Frontier Communications 2004 Annual Report Download - page 70

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-26
options was extended and compensation cost of approximately $220,000 was recognized. No compensation cost has
been recognized in the financial statements related to the Employee Stock Purchase Plan (ESPP) because the purchase
price is 85% of the fair value. In connection with our Directors’ Deferred Fee Equity Plan, compensation cost
associated with the issuance of stock units was $2,222,000, $607,000 and $359,000 in 2004, 2003 and 2002,
respectively. Cash compensation associated with this plan was $642,000, $374,000 and $236,000 in 2004, 2003 and
2002, respectively. These costs are recognized in operating expense.
We have granted restricted stock awards to key employees in the form of our Common Stock. The number of shares
issued as restricted stock awards during 2004, 2003 and 2002 were 2,172,085, 312,000 and 538,000, respectively. None
of the restricted stock awards may be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily, by
the employees until the restrictions lapse. The restrictions are time based. At December 31, 2004, 1,686,248 shares of
restricted stock were outstanding. Compensation expense, recognized in operating expense, of $45,313,000,
$8,552,000, and $7,029,000 for the years ended December 31, 2004, 2003 and 2002, respectively, has been recorded in
connection with these grants.
Management Equity Incentive Plan
Under the MEIP, awards of our Common Stock may be granted to eligible officers, management employees and non-
management employees in the form of incentive stock options, non-qualified stock options, stock appreciation rights
(SARs), restricted stock or other stock-based awards. The Compensation Committee of the Board of Directors
administers the MEIP.
Since the expiration date of the MEIP plan on June 21, 2000, no awards can be granted under the MEIP. The exercise
price of stock options issued was equal to or greater than the fair market value of the underlying common stock on the
date of grant. Stock options are generally not exercisable on the date of grant but vest over a period of time. Under the
terms of the MEIP, subsequent stock dividends and stock splits have the effect of increasing the option shares
outstanding, which correspondingly decreases the average exercise price of outstanding options.
Equity Incentive Plans
In May 1996, our shareholders approved the 1996 EIP and in May 2001, our shareholders approved the 2000 EIP.
Under the EIP plans, awards of our Common Stock may be granted to eligible officers, management employees and
non-management employees in the form of incentive stock options, non-qualified stock options, SARs, restricted stock
or other stock-based awards. Directors may receive awards under the 2000 EIP (other than options for annual retainer
fees). SARs may be granted under the 1996 EIP. The Compensation Committee of the Board of Directors administers
the EIP plans.
The maximum number of shares of common stock, which may be issued pursuant to awards at any time for both plans,
is 25,358,000 shares, which has been adjusted for subsequent stock dividends. No awards will be granted more than 10
years after the effective dates (May 23, 1996 and May 18, 2000) of the EIP plans. The exercise price of stock options
and SARs generally shall be equal to or greater than the fair market value of the underlying common stock on the date
of grant. Stock options are generally not exercisable on the date of grant but vest over a period of time.
Under the terms of the EIP plans, subsequent stock dividends and stock splits have the effect of increasing the option
shares outstanding, which correspondingly decrease the average exercise price of outstanding options.
In connection with the payment of the special, non-recurring dividend of $2 per common share on September 2, 2004,
the exercise price and number of all outstanding options was adjusted such that each option had the same value to the
holder after the dividend as it had before the dividend. In accordance with FASB Interpretation No. 44 (“FIN 44”),
“Accounting for Certain Transactions Involving Stock Compensation” and EITF 00-23, “Issues Related to the
Accounting for Stock Compensation under APB No. 25 and FIN 44”, there is no accounting consequence for changes
made to the exercise price and the number of shares of a fixed stock option or award as a direct result of the special,
non-recurring dividend.