CHOICE ONE COMMUNICATIONS INC.
1998 EMPLOYEE STOCK OPTION PLAN
(May 2000 Restatement)
1. BACKGROUND AND PURPOSE
Choice One Communications Inc. (the "Corporation") hereby continues,
amends and restates the Choice One Communications Inc. 1998 Employee Stock
Option Plan (the "Plan"). The purpose of this Plan is to enable the Corporation
to attract and retain key employees and provide them with an incentive to
maintain and enhance the Corporation's long-term performance record. It is
intended that this purpose will best be achieved by granting eligible employees
incentive stock options ("ISOs"), non-qualified stock options ("NQSOs"), and
restricted stock grants under this Plan pursuant to the rules set forth in
Sections 83, 162(m), 421 and 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. ADMINISTRATION
The Plan shall be administered by a Committee of the Corporation's
Board of Directors (the "Committee"). This Committee shall consist of at least
two members of the Corporation's Board of Directors each of whom shall, unless
the Board determines otherwise, meet the requirements for a "Non-Employee
Director" as set forth in Rule 16b-3(b)(3) or any successor provision,
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the requirements for an "outside director" as set forth in
Code Section 162(m) and the regulations thereunder. Subject to the provisions of
the Plan, the Committee shall possess the authority, in its discretion, (a) to
determine the key employees of the Corporation to whom, and the time or times at
which, ISOs, NQSOs (ISOs and NQSOs are collectively referred to as "options"),
and restricted stock grants (all three types of grants are collectively referred
to as "awards") shall be granted; (b) to determine at the time of grant whether
an award will be an ISO, a NQSO, a restricted stock grant or a combination of
these awards and the number of shares to be subject to each award; (c) to
prescribe the form of the award agreements and any appropriate terms and
conditions applicable to the awards and to make any amendments to such
agreements or awards; (d) to interpret the Plan; (e) to make and amend rules and
regulations relating to the Plan; and (f) to make all other determinations
necessary or advisable for the administration of the Plan. The Committee's
determinations shall be conclusive and binding. No member of the Committee shall
be liable for any action taken or decision made in good faith relating to the
Plan or any award granted hereunder.
3. ELIGIBLE EMPLOYEES
Awards may be granted under the Plan only to key employees of the
Corporation and its subsidiaries (which shall include all corporations of which
at least fifty percent of the voting stock is owned by the Corporation directly
or through one or more corporations at least fifty percent of the voting stock
of which is so owned) who have the capability of making a substantial
contribution to the success of the Corporation and its subsidiaries.
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4. SHARES AVAILABLE
The total number of shares of the Corporation's Common Stock (par value
of $0.01 per share) available in the aggregate for awards under this Plan is
6,000,000 (subject to substitution or adjustment as provided in Section 10).
If an award expires, terminates or is canceled without being exercised
or becoming vested, new awards may thereafter be granted under the Plan covering
such shares unless Rule 16b-3 under the Exchange Act provides otherwise. No
award may be granted more than 10 years after the original effective date of the
Plan.
The total number of shares with respect to which ISO or NQSO awards in
the aggregate may be granted to any one employee may not exceed 1,200,000 shares
per calendar year (subject to substitution or adjustment as provided in Section
10).
5. TERMS AND CONDITIONS OF ISOS
Each ISO granted under the Plan shall be evidenced by an ISO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform with this Plan and contain the following terms and
conditions:
(a) Exercise Price. The exercise price under each option shall be
equal to or greater than the fair market value of the Common
Stock at the time such option is granted. If an option is
granted to an employee who at the time of grant owns stock
possessing more than ten percent of the total combined voting
power of all classes of stock of the Corporation (a
"10-percent Shareholder"), the purchase price shall be at
least 110 percent of the fair market value of the stock
subject to the option.
(b) Duration of Option. Each option by its terms shall not be
exercisable after the expiration of ten years from the date
such option is granted. In the case of an option granted to a
10-percent Shareholder, the option by its terms shall not be
exercisable after the expiration of five years from the date
such option is granted. Any option that remains unexercised
after the latest date it could have been exercised under any
provision of this Plan shall be forfeited as of such date.
(c) Options Nontransferable. Each option by its terms shall not be
transferable by the participant otherwise than by will or the
laws of descent and distribution and shall be exercisable,
during the participant's lifetime, only by the participant,
the participant's guardian or the participant's legal
representative.
(d) Exercise Terms. Each option granted under the Plan shall
become exercisable at such time and upon the attainment of
such goals as may be specified by the Committee at the time of
grant, which conditions may vary from one grant to another.
Options may be partially exercised from time to time during
the period extending from the time they first become
exercisable until a date established by the Committee which
shall not extend beyond the tenth anniversary (fifth
anniversary for a 10-percent Shareholder) of the date of
grant.
No outstanding option may be exercised by any person if the
employee to whom the option is granted is, or at any time
after the date of grant has been, engaged, directly or
indirectly in conduct that competes with the Corporation or
any affiliated company. The Committee has the sole discretion
to determine whether an employee's actions constitute
competition with the Corporation or any
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affiliated company. The Committee may impose such other terms
and conditions on the exercise of options as it deems
appropriate to serve the purposes for which this Plan has been
established.
(e) Maximum Value of ISO Shares. No ISO shall be granted to an
employee under this Plan or any other ISO plan of the
Corporation or its subsidiaries to purchase shares as to which
the aggregate fair market value (determined as of the date of
grant) of the Common Stock which first become exercisable by
the employee in any calendar year exceeds $100,000.
(f) Payment of Exercise Price. An option shall be exercised upon
written notice to the Corporation accompanied by payment in
full for the shares being acquired. The payment shall be made
in cash, by check or, if the option agreement so permits, by
delivery of shares of Common Stock of the Corporation
beneficially owned by the participant, duly assigned to the
Corporation with the assignment guaranteed by a bank, trust
company or member firm of the New York Stock Exchange, or by a
combination of the foregoing. Any such shares so delivered
shall be deemed to have a value per share equal to the fair
market value of the shares on such date and must have been
held by the participant for more than six months.
Subject to the approval of the Board of Directors upon
recommendation by the Committee, in respect of the exercise of
options, the Corporation may loan to the employee a sum equal
to an amount which is not in excess of 100% of the purchase
price of the shares so purchased upon exercise, such loan to
be evidenced by the execution and delivery of a full recourse
promissory note. Interest shall be paid on the unpaid balance
of the promissory note at such times and at such rate as shall
be determined by the Board of Directors. Such promissory note
shall be secured by the pledge to the Corporation of shares
having an aggregate purchase price on the date of exercise
equal to or greater than the principal amount of such note. An
optionee shall have, as to such pledged shares, all rights of
ownership, including the right to vote such shares and to
receive dividends paid on such shares, subject to the security
interest of the Corporation. Such shares shall not be released
by the Corporation from the pledge unless the proportionate
amount of the note secured thereby has been repaid to the
Corporation. All notes executed hereunder shall be payable at
such times and in such amounts and shall contain such other
terms as shall be specified by the Board of Directors,
provided, however, that such terms shall conform to
requirements contained in any applicable regulations which are
issued by any governmental authority.
6. TERMS AND CONDITIONS FOR NQSOS
Each NQSO granted under the Plan shall be evidenced by a NQSO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform to this Plan and contain the same terms and conditions
as the ISO option agreement except that:
(a) the Committee may grant a NQSO having an exercise price that
is less than, equal to or greater than the fair market value
of the Corporation's Common Stock at the time the option is
granted; however, the exercise price of a NQSO that is
intended to qualify as "performance-based compensation" under
Code Section 162(m) shall equal the fair market value of the
Corporation's Common Stock on the date of grant;
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(b) the 10-percent Shareholder restrictions in Sections 5(a), 5(b)
and 5(d) and the maximum value of share rules of Section 5(e)
shall not apply to NQSO grants;
(c) No outstanding option may be exercised by any person if the
employee to whom the option is granted is, or at any time
after the date of grant has been, engaged, directly or
indirectly in conduct that competes with the Corporation or
any affiliated company. The Committee has the sole discretion
to determine whether an employee's actions constitute
competition with the Corporation or any affiliated company.
The Committee may impose such other terms and conditions on
the exercise of options as it deems appropriate to serve the
purposes for which this Plan has been established.
To the extent an option initially designated as an ISO exceeds the
value limit of Section 5(e), it shall be deemed a NQSO and shall otherwise
remain in full force and effect.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK GRANTS
The Committee may, evidenced by such written agreement as the Committee
shall from time to time prescribe, grant to an eligible employee a specified
number of shares of the Corporation's Common Stock which shall vest only after
the attainment of the relevant restrictions described below ("restricted
stock"). Such restricted stock shall have an appropriate restrictive legend
affixed thereto. A restricted stock grant shall be subject to the following
conditions and restrictions:
(a) Restricted stock may not be sold or otherwise transferred by
the participant until ownership vests, provided however, to
the extent required for the restricted stock grant to be
exempt under Rule 16b-3 of the Exchange Act, the restricted
stock must be held by the participant for at least six months
following the date of vesting.
(b) Ownership shall vest only following satisfaction of one or
more of the following criteria as the Committee may prescribe:
(i) the passage of an amount of time, as the Committee in
its discretion may provide, from the date of grant.
(ii) the attainment of performance-based goals established
by the Committee as of the date of grant. The
Committee may establish such performance goals based
on one or more of the following targets:
o total shareholder return
o earnings per share growth
o cash flow growth
o return on equity
o sales growth
o increased market penetration
o access line growth
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o customer growth
(iii) any other conditions the Committee may prescribe,
including a non-compete requirement.
(c) Unless the Committee shall determine otherwise, the Committee
shall grant and administer all performance-based awards under
(b)(ii) above with the intent of meeting the criteria of Code
Section 162(m) for performance-based compensation. In order to
meet these criteria, the outcome of all targeted goals shall
be substantially uncertain on the date of grant; the goals
shall be established no later than 90 days following the
commencement of service to which the goals relate; the minimum
period for attaining each performance goal shall be one year;
and the Committee shall certify at the conclusion of the
performance period whether the performance-based goals have
been attained. Such certification may be made by noting the
attainment of the goals in the minutes of the Committee's
meetings. The maximum value of restricted stock awards that
may be granted to any participant in a calendar year shall not
exceed $10,000,000 (measured by the difference between the
amount the participant must pay for the restricted shares and
the fair market value of the shares on the date of the award).
(d) Except as otherwise determined by the Committee, all rights
and title to restricted stock granted to a participant under
the Plan shall terminate and be forfeited to the Corporation
upon failure to fulfill all conditions and restrictions
applicable to such restricted stock.
(e) Except for the restrictions set forth in this Plan and those
specified by the Committee in any restricted stock agreement,
a holder of restricted stock shall possess all the rights of a
holder of the Corporation's Common Stock, (including voting
and dividend rights); provided, however, that prior to
vesting, the certificates representing such shares of
restricted stock (and the amount of any dividends issued with
respect thereto) shall be held by the Corporation for the
benefit of the participant and the participant shall deliver
to the Corporation a stock power executed in blank covering
such shares. As the shares vest, certificates representing
such shares shall be released to the participant.
(f) All other provisions of the Plan not inconsistent with this
section shall apply to restricted stock or the holder thereof,
as appropriate, unless otherwise determined by the Committee.
8. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Corporation shall not be required to deliver any certificate upon
the grant, vesting or exercise of any award until it has been furnished with
such opinion, representation or other document as it may reasonably deem
necessary to ensure compliance with any law or regulation of the Securities and
Exchange Commission or any other governmental authority having jurisdiction
under this Plan. Certificates delivered upon such grant, vesting or exercise may
bear a legend restricting transfer absent such compliance. Each award shall be
subject to the requirement that, if at any time the Committee shall determine,
in its discretion, that the listing, registration or qualification of the shares
subject to such award upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such awards or the issue or purchase of shares thereunder, such awards may not
vest or be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been
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effected or obtained free of any conditions not acceptable to the Committee in
the exercise of its reasonable judgment.
9. IMPACT OF TERMINATION OF EMPLOYMENT
(a) If the employment of a participant terminates by reason of
death or permanent physical disability (as determined by the
Committee), all unvested awards shall become immediately
vested and exercisable upon the participant's termination
date. Any option may be exercised by the participant or, in
the event of the participant's death, by the participant's
personal representative any time prior to the earlier of the
expiration date of the option or the expiration of three
months after the date of termination.
(b) Except for awards of restricted stock that are intended to
qualify as "performance-based compensation" under Code section
162(m), if the employment of a participant terminates on
account of retirement, all of the participant's unvested
awards shall become immediately vested and exercisable upon
the participant's termination date. Any option may be
exercised by the participant prior to the earlier of the
expiration date of the option or the expiration of one year
from the date of retirement. For this purpose, "retirement"
means any voluntary termination of employment after reaching
age 60. If an option is exercised more than three months
following termination of employment, it shall be treated as an
NQSO even if it would have been treated as an ISO if exercised
within three months of retirement.
(c) Upon termination of a participant's employment for "cause,"
any vested option may not be exercised after termination of
employment and any unvested award shall be forfeited. For
purposes of this Section 9 and Section 16, "cause" shall mean
(i) the participant's theft or embezzlement, or attempted
theft or embezzlement, of money or property of the Corporation
or any affiliate, the participant's perpetration or attempted
perpetration of fraud, or the participant's participation in a
fraud or attempted fraud, on the Corporation or any affiliate,
or the participant's unauthorized appropriation of, or attempt
to misappropriate, any tangible or intangible assets or
property of the Corporation or any affiliate; (ii) any act or
acts of disloyalty, misconduct or moral turpitude by the
participant which the Board determines in good faith has been
or is likely to be demonstrably injurious to the interest,
property, operations, business or reputation of the
Corporation or any affiliate, or the participant's conviction
of a crime other than minor traffic violations or other
similar minor offenses; (iii) the participant's repeated
intentional refusal or willful failure (other than by reason
of disability as determined in Section 9(a)) to carry out
reasonable instructions by his superiors; or (iv) the
participant's breach of any confidentiality, non-solicitation
or non-compete agreement with the Corporation or any
affiliate.
(d) Upon termination of a participant's employment for any reason
other than the events described in Sections 8(a), (b) or (c)
above, any vested option that was exercisable immediately
preceding termination may be exercised at any time prior to
the earlier of the expiration date of the option or the
expiration of three months after the date of such termination.
Any unvested award shall be forfeited upon any such
termination of the participant's employment.
If the employment of a participant terminates for any reason
other than the events described in Sections 8(a), (b) or (c)
above, any unpaid balance remaining on any promissory note
used in the purchase of stock shall become due and payable
upon
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not less than three months notice from the Corporation, which
notice may be given at any time after any such termination.
Additionally, subject to such call right, any unpaid balance
on such promissory note shall become due and payable five
years from the date of such termination, unless the note has
an earlier due date.
(e) Miscellaneous Termination Provisions
Notwithstanding the foregoing, the Committee has the authority
to prescribe different rules that apply upon the termination
of employment of a particular participant or group of
participants, which shall be memorialized in the participant's
original or amended award agreement or similar document.
Unless otherwise determined by the Committee, an authorized
leave of absence shall not constitute a termination of
employment for purposes of this Plan.
In the case of termination due to death, any unpaid balance
remaining on any promissory note used in the purchase of stock
shall become due and payable one year from such date.
An option that remains unexercised after the latest date it
could have been exercised under any of the foregoing
provisions shall be forfeited.
10. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Corporation by
reason of any stock dividend, stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination, or exchange of shares, or of any
similar change affecting the Common Stock, the number and kind of shares
authorized under Section 4, the number and kind of shares which thereafter are
subject to an award under the Plan and the number and kind of unexercised
options and unvested shares set forth in awards under outstanding agreements and
the price per share shall be adjusted automatically consistent with such change
to prevent substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
11. WITHHOLDING TAXES
A participant's benefits under the terms of this Plan shall be subject
to such federal, state and local income and employment tax withholdings as
benefits of this type are normally subject. Whenever the Corporation proposes or
is required to issue or transfer shares of Common Stock under the Plan, or
whenever restricted stock vests, the Corporation shall have the right to require
the recipient to remit to the Corporation an amount sufficient to satisfy any
federal, state and/or local income and employment withholding tax requirements
prior to the delivery of any certificate or certificates for such shares or to
take any other appropriate action to satisfy such withholding requirements.
Notwithstanding the foregoing, subject to such rules as the Committee may
promulgate and compliance with any requirements under Rule 16b-3, the recipient,
may satisfy such obligation in whole or in part by electing to have the
Corporation withhold shares of Common Stock from the shares to which the
recipient is otherwise entitled, provided that the amount of such withholding
shall not exceed the Corporation's statutory withholding requirements.
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12. NO EMPLOYMENT RIGHTS
The Plan and any options granted under the Plan shall not confer upon
any participant any right with respect to continuance as an employee of the
Corporation or any subsidiary, nor shall they interfere in any way with the
right of the Corporation or any subsidiary to terminate the participant's
position as an employee at any time.
13. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for the
underlying shares of Common Stock are issued to the recipient. The recipient of
a restricted stock grant shall have all rights of a shareholder except as
otherwise limited by the terms of this Plan or award agreement.
14. STOCKHOLDERS AGREEMENT
The Board, in its discretion, may require that as a condition to a
participant's exercise of any option, the participant must enter into a
Shareholders Agreement with the Corporation in form and substance as acceptable
to the Board.
15. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the Committee or by
the shareholders of the Corporation, except that the Committee may not, without
approval of a majority of the shareholders present in person or by proxy,
increase the maximum number of shares as to which awards may be granted under
the Plan, increase the number of awards that may be granted per year per
participant, change the class of eligible persons, or modify or terminate the
plan in a manner that requires shareholder approval under applicable law without
obtaining such approval. Notwithstanding the foregoing, to the extent permitted
by law, the Committee may amend the Plan without the approval of shareholders.
Except as required by law, no amendment, modification, or termination of the
Plan may, without the written consent of a participant to whom any award shall
theretofore have been granted, adversely affect the rights of such participant
under such award.
16. CHANGE IN CONTROL
(a) Notwithstanding other provision of the Plan, in the event of a
change in control of the Corporation (as defined in subsection
(c) below), (i) the vesting schedule of each option holder
shall be accelerated by one year; or (ii) a minimum of 50% of
all of a participant's options (meaning all options ever
granted and not canceled including those already vested),
starting with the options granted under the earliest options
grant to the participant, shall become immediately vested,
whichever is greater. Additionally, notwithstanding any other
provision of the Plan and unless directed otherwise by a
resolution of the Committee adopted prior to and specifically
relating to the occurrence of a change in control, if there is
a change in control and a participant's employment is
terminated by the Corporation, its subsidiaries or their
successors (other than a termination for cause) upon such
change in control or at any time during the 2-year period
after such change of control occurs, all of a participant's
unvested awards will become immediately vested and exercisable
on the participant's termination date. For purposes of this
paragraph (a) "terminated by the Company" means either the
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participant has been fired or otherwise terminated by the
Company or the participant has elected to resign within 90
days after any of the following:
(i) a material reduction in the participant's total
compensation (which will include salary, bonus,
commission structure or stock options and other
equity-based compensation) without the participant's
written consent (it being understood that a change in
the form or measure of compensation such as a change
from salary-based to commission-based compensation,
or a rearrangement of the participant's compensation
package to include a different combination of salary,
bonus, commission, options, and/or incentive equity,
will not by itself constitute such a material
reduction);
(ii) a relocation of the participant's place of employment
to a site at least 100 miles away from the
participant's employment site immediately before the
change in control without the participant's written
consent; or
(iii) a material reduction in the participant's job
authority and responsibilities without the
participant's written consent.
(b) In the event of a change in control each participant holding
an exercisable option (i) shall have the right at any time
thereafter during the term of such option to exercise the
option in full except that, as to a change in control by
merger, the exercise price and number of shares of the
acquiring corporation issuable upon exercise shall be divided
and multiplied, respectively, by the exchange ratio in effect,
and (ii) may, subject to Committee approval and after written
notice to the Corporation within 60 days after the change in
control, or, if the participant is an officer subject to
Section 16 of the Exchange Act and to the extent required to
exempt the transaction under Rule 16b-3, during the period
beginning on the third business day and ending on the twelfth
business day following the first release for publication by
the Corporation after such change in control of a quarterly or
annual summary statement of earnings, which release occurs at
least six months following grant of the option, whichever
period is longer, receive, in exchange for the surrender of
the option or any portion thereof to the extent the option is
then exercisable in accordance with clause (i), an amount of
cash equal to the difference between the fair market value (as
determined by the Committee) on the date of surrender of the
Common Stock covered by the option or portion thereof which is
so surrendered and the option price of such Common Stock under
the option.
(c) For purposes of this section, "change in control" means:
(i) there shall be consummated
o any consolidation or merger of the Corporation in
which the Corporation is not the continuing or
surviving corporation or pursuant to which any
shares of the Corporation's common stock are to
be converted into cash, securities or other
property, provided that the consolidation or
merger is not with a corporation which was a
wholly-owned subsidiary of the Corporation
immediately before the consolidation or merger;
or
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o any sale, lease, exchange or other transfer (in
one transaction or a series of related
transactions) of all, or substantially all, of
the assets of the Corporation (other than to one
or more directly or indirectly wholly-owned
subsidiaries of the Corporation); or
(ii) the shareholders of the Corporation approve any plan
or proposal for the liquidation or dissolution of the
Corporation; or
(iii) any person (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than any person
or its affiliates who own more than 5% of the
outstanding shares of common stock of the Corporation
as of the effective date of this Plan, shall become
the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the Corporation's then
outstanding common stock, provided that such person
shall not be a wholly-owned subsidiary of the
Corporation immediately before it becomes such 50%
beneficial owner; or
(iv) individuals who constitute the Corporation's Board of
Directors on the effective date of this Plan (the
"Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of
at least three quarters of the directors comprising
the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Corporation in
which such person is named as a nominee for director,
without objection to such nomination) shall be, for
purposes of this clause (iv), considered as though
such person were, and shall be deemed to be, a member
of the Incumbent Board.
(d) For purposes of this paragraph "termination for cause" shall
have the meaning set forth at Section 9.
17. EFFECTIVE DATE
The effective date of this Plan is August 12, 1998. The effective date
of this restatement is the date of shareholder approval as noted below.
18. DEFINITIONS
Any terms or provisions used herein which are defined in Sections 83,
162(m), 421, or 422 of the Internal Revenue Code as amended, or the regulations
thereunder or corresponding provisions of subsequent laws and regulations in
effect at the time options are made hereunder, shall have the meanings as
therein defined.
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19. GOVERNING LAW
To the extent not inconsistent with the provisions of the Internal
Revenue Code that relate to options, this Plan and any option agreement adopted
pursuant to it shall be construed under the laws of the State of Delaware.
Dated as of May 26, 2000
CHOICE ONE COMMUNICATIONS INC.
By:/s/Steve Dubnik
------------------------
Steve Dubnik
President and CEO
Date of Shareholder Approval: May 26, 2000
