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
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
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
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
(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
(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