<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ELECTRIC LIGHTWAVE 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):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
Administrative Offices
4400 NE 77th Avenue
LOGO ELECTRIC Vancouver, Washington 98662
LIGHTWAVE (360) 892-1000
- --------------------------------------------------------------------------------
April 26, 1998
Dear Fellow Stockholder:
I am pleased to invite you to attend the 1998 Annual Meeting of the
Stockholders of Electric Lightwave, Inc which will be held at the Heathman
Lodge, Vancouver, Washington, on Thursday, May 21, 1998 at 3:00 p.m., Pacific
Time.
This is our first Annual Meeting as a public company, and 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 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, Electric
Lightwave, Inc., 3 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,
/s/ David B. Sharkey
David B. Sharkey
President and Chief Operating Officer
LOGO Printed on recycled paper
<PAGE>
Administrative Offices
LOGO ELECTRIC 4400 NE 77th Avenue
LIGHTWAVE Vancouver, Washington 98662
(360) 892-1000
- -------------------------------------------------------------------------------
April 26, 1998
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
To the Stockholders of
ELECTRIC LIGHTWAVE, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Electric
Lightwave, Inc. will be held at the Heathman Lodge, Vancouver, Washington, on
May 21, 1998 at 3:00 p.m., Pacific Time, for the following purposes:
1. To elect directors;
2. To approve the Equity Incentive Plan;
3. To approve the Employee Stock Purchase Plan; and
4. 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 at the
above address and at the site of the meeting on the meeting date.
By Order of the Board of Directors
Charles J. Weiss
Secretary
<PAGE>
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Electric Lightwave, Inc. (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 4400 NE 77th Avenue, Vancouver, Washington 98662. The approximate
date on which this proxy statement and form of proxy are first being sent or
given to stockholders is April 28, 1998.
Directors will be elected by a majority vote of the Common Stock present or
represented by proxy at the meeting and entitled to vote at the meeting.
Approval of the Equity Incentive Plan and of the Employee Stock Purchase Plan
each requires the affirmative vote of a majority of the votes cast at the
meeting. Abstentions will have the effect of a negative vote with respect to
the election of directors and the approval of the Equity Incentive Plan and as
not having voted with respect to the approval of the Employee Stock Purchase
Plan. Brokers who hold shares in street name for customers do not have
discretionary authority to vote on certain items when they have not received
instructions from beneficial owners; shares represented by proxies indicating
that the broker has not voted the shares on such matters are "broker non-
votes". Under applicable Delaware law, a broker non-vote would be counted for
purposes of determining a quorum, but would not be counted as being entitled
to vote for purposes of determining the outcome of the election of directors
nor as having voted for purposes of determining the outcome of the approval of
the Equity Incentive Plan or the Employee Stock Purchase Plan. Brokers not
receiving instructions from Company shareholders may vote at the meeting on
both the election of directors and the approval of the Equity Incentive Plan
and the Employee Stock Purchase Plan. 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 Equity Incentive Plan and
the Employee Stock Purchase Plan. Stockholders who execute proxies may revoke
them at any time before they are voted.
The Company had outstanding 8,535,000 shares of Class A Common Stock, each
of which is entitled to one vote, and 41,165,000 shares of Class B Common
Stock, each of which is entitled to ten votes, at the annual meeting by
stockholders of record at the close of business on March 23, 1998.
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS
No person or group of persons except for Citizens Utilities Company is known
by the Company to own as much as 5% of any class of the Common Stock of the
Company. As of April 15, 1998, Citizens Utilities Company, with offices at
High Ridge Park, Stamford, Connecticut 06905, beneficially owned, through its
subsidiary CU CapitalCorp., 41,165,000 shares of Class B Common Stock.
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 April 15, 1998 by each director of the Company and
by 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.
<TABLE>
<CAPTION>
Class of Common Percentage of
Stock Owned(1) Acquirable Common Stock Owned
------------------ Within 60 ------------------
Name Position Class A Class B Days(2) Class A Class B(3)
- ---- ----------------------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
James M. Berthot(4) Vice President 15,000 0 0 *
Daryl A. Ferguson(4) Vice Chairman and 125,000 41,165,000(1) 0 1.5
Chief Executive Officer
Todd Hanson(4) Vice President 15,000 0 0 *
Stanley Harfenist(4) Director 236 41,165,000(1) 0 *
Randall Lis(4) Vice President 15,000 0 0 *
David B. Sharkey(4) President and Chief 126,000 41,165,000(1) 0 1.5
Operating Officer
Robert A. Stanger(4) Director 10,236 41,165,000(1) 10,000 *
Leonard Tow(5) Chairman 150,000 41,165,000(1) 0 1.8
Maggie Wilderotter Director 10,236 0 10,000 *
John Wolff(4) Vice President 15,000 0 0 *
Ernest Yates(4) Former Vice President 0 0 0
All Executive Officers
and Directors as a
group (12 persons)(6) 496,708 41,165,000(1) 20,000 5.6
</TABLE>
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* Represents less than 1% of the Company's outstanding Common Stock.
(1) Includes 41,165,000 shares of Class B Common Stock owned by Citizens
Utilities Company of which Leonard Tow is Chairman of the Board, Chief
Executive Officer and a Director, Stanley Harfenist and Robert A. Stanger
are Directors and Daryl A. Ferguson and David B. Sharkey are executive
officers. These shares of Class B Common Stock are included in the above
table for Leonard Tow, Stanley Harfenist, Robert A. Stanger, Daryl A.
Ferguson and David B. Sharkey as required by the definition of beneficial
ownership of the Securities and Exchange Commission. By reason of the
definition of beneficial ownership, the above listed officers and
directors and Citizens Utilities Company (through its wholly-owned
subsidiary CU CapitalCorp.) own approximately 97.97% voting interest in
the Common Stock of the Company, and therefore each of the above
individuals is deemed to have an indirect beneficial interest in such
41,165,000 shares of Class B Common Stock of the Company. Except to the
extent of such indirect interest, each of the named individuals disclaims
beneficial ownership of any of these shares of Class B Common Stock of the
Company.
(2) Reflects number of shares that could be purchased by exercise of options
as of April 15, 1998 or within 60 days thereafter under the Company's
Equity Incentive Plan.
(3) All Class B Common Stock is owned by CU CapitalCorp., a wholly-owned
subsidiary of Citizens Utilities Company. As a result of Citizens'
ownership, the percentage of Class B Common Stock ownership of each of
Drs. Ferguson and Tow and Messrs. Harfenist, Stanger and Sharkey is 100%.
(4) Dr. Ferguson and Messrs. Harfenist and Stanger own 413,152, 64,228, and
53,418 shares of Citizens Common Stock, respectively. Of these shares,
374,392, 50,681 and 50,681 are acquirable within 60 days by the above
named individuals. Messrs. Sharkey, Berthot, Hanson, Lis, Wolff and Yates
own 22,357, 924, 11,019, 10,019, 7,873 and 4,148 shares of Citizens common
stock, respectively. Of the shares reported in the prior sentence, 21,375
for Mr. Sharkey, 7,000 for Mr. Hanson, 7,212 for Mr. Lis and 6,503 for Mr.
Wolff are acquirable within 60 days. The number of shares owned by Mr.
Yates, who is no longer employed by the Company, is based upon information
provided to the Company in the last quarter of 1997.
2
<PAGE>
(5) Dr. Tow owns 8,835,506 shares of Citizens common stock, 2,964,809 shares
of which are acquirable within 60 days. The total includes 4,510,545
shares of Citizens common stock owned by Century Investors, Inc., a wholly
owned subsidiary of Century Communications Corp., of which Dr. Tow is
Chairman of the Board, Chief Executive Officer and a Director. Dr. Tow and
his wife are deemed to have an approximate 91% voting interest in the
common stock of Century Communications Corp., and therefore he is deemed
to have an indirect beneficial interest in such 4,510,545 shares. The
total also includes 18,063 shares held by Dr. Tow's wife as custodian for
her minor grandchildren and 50,651 shares acquirable by her within sixty
days. Dr. Tow disclaims ownership of shares owned by Century Investors,
Inc. or deemed owned by his wife, which shares are included in the total
shares owned by Dr. Tow as required by the definition of beneficial
ownership of the Securities and Exchange Commission. Dr. Tow owns 3.45% of
the common stock of Citizens Utilities Company.
(6) Directors and all Executive Officers of the Company as a group own
9,366,304 shares of Citizens common stock, which represents 3.7% of
Citizens common stock outstanding.
ELECTION OF DIRECTORS
At the meeting, six 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, Daryl A.
Ferguson and David B. Sharkey are executive officers of Citizens Utilities
Company, whose wholly owned subsidiary, CU CapitalCorp., is owner of 100% of
the Class B Common Stock of the Company. Stanley Harfenist and Robert A.
Stanger are Directors of Citizens Utilities Company. There are no family
relationships among any of the nominees and executive officers. For a
description of certain business relationships between the Company and
Citizens, see "Agreements with Citizens" below.
<TABLE>
<S> <C> <C>
Daryl A. Ferguson Vice Chairman and Chief Executive Officer of Director since 1990
Electric Lightwave Inc., 1997 to present; President
and Chief Operating Officer of Citizens Utilities
Company, 1990 to present; Director, Centennial
Cellular Corp. and Hungarian Telephone and Cable
Corp. Age 59
Stanley Harfenist President and Chief Executive Officer of Adesso, Director since 1997
Inc., manufacturer of hardware for the Macintosh
computer, 1993 to present; President, Chief
Operating Officer and Director of Players
International, Inc., 1985 to 1993; Director of
Citizens Utilities Company since 1992. Age 66
David B. Sharkey President and Chief Executive Officer, 1994 to Director Since 1995
October 1997, and President and Chief Operating
Officer since October 1997, of Electric Lightwave,
Inc; Vice President and General Manager, Mobile
Media, Inc., 1989 to 1994. Age 48
Robert A. Stanger Chairman, Robert A. Stanger & Company, investment Director since 1997
banking and consulting services, 1978 to present.
Publisher, The Stanger Report. Director, Callon
Petroleum Company, Inc., exploration and production
of oil and natural gas. Director, Citizens Utilities
Company. Age 59
Leonard Tow Chairman of the Board of Electric Lightwave, Inc. Director since 1990
since 1997. Chairman and Chief Executive Officer,
Citizens Utilities Company, 1990 to present and
Chief Financial Officer of Citizens Utilities
Company 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. Director,
Hungarian Telephone and Cable Corp. Director, United
States Telephone Association. Age 69
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Maggie Wilderotter President and Chief Operating Officer, Wink Director since 1997
Communications since 1997; Executive Vice President,
AT&T Wireless Services, Inc. and Chief Executive
Officer of A T & T Aviation Communications Division,
1995 to 1997. Senior Vice President of McCaw
Cellular Communications, Inc., 1991 to 1995.
Director of Gaylord Entertainment Corporation,
Airborne Express, Jacor and the California Cable
Television Association. Age 43
</TABLE>
The Board of Directors held 2 meetings in 1997. All directors attended at
least 75% of Board and appropriate committee meetings.
COMMITTEES OF THE BOARD
The Board has standing Executive, Audit and Compensation Committees.
Currently there is no Nominating Committee.
EXECUTIVE COMMITTEE. The Executive Committee is composed of Dr. Tow, Chair,
Dr. Ferguson and Mr. Sharkey. In 1997 the Committee met once. During intervals
between meetings of the Board, the Executive Committee has the power and
authority of the Board over the management of the business affairs and
property of the Company, except for powers specifically reserved by Delaware
law or by the Company's Restated Certificate of Incorporation.
AUDIT COMMITTEE. The Audit Committee is composed of Mr. Harfenist as Chair
and Mr. Stanger and Ms. Wilderotter. The Committee did not meet 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 Mr. Harfenist and Ms. Wilderotter. The Committee met once
in 1997. The Committee reviews the Company's general compensation strategies
and establishes and reviews compensation for the Chief Executive Officer and
other executive officers of the Company.
DIRECTORS' COMPENSATION
Each non-employee Director is entitled to a $20,000 annual retainer and a
fee of $1,000 for each Board or Committee meeting attended. Committee chairs
are paid a fee of $2,000 per meeting attended. Commencing in 1998, $12,000 of
the retainer will be paid in Class A Common Stock of the Company and $8,000
will be paid in cash. Meeting fees will be paid in cash. Each non-employee
Director also receives an annual stock option grant of 7,500 shares, priced at
the fair market price of the stock on the grant date. The grant date in 1998
was January 27; for subsequent years it shall be the first market trading date
of the year. Each new non-employee Director also will receive a 10,000 share
sign on option. Dr. Ferguson and Dr. Tow as a result of their employment by
Citizens Utilities Company are deemed to be employee Directors and not
eligible for compensation as a non-employee Director.
4
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In October, 1997, prior to the initial public offering of the Company's
Common Stock (IPO) the Board of Directors of the Company established a
Compensation Committee (the "Committee") composed of three independent
Directors who are responsible for setting and administering compensation,
including base salaries, annual incentives, and stock-based awards paid or
awarded to executive officers of the Company. The Committee is engaged in fine
tuning the Company's compensation strategy and specific incentive plan designs
for the remainder of 1998 and future years.
BASE SALARY
Current base salaries were set prior to the IPO. The Committee will set the
base salary levels of executive officers annually, based on the duties and
responsibilities which the Company expects each executive to discharge during
the coming year and upon the executive's performance during the previous year.
The Committee will utilize external market comparisons to industry-specific
peers in reaching its determinations.
AT-RISK INCENTIVE COMPENSATION
Annual incentives were paid in early 1998, based upon a pre-IPO existing
annual incentive plan, under which appropriate variable cash compensation was
reviewed and determined for 1997 business results and individual performance.
All employees of the Company not participating in any sales or other incentive
plans are eligible to participate in the annual incentive program.
The Company adopted, subject to stockholder approval at the May 1998 Annual
Meeting, a long-term incentive plan (see "--Common Stock Long-term Incentives"
and "Approval of the Electric Lightwave, Inc. Equity Incentive Plan"). Stock
options and performance shares were granted to certain officers, directors and
key employees at the time of the IPO under the plan. A specific long-term
incentive design is being completed for the Equity Incentive Plan.
ANNUAL CASH INCENTIVES
To retain and incent employees, ELI's annual cash incentive plan offers a
competitive mix of total cash compensation relative to comparable industry
norms. Cash incentives are paid to eligible employees during the first quarter
of the year based upon prior year goal attainment. At 100% of goal attainment,
the cash bonus is 10% of the base salary for most employees. Executive and
senior management targets vary based on competitive market practice. Once the
gross revenue target is met, cash incentives will increase 5% for every 20%
improvement in operating income. If 100% of the goal is not met, the Committee
may use its judgment to determine if there will be any cash incentive payout.
The annual at-risk cash incentives approved by the Committee in 1998 were
for 1997 performance. In 1997, ELI achieved 100.7% of its revenue goal and
116% of its Operating Income Before Interest and Taxes goal, excluding the
effects of the IPO-related accounting charges/costs. As such, cash incentives
were awarded to all 428 employees and 13 executives of the Company.
COMMON STOCK LONG-TERM INCENTIVES
In connection with the IPO, in October 1997, the Committee adopted the
Electric Lightwave, Inc., Equity Incentive Plan ("EIP"). The purpose of the
EIP is to provide equity compensation incentives for high levels of
performance and to attract and retain outstanding employees.
5
<PAGE>
All long-term incentive awards granted in 1997 were under the terms and
conditions of the EIP. All option grants were made subject to the completion
of the IPO and at the IPO price. The options are nonqualified and have a term
of ten years from the date of the IPO. The options vest one-third on each of
the first three anniversary dates of the IPO. On November 24, 1997, the date
of the IPO, 49 persons were granted a combined total of 2,316,000 stock
options, or 4.6% of shares of Common Stock outstanding.
On November 24, 1997, performance shares were granted with vesting
provisions contingent upon both the passage of time and the achievement of
gross revenue targets. Time restrictions on the shares lapse over three years,
one-third one year from the date of the IPO, and the remaining thirds lapsing
on the second and third anniversaries of the IPO. In addition, performance
goals must be met prior to lapse. Performance goals will be met for one-third
of the shares when $100,000,000 of annual revenues is first achieved for a
twelve month period; the second and third goals will be met when $125,000,000
and $155,000,000 of annual revenues are respectively achieved for a twelve
month period. Performance shares were granted to 14 directors, officers and
employees including the Chief Executive Officer and the Chairman, representing
a total of 535,000 shares, or 1.0% of shares of Common Stock outstanding. The
restrictions on the Chairman's 125,000 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 thereafter until January 2005.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Dr. Ferguson, the Chief Executive Officer and Vice Chairman, is also
President and Chief Operating Officer of the Company's parent Citizens
Utilities Company. Dr. Ferguson's 1997 compensation was paid to him by
Citizens Utilities Company. Dr. Ferguson received an award of performance
shares from the Company in 1997, as discussed in the previous paragraph. See
"Long-Term Incentive Plans--Awards in 1997" and "Summary Compensation Table".
The Company currently expects to make future awards to the Chief Executive
Officer under the EIP with the criteria for awards being developed by the
Committee. The base salary of Dr. Ferguson will be paid by Citizens Utilities
Company as long as he remains an employee of that company.
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 Chief Executive Officer, met the
conditions required for full deductibility under Section 162(m) of the
Internal Revenue Code ("Code"). Section 162(m) of the Code generally disallows
a tax deduction to public companies for compensation 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 the stock awards granted in 1997. The Company expects to
structure grants under its EIP in a manner that provides for an exemption from
Section 162(m). The Committee recognizes that, in certain instances, it may be
in the best interests of the Company to provide compensation that is not
deductible.
Robert A. Stanger, Chair, Stanley Harfenist, Maggie Wilderotter
6
<PAGE>
EXECUTIVE COMPENSATION
The following table shows compensation awarded to, earned by or paid in 1997
to the Company's Chief Executive Officers during 1997, each of the four
remaining most highly compensated executive officers serving as executive
officers at the end of 1997 and a former executive officer (collectively, the
"Named Executive Officers") for all services rendered to ELI during the three
most recent fiscal years ended December 31, 1997. The Chairman of the Board is
not included in the following executive compensation tables. See "Compensation
Committee Report on Executive Compensation--Common Stock Long-term
Incentives".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------------------ --------------------- ---------
Securities
Under- Long-
Restricted lying term
Other Annual Stock Options/ Incentive All Other
Salary Salary Bonus(1) Compensation Awards(2) SARs(3) Plan Compensation(4)
Name Year $ ($) $ $ (#) Payouts $ $
---- ------ ------- -------- ------------ ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daryl A. Ferguson(5).... 1997 0 0 0 666,667 0 0 0
Vice Chairman and
Chief Executive
Officer
David B. Sharkey(5)..... 1997 183,333 100,000 0 666,667 40,703 0 30,036
President and Chief 1996 155,830 80,000 0 0 18,084 0 27,790
Operating Officer 1995 150,000 75,000 0 0 0 0 0
and Former CEO
John Wolff.............. 1997 141,227 50,000 0 80,000 146,000 0 2,900
Vice President--VP 22,895
New City 1996 127,500 40,000 0 0 8,127 0 4,750
Development 1995 120,000 40,000 0 0 0 0 15,535
Randall Lis............. 1997 133,278 50,000 0 80,000 146,000 0 10,192
Vice President-- 22,895
Staff Support 1996 114,125 40,000 0 0 8,127 0 32,163
1995 99,634 30,000 0 0 11,526 0 18,450
Todd Hanson............. 1997 138,223 50,000 0 80,000 146,000 0 4,091
Vice President-- 22,895
Engineering 1996 131,401 40,000 0 0 0 0 3,651
1995 95,804 40,000 0 0 16,779 0 30,338
James M. Berthot........ 1997 119,141 40,000 0 80,000 146,000 0 4,748
Vice President-- 22,895
Marketing 1996 102,391 20,000 0 0 7,987 0 3,671
1995 51,602 0 0 0 0 0 13,905
Ernest Yates............ 1997 138,044 0 0 80,000 146,000 0 4,491
Former Vice 22,895
President 1996 107,833 40,000 0 0 8,127 0 3,997
1995 71,942 18,000 0 0 0 0 34,907
</TABLE>
- --------
(1) Bonus amounts awarded were for performance for the stated Salary Year,
notwithstanding determination of the bonus amount in the subsequent year.
(2) Amount in table represents the one-third portion of a performance share
grant made in connection with the initial public offering of the Company
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 performance
shares of the Company held by the Named Executive Officers of the Company
was 310,000. Although shown on the table, Mr. Yates' award was
automatically canceled upon the cessation of his employment with the
Company. The market value of the shares as of December 31, 1997 was
$4,303,833. 125,000 shares were held by each of Dr. Ferguson and Mr.
Sharkey, and 15,000 shares were held by each of Messrs. Wolff, Lis, Hanson
and Berthot. Recipients of performance shares have the right to receive
dividends.
7
<PAGE>
(3) All options in this column, except options in the amount of 146,000 shares
shown in 1997 for Messrs. Wolff, Lis, Hanson, Berthot and Yates, are
exercisable for shares of common stock of Citizens. The options for
146,000 shares each are exercisable for Class A Common Stock of the
Company. Citizens options are adjusted to reflect stock dividends paid
subsequent to date of grant. All awards of Citizens options were granted
under the Citizens Utilities Company Management Equity Incentive Plan or
its successor plan, the Equity Incentive Plan. Options in Company stock
were granted under the Company's Equity Incentive Plan which is subject to
stockholder approval at the Company's 1998 Annual Meeting. All options
granted to Mr. Yates will not become exercisable by him in accordance with
their terms as the employment of Mr. Yates has been terminated.
(4) Represents the Company's matching contribution to each executive's 401(k)
plan. Additionally represents $27,286 for the 1997 and $25,453 for the
1996 economic benefit of split-dollar life insurance for Mr. Sharkey,
$28,271 for relocation allowances paid to Mr. Lis in 1996 and $9,935,
$18,450, $28,898, $13,905 and $33,610 for relocation allowances paid to
Messrs. Wolff, Lis, Hanson, Berthot and Yates in 1995.
(5) Dr. Ferguson, Chief Executive Officer of the Company since October, 1997,
is the President and Chief Operating Officer of Citizens. He was
compensated by Citizens. The Company and Citizens have entered into an
agreement pursuant to which Dr. Ferguson's services will be rendered and
paid for. See "Agreements with Citizens--Administrative Services
Agreement." Dr. Ferguson received an award of performance shares from the
Company in 1997. See footnote 2 to this table. The Compensation Committee
may grant additional incentive awards to him in the future. Mr. Sharkey
was Chief Executive Officer of the Company from August 1994 until October
1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted to the Named Executive
Officers in 1997.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL EXERCISE
SECURITIES OPTIONS/SARS OR BASE
UNDERLYING GRANTED TO PRICE AT GRANT DATE
OPTIONS/SARS EMPLOYEES IN GRANT EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE $(3)
---- -------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Daryl A. Ferguson.. 0 0 0 -- --
David B. Sharkey... 0 0 0 -- --
John Wolff......... 146,000 6% 16.00 11/24/07 748,980
Randall Lis........ 146,000 6% 16.00 11/24/07 748,980
Todd Hanson........ 146,000 6% 16.00 11/24/07 748,980
James M. Berthot... 146,000 6% 16.00 11/24/07 748,980
Ernest Yates (4)... 146,000 6% 16.00 11/24/07 748,980
</TABLE>
- --------
(1) All options become exercisable at the rate of one-third per year on
November 24, 1998, 1999 and 2000.
(2) Initial public offering price.
(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 5.87%, a
seven-year term of exercise and volatility of 0.13.
(4) The option award to Mr. Yates will not become exercisable by him as a
result of its terms as the employment of Mr. Yates has been terminated.
8
<PAGE>
In addition to the Company options set forth in the table above, options for
Citizens common stock were granted to each of the Named Executive Officers in
1997. The Citizens options become exercisable at the rate of one-third per
year on September 25, 1998, 1999 and 2000. The options have a ten year term
and the exercise price at time of grant was $8.875. Options for 135,000 shares
were granted to Dr. Ferguson and options for 40,000 shares were granted to Mr.
Sharkey. The remaining Named Executive Officers were granted 22,500 shares
each. A Black-Scholes option pricing model as referred to in footnote 3 above
was used to value the options. The model assumes a dividend yield of 0%, a
riskless rate of return of 6.14%, a seven-year term of exercise, and
volatility of 0.32. The determined value was $573,750 for Dr. Ferguson,
$170,000 for Mr. Sharkey and $115,625 for each of the other Named Executive
Officers.
AGGREGATED 1997 OPTION/SAR EXERCISES AND VALUE OF
OUTSTANDING OPTIONS/SARS AT DECEMBER 31, 1997
The following table sets forth option and stock appreciation rights
exercised by the Named Executive Officers during 1997 and the number and value
of options held by them on December 31, 1997. There were no outstanding stock
appreciation rights relating to the Company's Common Stock on December 31,
1997. No exercises occurred during 1997 of options or stock appreciation
rights relating to the Company's Common Stock.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-money Options/Sars
Shares Value Fiscal Year-End (#) at Fiscal Year-end ($)
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) $ Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daryl A. Ferguson....... 0 0 0 0 0 0
David B. Sharkey........ 0 0 0 0 0 0
John Wolff.............. 0 0 0 146,000 0 0
Randall Lis............. 0 0 0 146,000 0 0
Todd Hanson............. 0 0 0 146,000 0 0
James M. Berthot........ 0 0 0 146,000 0 0
Ernest Yates............ 0 0 0 146,000 0 0
</TABLE>
The closing price of the Company's Class A Common Stock on December 31, 1997
was $13.88.
9
<PAGE>
LONG-TERM INCENTIVE PLANS-AWARDS IN 1997
The following table sets forth the Long-Term Incentive Plans-Awards in 1997
for the Named Executive Officers.
<TABLE>
<CAPTION>
Estimated Future Payouts Under Non-
Number of Performance or Stock Price-Based Plans
Shares, Units other Period --------------------------------------
or other Rights until Maturation Threshold Target Number Maximum Number
Name (#)(1) or Payout (1) (#) of Shares of Shares
---- --------------- ---------------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
D. A. Ferguson.......... 125,000 1998-2000 0 125,000 125,000
D. B. Sharkey........... 125,000 1998-2000 0 125,000 125,000
John Wolff.............. 15,000 1998-2000 0 15,000 15,000
Randall Lis............. 15,000 1998-2000 0 15,000 15,000
Todd Hanson............. 15,000 1998-2000 0 15,000 15,000
James M. Berthot........ 15,000 1998-2000 0 15,000 15,000
Ernest Yates............ 15,000 1998-2000 0 15,000 15,000
</TABLE>
- --------
(1) In connection with the Initial Public Offering of the Company, Dr.
Ferguson and Mr. Sharkey were each granted 125,000 performance shares of
Class A Common Stock, subject to performance standards. Messrs. Wolff,
Lis, Hanson, Berthot, and Yates were each granted 15,000 performance
shares. 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. Mr. Yates' performance shares were canceled
as a result of the cessation of his employment with the Company.
PENSION PLAN
The Company does not have a pension plan. Mr. Sharkey is covered by
Citizens' noncontributory qualified retirement plan 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 available to Mr.
Sharkey 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
(subject to the limitation of the Internal Revenue Code of 1986 on the amount
of annual compensation which may be credited to a participant's retirement
benefits) and the years of service represent years of credited service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of
Service
Remuneration --------
(000 Omitted) 5 10 15 20
------------- --- --- --- ---
<S> <C> <C> <C> <C>
$160...................................................... $12 $25 $37 $49
</TABLE>
Full years of credited service for Mr. Sharkey are three.
10
<PAGE>
GRAPH
ELECTRIC LIGHTWAVE, INC.
COMPARISON OF CUMULATIVE TOTAL RETURN*
11/24/97 12/31/97 3/31/98
-------- -------- -------
ELECTRIC LIGHTWAVE, INC. $100 $ 93 $125
PEER GROUP + ELECTRIC $100 $103 $151
LIGHTWAVE, INC.
NASDAQ $100 $ 98 $115
* $100 invested on 11/24/97 in stock or index
including reinvestment of dividends. Periods
ending December 31, 1997 and March 31, 1998.
The Company's Class A Common Stock has been publicly traded since November
24, 1997. The graph shows the period November 24, 1997 through December 31,
1997 and, to provide the longest available performance period, as permitted by
the SEC, from December 31, 1997 through March 31, 1998. The graph assumes $100
invested in Company stock and in the two comparison indices (the Nasdaq Stock
Market-US and a peer group) on November 24, 1997 as required by SEC rules, and
that all quarterly dividends were reinvested at the average closing stock
prices at the beginning and end of the quarter. The peer group consists of the
Company and the below listed companies selected by the Company in good faith
that provide services similar to those of the Company. The Peer group companies
are Advanced Radio Telecom Corp.; American Comm. Services, Inc.; COLT Telecom
Group, PLC; GST Telecom; ICG Communications; Intermedia Communications; McLeod
USA, Inc.; NEXTLINK Communications, Inc.; Teligent, Inc. and WinStar
Communications.
11
<PAGE>
AGREEMENTS WITH CITIZENS
GENERAL
Citizens owns 100% of the outstanding Class B Common Stock of the Company,
which represents approximately 97% of the combined voting power of all of the
outstanding Common Stock. Leonard Tow, Chairman of the Board of the Company,
is the Chairman of the Board and Chief Executive Officer of Citizens. Daryl A.
Ferguson, Vice Chairman and Chief Executive Officer of the Company, is
President and Chief Operating Officer of Citizens. David B. Sharkey, President
and Chief Operating Officer and a Director of the Company, is an executive
officer of Citizens. Stanley Harfenist and Robert Stanger, Directors of the
Company, are Directors of Citizens.
The Company's relationship with Citizens is governed by agreements entered
into with Citizens in connection with the IPO, including an Administrative
Services Agreement, a Tax Sharing Agreement, an Indemnification Agreement, a
Customers and Service Agreement and a Registration Rights Agreement, the
material terms of which are described below.
ADMINISTRATIVE SERVICES AGREEMENT
The Administrative Services Agreement (the "Administrative Services
Agreement") provides for Citizens to render certain financial management
services, information services, legal and contract services, human resources
services and corporate planning services to the Company. Under the terms of
the Administrative Services Agreement, all of the services will be rendered by
Citizens subject to the oversight, supervision and approval of the Company,
acting through its Board of Directors.
The administrative costs to be paid by the Company to Citizens pursuant to
the Administrative Services Agreement are not expected to exceed the fees that
would be paid if such services were to be provided by an independent third
party.
The Administrative Services Agreement will terminate on December 31, 2005,
unless earlier terminated by Citizens or the Company. The Administrative
Services Agreement will be automatically renewed for additional terms of two
years unless either party gives at least six months written notice prior to a
scheduled termination date. The Administrative Services Agreement can be
terminated upon a material breach and will be terminated upon a change of
control of the Company.
TAX SHARING AGREEMENT
As the Company is included in Citizens' federal consolidated income tax
group, the Company's federal income tax liability is included in the
consolidated federal income tax liability of Citizens and its subsidiaries.
The Company is also included with certain Citizens subsidiaries in combined,
consolidated or unitary income tax groups for state and local tax purposes.
The Company and Citizens are parties to a federal, state and local tax-sharing
agreement (the "Tax Sharing Agreement"). Pursuant to the Tax Sharing
Agreement, the Company and Citizens will make payments between them such that,
with respect to any period, the amount of taxes to be paid by the Company,
subject to certain adjustments, will generally be determined as though the
Company were to file separate federal, state and local income or franchise tax
returns (including, except as provided below, any amounts determined to be due
as a result of a re-determination of the tax liability of Citizens arising
from an audit or otherwise). The Company will be responsible for any tax
liability due any foreign jurisdiction arising from its business activities.
The Tax Sharing Agreement will remain in effect so long as any taxing
jurisdiction requires the filing of a combined tax return by both Citizens and
the Company.
12
<PAGE>
Citizens has sole and exclusive responsibility for (i) preparing any tax
returns (including amended returns or claims for refund) of the Company; (ii)
representing the Company with respect to any tax audit or tax contest; (iii)
engaging outside counsel and accountants with respect to tax matters regarding
the Company; and (iv) performing such other acts and duties with respect to
the Company's tax returns as Citizens determines is appropriate. The amounts
that the Company will pay Citizens under the Administrative Services Agreement
will encompass reimbursement to Citizens for all direct and indirect costs and
expenses incurred with respect to the Company's share of the overall costs and
expenses incurred by Citizens with respect to tax related services.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax Sharing Agreement allocates tax liabilities
between the Company and Citizens, during the period in which the Company is
included in Citizens' consolidated group, the Company could be liable in the
event that any federal tax liability is incurred, but not discharged, by any
other member of Citizens' consolidated group.
INDEMNIFICATION AGREEMENT
The Company and Citizens are parties to an indemnification agreement (the
"Indemnification Agreement"). The Indemnification Agreement provides that the
Company will indemnify Citizens for any liabilities incurred by Citizens under
any guarantees of the Company's obligations or liabilities of the Company and
that the Company will pay Citizens for its direct costs, if any, of
maintaining such guarantees.
REGISTRATION RIGHTS AGREEMENT
The Company and Citizens are parties to a Registration Rights Agreement (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that, upon the request of Citizens, the Company, at its expense, will use its
best efforts to effect the registration under the applicable federal and state
securities laws of any of the shares of Common Stock (and any other securities
issued in respect of or in exchange therefor) held by Citizens for sale in
accordance with Citizens' intended method of disposition thereof and will take
such other actions necessary to permit the sale thereof in other
jurisdictions, subject to certain specified limitations. Citizens will also
have the right, at its expense, to include the shares of Common Stock held by
it in certain other registrations of common equity securities of the Company
initiated by the Company on its own behalf or on behalf of its other
shareholders.
CUSTOMERS AND SERVICE AGREEMENT
The Company and Citizens are parties to a Customers and Service Agreement
(the "Customers and Service Agreement"). The Customers and Service Agreement
contains provisions prohibiting the Company from competing with Citizens for
customers in Citizens' existing service areas and in certain new lower density
territories which Citizens will have been first to enter after the IPO.
Citizens has agreed that it will not compete with the Company in the service
territories in which the Company is currently providing services and in
certain new higher density territories which the Company will have been first
to provide services after the IPO. Neither Citizens nor the Company may
solicit an existing wholesale customer of the other company for services which
such customer is currently receiving under contract from the other company.
The relevant provisions were intended to permit the Company to continue all
activities in which it engaged prior to the IPO, and to expand into related
markets. The Customers and Service Agreement will remain in effect until
Citizens ceases to own a majority of the voting interest of the capital stock
of the Company or its designees cease to constitute a majority of the
directors.
13
<PAGE>
CITIZENS' GUARANTEES OF THE COMPANY'S OBLIGATIONS
LEASE
In June 1995 the Company entered into agreements to lease certain equipment
to be constructed for the Company (the "Lease"). The lessor has agreed to
commit up to a maximum of $110,000,000 of the cost of purchasing and
installing the equipment. Rental obligations for the equipment commenced in
June 1995, and, with renewal options, will expire on April 30, 2002. Citizens
has guaranteed all obligations of ELI under the Lease and the Company will pay
Citizens a guarantee fee of 3.25% per annum of the amount of the lessor's
investment in the leased assets.
CREDIT FACILITY
On November 2, 1997, the Company and Citizens entered into a five-year, $400
million revolving Credit Facility with Citibank, as agent for a group of
lending banks. Citizens has agreed to guarantee all debt obligations under the
Credit Facility. The Credit Facility requires that Citizens maintain a minimum
net worth of at least $1 billion and continue to own at least 51% of the
outstanding Common Stock of the Company. The Company has agreed to pay
Citizens a guarantee fee at a rate of 3.25% per annum based on the average
balance outstanding.
REFINANCING OF OBLIGATIONS
Citizens and the Company have agreed that, if Citizens intends to reduce its
economic interest in the Company to less than 51%, Citizens will be entitled
to request the Company to refinance its obligations under the Lease and the
Credit Facility and the Company shall be obligated to use its best efforts to
do so. This refinancing would occur when Citizens reduces its economic
interest in the Company to less than 51%.
TELECOMMUNICATIONS SERVICES
Citizens has leased long term rights to fiber optic lines from the Company
for which Citizens has agreed to pay an annual fee of $360,000. Also, Citizens
and the Company have agreed to combine their purchases of long-haul services
in an arrangement with a long distance company in order to receive a lower
unit cost. The Company has agreed to reimburse Citizens for the cost of the
Company's usage and pay an additional fee consisting of 5% of such cost. The
agreement was replaced effective May 1, 1997 with a 24-month term agreement
which removed the 5% additional fee.
OTHER
In the future, additional transactions may occur and agreements be reached
between the Company and Citizens in a number of areas relating to their past
and ongoing relationships, including potential acquisitions of businesses or
properties or other corporate opportunities, potential competitive business
activities, payment of dividends, incurrence of indebtedness, guarantees, tax
matters, financial commitments, marketing functions, indemnity arrangements,
registration rights, administrative and services arrangements, and issuances
or sales of capital stock of the Company.
14
<PAGE>
APPROVAL OF THE ELECTRIC LIGHTWAVE, INC.
EQUITY INCENTIVE PLAN
At the Annual Meeting, stockholders will be requested to approve the
Electric Lightwave, Inc. Equity Incentive Plan (the "Plan") which has been
adopted by the Company's Board of Directors upon the recommendation of its
Compensation Committee (the "Committee").
The Board of Directors believes that employees and other qualified persons
and the intense growing competition for outstanding capable executives,
managers and others makes it imperative that the Company maintain strong and
competitive incentive compensation programs. Now that the Company has become a
publicly held company, an incentive plan based on the Company's publicly
traded Common Stock provides an excellent vehicle to assist the Company in
attracting and retaining outstanding management, including directors and
consultants, as well as officers and other employees by providing them with
incentives to render superior services for the Company and any future
subsidiaries. The full text of the Plan is set forth as Appendix A hereto, and
the reader is urged to refer to it for a complete description of the proposed
Plan. The summary of principal features of the Plan which follows is qualified
entirely by such reference. Compliance with all applicable regulatory
requirements will be necessary. The Board of Directors recommends a vote for
approval of the Equity Incentive Plan.
PURPOSE OF THE PLAN
The purpose of the Plan is to provide compensation incentives for high
levels of performance and productivity by employees of the Company and its
Participating Companies (as defined below) and individuals who perform
services for the Company as director, consultant or otherwise. The Plan is
intended to strengthen the Company's existing operations and its ability to
attract and retain outstanding personnel upon whose judgment, initiative and
efforts the continued efficiency, productivity, growth and development of the
Company is dependent, as well as encourage such personnel to have a greater
personal financial investment in the Company through ownership of its Common
Stock.
SHARES SUBJECT TO THE PLAN; DURATION OF THE PLAN
Awards granted under the Plan will relate to shares of the Company's Class A
or Class B Common Stock. The maximum number of shares of Common Stock which
will be issued pursuant to awards at any time will be no more than 4,170,600
shares, or 8.3% of currently outstanding Common Stock. No individual shall be
granted more than 500,000 shares in any calendar year if the award is
denominated in number of shares or, if the award is denominated in dollars,
$750,000 in dollar value. These shares will be divided among the various
components of the Plan in such manner as the Committee shall determine or
authorize. No awards will be granted more than ten years after the effective
date of the Plan.
Any shares of Common Stock which were issued and have been forfeited or were
subject to awards under the Plan which have expired or terminated for any
reason will thereupon become available for issuance pursuant to awards granted
thereafter during the term of the Plan, except for awards to "covered
employees" within the meaning of Section 162(m) of the Code and as required to
conform to the requirements of Rule 16b-3 under the Exchange Act or other
applicable law. Shares of Common Stock received by the Company in connection
with the exercise of an award shall also be available for issuance under the
Plan, subject to the limitations noted above.
The number and kind of securities which are authorized to be issued under
the Plan or pursuant to then outstanding awards are subject to adjustments to
prevent enlargement or dilution of rights resulting from stock dividends,
stock splits, recapitalizations, reorganizations or similar transactions.
15
<PAGE>
The average of the high and low quoted prices of the Company's Class A
Common Stock on April 20, 1998 was $18.75.
PARTICIPATION
All employees, officers and directors of the Company and Participating
Companies and individuals who perform services for the Company as a director,
consultant or otherwise upon whose judgment, initiative, productivity, growth
and development of the Company is dependent are eligible for selection to
participate in the Plan. A Participating Company is the Company or any
subsidiary or other affiliate of the Company which is 50% or more owned
directly or indirectly by the Company or which owns 50% or more of the voting
power of the shares of Common Stock of the Company or is controlled by, or
controls, or is under common control with the Company. The Committee and the
Board have made awards of shares under the Plan in connection with the public
offering of shares of Class A Common Stock and have made subsequent awards.
ADMINISTRATION
The Plan will be administered by the Committee consisting of members of the
Board of Directors. The Administration of the Plan is intended to satisfy any
"nonemployee director" or similar requirements under the Securities Exchange
Act of 1934 rules and "outside directors" or similar requirements under
Section 162(m) of the Code. Subject to the express provisions of the Plan, the
Committee is authorized among other things, to (a) determine those eligible
individuals or groups to whom awards may be granted; (b) grant awards to any
eligible individual; (c) determine the terms and conditions (which need not be
identical) of each award; (d) establish and modify performance objectives; (e)
determine the rights of each participant after employment or the rendering of
services has terminated and the periods during which any rights may be
exercised; (f) modify or amend any award (by cancellation and re-grant or
substitution of awards or otherwise and with terms and conditions more or less
favorable to the employee) or waive any restrictions or conditions applicable
to any award or the exercise or realization thereof (except that, with certain
exceptions based on regulation, the Committee may not undertake any such
modifications, amendments or waivers if the effect thereof, taken as a whole,
adversely and materially affects the rights of any recipient of a previously
granted award without his or her consent); (g) prescribe and rescind rules,
regulations and policies for the administration of the Plan; (h) interpret,
construe and administer the Plan and any related award agreement and define
the terms employed therein; and (i) make all of the determinations necessary
or advisable with respect to the Plan or any award granted thereunder. Any
power, action, authority, or discretion granted to or exercisable by the
Committee pursuant to the provisions of the Plan may, if the Committee or the
Board so determines, be exercised by or delegated by the Board.
AWARDS
STOCK OPTIONS
Under the Plan, a Stock Option, which may be a non-qualified or an incentive
stock option, may be granted either alone or in conjunction with one or more
other awards. The exercise price, except in the discretion of the Committee in
the case of non-statutory options granted to new employees or others who
commence to render services, shall be equal to or greater than the 85% of the
fair market value of the underlying Common Stock on the date of grant or, in
the case of a SAR or incentive Stock Options, 100% of the fair market value on
such date. The term of each Stock Option shall also be determined by the
Committee but may not exceed ten years from the date of grant. Upon exercise,
the option price of each Stock Option is payable by the option holder in cash
or, in the sole discretion of the Committee, through the delivery of shares of
the Company's Common Stock valued at their fair market value as determined by
the Committee, or in a combination of cash and shares. The Committee may grant
a replacement Stock Option to an
16
<PAGE>
option holder to replace the shares which the option holder delivered to the
Company. The Committee may also accept the surrender of the right to exercise
any Stock Option for payment in cash or shares or any combination thereof. The
Committee may also grant stock appreciation rights, free standing or in tandem
with Stock Options, which entitle the holder thereof to receive a similar
payment at his or her election.
The Committee may grant a replacement Stock Option to an employee for a
number of shares equal to the number of shares which the option holder
delivered to the Company in payment of, or sold for payment of, the price of
any Stock Option or stock purchase right or any related income taxes with
respect to any such Stock Option or stock purchase right of the Company held
by the employee. The option price of any replacement Stock Option shall be
subject to the restrictions summarized above, except that the option price may
not be less than 100% of the fair market value of the Common Stock delivered
to the Company on the date of such payment.
The Committee is also authorized, in its sole discretion and upon such terms
and conditions as it may deem appropriate, to accept the surrender of the
right to exercise any Stock Option granted under the Plan as to all or any of
the shares as to which the Stock Option is then exercisable for alternative
settlement by payment to the option holder of an amount not to exceed the
difference between the option price and the then fair market value of the
shares as to which such right of exercise is surrendered. Such payment may be
made in cash or in shares of the Company's Common Stock (valued at the then
fair market value) or any combination thereof as the Committee determines in
its sole discretion. The Committee may also grant stock appreciation rights,
free standing or in tandem with Stock Options, which entitle the holder
thereof to receive a similar payment at his or her election.
OTHER STOCK-BASED AWARDS
In order to enable the Company and the Committee to respond quickly to
significant developments in applicable tax and other legislation and
regulations and to trends in executive compensation practices, the Plan also
authorizes the Committee to grant other stock-based awards to employees
eligible for selection to participate in the Plan. Other stock-based awards
will consist of awards that are valued in whole or in part by reference to, or
otherwise based on, the Company's Common Stock and may include, but are not
limited to, performance shares, restricted stock, and deferred stock.
Reference is made to the Plan for Plan provisions applicable to performance
shares, restricted stock and deferred stock. Subject to the terms of the Plan,
the Committee may determine any and all terms and conditions of other stock-
based awards. The total number of shares of Common Stock which may be issued
pursuant to all components of the Plan may not exceed the limit stated above
under "Shares Subject to the Plan; Duration of the Plan."
The Plan also authorizes the Committee to grant other stock-based awards to
eligible individuals, which consist of awards that are valued in whole or in
part by reference to, or otherwise based on, the Company's Common Stock and
may include, but are not limited to, restricted stock, performance shares,
phantom shares, and deferred stock. Subject to the terms of the Plan the
Committee may determine any and all terms and conditions of all stock-based
awards. The performance objectives determined by the Committee for each
performance share award shall be based on: stock price; market share; sales;
earnings per share; operating cash flow; free cash flow; net income or loss;
net income or loss adjusted to exclude specified items such as gain or losses
from extraordinary or non-recurring items and non-cash expense and income, and
before specified expense items such as interest, depreciation, amortization
and income taxes; EBITDA; revenues; return on equity or assets; cost control;
or a combination of any of the foregoing.
Payment or settlement of other stock-based awards will be in cash or in
shares of the Company's Common Stock or in any combination thereof as the
Committee determines in its sole discretion. The Committee may permit the
payment of withholding taxes due in connection with
17
<PAGE>
awards under the Plan by the withholding of shares to be issued under the
award or by the employee's delivery of other shares of Common Stock of the
Company.
CHANGE IN CONTROL PROVISIONS
Awards may include, or may incorporate from any relevant guidelines adopted
by the Committee, terms which provide that any or all of the following actions
or consequences, with any modifications adopted by the Committee, may occur as
a result of, or in anticipation of, any Change in Control (as defined below)
to assure fair and equitable treatment of participants: (i) acceleration of
time periods for purposes of vesting, or realizing gain from, any outstanding
award (including the immediate exercisability in full of Options held for six
months or more); (ii) purchase of any outstanding award from the holder for
its equivalent value, as determined by the Committee; (iii) adjustments or
modifications to outstanding awards, including the modification or elimination
of restrictions and performance goals, as the Committee deems appropriate to
maintain and protect the rights and interests of participants. A "Change in
Control" is defined to mean the occurrence of any of the following events: (i)
a person or group (other than Citizens) becomes the owner of stock having 20%
or more of the total number of votes that may be cast for the election of
members of the Board; (ii) a consolidation or merger or sale of assets in
which the Company is not the surviving corporation or, subject to exceptions,
pursuant to which the Company's stock will be converted into cash, securities
or other property or a sale, lease, exchange or other transfer of 51% or more
of the assets of the Company; or (iii) as a result of or in connection with
any cash tender or exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions, the persons who are members of the Board before the transaction
shall cease to constitute a majority of the Board of the Company.
The Plan is subject to amendment or termination at any time by the Board of
Directors. However, no amendment or modification would become effective unless
approved by the affirmative vote of the stockholders of the Company if such
approval is necessary or deemed desirable for the continued validity of the
Plan or its compliance with any tax or securities law rule or regulation of
any stock exchange or stock market, or other legal or regulatory requirement.
These provisions in the Plan allowing the Committee to award accelerated
vesting upon a Change in Control could in some circumstances have the effect
of an "anti-takeover" defense because, as a result of these provisions, a
Change in Control of the Company could be more difficult or costly. This,
however, is not the Company's intention in adopting the Plan, because the
purpose of the Plan is to attract and retain the most qualified persons
available to contribute to the future success of the Company.
18
<PAGE>
PLAN AWARDS
<TABLE>
<CAPTION>
EQUITY INCENTIVE PLAN
-----------------------------------------
DOLLAR NUMBER OF
VALUE PERFORMANCE NUMBER OF SHARES
NAME AND POSITION ($)(1) SHARES(2) UNDERLYING OPTION(3)
----------------- ------- ----------- --------------------
<S> <C> <C> <C>
Daryl A. Ferguson 0 125,000 0
Vice Chairman and Chief Executive
Officer
David B. Sharkey 0 125,000 0
President and Chief Operating
Officer
John Wolff 0 15,000 146,000
Vice President--VP New City
Development
Randall Lis 0 15,000 146,000
Vice President--Staff Support
Todd Hanson 0 15,000 146,000
Vice President--Engineering
James M. Berthot 0 15,000 146,000
Vice President--Marketing
Ernest Yates(4) 0 15,000 146,000
Former Vice President
Executive Group 0 465,000(5) 966,000
Non Executive Director Group $36,000 0 110,000(6)/22,500(7)
Non Executive Officer Employee Group 0 70,000 1,369,000
</TABLE>
- --------
(1) Represents the dollar value of an annual grant of unrestricted shares of
Common Stock of the Company.
(2) Represents performance shares of the Company, whose dollar value cannot
presently be determined.
(3) Represents options to purchase shares of Common Stock of the Company.
(4) All of Mr. Yates' awards are canceled as a result of the cessation of his
employment with the Company.
(5) Includes 125,000 performance shares granted to Leonard Tow, Chairman.
(6) Represents a one-time grant of options in connection with the IPO.
(7) Represents options to be granted annually.
Subject to stockholder approval of the Plan options under the Plan, have
been granted as follows: Daryl A. Ferguson, Vice Chairman and Chief Executive
Officer--0; David B. Sharkey, President and Chief Operating Officer--0; John
Wolff, Vice President--VP New City Development--146,000; Randall Lis, Vice
President--Staff Support--146,000; Todd Hanson, Vice President--Engineering--
146,000; James M. Berthot, Vice President--Marketing--146,000; Earnest Yates,
Former Vice President--146,000; Executive Officers as a group--966,000; Non-
Executive Directors as a group--132,500; Non-Executive Officer Employees as a
group--1,369,000; Stanley Harfenist, nominee for director--97,500; Robert
Stanger, nominee for Director--17,500; Maggie Wilderotter, nominee for
Director--17,500. The exercise price of all such options is $16 per share
(except for 22,500 options granted to the Non-Executive Directors as a group
whose exercise price is $12.66). The options become exercisable at the rate of
one-third per year on November 24, 1998, 1999 and 2000, and remain exercisable
until November 24, 2007 (except for 22,500 options granted to the Non-
Executive Directors as a group, which become exercisable at the rate of one-
third per year on January 27, 1999, 2000 and 2001, and remain exercisable
until January 27, 2008).
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FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to awards under
the Plan.
STOCK OPTIONS
Under the Plan, the Committee may grant options which either qualify or do
not qualify as "incentive stock options" as defined in Section 422 of the
Code. No taxable income will be realized by an option holder and no deduction
will be available to the Company upon the grant of either type of option.
However, the tax consequences of the exercise of the option and subsequent
disposition of the shares received upon exercise will depend upon which type
of option is granted.
INCENTIVE STOCK OPTIONS
No regular taxable income will be realized by an option holder upon the
exercise of an incentive stock option if the holding period and employment
requirements contained in the Code are met. However, the spread between the
exercise price and the fair market value on the date of exercise will be an
item of tax preference which may give rise to alternative minimum tax
liability at the time of exercise. Under the holding requirements, the option
holder must not dispose of the shares within two years of the date the Option
was granted nor within one year from the time of exercise; and the option
holder generally must exercise the Option while employed by the Company or its
subsidiaries or within three months after the termination of such employment.
Upon the subsequent disposition of shares acquired through the exercise of
an incentive stock option after satisfaction of the above holding period and
employment requirements, any gain or loss realized upon such disposition will
be treated as capital gain or loss to the optionee, and the Company will not
be entitled to any income tax deduction in respect to the exercise of the
Option or the disposition of the shares received upon exercise. For purposes
of determining the amount of such gain or loss, the option holder's tax basis
in the shares will be the option price.
If the holding period or employment requirements are not met, the Option
will be treated as one which does not meet the requirements of the Code for
incentive stock options, and the tax consequences in the following paragraphs
for non-qualified options generally apply. However, in the event shares
acquired pursuant to an incentive stock option are disposed of prior to
meeting the holding period requirements, gain or loss will be recognized at
that time and measured as the difference between the sales price and the
option price; but the amount of ordinary income to the optionee, if any,
cannot exceed the excess, if any, of the fair market value of the stock at
exercise over the option price.
NON-QUALIFIED STOCK OPTIONS
At the time of exercise of a non-qualified option, an option holder will
realize taxable income at ordinary income tax rates, and the Company will be
entitled to a deduction in the amount by which the then fair market value of
the shares purchased exceeds the option price of the shares. The option
exercise may be subject to applicable reporting or withholding requirements of
the tax law.
Upon the subsequent disposition of shares received upon exercise of a non-
qualified option, an option holder will also realize income or loss in an
amount equal to the difference between the sales price of the shares and the
fair market value of the shares used for computing ordinary income or loss
realized in connection with the exercise of the Option. The income or loss
will be long, medium or short-term capital gain or loss depending upon the
length of time the shares have been held from the date as of which ordinary
income or loss was recognized in connection with the exercise of the Option.
STOCK APPRECIATION RIGHTS
The exercise of a stock appreciation right will result in ordinary income to
the holder in the year the stock appreciation right is exercised. The amount
of income recognized will be equal to
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<PAGE>
the total value of all cash and the fair market value of the Common Stock
received pursuant to the exercise of the stock appreciation right. The Company
will be entitled to a corresponding income tax deduction equal to such amount
subject to certain requirements. The tax treatment of a stock appreciation
right is the same whether the stock appreciation right is exercised in
conjunction with an incentive stock option or a non-qualified stock option.
ALL STOCK OPTIONS
If an option holder tenders shares of the Company's Common Stock in partial
or full payment of the option price for shares to be acquired through the
exercise of an option, the Option holder generally will not recognize any
taxable gain or loss on the tendered shares. However, if the shares tendered
were previously acquired upon the exercise of an incentive stock option and
such exercise occurs prior to satisfaction of the holding period requirement
for the tendered shares, the tender of such shares will be an early
disposition with the tax consequences described above for an early disposition
of shares acquired upon exercise of an incentive stock option.
In the case of a tender of shares in partial or full payment of the option
price, the option holder's tax basis in the shares received upon exercise of
the option is not uniform. The number of shares acquired that equals the
number of shares tendered will take the tax basis of the tendered shares
including the effect of the tax consequences of any early disposition. The
additional shares acquired in excess of the number of shares tendered will
have a tax basis equal to the ordinary income realized on the exercise in the
case of a non-qualified option. In the case of an incentive stock option, the
tax basis in the additional shares will be zero.
Cash payments by the Company to an option holder upon surrender of the right
to exercise any stock option are subject to withholding and are taxable to the
option holder at ordinary income tax rates and deductible by the Company at
the time of payment. When such payments are made in shares of the Company's
Common Stock, the fair market value of the shares at the time of payment are
taxable to the option holder at ordinary income tax rates and deductible to
the Company. Upon the disposition of the shares received, taxable income or
loss also will be realized in an amount equal to the difference between the
sales price of the shares and the fair market value of the shares on the date
they were taxable to the option holder. The income or loss will be a capital
gain or loss depending upon the period of time the shares have been held by
the option holder.
OTHER STOCK-BASED AWARDS
Generally, an employee will not realize any income upon the grant of other
stock-based performance awards. Upon the payment of other stock-based awards,
an employee will realize compensation taxable as ordinary income, and the
Company will be entitled to a corresponding deduction in an amount equal to
the sum of any cash received by the employee plus the fair market value of any
shares of Common Stock received by the employee. However, if any such shares
are subject to substantial restrictions such as a requirement of continued
employment or the attainment of certain performance objectives, the employee
will not recognize income and the Company will not be entitled to a deduction
until the restrictions lapse, unless the employee elects otherwise. The amount
of the employee's income and the Company's deduction will be the fair market
value of the shares at the time the restrictions lapse.
An employee will not realize any taxable income upon the grant of an award
of restricted stock unless the employee elects to be taxed at that time in
accordance with Section 83 of the Code. Generally, any dividends received by
the employee with respect to shares of restricted stock prior to the date the
employee realizes income with respect to such an award will be treated by the
employee as compensation taxable as ordinary income; and the Company will be
entitled to a deduction equal to the amount of ordinary income realized by the
employee. Upon the lapse of restrictions on restricted stock which may occur
in accordance with terms of such restriction, the
21
<PAGE>
employee will realize taxable income and the Company will be entitled to a
corresponding deduction equal to the excess of the fair market value of the
shares at that time over any amount paid for the shares. The employee may be
subject to the withholding requirements of the tax law.
The foregoing federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Code.
AMENDMENT, TERMINATION AND EXPIRATION
The Plan is subject to amendment or termination at any time by the Company's
Board of Directors. However, no amendment or modification would become
effective unless approved by affirmative vote of the stockholders of the
Company if such approval is necessary for the continued eligibility of the
Plan or its compliance with Rule 16b-3 or any successor rule under the
Securities Exchange Act of 1934, Section 162(m) of the Code, or any other rule
or regulation.
EFFECTIVE DATE OF STOCKHOLDER APPROVAL
The effective date of the Plan is October 16, 1997, subject to approval by
the holders of a majority of the Company's Common Stock at the Company's 1998
Annual Meeting of stockholders. Any awards granted prior to stockholder
approval will be subject to the receipt of such approval. No awards will be
granted under the Plan after the expiration of ten years from the effective
date.
RECOMMENDATION
The Board of Directors recommends a vote for approval of the Equity
Incentive Plan.
APPROVAL OF ELECTRIC LIGHTWAVE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Board of Directors is submitting for stockholder approval the adoption
of Electric Lightwave, Inc. 1998 Employee Stock Purchase Plan (the "Purchase
Plan"). A copy of the Purchase Plan is included as Appendix B to this Proxy
Statement, and the following description is qualified in its entirety by the
full text of the Purchase Plan.
The purpose of the Purchase Plan is to enable eligible employees (which
generally includes all full-time employees of the Company) to acquire a
proprietary interest in the Company through ownership of Class A Common Stock.
It is believed that employees who participate in the Purchase Plan will have a
closer identification with the Company by virtue of their ability as
stockholders to participate in the Company's growth and earnings.
The Company has reserved 200,000 shares of Class A Common Stock for issuance
under the Purchase Plan. On December 1, 1997, the commencement date of the
first purchase period, 217 of the 652 eligible employees of the Company were
enrolled for payroll deduction under the Purchase Plan. Five of the Company's
executive officers were participants.
The Board of Directors believes that the adoption of the Purchase Plan will
further employee identification with the Company and their alignment with the
interests of the stockholders.
TERMS OF OFFERS
Under the Purchase Plan, generally speaking, any person who is regularly
employed by the Company or a subsidiary who is able to authorize payroll
deductions is eligible to participate. A committee of the Board of Directors
shall make offers under the Purchase Plan and, for each offer, will specify
the number of shares to be made available for purchase, the length of the
subscription period (during which Eligible Employees may elect to purchase
shares), the length of the purchase period (the period during which payroll
deductions will be made in an amount calculated to cover the purchase price of
the stock to be purchased by the end of the Purchase Period) and all other
22
<PAGE>
terms and conditions. The length of the subscription period and the Purchase
Period may not together exceed twenty-seven months. During the subscription
period, Eligible Employees will be advised of the terms of the offer and may
indicate if they wish to participate in the offer. Beginning on the effective
date of an offer (which is the first day of the Purchase Period), Eligible
Employees may subscribe to purchase shares of Class A Common Stock at 85% of
the average of the high and low prices of said Common Stock on the first or
last day of the Purchase Period, whichever is lower. The maximum number of
whole shares which may be purchased by an Eligible Employee in a Purchase
Period will be fixed by dividing the purchase price per share into the total
payroll deductions of the employee, subject to a maximum number of shares per
Eligible Employee which will be determined by the committee. In no event may
an employee subscribe to purchase shares (i) totaling in any one year more
than 20% of annual salary rate on the first day of the purchase period, (ii)
if after giving effect to the purchase of such shares, the employee will have
more than 5% of the combined voting power of all outstanding shares of the
capital stock of the Company, or (iii) totaling in any one year together with
any other shares purchasable under any other employee stock option plan under
Section 423 of the Code more than $25,000 (determined as of the first day of
the Purchase Period). Pursuant to the Purchase Plan, the purchase price for
such shares is paid through uniform payroll deductions over a Purchase Period.
Employees may cancel their subscription to purchase at any time prior to the
end of the Purchase Period and receive in cash the amount credited to their
account. Partial cancellation is also permitted. Upon death or retirement, an
Eligible Employee or his representative may continue to make installment
payments or a lump sum payment in cash, or may cancel a subscription to
purchase.
FEDERAL TAX CONSEQUENCES
Generally, the Company's grant of an option under the Purchase Plan and the
subsequent transfer of shares to an employee pursuant to the employee's
exercise of the option will have no immediate tax consequences for the Company
or the employee.
An employee who disposes of the shares after holding them for a period which
is at least two years after the date of the granting of the option to him and
at least one year after the date the shares are received or an employee who
dies while holding the shares will recognize as compensation income, taxable
at ordinary rates, an amount equal to the lesser of (i) the excess of the fair
market value of the shares at the time of disposition or death over the amount
paid for the shares under the option or (ii) the excess of the fair market
value of the shares at the time the option was granted over the option price.
Any additional gain recognized upon the disposition will be capital gain, a
portion of which might be subject to an alternative minimum tax on items of
tax preference. When the aforementioned holding period requirement is met, the
Company will receive no deduction for amounts taxable as ordinary income to
the employee. If the holding period requirements are not satisfied, then, upon
disposition of shares purchased pursuant to the Purchase Plan, an Eligible
Employee would realize ordinary income to the extent of the difference between
the option price and the fair market value of the shares on the date of
exercise of the option and any subsequent gain or loss would be capital gain
or loss. The Company would generally be entitled to a deduction equal to the
difference between the option price and the fair market value of the shares on
the date of the exercise of the option in such event.
RECOMMENDATION
The Board of Directors recommends a vote for approval of the 1998 Employee
Stock Purchase Plan.
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.
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<PAGE>
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 December 29, 1998. Under
the Company's Bylaws, if any stockholder intends to propose at the Annual
Meeting a nominee for director or the adoption or approval of any other matter
by the stockholders, other than matters included in the proxy statement in
accordance with the foregoing sentence, 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 $1,500, plus distribution costs and other
expenses.
By Order of the Board of Directors
Charles J. Weiss
Secretary
24
<PAGE>
ELECTRIC LIGHTWAVE, INC.
1997 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Electric Lightwave, Inc. 1997 Equity Incentive Plan (the
"Plan") is to provide compensation incentives for high levels of performance
and productivity by employees of the Company and its Participating Companies
(as that term is defined later herein) and individuals who perform services
for the Company as director, consultant or otherwise. The Plan is intended to
strengthen the Company's existing operations and its ability to attract and
retain outstanding personnel upon whose judgment, initiative and efforts the
continued efficiency, productivity, growth and development of the Company is
dependent, as well as encourage such personnel to have a greater personal
financial investment in the Company through ownership of its common stock.
SECTION 2. DEFINITIONS
When used herein, the following terms have the following meanings:
(A) "AFFILIATE" means any company controlled by the Company, controlling the
Company or under common control with the Company.
(B) "AWARD" means an award granted to any Eligible Individual in accordance
with the provisions of the Plan.
(C) "AWARD AGREEMENT" means the written agreement or certificate evidencing
the terms of the Award granted to a Participant under the Plan.
(D) "BENEFICIARY" means the beneficiary or beneficiaries designated pursuant
to Section 11 to receive the amount, if any, payable under the Plan upon
the death of an Eligible Individual.
(E) "BOARD" means the Board of Directors of the Company.
(F) A "CHANGE IN CONTROL" shall mean the occurrence of any of the following
events with respect to the Company:
(i) (A) a third "Person" (other than an employee benefit plan of the
Company or the Company's parent company, Citizens Utilities Company, or an
Affiliate of Citizens Utilities Company), including a "group", as those
terms are used in Section 13(d) of the Exchange Act, is or becomes the
beneficial owner (as that term is used in said Section 13(d)) of stock
having twenty percent (20%) or more of the total number of votes that may
be cast for the election of members of the Board or (B) the receipt by the
Company of any report, schedule, application or other document filed with a
state or federal governmental agency or commission disclosing such
ownership or proposed ownership;
(ii) approval by the stockholders of the Company of any (A) consolidation
or merger or sale of assets of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of stock of
the Company would be converted into cash, securities or other property,
other than a consolidation or merger of the Company in which holders of its
common stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the consolidation or merger as they
held immediately before, or (B) sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of 51% or more of the
assets or businesses of the Company;
(iii) as a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who are members of the Board before the
Transaction shall cease to constitute a majority of the Board or any
successor to the Company.
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(G) "CODE" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to Sections of the Code are to such
Sections as they are currently designated and reference to such Sections
shall include the provisions thereof as they may from time to time be
amended or renumbered as well as any successor provisions and any
applicable regulations.)
(H) "COMPANY" means Electric Lightwave, Inc., and its successors and assigns.
(I) "COMMITTEE" means the Compensation Committee of the Board of Directors of
the Company.
(J) "DEFERRED STOCK" means Stock credited to a Participant under the Plan
subject to the requirements of Section 8 and such other terms and
restrictions as the Committee deems appropriate or desirable.
(K) "EFFECTIVE DATE" means October 16, 1997.
(L) "ELIGIBLE INDIVIDUAL" means a director, officer or employee of any
Participating Company or an individual who performs services for the
Company directly or indirectly as a director, consultant or otherwise,
upon whose judgment, initiative and efforts, in the judgment of the
Committee, the continued efficiency, productivity, growth and development
of the Company is dependent. Where required by the context, "Eligible
Individual" includes an individual who has been granted an Award but is no
longer an employee of any Participating Company.
(M) "FAIR MARKET VALUE" means, unless another reasonable method for
determining fair market value is specified by the Committee (which may
include appraisal by a third party or the Board), the average of the high
and low sales prices of a share of the Stock as reported by the NASDAQ (or
if such shares are listed on a national stock exchange, as reported or
quoted by such exchange) on the date in question or, if no such sales were
reported for such date, for the most recent date on which sales prices
were quoted.
(N) "FAMILY MEMBER" and "FAMILY TRUST" shall have the same meanings as are
employed from time to time by the SEC in describing individuals, trusts,
partnerships, pass-through and other entities which qualify for exemption
from any of the rules promulgated by the SEC which would otherwise limit
transferability of stock options and stock awards for purposes of Section
16 of the Exchange Act and/or the use of Form S-8 under the Securities Act
or for any comparable purpose, provided that, for the purposes of the
Plan, the phrases "Family Member" and "Family Trust" shall also be
limited, when applied to any Participant, so that said Participant shall
not be free to make a transfer to an individual or entity if such a
transfer or the ability of said Participant to make such a transfer shall
have adverse consequences to the Company or said Participant by reason of
Section 162(m) of the Code.
(O) "OPTION" means an option to purchase Stock, including Restricted Stock,
Deferred Stock, or share units or phantom shares, if the Committee so
determines, subject to the applicable provisions of Section 5 and awarded
in accordance with the terms of the Plan, which may be an incentive stock
option qualified under Section 422 of the Code or a nonqualified stock
option.
(P) "PARTICIPATING COMPANY" means the Company or any subsidiary or other
Affiliate of the Company which is 50% or more owned directly or indirectly
by the Company or which owns 50% or more of the voting power of the shares
of Stock of the Company, or is controlled by, or controls, or is under
common control with the Company; provided, however, for incentive stock
options only, "Participating Company" means the Company, any corporation
or other entity which at the time such option is granted under the Plan
qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" contained in Section 425(f) of the Code.
(Q) "PARTICIPANT" means an Eligible Individual who has been or is being
granted an Award. When required by the context, the definition of
Participant shall include an individual who has been granted an Award but
is no longer an employee of any Participating Company.
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(R) "PERFORMANCE SHARE" means a performance share of Stock subject to the
requirements of Section 6 and awarded in accordance with the terms of the
Plan.
(S) "PLAN" means the Electric Lightwave, Inc. 1997 Equity Incentive Plan, as
the same may be amended, administered or interpreted from time to time.
(T) "RESTRICTED STOCK" means Stock subject to the requirements of Section 7
and awarded in accordance with the terms of the Plan.
(U) "SAR" means a stock appreciation right subject to the appropriate
requirements under Section 5 and awarded in accordance with the terms of
the Plan.
(V) "SEC" means the Securities and Exchange Commission. "Exchange Act" means
the Securities Exchange Act of 1934. "Rule 16b-3" shall mean such rule
promulgated by the SEC under the Exchange Act and, unless the
circumstances require otherwise, shall include any other rule or
regulation adopted under Sections 16(a) or 16(b) of the Exchange Act
relating to compliance with, or an exemption from, Section 16(b).
"Securities Act" means the Securities Act of 1933. Reference to any
section of the Securities Act, Exchange Act or any rule promulgated
thereunder shall include any successor section or rule.
(W) "STOCK" means the Class A or Class B Common Stock of the Company and any
successor common stock, and includes share units or phantom shares unless
the context required otherwise. The number of shares of Stock included in
any Award or used in any other designation of number of shares herein
shall be based on an assumed capitalization and will be appropriately
adjusted to reflect the actual number of shares of Class A and Class B
Common Stock outstanding immediately after an initial public offering.
(X) "TERMINATION WITHOUT CAUSE" means termination of employment with a
Participating Company by the employer for any reason other than death,
Total Disability or termination for deliberate, willful or gross
misconduct, and also includes voluntary termination of employment by an
employee.
(Y) "TOTAL DISABILITY" means the complete and permanent inability of an
Eligible Individual to perform all of his or her duties under the terms of
his or her employment with any Participating Company, as determined by the
Committee upon the basis of such evidence, including independent medical
reports and data, as the Company deems appropriate or necessary.
SECTION 3. SHARES SUBJECT TO THE PLAN
(A) Subject to adjustment as provided in Section 14 hereof, 4,170,600 shares
of Stock are hereby reserved for issuance pursuant to Awards under the
Plan. Shares reserved for issuance under the Plan shall be made available
either from authorized and unissued shares, shares held by the Company in
its treasury or reacquired shares. The term "issued" shall include all
deliveries to a Participant of shares of Stock pursuant to Awards under
the Plan. The Committee may, in its discretion, decide to award other
securities issued by the Company that are convertible into Stock or make
such shares subject to purchase by an option, in which event the maximum
number of shares of Stock into which such securities may be converted, or
which may be so purchased, shall be used in applying the aggregate share
limit under this Section 3 and all provisions of the Plan relating to
Stock shall apply with full force and effect with respect to such
convertible securities or options and the underlying shares of Stock.
(B) If, for any reason, any shares of Stock awarded or subject to purchase or
issuance under the Plan are not delivered or are reacquired by the Company
for reasons including, but not limited to, a forfeiture of Restricted
Stock or Deferred Stock or termination, expiration or a cancellation of an
Option, SAR or a Performance Share, or other award, such shares of Stock
shall be deemed not to have been issued pursuant to Awards under the Plan
or to have been subject to the Plan; provided, however, that the counting
of shares of Stock subject to Awards granted under the Plan against the
number of shares available for further Awards shall in all cases conform
to legal requirements.
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(C) With respect to any Award constituting an Option or SAR granted to any
Eligible Individual who is a "covered employee" as defined in Section
162(m) of the Code that is canceled, the number of shares of Stock
originally subject to such Award shall continue to count in accordance
with Section 162(m) of the Code and the regulations promulgated
thereunder.
(D) Unless the Committee otherwise determines, shares of Stock received by the
Company in connection with the exercise of Options by delivery of shares
or in connection with the payment of withholding taxes shall reduce the
number of shares deemed to have been issued pursuant to Awards under the
Plan for the limit set forth in Section 3(a) hereof.
SECTION 4. GRANT OF AWARDS AND AWARD AGREEMENTS
(A) Subject to and in furtherance of the provisions of the Plan, the Committee
shall (i) determine and designate from time to time those Eligible
Individuals or groups of Eligible Individuals to whom Awards are to be
granted; (ii) grant Awards to Eligible Individual; (iii) determine the
form or forms of Award to be granted to any Eligible Individual; (iv)
determine the amount or number of shares of Stock subject to each Award,
including Awards of any nature which may be granted under the Plan, if the
Committee so determines; (v) determine the terms and conditions (which
need not be identical) of each Award; (vi) determine the rights of each
Participant after employment has terminated and the periods during which
such rights may be exercised; (vii) establish and modify performance
objectives; (viii) determine whether and to what extent Eligible
Individuals shall be allowed or required to defer receipt of any Awards or
other amounts payable under the Plan to the occurrence of a specified date
or event; (ix) determine the price at which shares of Stock may be offered
under each Award which price may, except in the case of Options, be zero;
(x) permit cashless exercise of Options and other Awards or provisions in
the nature of a sale, or loan covering exercise prices and/or income
taxes; (xi) interpret, construe and administer the Plan and any related
Award Agreement and define the terms employed therein; and (xii) make all
of the determinations necessary or advisable with respect to the Plan or
any Award granted thereunder. Awards granted to different Eligible
Individuals or Participants need not be identical and, in addition, may be
modified in different respects by the Committee.
(B) Each Award granted under the Plan shall be evidenced by a written Award
Agreement, in a form approved by the Committee. Such agreement shall be
subject to and incorporate the express terms and conditions, if any,
required under the Plan or as required by the Committee for the form of
Award granted and such other terms and conditions as the Committee may
specify.
(C) The Committee may modify or amend any Awards (by cancellation and regrant
or substitution of Awards or otherwise and with terms and conditions more
or less favorable to Eligible Individuals) or waive any restrictions or,
conditions applicable to any Awards or the exercise or realization thereof
(except that the Committee may not undertake any such modifications,
amendments or waivers if the effect thereof, taken as a whole, adversely
and materially affects the rights of any recipient of previously granted
Awards without his or her consent, unless such modification, amendment or
waiver is necessary or desirable for the continued validity of the Plan or
its compliance with Rule 16b-3 or any other applicable law, rule or
regulation or pronouncement or to avoid any adverse consequences under
Section 162(m) of the Code or any requirement of a securities exchange or
association or regulatory or self-regulatory body).
(D) The Committee may permit the voluntary surrender of all or a portion of
any Award granted under the Plan to be conditioned upon the granting of a
new Award or may require such voluntary surrender as a condition to a
grant of a new Award. Any such new Award shall be subject to such terms
and conditions as are specified by the Committee at the time the new Award
is granted, determined in accordance with the provisions of the Plan
without regard to the terms of the surrendered Award.
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(E) In any calendar year, no Eligible Individual may receive Awards covering
more than 500,000 shares of the Company's Stock if the Award is
denominated in number of shares, or, if the Award is denominated in
dollars, $750,000 in dollar value. Such number of shares shall be adjusted
in accordance with Section 14 hereof.
SECTION 5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
(A) With respect to the Options and SARS, the Committee shall (i) authorize
the granting of incentive stock options, nonqualified stock options, SARs
or a combination of incentive stock options, nonqualified stock options
and SARS; (ii) determine the number of shares of Stock subject to each
Option or the number of shares of Stock that shall be used to determine
the value of a SAR; (iii) determine whether such Stock shall be Restricted
Stock or, with respect to nonqualified stock options, Deferred Stock or
share units or phantom shares; (iv) determine the time or times when and
the manner in which each Option shall be exercisable and the duration of
the exercise period; and (v) determine whether or not all or part of each
Option may be canceled by the exercise of a SAR; provided, however, that
the aggregate Fair Market Value (determined as of the date of Option is
granted) of the Stock (disregarding any restrictions in the case of
Restricted Stock) for which incentive stock options granted to any
Eligible Individual under this Plan may first become exercisable in any
calendar year shall not exceed $100,000. Notwithstanding the foregoing, to
the extent that Options intended to be incentive stock options granted to
an Eligible Individual under this Plan for any reason exceed such limit on
exercisability, such excess Options shall be treated as nonqualified stock
options as provided under Section 422(d) of the Code, but shall in all
other respects remain outstanding and exercisable in accordance with their
terms.
(B) The exercise period for a nonqualified stock option or SAR shall be 10
years from the date of grant or such shorter period as may be specified by
the Committee at the time of grant. The exercise period for an incentive
stock option and any related SAR, including any extension which the
Committee may from time to time decide to grant, shall not exceed 10 years
from the date of grant; provided, however, that, in the case of an
incentive stock option granted to an Eligible Individual who, at the time
of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (a "10% Stockholder"), such
period, including extensions, shall not exceed five years from the date of
grant.
(C) The Option or SAR price per share shall be determined by the Committee at
the time any Option is granted and shall be not less than 85% of the Fair
Market Value in the case of non-qualified stock option, 100% of the Fair
Market Value in the case of a SAR or incentive stock option, or 110% of
Fair Market Value in the case of an incentive stock option granted to a
10% Stockholder and any related tandem SARS (disregarding any restrictions
in the case of any Restricted Stock or Deferred Stock), on the date the
Option is granted, all as determined by the Committee; provided, however,
that such price shall be at least equal to the par value of one share of
Stock; provided further, however, that in the discretion of the Committee
in the case of a nonstatutory stock option, the Option or SAR price per
share may be less than the Fair Market Value in the case of an Option or
SAR granted in order to induce new employees and others to commence to
render services to a Participating Company or in the case of an Option or
SAR granted to a new or prospective Eligible Individual in order to
replace stock options or other long-term incentives under a program
maintained by a prior employer which are forfeited or cease to be
available to the individual by reason of his termination of employment or
other relationship with his prior employer.
(D) No part of any Option or SAR may be exercised (i) until the Participant
who has been granted the Award shall have remained in the employ of, or
continued to render services to, a Participating Company for such period
after the date on which the Option or SAR is granted as the Committee may
specify and (ii) until achievement of such performance or other criteria,
if any, by the Participant, as the Committee may specify. A SAR and a
related Option shall commence to be exercisable no earlier than six months
following the date the Option and
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SAR are granted. The Committee may further require that an Option or SAR
become exercisable in installments.
(E) Except as otherwise provided in the Plan, the purchase price of the shares
as to which an Option shall be exercised shall be paid to the Company at
the time of exercise either in cash or in such other consideration as the
Committee deems appropriate, including Stock, stock units or phantom
shares, or with respect to nonqualified options, Restricted Stock or
Deferred Stock already owned by the optionee (subject to any minimum
holding period specified by the Committee), having a total Fair Market
Value, or equivalent, as determined by the Committee, equal to the
purchase price, or a combination of cash and such other consideration
having a total Fair Market Value, as so determined, equal to the purchase
price; provided, however, that if payment of the exercise price is made in
whole or in part in the form of Restricted Stock or Deferred Stock, the
Stock received upon the exercise of the Option shall be Restricted Stock
or Deferred Stock, as the case may be, at least with respect to the same
number of shares and subject to the same restrictions or other limitations
as the Restricted Stock or Deferred Stock paid on the exercise of the
Option. The Committee may provide that a Participant who delivers shares
of Stock to the Company, or sells shares of Stock and applies all of the
proceeds, (a) to pay, or reimburse the payment of, the exercise price of
shares of Stock acquired under an employee stock option or SAR or to
purchase shares of Stock under an employee award or grant, an employee
purchase plan or program or any other stock-based employee benefit or
incentive plan (whether or not such award or grant is under this Plan)
and/or (b) to pay federal or state income taxes resulting from the
exercise of such options or SARs or the purchase of shares of Stock
pursuant to any such grant, award, plan or program, shall receive a
replacement Option under this Plan to purchase a number of shares of Stock
equal to the number of shares of Stock delivered to the Company, or sold,
the proceeds of the sale of which are applied as aforesaid in this
sentence. The replacement Option shall have an exercise price equal to
Fair Market Value on the date of such payment and shall include such other
terms and conditions as the Committee may specify.
(F) (i) Upon the Termination Without Cause of a Participant holding Options
or SARs (who has not both reached the age of 55 and also achieved at least
five years of service with the Company or a Participating Company), his or
her Options and SARs may be exercised to the extent exercisable on the
date of Termination Without Cause, at any time and from time to time
within the three months of the date of such Termination. The Committee,
however, in its discretion, may provide that any Option or SAR of such a
Participant which is not exercisable by its terms on the date of
Termination Without Cause will become exercisable in accordance with a
schedule (which may extend the time limit referred to above, but not later
than the final expiration date specified in the Option or SAR Award
Agreement) to be determined by the Committee at any time during the period
that any other Options or SARs held by the Participant are exercisable.
(ii) Upon the death or Total Disability (during a Participant's
employment or within three months after termination of employment for any
reason other than termination for cause) of a Participant holding an Option
or SAR (who has not both reached the age of 55 and also achieved at least
five years of service with the Company or a Participating Company), his or
her Options and SARs may be exercised only to the extent exercisable at the
time of death or Total Disability (or such earlier termination of
employment) from time to time (A) in the event of death or Total
Disability, within the twelve months following death or Total Disability or
(B) in the event of such termination of employment followed by death or
Total Disability within the three months after such termination, within the
twelve months following such termination. The Committee, however, in its
discretion, may provide that any Options or SAR's outstanding but not
exercisable at the date of the first to occur of death or, Total Disability
will become exercisable in accordance with a schedule (which may extend the
limits referred to above, but not to a date later than the final expiration
date specified in such Option or SAR Award Agreement) to be determined by
the Committee at any time during the period while any other Option or SARs
held by the Participant are exercisable.
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(iii) Upon death, Total Disability or Termination Without Cause of a
Participant holding an Option(s) or SAR(s) (who has reached the age of 55
and has at least five years of service with the Company or a Participating
Company), his or her Options or SARs may be exercised in full as to all
shares or SAR rights covered by Options and SAR Award Agreements (whether
or not then exercisable) at any time, or from time to time, but no later
than the expiration date specified in such Option or SAR Award Agreement as
specified in Section 5(b) above or, in the case of incentive Options,
within 12 months following such death, Total Disability or Termination
Without Cause.
(iv) If the employment of a Participant holding an Option or SAR is
terminated for deliberate, willful or gross misconduct, as determined by
the Company, all rights of such Participant and any Family Member or Family
Trust or other transferee to which such Participant has transferred his or
her Option or SAR shall expire upon receipt by the Participant of the
notice of such termination.
(v) In the event of the death of a Participant, his or her Options and
SARs may be exercised by the person or persons to whom the Participant's
rights under the Option or SAR pass by will, or if no such person has such
right, by his or her executors or administrators or Beneficiary. The death
of a Participant after Total Disability or Termination Without Cause will
not adversely effect the rights of a Participant or anyone entitled to the
benefits of such Option or SAR.
(G) Except as otherwise determined by the Committee, no Option or SAR granted
under the Plan shall be transferable other than by will or by the laws of
descent and distribution, unless the Committee determines that an Option
or SAR may be transferred by a Participant to a Family Member or Family
Trust or other transferee. Such transfer shall be evidenced by a writing
from a grantee to the Committee or Committee's designee on a form
established by the Committee. Absent an authorized transfer during the
lifetime of the Participant, an Option shall be exercisable only by him or
her by his or her guardian or legal representative.
(H) With respect to an incentive stock option, the Committee shall specify
such terms and provisions as the Committee may determine to be necessary
or desirable in order to qualify such Option as an incentive stock option
within the meaning of Section 422 of the Code.
(I) Upon exercise of a SAR, the Participant shall be entitled, subject to such
terms and conditions as the Committee may specify at any time, to receive
upon exercise thereof all or a portion of the excess of (i) the Fair
Market Value of a specified number of shares of Stock at the time of
exercise, as determined by the Committee, over (ii) a specified amount
which shall not, subject to Section 5(c), be less than the Fair Market
Value of such specified number of shares of Stock at the time the SAR is
granted. Upon exercise of a SAR, payment of such excess shall be made as
the Committee shall specify (A) in cash, (B) through the issuance or
transfer to the Participant of whole shares of Stock, including Restricted
Stock or Deferred Stock, with a Fair Market Value, disregarding any
restrictions in the case of Restricted Stock or Deferred Stock, at such
time equal to any such excess, or (C) a combination of cash and shares of
Stock with a combined Fair Market Value at such time equal to such excess,
all as determined by the Committee; provided, however, a fractional share
of Stock shall be paid in cash equal to the Fair Market Value of the
fractional share of Stock, disregarding any restrictions in the case of
Restricted Stock or Deferred Stock, at such time.
(J) If the Award granted to a Participant allows the Participant to elect to
cancel all or any portion of an unexercised Option by exercising a related
SAR, then the Option price per share of Stock shall be used as the
specified price in Section 5(i), to determine the value of the SAR upon
such exercise; and, in the event of the exercise of such SAR, the
Company's obligation in respect of such Option or such portion thereof
will be discharged by payment of the SAR so exercised.
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(K) If authorized by the Committee in its sole discretion, the Company may
accept the surrender of the right to exercise any Option granted under the
Plan (whether or not granted with a related SAR) as to all or any of the
shares of Stock as to which the Option is then exercisable, in exchange
for payment to the optionee (in cash or shares of Stock valued at the then
Fair Market Value) of an amount not to exceed the difference between the
option price and the then Fair Market Value of the shares as to which such
right to exercise is surrendered.
SECTION 6. PERFORMANCE SHARES
(A) The Committee may award Performance Shares to Participants under the Plan,
which may be denominated in Stock or in dollars. The Committee shall
determine the performance periods (the "Performance Periods") and the
performance objectives relating to each Performance Share Award.
Performance objectives may vary from Participant to Participant and
between groups of Participants, and shall only be based upon any one or
more of the following performance criteria, any combination and/or
specifics of which shall be determined by the Committee as it may deem
appropriate: (i) stock price; (ii) market shares; (iii) sales; (iv)
earnings per share; (v) operating cash flow; (vi) free cash flow; (vii)
net income or loss; (viii) net income or loss adjusted to exclude
specified items, such as gain or losses from extraordinary or non-
recurring items and non-cash expense and income, and before specified
expense items such as interest, depreciation, amortization and income
taxes; (ix) EBITDA; (x) revenues; (xi) return on equity or assets; or
(xii) cost control. Performance objectives may be in respect to the
performance of the Company and its subsidiaries or a particular subsidiary
or division and may be expressed in absolute terms or in relation to
another company or companies or a division thereof. Performance Periods
may overlap and Participants may participate simultaneously with respect
to Performance Shares for which different Performance Periods are
prescribed.
(B) At the beginning of each Performance Period, (but in any event prior to
the earlier of the elapsing of ninety days or 25% of such Performance
Period) the Committee shall determine and set forth in writing for each
Participant or group of Participants the number of Performance Shares or
the dollar value of the Performance Share Awards made and the applicable
performance objectives, each of which may be fixed or may be expressed in
terms of the progression within a specified range. At the end of each
Performance Period, the Committee shall certify in writing the extent to
which the prescribed performance objectives have been satisfied. An
Eligible Individual shall be eligible to be awarded, in any calendar year,
Performance Share Awards up to the maximum number of shares contemplated
in Section 4(e) and shall also be eligible to be awarded Performance
Shares Awards denominated in dollars subject to a maximum limitation of
$750,000 for all such dollar-denominated Awards granted to any Eligible
Individual in any calendar year.
(C) If during the course of a Performance Period there shall occur significant
events as determined by the Committee, including, but not limited to a
reorganization of the Company, which the Committee expects to have a
substantial effect on a performance objective during such period, the
Committee may revise such objective.
(D) An Award may provide that, if a Participant terminates service with all
Participating Companies during a Performance Period because of death,
Total Disability, or a significant event, as determined by the Committee,
that Participant shall be entitled to payment in settlement of each
Performance Share for which the Performance Period was prescribed (i)
based upon the performance objectives satisfied at the end of such period
and (ii) prorated for the portion of the Performance Period during which
the Participant was employed by any Participating Company; provided,
however, the Committee may provide for an earlier payment in settlement of
such Performance Share in such amount and under such terms and conditions
as the Committee deems appropriate or desirable with the consent of the
Participant. If a Participant terminates service with all Participating
Companies during a Performance Period for any other reason, then such
Participant shall not be entitled to any
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payment with respect to that Performance Period unless the Award so provides
or the Committee shall otherwise determine. The Award may provide that the
Performance Period shall not be cancelled or otherwise affected by the
termination of service by a Participant.
(E) Each Performance Share may be paid in whole shares of Stock, including
Restricted Stock or Deferred Stock (together with any cash representing
fractional shares of Stock), or cash, or a combination of Stock and cash
either as a lump sum payment or in annual installments, all as the
Committee shall determine, at the time of grant of the Performance Share or
otherwise, commencing as soon as practicable after the end of the relevant
Performance Period. Any dividends or distributions payable on Performance
Shares (or the equivalent as specified in the grant), other than cash
dividends representing the periodic distribution of profits which shall be
retained by the Company, shall be paid over to the Participant when and if
payment is made of the underlying Performance Shares, unless the grant
provides otherwise.
Except as otherwise provided in this Section 6, no Performance Shares
awarded to Participants shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Performance Period unless
the Committee determines that an Award may be transferred to a Family
Member or Family Trust or other transferee.
SECTION 7. RESTRICTED STOCK
(A) Restricted Stock may be received by a Participant either as an Award or as
the result of an exercise of an Option or SAR or as payment for a
Performance Share. Restricted Stock shall be subject to a restriction
period (after which restrictions shall lapse) which shall mean a period
commencing on the date the Award is granted and ending on such date or upon
the achievement of such performance or other criteria as the Committee
shall determine (the "Restriction Period"). The Committee may provide for
the lapse of restrictions in installments where deemed appropriate.
(B) Except as otherwise provided in this Section 7, no shares of Restricted
Stock received by a Participant shall be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of during the Restriction
Period unless the Committee determines that an Award may be transferred by
a Participant to a Family Member or Family Trust or other transferee;
provided, however, the Restriction Period for any Participant shall expire
and all restrictions on shares of Restricted Stock shall lapse upon the
Participant's (i) death, (ii) Total Disability or (iii) Termination Without
Cause where the Participant has reached the age of 55 and has at least five
years of service with the Company or an Affiliate, or with the consent of
the Company, or upon some significant event, as determined by the
Committee, including, but not limited to, a reorganization of the Company.
(C) If the Award Agreement so provides, if a Participant terminates employment
with all Participating Companies for any reason other than under the
circumstances referred to in clause (b) before the expiration of the
Restriction Period, all shares of Restricted Stock still subject to
restriction shall, unless the Committee otherwise determines within ninety
days after such termination, be forfeited by the Participant and shall be
reacquired by the Company, and, in the case of Restricted Stock purchased
through the exercise of an Option, the Company shall refund the purchase
price paid on the exercise of the Option.
(D) The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Restricted Stock
delivered under the Plan may be held in custody until the Restriction
Period expires or until restrictions thereon otherwise lapse, and may
require as a condition of any receipt of Restricted Stock that the
Participant shall have delivered a stock power endorsed in blank relating
to the Restricted Stock.
(E) Nothing in this Section 7 shall preclude a Participant from exchanging any
shares of Restricted Stock subject to the restrictions contained herein for
any other shares of Stock that are similarly restricted.
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(F) Unless the Award Agreement provides otherwise, amounts equal to any cash
dividends representing the periodic distributions of profits declared and
payable during the Restriction Period with respect to the number of shares
of Restricted Stock credited to a Participant shall be paid to the
Participant within thirty days after each dividend becomes payable,
unless, at the time of the Award, the Committee determines that the
dividends should be reinvested in additional shares of Restricted Stock,
in which case additional shares of Restricted Stock shall be credited to
the Participant based on the Stock's Fair Market Value at the time of each
such dividend, or unless the Committee specifies otherwise. All dividends
or distributions payable on shares (other than cash dividends representing
periodic distributions of profits) of Restricted Stock (or the equivalent
as specified in the grant) shall be paid over to the Participant when and
if as restrictions lapse on the underlying shares of Restricted Stock,
unless the grant provides otherwise.
SECTION 8. DEFERRED STOCK
(A) Deferred Stock may be credited to an Eligible Individual either as an
Award or as the result of an exercise of an Option or SAR or as payment
for a Performance Share. Deferred Stock shall be subject to a deferral
period which shall mean a period commencing on the date the Award is
granted and ending on such date or upon the achievement of such
performance or criteria as the Committee shall determine (the "Deferral
Period"). The Committee may provide for the expiration of the Deferral
Period in installments where deemed appropriate.
(B) Except as otherwise provided in this Section 8, no Deferred Stock credited
to Participant shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Deferral Period unless
the Committee determines that, in the circumstances, an Award may be
transferred to a Family Member or Family Trust or other transferee;
provided, however, the Deferral Period for any Participant shall expire
upon the Participant's (i) death, (ii) Total Disability or (iii)
Termination Without Cause where the Participant has reached the age of 55
and has at least five years of service with the Company or an Affiliate,
or with the consent of the Company, or upon some significant event, as
determined by the Committee, including, but not limited to, a
reorganization of the Company.
(C) At the expiration of the Deferral Period, the Participant shall be
entitled to receive a certificate pursuant to Section 10 for the number of
shares of Stock equal to the number of shares of Deferred Stock credited
on his or her behalf. Unless the Award Agreement provides otherwise,
amounts equal to any cash dividends representing the periodic
distributions of profits declared and payable during the Deferral Period
with respect to the number of shares of Deferred Stock credited to a
Participant shall be paid to such Participant within thirty days after
each dividend becomes payable unless, at the time of the Award, the
Committee determined that such dividends should be reinvested in
additional shares of Deferred Stock, in which case additional shares of
Deferred Stock shall be credited to the Participant based on the Stock's
Fair Market at the time of each such dividend, or unless the Committee
specifies otherwise. All dividends or distributions payable on shares
(other than cash dividends representing periodic distributions of profits)
of Deferred Stock (or the equivalent as specified in the grant) shall be
paid over to the Participant when the Deferral Period ends, unless the
grant provides otherwise.
(D) Unless the Award Agreement provides otherwise, if a Participant terminates
employment with all Participating Companies for any reason other than
under the circumstances referred to in clause (b) before the expiration of
the Deferral Period, all shares of Deferred Stock shall, unless the
Committee otherwise determines within 90 days after such termination, be
forfeited by the Participant, and, in the case of Deferred Stock purchased
through the exercise of an Option, the Company shall refund the purchase
price paid on the exercise of the Option.
SECTION 9. OTHER STOCK-BASED AWARDS
The Committee may grant other Awards under the Plan which are denominated in
stock or shares, or as phantom shares or phantom units, or as units or
pursuant to which shares of Stock
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may be acquired, including Awards valued using measures other than market
value or Fair Market Value, if deemed by the Committee in its discretion to be
consistent with the purposes of the Plan. Subject to the terms of the Plan,
the Committee shall determine the form of such Awards, the number of shares of
Stock to be granted or covered pursuant to and represented by such Awards, the
manner of paying out such shares or units in dollars, Stock or other credits
and all other terms and conditions of such Awards.
SECTION 10. CERTIFICATES FOR AWARDS OF STOCK
(A) Subject to Section 7(d), each Participant entitled to receive shares of
Stock under the Plan shall be issued a certificate for such shares or have
their shares registered for their account in book entry form by the
Company's transfer agent. In the instance of a certificate, such
certificate shall be registered in the name of the Participant, and shall
bear an appropriate legend reciting the terms, conditions and
restrictions, if any, applicable to such shares and shall be subject to
appropriate stop-transfer orders.
(B) The Company shall not be required to issue or deliver any shares or
certificates for shares of Stock prior to (i) the listing of such shares
on any stock exchange or quotation system on which the Stock may then be
listed or quoted, and (ii) the completion of any registration,
qualification, approval or authorization of such shares under any federal
or state law, or any ruling or regulation or approval or authorization of
such shares under any governmental body which the Company shall, in its
sole discretion, determine to be necessary or advisable.
(C) All shares and certificates for shares of Stock delivered under the Plan
shall also be subject to such stop-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and
other requirements of the SEC, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities or regulatory
laws, and the Committee may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions. The
foregoing provisions of this Section 10(c) shall not be effective if and
to the extent that the shares of Stock delivered under the Plan are
covered by an effective and current registration statement under the
Securities Act, or if the Committee determines that application of such
provisions is no longer required or desirable. In making such
determination, the Committee may rely upon an opinion of counsel for the
Company.
(D) Except for the restrictions on Restricted Stock under Section 7, each
Participant who receives an award of Stock shall have all of the rights of
a stockholder with respect to such shares, including the right to vote the
shares and receive dividends and other distributions. No Participant
awarded an Option, a SAR, or Performance Share or Deferred Stock shall
have any right as a stockholder with respect to any shares subject to such
Award prior to the date of issuance to him or her of certificate or
certificates for such shares.
SECTION 11. BENEFICIARY
(A) Each Eligible Individual shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be
entitled to receive the Award, if any, payable under the Plan upon his or
her death. An Eligible Individual may from time to time revoke or change
his or her Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided,
however, that no designation, or change or revocation thereof, shall be
effective unless received by the Committee prior to the Eligible
Individual's death, and in no event shall it be effective as of a date
prior to such receipt.
(B) If no such Beneficiary designation is in effect at the time of an
Employee's death, or if no designated Beneficiary survives the Eligible
Individual or if such designation conflicts with law, the Eligible
Individual's estate shall be entitled to receive the Award, if any,
payable
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under the Plan upon his or her death. If the Committee is in doubt as to
the right of any person to receive such Award, the Company may retain such
Award, without liability for any interest thereon, until the Committee
determines the right thereto, or the Company may pay such Award into any
court of appropriate jurisdiction and such payment shall be a complete
discharge of the liability of the Company therefor.
SECTION 12. ADMINISTRATION OF THE PLAN
(A) The Plan shall be administered by the Committee, as appointed by the Board
and serving at the Board's pleasure. Each member of the Committee shall be
a member of the Board and shall satisfy both the "nonemployee director" or
similar successor requirements, if any, of Rule 16b-3 under the Exchange
Act and the "outside director" or similar successor requirements, if any,
of Section 162(m) of the Code and the regulations promulgated thereunder
or other similar requirements of applicable law or regulation.
(B) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in
the sole and absolute discretion of the Committee and shall be final,
conclusive and binding on all persons for all purposes.
(C) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof and any
related Award Agreement and define the terms employed in the Plan or any
agreement, and its interpretations and constructions thereof and actions
taken thereunder shall be final, conclusive and binding on all persons for
all purposes.
(D) The Committee shall have full power, discretion and authority to prescribe
and rescind rules, regulations and policies for the administration of the
Plan.
(E) The Committee's decisions and determinations under the Plan and with
respect to any Award granted thereunder need not be uniform and may be
made selectively among Awards, Participants or Eligible Individuals,
whether or not such Awards are similar or such Participants or Eligible
Individuals are similarly situated.
(F) The Committee shall keep minutes of its actions under the Plan. The act of
a majority of the members present at a meeting duly called and held shall
be the act of the Committee. Any decision or determination reduced to
writing and signed by all members of the Committee shall be fully as
effective as if made by unanimous vote at a meeting duly called and held.
(G) The Committee may employ such legal counsel, including without limitation
independent legal counsel and counsel regularly employed by the Company,
consultants and agents as the Committee may deem appropriate for the
administration of the Plan and may rely upon any opinion received from any
such counsel or consultant and any computations received from any such
consultant or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including without limitation,
meeting fees and expenses and professional fees, shall be paid by the
Company.
(H) No member or former member of the Committee or the Board shall be liable
for any action or determination made in good faith with respect to the
Plan or any Award granted under it. Each member or former member of the
Committee or the Board shall be indemnified and held harmless by the
Company against all cost or expense (including counsel fees and expenses)
or liability (including any sum paid in settlement of a claim with the
approval of the Board) arising out of any act or omission to act in
connection with the Plan unless arising out of such member's or former
member's own fraud or bad faith. Such indemnification shall be in addition
to any rights to indemnification or insurance the members or former member
may have as directors or under the by-laws of the Company or otherwise.
(I) The Committee's determination that an Option, SAR, Performance Share,
Restricted Stock, Deferred Stock or other Stock-based Awards may be
transferred by a Participant to a Family Member or Family Trust or other
transferee may be set forth in determinations pursuant to
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Section 12(c), rules and regulations of general application adopted
pursuant to Section 12(d), in the written Award Agreement, or by a writing
delivered to the Participant made any time after the relevant Award or
Awards have been granted, on a case-by-case basis, or otherwise. In any
event, the transferee or Family Member or Family Trust shall agree in
writing to be bound by all the provisions of the Plan and the Award
Agreement, and in no event shall any such transferee have greater rights
under such Award than the Participant effecting such transfer.
Exercisability of Awards and similar matters will be determined with
reference to the employment status of the Participant.
(J) With respect to credits, shares, cash or other property credited to a
Participant by reason of dividends or distributions, if the Committee
shall so determine, all such credits, shares, cash or other property to a
Participant shall be paid to the Participant periodically at the end of
the applicable period, whether or not the performance, employment or other
standards (or lapse of time) upon which such Award is conditioned have
been satisfied. In addition, the Committee may determine to include in
Award Agreements granting Options and SARs a provision to the effect that
(a) an amount equal to any dividends (payable in cash or other property)
paid after the grant of the Option or SAR and before to the exercise of
such Option or SAR with respect to the number of shares of Stock subject
to such Option or SAR shall be credited to a Participant and, if the Award
Agreement so provides, thereafter paid to such Participant within thirty
days after each dividend becomes payable or, (b) if the Committee so
determines, such Award shall be reinvested in additional shares of Stock,
in which case such additional shares of Stock shall be credited to the
Participant based on the Stock's Fair Market Value at the time of payment
of each such dividend. In the latter event, if the Committee so
determines, such additional shares of Stock shall be delivered to the
Participant (whether or not such Option or SAR is exercised) at the time
that such Option or SAR ceases to be exercisable in accordance with its
terms or otherwise.
(K) Any power, action, authority or discretion granted to or exercisable by
the Committee pursuant to the provisions of this Plan may, if the
Committee or the Board so determines, be exercised by or delegated to the
Board.
SECTION 13. AMENDMENT OR DISCONTINUANCE
The Board may, at any time, amend or terminate the Plan. The Plan may also
be amended by the Committee, provided that all such amendments shall be
reported to the Board. No amendments shall become effective unless approved by
affirmative vote of the Company's stockholders if such approval is necessary
or desirable for the continued validity of the Plan or if the failure to
obtain such approval would adversely affect the compliance of the Plan with
Rule 16b-3 or any successor rule under the Exchange Act or Section 162(m) of
the Code or any other rule or regulation of a stock exchange or other body. No
amendment or termination shall, when taken as a whole, adversely and
materially affect the rights of any Participant who has received a previously
granted Award without his or her consent unless the amendment or termination
is necessary or desirable for the continued validity of the Plan or its
compliance with Rule 16b-3 or any other applicable law, rule or regulation or
pronouncement or to avoid any adverse consequences under Section 162(m) of the
Code or any requirement of a securities exchange or association or regulatory
or self-regulatory body),
SECTION 14. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
In the event of a change in corporate capitalization, stock split or stock
dividend, the number of shares purchasable upon exercise of an Option or SAR
shall be increased to the new number of shares which result from the shares
covered by the Option or SAR immediately before the change, split or dividend.
The purchase price per share shall be reduced proportionately and the total
purchase price will remain the same.
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In the event of any other change in corporate capitalization, or a corporate
transaction, such as any merger of a corporation into another corporation, any
consolidation of two or more corporations into another corporation, any
separation of a corporation (including a spinoff or other distribution of
stock or property by a corporation), any reorganization of a corporation
(whether or not such reorganization comes within the definition of such term
in Section 368 of the Code), or any partial or complete liquidation by a.
corporation or other similar event which could distort the implementation of
the Plan or the realization of its objectives, the Committee shall make an
appropriate adjustment in the number of shares of Stock (i) which are covered
by the Plan, (ii) which may be granted to any one Eligible Individual and
which are subject to any Award, and the purchase price therefor, and in terms,
conditions or restrictions on securities as the Committee deems equitable,
with the objective that the securities covered under the Plan or an Award
shall be those securities which a Participant would have received if he or she
had exercised his or her Option or SAR prior to the event or been entitled to
his or her Restricted or Deferred Stock or Performance Shares.
All such events occurring between the effective date of the Option and its
exercise shall result in an adjustment to the Option terms.
SECTION 15. CHANGE IN CONTROL
Awards may include, or may incorporate from any relevant guidelines adopted
by the Committee, terms which provide that any or all of the following actions
or consequences, with any modifications adopted by the Committee, may occur as
a result of, or in anticipation of, any Change in Control to assure fair and
equitable treatment of Participants:
(A) Any Options outstanding at least six months as of the date of Change in
Control shall, if held by a current employee of the Company, become
immediately exercisable in full. A Participant may be granted the election
to cancel all or any portion of any Option or Award no later than ninety
days after the Change in Control, in which event the Company shall pay to
such electing Participant, an amount in cash equal to the excess, if any,
of the Current Market Value (as defined below) of the shares of Stock,
including Performance Shares, Restricted Stock or Deferred Stock, subject
to the Option or of the portion thereof so canceled over the option price
for such shares; provided, however, that no Participant shall have the
right to elect cancellation unless and until at least six months have
elapsed after the date of grant of the Option.
(B) Any Performance Periods or portions thereof shall be accelerated and the
Company shall pay each Participant an amount in cash equal to the value of
such Participant's performance shares, or specified portion thereof, based
upon the Stock's Current Market Value in settlement of such performance
shares.
(C) Any Restriction Periods or portions thereof shall be accelerated and the
Company shall pay each Participant an amount in cash equal to the Current
Market Value of the Restricted Stock or specified portion thereof, held
by, or on behalf of, each Participant in exchange for such Restricted
Stock.
(D) Any Deferral Periods or portions thereof shall be accelerated and the
Company shall pay to each Participant an amount in cash equal to the
Current Market Value of the number of shares of Stock equal to the number
of shares of Deferred Stock or specified portion thereof, credited to such
Participant in settlement of any Deferred Stock Award.
(E) The Company shall pay to each Participant all amounts due, if any,
deferred by or payable under Awards granted to such Participant under the
Plan which are not Performance Shares, Restricted Stock or Deferred Stock,
in accordance with the terms provided by the Committee at the time of
deferral or grant.
(F) Adjustments or modifications to outstanding awards to maintain and protect
the rights and interest of Participants.
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(G) For purpose of this Section 15, "Current Market Value" means the highest
Fair Market Value during the period commencing thirty days prior to the
Change in Control and ending thirty days after the Change in Control (the
"reference period"); provided that, if the Change in Control occurs as a
result of a tender offer or exchange offer, or a merger, purchase of
assets or stock, or another transaction approved by shareholders of the
Company, Current Market Value means the higher of (i) the highest Fair
Market Value during the reference period, or (ii) the highest price paid
per share of Stock pursuant to such tender offer, exchange offer or
transaction.
SECTION 16. MISCELLANEOUS
(A) Nothing in this Plan or any Award granted hereunder shall confer upon any
employee any right to continue in the employ of any Participating Company
or interfere in any way with the right of any Participating Company to
terminate his or her employment at any time.
(B) No Award payable under the Plan shall be deemed salary or compensation for
the purpose of computing benefits under any employee benefit plan or other
arrangement of any Participating Company for the benefit of its employees
unless the Company shall determine otherwise.
(C) No Eligible Individual or Participant shall have any claim to an Award
until it is actually granted under the Plan. To the extent that any person
acquires a right to receive payments from the Company under this Plan,
such right shall be no greater than the right of an unsecured general
creditor of the Company. All payments of Awards provided for under the
Plan shall be paid by the Company either by issuing shares of Stock or by
delivering cash from the general funds of the Company or other property of
the Company; provided, however, that such payments shall be reduced by the
amount of any payments made to the Participant or his or her dependents,
beneficiaries or estate from any trust or special or separate fund
established in connection with this Plan. The Company shall not be
required to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Participant shall have no right, title, or interest whatever in or to any
such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments.
(D) If an Award is granted to a Participant who is not an employee of the
Company or a Participating Company, the Participant shall be deemed to be
in the employ of the Company and/or a Participating Company, and shall be
deemed to be an employee (for the purpose of the Plan, including the
continued exercisability of Awards) so long as the Participant is
rendering services to the Company or the Participating Company or the
relationship (including a directorship or direct or indirect consultancy
arrangement) pursuant to which such services are rendered or to be
rendered continues. Termination of such services or relationship shall be
deemed to be the termination of employment hereunder provided that the
Committee is authorized in its sole discretion to extend or modify the
period and conditions of exercisability of the Award so as to effectuate
the purposes of the Plan. Absence on leave approved by a duly constituted
officer of the Company shall not be considered interruption or termination
of employment for any purposes of the Plan; provided, however, that no
Award may be granted to an employee while he or she is absent on leave.
(E) If the Committee shall find that any person to whom any Award, or portion
thereof, is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, then any payment
due him or her (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Committee so directs the
Company, be paid to his or her spouse, a child, a relative, an institution
maintaining or having custody of such person, or any other person deemed
by the Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete
discharge of the liability of the Company therefor.
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(F) The right of any Participant or other person to any Award payable under
the Plan may not be assigned, transferred, pledged or encumbered, either
voluntarily or by operation of law, except as provided in Section 11 with
respect to the designation of a Beneficiary or as may otherwise be
required by law or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder or unless the Committee determines, in the
circumstances, that an Award may be transferred to a Family Member or
Family Trust or other transferee. If, by reason of any attempted
assignment, transfer, pledge, or encumbrance or any bankruptcy or other
event happening at any time, any amount payable under the Plan would be
made subject to the debts or liabilities of the Participant or his or her
Beneficiary or would otherwise devolve upon anyone else and not be enjoyed
by the Participant or his or her Beneficiary or transferee, Family Trust
or Family Member, then the Committee may terminate such person's interest
in any such payment and direct that the same be held and applied to or for
the benefit of the Participant, his or her Beneficiary, taking into
account the expressed wishes of the Participant (or, in the event of his
or her death, those of his or her Beneficiary) in such manner as the
Committee may deem proper.
(G) Copies of the Plan and all amendments, administrative rules and procedures
and interpretations shall be made available for review to all Eligible
Individuals at all reasonable times at the Company's administrative
offices.
(H) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the
Participant or his or her Beneficiary, for the withholding of any federal,
state, local or foreign taxes. The Committee may in its discretion permit
the payment of such withholding taxes by authorizing the Company to
withhold shares of Stock to be issued, or the Participant to deliver to
the Company shares of Stock owned by the Participant or Beneficiary, in
either case having a Fair Market Value equal to the amount of such taxes,
or otherwise permit a cashless exercise.
(I) All elections, designations, requests, notices, instructions and other
communications from an Eligible Individual, Participant, Beneficiary or
other person to the Committee, required or permitted under the Plan, shall
be in such form as is prescribed from time to time by the Committee and
shall be mailed by first class mail or transmitted by facsimile copy or
delivered to such location as shall be specified by the Committee.
(J) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
(K) Captions preceding the sections hereof are inserted solely as a matter of
convenience and in no way define or limit the scope or intent of any
provision hereof.
(1) The Plan and the grant, exercise and carrying out of Awards shall be
subject to all applicable federal and state laws, rules, and regulations
and to all required or otherwise appropriate approvals and authorizations
by any governmental or regulatory agency or commission. The Company shall
have no obligation of any nature hereunder to any Eligible Individual,
Participant or any other person in the absence of all necessary or
desirable approvals or authorizations and shall have no obligation to seek
or obtain the same.
(M) Whenever possible, each provision of this Plan and any Award Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any such provision is held to be ineffective,
invalid, illegal or unenforceable in any respect under the applicable laws
or regulations of the United States or any state, such ineffectiveness,
invalidity, illegality or unenforceability will not affect any other
provision but this Plan and any such agreement will be reformed, construed
and enforced so as to carry out the intent hereof or thereof and as if any
invalid or illegal provision had never been contained herein.
(N) The Committee, in its discretion, may defer, without the consent of the
Participant, the payment of an Award, if such payment would otherwise
cause the annual remuneration of a Participant, who is a covered employee
under Section 162(m) of the Code, to exceed $1,000,000.
(O) The Plan shall be construed and governed under the laws of the State of
Delaware.
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SECTION 17. EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Effective Date of the Plan shall be October 16, 1997, subject to
approval by the holders of a majority of the Company's common stock at a
meeting of stockholders to be held no later than the latest date by which all
approvals of the stockholders of the Company must be obtained in order to
satisfy the requirements of each of (a) Section 162(m) of the Code relating to
the approval of the stockholders of the Company, (b) any national stock market
or quotation organization or other body on which the Company's common stock is
listed or quoted that requires approval of the stockholders of the Company,
and (c) any other applicable rule, policy order or regulation which requires
approval of stockholders of the Company. Any Awards granted prior to
stockholder approval will be subject to the receipt of such approval. No
Awards will be granted under the Plan after the expiration of ten years from
the Effective Date.
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ELECTRIC LIGHTWAVE, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
The purpose of the Employee Stock Purchase Plan (the "Plan") is to enable
eligible employees of Electric Lightwave, Inc. (the "Company") to acquire
Class A Common Stock of the Company and thereby participate in the Company's
growth and earnings. It is the intention of the Company to have the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986 as amended (the "Code").
2. ENROLLMENT AND PARTICIPATION IN THE PLAN
(a) Newly Eligible Employees. In order to purchase Class A Common Stock
under this Plan during a Purchase Period, newly Eligible Employees must
deliver an executed Subscription Agreement and Payroll Deduction Authorization
Form (the "Subscription Agreement") to the Committee during the first through
fifteenth day of the month preceding the month containing the commencement
date of the Purchase Period in which they wish to participate. Upon timely
execution and delivery of a Subscription Agreement, an Eligible Employee will
automatically participate in the Plan during each successive Purchase Period
until he or she discontinues participation in accordance with Paragraph 2(b).
Failure to execute and deliver the Subscription Agreement on a timely basis
with respect to a Purchase Period shall prevent participation in the Plan for
that Purchase Period and any subsequent Purchase Period until the Eligible
Employee executes and timely files another Subscription Agreement.
(b) Canceling or Modifying Participation. A participating Eligible Employee
may (i) cancel his election to participate or (ii) reduce (but not increase)
the amount of his or her authorized payroll deductions during a Purchase
Period, by delivering written notice of cancellation or modification to the
Committee (or its delegatee) prior to the close of business on the last
business day of the Purchase Period. Such notice shall be effective upon
receipt by the Committee or other person or office authorized to accept
notices of cancellation or modification. Only one modification of a payroll
deduction authorization is permitted during a Purchase Period. A participating
Eligible Employee cannot increase the amount of payroll deductions during an
ongoing Purchase Period, but may do so prospectively for a subsequent Purchase
Period by timely filing a new Subscription Agreement during the next available
subscription period.
An Eligible Employee by filing a notice of cancellation form may either:
(i) receive in cash, as soon as practicable following delivery of the
notice of cancellation, the amount then credited to the Employee's account,
or
(ii) have the amount credited to the Employee's account at the time the
cancellation becomes effective applied to purchase the number of shares
such amount will then purchase.
An Eligible Employee who cancels participation cannot resume participation
during the Purchase Period in which their participation is cancelled, but may
resume participation by filing a new Subscription Form during the first
through fifteenth day of the month preceding the month containing the
commencement date of any subsequent Purchase Period.
Any Eligible Employee reducing his payroll deduction authorization shall
continue to participate at the reduced rate for the remainder of the Purchase
Period. If the aggregate amount in the Employee's account (including the
reduced payroll deductions) exceeds an amount equal to the reduced payroll
deduction times the total number of payroll periods occurring in the Purchase
Period, the excess may be paid to the Eligible Employee in cash.
3. GRANT OF OPTIONS
Options to purchase the Company's Class A Common Stock under the Plan shall
be granted only to Eligible Employees. The Committee may determine that any
offering of Class A Common
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Stock under the Plan will not be extended to directors, officers, or highly
paid employees of the Company or its Subsidiaries as defined in Code Section
414(q) or to those employees whose principal duties consist of supervising the
work of other employees.
With respect to each offering of Class A Common Stock during a Purchase
Period, each participating Eligible Employee shall be eligible to purchase a
number of shares to be determined by the following procedure:
STEP 1 Determine the aggregate amount which will be withheld from the Eligible
Employee's pay during the Purchase Period;
STEP 2 Determine an amount equal to the lower of 85% of the Average Market
Price on the first day of the Purchase Period and on the last day of
the Purchase Period (i.e., the date on which the Option to purchase is
exercised);
STEP 3 Divide the amount determined in Step 1 by the amount determined in Step
2 and round off the quotient to the nearest whole number. This final
number shall be the maximum number of shares the Eligible Employee will
be entitled to purchase for the Purchase Period.
An Eligible Employee may elect to purchase fewer than the total number of
shares which he or she is entitled to purchase.
The date on which the Option is granted to each participating Eligible
Employee shall be the first day of the Purchase Period. Notice that an Option
has been granted shall be given to each participating Eligible Employee and
shall show the amount to be withheld from such Eligible Employee's pay for
each payroll period during the Purchase Period.
If the total number of shares elected to be purchased under the Plan exceeds
the number of shares offered, the Company reserves the right to reduce the
maximum number of shares that Eligible Employees may purchase, or allot the
shares available in such manner as it shall determine, but generally pro rata
to purchase orders received, and to grant Options to purchase only such
reduced number of shares.
Shares included in any offering under the Plan that exceed the total number
of shares which all Eligible Employees elect to purchase, and all shares with
respect to which elections to purchase are canceled as provided in Paragraph
2(b) shall continue to be available for inclusion in any subsequent offering
under the Plan.
4. PURCHASE PRICE
The purchase price for shares of Class A Common Stock purchased pursuant to
the Plan (except as otherwise provided herein) will equal the lesser of 85% of
the Average Market Price on the first day of the Purchase Period or 85% of the
Average Market Price on the last day of the Purchase Period. If no shares were
traded on either or both of those days, the purchase price shall be
established based upon 85% of the Average Market Price on the last day prior
thereto on which shares were traded.
5. METHOD OF PAYMENT
Payment for shares purchased pursuant to the Plan shall be made in
installments through payroll deductions, with no right of prepayment. Each
Eligible Employee electing to purchase shares will authorize the Company to
withhold a designated amount from the Employee's regular weekly, biweekly,
semimonthly or monthly pay for each payroll period during each Purchase
Period. All such payroll deductions made for an Eligible Employee shall be
credited to the Employee's non-interest bearing account under the Plan. At the
end of the Purchase Period, each Eligible Employee shall receive in cash the
balance remaining in the Employee's account, if any, after the purchase of the
number of shares covered by the Option to purchase shares.
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6. LIMITATIONS ON NUMBER OF SHARES WHICH MAY BE PURCHASED
The following limitations shall apply with respect to the number of shares
which may be purchased by each Eligible Employee who elects to participate in
an offering under the Plan.
(a) No Eligible Employee may purchase shares during any one offering
pursuant to the Plan for an aggregate purchase price (which shall be computed
on an annualized basis in the event the Purchase Period is more or less than
12 months) in excess of 20% of the Employee's Annual Pay;
(b) No Employee may be granted an Option under this Plan if such Employee,
immediately after the Option is granted, owns stock possessing 5% or more of
the total combined voting power or value of all classes of capital stock of
the Company or any of its Subsidiaries. For the purpose of determining stock
ownership under this paragraph, the rules of Section 424(d) of the Code shall
apply and stock which the Employee may purchase under all outstanding Options
shall be treated as stock owned by the Employee; and
(c) No Eligible Employee may be granted an option that permits the
Employee's rights to purchase stock under the Plan and all other stock option
plans of the Company and of any Subsidiary pursuant to Section 423 of the
Internal Revenue Code to accrue at a rate which exceeds in any one calendar
year $25,000 of the fair market value of such stock (determined on the date
the option to purchase is granted).
7. SHARES RESERVED FOR PLAN
The shares of the Company's Class A Common Stock to be sold to Eligible
Employees under the Plan may, at the election of the Company, be either
treasury shares or shares originally issued for such purpose. The maximum
number of shares of Class A Common Stock which shall be reserved and made
available for sale under the Plan shall be 200,000. The shares reserved may be
issued and sold pursuant to one or more offerings under the Plan. With respect
to each offering, the Committee will specify the number of shares to be made
available, the length of the Purchase Period and such other terms and
conditions not inconsistent with the Plan as may be appropriate. In no event
shall the Purchase Period exceed 27 months for any offering.
In the event of a subdivision or combination of the Company's shares
including a stock dividend, stock split or similar event, the maximum number
of shares which may thereafter be issued and sold under the Plan and the
number of shares under elections to purchase at the time of such subdivision
or combination will be proportionately increased or decreased, the terms
relating to the price at which shares under elections to purchase will be sold
will be appropriately adjusted, and such other action will be taken as in the
opinion of the Board of Directors is appropriate under the circumstances. In
case of a reclassification or other change in the Company's shares, the Board
of Directors also will make appropriate adjustments.
8. RIGHTS AS STOCKHOLDER
An Eligible Employee will become a stockholder of the Company with respect
to shares for which payment has been completed at the close of business on the
last business day of the Purchase Period. Shares will be credited to the
employee's brokerage account as soon as practicable after an Eligible Employee
becomes a stockholder.
9. RIGHTS TO PURCHASE SHARES NOT TRANSFERABLE
All rights of an Eligible Employee under the Plan may be exercised only by
the Eligible Employee during his or her lifetime. An Eligible Employee's
rights under an election to purchase shares may not be sold, pledged, assigned
or transferred in any manner other than by will or the laws of descent and
distribution. If this provision is violated, the right of the Eligible
Employee to purchase shares shall terminate and the Employee will be paid in
cash any amount credited to the Employee's account.
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10. ADMINISTRATION, AMENDMENT AND TERMINATION OF THE PLAN
The Plan shall be administered by a Committee consisting of not fewer than
three directors of the Company who shall be appointed by the Board of
Directors. Each Committee member shall be a "disinterested person" as such
term is defined in Rule 16b-3 of the rules of the Securities and Exchange
Commission. The Committee shall be vested with full authority to make,
administer and interpret such rules and regulations regarding the Plan or to
make amendments to the Plan itself as it may deem advisable. No amendment
shall increase the maximum number of shares available for sale under the Plan,
other than as required to reflect a subdivision or a combination as provided
in Paragraph 7 hereof, or expand the persons eligible to participate in the
Plan beyond the employees of the Company and its Subsidiaries, unless such
amendment is approved by the shareholders of the Company. Any determination,
decision, or action of the Committee in connection with the Plan shall be
binding upon all Eligible Employees and all persons claiming under an Eligible
Employee.
The Company expressly reserves the right, at any time and from time to time,
to terminate the Plan. If not sooner terminated in accordance with the
preceding sentence, the Plan shall terminate when all shares reserved for
issuance under the Plan have been subscribed for and purchased.
11. LEAVE OF ABSENCE OR LAYOFF
A participating Eligible Employee who, during a Purchase Period, is on a
leave of absence (including a military leave) for a period of 90 days or less
(or if for a period in excess of 90 days, the Employee's right of reemployment
with the Company is guaranteed either by statute or by contract) may during
such period of absence make payments in cash to the Company in amounts equal
to the payroll deductions that would have been made had the Employee been
actively employed by the Company.
12. EFFECT OF FAILURE TO MAKE PAYMENTS WHEN DUE
If, in any payroll period, a participating Eligible Employee's pay is
insufficient (after other authorized deductions are taken) to make the
deduction agreed to under this Plan, the Employee may make up this deficiency
in cash. If not made up, the Eligible Employee, when his or her pay is again
sufficient to permit the resumption of payroll deductions, must pay in cash
the amount of the deficiency in his or her account or arrange for uniformly
increased installment payments so that, assuming the maximum purchase price
per share, payment for the maximum number of shares covered by the Employee's
Option will be completed in the last month of the Purchase Period. If the
Eligible Employee elects to make increased installment payments, he or she
may, nevertheless, at any time make up the remaining deficiency by a lump sum
payment.
The Company may treat the failure by an Eligible Employee to make any
payment as a cancellation of his or her election to purchase shares. Such
cancellation will be effected by mailing notice to the Employee at the
Employee's last known business or home address. Upon such mailing, the
Employee's only right will be to receive in cash the amount credited to his or
her account.
13. RETIREMENT OR DEATH
If an Eligible Employee has an election to purchase shares in effect at the
time of the Employee's retirement or death, he or she (or, in the case of
death, the legal representative) may:
(a) Make a lump sum payment in the amount of any deficiency for the
remaining portion of the Purchase Period, or
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(b) Cancel the election to purchase shares in accordance with the provisions
of Paragraph 2(b), by delivering written notice to the Committee (or its
delegatee) within three months from the Eligible Employee's retirement or
death, as the case may be, but in no event later than the end of the Purchase
Period.
If no such notice is given within such period, the election will be deemed
canceled as of the date of the Eligible Employee's retirement (or death, as
the case may be) and the only right of the Eligible Employee (or, if
applicable, the Employee's legal representative) will be to receive in cash
the amount credited to the Eligible Employee's account.
14. TERMINATION OF EMPLOYMENT OTHER THAN FOR RETIREMENT OR DEATH
If an Eligible Employee is terminated for any reason other than retirement
or death prior to the end of the Purchase Period, the Employee's election to
purchase shall be deemed canceled as of the date on which employment ended. In
such an event, the Eligible Employee's only right will be to receive in cash
the amount credited to his or her account.
15. APPLICATION OF FUNDS
All funds received by the Company in payment for shares to be purchased
under the Plan and held at any time by the Company may be used for any valid
corporate purpose.
16. GOVERNMENTAL APPROVALS OR CONSENTS
The Plan shall not be effective unless it is approved by the stockholders of
the Company within 12 months after the Plan is proposed for approval by the
Board of Directors of the Company. The Plan and any offerings and sales to
Eligible Employees under it are subject to any governmental approvals or
consents that may be or become applicable in connection therewith. The Board
of Directors of the Company may make such changes in the Plan and include such
terms in any offering under the Plan as may be necessary or desirable, in the
opinion of counsel, so that the Plan will comply with the rules and
regulations of any governmental authority and so that Eligible Employees
participating in the Plan will be eligible for tax benefits under the Code.
17. REFUND OF FUNDS RECEIVED
In the event that, after the Average Market Price on the last day of the
Purchase Period is known, the number of shares made available during the
Purchase Period ("Designated Shares") is less than the number of shares
elected to be purchased by participating Eligible Employees under the Plan,
determined by taking into account the amounts credited to their accounts as of
the last day of the Purchase Period, then the Company shall, as soon as
administratively possible:
(a) Allocate the Designated Shares on a pro rata basis among the participating
Eligible Employees in proportion to the number of shares otherwise purchasable
by each participating Eligible Employee prior to the allocation contemplated
by this Paragraph; and
(b) Return to each participating Eligible Employee any amount credited to
their accounts which is not utilized to purchase shares with respect to such
Purchase Period.
18. DEFINITIONS
The following terms have the following meanings in this Plan:
(a) "Annual Pay" shall mean an amount equal to the annual basic rate of
pay of an Eligible Employee as determined from the payroll records of the
Company or a Subsidiary on the effective date of an offer of stock made
pursuant to the Plan.
B-5
<PAGE>
(b) "Average Market Price" shall be the mean between the high and low
prices for the Company's shares of Class A Common Stock on the NASDAQ as
reported by such exchange.
(c) "Class A Common Stock" shall mean shares of the $.01 par value Class
A Common Stock of the Company.
(d) "Eligible Employee" shall mean a person regularly employed by the
Company or a Subsidiary on the effective date of any offering of stock
pursuant to the Plan, who is customarily employed by the Company or a
Subsidiary for more than twenty hours per week and more than five months in
a calendar year; provided the Board of Directors may exclude the employees
of any specified Subsidiary from any offering under the Plan.
(e) "Option" shall mean the right granted to Eligible Employees to
purchase the Company's Class A Common Stock under an offering made under
the Plan.
(f) "Purchase Period" shall mean the period commencing on the date on
which Options are granted to participating Eligible Employees and ending on
the last day of the last month in which installment payments for stock to
be purchased under the Plan may be made.
(g) "Subscription Period" shall mean that period of time designated by
the Committee prior to the first day of any Purchase Period during which an
Eligible Employee may elect to purchase Class A Common Stock under this
Plan.
(h) "Subsidiary" shall mean any present or future corporation which is or
would be a "subsidiary corporation" of the Company as the term is defined
in Section 424(f) of the Code.
B-6
<PAGE>
ELECTRIC LIGHTWAVE, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
3:00 P.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 Electric Lightwave's
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 an Electric Lightwave 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 President's letter (front cover of this proxy statement)
<PAGE>
ELECTRIC LIGHTWAVE, INC.
Please complete the Proxy Card,
and return in the enclosed envelope to
ILLINOIS STOCK TRANSFER CO.
223 W. Jackson Blvd., Suite 1210
Chicago, Illinois 60606
- --------------------------------------------------------------------------------
ELECTRIC LIGHTWAVE, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Daryl A. Ferguson, Stanley Harfenist, David B.
Sharkey or any of them with full power of substitution, proxies to vote at the
Annual Meeting of Stockholders of Electric Lightwave, Inc. (the "Company") to be
held on Thursday, May 21, 1998, at 3:00 p.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, "For" Proposal 2 and "For" Proposal 3.
<TABLE>
<CAPTION>
PROPOSAL 1 PROPOSAL 2
- ---------- ----------
<S> <C> <C>
Election of Directors Approve the Equity Incentive Plan of Electric Lightwave, Inc.
Nominees:
For Withheld For Against Abstain
[ ] [ ] Daryl A. Ferguson
Stanley Harfenist
For, except vote withheld from David B. Sharkey
the following Nominee(s) Robert A. Stanger
Leonard Tow
- ------------------------------- Maggie Wilderotter
PROPOSAL 3
- ----------
Approve the Employee Stock Purchase Plan
For Against Abstain
[ ] [ ] [ ]
</TABLE>
[ ]
