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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 Rule 14a-12
Electric Lightwave, Inc.
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(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)(4) 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. Filed:
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Administrative Offices
Three High Ridge Park, Stamford, CT 06905
(203) 614-5600
[GRAPHIC OMITTED]
ELECTRIC
LIGHTWAVE (Registered)
- --------------------------------------------------------------------------------
March 22, 2002
Dear Fellow Stockholder:
I am pleased to invite you to attend the 2002 Annual Meeting of the
Stockholders of Electric Lightwave, Inc., which will be held at the Prudential
Center for Learning and Innovation, Weed Avenue, Norwalk, CT 06850, on
Thursday, May 16, 2002, at 2:00 p.m., Eastern Time.
It is important that your shares be represented whether or not you attend
the meeting. In order to ensure 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 stockholders as of the
record date, or their authorized representative, and employees. Registered
stockholders planning to attend the meeting should so indicate by marking the
appropriate box on the proxy.
We look forward to seeing and meeting with you at the Annual Meeting.
Cordially,
/s/ Robert Braden
Robert Braden
Chief Executive Officer
Administrative Offices
[GRAPHIC OMITTED] Three High Ridge Park, Stamford, CT 06905
(203) 614-5600
ELECTRIC
LIGHTWAVE (Registered)
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March 22, 2002
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 Prudential Center for Learning and
Innovation, Weed Avenue, Norwalk, CT 06850, on Thursday, May 16, 2002, at 2:00
p.m., Eastern Time, for the following purposes:
1. To elect directors;
2. To approve the appointment of KPMG LLP as our independent public
accountants for 2002; and
3. To transact such other business as may properly be brought before the
meeting or any adjournment or postponement of the meeting.
The board of directors fixed the close of business on March 18, 2002, as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting or any adjournment or postponement of the meeting.
A complete list of stockholders entitled to vote at the meeting will be
open to the examination of stockholders, during ordinary business hours, for a
period of ten days prior to the meeting at the offices of Citizens
Communications Company, Three High Ridge Park, Stamford, CT 06905 and at the
site of the meeting on the meeting date.
By Order of the Board of Directors
/s/ L. Russell Mitten
L. Russell Mitten
Secretary
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the board of directors of Electric Lightwave, Inc. to be voted at our annual
meeting of stockholders. The mailing address of our administrative offices is
Three High Ridge Park, Stamford, CT 06905. The approximate date on which this
proxy statement and form of proxy are first being sent or given to stockholders
is March 31, 2002.
Only holders of record of our Class A Common Stock, par value $0.01 per
share, and Class B Common Stock, par value $0.01 per share, as of the close of
business on March 18, 2002, the record date, will be entitled to notice of and
to vote at the annual meeting. As of the record date, there were 35,417,531
shares of Class A Common Stock outstanding, each of which is entitled to one
vote, and 15,881,312 shares of Class B Common Stock outstanding, each of which
is entitled to ten votes at the annual meeting. As of the record date, an
additional 103,037 shares of Class A Common Stock were held by us as treasury
shares. The Class A Common Stock and the Class B Common Stock will vote
together as a single class on all matters presented for a vote at our
stockholders' meeting. 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 majority vote of the shares of common stock
present or represented by proxy and entitled to vote at the meeting. The
approval of the engagement of our independent public accountants also requires
the affirmative vote of a majority of the shares of common stock present or
represented by proxy and entitled to vote at the meeting. Abstentions by
stockholders present in person or by proxy will have the effect of a negative
vote with respect to the election of directors and the approval of the
auditors. Brokers not receiving instructions from our stockholders may vote at
the meeting on both the election of directors and the approval of the auditors;
accordingly, 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 auditors. Stockholders may not cumulate their
votes. Stockholders who execute proxies may revoke them at any time before they
are voted.
Stock Ownership of Certain Beneficial Owners, Directors and Executive Officers
As of February 28, 2002, no person or group of persons, except for
Citizens Communications Company ("Citizens"), was known by us to beneficially
own more than 5% of any class of our common stock. Citizens has sole voting and
investment power with respect to the securities beneficially owned.
As of February 28, 2002, Citizens, with offices at Three High Ridge Park,
Stamford, CT 06905, beneficially owns, through its wholly-owned subsidiary CU
CapitalCorp., 15,881,312 shares of Class B Common Stock, representing all of
the outstanding shares of Class B Common Stock, and 27,571,332 shares of Class
A Common Stock, representing approximately 78% of the outstanding shares of
Class A Common Stock. The Class B Common Stock is not registered under Section
12 of the Securities Exchange Act of 1934 and is not publicly traded. Each
share of Class B Common Stock is convertible into the Class A Common Stock on a
one-for-one basis and votes with the Class A Common Stock on a ten-for-one
basis. Consequently, the shares of Class A Common Stock and Class B Common
Stock held by Citizens represent 96% of the voting power of our common stock
and, without the vote of any other stockholder, Citizens can determine the
outcome of matters brought before our stockholders for a vote. On June 29,
2001, we filed an application for listing our Class A Common Stock on the
Nasdaq SmallCap Market because we no longer met the criteria for inclusion on
the Nasdaq National Market System. As a part of that application process, in
August of 2001 Citizens converted 25,283,688 shares of the Class B Common Stock
that it owned into the same number of shares of Class A Common Stock.
CU CapitalCorp. may be deemed the beneficial owner of an additional
15,881,312 shares of Class A Common Stock through the right to convert shares
of Class B Common Stock into shares of Class A Common Stock. On an as-converted
basis, Citizens and CU CapitalCorp. would be deemed to be the beneficial owners
of, and to have shared voting and investment power with respect to, 43,452,644
shares of Class A Common Stock, which in the aggregate constitutes
approximately 85% of the shares of Class A Common Stock if all the shares of
Class B Common Stock were converted into shares of Class A Common Stock.
Citizens and CU CapitalCorp. disclaim beneficial ownership of such 15,881,312
shares of Class A Common Stock.
The following table reflects shares of common stock beneficially owned (or
deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) as of February 28, 2002, by each of our directors and
nominees for directors and by each of the executive officers, named in the
Summary Compensation Table included elsewhere herein, and our current directors
and all executive officers 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 and have an address at our
executive offices.
Class of Percentage of
Common Stock Common
Owned (1) Acquirable Stock Owned (3)
-------------------------------- Within ------------------
Name Position Class A Class B 60 Days (2) Class A Class B
---- ------------------------- ------------- ------------- ------------ --------- --------
Steven E. Adkins .............. Vice President, 137,038 0 125,801 * *
Information
Technology and Billing
Operations
Charles Best .................. Vice President of 27,196 0 25,000 * *
Administration and
Legal Affairs
Robert Braden (4) ............. Chief Executive Officer 44,091(5) 0 0 * *
and Director
John H. Casey, III (4) ........ Nominee for Director 0 0 0 * *
Michael L. Daniel ............. Vice President, Retail 133,467 0 128,800 * *
Sales
Rudy Graf (4) ................. Director 27,571,332 15,881,312 0 78 100
Guenther E. Greiner ........... Director 83,848 0 57,102 * *
Stanley Harfenist (4) ......... Director 27,717,279(6) 15,881,312 140,000 78 100
William M. Kraus .............. Director 36,250 0 36,250 * *
Scott N. Schneider (4) ........ Executive Vice 27,571,332 15,881,312 0 78 100
President and Director
Robert A. Stanger (4) ......... Director 27,621,332 15,881,312 50,000 78 100
Maggie Wilderotter ............ Director 60,947 0 60,000 * *
Leonard Tow (4) ............... Chairman of the Board 27,798,235(7) 15,881,312 100,000 78 100
of Directors
All Executive Officers and
Directors as a Group
(19 people) (4) .............. 28,565,767 15,881,312 761,420 81 100
- ----------
* Represents less than 1% of our common stock.
(1) Pursuant to the rules of the Securities and Exchange Commission, includes
shares acquirable as further described in footnote (2). Shares owned as
of February 28, 2002 may be determined by subtracting the number under
"Acquirable Within 60 Days" from that under "Class of Common Stock
Owned--Class A."
(2) Reflects the number of Class A shares that could be purchased by exercise
of options as of February 28, 2002, or within 60 days thereafter, under
our Equity Incentive Plan.
(3) Based on the number of shares outstanding at, or acquirable within, 60
days of February 28, 2002.
(4) Mr. Braden, Mr. Casey, Mr. Graf, Mr. Schneider, and Dr. Tow are executive
officers of Citizens. In addition, Mr. Graf, Mr. Harfenist, Mr.
Schneider, Mr. Stanger, and Dr. Tow are members of the board of directors
of Citizens. For Messrs. Graf, Harfenist, Stanger, and Dr. Tow shares
owned consist of, or include, 27,571,332 shares of Class A Common Stock
and 15,881,312 shares of Class B Common Stock that are held, indirectly,
by Citizens. Such shares of our common stock are included in the above
table for Messrs. Graf, Harfenist, Schneider, Stanger, and Dr. Tow as
required by the definition of beneficial ownership of the Securities and
Exchange Commission. Except to the extent of such indirect interest, each
of the above-named individuals disclaims beneficial ownership of such
Class A and Class B shares.
2
(5) Includes 33,334 restricted shares over which Mr. Braden has sole voting
power but no dispositive power.
(6) Includes 5,947 shares held by the Harfenist Family Trust of which Stanley
Harfenist and Jean Lippka Harfenist are trustees.
(7) Includes 8,333 restricted shares over which Dr. Tow has sole voting power
but no dispositive power.
ELECTION OF DIRECTORS
At the meeting, 10 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, other than Mr. Casey, are currently serving as our
directors. Directors will be elected by a majority of the votes of the holders
of shares of common stock present in person or represented by proxy 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. Robert Braden, John H. Casey, III, Rudy J. Graf, Scott N. Schneider,
and Leonard Tow are executive officers of Citizens whose wholly-owned
subsidiary, CU CapitalCorp., is owner of 100% of our Class B Common Stock and
approximately 78% of our Class A Common Stock. Rudy J. Graf, Stanley Harfenist,
Scott N. Schneider, Robert A. Stanger, and Leonard Tow are directors of
Citizens. There are no family relationships among any of our nominees and
executive officers. For a description of certain business relationships between
Citizens and us, see "Agreements with Citizens" below.
Robert Braden Chief Executive Officer since January 2002 and Director since 2001
Director of Electric Lightwave Inc. and Chief
Operating Officer of Electric Lightwave, Inc.
since January 2001; Executive Vice President
ILEC Division of Citizens since January 2002;
Vice President, Business Development of
Citizens Communications Company, 1999 to
2001; Senior Vice President, Business
Development at Centennial Cellular Corp., a
cellular telecommunications provider, 1996 to
1999; Vice President of Business Development
at Century Communications Corp., a cable
television company, during 1999. Age 56.
John H. Casey, III Vice President of Citizens and President and Nominee for
Chief Operating Officer of the ILEC Division Director
of Citizens, and has been associated with
Citizens Communications Company since
November 1999; Vice President, Operations
from January 1995 to January 1997 and Senior
Vice President, Administration of Centennial
Cellular Corp. until November 1999. Age 45
3
Rudy J. Graf Chief Executive Officer of Electric Lightwave, Director since 1999
Inc., 1999 to January 2002; Vice Chairman of
the Board of Directors of Citizens
Communications Company, since 2001;
President and Chief Operating Officer of
Citizens Communications Company, 1999 to
present; Director, President and COO,
Centennial Cellular Corp., 1990 to 1999;
Director, Citizens. Age 53.
Guenther E. Greiner President of International Corporate Director since 1998
Consultancy LLC, a global finance consulting
service, 1998 to present; Senior Group
Executive/Executive Vice President of Global
Relationship Bank, 1995 to 1998 at
Citibank/Citicorp; Director, Ermenegildo
Zegna, New York Philharmonic, German
American Chamber of Commerce, the
American Institute for Contemporary German
Studies/The Johns Hopkins University, and
Corn Products International, Inc. Age 63.
Stanley Harfenist President and Chief Executive Officer of Director since 1997
Adesso, Inc., manufacturer of hardware for the
Macintosh computer, 1993 to December 1999;
Director of Citizens Communications
Company since 1992. Age 70.
William Kraus Director, Century Communications Corp. Director since 2000
and Centennial Cellular Corp., 1985 to 1999.
Age 76.
Scott N. Schneider Executive Vice President of Electric Director since 1999
Lightwave, Inc., and of Citizens
Communications Company since 1999; Vice
Chairman of the Board of Directors of
Citizens Communications Company since 2001;
Director from 1994 to 1999, Chief Financial
Officer from 1996 to 1999 and Senior Vice
President and Treasurer of Century
Communications Corp. from 1991 to 1999;
Director, Chief Financial Officer, Senior Vice
President and Treasurer of Centennial Cellular
Corp., 1991 to 1999; Director, Citizens
Communications Company. Age 44.
Robert A. Stanger Chairman, Robert A. Stanger & Company, Director since 1997
investment banking and services, 1978 to
present; Publisher, The Stanger Report;
Director, Callon Petroleum Company, Inc.,
exploration and production of oil and natural
gas; Director, Citizens Communications
Company. Age 62.
4
Leonard Tow Chairman of the Board of Electric Lightwave, Director since 1990
Inc. since 1997; Chairman and Chief Executive
Officer, Citizens Communications Company,
1990 to present and Chief Financial Officer of
Citizens Communications Company, 1991 to
1997; Chief Executive Officer and Director of
Century Communications Corp., since its
organization in 1973 to 1999, Chairman of the
Board from 1989 to 1999; Director, Hungarian
Telephone and Cable Corp.; Director, United
States Telephone Association. Age 73.
Maggie Wilderotter President, Chief Executive Officer and Director since 1997
Director of Wink Communications, Inc. since
1997; Executive Vice President, AT&T
Wireless Services, Inc. and Chief Executive
Officer of AT&T Aviation Communications
Division (Claircom), 1995 to 1997; Director,
Airborne, Inc. The McClatchy Company,
American Tower Corporation, and Gaylord
Entertainment Company. Age 47.
Our Board of Directors recommends that you vote "FOR" the election of all
nominees for director.
Our board of directors held eight meetings in 2001. Each incumbent
director attended at least 75% of the aggregate of these meetings and 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."
Committees of the Board
The board has standing Executive, Audit, and Compensation Committees. The
full board serves as the nominating committee.
Executive Committee. Our Executive Committee is composed of Dr. Tow, as
Chairman, and Messrs. Braden, Graf, and Schneider. The Committee did not meet
in 2001. During intervals between meetings of the board, the Executive
Committee has the power and authority of the board over the management of our
business affairs and property, except for powers specifically reserved by
Delaware law or by our Restated Certificate of Incorporation.
Audit Committee. Our Audit Committee is composed of Mr. Greiner, as
Chairman, and Messrs. Harfenist, Kraus and Stanger, and Ms. Wilderotter. The
committee met five times in 2001. Each member of the Audit Committee is
independent, as required by the listing standards of the National Association
of Securities Dealers. The Audit Committee operates under a charter adopted by
the board of directors, which is included in this proxy statement as Appendix
A. The committee's primary function is to monitor (1) the integrity of our
financial statements, (2) our compliance with laws, regulations and internal
controls, and (3) the independence and performance of our internal and external
auditors.
The Audit Committee recommends to the board of directors the selection of
our independent accountants. Management is responsible for our internal
controls and the financial reporting process. Our independent accountants are
responsible for performing an independent audit of our consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America, for issuing a report thereon, and for reviewing our
Quarterly Reports on Form 10-Q. The Audit Committee's responsibility is to
review these processes.
Compensation Committee. Our Compensation Committee is composed of Mr.
Stanger, as Chairman, and Messrs. Greiner, Harfenist, and Kraus, and Ms.
Wilderotter. The committee met three times in 2001. The committee reviews our
general compensation strategies, acts as the committee for our Equity
5
Incentive Plan and our 1998 Employee Stock Purchase Plan, and establishes and
reviews compensation for our Chief Executive Officer and other executive
officers.
AUDIT COMMITTEE REPORT
1. The Audit Committee has reviewed and discussed with management the
audited financial statements of the company for the fiscal year ended December
31, 2001.
2. The Audit Committee has discussed with KPMG LLP, the independent
accountants and auditors of the company, the matters required to be discussed
by SAS 61 (Codification of Statements on Auditing Standard, AU Section 380).
3. The Audit Committee has received the written disclosures and the letter
from KPMG LLP required by Independent Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees) and has discussed with KPMG LLP their independence.
4. Based on such review and discussions, the Audit Committee recommended
to the board of directors that the audited financial statements for the fiscal
year ended December 31, 2001, be included in the company's Annual Report on
Form 10-K, for filing with the Securities and Exchange Commission.
Submitted by:
Guenther E. Greiner, Chairman
Stanley Harfenist
William Kraus
Robert A. Stanger
Maggie Wilderotter
6
DIRECTORS' COMPENSATION
As of July 1, 2001, each non-employee director is entitled to receive
annual compensation in the form of 5,000 stock units (which are more
particularly described below), 20,000 stock options, or an annual retainer of
$30,000. In addition, each non-employee director will continue to receive a fee
of $2,000 plus reasonable expenses for each meeting attended in person or by
telephone and Committee chairs will be entitled to a $5,000 retainer. A
director may continue to elect to have 100% or 50% of his or her fees, and in
the case of the Audit and Compensation Committee chairs, their annual
retainers, paid in cash, shares of our Class A Common Stock, or stock units
representing our Class A Common Stock. The awards of stock units and stock
options are made pursuant to our Equity Incentive Plan. If a director elects
payment of his fees, and in the case of the Audit and Compensation Committee
chairs their annual retainers, in stock or stock units, those shares or units
will be purchased at 85% of the fair market value, as defined under our Equity
Incentive Plan, subject to adjustment. These stock units, which are payable
either in cash or in shares of our common stock as per the director's
irrevocable election, will be held by us until the earlier of the director's
retirement or death, at which time they will be paid to the director in
accordance with his or her election. The stock options have an exercise price
equal to 85% of the fair market value, as defined in the Equity Incentive Plan,
of the underlying common stock on the grant date, subject to adjustment. Each
non-employee director will also continue to receive an annual stock option
grant of 7,500 shares, priced at the fair market value of the stock on the
grant date. Each new non-employee director also receives a sign-on option for
10,000 shares of Class A Common Stock. Each of Dr. Tow and Messrs. Casey and
Graf, as a result of their employment with Citizens, and each of Messrs. Braden
and Schneider, as a result of their employment with us and Citizens, is deemed
to be an employee director and thus not eligible to receive compensation for
services rendered as a director.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the board of directors is composed of five
independent directors who are responsible for setting and administering
compensation, including base salaries, annual incentives, and stock-based
awards paid or awarded to our executive officers. The Compensation Committee
oversees and approves incentive plan design, costs, and administration. This
report discusses the Compensation Committee's activities as well as its
development and implementation of policies regarding compensation paid to our
executive officers for 2001.
Compensation of the Executive Group
This section discusses our 2001 strategy for our compensation programs.
The compensation of our Chief Executive Officer is discussed separately in this
report.
Compensation Strategy
The Compensation Committee uses the following compensation strategy:
o Offer a competitive mix of total compensation relative to the
communications industry.
o Ensure that plans enable us to attract and retain employees of
outstanding ability by having flexibility based on the various labor
market demands for critical skill sets.
o Align the compensation plans across the company in order to recognize
that achievement of financial goals contributes to the overall success of
the company.
o Continue to increase performance-based compensation so that rewards to
employees have a direct correlation to shareholder value. Continue to
transition to more pay at risk for certain levels in the organization by
holding base salaries flat and increasing the cash incentive opportunities
at certain levels of the organization.
o Create stock ownership at all levels in the organization.
Base Salary
The Compensation Committee reviews recommendations and sets the salary
levels of executive officers in the spring of each year. This review is based
on the duties and responsibilities which we expect
7
each executive to discharge during the current year, the executive's
performance during the previous year, and the executive's total cash
compensation opportunity. We perform external market comparisons, relative to
industry-specific peers, based on individual job responsibility.
Annual Cash Incentives
To retain and motivate employees, the 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 revised each year
to reflect changes in our business strategy.
The annual cash incentives approved by the Compensation Committee in March
2002 were based on 2001 performance. Based on the plan design and financial
results compared to financial goals, the incentive pool was funded at 25% of
the total target pool. 603 employees received awards representing 100% of the
population eligible to receive an award.
The Compensation Committee will consider awards for 2002 performance in
the spring of 2003.
Common Stock Long-Term Incentives
The purpose of the Equity Incentive Plan is to provide common
stock-related compensation to ensure that we can effectively attract, motivate,
and retain executives and employees in our business sectors. Since we did not
meet our stated adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization goal for 2000, stock options were not granted in 2001. However, in
order to motivate and retain key employees, 71 employees were issued stock
options under the Citizens Communications Equity Incentive Plan.
Other
The Compensation Committee approves terms of employment offers to new
executives and other officers.
Compensation of the Chief Executive Officer
Robert Braden, our Chief Executive Officer, is Chief Executive Officer of
the Electric Lightwave Sector and Executive Vice President of the ILEC Division
and Vice President of our parent company, Citizens. Prior to January 10, 2001,
Mr. Braden's compensation was paid to him by Citizens. From January 10, 2001,
to December 31, 2001, Mr. Braden's compensation was paid by us.
Compliance with Internal Revenue Code Section 162(m)
The Compensation Committee has been advised that the compensation paid to
the named executive officers in 2001, including the Chief Executive Officer,
met the conditions required for full deductibility under Section 162(m) of the
Internal Revenue Code. Section 162(m) of the Internal Revenue Code generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to our 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 2001. We
expect to structure grants under our Equity Incentive Plan in a manner that
provides for an exemption from Section 162(m). The Compensation Committee
recognizes that, in certain instances, it may be in our best interests to
provide compensation that is not deductible.
Robert A. Stanger, Chair
Guenther E. Greiner
Stanley Harfenist
William Kraus
Maggie Wilderotter
8
EXECUTIVE RETIREMENT AGREEMENT
In connection with David B. Sharkey's resignation as our President and
Chief Operating Officer and as a Vice President of Citizens, Citizens entered
into a severance agreement with Mr. Sharkey dated February 1, 2001. Pursuant to
such agreement, we made a lump sum severance payment to Mr. Sharkey of $125,000
along with an additional payment of $125,000 for Mr. Sharkey's assistance in
transitioning his duties to his replacement and for Mr. Sharkey's reasonable
availability to management of Citizens and us to provide information concerning
our business and financial operations. We also paid Mr. Sharkey the present
value of his split-dollar life insurance policy, which amounted to $300,000. We
have also agreed to provide continuing medical, dental, and vision insurance
for Mr. Sharkey for a period up to eighteen months and the same coverage for
his family for a period up to twelve months from the date his employment
terminated. Such coverage shall cease upon Mr. Sharkey's obtaining similar
insurance from a subsequent employer. Any stock options granted to Mr. Sharkey
pursuant to either Citizens' or our equity incentive plans that otherwise would
have been forfeited upon termination of employment, became exercisable upon the
date of the agreement.
EXECUTIVE COMPENSATION
The following table sets forth, for services rendered to us for each of
the fiscal years ended December 31, 2001, 2000, and 1999, the compensation
awarded to, earned by, or paid to (i) our Chief Executive Officer during the
fiscal year ended December 31, 2001, and (ii) the four other most highly
compensated executive officers for 2001 who were serving as our executive
officers on December 31, 2001, as well as two officers who are no longer
employed by us.
9
SUMMARY COMPENSATION TABLE
Annual Compensation Long-term Compensation
-------------------------------------------- ------------------------------------
Awards Payouts
------------ -----------
Securities Long-term
Other Restricted Underlying Incentive All Other
Annual Stock Options/ Plan Compensation
Name and Position Year Salary Bonus(1) Compensation Awards SARs(#)(2) Payouts (3)
- ----------------- ---- ---------- ---------- ------------ ---------- ------------ ----------- -------------
Robert Braden .............. 2001 $241,583 $250,000 $0 (5)(6) 0 0 $ 7,492
Chief Executive Officer
and Director (4)
Steven E. Adkins ........... 2001 $160,000 $ 25,000 $0 0 0 0 $ 2,000
Vice President, 2000 148,946 40,000 0 0 0 0 2,053
Information Technology 1999 139,050 64,584 0 0 17,000 0 1,890
and Billing Operations
Charles Best ............... 2001 $158,333 $ 25,000 $0 0 0 0 $ 4,750
Vice President of 2000 100,000 25,000 0 0 75,000 0 188
Administration and Legal
Affairs (7)
Michael Daniel ............. 2001 $165,000 $ 25,625 $0 0 0 0 $ 4,950
Vice President, Retail 2000 162,750 41,250 0 (6) 0 0 4,676
Sales 1999 153,750 81,900 0 0 20,000 0 4,635
Rudy J. Graf ............... 2001 $ 0 $ 0 $0 0 0 0 0
Director and Former 2000 0 0 0 0 0 0 0
Chief Executive Officer (4) 1999 0 0 0 0 0 0 0
David B. Sharkey ........... 2001 $ 28,125 $ 0 $0 0 0 0 $550,570
former President, Chief 2000 256,250 0 0 0 0 0 36,704
Operating Officer and 1999 259,375 203,438 0 (5) 100,000 0 32,295
Director (8)
Randall Lis ................ 2001 $168,333 $ 25,625 $0 0 0 0 $ 4,165
former Vice President, 2000 185,000 46,250 0 (6) 0 0 4,317
Engineering & 1999 162,717 97,125 0 0 20,000 0 3,446
Operations (9)
- ----------
(1) Bonus amounts awarded are for performance for the stated salary year and
are determined and awarded in the subsequent year.
(2) All awards shown are options; we have not awarded any SARs. All options
in this column are exercisable for Class A Common Stock. Options in our
stock were granted under our Equity Incentive Plan.
(3) Represents Citizens' matching contribution to each named executive
officer's 401(k) plan. Additionally, includes $29,850 for the 2000, and
$27,495 for the 1999 economic benefit of split-dollar life insurance for
Mr. Sharkey. Also included for Mr. Sharkey in 2000 is a $1,754 Citizens'
matching contribution to the Citizens' Executive Deferred Savings Plan.
Also included for Mr. Lis in 1999, 2000, and 2001 are $430, $1,079, and
$971 which, respectively, are Citizens' matching contributions to the
Citizens' Executive Deferred Savings Plan. Mr. Graf received in 2000 a
$5,100 Citizens' matching contribution to his 401(k) plan along with a
$6,439 matching contribution to the Citizens' Executive Deferred Savings
Plan. Also represents a $550,000 severance payment for Mr. Sharkey in
2001, whose employment with us was terminated in 2001.
(4) Robert Braden, our Chief Executive Officer since January 10, 2001, is
currently the Chief Executive
10
Officer of the Electric Lightwave Division and Executive Vice President of
the ILEC Division and Vice President of Citizens, and has been an employee
of Citizens since 1999. Mr. Braden and our other executive officers who
are employees of Citizens, including Mr. Graf, are compensated by Citizens
on the basis of services rendered to Citizens and its subsidiaries,
including us. Citizens paid Mr. Braden a salary of $29,167 and $194,231,
and a bonus of $100,000 and $200,000 in 1999 and 2000, respectively. In
addition, through January 10, 2001, Citizens paid Mr. Braden a salary of
$5,385. From January 10, 2001, except as otherwise noted, Mr. Braden's
compensation has been paid by us. In 1999, Citizens granted to Mr. Braden
40,000 restricted shares of Citizens common stock, which shares vest over
a three-year period and will be free of restriction in 2002. At February
28, 2002, the total number of restricted shares of Citizens held by Mr.
Braden was 13,333 shares, with a market value of $121,464. Furthermore,
Citizens granted to Mr. Braden options to acquire Citizens shares in 2001,
2000, and 1999 of 100,000, 75,000, and 50,000, respectively. The options
for 50,000 shares granted in 2001 have an exercise price of $13.75 per
share, and the remaining 50,000 have an exercise of $13.71 per share. The
options granted to Mr. Braden in 2000 and 1999 have exercise prices of
$12.97 and $11.41 per share, respectively. Citizens paid Mr. Graf a salary
of $500,000, $500,000, and $150,000 and a bonus of $437,500, $475,000, and
$600,000 in 2001, 2000, and 1999, respectively. In addition, Citizens
granted to Mr. Graf 300,000 restricted shares of Citizens common stock in
1999, which shares vest over a three-year period and will be free of
restriction in 2002. As of February 28, 2002, the total number of
restricted shares of Citizens common stock held by Mr. Graf was 100,000
shares, with a market value of $911,000. Furthermore, Citizens granted to
Mr. Graf options to acquire Citizens shares in 2001, 2000, and 1999 of
95,000, 100,000, and 250,000, respectively, at exercise prices of $13.71,
$12.97, and $11.09 per share, respectively.
(5) We granted Mr. Braden 50,000 restricted shares of our Class A Common
Stock in February 2001. These restricted shares vest at the rate of
33 1/3% per year on January 10 of each year. As of February 28, 2002, the
total number of these shares held by Mr. Braden was 44,091, with a market
value of $23,809, of which 33,334 shares remain restricted. In 1999, we
granted Mr. Sharkey 25,000 restricted shares of our Class A Common Stock.
The restrictions on this stock lapsed with the termination of his
employment.
(6) As noted in footnote (4), in 1999 Mr. Braden was granted 40,000
restricted shares of Citizens common stock, which vest in three equal
annual installments beginning on November 1, 2000. As of February 28,
2002, the total number of Citizens restricted shares held by Mr. Braden
was 13,333 shares with a market value of $121,464. Recipients of
restricted shares have the right to vote and receive dividends, if paid,
on such shares. In 2000, Mr. Lis and Mr. Daniel were each granted 30,000
shares of Citizens common stock, which vest in their entirety in 2003. As
of February 28, 2002, the aggregate number of restricted shares held by
each of Mr. Lis and Mr. Daniel was 30,000 shares with a market value of
$273,300.
(7) Mr. Best commenced employment with us on May 1, 2000.
(8) Mr. Sharkey's employment with us terminated on January 31, 2001.
(9) On February 4, 2002, Mr. Lis became employed by Citizens in its ILEC
operations and his employment with us was terminated.
2001 OPTION GRANTS
No stock options or stock appreciation rights were granted in 2001.
AGGREGATED 2001 OPTION EXERCISES AND VALUE OF
OUTSTANDING OPTIONS AT DECEMBER 31, 2001
The following table sets forth certain information concerning options
exercised by our named executive officers during 2001 and the number and value
of options held by them on December 31, 2001. There were no outstanding stock
appreciation rights relating to our common stock at December 31, 2001, and no
exercises occurred during 2001 of stock appreciation rights relating to our
common stock.
11
Number of Securities
Underlying Value of Unexercised
Unexercised Options/SARs at In-the-money Options/SARS
Shares Fiscal Year-End at Fiscal Year-End ($)
Acquired on ----------------------------- ----------------------------
Name Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------------- ------------- --------------- ------------- --------------
Robert B. Braden .......... 0 $0 0 0 $0 $0
Randall Lis ............... 0 $0 130,134 6,666 $0 $0
Michael L. Daniel ......... 0 $0 122,134 6,666 $0 $0
Steven E. Adkins .......... 0 $0 120,134 5,666 $0 $0
Charles Best .............. 0 $0 25,000 50,000 $0 $0
David B. Sharkey .......... 0 $0 66,667 33,333 $0 $0
Rudy Graf ................. 0 $0 0 0 $0 $0
All quantities and amounts are as of December 31, 2001. The closing sale
price as quoted by the Nasdaq National Market System of our Class A Common
Stock on December 31, 2001, was $.30 per share. The underlying options have not
been, and may never be, exercised, and actual gains, if any, on exercise will
depend on the value of our stock on the date of exercise.
PENSION PLAN
We do not have a pension plan. Mr. Graf 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. Graf
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. Under federal tax law,
remuneration above a specified annual limit may not be credited in the
computation of retirement benefits under qualified plans. For 2001, this limit
was $170,000. For this reason remuneration above $170,000 has not been included
in the table below.
PENSION PLAN TABLE
Remuneration
(in thousands) Years of Service
- -------------------- ---------------------------------
5 10 15 20
------ ------ ------ ------
$170.............. $13 $26 $39 $52
Mr. Graf has one year of credited service.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Stanger, as Chairman,
and Messrs. Greiner, Harfenist, and Kraus and Ms. Wilderotter. None of our
executive officers 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 our Compensation Committee; (ii) a director of
another entity, one of whose executive officers served on our Compensation
Committee; 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 our director.
12
STOCK PRICE PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
[GRAPHIC OMITTED]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Electric Lightwave $100.00 $92.97 $51.17 $117.19 $20.70 $1.88
S & P 500 $100.00 $106.43 $136.84 $165.64 $150.56 $132.67
NASDAQ US $100.00 $98.77 $139.29 $258.85 $155.74 $123.08
Peer Group $100.00 $98.61 $101.93 $320.18 $115.91 $9.72
* $100 invested on 12/31/96 in stock or index--including reinvestment of
dividends. Fiscal year ending December 31.
The graph above compares our common stock performance with the performance
of the S&P 500 Index, the Stock Market-US, and a peer group index by valuing
the annual changes in common stock prices from December 31, 1996, through
December 31, 2001, as required by Securities and Exchange Commission rules. Our
Class A Common Stock has been publicly traded since November 24, 1997. The
chart above assumes, in each case, an initial investment of $100 on December
31, 1996, and that all quarterly dividends were reinvested at the average of
the closing stock prices at the beginning and end of the quarter. Our peer
group consists of us; Adelphia Business Solutions, Inc.; Advanced Radio Telecom
Corp.; Allegiance Telecom, Inc.; e.spire Communications, Inc.; GST
Telecommunications, Inc.; ICG Communications, Inc.; ITC/\DeltaCom, Inc.;
McLeodUSA Inc.; Mpower Holding Corp.; RCN Corporation; Teligent, Inc.; US LEC
Corp.; Winstar Communications, Inc.; and XO Communications, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, officers, and
persons holding more than 10% of a registered class of our 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 our common
stock and other equity securities. Such directors, officers, and 10%
stockholders are also required to furnish us with copies of all such filed
reports.
Based solely upon a review of the copies of such reports furnished to us,
or representations that no reports were required, we believe that all of our
directors, officers, and 10% shareholders timely filed all required reports
under Section 16(a) in 2001.
AGREEMENTS WITH CITIZENS
General
Citizens owns, through its wholly-owned subsidiary CU CapitalCorp., 100%
of our outstanding Class B Common Stock and 27,571,332 shares, or 78%, of our
Class A Common Stock. CU CapitalCorp.
13
acquired the shares of our Class A Common Stock in the open market, through
brokerage transactions in the ordinary course of business, solely as an
investment and to ensure that Citizens maintains a sufficient economic interest
in us to permit the continued filing of consolidated tax returns. Leonard Tow,
our Chairman of the Board, is the Chairman of the Board and Chief Executive
Officer of Citizens. Robert Braden, our Chief Executive Officer and one of our
directors, is also Chief Executive Officer of the Electric Lightwave Sector and
Executive Vice President of the ILEC Division and Vice President of Citizens.
Daniel J. McCarthy, our President and Chief Operating Officer, is also
President and Chief Operating Officer of the Electric Lightwave Sector and Vice
President of Citizens. Scott N. Schneider, our Executive Vice President and one
of our directors, is also Executive Vice President and Vice Chairman of the
board of directors of Citizens. L. Russell Mitten, our Secretary, is also Vice
President, General Counsel and Secretary of Citizens. Jerry Elliott, our Vice
President and Chief Financial Officer, is also Vice President and Chief
Financial Officer of Citizens. Donald B. Armour, our Vice President, Finance
and Treasurer, is also Vice President, Finance and Treasurer of Citizens.
Robert J. Larson, our Vice President and Chief Accounting Officer is also Vice
President and Chief Accounting Officer of Citizens. Rudy Graf, one of our
directors, is also President, Chief Operating Officer and Vice Chairman of the
board of directors of Citizens. Stanley Harfenist and Robert Stanger, our
directors, are also directors of Citizens.
Our relationship with Citizens is governed by agreements entered into with
Citizens in connection with our initial public offering and certain other
agreements, the material terms of which are described below.
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 us.
Under the terms of the Administrative Services Agreement, all of the services
rendered by Citizens are subject to our oversight, supervision and approval,
acting through our board of directors.
The administrative costs payable by us 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 by us. The Administrative Services
Agreement will be renewed automatically 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 our
control. Under the Administrative Services Agreement, $7,985,000 in fees were
payable to Citizens for 2001, excluding reimbursement for costs.
Tax Sharing Agreement
As we are included in Citizens' federal consolidated income tax group, our
federal income tax liability is included in the consolidated federal income tax
liability of Citizens and its subsidiaries. We are also included with certain
Citizens subsidiaries in combined, consolidated, or unitary income tax groups
for state and local tax purposes. We and Citizens are parties to a federal,
state, and local Tax Sharing Agreement. Pursuant to the Tax Sharing Agreement,
we and Citizens make payments between us such that, with respect to any period,
the amount of taxes to be paid by us, subject to certain adjustments, will
generally be determined as though we 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 redetermination of the tax
liability of Citizens arising from an audit or otherwise). We are responsible
for any tax liability due any foreign jurisdiction arising from our 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 by us.
Citizens has sole and exclusive responsibility for (i) preparing any of
our tax returns (including amended returns or claims for refund); (ii)
representing us with respect to any tax audit or tax contest; (iii)
14
engaging outside counsel and accountants with respect to tax matters regarding
us; and (iv) performing such other acts and duties with respect to our tax
returns as Citizens determines is appropriate. The amounts that we 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 our 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 us and Citizens, during the period in which we are included
in Citizens' consolidated group we 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
We and Citizens are parties to an Indemnification Agreement. The
Indemnification Agreement provides that we will indemnify Citizens for any
liabilities incurred by Citizens under any guarantees of our obligations or
liabilities and that we will pay Citizens for its direct costs, if any, of
maintaining such guarantees.
Registration Rights Agreement
We and Citizens are parties to a Registration Rights Agreement. The
Registration Rights Agreement provides that upon the request of Citizens, at
our expense, we will use our best efforts to effect the registration under the
applicable federal and state securities laws of any of the shares of our 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 of these shares 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 our common
equity securities that are initiated by us on our own behalf or on behalf of
our other shareholders.
Customers and Service Agreement
We and Citizens are parties to a Customers and Service Agreement. The
Customers and Service Agreement contains provisions prohibiting us from
competing with Citizens for customers in Citizens' existing service areas and
in certain new lower density territories that Citizens was or will be first to
enter after our initial public offering. Citizens has agreed that it will not
compete with us in the service territories where we provided services prior to
our initial public offering and in certain new higher density territories where
we were or will be first to provide services after our initial public offering.
Neither we nor Citizens may solicit an existing wholesale customer of the other
company for services that such customer is currently receiving under contract
from the other company. The relevant provisions were intended to permit us to
continue all activities that we engaged in prior to our initial public
offering, 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 our capital stock or its designees cease to constitute a
majority of our directors.
Citizens' Guarantees of Our Obligations
Lease. In June 1995, we entered into agreements to lease certain equipment
to be constructed for us. The lessor has agreed to commit up to a maximum of
$110,000,000 of the cost of purchasing and installing the equipment. In January
2002, we exercised our option to purchase the facilities at the end of the
lease term. Payments under the lease depend on current interest rates. Assuming
continuation of current interest rates, payments would approximate $872,000
from January 1, 2002, through April 30, 2002, and a final payment of
approximately $110,000,000 in April 2002. Citizens has guaranteed all of our
obligations under the lease and we will pay Citizens a guarantee fee of 3.25%
per year of the amount of the lessor's investment in the leased assets. At
December 31, 2001, $110,000,000 was outstanding on the lease.
15
Credit Facility. On November 2, 1997, we 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 this 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 our
outstanding common stock. We have agreed to pay Citizens a guarantee fee at a
rate of 3.25% per annum based on the average balance outstanding. At December
31, 2001, we had outstanding loans payable to Citibank in the amount of $400
million.
Senior Unsecured Notes. In April 1999, we completed an offering of $325
million of five-year senior unsecured notes. The notes have an annual interest
rate of 6.05% and will mature on May 15, 2004. Citizens has guaranteed the
payment of principal, any premium, and interest on the notes when due. We have
agreed to pay Citizens a guarantee fee at a rate of 4.0% per year based on the
average outstanding balance. At December 31, 2001, we had $325 million of these
notes outstanding.
For 2001, we accrued Citizens' guarantee fees of $29.6 million under the
lease, the credit facility, and the senior unsecured notes.
Refinancing of Obligations. We and Citizens have agreed that if Citizens
intends to reduce its economic interest in us to less than 51%, Citizens will
be entitled to request us to refinance our obligations under the lease and the
credit facility and we will be obligated to use our best efforts to do so. This
refinancing would occur when Citizens reduces its economic interest in us to
less than 51%.
License Agreement Guaranty. We have entered into a license agreement with
the Bonneville Power Administration whereby we will obtain a license to use
fiber optic cable on Bonneville's transmission system. On May 15, 2000,
Citizens entered into a guaranty agreement with Bonneville under which Citizens
guarantees the payment of the license fee, annual maintenance fee and any
liquidated damages provided for in the license agreement.
Telecommunications Services
Citizens has transactions in the normal course of business with us.
Citizens is an Incumbent Local Exchange Carrier ("ILEC") in certain markets in
which we provide services. In order to provide services in those markets, we
purchase access from Citizens. We are charged the full-tariffed rate for those
services, which was $1,193,000 in 2001, representing usage-based charges for
the services provided. Citizens purchases certain services from us at
prevailing market rates. In 2001, we recognized revenue in the amount of
$2,924,000 for these related party transactions.
Network Capacity Lease
In 1996, we entered into an agreement to lease rights to fiber optic lines
on our network to Citizens over 10 years for a monthly fee of $30,000.
In 1999, we entered into an agreement to lease certain capacity on our
network to Citizens over 20 years. Performance under this agreement began when
services were activated during 2000. Citizens paid us $6.5 million under this
agreement in 1999.
Intercompany Agreement
We, along with Citizens, desire to provide compensation incentives for
certain employees of ELI for high levels of performance and productivity.
Therefore, we entered into an Intercompany Agreement, dated as of September 11,
2000, whereby Citizens granted to certain of our employees an aggregate of
205,000 shares of Citizens common stock in the form of restricted stock awards
pursuant to the Citizens Communications Company Equity Incentive Plan. In
consideration for those restricted stock awards, we agreed to grant Citizens
263,425 restricted shares of our Class B Common Stock. The 263,425 shares of
our restricted Class B Common Stock had, on September 11, 2000, a fair market
value equivalent to the fair market value of Citizens' restricted stock awards.
The restrictions on a proportionate number of shares of our Class B Common
Stock will lapse with the lapse of restrictions on Citizens stock. Our
Compensation Committee and the Compensation Committee of Citizens have approved
the Intercompany Agreement.
16
Intercompany Revolving Credit Facility
On October 30, 2000, we entered into a revolving credit facility with
Citizens for $450 million with an interest rate of 15% and a final maturity of
October 30, 2005. Funds of $350 million for general corporate purposes are
available to be drawn by us until December 31, 2002. The remaining balance may
be drawn by us to pay interest expense due under the facility. At December 31,
2001, the outstanding balance under this facility was $194.5 million.
Other
In the future, additional transactions may occur and agreements may be
reached between us 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 our capital stock.
INDEPENDENT PUBLIC ACCOUNTANTS
Audit Fees
The aggregate fees paid to KPMG LLP, our independent public accountants,
for professional services rendered for the audit of our annual financial
statements for 2001 and for the reviews of our quarterly financial statements
included in our Forms 10-Q for 2001 were $300,000. No other fees were paid to
KPMG LLP by the company. KPMG LLP has served as our independent public
accountants since 1997.
Approval
Our appointment of KPMG LLP to be our independent public accountants for
2002 will be submitted for approval at the annual meeting.
General
In 2001, KPMG LLP performed for us no services other than in connection
with the annual audit and quarterly reviews.
One or more representatives of KPMG LLP will be present at our annual
meeting of stockholders. The representatives will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
Based upon the foregoing, our Board of Directors recommends that you vote
"FOR" the approval of the appointment of KPMG LLP as our independent public
accountants FOR 2002.
OTHER MATTERS
We do not know of matters other than the foregoing that will be presented
for consideration at the meeting.
17
STOCKHOLDER PROPOSALS
For proposals, if any, to be considered for inclusion in the proxy
materials for the 2003 annual meeting, they must be received by November 22,
2002. Under our 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 us no earlier than January 1, 2003, or later than February 15, 2003.
The entire cost of soliciting management proxies will be borne by us.
Proxies will be solicited by mail and may be solicited personally by our
directors, officers or regular employees, who will not be compensated for such
services.
By Order of the Board of Directors
/s/ L. Russell Mitten
L. Russell Mitten
Secretary
18
Appendix A
ELECTRIC LIGHTWAVE, INC.
Electric Lightwave, Inc.
Audit Committee Charter
The Audit Committee is a committee of the Board of Directors.
Membership
The Committee shall consist of three or more directors all of whom in the
judgment of the Board of Directors shall be independent. Each member shall have
the ability to read and understand the Company's basic financial statements or
shall at the time of appointment undertake training for that purpose. At least
one member of the Committee shall, in the judgment of the Board of Directors,
have accounting or financial management expertise. Independence and financial
ability is to be determined by the Board of Directors in its business judgment.
Powers and Responsibilities
1. Receive from the outside auditors on a periodic basis, as required by
Independence Standards, a written report delineating all relationships between
the auditors and the Company and discuss with the outside auditors any
disclosed relationships or services that may impact their objectivity and
independence, and recommend that the Board of Directors take necessary action
in response to this report to satisfy the Board of the outside auditors'
independence. The Audit Committee is to be the Company's principal agent in
monitoring this independence.
2. Review with members of the Company's outside auditing firm the scope of the
prospective audit, the estimated fees therefor, the extent to which Company
resources were or can be used in the future, and such other matters pertaining
to such audit as the Committee may deem appropriate. Receive copies of the
annual comments from the outside auditors on accounting procedures and systems
of internal control and audit, and review with them the significant matters and
any suggestions they may have relating to the systems of internal control and
audit.
3. Review, at least annually, the then-current and future programs of the
Company's internal audit department, including the procedure for assuring
implementation of accepted recommendations made by the auditors and the
department. Receive summaries of all formal audit reports issued by the
internal audit department; and review the significant matters contained in such
reports.
4. Make or cause to be made, from time to time, such other examinations or
reviews as the Committee may deem necessary with respect to the accounting
practices and systems of internal control of the Company and with respect to
current accounting trends and developments, and recommend such action with
respect thereto as may be deemed necessary.
5. Recommend annually the public auditing firm to be outside auditors for the
Company and recommend their compensation, for approval by the Board of
Directors. Among the Board of Directors, Audit Committee, and the outside
auditors, the outside auditors are ultimately accountable to the Board of
Directors. The Board of Directors has the ultimate authority and responsibility
to select, evaluate and, when appropriate, replace the outside auditors (or, if
the outside auditors are approved by the stockholders, to nominate the outside
auditors to be proposed for shareholder approval in any proxy statement).
6. Review with management and the outside auditors for the Company, the annual
and quarterly financial statements of the Company and any material changes in
accounting principles or practices used in preparing the financial statements
incorporated in Form 10-K and Form 10-Q prior to the filing of these forms with
the Securities and Exchange Commission (SEC). Such review is to include items
brought to the Committee's attention as required by Auditing Standards.
A-1
7. Review matters that have come to the attention of the Committee through
reports of management, legal counsel, and others, that relate to the status of
compliance and anticipated future compliance with laws, regulations, internal
controls, and that may be expected to be material to the Company's financial
statements.
8. Recommend to the Board the retention of persons with professional or expert
competence, or with special knowledge or experience.
Meetings
The Committee shall meet at least four times each year and at such other times
as it deems necessary to fulfill its responsibilities.
Reports and Other Requirements
The Committee shall prepare all reports concerning this charter and the
activities of the Committee required by regulations of the SEC or the National
Association of Securities Dealers ("NASD"). The Company acknowledges that the
Company and the Committee operate under regulations promulgated by the SEC and
the NASD.
Amendment
This Charter may be amended only by the affirmative vote of the Board of
Directors.
A-2
Electric Lightwave, Inc.
Administrative Offices
Three High Ridge Park, Stamford, CT 06905
2002 Annual Meeting of Stockholders
2:00 p.m., Eastern Time, May 16, 2002
Prudential Center for Learning and Innovation
Norwalk, Connecticut
ADVANCE REGISTRATION
Please send your completed and signed proxy form in the enclosed envelope.
Attendance at the Annual Meeting is limited to Electric Lightwave's
stockholders, or their authorized representative, and guests and employees of
the company. If you plan to attend, or send a representative to, the Annual
Meeting, please notify us by marking the Advance Registration box on your
proxy.
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ELECTRIC LIGHTWAVE
C/O PROXY SERVICES
P.O. BOX 9142
FARMINGDALE, NY 11735
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Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
web site. You will be prompted to enter your 12-digit Control Number which is
located below to obtain your records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number which is located below and then follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Electric Lightwave, Inc., c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: LGHTWV KEEP THIS PORTION FOR YOUR RECORDS
- -----------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ELECTRIC LIGHTWAVE
Proposal 1 - Election of Directors
Nominees:
01) Robert Braden
02) John H. Casey, III
03) Rudy J. Graf
04) Guenther E. Greiner
05) Stanley Harfenist
06) William Kraus
07) Scott N. Schneider
08) Robert A. Stanger
09) Leonard Tow
10) Maggie Wilderotter
For Withhold For All To withhold authority to vote, mark "For All Except" and write
All All Except the nominee's number on the line below.
0 0 0 --------------------------------------------------------------
Proposal 2
Approve the appointment of KPMG LLP as our independent public For Against Abstain
accountants for 2002. 0 0 0
If you plan to attend the meeting, please check the box to
the right. 0
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 "For" Proposal 1 and "For" Proposal 2.
__________________________________________________ ____________________________________________
__________________________________________________ ____________________________________________
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Annual Meeting of Shareholders
May 16, 2002
PROXY VOTING
You can choose one of three ways to vote your proxy: By mail, by phone
or by Internet.
See the reverse side of this sheet for instructions.
IF YOU ARE NOT VOTING BY TELEPHONE OR BY INTERNET, COMPLETE BOTH SIDES OF
THIS PROXY,
DETACH AND RETURN IN THE ENCLOSED ENVELOPE TO:
Electric Lightwave, Inc.
c/o Proxy Services
P.O. Box 9142
Farmingdale, NY 11735
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ELECTRIC LIGHTWAVE, INC.
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints Guenther E. Greiner, Stanley Harfenist, and
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 16, 2002, at 2 p.m., Eastern 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.