980 Chief Investment Officer, The Home Insurance Company, 1991 to 1995; Chairman of the Board and Chief Investment Officer, Axe-Houghton Management, Inc., and Axe- Houghton Funds, 1983 to 1990; President and Director, USF&G Investment Management Group, Inc., 1990 to 1991. Age 68. Robert D. Siff Consultant, Regional Banks, 1987 to present; Director, Century Communications DIRECTOR SINCE 1989 Corp., 1987 to 1997. Age 73 Robert A. Stanger Chairman, Robert A. Stanger & Company, investment banking and consulting DIRECTOR SINCE 1992 services, 1978 to present. Publisher, The Stanger Report. Director, Callon Petroleum Company, Inc., exploration and production of oil and natural gas. Director, Electric Lightwave, Inc. Age 59. Charles H. Symington, Jr. Director, 3i Corporation, an investment company, Director, INA Life Insurance DIRECTOR SINCE 1995 of New York, a subsidiary of CIGNA, Director, NASDQ Stock Market Education Foundation, until 1997, Director S.G. Warburg & Co., Inc. an investment bank and Camping World, Inc. Age 67. Edwin Tornberg President and Director, Edwin Tornberg & Company, brokers, mamagement consultants DIRECTOR SINCE 1992 and appraisers serving the communications industry, 1957 to present. President and Director, Radio 780, Inc. (Washington, DC), 1977 to present. Vice President and Director, Radio One Five Hundred, Inc. (Indianapolis, Ind.), 1959 to present. Chairman and Director, New World Radio Inc. (Washington, DC), 1992 to present. Chairman, Treasurer and Director, Global Radio, LLC. (Philadelphia, PA), 1997 to present. Age 72. Claire L. Tow Senior Vice President since 1992 and Vice President and Director since 1988 of DIRECTOR SINCE 1993 Century Communications Corp., a cable television company. Age 67. Leonard Tow Chairman and Chief Executive Officer, Citizens Utilities Company, 1990 to present; DIRECTOR SINCE 1989 Chief Financial Officer, 1991 to 1997. Chief Executive Officer and Director of Century Communications Corp., a cable television company, since its organization in 1973 to present, Chairman of the Board since 1989 and Chief Financial Officer, 1973 to 1996. Chairman of the Board, Electric Lightwave, Inc., Director, Hungarian Telephone and Cable Corp. Director, United States Telephone Association, Age 69
The Board of Directors held 11 meetings in 1997. All directors attended at least 75% of Board and appropriate committee meetings. 4 COMMITTEES OF THE BOARD The Board has standing Executive, Audit, Compensation, Nominating and Retirement Plan Committees. The following special committees are currently functioning: Diversity in the Workforce, Investor Relations, Marketing and Development and Strategic Development. EXECUTIVE COMMITTEE. The Executive Committee is composed of Dr. Tow as Chair and Messrs. Harfenist, Fleischman and Schroeder. In 1997 the Committee did not meet. During intervals between meetings of the Board, the Executive Committee has the power and authority of the Board over the management of the business affairs and property of the Company, except for powers specifically reserved by Delaware law or by the Company's Restated Certificate of Incorporation. AUDIT COMMITTEE. The Audit Committee is composed of Mr. Heine as Chair and Messrs. Goodale, Schroeder, Siff and Stanger. The Committee met 4 times in 1997. The Committee's functions are to review the arrangements for and scope of the independent accountants' audit, as well as to review the adequacy of the system of internal accounting controls and recommend improvements thereto. The Committee discusses and reviews, with management and the independent accountants, the Company's draft annual report on Form 10-K and other major accounting, reporting and audit matters. The Committee also has oversight over the Company's Internal Audit Department. COMPENSATION COMMITTEE. The Compensation Committee is composed of Mr. Stanger as Chair and Messrs. Harfenist, Symington and Tornberg. The Committee met 9 times in 1997. The Committee reviews the Company's general compensation strategies, acts as the Committee for Citizens Incentive Plan, the Management Equity Incentive Plan, the Equity Incentive Plan, the Employee Stock Purchase Plan and the Non-Employee Directors Deferred Fee Equity Plan and establishes and reviews compensation for the Chief Executive Officer and other executive officers of the Company. NOMINATING COMMITTEE. The Nominating Committee is chaired by Mr. Harfenist, and Messrs. Botwinik and Tornberg are its other members. The Committee recommended election of the current directors to the Board in 1997. The Committee's function is to recommend candidates for election to the Board of Directors. The Nominating Committee will entertain suggestions for nominees from stockholders, which should be made in writing, addressed to Mr. Harfenist, c/o the Company, on or before the date specified under "Stockholder Proposals" and include a description of the qualifications of the suggested nominee and any information concerning the suggested nominee and his or her interests, direct or indirect, by securities holdings or otherwise, in the Company, called for by the regulations of the Securities and Exchange Commission. RETIREMENT PLAN COMMITTEE. The Retirement Plan Committee is composed of Mr. Schroeder as Chair and Mrs. Tow and Messrs. Botwinik, Symington and Tornberg. The Committee oversees the retirement plans of the Company. The Committee met 3 times in 1997. SPECIAL COMMITTEES. Special committees of the Board have been established to focus on issues of current importance to the Company where it is believed that the Board of Directors should have involvement in and oversight of processes. The Diversity in the Work Force Committee is chaired by Claire Tow and its other member is Mr. Harfenist. The Investor Relations Committee is chaired by Mr. Harfenist and its other members are Messrs. Fleischman, Goodale, Stanger and Symington. The Marketing and Development Committee is chaired by Mr. Harfenist and Mr. Tornberg is the other member. The Strategic Development Committee is chaired by Mr. Goodale and its other members are Messrs. Harfenist, Heine, Schroeder and Stanger. 5 DIRECTORS' COMPENSATION Each non-employee Director is entitled to a $20,000 annual retainer and fee of $2,000 for each Board meeting attended in person and $1,000 for each Board meeting attended telephonically. Committee chairs of the Audit and Compensation Committees are paid a fee of $4,000, chairs of the other committees a fee of $2,000, and committee members $1,000 for each meeting attended. All such fees are payable in cash and eligible for deferral until termination of service or payable in stock options or stock plan units acquired under the Non-Employee Directors Deferred Fee Equity Plan. Deferred cash amounts are credited with an interest component. Directors also receive an annual stock option award which is currently fixed at 5,000 shares. Directors who have completed five years of service become participants in the Directors' Retirement Plan. At termination of service, a participant receives benefits for a term of years following the termination of directorship equal to the sum of 50% of average compensation as a Director for the three most highly compensated years plus 2.5% of such average compensation for each year of service in excess of ten years, but not in excess of twenty years. Generally, the annual benefit will be payable over a period of years equal to a participant's years of service or may be paid in a discounted lump sum at the participant's election. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (the "Committee") is composed of four independent Directors who are responsible for setting and administering compensation, including Base Salaries, Annual Incentives and stock-based awards paid or awarded to executive officers of the Company. In addition, the Committee approves all incentive plan design and associated costs. The following report represents the actions of the Committee and the Board regarding compensation paid to the executive officers during 1997. COMPENSATION OF THE EXECUTIVE GROUP The following section discusses the Company's 1997 strategy underlying its compensation program. The Compensation of the Company's Chief Executive Officer is discussed separately later in this report. COMPENSATION STRATEGY The Committee's executive compensation policy has the following objectives: . To align the interests of its executives and other key employees with those of the Company's customers, shareholders, employees and the strategic objectives of the Company. . To link compensation to the performance of the Company and to the individual contribution of each executive to that performance. . To competitively compensate executives by matching the diverse businesses the Company operates in with a diverse portfolio of compensation and benefits so that the Company can attract and motivate executives of outstanding ability. . To target Base Salaries at about the 50th percentile and Total Annual Cash Incentives between the 50th and the 75th percentiles for each executive as compared to his or her industry-specific peers. . To offer significant levels of at-risk compensation in the form of stock options and/or restricted and performance share grants so that the long-term rewards available to the Company's executive officers will have a direct correlation to shareholder value. 6 BASE SALARY The Compensation Committee reviews recommendations and sets the salary levels of executive officers in the spring of each year. This review is based on the duties and responsibilities which the Company expects each executive to discharge during the current year and upon the executive's performance during the previous year. The Company performs external market comparisons, relative to industry-specific peers, based on individual job responsibility. AT-RISK INCENTIVE COMPENSATION The 1997 calendar year was a transition period for the Company with regard to compensation strategy. In May of 1997, the Compensation Committee of the Board of Directors approved a new Citizens Incentive Plan, ("CIP" ). Under this plan, appropriate variable cash compensation will be reviewed and determined for 1997 business results and individual performance. The Compensation Committee also approved design enhancements to the existing long-term stock incentive plan, the Citizens Utilities Equity Incentive Plan, ("EIP"). All non-hourly employees of the Company not participating in any sales or other incentive plans are eligible to participate in the CIP, and all employees (including non-exempt and bargaining unit) are eligible to receive awards under the EIP. These changes are in the nature of fine tuning the existing plans and continue the current practice of increasing the levels of at-risk compensation correspond to total compensation. 1996 Annual Cash Incentives Awarded in 1997 The annual at-risk cash incentives approved by the Compensation Committee in March of 1997 were based on 1996 performance. The cash awards were granted in accordance with the former Incentive Deferred Compensation Plan ("IDCP"). IDCP cash bonuses are paid based on the achievement of financial goals and improvements in customer satisfaction levels. In March, 1997, 1,307 employees received IDCP awards, representing 98% of the population eligible to receive an award. The IDCP awards for 1996 reflected the successful performance of the Company in achieving 100% of its financial targets in that year. CIP awards for 1997 performance will be considered by the committee in the spring of 1998. ANNUAL CASH INCENTIVES UNDER THE NEW CIP FOR FUTURE YEARS To retain and incent employees, the CIP offers a competitive mix of total cash compensation relative to comparable industry norms. Under the CIP target incentives are assigned for each salary grade based on a continuous analysis of incentive pay practices in the various industries in which the Company operates. The CIP plan criteria are financial performance, customer satisfaction improvement and individual performance, each of which is assigned a relative weight. Goals are established no later than first quarter of the year for the full year. The plan criteria may be modified in a given year based on changes in the Company's business strategy. If 100% of the pre-determined financial goal is not met, the Compensation Committee may use its judgment to determine if there will be any cash incentive payout based on the other criteria: customer satisfaction improvement and individual performance. Executive employees are subject to more strict application of financial performance standards than other employees. For performance above goal, additional cash incentive compensation may be granted. COMMON STOCK LONG-TERM INCENTIVES The purpose of the EIP is to grant common stock related compensation for performance. Except as noted below, stock options awarded in 1997 were based on the 1996 performance year and were granted in accordance 7 with the EIP. All common stock related compensation is non-qualified, awarded at fair market value, and vests over a period of three years. In 1997, the Company performed a comprehensive review of the common stock related long-term incentive plan. The competitive practices of the industries in which the Company operates were analyzed to ensure the Company can effectively attract and motivate executives and employees in each business sector. Within the EIP, two separate award programs were created, the Management Stock Option Program (MSOP) and the Outstanding Citizen Award (OCA). The MSOP is designed to grant common stock related incentive compensation to executives and other key management employees for individual contributions towards achievement of goals. Target grants are based on salary grade and compensation levels in comparable industries. Grants are designed to compensate Citizens' employees within the range of 50% to 150% of long term incentive compensation of comparable industries based on individual performance. The OCA is designed to recognize and reward any key employee below the management level who is considered to have high potential and who has made significant contributions. The target number of shares is not tied to salary grade. Award recommendations are designed to be within the range of 750 and 2,500 options. Recommendations are at the discretion of the employee's manager. LONG-TERM INCENTIVES AWARDED FOR 1996 PERFORMANCE The Compensation Committee granted stock incentive compensation for 1996 performance in September 1997. In 1996, the Company and each business sector exceeded financial goals (net income, sector operating income before interest and taxes). Bonuses established by the Compensation Committee reflected this superior performance. At the time of the grant of stock related incentive compensation, the Company's financial performance during 1997 was substantially below budget. Consistent with the Company's overall compensation strategy to make stock related incentives based on performance and in exercise of the Committee's discretion, the awards made to the executive group (other than the Chief Executive Officer, whose compensation is discussed below) was on average 62% of the 1996 awards called for under the plan, even though the executive group qualified for 100% of the awards under the plan. 192 executives/managers received stock option grants under the EIP for 1996 performance. 566 employees received OCA stock option grants for 1996 performance, representing 11% of the eligible employees. ELECTRIC LIGHTWAVE, INC. STOCK RELATED INCENTIVE COMPENSATION In 1997, ELI adopted an Equity Plan under which it granted stock options and restricted performance shares to its officers and key employees, which included various executive officers of ELI, some of whom are also executive officers of the Company, and to fficers and directors of the Company who are expected to render services to ELI and be instrumental in ELI's future achievements. The incentive arrangements for Messrs. Ferguson, Sharkey and Tow are described in the compensation table below. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER The employment agreement dated July, 1996 between Dr. Tow and the Company establishes the base annual salary of $900,000 and other items included in the "Other Annual Compensation" and "All Other Compensation" column in the Summary compensation Table or referred to under the caption "Employment." Dr. Tow's Annual Cash Incentive for 1996 performance was awarded by the Compensation Committee in March of 1997 and reflected the Company's achievement in exceeding the target financial goals for the Company and for all business sectors as described above. The determination of Dr. Tow's stock option award for the 1996 8 performance year under the EIP was made by the compensation Committee in September 1997. As noted above, at the time of the grant of stock related incentive compensation it was apparent that the Company's financial performance during 1997 would be substantially below target. Pursuant to the Compensation Committee's exercise of its discretion and consistent with the Company's compensation strategy to make incentive awards to the Chief Executive Officer based on performance, the stock option award was approximately 44% of the 1996 award called for under the plan, even though Dr. Tow qualified for 100% of the award under the plan. In reviewing Dr. Tow's compensation for 1996, the Compensation Committee also considered the implementation of the long-term objectives for the Company established by the Board of Directors. Principal among these is the mandate to expand and enlarge the Company's activities through merger, viewed by the Board as vital to the Company's success. The employment agreement referred to in this section is summarized in a later section of the proxy statement under the heading "Employment Agreement". COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M) The Committee has been advised that the compensation paid to the named executive officers in 1997, including the CEO, met the conditions required for full deductibility under Section 162(m) of the Internal Revenue Code (the "Code"). Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation over $1 million paid to the company's chief executive officer or any of the four other most highly compensated executive officers. Section 162(m) provides that qualifying performance-based compensation will not be subject to the tax deduction limit if certain requirements are met. The Committee has been advised that Section 162(m) does not apply to stock options outstanding as of December 31, 1997. The Company currently structures grants under stock-based programs in a manner that provides for an exemption from Section 162(m). Outstanding awards made under the CIP which, in conjunction with other outstanding compensation paid, could have caused the Section 162(m) limitation to be exceeded have been structured so they should be exempt from Section 162(m) by reason of the deferral of payment until after the retirement of the covered executive officer. If the CEO's employment terminates prior to the end of the Term, payments required to be made to him are expected to exceed $1 million but, depending on the year of payment and depending on deferral arrangements, may not be subject to the limitation on tax deductibility. The Committee also recognizes that, in certain instances, it may be in the best interests of the Company to provide compensation that is not deductible. Robert Stanger Stanley Harfenist Charles H. Symington, Jr. Edwin Tornberg Chairman 9 SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid by the Company for each of the last three years to its Chief Executive Officer and the four other most highly compensated executive officers.
Annual Compensation ------------------- Other Annual Name and Salary Bonus(1) Compensation Position Year $ $ $ - ---------------------------- ---- -------------- ------------- --------------- L. Tow...................... 1997 900,000 -- 140,837(3) C.E.O., and Chairman 1996 1,325,416 (6) 1,000,000 50,000(3) 1995 1,210,296 (6) 800,000 63,790(3) D. A. Ferguson.............. 1997 414,585 -- 11,683 C.O.O and 1996 391,678 550,000 8,333 President 1995 374,076 400,000 5,000 D. S.Sharkey................ 1997 183,333 -- C.O.O. and President, 1996 155,833 80,000 Electric Lightwave, Inc. 1995 150,000 75,000 J. M. Love.................. 1997 183,958 -- Vice President 1996 157,393 70,000 -- 1995 151,576 120,000 -- L.R. Mitten................. 1997 184,200 -- Vice President 1996 177,801 53,600 and General Counsel 1995 172,261 90,000 R. E. Spears................ 1997 282,338 -- Vice President until 1996 255,846 150,000 October, 1997 1995 144,078
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Long-term Compensation ---------------------- Awards Payouts --------------------------- -------------------------- Securities Long- Under- term Restricted lying Incentive All Stock Options/ Plan Other Name and Awards SARs(2) Payouts Compensation Position $ (#) $ $ - --------------------------- ------------- ------------- --------- --------------- L. Tow .................... (4) 202,000 27,000 (5) C.E.O., and Chairman 434,215 (8) 662,003(9) 0 4,620 D. A. Ferguson............. 41,667(7) 136,350 85,879 (5) C.O.O and 112,185 81,813 President 0 52,879 D. S.Sharkey............... 41,667(7) 40,400 30,036 (5) C.O.O. and President, 17,950 27,790 Electric Lightwave, Inc. 0 0 J. M. Love................. 35,350 52,231 (5) Vice President 39,271 49,012 0 45,410 L.R. Mitten................ 30,300 62,716 (5) Vice President 33.650 58,123 and General Counsel 0 55,000 R. E. Spears............... 44,800 53,800(5) Vice President until 45,818 57,768 October, 1997 100,000 54,996 0
_________________ (1) All amounts in the column, except for amounts of $50,000 each for Messrs. Mitten and Love and $75,000 for Mr. Sharkey paid in 1995, were paid under the IDCP for 1995 awards and for the 1996 awards. Amounts granted under the Plan are for performance for the stated Salary Year, and are determined and awarded in the subsequent year based upon prior years' results. Awards for 1997 will be considered by the Compensation Committee in the spring of 1998. (2) Options/SARs adjusted to reflect subsequent stock dividends. All awards shown are options. (3) $50,000 of the amount shown in this column for 1995, 1996 and 1997 represents payment for expenses pursuant to Dr. Tow's employment agreement; $13,790 for 1995 represents reimbursement for the cost of term life insurance and $90,837 for 1997 represents reimbursement pursuant to his employment agreement of legal and accounting fees incured by Dr. Tow in 1994-1996. (4) Covers restricted stock of the Company. As of December 31, 1997 the total number of restricted or performance shares held by the executive officers of the Company listed above was 543,485 shares, with a market value as of December 31, 1997 of $5,231,043. All of these shares were held by Dr. Tow. Recipients of restricted stock have the right to receive dividends. See "Employeement Agreement." (5) Represents the Company's matching contribution to each executive's 401(k) plan and in the instance of Dr. Tow and Dr. Ferguson also represents the matching contribution to the Company's Executive Deferred Savings Plan of $22,250 and $4,958 respectively. Additionally, $76,179, $27,286, $47,481, $58,111 and $49,550 respectivly represent the 1997 economic benefit of split-dollar life insurance for Dr. Ferguson and Messrs. Sharkey, Love, Mitten and Spears. There was no economic benefit of split-dollar life insurance for Dr. Tow in 1997. 10 (6) Includes salary of $1,288,416 and director's fees of $37,000 for 1996 and $1,171,291 and $39,000 for 1995, respectively. (7) Covers restricted shares of Class A Common Stock of ELI. Amount in table represents the one-third portion of a performance share grant made in connection with the initial public offering of ELI that may be subject to vesting in 1998. Value shown in table is as of the date of grant. As of December 31, 1997, the total number of restricted or performance shares of ELI held by the executive officers of the Company was 450,000 shares with a market value as of December 31, 1997 of $6,693,750. 125,000 shares were held by each of Mr. Ferguson, Mr. Sharkey and Dr. Tow. Recipients of restricted stock have the right to receive dividends. See Long-Term Incentive Plans - Awards in 1997." (8) Includes an option for 220,193 shares of Common Stock granted in 1996 for 1994 performance that was deferred in grant as a result of the Memorandum of Understanding referred to in the Compensation Committee report in the 1997 proxy statement. (9) The amount of $536,653 included in the 1996 column represents the pretax cost to the Company pursuant to Dr. Tow's employment agreements of the term portion of split-dollar insurance arrangements for the three year period commencing with 1995. The split-dollar insurance arrangements are required under the Memorandum of Understanding (see footnote 8 above) as a substitution for supplemental retirement benefits which resulted in a reversal of accruals shown in prior proxy statements, including an accrual of $3,500,000 shown in the Summary Compensation table for 1994. The insurance arrangements purchased by the Company have been structured so that all of the Company's costs, including the time value of funds, in providing such benefits should be recovered from insurance proceeds. 1997 OPTION GRANTS AND STOCK APPRECIATION RIGHTS The following table sets forth options granted to the named executive officers in 1997. No stock appreciation rights were granted in 1997. Option totals are as of grant date.
% of Total Number of Securities Options/ Exercise Underlying SARs Granted to or Base Grant Date Options/SARs Employees in Price at Expiration Present Name Granted (#)(1) Fiscal Year Grant ($/Sh)(2) Date Value $ (3) - ---- ----------------------- ----------------- --------------- ---------- ----------- L. Tow ................................ 200,000 5.45% 8.875 9/ 24/07 846,177 D. A. Ferguson ........................ 136,350 3.68% 8.875 9/24/07 571,170 D. S. Sharkey ......................... 40,400 1.09% 8.875 9/24/07 169,235 J. M. Love.............................. 35,350 .95% 8.875 9/24/07 148,081 L. R. Mitten .......................... 30,300 .82% 8.875 9/24/07 126,927 R. E. Spears .......................... 56,000 1.21% 8.875 9/24/07 236,880
___________ (1) All options become exercisable at the rate of 33.3% per year on September 25 of 1998, 1999 and 2000. (2) Fair Market Price at time of grant. (3) Based on the Black-Scholes option pricing model adapted for use in valuing executive stock options. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised, so that there is no assurance the value realized, if any, by an executive will be at or near the value estimated by the Black-Scholes model. The estimated values under that model are based on arbitrary assumptions as to variables such as interest rates, stock price volatility and future dividend yield. The pricing model assumes a dividend yield of 0%, a riskless rate of return of 6.13%, a seven-year term of exercise and volatility of .32. 11 AGGREGATED 1997OPTION/SAR EXERCISES AND VALUE OF OUTSTANDING OPTIONS/SARS AT DECEMBER 31, 1997 The following table sets forth option and stock appreciation rights exercised by the named executive officers during 1997 and the number and value of options held by them at December 31, 1997. There were no outstanding stock appreciation rights at December 31, 1997.
Number of Unexercised Value of Unexercised Options/SARs at In-the-money Options/Sars at Shares Acquired Value Fiscal Year-End (#) Fiscal Year-end ($) on Exercise (#) Realized ---------------------------- ----------------------------- Name Common Stock $ Exercisable Unexercisable Exercisable Unexercisable - ---- ---------------- -------------- ---------------------------- ----------------------------- L. Tow............... 0 0 2,922,172 431,925 $469,181 $144,026 D. A. Ferguson....... 0 0 371,332 292,812 67,051 97,218 D. S. Sharkey........ 0 0 18,296 64,564 0 28,805 J. M. Love........... 0 0 84,571 85,757 0 25,205 L. R. Mitten......... 0 0 77,079 76,210 4,226 28,805 R.E. Spears.......... 0 0 21,020 128,615 0 42,420
________ All numbers are as of December 31, 1997 and reflect adjustment for stock splits and stock dividends paid subsequent to the date of grant. The closing prices of Common Stock on December 31, 1997 was $9.625. Dollar amounts shown under all columns other than "Value Realized" have not been, and may never be, realized. The underlying options have not been, and may never be, exercised, and actual gains, if any, on exercise will depend on the value of the Company's stock on the date of exercise. LONG-TERM INCENTIVE PLANS-AWARDS IN 1997
Estimated Future Payouts Under Non-Stock Price-Based Plan --------------------------------------------------- Number of Shares, Units Performance or other Target Maximum or other Period until Maturation Number of Number of Name Rights (#)(1) or Payout (1) Threshold (#) Shares Shares - ---- ------------------------- -------------------------- ---------------- -------------- ---------------- L. Tow 125,000 2001 - 2005 0 125,000 125,000 D. A. Ferguson 125,000 1998 - 2000 0 125,000 125,000 D. S. Sharkey 125,000 1998 - 2000 0 125,000 125,000 J. M. Love 0 0 0 0 0 L. R. Mitten 0 0 0 0 0 R. E. Spears 0 0 0 0 0
______________ (1) In connection with the initial public offering of ELI, Mr. Ferguson, Mr. Sharkey and Dr. Tow were each granted 125,000 performance shares of Series A Common Stock of ELI, subject to performance standards. In the case of Mr. Sharkey and Mr. Ferguson's holdings, the restrictions will lapse as to one- third of the shares on the later of the first anniversary of the grant date or the attainment of at least $100 million of revenues in a trailing 12- month period, as to the second third on the later of the second anniversary of the grant date or the attainment of at least $125 million of revenues, and as to the remaining third on the later of the third anniversary of the grant date or the attainment of at least $155 million of revenues, provided the officer is employed on the lapse date. The restrictions on Dr. Tow's shares will lapse only if the Company attains revenues of at least $170 million for the thirteen months ended June 30, 2001 or for any thirteen month period 12 thereafter until January 2005. Dr. Tow's continued employment on the lapse date is not a condition to the lapse of restrictions. CITIZENS UTILITIES COMPANY PENSION PLAN The Company has a noncontributory qualified retirement plan covering substantially all employees that provides benefits based on formulas related to base salary and years of service. Benefits shown are not subject to reduction for Social Security payments. The following table illustrates the estimated annual plan pension benefits (ten years certain for those who became participants prior to 1976) available to all covered employees (other than Kauai Division employees, Louisiana Gas Division employees and certain telecommunications bargaining unit employees covered by separate benefit formulas) upon retirement at age 65 assuming a preretirement death benefit election of 100% joint and survivorship benefits. The remuneration classifications are based on the highest five-year average annual salary and the years of service represent years of credited service. Under federal tax law, remuneration above a specified annual limit may not be credited in the computation of retirement benefits under qualified plans. For 1997, this limit was $160,000. For this reason remuneration above $160,000 has not been included in the table below. PENSION PLAN TABLE
Remuneration (000 Omitted) Years of Service ------------- ---------------- 5 10 15 20 25 30 --- --- --- --- --- --- $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 six for Dr. Tow, seven for Dr. Ferguson, three for Mr. Sharkey, twelve for Mr. Love and seven for Mr. Mitten. 13
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG CITIZENS UTILITIES COMPANY, THE DOW JONES INDUSTRIAL AVERAGE INDEX AND THE DOW JONES UTILITIES AVERAGE INDEX LINE GRAPH 12/92 12/93 12/94 12/95 12/96 12/97 CITIZENS UTILITIES COMPANY $100 $130 $ 95 $103 $ 94 $ 86 DOW JONES INDUSTRIAL AVERAGE 100 117 123 168 217 270 DOW JONES UTILITIES AVERAGE 100 110 93 123 134 164
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31. The annual changes for the five year period shown on the graph are based on the assumption that $100 had been invested in Citizens stock and in each index on December 31, 1992 as required by SEC rules, and that all quarterly dividends were reinvested at the average of the closing stock prices at the beginning and end of the quarter. The total cumulative dollar return shown on the graph represents the value that such investment would have had on December 31, 1997. The year-end cumulative total return for the DJIA and the DJUA for calendar years 1993, 1994, 1995,1996 and 1997 were respectively $117, $123, $168, $217 and $270, and $110, $93, $123, $134 and $164. Return for the Company is shown on the graph. 14 EMPLOYMENT AGREEMENT In 1996 the Company and Dr. Tow entered into an employment agreement (the "1996 Agreement") which extended and modified the provisions of the then in effect 1990 employment agreement. The following constitutes a summary of certain of the provisions of the 1996 Agreement. The 1996 Agreement provides for Dr. Tow's service as Chairman and Chief Executive Officer of the Company for the Term of employment, January 1, 1997 through the end of 2000, and as a consultant for an additional five-year Advisory Period. Dr. Tow has agreed to accept an annual base salary of $900,000 for the Term, which is substantially reduced from his 1996 base salary under the 1990 employment agreement, and to accept more of his remuneration in risk-based compensation. After the Term he will receive compensation for advisory services at one-half of his former base salary. If employment terminates for any reason, except for termination by the Company for good cause or voluntary resignation by Dr. Tow, he will receive a commuted lump sum equivalent to 150% of his base salary for the remainder of the Term and 100% of cash compensation during the Advisory Period, as well as the annual bonuses and benefit plan contributions for the remainder of the Term, and all then existing benefits including share-based compensation. If Dr. Tow terminates employment because of a breach of the 1996 Agreement by the Company, he will receive $1 million. Dr. Tow is eligible to participate in all employee benefit and compensation plans. The 1996 Agreement included a performance share grant of 500,000 shares of Common Stock. Restrictions on transfer will lapse at the end of the Term, or upon death, earlier termination of employment or certain corporate events. If employment ends at the end of 2000, or through resignation by Dr. Tow after February 1999 or termination by the Company for good cause, and there has been no increase in EBIDTA, as defined, for the year of termination compared to 1996, the performance shares will be canceled, or, if the increase in EBIDTA for the year of termination compared to that for 1996 is less than the performance goals, the shares will be reduced under a formula. In the event that Dr. Tow's entitlements are deemed to constitute excess parachute payments for tax purposes, the Company will pay any taxes resulting to him. Dr. Tow's continued employment by and association with Century Communications Corp. is acknowledged under the 1996 Agreement. His employee and retirement benefits are nonforfeitable except in certain circumstances which are materially detrimental to the Company. In lieu of supplemental pension and retirement benefits designed to reflect the extension of the period during which Dr. Tow will render services, the 1996 Agreement provides for life insurance coverage of $7,500,000, or equivalent, provided through a program of split-dollar arrangements payable to his estate or family or a trust for their benefit, in addition to that provided under the 1990 employment agreement. In addition, a $3,000,000 first- to-die split-dollar policy required by the 1990 employment agreement was converted to a $6,000,000 second-to-die policy which will permit the Company to recover its costs. All of the insurance arrangements purchased by the Company have been structured so that all of the Company's costs, including the time value of funds, in providing such benefits should be recovered from insurance proceeds. Dr. Tow and his wife during their lifetimes will continue to participate in the Company's health and other benefit plans, and, after his retirement from full-time employment, the Company will provide offices and support staff. If a threatened or actual change of control, as defined, shall occur, which includes, among other events, the acquisition by a person or group of 9% or more of the Company's voting securities and certain changes in the Board of Directors, Dr. Tow shall thereafter have the option exercisable by notice to the Company to acquire up to 6,000,000 shares of Common Stock at a price per share equal to the fair market value of the stock on the date notice is given. All shares covered by the 1996 Agreement will be adjusted to reflect the occurrence after June 27, 1996 of stock dividends, stock splits, or new issuances to holders of common stock of options, warrants, rights to acquire additional shares, or similar events. CERTAIN TRANSACTIONS Fleischman and Walsh LLP, of which Aaron Fleischman (a Director) is Senior Partner, performed legal services for the Company for which it was paid in 1997 approximately $894,000. The Company proposes to retain Fleischman and Walsh during the current year. 15 In 1995, the company advanced, for a period of up to five years, to Ronald E. Spears, formally Vice President of the Company, $400,000 for purpose of purchasing a primary residence. As of December 31, 1997 $210,000 was outstanding. Interest accrues at the applicable Federal Rate, the full unpaid amount plus accrued interest is payable on December 31, 1999 and the obligation is secured by a mortgage on the property. APPROVAL OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION The Board of Directors is submitting for stockholder approval an amendment to Restated Certificate of Incorporation of the Company which will delete reference to the two series capitalization and provide that the single series and class of Common Stock now outstanding shall be designated Common Stock, not Series B Common Stock. RECOMMENDATION AND VOTE REQUIRED The Board of Directors recommends a vote to amend the Restated Certificate of Incorporation of the Company Approval of the amendment to the Restated Certificate of Incorporation of the Company requires the favorable vote of holders of a majority of the outstanding stock entitled to vote on the amendment at the annual meeting. In August of 1997, pursuant to Board of Director action as provided for in the Restated Certificate of Incorporation, all outstanding shares of Series A Common Stock were exchanged for an equal number of Series B Common Stock and only shares of Series B remained outstanding. The Board of Directors took the action of combining the two series to increase the float of the Company's stock as it trades on the New York Stock Exchange and to eliminate market and stockholder confusion that resulted from two series of stock that had become identical substantively, except for the rights of the holders of Series A shares to convert into Series B shares and the opportunity of the Series B holders to participate in the Dividend Sales Plan. The historical benefits to the Company and its stockholders of a two series capitalization became unavailible in 1989 when grandfathered tax regulations expired. As a result of the 1997 exchangethe rights of the holders of all outstanding shares have become completely identical. The amendment removes from the Restated Certificate of Incorporation all provisions relating to the former two series capitalization, including the provision for conversion for Series A to Series B as well as the respective rights of each series when a dividend was delared on the other series. The amendment does not have any adverse or other effect on the rights of stockholders. The Amendment is attached hereto as Exhibit A. GENERAL INFORMATION A subsidiary of the Company and a subsidiary of Century Communications Corp. ("Century") entered into a joint venture agreement for the purpose of acquiring and operating cable television systems in Southern California (the "Systems"). Century is a cable television company of which Leonard Tow, the Chairman and Chief Executive Officer of the Company, is Chairman and Chief Executive Officer. In addition, Claire Tow, a director of the Company, is a Senior Vice President and a director of Century. The joint venture is governed by a management board on which the Company and Century are equally represented. The joint venture has entered into an agreement pursuant to which a subsidiary of Century (the "Manager") will manage the day-to-day operations of the Systems. The Manager does not receive a management fee but is reimbursed only for the actual costs it incurs on behalf of the joint venture. With respect to the purchase of any service or asset for the joint venture for use in the Systems, the Manager is obligated to pass through to the joint venture any discount, up to 5%, off the published prices of vendors and is entitled to retain any discount in excess of 5%. The joint venturers agreed to expand the scope of their venture through the acquisition of additional systems in California from an unrelated third party. One system, serving Walnut Valley and having a total of approximately 20,000 subscribers, was acquired in 1997. for $33 16 million and the other system, serving Yorba Linda with approximately 18,000 subscribers, is to be acquired in the spring of 1998 at a purchase price of approximately $36 million (subject to adjustment). The proposed transaction to acquire the Oxnard system discussed in the prior year's proxy statement has been terminated. The joint venture plans to join in a strategic partnership with TCI Communications Inc. that will result in combined cable systems in Southern California serving more than 800,000 subscribers. The details of the strategic partnership have not yet been negotiated. The Company is negotiating the sale to the joint venture of its two cable systems that have approximately 6,300 subscribers. A subsidiary of the Company is a dealer in telephony switching and other equipment. During 1997 it sold equipment to a subsidiary of Century at a price of about $400,000. The equipment was drop shipped and was priced with the usual markup for such equipment. The Company and Century are both shareholders of Centennial Cellular Corp., a cellular telephone company. The Company holds 102,187 shares of Convertible Redeemable Preferred Stock (convertible into 2,972,335 shares of common stock) and 1,982,294 shares of common stock (7.7% of the outstanding shares of common stock) in Centennial Cellular Corp. A subsidiary of Century owns 8,561,820 shares of common stock of Centennial. See "Stock Ownership of Directors and Executive Officers". GENERAL Representatives of KPMG Peat Marwick LLP, the Company's independent public accountants, are expected to be present at the annual meeting with an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. OTHER MATTERS The management does not know of matters other than the foregoing that will be presented for consideration at the meeting. STOCKHOLDER PROPOSALS For proposals, if any, to be considered for inclusion in the proxy materials for the 1999 annual meeting, they must be received by November 22, 1998. Under the Company's ByLaws, if any stockholder intends to propose a nominee for director or the adoption or approval of any other matter by the stockholders [at the annual meeting] the proponent must give written notice to the Company not earlier than January 1, 1999 nor later than February 15, 1999. The entire cost of soliciting management proxies will be borne by the Company. Proxies will be solicited by mail and may be solicited personally by directors, officers or regular employees of the Company, who will not be compensated for such services. Morrow & Co. has been retained to assist in soliciting proxies at a fee of $7,500, plus distribution costs and other expenses. By Order of the Board of Directors Charles J. Weiss Secretary 17 Citizens Utilities Company 1998 ANNUAL MEETING OF STOCKHOLDERS 10:00 A.M., PACIFIC TIME, MAY 21, 1998 HEATHMAN LODGE VANCOUVER, WASHINGTON ADVANCE REGISTRATION FORM (FOR REGISTERED STOCKHOLDERS ONLY)* Please send your completed and signed proxy form in the enclosed envelope. Include this Advance Registration Form in the envelope if you plan to attend or send a representative to the Annual Meeting. Attendance at the Annual Meeting is limited to Citizens' stockholders, or their authorized representative, and guests and employees of the Company. CUT OFF AT DOTTED LINE. (PLEASE TYPE OR PRINT) Stockholder's Name ________________________________________________________________________________ Address ________________________________________________________________________________ City ______________________________________ State ____________Zip ___________ I am a Citizens stockholder. My representative at the Annual Meeting will be: - -------------------------------------------------------------------------------- (Admission card will be returned c/o the stockholder's address.) - -------------------------------------------------------------------------------- Stockholder's Signature . if your shares are held in the name of any intermediary, please see instructions in the Chairman's letter (front cover of this proxy statement) CITIZENS UTILITIES COMPANY Please complete both sides of the Proxy Card, detach and return in the enclosed envelope. DETACH PROXY CARD HERE - -------------------------------------------------------------------------------- CITIZENS UTILITIES COMPANY PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS The undersigned hereby appoints Andrew N. Heine, John L. Schroeder and Robert D. Siff or any of them with full power of substitution, proxies to vote at the Annual Meeting of Stockholders of Citizens Utilities Company (the "Company") to be held on Thursday, May 21, 1998, at 10:00 a.m., Pacific Time, and at any adjournments thereof, hereby revoking any proxies heretofore given, to vote all shares of common stock of the Company held or owned by the undersigned as directed, and in their discretion upon such other matters as may come before the meeting. Signature:----------------------- Signature:----------------------- Date:-----------------, 1998 NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. This proxy when properly executed will be voted in the manner directed by the signatory stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1 AND "FOR" PROPOSAL 2. ............................................................................... PROPOSAL 1 PROPOSAL 2 - ---------- ---------- Election of Directors Approve an amendment to the Restated Certificate of Incorporation of Citizens Utilities Company to eliminate reference Nominees: to the two Series Capitalization and to provide for a single series of Common Stock. For Withheld Norman I. Botwinik Aaron I. Fleischman For [ ] Against [ ] Abstain [ ] [ ] [ ] James C. Goodale Stanley Harfenist Andrew N. Heine For, except vote John L. Schroeder withheld from Robert D. Siff the following Robert A. Stanger Nominee(s) Charles H. Symington, Jr. Edwin Tornberg - ---------------- Claire L. Tow Leonard Tow CITIZENS UTILITIES COMPANY Please complete both sides of the Proxy Card, detach and return in the enclosed envelope. DETACH PROXY CARD HERE - ------------------------------------------------------------------------------- CITIZENS 401(K) SAVINGS PLAN PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS The undersigned hereby authorizes and directs Putnam Fiduciary Trust Company, as the Trustee under the Citizens 401(k) Savings Plan, to vote all shares of stock allocable to the undersigned under the provisions of the Plan and appoints Andrew N. Heine, John L. Schroeder and Robert D. Siff or any of them with full power of substitution, proxies to vote at the Annual Meeting of Stockholders of Citizens Utilities Company (the "Company") to be held on Thursday, May 21, 1998, at 10:00 a.m., Pacific Time, and at any adjournments thereof. Said Trustee is authorized and directed to execute and deliver a written proxy appointing such individuals to act as proxies as directed. Signature:---------------------- Signature:---------------------- Date:-----------------, 1998 NOTE: Please sign exactly as name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. This proxy when properly executed will be voted in the manner directed by the signatory stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1 AND "FOR" PROPOSAL 2. ............................................................................... PROPOSAL 1 PROPOSAL 2 - ---------- ---------- Election of Directors Approve an amendment to the Restated Certificate of Incorporation of Citizens Nominees: Utilities Company Nominees: to eliminate reference to the two Series Capitalization and to provide for a single series of Common Stock. For Withheld Norman I. Botwinik Aaron I. Fleischman For Against Abstain [ ] [ ] James C. Goodale [ ] [ ] [ ] Stanley Harfenist Andrew N. Heine For, except vote John L. Schroeder withheld from Robert D. Siff the following Robert A. Stanger Nominee(s) Charles H. Symington, Jr. Edwin Tornberg - ---------------- Claire L. Tow Leonard Tow -----END PRIVACY-ENHANCED MESSAGE-----