<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED INPROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / 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 240.14a-11(c) or 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:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
[GRAPHIC OMITTED]
Administrative Offices
4400 NE 77th Avenue
Vancouver, Washington 98662
(360) 892-1000
- --------------------------------------------------------------------------------
March 23, 1999
Dear Fellow Stockholder:
I am pleased to invite you to attend the 1999 Annual Meeting of the
Stockholders of Electric Lightwave, Inc. which will be held at the Wyndham
Anatole Hotel, Dallas, Texas, on Thursday, May 20, 1999 at 2:30 p.m., Central
Time.
It is important that your shares be represented whether or not you attend
the meeting. In order to insure that you will be represented, we ask that you
sign, date, and return the enclosed proxy. If present, you may revoke your
proxy and vote in person.
Attendance at the Annual Meeting will be limited to employees and to
stockholders as of the record date or their authorized representative. Because
of space limitations, admission to the Annual Meeting will be by admission card
only. Registered stockholders planning to attend the meeting should complete
and return the advance registration form on the back page of this Proxy
Statement. An admission card will be mailed to you about two weeks before the
meeting. If your shares are held through an intermediary such as a bank or
broker, you should request an admission card by writing to Shareholder
Services, 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,
[GRAPHIC OMITTED]
David B. Sharkey
President and Chief Operating Officer
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
Administrative Offices
4400 NE 77th Avenue
Vancouver, Washington 98662
(360) 892-1000
- --------------------------------------------------------------------------------
March 23, 1999
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 Wyndham Anatole Hotel, Dallas, Texas, on
Thursday, May 20, 1999 at 2:30 p.m., Central Time, for the following purposes:
1. To elect directors;
2. To approve an amendment of the Company's 1997 Equity Incentive Plan
solely to increase the number of shares of Common Stock reserved for
issuance thereunder;
3. To approve an amendment of the Company's 1998 Employee Stock Purchase
Plan solely to increase the number of shares of Class A Common Stock
reserved for issuance thereunder; and
4. To transact such other business as may properly be brought before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 22, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment or postponement thereof.
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 Citizens
Communications, Three Northpark East, 8800 North Central Expressway, Suite 800,
Dallas, TX 75231 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" or "ELI")
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 March 31, 1999.
Only holders of record of the Company's Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), and Class B Common Stock, par
value $.01 per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock"), as of the close of business on March 22,
1999 (the "Record Date") will be entitled to notice of and to vote at, the
annual meeting. As of the Record Date, there were 8,608,614 shares of Class A
Common Stock outstanding, 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. As of the Record Date, an additional 49,149 shares of Class A
Common Stock were outstanding and held by the Company as treasury shares. The
presence in person or by proxy of the holders of a majority of the outstanding
shares of Common Stock will be necessary to constitute a quorum for the
transaction of business at the annual meeting.
Directors will be elected by a plurality vote of the Common Stock present
or represented by proxy at the meeting and entitled to vote at the meeting.
Approval of the proposed amendment to each of the Equity Incentive Plan and the
Employee Stock Purchase Plan 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 proposed
amendment to the Equity Incentive Plan and as not having voted with respect to
the approval of the proposed amendment to 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 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 proposed amendment to each of
the Equity Incentive Plan and the Employee Stock Purchase Plan. Brokers not
receiving instructions from Company stockholders may vote at the meeting on
both the election of directors and the approval of the proposed amendment to
each of the Equity Incentive Plan and the Employee Stock Purchase Plan.
Stockholders may not cumulate their votes. 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 proposed
amendment to each 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.
<PAGE>
Stock Ownership of Certain Beneficial Owners, Directors and Executive Officers
No person or group of persons except for Citizens Utilities Company
("Citizens") is known by the Company to beneficially own more than 5% of any
class of the Common Stock of the Company. As of February 28, 1999, Citizens,
with offices at High Ridge Park, Stamford, Connecticut 06905, beneficially
owned, through its wholly-owned subsidiary CUCapitalCorp., 41,165,000 shares of
Class B Common Stock, representing all of the outstanding shares of Class B
Common Stock and approximately 82.6% of the total number of shares of Common
Stock outstanding and 97.9% of the total voting interests.
The following table reflects shares of Common Stock beneficially owned (or
deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) as of February 28, 1999 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. Except as otherwise described below, each of the
persons named in the table has sole voting and investment power with respect to
the securities beneficially owned.
<TABLE>
<CAPTION>
Acquirable Percentage of
Class of Common Within 60 Common Stock
Stock Owned(1) Days(2) Owned(3)
-------------------------------- ------------ ----------------------
Name Position Class A Class B Class A Class B(4)
- ---- ------------------------ --------------- --------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
James M. Berthot(5) .......... Vice President 54,036 0 38,933 *
Daryl A. Ferguson(5) ......... Vice Chairman and 125,000 41,165,000(6) 0 1.3 100
Chief Executive Officer
Guenther E. Greiner .......... Director 14,558 0 13,984 *
Todd Hanson(5) ............... Vice President 54,851 0 38,933 *
Stanley Harfenist(5) ......... Director 43,447(7) 41,165,000(6) 37,500 * 100
Randall Lis(5) ............... Vice President 53,984 0 38,933 *
David B. Sharkey(5) .......... President and 125,000 41,165,000(6) 0 1.3 100
Chief Operating Officer
Robert A. Stanger(5) ......... Director 36,947(8) 41,165,000(6) 17,500 * 100
Leonard Tow(9) ............... Chairman 150,000 41,165,000(6) 0 1.6 100
Maggie Wilderotter ........... Director 18,447 0 17,500 *
John Wolff(5) ................ Vice President 53,933 0 38,933 *
All Executive Officers and
Directors as a group
(16 Persons)(10) .................................... 826,237 41,165,000(6) 297,599 8.8 100
</TABLE>
<PAGE>
- ------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) Pursuant to rules of the Securities Exchange Commission, includes shares
acquirable as further described in footnote (2). Shares owned as of February
28, 1999 may be determined by subtracting the number under "Aquirable Within
60 Days" from that under "Common Stock Owned."
(2) Reflects number of shares that could be purchased by exercise of options as
of February 28, 1999 or within 60 days thereafter under the Company's Equity
Incentive Plan.
(3) Based on number of shares outstanding at, or acquirable within, 60 days of
February 28, 1999.
(4) All Class B Common Stock is owned by CUCapitalCorp., a wholly-owned
subsidiary of Citizens. As a result of Citizens' ownership, the percentage
of Class B Common Stock beneficially owned by each of Drs. Ferguson and Tow
and Messrs. Harfenist, Stanger and Sharkey is deemed to be 100%.
(5) Dr. Ferguson and Messrs. Harfenist and Stanger own beneficially 610,468,
95,118 and 72,743 shares of Citizens common stock, respectively. Of these
shares, 519,814, 70,204 and 70,204 are acquirable within 60 days by the
above named individuals. Messrs. Sharkey, Berthot, Hanson, Lis and Wolff own
beneficially 46,263, 9,413, 26,675, 19,872 and 19,117 shares of Citizens
common stock, respectively. Of the shares reported in the prior sentence,
45,174 for Mr. Sharkey, 7,802 for Mr. Berthot, 18,542 for Mr. Hanson, 17,085
for Mr. Lis and 17,085 for Mr. Wolff are acquirable within 60 days.
(6) Consists entirely of shares of Class B Common Stock owned by Citizens of
which Leonard Tow is Chairman of the Board, Chief Executive Officer and a
Director, Stanley Harfenist and Robert A. Stanger are
2
<PAGE>
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 (through its wholly-owned subsidiary CUCapitalCorp.) own an
approximately 97.94% 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.
(7) Includes 5,000 shares of Class A Common Stock held by Stanley and Jean
Harfenist as Trustees for the Harfenist Family Trust.
(8) Includes 3,500 shares of Class A Common Stock held by Mr. Stanger's wife.
Mr. Stanger disclaims beneficial ownership of such shares.
(9) Dr. Tow beneficially owns 10,567,764 shares of Citizens common stock,
3,299,457 shares of which are acquirable within 60 days. The total includes
4,647,389 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 4,647,389 shares. The total
also includes 18,607 shares held by Dr. Tow's wife as custodian for her
minor grandchildren and 70,204 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 3.66% of the common
stock of Citizens.
(10) Directors and all Executive Officers of the Company as a group own
beneficially 10,704,021 shares of Citizens common stock (4,048,282 of which
are acquirable within 60 days), which represents 3.98% of Citizens common
stock outstanding as of February 28, 1999 or acquirable within 60 days
thereafter.
3
<PAGE>
ELECTION OF DIRECTORS
At the meeting, seven directors are to be elected to hold office until the
next annual meeting and until their successors have been elected and qualified.
All of the nominees are currently serving as directors of the Company.
Directors will be elected by a plurality 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, whose wholly owned subsidiary,
CUCapitalCorp., is owner of 100% of the Class B Common Stock of the Company.
Stanley Harfenist and Robert A. Stanger are Directors of Citizens. 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>
<CAPTION>
<S> <C> <C>
Daryl A. Ferguson Vice Chairman and Chief Executive Officer of Electric Director since 1990
Lightwave, Inc., 1997 to present; President and Chief
Operating Officer of Citizens Utilities Company, 1990 to
present; Director, Centennial Cellular Corp. Age 60
Guenther E. Greiner President of International Corporate Consultancy LLC, a Director since 1998
global finance consulting service, 1998 to present;
Senior Group Executive/Executive Vice President of
Global Relationship Bank, 1995 to 1998, and Group
Executive/Executive Vice President of World Corpora-
tion Group, 1989 to 1995, both at Citibank/Citicorp.
Director, Ermenegildo Zegna, IFIL-Finanziaria di Par-
ticipazion, New York Philharmonic, German American
Chamber of Commerce, the American Institute for Con-
temporary German Stuidies/The Johns Hopkins Univer-
sity, and Corn Products International, Inc. Age 60
Stanley Harfenist President and Chief Executive Officer of Adesso, Inc., Director since 1997
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 October Director since 1995
1997, and President and Chief Operating Officer since
October 1997, of Electric Lightwave, Inc.; Vice Presi-
dent 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. Pub-
lisher, The Stanger Report. Director, Callon Petroleum
Company, Inc., exploration and production of oil and
natural gas. Director, Citizens Utilities Company. Age 59
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
Leonard Tow Chairman of the Board of Electric Lightwave, Inc. since Director since 1990
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 Com-
munications 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. Direc-
tor, United States Telephone Association. Age 70
Maggie Wilderotter President and Chief Executive Officer of Wink Commu- Director since 1997
nications since 1997; Executive Vice President, AT&T
Wireless Services, Inc. and Chief Executive Officer of
AT&T Aviation Communications Division, 1995 to
1997. Senior Vice President of McCaw Cellular Com-
munications, Inc., 1991 to 1995. Director of Gaylord
Entertainment Corporation, Airborne Express, Jacor,
American Tower Corporation and the California Cable
Television Association. Age 44
</TABLE>
The Board of Directors of the Company recommends that you vote "for" the
election of all nominees for director.
The Board of Directors held six meetings in 1998. Each incumbent director
attended at least 75% of such meetings and, except as hereinafter described, at
least 75% of the total number of meetings held by all committees of the Board
on which he or she served as described below under "Committees of the Board."
Guenther E. Greiner attended three of the seven meetings held by all committees
of the board on which he served during the periods that he served.
Committees of the Board
The Board has standing Executive, Audit and Compensation Committees. The
full board serves as the nominating committee.
Executive Committee. The Executive Committee is composed of Dr. Tow as
Chairman, Dr. Ferguson and Mr. Sharkey. The Committee did not meet in 1998.
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
Chairman and Mr. Greiner, Mr. Stanger and Ms. Wilderotter. The Committee met
twice in 1998. 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 Chairman and Mr. Greiner, Mr. Harfenist and Ms. Wilderotter. The
Committee met eight times in 1998. The Committee reviews the Company's general
compensation strategies, acts as the Committee for the Company's Equity
Incentive Plan and the 1998 Employee Stock Purchase Plan and establishes and
reviews compensation for the Chief Executive Officer and other executive
officers of the Company.
5
<PAGE>
DIRECTORS' COMPENSATION
Each non-employee Director is entitled to a $20,000 annual retainer and a
fee of $1,000 plus reasonable expenses for each Board or Committee meeting
attended in person or telephonically. Committee chairs are paid a fee of $2,000
per meeting attended. In 1998, $12,000 of the retainer was paid in shares of
Class A Common Stock of the Company and $8,000 was paid in cash. Commencing in
1999, each non-employee director can elect, in lieu of cash compensation, to
have any portion of the annual retainer and fees payable for meetings attended,
paid in shares of Class A Common Stock of the Company or stock units to acquire
Class A Common Stock of the Company under the Company's Employee Incentive Plan
(the "EIP"). 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 1999 was January 1. Each new non-employee
Director also receives a 10,000 share sign on option. Dr. Ferguson and Dr. Tow,
as a result of their employment by Citizens and Mr. Sharkey, as a result of his
employment with the Company, are deemed to be employee Directors and thus are
not eligible to receive compensation for services rendered as directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed of four independent Directors who are responsible for
setting and administering compensation, including base salaries, annual
incentives and stock-based awards paid or awarded to executive officers of the
Company. The Compensation Committee oversees and approves incentive plan
philosophy, design, costs and administration. The Compensation Committee was
engaged in developing the Company's compensation strategy and specific
incentive plan designs throughout 1998. This report discusses the Compensation
Committee's activities as well as its development and implementation of
policies regarding compensation paid to the executive officers during 1998.
COMPENSATION OF THE EXECUTIVE GROUP
This section discusses the Company's 1998 strategy for its compensation
program. The compensation of the Company's Chief Executive Officer is discussed
separately in this report.
COMPENSATION STRATEGY
Due to the competitive nature of its industry, ELI must be aggressive in
positioning its compensation levels. ELI targets total compensation for
superior performance in the top quartile of other companies in the industry.
This strategy enables the Company to motivate and reward outstanding
contributors as well as attract quality talent.
The Compensation Committee's compensation policy has the following
objectives:
To give employees an opportunity to share in the Company's successes.
To give employees an ownership opportunity and tie them to the Company's
performance.
To help employees understand the importance of both short and long-term
goals.
To create a common interest between executives and employees.
To attract key contributors.
To recognize and reward the critical role employees play on a daily basis.
Base Salary
The Compensation Committee sets the base salary levels of executive
officers annually, based on the duties and responsibilities which the Company
expects each executive to discharge during the current year and upon the
executive's performance during the previous year. The Company performs external
market comparisons, relative to industry-specific peers, based on individual
job responsibility.
6
<PAGE>
At-Risk Incentive Compensation
Throughout 1998, the Compensation Committee was engaged in reviewing
comprehensive analyses of both the annual cash and long-term incentive
practices in the Competitive Local Exchange Carrier (CLEC) industry. Several
sources were referenced in order to develop the specific plan designs and
competitive award levels required for ELI to effectively compete for talent.
Both the annual cash incentive plan and the long-term incentive plan design are
discussed in detail below.
Annual Cash Incentive
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
based on prior year goal attainment. The plan criteria may be modified in a
given year based on changes in the Company's business strategy. If the
pre-determined financial goal is not met, the Compensation Committee may use
its judgment to determine if there will be any cash incentive payout.
The annual cash incentives approved by the Compensation Committee in 1999
were based on 1998 performance. 758 employees received awards representing 100%
of the population eligible to receive an award. Awards for 1998 reflected the
successful performance of the Company in achieving 100% of its financial
targets.
For 1999, the annual incentive plan criteria will be primarily based on
revenue, EBITDA and a third measure for senior executives, which is return on
capital.
Common Stock Long-Term Incentives
In connection with the initial public offering (IPO) of common stock in
October 1997, the Compensation Committee adopted the EIP. The purpose of the
EIP is to provide equity compensation incentives for high levels of performance
and to attract and retain outstanding employees. All stock options awarded are
non-qualified, awarded at fair market value, and vest over a period of three
years.
Within the EIP, two separate award programs were created, the Management
Stock Option Plan (MSOP) and the Distinguished Performance Award (DPA). The
MSOP is designed to grant stock options to executives and other key management
employees for individual contributions toward achievement of goals. Target
awards are based on salary levels and are designed to compensate employees
within the range of 85% to 150% of long-term incentive compensation of
comparable industries based on individual performance.
The DPA is designed to recognize and reward key employees below the
management level who are considered to have high potential and who have made
significant contributions. The target number of shares is 700 stock options and
award recommendations are designed to be within the range of 400 to 1,000
options. Recommendations are at the discretion of the employee's manager.
In August 1998, the Compensation Committee granted stock option awards to
217 executives/managers under the MSOP. One hundred and fifty two employees
received stock option awards under the DPA, representing 36% of eligible
employees. None of the options granted were to executive officers.
The Committee will consider EIP awards for 1998 performance in the spring
of 1999.
7
<PAGE>
Beginning in 1999, the size of the pool available for stock option awards
will be subject to performance criteria. The performance measures in the first
year (1999) are strictly financial, but expand in future years to include a
focus on other value-drivers such as customer and employee satisfaction. The
total target pool can be reduced by up to 25% if company goals are not
achieved.
Based on the research conducted in 1998 of the equity granting practices
in the CLEC industry and the substantive growth in the number of employees
expected, additional shares will be required in order to fully execute this
plan over the next three years. The Compensation Committee has recommended, and
the Board of Directors has approved and will recommend to shareholders in May
1999 the addition of 2.5 million shares to be available for distribution under
the EIP, resulting in a total potential allocation of 11.84% of outstanding
shares.
The principal purpose of the EIP is to provide an equity incentive to
employees to remain in the employment of the Company and to work diligently in
its best interests. The Board of Directors determined that this purpose would
not be achieved for employees holding options exercisable at prices above the
market price of the Company's Common Stock, and further determined that it was
critical to the best interests of the Company and to its stockholders that the
Company retain the services of these employees. As such, the Board of Directors
authorized the repricing of certain stock options in 1998. In 1998 the Board of
Directors offered to all executive officers with outstanding options to
purchase the Common Stock of the Company the opportunity to exchange all, half
or none of such options for a decreased number of new options at a price per
share equal to the fair market value of the Company's Common Stock on August 7,
1998, with no change in the stock option vesting periods. The number of shares
was determined using the Black-Scholes Option pricing model on an equivalent
value basis to determine the exchange rate. The three senior officers were not
granted options and therefore were not eligible to participate in such
repricing.
The following table sets forth certain information concerning the
repricing of stock options held by the Named Executive Officers (as defined
below) during the last ten years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Option Term
Underlying Market Price of Exercise Price at Remaining at
Options/SARs Stock at time Time of New Date of
Repriced or of Repricing or Repricing or Exercise Repricing or
Name Date Amended(1) Amendment Amendment Price Amendment
---- -------- -------------- ----------------- ------------------- ---------- -------------
(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
James M. Berthot ......... 8/7/98 73,000 $ 8.75 $16 $ 8.75 9.28 yrs.
Vice President
Todd Hanson .............. 8/7/98 73,000 $ 8.75 $16 $ 8.75 9.28 yrs.
Vice President
Randall Lis .............. 8/7/98 73,000 $ 8.75 $16 $ 8.75 9.28 yrs.
Vice President
John Wolff ............... 8/7/98 73,000 $ 8.75 $16 $ 8.75 9.28 yrs.
Vice President
</TABLE>
- ------------
(1) 73,000 shares exchanged on equal value basis for 43,800 shares.
8
<PAGE>
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 1998 compensation was paid to him by Citizens
Utilities Company. The Company currently expects to make future awards to the
chief executive officer under the EIP. The base salary of Dr. Ferguson will be
paid by Citizens Utilities Company as long as he remains an employee of that
company. See footnote 5 to the Summary Compensation Table.
Compliance with Internal Revenue Code Section 162 (m)
The Compensation Committee has been advised that the compensation paid to
the named executive officers in 1998, 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 over $1,000,000 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 Compensation Committee has been advised
that Section 162 (m) does not apply to the stock awards granted in 1998. The
Company expects to structure grants under its EIP in a manner that provides for
an exemption from Section 162 (m). The Compensation 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, Guenther E. Greiner, Stanley Harfenist, Maggie
Wilderotter
9
<PAGE>
Executive Compensation
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and the four other most highly
compensated executive officers (collectively, the "Named Executive Officers")
for services rendered to the Company for each of the fiscal years ended
December 31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term Compensation
-------------------------
Awards Payouts
------------ -----------
Securities Long-
Annual Compensation Under- term
-------------------------------------- Restricted lying Incentive All Other
Other Annual Stock Options/ Plan Conpen-
Salary Salary Bonus(1) Compensation Awards(2) SARs(3) Payouts sation(4)
Name Year $ $ $ $ (#) ($) $
---- -------- ---------- ---------- -------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daryl A. Ferguson(5) ....... 1998 0 0 0 0 0 0
Vice Chairman and 1997 0 0 0 0 0 0
Chief Executive Officer
David B. Sharkey ........... 1998 229,167 150,000 0 0 0 33,759
President and Chief 1997 183,333 100,000 0 40,703 0 30,036
Operating Officer 1996 155,830 80,000 0 18,084 0 27,790
John Wolff ................. 1998 156,250 64,000 0 0 0 4,688
Vice President-- 1997 141,227 50,000 0 80,000 146,000 0 2,900
New City 22,895
Development 1996 127,500 40,000 0 8,127 0 4,750
Randall Lis ................ 1998 151,250 62,000 0 0 0 3,004
Vice President-- 1997 133,278 50,000 0 80,000 146,000 0 10,192
Staff Support 22,895
1996 114,125 40,000 0 8,127 0 32,163
Todd Hanson ................ 1998 151,250 62,000 0 0 0 4,538
Vice President-- 1997 138,223 50,000 0 80,000 146,000 0 0
Engineering 22,895
1996 131,401 40,000 0 0 0 0
James M. Berthot ........... 1998 151,250 62,000 0 0 0 4,538
Vice President-- 1997 119,141 40,000 0 80,000 146,000 0 4,748
Marketing 22,895
1996 102,391 20,000 0 7,987 0 3,671
</TABLE>
<PAGE>
- ------------
(1) Bonus amounts awarded are for performance for the stated Salary Year and
are determined and awarded in the subsequent year.
(2) In connection with the IPO, on November 24, 1997 each of Drs. Tow and
Ferguson and Mr. Sharkey was granted 125,000 restricted performance shares
of Class A Common Stock of the Company. As of December 31, 1998, the total
number of such shares held by each of Drs. Tow and Ferguson and Mr.
Sharkey was 125,000, with a market value as of December 31, 1998 of
$1,023,750. One third of the shares granted to Dr. Ferguson and Mr.
Sharkey will vest on the later of November 24 of each year following the
date of grant and the achievement of a specified twelve-month revenue
goal. The restrictions on Dr. Tow'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. Recipients of restricted shares have the right to vote and
to receive dividends, if paid, on such shares.
(3) All options in this column, except options in the amount of 146,000 shares
shown in 1997 for Messrs. Wolff, Lis, Hanson and Berthot are exercisable
for shares of common stock of Citizens. The options for 146,000
10
<PAGE>
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 Management Equity Incentive Plan or its successor plan, the EIP.
Options in Company stock were granted under the EIP.
(4) Represents the Company's matching contribution to each Named Executive
Officer's 401(k) plan. Additionally, represents $28,759 for the 1998,
$27,286 for the 1997 and $25,453 for the 1996 economic benefit of
split-dollar life insurance for Mr. Sharkey and $28,271 for relocation
allowances paid to Mr. Lis in 1996.
(5) Dr. Ferguson, Chief Executive Officer of the Company since October, 1997,
is the President and Chief Operating Officer of Citizens. He and other
executive officers of the Company who are employees of Citizens are
compensated by Citizens on the basis of services rendered to Citizens and
its subsidiaries, including the Company. Administrative services are made
available to the Company under the Administrative Services Agreement. See
"Agreements with Citizens--Administrative Services Agreement." Dr.
Ferguson received an award of performance shares from the Company in 1997.
See footnote 2 to this table. The Compensation Committee may grant
additional incentive awards to him in the future.
AGGREGATED 1998 OPTION EXERCISES AND VALUE OF
OUTSTANDING OPTIONS AT DECEMBER 31, 1998
The following table sets forth certain information concerning options
exercised by the Named Executive Officers during 1998 and the number and value
of options held by them on December 31, 1998. There were no outstanding stock
appreciation rights relating to the Company's Common Stock at December 31,
1998. No exercises occurred during 1998 of options or stock appreciation rights
relating to the Company's Common Stock.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-money Options/SARs
Shares Value Fiscal Year-End (#) at Fiscal Year-End ($)
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 38,933 77,867 0 0
Randall Lis ............... 0 0 38,933 77,867 0 0
Todd Hanson. .............. 0 0 38,933 77,867 0 0
James M. Berthot .......... 0 0 38,933 77,867 0 0
</TABLE>
All numbers are as of December 31, 1998 and reflect adjustment for stock
splits and stock dividends paid subsequent to the date of grant. The closing
sale price as quoted by the Nasdaq National Market System ("NASDAQ") of the
Company's Class A Common Stock on December 31, 1998 was $8.19 per share. Dollar
amounts shown under all columns other than "Value Realized" have not been, and
may never be, realized. The underlying options have not been, and may never be,
exercised, and actual gains, if any, on exercise will depend on the value of
the Company's stock on the date of exercise.
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
Remuneration
(in thousands) Years of Service
-------------- -------------------
5 10 15 20
- -- -- --
$160.............. $12 $25 $37 $49
Full years of credited service for Mr. Sharkey are four.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Stanger as Chairman
and Mr. Greiner, Mr. Harfenist and Ms. Wilderotter. No executive officer of the
Company served as: (i) a member of the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the compensation committee of the Company; (ii) a
director of another entity, one of whose executive officers served on the
compensation committee of the Company; or (iii) a member of the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another
entity, one of whose executive officers served as a director of the Company.
STOCK PRICE PERFORMANCE GRAPH
[LINE GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURNS*
11/24/97 12/97 12/98
Electric Lightwave $100 $92.97 $ 51.17
NASDAQ US $100 $98.89 $139.01
New Peer Group $100 $100.87 $ 97.59
Old Peer Group $100 $102.94 $154.41
* TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDS
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,
1998. The graph compares the cumulative total return of the Company with that
of the Nasdaq Stock Market-US, a new peer group index and an old peer group
index. Cumulative return assumes $100 invested in the Company or respective
index 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 old peer group consists of the Company; Advanced
Radio Telecom Corp.; the former American Comm. Services, Inc. which has changed
its name to e.spire Communications; COLT Telecom Group, PLC; GST Telecom; ICG
Communications; Intermedia Communications; McLeod USA, Inc.; NEXTLINK
Communications, Inc.; Teligent, Inc. and WinStar Communications. The new peer
group selected by the Company includes (i) all of the members of the old peer
group except for COLT Telecom Group, PLC
12
<PAGE>
which was removed from the peer group because it was the only foreign company
represented and (ii) the following additional companies that were added to the
peer group due to similarities with the Company: Allegiance Telecom, Inc.;
Hyperion Telecommunications, Inc.; ITC DeltaCom, Inc.; MGC Communications,
Inc.; RCN Corporation; and US Lee Corporation. The Company believes that the
currently constituted peer group is more representative of its competition
considering recent developments among competitors in its industry. In
particular, Allegiance Telecom, Inc., Hyperion Telecommunications, Inc., MGC
Communications, Inc. and USLEC Corporation first became publicly traded
companies in 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons holding more than 10% of a registered class of
the Company's equity securities to file with the Securities and Exchange
Commission initial reports of ownership, reports of changes in ownership and
annual reports of ownership of Common Stock and other equity securities of the
Company. Such directors, officers, and 10% stockholders are also required to
furnish the Company with copies of all such filed reports.
Based solely upon a review of the copies of such reports furnished to the
Company, or representations that no reports were required, the Company believes
that, except as hereinafter described, all of its directors, executive officers
and 10% shareholders complied with all filing requirements under Section 16(a)
in 1998. A Statement of Changes in Beneficial Ownership on Form 4 ("Form 4")
for one transaction was filed late by Mr. Robert Stanger and by Mr. Jerry Cady
for two transactions.
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. Robert J. DeSantis, Chief
Financial Officer of the Company, is the Chief Financial 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 are rendered by Citizens
subject to the oversight, supervision and approval of the Company, acting
through its Board of Directors.
The administrative costs payable 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. Pursuant to the Administrative Services Agreement, in
1998 the Company paid $4,827,000 in fees to Citizens, excluding reimbursement
for costs.
13
<PAGE>
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 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 is 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.
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 was or will be 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 provided services prior to the IPO and in
certain new
14
<PAGE>
higher density territories which the Company was or will be 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.
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 the Company 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. At December 31, 1998, $110,000,000
was outstanding on the Lease.
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. At December 31, 1998, the Company had outstanding loans payable to
Citibank in the amount of $284 million.
For 1998, the amount payable by the Company to Citizens was $8,614,000 in
fees for guarantees which Citizens provided to the Company under the Lease and
the revolving Credit Facility.
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. The current agreement has a twenty-four month term which
commenced May 1, 1997.
Citizens' Communications segment ("Citizens Communications") has
transactions in the normal course of business with the Company. Citizens
Communications is an Incumbent Local Exchange Carrier ("ILEC") in certain
markets in which the Company provides services. In order to provide services in
those markets, the Company purchases access from Citizens Communications. The
Company is charged the full-tariff rate for those services, which was
$4,790,000 in 1998, representing usage based charges for the services provided.
Citizens Communications purchases certain services from the Company at
prevailing market rates. In 1998, the Company recognized revenue in the amount
of $2,882,000 for such related party transactions.
15
<PAGE>
Separation Agreement
On May 18, 1998, Citizens announced its plans to separate its
telecommunications businesses and public services businesses into two
stand-alone publicly-traded companies. Citizens intends to establish and
transfer to a new company ("Newco") all of its telecommunications businesses,
including its approximate 83% interest in the Company. This separation is
subject to federal and state regulatory approvals and final Board approval, and
is expected to be carried out through a distribution in the stock of the new
company to Citizens' shareholders. The public services businesses will continue
to operate as Citizens Utilities Company and intend to provide gas transmission
and distribution, electric transmission and distribution, water distribution
and wastewater treatment services. This separation is being made in recognition
of the different investment features, performance criteria, capital structures,
dividend policies, customers' requirements and regulatory designs of each
business, and would allow each business to pursue its own strategy and compete
more effectively in its respective markets. The separation will strengthen both
businesses and enable each of them to take full advantage of opportunities to
enhance value.
Citizens received an order from the Federal Energy Regulatory Commission
that granted an approval necessary to proceed with its separation plans.
Citizens filed a request with the Internal Revenue Service for a private letter
ruling that the transaction is not subject to federal income tax. Citizens has
filed petitions with numerous state regulatory agencies for the approvals
necessary to proceed with its separation plans and to date has received the
necessary approval from a number of these agencies. An application with the
Federal Communications Commission for the transfer of certain licenses and
filings with the Securities and Exchange Commission will also be made during
the separation process. The transaction is expected to be completed in the
second half of 1999.
Although Citizens continues to aggressively pursue its separation plans,
changing market conditions and new business opportunities may require it to
consider other methods to enhance shareholder value, including the sale or
other disposition of certain businesses and the acquisition of businesses
similar to those that Citizens retains.
In the event that the separation occurs, Citizens anticipates that all of
its intercompany agreements with the Company would be assigned to Newco.
Other
In the future, additional transactions (such as the separation described
above) may occur and agreements may 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.
16
<PAGE>
APPROVAL OF AMENDMENT TO ELECTRIC LIGHTWAVE, INC.
EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Plan") was approved by the
stockholders at the 1998 Annual Meeting. The Plan was intended to provide
equity incentives to attract and retain employees. As of February 28, 1999,
2,957,950 shares of Common Stock had been granted under the Plan and only
1,212,650 shares of Common Stock remained available for future grant under the
Plan. On February 23, 1999, the Board of Directors upon recommendation of its
Compensation Committee unanimously adopted, subject to stockholder
ratification, an amendment to the Plan to increase the maximum number of shares
of Common Stock which may be issued under the Plan from 4,170,600 shares to
6,670,600 shares. A copy of the full text of the amendment is included as
Appendix A to this Proxy Statement.
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.
A copy of the Plan as amended is available upon request in writing or by
telephone from Shareholder Services, Electric Lightwave, Inc., 3 High Ridge
Park, Stamford, CT 06905, and the following description is qualified in its
entirety by the full text of the Plan as amended.
Shares Subject to the Plan; Duration of the Plan
Awards granted under the Plan 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 6,670,600 shares,
or 13.4% of currently outstanding Common Stock. No individual may 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 are divided among the various components of the Plan in
such manner as the Compensation Committee of the Board of Directors (referred
to throughout the remainder of this description of the Plan as the "Committee")
may determine or authorize. No awards may 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 are also 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.
The average of the high and low bid and ask prices quoted on NASDAQ for
the Company's Class A Common Stock on March 1, 1999 was $8.1875 per share.
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%
17
<PAGE>
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 is 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 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
18
<PAGE>
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 is 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 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.
19
<PAGE>
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.
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
20
<PAGE>
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 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,
21
<PAGE>
the 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.
Recommendation
The Board of Directors recommends a vote to amend the Plan to increase the
number of shares of Common Stock which may be issued under the Plan to
6,670,600, subject to adjustment for stock dividends, stock splits and other
future changes in the Company's capital stock. The proposed amendment to the
Plan is necessary to continue the Plan in effect, which the Board of Directors
believes strengthens 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. Approval of the amendment to the Plan requires the affirmative vote of
holders of a majority of the votes cast on the amendment at the annual meeting.
APPROVAL OF AMENDMENT TO ELECTRIC LIGHTWAVE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
General
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
approved by stockholders at the 1998 Annual Meeting. The Purchase Plan provides
eligible employees of the Company with an opportunity to purchase Class A
Common Stock of the Company. As of February 28, 1998, 94,805 shares of Class A
Common Stock had been purchased under the Purchase Plan and only 105,195 shares
remained available for future purchases under the Plan. On February 23, 1999,
the Board of Directors, upon the recommendation of its Compensation Committee
unanimously adopted, subject to stockholder ratification, an amendment to the
Purchase Plan which will increase the number of shares of Class A Common Stock
which may be issued under the Purchase Plan from 200,000 shares to 1,950,000
shares. A copy of the full text of the amendment to the Purchase Plan is
included as Appendix B to this Proxy Statement.
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.
A copy of the Purchase Plan as amended is available upon request in
writing or by telephone from Shareholder Services, Electric Lightwave, Inc., 3
High Ridge Park, Stamford, CT 06905, and the following description is qualified
in its entirety by the full text of the Plan as amended.
As of February 28, 1999, 468 of the 1,027 eligible employees of the
Company were enrolled for payroll deduction under the Purchase Plan. Six of the
Company's executive officers were participants. The extent of the participation
in the Purchase Plan and the number of shares purchased under the Purchase Plan
demonstrates its success in achieving its goals and the desirability of
extending its life.
22
<PAGE>
The Board of Directors believes that the approval of the amendment to the
Purchase Plan will further the employees' 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
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.
23
<PAGE>
Recommendation
The Board of Directors recommends a vote to amend the Purchase Plan to
increase the number of shares of Class A Common Stock which may be issued under
the Purchase Plan to 1,950,000 shares, subject to adjustment for stock
dividends, stock splits and other future changes in the Company's capital
stock. Approval of the amendment to the Purchase Plan requires the affirmative
vote of holders of a majority of the votes cast on the amendment at the annual
meeting.
GENERAL
Representatives of KPMG Peat Marwick LLP, the Company's independent public
accountants, are expected to be present at the annual meeting with an
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
OTHER MATTERS
The management does not know of matters other than the foregoing that will
be presented for consideration at the meeting.
STOCKHOLDER PROPOSALS
For proposals, if any, to be considered for inclusion in the proxy
materials for the 2000 annual meeting, they must be received by November 23,
1999. 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 no earlier than January 1, 2000 nor later than February
15, 2000.
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>
Appendix A
FIRST AMENDMENT TO
ELECTRIC LIGHTWAVE, INC.
1997 EQUITY INCENTIVE PLAN
This FIRST AMENDMENT (this "Amendment") to Electric Lightwave, Inc. 1997
Equity Incentive Plan (the "Plan") is made on this 23rd day of February, 1999,
by Electric Lightwave, Inc.. (the "Company"), a corporation duly organized and
existing under the laws of the State of Delaware.
WHEREAS, the Company has determined that it is in its best interests to
amend the Plan as set forth herein.
NOW THEREFORE, upon approval of this Amendment by the Board of Directors
and the Stockholders of the Company, the Plan shall be amended as follows:
1. Section 3, paragraph (a) of the Plan shall be amended by deleting the
number "4,170,600" in the first sentence of such paragraph and replacing it
with the number "6,670,600."
2. Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed
on the day and year first above written.
ELECTRIC LIGHTWAVE, INC.
By:____________________________________
Name:
Title:
<PAGE>
Appendix B
FIRST AMENDMENT TO
ELECTRIC LIGHTWAVE, INC.
EMPLOYEE STOCK PURCHASE PLAN
This FIRST AMENDMENT (this "Amendment") to Electric Lightwave, Inc.
Employee Stock Purchase Plan (the "Plan") is made on this 23rd day of February,
1999, by Electric Lightwave, Inc. (the "Company"), a corporation duly organized
and existing under the laws of the State of Delaware.
WHEREAS, the Company has determined that it is in its best interests to
amend the Plan as set forth herein.
NOW THEREFORE, upon approval of this Amendment by the Board of Directors
and the Stockholders of the Company, the Plan shall be amended as follows:
1. Section 7 of the Plan shall be amended by deleting the number
"200,000" at the end of the second sentence in the first paragraph of such
section and replacing it with the number "1,950,000."
2. Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed
on the day and year first above written.
ELECTRIC LIGHTWAVE, INC.
By:____________________________________
Name:
Title:
<PAGE>
See Advance Registration Form on back cover.
<PAGE>
Electric Lightwave, Inc.
1999 Annual Meeting of Stockholders
2:30 p.m., Central Time, May 20, 1999
Wyndham Anatole Hotel
Dallas, Texas
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.
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.
A-1
<PAGE>
(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.
A-2
<PAGE>
(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.
A-3
<PAGE>
(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.
A-4
<PAGE>
(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 SAR are granted. The Committee may further require
that an Option or SAR become exercisable in installments.
A-5
<PAGE>
(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.
A-6
<PAGE>
(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.
A-7
<PAGE>
(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
A-8
<PAGE>
any 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.
A-9
<PAGE>
(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 may be acquired, including Awards valued using measures
other than market value or Fair Market Value, if deemed by the Committee in its
A-10
<PAGE>
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 under the Plan upon
his or her death. If the Committee is in doubt as to the right of any person
A-11
<PAGE>
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 Section 12(c),
rules and regulations of general application adopted pursuant to Section
A-12
<PAGE>
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.
A-13
<PAGE>
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.
A-14
<PAGE>
(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.
A-15
<PAGE>
(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.
A-16
<PAGE>
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.
A-17
<PAGE>
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 Stock under the Plan will not be extended to
B-1
<PAGE>
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.
B-2
<PAGE>
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.
B-3
<PAGE>
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
B-4
<PAGE>
(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.
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints Stanley Harfenist, Robert A. Stanger, Maggie
Wilderotter 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 20, 1999, at 2:30 p.m., Central 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: ________________________________, 1999
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.
- --------------------------------------------------------------------------------
ELECTRIC LIGHTWAVE, INC.
Please complete both sides of this Proxy Card and return in the enclosed
envelope.
<TABLE>
<CAPTION>
<S> <C>
Proposal 1 Proposal 2
- ---------- ----------
Election of Directors Approve an Amendment of the 1997 Equity Incentive Plan.
Nominees:
For [ ] Against [ ] Abstain [ ]
For [ ] Withheld [ ] Daryl A. Ferguson
Guenther E. Greiner
Stanley Harfenist
David B. Sharkey Proposal 3
Robert A. Stanger -----------
Leonard Tow Approve an Amendment of the 1998 Employee Stock Purchase Plan.
Maggie Wilderotter
For, except vote withheld from For [ ] Against [ ] Abstain [ ]
the following Nominee(s)
______________________________
______________________________
</TABLE>
