Frontier Communications 2004 Annual Report Download - page 72

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-28
Employee Stock Purchase Plan
Our ESPP was approved by shareholders on June 12, 1992 and amended on May 22, 1997. Under the ESPP, eligible
employees have the right to subscribe to purchase shares of our Common Stock at 85% of the average of the high and
low market prices on the last day of the purchase period. An employee may elect to have up to 50% of annual base pay
withheld in equal installments throughout the designated payroll-deduction period for the purchase of shares. The value
of an employee's subscription may not exceed $25,000 in any one calendar year and the minimum contribution each
purchase period is $50.00. Active employees are required to hold their shares for three years from the date of each
purchase period. An employee may not participate in the ESPP if such employee owns stock possessing 5% or more of
the total combined voting power or value of our capital stock. As of December 31, 2002, there were 6,407,000 shares of
Common Stock reserved for issuance under the ESPP. These shares may be adjusted for any future stock dividends or
stock splits. The ESPP will terminate when all shares reserved have been subscribed for and purchased, unless
terminated earlier or extended by the Board of Directors. The Compensation Committee of the Board of Directors
administers the ESPP.
Effective November 30, 2002, the employee stock purchase plan was temporarily suspended for future purchase periods.
In 2002, 146,406 shares were purchased under the ESPP and 4,072,647 shares were purchased under the plan as of date
of suspension. For purposes of the pro forma calculation, compensation cost is recognized for the fair value of the
employees’ purchase rights, which was estimated using the Black Scholes option pricing model with the following
assumptions for subscription periods beginning in 2002:
2002
Dividend yield -
Expected volatility 44%
Risk-free interest rate 1.93%
Expected life 6 months
The weighted average fair value of those purchase rights granted in 2002 was $2.57.
Non-Employee Directors’ Compensation Plan
Upon commencement of his or her service on the Board of Directors, each non-employee director receives a grant of
10,000 stock options, which is awarded under our 2000 Equity Incentive Plan. The price of these options, which are
immediately exercisable, is set at the average of the high and low market prices of the Company’s common stock on the
effective date of the director’s initial election to the board.
Annually, each non-employee director also receives a grant of 3,500 stock units under the Company’s Formula Plan,
which commenced in 1997 and continues through May 22, 2007. Prior to April 20, 2004, each non-employee director
received an award of 5,000 stock options. The exercise price of the options granted under the Formula Plan was set at
100% of the average of the high and low market prices of the Company’s common stock on the third, fourth, fifth, and
sixth trading days of the year in which the options were granted. The options are exercisable six months after the grant
date and remain exercisable for ten years after the grant date. In addition, on September 1, 1996, each non-employee
director received a grant, under the Formula Plan, of options to purchase 2,500 shares of common stock. These options
granted under the Formula Plan became exercisable six months after the grant date and remain exercisable for ten years
after the grant date.
Effective April 2004, the Formula Plan was amended to replace the annual grant of stock options with an annual grant of
3,500 stock units. The stock units are awarded on the first business day of each calendar year. Each non-employee
director must elect, by December 31 of the preceding year, whether the stock units awarded under the Formula Plan will
be redeemed in cash or stock upon the director’s retirement or death, whichever occurs first.
In addition, each non-employee director is also entitled to annually receive a retainer, meeting fees, and, when
applicable, fees for serving as a committee chair or as Lead Director, which are awarded under the Non-Employee
Directors’ Deferred Fee Equity Plan. Each non-employee director must elect, by December 31 of the preceding year, to
receive $30,000 cash or 5,000 stock units as an annual retainer. Directors making a stock unit election must also elect
to convert the units to either stock (convertible on a one-to-one basis) or cash upon retirement or death. Prior to June 30,
2003, a director could elect to receive 20,000 stock options as an annual retainer in lieu of cash or stock units. The