As filed with the Securities and Exchange Commission on March 25, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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:
|X| Preliminary Proxy Statement
|_| Confidential, for the use of the Commission only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
---------------
eLEC COMMUNICATIONS CORP.
(Name of Registrant as Specified in Its Charter)
(Name(s) of Person Filing Proxy Statement, if Other than Registrant)
---------------
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(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 0-1l(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
eLEC COMMUNICATIONS CORP.
75 South Broadway, Suite 302
White Plains, New York 10601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, JUNE 15, 2005
April 25, 2005
To the shareholders of eLEC Communications Corp.:
Notice is hereby given that the annual meeting of shareholders of eLEC
Communications Corp., a New York corporation, will be held at our executive
offices located at 75 South Broadway, White Plains, New York 10601 on Wednesday,
June 15, 2005 at 10:00 A.M., local time, for the following purposes:
1. To elect four directors to our board of directors for the ensuing
year;
2. To consider and vote upon a proposal to approve and adopt our 2004
Equity Incentive Plan;
3. To consider and vote upon a proposal to ratify the appointment of
Nussbaum Yates & Wolpow, P.C., independent auditors, as our
independent auditors for the ensuing year; and
4. To consider and act upon such other business as may properly come
before the meeting.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice. Our board of directors has fixed the close
of business on Monday, April 18, 2005 as the record date for the determination
of shareholders entitled to notice of and to vote at the annual meeting and at
any adjournment or postponement thereof.
Whether or not you plan to attend the annual meeting, you should complete,
sign, date and promptly return the enclosed proxy card, to ensure that your
shares will be represented at the meeting. If you attend the annual meeting and
wish to vote in person, you may withdraw your proxy and vote in person. You
should not send any certificates representing stock with your proxy card.
Sincerely,
PAUL H. RISS
Acting Chairman of the Board
eLEC COMMUNICATIONS CORP.
75 South Broadway, Suite 302
White Plains, New York 10601
PROXY STATEMENT
Date, Time and Place of the Annual Meeting
This proxy statement is furnished to the shareholders of eLEC
Communications Corp., in connection with the solicitation, by order of our board
of directors, of proxies to be voted at the annual meeting of shareholders to be
held on Wednesday, June 15, 2005, at 10:00 A.M., local time, at our executive
offices located at 75 South Broadway, Suite 302, White Plains, New York 10601,
and at any adjournment or adjournments thereof. The accompanying proxy is being
solicited on behalf of our board of directors. We intend to release this proxy
statement and the enclosed proxy card to our shareholders on or about Monday,
April 25, 2005.
Purpose of the Annual Meeting
At the annual meeting, you will be asked to consider and vote upon the
following matters:
1. To elect four directors to our board of directors for the ensuing
year;
2. To consider and vote upon a proposal to approve and adopt our 2004
Equity Incentive Plan;
3. To consider and vote upon a proposal to ratify the appointment of
Nussbaum Yates & Wolpow, P.C., independent auditors, as our
independent auditors for the ensuing year; and
4. To consider and act upon such other business as may properly come
before the meeting.
Voting and Revocation of Proxies; Adjournment
All of our voting securities represented by valid proxies, unless the
shareholder otherwise specifies therein or unless revoked, will be voted FOR
each of the director nominees set forth herein, FOR the approval of the adoption
of our 2004 Equity Incentive Plan, FOR the ratification of Nussbaum Yates &
Wolpow, P.C. as our independent auditors and at the discretion of the proxy
holders on any other matters that may properly come before the annual meeting.
Our board of directors does not know of any matters to be considered at the
annual meeting other than (i) the election of four board members; (ii) the
approval and adoption of our 2004 Equity Incentive Plan; and (iii) the
ratification of Nussbaum Yates & Wolpow, P.C. as our independent auditors.
If a shareholder has appropriately specified how a proxy is to be voted,
it will be voted accordingly. Any shareholder has the power to revoke such
shareholder's proxy at any time before it is voted. A shareholder may revoke a
proxy by delivering a written statement to our corporate secretary stating that
the proxy is revoked, by submitting a subsequent proxy signed by the same person
who signed the prior proxy, or by voting in person at the annual meeting.
As of March 15 2005, we had a total of 16,759,282 shares of common stock
outstanding. A plurality of the votes cast at the annual meeting by the
shareholders entitled to vote in the election is required to elect the director
nominees and a majority of the votes cast by the shareholders entitled to vote
at the annual meeting is required to approve the proposed adoption of our 2004
Equity Incentive Plan and to take any other action, including the approval of
our independent auditors. For purposes of determining whether a proposal has
received the required vote, abstentions will be included in the vote totals,
with the result being that an abstention will have the same effect as a negative
vote. In instances where brokers are prohibited from
1
exercising discretionary authority for beneficial holders who have not returned
a proxy (so-called "broker non-votes"), those shares will not be included in the
vote totals and, therefore, will also have the same effect as a negative vote.
Shares that abstain or for which the authority to vote is withheld on certain
matters will, however, be treated as present for quorum purposes on all matters.
In the event that sufficient votes in favor of any of the matters to come
before the meeting are not received by the date of the annual meeting, the
persons named as proxies may propose one or more adjournments of the annual
meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of the holders of a majority of the shares of
common stock present in person or by proxy at the annual meeting. The persons
named as proxies will vote in favor of any such proposed adjournment or
adjournments. Under New York law, shareholders will not have appraisal or
similar rights in connection with any proposal set forth in this Proxy
Statement.
Solicitation
The solicitation of proxies pursuant to this proxy statement will be
primarily by mail. In addition, certain of our directors, officers or other
employees may solicit proxies by telephone, telegraph, mail or personal
interviews, and arrangements may be made with banks, brokerage firms and others
to forward solicitation material to the beneficial owners of shares held by them
of record. No additional compensation will be paid to our directors, officers or
other employees for such services. We will bear the cost of the solicitation of
proxies related to the annual meeting.
Quorum and Voting Rights
Our board of directors has fixed Monday, April 18, 2005, as the record
date for the determination of shareholders entitled to notice of and to vote at
the annual meeting. Holders of record of shares of our common stock at the close
of business on the record date will be entitled to one vote for each share held.
The presence, in person or by proxy, of the holders of a majority of the
outstanding voting securities entitled to vote at the annual meeting is
necessary to constitute a quorum at the annual meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of March 15, 2005, the names, addresses
and number of shares of our common stock beneficially owned by all persons known
to us to be beneficial owners of more than 5% of the outstanding shares of our
common stock, and the names and number of shares beneficially owned by all of
our directors and all of our executive officers and directors as a group (except
as indicated, each beneficial owner listed exercises sole voting power and sole
dispositive power over the shares beneficially owned). As of March 15, 2005, we
had a total of 16,759,282 shares of common stock outstanding:
Number of Shares Percent of Shares
Name and Address Beneficially Owned Beneficially Owned
---------------- ------------------ ------------------
Paul H. Riss 1,470,000(1) 8.5%
eLEC Communications Corp.
75 South Broadway, Suite 302
White Plains, New York 10601
Joel Dupre 999,668(2) 5.4%
One Dot Source LLC
66 Fort Point Street, 2nd Floor
Norwalk, Connecticut 06855
2
Number of Shares Percent of Shares
Name and Address Beneficially Owned Beneficially Owned
---------------- ------------------ ------------------
Greg M. Cooper 65,000(3) *%
Cooper, Neiman & Co., CPAs, LLP
PO Box 190
Mongaup Valley, New York 12762
Michael H. Khalilian 125,000 *%
478 E. Altamonte Drive, Suite 108-480
Altamonte Springs, Florida 32701
Gayle Greer -0- -
75 South Broadway, Suite 302
White Plains, New York 10601
Mark Richards 100,000(4) *%
610 Sycamore Street, Suite 120
Celebration, Florida 34747
All directors and executive officers
as a group (five individuals) 1,760,000 10.1%
------------------
* Less than 1%.
(1) Includes 470,000 shares of common stock subject to options that are
presently exercisable or exercisable within 60 days after March 15, 2005.
(2) Includes 130,000 shares of common stock subject to options that are
presently exercisable or exercisable within 60 days after March 15, 2005.
(3) Includes 25,000 shares of common stock subject to options that are
exercisable within 60 days after March 15, 2005.
(4) Represents shares of common stock subject to options that are presently
exercisable.
ELECTION OF DIRECTORS
(Proxy Item 1)
Our amended and restated by-laws provide that the number of our directors
shall be at least three, except that when all the shares are owned beneficially
and of record by fewer than three shareholders, the number of directors may be
less than three but not less than the number of shareholders. Subject to the
foregoing limitation, such number may be fixed from time to time by action of
our board of directors or of the shareholders, or, if the number of directors is
not so fixed, the number shall be five. In March 2005, our board of directors
fixed the number of directors at five. The board currently consists of four
members, and all of those members are standing for re-election. There is
currently one vacancy on our board of directors. We continue to search for a
qualified individual to fill the existing vacancy on our board of directors. In
accordance with our by-laws, the remaining vacancy will be filled by the
affirmative vote of a majority of the remaining directors who shall serve until
their respective successors are duly elected at next year's annual meeting. The
term of office of the directors is one year, expiring on the date of the next
annual meeting, or when their respective successors shall have been elected and
shall qualify, or upon their prior death, resignation or removal.
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Except where the authority to do so has been withheld, it is intended that
the persons named in the enclosed proxy will vote for the election of the
nominees to our board of directors listed below to serve until the date of the
next annual meeting and until their successors are duly elected and qualified.
Although our directors have no reason to believe that the nominees will be
unable or decline to serve, in the event that such a contingency should arise,
the accompanying proxy will be voted for a substitute (or substitutes)
designated by our board of directors.
Directors and Officers
The following table sets forth certain information regarding our director
nominees, as furnished by the nominees as of March 15, 2005. All of the
following individuals currently serve as directors of the company.
Principal Occupation for Past Five Years and
Name Age Current Public Directorships or Trusteeships
---- --- --------------------------------------------
Paul H. Riss 49 Director since 1995; acting Chairman of our Board of Directors since March 2005;
our Chief Executive Officer since August 1999 and our Chief Financial Officer and
Treasurer since November 1996.
Greg M. Cooper 46 Director since April 2004; partner for more than five years of Cooper, Neiman &
Co., CPAs, LLP, certified public accountants; and member of the board of
directors of Mid Hudson Cooperative Insurance Company in Mortgomery New York, a
privately-held insurance company.
Gayle Greer 64 Director since January 2005; Ms. Greer retired in 1998 from Time Warner
Entertainment after serving over 20 years in a number of executive positions,
including most recently Senior Vice President of Time Warner Cable; co-founder of
GS2.Net, a business service provider, and served as its Chairwoman from 1999 to
April 2001; co-founder of the National Association of Minorities in Cable and
Telecommunications and served as its Chairwoman from 1981 to 1985;director of ING
North America Financial Services Company, an insurance and financial services
company since 1997.
Michael H. Khalilian 42 Director and Chief Technology Officer since November 2004; director and Chief
Technology Officer of Vox Communications, Inc., our wholly-owned subsidiary,
since October 2004; Chairman of the Board of Directors and President of
International Packet Communications Consortium, a company of which Mr. Khalilian
is a founding member, since July 2001; Chief Technology Officer and director of
Volo Communications Inc., a wholesale VoIP service provider, from January 2003
to July 2004; chief technologist and advisor for the Telecom Business Groups at
NTT from January 2002 to June 2003; Senior Engineer and Senior Director for the
Cable, Communications and Telecom business groups at Time Warner Communications
from March 1996 to May 2002.
Vote Required
Assuming a quorum is present, a plurality of the votes cast at the annual
meeting of shareholders, by the shareholders entitled to vote in the election,
either in person or by proxy, is required to elect the director nominees.
Our board of directors recommends a vote FOR election of each of the
nominees listed above.
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DIRECTORS AND OFFICERS
Biographical information concerning our directors and officers is set
forth above under the caption "Election of Directors - Directors and Officers".
Certain Relationships and Related Transactions
We believe all purchases from or transactions with affiliated parties were
on terms and at prices substantially similar to those available from
unaffiliated third parties.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our directors and executive officers, and persons who
own more than ten percent of a registered class of our equity securities ("10%
Shareholders"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of our common stock and other equity securities. Officers, directors and 10%
Shareholders are required by Commission regulation to furnish us with copies of
all Section 16(a) forms they file.
Based solely on our review of the copies of such reports received by us,
we believe that for the fiscal year ended November 30, 2004, all Section 16(a)
filing requirements applicable to our officers, directors and 10% shareholders
were complied with, except (i) Paul H. Riss, our acting chairman of the board
and our chief executive officer, chief financial officer and treasurer, was late
in filing a Statement of Changes of Beneficial Ownership of Securities on Form 4
for options granted to him on April 8, 2004 to purchase 100,000 shares of our
common stock; (ii) Joel Dupre, our former chairman of the board of directors,
was late in filing (A) a Statement of Changes of Beneficial Ownership of
Securities on Form 4 for options granted to him on April 8, 2004 to purchase
100,000 shares of our common stock and (B) a Statement of Changes in Beneficial
Ownership on Form 4 for options granted to him on June 23, 2004 to purchase
10,000 shares of our common stock; and (iii) Greg M. Cooper, a member of our
board of directors, was late in filing a Statement of Changes in Beneficial
Ownership on Form 4 for options granted to him on June 23, 2004 to purchase
10,000 shares of our common stock.
Board Meetings and Committees; Management Matters
Our board of directors held eight meetings during the fiscal year ended
November 30, 2004. Each director attended at least 75% of the board of directors
and committee meetings of which he was a member during such time as he served as
a director. We do not have a formal policy regarding attendance by members of
our board of directors at the annual meeting of shareholders, but we strongly
encourage all members of our board of directors to attend the annual meeting of
shareholders, and expect such attendance except in the event of exigent
circumstances. All of the members of our board of directors at the time of the
2004 annual meeting of shareholders were in attendance at the 2004 annual
meeting of shareholders held on June 23, 2004. From time to time, the members of
our board of directors act by unanimous written consent pursuant to the laws of
the State of New York. No fees are paid to directors for attendance at meetings
of the board of directors.
Our board of directors has a stock option committee, which did not meet
during the fiscal year ended November 30, 2004 and currently consists of Greg M.
Cooper and Gayle Greer. The stock option committee has authority to grant
options to our executive officers under the 1995 Stock Option Plan and, if our
2004 Equity Incentive Plan is approved and adopted at this meeting, the 2004
Equity Incentive Plan. In October 1997, our board of directors established an
audit committee, which met one time during the fiscal year ended November 30,
2004. Our board of directors does not have standing nominating or compensation
committees or, except in the case of the grant of stock options by the stock
option committee, any committee performing similar functions. Our entire board
of directors is responsible for these functions.
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Compensation Committee
Our board of directors does not have a compensation committee. Our entire
board of directors is responsible for this function.
Nominating Committee
Our board of directors does not have a nominating committee. Our entire
board of directors is responsible for this function. Due to the relatively small
size of our company and the resulting efficiency of a board of directors that is
also limited in size, our board of directors has determined that it is not
necessary or appropriate at this time to establish a separate nominating
committee. Our board of directors intends to review periodically whether such a
nominating committee should be established.
Our board of directors uses a variety of methods for identifying and
evaluating nominees for director. It regularly assesses the appropriate size of
the board of directors, and whether any vacancies exist or are expected due to
retirement or otherwise. If vacancies exist, are anticipated or otherwise arise,
our board of directors considers various potential candidates for director.
Candidates may come to their attention through current members of our board of
directors, shareholders or other persons. These candidates are evaluated at
regular or special meetings of our board of directors, and may be considered at
any point during the year. Our board of directors will consider candidates for
director that are nominated by shareholders in accordance with the procedures
regarding the inclusion of shareholder proposals in proxy materials set forth in
the section entitled "Shareholder Proposals" in this proxy statement. In
evaluating such recommendations, our board of directors uses the qualifications
and standards discussed below and seeks to achieve a balance of knowledge,
experience and capability on our board of directors.
Qualifications for consideration as a director nominee may vary according
to the particular areas of expertise that may be desired in order to complement
the qualifications that already exist among our board of directors. Among the
factors that our directors consider when evaluating proposed nominees are their
independence, financial literacy, business experience, character, judgment and
strategic vision. Other considerations would be their knowledge of issues
affecting our business, their leadership experience and their time available for
meetings and consultation on company matters. Our directors seek a diverse group
of candidates who possess the background skills and expertise to make a
significant contribution to our board of directors, our company and our
shareholders.
Audit Committee
We have an audit committee currently composed of Greg M. Cooper and Gayle
Greer. Each audit committee member is an independent director as defined by the
rules of the National Association of Securities Dealers. The audit committee is
governed by a written charter approved by our board of directors and attached as
Annex A to our 2004 proxy statement, which was filed with the Commission on May
3, 2004.
Our board of directors has determined that Greg M. Cooper qualifies as an
"audit committee financial expert," as defined under the rules of the Commission
adopted pursuant to the Sarbanes-Oxley Act of 2002. Our board of directors has
determined that Ms. Greer is financially literate and experienced in business
matters and fully qualified to monitor the performance of management, the public
disclosures by our company of our financial condition and performance, our
internal accounting operations, and our independent auditors.
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Report of the Audit Committee
The audit committee reviews our financial reporting process on behalf of
our board of directors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
controls. The independent auditors are responsible for performing an independent
audit of the consolidated financial statements to ensure that those statements
were prepared in accordance with generally accepted accounting principles and
report thereon to our board of directors. The audit committee reviews and
monitors these processes.
Within this framework, the audit committee has reviewed and discussed the
audited financial statements with management and the independent auditors.
Management has affirmed to the audit committee that our consolidated financial
statements were prepared in accordance with generally accepted accounting
principles. The audit committee has discussed with the independent auditors
those matters required to be discussed by Statement of Auditing Standards No. 61
(Codification of Statements on Auditing Standards, AU ss. 380).
In addition, the audit committee has received the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1 (Independent Standards Board Standard No. 1, Independence
Discussions with Audit Committees), and has also discussed with the independent
auditors, the auditor's independence from management and our company. In
connection with the new standards for independence of our independent auditors
promulgated by the Commission, the audit committee has undertaken to consider
whether the provision of any non-audit services (such as internal audit
assistance and tax-related services) by our independent auditors is compatible
with maintaining the independence of the independent auditors when the
independent auditors are also engaged to provide non-audit services.
The audit committee also discussed with our independent auditors the
overall scope and plans for their audit, their evaluation of our internal
controls and the overall quality of our financial reporting.
In reliance on the reviews and discussions referred to above, the audit
committee has recommended to the board of directors that the audited
consolidated financial statements be included in our Annual Report on Form
10-KSB for the year ended November 30, 2004, which was filed with the Commission
on March 15, 2005.
Audit Committee
Greg M. Cooper, Member
Gayle Greer, Member
Shareholder Communications
Our board of directors has implemented a process for our shareholders to send
communications to our board of directors. Any shareholder desiring to
communicate with our board of directors, or with specific individual directors,
may do so by writing to Gandolfo Verra, Assistant Corporate Secretary, at eLEC
Communications Corp., 75 South Broadway, Suite 302, White Plains, New York
10601. The Assistant Corporate Secretary has the authority to disregard any
inappropriate communications or take other appropriate actions with respect to
any such inappropriate communications. If deemed an appropriate communication,
the Assistant Corporate Secretary will submit a shareholder's correspondence to
the Chairman of the Board of Directors or to any specific director to whom the
correspondence is directed.
Code of Ethics
We have adopted a code of business conduct and ethics for our directors,
officers and employees, including our chief executive officer and chief
financial officer. In addition, we have adopted a supplemental code of
7
ethics for our financial executives and all employees in our accounting
department. The text of our codes are posted on our Internet website at
www.elec.net.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to Mr. Paul H. Riss, our Chief
Executive Officer, Mr. Michael H. Khalilian, our Chief Information Officer and
Mr. Mark Richards, the president of Vox Communications, Inc. our wholly-owned
subsidiary (collectively, the "Named Executives"). None of our other executive
officers received more than $100,000 in compensation during fiscal 2004.
Compensation Table
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary($) Bonus($) Compensation ($) Options(#) Compensation
------------------ ------ --------- -------- ---------------- ---------- ------------
Paul H. Riss 2004 $150,000 None None 100,000 None
Chief Executive Officer, 2003 150,000 None None 250,000 None
Chief Financial Officer 2002 150,000 None None None None
and Treasurer
Michael H. Khalilian(1) 2004 $ 12,000 None None 900,000 None
Chief Technology 2003 None None None None None
Officer since October 2002 None None None None None
26, 2004
Mark Richards(1) 2004 $ 22,569 None None 1,000,000 None
President of Vox 2003 None None None None None
Communications, Inc. 2002 None None None None None
Subsidiary since
October 4, 2004
-----------------------------
(1) Mr. Khalilian became our Chief Technology Officer in October 2004 and
receives an annual salary of $120,000 for such services.
(2) Mr. Richards became the President of our wholly-owned subsidiary, Vox
Communications, Inc., in October 2004 and receives an annual salary of
$120,000 for such services.
Stock Option Grants
The following table sets forth individual grants of stock options and
stock appreciation rights ("SARs") made during fiscal 2004 to the Named
Executives.
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Option/SAR Grants In Last Fiscal Year
Number of Percent of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted(1) Fiscal Year(2) Price ($/Share) Date
---- ---------- -------------- --------------- ----
Paul H. Riss 100,000 4.6% $0.18 04/08/09
Michael Khalilian 900,000 41.2% $0.23 10/26/09
Mark Richards 1,000,000 45.8% $0.25 10/14/09
---------------
(1) No SARs were granted in fiscal 2004.
(2) In fiscal 2004, we granted options to 7 employees, certain members of our
board of directors and the former Chairman of our Board of Directors to
purchase an aggregate of 2,185,000 shares of our common stock.
Stock Option Exercises
The following table contains information relating to the exercise of our
stock options by the Named Executives in fiscal 2004, as well as the number and
value of their unexercised options as of November 30, 2004.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal In-the-Money Options at Fiscal
Shares Year-End(#)(1) Year-End ($)(2)
Acquired on Value ------------------------------- -----------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
Paul H. Riss -- -- 370,000 450,000 $47,500 $ 11,000
Michael Khalilian -- -- -- 900,000 -- 54,000
Mark Richards -- -- -- 1,000,000 -- 40,000
----------------
(1) The sum of the numbers under the Exercisable and Unexercisable column of
this heading represents the Named Executives' total outstanding options to
purchase shares of common stock.
(2) The dollar amounts shown under the Exercisable and Unexercisable columns
of the heading represent the number of exercisable and unexercisable
options, respectively, that were "In-the-Money" on November 30, 2004,
multiplied by the difference between the closing price of the common stock
on November 30, 2004, which was $0.29 per share, and the exercise price of
the options. For purposes of these calculations, In-the-Money options are
those with an exercise price below $0.29 per share.
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Board of Directors Compensation
We do not currently compensate directors for service on our board of
directors. We maintain a Non-Employee Director Stock Option Plan (the "Director
Option Plan"). Under the Director Option Plan, each non-employee director is
granted a non-statutory option to purchase 10,000 shares of our common stock on
the date on which he or she is elected, re-elected or appointed to our board of
directors. Options granted pursuant to the Director Option Plan will vest in
full on the one-year anniversary of the grant date, provided the non-employee
director is still our director at that time. The exercise price granted under
the Director Option Plan is 100% of the fair market value per share of the
common stock on the date of the grant as reported on The OTC Bulletin Board.
The following table provides information as of November 30, 2004 with
respect to shares of our common stock that are issuable under equity
compensation plans.
Number of Securities
remaining available to
Number of securities Weighted-average future issuance under
to be issued upon exercise price of equity compensation
exercise of outstanding plans (excluding
outstanding options, options, warrants securities reflected in
warrants and rights and rights column (a))
Plan Category (a) (b) (c)
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans approved
by security holders:
Employee Stock Option Plan (1) 1,572,000 $0.59 453,215
1996 Restricted Stock Plan (2) -- 400,000
--------- ----- -------
Subtotal 1,572,000 853,215
--------- ----- -------
Equity compensation plans not
approved by security holders:
Employee stock options 1,900,000 0.24 --
RFC Warrants (3) 200,000 1.54 --
Kaufman Bros. Warrants (4) 350,000 1.88 --
---------
Subtotal 2,450,000
---------
Total 4,022,500 853,215
========= =======
---------------------------
(1) Our Employee Stock Option Plan allows for the granting of share options to
members of our board of directors, officers, non-officer employees and
consultants.
(2) Our Restricted Stock Plan provides for the issuance of restricted share
grants to officers and non-officer employees.
(3) The RFC Warrants were issued in conjunction with a revolving credit
facility. The facility has been retired; however, the warrants will remain
outstanding until exercised or until the expiration date of October 23,
2010.
(4) The Kaufman Bros. Warrants represent two warrant grants for investment
banking services.
10
ADOPTION OF THE eLEC COMMUNICATIONS CORP. 2004 EQUITY INCENTIVE PLAN
(Proxy Item 2)
General
In connection with the July 2005 expiration of our 1995 Stock Option Plan,
adopted in 1995 (the "1995 Plan"), our board of directors adopted at its meeting
on April 8, 2004, subject to shareholder approval, the eLEC Communications Corp.
2004 Equity Incentive Plan (the "Incentive Plan"), a copy of which is attached
to this proxy statement as Annex A. The Incentive Plan gives us the ability to
grant stock options, stock appreciation rights ("SARs") and restricted stock
(collectively, "Awards") to employees or consultants of our company or of any
subsidiary of our company and to non-employee members of our advisory board or
our board of directors or the board of directors of any of our subsidiaries. Our
board of directors believes that adoption of the Incentive Plan is in the best
interests of our company and our shareholders because the ability to grant stock
options and make other stock-based awards under the Incentive Plan is an
important factor in attracting, stimulating and retaining qualified and
distinguished personnel with proven ability and vision to serve as employees,
officers, consultants or members of the board of directors or advisory board of
our company and our subsidiaries, and to chart our course towards continued
growth and financial success. Therefore, our board of directors views the
Incentive Plan as a key component of our compensation program.
As of February 28, 2005, under the 1995 Plan, an aggregate of 282,215
shares of our common stock remained available for future grants and 1,648,500
shares of our common stock were allocated to outstanding options. The weighted
average exercise price of all options, warrants and rights outstanding as of
February 28, 2005 was $0.40 per share.
Summary of the Provisions of the Incentive Plan
The following summary briefly describes the material features of the
Incentive Plan and is qualified, in its entirety, by the specific language of
the Incentive Plan, a copy of which is attached to this proxy statement as Annex
A.
Shares Available
Our board of directors has authorized, subject to shareholder approval,
1,000,000 shares of our common stock for issuance under the Incentive Plan. In
the event of any stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, spin-off, split-up,
reorganization, rights offering, liquidation, or any similar change event of or
by our company, appropriate adjustments will be made to the shares subject to
the Incentive Plan and to any outstanding Awards. Shares available for Awards
under the Incentive Plan may be either newly-issued shares or treasury shares.
In certain circumstances, shares subject to an outstanding Award may again
become available for issuance pursuant to other Awards available under the
Incentive Plan. For example, shares subject to forfeited, terminated, canceled
or expired Awards will again become available for future grants under the
Incentive Plan. In addition, shares subject to an Award that are withheld by us
to satisfy tax withholding obligations shall also be made available for future
grants under the Incentive Plan.
Administration
The Incentive Plan is administered by the stock option committee of our
board of directors or such other committee as may be appointed by our board of
directors to administer the Incentive Plan or if such a committee is not
appointed or unable to act, then our entire board of directors (the
"Committee"). The Committee will consist of at least two members who are
non-employee directors within the meaning of Rule 16b-3 under the Exchange Act.
With respect to the participation of individuals who are subject to Section 16
11
of the Exchange Act, the Incentive Plan is administered in compliance with the
requirements of Rule 16b-3 under the Exchange Act. Subject to the provisions of
the Incentive Plan, the Committee determines the persons to whom grants of
options, SAR's and shares of restricted stock are to be made, the number of
shares of common stock to be covered by each grant and all other terms and
conditions of the grant. If an option is granted, the Committee determines
whether the option is an incentive stock option or a nonstatutory stock option,
the option's term, vesting and exercisability, the amount and type of
consideration to be paid to our company upon the option's exercise and the other
terms and conditions of the grant. The terms and conditions of restricted stock
and SAR Awards are also determined by the Committee. The Committee has the
responsibility to interpret the Incentive Plan and to make determinations with
respect to all Awards granted under the Incentive Plan. All determinations of
the Committee are final and binding on all persons having an interest in the
Incentive Plan or in any Award made under the Incentive Plan. The costs and
expenses of administering the Incentive Plan are borne by our company.
Eligibility
Eligible individuals include our and our subsidiaries' employees
(including our and our subsidiaries' officers and directors who are also
employees) or consultants whose efforts, in the judgment of the Committee, are
deemed worthy of encouragement to promote our growth and success. Non-employee
directors of our board of directors are also eligible to participate in the
Incentive Plan. All eligible individuals may receive one or more Awards under
the Plan, upon the terms and conditions set forth in the Incentive Plan.
Currently, approximately 40 individuals are eligible to receive Awards under the
Incentive Plan. Of this total, approximately 38 individuals are employees and
two individuals are non-employee directors. At this time, there are no
individuals who are consultants that are eligible to receive Awards under the
Incentive Plan. There is no assurance that an otherwise eligible individual will
be selected by the Committee to receive an Award under the Incentive Plan.
Because future Awards under the Incentive Plan will be granted in the
discretion of the Committee, the type, number, recipients and other terms of
such Awards cannot be determined at this time. Information regarding our recent
practices with respect to annual, long-term and stock-based compensation under
other plans and stock options under such plans is presented above in this proxy
statement. See "Executive Compensation" herein and note 14 to our financial
statements for the year ended November 30, 2003 in our Annual Report on Form
10-KSB that accompanies this proxy statement.
Stock Options and SARs
Under the Incentive Plan, the Committee is authorized to grant both stock
options and SARs. Stock options may be either designated as non-qualified stock
options or incentive stock options. Incentive stock options, which are intended
to meet the requirements of Section 422 of the Internal Revenue Code such that a
participant can receive potentially favorable tax treatment, may only be granted
to employees. Therefore, any stock option granted to consultants and
non-employee directors are non-qualified stock options. The tax treatment of
incentive and non-qualified stock options is generally described later in this
summary. SARs may be granted either alone or in tandem with a stock option. A
SAR entitles the participant to receive the excess, if any, of the fair market
value of a share on the exercise date over the strike price of the SAR. This
amount is payable in cash, except that the Committee may provide in an Award
agreement that benefits may be paid in shares of our common stock. In general,
if a SAR is granted in tandem with an option, the exercise of the option will
cancel the SAR, and the exercise of the SAR will cancel the option. Any shares
that are canceled will be made available for future Awards. The Committee, in
its sole discretion, determines the terms and conditions of each stock option
and SAR granted under the Incentive Plan, including the grant date, option or
strike price (which, in no event, will be less than the par value of a share),
whether a SAR is paid in cash or shares, the term of each option or SAR,
exercise conditions and restrictions, conditions of forfeitures, and any other
terms, conditions and restrictions consistent with the terms of the Incentive
Plan, all of which will be evidenced in an individual Award agreement between us
and the participant.
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Certain limitations apply to incentive stock options and SARs granted in
tandem with incentive stock options. The per share exercise price of an
incentive stock option may not be less than 100% of the fair market value of a
share of our common stock on the date of the option's grant and the term of any
such option shall expire not later than the tenth anniversary of the date of the
option's grant. In addition, the per share exercise price of any option granted
to a person who, at the time of the grant, owns stock possessing more than 10%
of the total combined voting power or value of all classes of our stock must be
at least 110% of the fair market value of a share of our common stock on the
date of grant and such option shall expire not later than the fifth anniversary
of the date of the option's grant.
Options and SARs granted under the Incentive Plan become exercisable at
such times as may be specified by the Committee. In general, options and SARs
granted to participants become exercisable in three equal annual installments,
subject to the optionee's continued employment or service with us. However, the
aggregate value (determined as of the grant date) of the shares subject to
incentive stock options that may become exercisable by a participant in any year
may not exceed $100,000. If a SAR is granted in tandem with an option, the SAR
will become exercisable at the same time or times as the option becomes
exercisable.
The maximum term of options and SARs granted under the Incentive Plan is
ten years. If any participant terminates employment due to death or disability
or retirement, the portion of his or her option or SAR Awards that were
exercisable at the time of such termination may be exercised for one year from
the date of termination. In the case of any other termination, the portion of
his or her option or SAR Awards that were exercisable at the time of such
termination may be exercised for three months from the date of termination.
However, if the remainder of the option or SAR term is shorter than the
applicable post-termination exercise period, the participant's rights to
exercise the option or SAR will expire at the end of the term. In addition, if a
participant's service terminates due to cause, all rights under an option or SAR
will immediately expire, including rights to the exercisable portion of the
option or SAR. Shares attributable to an option or SAR that expire without being
exercised will be forfeited by the participant and will again be available for
Award under the Incentive Plan.
Unless limited by the Committee in an Award agreement, payment for shares
purchased pursuant to an option exercise may be made (i) in cash, check or wire
transfer, (ii) subject to the Committee's approval, in shares already owned by
the participant (including restricted shares held by the participant at least
six months prior to the exercise of the option) valued at their fair market
value on the date of exercise, or (iii) through broker-assisted cashless
exercise procedures.
Restricted Stock
Under the Incentive Plan, the Committee is also authorized to make Awards
of restricted stock. A restricted stock Award entitles the participant to all of
the rights of a shareholder of our company, including the right to vote the
shares and the right to receive any dividends. However, the Committee may
require the payment of cash dividends to be deferred and if the Committee so
determines, re-invested in additional shares of restricted stock. Before the end
of a restricted period and/or lapse of other restrictions established by the
Committee, shares received as restricted stock shall contain a legend
restricting their transfer, and may be forfeited (i) in the event of termination
of employment, (ii) if our company or the participant does not achieve specified
performance goals after the grant date and before the participant's termination
of employment or (iii) upon the failure to achieve other conditions set forth in
the Award agreement.
An Award of restricted stock will be evidenced by a written agreement
between us and the participant. The Award agreement will specify the number of
shares of our common stock subject to the Award, the nature and/or length of the
restrictions, the conditions that will result in the automatic and complete
forfeiture of the shares and the time and manner in which the restrictions will
lapse, subject to the Award holder's continued employment by us, and any other
terms and conditions the Committee shall impose consistent with the provisions
of the Incentive Plan. The Committee also determines the amount, if any, that
the participant shall pay for the shares of restricted stock. However, the
participant must be required to pay at
13
least the par value for each share of restricted stock. Upon the lapse of the
restrictions, any legends on the shares of our common stock subject to the Award
will be re-issued to the participant without such legend.
Unless the Committee determines otherwise in the Award or other agreement,
if a participant terminates employment for any reason, all rights to restricted
stock that are then forfeitable will be forfeited. Restricted stock that is
forfeited by the participant will again be available for Award under the
Incentive Plan.
Fair Market Value
Under the Incentive Plan, fair market value means the fair market value of
the shares based upon the closing selling price of a share of our common stock
as quoted on any national securities exchange, Nasdaq or the OTC Bulletin Board
on the relevant date. If there is no closing selling price on the relevant date,
then the fair market value shall mean the closing selling price on the last
preceding date for which such quotation exists. If shares are not readily
tradable on a national securities exchange or other market system, fair market
value means an amount determined in good faith by the Committee to be the fair
market value of the shares.
Transferability Restrictions
Generally and unless otherwise provided in an Award agreement, shares or
rights subject to an Award cannot be assigned or transferred other than by will
or by the laws of descent and distribution and Awards may be exercised during
the participant's lifetime only by the participant or his or her guardian or
legal representative. However, a participant may, if permitted by the Committee,
in its sole discretion, transfer an Award, or any portion thereof, to one or
more of the participant's spouse, children or grandchildren, or may designate in
writing a beneficiary to exercise an Award after his or her death.
Termination or Amendment of the Incentive Plan
Unless sooner terminated, no Awards may be granted under the Incentive
Plan after April 8, 2014. Our board of directors may amend or terminate the
Incentive Plan at any time, but our board of directors may not, without
shareholder approval, amend the Incentive Plan to increase the total number of
shares of our common stock reserved for issuance of Awards. In addition, any
amendment or modification of the Incentive Plan shall be subject to shareholder
approval as required by any securities exchange on which our common stock is
listed. No amendment or termination may deprive any participant of any rights
under Awards previously made under the Incentive Plan.
Summary of Federal Income Tax Consequences of the Incentive Plan
The following summary is intended only as a general guide as to the
federal income tax consequences under current law with respect to participation
in the Incentive Plan and does not attempt to describe all possible federal or
other tax consequences of such participation. Furthermore, the tax consequences
of awards made under the Incentive Plan are complex and subject to change, and a
taxpayer's particular situation may be such that some variation of the described
rules is applicable.
Options and SARs
There are three points in time when a participant and our company could
potentially incur federal income tax consequences: date of grant, upon exercise
and upon disposition. First, when an option or a SAR is granted to a
participant, the participant does not recognize any income for federal income
tax purposes on the date of grant. We similarly do not have any federal income
tax consequences at the date of grant. Second, depending upon the type of
option, the exercise of an option may or may not result in the recognition of
income for federal income tax purposes. With respect to an incentive stock
option, a participant will not recognize any ordinary income upon the option's
exercise (except that the alternative minimum tax may apply). However, a
participant will generally recognize ordinary income upon the exercise of a
non-qualified stock option. In this case, the participant will recognize income
equal to the difference between the option
14
price and the fair market value of shares purchased pursuant to the option on
the date of exercise. With respect to the exercise of a SAR, the participant
must generally recognize ordinary income equal to the cash received (or, if
applicable, value of the shares received).
Incentive stock options are subject to certain holding requirements before
a participant can dispose of the shares purchased pursuant to the exercise of
the option and receive capital gains treatment on any income realized from the
exercise of the option. Satisfaction of the holding periods determines the tax
treatment of any income realized upon exercise. If a participant disposes of
shares acquired upon exercise of an incentive stock option before the end of the
applicable holding periods (called a "disqualifying disposition"), the
participant must generally recognize ordinary income equal to the lesser of (i)
the fair market value of the shares at the date of exercise of the incentive
stock option minus the exercise price or (ii) the amount realized upon the
disposition of the shares minus the exercise price. Any excess of the fair
market value on the date of such disposition over the fair market value on the
date of exercise must be recognized as capital gains by the participant. If a
participant disposes of shares acquired upon the exercise of an incentive stock
option after the applicable holding periods have expired, such disposition
generally will result in long-term capital gain or loss measured by the
difference between the sale price and the participant's tax "basis" in such
shares (generally, in such case, the tax "basis" is the exercise price).
Generally, we will be entitled to a tax deduction in an amount equal to
the amount recognized as ordinary income by the participant in connection with
the exercise of options and SARs. However, we are generally not entitled to a
tax deduction relating to amounts that represent capital gains to a participant.
Accordingly, if the participant satisfies the requisite holding period with
respect to an incentive stock option before disposition to receive the favorable
tax treatment accorded incentive stock options, we will not be entitled to any
tax deduction with respect to an incentive stock option. In the event the
participant has a disqualifying disposition with respect to an incentive stock
option, we will be entitled to a tax deduction in an amount equal to the amount
that the participant recognized as ordinary income.
Restricted Stock Awards
A participant will not be required to recognize any income for federal
income tax purposes upon the grant of shares of restricted stock. With respect
to Awards involving shares or other property, such as restricted stock Awards,
that contain restrictions as to their transferability and are subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the fair market value of the shares or other property
received at the time the shares or other property become transferable or are no
longer subject to a substantial risk of forfeiture, whichever occurs first. We
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant. A participant may elect to be taxed at the
time he or she receives shares (e.g., restricted stock) or other property rather
than upon the lapse of transferability restrictions or the substantial risk of
forfeiture. However, if the participant subsequently forfeits such shares he or
she would not be entitled to any tax deduction or, to recognize a loss, for the
value of the shares or property on which he or she previously paid tax.
Alternatively, if an Award that results in a transfer to the participant of
cash, shares or other property does not contain any restrictions as to their
transferability and is not subject to a substantial risk of forfeiture, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of shares or other property actually received. We generally
will be entitled to a deduction for the same amount.
Vote Required
Assuming a quorum is present, the affirmative vote of a majority of the
votes cast at the annual meeting of shareholders, either in person or by proxy,
is required for approval of this proposal.
Our board of directors recommends a vote FOR approval of the proposed
adoption of our 2004 Equity Incentive Plan.
15
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proxy Item 3)
Nussbaum Yates & Wolpow, P.C. ("Nussbaum"), served as our independent
public accountants for the fiscal year ended November 30, 2004 and has been
appointed by our board of directors to continue as our independent auditors for
the fiscal year ending November 30, 2005. In the event that ratification of this
appointment of independent auditors is not approved by the affirmative vote of a
majority of votes cast on the matter, the appointment of independent auditors
will be reconsidered by our board of directors. Unless marked to the contrary,
proxies received will be voted for ratification of the appointment of Nussbaum
as our independent auditors for the fiscal year ending November 30, 2005.
A representative of Nussbaum is expected to attend the annual meeting, and
such representative will have the opportunity to make a statement if he so
desires and will be available to respond to appropriate questions from
shareholders.
Your ratification of the appointment of Nussbaum as our independent
auditors for the fiscal year ending November 30, 2005 does not preclude our
board of directors from terminating its engagement of Nussbaum and retaining a
new independent auditor, if it determines that such an action would be in our
best interests.
Audit Fees
The aggregate fees billed by Nussbaum for professional services rendered
for the audit of our annual financial statements for the last two fiscal years
and for the reviews of the financial statements included in our Quarterly
Reports on Form 10-QSB during the last two fiscal years was $103,936 and
$99,651, respectively.
Audit-Related Fees
We did not engage our principal accountants to provide assurance or
related services during the last two fiscal years.
Tax Fees
The aggregate fees billed by our principal accountants for tax compliance,
tax advice and tax planning services rendered to us during the last two fiscal
years was $15,000 and $15,000, respectively.
All Other Fees
We did not engage our principal accountants to render services to us
during the last two fiscal years, other than as reported above.
Pre-Approval Policies and Procedures
Our Board of Directors has the sole authority to appoint or replace our
independent auditor. Our Board is directly responsible for the compensation and
oversight of the work of our independent auditor (including resolution of
disagreements between management and the independent auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or related
work. Our independent auditor is engaged by, and reports directly to, our Board.
Our Board pre-approves all auditing services and permitted non-audit
services (including the fees and terms thereof) to be performed for us by our
independent auditor, subject to the de minimis exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act, all of which are approved
by our Board prior to the completion of the audit. In the event pre-approval for
such auditing services and permitted
16
non-audit services cannot be obtained as a result of inherent time constraints
in the matter for which such services are required, the Chairman of our Board
may pre-approve such services, and will report for ratification such
pre-approval to our Board at its next scheduled meeting. Our Board has complied
with the procedures set forth above and all services reported above were
approved in accordance with such procedures.
Vote Required and Board of Directors' Recommendation
Assuming a quorum is present, the affirmative vote of a majority of the
votes cast at the annual meeting of shareholders, by the shareholders entitled
to vote at the annual meeting of shareholders, either in person or by proxy, is
required for approval of this proposal.
Our board of directors recommends a vote FOR ratification of the
appointment of Nussbaum as the our independent auditors for the fiscal year
ending November 30, 2005.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended for presentation at our 2006 annual
meeting of shareholders and intended to be included in our proxy statement and
form of proxy relating to that meeting must be received at our executive offices
by February 16, 2006 and comply with the requirements of Rule 14a-8(e)
promulgated under the Exchange Act.
OTHER BUSINESS
Other than as described above, our board of directors knows of no matters
to be presented at the annual meeting, but it is intended that the persons named
in the proxy will vote your shares according to their best judgment if any
matters not included in this proxy statement do properly come before the meeting
or any adjournment thereof.
ANNUAL REPORT
Our Annual Report on Form 10-KSB for the year ended November 30, 2004,
including financial statements, is being mailed with this proxy statement. If,
for any reason, you do not receive your copy of the Annual Report, please
contact Mr. Paul H. Riss, Chief Executive Officer, eLEC Communications Corp., 75
South Broadway, Suite 302, White Plains, New York 10601, and another will be
sent to you.
By Order of the Board of Directors,
PAUL H. RISS
Acting Chairman of the Board
Dated: April 25, 2005
White Plains, New York
17
ANNEX A
eLEC COMMUNICATIONS CORP.
2004 EQUITY INCENTIVE PLAN
This eLEC Communications Corp. 2004 Equity Incentive Plan (the "Plan")
is established by eLEC Communications Corp., a New York corporation (the
"Company"), effective as of April 8, 2004 (the "Effective Date"), subject to the
approval of the shareholders of the Company within twelve (12) months
thereafter. Capitalized terms not otherwise defined shall have the meanings set
forth in Section 25.
1. Purpose. The Plan is intended to provide qualifying Employees
(including officers and Directors), Independent Directors and Consultants with
equity ownership in the Company, thereby strengthening their commitment to the
success of the Company, promoting the identity of interests between the
Company's shareholders and such Employees, Independent Directors and Consultants
and stimulating their efforts on behalf of the Company, and to assist the
Company in attracting and retaining talented personnel.
2. Scope of the Plan. Subject to adjustment in accordance with Section
20, the total number of Shares for which grants under the Plan shall be
available is 1,000,000. If any Shares subject to any Award granted hereunder are
forfeited or such Award otherwise terminates without the issuance of such Shares
or for other consideration in lieu of such Shares, the Shares subject to such
Award, to the extent of any such forfeiture or termination, shall again be
available for grant under the Plan. Shares awarded under the Plan may be
treasury shares or newly-issued shares.
3. Administration.
(a) The Plan shall be administered by a Committee which shall
consist of at least two or more members of the Board, all of whom, so long as
the Company remains a Public Company, shall qualify as "non-employee directors"
under Section (b)(3)(i) of Rule 16b-3. The number of members of the Committee
may from time to time be increased or decreased, and so long as the Company
remains a Public Company, shall be subject to such conditions, as the Board
deems appropriate to permit transactions in Shares pursuant to the Plan to
satisfy such conditions of Rule 16b-3 as then in effect.
(b) Subject to the express provisions of the Plan, the
Committee has full and final authority and discretion as follows:
(i) to determine when and to whom Awards should be
granted and the terms, conditions and restrictions applicable to each
Award, including, without limitation, (A) the exercise price of the
Award, (B) the method of payment for Shares purchased upon the exercise
of the Award, (C) the method of satisfaction of any tax withholding
obligation arising in connection with the Award, (D) the timing, terms
and conditions of the exercisability of the Award or the vesting of any
Shares acquired upon the exercise thereof, (E) the time of the
expiration of the vesting of any Shares acquired upon the exercise
thereof, (F) the effect of the Grantee's termination of employment or
service with the Company on any of the foregoing, (G) all other terms,
conditions and restrictions applicable to the Award or such Shares not
inconsistent with the terms of the Plan, (H) the benefit payable under
any SAR or Performance Share, and (I) whether or not specific Awards
shall be identified with other specific Awards, and if so whether they
shall be exercisable cumulatively with, or alternatively to, such other
specific Awards;
(ii) to determine the amount, if any, that a Grantee
shall pay for Restricted Shares, whether to permit or require the
payment of cash dividends thereon to be deferred and the terms related
thereto, when Restricted Shares (including Restricted Shares acquired
upon the exercise of any Award) shall be forfeited and whether such
Shares shall be held in escrow;
1
(iii) to interpret the Plan and to make all
determinations necessary or advisable for the administration of the
Plan;
(iv) to make, amend and rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, without limitation, rules
with respect to the exercisability and forfeitability of Awards upon
the termination of employment or service of a Grantee;
(v) to determine the terms, conditions and
restrictions of all Award Agreements (which need not be identical) and,
with the consent of the Grantee, to amend any such Award Agreement at
any time, among other things, to permit transfers of such Awards to the
extent permitted by the Plan, except that the consent of the Grantee
shall not be required for any amendment which (A) does not adversely
affect the rights of the Grantee or (B) is necessary or advisable (as
determined by the Committee) to carry out the purpose of the Award as a
result of any change in applicable law;
(vi) to cancel, with the consent of the Grantee,
outstanding Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability of, and to
accelerate or waive any or all of the terms, conditions and
restrictions applicable to, any Award or any group of Awards for any
reason and at any time, including in connection with a termination of
employment (other than for Cause);
(viii) subject to Section 6(c), to extend the time
during which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to
Awards to Grantees working outside the United States as are advisable
to fulfill the purposes of the Plan;
(x) to impose such additional terms, conditions and
restrictions upon the grant, exercise or retention of Awards as the
Committee may, before or concurrent with the grant thereof, deem
appropriate; and
(xi) to take any other action with respect to any
matters relating to the Plan for which it is responsible.
The determination of the Committee on all matters
relating to the Plan or any Award Agreement shall be final.
4. Indemnification and Reimbursement. Service as a member of the
Committee or any other duly appointed subcommittee shall constitute service as a
Board member, and such members shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service as members
of the Committee or any other duly appointed subcommittee. No Committee or other
duly appointed subcommittee member shall be liable for any act or omission made
in good faith with respect to the Plan or any Award granted under the Plan.
5. Eligibility. The Committee may, in its discretion, grant Awards to
any Eligible Person, whether or not he or she has previously received an Award,
except in the case of an ISO, which can only be granted to an Employee of the
Company or any Subsidiary.
2
6. Conditions to Grants.
(a) General Conditions. Awards shall be evidenced by written
Award Agreements specifying the number of Shares covered thereby, in such form
as the Committee shall from time to time establish. Award Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
(i) The Grant Date of an Award shall be the date on
which the Committee grants the Award or such later date as specified in
advance by the Committee;
(ii) In the case of an Award of options, the Option
Term shall under no circumstances extend more than ten (10) years after
the Grant Date and shall be subject to earlier termination as herein
provided; and
(iii) Any terms and conditions of an Award not set
forth in the Plan shall be set forth in the Award Agreement related to
that Award.
(b) Grant of Options. No later than the Grant Date of any
option, the Committee shall determine the Option Price of such option. Subject
to Section 6(c), the Option Price of an option may be the Fair Market Value of a
Share on the Grant Date or may be less than or more than that Fair Market Value.
An option shall be exercisable for unrestricted Shares, unless the Award
Agreement provides that it is exercisable for Restricted Shares.
(c) Grant of ISOs. At the time of the grant of any option, the
Committee may, in its discretion, designate that such option shall be made
subject to additional restrictions to permit the option to qualify as an
"incentive stock option" under the requirements of Section 422 of the Code. Any
option designated as an ISO:
(i) shall have an Option Price that is not less than
the Fair Market Value of a Share on the Grant Date and, if granted to a
Ten Percent Owner, have an Option Price that is not less than 110% of
the Fair Market Value of a Share on the Grant Date;
(ii) shall be for a period of not more than ten (10)
years and, if granted to a Ten Percent Owner, not more than five (5)
years, from the Grant Date and shall be subject to earlier termination
as provided herein or in the applicable Award Agreement;
(iii) shall meet the limitations of this subparagraph
6(c)(iii). If the aggregate Fair Market Value of Shares with respect to
which ISOs first become exercisable by a Grantee in any calendar year
exceeds the limit determined in accordance with the provisions of
Section 422 of the Code (the "Limit") taking into account Shares
subject to all ISOs granted by the Company that are held by the
Grantee, the excess will be treated as nonqualified options. To
determine whether the Limit is exceeded, the Fair Market Value of
Shares subject to options shall be determined as of the Grant Dates of
the options. In reducing the number of options treated as ISOs to meet
the Limit, the most recently granted options will be reduced first. If
a reduction of simultaneously granted options is necessary to meet the
Limit, the Committee may designate which Shares are to be treated as
Shares acquired pursuant to an ISO;
(iv) shall be granted within ten (10) years from the
Effective Date;
(v) shall require the Grantee to notify the Committee
of any disposition of any Shares issued upon the exercise of the ISO
under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions, a "Disqualifying
Disposition"), within ten (10) business days after such Disqualifying
Disposition; and
(vi) unless otherwise permitted by the Code, shall by
its terms not be assignable or transferable other than by will or the
laws of descent and distribution and may be
3
exercised, during the Grantee's lifetime, only by the Grantee, except
that the Grantee may, in accordance with Section 7, designate in
writing a beneficiary to exercise his or her ISOs after the Grantee's
death.
(d) Grant of SARs.
(i) When granted, SARs may, but need not, be
identified with a specific option, specific Restricted Shares, or
specific Performance Shares of the Grantee (including any option,
Restricted Shares, or Performance Shares granted on or before the Grant
Date of the SARs) in a number equal to or different from the number of
SARs so granted. If SARs are identified with Shares subject to an
option, with Restricted Shares, or with Performance Shares, then,
unless otherwise provided in the applicable Award Agreement, the
Grantee's associated SARs shall terminate upon (A) the expiration,
termination, forfeiture, or cancellation of such option, Restricted
Shares or Performance Shares, (B) the exercise of such option or
Performance Shares, or (C) the date such Restricted Shares become
nonforfeitable.
(ii) The strike price (the "Strike Price") of any SAR
shall equal, for any SAR that is identified with an option, the Option
Price of such option, or for any other SAR, one hundred percent (100%)
of the Fair Market Value of a Share on the Grant Date of such SAR,
except that the Committee may (A) specify a higher Strike Price in the
Award Agreement or (B) provide that the benefit payable upon exercise
of any SAR shall not exceed such percentage of the Fair Market Value of
a Share on such Grant Date as the Committee shall specify.
(e) Grant of Performance Shares. (i) Before the grant of
Performance Shares, the Committee shall:
(A) determine objective performance goals,
which may consist of any one or more of the following goals
deemed appropriate by the Committee: earnings (either in the
aggregate or on a per share basis), operating income, cash
flow, EBITDA (earnings before interest, taxes, depreciation
and amortization), return on equity, indices related to EVA
(economic value added), per share rate of return on the Common
Stock (including dividends), general indices relative to
levels of general customer service satisfaction, as measured
through various randomly-generated customer service surveys,
market share (in one or more markets), customer retention
rates, market penetration rates, revenues, reductions in
expense levels, the attainment by the Common Stock of a
specified market value for a specified period of time, and any
other object performance goal deemed appropriate by the
Committee, in each case where applicable to be determined
either on a company-wide basis, individual basis or in respect
of any one or more business units, and the amount of
compensation under the goals applicable to such grant;
(B) designate a period for the measurement
of the extent to which performance goals are attained, which
may begin simultaneously with, prior to or following the Grant
Date (the "Performance Period"); and
(C) assign a performance percentage to each
level of attainment of performance goals during the
Performance Period, with the percentage applicable to minimum
attainment being zero percent and the percentage applicable to
maximum attainment to be determined by the Committee from time
to time (the "Performance Percentage").
(ii) If a Grantee is promoted, demoted, or
transferred to a different business unit of the Company during a
Performance Period, then, to the extent the Committee determines any
one or more of the performance goals, Performance Period or Performance
Percentage are no longer
4
appropriate, the Committee may make any changes thereto as it deems
appropriate in order to make them appropriate.
(iii) When granted, Performance Shares may, but need
not, be identified with Shares subject to a specific option, specific
Restricted Shares or specific SARs of the Grantee granted under the
Plan in a number equal to or different from the number of the
Performance Shares so granted. If Performance Shares are so identified,
then, unless otherwise provided in the applicable Award Agreement, the
Grantee's associated Performance Shares shall terminate upon (A) the
expiration, termination, forfeiture or cancellation of the option,
Restricted Shares or SARs with which the Performance Shares are
identified, (B) the exercise of such option or SARs, or (C) the date
Restricted Shares become nonforfeitable.
(f) Grant of Restricted Shares.
(i) The Committee shall determine the amount, if any,
that a Grantee shall pay for Restricted Shares, subject to the
following sentence. The Committee shall require the Grantee to pay at
least the Minimum Consideration for each Restricted Share. Such payment
shall be made in full by the Grantee before the delivery of the shares
and in any event no later than ten (10) business days after the Grant
Date. In the discretion of the Committee and to the extent permitted by
law, payment may also be made in accordance with Section 9.
(ii) The Committee may, but need not, provide that
all or any portion of a Grantee's Restricted Shares, or Restricted
Shares acquired upon exercise of an option, shall be forfeited:
(A) except as otherwise specified in the
Plan or the Award Agreement, upon the Grantee's termination of
employment within a specified time period after the Grant
Date; or
(B) if the Company or the Grantee does not
achieve specified performance goals (if any) within a
specified time period after the Grant Date and before the
Grantee's termination of employment; or
(C) upon failure to satisfy such other
conditions as the Committee may specify in the Award
Agreement.
(iii) If Restricted Shares are forfeited and the
Grantee was required to pay for such shares or acquired such Restricted
Shares upon the exercise of an option, the Grantee shall be deemed to
have resold such Restricted Shares to the Company at a price equal to
the lesser of (A) the amount paid by the Grantee for such Restricted
Shares or (B) the Fair Market Value of the Restricted Shares on the
date of forfeiture, which shall be paid to the Grantee in cash as soon
as administratively practicable. Such Restricted Shares shall cease to
be outstanding and shall no longer confer on the Grantee thereof any
rights as a shareholder of the Company, from and after the date of the
event causing the forfeiture, whether or not the Grantee accepts the
Company's tender of payment for such Restricted Shares.
(iv) The Committee may provide that the certificates
for any Restricted Shares (A) shall be held (together with a stock
power executed in blank by the Grantee) in escrow by the Secretary of
the Company until such Restricted Shares become nonforfeitable or are
forfeited or (B) shall bear an appropriate legend restricting the
transfer of such Restricted Shares. If any Restricted Shares become
nonforfeitable, the Company shall cause certificates for such shares to
be issued without such legend.
5
(v) At the time of a grant of Restricted Shares, the
Committee may require the payment of cash dividends thereon to be
deferred and, if the Committee so determines, reinvested in additional
Restricted Shares. Stock dividends or deferred cash dividends issued
with respect to Restricted Shares shall be subject to the same
restrictions and other terms as apply to the Restricted Shares with
respect to which such dividends are issued. The Committee may in its
discretion provide for payment of interest on deferred cash dividends.
(g) Grant of Compensatory Shares. The Committee may grant
Compensatory Shares to any Eligible Person.
7. Non-Transferability. An Award granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution and may be exercised during the Grantee's lifetime only by the
Grantee or his or her guardian or legal representative, except that, subject to
Section 6(c) in respect of ISOs, a Grantee may, if permitted by the Committee,
in its discretion, (a) designate in writing a beneficiary to exercise an Award
after his or her death (if that designation has been received by the Company
prior to the Grantee's death) and (b) transfer the Award to one or more members
of the Grantee's Immediate Family or any other individuals or entities.
8. Exercise.
(a) Exercise of Options.
(i) Subject to Section 6, each option shall become
exercisable at such time or times as may be specified by the Committee
from time to time in the applicable Award Agreement.
(ii) An option shall be exercised by the delivery to
the Company during the Option Term of (A) a written notice of intent to
purchase a specific number of Shares subject to the option in
accordance with the terms of the option by the person entitled to
exercise the option and (B) payment in full of the Option Price of such
specific number of Shares in accordance with Section 8(a)(iii).
(iii) Payment of the Option Price may be made by any
one or more of the following means:
(A) cash, check, or wire transfer;
(B) with the approval of the Committee,
Mature Shares, valued at their Fair Market Value on the date
of exercise;
(C) with the approval of the Committee,
Restricted Shares held by the Grantee for at least six (6)
months prior to the exercise of the option, each such share
valued at the Fair Market Value of a Share on the date of
exercise;
(D) so long as the Company remains a Public
Company, in accordance with procedures previously approved by
the Company, through the sale of the Shares acquired on
exercise of the option through a bank or broker-dealer to whom
the Grantee has submitted an irrevocable notice of exercise
and irrevocable instructions to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay
for such Shares, together with, if requested by the Company,
the amount of federal, state, local or foreign withholding
taxes payable by Grantee by reason of such exercise; or
(E) in the discretion of the Committee,
payment may also be made in accordance with Section 9.
6
(F) with the approval of the Committee, in
any combination of the foregoing or such other manner
determined by the Committee.
The Committee may in its discretion specify that, if any Restricted Shares are
used to pay the Option Price ("Tendered Restricted Shares"), (A) all the Shares
acquired on exercise of the option shall be subject to the same restrictions as
the Tendered Restricted Shares, determined as of the date of exercise of the
option or (B) a number of Shares acquired on exercise of the option equal to the
number of Tendered Restricted Shares shall be subject to the same restrictions
as the Tendered Restricted Shares, determined as of the date of exercise of the
option.
(b) Exercise of SARs.
(i) Subject to Section 6(d), (A) each SAR not
identified with any other Award shall become exercisable at such time
or times as may be specified by the Committee from time to time in the
applicable Award Agreement and (B) except as otherwise provided in the
applicable Award Agreement, each SAR which is identified with any other
Award shall become exercisable as and to the extent that the option or
Restricted Shares with which such SAR is identified may be exercised or
becomes nonforfeitable, as the case may be.
(ii) SARs shall be exercised by delivery to the
Company of written notice of intent to exercise a specific number of
SARs. Unless otherwise provided in the applicable Award Agreement, the
exercise of SARs that are identified with Shares subject to an option or
Restricted Shares shall result in the cancellation or forfeiture of such
option or Restricted Shares, as the case may be, to the extent of such
exercise.
(iii) The benefit for each SAR exercised shall be
equal to (A) the Fair Market Value of a Share on the date of such
exercise, minus (B) the Strike Price specified in such SAR. Such benefit
shall be payable in cash, except that the Committee may provide in the
Award Agreement that benefits may be paid wholly or partly in Shares.
(c) Payment of Performance Shares. Unless otherwise provided
in the Award Agreement with respect to an Award of Performance Shares, if the
minimum performance goals applicable to such Performance Shares have been
achieved during the applicable Performance Period, then the Company shall pay to
the Grantee of such Award that number of Shares equal to the product of:
(i) the sum of (A) number of Performance Shares
specified in the applicable Award Agreement and (B) the number of
additional Shares that would have been issuable if such Performance
Shares had been Shares outstanding throughout the Performance Period
and the stock dividends, cash dividends (except as otherwise provided
in the Award Agreement), and other property paid in respect of such
Shares had been reinvested in additional Shares as of each dividend
payment date, multiplied by
(ii) the Performance Percentage achieved during such
Performance Period.
The Committee may, in its discretion, determine that cash be paid in lieu of
some or all of such Shares. The amount of cash payable in lieu of a Share shall
be determined by valuing such Share at its Fair Market Value on the business day
immediately preceding the date such cash is to be paid. Payments pursuant to
this Section 8 shall be made as soon as administratively practical after the end
of the applicable Performance Period. Any Performance Shares with respect to
which the performance goals shall not have been achieved by the end of the
applicable Performance Period shall expire.
9. Loans. The Committee may in its discretion allow a Grantee to defer
payment to the Company of all or any portion of (a) the Option Price of an
option, (b) the purchase price of Restricted Shares, or (c) any taxes associated
with the exercise, nonforfeitability of, or payment of benefits in connection
7
with, an Award. Any such payment deferral by the Company shall be on such terms
and conditions as the Committee may determine, except that a Grantee shall not
be entitled to defer the payment of such Option Price, purchase price, or any
related taxes unless the Grantee (a) enters into a binding obligation to pay the
deferred amount and (b) other than with respect to treasury shares, pays upon
exercise of an option or grant of Restricted Shares, as applicable, an amount at
least equal to the Minimum Consideration therefor. If the Committee has
permitted a payment deferral in accordance with this Section 9, then the
Committee may require the immediate payment of such deferred amount upon the
Grantee's termination of employment or if the Grantee sells or otherwise
transfers his or her Shares purchased pursuant to such deferral. The Committee
may at any time in its discretion forgive the repayment of any or all of the
principal of, or interest on, any such deferred payment obligation.
10. Notification under Section 83(b). If the Grantee, in connection
with the exercise of any option or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company, in writing, of such
election within ten (10) days after filing the notice of the election with the
Internal Revenue Service, in addition to any filing and notification required
pursuant to regulations issued under Section 83(b) of the Code. The Committee
may, in connection with the grant of an Award or at any time thereafter,
prohibit a Grantee from making the election described in this Section 10.
11. Mandatory Tax Withholding.
(a) Whenever under the Plan, Shares are to be delivered upon
exercise or payment of an Award or upon Restricted Shares becoming
nonforfeitable, or any other event with respect to rights and benefits
hereunder, the Company shall be entitled to require (i) that the Grantee remit
an amount in cash, or in the Company's discretion, Mature Shares or any other
form of consideration, sufficient to satisfy all federal, state and local tax
withholding requirements related thereto ("Required Withholding"), (ii) the
withholding of such Required Withholding from compensation otherwise due to the
Grantee or from any Shares due to the Grantee under the Plan, or (iii) any
combination of the foregoing.
(b) Any Grantee who makes a Disqualifying Disposition or an
election under Section 83(b) of the Code shall remit to the Company an amount
sufficient to satisfy all resulting Required Withholding, except that in lieu of
or in addition to the foregoing, the Company shall have the right to withhold
such Required Withholding from compensation otherwise due to the Grantee or from
any Shares or other payment due to the Grantee under the Plan.
(c) Any surrender by a Section 16 Grantee of previously owned
shares of Common Stock to satisfy tax withholding arising upon exercise of the
Award must comply with the applicable provisions of Rule 16b-3(e) under the 1934
Act.
12. Elective Share Withholding. At the Company's discretion, a Grantee
may, with the prior consent of the Committee, elect the withholding by the
Company of a portion of the Shares otherwise deliverable to such Grantee upon
the exercise of an Award or upon Restricted Shares becoming nonforfeitable
(each, a "Taxable Event") having a Fair Market Value equal to the minimum amount
necessary to satisfy the Required Withholding liability attributable to the
Taxable Event.
8
13. Termination of Employment.
(a) For Cause. Except as otherwise provided by the Committee
in an Award Agreement, if a Grantee's employment is terminated for Cause, (i)
the Grantee's Restricted Shares (and any SARs identified therewith) that are
then forfeitable shall on the date of the Grantee's termination of employment be
forfeited on such date, subject to the provisions of Section 6(f)(iii) regarding
repayment of certain amounts to the Grantee; and (ii) any unexercised option,
SAR or Performance Share shall terminate effective immediately upon such
termination of employment.
(b) On Account of Death. Except as otherwise provided by the
Committee in the Award Agreement, if a Grantee's employment terminates on
account of death, then:
(i) the Grantee's Restricted Shares (and any SARs
identified therewith) that are then forfeitable shall on the date of
the Grantee's termination of employment be forfeited on such date;
(ii) any unexercised option or SAR, to the extent
exercisable on the date of such termination of employment, may be
exercised, in whole or in part, within the first twelve (12) months
after such termination of employment (but only during the Option Term)
after the death of the Grantee by (A) his or her personal
representative or by the person to whom the option or SAR, as
applicable, is transferred by will or the applicable laws of descent
and distribution, (B) the Grantee's designated beneficiary, or (C) a
Permitted Transferee; and
(iii) any unexercised Performance Shares may be
exercised in whole or in part, at any time within six (6) months after
such termination of employment on account of the death of the Grantee,
by (A) his or her personal representative or by the person to whom the
Performance Shares are transferred by will or the applicable laws of
descent and distribution, (B) the Grantee's designated beneficiary, or
(C) a Permitted Transferee, except that the benefit payable with
respect to any Performance Shares for which the Performance Period has
not ended as of the date of such termination of employment on account
of death shall be equal to the product of Fair Market Value of such
Performance Shares multiplied successively by each of the following:
(A) a fraction, the numerator of which is
the number of months (including as a whole month any partial
month) that has elapsed since the beginning of such
Performance Period until the date of such termination of
employment and the denominator of which is the number of
months (including as a whole month any partial month) in the
Performance Period; and
(B) a percentage determined in the
discretion of the Committee that would be earned under the
terms of the applicable Award Agreement assuming that the rate
at which the performance goals have been achieved as of the
date of such termination of employment would continue until
the end of the Performance Period, or, if the Committee elects
to compute the benefit after the end of the Performance
Period, the Performance Percentage, as determined by the
Committee, attained during the Performance Period for such
Performance Shares.
(c) On Account of Disability. Except as otherwise provided by
the Committee in the Award Agreement, if a Grantee's employment terminates on
account of Disability, then:
(i) the Grantee's Restricted Shares (and any SARs
identified therewith) that are then forfeitable shall on the date of
the Grantee's termination of employment be forfeited on such date;
9
(ii) any unexercised option or SAR, to the extent
exercisable on the date of such termination of employment, may be
exercised in whole or in part, within the first twelve (12) months
after such termination of employment (but only during the Option Term)
by the Grantee, or by (A) his or her personal representative or by the
person to whom the option or SAR, as applicable, is transferred by will
or the applicable laws of descent and distribution, (B) the Grantee's
designated beneficiary, or (C) a Permitted Transferee; and
(iii) any unexercised Performance Shares may be
exercised in whole or in part, at any time within six (6) months after
such termination of employment on account of Disability by the Grantee,
or by (A) his personal representative or by the person to whom the
Performance Shares are transferred by will or the applicable laws of
descent and distribution, (B) the Grantee's designated beneficiary, or
(C) a Permitted Transferee, except that the benefit payable with
respect to any Performance Shares for which the Performance Period has
not ended as of the date of such termination of employment on account
of Disability shall be equal to the product of the Fair Market Value of
the Performance Shares multiplied successively by each of the
following:
(A) a fraction, the numerator of
which is the number of months (including as a
whole month any partial month) that have elapsed since the
beginning of such Performance Period until the date of such
termination of employment and the denominator of which is the
number of months (including as a whole month any partial
month) in the Performance Period; and
(B) a percentage determined in the
discretion of the Committee that would be
earned under the terms of the applicable Award Agreement
assuming that the rate at which the performance goals have
been achieved as of the date of such termination of employment
would continue until the end of the Performance Period, or, if
the Committee elects to compute the benefit after the end of
the Performance Period, the Performance Percentage, as
determined by the Committee, attained during the Performance
Period for such Performance Shares.
(d) Any Reason Other Than For Cause Or On Account of Death or
Disability. Except as otherwise provided by the Committee in the Award
Agreement, if a Grantee's employment terminates for any reason other than for
Cause, or on account of death or Disability, then:
(i) the Grantee's Restricted Shares (and any SARs
identified therewith), that are then forfeitable shall on the date of
the Grantee's termination of employment be forfeited on such date;
(ii) any unexercised option or SAR (other than a SAR
identified with a Restricted Share or Performance Share), to the extent
exercisable immediately before the Grantee's termination of employment,
may be exercised in whole or in part, not later than three (3) months
after such termination of employment (but only during the Option Term);
and
(iii) the Grantee's Performance Shares (and any SARs
identified therewith) shall terminate effective immediately upon such
termination of employment.
14. Substituted Awards. If the Committee cancels any Award (whether
granted under the Plan or any plan of any entity acquired by the Company or a
Subsidiary), the Committee may, in its discretion, substitute a new Award
therefor upon such terms and conditions consistent with the Plan as the
Committee may determine, except that (a) the Option Price of any new option, and
the Strike Price of any new SAR, shall not be less than one hundred percent
(100%) (one hundred ten percent (110%) in the case of an incentive stock option
granted to a Ten Percent Owner) of the Fair Market Value of a Share on the date
of the grant of the new Award; and (b) the Grant Date of the new Award shall be
the date on which such new Award is granted.
10
15 Securities Law Matters.
(a) If the Committee deems necessary to comply with any
applicable securities law, the Committee may require a written investment intent
representation by the Grantee and may require that a restrictive legend be
affixed to certificates for Shares. If, based upon the advice of counsel to the
Company, the Committee determines that the exercise or nonforfeitability of, or
delivery of benefits pursuant to, any Award would violate any applicable
provision of (i) federal or state securities laws or (ii) the listing
requirements of any national exchange or national market system on which are
listed any of the Company's equity securities, then the Committee may postpone
any such exercise, nonforfeitability or delivery, as applicable, but the Company
shall use all reasonable efforts to cause such exercise, nonforfeitability or
delivery to comply with all such provisions at the earliest practicable date.
(b) Grants of options to Section 16 Grantees shall comply with
Rule 16b-3 and shall contain such additional conditions or restrictions as may
be required thereunder for such grants to qualify for exemption from liability
under Section 16(b) of the 1934 Act.
16. No Employment Rights. Neither the establishment of the Plan nor the
grant of any Award shall (a) give any Grantee the right to remain employed by
the Company or any Subsidiary or to any benefits not specifically provided by
the Plan or (b) modify the right of the Company or any Subsidiary to modify,
amend, or terminate the Plan or any other employee benefit plan or employment
agreement.
17. No Rights as a Shareholder. A Grantee shall not have any rights as
a shareholder of the Company with respect to the Shares (other than Restricted
Shares) which may be deliverable upon exercise or payment of an Award until such
Shares have been delivered to him or her. Restricted Shares, whether held by a
Grantee or in escrow by the Company, shall confer on the Grantee all rights of a
shareholder of the Company, except as otherwise provided in the Plan or
applicable Award Agreement.
18. Nature of Payments. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement,
profit-sharing, bonus, insurance or other employee benefit plan of the Company
or any Subsidiary or (b) any agreement between (i) the Company or any Subsidiary
and (ii) the Grantee, except as such plan or agreement shall otherwise expressly
provide.
19. Non-uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by the Committee selectively among
persons who receive, or are eligible to receive, Awards, whether or not such
persons are similarly situated. Without limiting the generality of the
foregoing, the Committee shall be entitled to enter into non-uniform and
selective Award Agreements as to (a) the identity of the Grantees, (b) the terms
and provisions of Awards, including, without limitation, vesting and manner of
payment of purchase price upon exercise, and (c) the treatment of terminations
of employment.
20. Adjustments. The Committee shall make equitable adjustment of:
(a) the aggregate number of Shares available under the Plan
for Awards and the aggregate number of Shares for which Awards may be granted to
any individual Grantee in any calendar year pursuant to the second sentence of
Section 2;
(b) the number of Shares, SARs or Performance Shares covered
by an Award; and
(c) the Option Price of all outstanding options and the Strike
Price of all outstanding SARs;
11
to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, spin-off, split-off,
reorganization, rights offering, liquidation or similar event of or by the
Company.
21. Amendment of the Plan. The Committee may from time to time, in its
discretion, amend the Plan without the approval of the Company's shareholders,
except (a) as such shareholder approval may be required under the listing
requirements of any securities exchange or national market system on which are
listed the Company's equity securities and (b) that the Committee may not
without the approval of the Company's shareholders amend the Plan to increase
the total number of shares reserved for the purposes of the Plan (other than in
accordance with Section 20).
22. Termination of the Plan. The Plan shall continue in effect until
the earlier of its termination by the Committee or the date on which all of the
shares of Common Stock available for issuance under the Plan have been issued
and all restrictions on such shares under the terms of the Plan and the
agreements evidencing Awards granted under the Plan have lapsed. However, all
Awards shall be granted, if at all, within ten (10) years from the earlier of
the date the Plan is adopted by the Committee or the date the Plan is duly
approved by the shareholders of the Company. Notwithstanding the foregoing, if
the maximum number of shares of Common Stock issuable pursuant to the Plan has
been increased at any time, all Awards shall be granted, if at all, no later
than the last day preceding the ten (10) year anniversary of the earlier of (a)
the date on which the latest such increase in the maximum number of shares of
Common Stock issuable under the Plan was approved by the shareholders of the
Company or (b) the date such amendment was adopted by the Committee. No
termination shall affect any Award then outstanding under the Plan.
23. No Illegal Transactions. The Plan and all Awards granted pursuant
to it are subject to all applicable laws and regulations. Notwithstanding any
provision of the Plan or any Award, Grantees shall not be entitled to exercise,
or receive benefits under any Award, and the Company shall not be obligated to
deliver any Shares or deliver benefits to a Grantee, if such exercise or
delivery would constitute a violation by the Grantee or the Company of any
applicable law or regulation.
24. Constructive Sales. The Grantee shall not directly or indirectly,
through related parties or otherwise, "short" or "short against the box" (as
those terms are generally understood in the securities markets), or otherwise
directly or indirectly (through derivative instruments or otherwise) dispose of
or hedge, any securities of the Company issuable upon exercise of such Grantee's
Award(s).
25. Definitions. The terms set forth below have the indicated meanings
which are applicable to both the singular and plural forms thereof:
"Award" shall mean options, including ISOs, Restricted Shares,
Compensatory Shares, SARs or Performance Shares granted under the Plan.
"Award Agreement" shall mean the written agreement by which an
Award shall be evidenced.
"Board" shall mean the Board of Directors of the Company.
"Cause", with respect to any employee or consultant of the
Company shall have the meaning set forth in such person's employment or
consulting agreement or, in the absence of such an agreement or if such term is
not defined in such agreement, shall mean any one or more of the following, as
determined by the Committee (in the case of a Section 16 Grantee) or the Chief
Executive Officer or President of the Company (in the case of any other
Grantee):
(i) a Grantee's commission of a crime that is likely
to result in injury to the Company or a
Subsidiary;
12
(ii) the material violation by the Grantee of written
policies of the Company or a Subsidiary;
(iii) the habitual neglect by the Grantee in the
performance of his or her duties to the Company or a
Subsidiary; or
(iv) a Grantee's willful misconduct or inaction in
connection with his or her duties to the Company or a Subsidiary resulting in a
material injury to the Company or a Subsidiary.
"Code" shall mean the Internal Revenue Code of 1986, as
amended or superseded, and the regulations and rulings thereunder. Reference to
a particular section of the Code shall include references to successor
provisions.
"Committee" shall mean the committee of the Board appointed
pursuant to Section 3(a), or if not so appointed or unable to act or with
reference to Awards to Independent Directors, shall mean the entire Board.
"Common Stock" shall mean the common stock, $0.10 par value
per share, of the Company.
"Compensatory Shares" shall mean Shares that are awarded to a
Grantee without cost and without restrictions either as a bonus, in lieu of cash
compensation for services rendered to the Company or for any other compensatory
purpose.
"Consultant" shall mean any person, including a Director, who
is engaged by the Company or any Parent, Subsidiary or Affiliate thereof to
render services to or for the benefit of the Company and is compensated for such
services, including any member of the Advisory Board of the Company.
"Director" shall mean a member of the Board.
"Disability" shall mean a permanent and total disability,
within the meaning of Section 22(e)(3) of the Code.
"Effective Date" shall mean the date set forth in the first
paragraph hereof.
"Eligible Person" shall mean any Employee, Consultant or
Director of the Company or any Subsidiary, including any prospective Employee or
Employee on an approved leave of absence or layoff, if such leave or layoff does
not qualify as a Disability.
"Employee" shall mean any person treated as an employee
(including officers and directors) in the records of the Company (or Subsidiary)
and who is subject to the control and direction of the Company (or Subsidiary)
with regard to both the work to be performed and the manner and method of
performance. The payment of a director's fee by the Company (or Subsidiary) to a
Director shall not be sufficient to constitute "employment" of the Director by
the Company (or Subsidiary).
"Fair Market Value" per share of Common Stock on any relevant
date shall mean such value as determined in accordance with the following
provisions:
(i) If the Common Stock is at that time listed on a
national securities exchange, then the Fair Market Value shall mean the closing
selling price per share of Common Stock on the exchange on which such Common
Stock is principally traded on the relevant date or, if there were no sales on
that date, the closing selling price of such Common Stock on the last preceding
date on which there were sales.
13
(ii) If the Common Stock is at that time traded on
the Nasdaq National Market(R), Nasdaq Small Cap MarketSM or OTC Bulletin
Board(R), as the case may be, then the Fair Market Value shall mean the closing
selling price per share of Common Stock on the relevant date, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market(R), Nasdaq Small Cap MarketSM or OTC Bulletin Board(R), as the
case may be, or any successor system. If there is no closing selling price for
the Common Stock on the relevant date, then the Fair Market Value shall mean the
closing selling price on the last preceding date for which such quotation
exists.
(iii) If the Common Stock is neither listed on any
national securities exchange nor traded on the Nasdaq National Market(R), Nasdaq
Small Cap MarketSM or OTC Bulletin Board(R), then the Fair Market Value shall
mean that value determined by the Committee after taking into account such
factors as the Committee shall in good faith deem appropriate.
"Grant Date" shall have the meaning specified in Section 6(a).
"Grantee" shall mean a person who has been granted an Award or
any Permitted Transferee.
"ISO" shall mean an incentive stock option within the meaning
of Section 422 of the Code.
"Immediate Family" shall mean, with respect to a particular
Grantee, the Grantee's spouse, children and grandchildren.
"Independent Director" shall mean a member of the Board who in
not an Employee of the Company.
"Mature Shares" shall mean Shares for which the holder thereof
has good title, free and clear of all liens and encumbrances, and which such
holder has held for at least six (6) months.
"Minimum Consideration" shall mean par value per Share or such
other amount that is from time to time considered to be minimum consideration
under applicable law.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended. References to a particular section of the 1934 Act or rule thereunder,
include references to successor provisions.
"Option Price" shall mean the per share exercise price of an
option.
"Option Term" shall mean the period beginning on the Grant
Date of an option and ending on the expiration date of such option, as specified
in the Award Agreement for such option and as may, in the discretion of the
Committee and consistent with the provisions of the Plan, be extended from time
to time.
"Performance Shares" shall mean an Award to a Grantee pursuant
to Section 6(e).
"Permitted Transferee" shall mean a person to whom an Award
may be transferred or assigned in accordance with Section 7.
"Public Company" shall mean any entity issuing any class of
equity securities that has been, or is required to be, registered under Section
12 of the 1934 Act.
"Restricted Shares" shall mean Shares that are subject to
forfeiture if the Grantee does not satisfy the conditions specified in the Award
Agreement applicable to those Shares.
"Rule 16b-3" shall mean Rule 16b-3 of the SEC under the 1934
Act, as amended from time to time, together with any successor rule.
14
"SAR" shall mean a stock appreciation right.
"SEC" shall mean the Securities and Exchange Commission.
"Section 16 Grantee" shall mean a person who is subject to
potential liability under Section 16(b) of the 1934 Act with respect to
transactions involving equity securities of the Company.
"Share" shall mean a share of Common Stock.
"Strike Price" shall have the meaning specified in Section
6(d)(ii).
"Subsidiary" shall mean a subsidiary corporation, as defined
in Section 424(f) of the Code (with the Company being treated as the employer
corporation for purposes of this definition).
"Ten Percent Owner" shall mean a person who owns capital stock
(including stock treated as owned under Section 424(d) of the Code) possessing
more than ten percent of the total combined Voting Power of all classes of
capital stock of the Company or any Subsidiary.
"Voting Power" shall mean the combined voting power of the
then-outstanding securities of the Company entitled to vote generally in the
election of directors.
26. Controlling Law. The law of the State of New York, except its law
with respect to choice of law, shall control all matters relating to the Plan.
27. Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will given effect to the terms of such Section to
the fullest extent possible while remaining lawful and valid.
15
REVOCABLE PROXY
eLEC COMMUNICATIONS CORP.
This Proxy is solicited on Behalf of the Board of Directors
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
The undersigned hereby appoint(s) Paul H. Riss and Greg M. Cooper, or
either of them, lawful attorneys and proxies of the undersigned with full power
of substitution, for and in the name, place and stead of the undersigned to
attend the Annual Meeting of Shareholders of eLEC Communications Corp. (the
"Company") to be held at 75 South Broadway, Suite 302, White Plains, New York
10601 on Wednesday, June 15, 2005 at 10:00 a.m., local time, and any
adjournment(s) or postponement(s) thereof, with all powers the undersigned would
possess if personally present and to vote the number of votes the undersigned
would be entitled to vote if personally present.
The Board of Directors recommends a vote "FOR" the proposals set forth
below.
PROPOSAL 1:
For With- For all
hold Except
|_| |_| |_|
The Election of Directors:
Paul H. Riss, Greg M. Cooper, Michael H. Khalilian and Gayle Greer
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
-------------------------------------------------
PROPOSAL 2:
For Against Abstain
|_| |_| |_|
2004 Equity Incentive Plan:
Proposal to approve the adoption of the 2004 Equity Incentive Plan of the
Company.
PROPOSAL 3:
For Against Abstain
|_| |_| |_|
Independent Auditors:
Ratification of the appointment of Nussbaum Yates & Wolpow, P.C. as the
independent auditors of the Company for the fiscal year ending November 30,
2005.
In accordance with their discretion, said Attorneys and Proxies are
authorized to vote upon such other matters or proposals not known at the time of
solicitation of this proxy which may properly come before the meeting.
This proxy when properly executed will be voted in the manner described
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for the Proposals set forth herein. Any prior proxy authorized by the
undersigned is hereby revoked.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the related Proxy Statement dated April 25, 2005.
--------------------
Please be sure to sign and date Date
this Proxy in the box below. --------------------
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Shareholder sign above Co-holder (if any) sign above
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eLEC COMMUNICATIONS CORP.
Please sign exactly as your name appears on this proxy card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or corporation, please sign in full corporate name by
president or other authorized person. If a partnership, please sign in
partnership name by authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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